A blog about business, finance, and economics.

Sept. 16 2010 3:08 PM

Some More on Disability Insurance

It's been a while since I felt an article was so widely misconstrued as my story this week on Social Security Disability Insurance . As can be seen in the comments section, a number of readers felt that I was accusing SSDI recipients of fraud or scams. This puzzles me, because I went out of my way *not* to characterize the situation that way. Look, every government program has some fraud, but I have absolutely no reason to believe that SSDI has more than an average share. On the contrary, as many readers pointed out, SSDI benefits are typically difficult to receive, so there's some reason to predict that SSDI has less fraud than average.

But the existence or nonexistence of fraud was never the point of the article. The point of the article was that the massive growth in the rolls of SSDI indicate that it is functioning differently than the program was originally conceived. That is a bad way to conduct public policy in general, and specifically, as the Washington Post noted on Tuesday, it risks financially straining the SSDI system to the point of bankruptcy .

At any rate, a couple of other things have been published that I think are worth noting. In a comment on my story, Annie Lowrey of the Washington Independent wrote: "(The link between unemployment and disability is well-established —so much so that some economists suggest expanding unemployment benefits to make sure workers don’t take the more expensive disability benefits.) But joblessness does cause worse health outcomes: Losing your job makes you sick . And the longer the duration of employment, the higher the risk of declining health, especially mental health." (I think she meant "the longer the duration of UNemployment.") This is a good point which I came across in my initial research but didn't have room for in the article. Moreover, the interaction between mental illness and physical disability is a factor as well; one study I read indicated that it is much worse for men than women. These details only reinforce my belief that a good goal in some SSDI cases would be to get the recipients back into the work force in some capacity. (Yes, there are government programs in place to do that, but they are not very effective.)

Also: The San Francisco Fed published a paper on Monday called " Labor Force Participation and the Future Path of Unemployment " (hat tip: Rortybomb ). In it, three economists state succinctly what some of my readers have had trouble accepting: "Labor force participation among prime-age men has fallen for two main reasons: increased access to Social Security disability benefits and decreased demand for less-skilled workers (Autor and Duggan 2003). These two factors are related. Decreased demand for less-skilled workers has driven down relative wages of high school dropouts. That in turn has increased the extent to which disability benefits are able to replace earned income." The numbers are striking: "The number of disability insurance applications has increased by 26.4% over the past two years, suggesting that many prime-age men who recently left the labor force may never come back."

Sept. 14 2010 2:10 PM

The Cycs Need Better Arguments

I like Dean Baker's writing: He's feisty, he pulls no punches, and he's relentless. But in a Guardian essay this week arguing that there's no such thing as structural unemployment, he's also confused and wrong.  I understand, and agree with to an extent, why he wants to fight this battle: The most prominent people making the structural unemployment argument are the ones who advocate doing nothing about it. But if his camp—the Cycs—is going to win this debate against the Strucs, they're going to have to come up with better and more accurate arguments.

For example, Baker says:

If there are sectors of the economy where there is a substantial unmet demand for labor, then we should expect to see wages rising rapidly in these sectors. This is a simple supply and demand story. If demand exceeds supply, then we should expect to see wages rising as firms compete for workers. There is no major sector in which wages are keeping pace with the overall rate of productivity growth. Wages have been rising pretty much at the rate of inflation in most sectors for the last year and a half.

Ummm ... no. In fact, average hourly pay—adjusted for inflation—is rising, and is significantly higher than when the recession began. David Leonhardt has a handy chart and discussion here . I won't argue that this proves Baker's interpretation wrong, but if he's going to cite numbers, he should cite them accurately.  

Similarly, Baker says:

If employers can't find enough skilled workers, then we would expect them to have their existing workforce put in more hours. So, there should be sectors of the economy where average weekly hours are increasing. The evidence refuses to cooperate here also. The greatest increase in average hours over the last year has been in mining and logging and manufacturing, industries that are not typically thought to be centers of new economy skills.

