August 24, 2017

Economix Blog: The Declining Demand for Husbands

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Once upon a time women seemed more eager than men to marry. Today such generalizations no longer apply.

Today’s Economist

Perspectives from expert contributors.

Is it women’s preferences (the demand for husbands) or men’s preferences (the supply of husbands) that are driving the trend toward less marriage? It’s hard to tell, but some gender asymmetries are apparent. For instance, a recent poll of unmarried blacks of prime marrying age found that only 25 percent of women were seeking a long-term relationship compared with 43 percent of men.

Some people may dislike application of concepts like supply and demand to the search for potential lifetime partners. After all, we like to think of ourselves — and our partners — as unique individuals, not as substitutes or next-best choices.

But the concept of a marriage market offers some useful insights into the evolution of marriage as an institution. It also helps explain why markets don’t always generate efficient adjustments to new circumstances.

As a contractual commitment, marriage has a price. It offers both costs and benefits to potential partners. The contract involves commitments for financial support and family care on terms that can be completely egalitarian.

But the terms can also be more advantageous to men or to women. For example, Anglo-American law traditionally gave men greater rights than women in marriage, and some religious traditions today encourage wives, but not husbands, to promise obedience.

Economic prospects matter: not just the relative earnings of men and women but also their relative contributions of time and energy to domestic work and family care.

Women are willing to pay a higher price for marriage than men if they have few alternatives, as when their opportunities for economic independence are restricted. An increase in the supply of women who want to marry drives the price of marriage down for men.

In these circumstances, as the economist Shoshana Grossbard puts it, husbands can pay a low “quasi-wage” for domestic services.

If the supply of women who want to marry decreases, the terms of marriage move in favor of women. They are likely to receive a larger share of joint income and leisure time. Husbands become more likely to relinquish some decision-making power and do more housework and child care.

Marriage market dynamics mean that a bride’s bargaining power is partly determined by the number of other choices her groom has (and vice versa). The changing terms of marriage complicate the effects of women’s improved economic position. On the one hand, men should like the prospect of sharing income with a high-earning woman. On the other hand, they may find it difficult to adjust to a new social role.

Considerable research suggests that gender roles are, in fact, pretty sticky. In a recent article, Marianne Bertrand, Jessica Pan and Emir Kamenica offer evidence that wives often try to enact traditional gender roles in an apparent effort to reassure their husbands that they are not a threat. (The New York Times took note of their findings in an article and a commentary.)

These economists also contend that couples in which the wife earns more than the husband are less satisfied with their marriage and are more likely to divorce. But as the sociologist Philip Cohen points out, this assertion is based on data more than 20 years old and disregards a large body of sociological research.

Some attitudes have recently changed in the United States. According to a recent survey by the Pew Research Center, only about 28 percent of respondents this year agreed that “it was generally better for a marriage if a husband earns more than his wife,” compared with 40 percent in 1997.

Economic factors may shape the pace of attitudinal change. In a fascinating study of nonmarriage among women college graduates in Japan, Jisoo Hwang observes that men whose mothers were employed have less traditional attitudes than other men and were also more likely to marry. She hypothesizes that the relatively recent and abrupt increase in female employment in that country made it more difficult for men there to adjust.

Some evidence from the United States suggests that class and education also influence role flexibility. Affluent couples are more likely to marry than other Americans, perhaps because they don’t need to renegotiate gender roles; they can purchase substitutes for wives’ traditional domestic work in the form of restaurant meals, child care and cleaning services.

Higher education may give students more familiarity with normative change and more experience negotiating differences. In the Pew survey referred to above, adults with a college degree were only half as likely as those with only a high school diploma to say it is generally better for a marriage if a husband out-earns a wife.

The demand for long-term commitments seems to be steadily declining among both women and men. Philip Cohen persuasively asserts that we should stop bemoaning this change and adapt to a world in which fewer adults marry.

But it is also worth noting that inflexible rules and sticky gender roles impede adjustments that could help increase both the demand for and supply of potential spouses. The sociologist Kathleen Gerson develops this position in some detail in her book “The Unfinished Revolution.”

As same-sex couples have profoundly demonstrated, the demand for marriage is not based on some natural sexual division of labor, but on the desire to give personal commitments public recognition.

Men and women who get this point probably enjoy a distinct advantage in finding a partner, whether or not they are lucky enough to achieve long-run equilibrium with someone they love.

Article source: http://economix.blogs.nytimes.com/2013/06/17/the-declining-demand-for-husbands/?partner=rss&emc=rss

Today’s Economist: Nancy Folbre: Mortgaged Diplomas

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Current and prospective college students are receiving real-world instruction in the dismal political economy of public finance.

Today’s Economist

Perspectives from expert contributors.

