March 26, 2023

Fair-Trade Movement Extends to Clothing

With fair-trade coffee and organic fruit now standard on grocery shelves, consumers concerned with working conditions, environmental issues and outsourcing are now demanding similar accountability for their T-shirts. And some retailers are doing what was once unthinkable, handing over information about exactly how, and where, their products were made.

Everlane, an online boutique, last week added paragraphs to its Web site describing the factories where its products are made.

Nordstrom says it is considering adding information about clothes produced in humane working conditions.

An online boutique breaks down the number of workers involved in making each garment and the cost of every component, while a textiles company intends to trumpet the fair-trade origins of its bathrobes when Bed Bath Beyond starts selling them this month.

And a group of major retailers and apparel companies, including some — like Nike and Walmart — with a history of controversial manufacturing practices overseas, says it is developing an index that will include labor, social and environmental measures.

New research indicates a growing consumer demand for information about how and where goods are produced. A study last year by professors at the Massachusetts Institute of Technology and Harvard showed that some consumers — even those who were focused on discount prices — were not only willing to pay more, but actually did pay more, for clothes that carried signs about fair-labor practices.

“There’s real demand for sweat-free products,” said Ian Robinson, a lecturer and research scientist at the University of Michigan who studies labor issues. Consumers “don’t have the information they need, and they do care.”

The garment factory collapse that killed more than 800 workers in Bangladesh last month has added urgency to the movement, as retailers have seen queries stream in from worried customers.

“In the clothing industry, everybody wears it every day, but we have no idea where it comes from,” said Michael Preysman, Everlane’s chief executive and founder. “People are starting to slowly clue in to this notion of where products are made.”

Major retailers have long balked at disclosing the full trail, saying that sourcing is inherently complex — a sweater made in Italy may have thread, wool and dye from elsewhere. Another reason: Workplace protections are expensive, and cheap clothes, no matter where or how they are manufactured, still sell, as HM, Zara and Joe Fresh show through their rapid expansion.

But labor advocates note that consumers’ appetite for more information may put competitive pressure on retailers who are less than forthcoming. In recent weeks, government officials, including Chancellor Angela Merkel of Germany, and labor and consumer advocates have cited the Bangladesh collapse in calling for the adoption of fair-trade standards or labeling. In direct response to what happened in Bangladesh, Everlane added information to its Web site about the factories where its clothing is made. “This factory is located 10 minutes from our L.A. office,” one description for a T-shirt reads . “Mr. Kim, the owner, has been in the L.A. garment business for over 30 years.”

Everlane says it will soon add cost breakdowns for all of its clothing, along with photographs of factories where that clothing is made and information about the production.

Mr. Preysman says Everlane has long received questions from customers “around where the products are sourced from and how we can tell that the labor is good.” It is an inexact science, he said. But he added that he looks for factories certified by independent outside organizations and has executives spend time with a factory’s owner to see if he or she “is a decent human being.”

Honest By, a high-fashion site introduced last year, includes even more specific information about its products. Take a cotton shirt that costs about $320: it took 33 minutes to cut, 145 minutes to assemble and 10 minutes to iron at a Belgian factory, then the trim took an additional 10 minutes at a Slovenian plant. The safety pin cost 4 cents, and transportation about $10.50.

Bruno Pieters, the site’s founder, said by e-mail that “as long as we keep paying companies to be unsustainable and unethical, they will be.” But, he said, that may be changing. He cited a spike in sales that he asserted was in response to issues raised by recent overseas sourcing disasters.

Lush Cosmetics, a company based in Britain, has added video from its factories and photographs from buying trips to places like Kenya and Ghana to its Facebook page. Simon Constantine, head perfumer and ethical buyer, said he would like to add links to the factories Lush buys from, to encourage other cosmetics companies to support them.

Nordstrom said it had provided factory information in response to shoppers’ calls, and was considering going a step further, said Tara Darrow, a spokeswoman. The Nordstrom Web site specifies eco-friendly products, “so how can we do the same with people-friendly?” Ms. Darrow asked. “Hearing from customers and knowing they care definitely compels us to want to do more.”

A variety of groups are working on new apparel industry labor standards.

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Bucks Blog: An Emotional Investment in Saving for College

One of the first things we did when our children were born was contribute to a state-sponsored 529 college savings plan for each of them. Saving for their education is, for us, as much of an emotional investment as a financial one.

As we’ve tracked the growing balance in their accounts over the years, we let our minds wander about what colleges they’ll attend — and how much they’ll love it when their parents visit them on campus. We do pause when we look at the cost of college, and read about the burden of debt many students now bear. But we figure we’re planning for at least part of that expense.

We both want our children to attend the best college possible, of course. I lean toward a smallish, liberal arts institution — like some of the colleges that participate in the Private College 529 Plan, the subject of a article I wrote for the Your Money section. (Unlike most 529 plans, which work on a traditional savings and investment model, the private plan lets you prepay future tuition at a group of private colleges, at today’s rates.)

My husband, though, is less certain that a private undergraduate degree is the route to success, especially as costs skyrocket. He reasons that we both graduated from a big public university, and we’ve managed to have (mostly) successful careers and (generally) interesting lives.