Note the sudden appearance of a straw man. Who said anything about new economy skills? Baker seems to think that the only kind of economic mismatch that matters is low-skilled workers who can't get high-tech jobs. Sorry, but that's a remarkably crude, one-dimensional reading of mismatch theory . In fact, two of the three sectors Baker cites are excellent examples of mismatch. Most American workers do not live within commuting distance of either mines or timber forests, and so whatever employment opportunities might exist there are simply off the table.

But look, can't we all just get along? Strucs vs. Cycs is ultimately a false dichotomy: Our current unemployment problem has both structural and cyclical components. The sooner everyone acknowledges this, the sooner we can apply fine minds like Dean Baker's to solving the problem.  

Sept. 14 2010 12:10 PM

Does Socially Responsible Investing Perform Better in America Than in Europe?

The question has plagued socially responsible investing (SRI) since its inception in the early 1970s: Will investors earn a lower return if they put their money only into companies that—fill in the blanks—don't harm the environment, don't take military contracts, don't discriminate in the workplace, etc.?

For quite some time, the consensus among serious financial types was that SRI would lose money; then, it was that SRI at best performed about as well a stock-index fund. The SRI trade group Social Investment Forum trumpets (PDF) claims that a survey of 160 SRI funds found that 65 percent of them outperformed the market in 2009. But a paper published this week in France (PDF) found that from the period 2002-09, French SRI funds performed slightly worse than the market but not at a level that is statistically significant. Moreover, it found that "SRI funds provided no protection from market downturns during this period, as illustrated by the considerable increase of extreme risks borne by these funds."

Who's right? It's tempting to think that the difference is in the nationality, but actually a lot of the discrepancy probably has to do with the time frame. If you look closely at the Social Investment Forum numbers, you'll see some numbers the group does not want to highlight. Namely, that in a five-year time frame, the percentage of SRI mid-cap funds that beat the benchmark was zero; the percentage of SRI small-cap funds that beat the benchmark was zero; and the percentage of SRI balanced funds that beat the benchmark was zero. The French appear to have a point.

Sept. 12 2010 10:40 AM

Would Wittgenstein Buy a Color Kindle?

For decades, television commercials hawking colortelevisions have attempted to accomplish a task that is logically impossible.They purport to show you the vibrant, fantastic, super-sharp colors you'remissing by not owning the state-of-the-art Babbitron 3000. The problem being,of course, that there's no way to display these fabulous colors to you throughthe limitations of your crappy old set; if you could see them, there would beno need for the Babbitron 3000. (The same is true for more recent ads abouthigh-definition TVs.) Inadvertently, these ads support an argument made byLudwig Wittgenstein in a challenging, fragmentary essay called Remarkson Color --namely, that despite centuries of science and philosopherstreating color as a fixed, empirical quality, we can't fully understand color withoutreference to a series of linguistic relationships.

This came to mind reading an article in today's New York Times Sunday business section,about the imminentarrival of color e-reader devices . On a Kindle or similar device, writesAnne Eisenberg, "color is still supplied the old-fashioned way--not by filteredpixels, but by readers' imaginations." That will change soon, as Sharper Imageand Pandigital introduce color e-readers over the next few weeks. Illustratingthe article are two color e-reader displays, one from E Ink and one fromQualcomm.

If you read the Times article online, these pictures show up in color. But if you read them in theprint edition of the Times --whichstill, perhaps anachronistically, feels like the "original" version of any Times story--they are in black and white.The degree to which they represent any change is purely in the reader's mind!Somewhere Wittgenstein is laughing.

Sept. 10 2010 3:36 PM

Weekend Talking Points, September 10-12

Maybe things aren't as awful as we thought? Kind of an OK week for the stock market, in part reacting to nondismal news. Companies are borrowing again . New unemployment claims are down . The U.S. trade deficit is narrowing .