Unless Congress can overcome its partisan differences, interest rates on federally guaranteed Stafford loans, an important means of paying for college, will double to 6.8 percent in July.

With the Bank on Students Loan Fairness Act, Senator Elizabeth Warren, Democrat of Massachusetts, proposes to reduce this interest rate to the same level that large banks pay for loans from the Federal Reserve Bank — 0.75 percent — for at least one year, during which longer-term remedies could be explored.

The bill, one of many aimed at addressing the scheduled interest-rate increase, seems unlikely to win passage. But it highlights the double standard that puts the interests of banks and other businesses well ahead of those of students and ordinary people when it comes to debt relief.

As Robert Kuttner explains (both in The New York Review of Books and in his new book “Debtors’ Prison”), bailouts and bankruptcy proceedings both provide a means for businesses to get out from under bad debt. The obligations of a college loan, by contrast, “follow a borrower to the grave.”

The rolling thunder of accumulating student debt sounds a lot like the perfect storm of mortgage liabilities that threatened major financial institutions and precipitated the Great Recession in 2007.

According to a recent study by the Federal Reserve Bank of New York (nicely summarized in a publication by the Federal Reserve Bank of St. Louis), the dollar value of college loan debt in the United States now surpasses both auto loan and credit card debt.

As states have steadily reduced their support for public higher education, tuition and fees have increased far more rapidly than the rate of inflation. Slow economic growth and persistently high unemployment rates have made it harder for parents to help with tuition bills, while students feel increasing pressure to gain a credential that could improve their job market chances.

The number of student borrowers increased 54 percent from 2005 to 2012, while the average debt per borrower increased 56 percent, to $25,000.

Whether or not you call it a bubble, evidence shows something is likely to pop.

Both delinquency and default rates have increased substantially since 2005. According to the Institute for Higher Education Policy, only a little more than a third of 1.8 million borrowers who entered repayment in 2005 repaid their student loans successfully without delay or delinquency for the first five years.

Low-income minority students, disproportionately likely to attend for-profit schools, are the most vulnerable.

Like the tranches of mortgage securities that were labeled “sub-prime,” their federally guaranteed loans, often arranged by for-profit schools positioned to cash in on them, are the least likely to be repaid.

The New York Fed study reports that students at private, for-profit colleges account for nearly half of all student loan defaults, though they represent only 10 percent of total enrollment.

In a speech titled “Subprime Goes to College,” Steve Eisman, one of the few major investors to anticipate and profit from the earlier mortgage crisis, has drawn explicit parallels between loan-peddling in both realms.

In both cases, federal and state regulation was weak. Yet regulatory tools clearly work. Default rates on college loans declined sharply in the early 1990s, after federal policy makers began penalizing for-profit colleges with default rates greater than 25 percent.

More recent efforts to impose higher loan-repayment standards on colleges have run into legal obstacles.

Meanwhile, many students, like older family members who found themselves underwater on home mortgages, don’t fully understand the complex process of loan renegotiation. The new Consumer Financial Protection Bureau, a hard-won political response to the mortgage crisis, has noted that students who feel confused about the terms of their loan are particularly likely to default. The National Consumer Law Center offers a detailed policy agenda for reducing default rates.

The Obama administration has put in place an important income-based repayment system that could considerably alleviate stress for many student borrowers by limiting the amount they pay monthly to a fixed percentage of their income. Yet the details are complicated, and some students may fear the prospect of paying a larger total amount of interest if they spread their payments out over time.

Like mortgage debt, which discouraged many homeowners from either selling their homes or buying new ones, student loan debt has knock-on effects, making it harder for young people to buy cars or homes.

The reduction in major purchases by the younger generation slows economic growth and contributes to persistently high unemployment and underemployment rates that leave some college graduates with no recourse but default.

High default rates in turn, raise the cost of the loans, fueling the conservative argument that interest rates on them should be set much higher than those on loans to banks.

Of course, loans to large banks are more secure in part because they are bailed out when they get into temporary trouble. My students wish that they, too, were too big to fail.

Article source: http://economix.blogs.nytimes.com/2013/06/03/mortgaged-diplomas/?partner=rss&emc=rss

Today’s Economist: Nancy Folbre: Small vs. Big, Local vs. Global

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Small looks beautiful for business these days. Big companies rake in higher profits but win far less affection from most Americans. The business community is increasingly divided, largely because economic trends are driving a growing wedge between the interests of small locally owned companies and large global corporations.

Today’s Economist

Perspectives from expert contributors.

Scientific measures of public attitudes toward business are hard to come by. But a survey conducted in 2010 by the Pew Research Center for the People survey found that 71 percent of Americans believed small business was a positive influence on the way things are going in the country, far higher than the 25 percent who believed the same of large corporations.

