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Aaron Hurst: Working for a Good Company vs. Doing Good Work

April 3, 2012

Introduction: Based in London, Jenny Davis-Peccoud serves as the global leader of Bain & Company’s Social Impact Practice. Having spent most of her career at Bain, Jenny has been able to watch the evolution of the firm’s investment in social impact from the incubation and subsequent launch of Bridgespan in 2000 to the significant expansion of Bain’s own Social Impact practice and corresponding activities over the past 10+ years. Jenny and I spoke recently about Bain’s partnership with Bridgespan and Bain’s social impact investment strategy. With the 2000 spin-off of Bridgespan as an independent social change consultancy, what pro bono work does Bain continue to do? We’ve continued to do a lot of pro bono work and invest in major partnerships at Bain & Company. And we have a strong, collaborative relationship with Bridgespan, including ‘externships’ and shared partners. We believe as a firm in reinventing our industry. Our investment in Bridgespan was one way we did that – and it was created as a separate organization, as a nonprofit that understands what nonprofits need. But we also continue to invest in our own pro-bono work with organizations committed to driving change in their sectors. So, how much pro bono does Bain do each year? Bain does about 80 pro bono projects a year, and 60% of those projects have people 100% allocated for at least several months. We provided over $40 million of pro bono consulting services in 2011 alone. How do you know you’ve been successful in your pro bono engagements? Even for our corporate clients we systematically go back and ask if they were satisfied with Bain’s work. We use the same process with our pro bono clients as well, and see high satisfaction rates. Secondly, Bain tracks its success by results, and so we are driven to try to understand the impact and outcomes of our work. I’ve personally been involved in many homeless projects in the UK and we’ve had 5,000 homeless people return to full time employment over 10 years. If I’m a nonprofit leader interested in engaging Bain, how do I do that? We select our pro bono clients as we select our corporate clients. We look for bold, ambitious leaders who are looking to challenge the status quo, have big aspirations for major changes, and are keen to see results. As a firm, we work with Fortune 1000 companies and mid-market firms that have potential to be those leaders over time. To give you an example, in our education practice we work with TFA (Teach For America) – which is like the Fortune 100 of corporate America. But we also work with Students First, with a bold ambitious leader like Michelle Rhee, and it’s more like a start up. We believe both of them have tremendous capability. Beyond education, we’ve partnered with Endeavor, an innovative organization focused on using entrepreurship to effect change on a global scale. And these are just a few. Do they come in through a partner at the firm? Again like our corporate clients, we’re very intentional about who we want to work with and who has the most potential to make a tremendous impact in this field. While we do have organizations introduced to us through partner relationships, we still put them through the same screen of “will they have an impact?” We are drawn to organizations that are passionate about driving change in innovative, meaningful ways. What are you seeing in terms of the demands of current employees? It is very important for our staff to use their business training to benefit the community. While Bain’s focus is on for-profit clients, we encourage social impact and work to make sure that it can be an integral part of the Bain experience. Something very appealing to our people is that they can, for example, take leadership roles in nonprofit organizations early on in their careers through our pro bono work, or they can do externships to get hands-on experience with non-profits. Our employees are very proactive about their involvement as well. We provide a lot of opportunities to get involved, but it isn’t all top-down: much of what we do is ‘grassroots’ and driven by an individual’s passion. What roles does social impact play in the decisions of recruits? We’ve done some research on importance to employees of CSR and sustainability. About 20% will proactively make a decision on these things and will be involved when they’re here – so they are deciding where they want to get the best opportunity. The rest want to know that the company does these things and is making a difference in the world. Either way, we hope that recruits see that Bain is a place in which they can have impact in the social sector. Speaking of the 20% who want to personally engage, what are they looking for specifically? When we go out to business school campuses, we talk a lot about the various ways that people can get involved at Bain. The majority of people in the room are excited about pro bono and externships, and others want to get involved in our internal “green team” environmental efforts or work directly in the community. At Bain & Company, we provide many opportunities for our people to engage in the social impact work that they are passionate about while continuing to further their professional career in consulting. How do you see pro bono evolving globally? The US is clearly ahead, and that gets back to the historical anchoring of philanthropy in the American cultural mindset. Asia is quickly catching up. Europe is developing more slowly – with the London office as our most developed office in the region. All of our offices believe in the importance of social impact, however, and I’d expect our pro bono efforts to continue growing.

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Daniel Gulati: You, the Technologist

April 2, 2012

As the Internet has grown from 70 million users in 1997 to 2.2 billion , entrepreneurial companies with technology at their core have disrupted entire industries and threatened or eliminated incumbents. For example, Square, the new electronic payment service, has already upended a long-established financial ecosystem, with some arguing that it may even replace cash . In recent years, incumbents have fought back. A 2011 IBM study of over 3,000 CIOs revealed that CIO-CEO alignment is stronger than ever, with traditional companies aggressively investing in technology innovation. Big-box retailers, like Best Buy, now have large, fast growing e-commerce businesses. The New York Times and other traditional publishers are launching digital products tailored to the mobile web . Even the big banks are getting social . Yes, this is creating unprecedented demand for employees with serious technical chops. But as more traditional businesses are being run on software and a larger component of a company’s customer experience is being delivered online, everyone from marketing to general management needs to take notice. Studies confirm that technology skills will be crucial for future employment prospects. Engineer or not, the managers and employees who understand new consumer technologies and can create value by deploying software as a solution will be those most valued by organizations young and old. Firstly, entirely new categories of technology jobs are forming , creating exciting opportunities for today’s job seeker. A few years ago, community managers did not exist. Yet with 67% of surveyed brand managers planning to launch social media campaigns in the next 12 months, community managers are now amongst the most sought after marketing professionals. With the rise in new web-based applications, advertising products, and client-side software, user experience (UX) design is suddenly one of the nation’s fastest growing employment areas . Because these categories are so new, a drastic shortage of formally trained professionals exist to fill the roles available. This creates opportunities for the savvy job seeker in an adjacent field looking to switch into an in-demand technology role. Secondly, traditional roles are likely to have a larger technology component that will only increase over time. Marketers no longer live in an above-the-line world; instead, direct-response and pay-per-click advertising have entered the mix. Similarly, HR professionals who fail to harness the power of LinkedIn, Identified, and BranchOut may miss out on attracting star candidates. Nonmanagerial, nonconsumer-facing employees, such as data entry specialists, need to be well-versed in specific new technologies that relate to them. Even the most traditional of employees, the factory worker, must transform into a technologist or face extinction. As Adam Davidson recently argued , “Today, the computer moves the cutting tool and the operator needs to know how to talk to the computer.” In a world where everyone must become a technologist, how can we land an exciting technology job in an entirely new category — or simply become more technologically sophisticated in the way we approach our current, traditional roles? Here’s a five-step checklist to ensure you stay relevant: 1. Be an end user : The best way to understand new technologies is to use them. It would be difficult to truly grasp the power of Facebook fan page marketing without being both a Facebook user and a fan of brands yourself. Dedicate time on the job to tinkering with platforms that are highly relevant to your role. 2. Know the ROI : As the pace of technology innovation increases, the savvy professional will curate and invest in the platforms that matter. Different consumer technologies, like Twitter and Pinterest, have different use cases and entirely different customer acquisition economics. Therefore, a well-understood financial model is crucial if you’re arguing for a reallocation of company resources to support investments in new consumer technology platforms. Even internal collaboration tools, such as Basecamp, salesforce, and Sharepoint, should be subject to detailed business case and ROI analyses. 3. Demonstrate your knowledge : Do you know your SEO from your SEM ? New technologies are creating new vocabularies. This isn’t irrelevant jargon, but rather essential concepts you’ll need to successfully weave into your verbal and written arguments to land that new role or perform at a higher level in your existing role. 4. Learn technical skills : New companies and older institutions alike have recognized the structural mismatch between available technology jobs and worker skillsets. That’s why you can log onto Codecademy and learn programming for free, instantly. Universities are rapidly growing their engineering courses. Venture capitalists are creating software engineering academies in their own cities. There are now countless opportunities to learn what you don’t currently know and use these skills to your advantage in your new or current role. 5. Anticipate trends : With the age of device fragmentation, increasing smartphone and tablet penetration will usher in a post-PC era. Translating mega-trends like these to potential impacts your current professions, and then to the implications for your skillsets, is a powerful way to get ahead. Trends need not be domestic. As the cost of computing falls, overseas markets and entirely new customer sets are suddenly being propelled into relevancy. Anticipate international trends, too. What else can we do to position ourselves? Is your job or industry becoming more technologically focused? This post was originally published on HBR.org.

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Jamin Raskin: The Ghost of Lochner Sits on the Supreme Court and Haunts the Land

April 2, 2012

Philosophical “conservatism” on today’s Supreme Court has nothing to do with constitutional method. It does not mean that the Justices defer to Congress or the states. It does not mean respect for precedent or existing doctrine or the original meaning of constitutional language. All it means is that the five Justices who imposed Citizens United on our country find a way to line up with the political arguments being advanced on Fox News, by the Heritage Foundation and by the most right-wing forces in the Chamber of Commerce. This is a Court that isn’t just dominated by the politics of the Republican Party; this is a Court dominated by the politics of the Tea Party. What an embarrassment. The Supreme Court’s performance on the bench in the health care case last week is instructive. The remarkable thing is that everyone, including the conservatives, concede that the mammoth health care industry, which represents one-sixth of our national economy, substantially affects interstate commerce. This is all that needs to be shown under the 1995 U.S. v. Lopez decision, which found that Congress under the Commerce Clause can regulate the channels of interstate commerce, the things moving in interstate commerce, and any activity that has a “substantial effect” on interstate commerce. With 40 million uninsured people whose uncompensated health care costs the rest of us billions of dollars a year, it’s a simple case. This is why intellectually honest conservatives, like my first-year Contracts professor, Charles Fried, a serious conservative at Harvard Law School who was President Ronald Reagan’s Solicitor General, are declaring that the current constitutional attack on Obamacare is “just a canard that’s been invented by the tea party, and I was astonished to hear it coming out of the mouths of the people on the bench.” In truth, this has nothing to do with the Commerce Clause. What right-wing conservatives are saying now is that the individual insurance mandate (which they concocted at the Heritage Foundation and put into practice in Massachusetts under Governor Romney, all with the enthusiastic support of Newt Gingrich) goes “too far.” It threatens a “fundamental shift in the relationship between government and the individual.” It actually “makes people do something.” It forces people to “enter into a contract.” No, these “don’t tread on me” arguments have nothing to do with the Commerce Clause and everything to do with the revival of the 1905 Lochner v. New York decision. In Lochner , a similarly Right-leaning Supreme Court struck down a law regulating the working hours and condition of bakeshop employees in New York. The theory was that the Due Process Clause creates a sacrosanct invisible shield around business and employment contracts that cannot be pierced by economic and social legislation. For decades the Lochner Court proceeded to wipe out legislation regulating child labor, occupational safety, the right to organize, collective bargaining, and consumer rights, all in the name of protecting the Due Process freedom of contract. Justices would give the thumbs-up or thumbs-down depending on whether they felt a law had gone too far in regulating commercial activity. The Court’s self-appointment as a super-legislature reviewing the wisdom of laws affecting business provoked the famous political clash with President Roosevelt, who advanced a plan to change the composition of the Court. Although FDR did not succeed in changing the size of the Supreme Court, the Court did change its ways and abandon the radical doctrine that government could not regulate private contracts affecting employment and consumer rights. The ghost of Lochner is alive and well on the Roberts Court, which has been busily dismantling laws that stand in the way of total corporate freedom. Just last Term, Justice Breyer dissented sharply in Sorrell v. IMS Health, Inc. (2011), in which the conservatives invalidated on free speech grounds Vermont’s Prescription Confidentiality law, which provided that health insurance companies and pharmacies could not, without doctors’ consent, sell information to pharmaceutical companies about what drugs their patients were using and what illnesses they were facing. The majority ruled that this confidentiality protection violates the First Amendment rights of corporations involved in the buying and selling of patient information. Justice Breyer observed that the Court was using the First Amendment in the same way that the Lochner Court used Due Process: to strike down ordinary laws regulating economic life and business, shifting the locus of real power from the legislative branch to the judiciary. Justice Breyer, who has never been a Ralph Nader-style radical when it comes to consumer rights, admonished the Court for opening up a ‘Pandora’s Box’: Given the sheer quantity of regulatory initiatives that touch upon commercial messages, the Court’s vision of its reviewing task threatens to return us to a happily bygone era when judges scrutinized legislation for its interference with economic liberty. History shows that the power was much abused and resulted in the constitutionalization of economic theories preferred by individual jurists. — See Lochner v. New York , 198 U.S. 45, 75-76 (1905) (Holmes, J., dissenting). The health care case threatens a full-blown revival of Lochner under the guise of the Court preventing some vaguely identified “overreach” by Congress under the Commerce Clause. This rhetoric is phony-baloney because the idea that government never forces anyone to do anything is laughable, as anyone who recalls the existence of military conscription, compulsory public education, and forced deduction of Social Security taxes might realize. It does not improve the new right-wing argument to say that the (Republican) individual insurance mandate is unprecedented or a radical break from prior tradition because it “forces people to buy something or to enter into a contract.” That, too, is a familiar design for government laws, as you will know if you are forced to buy auto insurance in order to drive. Indeed, most of the landmark Commerce Clause decisions that establish the lawfulness of Obamacare involved people being forced to enter into contracts they would have preferred not to enter. In NLRB v. Jones & Laughlin Steel Corp. (1937), the Court upheld Congress’ power to pass the National Labor Relations Act, which forbade the dismissal of employees for organizing unions and forced business employers to rehire (and repay) workers who had been unlawfully fired for that reason. What is that if not forcing someone into a contract? In Wickard v. Filburn (1942), the Court affirmed a $117 penalty imposed on an Ohio dairy farmer who harvested 16 bushels of wheat more than he was allowed to under a wheat harvesting quota set by the Agriculture Secretary under the Agricultural Adjustment Act of 1938. Filburn the farmer made an especially compelling case (and a far more sympathetic plaintiff than the politically driven AGs bringing the Obamacare suit), since the wheat he harvested went not to market but to feed his livestock and family and to create seed for planting. Yet Justice Jackson wrote for a unanimous Court that it was perfectly reasonable and valid under the Act to seek to increase the price of wheat by limiting the volume produced. Home-consumed wheat, he wrote, “would have a substantial influence on price and market conditions.” Even if the farmer’s wheat never goes to market, Justice Jackson wrote, “it supplies a need of the man who grew it which would otherwise be reflected by purchases in the open market.” In this sense, home-grown wheat “competes with wheat in commerce” by keeping people who would otherwise be consumers from purchasing wheat on the open market. That is, Congress essentially wanted to force people in Filburn’s situation to go out and buy wheat. Furthermore, even if Filburn’s individual “contribution to the demand for wheat may be trivial by itself,” the key point from the Commerce Clause perspective is that “taken together with that of many others similarly situated,” his contribution to demand “is far from trivial.” This kind of analysis is what has given rise to the “aggregation” approach to analyzing the substantiality of effects on interstate commerce; what matters is not the economic effect on interstate commerce of a single actor who wants to opt out of a national regulatory scheme but the “aggregate” effect of all persons or businesses similarly situated. In the case of health insurance and uncompensated care, that aggregate effect is many billions of dollars a year. Take the final example of the public accommodations provisions of the Civil Rights Act of 1964, which the Supreme Court upheld under the Commerce Clause in Heart of Atlanta Motel v. U.S. (1964). The Act compelled white restaurant, lunch counter and hotel and motel owners to serve and do business with African Americans and other racial minorities over their diehard opposition. In other words it forced people into business contracts. Similarly, Title VII of the Civil Rights Act forbids race and sex discrimination in hiring, thus forcing racist and sexist employers to hire people they would prefer not to. Every case is different, and what lawyers get paid to do is distinguish this situation from that. But what has really changed today is the political culture of conservatism, which is so shameless that it can invent a health care policy — the individual insurance mandate — and promote it widely as the alternative to the clearly superior single-payer plan that prevails in most of the world, and then come back later and declare that the whole idea is really unconstitutional the minute it is adopted by a political opponent seeking a compromise with conservatives. But, since everyone concedes that it relates to interstate commerce, if it is going to be struck down, the individual insurance mandate will have to be declared unconstitutional because government cannot go “so far.” Yet, if government cannot go so far at the national level because it violates individual rights, surely it cannot go so far in Massachusetts, either. Does this mean that Romneycare in Massachusetts is unconstitutional, too? Will the Republican standard-bearer in 2012 have to run against the constitutionality of his own plan?

