In this issue, there’s thinking on the impact of poverty, low wages and no jobs; whether banking can be more like baking; and the rise of rental revenue financialization on foreclosed houses.
Must reads: In this clever Financial Times column, Tim Hartford asks why banking can’t be more like baking noting, “we are unlikely to give our custom to butchers who poison us, brewers who serve foul beer or bakers who overcharge.” Over at Canada’s progressive Centre for Research on Globalization, Robert Ogman looks at the contributions of the now struggling Occupy Movement. This 2012 impact investing white paper from Foundation Source looks at the potential for impact investing by private foundations. And lastly there is this report from the New America Foundation on ensuring college kids are prepared for “gainful employment.”
Financialization or Bust
We will start this week with a cartoon from Roll Call’s R.J. Matson:
We now have a new housing strategy from Wall Street says the Atlantic’s William Cohan, who examines how the Blackstone Group has securitized the rental revenue from foreclosed homes:
[F]ast money has returned to the housing market, but in a more tangible way: big, institutional investors are buying up thousands of single-family houses out of foreclosure, renovating them if needed, and renting them out to people who can no longer afford to buy them. Leading the pack is one of the smartest guys in any room, Stephen Schwarzman, and his publicly traded private-equity behemoth, the Blackstone Group. Eighteen months ago, Blackstone created Invitation Homes to buy and then rent out single-family homes in 13 markets across the country, with a focus on places scarred heavily by the bust, such as Phoenix, Las Vegas, and Orlando… Blackstone’s executives believe they have created a new engine of innovation, and that the struggling economy, and Blackstone, will benefit as home prices rise.
Nothing on the scale of Invitation Homes has ever been tried before, and a lot of people have been wondering what the venture might portend. Historically, when nonlocal investors have started speculating on houses, unfortunate consequences have tended to follow.
Meanwhile in the Huffington Post, the union-backing Labor Institute’s Les Leopold rails against what he sees as the increasing shift of wealth to the top in part via financialization:
It gets even more revolting when we realize that the financial billionaires who are profiting so handsomely from the recovery are the very same who took down the economy in the first place. They were the ones who created and pedaled the toxic securities that puffed up and then burst the housing bubble. Those financial plutocrats caused 8 million workers to lose their jobs in a matter of months. Those bankers, hedge fund honchos and fund managers are directly responsible for the rise in child poverty rates. Washington bailed out those billionaires and is now asking the poor and the middle class to pay for the ensuing deficits with further cuts in social programs at every level of government.
Andy Xie writes in China’s CaixinOnline of an “ungovernable America” that has done less well at adjusting labor to globalization than Japan and Germany in part because of financialization:
Globalization has made compensation global. However, the cost of living, dominated by housing, health care and education, is still locally driven. Germany and Japan have done quite well in keeping the living costs down. While their corporate culture keeps down income inequality, government policies keep down living costs through policies against property speculation, for providing quality and government-subsidized health care and education. Anglo-Saxon countries do the opposite. While they lose out in manufacturing, their policies have encouraged financialization of their economies for temporary gains in economic prosperity. Financialization leads to inflation of non-tradable goods and services like housing, education and health care. While their workers lose out in global competition, they face escalating living costs. The social impact from the squeeze is obvious.
When Employment Doesn’t Pay
Think Progress’ Bryce Covert looks at new Social Security data showing that 40% of American workers made less than $20,000 last year, which he argues is below the federal poverty threshold for a family of four. Meanwhile over at Al Jazeera America, David Cay Johnson reports on the implications of the lowest reported median wage (roughly $27,500) since 1998.
An August report from the Cato Institute (referenced in an article we shared last week) contends, welfare “currently pays more than a minimum-wage job in 35 states.” The Economic Policy Institute’s Elise Gould offers this spirited counterpoint to the Cato study:
What’s striking to me is that even Cato’s overblown and exaggerated welfare benefits would leave families in eight states with incomes below the federal poverty line. I’d add that it’s a bit odd to look at hypothetical data, when real data on what low income families actually receive from welfare and work is available. The Congressional Budget Office provides comprehensive data on sources of income for households by income fifths. We looked at this in some detail in the poverty chapter of State of Working America (see here). These reputable data tell a very different story about how low-wage workers live their lives. They are getting far less from government assistance than the Cato report implies and are relying much more on income gained from working.
In the NYT’s Great Divide blog, Washington University’s Mark Rank looks at the mainstreaming of American poverty:
The many who find themselves in poverty are often shocked at how little assistance the government actually provides to help them through tough times.