Indeed, small businesses enjoyed higher positive influence ratings than either churches and religious organizations (at 63 percent) or colleges and universities (at 61 percent), not to mention the federal government — which is tied with large corporations at 25 percent.

Small wonder that Republicans want to claim the small business mantle for their own. Senator Ted Cruz of Texas, a Tea Party enthusiast, insists that calling Republicans the party of big business is the “biggest lie in politics.”

But small business itself is obscured by many little lies. The Small Business Administration’s Office of Advocacy focuses on independent businesses with fewer than 500 employees, but official definitions vary by industry. Industry lobbyists hoping to sink their teeth into the favorable loans and contracts targeted to small business create pressure to revise size limits upward.

Large banks often categorize companies with annual revenue of under $20 million as “small.” But the most recent available Economic Census data (for 2007) suggest that threshold is misleading. About 89 percent of all companies with employees brought in less than $2.5 million. Companies operated only by their owners represented about three-quarters of all companies in that year; they are not included in most Census reports because their total revenues are so small.

In other words, the companies winning the popularity contest are not necessarily those fitting the official definitions.

Most Americans praising small business are probably thinking in qualitative rather than quantitative terms. Small is beautiful because it’s local. Size matters less than connections and commitment.

We think of small business owners as men and women who invest in their own communities, work in the same building as their employees, send their children to the same schools and walk their dogs in the same neighborhood parks.

Much of the political pressure to pass the proposed Market Fairness Act, which would require Internet companies to collect state sales taxes, comes from stories of very small businesses driven out of business by competition with very large companies — like Amazon’s effect on independent bookstores. But size is not the fundamental issue. Some online commerce taking place, for instance, through eBay, is small in scale. It seems unfair to many that nonlocal companies should enjoy a tax advantage over local ones.

Tensions between local and global enterprises now pervade discussions of corporate strategies for managing “stateless income.” Local businesses don’t have the will or the way to establish offshore tax havens. Indeed, many are hurt by reductions in state and federal tax revenue that have led to cuts in spending on infrastructure and education.

Large corporations are increasingly footloose, able to go wherever advantageous tax policies, cheap labor or lax regulation beckon. Locally owned businesses are far less likely to hit the road.

The resulting divergence in economic interests is driving new political alignments. As David Hess explains in his fascinating book, “Localist Movements in a Global Economy,” most business organizations, including the U.S. Chamber of Commerce, have been dominated by large publicly traded corporations. That dominance is now being challenged by groups like the American Independent Business Alliance, which explicitly aims to “keep economic and political power rooted in the community” and the Business Alliance for Local Living Economies, which emphasizes social and environmental responsibility through “localism.”

In a recent article in The Nation, William Greider describes the American Sustainable Business Council, the Main Street Alliance and the Small Business Majority, all efforts to strengthen progressive coalitions around issues like health care and immigration reform.

Public Citizen’s U.S. Chamber Watch lists nearly 60 local Chambers of Commerce that have publicly denounced or canceled their membership in the U.S. Chamber, citing disagreement with the national organization’s political positions on issues ranging from corporate tax reform to minimum wage increases.

These are not the small businesses that Senator Cruz wants to embrace, and they don’t want to hug him, either. If this insurgency grows, Republicans will have a harder time defending the claim that they represent Main Street rather than Wall Street.

Article source: http://economix.blogs.nytimes.com/2013/05/06/small-vs-big-local-vs-global/?partner=rss&emc=rss

Today’s Economist: Nancy Folbre: The People’s Choice for the People’s Pension

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Social Security, the most transparently self-financed program of the federal government, is not increasing our budget deficit. The most recent trustees’ report shows sufficient funds to pay full benefits until 2033.

Today’s Economist

Perspectives from expert contributors.

No one is making out like a bandit: Social Security beneficiaries who retired in 2010 are expected to get back approximately what they paid in.

If we wanted to adopt a cautious policy measure that would eliminate the shortfalls predicted 20 years down the road, we could eliminate the cap on earned income subject to Social Security taxes, currently set at $113,700. Such a measure would lead to increased payments by about the top 5.2 percent of wage earners.

Legislation designed to “scrap the cap” has been introduced in Congress. Senator Mark Begich, Democrat of Alaska, and Representative Ted Deutch, Democrat of Florida, have drafted a law that would require all workers to pay the same overall Social Security tax rate, and Senator Bernie Sanders of Vermont, an independent, and Representative Peter DeFazio, Democrat of Oregon, recently proposed application of the tax to earnings over $250,000 (as well as under $113,700) creating a “doughnut hole” exemption for earners in between in order to win more votes.

President Obama has voiced support for cap elimination or modification proposals in the past.

But as Thomas B. Edsall pointed out in a recent commentary, “scrap the cap” has apparently been taken off the table, despite evidence of considerable public support for it.