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Peter Smirniotopoulos: Education Reform: Why a Bachelor’s Degree Still Matters

April 2, 2012

This is the third installment in a three-part series on the need for education reform in the United States. The first installment, “Doubling-Down on Dumb: The GOP War on Being Smart,” explored the emerging political discourse criticizing public education and being well-educated, and how the toxic environment it creates makes real reform even more problematic. The second installment, “We Need an Education System that Promotes Creativity, Innovation, and Critical Thinking,” argues in favor of a paradigm shift in primary and secondary education, away from an over-reliance on rote learning and standardized testing . “For cities to have sustained success, they must compete for the grand prize: intellectual capital and talent.” New York City Mayor Michael Bloomberg. “Cities must be cool, creative, and in control,” Financial Times , March 27, 2012. Assuming, as was argued in the second installment in this series, that the U.S. reforms its public education system and our high schools are graduating students who are creative, innovative, and critical thinkers, then college becomes the first opportunity where these capabilities can be applied on a much larger, and more-challenging, scale. One of the many benefits of attending college — and, to a somewhat lesser extent, a two-year community college (because of its narrower geographic market area) — is that the universe of students, and their respective life and academic experiences and attendant perspectives, are greatly expanded. The student body at a college with 2,500 students or a university with 25,000 students, respectively, will be exponentially less homogenous than a student’s high school graduating class of 250, all coming from the same community. Moreover, the teaching talents and credentials of the faculty at the college level offer additional intellectual challenges. Anecdotally, when I attended Georgetown University as an undergrad, my philosophy professor, Wilfrid Desan , was an internationally recognized expert on Jean Paul Sartre and Existentialism, and authored the pioneering, three-volume work The Planetary Man. My political philosophy professor, Jose Sorzano , went on to become ambassador and U.S. Deputy to the United Nations, serving with U.N. Ambassador Jeane Kirkpatrick, also a Georgetown government professor during my matriculation. Such distinguished faculty is not, of course, limited to private universities. But regardless of how good a high school may be it is highly unlikely the faculty will include such luminaries. And finally, the college environment will most likely be the last place where a person can truly enjoy learning for learning’s sake, taking intellectual risks along the way that might otherwise be thought to be “career-ending” if exercised freely in a traditional workplace. As Sir Ken Robinson points out in Out of Our Minds, it is only in an environment where people are free to make mistakes that creativity and innovation truly flourish. Teaching for creativity aims to encourage self-confidence, independence of mind, and the capacity to think for oneself. In teaching for creativity, teachers aim to: • promote experiment and inquiry and a willingness to make mistakes , • encourage generative thought, free from immediate criticism , • encourage the expression of personal ideas and feelings, • convey an understanding of phases in creative work and the need for time, • develop an awareness of the roles of intuition and aesthetic processes, • encourage students to play with ideas and conjecture about possibilities , and • facilitate critical evaluation of ideas. The aim is to enable students to be more effective in handling future problems and objectives; to deepen and broaden awareness of the self as well as the world; and to encourage openness to new ideas. Robinson, Ken (2011-06-28). Out of Our Minds: Learning to be Creative (pp. 270-271). Capstone. Kindle Edition. [Emphasis added.] Very few work environments encourage such risk-taking behavior, despite the fact that numerous studies have shown that it is exactly such an environment where the best solutions are forged (with a nod to management guru Tom Peter’s “do it, try it, fix it” principal). More often than not, in the working world making a mistake is often the last thing an employee does before being shown the door. Regrettably, in these tough economic times, there is little chance of gaining much traction for the idealistic notion of “education for education’s sake” without dovetailing that noble concept with the windfall benefits for economic recovery. Returning, then, to Mayor Bloomberg’s Financial Times op-ed from last week regarding how cities compete in a global marketplace, the mayor wrote: I have long believed that talent attracts capital far more effectively and consistently than capital attracts talent . The most creative individuals want to live in places that protect personal freedoms, prize diversity and offer an abundance of cultural opportunities. A city that wants to attract creators must offer a fertile breeding ground for new ideas and innovations. [Emphasis added.] In an essay published in the monthly journal of the Urban Land Institute almost ten years ago entitled “Matriculation Reloaded: University town centers can fuel local economies” ( Urban Land , October 2003), I wrote: In a knowledge-based economy, colleges and universities will be the factories of the 21st century. They are the primary source of “knowledge workers” — the smart, creative, and skilled people forming the foundation of successful companies. [Emphasis added.] This statement is even more relevant today than when I wrote it almost ten years ago. The only things that have changed are 1) the extent to which these domestically produced knowledge workers will remain in the United States, thereby contributing to its economic resurgence, versus being attracted to better opportunities overseas, and 2) whether recent college and university grads, in the current economic climate, can find meaningful, remunerative career paths in the U.S. To the extent that these “career paths” include using their creativity, innovation, and knowledge as the impetus for start-up companies, rather than merely going to work for someone else, the country’s college graduates could be at the forefront of leading the U.S.’s economic resurgence. Our current economic hardships notwithstanding, the correlation between a student’s level of educational attainment and lifetime earning potential has never been greater. This runs contrary to the emerging criticism that the value of a four-year bachelor’s degree has become somewhat diluted in the marketplace by graduate degrees becoming the “entry level degree” for some careers. In a 2002 Special Studies report by the U.S. Census Bureau entitled “The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings” researchers Jennifer Cheeseman Day and Eric C. Newberger concluded: Adults ages 25 to 64 who worked at any time during the study period earned an average of $34,700 per year. Average earnings ranged from $18,900 for high school dropouts to $25,900 for high school graduates, $45,400 for college graduates, and $99,300 for workers with professional degrees (M.D., J.D., D.D.S., or D.V.M.). [W]ith the exception of workers with professional degrees who have the highest average earnings, each successively higher education level is associated with an increase in earnings. To further make the economic case for the importance of higher education in the domestic competitiveness of the United States in a global marketplace, the scholarly research and prolific writings of Dr. Richard Florida are illuminating, to say the least. Dr. Florida is perhaps best known for his first book, The Rise of the Creative Class (Basic Books, 2000), in which he argues that those cities in the United States that attracted and retained “creatives” would fare the best economically in the domestic economy. In The Flight of the Creative Class: The New Global Competition for Talent (HarperCollins, 2005), Dr. Florida extended to the global economy his analytical approach to regional competition for “Creatives” and their economic output. As one might expect, the role of higher education figures prominently in Dr. Florida’s work. However, his sophisticated research and analysis into what makes a particular city “sticky” in terms of attracting and retaining Creatives is truly multi-faceted, addressing everything from competing cities’ arts and music scenes, to opportunities for active recreation, to correlating his research with that of Carnegie Mellon colleague Gary Gates and his “Gay Index.” However, there is no escaping the fact that without a strong system of higher education in the U.S., we would have an incredibly weak “Creative Economy.” In this sense, universities and colleges don’t serve just the economic winners of the creative age. They represent the key building blocks that cities such as Cleveland, St. Louis, and Pittsburgh can use to rebuild. Kevin Stolarick, and our research team have also found that the “higher education — knowledge — learning cluster” is always among the top employers of both creative class workers and service-sector workers in major U.S. regions. I was once asked what I thought might be one of the keys to saving Detroit’s economy. My answer was simple: Ann Arbor… that the future of the Detroit region in the creative age lies more with the technology, talent, and tolerance engine that is Ann Arbor than in stadiums and a refurbished Renaissance center in downtown Detroit. Flight of the Creative Class, page 252. On Friday, March 28th, Dr. Florida posted “Why Some Cities Lose When Others Win” on The Atlantic Cities Online , which is also directly on point. In that blog entry Dr. Florida argues that the competition for intellectual capital will define the success of the world’s — and not just the U.S.’s — greatest cities . In 1950, the world’s largest urban areas were New York and London, both with more than 12 million people, followed by Tokyo (8.4 million), Moscow (7 million), Rhine-Ruhr (6.9 million), Paris (6.7 million), Shanghai (5.8 million), Chicago (5.6 million), Buenos Aires (4.6 million), and Calcutta (4.6 million). By the mid-2000s, the ranking had changed substantially. Cities in emerging economies dominated the list of the world’s largest urban areas. Tokyo topped the list with more than 35 million people, followed by Mexico City and Mumbai with roughly 20 million each. Meanwhile, New York had dropped to fourth, followed by Sao Paulo, Delhi, Calcutta, Jakarta, Buenos Aires, and Dhaka. Los Angeles was 12th, Paris 22nd, Chicago 25th, and London 28th. [Emphasis added.] Obviously, if cities like Tokyo, Mumbai, and Shanghai continue to figure prominently among the world’s largest — and most-economically successful — urban areas, chances are that manufacturing and service companies in their respective spheres of influence (i.e. primarily in Asia) will prosper as a result, and the U.S. will see little, if any, economic benefit from such growth. If, however, U.S. cities such as New York, Washington, D.C., Los Angeles, Chicago, and Boston, as well as second-tier cities such as Pittsburgh, Cleveland, and St. Louis, are successful in attracting and retaining Creatives regardless of their respective countries of origin, then the domestic economy will benefit from the U.S.’s collective aggregation of global, intellectual capital. It is regrettable, at best, that at a time when the U.S. should be making an even-greater investment in higher education — as well as in primary and secondary education — so that we might compete much more aggressively for Creatives on a global scale, local and state governments, as well as the federal government, are succumbing to short-sighted pressures to cut education spending as a means of balancing budgets and reducing government debt. It would be truly unfortunate (but it is not even close to being outside the realm of the possible) if twenty years from now we woke up to the realization that the U.S. prominence in the world’s economy had dropped even farther from where it stood today, because we made the mistake of shortchanging our educational systems at precisely the time when we needed to do the exact opposite.

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Mary Ellen Biery: The Hottest Industries To Start A Business In

April 2, 2012

Last year, three out of every 1,000 American adults chose to start their own businesses, according to a study out this month by the Kauffman Foundation. And while that’s slightly below the entrepreneurship rate of 2010, it’s still among the highest levels of entrepreneurship over the past 16 years — a byproduct of the Great Recession’s high unemployment rates, according to the foundation. There are, of course, many considerations to starting your own business. But if you’ve been wondering what fields might be fertile for a new business, a good place to start is the Bureau of Labor Statistics’ new employment projections for 2010 to 2020. Sageworks examined several businesses that entrepreneurs might consider as they look to tap into the trends cited in the government’s employment outlook. Based on a financial analysis of privately held companies’ results in 2010 and 2011, we’ve generated some key operating metrics that may be helpful in evaluating and planning your options. These metrics show some of the routine costs associated with running that type of business. Cost of sales, which covers the direct costs involved in producing a product or delivering a service, could include auto parts for a mechanic’s shop, for example. Overhead, or operating expenses, typically includes things like office-employee salaries, rent and advertising. Average annual revenues for the businesses were derived from the 2007 Census data on taxable establishments. We used taxable entities because Sageworks’ metrics are based on financial statements for for-profit companies. A day care center, an assisted living center or a consulting firm might be options, considering the BLS expects that the health care and social assistance sector, as well as the professional and business services sector, will generate nearly half of the job growth in the current decade. That’s not too surprising, said Libby Bierman, an analyst with Sageworks, a financial information company. “The aging population and growing technological efficiencies will keep demand for these industries fairly strong,” she said. For example, the growing pool of elderly seeking to maintain some level of independence is expected to help make nursing and residential care facilities one of the biggest job boosters, with annual employment growth of 2.4 percent. And the management, scientific and technical consulting services industry should add 575,600 jobs, or 4.7 percent growth annually, as businesses increasingly use consultants to keep up with the latest technologies, government regulations, and management and production techniques, the BLS says. If you’re thinking of hanging out your own shingle, other industries expected to see stronger employment: computer systems design, automotive repair and maintenance, and various non-physician health fields, including massage therapy and chiropractic care. As shown in the chart below, many of these growing industries are labor-intensive. “Personnel play a large role in operations and in the value they deliver to clients,” Bierman said. “That is why these industries–especially day care centers, assisted living residences, and consulting firms–have relatively high payroll costs and overhead expenses more generally.” Day care centers and assisted living residencies must closely watch the number of workers they have relative to clients, often because of various laws or regulatory oversight. “Keeping that ratio high is a also selling point, which makes adding workers a good investment,” Bierman said. “Given the variability in rent or mortgages, a company’s working space and its maintenance can hugely impact the company’s profitability,” Bierman said. Rent expense is more critical for some industries than others, she noted. “Businesses that typically pay out a lot in rent, like day care centers that need playground areas, may try to buy a space while real estate is less expensive or may begin the operation out of a residence,” Bierman said. Other start-ups, like a massage therapist or a management consultant, may be able to set up and maintain their business in a smaller space, allowing more of the revenues to fall to the bottom line sooner.

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Bill Moyers: Who Pays for Political Ads?

April 2, 2012

Great efforts are underway both locally and nationally to keep secret the identities of people and organizations paying for local political advertisements. But Americans can still do something, even when broadcasters shirk their responsibilities. Here’s what you can do to reveal who’s paying for — and hiding behind — misleading political ads on your TV. Over the years we’ve been reporting on how power is monopolized by the powerful. How corporate lobbyists, for example, far outnumber members of Congress. And how the politicians are so eager to do the bidding of donors that they allow those lobbyists to dictate the law of the land and make a farce of democracy. What we have is much closer to plutocracy, where the massive concentration of wealth at the top protects and perpetuates itself by controlling the ends and means of politics. This is why so many of us despair over fixing what’s wrong: we elect representatives to change things, and once in office they wind up serving the deep-pocketed donors who put up the money to keep change from happening at all. Here’s the latest case in point. The airwaves belong to all of us, right? They’re part of “the commons” that, in theory, no private interest should be able to buy or control. Nonetheless, government long ago allowed television and radio stations to use the airwaves for commercial purposes, and the advertising revenues have made those companies fabulously rich. But part of the deal was that in return for the privilege of reaping a fortune they would respect the public interest in a variety of ways, including covering the local news important to our communities. If they didn’t, they would be denied their license to use the airwaves at all. Alas, over the years, through one ruse or another, the public has been shafted. We heard the other day of a candidate for office in a Midwest state who complained to the general manager of a TV station that his campaign was not getting any news coverage. “You want coverage?” the broadcaster replied. “Buy some ads and then we’ll talk!” That pretty well sums up the game. But hold your nose: it gets worse. The media companies and their local stations — including goliaths like CBS and Rupert Murdoch’s News Corp — stand to pull in as much as $3 billion this year from political ads. Three billion dollars! And most of that money will pay for airing ugly, toxic negative ads that use special effects, snide jokes and flat out deception to take us to the lowest common denominator of politics. The FCC, the Federal Communications Commission, which is supposed to make sure the broadcasters don’t completely get away with highway or, rather, airwave robbery has proposed to the broadcasting cartel that stations post on the Web the names of the billionaires and front organizations — many of them super PACs — paying for campaign ads. It’s simplicity itself: give citizens access online to find out quickly and directly who’s buying our elections. Hardly an unreasonable request, given how much cash the broadcasters make from their free use of the airwaves. But the broadcasting industry’s response has been a simple, declarative “Not on your life!” It would cost too much money, they claim. Speaking on their behalf, Robert McDowell, currently the only Republican commissioner on the FCC — the other one left to take a job with media monolith Comcast — said the proposal is likely “to be a jobs destroyer” by distracting station employees from doing their regular work. The party line also has been sounded by Jerald Fritz, senior vice president of Allbritton Communications, who told the FCC that making the information available on the Internet “would ultimately lead to a Soviet-style standardization of the way advertising should be sold as determined by the government.” We’re not making this up. Steven Waldman, who was lead author of the report that led to the FCC’s online proposal, quotes a letter from the deans of twelve of our best journalism schools: “Broadcast news organizations depend on, and consistently call for, robust open-record regimes for the institutions they cover; it seems hypocritical for broadcasters to oppose applying the same principles to themselves.” Hypocritical, but consistent with a business that values the almighty dollar over public service. The industry leaves nothing to chance. Through its control of the House of Representatives, it got a piece of legislation passed this past week euphemistically titled the FCC Process Reform Act. George Orwell must be spinning in his grave – this isn’t reform, it’s evisceration. Not only does the bill remove roadblocks to more media mergers — further reducing competition — it would subject every new rule and every FCC analysis of that rule to years of paper work and judicial review, enabling the industry’s horde of lawyers and lobbyists, “to throw sand in the works at every opportunity,” as one expert puts it. There was a noble attempt by California Congresswoman Anna Eshoo to include in this bill an amendment that, like the FCC proposal, called for stations to post online who’s putting up the big bucks for political ads. Shocker — it was rejected. Score another one for the plutocrats. There is some good news. The White House opposes this latest bid by the broadcasting oligarchy to further eviscerate the public interest. And the fate of the House bill in the Senate is uncertain at best. In the meantime, as far as those political ads go, we’re not totally helpless. Here’s what you can do: Under current law, local television stations still have to keep paper files of who’s paying for these political ads, and they have to make those files available to the public if requested. You can even make copies to take away with you. So just go down to your nearest station, politely ask for the records, and then send the data online to the New America Foundation’s Media Policy Initiative or to the organization of investigative journalists ProPublica . Both have mounted campaigns to get the information online. Each is pulling together all the information on political ads they get from you and others — crowdsourcing — and making it available to the entire country via the Internet. If you’re a high school teacher or college professor of journalism, have your students do it and maybe give them classroom credit for collecting the data democracy needs to work. In other words, here’s a way citizens can take action even against the plutocrats who run Big Media and Congress. Addendum: The media reform advocacy organization Free Press is also conducting station file inspections, and has just published an easy-to-follow guide to how it’s done. —- Moyers & Company airs weekly on public television — check local listings . See more features — including our all-new TAKE ACTION page — at BillMoyers.com Previously posted on Billmoyers.com .

