White workers weathered Great Recession twice as nice as workers of color


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workers of color
Click on the image to read the report.

As bad as the unemployment crisis in Rhode Island was for white workers, it was nearly twice as severe for workers of color.

A new report from the Economic Progress Institute shows that black and Latino workers were unemployed at almost twice the rate of white workers from 2007 to 2014. “The takeaway here is that the worst unemployment situation White workers face is better than nearly the best unemployment situation that Black and Latino workers face,” reads the report.

“The significantly higher rates of unemployment for Latino and Black Rhode Islanders and lower wages for these communities and Southeast Asians – should set off alarm bells for business leaders and policy makers,” said EPI Executive Director Rachel Flum in a press release.

The white unemployment rate topped out at 9.7 percent in 2009, while the black unemployment rate was 17.7 percent that same year and maxed out at 18.1 percent in 2011. The Latino unemployment was even worse with a high of 21.7 percent in 2010 and hovering around a fifth of all working Latinos in Rhode Island from 2009 to 2013.

All three ethnicity’s unemployment rates dropped significantly in 2014, but at 16.2 percent the unemployment rate for Rhode Island Latinos was not only the highest in the nation but also “more than double the national Latino unemployment rate of 7.4%,” according to the EPI.

“This report underscores the need for Rhode Island to pivot towards the worker,” said Anna Cano-Morales, director of the Latino Policy Institute at Roger Williams University, in the press release. “When we do that, we not only maximize our economic potential but we also fully value all Rhode Islanders.”

Best wishes Tom Sgouros, new adviser to Seth Magaziner


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tom-headshot-thumbIt’s always gratifying when one of the best and most deserving folk actually get a position in government where they can make a powerful difference. We recently learned that RI Future contributor Tom Sgouros has been appointed as senior policy adviser to Seth Magaziner, the new treasurer of Rhode Island.

Tom was himself a candidate for the office of treasurer in 2010 but dropped out early in the race that Gina Raimondo would go on to win. He is known for his incisive, well-researched and often sarcastic insights into the economics and policies of Rhode Island.

In addition to writing for RI Future, Tom recently started — and will suspend — an excellent column in the Providence Journal. Which is a shame, but a fair tradeoff for honesty and transparency in government.

Tom’s most recent book, Checking the Banks is subtitled “The Nuts and Bolts of Banking for People Who Want to Fix It”, so it looks like they’ve picked the right person for the right job.

sgouros book ad
“This is a marvelous book! Well-written—even enjoyable to read—about local banking! ” — Gar Alperovitz, author of What Then Must We Do?

In the book, Tom goes into great detail about what’s wrong with the banking system, like the mortgage crisis, lack of loans to small businesses, and predatory practices. He also offers alternatives, solutions and possibilities for change.

We hope that Tom and Treasurer Magaziner will create bold initiatives to make banking more innovative. Maybe we can start our own state bank, and save taxpayers millions while priming the local economy’s pump…

At the beginning of the session everything is possible. Now the hard work begins.

(DISCLAIMER: As the editor and publisher of two of Tom’s best books, this article is 100% biased and slanted.)

What’s wrong with supply-side economics


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supply-side economicsWhile zipping through Netflix the other night, I came across a movie about bootleggers–that I wouldn‘t really recommend. As I watched, however, something became very clear.

Demand.

Supply-side economists have this totally absurd notion that supply will create its own demand. That has to be one of the stupidest things I have ever heard. Why are there no Wal-Mart’s in the Yukon territory? Why did buggy-whip manufacturers go belly-up after the auto-mobile became popular? Why are there no stores that sell only items related to Reformation Theology?

Seems like a Wal-Mart should be enough of an attraction to create its own demand. Right?

Seems like a plentiful supply of quality buggy-whips should have enough appeal to create its own demand. Right?

And lots of books and pictures of Thomas Cramner, well, obviously, this is a supply that has to create its own demand. Right?

But then you have Prohibition. What happened there? Supply disappeared, at least in theory. So demand collapsed, because nothing is ever driven by demand. Right?

Except just the opposite happened. Demand created the supply. Just like illegal drugs. With sufficient demand, someone, and even lots of someones, will take great risks to produce a supply.

And yet, star-level economists, especially at the U Chicago insist that demand has no role in economic performance. Cut taxes, cut regulations, free the supply side and demand will follow. It HAS to! Our theory says it will! So it will be so!

Stop me if you’ve heard this one: my grandfather lived through the Depression. He had a line that held more wisdom than all of the collected works of the U Chicago school. My granddaddy had no illusions about “Good Old Days”, when it was all simpler. His line was “Sure, a loaf of bread only cost a nickel. But what the hell. You didn’t have a nickel.”

And there you have it. No matter how cheap a thing, people won’t buy it if a) they don’t want it (see Whips, Buggy above); or b) they don’t have any money.

Which leads to the current state of the economy. Five full years after the crash, a lot of people still don’t have jobs. Or, if they do, they are low-level service jobs that pay between minimum and maybe $10/per hour. $10 per hour grosses just shy of $21k per year. Can you rent for $400 per month? Can you keep a car on the road for $400 per month? Maybe that will cover gas, but you also MUST factor repairs and routine maintenance into that. Can you eat decently on $400 per month? And that means, you know, fresh fruits and veggies. Yes, you can get by on boxed mac-and-cheese, but that takes a horrible toll on your body. So we’re down to something like $500 per month discretionary. (Taking a month as 4.3 weeks). Not saying that’s not enough to get by on. It is. I know because I’ve done it (adjusting for inflation). But let me tell you, don’t plan on buying much.

And there, exactly, is the rub. I get so sick of people who say that employers have the right and the obligation to drive wages into the ground. And then say that workers should be thrilled to have any job,at any wage, no matter how pathetically low. Have to free up the job creators!

But what good does that do? Job creators are more free now than they have been in generations. They’re making huge profits. They’re sitting on piles and piles of money. So, they’re free*. Why don’t they create jobs? Or why don’t they create jobs that pay people a decent wage? Why is there a need to stockpile even more money?
Look, Henry Ford was a Nazi sympathizer. That is not a slur. It’s an historical fact. Go read anything about him and you will find out that he was so virulently anti-communist that he thought the Nazi government was a good thing, at least before the onset of WWII and the Final Solution. He figured out that it was a good idea to pay workers more than starvation wages. He realized that by paying his workers a good wage, he was creating customers.

In other words, he was creating demand for his products. In other words, paying workers more, and making a smaller profit, was in his best self-interest.

We are primed for a terrific natural economic experiment. Massachusetts is going to raise its minimum wage, gradually, to $11 per hour by 2017. The first increase is to $9/hour as of 1/1/15. Since Mass and RI currently have the same minimum wage, this means that millions of jobs will be fleeing from Mass, crossing the border into RI to take advantage of the lower wage. And it means that Mass will be plunged into economic darkness and decay because, everyone knows that a higher–and increasing—minimum wage will cost millions f jobs. By 2018, Mass will look like Detroit on a grand scale.

Everyone knows this. Just like everyone knows that millions of Rhode Islanders have fled to low-tax places like North Dakota and Wyoming. Because that’s what Econ 101 says.

Well, maybe those people should have stuck around for Econ 201, or 301. Maybe they’d have learned there’s more to the story.

And: assuming that my “predictions” don’t come true, and that the economy in Mass actually improves, I will expect a personal apology from every single person who says I’m wrong.

Because, fact of the matter, a higher minimum wage will stimulate demand. People will have money. They will buy more. That means companies will hire more people. And the virtuous cycle continues. If you want proof of this, cross the border into Canada, where the minimum wage is currently $11./hour. And then cross back. It’s like going from a First World country into a Third World country. When you cross back into the US, that is.

And if you don’t believe me, how about this guy?

Insuring unemployment ensures unemployment


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Unemployment LineIt is outrageous to have millionaires collecting unemployment insurance payments, according to a Golocal article in which I am quoted. Maybe Golocal is on to something?

Certainly their employer paid a premium to be insured against a layoff, but it’s also unlikely that they are actually in as dire a need for the assistance as someone who has been laid off from a lower-paid job. But the real problem with UI is the I. That is, unemployment is structured as an insurance program: your employer pays a premium and when unemployment happens, you can make a claim. Why is that a problem?

In structure, it’s just like property and casualty insurance. You pay a premium, and if your house burns down, you can make a claim to the insurance company. The difference is that only criminals incorporate burning down houses into their business strategy, while layoffs have become an accepted part of corporate management in the United States.

These days, my knees can only be counted on to remind me how old I am, but another way that I feel old sometimes is that I remember when layoffs were considered big news. In those days, permanent layoffs and factory closings were unusual events, not so unlike floods and lightning strikes, reasonable things to insure against. The problem is that when layoffs become common — when the health of the communities and workers who made a company successful ceased to be a part of managements’ concerns — the insurance structure of the unemployment program becomes less sustainable. (In fact, layoffs that are common now were actually illegal within my memory, but that’s a different, though equally maddening, part of the story.) Worse than unsustainable, it can become farcical when a company helping to cause the problem has the temerity to complain about it.