The truth, of course, is that at some point our children will weigh in with their preferences — and as parents, we have dwindling influence over decisions made by our offspring, as they near adulthood. Parents can advise and cajole, but in the end the student will probably find a way to go where he or she wants to go.

The private college plan lets you prepay tuition at more than 270 private institutions – some quite prestigious and selective, like Princeton and the Massachusetts Institute of Technology — at current rates. It holds appeal for parents who, like me, have a certain image of what college should be: one-on-one interaction with brilliant yet accessible faculty, late-night debates with bright classmates. I got some of that at a big state university — along with plenty of mass lecture halls and a Darwinian approach to student retention. My husband argues that that’s exactly the point: A big public university teaches you how to make your own way. But I also saw students drown in that sink-or-swim environment. So a more contained campus has appeal for me.

The catch with the Private College 529 plan is that your child has to gain acceptance to a participating institution. It’s true that less selective colleges participate, but it’s the headliners that grab parents’ attention. And when your children are babies, you don’t know — if you’re honest with yourself — what kind of students they’ll be as teenagers.

That’s why, despite the greater savings to be had by contributing early, it’s a leap for many families to buy into a private, prepaid plan when their children are young. One option to consider, though, is to use the plan as a sort of hedge, when your child is older and you have a better sense of what kind of college might suit him or her. (You have to save some funds in other ways anyway, since the private plan doesn’t cover costs like room and board.) Then, you can shift some funds into the plan and use it to fend off a few years of tuition increases. And if your child opts for a state university instead, you haven’t bet the farm on a specific college experience that, in the end, wasn’t right for your child.

How are you saving for your child’s education? Would  you consider the Private College 529 plan?

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Economic Scene: Medicare Needs Fixing, but Not Right Now

It might not be a good idea to try to resolve these questions quite so urgently. Partisan bickering under the threat of automatic budget cuts is unlikely to produce a calm, thoughtful deal.

“We don’t have to solve this tomorrow; not even next year,” said Jonathan Gruber, an economist at the Massachusetts Institute of Technology who worked on the design of President Obama’s health care reform.

More significantly perhaps, some economists point out that the problem may already be on the way toward largely fixing itself. The budget-busting rise in health care costs, it seems, is finally losing speed. While it would be foolhardy to assume that this alone will stabilize government’s finances, the slowdown offers hope that the challenge may not be as daunting as the frenzied declarations from Washington make it seem.

The growth of the nation’s spending slowed sharply over the last four years. This year, it is expected to increase only 3.8 percent, according to the Centers for Medicare and Medicaid Services, the slowest pace in four decades and slower than the rate of nominal economic growth.

Medicare spending is growing faster — stretched by baby boomers stepping out of the work force and into retirement. But its pace has slowed markedly, too. Earlier this month, the Congressional Budget Office said that by 2020 Medicare spending would be $126 billion less than it predicted three years ago. Spending over the coming decade, it added, would be $143 billion less than it forecast just last August.

While economists acknowledge that the recession accounts for part of the decline, depressing incomes and consumption, something else also seems to be going on: insurers, doctors, hospitals and other providers are experimenting with new, cheaper and more efficient ways to deliver care.

Prodded by President Obama’s Affordable Care Act, which offers providers a share of savings reaped by Medicare from any efficiency gains, many doctors are dropping the costly practice of charging a fee for each service regardless of its contribution to patients’ health. Doctors are joining hundreds of so-called Accountable Care Organizations, which are paid to maintain patients in good health and are thus encouraged to seek the most effective treatments at the lowest possible cost.

This has kindled hope among some scholars that Medicare could achieve the needed savings just by cleaning out the health care system’s waste.

Elliott Fisher, who directs Dartmouth’s Atlas of Health Care, which tracks disparities in medical practices and outcomes across the country, pointed out that Medicare spending per person varies widely regardless of quality — from $7,734 a year in Minneapolis to $11,646 in Chicago — even after correcting for the different age, sex and race profiles of their populations.

He noted that if hospital stays by Medicare enrollees across the country fell to the length prevailing in Oregon and Washington, hospital use — one of the biggest drivers of costs — would fall by almost a third.

“Twenty to 30 percent of Medicare spending is pure waste,” Dr. Fisher argues. “The challenge of getting those savings is nontrivial. But those kinds of savings are not out of the question.”

We could be disappointed, of course. Similar breakthroughs before have quickly fizzled. Just think back to that brief spell in the mid-1990s when health maintenance organizations seemed to beat health care inflation — until patients rebelled against being denied services and doctors dropped out of their networks rather than accept lower fees.

The Centers for Medicare and Medicaid Services already expects spending to rebound in coming years. Without tougher cost control devices, be it vouchers to limit government spending or direct government rationing, counting on savings of the scale needed to overcome the expected increase in Medicare rolls may be hoping for pie in the sky.

“It makes no sense,” said Eugene Steuerle, an economist at the Urban Institute, to expect the government will reap vast Medicare savings without having an impact on the quality of care.

The Affordable Care Act already contemplates fairly big cuts to Medicare. In its latest long-term projections published last year, the Congressional Budget Office estimated that under current law, growth in spending per beneficiary over the coming decade would be about half a percentage point slower than the rate of economic growth per person.

