September 26, 2017

A Start-Up Slump Is a Drag on the Economy. Big Business May Be to Blame.

“You’ve got rising market power,” said Marshall Steinbaum, an economist at the Roosevelt Institute, a liberal think tank. “In general, that makes it hard for new businesses to compete with incumbents. Market power is the story that explains everything.”

That argument comes at a potent political moment. Populists on both the left and right have responded to growing public unease about the corporate giants that increasingly dominate their online and offline lives. Polling data from Gallup and other organizations shows a long-running decline in confidence in banks and other big businesses — a concern not likely to abate after high-profile data breaches at Equifax and other companies.

The start-up slump has far-reaching implications. Small businesses in general are often cited as an exemplar of economic dynamism. But it is start-ups — and particularly the small subset of companies that grow quickly — that are key drivers of job creation and innovation, and have historically been a ladder into the middle class for less-educated workers and immigrants.

Perhaps most significant, start-ups play a critical role in making the economy as a whole more productive, as they invent new products and approaches, forcing existing businesses to compete or fall by the wayside.

“Across the decades, young companies are really the heavy hitters and the consistent hitters in terms of job creation,” said Arnobio Morelix, an economist at the Kauffman Foundation, a nonprofit in Kansas City, Mo., that studies and promotes entrepreneurship.

The start-up decline might defy expectations in the age of Uber and “Shark Tank.” But however counterintuitive, the trend is backed by multiple data sources and numerous economic studies.

Photo
The San Francisco office of Rhumbix, a construction technology start-up. Credit Jason Henry for The New York Times

In 1980, according to the Census Bureau data, roughly one in eight companies had been founded in the past year; by 2015, that ratio had fallen to fewer than one in 12. The downward trend cuts across regions and industries and, at least since 2000, includes even the beating heart of American entrepreneurship, high tech.

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Although the overall slump dates back more than 30 years, economists are most concerned about a more recent trend. In the 1980s and 1990s, the entrepreneurial slowdown was concentrated in sectors such as retail, where corner stores and regional brands were being subsumed by national chains. That trend, though often painful for local communities, wasn’t necessarily a drag on productivity more generally.

Since about 2000, however, the slowdown has spread to parts of the economy more often associated with high-growth entrepreneurship, including the technology sector. That decline has coincided with a period of weak productivity growth in the United States as a whole, a trend that has in turn been implicated in the patterns of fitful wage gains and sluggish economic growth since the recession. Recent research has suggested that the decline in entrepreneurship, and in other measures of business dynamism, is one cause of the prolonged stagnation in productivity.

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“We’ve got lots of pieces now that say dynamism has gone down a lot since 2000,” said John Haltiwanger, a University of Maryland economist who has done much of the pioneering work in the field. “Start-ups have gone down a lot since 2000, especially in the high-tech sectors, and there are increasingly strong links to productivity.”

What is behind the decline in entrepreneurship is less clear. Economists and other experts have pointed to a range of possible explanations: The aging of the baby-boom generation has left fewer Americans in their prime business-starting years. The decline of community banks and the collapse of the market for home-equity loans may have made it harder for would-be entrepreneurs to get access to capital. Increased regulation, at both the state and federal levels, may be particularly burdensome for new businesses that lack well-staffed compliance departments. Those and other factors could well play a role, but none can fully explain the decline.

More recently, economists — especially but not exclusively on the left — have begun pointing the finger at big business, and in particular at the handful of companies that increasingly dominate many industries.

The evidence is largely circumstantial: The slump in entrepreneurship has coincided with a period of increasing concentration in nearly every major industry. Research from Mr. Haltiwanger and several co-authors has found that the most productive companies are growing more slowly than in the past, a hint that competitive pressures aren’t forcing companies to react as quickly to new innovations.

A recent working paper from economists at Princeton and University College London found that American companies are increasingly able to demand prices well above their costs — which according to standard economic theory would lead new companies to enter the market. Yet that isn’t happening.

“If we’re in an era of excessive profits, in competitive markets we would see record firm entry, but we see the opposite,” said Ian Hathaway, an economist who has studied the issue. That, Mr. Hathaway said, suggests that the market is not truly competitive — that existing companies have found ways to block competitors.

Experts also point to anecdotal examples that suggest that the rise of big businesses could be squelching competition. YouTube, Instagram and hundreds of lower-profile start-ups chose to sell out to industry heavyweights like Google and Facebook rather than try to take them on directly. The tech giants have likewise been accused of using the power of their platforms to favor their own offerings over those of competitors.

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Most recently, Amazon openly called for a bidding war among cities for its second headquarters — hardly the kind of demand a new start-up could make. Mr. Morelix said the Amazon example was particularly striking.

“We’re saying that it’s O.K. that they shape how a city charges taxes?” Mr. Morelix said. “And what kind of regulations they have? That should be terrifying to anyone that wants a free market.”

In Washington, where for years politicians have praised small businesses while catering to big ones, issues of competition and entrepreneurship are increasingly drawing bipartisan attention. Several Republican presidential candidates referred to the start-up slump during last year’s primary campaign. Progressive Democrats such as Senators Elizabeth Warren of Massachusetts and Amy Klobuchar of Minnesota have pushed for stricter enforcement of antitrust rules. In a speech in March, Ms. Klobuchar explicitly tied the struggles of entrepreneurs to rising corporate concentration.

In July, entrepreneurs achieved a mark of political relevance: their own advocacy group. The newly formed Center for American Entrepreneurship will conduct research on the importance of new businesses to the economy and push for policies aimed at improving the start-up rate. Its founding president, John Dearie, comes from big business — he was most recently the acting head of the Financial Services Forum, which represents big financial institutions.

“Everybody loves entrepreneurship, but they’re not aware it’s in trouble,” Mr. Dearie said. “If new businesses are the engine of net new job creation, and if new businesses are the engine of innovation, and new business creation is at 30-year lows, that’s a national emergency.”