Austan Goolsbee is now head of the President's Council of Economic Advisers. Thank goodness, because Christina Romer was really dragging her feet on the dilemma of state income apportionment .

Engines of destruction. So happy to see someone call BS on the "small businesses are the engines of growth" myth.

A pinch of Basel III. The suspense is killing me! We're rooting for higher common equity requirements. Aren't we? Wait, unless that will hurt lending, as some banks argue . But it won't, say the markets . Anyway, it all starts this weekend (and it will end in tiers ).

Speaking of Europe. Who says Germany's economy isn't growing fast enough? Why, pretty soon, you'll be able to legally ride a bus from one city to another !    

Sept. 10 2010 1:55 PM

Of Course Mark Hurd Is Going To Divulge Trade Secrets. But Which Secret Is HP Afraid Of?

A lot of people were scratching their heads earlier this week, when Hewlett-Packard announced that it was suing its recently departed CEO Mark Hurd , just as he'd said he was going to work for Oracle. HP accuses Hurd of putting "HP's most valued trade secrets and confidential information at peril." Consensus seems to be that HP will not succeed, and that the lawsuit was just an expensive bunch of sour grapes. Felix Salmon , for example, wrote: "It looks very much like it was filed in a fit of passion after hearing that Hurd had signed on with Oracle. There's no tactical or strategic rationale for this: it's just petulance, really."

I don't disagree, exactly, but it got me thinking: What exactly constitutes a trade secret? The concept, as defined by the World Intellectual Property Organization , is straightforward: "any confidential business information which provides an enterprise a competitive edge may be considered a trade secret." You might naively interpret that as something that's absolutely proprietary and essential to a company's business, like the secret recipe for Coca-Cola . As someone who's been asked to sign confidentiality agreements on occasion, though, I've been struck by how widely the idea of a trade secret stretches. Even really basic things about a business—like its market share, or who its biggest clients are—can constitute a trade secret.

And thus while HP's actions might well be quixotic or vindictive or both, one of its assertions is, I think, unassailable: Hurd "cannot perform his duties for Oracle without necessarily using and disclosing HP's trade secrets and confidential information to others." Over the course of his time as CEO, Hurd must easily have absorbed hundreds of trade secrets about HP sales, markets, product lines, advertising strategies, you name it. It defies human nature to suggest that Hurd could turn off his brain every time he was about to cross the line into exposing part of HP's business. That's not a defense of the HP suit; on the contrary, if lawsuits were filed every time a high-level executive switched jobs, society would be crushed by an avalanche of litigation.

And then I looked at this morning's

Wall Street Journal

, which followed up on a story about

involving HP's business in Germany, Russia, and Eastern Europe. Although the investigations clearly date back to Hurd's period as CEO, the company got around to disclosing them in corporate filings only yesterday. Could HP be afraid that Hurd will tell someone about just how deep this problem goes in the company? It's a risky strategy, since the suit seems almost certain to inspire Hurd to utter contempt for his former employer. On the other hand, he was kind of already there, having been so hastily dismissed. At any rate, knowledge that the Justice Department and Securities and Exchange Commission are conducting an ongoing investigation into HP certainly seems to constitute a trade secret, and you can certainly see why HP would prefer that Hurd keep his mouth shut.

Sept. 10 2010 10:04 AM

Finally, Some Details About Maxine Waters' Favorite Bank

To date, the ethical charges around California Rep. Maxine Waters have been juicy but thin. It's been known for a year and a half that during the TARP-and-bailout days of 2008, Waters went to bat for OneUnited Bank , a financial institution to which she and her husband had financial ties (until April 2008, he sat on OneUnited's board of directors). That's questionable conduct but far from illegal, and given that OneUnited , which calls itself "the first black-owned Internet bank," makes a point of lending in underprivileged communities (including Waters' Los Angeles district), it could be as simple as working on behalf of constituents. Even the release of the House Ethics Committee report and the announcement of formal charges have not moved the blogosphere debate beyond the usual sniping.