This came to my attention years ago, when Cranston Print Works complained to the General Assembly that it paid $500 per employee for UI in Rhode Island, but only $20 per employee in North Carolina. Quoting from a letter I wrote in 1996:

Dell [at the NC Labor Dept] speculated that the Cranston Print Works unemployment tax rate differential cited… was due not only to the difference in tax rates, but also to the fact that, over the past decade or so, as production has moved from here to there, Cranston has been laying people off here in RI and hiring them in NC. Since a company’s unemployment tax rate is largely dependent on how many people they’ve laid off, this would obviously make their rate much lower in NC than here. The whole thing becomes something of a self-fulfilling prophecy for businesses: they move to NC to lower costs, but by moving (hiring in NC, laying off in RI), they make the costs higher for their remaining divisions, and for those companies who stay. [emphasis added]

What has happened around here over the last few decades is that the companies who fled early have actually increased the costs borne by the companies who have not. This is true not only in unemployment insurance, but in a host of other ways. Fewer companies sharing the costs of infrastructure investment means higher electricity distribution costs for each individual company, parts distributors have fewer customers so the margins they charge have to go up, and the costs of other government expenses, like roads, water, and education, find fewer companies to share the costs, too. Costs go up for the companies who remain, who then complain that high costs force them to move, too. It’s not always as ironic as when the same company is doing both the moving and the complaining, but it’s the same dynamic.

What have we done to address this problem? Pretty much nothing, except where we’ve made it worse, by reallocating some of those burdens in disregard of a company’s ability to pay. Not only do we have a failure of policy to contend with, but we have a failure of policy development. You hear routine complaints about business costs in Rhode Island, but when has the analysis ever led to anything more substantive than just more tax cuts? The Assembly leaders who make economic development policy in our state seem to have only that single play in their playbook and they keep running it, hoping against hope for a different outcome each time. What I hear from the statehouse is that there is plenty of talk about further tax cuts this year, despite the anticipated budget shortfalls.

Rereading that old letter seems a little bit sad with 18 more years of perspective:

There are dozens of creative and exciting economic development ideas that are proven to work by virtue of the fact they exist in other states, and are working there…The only special thing about the conditions here in Rhode Island is the lack of leadership and vision and commitment–from the Assembly, from the EDC, from the Governor–that are necessary to make them work. This means money, but not necessarily extravagance. Yes, the budget is tight, but as long as we simply complain that the pie is shrinking and there’s nothing we can do about these great ideas, there will continue to be less and less money with which to do anything. This is the great death spiral we’re in, and the tragedy is that no one seems to feel it important to resist.

Why state unemployment doesn’t matter as much as you think


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white collar blue collarEveryone knows that Rhode Island has the highest unemployment rate in the nation, right?  After a few years of lagging Michigan and sometimes Nevada, we are now the nation’s leaders, despite the rate having ticked down slightly last month.

But consider this: what do you learn by comparing a tiny state like ours to relatively gargantuan states like Michigan and Nevada?  Is that comparison useful?  Huge parts of Nevada are desert; huge parts of Michigan are farms; there are no huge parts of Rhode Island. Could that be relevant to the three states’ economies?

Comparing states to each other is a decent way to get a handle on differing state policies, but do we think that state policies are at the heart of our high unemployment rate?  Are there no other differences you can think of between, say, Texas and Rhode Island?  I believe our state’s policies certainly contribute to our economic condition, but sometimes another analysis can be revealing, too.

I looked last week at the unemployment rates for metropolitan areas (“Metropolitan Statistical Area” or MSA), as defined by the Census Bureau, and learned that the Providence MSA (which includes what you think of as greater Providence, as well as stretching out to include Fall River) has unemployment of 9.7%, higher than the statewide rate. We rank 339 out of 372, a pretty dismal showing. But that’s not dead last, so I also learned that there are 32 MSAs in 11 different states that rank lower than ours, including New Bedford, at 11.1%, and bottoming out at Yuma, Arizona, at over 22%. And Westerly and Hopkinton are part of an MSA centered in Connecticut, and their rate is 7.9%, or number 268 on the list. Nothing to be proud of, but better than 104 other places.

Half of the MSAs in California are doing worse than we are, as are three out of five in New Jersey, and four out of 25 in Texas. But those states also contain some high-performing MSAs, so the devastating performance of some areas are washed out in the statewide averages. There are several one-party states in that mix — from both parties — as well as several with divided control of their governments. It seems to me that anyone who wants to claim that Rhode Island’s high unemployment rate is entirely due to state policy has the burden of explaining why we should adopt the tax and regulatory policies that have brought Brownsville, Texas to a 9.8% unemployment rate or Yuma to 22%.

A few years ago I did an analysis that suggested the structure of the labor market might be relevant. Nestled between two richer states, Rhode Island’s white-collar jobs pay comparable wages to those neighbors. Jobs like these are good jobs, for which you might commute a long way, or even move your home. For jobs like being a psychologist, computer programmer, architect, or lawyer, this is pretty much a single job market. An employer in Warwick looking to hire a staff attorney competes for a pool of attorneys who might easily take a job in New London, Attleboro, Sharon, or Boston.

It’s not like that for hiring a cashier in a convenience store. You wouldn’t commute to Boston to work in a deli, and so it turns out that while white-collar wages here are at least comparable to wages for similar jobs in Massachusetts and Connecticut, blue-collar jobs vary much more, and in fact pay much worse here in Rhode Island.

I made a couple of rankings of states based on a selection of job categories, and I learned that some areas ranked high on my white-collar job list and low on my blue-collar list, while in some it was the other way around. (Read more about them in my book, “Ten Things You Don’t Know About Rhode Island.” The table is below, but you’ll have to check out the book to get all the details.)

In truth, I have no idea why these rankings differ, though it is entertaining to speculate. I noticed, for example, that places with a long history of union manufacturing (Ohio, Pennsylvania) pay good blue-collar wages, even for non-manufacturing jobs, and places that are very attractive to live (Hawaii, Oregon) tend to pay relatively poor white-collar wages. Agricultural areas tend to pay poor blue-collar wages, even for non-agricultural jobs. Rhode Island, with high white-collar wages and very low blue-collar wages, is an anomaly in the Northeast, and belongs with the states of the South, Southwest, and California.

Here’s what else I notice: the places that pay the worst blue-collar wages dominate the high end of the unemployment ranking.

This seems counter-intuitive — why would lower wages mean higher unemployment? — but it also seems to be true. On closer examination, maybe it’s not so crazy. People at the low end of the income spectrum tend to spend the money they have because they have to. More money in those people’s hands means more money being spent, so it makes sense that an area with better-off low-wage workers will enjoy higher levels of economic activity. This is just speculation, but it is broadly consistent with the basic Keynesian model of the economy that dominates our economic discourse.

But we can go one step farther, too. If we want to bring state policy into the equation, it seems that the metropolitan areas with the highest unemployment are not only places with low blue-collar wages, but are often in states where taxes on the low end of the wage scale are relatively high. According to the Institute for Taxation and Economic Policy (ITEP), Texas, Arizona, Illinois, and New Jersey are all places where total state and local taxes on the poorest people approach or top 12%, just like here. In other words, these are largely places where poor people are paid badly and taxed at high rates, too.

ITEP tells us that state and local taxes on poor people in Rhode Island average 12.1% of their income, while for people in the top 1%, the average rate is 6.4%. The tax cuts for the rich that we have given year after year have not resulted in lower taxes all around. Rather what has happened is that the state simply shirked its responsibilities to education and local aid. The cities and towns took up the slack by raising their property taxes, which fall most heavily on those with the least ability to pay. Taking money away from people who are most likely to spend it is what you might call the opposite of economic stimulus, so it is little surprise that the result is what you might call the opposite of prosperity.

What could we do about this?  Pushing up the minimum wage would be a start. Cracking down on wage theft and the mis-classification of employees might help, too, as well as finally being honest about what we’ve been doing to our cities and towns.

Just something to think about when you read about the unemployment rate. As usual, it seems the things that everyone knows sometimes get in the way of understanding what’s going on.

White collar Blue collar
1 NJ 64,053 HI 33,363
2 CA 62,851 NJ 31,976
3 CT 61,435 CT 31,310
4 MA 61,282 AK 31,191
5 DC 60,176 MA 30,045
6 MD 60,074 WA 29,357
7 NV 60,060 IL 29,168
8 RI 59,720 DE 29,094
9 AK 59,492 DC 29,004
10 NY 59,198 NV 28,868
11 MI 58,588 CA 28,705
12 DE 56,932 NY 28,516
13 IL 55,684 PA 27,711
14 AZ 55,680 OR 27,560
15 VA 55,358 MI 27,369
16 GA 55,323 MN 26,989
17 HI 55,231 CO 26,900
18 CO 55,141 MD 26,848
19 NC 54,849 IN 26,777
20 TX 54,734 OH 26,724
21 OR 54,552 NH 26,406
22 PA 54,415 MO 26,152
23 TN 54,110 RI 25,994
24 WA 54,105 VA 25,913
25 MN 54,096 WI 25,903
26 WV 53,906 KS 25,728
27 OH 53,878 AZ 25,445
28 WI 53,769 TN 25,396
29 FL 53,269 IA 25,294
30 IN 52,910 GA 25,153
31 MO 52,649 WY 24,968
32 NH 52,622 VT 24,708
33 UT 52,536 NE 24,635
34 ID 52,128 ID 24,611
35 MS 51,840 SC 24,333
36 AL 51,311 UT 24,299
37 ME 51,104 MT 24,161
38 SD 50,725 ME 24,075
39 AR 50,489 LA 24,004
40 LA 49,971 NC 23,983
41 WY 49,790 KY 23,967
42 VT 49,734 SD 23,850
43 SC 49,478 ND 23,841
44 NM 49,132 OK 23,753
45 KY 48,838 TX 23,502
46 IA 48,564 FL 23,466
47 OK 48,361 WV 23,353
48 ND 48,171 NM 22,634
49 NE 48,039 AR 22,562
50 KS 47,308 AL 22,428
51 MT 46,128 MS 22,097

(Source: SalaryExpert.com, 2005 data, methodology described here)

David Cicilline wants to tell John Boehner your story


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cicillineIf you are an unemployed Rhode Islander, David Cicilline wants to tell House Speaker John Boehner and the rest of Congress your story.

