Economy

Too Big to Fail. Not Too Strong.

Nomi Prins’s new book traces America’s propping up of banks since the robber barons.

F rom Andrew Mellon’s nearly 11 years as Treasury secretary under Presidents Warren G. Harding, Calvin Coolidge, and Herbert Hoover to our time, when Timothy Geithner went from financial regulator at the New York Federal Reserve to Treasury secretary to investment executive, journalists have often employed the image of a revolving door to describe the flow of bankers between Wall Street and the U.S. Department of the Treasury. But few know that the White House and the Treasury are, arguably, a single building. A tunnel connects 1500 Pennsylvania Avenue with 1600. Presidents use this passageway to slip visitors in and out of the Oval Office. Nomi Prins, in her new history All the Presidents’ Bankers , does not say it in so many words. But she shows that the tunnel from the White House to the Treasury extends, metaphorically, for 226 miles to Lower Manhattan. Prins digs into presidential libraries and national archives and mines a shelf of books. She also knows Wall Street from the...

How Big Data Could Undo Our Civil-Rights Laws

iStockPhoto
iStockPhoto B ig Data will eradicate extreme world poverty by 2028, according to Bono , front man for the band U2. But it also allows unscrupulous marketers and financial institutions to prey on the poor . Big Data, collected from the neonatal monitors of premature babies , can detect subtle warning signs of infection, allowing doctors to intervene earlier and save lives. But it can also help a big-box store identify a pregnant teenager —and carelessly inform her parents by sending coupons for baby items to her home. News-mining algorithms might have been able to predict the Arab Spring . But Big Data was certainly used to spy on American Muslims when the New York City Police Department collected license plate numbers of cars parked near mosques, and aimed surveillance cameras at Arab-American community and religious institutions. Until recently, debate about the role of metadata and algorithms in American politics focused narrowly on consumer privacy protections and Edward Snowden’s...

A Chance to Remake the Fed

J anet Yellen has only chaired the Federal Reserve for a few months, but you could forgive her if she feels like the new kid in school that nobody wants to sit with at lunchtime. With the resignation of Jeremy Stein earlier this month, there are only two confirmed members of the seven-member Board of Governors: Yellen and Daniel Tarullo. Three nominees—Stan Fischer, Lael Brainard and Jerome Powell, (whose term expired but has been re-nominated)—await confirmation from the Senate. Another two slots are vacant, awaiting nominations. One consequence of the shortage of Fed governors is that regional Federal Reserve Bank presidents, chosen by private banks, now outnumber Board members at monetary policy meetings, allowing the private sector to effectively dictate monetary policy from the inside, and creating what some call a constitutional crisis . The need for two more nominees, however, provides an opportunity to reunite the progressive coalition that prevented Larry Summers from getting...

When Shareholder Capitalism Came to Town

The rise in inequality can be blamed on the shift from managerial to shareholder capitalism.

Jason Schneider
I t was only 20 years ago that the world was in the thrall of American-style capitalism. Not only had it vanquished communism, but it was widening its lead over Japan Inc. and European-style socialism. America’s companies were widely viewed as the most innovative and productive, its capital markets the most efficient, its labor markets the most flexible and meritocratic, its product markets the most open and competitive, its tax and regulatory regimes the most accommodating to economic growth. Today, that sense of confidence and economic hegemony seems a distant memory. We have watched the bursting of two financial bubbles, struggled through two long recessions, and suffered a lost decade in terms of incomes of average American households. We continue to rack up large trade deficits even as many of the country’s biggest corporations shift more of their activity and investment overseas. Economic growth has slowed, and the top 10 percent of households have captured whatever productivity...

Cuomo's Wedge

AP Images/Mike Groll
O n Monday, Mary Fallin, Oklahoma’s Republican governor, signed legislation forbidding her state’s cities from enacting ordinances that set their own minimum wage standards or that entitle workers to paid sick days. Even in hard-right Oklahoma, citizens were collecting signatures to put initiatives raising the minimum wage and mandating sick-day on the Oklahoma City ballot. Fallin has now put an unceremonious end to such egalitarian frippery. As an increasing number of cities have considered setting their minimum wages higher than those of their states, conservatives in state government have moved to strip them of that power. Most Southern states explicitly forbid their municipalities from indulging in such displays of egalitarian economics. In Washington, a Republican state senator has introduced legislation that would keep Seattle from raising its wage. In Wisconsin, Republican Governor Scott Walker is backing legislation that would strip cities of the right to enact living wage...