To understand how ambitious this is, consider that Medicare spending per beneficiary since 1985 has exceeded the growth of gross domestic product per person by about 1.5 percentage points per year. Slowing down that spending would require deep cuts in doctor reimbursements that, though written into law, Congress has never allowed to happen — repeatedly voting to cancel or postpone them.

Under a more realistic situation, the Budget Office projected that the growth of Medicare spending per capita over the next 10 years would be in fact 0.6 percentage points higher than under current law and accelerate further after that.

Yet despite the ambition of these targets, they would not be enough to stabilize future Medicare spending as a share of the economy. A report by three health care policy experts, Michael Chernew and Richard Frank of Harvard Medical School, together with Stephen Parente of the University of Minnesota, concluded that to do that would require limiting the growth of spending per beneficiary at 1.25 percentage points less than the growth of our gross domestic product per person.

“The Affordable Care Act places Medicare spending on a trajectory that is historically low,” Mr. Chernew said, noting his opinion was not an official statement as vice chairman of Medicare’s Payment Advisory Commission, which advises Congress on Medicare. “Could we do better? Of course. Will we? That requires a little more skepticism.”

Yet even if it is unrealistic to expect that newfound efficiencies will stabilize Medicare’s finances, the slowdown in health care spending suggests that politicians in Washington calm down. It offers, at the very least, more breathing room to carefully consider reforms to the system to raise revenue or trim benefits in the least damaging way.

There are many ideas out there — from changing Medicare’s premiums, deductibles and coinsurance to introducing a tax on carbon emissions to raise revenue. Some of them are not as good as others. Until recently, President Obama favored increasing the eligibility age for Medicare. Then research by the Kaiser Family Foundation concluded that raising the age would increase insurance premiums and cost businesses, beneficiaries and states more than the federal government would save. The nation would lose money in the deal.

“As we do this, there are smarter and dumber ways to do it,” Mr. Gruber said. “It would be a problem if we were to do things in a panic mode that set us backward.”

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You’re the Boss Blog: Its First Graduates on the Job, Venture for America Looks for Fresh Recruits

Postscript Appended

Kathy Cheng: Jessica Bruder Kathy Cheng: “Detroit was the last place I thought I’d end up.”


The adventure of new ventures.

For more than a year now, Andrew Yang has been traveling the nation evangelizing Venture for America. From gritty inner cities to college campuses and the White House, the former corporate lawyer has made dozens of stops pitching the nonprofit organization, which he hopes will become a Teach for America for young entrepreneurs.

Ten months after we covered his early efforts to send fresh talent to start-ups in struggling cities, the first 40 Venture for America fellows have made it through a five-week boot camp. They’ve fanned out across New Orleans, Las Vegas, Detroit, Providence and Cincinnati. They’re now starting two-year jobs at an eclectic array of start-ups, ranging from Are You a Human, which designs game-based verification systems to thwart spam bots, to Kickboard, an online dashboard that helps teachers track student performance and behavior.

“At school, you learn how to learn, but not how to do. I want to learn how to build things and make them successful,” said Kathy Cheng, 22, who graduated in June from the Massachusetts Institute of Technology and took a Venture for America fellowship at Doodle Home, a Detroit-based company whose Web site helps interior designers manage projects, request product samples and quotes, and build profiles to woo potential clients. The 15-employee firm was started two years ago by Jennifer Gilbert – her husband, Dan Gilbert, is the founder of Quicken Loans – and it operates from a slick downtown tech hub called the M@dison that Mr. Gilbert unveiled in 2011 as part of a broader effort to re-energize the Motor City.

“If you’d asked me last year, Detroit was the last place I thought I’d end up,” Ms. Cheng said. Joining a start-up wasn’t a part of her plan either. That changed last year. While interning for the Small Business Administration, she heard Mr. Yang give a talk; he suggested she apply for a fellowship. And Ms. Cheng began thinking about the potential of entrepreneurship to revitalize cities.

“Back then, I thought I wanted to do management consulting,” she said. “But you know how sometimes things just click into place? It was like that.” As a business analyst for Doodle Home, she plans to study how designers interact with the company’s online platform. She sees her fellowship as a way “to empower creative people to do their best work.”

(Some of her peers just sounded relieved to avoid Wall Street; as one Wharton grad wrote on Venture for America’s blog: “I had been looking through endless job postings for I-banking and other finance-related positions on my school’s career Web site, trying not to vomit, when I came across Venture for America.”)

Meanwhile, Mr. Yang is gearing up to recruit a fresh batch of 100 fellows and exploring a handful of cities – Baltimore, Cleveland, New Haven, Philadelphia, Pittsburgh and Raleigh-Durham – for possible expansion in 2013. His long-term objective is even more ambitious: creating 100,000 jobs by 2025.

“Our goal is to give rise to a virtuous cycle,” Mr. Yang said. “Let’s say someone like Kathy, when her time at Doodle Home is at an end, she decides she likes the area, she’s friends with people there, she has a network. So she decides to start her own thing. If she wants to hire some young, smart, inexpensive venture fellows, we’re essentially creating a massive pool of people for her to choose from. You can imagine it in five to 10 years from now. The current fellows will be the leaders of a new generation of companies.”