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Jared Bernstein: Gas Notes

April 2, 2012

Been meaning to get back to gas prices a bit, just based on a few recent articles and adventures in cable land. First, there’s this Adam Davidson piece in the NYT magazine this weekend on how high prices at the pump don’t seem to be changing people’s behavior much, because, he suspects, the average household spends only 5% of its income on gas. I’m not so sure. First, that’s an average. Low-income families spend twice that share (see figure here ). Second, while economists have always suspected a pretty inelastic response to gas prices, in this downturn, there’s certainly been a lot less driving going on–see the remarkable break in trend at the end of the series in the last figure here (this started before the recent spike and is thus more a response to the recession and income loss than higher gas prices). There’s also been a shift to higher mileage vehicles. Finally, any article about family budgets and gas prices right now should not omit the ongoing payroll tax holiday. As I’ve written before , that’s really the only thing politicians can do in this case–i.e., they can’t affect the price, but they can give a temporary boost to after-tax income to offset it. There’s only one thing a president and Congress can do to offset this price spike and they’ve already done it: raise people’s after-tax income. The payroll tax holiday that the President pushed for and Congress recently extended should put about $120 billion extra in paychecks this year. Every penny increase at the pump translates into about a $1 billion expense for consumers. Since its most recent low, the national average is up about 55 cents, or about half the aggregate of the payroll cut (annualized) so far. So, if these rules of thumb are about right, the government is actually in the process of doing about the only thing it can to help people cope with the current price spike. Everything else is just noise. Speaking of noise, the blame-the-President-for-high-gas-prices nonsense seems to have died down a bit, except for on cable TV (more on that in a moment). I saw a poll–and I’ve seen this result a number of times–that had a majority of respondents answering “no” to “do you think the president controls the price of gas?” and yet also had a majority answering “yes” to “do you blame him for high gas prices?” So, we suffer some cognitive dissonance of the issue. Re public opinion, I found this interesting: I was driving around with a bunch of kids this weekend and they noticed that gas here in northern VA just broke $4 a gallon. I mentioned that some people blame the President for the price spike. The younger kids–around 10–just couldn’t make any sense out of that. I tried to explain but they just didn’t get it. To them it was like accusing the President of not being able to fly; like good economists they essentially argued that he can no more set the price of gas than the price of the movie we just saw ( Mirror-Mirror with Julia Roberts–she’s great in it, the kids loved the movie–I thought it dragged). The older kids -12-13–agreed with the economics but recognized that, as one precocious kid put it, “that’s just a talking point.” So, somewhere between 10 and 12, kids go from simple economics to political economics. Next, I hear a lot of excitement about drilling and fracking for natural gas. And it’s true–all that extraction has been increasing the supply and lowering the price of this energy source relative to oil. But people forget this important fact: for every $10 of energy we consume, $9 goes to oil-based products (see figure). We just don’t have the infrastructure in place yet to take advantage of this price difference, so you won’t see this show up at the pump much either. Finally, there’s a meme on cable among conservative talking heads that got a test last week. I’ve asked them “exactly what do you think the President could do?” beyond the pretty aggressive extraction he’s already presiding over (described here ). One answer I’ve gotten back: he just needs to talk about his support for building out the logistics infrastructure, i.e., the pipelines that move oil around the country. That, I was told explicitly, would move the price right away. Well, on Thursday (3/22), President Obama visited Cushing, Oklahoma, a bottleneck point in our national pipeline infrastructure between North Dakota and the refineries in the Gulf. He stated that he is “directing my administration to cut through the red tape, break through the bureaucratic hurdles and make this project [building out part of the Keystone pipeline from Cushing to the Gulf] a priority, to go ahead and get it done.” So, what happen at the pump? Nothing. The figure below shows daily average prices with a line on the day of the speech. Bernanke can say stuff that moves interest rates. Prominent market types can move stock prices. World events can move oil prices. But Presidents simply can’t move gas prices. Yes, I know…evidence isn’t relevant here. In fact, any 12-year old knows that. It’s the grownups that get confused. Source: Gasbuddy.com

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The Center for Public Integrity: FedEx fails to deliver for drivers

April 2, 2012

By Amy Biegelsen , iWatch News Gary Terrio used to work for himself driving lost luggage from the airport in Manchester, N.H., out to the owners’ homes. “Working with my own business I could deliver whatever I wanted,” he says. “If it was something that was ridiculous, I could say no.” When he and his wife started a family, he started looking for something more lucrative and stable. He heard that FedEx Ground drivers in the shipping giant’s home delivery division bought their delivery routes and worked them as their own business, which sounded pretty good. He could earn more and still be his own boss. “And is that how it panned out?” Terrio laughs. “It was nothing, nothing, nothing of what they said.” Rather than making his own schedule, he had to be at the package terminal for pick-up at 6:00am FedEx Ground paid by the delivery, not the hour, and assigned the roster of packages each day. If Terrio delivered the package outside the window of time that FedEx assigned or if a customer complained, his paycheck got docked. He had to buy his own FedEx specified truck and financed and insured it by refinancing the mortgage on his house. After all the expenses and deductions, he says he’d be lucky to bring home $500 a week. “I would have loved to have been just an independent contractor,” he says. Instead, “I felt like an employee.” You might think it’s easy to know the difference between an employee and an independent contractor. It’s not. The distinction sits in a stubbornly murky corner of the law, and workers, employers and governments have a lot riding on the outcome. Meanwhile the number of people who are working but not considered employees continues to grow . Employees are eligible for a host of legal benefit and protection programs that governments run and regulate. Employers must pay into those programs on behalf of “employees,” but not “independent contractors.” The murkiness comes in when someone calls a worker’s status into question, often when a worker and employer disagree over what benefits are due. There is not one single, legal definition for “employee” or one central government agency that decides a worker’s status. Different federal agencies regulate different aspects of employment, and often apply distinct tests to make the decision. State agencies may use other measures still. Supreme Court Justice Hugo Black wrote in a 1968 opinion that “there is no shorthand formula or magic phrase that can be applied to find the answer,” and, for at least as long, lower courts have bemoaned the difficulty of deciding these cases. The confusion is so entrenched that in the case of the IRS — which calculates the federal tax employers owe based in part on how many employees they have — there is a federal law prohibiting the service from issuing clearer guidelines for distinguishing between employees and independent contractors. Legislation introduced in Congress as recently as March 1 aims to address these issues, but historically, similar bills have not made it very far in the legislative process. Terrio felt like he was taking all the risks of being a contractor without being able to exert control over the work. Some of his fellow drivers agreed and in 2005 sued , arguing that in reality they were employees and that FedEx’s treatment of them violated federal overtime and state labor laws. The case is still ongoing. Increasingly, businesses have been shifting to contractor workforces to save money and reduce regulatory exposure. Critics say the model is so alluring that some businesses find ways to intentionally “misclassify” employees as independent contractors. When that happens people lose legal rights, governments lose tax revenue, and businesses gain an unfair advantage over competitors who pay the extra costs to treat their workers as employees. Federal and state governments have started coming down harder on businesses for misclassification, but without a clear definition for employee, how much of the problem can they really solve? The right to a Ron Paul bumper sticker? If Terrio had been working as an employee, the Department of Labor would ensure that he earned overtime pay and could collect workers’ compensation if he had gotten hurt on the job. Anti-discrimination protections would have prevented any of his fellow drivers from being terminated just because they were Latino, a woman, or 52-years-old. As an independent contractor, over 10 percent of his pay went to Social Security and Medicare taxes. As an employee, FedEx would have split that bill and contributed to a state unemployment insurance fund that Terrio could draw on if he lost his job. Independent contractors don’t get any of it. Once, Terrio’s infant son was too sick for daycare. His wife couldn’t get time off so Terrio had to strap him in the front seat of the truck. An employee whose child has a “serious health condition” would generally be entitled to time off under the Family and Medical Leave Act. Rich Farrell, a New Jersey FedEx Ground driver and medic in the Army National Guard, was deployed overseas for six months. FedEx terminated his contract and refused to let him come back; a move that would have been illegal if he had been classified as an employee. Tony Marcellino, a FedEx Ground driver in California, died on the job in a traffic accident. His family couldn’t collect death benefits under California’s Workers’ Compensation Act that families of employees receive. While foregoing benefits, Terrio wasn’t getting the freedoms he expected as a contractor, either. He got frustrated when he wasn’t allowed to put a Ron Paul sticker on the truck he’d refinanced his house for, or run personal errands in it without masking all the FedEx logos. “What does it matter if I stop at the store and pick up groceries?” he says. “It’s my truck.” The government doesn’t regularly count independent contractors. The last time they did, in 2005, contractors represented up to 7.4 percent of the workforce, or 10.3 million people, up from 6.7 percent, or 8.3 million, in 1995. Observers agree that the number has likely grown since. Denise Drake , a management-side attorney in Kansas City, Mo., says “We absolutely see employers using as many different staffing arrangements as possible to get their jobs done in the best and most cost-effective manner possible,” Drake says. “This means there has been, and likely will continue to be, a big increase in the use of temporary employees … and independent contractor arrangements.” Catherine Ruckelshaus , legal co-director for the National Employment Law Project, says businesses can save 30 percent substituting independent contractors for employees. She sees the growth of independent contractors in the workforce running hand-in-hand with increased misclassification. “The independent contractor abuses have been rising for a while. Even before the recession it was really kind of a surge,” Ruckelshaus says. A Labor Department study from 2000 audited companies in nine states and found that up to 30 percent had misclassified employees. Between 2007 and 2010, New York state alone identified over 50,000 cases of misclassification, assessing over $21.5 million in taxes and over $4 million in fines. The Labor Department study estimated that every 1 percent of the workforce misclassified as an independent contractor cost federal unemployment insurance funds $200 million. A FedEx spokeswoman says the company stands by its independent contractor model because it “gives us a flexibility to be competitive in the market.” It’s a flexibility FedEx has gone to great lengths to keep. A 2010 audit from the Montana Department of Labor Insurance of FedEx Ground’s operations there shows one way the company keeps workers as contractors. The audit found that FedEx Ground would advertise on its website for temporary drivers. FedEx conducted an interview and if they decided to hire, the driver would complete paperwork at the FedEx terminal or online for an outside temporary employment agency. The agency, not FedEx, would issue paychecks. “A few of these drivers were already employees of FedEx in other capacities,” the audit said. Montana ruled those drivers ought to have been classified as FedEx employees. Rather than comply with the audit determinations, FedEx settled with the state for $2.3 million, admitting no wrongdoing, and adjusted its business operations there. Meanwhile, a spokesperson for the company says that FedEx has continuing relationships with three different temporary agencies nationwide, and uses them “at any point that there is an operational need.” Montana is not the only state that has looked into FedEx Ground’s employment practices. FedEx’s 2011 annual report says the company is involved in “numerous” lawsuits and audits. Losing those disputes could entitle drivers “to the benefit of wage-and-hour laws,” the report says, and could force FedEx to change their independent contractor status. If that happens, the report warns, “labor organizations could more easily organize these individuals, our operating costs could increase materially and we could incur significant capital outlays.” Drivers at FedEx’s main competitor, UPS, belong to a union. Definition derby Terrio’s lawsuit illustrates how complex the wrangling over “employee” status can get. His suit was not the only one active against FedEx. In fact it was one of 42 separate drivers’ suits coming out of 27 different states. To streamline the litigation they were all rolled together into one federal courtroom in Indiana. In December 2010, the judge announced that drivers in lawsuits covering 23 states were properly classified as independent contractors, but drivers from three other states should have been employees. The case is now on appeal. So the Indiana court found employment status distinctions among the drivers even though they were doing identical work in different states. To make matters trickier, some drivers were getting different answers from the Indiana court than they had previously gotten in their home state. While Terrio was fighting FedEx in federal court, the state of New Hampshire audited their operations in 2008 and found hundreds of state labor violations. As in Montana, FedEx settled admitting no wrongdoing. They wrote the state a check, but did not reclassify the drivers as employees. Instead, they now require drivers in New Hampshire to incorporate as businesses before they can buy delivery routes. The Indiana decision also ruled that drivers in a California suit were independent contractors even though a landmark decision in a California court granted drivers employee benefits from FedEx in 2006. Stickier still, while the litigation focuses on FedEx’s labor practices, the IRS has already blessed the drivers’ contractor status for tax purposes. After auditing FedEx’s 2002 filings, the service calculated a tentative assessment of $319 million in back tax, penalties and interest for misclassifying the drivers, but withdrew the case in 2009, letting the contractor designation stand. The criss-crossing categories reflect the haziness in state and federal law over how “employee” gets defined. “There is nothing definitive,” says Ann Hodges , a labor law professor at the University of Richmond’s law school. The IRS, for instance, uses a 20-part common-law test that focuses on how much control the employer has over the work. Scoring 11 out of 20 doesn’t guarantee a victory, and no single point clinches. The Department of Labor uses a 7-point test focused on the “economic reality” of the worker’s dependence on the employer. The National Labor Relations Board uses something in between. Many other government employment tests are variations on one of those themes. At the IRS the confusion is not an accident, it’s the law. The 1935 Social Security Act set up a trust fund for retirees financed by employers contributing an amount equal to a set percentage of each employee’s pay and withholding a sum from each employee’s check. The IRS hadn’t had to distinguish among workers before, but the statute did not define “employee.” The IRS had to glean its 20-point test from court decisions. That worked until the 1970s when the IRS kicked up its misclassification enforcement. When a major tax reform bill came up in the late ’70s, a coalition of lobbyists representing industries built around a contractor workforce — trucking, real estate, construction and direct sales like Mary Kay — saw an opportunity to get the IRS off their backs. With help from then-Rep. Dick Gephardt and then-Sen. Bob Dole, they condensed the 20-part IRS test into a single law, but couldn’t get it approved. Instead, Congress passed a temporary measure while, theoretically, better language would be crafted. It specifically prohibited the IRS from publishing regulations “clarifying the employment status of individuals for purposes of the employment taxes.” Rather than replacing the temporary law, Congress made it permanent in 1982. The 1982 law goes further than just banning a clearer definition. It includes a provision that says that if the IRS ever audits a company and doesn’t find any problems with employee misclassification, it can never demand that the same business change its employment practices in a later audit even if it finds misclassification the second time around. FedEx was able to avoid $319 million in back taxes under this provision. After 1982, the issue mostly hibernated. “There’s been very lax enforcement by federal and state government agencies that has contributed to a comfort zone for employers to increase their use of independent contractors,” says Richard Reibstein , an attorney in New York City who helps businesses write independent contractor policies that will withstand regulatory scrutiny. In 2006, the Government Accountability Office released a report on misclassification and renewed government interest. The next year then-Sen. Barack Obama sponsored a bill that would repeal the 1982 ban on the IRS defining employment, but it died. On March 1 this year, both the House and Senate introduced another round of bills to free the IRS from the 1982 law, but similar bills have been killed in every Congress since 2006. More attention or more confusion The recession has focused the attention of cash-starved governments on the issue. “The governments need money and they look at this as revenue,” says William Weissman, a tax attorney in California. “I also think there’s a push in the current administration to create a safety net for everyone. So if you want people in the system, you’ve got to collect the taxes.” What Obama could not do legislatively, he’s attempted to do through his agencies. His Department of Labor budget for fiscal 2013 proposes $10 million for state grants to combat misclassification and $4 million for new federal investigators. The Labor Department is hoping to add 35 more full-time employees to investigate misclassification. The department has also announced information-sharing arrangements with 12 states. The IRS has begun allowing companies that voluntarily reclassify independent contractors as employees and pay 10 percent of what would have been owed the previous tax year to avoid other penalties. The IRS refused repeated requests for information on how many businesses had signed up for the program. States have begun ramping up regulation, too. A new California law , for instance, includes civil penalties up to $15,000 per misclassified employee and up to $25,000 per willful violation. “There’s a lot of intentional misclassification going on and we would all agree, whatever your party, that that is wrong,” Reibstein says. He worries, though, that this new run of regulation will hurt businesses that make changes out of fear or have to fight off costly enforcement actions and lawsuits. Weissman says “a simple brightline test would likely be more useful,” than tougher penalties, but that administration-side enforcement is easier than waging a political battle in Congress for a uniform definition. “Whether that uniformity would wind up tougher or weaker is a political choice,” says Harold Datz, former chief counsel at the NLRB. Interest groups on both sides — from the unions to the U.S. Chamber of Commerce — are wary of a definition that would go against them. Russ Hollrah , executive director for the Coalition to Preserve Independent Contractor Status, says “I think current law is fine.” The exemption for businesses with a clean prior tax audit “works very effectively.” As for a change that might provide greater clarity, he says, “It depends on the clarity you get.” Matt Capece, who works for the president’s office of the United Brotherhood of Carpenters and Joiners of America , says “For us in the construction industry, Jesus Christ could write the definition of ‘employment’ and we’d have a problem because the unlawful practices are so ingrained,” he says. Construction firms that treat their builders as employees, he says, often “face the double indignity of losing jobs to the cheaters,” whose savings on labor allow them to underbid the competition. “Then they see their tax rates going up to cover the people who don’t pay” for unemployment insurance and workman’s compensation, he says. Capece doesn’t like the term misclassification. “I refer to it as the ‘M’ word,” he says. “What we see is payroll fraud.” He’s heartened by the state escalations and sees the IRS ban on guidance as a “straitjacket,” but for him, enforcement is the game. The construction industry is a frequent target for state enforcement. In January, Massachusetts’ attorney general extracted $400,000 in unpaid wages and penalties, and more than $141,000 for Massachusetts’ unemployment system from Pulte Homes, one of the nation’s largest builders. “Frankly every time we talk about this issue, the other side paints a picture of a husband and wife sitting at a kitchen table with statutes spread all around them, and they can’t figure out how to classify their workers, and they make a mistake, and the government comes in and severely punishes them,” Capece says. In fact, sitting at Marie Washington’s kitchen table in a rented townhouse in Owings Mill, Md., she is still trying to sort out what she and her husband could have done differently to avoid the employee misclassification lawsuit they’re stuck in. Her husband, Darian, runs Washington Home Installation, which subcontracts out jobs from the company that manages home deliveries for BestBuy. He pays his installers by the job, but says they pick how many deliveries they want to do, which order in which they want to make them and if they want to come in the next day. In March 2011, a former installer sued the business saying he was denied overtime pay even though he regularly worked 70-hour weeks. In an affidavit, the installer describes having far less control over the work, meaning the lawsuit will involve heavy fact-finding. Marie maintains that the independent contractor relationship was clear. When they found out about the lawsuit, the Washingtons discovered that because of the uncertainty of employment lawsuits, many lawyers require a hefty down payment — often as much as $10,000 — before they’ll take a case. It was then that Marie says she realized, “We’re really going to have to exhaust all our financial resources.” When they got married, the plan was for Marie, 25, to finish college and build her own career, but that’s been put on hold. “Even now there’s not clarity,” she says. “I’ve looked at the IRS website, at the state website — there are no answers.” Meanwhile, the Washingtons worry that if they lose, other former employees will come after them for overtime pay, and they may be vulnerable to other liabilities, too. “If we’re wrong in all this,” she says, “then what about the government?” Continue this story and read more investigations at iWatch News