[T]he common explanation for poverty has emphasized a lack of motivation, the failure to work hard enough and poor decision making in life…
The solutions to poverty are to be found in what is important for the health of any family — having a job that pays a decent wage, having the support of good health and child care and having access to a first-rate education. Yet these policies will become a reality only when we begin to truly understand that poverty is an issue of us, rather than an issue of them.
Meanwhile NYT’s Paul Krugman looks at the continuing jobs malaise, noting that long-term unemployment is four times what it was pre-recession:
These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started. And many people have pleaded all along for policies that put job creation front and center. Their pleas have, however, been drowned out by the voices of conventional prudence. We can’t spend more money on jobs, say these voices, because that would mean more debt. We can’t even hire unemployed workers and put idle savings to work building roads, tunnels, schools. Never mind the short run, we have to think about the future!
The bitter irony, then, is that it turns out that by failing to address unemployment, we have, in fact, been sacrificing the future, too. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come.
Poverty Does Not Age Discriminate
With the shutdown over and budget talks about overhauling entitlement programs underway, the fate of Social Security has been the topic of some hot debate. Robert J. Samuelson at the Washington Post takes aim at what he calls sentimental caricatures of the elderly based on a new St. Louis Fed study he says “refutes the stereotype”:
There has been a historic shift in favor of today’s elderly. To put this in perspective, recall that many family expenses drop with age. Mortgages are paid off; work costs vanish; children leave. Recall also that incomes typically follow a “life cycle”: They start low in workers’ 20s, peak in their 50s, and then decline in retirement, as wages give way to government transfers and savings. Against these realities, the long-term gains of the elderly and losses of the young are astonishing. From 1989 to 2010, median income increased 60 percent for those aged 62 to 69 while falling 6 percent for those under 40 and 2 percent for those 40 to 61.
David Cooper and Elise Gould at the Economic Policy Institute refer back to their report from earlier this year, saying ”Many of America’s 41 million seniors are just one bad economic shock away from significant material hardship”, while the Center for American Progress’ Sarah Ayres offers 5 reasons young people should fight to strengthen—not cut—social security, including reminders that nearly a third of beneficiaries aren’t retirees at all.
She says aging isn’t optional and Millennials may need Social Security at retirement even more that their grandparents: check out this brief she co-authored on how youth unemployment is more than twice the national average. The Atlantic offers three charts, including this one, asserting that being a young adult in America is a “financial nightmare” based on four decades of data:
The Washington Post looks at a new report from the Annie E. Casey Foundation showing that children from low-income families suffer when it comes to their health, emotions, and in school. The Southern Education Foundation’s new report [PDF] shows that low-income children now make up a majority of students in 17 states, and at least 38% in most states across the nation. Meanwhile this New York Times article examines why the “United States is one of few advanced nations where schools serving better-off children usually have more educational resources than those serving poor students.”
Emily Badger in the Atlantic looks at new research suggesting that the chronic stresses of childhood poverty have effects lasting into adulthood, while adult poverty ”imposes a kind of tax on the brain. It sucks up so much mental bandwidth – capacity spent wrestling with financial trade-offs, scarce resources, the gap between bills and income – that [it's] like living, perpetually, on a missed night of sleep.”
We have a dream for the future and it is quite simple: Investors no longer need to differentiate between impact and non-impact, and all investments are evaluated on financial and impact performance. It is this type of transparency that will finally enable all of us to create the future humanity and the planet deserve.
Kleissner recently released a report on the financial performance of KL Felicitas Foundation.
Pacific Community Ventures, CASE at Duke University and ImpactAssets have also released the results of their two-year study examining the practices of 12 high-performing impact investing funds (which Heron helped fund). The Huffington Post has a nice overview, but you may care to dive deeper into the findings at the Impact Investing 2.0 website.
You may be interested in the results of the Rockefeller Foundation’s research on catalyzing the growth of impact enterprises and bringing them to scale, and Veris Wealth Partners has published “a ‘how-to’ guide for investors wanting to use their portfolios to empower and support women”.
The National Committee for Responsive Philanthropy’s Niki Jagpal and Kevin Laskowski say restricted funding to nonprofits is no longer an option, contending “grantmakers who impose restrictions on their grants are effectively free-riding, counting on someone else.”
John Podesta founder of the Center for American Progress and longtime adviser to Presidents Obama and Clinton, is starting a new think tank on inequality, reports the New York Times.
You may be interested in this report from Gordon Lafer at the Economic Policy Institute detailing the efforts by state legislators across the country legal protections for both union and non-union workers.
Over at CFR’s Renewing America blog, writer Stephen Markovich examines recent research that has brought “the wisdom of corporate tax breaks into question, and several states are considering reforms to assess the public value of their programs.”