Cicilline is collecting stories and photographs of unemployed Rhode Islanders as a way to put a human face on a bill to extend federal unemployment insurance that House Republicans are refusing to let come to a floor vote. The Senate bill, championed by Jack Reed and Republican Dean Heller of Nevada, passed with bipartisan support.

“It seems like in many ways unemployed individuals are just invisible to the Republican leadership,” Cicilline told me in a phone interview yesterday. His plan is to plaster the outside of his office with pictures of unemployed people.

“Every member of Congress will have to walk through the hallways and see the thousands of Americans who are suffering because of our failure to fix unemployment,” he told me. “We can’t continue to put our heads in the sand and pretend like this isn’t hurting real people.”

If you’ve got a story to tell, you can share it with Congressman Cicilline here. And please listen to our entire interview below, and check our our complete coverage of this bill (no real people though) here.

‘Rhode to Work’ plan is decent politics but bad policy


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rhodetoworkIn an effort to address Rhode Island’s unemployment rate, Senate leadership has announced a new workforce development plan, “Rhode to Work“, designed to address the skills gap. The skills gap is a labor market theory that posits that employers have job openings they can’t fill due to a lack of qualified applicants. This often goes hand-in-hand with rhetoric about building “tomorrow’s workforce” and our need to be competitive in the global economy.

There’s just one niggling little problem: there’s virtually no evidence that such a skills gap actually exists. Certainly not in Rhode Island, where six out of 10 of summer 2012’s job vacancies had either no education requirement or only a high school diploma or G.E.D.

I’ve talked about this before; specifically, UWM researcher Mark Price’s work debunking the skills gap in Milwaukee. Currently, for every 2 U.S. students who graduate with a science, technology, engineering, and mathematics (STEM) degree, only 1 gets a job; usually they cite that either they couldn’t find one or they could earn more in another industry. An article in the Institute of Electrical and Electronics Engineers’ Spectrum showed there were 11.4 million STEM-degree-holding workers employed in non-STEM fields in comparison to 277,000 STEM vacancies. Professor Peter Cappelli of the Wharton School’s Center for Human Resources concludes that there multiple issues at fault: refusal by employers to hire entry-level applicants, refusal by employers to provide on-the-job-training, overcomplicated job requirements, software that screens out potentially great matches for. For anecdotal evidence tied with data, there’s the manufacturing CEO who told New York Times writer Adam Davidson that he didn’t like workers with union experience and paid less than work in the fast food sector – not uncommon; Davidson says the Bureau of Labor Statistics’ data shows that skilled jobs have fallen off and their wages have fallen as well.

Perhaps you’ve noticed a trend there. Virtually all of the hiring issues are on the employer-side of the equation, not the applicant-side. That’s pretty much what a study from Illinois found. The researchers there suggest that there are four main reasons for advocating for the existence of a skills gap: it scapegoats job-seekers rather than business, it could be caused by employers parroting other employers in their sector from low-unemployment states, it increases the labor supply driving down wages, and it transfers the costs of training onto the state and off of the employer’s books.

“Rhode to Work” offers virtually no evidence of an existence a genuine skills gap. Instead, it cites this article from WPRI that used only two anecdotal pieces of evidence from employers, and never once offered data that concurred with their conclusions. Similarly, this article from The Providence Journal‘s John Kostrzewa made the rounds a few weeks ago, offering only employer-anecdotal evidence. Responding to that article, the far-right Current/Anchor’s Justin Katz reached pretty much the same conclusion as the above study (once you get past the moralizing); this is an attempt to socialize job training costs.

Let’s pause and say that job training isn’t bad. It’s perfectly fine for workers to be retrained or to learn new skills. It’s just that we need to make a couple things clear. First, job-training should be paid for by employers, who will benefit from it. And second, it is not a cure for Rhode Island’s unemployment issues. Once again, ostriches.

Rhetorically though, “Rhode to Work” (despite the tiresome wordplay) is a perfectly fine piece of politics. It’s hard to be against it unless you want to be seen advocating for keeping people ignorant (because that’s basically what the “skills gap” talk posits: Rhode Islanders are too stupid to do the work that’s available). And it’s an easy rallying point for supporters of dismantling the public education system; the exact same rhetoric is used, that creepy “building the workforce of tomorrow” language that’s supposed to inspire us to have our kids buckle down real hard for the tests that will decide their future. Also, it mainly focuses on a future workforce, rather than the one we’ve got (you know, the one in need of help). It’s good politics to focus economic policies on the future workforce, because it means during future boom times you can take credit for that success.

That refusal to deal with the problem at hand a real shame, because as we’ve previously pointed out, very few of Rhode Island’s policies are actually targeted at Rhode Islanders who actually need assistance. Maybe we can look to the House for better solutions. But I wouldn’t hold your breath.

A bit more on Rhode Island’s ostriches


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In my last post, I suggested that instead of dealing with actual problems, Rhode Island “leadership” prefers to either focus on distractions or bury their heads in the sand. One of the examples of issues I used was the long-term unemployment rate; which is usually defined as being out of work six-months or more. WPRI’s Ted Nesi yesterday pointed out the chart below, released by the U.S. Senate’s Joint Economic Committee (JEC) Democratic staff in support of Senate Dems’ push to extend unemployment insurance:

Long-term unemployment by state
(via Joint Economic Committee Democratic Staff)

As Nesi points out, RI proportionally has more long-term unemployed than any other state. If you drill down into the JEC Democratic staff’s numbers, what they show is that of our 9% unemployment rate (which is called the “U-3 unemployment rate” – that’ll be important later), 44% of those workers are long-term unemployed.

Why is that a problem? Well, there’s pretty clear evidence that employers don’t like to hire the long-term unemployed; at least according to a Boston Fed study released in October 2012. Not even a “can’t get an interview” situation, it’s a “won’t look at the application” situation. Unlike previous recessions, where when job vacancies rose both short-term and long-term unemployment fell the Great Recession has been different. An increase in job vacancies isn’t causing a decrease in long-term unemployment. So even when employers have openings, they aren’t filling them, despite the existence of candidates who are currently long-term unemployed.

Now, this might be the point where people start saying “well, there’s a skills gap, and we need more workforce development.” But March 2013 research from the University of Wisconsin Milwaukee demonstrates that, consistent with 40 years of jobs and training research, “workforce development” has little to no impact on workers and the “skills gap” is a mythological creature on par with Pegasus and the Questing Beast. The study quotes Anthony Carnevale of Georgetown University Center on Education and Workforce Development:

Training doesn’t create jobs. Jobs create training. And people get that backwards all the time. In the real world, down at the ground level, if there’s no demand for magic, there’s no demand for magicians.

As Matthew O’Brien of The Atlantic points out in the article linked above, the discrimination against the long-term unemployed is a vicious cycle which has the ability to permanently impoverish the country. Eventually, those 4.1% are going to burn their way through every family member, friend, and place of goodwill available. And they’ll end up homeless. Combine that with the structural deficit in the state budget, a likely loss in revenue from gambling once Massachusetts casinos start up, and a likely future economic crash due to failure on the part of the national government to reform our economy to prevent the abuses that caused the Great Recession… well, that means we’ll have a state even less capable of dealing with the crisis at hand.

Before I move on to our state’s “response” to this slow-motion crisis, I want to make a final point about the unemployment rate. If we really want to imagine what a healthy RI economy looks like, we have to look past the U-3 or “official” unemployment rate. According to the Bureau of Labor Statistics, Rhode Island’s U-6 unemployment rate for Q4 2012 through Q3 2013, which includes the total unemployed plus marginally attached worker (people who have given up looking for work in the past four weeks) plus people employed part time for economic reasons Rhode Island has a 15.8% unemployment/underemployment rate. While this means we are no longer the worst in the nation (5 states are equal to or above ours), it’s nowhere near the 8.3% we had just before the Great Recession hit.

So given that this is perhaps the greatest threat to our state’s economic well-being, what was the major economic package to come out of General Assembly and be signed by Governor Chafee? “Moving the Needle” which states the problem it intends to address in its first sentence: “In its annual ‘Top States for Business’ rankings, published on July 10, 2012, CNBC ranked Rhode Island 50th of 50 states on how appealing the state is to start or grow a business.”