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Simon Johnson: Volcker Rule Would Cause Irreparable Damage to the Muppets — and Much More Broadly

April 1, 2012

A major new research report — released this weekend by the renowned international consulting firm, IMS — finds conclusively that implementation of the proposed Volcker Rule would damage not just the irreplaceable Muppets but also “all children-oriented television or other media-based educational program content.” The logic in the report is straightforward and, quite frankly, compelling. The Volcker Rule — which aims to limit proprietary trading and excessive risk-taking by the country’s largest banks — would reduce the ability of “too big to fail” institutions to bet heavily on the price of commodities used to produce puppets (mostly cotton, but also apparently wood, aluminum, and some rare earths). “In response to the changing demands of their customers, banks have expanded their role of providing financial resources and services to include risk management and intermediation services to [various kinds of puppets](p. ES2) These services are highly profitable and of great value to the skilled artisans who produce puppets, but if the very biggest banks are not allowed to engage in these activities, then no one else will. This, of course, is elementary economics — dating back as far as Adam Smith. If there is a profit-making opportunity to be had, then everyone will spurn it, unless they work for a massive international bank. The history of the United States is replete with examples of business sectors that would never have come into existence were it not for the proprietary trading of banks that were large enough to damage the economy when they failed. Thomas Edison worked long and hard for J.P. Morgan (the man) before being allowed into the speculative trading side of the business. Henry Ford’s entire model was a spin-off from Bankers’ Trust — with a substantial equity investment from his former employer. And the Wright Brothers’ business concept — as well as their most basic notions of aeronautics — derived from their early work with paper airplanes on the trading floor of what became First National City Bank of New York (i.e., Citigroup today). Put simply, there has never been real entrepreneurship in the U.S. financial markets or economy — other than what these banks have put there, directly or indirectly. The fact these banks were very small relative to the economy until the 1980s is irrelevant. And the fact that these banks now draw on huge government implicit subsidies — while also creating an enormous and dangerous tax payer liability — is neither here nor there. Malfeasance by these banks has brought us to the brink of fiscal disaster. In political terms, we are manipulated by bankers just as if they are pulling our strings. But you have to consider the benefits, as well as the costs. Do you enjoy watching the Muppets or not? If the Volcker Rule is implemented as planned, that would have a major negative effect on the bond yields — the spread over the “risk-free” interest rate — paid by the Muppets and other leading providers of children’s entertainment. No one else will ever trade these bonds to any significant degree — just as no one would have produced cars or planes without the dominance of big banks in those sectors. Even the electricity you are using to read this piece was made possible by the market dominance and overbearing presence of deeply entrepreneurial and ethical entities such as Enron. The Muppets themselves have come out strongly in favor of the financial sector as currently structured. As Lloyd Blankfein, head of Goldman Sachs, reportedly said recently: “It’s not the dealers and it’s not the investment bankers and providers that have to grapple with regulation. It’s users and [puppets of all kinds] in the market that have to deal with different margin requirements…have to deal with unfortunately and inevitably higher cost in managing their portfolios…and have to pay the price for the higher cost of holding inventories.” The IMS report was paid for by Morgan Stanley (see p. 3), further evidence of smart entrepreneurial investments by big banks that support the deeper development of the economy and help create puppets everywhere. Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You , available from April 3rd. This post is cross-posted from The Baseline Scenario .

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Pamela Hartigan: Inventing a New Future: Beyond Our Humpty Dumpty World

March 31, 2012

For the last few years since becoming director of the Skoll Centre, I have closed the Skoll World Forum with an Irish prayer. This year, I want to start my reflections with a riddle — its origins of which I am not sure. What is it that you keep forever when you give it away — that changes as it moves from place to place — and without which there is no past or future, no reason or meaning? The answer? A story. We are storytelling animals. Indeed many people believe that storytelling is what makes humans unique. We use stories to share our knowledge and experience, to learn from our past and to imagine our future. We only need to look at Nick Danzinger’s wonderful work to see how true this is. Oxford is a city of stories and those who have woven them — Cornmarket Street in the city centre was the setting for the Crown Tavern where a young actor named Will Shakespeare grew rather too fond of his landlady. Sir Walter Raleigh learned his Latin at Oriel College, and the poet Gerard Manley Hopkins learned about beauty in Oxford’s magnificent Baroque church. Oscar Wilde amused and amazed his examiners at the examinations schools where we will be tomorrow; and it was in Oxford one winter’s night at 2 a.m. where J.R.R. Tolkien converted C.S. Lewis to Christianity. Oxford is the home of A.A. Milne whose characters including Winnie the Pooh, Tigger, Piglet and Eeyore still live with me today, as does Kenneth Graham’s story of Mr. Toad and his wild ride in The Wind in the Willows — and while I haven’t followed Alice down the rabbit hole, I have followed her into Christ Church and to the dining hall which much later became a film set for J.K. Rowling’s Harry Potter . Oxford’s associations spill beyond literature into history and legend. For more than a thousand years the city has played a central role in England’s history, as a home and inspiration to kings and politicians, saints and bishops, artists and academics, inventors and industrialists whose stories have helped to shape our world. Having been part of the Oxford community for three years, I often wonder what story will be told in 2812 about our current time, when the University of Oxford will double its current 800 year-old existence. I wonder what that story will say about this period of unparalleled difficulty for our planet and for the people it hosts. How will it capture our mood of foreboding that deep and complex forces are rapidly reshaping the world as we know it? How will the story describe the new global landscape now surfacing and the national and global institutional arrangements now emerging to replace those that are proving to be inadequate to deal with the deepest problems we confront? Currently, we are living in a Humpty Dumpty world where a good many of the king’s horses and the king’s men are scrambling to put Humpty together again — while a growing movement of men and women with imagination, commitment, persistence and strong ethical fiber — people such as each one of you gathered here for the Skoll World Forum — are working furiously to ensure that the Humpty Dumpty model is transformed and replaced with pathways that achieve economic and social justice and arrest the destruction of our planet. We are in an interesting phase of new thinking and experimentation, and we must seize this hugely important opportunity. Like most of you here, I am an optimist. I cannot imagine that our story will not have a happy ending, even while at times a happy ending seems to be a pipe dream. Let’s just review the stories that grabbed our attention in 2011. The year started with natural disasters including the earthquake off Japan that caused its tsunamis and nuclear disaster. In August, Hurricane Irene ripped through the Caribbean and along the east coast of the U.S., and with this storm system came the floods responsible for the deadliest U.S. tornado season since 1936. Then, in September, another earthquake struck Van in eastern Turkey killing 600 and leaving 60,000 homeless. And no one tuning into CNN or the BBC could escape the scenes of the monsoons that raged across Asia between June and November, killing untold thousands in Pakistan, Burma, Thailand, Laos and Cambodia. Typhoons battered the Philippines and Indonesia and few in Asia, including China, escaped the deluge crisis of this past year. Moving on, the global financial crisis assumed urgent momentum in 2011. The stock market recovery of late 2010 and early 2011 was ephemeral, as many expected. The financial crisis took a definitive step as world markets plunged and as the sovereign debt crisis spread from peripheral states into the heart of Europe. The U.S. lost its AAA rating for the first time in history. In Europe, the tragicomedy of the DSK sex scandal was forgotten as the debt crisis spiraled. As, Greece, Ireland, Italy, Portugal, Spain and others have struggled to implement the austerity measures needed to refinance their debt — the grand European project has teetered. Meanwhile, the enormous levels of additional debt that the U.S. has taken on since the start of the crisis have been sustainable only because so much of China’s foreign reserves are locked in to the dollar. Borrowing your way out of debt, as advocated by Keynesian solutions, works only if the present generation can pass its borrowings onto the next one. But with the aging of the developed world, the next generation will be smaller than the last, while the cost of energy and other commodities all continue to rise as emerging countries industrialize. Add to this Iran’s putative nuclear program, a world population that reached 7 billion, rampant inflation, food riots and a climate catastrophe. This litany of gloomy stories is enough to give any Pollyanna pause for thought. Yet as described in Stumbling on Happiness by Harvard professor Daniel Gilbert, research in cognitive functioning find that human beings reinterpret negative things in a more positive light — the “every cloud has a silver lining” idea. My hope for the future springs from past and current personal experience. I was a university student in the late ’60s, early ’70s when ordinary citizens constituted the core of the anti-war movement and the civil rights movement. Globally, it was ordinary citizens who challenged the Chinese Communist system in Tiananmen Square, the apartheid structure in South Africa, and led the anti-nuclear movement, the environmental movement, the women’s movement, and so on. This past year, citizens’ movements have risen to new heights in shaking the status quo, propelled by the newest technologies that connect them to one another around the world. In 2011, we saw people — primarily young people — take to the streets. The deeply democratic nature of the uprisings caught mainstream media and all of us by surprise as youth in the Middle East and North Africa rose up to demand freedom of expression and opportunities. Starting in Tunisia, the spark spread to Algeria, Egypt, Saudi Arabia, Syria and Libya, toppling long entrenched tyrants. The movement spread to Europe where tens of thousands marched to express their frustration with the lack of employment, of opportunities, and of politicians who didn’t seem to care, from “Los Indignados” or “the Outraged” in Spain, to Greece and then to the USA with the Occupy Wall Street movement and to the UK and the crowds gathered at St. Paul’s in London. More recently, thousands in Moscow have taken on the Putin regime demanding the same things as protesters worldwide — a systemic change that will provide greater dignity, transparency, participation and access to opportunities. This movement of people worldwide is perhaps the most exciting global phenomenon of our time. It is our promise that we will not put Humpty Dumpty together again as before — and for me, this is where entrepreneurial approaches to social change come in. These new approaches are the harbingers of the types of organizational and business models that our compartmentalized world so desperately needs in order to integrate where we make our money and where we do good, tear down the firewalls between our personal and professional lives, and reap the true value we all should be making to the world. In sum, I am optimistic for many reasons, but mainly because for most of my life, I have hung out with creative and positive people who, regardless of their backgrounds and their resources, manage to punch way above their weight. So when one is surrounded by men and women with a “can do” attitude, an infectious energy, and an ability to see opportunities for innovation and transformation at every turn, it is pretty hard to be gloomy about the state of the world. Entrepreneurship of this sort is highly contagious. I now work primarily with university and graduate students — they are full of hope that they will find careers where they can contribute their business savvy and other talents to improve human welfare. They don’t want to wait until they are 50 years old to “give back.” Some are entrepreneurs themselves while others — like young adults everywhere — seek to contribute to endeavors that are fundamentally innovative, philosophically positive and morally compelling. So how do we rewire our systems, our practices and our mindsets so our story reflects greater convergence rather than fragmentation of effort? That, for me is the great challenge before us, no matter where our life journey takes us. In that sense, the global movement of outrage on the part of ordinary citizens against an increasingly unfair and unsustainable society — joined up with practical, creative and committed social entrepreneurs — will ensure that Humpty Dumpty is not recreated — and that when my story, your story, our collective story is told, it will be about depicting the triumph that occurs when human ingenuity, empathy and integrity rise to dominance together to address unprecedented threats. Thank you.

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Bob Edgar: Citizens United, the Supreme Court, and Our Independent Judiciary

March 30, 2012

I’m not a lawyer but I’ve spent the better part of my adult life working with and often admiring lawyers. There are some bad ones of course, but I’ve always been impressed by the devotion almost all lawyers share to the law and our system of justice. So I’m perplexed these days as I consider how justices of our Supreme Court — lawyers at the pinnacle of that system — have opened the door to an unprecedented assault on judicial independence. Millions of Americans now understand how the high court’s Citizens United decision, along with other campaign finance rulings, has opened a financial floodgate that leaves government vulnerable to corruption. They see the enormous potential, indeed the likelihood, that the millions of dollars being invested in the 2012 campaign will be repaid in government contracts, laws and policies crafted to benefit a relative handful of campaign donors. But I also fear that most folks, including many lawyers, haven’t yet grasped how money, and the strings attached to it, also is pouring into judicial elections. And as in races for president, Congress, governorships and other offices, much of the money is being spent by groups that take pains to shield their donors from view. While our few hundred federal judges enjoy lifetime appointments that protect their independence, there are thousands of state court judges who must periodically face the voters. That means they’re vulnerable to negative ad campaigns, often financed by business interests or ideological groups angry about past rulings, and that they must busy themselves raising money from people and groups who may need or want something from them in the future. “Outside forces are becoming a bigger deal,” Georgetown University law professor Roy Schotland, told the Washington Post in a story published Friday. “We’re seeing more takeover of the races from the outside.” State court judges, he added, “are like sitting ducks.” Florida Tea Party activist Jesse Phillips told the Post that he hopes to raise more than $1 million to unseat three of the state’s Supreme Court justices this fall; he has no intention of disclosing his donors, Phillips indicated. Two years ago, in the first round of judicial elections of the post-Citizens United era, three Iowa Supreme Court justices were swept from office by voters angered over the court’s ruling upholding same-sex marriages. A few anti-gay groups poured about $1 million into the campaign to unseat them. There were similar uprisings across the country, often financed by individuals and groups asserting that judges should pay more attention to public opinion and less to their views of what the law and the Constitution require. That’s scary. “We can make all the strides we can make in the executive and legislative branch, and we can have all that thrown out if we don’t have a court that’s responsible to the will of the people,” Phillips said. This is the leading edge of a movement that could transform our courts from guardians of the Constitution into subsidiaries of corporations and ideologues. We’ll have the Supreme Court to “thank” for it.