Karl Polanyi Explains It All

Tim Bower
I n November 1933, less than a year after Hitler assumed power in Berlin, a 47-year-old socialist writer on Vienna’s leading economics weekly was advised by his publisher that it was too risky to keep him on the staff. It would be best both for the Österreichische Volkswirt and his own safety if Karl Polanyi left the magazine. Thus began a circuitous odyssey via London, Oxford, and Bennington, Vermont, that led to the publication in 1944 of what many consider the 20th century’s most prophetic work of political economy, The Great Transformation: The Political and Economic Origins of Our Time . Polanyi, with no academic base, was already a blend of journalist and public intellectual, a major critic of the Austrian School of free-market economics and its cultish leaders, Ludwig von Mises and Friedrich Hayek. Polanyi and Hayek would cross swords for four decades—Hayek becoming more influential as an icon of the free-market right but history increasingly vindicating Polanyi. Reluctantly,...

Yes, Being a Woman Makes You Poorer

AP Images/Susan Walsh
S enate Republicans blocked the Paycheck Fairness Act yesterday, a bill that would make it illegal for employers to punish workers for discussing wages and would require them to share pay information with the Employment Opportunity Commission. President Barack Obama has already signed an executive order prohibiting federal contractors from punishing employees who talk about their pay. These two actions were pegged to the somewhat made up holiday called “Equal Pay Day” celebrated Tuesday, and were discussed by many in Washington in merely political terms : evidence of attempts by Democrats to woo women voters and a continuing sign of Republicans' “difficulties” with them. Elsewhere, pundits and writers wanted to discuss whether the pay gap really existed. A few years ago, some conservatives and a few liberals began to attack the much-talked-about fact that women make 77 cents to every man’s dollar as untrue, based largely on the idea that the gap itself was mostly accounted for by...

Workers on the Edge

AP Images/Amy Sancetta
O ne of the most significant contributing causes of the widening inequality and insecurity in the American workforce is the accelerating shift to what economists call contingent employment. That means any form of employment that is not a standard payroll job with a regular paycheck. It can take the form of temps, contract workers, part time jobs, or jobs with irregular hours. A study by the GAO found that fully one-third of the U.S. workforce, or 42.6 million workers, was contingent, meaning in a work arrangement that is “not long-term, year-round, full-time employment with a single employer. “ It is a common myth that the shift to precarious, irregular employment reflects either the structure of the new, digital economy or the preferences of workers themselves. But in reality, most contingent work is the result of efforts by employers to undermine wages, job protections and worker bargaining power. Work that could be (and once was) standard payroll employment is turned into...

How Should Liberals Feel About the Mozilla CEO Getting Pushed Out Over Marriage Equality?

By now you may have heard the story of Brendan Eich, who was named the CEO of the Mozilla corporation, which runs the Firefox web browser, then resigned ten days later after it was revealed that he donated $1,000 to the campaign for California's Proposition 8, which outlawed same-sex marriage in the state and was later overturned. Eich's resignation came after the company came under pressure from many directions, including the dating site OKCupid, which put a message on its site asking its users not to use Firefox. This is something of a dilemma for liberals: on one hand, we support marriage equality, but on the other, we also support freedom of thought and don't generally think people should be hounded from their jobs because of their beliefs on contentious issues. So where should you come down? In order to decide, there are a few questions you need to ask, some of which are easier to answer than others: What kind of an employee was Brendan Eich? This question, which may be the most...

Wall Street’s Subsidy Safety Net

AP Images/Mary Altaffer
F inancial reformers in both parties have insisted for years that the largest banks remain too big to fail, and that Dodd-Frank did not cleanse the system of this reality. You can mark down this week as the moment that this morphed into conventional wisdom. In successive reports, two of the more small-c conservative economic institutions, without any history of agitating for financial reform—the Federal Reserve and the International Monetary Fund—both agreed that mega-banks, in America and abroad, enjoy a lower cost of borrowing than their competitors, based on the perception that governments will bail them out if they run into trouble. This advantage effectively works as a government subsidy for the largest banks, allowing them to take additional risks and threaten another economic meltdown. With institutional players like the Fed and the IMF both identifying the same problem, Wall Street grows more and more isolated, setting up the possibility of true reform. The idea that big banks...