If you had a mission to restore the economy and a team of fresh college graduates at your disposal, where would you send them?

You can follow Jessica Bruder on Twitter.

Postscript: September 11, 2012

A previous version of this post reported that the M@dison building opened in January; it opened in January 2011.

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Economix Blog: Simon Johnson: Who Built That?


Simon Johnson is Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and former chief economist at the International Monetary Fund. His books include “13 Bankers.”

Perhaps the biggest issue of this presidential election is the relationship between government and private business. President Obama recently offended some people by appearing to imply that private entrepreneurs did not build their companies without the help of others (although there is some debate about what he was really saying).

Today’s Economist

Perspectives from expert contributors.

Mitt Romney’s choice of Paul D. Ryan as vice presidential running mate is widely interpreted as signaling the further rise of the Tea Party movement within the Republican Party – with the implication that the private sector may soon be pushing back even more against the role of government.

For most of the last 200 years, national economic prosperity has been about creating and sustaining a symbiotic relationship between government and private business, including entrepreneurs who build businesses from scratch. This symbiosis was long a great strength of the United States, something it got right while other nations failed to do so, in various ways.

Is the partnership between government and business now really on the rocks? What would be the implications for longer-run economic growth of any such traumatic divorce?

To think about these issues, I suggest starting with “Why Nations Fail” by Daron Acemoglu and James Robinson, a sweeping treatise on political power and economic history. (I have worked with the authors on related issues, but I wasn’t involved in writing the book. I am using their material as a reference point throughout my new course this fall at the Massachusetts Institute of Technology, “Global Controversies.”)

Income per capita in 1750 was relatively similar around the world. There were some pockets of prosperity – imperial capitals and trading cities – but most people lived at roughly the same level of income (and lived about the same length of time). That changed dramatically in the hundred years after 1800; some countries charged ahead in terms of industrialization and broader economic development, while others lagged. (Lant Pritchett memorably labeled this phenomenon “Divergence, Big Time.”)

Since 1900, while average income levels have risen almost everywhere, there has been surprisingly little convergence in income per capita. Countries that were relatively rich in 1900 are, for the most part, relatively rich today. Most countries that were poor in 1900 have failed to catch up with the highest income levels today – with some notable exceptions in East Asia and for some countries with a great deal of oil.

In the Acemoglu-Robinson view, it was all about having a favorable head start – based on strong and fair rules of the game:

Countries such as Great Britain and the United States became rich because their citizens overthrew the elites who controlled power and created a society where political rights were much more broadly distributed, where the government was accountable and responsive to citizens, and where the great mass of people could take advantage of economic opportunities.

These were excellent conditions for innovation and private-sector investment. People who were not born wealthy were able to educate themselves and create their own enterprises. But the government also played a very helpful role, with investments in clean water and public health, developing public education and supporting the creation of transportation and communication networks.

Equality before the law also became an essential component of successful societies – for example, much more present in the United States than in Mexico.

At least in the 19th century, government cooperated closely with private business in the United States. In much of the world, this relationship has never worked well – and conditions for growth are consequently undermined. “Why Nations Fail” explores in great detail exactly when and why politicians choke business, how economic oligarchs capture and abuse political power and what happens when militaries become too powerful. It is sobering reading.

“Why Nations Fail” has been very successful, in part because the history appeals to people on both the right and the left of the political spectrum. To those on the right, economic development requires strong property rights. To those on the left, constraints on the power of elites are essential. Both views garner a great deal of support from the Acemoglu-Robinson view of how the United States, Western Europe and a few other places did so well.

The United States avoided the problems on which the book focuses, but nevertheless it now faces a major struggle regarding the nature of its society — and its future.

The 20th century brought a new and expanded role for government, putting into effect regulations that constrained what private business could do (starting with antitrust laws and food purity rules), providing various forms of social insurance (including old-age pensions) and increasing marginal tax rates (particularly on income). The modern federal government also operates a global military presence on a scale unimaginable to any American before 1941.

Unlike the populations of some countries, the American people have never reached a consensus over what was achieved and what was given up in the 1930s. In the United States, the rising role of the state produced a long-term backlash, culminating most recently in the form of a tax revolt (from the 1960s), a move to the right in the Republican Party (beginning with Ronald Reagan and running through Newt Gingrich directly to Mr. Ryan) and a deep-seated conviction that tax rates and government spending must be reduced (“starve the beast”).

The discussion of Mr. Ryan and his budget ideas is likely to become central to the election over the next two months – and this is entirely appropriate.

A powerful coalition has risen against the state. It sees modern government as abusive and as standing in the way of economic recovery and growth. There is a strong urge to undo the reforms of the 1930s and roll back government at all levels. The economist Arthur Laffer spoke for many others when he said, “Government spending doesn’t create jobs, it destroys jobs.”

In truth, we all built the modern American economy. This certainly includes individuals taking responsibility for themselves, becoming more educated and working hard to develop their own companies. But the government also played a constructive role.