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Bernie Bulkin: About Leadership: Pressure and Its Consequences

March 30, 2012

When I became Chairman of AEA Technology, we were probably less than three months away from losing the Company. Debt was moving beyond our limits with the bank, we had issued two profit warnings in the space of three weeks, we were overstaffed, the person who was Chairman and CEO had left and the two posts split, and all of this left our employees with a lot of uncertainty about their futures. This in a business that was all about selling the skills of our employees to solve difficult problems for others. In this situation, what was the first thing that I said to the new CEO and the Finance Director? It was this: Yes we are in trouble, yes we have to take some radical actions to get out of trouble, but no matter what, no matter how difficult things become, you are never to act in any way that is unethical. We don’t cheat; we don’t lie to each other, to the board, to our investors. Indeed, because we are in trouble we are as strict on our ethical behavior as possible. As a company, and for the three of us as individuals, never try to push the boundaries of what is ethical. If you are a leader, you will know that you have to put people under pressure, sometimes under extreme pressure, to perform. We achieve great things because of that pressure, because we don’t approach our jobs casually but with great intensity. But we need to be alert to the possibility that the pressure will cause people to do things that they know are wrong, just because it is the only way they can see to satisfy the boss. Some years ago, when I headed the Products Division in BP Oil, we were developing a new lubricant product, a project that was high profile and late. It was late because any new lubricant, before it goes to market, must pass a large number of tests, and these are difficult when the product is meeting the highest standards with some new attributes. We had failed a few of these tests first time through. My colleague Tony Roxburgh, as Director of Marketing, knew the sort of pressure the team was under, and he himself was under pressure from our business units to get the product out. In this situation, he had the courage and insight to ask me to form a small independent group to review all the test results, and only when that group was satisfied would he release the product for sale. Because while getting the product to market was a big deal for the team and for him, he realized that there was a bigger deal at stake, the reputation of the Company for integrity in its offer. While leaders have a right, even an obligation, to exert pressure to perform, they have to think about the consequences of that pressure for the people involved. One of those consequences is the possibility that people will do something that they themselves know is not right, because we have left them no way out. Checks on this happening are, in effect, providing them with a way out, and clear thinking leadership will see that such checks are in place. There is another consequence of pressure that requires alertness and sensitivity from leadership. The physical and mental health of the team members. Of course we should always be watching this, but when the team is under pressure, perhaps struggling to achieve objectives, I am especially looking for unexplained absences, explosions of temper, team members going off on their own away from colleagues, changes in dress or physical appearance, anything signalling a person not coping physically or mentally. It is useful for a team leader to know if any team members have a history of problems under pressure, but this is not usually something that is shared with the leader by HR or by individuals themselves. Remember also that problems at home can become aggravated in pressure situations at work. Putting pressure on the team is a tool for leaders to use in order to achieve extraordinary performance. We learn that setting expectations beyond what people believe is possible can lead to great achievements. None of what I have said by way of caution is meant to deter you from using this tool but as with any tool it must be done with attention to safety. About Leadership: About Leadership is a series of 52 columns on corporate leadership — essential skills, leading teams, managing your career, the strategic and business practices to make a company and its leader distinctive from competitors. These columns will be of interest to people leading small and medium sized companies today, many of whom have not had much formal training in management skills and techniques; for the many people in big companies who aspire to senior management; and for anyone who thinks: Give me a hint, how can I do this better?

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Jared Bernstein: The Myth of the Myth of the Disappearing Middle Class

March 30, 2012

Brookings economist Ron Haskins puts a hurt on some numbers in this AM’s Washington Post . His piece has two parts. The first part, discussed below, has a pretty fat thumb on the scale. The second is about how decisions regarding marriage and the pursuit of higher ed can have a profound effect on a person and family’s economic success. I’ll leave that for now, though I should say that while I don’t often agree with him, Ron’s done solid, thoughtful work on those important issues. Which is one reason why the rest of the piece struck me as uncharacteristically misleading. Let’s go piece by piece. – The argument is framed as “the myth of disappearing middle class.” That’s a canard. Most living standards analysts, including Ron in this piece (!), think of the middle class as some chunk in the middle of the income distribution — say the middle fifth or some variation there in (e.g., 40th to 80th percentile), which of course cannot by definition “disappear.” I’ve been writing about middle-class economics for decades, including nine editions of the “State of Working America. Not once did I or my colleagues argue “disappearance.” – We did, and do, argue that the wage and income growth of middle class workers and families has weakened over time-that the middle-class has becoming increasingly squeezed. How does that square with Ron’s findings? He cites research much like that of the Congressional Budget Office on family income trends, noting that middle class income (the middle fifth of the income scale) “grew by nearly 40 percent” 1979-2007 (CBO analysis shows 35%; Ron’s source shows 37%, so about the same — I’m using CBO because it’s available to me in some detail; note that these trends include the effect of taxes, transfer payments, and the value of employer provided health care). First of all, 35% over 28 years is 1.1% per year, over a period when productivity grew at twice that rate (up 72%, or 2% per year). There’s no reason to expect middle-class incomes to grow at the rate of productivity year in and year out, though they did so for a few decades in the post-war years. But this persistent divergence is important context that should not be left out. – The value of health care isn’t as big a deal as he thinks it is, though it’s characteristic of this “myth” literature to invoke the value health benefits as a game-changer for middle-class living standards. This raises two questions. First, are such benefits totally fungible? That is, if the value of my employer or government provided health care benefits is $1,000, is my family that much better off? It’s not clear that this is the case, especially given the fact that the rising costs of health care don’t always reflect quality improvements for the broad middle class (i.e., they have more to do with technology and end-of-life care). It’s certainly not worth zero — to go without health coverage is a real blow to living standards. And if you or your family gets sick, it’s extremely valuable. But it’s wrong to just tack it onto income and argue everyone is that much better off. Second, what’s the empirical evidence here? On inequality, as the figure below reveals, there’s little difference in the trend of the Gini coefficient (a measure of income inequality) when you include the value of employer-provided care (see the lines labeled market income with and without ESI — employer-sponsored insurance). The two lines are almost coincident, meaning the increase in inequality doesn’t go away when you include the value of health care. In terms of real growth, it turns out that taxes matter much more than the value of health care. The CBO data show that real median income, all in (taxes, ESI, etc.), grew 35%, 1979-2007, as noted. Take out taxes and transfers (and it’s taxes that are the big story for the middle, not transfers), and that growth falls by almost half, to 19%, or 0.6% per year. More on that in a moment, but woe betide the middle class-or anyone else-if the fate of their living standards is tied not to economic growth or their labor market outcomes, but to the largess of the Congressional tax writing committees. – It’s also wrong to lump all these time periods together (note: this is a mistake that Ron’s source data — a paper by Rick Burkhauser et al doesn’t make — they break growth periods up in useful ways). About 80% of that 19% growth in pretax income occurred in the 1990s expansion (1993-2000), a period of uniquely full employment, and the only period over the last thirty years when the middle class kept up with overall economic growth. Over the 1980s business cycle, market incomes for the middle class grew 5%; in the 2000s cycle, a measly 3%. – To understand the middle class squeeze, you’ve got to look and wages and hours. Census data reveal the amazing fact that the median earnings of full-time male workers were almost exactly the same in real terms in 1979 as in 2010: in real 2010 dollars, 1979: $47,621; 2010: $47,715. How could that possibly not be relevant in an article about middle-class well-being? Because of this long-term stagnation in men’s earnings, middle-class families have had to work a lot more hours to get ahead. Of course, women’s contributions to their families’ incomes have become much more important over these years, and that too needs to be accounted for, as EPI does in State of Working America. There you’ll find evidence of 3-4 more months spent in the paid labor market by married-couple families over this period. That’s not all bad, of course, and partially reflects women’s integration into the job market as well as the decline in gender wage differentials. But you can’t ignore it, tack on taxes and health care, and wash your hands of any possible problems here. In fact, if you include these observations about wages to Ron’s thesis here, you’re left with a pretty uncomfortable conclusion: the middle class doesn’t need to worry about how they’re doing at work — we’ll make up any shortfalls with tax and health benefits. Good luck with that. As I said, a lot of what Ron has in here makes more sense than this “disappearing middle” stuff. He’s got good evidence of the importance of increased benefits to the poor, which as we at CBPP have also stressed, have often been very effective at lifting the incomes of the bottom fifth (especially the EITC). But the part on the middle class is incomplete at best and misleading at worst. This post originally appeared at Jared Bernstein’s On The Economy blog.

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BJ Gallagher: Courage Goes to Work

March 29, 2012

Bill Treasurer knows a thing or two about courage. In his early career as a member of the U.S. High Diving team, he performed over 1500 dives from heights scaling to over 100 feet (the equivalent of a ten-story building). Today he is a business consultant who works with organizations to develop courage in their employees — from front-line folks to supervisors and team leaders to managers and senior executives. His company, Giant Leap Consulting, counts Bank of America, NASA, Saks Fifth Avenue, Accenture, Spanx, U.S. Department of Veterans Affairs, UBS Bank, and the National Science Foundation among its clients. Recently I was helping a friend do some research on “everyday courage” when I came across Treasurer’s latest book, Courage Goes to Work . I was intrigued by the notion of courage in the workplace, so I asked him if he would sit down and have a conversation with me about courage at work. BJG: Your books and your consulting business focus on helping people build courage. Tell me what you mean by “courage” in the context of modern workplace. BT: Today’s workplace is rife with fear — leaders who use fear as a motivator, fear and job insecurity, worry about what coworkers think of you, fear of workplace changes — these factors, and many more, fuel people’s fear. What’s the alternative to fear? Courage. It takes courage to make budget requests; courage to admit making a mistake; courage to take on a new role requiring new skills; courage to launch a new product. The normal human response to fear is to hunker down and play it safe. But if everyone is playing it safe, the business is in real danger of missing significant opportunities. When you’re anxious, worries, or scared and feel the urge to hunker down and play it safe, that’s the time you need to do just opposite. Playing it safe never leads to greatness. That’s where courage comes in. Because there is so much fear in today’s workplace — probably more than at any time since the Great Depression — I am committed to helping people find the courage they have inside but often can’t get in touch with. Many folks remind me of the Cowardly Lion in the Wizard of Oz — they think they don’t have any courage, but they really do. They just need someone to remind and reassure them that they have the right stuff, they have what it takes. For instance, Sara Blakely, the founder of Spanx, once told me that whenever one of her people makes a mistake — especially when the mistake leads to learning and new insights — she is never disappointed. In fact, she goes up to the mistake-maker and gives them a big high-five for their willingness to take risks and be courageous. Given how Sara values courage, it’s not surprising that she graces the cover of Forbes magazine as the youngest self-made woman billionaire! She’s the kind of client I love working with — someone who’s already running a great organization and wants to be even better. BJG: Are there gender differences when it comes to courage? Does courage show up in different kinds of behavior for men and for women? BT: On the macro level, no, there’s no difference between courage for men and women. Courage means to take action despite being intensely afraid or uncomfortable — and that’s true for both genders. But we do find differences in the types of risks each gender is more willing to take. For instance, women tend to be more willing to take emotional risks than men. It takes courage to be emotionally vulnerable, and this seems to come easier to women than men. And we find that men tend to be more willing to take physical and financial risks than women. So both genders are capable of great courage, but it is very likely that they will not be equally courageous in all parts of their lives. It’s important to not over-generalize. Whether you’re a women or a man, when you face a challenging situation, the physiological responses are the same: your heart races, your mouth gets dry, your eyes dilate, and your palms sweat. We also have to remember that courage is personal. What triggers fear in me won’t necessarily make you fearful. Rather than attempting to define masculine or feminine courage, I encourage women to push into new territory and define what courage looks like for them. BJG: What do you think of this notion of a “war on women” we keep hearing about in the media? Do you think there’s a “war on women” in the workplace as well as in the political arena? BT: Well, if there is a war on women, the insurgency is fighting back. It only took about two days for women to organize and mount a campaign to get the Susan G. Komen foundation to rescind their decision to stop funding Planned Parenthood. A few weeks later, women mobilized again and pressed advertising sponsors to drop Rush Limbaugh when he called Sandra Fluke a “slut” and a “prostitute”. Looks to me like women are pretty darn courageous! An interesting sidebar: If there is a war on women, some women can’t decide which side of the war they’re on. Zogby International did a survey of workplace bullying a few years back. It showed that 40 percent of workplace bullies are actually women, and 70 percent of the time these women are bullying other women! I once asked a female senior executive how she thought the workplace would be different when women have completely broken the proverbial glass ceiling. She commented that women would lead with a more cooperative style than men. While I believe that her answer was right, what struck me was how her own behavior was so at odds with her answer. She was pretty close to the other side of the ceiling herself, yet she was as uncooperative as could be. I suspect there are other women like her. It’s as if they’re waiting till they’re on the other side of the ceiling before they adopt a more progressive and evolved leadership approach. Courage, I think, would be to adopt these behaviors without waiting until you’re “arrived” to do so. BJG: Finally, what advice do you offer women about cultivating more courage in their own lives — both personally and professionally? BT: First, set some “gulp goals” — goals that are exciting, and a little scary too. Courage can be fuel that helps move you toward those goals. Second, identify where you are playing it too safe. Understanding that will indicate the next courageous move you want to consider making. Third, have sweaty palms. Don’t just lean into discomfort — move into it far enough that your body starts to feel the physiological responses of courage … like sweaty palms. Finally, I’d suggest two words that will serve you well as you move forward in your life and career: Be courageous. You can use them whenever you’re feeling complacent; nudge yourself into action when you want to stand up to an office bully; and reassure yourself whenever you find yourself gripped by debilitating fear. Make it your new mantra – Be courageous! Bill Treasurer is the author of “Courage Goes to Work” as well as “Right Risk: Ten Powerful Principles for Taking Giant Leaps with Your Life.” For more information about Treasurer and Giant Leap Consulting, go to www.couragebuilding.com

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Robert Reich: Break Up the Big Banks, Says the Dallas Fed

March 29, 2012

As the Supreme Court shows every sign of throwing out “Obamacare” and leaving 30 million Americans without health insurance, another drama is being played out in the quiet corridors of the Federal Reserve system that may affect even more of us. Taxpayers will be on the hook for another giant Wall Street bailout, and the economy won’t be mended, unless the nation’s biggest banks are broken up. That’s not just me talking, or the Occupier movement, or that wayward executive who resigned from Goldman Sachs a few weeks ago. It’s the conclusion of the Dallas Federal Reserve, one of the most conservative of the Fed’s regional banks. The lead essay in its just released annual report says a cartel of giant banks continues to hobble the recovery and poses an ongoing danger to the economy. Wall Street’s increasing power remains “difficult to control because they have the lawyers and the money to resist the pressures of federal regulation.” The Dodd-Frank act that was supposed to control Wall Street “leaves TBTF [too big to fail] entrenched.” The Dallas Fed goes on to argue that the Fed’s easy money policy can’t be much help to the U.S. economy as long as Wall Street is “still clogged with toxic assets accumulated in the boom years.” So what’s the answer, according to the Dallas Fed? It’s “breaking up the nation’s biggest banks into smaller units.” Thud. That’s the sound the report hitting the desks of Wall Street executives. They and their Washington lobbyists are doing what they can to make sure this report is discredited and buried. When I spoke with one of the Street’s major defenders in the Capitol this morning he snorted, “Dallas represents small regional banks that are jealous of Wall Street.” When I reminded him the Dallas Fed was about the most conservative of the regional banks and knew firsthand about the dangers of under-regulated banks — the Savings and Loan crisis ripped through Texas like nowhere else — he said, “Dallas doesn’t know its [backside] from a prairie gopher hole.” So as Republicans make the repeal of “Obamacare” their primary objective (and Alito, Scalia, Thomas, Roberts and perhaps Kennedy sharpen their knives) another drama is taking place at the Fed. The question is whether Bernanke and company in Washington will heed the warnings coming from its Dallas branch, and amplify the message. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Robert Teitelman: Bloomberg Businessweek on Obama, Economic Steward