Readers doubtful of that public support should read the new National Academy of Social Insurance report, “Strengthening Social Security: What Do Americans Want?,” based on an online survey asking respondents whether they favored or opposed 14 specific changes to Social Security. The analysis also draws on findings from focus groups to add qualitative texture to the quantitative results.

That online survey, an opt-in model, is not based on a probability sample, but its findings echo other representative surveys, including this Quinnipiac University poll from 2011, which found that 56 percent of Americans favored raising the cap on taxable Social Security income.

Readers mystified by the yawning gulf between public opinion and current political discussion might benefit from the background provided in Eric Laursen’s magisterial history, “The People’s Pension: The Struggle to Defend Social Security Since Reagan.” The book offers more than 800 pages of fascinating if gory details about the lobbying efforts and misinformation campaigns aimed at bringing the program down.

It also reports on a series of surveys going back to 1977 in which most respondents said they would be willing to pay higher payroll taxes if that would shore Social Security up for the future.

Mr. Laursen effectively decodes much of the economic jargon that has obscured public understanding of these issues, and continues to blog regularly on this topic.

Readers feeling demoralized by the history of class warfare over social insurance might be cheered by two of the short videos recently entered in an online contest sponsored by the Peter G. Peterson Foundation on the theme of “I’m Ready” to fix the national debt.

In one entry, “Being Honest, Tough Choices,” a serious young man uses his webcam to explain in simple, direct terms why he supports Social Security and deplores the rhetoric of “makers versus takers, young versus old.”

Another entry, originally titled “Scrap the Cap” but currently labeled “Movin’ In, Kids,” has outpaced all others to date in terms of both viewings and ratings. It features some lovable oldsters in a hilarious rap performance warning their son that if their Social Security benefits are cut he better pull out the sofa bed and put out some fresh towels because they will be living together from now on.

Their song and dance goes on to explain why scrapping the cap would be better for everyone concerned.

Article source: http://economix.blogs.nytimes.com/2013/04/08/the-peoples-choice-for-the-peoples-pension/?partner=rss&emc=rss

Today’s Economist: Nancy Folbre: The Power of Plastic

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.

Credit card payment networks and card-issuing banks are taking advantage of their market power to extract more and more revenue from small businesses. In last week’s post, I provided an overview of recent legal and legislative battles over rising swipe fees. But as an attentive reader points out in an e-mail, I should have called attention to how hard it is for merchants even to figure out what fees they will be charged.

Today’s Economist

Perspectives from expert contributors.

Michael Latigona of David Michael’s Salon in Berlin, N.J., provides a vivid description of the perils of a phenomenon known as “strategic price complexity”:

Please, take a credit card out of your wallet and look at it closely. Any card will do. Now let me ask you. Can you tell me whether or not your card is a MC rewards class I, II or III (all of which have different rates)? How about your Visa? What type of Visa is it you are holding? Would it be a Visa CPS Retail card; how about a Visa Rewards 1 card? Or it could be a Visa enhanced business card?

You see, each card carries a different fee for the merchant. But how can a merchant ever know what the card is to ask the customer to use a different or cheaper card that carries less fees for the merchant? You can’t. There is nothing on the cards to delineate the literally thousands of types of cards and fees associated with them.

I asked my merchant provider to give me a list to show me the different types of cards and fees associated with them. Well, that was about 20 pages long, and still, even with that knowledge, could never determine what card you are holding, how much I will be charged for such card, let alone ask the consumer to use a cheaper one.

So regardless of the ruling or future settlement, unless it is clearly marked on the card what type of card I am about to swipe, us millions of small businesses have no clue what that charge will be until we receive our monthly statement. It’s like you going to the restaurant and eating, but not seeing the bill until it comes in a month. Would you receive a service without knowing how much it will cost you? Well us small businesses have no clue what our charges will be when we swipe that card.

Did you figure out whether you are a class I, II or III Visa yet? Now even if I gave you my 20-page list of types of cards, could you still determine it? No. So us small business will continue to be forced to accept a card, and have absolutely no clue how much we will be charged for that card, and that is something nobody is talking about.

I hope you can research this and do a story on this. After all, don’t you think us small businesses should know ahead of time what we have to pay before we swipe that card? Or you could come to my salon and I could do your hair, not give you a price and send you a bill later. But I think you might not be happy without knowing how much that fabulous hair I just gave you would cost before the service and get sticker shock when you come to the register. Not quite fair to the consumer is it? And it’s definitely not fair that your credit card doesn’t tell me which one out of the thousands out there I am taking, the fees associated with that type of card and then have sticker shock each month when opening a statement because I have no clue what the actual charge will be when I accept the card.