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Article source: https://www.nytimes.com/2017/09/20/business/economy/startup-business.html?partner=rss&emc=rss

Senate Republicans Embrace Plan for $1.5 Trillion Tax Cut

“My support will be contingent on a final package that generates significant economic growth and does not worsen, but hopefully improves our fiscal situation,” Mr. Corker said of the tax plan.

An agreement on the size of the tax cuts between Mr. Corker and Senator Patrick J. Toomey, a Pennsylvania Republican who has pushed for deeper tax cuts, helped seal the deal.

Passing a budget resolution is a crucial step for unlocking an arcane procedural tool that would allow Republicans to push a tax overhaul through the Senate with a simple majority and without the support of Democrats. Republicans have said they want a bill passed by the end of the year.

Even with Tuesday’s deal, there is still a tough road ahead. The full Senate would need to vote on the budget and it would then need to align with the House version, which was voted out of committee earlier this year.

That may prove a tricky task, since House lawmakers may be more reluctant to enact tax cuts that would add to the deficit.

Still, any tax cut may wind up being temporary. Under existing Senate rules, Republicans can pass legislation with a simple majority only if the bill is not found to add to the deficit after a period of 10 years. That means all — or part — of the tax legislation could expire after a decade if official estimates of the costs do not align with Republicans’ optimistic economic growth projections.

Republicans on the Senate Budget Committee have been wrestling for weeks over how big a tax cut is feasible and have been under pressure to reach a budget deal this month so that the work on tax legislation can officially begin in October. Still, while the Republicans may coalesce around a $1.5 trillion tax cut, the details of the actual plan remain fraught with lawmakers divided on some key issues such as the corporate tax rate and which, if any, deductions will be eliminated or scaled back.

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Some details of the plan are expected to be released next week when the “Bix Six” working group of Republican congressional leaders and the White House economic team outline their policy framework.

President Trump said this month that the wealthiest Americans might end up paying a bit more in order to lower tax bills for the middle class. A White House official said on Tuesday that while the rich would not see a benefit from the tax plan no final decisions on top rates had been reached.

Republicans have been wary of sharing too many details given the intense lobbying crush that is expected once it becomes clear which industries stand to win or lose valuable provisions currently ingrained in the tax code. Those include things like the mortgage interest deduction and the deduction for charitable donations.

Financing tax cuts through deficit spending essentially means the government will borrow money to pay for tax reductions, rather than finding spending cuts to make up for the lost revenue.

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Such a move would add to an already-hefty debt load that is only expected to grow as an aging population drives additional spending on retirement and health programs. The C.B.O. estimates that within 10 years, the federal debt will rise to its highest percentage of gross domestic product since just after World War II.

Republican lawmakers, who for years have complained about the country’s deteriorating fiscal situation, are now turning to arcane budget arguments and making the case that tax cuts will unleash enough economic growth to compensate for lost revenue.

“Just going from 2 to 3 percent growth adds about $14 trillion of economic activity over a decade, $2 to $3 trillion of revenue to the federal government,” said Senator Ron Johnson, Republican of Wisconsin and a member of the Budget Committee.

Senator Orrin Hatch of Utah, the Republican chairman of the Senate Finance Committee, said he continues to worry about the deficit. But he supports a budget that provides maximum flexibility to produce a tax overhaul that will move America forward.

“We’re definitely in need of something that will stimulate the economy,” Mr. Hatch said.

Whether a big tax cut can stimulate an economy already saddled with debt is at best uncertain and many experts think it will actually stifle growth.

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At a hearing of the Senate Finance Committee on Tuesday, Donald Marron, director of economic policy initiatives at the Urban Institute, warned that deficit financed tax cuts could prove to be a drag on the economy.

“You should always think of these tax reform proposals as a race between the effects of the tax changes and the effect on the budget,” Mr. Marron said. “There is a cost to deficit financing.”

Anti-deficit groups say they plan to remind Republicans who railed against deficits during the Obama administration of their past criticisms.

“The president and members of Congress have spent years warning of our large and growing national debt and have said their goal was to pursue tax reform that doesn’t make that debt worse,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget. “It is extremely disheartening that the Senate budget may be abandoning that commitment.”

The tax cuts, she added, “could result in debt as large as the economy in just over a decade and take us into uncharted waters after that.”

Michael A. Peterson, president of the Peter G. Peterson Foundation, said that the national debt topping $20 trillion should not be an invitation for Republicans in Congress to exacerbate a problem that they were elected to fix.

“Irresponsible tax reform is counterproductive and anti-growth because increasing the national debt hurts the economy. Tax reform should grow the economy, not the debt,” Mr. Peterson said. “This proposal fails the test of fiscally responsible tax reform.”

Wary of any tax legislation that benefits the rich, Democrats have taken a firm stance against Republican policies that would add to the deficit and said they will not support a bill that does not pay for itself.

Senator Ron Wyden of Oregon, the ranking Democrat on the finance committee, warned against a proposal that would provide a “sugar hit” of economic growth and a painful hangover in the coming years.

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“We’ve seen this movie before,” Mr. Wyden said, referring to previous Republican tax cuts. “It is a prescription for more trouble in the American economy in the long term.”

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Article source: https://www.nytimes.com/2017/09/19/us/politics/senate-republicans-tax-cut.html?partner=rss&emc=rss

Economic Scene: Unemployment Is So 2009: Labor Shortage Gives Workers an Edge

Mark Zandi, the chief economist at Moody’s Analytics, concurs. “Our problem going forward isn’t going to be unemployment,” he told me. “Over the next 20 to 25 years, a labor shortage is going to put a binding constraint on growth.”

Converging factors are at play, Mr. Zandi contended. The Federal Reserve is likely to allow the economy to run “on the hot side.” Years of exceptionally low inflation have finally convinced the Fed to drop its overriding anti-inflationary bias, forged in the high-inflation era of President Jimmy Carter, and to put more weight on the impact that high interest rates have on employment.

Manufacturing workers have probably already lost all the jobs to globalization that they were going to lose, Mr. Zandi said. Rather than “take” more American jobs, hundreds of millions of Chinese workers who have joined the global middle class over the last two decades will instead “create” jobs in the United States by buying American-made goods and services.