Distractions. State leadership is more concerned with the subjective rankings given to it by a television station (which has as part of its goal, to entertain and make a profit) than the reality in front of it. That’s the reality where 4.1% of our labor force has been searching for work for six months or more. Where 9% of it is unemployed. Where 15.8% is either looking for work, discouraged or gave up looking for work, or taking a part time job until economic conditions improve. Let’s jump back to that Prof. Carnevale quote: “if there’s no demand for magic, there’s no demand for magicians.

That’s the problem in a nutshell. There is a demand problem in the state. If you’re unemployed or on a really tight budget, you can’t buy what business is selling. So it doesn’t matter too much what businesses Rhode Island can’t attract, because even if it can attract them (“competitiveness” between states is usually nothing more generous cash giveaways), there’s a weak customer base that can’t support them. Moving the Needle is just about getting us more magicians… or illusionists, I think is the synonym.

It’s that mindset that produced 38 Studios, a pie-in-the-sky dream of beaucoup bucks while kick-starting a tech industrial boom and hiring a bunch of Rhode Islanders. It’s utterly backwards. We need a Rhode Islanders First jobs program, that puts our actually existing (and struggling) citizens ahead of all the fantasies of start-ups and imaginary migrating businesses. We know we can’t rely on the federal government to provide one, so we’ll have to do this ourselves. If that’s a Rhode Island-style WPA/CCC type effort, so be it. If it means we pay people to fix our infrastructure, assist our nonprofits and even work in support of our businesses, that’s fine with me.

You can say that’s government picking winners and losers. I will too. I say it’s definitely government picking a winner. Rhode Island.

Senator Reed: looking forward to vote on extending unemployment benefits


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Screenshot-ReedSince the economic crash in 2008, Congress has offered extended unemployment benefits after state benefits run out. Last year, during the fiscal cliff negotiations, Republicans successfully cut off these extended benefits effective last week. But Senator Jack Reed has teamed up with Senator Dean Heller, a Republican from Nevada, to extend the program for another three months.

With a vote looming next week, Senator Jack Reed called into the RI Future newsroom today to speak to the politics behind the issue, as well as the economic and moral imperative to protecting the people out of work “through no fault of their own” from further financial harm.

You can listen to our full conversation here:

Wage Inequality


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inequalityWage inequality has been growing astronomically over the past 30 years. This is a fact. Anyone claiming otherwise is either ignorant or lying or both.

Can you tell I’m getting tired of having to “prove” stuff that is so obviously factual? Well, in case you couldn’t, I am tired of it.

In fact, even the winners in this zero-sum game have tacitly begun to admit that wage inequality is growing. For the last couple of years, the main counter-argument put out by the lackies of the very wealthy has become that, yes, inequality is growing, but it doesn’t matter.

That’s a lie, too.

Growing wage inequality was one of the primary causes of the collapse of 2007/8. It remains a primary cause of the ongoing Great Recession. Since the vast majority of wage earners were finding their salaries stagnant, if not shrinking, these same people had to rely on credit to finance many of their purchases in the so-called “Bush Boom” of the naughts. I say “so called” because, for the first time since the end of WWII, the median salary at the end of the “boom” did not reach the median salary at the end of the previous boom. That is, median salary in 2007 was lower than it was in 2000/01, before the mild recession that occurred at the end of the 1990s. This is stark proof that wages, for the vast majority of people who actually work for a living (as opposed to living off dividend income, or carried-interest) was not growing despite what Republicans were touting as a “booming economy”.

And spare me the morality play about the evils of credit, about how it shows a lack of moral fibre, how it demonstrates that people are too lazy, or too insistent upon immediate gratification, that they can’t wait and save to make purchases, blah, blah, blah.

Here’s a secret: Had people done this in the naughts, there wouldn’t have been enough demand to create even the wimp “Bush Boom”. The US would have remained mired in the recession that started in 2000 throughout Bush’s first term. I can say this with complete confidence because the only thing that fueled the expansion of the economy—such as it was—was that people were buying stuff on credit. This created the demand that created the expansion.

And demand is the key component. Corporations are swimming in money. They have so much money they can’t figure out where or how to spend it. More, they can borrow billions and billions of dollars at de facto negative interest rates. And yet, corporations are not spending money. If “supply-side” economics had any validity, businesses would be spending money like drunken sailors right now, and they would have been doing so for the past five years, ever since we hit the point of negative interest rates. Why haven’t they spent money? No, the answer is not the uncertainty of possible tax or regulatory changes. That is an absolute crock. If you actually read the business press (as opposed to listening to FOX News) you will realize that businesses are reluctant to spend because they do not believe there is sufficient demand for more products.

Demand. There you have it. The engine that truly drives economic expansion. My grandfather had a succinct way of describing conditions during the Great Depression: “Sure, a loaf of bread only cost a nickel. But what the hell, you didn’t have a nickel.”

In case anyone doesn’t get the point: it doesn’t matter how cheap things are because of a large supply. If people still don’t have the cash to buy stuff, it doesn’t get bought.  IOW, there is no demand.

Demand.

And that is what is holding up recovery as the Great Recession enters its fifth—or is it sixth?—year. Got that, people? Sixth year. Lehman Brothers collapsed in 2008, while G. W. Bush was still president. Before Obama had been elected, let alone before he had taken office. Got that? George Bush was president. Hank Paulson, former head of Goldman Sachs was Secretary of the Treasury. Not Obama, not Geithner (although he was President of the NY Fed at the time).

Inequality matters, people. It matters a lot. It keeps demand down. When demand is down, people lose jobs. When people lose jobs, demand drops further, and more people lose jobs. This is called a death spiral. It’s essentially the same phenomenon, but going in the opposite direction, of what caused the inflation of the 1970s. And no, cutting wages DOES NOT HELP. Cutting wages is the equivalent of throwing people out of work. Yes, perhaps fewer people will lose their jobs outright, but demand will still decrease. It may—or may not—take a little longer, but the same result is attained.

So the answer is that people need to make more money. But what is happening instead is that the wages of most people are being cut. It’s the time of the year when a lot of companies are doing compensation planning. For many big companies, this is now a very simple process. A few people, maybe ten percent of the corporation’s employees, will get nice raises, maybe 5%, probably more. The rest will get nothing.

That is, the rest of the employees will get a pay cut. Their pay will remain the same, but even 1-%-2% inflation will erode stagnant pay. The result is a de facto pay cut. The result is a further decrease in demand. Funny: Republicans scream about how tax increases will hurt the economy because they will take money out of people’s pockets. But a pay cut does exactly the same thing, and yet Republicans fall all over themselves to demand—DEMAND—pay cuts.

It’s enough to make you suspect that Republicans don’t care about the economy at all. All they care about is tax cuts. All they care about is making the wealthy even wealthier. Even if it means the rest of us slowly slip into  poverty.

This is because their wealthy corporate masters want tax cuts. So Republicans bow and scrape and say “Yes, Master” and move heaven and earth to give their masters what they want.

The rest of us can pound sand.

Rebuilding Rhode Island’s Economy, Part 1: Economic Development 101


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Unemployment LineI am of the mind that the biggest issue facing the state right now is the sluggish economy.  I know many share this belief.  With that in mind, I will be focusing my (unfortunately limited) time writing specifically on creative strategies to improve Providence’s and the state’s economy, and thinking about it from the perspective of the upcoming gubernatorial and Providence Mayoral campaigns (i.e., what do the candidates have to say about what I write?).  Before I delve into specific suggestions, I believe there are a few items relevant to economic growth that need to be clarified at the outset.

State House

First, there isn’t much the government can do to improve the economy directly, particularly in this climate of economic distress and innovation paralysis.  When the economy is running smoothly, most folks want the government to “stay out of the way.”  But when the economy tanks, policymakers are the first to be blamed (this is a disingenuous and undeserved complaint), and everyone wants them to “fix it.”  First, you can’t have it both ways people.  Second, there is no magic solution to “fixing” the economy.

Second, economic growth takes time, commitment, alignment on a vision, and the autonomy to make things happen.  It is unlikely to see radically positive results in a few months or even a couple years.  Economic development is a decades-long strategy, that often requires partnerships and long-term planning that are challenging for public officials, policymakers, and civil service staff.  While the pain of recessions, joblessness, and foreclosures is real, there are often few options for state and local officials to ease that pain.

Third, everything matters to economic development: education, transportation, infrastructure, workforce, land-use, zoning, existing markets, history, taxes, regulations, natural assets, etc.  But each of these matter to varying degrees depending on the industrial sector and individual businesses.  To assume that “lowering taxes” or “reducing regulations” is the most important of considerations is foolish, ill-advised, offensive, and immeasurably distracting from the various other issues that are generally much more important for long-term economic success.  While everything is important, some things are more important than others.

winner and loserFourth, every strategy comes with trade-offs and there are always winners and losers with any policy change.  Typically, those with wealth and power can influence policy to their benefit.  And while this may benefit them personally, or as a group, there are long-term consequences for the economy that are generally ignored.  The incremental policy decisions that have been made in the past have led to our little state to lack the sufficient resiliency to bounce back from the recent and ongoing depression/recession.  The economic conditions in which Rhode Island finds itself will take many, many years to rectify.