But the Boston Globe moves the ball forward a bit this morning, with fairly damning reporting, not so much about Waters' conduct as OneUnited's . The bank, which is based in Massachusetts, has made all sorts of promises about loaning hundreds of millions of dollars to strapped communities. In fact, says the Globe , even after receiving $12 million in TARP money: "OneUnited Bank remains financially troubled and its plans unclear. Its assets have plunged 18 percent in that time, to $518 million. Total loans on the books have dropped by 13 percent, to $322 million, and few new loans have been made this year." And all those loans to help minorities in Boston? "The bank has made fewer than a half-dozen mortgages in the Boston area since getting bailout funds in December 2008, according to a public records review by the Globe. The largest of those loans went to wealthy developer Cecil Guscott, and to a Dorchester health care agency."

OneUnited is, of course, not alone in taking TARP money and slowing down lending. But at a minimum, Waters ought to have to answer for the paucity of consumer service that was accomplished her aggressive lobbying.

Sept. 8 2010 12:09 PM

Does Wall Street Get to Elect Its Own Sheriff?

I imagine that I don't have to explain to Slate readers that the job of New York State attorney general is an important one; the office's recent occupants have had a profound impact on how Wall Street does business. And so how, in the perfectly rational, merit-based democracy that is New York State, do we go about selecting the next AG? In all likelihood, some tiny fraction of registered Democrats will choose this Tuesday. How closely are they paying attention? In a poll taken at the end of August , when asked an open-ended question about who they would vote for, more registered Democrats (8 percent) gave the name of someone not on the ballot than named any of the five candidates. A full 77 percent said they didn't know who they would vote for-two weeks before the vote.

(It is theoretically possible that a Republican could be elected attorney general; it's happened before . This year, however, the only Republican candidate is yet another unknown candidate, the district attorney of Staten Island, which is not historically a great launching pad for statewide office.)

Under these rather pathetic circumstances, it seems entirely likely that the best-funded candidate will win; that appears to be Nassau County district attorney Kathleen Rice. But according to an analysis done by the New York Public Interest Research Group for the Financial Times , Wall Street's favored candidate by a wide margin is Eric Dinallo , who until last year was the superintendent of the state's insurance department. Not only has Dinallo raised more than $100,000 from financial companies, says the FT, but "his supporters include Jim Chanos, the noted short seller, who has donated $50,000 individually and $16,500 through Kynikos Associates, his hedge fund. Brian Duperreault, chief executive of Marsh & McLennan, the insurance broker, has donated $37,800. Jon Winkelried and Marc Spilker, formerly high-profile employees at Goldman Sachs, have donated $25,000 and $18,100, respectively."

Is this a potential conflict of interest? I'm not sure there's a lot of value in hand-wringing here. After all, New York being New York, you raise money where the money is. And it's worth noting that Dinallo says he favors

. Moreover, if one of Dinallo's opponents wins on Tuesday, you can be sure that Wall Street funds will be flowing to the nominee in time for the general election in November. Still, one of the lessons we should have learned from the meltdown of 2008 is that the patchwork of sketchy regulations and mediocre administrators in state government were a major reason why problems with the financial system were not spotted earlier. If there's any evidence that this traumatic experience has created a wave to reform how the state relates to Wall Street, it's doing a great job of staying hidden.

Sept. 8 2010 8:55 AM

Americans Are Big Babies About Taxes

National Public Radio aired half a good story this morning: A young couple living in Stratford, Conn., opened up their financial books to a reporter and obsessively documented all the taxes that they pay . Not just the big, obvious taxes like income and property tax, but the smaller, obscure ones: car tax, booze tax, county tax on cell phone use, etc. Anyone listening, I think, could sympathize with the man of the household, Mr. Milkove, who said of his exercise: "I wouldn't recommend it. You wasted an evening, and it just ticks you off." And the comment from an expert that NPR consulted also seems undeniable: "People get very frustrated at taxes that are relatively small compared to big taxes."