March 28, 2012

The new Bloomberg Businessweek features an extreme close-up of President Obama with the cover line ” Lucky or Good? The Truth About the Obama Recovery .” That promises a lot. But it’s a subtle misdirection play. The analytical piece that it refers to, with its graphics, instructional arrows and candy colors, fails to satisfy either the cover line or the subhead. It really does not deal at all with the question of whether the president can or did affect the business cycle — the assumption of the article, of course, has to be that he can, otherwise why slog through all these various decisions? — and the “truth” of the recovery remains a shrugging, well, it was messy, wasn’t it? Here’s the concluding paragraph. You tell me whether the administration is “lucky” or “good.” The choices Obama made helped bring about this result [the recovery], even though he had help from the Fed, and even though they don’t quite explain the recent strength of the recovery. But the business cycle operates by a logic all its own. It cursed Herbert Hoover and blessed Ronald Reagan. Obama’s good fortune is that this sudden upturn is occurring just when he needs it the most. Okay, so he’s lucky and good. This sort of argumentative incoherence is common when journalists and pundits try to fix blame or offer credit to the administration for the economy. There’s been a lot of this lately. Ron Suskind ( Confidence Men: Wall Street, Washington, and the Education of a President ) and Noam Scheiber ( The Escape Artists: How Obama’s Team Fumbled the Recovery ) have both recently published books (a review of Scheiber’s is here ), which go over, albeit in much greater detail, roughly the same ground covered by Businessweek . We get the early underestimation of the severity of the crisis, the arguments over stimulus, the mounting fiscal concerns, the clash over various policy initiatives, the political gridlock. Again, to engage in this kind of historical analysis requires a belief that policy and policymakers matter; that individuals, embodied by the president, can fix a failing economy (or mess up a good one), turn the economic ship around, improve unemployment, make the birds sing. This notion is particularly powerful among the political punditocracy. In this way of looking at policymaking, the determinism of the economic cycle is set aside — after all, voters don’t give a crap about academic theories. They want results. Expectations are thus high. Economics is a hard science; failure to accurately predict is viewed as a grievous sin, a failing. The past is continually judged by the reality of the present. Obama was a failure before the recovery strengthened; now he’s lucky and good; if he’s re-elected and the recovery continues, he’ll be a genius, until something goes wrong. We get every one of those ideas in the Businesweek story’s introductory section. Businessweek seems convinced that to be effective an administration needs a “clear economic philosophy.” The only two examples it initially tosses up are Reagan and George W. Bush, who essentially share the same conservative philosophy of tax cuts, supply-side stimulus and, broadly speaking, free markets and deregulation. Of course, however you come down on the issue of cycles versus policies, much of the crisis of 2008 did stem from aspects of that philosophy, which even Alan Greenspan later admitted. Is economic pragmatism not a philosophy? Did Bill Clinton, who arguably enjoyed even better economic times (plus a surplus) than either Reagan or Bush, require a philosophy? Businessweek trots out several Republican economists who suggest that Obama has been done in (despite the recovery) because he lacks a theory. “I can’t infer a theory,” says Glenn Hubbard, Columbia Business School dean and former economic adviser to Bush. “I’ve watched the president for a long time, and he’s very smart, but he doesn’t have a policy rudder,” says Douglas Holtz-Eakin, who ran the Congressional Budget Office in the Bush years and advised Sen. John McCain’s 2008 presidential campaign. What does that mean? Mostly, it seems to mean that if Obama doesn’t fully embrace your economic faith, then he has no faith at all, that he’s a sort of economic atheist. But that’s not the case at all. He and most of his advisers subscribe to a pragmatic form of Keynesianism; that is, they believe that you can use the powers of the government, including fiscal policy, to nudge the business cycle this way and that (the joke here is that Bush, Reagan and most presidents are closet Keynesians in practice). Indeed, a bit later, Businessweek tries to hoist Obama upon his own Keynesianism, first by suggesting he made a big mistake by not seeking a large enough stimulus — at crucial moments, the magazine ignores or downplays the forbidding politics of Republican opposition in Congress to just about anything — and then for not being, believe it or not, either John Maynard Keynes or Franklin Roosevelt. Again, a kind of incoherence rules these analogies. Obama is quietly downgraded because he did not take the kind of “sweeping new policies if he thought they could help, even risky or unproven ones.” That’s true, with two caveats: This isn’t the Great Depression, and unlike FDR, who had large majorities in Congress for the ’30s and was starting from a very different kind of government, Obama had either a very thin majority or a fractious and divided Congress. (That said, the Supreme Court dismantled a lot of the New Deal soon after it was tossed up, FDR famously triggered a second downturn in 1937 by cutting spending, and most economists believe World War II finally generated recovery, not the New Deal.) As for Keynes, Businessweek says Obama is both like him and unlike him: “Like John Maynard Keynes, Obama believes government can and should act to alleviate downturns.” — again, who doesn’t this side of Ron Paul? — “But he’s disinclined to challenge political constraints, settling for what he’s able to get.” Of course, Keynes was a civil servant and an academic who never ran for office, which makes that implied criticism of Obama beyond absurd. Maybe Larry Summers isn’t Keynes, but so what? It’s not the Summers administration. Ah, but it’s the silly season. Presidents generally can’t win when the political pundits go looking for an economic angle. If the economy is good, it’s the cycle. If it’s bad, it’s their fault. If they have a sophisticated economic theory, the pundits dismiss them as wonks who can’t satisfy the yearnings of the electorate. If they emphasize politics over economics, they get labeled as lucky (as Clinton did). Realities of short-term versus long-term get ditched. Who cares? None of this has much to do with what actually occurs in that exploration of uncertainty and contingency that is economic policymaking, and no one really wants to tackle the question of what effect presidents can realistically have. That would be too difficult and, besides, voters couldn’t care less. Robert Teitelman is editor in chief of The Deal magazine.

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Leah Busque: Why Independent Employment Is Killing the Nine to Five Job

March 28, 2012

The term “nine-to-five” has long symbolized a kind of drudgery that sucks up our lives and eclipses our identities, but it wasn’t until the Great Recession that the pejorative phrase was crowned with an entirely new distinction: old-fashioned. Even as the jobless rate continues its slow decline, the still-anemic U.S. employment market is prompting more and more people to do the math: There are 12.8 million workers looking for jobs — that means multiple candidates for every open position. Summation? The paths of least friction and risk are increasingly leading away from traditional employment. Back in the days of the Industrial Revolution, companies hoping to crank out as many widgets as possible booked shift workers around the clock. Collective bargaining led to the labor laws that eventually replaced 12- to 16-hour shifts with a new-fangled concept — the eight-hour workday. That worked then, but with technology streamlining efficiency in every industry imaginable, you’d think we would have moved away from the nine-to-five standard long ago. But it wasn’t until the economy slid off the rails in 2008 that freshly downsized workers were forced to confront the reality that the nine-to-five jobs they knew didn’t offer the kind of financial security promised to them. Layoffs sent scores of people to the unemployment line and hiring freezes kept them there until, one-by-one, entrepreneurial-minded folks began a sidestep around the status quo by becoming independently employed. By 2010, the Kauffman Index of Entrepreneurial Activity revealed the highest startup rate in 15 years, attributing the growth to necessary entrepreneurship as a result of joblessness. Kauffman’s 2011 data shows a slight dip from 2010, but one thing is clear: Americans are still busy building new, mostly solo, businesses. The unemployed, along with their underemployed counterparts, nearly one in five U.S. workers according to Gallup , swiftly began sliding into a society of contingent talent (freelancers, self-employed, entrepreneurs, and contract workers) that some experts believe will comprise a majority of the workforce by 2020 . This new class of micro-entrepreneurs is doing the same thing MBAs have been shouting about in boardrooms for years — diversifying their revenue streams. Instead of one company cutting a check twice a month, multiple sources contribute to a pipeline of income. Proceeds from Etsy shops and Ebay stores co-mingle with ad revenue from blogs and consultant fees from freelance gig work. A new crop of peer-to-peer marketplaces transforms those idling things leftover from an age of excessive consumption — cars, power tools, DVDs, and even spare bedrooms — into income-generating resources. With these intuitive systems imminently accessible — and without 40 hours of each week committed to someone else’s bottom line — a micro-entrepreneur can hedge her bets and fill in the price tag on her skills, talents, and time. Micro-entrepreneurship also translates directly to freedom of schedule. It means not having to use a sick day to attend a parent-teacher conference or missing that Tuesday afternoon yoga class. Those in charge of their own working schedules are able to seamlessly integrate work with life instead of trying to strike a balance between two conflicting sets of responsibility. Swapping out the nine-to-five for a more agile, independent working life brings with it one other huge benefit — a channel for self-actualization. Abraham Maslow and his psychoanalyst cohorts agreed that the drive to realize our potential and activate our capabilities is paramount, and we can only deal with it after basic physical and mental needs are squared away. Traditional models of work only let us cross out the needs on the very bottom of the pyramid — basic sustenance. On the flipside, independent employment within the network of the new sharing economy addresses our needs for a sense of community and belonging, autonomy and respect, creativity and problem solving. Within the old models, these were flights of fancy resigned to vacation days, wee hours, and golden years. The new model casts them as foundational elements and lets us work our way up the pyramid to unlock the good stuff. Nine-to-five never stood a chance.

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Ethan Rome: Paul Clement Calls for Tax Hike in Supreme Court Arguments Against Obamacare

March 28, 2012

In Tuesday’s oral arguments at the Supreme Court about the Affordable Care Act, the attorney representing the 26 states challenging the law called for a new general tax to pay for the costs of ending the private insurance industry’s discrimination against women and people with health conditions. It appears to be a thus-far overlooked moment that revealed that the law’s opponents don’t have any other ideas for how to guarantee that all Americans have access to quality, affordable health care that they can count on. So Paul D. Clement, legal icon of the conservative movement, found himself suggesting a tax hike that violates every fiber in the political body of congressional Republicans as well as the Grover Norquist pledge to never raise taxes in any way or for any reason — ever. In the two hours the court devoted to the individual responsibility provision, or the so-called mandate, there was a frank discussion about the cost of providing care for people without insurance. It was acknowledged that the insurance industry discriminates against sick people — by refusing to cover them and charging them more, and dropping people when they get sick — because that’s how they make money. Obviously it would be more cost-effective and efficient, and would make people healthier, if we had a mechanism to ensure that everyone had insurance. That would also eliminate uncompensated care and more broadly spread the costs of ending insurance company discrimination. But that’s the Obamacare law that the Republicans want the court to strike down. They’re also against Medicare for all because that would be socialist and put the private insurance industry out of business, although it does have the virtue of being unquestionably constitutional. So that leaves dealing with the problem on the back-end of the process in the way America’s conservatives know and like best: add up the private costs and use public funds to pay for them. Specifically, in an exchange between Justice Ginsberg and Clement about how to pay for the costs of requiring insurers to accept all comers and not discriminate in coverage and price against people who need health care, Clement said the following: I think there are other options that are available. The most straightforward one would be to figure out what amount of subsidy to the insurance industry is necessary to pay for guaranteed issue and community rating. And once we calculate the amount of that subsidy, we could have a tax that’s spread generally through everybody to raise the revenue to pay for that subsidy. This is as objectionable as it is ironic. I suspect that Clement’s national health care tax may not be what the political opponents of the law had in mind when they hired him. Clement’s tax hike is certainly not what organizations like the Koch Brothers-funded Americans for Prosperity are trumpeting on their website and in their public statements. Clement’s tax hike suggestion also blurs the most basic fact about their case and their approach to this issue: the Republicans aren’t interested in doing anything to address America’s health insurance crisis. It’s not an accident that they don’t have any real alternatives — they just don’t appear to care.

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David Macaray: Three Ways Labor Can Fight Back

March 27, 2012

There’s no denying that, in the world of commerce, slogans are gold. A catchy, cleverly written slogan, no matter how illogical or misleading, has an excellent chance of attracting customers. Take Nike’s “Just Do It” campaign from some years ago. That catchy slogan was a huge hit, despite no one actually knowing what the phrase meant, or what, precisely, it had to do with Nike products. In the world of politics, slogans are poison. Smearing a candidate as a “liberal,” as a “tax-and-spend Democrat,” attacking national health care as “socialized medicine,” portraying government assistance as a “nanny state,” calling fixed time-tables for leaving Iraq or Afghanistan “surrender dates,” using “death panels” to frighten the elderly — all of these emotionally charged appeals have worked in the past and continue to work. But rather than rise above this sordidness, America’s labor unions need to join the club. This on-going battle between labor and management is not about anything so noble as political ideology. Not hardly. It’s all about money — about who has it, who wants it, who needs it, and, if Jesus were alive, who deserves it. Convincing people who make $120 million a year that they can actually live on $105 million won’t be easy. But as the man said, If you’re serious about winning, you don’t bring a knife to a gunfight. Here are three approaches: (1) Sponsorship. The term “middle-class” still resonates with Americans, and because the notion of a shrinking middle-class is a source of dread, labor needs to exploit that dread. It needs to remind people that not only is the middle-class slipping away, but since the 1880s organized labor has been the sole defender of the American worker. Not the government, not the church, not charitable organizations. Only the unions. When union membership was high (in the 1950s), people prospered; when it was low (like now), people struggle. Simple as that. Stop labeling opponents as “anti-union.” That tepid accusation won’t win supporters, not in today’s anti-union climate. Instead, give these anti-union groups a good smearing by referring to them as “anti-middle-class” or “anti-people” or “anti-family” or “anti-American.” Merge this campaign with prevailing anti-government sentiment. Turn it around and accuse those states that are eliminating the right to collective bargaining of trying to crush the American dream. Make sure the public knows that police, firefighters, nurses, and teachers are not only the good guys in this battle, they’re our neighbors, friends, and benefactors. And while nobody took those modest jobs to get rich, they did take them in the hope of breaking into the middle-class. What’s our government telling them? That while there’s no limit to what the wealthy can accumulate, belonging to the middle-class is a pipe dream? (2) Patriotism. Present these anti-worker zealots as “traitors.” Remind people that if they want to see some old-fashioned American patriots, they should visit a union hall, because that’s where they’ll find them. Emphasize the fact that unlike investment bankers and CEOs, many union members and their children are military veterans. And be sure to mention that countries that are/were America’s enemies (e.g., Cuba, North Korea) have outlawed labor unions. That’s what dictatorships do. They ban unions. Appeal to national pride. Wave the flag. Show proud union members wearing military uniforms or union colors, marching in parades, demonstrating that labor and democracy go hand-in-hand. Bring up the fact that labor activists all over the world are being intimidated, imprisoned and even murdered, and remind people that — unlike Wall Street bankers, who invest in foreign markets — union members not only earn every nickel in America, they spend every nickel here as well. Indeed, patriotism could be the locus point where the Tea Party and labor intersect. Those anti-government TP’ers who say, “Give me back my country!” need to know that Big Business is playing us for suckers, maximizing their international profits while cheating working men and woman who live right here the U.S. Clearly, corporations have launched an all-out offensive. And the only entity with the will and the resources to mount a counter-offensive is organized labor. (3) Economics. Remind everyone that there is, and always has been, strength in numbers. Without the muscle supplied by an organized collective, workers become isolated — marginalized, fragmented, reduced to “lone wolf” status — susceptible not only to being picked off, one by one, but to having management play them off against each other. It’s been done throughout history. Also, remind them that the people who want to destroy America’s unions (the Koch brothers come to mind) are the same people who oppose the minimum wage. Even as the gap between rich and poor, and rich and middle, continues to widen, America’s fat cats stubbornly cling to the view that the federal minimum wage ($7.25/hour), meager as it is, is still too high. It’s time for organized labor to demonstrate not how reasonable they are, but how mean they can be. It’s time for an all-out fight. Worst case? We get ridiculed and humiliated, we lose the support we already have, and we get our rear-ends handed to us in a sling. Best case? We save America. David Macaray, a Los Angeles playwright and author (“It’s Never Been Easy: Essays on Modern Labor”), was a former union rep. He can be reached at dmacaray@earthlink.net

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Brian Harke Ed.D.: Thank You, Please!

March 27, 2012

This past weekend the subject of people showing gratitude and sending thank you notes came up in a discussion I was having with colleagues from academia and the corporate sector. Every one of them had stories of a time they received a handwritten thank you note and what it meant to them. It seems that “Thank You’s” in general have gone out of style. Several of my colleagues became irritated as they shared stories of how they put extra effort forth with students, potential employees, colleagues, friends and even family, but never got a thank you note (either handwritten or electronic). They felt taken for granted and unappreciated. Why do I share this with you and how does this translate into valuable insight for you? What I have noticed about myself and many of my colleagues is that when something as simple as a thank you note is received, we hold the sender in higher regard and are more likely to continue going the extra mile to help them out. It is about relationship. Think about yourself: When people show you appreciation, you value it and will most likely want to help them out next time. You think more highly of them. If no appreciation is shown, you most likely feel blown off and unappreciated. Maybe you don’t or can’t empathize with a generation of mentors, instructors, and potential employers who grew up writing (and expecting) thank you notes. If this is you, it is time to wake up. These little notes are expected and part of the professional world. If you are of the mindset that the help you receive from others is owed you, you’re wrong. Nothing is owed to you, especially help and kindness. If you want to succeed in business and life, you need to constantly be building positive relationships. A lot of power rests in that little note you write and can make this process easier. I’ll guarantee that if you ignore “Thank You’s” and ignore my advice you’ll find it harder to successfully navigate your academic and professional career, not to mention your relationships with friends. Here are some rules to keep in mind about ‘thank you’ notes: Send them! They are important and people do keep track of whether or not they were thanked. They especially notice when they weren’t thanked. Thank you notes show that you care about the other person and value their time and effort. A handwritten note is always the best (in my opinion) as it demonstrates that you cared enough to spend the extra effort on handwriting and mailing the note. Email thank yous are acceptable when the majority of your communication with the other person has been electronic. They are quicker to receive, but do take less effort. These are usually more casual thank yous. If you want to make a good impression, or if the person has gone out of their way to help you, don’t use email. Send a handwritten note. Send them the same day you received the effort from the person. Do not get lazy and wait a week. It is obvious to the recipient that you delayed and that your appreciation was an after thought. Keep it simple. Be real and don’t fill the note with fluff. It will come off fake. Thank you notes open and close doors. Don’t burn bridges by forgetting to do something as simple as sending a thank you. It’s also another chance to get your contact information in the hands of someone who might be able to help you down the road. If you don’t know whether or not you should send a note, or aren’t sure if the favor was big enough to merit a note, send a note anyway. It won’t hurt. Don’t overdo it. There is a fine balance and I think most people know when they are being sucked up to. Don’t be a brown-noser. Be yourself and be real. It will be appreciated.