Fifth, demand for goods and services drives the supply of goods and services.  If no one wants to buy stuff, stuff doesn’t get made, and people lose their jobs.  Most tools that are deployed by cities and towns and the state try to stimulate the economy do not address economic demand, and as such they are largely inefficient and/or ineffective.

Sixth, underlying everything is an often ignored but crucial criterion: the importance of inclusive and dispersed economic growth.  The benefits of economic growth need to be broadly shared because the more people who earn money, and the more money that they earn, the higher the level of economic growth.  When economic growth benefits a small (and shrinking) number of people, aggregate demand declines and the economy suffers.  When a rising tide actually lifts all boats, something that the post-WWII economy was notable for, everyone benefits.  When a growing number of boats are chained to the bottom of the ocean, as has been the experience from the mid-1970s onward (with a notable exception during the 1990s), the economy flounders, people fall deeper in debt to maintain their standard of living, and the economy slows.

"I must break you."
“I must break you.”

Seventh, the ONLY way the state (or any state, region, city, etc.) can be successful in the long-run is by improving its competitiveness in particular economic areas.  This can be done by increasing the productivity of existing businesses through innovation or better trained employees or achieving higher workforce participation rates, while ALSO supporting the high and rising wages and living standards of Rhode Islanders.  Period.  This is hard to do, but not impossible.  The role the city and state can play is to lay the groundwork for an iterative process of successive improvements to support business productivity gains and assist with the dispersion of economic benefits.

Eighth, when we discuss economic development, it’s important to differentiate between locally-traded clusters, sectors, and industries and those that are subject to larger markets, regional, national, or global in scope.  The first group includes restaurants, local health services, residential housing construction, etc. while the second group includes software development, manufacturing, higher education, etc.  The success of the first group is largely dependent upon the success of the latter.  To put it another way, an economy can only grow by exporting lots of high-value goods and services and bringing in money to the state from other parts of the country / world.  The degree to which the economy is exposed to and successfully competes in global markets is the single largest factor that explains how successful its local economy is.  This isn’t to say that the local economy isn’t important, just that everyone selling hamburgers to each other does not grow the economy.

Finally, businesses grow at various points over their lifecycle.  The only businesses that are guaranteed to have net positive job growth are new businesses, for the obvious reason that they will employ at minimum the owner of the business and they have no current employees to let go.  Many businesses grow to a certain size and stay there for their entire existence.  Many businesses have dramatic fluctuations in their employment based on seasonal or market demand.  Some businesses have limited but sustained growth.  And only a few businesses experience pronounced growth, and that growth is generally limited to a short period of time.  All of this is important when it comes to growing jobs because there are only limited opportunities to identify and support existing businesses during their growth phases.  But the opportunities are innumerable to support new business growth, and it is new business startups that have been responsible for net new job growth in the past decade.

There are additional factors that contribute or impede economic growth, but in my mind, the 9 above are of paramount importance.  Feel free to bookmark this post as I will update it as I begin listing specific strategies to Rebuild Rhode Island!

Possible vs. probable


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excludeIn my last post, I talked about Clarence Thomas and his truly remarkable rise to a position that his father could never, ever have achieved. Indeed, even a slightly older Mr. Thomas would probably not been able to attain such a truly lofty height.

This all sort of gets to the idea of social mobility. If someone were born into conditions like those into which Mr. Thomas was born, how likely is it for that person to improve his level of economic security? Or, how likely is it for someone born into the upper echelons, such as Mr. Thomas’ children (does he have any?) to fall out of the exalted perch onto which she was born?

America has long perpetuated the ideal that everyone can improve their status. This is still true. It is still possible. But how likely is it? Or, how probable is it? And here, I use ‘probable’ in the technical sense of “Probability and Statistics”, the name of a book on my shelf. “Possible” and “Probable” are two very different words, with enormously different implications. The right wing continues to flog the notion of possibility. Sure, it’s possible. It’s possible that I can throw a ball through a solid wall, too. Or that all the air molecules in a room will suddenly rush into one corner and leave the rest of the room airless. But are these events likely to happen? No. According to the technical definition, that means, that they have an extremely low probability of occurring. Could a high school basketball team beat the Celtics? I suppose it’s possible. But the probability of this occurring is darn close to zero. It may not be exactly zero, but it’s probably (!) close enough to be considered zero in any real-world scenario.

Let’s set this up. Suppose you have been put into a situation in which you must choose one of two balls. One is yellow; the other is green. If you choose the correct ball, you will be given $100 million. If you choose the wrong one, you will have to spend the rest of your days working at a minimum wage job. Of course, you don’t know which ball gives the desired outcome, so you have to guess. And hope. And, as any fool knows, you have a 50/50 chance of getting it right. And an equal chance of getting it wrong. In other words, it’s a coin flip.

But let’s say we change the scenario, and introduce a blue ball. But even given the extra ball, there is still only one ‘correct’ choice. One ball will get you the $100M; either of the other two will get you consigned to the minimum wage. What has happened to your chance of success? It has been diminished. It has gone from 1 in 2, to 1 in 3. That is, rather than a 50% likelihood of success, you have a 33% chance.

For the next iteration, we’re back to two colors, red and green. The red ball gets you the $100M; the green results in the minimum wage job. But you have to pick either of the two balls out of a basket in absolute darkness, so you can’t see which ball is which. We’re back to 50/50. But let’s start adding green balls. If we add two more green balls, for a  total of three green, one red, your chance of success has been cut in half. It’s now 1 in 4, or a 25% chance of success. Starting to look grim, isn’t it? Now let’s bring the total of green balls up to ten. This is a 1 in 11 chance, and suddenly your chances of success drop below 10%.

This is what tax cuts, cutbacks in social spending, cuts in education have been doing: they have been adding green balls into the system. At least, they’ve been adding green balls into the basket from which those on the lower end of the scale have to choose. At the same time, these policy choices—tax cuts, cuts in social spending, cuts to education—have been adding red balls into the basket from which those born into the upper echelon get to choose. In other words, we’ve been increasing the odds against success for those in the bottom half, while increasing them for those at the top. Put another way, we’ve been rigging the game in favor of those at the top. How would you feel about entering the game with the odds of success sitting at 11 to 1 against you? Would you want to take a chance on winning the $100M if there were a 9o% chance of being consigned to the ranks of minimum wage workers?  Kinda stinks, doesn’t it?

This is what I meant in my previous post about my good fortune. I got to pick from a basket that was probably 75% red (good) balls. Yes, I could have failed, made a lot of bad choices, and ended up dropping. But the game was rigged in my favor from the start. Yes, I had to work for what I got, but that does not change the fact that I had an enormous head start over a lot of people.

And that, I think, is the clearest difference between a liberal and a conservative. A liberal recognizes—or never forgets—where she or he started. A liberal is aware that there were, there are always extenuating circumstances. Had Clarence Thomas worked twice as hard, but lived in the wrong place or time, all his effort may have been in vain. A conservative, from what I see, becomes convinced that they made it solely on their own merits. They fail to contextualize their success. They remember the work they put in to getting where they are, and nothing else.  Yes, this is not the whole story of the differences between the two, but I think that it may be the single key difference. Clarence Thomas, or Rush Limbaugh, or—the golden example—George W Bush are all convinced that they did it on their own. No one helped them. They don’t think that the stable family environment, or the genes or temperament that put the grit into their belly to succeed was an advantage that, perhaps, other people don’t have. They don’t see that being in a semi-decent school with semi-decent parents who instill values gives them a big leg up on a lot of other people. They forget that they happened to be born at a good time, or a good place.

So conservatives don’t see why other people might need help. Perhaps growing up they did not have the advantage of government assistance (but they did; they just fail to recognize this, or to acknowledge this), so why should other people get this help? So we continue with the aforementioned policy choices—tax cuts, cuts in social spending, cuts to education— and what we’re doing is increasing the number of people who have to choose from the basket of mostly green (bad) balls. Each cut to Head Start, or SNAP, or job training, or education, we’re both adding to the number of green balls and increasing the number of people choosing from this basket. In other words, we’re stacking the deck against them. Such behavior would get you shot in a lot of gambling establishments. Ask Wild Bill Hickok.

If you don’t believe me, here’s some evidence.

http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/PEW_Upward%20EM%2014.pdf

Take a look at the chart on page 10 of the report at the link. For someone born into the bottom income quintile, there is more than a 33% chance that they will end up there. For someone born into the top quintile, the odds are over 37% in favor of them remaining. But it’s worse than that. There is a cumulative probability of 60 percent that someone born in the bottom quintile will stay in one of the bottom two quintiles. That is, they will never be above what the lowest 40% of the country makes. That is, they only have a 40% chance of making it to middle class.

BUT: for each percentage point you move up in the scale, your chances of remaining in the top levels goes up. That is, someone born in the 95th percentile, their chances of staying there are about 75%.