Can our political system reach a reasonable agreement on how to divide the benefits and share the costs? In “White House Burning,” James Kwak and I proposed one way to do this – phasing in a fiscal adjustment based on the principle that revenue should return to where it was before the Bush tax cuts. Mr. Ryan is proposing a very different vision: phasing out the nonmilitary part of federal government.

In my assessment last month, I found that anything close to Mr. Ryan’s version would be too extreme.

Mr. Ryan wants to strengthen the private sector and get government out of the way. In my reading of Professors Acemoglu and Robinson, Mr. Ryan’s fiscal intentions would destroy the positive role of government in modern America — throwing the baby out with the bath water. This would not be good for continued private-sector development, on which we all depend.

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Holden Withington, Last Living B-52 Designer, Dies at 94

The group emerged with a neatly bound 33-page proposal and an impressive 14-inch scale model of an airplane on a stand. Col. Pete Warden, the Air Force chief of bomber development, studied the result and pronounced, “This is the B-52.”

One of those six was Holden Withington, and on Dec. 9, at age 94, he became the last of the B-52 designers to die. His daughter, Victoria Withington, said he died at his home on Mercer Island, Wash. He had Alzheimer’s disease.

It takes a vast team of experts to design a complex airplane, particularly one like the B-52 Stratofortress, with its eight engines and radically swept-back wings. Mr. Withington, called Bob, played down the achievement, saying it evolved from earlier plane designs and not a little luck.

The B-52, laden with nuclear warheads, was a forbidding-looking mainstay of American air defense during the cold war and a strategic deterrent to a nuclear attack. It saw substantial duty in Vietnam and the Iraq wars and is still in use. And its fundamental design — novel wings with engine “pods” positioned underneath — became the standard for almost all commercial jet carriers.

“Essentially, they discovered the perfect form of the subsonic jet,” Michael Lombardi, the Boeing Company’s corporate historian, said. “Airbus, Boeing, any other company, it’s the basic form they follow.”

A year after the B-52 breakthrough, Mr. Withington and other Boeing engineers turned their attention to designing a civilian jet transport plane. They used many features of the bomber, particularly the wing design and engine placement, to create the Boeing 707, the airliner that ushered in the Jet Age.

In 1941 Boeing recruited Mr. Withington from the Massachusetts Institute of Technology, where he had earned a master’s degree and done research using the university’s wind tunnel. His first assignment was to design and build a state-of-the-art wind tunnel for Boeing. Theodore von Karman, the eminent mathematician and aeronautical expert, passed on a piece of advice: “Make it as fast as you can.”

Mr. Withington didn’t know anything about jets at the time, but he suspected Dr. von Karman was speaking with knowledge of Britain’s top-secret research on jets. He built the wind tunnel to produce speeds of 625 miles an hour, close to the sound barrier.

In 1945 George Schairer, a renowned Boeing aerodynamicist, was part of an expert group following American troops through Germany to snap up intelligence on German weapons. Mr. Schairer discovered that the Germans had performed extensive studies on swept-back wings. He sent a letter to Mr. Withington, who immediately began testing the concept in his wind tunnel.

In less than a month, Mr. Withington proved that swept-back wings worked. When they were combined with jet engines, the way forward seemed clear. He tested the new wing formulation for use in Boeing’s B-47 bomber, the B-52’s predecessor. He did his tests at night when power was cheaper, sleeping on a cot next to the tunnel.

The resulting six-engine jet bomber perplexed even Mr. Withington. “That’s a mighty strange-looking airplane,” he recalled thinking in a 2002 interview. “I wonder if it will really fly.”

It did, and the B-47 bomber was used from 1951 to 1965. But the Air Force, wanting a heavier bomber with more range, chose Boeing to build the prototype for the B-52. A debate raged in the service and beyond over the merits of a jet engine versus those of a turbo prop, which would use less fuel but sacrifice speed. The RAND Corporation, the research group, favored the turbo prop.

But the turbo prop approach “just wasn’t coming together,” Mr. Withington told The Times of Shreveport, La., in 2002. “The program was at risk of being canceled,” he said.

A meeting was held at Wright Field in Dayton to address what Mr. Withington said was now viewed as a crisis. Colonel Warden decreed that the turbo prop idea should be dropped in favor of jet engines, then ordered the group back to their hotel room for their weekend of frenzied work. They used slide rules for calculations.

Holden White Withington was born on Nov. 23, 1917, in Philadelphia. His family lived a peripatetic life; his father was a traveling salesman and, for a while, a bootlegger. In addition to his daughter, Mr. Withington is survived by his wife, the former Elizabeth Merrow; his sons, Vincent, Martin and Holden; and five grandchildren.

After the success of the B-52, Mr. Withington climbed Boeing’s executive ladder. At one point he was vice president and general manager of the company’s effort to build a supersonic jetliner to challenge the Concorde of Britain and France and the Tu-144 of Russia. Congress killed the project in 1971 because of worries about sonic booms and environmental damage. He retired as vice president for engineering in 1983.

Only then did he get his pilot’s license. At 80, he built a two-seater airplane in his backyard.

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Economix Blog: The Challenge of Creating Good Jobs

Paul Osterman, co-author of Good Jobs America: Making Work Better for Everyone.David LoblePaul Osterman, co-author of “Good Jobs America: Making Work Better for Everyone.”