And even as demand for workers accelerates across the United States, employers must contend with the unflinching force of demography: a work force that is growing at its slowest pace in over a half-century, as baby boomers who joined the labor force from the 1960s to the 1980s now gradually age out of it.

More than seven years after the recession ended and the job market began to bounce back, only 60 percent of Americans over the age of 16 are working, about 2.5 percentage points fewer than just before the economy took a dive.

On average, Mr. Zandi pointed out, aging will slice about a quarter of a percentage point from the labor-force participation rate — the share of Americans either employed or looking for a job — over the next 10 years. By the end of that period, the labor force may even be shrinking.

A Shrinking Labor Force, Despite Rising Wages

Wages are rising in the United States at the most sustained pace since the dot-com boom in the second half of the 1990s. The question is whether rising wages can revive the labor-force participation rate of prime-age Americans, which has shrunk to among the lowest levels in the industrialized world.

Median weekly U.S. earnings, among

full-time workers 16 and over

In 2017 dollars, seasonally adjusted

$875

QUARTERLY

850

825

800

775

750

725

’80

’85

’90

’95

’00

’05

’10

’15

Labor-force participation rate

Seasonally adjusted rate among

men age 25-54; data as of July 1

of each year

SELECTED

O.E.C.D.

COUNTRIES

%

98

97

96

Japan

95

94

France

93

Britain

92

Germany

Canada

91

Denmark

90

89

United

States

88

87

’80

’85

’90

’95

’00

’05

’10

’15

By The New York Times

Policy makers who spent their careers pondering the lackluster demand for workers will have to turn their attention to a problem they have not had to fret about much in at least a generation: how to pull more able-bodied people into the work force to offset a wave of retirements.

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“We have had real wage growth, but the labor supply has been flat for the last two years,” Professor Krueger said. “We get a very small number of workers back with higher wages, just enough to offset the people leaving the labor force because they are older.” The critical question for policy is what other tools are available to draw them back.

And the answer requires removing a roadblock standing in the way of this potential golden age: Even if demand for workers is rising, it may not be for the kind of workers on offer, those sitting on the sidelines of the labor force. “The jobs in demand are more skilled than the workers we have,” Professor Krueger told me.

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The share of men in their prime working years — 25 to 54 — who are in the labor force has declined steadily since the end of World War II. Workers without a college degree have clocked out at increasing rates, as imports and automation undercut their wages.

For years, the economy hardly noticed because women were rushing to work in droves, offsetting the retreat among men. But that trend faded around the turn of the century. Since then, the labor-force participation rate of prime-age Americans has shrunk to nearly the lowest in the industrialized world.

And, as Professor Krueger noted, once workers stop looking for a job, it is tough to draw them back in. “After they leave the labor market,” he said, “people reorganize their lives.”

Indeed. A third of the prime-age workers who have left the labor force are now receiving disability benefits, meaning they are out for good, Professor Krueger estimated. Another 20 percent are in the process of applying for such benefits. In a recently released study, he estimated that about a third of prime-age men not in the labor force use prescription painkillers, namely opiates, suggesting that they will not be returning to work soon. Professor Krueger suggests that the increase in opioid prescriptions could account for about 20 percent of the decline in men’s labor-force participation from 1999 to 2015, and 25 percent of the observed decline in women’s labor-force participation.

How to get them back? In a coming study, Melissa Kearney and Katharine Abraham of the University of Maryland identify forces that have pushed workers out of the labor force before the retirement age of 65. Trade is at the top of the list, followed by technology — be it robots or other forms of automation — and disability insurance, which offers people some income in the absence of a job. Supply-side factors — incarceration, or the effect of the minimum wage on labor costs — are next.

Professor Kearney and Professor Abraham also identify policies that might draw more workers back into jobs: Improving access to high-quality education, an elusive goal despite recent gains, is critical to equip students to navigate a changing workplace. So is access to child care, to lower barriers to women’s participation in the work force. Expanding wage supports like the earned-income tax credit will be important to make work worthwhile for workers of lesser skills. On the supply side, Professor Kearney and Professor Abraham suggest that being cautious about raising the minimum wage, which could price some workers out of jobs, and reforming disability insurance to encourage recipients to seek jobs.

There is more. Discouraging the overprescription of painkillers seems like an obvious choice, given Professor Krueger’s findings. There is also a clear list of things not to be done.

For instance, restricting immigration is not the smartest policy when workers are scarce. Raising barriers to imports — inviting retaliation from trading partners — is exactly the wrong approach, especially now that the workers in cheap labor markets that put such pressure on American jobs promise to become big consumers of things made in America.

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If the goal is to protect economic growth and to give American workers a shot at a new golden age of employment, closing the door on the world economy is not the solution.

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Article source: https://www.nytimes.com/2017/09/19/business/economy/labor-shortage.html?partner=rss&emc=rss

Push for Nafta Overhaul May Fall Short, U.S. Negotiator Says

But reaching an accord looks increasingly difficult as the administration continues to push for ambitious changes that rankle Mexican and Canadian counterparts. Those include setting new requirements for the use of American-made goods and lowering barriers to exporting American agricultural products.

The White House is particularly eager to show progress on the trade agenda — one of President Trump’s signature campaign issues — given the failure of Congress to repeal and replace the Affordable Care Act and the uncertainty about tax reform.

For a new Nafta pact to be approved by lawmakers in the three countries, negotiators say it needs to be largely concluded by the end of the year. They fear approval could be complicated by a series of events, including Mexico’s presidential election on July 1, 2018, midterm elections in the United States and provincial elections in Canada.

Legislation authorizing Congress to pass a trade deal with a simple up-or-down vote is also scheduled to expire in July.

“The political calendar is such that if we don’t get a deal more or less by the end of the year… it will get harder and harder,” Commerce Secretary Wilbur Ross, who helps lead the trade agenda, said last week.

New proposals by the Trump administration are adding pressure to the already complex negotiations.

Last week, Mr. Ross told an audience that the administration was considering adding a “sunset clause” to the North American pact. Under such a measure, the agreement would terminate after five years unless all three countries voted to continue it.

