In this issue, more on poverty and the scarcity mentality, jails versus schools, the GDP metric, IT layoffs for H-1B visas, and a social investor hates on nonprofits.
Let's start with this cartoon from Politico's Matt Wuerker:
Scarcity scholar Sendhil Mullainathan is back in this Harvard Magazine piece looking at the origins of his work on how poverty how leads to a scarcity mentality:
Typically, he explains, when the poor remain stuck in the grip of poverty, policymakers tend to ask what’s wrong with them, pointing to a lack of personal motivation or ability. Rarely, he continues, do we as policymakers ask, “What is it about this situation that is enabling this failure?”
...It’s natural to look at the intended clients and blame a lack of personal responsibility, the authors explain. But, as Mullainathan and Shafir have shown through their own work, all individuals stuck in a cycle of scarcity will inevitably find themselves plagued with similar slips in performance; focus often suffers, long-term planning gives way to immediate financial fire-fighting, follow-through on commitments often becomes sporadic.
Earlier this month, David Brooks discussed poverty earlier this month following the unrest in Baltimore:
The problem is not lack of attention, and it’s not mainly lack of money. Since 1980 federal antipoverty spending has exploded. As Robert Samuelson of The Washington Post has pointed out, in 2013 the federal government spent nearly $14,000 per poor person. If you simply took that money and handed it to the poor, a family of four would have a household income roughly twice the poverty rate...
It is wrong to say federal efforts to tackle poverty have been a failure. The $15 trillion spent by the government over the past half-century has improved living standards and eased burdens for millions of poor people. But all that money and all those experiments have not integrated people who live in areas of concentrated poverty into the mainstream economy. Often, the money has served as a cushion, not a ladder.
Saying we should just spend more doesn’t really cut it. What’s needed is a phase shift in how we think about poverty. Renewal efforts in Sandtown-Winchester prioritized bricks and mortar. But the real barriers to mobility are matters of social psychology, the quality of relationships in a home and a neighborhood that either encourage or discourage responsibility, future-oriented thinking, and practical ambition.
You may also be interested in this interview with The Wire writer David Simon on policing in Baltimore and the so-called drug war. "What the drug war did, though, was make this all a function of social control," he says. "This was simply about keeping the poor down, and that war footing has been an excuse for everybody to operate outside the realm of procedure and law."
Meanwhile, Demos' Matt Bruenig was on hand to take Brooks to task for using poor metrics in his $14,000 per person calculation:
The way this metric works is you add up all the anti-poverty spending (which isn't actually all the anti-poverty spending because it excludes the major anti-poverty behemoth Social Security) and then you divide it by the number of people who are still poor. This means that if I spend $1 trillion to bring the number of poor people down from 45 million people to 2 people, the per-poor-person metric says that I am spending $500 billion per poor person ($1 trillion divided by 2) to fight poverty. What a waste, right? We could just cut those 2 poor people $500 billion checks and eradicate poverty, right?!
The per-poor-person metric perversely penalizes anti-poverty success. As your anti-poverty efforts pull more and more people out of poverty, the spending-per-poor-person metric goes higher and higher, not because spending is going up, but because the number of poor people is going down. It is truly the most unenlightening metric imaginable, though it obviously serves certain ideological ends quite neatly...
A better way to go about quantifying and contextualizing the amount of effort the US puts into cutting poverty is to compare it to other countries. This is actually easier to do than you might imagine.
(P.S. Your editor gives extra points for chart snark.)
And speaking of GDP measures, Edward Hadas in Reuters discusses whether it truly is a proxy for economic development:
At the top of the national income ladder, GDP is close to useless as a measure of true prosperity. The majority of residents already consume ample quantities of most of what GDP includes. They are generally more interested in something that it measures badly, the quality of life. They may also want a more just economy, a domain that GDP does not even touch.
The limits to GDP in rich countries show up in a popular but pointless pastime, comparing average levels across countries.
In your editor's hometown of Philadelphia is this fight over funding for a new prison in a city that this year alone closed 24 schools, reports Philly Magazine. Of course, the state of Maryland approved $30 million for a new youth jail, reports the Baltimore Sun. Because you know, priorities.
Just Say No to Low Wages
Over at the Economic Policy Institute, Elise Gould, Alyssa Davis, and Will Kimball in a new report say that raising wages is the best way to fight poverty:
Had wages grown in tandem with productivity over 1979–2013 and if the economy were at full employment, the non-elderly market-based poverty rate (i.e., the poverty rate for Americans under age 65 before safety-net supports are taken into account) would be 4.2 percentage points lower. This means that 11.2 million fewer people would be in poverty. These simulations show that increasing inequality, stagnant wages, and chronic shortfalls in labor demand have come at a serious cost to poverty-reduction efforts. Indeed, the economy’s failure to deliver gains to low-wage workers in recent decades means that the tax-and-transfer system is responsible for all of the progress made in poverty reduction since 1967.
So what separates the depressed employment that occurred in 2007 and the CBO’s assessment of the Obama minimum wage plan from arguments by economists that the minimum wage doesn’t completely screw over employers? The obvious answer is time: The 2007 minimum wage hike and the Obama $10.10 proposal were designed for a two-year implementation, while wages in Seattle and Los Angeles won’t reach $15 an hour until 2020. That’s plenty of leeway to give employers time to build out the “channels for adjustment” that Reich identifies as so important for businesses to absorb costs: reductions in labor turnover, improvements in organizational efficiency; reductions in wages of higher earners, and small price increases.