Here’s some economic background that Mr. Latigona and other small-business owners might find useful:

The credit card payment network is an oligopoly. Visa and MasterCard dominate the market, along with the smaller networks Discover and American Express. This market structure is hard to discern, because cards themselves are issued by different banks, with different terms — and they come in many different colors. Among issuers, the top 10 credit-card-issuing banks accounted for more than 90 percent of outstanding credit card debt in 2009.

Both the payment networks and the card issuers operate in a “two-sided” market — selling their services both to consumers and to merchants. Consumers can engage in at least some comparison shopping — considering both terms of service and interest rates charged by different providers.

Small businesses, however, have long been limited in their ability to steer customers toward credit cards that charge lower fees, partly as a result of payment-network rules and partly because they fear inconveniencing their customers and reducing sales.

Payment networks and card issuers know how to exploit that fear, and they have a common interest in extracting as much revenue as possible from the merchants who rely on their services. Their market power puts them in a strong position to do so.

In a report on interchange fees (also known as swipe fees) published in 2009, the Government Accountability Office concluded that these fees had increased significantly since 1991, especially for so-called premium cards offered only to high-spending customers. It delicately pointed out that producers with market power “have the ability to charge high, noncompetitive prices” and went on to note that representatives of card issuers openly acknowledged that their fees were not determined by costs but “were one of several revenue sources.”

The G.A.O. report also noted that the number of fee categories had proliferated over time, to 60 from four for Visa and to 243 from four for MasterCard between 1991 and 2009.

Here is where the concept of “strategic price complexity” comes in. In his study of retail financial markets, Bruce Carlin of the Anderson School of Management at the University of California, Los Angeles, contends that complexity itself can increase market power, because it reduces the power that buyers would otherwise have to compare prices.

This strategy seems to be working well for credit card issuers. A recent report from the Federal Reserve notes that credit card earnings have almost always been higher than returns on all commercial bank activities. The financial sector in general commands a far higher profit rate than the retail sector.

The proposed legal settlement that grew out of the antitrust suit I described last week gives small businesses more latitude to encourage customers to use cards with lower fees. But this settlement will not solve the problem because, as Mr. Latigona points out, it is difficult for businesses to determine which cards fit this category.

Paying with plastic is technically more efficient for everyone than paying with checks or cash. But the fees we are now charged for using plastic far exceed the actual costs. They reflect the market power of a financial oligopoly.

Article source: http://economix.blogs.nytimes.com/2012/11/12/the-power-of-plastic/?partner=rss&emc=rss

Economix Blog: Nancy Folbre: The Twilight of the Public Corporation

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Public corporations that ordinary people can invest in and get rich from represent one of the great selling points of American capitalism – at least according to the salesmen.

Today’s Economist

Perspectives from expert contributors.

Yet public corporations, which rose to dominance in the United States economy in the second half of the 20th century, are now waning in significance.

As Gerald Davis of the Ross School of Business at the University of Michigan points out, the number of public corporations in the United States in 2009 was only half what it was in 1997. The share of employment represented by the largest 25 corporations has also declined over time.

Professor Davis asserts these trends result from increased reliance on overseas contractors for manufacturing, discussed in my last post.

Public corporations have also become less public. Professor Davis contends that share ownership has become heavily concentrated through mutual funds, such as Fidelity, which he says now holds significant blocks of 10 percent to 15 percent in many large companies. Even Fidelity’s role is overshadowed by BlackRock, proprietor of iShares Exchange Traded Funds, which, Professor Davis estimates, was the single largest shareholder in one out of five corporations in the United States in 2011.

Private companies going public often rely on “dual-class shares” that give original owners more voting rights than other investors. The founders of both Groupon and Zynga gained extra clout in this way.

The incentives to “go public” are smaller than they once were, because the rise of private equity firms and hedge funds has made it easier to raise money outside the stock market. Private companies are less subject to government regulation and oversight. As The Economist put it in a recent article discussing this trend, “Companies are like jets; the elite go private.”

The rise of shareholder activism may be contributing to the trend. The California Public Employees Retirement System, a major pension fund investor, is now campaigning strongly against dual-class shares, threatening the viability of that strategy for maintaining minority control.

In June, many stockholders of this country’s largest public corporation, Wal-Mart Stores publicly registered strong discontent with its policies. They were unable to dislodge the company’s chief executive, because the Walton family stood behind him with their substantial voting shares. It seems likely, however, that both majority owners and management were discomfited by the bad publicity.

Shareholder activism itself reflects a growing disillusionment on the part of individual investors, many of whom have quietly fled the stock market. In 2012, 53 percent of American households polled by Gallup reported that they had investments in the stock market, through individual accounts, mutual funds or retirement accounts, down from 67 percent in 2002.