Canadian officials and business community representatives have expressed concern about a temporary pact.

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David MacNaughton, Canada’s ambassador to the United States, criticized the provision. “If every marriage had a five-year sunset clause, I think our divorce rate would be a heck of a lot higher than it is right now,” he said.

Chad Bown, a trade analyst at the Peterson Institute for International Economics, said a sunset provision would create so much uncertainty that businesses might end up ignoring Nafta altogether in their planning. It can take years for businesses to recoup the returns from investments, by which time Nafta might no longer exist.

A Canadian government official briefed on the negotiations, speaking on condition of anonymity, said that Canadians were surprised by the proposal. Mexican officials could not immediately be reached for comment.

Mr. Lighthizer, the trade representative, declined to comment Monday on whether the administration would seek to add the five-year limitation to Nafta.

Also hanging over the negotiations is Mr. Trump’s ongoing threat to pull out of Nafta — an outcome that economists say would be a blow to industries whose supply chains stretch across the continent.

While Mr. Trump has the support of labor unions on trade, many business and agricultural groups have argued that withdrawing from Nafta could cut them off from major export markets and devastate their businesses.

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Article source: https://www.nytimes.com/2017/09/18/business/economy/nafta-negotiator.html?partner=rss&emc=rss

G.M. Workers Strike in Canada as Mexico Jobs Raise Tension

The Equinox is in an increasingly popular market segment where it competes against two vehicles also built in Ontario: the Toyota RAV4 and the Honda CRV. According to Automotive News, the Equinox’s year-over-year sales through August were up 17 percent in the United States and 40 percent in Canada. American G.M. dealers have enough Equinoxes in stock to cover 53 days of sales compared with an average of 82 days for all other Chevrolet models, according to the trade publication.

The company spent 800 million Canadian dollars (about $660 million) on new facilities and tooling at Ingersoll for the current version of the Equinox.

The factory is owned by General Motors, but it was originally used in a joint venture with Suzuki. That means its workers are not covered by the union agreement that Unifor reached with G.M. last year for its other Canadian plants.

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Tensions over different work rules in Ingersoll gave the factory a reputation for labor militancy during the joint-venture years.

As a priority in the G.M. negotiations, as in talks with automakers last year, Unifor has sought a commitment to continue and expand production in Canada.

In July, Unifor, Canada’s largest private-sector union, held what it called a town-hall meeting in Ingersoll demanding that the current renegotiation of the North American Free Trade Agreement lead to greater job protection for Canadian factory workers. Industrial production in Canada, and Ontario in particular, has shifted toward both the United States and Mexico under Nafta, in addition to the general global shifts toward other countries, particularly China.

Mr. Dias, echoing President Trump to some extent, blames Mexican wages and employment standards for the lost jobs in Canada.

“Look, Canada and the U.S. agree that the problem isn’t us — especially in the auto sector,” Mr. Dias said last month in an interview with The Windsor Star, the newspaper in an auto town that has lost all its G.M. plants. “The problem is Mexico.”

He added: “The whole argument that opening up markets is somehow going to benefit working-class people — Nafta has shown that isn’t true.”

Follow Ian Austen on Twitter: @ianrausten

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Article source: https://www.nytimes.com/2017/09/18/business/general-motors-strike-canada.html?partner=rss&emc=rss

Bump in U.S. Incomes Doesn’t Erase 50 Years of Pain

“Over the past five decades, Middle America has been stagnant in terms of its economic growth,” said Mark Rank, a professor of social work at Washington University in St. Louis. In 1973, the inflation-adjusted median income of men working full time was $54,030. In 2016, it was $51,640 — roughly $2,400 lower. A big chunk of that group — white working-class men — formed a critical core of support for Mr. Trump, who spoke to their economic anxieties and promised changes in trade, immigration and tax policies as a solution.

As in an Agatha Christie mystery, the potential culprits behind the long-term trends are many — global competition, technological advances, trade imbalances, a mismatch of skills, the tax system, housing prices, factory shutdowns, excessive regulation, Wall Street pressure, the erosion of labor unions and more. Most of the suspects, if not all, are likely to have played some role.

Widening Generation Gap

The median income a man would earn over his career peaked with those who entered the work force in 1967 and has declined 19 percent since then. Those with lower incomes have fared even worse while those at the very top have increased.

Annualized lifetime income of men

Adjusted for inflation

$140

thousand

95th percentile

+4%

120

Change

from 1967

100

80

75th

–10%

60

Median

–19%

40

25th

–24%

20

5th

–27%

0

1957

1967

1975

1983

Year men entered the work force (at age 25)

Data through 2013

But the forces undermining the middle class may reach back farther than many economists have thought. The latest evidence comes from a group of researchers at universities and the Social Security Administration who have been tracking the earnings of hundreds of millions of individuals over their careers.

Starting with 1957, the team looked at actual earnings during the prime working years — the ages of 25 to 55. For a while, it saw a clear pattern: Younger men could expect to make more over their lives than older ones. Every year the starting rewards were higher and kept growing. So men who turned 25 in, say, 1960 would end up with a higher median cumulative income by 55 than men who had turned 25 in 1959. And the ’59ers would, in turn, do better over three decades than those who had turned 25 in 1958.

But that steady progress stopped in the late 1960s. Then, instead of increasing, lifetime earnings for men made an about-face and began to decline. They have been dropping pretty much ever since. The result was that a 25-year-old man who entered the work force in 1967 and worked for the next three decades earned as much as $250,000 more, after taking inflation into account, than a man who had the same type of career but was 15 years younger.

“That’s enough to buy a medium-size house in the United States,” said Fatih Guvenen, an economist at the University of Minnesota and a co-author of the study. “That is what you are missing from one generation to the next generation.”

And the trend appears to be continuing. “Every new cohort made less in median lifetime income than the previous one,” Mr. Guvenen said.

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The result is widening lifetime inequality as well. That’s because nearly all of the financial gains have been funneled to those at the top of the income scale. For four out of five men, there was no real growth.