In their new book, “Good Jobs America: Making Work Better for Everyone,” Paul Osterman and Beth Shulman argue that the United States needs to worry about not just creating millions more jobs but also ensuring that the jobs are good ones.

By good jobs, the authors mean jobs that pay enough to support a family and provide decent, safe conditions. The authors voice concern that many middle-class jobs have disappeared or deteriorated into low-wage ones that cause families to fall below the poverty line.

Taking a view contrary to that of many economists and politicians, they argue that government can and should play a vigorous role in encouraging employers to create good jobs — perhaps by providing tax incentives that require employers to pay a living wage.

Book Chat

Talking with authors about their work.

Mr. Osterman is a professor of human resources and management at the Massachusetts Institute of Technology, and Ms. Shulman, who died last year, was a senior fellow at Demos, chairwoman of the National Employment Law Project and co-chairwoman of the Fairness Initiative on Low-Wage Work.

Here are excerpts from an interview with Mr. Osterman.

What would you recommend that President Obama and Congress do to create more jobs?

I strongly want to argue you should not just talk about creating jobs but the quality of the jobs you create. The general point I would make is there’s a shortage of economic demand, and as a result, the government needs to create jobs directly.

The critique of that is, one, that it’s wasteful. The image is the government pays you to dig a hole and pays me to fill it up. There is a lot of work that’s not like that, whether it’s building infrastructure or being day-care teacher or health-care provider, work that provides lasting benefits to society.

The other critique is this would crowd out private-sector jobs. When the economy has slack resources — and right now we have a high unemployment rate and low interest rates — it’s not true that you’d be crowding out jobs.

Russell Sage Foundation

What do you mean when you say good jobs?

The concept of what are good jobs is very broad. We can talk about wages, about benefits, about autonomy at work. In the book we make it simple: we talk about wages. We look at two standards. One standard is two-thirds of the median wage. (The median wage is $17.60 an hour, the book says, and two-thirds of that is $11.73.) That’s a standard used internationally and in the states. If you’re below that, if you’re that far from the average, you’re really in difficulty in society.

The other standard is whether wages for a full-time worker are below the poverty line for a family of four. (That’s $10.60 an hour.) Nearly 20 percent of American adults work in such poverty-level jobs. That’s a remarkably high percentage.

Many people question the wisdom and efficacy of having government adopt policies to create good jobs. Many people say, for instance, if you get a good education, then don’t worry, you’ll find a good job.

One objection we hear is that these bad, low-wage jobs are transitory, that people just move through them on their way up. But that’s not true. Overwhelmingly adults stay in these jobs for years and years. It’s not Horatio Alger. It’s not transitory.

Then there’s the objection people raise that we can solve our problems through education. I don’t want to get in a box and say education is not important. But if you do a thought experiment and say all of a sudden, everyone has a degree from a community college, all these jobs won’t suddenly go away. There will still be jobs for janitors, jobs cleaning hotel rooms and chopping lettuce that goes into your salad. The question is, how much are they going to pay?

Then you also hear that the government shouldn’t be making employment standards. The book makes the point that you’ve always had labor market standards and that there’s broad support for that ever since the Shirtwaist Fire a century ago.

Another objection you hear is that if you try to raise the floor in the labor market, you’ll kill jobs. That’s what you hear all the time about the minimum wage, but if you review the research on the minimum wage, the effects are a lot less scary than opponents make you believe. And if you look at France and Germany, which have a far lower percentage of workers in low-wage jobs, the employment to population ratio for adults is much better than we have in the United States.

In your book, you say corporations and other employers play a central role in determining whether the jobs that are created are good jobs or not good jobs. Can you discuss that?

The book does not take the stance this is all about evil employers. It’s much more sympathetic than what you hear from some people. Employers are under intense competitive pressures. There are bad employers out there, there are employers that violate minimum wage and overtime laws, but they’re certainly not a majority. The fact that employers are under intense competitive pressures doesn’t mean you let standards be driven downward. You want to push the floor up.

Like all of us, employers look for the path of least resistance. The path of least resistance is not to invest in your work force, not to invest in a career ladder, to squeeze on wages and benefits, to make your work force more contingent and flexible.

At the same time, the human resources departments of most firms have been weakened. In many American companies, human resources is seen as the least prestigious function, a residual function. And labor unions are no longer in as strong a position to push for other behavior, to stop this drift downward in employment standards.

What would you do to help ensure that companies do indeed create good jobs?

What you need is a strategy, carrot and stick, in setting standards and positive incentives to raise the floor and assistance to firms in doing so.

Government, historically, in the United States has been very influential in setting employment norms. At the turn of the 20th century, it was civil service reform, and that became a model for private-sector corporations. During World War II, the War Labor Board was influential in shaping the labor market and labor peace.

Government can play an important role in incentivizing and modeling good behavior. It can use its zoning power or community benefit agreements so that if someone wants to build a large project and needs zoning approval, the government can set a wage standard as a condition for approval — for the construction jobs as well as the resulting jobs. Or if you use tax incentives to attract companies to your area, it should be required that those companies pay a living wage. A number of states have done that. Or if government outsources jobs, a living-wage standard should be applied to jobs that get contracted out.