Soldiering on an Empty Stomach

AP Images/Keith Srakocic
S ince the start of the Recession, the dollar amount of food stamps used at military commissaries, special stores that can be used by active-duty, retired, and some veterans of the armed forces has quadrupled, hitting $103 million last year. Food banks around the country have also reported a rise in the number of military families they serve, numbers that swelled during the Recession and haven’t, or have barely, abated. About 2,000 food-stamp recipients listed their occupations as active-duty military in 2012, according to the most recent data from the United States Department of Agriculture, which oversees the food-stamp program. It’s a tiny fraction of the 47 million Americans who receive food stamps on an average month. The military also has its own program designed to provide families with additional money for food so that they don’t qualify for food stamps. Uptake is low—only 427 families used it. Those who work on anti-hunger issues worry that there are more complicated reasons...

America's Class System Across The Life Cycle

I am not usually one for a long charticle, but occasionally it's worthwhile to step back and summarize what we know. Here, I tackle America's class system, across the life cycle. 1. Poverty Spikes Stress in Children It starts in the womb . It never lets up . 2. Income Inequality Means Enrichment Inequality More money, more activities. 3. Rapid Schooling Divergence Although there is essentially no observed class-based difference in the cognitive abilities of children in their first year of life, that ends quickly . 4. Logical Consequence of Divergence: Drop Outs Little to no enrichment activities, cognitive abilities stunted by poverty-related stress, and years of falling behind does what you would think it does . 5. Further Behind Than Ever Come College Time These figures probably understate the severity of the gap as well because those on the low end who’d score the worst probably never bother to take the SAT anyways. 6. Traditional College Students: Rich Kids The richer your parents...

Piketty's Triumph

Three expert takes on Capital in the Twenty-First Century, French economist Thomas Piketty's data-driven magnum opus on inequality.

Courtesy of Fondation Jean Jaurès
In the 1990s, two young French economists then affiliated with the Massachusetts Institute of Technology, Thomas Piketty and Emmanuel Saez, began the first rigorous effort to gather facts on income inequality in developed countries going back decades. In the wake of the 2007 financial crash, fundamental questions about the economy that had long been ignored again garnered attention. Piketty and Saez’s research stood ready with data showing that elites in developed countries had, in recent years, grown far wealthier relative to the general population than most economists had suspected. By the past decade, according to Piketty and Saez, inequality had returned to levels nearing those of the early 20th century. Last fall, Piketty published his magnum opus, Capital in the Twenty-First Century , in France. The book seeks to model the history, recent trends, and back-to-the-19th-century future of capitalism. The American Prospect asked experts and scholars in the field of inequality to...

The GOP's Racial Dog Whistling and the Social Safety Net

AP Images/J. Scott Applewhite
Y ou've no doubt heard the famous quote about race in politics spoken by the late Lee Atwater, the most skilled Republican strategist of his generation. Liberals have cited it for years, seeing in it an explanation, right from the horse's mouth, of how contemporary Republicans use "issues" like welfare to activate racial animus among white voters, particularly in the South. Race may be an eternal force in American politics, but its meaning and operation change as the years pass. It's time we took another look at Atwater's analysis and see how it is relevant to today, because it doesn't mean what it once did. Atwater may have been extraordinarily prescient, though not in the way most people think. If a certain word unsettles you, you might want to read something else with your coffee, but it's important we have Atwater's quote, spoken in 1981 during an interview with a political scientist, in front of us: " You start out in 1954 by saying, 'Nigger, nigger, nigger.' By 1968 you can't...

How to Raise Americans' Wages

AP Images/Paul Beaty
O nce upon a time in a faraway land—the United States following World War II—workers reaped what they sowed. From 1947 through 1973, their income rose in lockstep with increases in productivity. Their median compensation (wages plus benefits) increased by 95 percent as their productivity increased by 97 percent. Then, abruptly, the rewards for greater productivity started going elsewhere—to shareholders, financiers, and top corporate executives. Today, for the vast majority of American workers, the link between their productivity and their compensation no longer exists. As economists Robert Gordon and Ian Dew-Becker have established, the gains in workers’ productivity for the past three decades have gone entirely to the wealthiest 10 percent. The portion of the nation’s economy that went to workers’ pay and benefits—which had held remarkably steady from 1947 through 1973 at 66 percent or 67 percent—last year fell to a record low of 58 percent, while profits reached a postwar high...

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