“And it all starts at age 25,” Mr. Guvenen said. The decline in lifetime earnings is largely a result of lower incomes at younger ages rather than at older ages, he said, and “that was very surprising to us.”

Most younger men ended up with less because they started out earning less than their counterparts in previous years, and saw little growth in their early years. They entered the work force with lower wages and never caught up.

Photo
A check cashing store in New York. Since the 1950s, lifetime income has not changed for three-quarters of working Americans. Credit Spencer Platt/Getty Images

According to one conservative measure of inflation, in 1967, the median income at age 25 was $33,300; in 1983, it was $29,000. Twenty-five-year-olds did better during the 1990s, but then the slide returned. In 2011, the median income for 25-year-old men was less than $25,000 — pretty much the same as it was in 1959.

The picture for women looks different because so many more of them started at a disadvantage: Few worked full time in the 1950s, and those who did earned below-average wages. As more women entered the work force over the decades, their lifetime earnings rose. But more recently, as the share of women working has leveled off, their lifetime income gains, too, have slowed.

The result is that, since the 1950s, three-quarters of working Americans have seen no change in lifetime income. Health and retirement benefits have made up some of the lost ground, but far from all of it.

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The recent progress reported by the Census Bureau doesn’t conflict with this story. As the bureau explained, the income gains came mostly because more people were working full time. Roughly 2.2 million more adults had full-time jobs in 2016 than in 2015.

To Mr. Guvenen, the research indicates that the political debates in Washington centered on earnings and employment have been too narrow. Given the early roots of lifetime income disparities, he said, more attention should be paid to what is going on even before people start entering the work force.

“Our findings suggest that both the stagnation of median lifetime income for men, and the increase in lifetime income inequality for men and women, can be traced to changes that newer cohorts have experienced before age 25,” the research team concluded.

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That would mean looking at policies directly related to the family and education.

Certainly the kinds of jobs and salaries that high school graduates used to be able to command have dived. “That’s the single most important reason we’re having so much trouble,” said Ron Haskins, a senior fellow at the Brookings Institution. “You have to have better skills and more knowledge to make $60,000 to $80,000 a year now than in the past.”

The shrinking rewards of a high school education help explain not only the stress that Americans in the work force are feeling, but also why a larger proportion of men have dropped out altogether during their prime working ages. Work doesn’t pay off the way it used to.

That’s a problem produced not just by the labor market, but also by the educational system, Mr. Haskins said. “We have a lot of people who are very difficult to educate and tend to drop out,” he said. Minorities are especially vulnerable. Without changing that dynamic, he said, it is going to be difficult to halt the hollowing out of the middle class.

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Article source: https://www.nytimes.com/2017/09/16/business/economy/bump-in-us-incomes-doesnt-erase-50-years-of-pain.html?partner=rss&emc=rss

Douglas Dowd, 97, Antiwar Activist and Critic of Capitalism Is Dead

Beginning in the mid-1960s, Professor Dowd struggled to unify the fractious antiwar movement behind marathon campus teach-ins and debates, civil disobedience and nonviolent public protests. (He told The Boston Globe in 1970 that leftist bomb-throwers were serious, committed and desperate people who had “given up the idea that a movement can get anyplace without violence.”)

He repeatedly reminded students that universities were not isolated havens but “an integral and functioning part of an American socio-economic-military system,” and he argued that some radical groups had failed because they never ventured beyond the college gates to confront the real world.

“You can’t fight imperialism on campus, you can’t fight racism on campus,” Professor Dowd said. “You can only fight their manifestations.”

The role of the university, he wrote in an Op-Ed article in The New York Times in 1971, is to become a place where “re-examination, uncertainty, change and conflict become an integral part of what is studied.”

He mentored budding academicians and dissidents, including Daniel Ellsberg, the military analyst who delivered to The Times a secret government history of the Vietnam War, which became known as the Pentagon Papers after it was published in 1971.

Photo
Douglas Dowd in 1960. Credit Cornell University Library Division of Rare and Manuscript Collections

“As I could say also of Noam Chomsky and Howard Zinn,” Mr. Ellsberg wrote in 2004, “there’s no one in my life from whom I’ve learned more than my friend and mentor Douglas Dowd.”

Bruce Dancis, Professor Dowd’s friend and former student and the author of “Resister: A Story of Protest and Prison During the Vietnam War” (2013), recalled in an interview: “Doug opened up new ideas of looking at the world, of not accepting the established order as the way things had to remain. He was dealing with people half his age, and we must have made plenty of mistakes that made him cringe, but he was never condescending.”

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Douglas Fitzgerald Dowd was born in San Francisco on Dec. 7, 1919, to Mervyn Dowd, a lawyer, and the former Sybil Seid.

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He graduated with a bachelor’s degree in economics from the University of California, Berkeley, in 1949 and later earned a doctorate there.

In addition to his wife, he is survived by two children, Jeff and Jenny Dowd, from his marriage to Zirel Druskin, which ended in divorce; and two grandchildren.

He joined the Cornell faculty in 1953 and taught there through 1970, serving as chairman of the economics department. He also taught at San Jose State University, the University of California, at Berkeley and at Santa Cruz, and, in Italy, the University of Modena and the Johns Hopkins University School of Advanced International Studies Bologna Center.

He ventured into electoral politics briefly in 1968 when he reluctantly agreed to be nominated in New York for vice president,as Eldridge Cleaver’s running mate, by the Peace and Freedom Party, a loose coalition of radical leftists and Black Panthers. He agreed to join the ticket, he said, only to thwart the nomination of Jerry Rubin, the Yippie leader whom Professor Dowd considered a publicity hound prone to violence. (Because of several election law twists, though, he and Mr. Cleaver never made it onto the ballot.)

In 1970, Professor Dowd, as co-chairman of the New Mobilization Committee to End the War in Vietnam, joined Professor Chomsky (like Professor Zinn, a historian and social critic) and other antiwar spokesmen on a visit to North Vietnam.

Later that year, the House Internal Security Committee identified Professor Dowd as one of 65 “radical and/or revolutionary” campus speakers.