There have been a number of experiments at the state level to provide tax incentives to encourage companies to train front-line workers. With training, workers could go from cleaning hotel rooms to being a line cook or waiter.

In the health-care sector, reimbursement schemes put enormous pressure on nursing homes to pay their certified nursing assistants poorly. That’s public policy. That’s not the market.

In a variety of ways, governments can play a positive role and do so by walking the talk themselves.

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As Climate Changes, Scientists See Irene as a Harbinger

The short answer from scientists is that they are still trying to figure it out. But many of them do believe that hurricanes will get more intense as the planet warms, and they see large hurricanes like Irene as a harbinger.

While the number of the most intense storms has clearly been rising since the 1970s, researchers have come to differing conclusions about whether that increase can be attributed to human activities.

“On a longer time scale, I think — but not all of my colleagues agree — that the evidence for a connection between Atlantic hurricanes and global climate change is fairly compelling,” said Kerry Emanuel, an expert on the issue at the Massachusetts Institute of Technology.

Among those who disagree is Thomas R. Knutson, a federal researcher at the government’s Geophysical Fluid Dynamics Laboratory in Princeton, N.J. The rising trend of recent decades occurred over too short a period to be sure it was not a consequence of natural variability, he said, and statistics from earlier years are not reliable enough to draw firm conclusions about any long-term trend in hurricane intensities.

“Everyone sort of agrees on this short-term trend, but then the agreement starts to break down when you go back longer-term,” Mr. Knutson said. He argues, essentially, that Dr. Emanuel’s conclusion is premature, though he adds that evidence for a human impact on hurricanes could eventually be established.

While scientists from both camps tend to think hurricanes are likely to intensify, they do not have great confidence in their ability to project the magnitude of that increase.

One climate-change projection, prepared by Mr. Knutson’s group, is that the annual number of the most intense storms will double over the course of the 21st century. But what proportion of those would actually hit land is another murky issue. Scientists say climate change could alter steering currents or other traits of the atmosphere that influence hurricane behavior.

Storms are one of nature’s ways of moving heat around, and high temperatures at the ocean surface tend to feed hurricanes and make them stronger. That appears to be a prime factor in explaining the power of Hurricane Irene, since temperatures in the Atlantic are well above their long-term average for this time of year.

The ocean has been getting warmer for decades, and most climate scientists say it is because greenhouse gases are trapping extra heat. Rising sea-surface temperatures are factored into both Mr. Knutson’s and Dr. Emanuel’s analyses, but they disagree on the effect that warming in remote areas of the tropics will have on Atlantic hurricanes.

Air temperatures are also rising because of greenhouse gases, scientists say. That causes land ice to melt, one of several factors leading to a rise in sea level. That increase, in turn, is making coastlines more vulnerable to damage from the storm surges that can accompany powerful hurricanes.

Overall damage from hurricanes has skyrocketed in recent decades, but most experts agree that is mainly due to excessive development along vulnerable coastlines.

In a statement five years ago, Dr. Emanuel, Mr. Knutson and eight colleagues called this “the main hurricane problem facing the United States,” and they pleaded for a reassessment of policies that subsidize coastal development — a reassessment that has not happened.

“We are optimistic that continued research will eventually resolve much of the current controversy over the effect of climate change on hurricanes,” they wrote at the time. “But the more urgent problem of our lemming-like march to the sea requires immediate and sustained attention.”

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Frustration Grows as Nominee for the Fed Withdraws

The candidate, Peter A. Diamond, an economics professor at the Massachusetts Institute of Technology and a Nobel Prize laureate for his work on labor markets, cited Republican opposition in asking the White House to withdraw his nomination.

But Democratic leadership did not press for a vote on the nomination, and Congressional aides said that the White House invested relatively little energy in fighting for Mr. Diamond. Moreover, they said that the administration had not submitted nominations for vacancies atop several of the federal agencies charged with overhauling and improving financial regulation in the wake of the 2008 crisis.

“There’s a deep feeling of frustration,” said one Democratic aide, who spoke on the condition of anonymity because of the sensitivity of the subject. “No one wants to insult the administration or put them in a position that’s uncomfortable for them or worse for them. So you’re just sitting around waiting for them to take the lead.”

The White House press secretary, Jay Carney, said on Monday that the White House did everything it could to push the nomination, and he lamented the “partisan obstructionism” that had prevented approval of Mr. Diamond.

“I don’t have a tick-tock on the different actions that different members of the administration took in support of this nomination,” Mr. Carney said in response to a question from a reporter. “We strongly supported it. We thought he was highly qualified. We regret that it’s come to this and he’s withdrawn his nomination.”

The withdrawal leaves two empty seats on the Fed’s seven-member board, which, along with selected presidents of the Fed’s regional banks, sets monetary policy. The position of vice chairman for supervision, created last year as a top bank regulatory post, also is vacant.

President Obama has not nominated a head for the Office of Comptroller of the Currency, which oversees national banks, or a new chairman for the Federal Deposit Insurance Corporation, which insures bank deposits and cleans up failed banks. There is no nominee to lead the new Consumer Financial Protection Bureau, or the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

The White House has said for months that it will submit nominations “as soon as possible.” On Monday it promised action “in short order.” It is widely expected to nominate the F.D.I.C.’s vice chairman, Martin J. Gruenberg, to replace Sheila C. Bair, who ends her term as chairwoman in July. Mr. Gruenberg, seen as relatively noncontroversial, could be packaged with other nominees in the hope of a halo effect.