Net investments in mutual funds, variable annuities, exchange-traded funds, and closed-end funds burgeoned between 2001 and 2007 only to sag in the wake of the Great Recession. They are now lower than they were in 2001 (See Figure 1.3 of the Investment Fact Book).

Declining real returns explain much of this change. As Professor Davis observes, the “first 10 years of the 21st century represented the single worst period of stock market performance in U.S. history.” The Standard Poor’s 500 index has yet to regain its 2000 level.

But disillusionment with the public corporation also plays a role. Accounting scandals, insider trading violations, and bailouts have taken a toll.

Andrew Ross Sorkin reports that three-quarters of students surveyed at 18 high schools across 11 different states agreed with the statement: “The stock market is rigged mostly to benefit greedy Wall Street bankers.”

This is a pretty dark view. No wonder Professor Davis refers to the “twilight” of the public corporation.

Article source: http://economix.blogs.nytimes.com/2012/09/03/the-twilight-of-the-public-corporation/?partner=rss&emc=rss

Today’s Economist: Nancy Folbre: Our Dis-Integrated Economy

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

During Mitt Romney’s time at its helm, Bain Capital cleverly invested in, and made enormous profits from, companies that The Washington Post describes as “pioneers in the practice of shipping work from the United States to overseas call centers and factories making computer components.”

Today’s Economist

Perspectives from expert contributors.

Where pioneers have gone, settlers have followed. Today, outsourcing by the country’s largest multinational corporations has become routine.

The consequences for American workers and taxpayers have become increasingly visible. President Obama’s television campaign ads now dramatize job loss resulting from relocation of investment to other countries. Regardless of whether these ads prove politically effective, they are likely to raise public awareness of an important economic trend.

Globalization has been under way for centuries, in fits and starts. The process included the development of new trade routes and vast migratory flows to what Europeans termed a New World. For many years national policies shaped globalization’s impact by restricting immigration. Today, however, technological agility threatens to render national borders almost irrelevant.

The result is a process of strategic investment that often yields high profits without generating employment or tax revenues in the United States.

Many American companies rely heavily on subcontractors in other countries, minimizing both their production costs and their tax liabilities.

As Professor Gerald Davis of the Ross School of Business at the University of Michigan put it in a recent book, “Managed by the Markets,” production has literally become dis-integrated.

The very qualities that American capitalism prizes most – innovation, flexibility and single-minded pursuit of profits – have set it increasingly free of regulatory constraint. Paradoxically, this very freedom makes it increasingly hard for ordinary Americans to get a grip on the benefits.

In a paper presented at the recent meetings of the American Sociological Association in Denver, Professor Davis illustrated this point with a tongue-in-cheek guide to an instant start-up based on a marketing plan to sell imaginary (to date, at least) iPhone-based Remote Drone Assassins to neo-mercenary companies and other interested parties.

A bright student could follow this seven-step guide using a laptop computer from the back seat of a large lecture hall while pretending to listen to an introductory economics lecture:

1. Rent a desk in a shared office and garner a great-sounding business address at a “global accelerator,” like the Plug and Play Tech Center (no need to actually sit there).

2. Incorporate in Liberia by e-mail for $713.50 (further details at the Low Tax Global Tax and Business Portal).

3. Crowd-source funding on a platform such as Kickstarter.

4. Hire programmers at an agency like ODesk to develop the application software.

5. Contract with an overseas drone manufacturer using a service such as Alibaba.com.

6. Set up a payment system with a company like Square.

7. Arrange shipping through a company like Shipwire (which describes itself as specializing in “outsourced e-commerce order fulfillment and logistics services for business”).

I would add one more step:

8. Renounce American citizenship and move to Singapore, as did the Facebook co-founder Eduardo Savarin. That would end your obligation as a citizen to pay income tax to the United States.

Perhaps we should admire the brilliant entrepreneurs who are creating this brave new world.

But we shouldn’t depend on them for job creation, and it seems unlikely that the recent Jump-start Our Business Start-ups Act will have much employment impact.

What we really need is some new economic software that could link technical innovation to decent jobs, investment in the next generation and environmental sustainability.

Maybe we should try outsourcing a plan for economic reintegration, since we don’t seem to be able to come up with one on our own.

Article source: http://economix.blogs.nytimes.com/2012/08/27/our-dis-integrated-economy/?partner=rss&emc=rss

Economix Blog: Nancy Folbre: The Best States to Grow Up In

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Newborn children can’t choose the states in which they grow up any more than they can choose the size of their parents’ bank accounts. But voters in every state choose how much to spend on public programs benefiting children, with telling results.

Today’s Economist

Perspectives from expert contributors.

The Foundation for Child Development’s new report on state-level differences in the Index of Child Well-Being – a broad quality-of-life indicator based on 25 indicators – shows enormous variation, as does another set of indicators known as Kids Count, developed by the Annie E. Casey Foundation.