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Marc Stoiber: From One Virgin, Countless Social Entrepreneurs Are Born

March 27, 2012

Richard Branson is an entrepreneur who understands how business can shape a more sustainable world. Consider this quote from his book Screw Business As Usual : “Never has there been a more exciting time for all of us to explore this great next frontier where boundaries between work and purpose are merging into one, where doing good, really is good for business.” It’s an exciting message made real by people like Jean Oelwang, CEO of Virgin Unite. The company , working with Branson and 200 Virgin businesses across 15 countries, has a mandate to “connect amazing people and great ideas to make positive change happen in the world.” At the GLOBE 2012 Conference , Oelwang and I chatted about how Virgin is spreading both its infectious brand of entrepreneurial zeal and its mission to lessen our impact on the planet. One example that sparked my imagination was the company’s unique take on an incubator for entrepreneurs. In holiday destinations like the Caribbean, authentic experiences are becoming the new currency. But local entrepreneurs with great ideas seldom have access to the capital, training or leadership skills that would give their innovations the credibility tourism operators demand. To counter that, Virgin Holidays, Virgin Unite and local partners like Chris Blackwell built the Branson Centre For Entrepreneurship Caribbean . The Centre’s goal is to create local economies that sustain themselves as they protect both social equity and the environment — building a valuable supply chain of smart, proud local entrepreneurs in the process. The end effect is a Caribbean that remains an authentic, vibrant destination, filled with interesting businesses, a thriving sense of community, and a protected environment. “A focus on people is core to our brand” says Oelwang. “Our challenge is finding the great entrepreneurs wherever we are, and levering them to create entrepreneurial solutions to big problems.” Oelwang understands that people want to change their own community for the better, instead of having someone do it for them. By harnessing this insight effectively, Virgin Unite is creating benefits that radiate on a global scale. A Global Entrepreneurial Idea Jam A few years back, IBM conceived the idea of Global Idea Jams . These online events connected creative thinkers around the world to work out solutions to pressing issues. The events were brilliant showcases for IBM’s formidable networking know-how. But they also generated tremendous volumes of ideas – the lifeblood of any forward-thinking company. Oelwang believes Virgin Unite’s work in seeding successful entrepreneurs in places like the Caribbean will have a similar effect on Virgin. “We’re breaking down silos and reaching out to entrepreneurs around the world. And they’re rewarding us with solutions that have a true global perspective.” Not only is an innovation funnel filled with unique global ideas a boon to the brand — it’s also key to survival in a culturally chaotic world. In my writing on futureproof brands, I describe five factors that enable brands to survive an uncertain future. The key is mining insights developed from real consumer needs. These needs must be universal, and pressing. Virgin can tap a world of these insights through its global network of budding entrepreneurs. Lessons To Marketers 1. One idea good, many ideas better — There is no ego in innovation. Creating a powerful network of idea generators is your guarantee of relevance into the future. 2. Think holistic — Virgin’s Branson Centre For Entrepreneurship Caribbean builds strong local communities and economies – vital to a thriving tourism industry. Are you protecting your golden egg, or leaving its survival to chance? 3. Do good, do well — The world of business is evolving into one where you do well by doing good. As Jean Oelwang and Virgin Unite prove, this perspective can also help build a potent brand.

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Geri Stengel: Redesign Business for a Robust Economic Future

March 27, 2012

We need more women in leadership roles This isn’t a call for a feminist revolt; it’s a call for a healthy, growing economy and leadership by women is needed to accomplish that. If you don’t buy that, check out some of the research : The more women in the board room, the greater return on sales, equity, and invested capital. Maybe because, as the Harvard Business Review reports , women also excel at leadership skills. One place where women are falling behind is high-growth businesses, a failing that the Kauffman Foundation dubs a loss of potential economic drive. Facts we need to change: Women start businesses but don’t grow them. Women are under-represented among venture capitalists and angel investors. Women get a high percentage of the degrees in biological sciences and physical sciences but are woefully behind in taking out patents and building businesses based on their research. Women score higher in the competencies that make good leaders but are under-represented in higher-level corporate positions. To paraphrase Lily Tomlin, we can sit around waiting for somebody to do something or we can realize that we are somebody. Let’s make change happen. Make women visible: Four years ago, venture capitalist Jorge Calderon realized that he couldn’t find women- and minority-led enterprises to invest in. Not because they weren’t there, but because they aren’t visible. He started Springworks to show women and minority innovators how to catch the eye of venture capitalists. Women are missing from the science advisory boards of corporations, which means they don’t have the contacts they need when they do come up with a great idea, according to the Kauffman Foundation and ” The Entrepreneurial Puzzle: Explaining the Gender Gap ” from Georgia State University. Redesign workplaces: Build businesses that can accommodate the differing lifestyles of employees, whether male or female . You can retain and grow talent by being flexible — flexible about taking a year off for family without losing a rung on the career ladder; flexible in working hours; flexible about telecommuting. Flexibility also cuts costs and improves customer service. It’s a smart business strategy, not a give-away. If we don’t restructure business culture, we’re going to keep losing the talented people we’ve paid money to train. And we won’t be able to serve customers in the 24/7 world of e-commerce and global customers. Redesign informal networks: Either all women need to learn to love sports and play golf or informal gatherings where relationships are built and deals made must become more inclusive. Guys, this isn’t about giving up your bonding moments. It’s about finding the best business relationships. When you leave out half of those who might have the best deal, what does that do for you? Redefine “tough” and “bitchy”: Nice girls do fire people . If they don’t do what’s needed, they aren’t helping the business or the employee. Being tough or, as it’s called when men do it, assertive and strong, is good business if done right. Network and mentor: Women need to support and mentor each other. Those few who have made it to the c-suite or own their own businesses must reach out to help those starting out, perhaps by forming angel investment groups, such as Pipeline Fellows do. As Karen Barbour, founder and president of The Barbour Group says of her efforts to help women get a start in federal construction contracting, “Sometimes I feel like Tinkerbell. They never knew this existed. I say take my hand; we will go fly.” Or it could mean building the alumnae network at your school, going back to speak and inspire young women, as Deborah Sweeney CEO of MyCorporation does. Better yet, start all if it younger. Girl Scouts of the USA has announced the launch of ToGetHerThere, a bold advocacy and fundraising cause, dedicated to girls’ leadership. The multi-year effort will seek to create balanced leadership — the equal representation of women in leadership positions in all sectors and levels of society — within one generation. Again, this isn’t a feel-good effort; it’s about facts. Research shows that Girl Scout alumnae are more confident, achieve higher levels of education, earn more money, give back to their communities, and vote more regularly than those who didn’t participate in Girl Scouts. And the longer women were in Girl Scouts, the more advantages they have. Volunteer to lead a troop, work on a project or otherwise help girls achieve the confidence, teamwork, and leadership skill they need to become the next Bill Gates. Back to Lily Tomlin: You are somebody. So do something.

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Timothy A. Ridout: Satellite Security Requires More Rules, Not Fewer

March 27, 2012

Satellites are crucial to modern life. We rely on them for civilian uses such as TV, Internet, ATM banking, GPS, agriculture, and weather forecasting. On the military side, we use satellites to guide munitions, operate drones, gather intelligence, and monitor enemy movements. Unfortunately, satellites are increasingly threatened. Earth orbits in which satellites operate are becoming cluttered with debris. As the number of operational satellites increases, competition for orbital “slots” is intensifying. The military uses of outer space also mean that space-faring nations are eying each other warily as they work to “harden” their own space assets while simultaneously developing new ways to destroy or incapacitate those of potential adversaries. This intensified competition has led to a debate about how to ensure that outer space remains viable for productive use. Russia and China have proposed a treaty that would ban the deployment of space weapons and prohibit the threat or use of force against space assets. The Bush administration pursued a policy of U.S. space dominance , but the Obama administration has since reversed this in favor of a cooperative multilateral approach. In January, Secretary Clinton indicated that the United States would work with the European Union in developing an International Code of Conduct for Outer Space Activities . In their recent op-ed in the New York Times , John Bolton and John Yoo advocate a return to Bush-era unilateralism, supporting near-absolute freedom of U.S. action in space. They begin their argument with the false claim that “The Obama administration recently declared that America would follow, though not sign, a European Union code of conduct for outer space.” In reality, the administration has agreed to work with the EU on creating a code of conduct, but it has explicitly refused to follow the EU code of conduct as it stands, saying that it is too restrictive. Aside from this inaccuracy in their argument, Bolton and Yoo’s opposition to greater cooperation in outer space is worrisome. The kind of muscular, unilateral policy that Bolton and Yoo advocate would encourage unrestrained anarchy in a fragile environment. If the U.S. acts as it pleases, other countries will do the same. Without efforts to coordinate traffic or restrain dangerous behavior, outer space will remain in the kind of anarchic limbo that led the Chinese to conduct an anti-satellite test against their own weather satellite in 2007, destroying it and creating a lot of debris in the process. Russia and the United States have had the capacity to destroy satellites this way since the 1980s. The Chinese test could have been avoided if there were a clear norm discouraging such behavior. Additionally, a more cooperative atmosphere would have reduced the security concerns that created a perceived need for a show of force in the first place. A non-binding code of conduct of the sort proposed by the European Union in 2010 is currently the best way to improve outer space security. A treaty banning space weapons is not realistic both because defining a “space weapon” is infinitely difficult given the dual-use nature of space assets, and because there is little political will for a new outer space treaty. Broad principles are already outlined in the 1967 Outer Space Treaty , which ensures the universal right to peaceful use and extends international law to outer space. What a code of conduct would do is clarify specific norms and best practices. Article I of the Outer Space Treaty — to which the United States and 100 other states are party — establishes space as “the province of all mankind,” adding that it “shall be free for exploration and use by all States.” In this sense, outer space is roughly analogous to the high seas: free for all to use for peaceful transit. In the maritime case, a broad set of rules and standard practices have developed over centuries, providing guidance on issues as mundane as which ship has the right of way in given situations. Without these international norms governing maritime operations that enable the safe transit of ships all over the world, global commerce could grind to a halt. Of course, the physics in outer space are quite different. In the event of hostilities or accidental collisions at sea, destroyed ships and debris will sink to the bottom of the ocean. In outer space, debris in lower orbits could be pulled into Earth’s atmosphere in maybe 25 years. However, debris in higher orbits can last for centuries, endangering any space assets seeking to use those orbits. The speed at which objects in orbit travel means that even a marble-sized piece of debris could destroy a satellite. As of yet, there is no cost-effective way to eliminate space debris, although some are trying . Aside from the threat of hostile acts foreshadowed by the Chinese anti-satellite test, mere negligence and lack of coordination pose a serious danger to the outer space environment. For example, if an operator does not maneuver a satellite into a useless “graveyard” orbit before it runs out of fuel, that satellite becomes a hunk of debris at risk of colliding with other objects (as occurred in 2009 with an Iridium communications satellite and a defunct Russian spy satellite). Clear rules and accepted best practices can help mitigate such threats. An outer space code of conduct would codify and strengthen emerging norms such as those outlined in the Space Debris Mitigation Guidelines , a set of best practices formulated by the world’s major space agencies. Whatever the specifics of a code of conduct or other agreements may be, developing norms and promoting a cooperative framework are in the U.S. interest. With nearly half of the roughly 1,000 operating satellites , the United States has the most to lose. We must emphasize collective traffic management and condemn the initiation of hostilities in outer space rather than supporting unrestrained freedom of action.

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Gary M. Krebs: The Mentor’s Mentor

March 27, 2012

I have what I refer to as “farsighted memory”: I can recall the red carpet from my family’s apartment in Brooklyn when I was less than 2 years old; I remember all my childhood friends’ telephone numbers; and I can even cite how much money I made shoveling snow for the first time when I was 10 ($79.50, mostly in quarters, which weighed my snow pants down to my knees). In spite of all this, I sometimes can’t remember the most obvious things, like when I drew a blank at a doctor’s office the other day when prompted for my age. Either I’m getting old or my brain needs memory glasses. When it comes to work, however, I pride myself on being detail-oriented and rarely forget a thing. Many work memories and details are as vivid to me as those previously mentioned from my childhood. The one that stands out most is my first day as an editorial assistant at Facts on File publishing company. Gerry Helferich, my boss, who was then VP and Editorial Director, said these words: “Feel free take on whatever responsibility you can handle. Anything you see you want to do, just ask. You can manage my books, edit books, acquire books — anything you want.” At the time I had no idea how rare it was for assistants in the book business — or in any business — to hear those words from a supervisor. I’ve since heard horror stories of assistants who waited years to even be able touch a manuscript (which was possible then, because it was still paper), much less be able to put red ink on an author’s copy. Yet there I was, 21 years old with very little experience, and the man in charge had trusted me with the responsibility of managing all his books. Gerry’s word was good: I handled all 50 of his projects through production, several of which became award winners and great sellers; he gave me a few manuscripts to edit; and, incredible as it may seem, helped (or, more accurately, spoon-fed) my first book acquisition, less than three months into joining the company. I had found a lifelong mentor. There isn’t a thing I know about the business that can’t be traced back to Gerry: he showed me how to choose the right trim size (format) for a book; how to run (and manipulate) a P&L (profit/loss statement); how to pitch a book to a room full of people; how to negotiate; how to write great copy; and on and on. Gerry never raised his voice, made a crack when I asked a dumb question, or dismissed my crazy ideas (in fact, he welcomed them). The only time I ever remember seeing him disappointed was when he asked me to water his office plants while he was away on vacation. In my zealousness, I overwatered and killed them all; I still feel guilty about that, two decades later. I was distraught when Gerry left Facts on File for a better opportunity: how could I possibly survive without him? To my astonishment, although he had moved on to much larger organizations, he always returned my calls and spent time with me when I needed his advice. He came to my aid on numerous occasions — helping me figure out job challenges, offering me references, and even counseling me on terms for my book deal. When I became a leader myself in the industry, Gerry continued to be a significant influence, even though our schedules rarely matched up. For years the most we could arrange was the two-minute catch-up at his company’s booth at Book Expo (the largest book convention in the U.S.). On one such occasion, I was drowning in employee issues, author problems, and overbooked meetings, and babbled to him in an over-caffeinated way that probably suggested I was about to implode. He stopped me mid-sentence, floated his hands up and down, looked me in the eyes, and said, “Calm down.” Those two words not only got me through that event, but they have guided me many times since: I just hear Gerry’s voice in my head, and I know everything will be OK. I felt more than just a tinge of grief a few years later when Gerry told me he was leaving the industry and moving to Mexico with his wife so that they could become full-time authors themselves. What a loss for the industry, I thought, but on a more selfish note, I knew there was no replacing him as my mentor. I would have to fend for myself during crises. No matter the situation, I would ask myself the question: “What would Gerry do?” Just imagining the answer got me through many complex challenges. I even made a list of the top six attributes that made his leadership style so effective: Empower others: Gerry let you run with the ball. He was never threatened by anyone else’s success. Stay calm under pressure: He didn’t overreact to anything. The worst problems were figured out in the same laid-back style as the easy ones. Don’t piss anyone off: He never yelled at anyone, burned a bridge, or insulted anyone. He knew that even the most difficult colleague has the potential to become an ally. Make time for people: He assisted everyone — direct reports, indirect reports, colleagues in other departments, and even people who threw axes at his back. He always stopped to listen and didn’t offer an opinion unless asked. Take the chance: Gerry was collegiate and agreeable, but not to the point where nothing got done. Sometimes a leader needs to push an idea or innovation through, even if there are naysayers. It’s as brave to take a positive stand on someone else’s project as it is a negative one — especially when it means disagreeing with the hierarchy, spending money, or implementing a change. Admit to mistakes: Gerry had no qualms about saying when he did something wrong. It made the team admire him all the more. Over the years, I’ve had the remarkable opportunity to give back some of the above wisdom to quite a few talented professionals. Many of these individuals are now successful editors, agents, entrepreneurs, and even leaders themselves. At my last company, I was privileged to become a corporate mentor to a star employee in the U.K. office. “Uh oh,” I thought. “This guy is so much smarter than I am — what could I possibly hope to impart to him as his mentor?” It turns out that my mentee did have some challenges, and I think on a small scale I was able to support him by listening, sharing my experiences, and steering him toward decisions when he was straddling the fence. I couldn’t have been prouder when he earned a well-deserved promotion. I found that I may have gotten as much out of that relationship as he did; not only did we exchange work advice on both sides, but we even shared our scripts (he’s a talented playwright). The book I’m now delighted to read is The Stone of Kings: In Search of the Lost Jade of the Maya , by Gerard Helferich. Not only is my mentor the author, but the book was published by Lyons Press (Globe Pequot) — my former company. As I turned the pages, it was difficult for me to avoid being reflective and another memory hit me: Gerry’s last day at Facts on File. At his farewell party, his peers made teary-eyed speeches and wished him well. I couldn’t hold back any longer and stepped forward. It didn’t occur to me how ridiculous it must have seemed; I was his assistant — a mere 23-year-old, wet-behind-the-ears kid — making a speech in front of a whole room full of people about the company’s most revered leader. But I stood up and thanked him for everything he taught me and for all of his support. I closed by proclaiming, “You’re the best manager I ever had!” Gerry burst into laughter and remarked, “Of course I am — I’m the only boss you’ve ever had!” Well, I’ve had a few bosses since — some wonderful, some pretty awful — but Gerry is still #1. Someday I hope to have another leadership opportunity where I can create those magical memories with a new staff…