In his “U.S. Capitalist Development Since 1776: Of, by and for Which People?” (1993), Professor Dowd wrote that capitalism requires expansion and exploitation. He suggested that the Cold War was less a necessary response to contain communism than a strategy to spread capitalism.

“Well before World War I, the philosopher William James, apprehensive of what lay ahead, said, ‘We must find the moral equivalent of war’ to give unity and direction to our society,” Professor Dowd wrote. “Now we must find the moral equivalent of cold war.”

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Article source: https://www.nytimes.com/2017/09/13/us/politics/douglas-dowd-97-antiwar-activist-and-critic-of-capitalism-is-dead.html?partner=rss&emc=rss

The Shkreli Syndrome: Youthful Trouble, Tech Success, Then a Fall

In light of the recent troubles of Mr. Shkreli and other scandal-ridden entrepreneurs like Travis Kalanick, the former Uber chief executive, and Parker Conrad, a founder and ousted chief executive of the multibillion-dollar human resources software firm Zenefits, the question is whether youthful rule-breaking might have foreshadowed not only their rise, but also their fall.

Photo
Martin Shkreli leaving federal court in Brooklyn last month as a jury deliberated in his fraud case. Credit Louis Lanzano for The New York Times

It is perhaps not surprising that longtime rebels like Mr. Kalanick — who has boasted of being among the first peer-to-peer file-sharing “pirates” when he was in his early 20s — would be inclined toward entrepreneurship. It is a calling that, in the often repeated narrative of the economist Joseph Schumpeter, rewards those who upend the established order.

“As the brain matures, I think the energy in terms of breaking rules is focused toward ‘I can do that better’ as opposed to ‘I’m going to take a pair of sneakers,’ ” said Professor Levine, who published a peer-reviewed paper on the topic with Professor Rubinstein in a top journal this year. Both men are experts on entrepreneurship, and Professor Rubinstein also studies human capital.

The problem is that the psychological forces that drive teenagers to break rules may not be so easily channeled later on.

Laurence Steinberg, a Temple University professor and an expert on the psychological development of adolescents, cited a phenomenon known as “moral disengagement,” in which people rationalize behavior at odds with their own principles. A teenager who steals a pair of sneakers, for example, may tell himself that the manufacturer was overcharging consumers.

Studies have shown that such moral disengagement frequently enables wrongdoing, and that it can survive into adulthood. According to Professor Steinberg, entrepreneurs who are prone to moral disengagement may continue to break actual rules, not just metaphorical ones.

“You think the regulations are uncalled-for,” he said. “Even though you might be breaking them, you’re really not doing a bad thing, because they were bad regulations.”

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Such behavior is often encouraged in Silicon Valley. For years, many technology investors applauded Uber’s practice of operating without the approval of local regulators, and then exploiting the company’s popularity among riders to bring about changes to the rules.

Photo
Travis Kalanick, the former chief executive of Uber, at an event marking the company’s fifth anniversary in 2015. Credit Robert Galbraith/Reuters

Or consider the early days of the financial technology and payments company Square, which used a credit card account one of its founders set up for one business to handle payments for other businesses that lacked such accounts.

The practice sometimes ran afoul of credit card company rules, but Square pressed ahead, demonstrating that small businesses would pay for a service that made it cheap and easy to accept credit card payments. “If you don’t do it, you can’t test whether people even like the concept,” said Greg Kidd, who was an adviser to the company. Mr. Kidd noted that Square soon raised $10 million from enthusiastic investors.

While such rule-breaking may be legitimate in certain circumstances — the major credit card companies eventually altered the restrictions on the use of business credit card accounts, allowing Square to get off the ground — the financial rewards for operating this way can reinforce a tendency toward shiftiness.

There are two factors that make it even more tempting to fudge ethical questions: the relative lack of oversight at start-ups, and the enormous risk of failure.

“Entrepreneurial businesses are often in crises, due to high levels of environmental uncertainty, the large number of actual or potential competitors, and the significant amounts of financial capital needed to compete,” said a 2015 article in The Journal of Business Ethics. “Moral disengagement can cognitively pave the way and increase the likelihood that these dilemmas will be resolved unethically.”

In effect, entrepreneurship takes people who, as a group, are prone to breaking actual rules and putting them in a setting that constantly encourages them to do so.

Mr. Shkreli, who is to be sentenced in January for defrauding investors in two hedge funds he managed — and had his bail revoked on Wednesday after offering a bounty for a strand of Hillary Clinton’s hair — has played down his wrongdoing.

Photo
Parker Conrad, founder and ousted chief executive of the multibillion-dollar human resources software firm Zenefits. Credit Jim Wilson/The New York Times

“He did it, and it worked, and they got paid,” one of his lawyers said in court, arguing that Mr. Shkreli made his hedge fund investors whole partly by using stock from his pharmaceutical company. Professor Steinberg called it a clear example of moral disengagement. (The lawyer, Benjamin Brafman, said that Mr. Shkreli never intended to defraud anyone.)

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Mr. Conrad, who was ousted as chief executive of Zenefits last year after it was disclosed that he had created a tool to help insurance brokers evade state training requirements, was not averse to rule-breaking as a younger man. He was asked to leave Harvard for a year after rarely showing up to class and earning terrible grades. He eventually returned and graduated.

(An investigation commissioned by the Zenefits board concluded that the requirements the tool helped brokers evade were not substantive.)

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Mr. Conrad’s flaws as a manager may have been evident at Zenefits, whose motto was “Ready, Fire, Aim,” long before his downfall. Not least by Mr. Conrad himself, who confessed in a 2014 interview that his sluggish approach to hiring senior executives meant “balls are getting dropped.” Investors lined up to give the company money anyway.

Of course, youthful wrongdoing is hardly destiny when it comes to adult rule-breaking, as Professor Levine, the economist, pointed out. While he was at Harvard, the Facebook founder Mark Zuckerberg was summoned before an administrative board over allegations that he had hacked into university websites. But he appears to have matured over time, even retiring the “move fast and break things” motto in 2014.