As for where the most people make it, or remain stuck where they are, check out the second link.

http://www.equality-of-opportunity.org/

What you find is that the places with single-digit movement from the bottom to the top are largely in the South. You know, the area of the country where low taxes, low union density and small-but-business-friendly government is attracting lots of Good Jobs. Just gobs and oodles of them! Charlotte, North Carolina is a great example of how this works. Remember, MetLife was planning to move several hundred jobs from RI, and a thousand (or more) from the Northeast to Charlotte, that land of opportunity. See! Charlotte attracts Good Jobs! But, per the second link, of the top 50 metropolitan areas in the US, Charlotte is #49 in inter-generational upward mobility. There, only 4% of those born in the bottom quintile can be reasonably expected to reach the top quintile. And note, that means the 81st percentile. Admission to this is a salary of about $78k per year. We’re not talking about top-flight surgeons, or anything such. We’re talking a solid job, something around what a teacher with ten years experience makes here. So the chance of someone being born into the bottom quintile of ending up with a job with a teacher’s salary is less than 5%, or 1 chance in 20. How would you like to pick from that basket?

As for the idea of talent, well, it ain’t what it used to be. An average student born into a family in the top quintile is several times more likely to graduate college than a bright student born into the bottom three quintiles.  What this means is that the uninspired student from wealth is picking from a basket with lots of red (good) balls in it. And even if someone from the bottom 40% does beat the odds and finish college, that’s not the guarantee of success it once was. Average wages for college grads have been falling over the past 10 years, so I don’t want any nonsense about how all people have to do is pull themselves up by their bootstraps and work their way through college, blah, blah, blah.

Is this the kind of country we want? Where most people are pretty much destined to fail?

 

Taveras’s record on unemployment


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On a December 2012 episode of Newsmakers, Providence Mayor Angel Taveras had this to say in defense of Providence’s high unemployment rate: “Our rate is 12%, and when I started, it was 13.7%.”  Given the economic devastation that has befallen our capital city under Taveras’s leadership, these numbers are likely to play a major role in the upcoming gubernatorial campaign between Taveras, Raimondo, and Pell.

So it’s important to understand what’s so deceptive about that 13.7% figure.  It all has to do with seasonal adjustments.  Taveras took office in January, when there’s typically a surge in unemployment as workers get laid off at the end of the calendar year.  That 12% figure was from October, when unemployment stays low as seasonal workers are hired for the holiday season.

The state and federal unemployment rate figures you usually see have had a seasonal adjustment applied to them by the Bureau of Labor Statistics. Although there is no Providence-specific seasonal adjustment, if you apply the Rhode Island adjustment, the unemployment rate in January of 2011 was really 12.8%, and in October of 2012, it was really 12.5%.  Not much improvement.

Ultimately, I think the best way to assess Taveras’s unemployment record is by comparing it to Rhode Island’s.  I have plotted them together, indexing to 100 in January 2011 when Taveras took over.

Providence Unemployment Rate

The beginning of Taveras’s tenure was marked by a massive surge in the unemployment rate in the spring.  In the fall it fell, nearly matching the RI rate.  Next spring it surged far above the RI again, and next fall it fell again.  Now it’s once again rising above the RI rate.  This pattern of surging unemployment in the late spring is the classic signature of massive fiscal austerity, where public sector layoffs accelerate as the end of the fiscal year approaches.  In a normal economy, the peak from private sector layoffs in January will be much bigger than the public sector layoffs peak around June.  In the austerity-laden Rhode Island economy, those peaks are nearly the same size.  But in Providence, the public sector layoffs peak completely swamps the January one.  That’s the sign of truly extreme austerity.

The tough truth for progressives is that Taveras has been one of Rhode Island’s biggest austerity zealots.  He has closed schools and pools with disturbing fervor, while hiking property taxes to mind-bogglingly insane heights.

There’s no denying the mess Providence faces.  If Taveras had really wanted to fix Providence, he probably would have had to push for the same boring solution that other blue state cities have taken to get themselves out of similar messes–a municipal income tax, which would largely replace the property tax.

You can make a credible argument that the right-wing General Assembly would have blocked an income tax in their bid to keep property taxes high and protect Rhode Island’s regressive tax system.  But Taveras never even tried.  Instead, he just cut jobs and raised taxes on the middle class.  Providence has paid the price in unemployment.  Since Taveras took office, the capital city’s economy has systematically lagged Rhode Island’s.

This is what the good old days looked like

xmas1936
Photograph by Russell Lee, for the Farm Security Administration.

The picture to the right is called “Christmas dinner in home of Earl Pauley near Smithfield, Iowa…” This is Christmas for a farm family in Iowa in 1936. This is the world that conservatives call the ‘good old days’.

This is the sort of country conservatives believe we should have. Again.*

This was the age before Social Security, before Medicare, before welfare, before government regulation. This is a farm family. They worked hard–so hard that you and I probably cannot begin to conceive of how hard they worked. I’ve done farmwork, but it was mechanized, and it was still damn hard. So this family worked hard. There was no unemployment insurance. These were not urban welfare queens. They had not made bad choices, unless trying to run a farm should be considered a bad choice. They were not coasting, using the safety net as a hammock, because there was no safety net.

I assume the family in the picture is living on its farm. A lot of families lost their homes in the period 1929-1936 because they couldn’t pay the mortgage. Farmers in particular lost their land because their crops died in the field–if they grew in the first place–because of a stretch of drought that lasted several years, and that led to the Dust Bowl. My grandmother lived through the Dust Bowl in Kansas. Her stories were horrific.

You need to look at this and remember that this is the world that conservative politicians want to bring back. They want to kill all the social programs that were created as a result of the Great Depression. Conservatives want people who lose their jobs, through no fault of their own, to be pushed down to the sort of life that you see in this picture. They want people without work to fall into the sort of poverty that you see here. They may not realize what would happen if we follow their policies and gut social programs and all assistance to anyone but the wealthy. They may not realize what the implications of their policies will be, but the picture gives you a graphic example of the world that conservatives want to re-create.

Oh no! they proclaim. Getting rid of all this government will release the job creators, and they will create jobs! For everyone!

Bull.

The job creators at the time of this photo were fully unleashed. They were barely regulated. They were lightly taxed. And yet the people in this picture were living the way you see. Dirt floor. Bare plank walls. Where was the magic of the market? It didn’t solve the problems then. It didn’t help the people you see here. Rather, the people you see got to the condition you see because of the lack of regulation, and the lack of government support, and the low tax burden on those at the top of the economic pyramid.

The unfettered might of the market did nothing to help the people you see here. In fact, those with money shrieked that these people had to be left on their own, to starve if necessary. Any attempt to interfere would destroy prosperity. In fact, any interference by the government was immoral. But even a casual glance at this picture will tell you that any prosperity this family had ever known had been destroyed some time ago, and all because of the magic of the market. The only thing immoral was the sanctimonious attitudes of the upper echelons who let families live like you see in the picture.

If you read Friedman’s Monetary History of the United States, you will see that he talks about a seemingly endless series of economic crises, starting in the 1870s and carrying through to the Great Depression. That’s a period of 50-60 years, and there were three acute recessions and at least one depression (depending on how you define the downturn that began in 1873), and the last depression was so bad we call it Great. This averages to almost one crisis every fourteen years; the ‘teens of the Twentieth Century were marked by the Great War, so it’s difficult to compare this to ordinary periods.

One crisis per generation.

This is what the magic of the market created. A downturn every 14 years on average. Just about every generation was hit by a very nasty downturn, all in a period when there was no one to help. Private charity? Private charity is only viable during a period of economic expansion; when unemployment is above 10%, there simply aren’t enough people with enough money to make private charity effective. That’s why you have a family going through an experience like the one in the picture. Because people of the time relied on private charity.

And these were crises without unemployment assistance, food stamps, housing subsidies, with no government assistance whatsoever. People caught without work for six months or a year or three years had nothing to rely on, but they still couldn’t get jobs. Talk to people who lived through the Depression, quickly, while they’re still alive. They will all tell you, there was no work to be had.

And, btw, Friedman’s thesis that the Great Depression could have been avoided has been shot full of holes by our current situation. Friedman claimed that the Fed could have solved the problem through looser monetary policy. Since 2008/9, the Fed has been doing just that, pumping huge amounts of money into the economy in any way possible. And the same conservatives who howled about FDR have been howling about Bernanke. Has the policy worked? Well, we didn’t have a depression, at least not one like our grandparents lived through, but ask a recent college grad how easy it is to find a job. Look at the unemployment rate. So Friedman was a quarter-right at best. Monetary policy alone cannot solve the economic problems we faced in the early 1930s, nor the problems that we are experiencing in the early 2010s

Nor can the magic of the market create prosperity for all, except for relatively short periods. If capitalism produced a crisis every 14 years, that means if you were fortunate enough to graduate into an economic expansion, you should expect a downturn by the time you hit 40. Then maybe you’ll benefit from the upturn by the time you hit 50. Of course, by then you will have lost five or ten of your prime wage-earning years. So how are you supposed to save for retirement?

So look really hard at this picture. Think of it the next time you hear someone claim that we need to unshackle the job creators. Think of it and remember that the Titans of Industry screwed it up in the 1920s, and the 1900s, and the 1890s, and the 1870s…that’s a lousy track record. The Titans of Industry created the world you see in the picture.

*This is an incredibly harsh statement. I do not ascribe malign motives to sincere conservatives. I am not saying conservatives are evil people who wish misery on others. However, ideas have consequences; we have a moral obligation to understand the ramifications of our policies and of what we advocate for society. In this, I believe, the conservatives fail. Perhaps this is because they do not understand history; but a point is reached where there must be willful ignorance of what they advocate. History is so very, very clear, if you realize that there was history before WWII, or even before 1970. I keep coming back to this, but it continues to be true: we tried it their way. It did not work. Most of human history has been a long, dreary experiment in laissez-faire markets. The outcomes were horrible; look at this picture.