In states near the top of the list, like Connecticut, New Jersey and Utah, the successes have been celebrated. States in the South and Southwest generally rank lower, with New Mexico, Mississippi, Louisiana, Nevada and Arizona at the bottom.

Those, like Newt Gingrich, who believe, that less fortunate children lack a work ethic might point to regional differences in moral character. But evidence suggests that regional differences in willingness to pay taxes, sometimes called “tax morale,” are at work.

States that rank low on the Index of Child Well-Being are those less willing to tax adults to invest in children.

Analysis of state differences by William O’Hare, Mark Mather and Genevieve Dupuis points to the positive impact of per-pupil spending on education, higher Medicaid child-eligibility thresholds and higher levels of Temporary Assistance to Needy Children benefits on child well-being.

Average public spending on children varies far more across states than spending on the elderly, who receive benefits primarily through the federal government. Higher state and local spending, in turn, often requires higher state and local tax rates.

Children can’t vote, so adults must vote for (and pay for) higher taxes on their behalf. Calculations of economic self-interest probably play a role. Parents currently raising children gain more directly from public spending on them. State policy makers know that investments in their future work force can pay off, yielding higher state income (and tax revenues) in the future.

But levels of trust and concern for others also affect willingness to pay taxes, just as they affect people’s willingness to contribute to charities or tithe to a church. Unfortunately, as the political scientist Robert Putnam asserts, racial and ethnic diversity tends to weaken social solidarity.

Children are directly affected. Research by the economists Alberto Alesina, Reza Baqir and William Easterly, among others, shows that racial and ethnic diversity tend to undermine support for public spending on education and other services at the municipal level.

Other research indicates that the causal linkages are complicated. Levels of segregation, interaction and political representation all have an impact. The political scientist Daniel Hopkins shows that a sudden change in the racial and ethnic composition of a community may have a particularly divisive effect.

But some institutions – and political jurisdictions – do a better job of coping with these stresses than others do. Professor Putnam points to the success of policies adopted by the United States armed forces to bring recruits together and build their trust for one another.

As a previous Foundation for Child Development report by Donald Hernandez and Suzanne E. Macartney emphasizes, immigrant children in the United States are geographically concentrated in a few states where they remain economically and socially vulnerable. The new analysis of state differences shows that African-American and Hispanic children have lower levels of well-being than white children. The higher the percentage of children in a state who are minorities, the lower the state’s index of child well-being.

But demography is not destiny. Some states with large numbers of immigrants and minority children, like New Jersey, New York and Illinois rank fairly high, while others, like Texas, Florida and California, rank quite low.

More detailed research on the success stories among states promoting child well-being might reveal strategic innovations in efforts to overcome differences and build strong political coalitions.

We need a strong care ethic as well as a strong work ethic. Both can strengthen tax morale and lead to public investments that make children happier, healthier and more productive in their future jobs.

Article source: http://feeds.nytimes.com/click.phdo?i=f1bf6621592bb62d9fe9fe16d58a7812

Economix Blog: Nancy Folbre: Storming the Capitalist Castle

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Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Wall Street is not literally a castle, and the small green space of Zuccotti Park claimed by Occupy Wall Street may soon be emptied. But an upstart movement has spray-painted a new slogan onto the ramparts of the economic establishment.

Today’s Economist

Perspectives from expert contributors.

“We Are the 99 Percent” effectively publicizes a message consistent with research on the distribution of income and wealth: the top 1 percent of households in the United States represents an economic aristocracy.

Over the last 30 years, it has consolidated and amplified its privileged position, making strategic political investments in policies ranging from financial deregulation to cuts in top marginal tax rates.

It took home 21 percent of the nation’s pretax income in 2008, up from 9 percent in 1976. It controlled 36 percent of the nation’s private wealth in 2009.

Some economists argue that inequality has no downside — a view critically dissected by Timothy Noah in a terrific essay, “The United States of Inequality.”

As a poster I admired at the park last Wednesday succinctly put it: “We want democracy, not plutocracy.”

The protesters don’t necessarily demonize the top 1 percent or suggest that taxing them at a higher rate will balance the budget. What brings them together is the conviction that this group exercises disproportionate control over our economic and political life.

Republicans seem to confirm this view when they assert that higher taxes on millionaires would stunt employment growth – as though a small reduction in disposable income would demoralize otherwise mighty job creators.

The very rich are depicted as champions of the people who would graciously repay further tax cuts with economic growth. Yet Republican tax cuts dug much of the budget hole we live in.

A quarter of the millionaires in the United States pay lower tax rates than some middle-class households, vindicating concerns expressed by Warren E. Buffett, the investor king of Omaha now widely considered a traitor to his class.