Democrats say that they hold Republicans responsible for preventing votes. In addition to derailing Mr. Diamond, Republicans forced the withdrawal earlier this year of a nominee to head the Federal Housing Finance Agency, and have said they will not allow a vote on any nominee to lead the consumer agency until the bureau is restructured.

There are also strategic considerations. A senior White House official said that the Obama administration had to weigh the costs of trying to pressure Senator Harry Reid, the majority leader, to push for cloture votes in the face of Republican opposition.

“We could go for a symbolic cloture vote. It would burn 30 hours on the clock. That’s 30 hours that the Senate is in session. So it’s a big ask of Harry Reid to say ‘put aside your legislative agenda and go for a cloture vote,’ ” the official said.

Mr. Diamond focused his criticism on Republicans in a sharply worded opinion article published Monday in The New York Times. “We should all worry about how distorted the confirmation process has become, and how little understanding of monetary policy there is among some of those responsible for its Congressional oversight,” he wrote.

Mr. Diamond said that Republicans were mistaken to treat his expertise in labor economics as irrelevant to decisions about monetary policy. “Understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy,” he wrote.

Senator Richard C. Shelby of Alabama, the senior Republican on the Banking Committee, reiterated on Monday his belief that Mr. Diamond had lacked the necessary qualifications.

“It is my hope that President Obama will now nominate someone capable of garnering bipartisan support in the Senate,” Mr. Shelby said in a statement Monday. “It would be my hope that the president will not seek to pack the Fed with those who will use the institution to finance his profligate spending and agenda.”

Mr. Shelby added that he had great respect for Mr. Diamond and wished him the best.

The Fed board of governors has long been populated with a mix of people including lawyers, bankers and economists with a wide range of specialties. Mr. Shelby himself has voted for a labor economist on at least one previous occasion: he supported the 1994 nomination of Janet Yellen, now the Fed’s vice chairwoman.

But the nomination became a proxy for a broader fight between the White House and Congressional Republicans over the government’s role in the economy. Mr. Diamond publicly supported a continuing Fed program to stimulate growth by purchasing $600 billion in Treasury securities. Mr. Shelby and other Republicans described the program as a backdoor method of lending the government more money.

Helene Cooper contributed reporting.

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With Rebuke of Senate Republicans, Fed Nominee Withdraws

Mr. Diamond, a professor of economics at the Massachusetts Institute of Technology and a Nobel Prize laureate for his work on labor markets, had waited more than a year for a Senate vote, a step that Republicans refused to allow.

“We should all worry about how distorted the confirmation process has become, and how little understanding of monetary policy there is among some of those responsible for its Congressional oversight,” Mr. Diamond wrote Monday in an Op-Ed article in The New York Times that announced his decision.

Mr. Diamond criticized Senate Republicans for treating his expertise in labor economics as irrelevant to decisions about monetary policy. “Understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy,” he wrote.

While the timing was unanticipated, the failure of the nomination had seemed inevitable. Senator Richard C. Shelby, the senior Republican on the Banking Committee, had said repeatedly that Mr. Diamond lacked the necessary qualifications.

“It is my hope that President Obama will now nominate someone capable of garnering bipartisan support in the Senate,” Mr. Shelby, who is from Alabama, said in a statement Monday. “It would be my hope that the president will not seek to pack the Fed with those who will use the institution to finance his profligate spending and agenda.”

Mr. Shelby added that he had great respect for Mr. Diamond and wished him the best.

The White House issued a statement Monday promising a new nominee “as soon as possible.”

“We are deeply disappointed that this candidate, who had initially seen bipartisan support, fell victim to partisan obstructionism at this important time for our economic recovery,” said Jay Carney, White House spokesman.

The withdrawal leaves two empty seats on the Fed’s seven-member board, which sets monetary policy together with selected presidents of the Fed’s regional banks. The position of vice chairman for supervision, created last year, also is vacant.

The empty seats are part of a broader void atop the agencies charged with overhauling and improving financial regulation in the wake of the 2008 crisis.

President Obama has not nominated a new head for the Comptroller of the Currency, which oversees national banks, nor a new chairman for the Federal Deposit Insurance Corporation, which insures bank deposits and cleans up failed banks. And Republicans have said they will not approve any nominee to lead the newest agency, the Consumer Financial Protection Bureau. So far the White House has not sought to test their intransigence.

Mr. Diamond’s nomination became a proxy for a broader fight between the White House and Congressional Republicans over the government’s role in the economy. Mr. Diamond publicly supported an ongoing Fed program to stimulate growth by purchasing $600 billion in Treasury securities. Mr. Shelby and other Republicans described the program as a backdoor method of lending the government more money.

In his opinion piece Monday, Mr. Diamond echoed a position the White House often has taken: Spending is not good or bad. It just depends what you are buying.

“In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones,” Mr. Diamond wrote. “Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better. I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can.”

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