There’s also the argument that America’s ongoing recovery will help create enough jobs to compensate for any losses by businesses that simply can’t adapt.
Over at the Washington Post, Robert Samuelson argues that calling current economic conditions a low-wage recovery is misleading and "the split between high- and low-paying jobs — hasn’t changed much since the recession or, indeed, the turn of the century":
And then of course there is wage abuse where employers simply do not pay what they are supposed to, which "runs deep in the construction and restaurant worlds" and for which employees often find little relief via lawsuits, reports the NYT's Jim Dwyer.
Before we let the sky fall over robots stealing our jobs (as if!), let's hear from author Nicholas Carr on why people will always be needed and may be more than you think:
Many disasters blamed on human error actually involve chains of events that are initiated or aggravated by technological failures. Consider the 2009 crash of Air France Flight 447 as it flew from Rio de Janeiro to Paris. The plane’s airspeed sensors iced over. Without the velocity data, the autopilot couldn’t perform its calculations. It shut down, abruptly shifting control to the pilots. Investigators later found that the aviators appeared to be taken by surprise in a stressful situation and made mistakes. The plane, with 228 passengers, plunged into the Atlantic.
The crash was a tragic example of what scholars call the automation paradox. Software designed to eliminate human error sometimes makes human error more likely. When a computer takes over a job, the workers are left with little to do. Their attention drifts. Their skills, lacking exercise, atrophy. Then, when the computer fails, the humans flounder.
Speaking of not needing people, some IT workers in California, around 500, have been pushed out and replaced with H-1B visa holders, reports Computerworld. This is a trend as companies such as Disney also follow suit and InfoWorld's Bill Snyder argues companies are abusing the program -- which is intended to fill spots when no one else in the U.S.labor market is available--to cut labor costs.
You might also be interested in how large companies such as IBM are taking advantage of state tax credits issued in hopes of improved employment, and then making large layoffs just a few years later, reports Bloomberg.
Dazed and Confused Social Investing Crowd
In the Standford Social Innovation Review, B-Corps Bill Klein looks at whether nonprofits are "getting in the way of the social change":
Many charities are mired in an old approach to social change that is also reflected in how they raise funds. Competition for funding with “no strings attached” is fierce at a time when donors are expecting more collaboration. When asked recently about how the nonprofit model needs to change, Sir Richard Branson, founder of the Virgin Group said categorically, “More collaborative efforts. We need the collective efforts of countries and companies to step up and play their part—setting strong goals, having clear plans, and openly demonstrating progress."
Today’s funders want social change organizations to do whatever it takes to get the biggest results at the lowest cost in the shortest period of time...
Nonprofits are losing their monopoly as the most effective agents of social change. Unless they evolve, corporations, B Corps, and social enterprises that are just as committed to solving social problems and perhaps better able to make a difference will eclipse them.
(Your editor has to note extreme objections and crankiness to this sentiment. )
Over at Shelter Force, Occidental College's Peter Dreier argues place-based initiatives may not be effective against fighting poverty:
The community development movement began in the 1960s as part of a crusade against social injustice, racial discrimination, and poverty. But in recent years it has fallen into the trap of focusing on revitalizing low-income neighborhoods, without challenging the corporate and political forces that create economic inequality and widespread poverty. This narrow focus reflects the priorities of most foundations, which community development practitioners depend on for funding. The foundation world is filled with progressive staffers who sincerely want to improve the lives of the poor, but they are stuck in an ideological straightjacket that limits their effectiveness. Their myopic view of poverty is reflected in a new report, Place-Based Initiatives in the Context of Public Policy and Markets: Moving to Higher Ground, sponsored by the Center of Philanthropy and Public Policy at the University of Southern California.
The report is a good example of the philanthropic world’s misguided views about poverty, which unfortunately also dominate the academic and community development worlds. Their discussions about the “urban crisis” and what to do about “ghetto poverty” miss the larger picture of economic inequality and the concentration of income, wealth, and political power. Their thinking focuses solely on the poor and not the super-rich, and on geographic places rather than on the larger economic system in which those places are embedded. High-poverty places are part of a system of economic segregation that has resulted from business practices and government policies that embrace free-market ideas. The USC report gives lip service to the problem of widening inequality, but the prescriptions avoid any challenge to this systemic reality.
You might also be interested in this report in the Chronicle of Philanthropy on impact investing by foundations, which find that of those that do it mostly amounts to a 2% carve out and "about 86 percent of the CEOs said financial return was a key investing consideration for their foundations, and more than three-fourths of respondents said that returns on their foundations’ impact investments are lower than returns on other investments."
And now some interesting news. Lips are wagging about Brazil's first social impact fund, which may get the Vatican as an investor:
The capital provided by the Oblate International Pastoral Investment Trust is its initial investment in a Brazilian impact fund. The amount, about $7 million, may seem small, but it reflects the growing interest in the sector by Catholic groups worldwide. And for the Catholic Church, the concept seems to dovetail with Pope Francis’ focus on addressing inequality.