The posters I saw didn’t propose class war, but they did express class rage. “I paid for your bailout” said one, “and I want a refund.” “Health care, not wealth care,” said another. Several said simply, “I need a job.”

The protestors I heard didn’t pretend to offer a political program. One held up a sign saying, “We’re Here, We’re Unclear, Get Used to It.” He genially described his participation in a week’s worth of workshops and discussions as a “think tank of democracy.”

Another, more discursive poster described the ideals of the “solidarity economy,” starting with: “I don’t have a boss. I’m a worker-owner in a cooperative business,” and ending with, “I joined a credit union so my money stays in the community.”

What seems to be emerging is what the historian Gar Alperowitz described as a process of “evolutionary reconstruction.” It might start by making capitalism more distinct from feudalism.

This idea came to me while reading about a great new product that just hit the market: a $6,400 toilet with its own remote control for water spray and drying fan. Marie Antoinette would have loved it for Versailles.

Whether the ramparts are breached or not, I predict a long and fascinating siege.

Article source: http://feeds.nytimes.com/click.phdo?i=c8290b17ffcde31ce673348ce346aad9

Economix: How to Cut Child Poverty in Half

Today's Economist

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

Cutting child poverty in half sounds like a magician’s trick, or some miracle of rapid economic growth. But Britain has used standard policy tools to reduce its child-poverty rate by more than half since 1994 and has effectively defended this progress against the pressures of the Great Recession.

By contrast, the child poverty rate has trended upward in the United States since 2000, and children have proved economically vulnerable to increased unemployment.

Most other rich countries rate higher on indicators of child well-being than either Britain or the United States. But we have more in common with Britain than most other countries, and rightfully pay closer attention to it.

The contours of British success are detailed in “Britain’s War on Poverty,” a compelling book by Jane Waldfogel of Columbia University. An updated summary has been published online by two nonprofit groups that have long pressed for more attention to these issues: First Focus and the Foundation for Child Development, on whose board I serve. (Professor Waldfogel was also the subject of a recent Book Chat on this blog.)

The ordinary policies in Britain that led to what many Americans would consider extraordinary results were these: an increase in the national minimum wage (currently about $9.70 an hour, compared with our $7.25), tax incentives to encourage single parents to move into paid employment, increased public benefits for parents, provision of universal preschool and regulations making it easier for parents of young children to request flexible work schedules.

Many similar, though less generous policies are already in effect in the United States, at the federal or state level. Indeed, the title of Professor Waldfogel’s book evokes President Lyndon B. Johnson’s War on Poverty, while Britain’s New Deal for Lone Parents sounds Rooseveltian. The Sure Start program, focusing on social and educational services to young children in low-income families, resembles our Head Start program.

In short, just as the British have built on our examples, we could easily build on theirs. Do we simply lack the political will, or is it harder in the United States to translate this political will into legislative action?

A survey commissioned by First Focus in April suggests that most Americans worry that children fare poorly and oppose cuts in federal spending that could hurt them. But even strongly voiced concerns about poverty are difficult to hear over the cacophony of fierce debate on budget cuts and government spending.

Britain has a longer history of universal programs, such as national health insurance and paid parental leave, that may have created a stronger political commitment to public spending.

Under Tony Blair’s leadership, the Labour Party government that came to power in 1997 took a more decisive stand on child poverty than our Democratic Party. Professor Waldfogel suggests that concerns about child poverty have been — and remain — stronger across the political spectrum in Britain, with the new coalition government of Conservatives and Liberal Democrats promising to leave poor children unharmed by planned major cuts in social spending.

Recent cuts in once-universal child benefits (on the grounds that the country can’t afford to subsidize high-income parents) reflect some growing tensions. Continuing political debate in Britain suggests that income cutoffs for eligibility raise issues of fairness and may foster political resentment toward low-income families.

Racial and ethnic diversity in Britain has increased considerably in recent years as a result of increased immigration, and Professor Waldfogel notes that poverty among children is highest among those of Pakistani and Bangladeshi origin, just as it is highest in the United States among black and Hispanic children.

Income inequality has increased in Britain in recent years, as it has in the United States. As a result, declines in absolute poverty among children have not been matched by declines in the relative poverty of children’s families, defined as a percentage of median family income.

Still, Britain has made distinct and admirable progress. While the future of its efforts to reduce child poverty remains uncertain, Britain’s recent history vindicates the hope that we can find both the will and the way to do better here.

First Focus, in conjunction with Senator Bob Casey, Democrat of Pennsylvania, and the Foundation for Child Development, plans a Congressional briefing on these issues on June 16.

Article source: http://feeds.nytimes.com/click.phdo?i=9c43ff263e14cd00a9d000fd14fce6fb