So, OK, no one likes paying taxes of any kind. But when you add up all the annoying payments, the total taxes the Milkoves shell out, as a percentage of their income, is 24.1 percent. Even within the narrow context of the NPR story, that's not much; it's actually significantly below the Tax Foundation's estimate of a national average, which is 28 percent. (At a minimum, this suggests that NPR could have had a juicier story with a different family.)

Obviously, individual mileage will vary, but as a reasonably well-paid New York City resident who's also lived and paid taxes abroad, I look on those tax rates as enviably low. I've not done the full data dive, but I guarantee the comparable figure in my household would be upward of 45 percent. On the federal level, this means that I am subsidizing the Milkoves, who actually own things that I don't, like cars and a house.

Does that bother me? Well, it's hardly a thrill. But the fact remains that most of the developed world pays a much higher tax rate than the Milkoves or the average American. You wouldn't know it from the NPR story, but the Organization for Economic Cooperation and Development has been collecting this data in 30 countries for years , and consistently the United States comes out near the bottom of the tax burden chart. If the Milkoves lived in the average OECD country, they'd be paying more than 30 percent of their income in taxes, and in several European countries it would be more than 40 percent.

Yes, I know there are a thousand reasons to hate the American tax system: its complexity, its unfairness, the wasteful or counterproductive ways the money is spent. But can we please get some context for all the whining about the burden being too high? 

Sept. 3 2010 1:45 PM

Why Is the AFL-CIO's Web Site So Bad?

What's the best way for a labor union to present itself? In 1992, two union experts, Sam Pizzigati and Fred Solowey, published an unusual book called The New Labor Press: Journalism for a Changing Union Movement . Part history and part advocacy, it's a thorough examination of how American unions historically have communicated with their own members and with the outside world. Some union newspapers were surprisingly good, either because they did pioneering journalism about strikes, lockouts, and working conditions, or because they gave their readers a service that was hard to find elsewhere. (Did you know that the garment workers' union newspaper Justice published a Yiddish edition until the mid-1960s, and an Italian edition until the late 1980s?)

But the bad union newspapers—and there have been many—are all bad in the same way. They become house organs for their leaders, spewing out endless proclamations, reproducing Ceausescu-like pictures of forced handshakes, and rendering invisible the actual rank-and-file. They are closed systems, speaking a private language exclusively to an internal audience that is probably not paying attention anyway.

Alas, little has changed in the digital age. Visiting the AFL-CIO Web site in search of some Labor Day inspiration is a singularly disheartening task. The primary message you get from the site is to vote for Democrats in November (thanks for the tip). An affiliate organization asks on the home page "Not a Union Member?"—which mathematically is a pretty good bet . Beyond that, though, little thought appears to have gone into making the site persuasive, or even genuinely comprehensible, to someone who's not already part of the club. There's some video from a recent Young Worker's Summit and an exhortation to attend a rally in October. There are some online games that are so hamfisted (health insurance is a shell game!) they almost have camp value.

Some lists of resources, on topics like the global economy  or immigration , are actually quite useful; others seem like Web graveyards that have not been tended in a very long time. In either case, it's not clear that most people would know to visit them unless they were already on the site. There are some actual workers depicted on the site, and reasonably prominently. But they come off like political props, always presented as if the most interesting and important thing about them is their union membership.

What might an ideal union Web site look like? For starters, it could be a lot more practical, foregrounding workplace dilemmas and explaining issues to workers looking for guidance. Second, it could use the news to make the case for unionism, rather than assuming the reader already filters news through a union lens. (As it happens, Sam Pizzigati, the editor mentioned above, now runs a site about economic inequality called Too Much that does a decent job with this.) And finally, it could take advantage of the Web's unique interactivity and become a place where workers talk to one another. Sadly, a lot of unions probably wouldn't put up with that.