These days, many venture capitalists spend as much time assessing what kind of troublemaker an entrepreneur may be as they do assessing a business’s revolutionary potential.

“We do want them to be rule-breakers,” said David Golden, who helps run the venture capital arm of Revolution, the investment firm of the AOL co-founder Steve Case. “We don’t want them to be felons.”

Photo
Mark Zuckerberg, founder of Facebook, meeting with software developers and entrepreneurs in Nigeria last year. He once defined the company’s ethos as “move fast and break things,” but later retired the slogan. Credit Andrew Esiebo for The New York Times

Mr. Golden admitted, however, that such judgments can be flawed. He cited a software company that Revolution agreed to finance in 2014, only to discover that the founder had misrepresented certain companies as customers. (The firm did not go through with the investment, he said.)

To eliminate subjectivity, some people have tried to quantify an optimal willingness to break rules. Before he started his venture capital fund, Switch Ventures, Paul Arnold collected data on roughly 12,000 start-ups with the goal of identifying the profiles of entrepreneurs that were most strongly associated with success.

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Mr. Arnold’s most striking finding involved start-ups where at least one founder had worked at the consulting firm McKinsey Company.

He studied nearly 1,000 such companies and discovered that start-up founders who left McKinsey after about three to four years tended to be extremely successful, but that those who stayed a lot longer were close to average. He concluded that the first group had the platonically ideal capacity for rule-breaking: They were sufficiently fluent in rule-following to hold a job at McKinsey but “didn’t like the strictures and kind of resisted it.”

But even Mr. Arnold, whose intuition on these questions was honed not just by statistics but by life experience — he was a two-time high-school dropout who was often in trouble for things like smoking marijuana before eventually finding his way to law school — admitted that he might have missed the warning signs with Mr. Kalanick.

While he was chief executive of Uber, the company developed a tool to evade regulators, had dozens of employees allege sexual harassment or discrimination, and was accused by a rival of stealing intellectual property.

“The Uber story is that the initial rule-breaking was innovation,” Mr. Arnold said. “But it was a slippery slope. They broke the next one and the next one, and were doing less and less ethical things.”

“I don’t know,” he confessed. “It’s a tricky topic.”

Lauren Herstik contributed reporting, and Doris Burke contributed research.

Follow Noam Scheiber on Twitter: @noamscheiber

A version of this article appears in print on September 15, 2017, on Page B1 of the New York edition with the headline: Young Rebels Who Rise, Then Fall.

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Article source: https://www.nytimes.com/2017/09/14/business/entrepreneur-young-trouble.html?partner=rss&emc=rss

Young Troublemakers Who Rise (and Fall) as Entrepreneurs

In light of the recent troubles of Mr. Shkreli and other scandal-ridden entrepreneurs like Travis Kalanick, the former Uber chief executive, and Parker Conrad, a founder and ousted chief executive of the multibillion-dollar human resources software firm Zenefits, the question is whether youthful rule-breaking might have foreshadowed not only their rise, but also their fall.

Photo
Martin Shkreli leaving federal court in Brooklyn last month as a jury deliberated in his fraud case. Credit Louis Lanzano for The New York Times

It is perhaps not surprising that longtime rebels like Mr. Kalanick — who has boasted of being among the first peer-to-peer file-sharing “pirates” when he was in his early 20s — would be inclined toward entrepreneurship. It is a calling that, in the often repeated narrative of the economist Joseph Schumpeter, rewards those who upend the established order.

“As the brain matures, I think the energy in terms of breaking rules is focused toward ‘I can do that better’ as opposed to ‘I’m going to take a pair of sneakers,’” said Professor Levine, who published a peer-reviewed paper on the topic with Professor Rubinstein in a top journal this year. Both men are experts on entrepreneurship, and Professor Rubinstein also studies human capital.

The problem is that the psychological forces that drive teenagers to break rules may not be so easily channeled later on.

Laurence Steinberg, a Temple University professor and an expert on the psychological development of adolescents, cited a phenomenon known as “moral disengagement,” in which people rationalize behavior at odds with their own principles. A teenager who steals a pair of sneakers, for example, may tell himself that the manufacturer was overcharging consumers.

Studies have shown that such moral disengagement frequently enables wrongdoing, and that it can survive into adulthood. According to Professor Steinberg, entrepreneurs who are prone to moral disengagement may continue to break actual rules, not just metaphorical ones.

“You think the regulations are uncalled-for,” he said. “Even though you might be breaking them, you’re really not doing a bad thing, because they were bad regulations.”

Advertisement

Continue reading the main story

Such behavior is often encouraged in Silicon Valley. For years, many technology investors applauded Uber’s practice of operating without the approval of local regulators, and then exploiting the company’s popularity among riders to bring about changes to the rules.

Photo
Travis Kalanick, the former chief executive of Uber, at an event marking the company’s fifth anniversary in 2015. Credit Robert Galbraith/Reuters

Or consider the early days of the financial technology and payments company Square, which used a credit card account one of its founders set up for one business to handle payments for other businesses that lacked such accounts.

The practice sometimes ran afoul of credit card company rules, but Square pressed ahead, demonstrating that small businesses would pay for a service that made it cheap and easy to accept credit card payments. “If you don’t do it, you can’t test whether people even like the concept,” said Greg Kidd, who was an adviser to the company. Mr. Kidd noted that Square soon raised $10 million from enthusiastic investors.

While such rule-breaking may be legitimate in certain circumstances — the major credit card companies eventually altered the restrictions on the use of business credit card accounts, allowing Square to get off the ground — the financial rewards for operating this way can reinforce a tendency toward shiftiness.

There are two factors that make it even more tempting to fudge ethical questions: the relative lack of oversight at start-ups, and the enormous risk of failure.

“Entrepreneurial businesses are often in crises, due to high levels of environmental uncertainty, the large number of actual or potential competitors, and the significant amounts of financial capital needed to compete,” said a 2015 article in The Journal of Business Ethics. “Moral disengagement can cognitively pave the way and increase the likelihood that these dilemmas will be resolved unethically.”

In effect, entrepreneurship takes people who, as a group, are prone to breaking actual rules and putting them in a setting that constantly encourages them to do so.