And if free markets or government regulation or interference or high taxes didn’t cause the situation in this picture, what did? They have no real answer for that question.

So yes, I realize I am making a terribly provocative statement; but the point stands. If we follow their advice, this is where we will end up. Again.

Businesses behaving badly


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pyramid-of-capitalismIn past posts, I have explained actions that businesses–usually large corporations–have taken that are decidedly contrary to the interests of the general public. For this, commentors have claimed that I’m anti-business, that I’m using scare tactics, I’m just a socialist, or some combination thereof.

However, in the news over the past month or so we have seen two excellent examples of Business Behaving Badly. The first, of course, was the decision of MetLife to summarily fire all of its Life Administration employees here in RI and other parts of the Northeast and across the country, in order to move those jobs to North Carolina. MetLife is firing these people in order to pad its already high profits: $1.4 Bn for 2012. That seems to be contrary to the interests of the general public.

And yes, these people are being fired. There is no other word that accurately describes what is happening. Fired. For no fault of their own. Without cause. With no justification other than it better suits Met’s interests. A lot of these people have worked loyally for Met for periods often measured in decades. The reward for loyal service is to be fired.

How does that fit with the propaganda that the free market will take care of employees better than any government? Answer, it doesn’t. What it does do is illustrate to perfection how a corporation will take care of its own needs, regardless of the number of lives that are damaged in the process. It’s all about increasing the benefits that flow in a torrent to those already at the apex of the financial pyramid.

The second example is the explosion of the fertilizer plant in West, Texas. Now, from what I can gather, this plant was not part of some multinational corporation. A company like Met could have bought and sold it out of the spare change in the couch cushions. But it was a business, run for profit. One way of increasing profit is to cut corners on safety issues. Despite the fact that ammonium nitrate was the explosive of choice used by Timothy McVeigh in the Oklahoma City bombing, those in charge of the fertilizer plant did not consider this a safety risk, Records indicate that the risk that concerned them most was the possibility of a leak of ammonia gas. This would be a bad thing, but not catastrophic.

So the company took no steps to mitigate the possible risk. Why not? Because they did not see the need, and taking steps would have cost money.

Now, it appears that no one in the town particularly blames the company, and the company was certainly not a rapacious corporation hell-bent on increasing profit. Still, the fact remains that no safety precautions were taken, and fifteen people are dead because of the lack of precautions.

The third example is the worst and most blatant of all: the collapse of the building in Bangladesh.

One thing we all hear about is the need for ‘common sense’. Doesn’t it seem that ‘common sense’ should include taking precautions to reduce the risk of a fire at a plant that stores large quantities of highly-explosive material? If you’re making dynamite, shouldn’t you build risk-mitigation into your plans? And ammonium nitrate, in the quantities on hand at the fertilizer plant is every bit as dangerous as dynamite. You can take Timothy McVeigh’s word on that. Doesn’t ‘common sense’ tell you to build a building so it won’t collapse?

It also appears that the fertilizer company may not have actually broken any laws. That also seems to be part of the problem. The plant is in Texas, and Texas prides itself on being a land of lax regulation. So fifteen people died so Texas could maintain its macho image of ‘hands-off’ conservatism. IOW, it’s more like Bangladesh, and less like the rest of the US that foolishly insists on standards. More, 68 people have died in mining accidents in the new millennium. The common thread of all these deaths is the lack of safety precautions. Why did the companies in question not take proper precautions? Because they cost money, and no one made them take the precautions.

In many ways, the impression is that the West Fertilizer Company was actually a fairly benign employer. In many ways, that only makes things worse. If this is how a well-intentioned company acts, how much worse are those actively looking for corners to cut?

This is how business will operate in an unregulated, or lightly-regulated market. Most businesses will be responsible, but there will always be a few who don’t. And when these businesses behave irresponsibly, and profit from this lack of concern, others will mimic that behavior and start cutting corners, too. And people will die. And it doesn’t have to be a business like mining, or fertilizer production with their built-in dangers; it could be the result of locked or nonexistent emergency exits, as happened in the Hamlet, NC chicken plant fire where 25 people died, or the even more horrific Triangle Shirtwaist fire, which killed over 140 people.

We are told that regulations in the US are too onerous. That they cost businesses money, and so jobs. We are told we need to lighten the regulatory burden on business, so that we can create jobs. IOW, we need to become more like Bangladesh, with its light (non-existent? Certainly not-enforced) regulations, no unions, and starvation wages for its employees.

You get what you pay for.

This is what happens when businesses are left to police themselves. Things are no different now than they were a century ago.

 

For MetLife and Rhode Island, size matters


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Downtown Providence from the Providence River. (Photo by Bob Plain)
Downtown Providence from the Providence River. (Photo by Bob Plain)

In the brouhaha about MetLife leaving, I did see and hear people try to blame this on the too-high RI taxes. Of course; it’s always about the taxes, isn’t it? I would like to make one point about that.

For 2012, MetLife reported $1.4 Bn of operating earnings. In comparison, the $80-90 Mn of tax relief that the will receive would just register as a rounding error in any single year. But those tax savings will be spread out over a number of years. As such, they don’t even constitute a rounding error.

Any company, of any size, that makes long-term decisions based on a few years worth of tax savings is not a company that will be around long enough to realize those savings. Only a company in dire straits would make so drastic a move for so little return. Because let’s face it, the up-front investment that is required will more than eat up those tax savings. In such cases, breaking even is a good result in the real world.

No: the savings will come from other areas: lower rent vs what is being paid in the Northeast, in greater Chicago, in the SF Bay area; it will come from lower wages paid to younger workers who do not incur the disability and medical expenses an older workforce will incur; it will come from pension benefits that do not continue to accrue to said older workers, and that will not be paid at all to younger ones. That’s where the money is.

No, RI’s problem is not the tax structure. It’s the size that matters.

The sad fact of the matter is that RI does not have its own economy. RI is a pale reflection of what is happening in Boston. Nor is this a recent development: it was already true in the early 1980s. Look back at the numbers; that was the period when Dukakis was creating (or taking credit for) the “Massachusetts Miracle.” The 128 Loop was America’s Technology Highway, where high tech lived before being superseded by Silicon Valley. Massachusetts recovered sooner than most of the country from the recession of the late 1970s; RI was a couple of years behind.

Then, in the mid-eighties came the phenomenon of Woonsocket turning into a bedroom community for Boston. Same with Nashua NH. Around then the ProJo carried a story of people taking classes to lose their RI accent because they felt that companies in Boston believed that people with an RI accent were less intelligent.

So, no, this is not a new phenomenon. What I have cited is anecdotal; but the numbers in the BLS and Census, etc. will support these contentions.

Also according to the US Census, in 2000, 79% of the population of the US lived in urban areas. In states like Nevada, it’s upwards of 90%. More, 45% of the population of the US now lives in the top 20 urban areas. In the meantime, the Census Bureau also says that one-third of all counties in the country are being drained of population. What does this mean?

It means that the urban concentration that began at the end of the 19th century is continuing. More and more people are living in and around cities while other areas languish. Telecommunication, and telecommuting were supposed to make cities obsolete; the opposite is happening. Telecommuting was all the fad in the late 90s and into the new millennium; now, companies are eliminating it.

It means that, in order to compete, size is a huge factor. Charlotte NC is now the #2 financial center in the country, after NYC. It has surpassed Chicago, with its Mercantile Exchange. It is the #2 center largely because the #1 bank, Bank of America, has its HQ there, and Wells Fargo has its East Coast operations HQ there. The Charlotte Combined Statistical Area has 2.4 million people. This is not rural America anymore.

With a million people, Rhode Island cannot compete with such a center, any more that it can compete with Boston. The advantages of a large educated, concentrated workforce with good infrastructure and a compact geographical footprint are too great to overcome. This is why NYC not only continues to exist, but to thrive, in the face of all the reasons conservatives say it shouldn’t: high taxes, big government, and whatever else they complain about. Half of the wealthiest zip codes in the country are in NY and NJ, both of which are high-tax states.

RI is not losing jobs to lower tax states; RI is losing jobs because the vast majority of jobs are in these concentrated urban areas. If jobs aren’t there already, they’re relocating there. I heard a story on NPR that a growing company in Kansas could not find workers. That’s because no one is willing to relocate to a small town that depends on a single employer; what happens when that employer decides to off-shore the jobs? People are stuck in a small town without prospects. In a larger metro area, there are other jobs, or at least a greater possibility of other jobs.

Size matters. The country is not de-urbanizing. Exactly the opposite.

Addendum: The point is, MetLife made its decision to relocate to NC for its own reasons. Only then did it approach the NC government and see how much it could extort from the state’s taxpayers. In other words, MetLife got money from the state to do exactly what it would have done without the tax breaks. In fact, there have stories to this effect in the North Carolina media, complaints that the state of NC got played for chumps by a large company.

And, btw, NC in general, and Charlotte in particular, have unemployment rates that are only a couple of tenths of a percent lower than what RI and Providence has. It’s not exactly boom-town down there, either.

So, yes, NC is getting the jobs. But they would have gotten the jobs without the subsidies.  So no, it’s not about the tax rates, no matter how often or how loudly conservatives will say it is.

Help Wanted: Job(less) Fair At The State House Today

Calling all un- and underemployed!

Tired of pounding the pavement and dredging craigslist to find a job? Sick of sending out resumes only to get no response, or a “Thanks, but no thanks?” Unemployment benefits running out, forcing you closer to the brink of financial collapse?

Make your voice heard today!

Today, at 3 p.m. at the State House, Where’s the Work, Rhode Island?  will be holding a Job Fair…. wait, scratch that, a Jobless Fair.

This is an opportunity for the 53,000 unemployed — and thousands more underemployed — Rhode Islanders to demand real action by the General Assembly to lower the unemployment rate in the Biggest Little.

Rhode Island’s unemployment rate remains stubbornly high, and state tax breaks like the Jobs Development Act have failed to generate enough jobs to significantly impact the unemployment rate.

Where’s the Work? is an initiative of Ocean State Action designed to increase public awareness and understanding of the unemployment crisis in Rhode Island. Politicians can throw around numbers and statistics regarding unemployment, but there is one very important thing that gets lost in the mix – the people and their real experiences as they try to weather the financial crisis.

“A lot can and needs to be done at the state level to address the unemployment problem,” says Mark Gray, Ocean state Actions Where’s the Work campaign organizer,” for instance, Connecticut has created a subsidized job training and employment program that has employed about 1,300 people in over 400 small businesses in the last year.”

Gray says that while Rhode Island’s total unemployment rate has fallen slightly, the long-term unemployment rate — those that have been out of work for longer than six months — hasn’t budged.

“We need a new approach. Clearly the state’s past efforts are not working, and this economy is not working for a significant segment of the population.”

Today’s rally is a chance to put the stories of unemployed Rhode Islanders front and center to reshape the public dialogue about our economy and make sure that our elected leaders better understand the urgent action that their constituents need.

Attendees to today’s rally are asked to dress as if attending a job interview and bring their resumes.

Even if you are currently employed, please consider attending this important event. After all, there’s no guarantee that you’ll have a job tomorrow.

The Unemployed: Jesus, Socrates, Buddha, Gandhi


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Jesus, Socrates, Buddha and Gandhi all had long periods of unemployment. Sure these guys were once employed as a carpenter, soldier, prince and lawyer but they are best remembered for their years of wandering around and being unemployed.  In fact, their unemployment played a key role in the successes each had.

Would Jesus have had time to preach, perform miracles and gather a group of ‘misfits’ for followers if he spent his last 3 years building things? Would Socrates have become the father of modern philosophy had he stayed in the military? The same questions can be asked about Buddha doing Princely things (a questionable job) and Gandhi working a courtroom. Each of these great men did their best work without getting a paycheck.

How many folks today consider these guys bums or freeloaders? All too often the motives of those who are unemployed are misconstrued. Many jump to blame, stereotypes and prejudice when discussing the matter. While some of those without jobs might be unmotivated, others are ill, unskilled, laid off, with prison records, in a dying industry, a stay at home parent or sending out resumes without luck. Oh yeah – don’t forget issues with transportation and language barriers.

Having a good job means self esteem, heat and power for the winter, clothes for the kids, food and school supplies. For those lucky enough to have high-paying jobs that also means a nice house, a few cars, the big family vacation, college for the kids, health care and a few dinner and movie nights.

I guess the unemployed don’t want any of that stuff. They’d rather roll the dice on their health, tell the kids that college is on hold and come up with excuses when asked to go out for a bite to eat. Options change when one has means. There are those who screw the system through fraud and there are those who have habituated themselves to hopelessness – but, for the most part, a majority of unemployed folks are just trying to get by.

Unemployment takes many forms – from the executive who lost a job to the kid from an impoverished situation just looking for something. Some have to adjust attitudes, while others can only dream. Either way they are looked upon as less than.

Unemployment and its often partner of poverty have always been with us. It is a shame how those ‘without’ are often viewed. How often we forget that they are parents, friends, dreamers, thinkers. How often we forget that the warm house, family trip, car and good education are important to them as well.

So much of our identity is tied up in what we do for a living. That’s OK, but I am hoping that we are much more than our jobs. The legacies of Jesus, Socrates, Buddha, and Gandhi depend on it.

Beware Recent Grads: Sequester Tolls For Thee


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I’m surprised we haven’t seen more sequester protests from the ranks of the recently graduated given this demographic will likely be most-affected by the long term cuts being rolled out. Here’s why.

Since the recession hit, the number of underemployed college graduates has skyrocketed. According the Associated Press, about 50 percent are either out of work or working in a job for which a college degree is unnecessary. Look across the counter at Starbucks, these days your barista is just as likely to have a college degree as not.

The recession has produced a marketplace where recent graduates are competing with people who have years of experience for the same jobs. Whereas college grads used to exit college to fill entry level jobs, now they are competing for entry level jobs with people who have been working for 5 or 10 years. (Better that than no job at all).

One of my students, who graduated last year, exemplifies this trend. After graduating with honors from URI with a double major in Economics and Political Science, she moved back to Arizona. She completed several prestigious internships while at URI and when she left she got a fellowship to go work in Mexico and learn Spanish. If anyone should have been able to find a job immediately, it’s her. Yet when I spoke with her a few weeks ago, she was perplexed because she could not get even get an interview for a secretarial position.

The situation she is experiencing is one in which she is competing with the recently laid off. Instead of competing for those entry level jobs with other recent grads, she is competing with people who have been in the workforce for 5 to 10 years and lost their job when the economy soured. Experience wins when jobs are scarce and supply is high. It’s a basic law of supply and demand. Right now supply is high but demand is low.

While this is distressing in the short term given the large amounts of student debt most of these college graduates have, the long term earning impact is what has me concerned. If these students take jobs for the next 5 years as baristas and waitresses, then when the economy recovers and there is a demand for entry level workers, they will be at a disadvantage against the students graduating then.

The end result: the college grad who is either unemployed or underemployed for an extended period of time has a more difficult path to gainful employment.

This is where the sequester comes in. Our economy is still quite fragile and the sequester is undeniably going to lead to a new round of layoffs. Layoffs will start with government positions and government contractors but the cuts in spending will reverberate through the economy leading to lower spending and demand for other goods and services which should lead to more layoffs in the private sector.

These new layoffs are going to make the job market for our new graduates even more difficult.

Poem: ‘Meditation On The Economy’


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John Kenneth Galbraith, were he here and breathing, would probably be biting his nails with worry. This week we learned that the economy contracted for the first time since 2009. In words reminiscent of what was said in the midst of the Great Depression, economic commentators have said it’s just a one off event in our ongoing recovery. Meanwhile, they crow about another 157,000 jobs added, ignoring that only 58% of the people in this country are employed. A year ago that rate was 57.9%. Clearly, it’s time for austerity.

Anyhow, here’s my poem this week, which as it happens I wrote back in 2009. It’s prose.

Meditation on the Economy

A crystalline calm is upon the ocean. The washed azure sky, without even the blemish of a cloud, speaks in the most fragile whispers about the proximity of beauty and death. The emerald water swallows with greedy equanimity both the heavy and light. The sun stretches down amber rays diffusing through the teeming life, down to fathomless twilight. Somewhere, black and unknowable is the bottom. Deeper and more quiet than the blackest dream, the ship is sinking. Strange sounds resonate from the hull, air trying to push its way out, the wood groaning in protest. Large pockets rise to the surface and burp erratically as the wreck shifts in the rolling currents of its descent.

It had gone quickly at the beginning. The weakness so long in atrophy relented to its fated failure in a crack of thunder. Instantaneously, the sea rushed gurgling and hungry into the lower compartments, sucking the ship down. At first, the air had freed itself in a multitude of voices, whistles, sighs, and whooshes. It was a song of physics and chaos.

Now, an eternity of moments and ten minutes later, only the stern remains above water, pointing accusingly skyward. The ship is sinking, slowly and remorselessly, a death that shudders nearer with each successive belch. The sinking is slower now but no less certain. In a panic that is so blind it is also silent, the crew and passengers are mostly frozen in denial. They cling to the idea it has stopped, that they can bob above the waves until the rescuers arrive. In reality, no aid is coming.

There aren’t lifeboats enough, and the self-important are claiming first right. These are the men in fine clothing and uniform; the captains of industry, the shipwrights, and the crewmen. Behold their fear, the dawning realization in their eyes that they aren’t in control. Their reasoning is that they will be better able to get and send help to those left behind. Sure, they were the ones that had brought them to this pass, so, too, they must be the ones who can find the way back. They offer this reasoning to the others in blue gel- cap cyanide placebos. They are saying ‘god bless you,’ and there are even tears in some of their eyes as they push off. They reason and excuse themselves from guilt. Cowardice, for naught.

The clarity of the ocean air, the sharpness of the light arcing through it, and the magical colors that they elicit; these perfections are not to be denied their finality. The falling inertia of the ship will draw the lifeboats down just as surely as the planet’s gravity draws the ship to its doom. It shall be a shared oblivion. The perfection; the fragile secret spoken by the breeze of beauty and death; no one is to speak of them.


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