Mr. Shkreli, who is to be sentenced in January for defrauding investors in two hedge funds he managed — and had his bail revoked on Wednesday after offering a bounty for a strand of Hillary Clinton’s hair — has played down his wrongdoing.

Photo
Parker Conrad, founder and ousted chief executive of the multibillion-dollar human resources software firm Zenefits. Credit Jim Wilson/The New York Times

“He did it, and it worked, and they got paid,” one of his lawyers said in court, arguing that Mr. Shkreli made his hedge fund investors whole partly by using stock from his pharmaceutical company. Professor Steinberg called it a clear example of moral disengagement. (The lawyer, Benjamin Brafman, said that Mr. Shkreli never intended to defraud anyone.)

Advertisement

Continue reading the main story

Mr. Conrad, who was ousted as chief executive of Zenefits last year after it was disclosed that he had created a tool to help insurance brokers evade state training requirements, was not averse to rule-breaking as a younger man. He was asked to leave Harvard for a year after rarely showing up to class and earning terrible grades. He eventually returned and graduated.

(An investigation commissioned by the Zenefits board concluded that the requirements the tool helped brokers evade were not substantive.)

Newsletter Sign Up

Continue reading the main story

Mr. Conrad’s flaws as a manager may have been evident at Zenefits, whose motto was “Ready, Fire, Aim,” long before his downfall. Not least by Mr. Conrad himself, who confessed in a 2014 interview that his sluggish approach to hiring senior executives meant “balls are getting dropped.” Investors lined up to give the company money anyway.

Of course, youthful wrongdoing is hardly destiny when it comes to adult rule-breaking, as Professor Levine, the economist, pointed out. While he was at Harvard, the Facebook founder Mark Zuckerberg was summoned before an administrative board over allegations that he had hacked into university websites. But he appears to have matured over time, even retiring the “move fast and break things” motto in 2014.

These days, many venture capitalists spend as much time assessing what kind of troublemaker an entrepreneur may be as they do assessing a business’s revolutionary potential.

“We do want them to be rule-breakers,” said David Golden, who helps run the venture capital arm of Revolution, the investment firm of the AOL co-founder Steve Case. “We don’t want them to be felons.”

Photo
Mark Zuckerberg, founder of Facebook, meeting with software developers and entrepreneurs in Nigeria last year. He once defined the company’s ethos as “move fast and break things,” but later retired the slogan. Credit Andrew Esiebo for The New York Times

Mr. Golden admitted, however, that such judgments can be flawed. He cited a software company that Revolution agreed to finance in 2014, only to discover that the founder had misrepresented certain companies as customers.

To eliminate subjectivity, some people have tried to quantify an optimal willingness to break rules. Before he started his venture capital fund, Switch Ventures, Paul Arnold collected data on roughly 12,000 start-ups with the goal of identifying the profiles of entrepreneurs that were most strongly associated with success.

Advertisement

Continue reading the main story

Mr. Arnold’s most striking finding involved start-ups where at least one founder had worked at the consulting firm McKinsey Company.

He studied nearly 1,000 such companies and discovered that start-up founders who left McKinsey after about three to four years tended to be extremely successful, but that those who stayed a lot longer were close to average. He concluded that the first group had the platonically ideal capacity for rule-breaking: They were sufficiently fluent in rule-following to hold a job at McKinsey but “didn’t like the strictures and kind of resisted it.”

But even Mr. Arnold, whose intuition on these questions was honed not just by statistics but by life experience — he was a two-time high-school dropout who was often in trouble for things like smoking marijuana before eventually finding his way to law school — admitted that he might have missed the warning signs with Mr. Kalanick.

While he was chief executive of Uber, the company developed a tool to evade regulators, had dozens of employees allege sexual harassment or discrimination, and was accused by a rival of stealing intellectual property.

“The Uber story is that the initial rule-breaking was innovation,” Mr. Arnold said. “But it was a slippery slope. They broke the next one and the next one, and were doing less and less ethical things.”

“I don’t know,” he confessed. “It’s a tricky topic.”

Lauren Herstik contributed reporting, and Doris Burke contributed research.

Follow Noam Scheiber on Twitter: @noamscheiber

Continue reading the main story

Article source: https://www.nytimes.com/2017/09/14/business/entrepreneur-young-trouble.html?partner=rss&emc=rss

After Irma, a Grim Sense of Déjà Vu in St. Augustine

St. Augustine changed hands between the Spanish, the British and the Americans over its long history and, in the late 1800s, Henry M. Flagler, a founder of Standard Oil, began to open hotels. One of those hotels turned into Flagler College, and St. Augustine has become an idyllic city of colleges, museums and tourism.

But on Wednesday, some of the hotels were draining themselves of floodwater and piling mattresses outside. The Lightner Museum, a downtown gem, was closed because it had flooded, and an apparently unmoored sailboat called the Celebration, its mast snapped, was floating in the middle of the river.

Irma’s destruction has left residents and business owners here with a grim sense of déjà vu, especially in the Davis Shores neighborhood, a development across the river, where Leo Guenther looked at the debris piled in front of his house — bathroom cabinets, interior doors, and two twin mattresses — and shook his head.

“All that stuff,” he said, “is new since Hurricane Matthew.”

The shock of a double whammy has extended elsewhere in St. Johns County, where, on Wednesday, inland rivers were still flooding and, north of St. Augustine, and parts of oceanside homes made more vulnerable by Hurricane Matthew had tumbled onto the sand.

“This was our chance to get our beach house,” said Theresa Forrester, a retired postal worker who in June had bought a waterfront home in Ponte Vedra Beach that had lost part of its retaining wall to Hurricane Matthew. She and her partner, Larry Edwards, planned to rehabilitate it. But she said the permit to fix the wall had not come in time, and so Irma had chewed up the houses’s garage and workshop and spit the pieces out onto the sand — and ripped off siding and roof shingles to boot.

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Article source: https://www.nytimes.com/2017/09/13/us/st-augustine-irma-flood.html?partner=rss&emc=rss