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Harvard Kennedy School Democrats: A New Name for Occupy

March 26, 2012

By Cassandra Nelson As Occupy activists take stock at the six-month mark and look for ways to make their movement sustainableby appealing to a wider audience, I offer one concrete suggestion: change your name. The Bush administration was smart enough to stay away from it. The war in Iraq lasted exactly six weeks — from the invasion on March 20, 2003 to the now infamous “Mission Accomplished” photo op on May 1 of that year. By that point, Iraq’s conventional armed forces had been defeated. What dragged on for eight more years was an occupation. Most Americans, though, thought of the conflict as Operation Iraqi Freedom or the War on Terror. Was it honest for President Bush and his staff to phrase it this way? Not entirely. Was it clever? Very much so. The word “occupation” suggests illegitimacy. It suggests force. It suggests a temporary and unfair arrangement. Occupiers in history don’t win: it’s the people whose land they occupied who are vindicated in the end. The Nazis occupied France. France once occupied Algeria. That’s not the side of the fight anyone wants to be on — not just because it’s the losing side, but because it’s the wrong one. The Occupy movement’s strategy up to this point has also made them look like squatters — squatters in front of buildings where people go to work and make money. And if there’s one thing a lot of Americans want to do right now, understandably, it’s to go to work and make money. They don’t want to sit in a park with people who perhaps don’t have the opportunity to bathe every day. It may sound glib and cruel, but living in a park is what homeless people do. I suspect that many people viewing the Occupy movement on television or in the news have made this connection, though not necessarily on a conscious level. Finally, the name Occupy suggests stasis, as if the goal were just to sit around in as many existing spaces as possible and point out what’s wrong with them. This spatially-oriented approach limits Occupiers’ agenda and also puts them on the defensive. They have to apply for permits; they have to shout over speeches others have organized; they have to explain their presence in a public space. It seems to me that the ones who really ought to be explaining themselves are the people who have turned the American dream into a nightmare. The people who have let the middle class go on thinking that hard work, strong will and a good education are all it takes to succeed in this country — that those elements alone are enough. On the one hand, maybe they never were. ZIP code, skin color, sex, religion, nationality and other factors largely beyond one’s control have long played a role in determining who succeeds in America, and how much. On the other hand, an individual’s chances for upward social mobility today are as good in the United States as almost anywhere on the planet. In between these two truths is a story of the ways in which the system has been increasingly rigged in the last half century. I don’t even pretend to know what happened exactly, but it had something to do with the growth of an increasingly complex, perilous and largely imaginary financial infrastructure; a decrease in government regulation of same; a cozy and mutually beneficial relationship between corporations and lawmakers; and trends in both executive compensation and federal income tax that can only be described as bananas. Fun fact: today, the richest people in America pay 35 percent of everything they make over $388,000 — or less . Under Reagan, they paid 50 percent of everything they made over $175,000. Under Eisenhower, they paid 91 percent of everything over $400,000. Ninety-one cents on every dollar above a certain amount! It’s admittedly a Gala to Red Delicious to Pink Lady comparison, but still telling. So even if we concede that the playing field was never perfectly level, and that it isn’t perfectly level in other parts of the world today, it remains safe to say that the opportunity of the average American to make a decent living — enough money, say, to raise a family, own a home and retire — has diminished substantially in recent decades. How we got here, and what we intend to do about it, is a conversation that we as a nation need to continue. To that end, I propose a new name for Occupy — a name that better expresses why people are upset right now, a name that appeals to everyone who’s not directly profiting from the unfair and corrupt system currently in place, and a name that puts those people responsible for the most incredible income inequality this country has ever seen on the defensive. Justify. Justify Wall Street. The Justify movement. It can be applied to any physical space or any institution, and it puts the pressure on the questionable party. On the CEO who makes an exorbitant bonus, for instance, or the Congressman who takes advantage of insider trading, or the local official who cuts education funding for the third, fourth or fifth year in a row. The image that the Justify movement would call to mind wouldn’t be its own supporters. It would be a split screen of sorts — with private jets on one side and food pantries on the other. It would be a picture of a yacht, alongside toys on the lawn of a foreclosed home. It would be the face of Stephen Helmsley, who took home $102 million last year as the country’s highest paid CEO , next to the face of an uninsured child . And it would ask how you can justify all of the things on one side of the screen when confronted with those on the other. It would cut through much of the current vagueness, apathy, and annoyance, and it would steer the conversation to what it’s really about: justice. Cassandra Nelson is a PhD candidate in English literature at Harvard University focusing on postwar American fiction. HKS Democrats leadership reviews and approves all op-eds that appear in this space.

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Dean Baker: The Paul Ryan Rorschach Test

March 26, 2012

House Budget Committee Chairman Paul Ryan did a great public service when he released his budget last week. By throwing a piece of total garbage on the table and pretending it is a real budget plan, he allowed us to see who in Washington is serious about the budget and who just says things that will push their agenda. It is easy to see that Ryan himself could not possible be serious about the document he put out as “A Roadmap for America’s Future .” The Congressional Budget Office analysis of the plan, which was prepared under Representative Ryan’s direction, shows that all categories of government spending outside of health care and Social Security will shrink to 3.75 percent of GDP by 2050. This 3.75 percent of GDP includes defense spending, which is currently close to 4.0 percent of GDP, not including the cost of the war in Afghanistan. Representative Ryan said that he wants to keep defense spending close to its current level. This means that we have no money left to pay for the Justice Department, the State Department, support for education, roads and other infrastructure, the Park Service, the National Institutes of Health and all the other things that we expect the federal government to do. Essentially Paul Ryan is an anarchist who is proposing to shut down the federal government. This cannot be a misrepresentation of Representative Ryan’s agenda. He put out essentially the same budget last year at which point many people pointed out the fact that he shrank most categories of government spending to zero. If that was a mistake (albeit an incredibly foolish one) he has now had a full year to reflect on his error and redesign a budget to reflect his real priorities. Instead, he doubled down. In Representative Ryan’s 2012 Roadmap there is no room for federal funding for all the services that even conservatives expect the government to provide. Does the Republican right now want to shut down federal prisons and end border patrols as Representative Ryan’s budget implies. This is also not a case of pulling out long-term implications that have no serious meaning. It is a common and silly practice in budget debates to project out a trend for 75 or 100 years and show it leads to an untenable situation when everyone knows the trend will not continue for this long period. However Representative Ryan cannot make this complaint. He actually touts the budget surpluses that he is able to generate in 2040 and 2050 by getting rid of most of the government. His Roadmap budget document proudly compares his budget surpluses with the growing debt under the baseline path he attributes to President Obama. Even if the Roadmap lays out an absurd budget path for the years and decades ahead, Representative Ryan has nonetheless done us a valuable service with his budget. His proposal allows us to distinguish between people who are serious about budget and economic policy and people who are obviously a different agenda. Those who pretend that the Ryan budget is a real guidepost for thinking about the budget fall into the latter category. Foremost in this group is likely to be the various Peter Peterson funded groups — the Concord Coalition, Come Back America and the Committee for a Responsible Federal Budget — which last year awarded Mr. Ryan a “Fiscy” based on the commitment to fiscal responsibility in his 2011 budget plan. Of course many other prominent actors in Washington’s budget debate also applauded the 2011 Ryan budget for its serious approach to the country’s fiscal problems. These organizations and individuals may like Ryan’s plan to give more tax breaks to the rich by reducing the top tax rate for both individuals and corporations to 25 percent. They may be impressed by his plans to dismantle Medicare and Medicaid, and eventually Social Security. Or they may be attracted by his proposal to eliminate almost the entire federal government. But the advocates of the Ryan plan are obviously not thinking seriously about how to fashion a budget that provides basic social insurance and sustains a 21stcentury economy. By allowing the public to see clearly who is serious about the budget and governmental responsibilities and who is not, Representative Ryan has performed a valuable public service.

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Christopher Bergin: Payroll Tax Cut Extension: Just Another Quick Fix

March 26, 2012

Policymakers of both parties may be hailing the recent bipartisan extension of the current payroll tax cut, but it’s really just one more example of the short-term tax fixes to which lawmakers have grown addicted — and that are making our tax code an increasingly undecipherable patchwork of temporary provisions. House Republicans reached the compromise by dropping their demand for spending cuts that would offset the estimated $1 billion cost of the tax measure. Economists estimate that the average American family would have seen a tax increase of more than $1,000 per year if the temporary payroll tax cut had not been extended. The payroll tax cut effectively reduces the amount that the majority of Americans pay into Social Security on their first $110,100 in wages. And while most everyone can agree on the short-term wisdom of not increasing the tax burden on Americans struggling in this difficult economy, by underfunding social security, we are stealing from Peter to pay Paul. Consider this: According to the bipartisan Joint Committee on Taxation , 67 tax provisions will expire at the end of this year alone. They include a deduction for elementary and secondary school teacher expenses, a deduction for qualified tuition expenses, the Work Opportunity Credit and more. And then there’s the Alternative Minimum Tax, which lawmakers “patch” every year to prevent it from causing a huge tax increase on the middle class. The latest patch has already expired for this year. Even this current payroll tax extension is a fix for a temporary, two-month extension passed in December. Short-term “fixes” for these expiring tax provisions have consumed Congress and the White House, and have led to dysfunction, gridlock, partisanship and an inability to focus on bigger policy issues. Filling the tax code with temporary measures has also led to widespread economic uncertainty and volatility that leaves taxpayers in the dark about where to invest their hard-earned dollars for the long-term or how to run their businesses. Politicians are counting on the fact that the American public wants instant gratification and is more concerned about today than the potential long-term solvency of Social Security or the bill we are leaving our children and grandchildren to pay. And then, of course, there is the issue of our ever-growing debt, which, despite lip service from both parties seems to be an issue that neither Congress nor the White House can summon the political will to address. As we head down the final stretch of a presidential election year, one thing remains clear. Tax reform is not in the foreseeable future when all parties involved have ceded tax policy for tax politics. That is why we will continue to have a tax code that is unfair, un-simple, economically inefficient and mostly temporary. Oh, and by the way, Congress, the Bush tax cuts are set to expire at the end of this year. Better get to work on another quick fix. Christopher Bergin is President and Publisher of Tax Analysts and an expert on federal tax policy. He has written extensively on federal tax issues, worked in tax publishing for almost 30 years, and is frequently cited in national media as an authority on federal tax policy. He also blogs for Tax.com. This article is reprinted from the February 27, 2012 edition of The Hill.

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Mike Callicrate: Ex-GIPSA Head Seeks Apology

March 26, 2012

In an interview with WORC’s Western Organizing Review , Dudley Butler, former administer of the Grain Inspection, Packers and Stockyards Administration, has called on Sen. Pat Roberts (R-Kan.) to apologize for his veiled threats and knowingly lying about what Butler supposedly had said about the proposed GIPSA rule. Listen to his challenge to Roberts in this short audio clip here . WORC will publish the interview in April in the next edition of our newsletter. During a June Senate Agriculture Committee hearing, Sen. Roberts said, “To be perfectly blunt, this rule, as proposed, looked like a trial lawyers Full Employment Act. Better yet, I’ll read a quote from Administrator, Mr. Dudley Butler, regarding the core of the material in the rule. His quote, ‘That’s a lawyer’s dream, a plaintiff lawyer’s dream.’ He [Butler] was a plaintiff’s lawyer.” Butler had not been invited to the hearing. Butler’s quote, however, referred to the broad terms included in the Packers and Stockyards Act, not the proposed rule, which would have clarified terms in the act. Butler had made his statement well before the proposed GIPSA rule had even been published.

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Bill Robinson: Memo to Small Business: RingCentral Will Take Your Calls

March 24, 2012

Small businesses have always had a simple but nonetheless nagging problem: answering their phones with a consistent, professional presence. Does the fearless leader hire an effervescent receptionist and pay the base salary plus all those excruciating payroll taxes, healthcare and other costs? Or, do they get one of those bleak, soul-less automated, ‘interactive voice response’ (IVR) systems that put us all through a soul-destroying telephonic chase? RingCentral wants to be the third option in that management decision. “We started out with two guys named ‘Vlad’ just to make it interesting,” said Vlad Shmunis , RingCentral co-founder and CEO. The other Vlad is RingCentral CTO and co-founder Vlad Vendrow who Shmunis says “is the original architect of the system and the smarter of the two.” Vlad Shmunis RingCentral, which was founded in 2003, has a very interesting evolutionary path. Schmunis started a company called RingZero Systems in the 1990s which, according to Shmunis, provided “a fee-based PBX system for SMBs (small and medium sized businesses) which ran on Windows.” The company’s distribution was solely through OEM and bundling partners which Shmunis would later change in RingCentral. In spite of what he now looks back on as a failed business model, Shmunis had IBM as a major partner and eventually sold the business to Motorola. Later, as it became apparent Motorola had no idea how to integrate RingZero into their org chart, Shmunis bought his assets back from Motorola to build what is now RingCentral. “I learned not to do it on a PC system; it wasn’t the right platform for an answering system,” Shumnis reminisced. “I learned that a stand-alone, hosted service was the right business model and that’s what RingCentral is built upon.” Shmunis says, “We don’t compete with the telcos; we compete with the hardware manufacturers. And simultaneously, RingCentral is more than just a PBX .” As the RingCentral business model was refined and shifted, Shmunis was after one big, traditionally hard-to-reach market of customers: small business. Making this jump in markets served could not have been easy but it was done, Shmunis said, as the delivery method also changed dramatically from ASP to SaaS to, finally, the Cloud. Shmunis said, “We thought, ‘How do we enable a very small business to communicate like a bigger corporation? How does the small business owner downscale from the big, expensive phone systems?’ Small business really needs a product like RingCentral.” When asked what the size of his ideal SMB customer is, Shmunis doesn’t equivocate. “For us, there’s no such thing as too small a market; we developed our product for the smallest of VSBs (very small businesses). Not to sound too corny but we really had in mind when we founded RingCentral that we would make the world a better place.” Shmunis used his own money to start and grow RingCentral initially, referring to his personal funding as “the first round.” The first true Series A occurred in 2006 when he said RingCentral “had a couple of million in revenue and good clients.” Doug Leone from Sequoia Capital and David Weiden from Khosla Ventures jumped aboard the USS Shmunis and are both on the Board of Directors today. With key strategic investments from the likes of Cisco Systems and Silicon Valley Bank, the total outside investment in RingCentral today stands at approximately $55 million. Vlad Shmunis was born in Odessa, Ukraine on the Crimean Peninsula and came to America at 14. In many ways, he is the embodiment of the ‘American Dream,’ with his parents and younger sister learning English on the fly and then doing well in Bay Area schools. “I did well in my school in Russia,” he said smiling while delivering a jab to the U.S. educational system, “so I did very, very well in my American school.” As is common amongst Russian emigrants to America, Shmunis’ parents were involved in some form of mathematics, science or engineering. His father was a mechanical engineer specializing in “extreme precision instruments” and his mother, an electrical engineer. Does growing up in this kind of technical household mean the ensuing generations tend to be more technically oriented? Undoubtedly. Going on to San Francisco State University in the late seventies, Vlad Shmunis took an interest in computers and obtained bachelors and masters degrees in Computer Science. “I was programming in Pascal and Fortran but always avoided Cobol ; Cobol wasn’t cool,” Shmunis said with the look of a man who missed coding, “I really loved LISP though and ended up teaching a course on LISP at San Francisco State.” After finishing his college degrees, Shmunis worked for several years as a software engineer then software manager at Ampex. It was after this work experience that he decided to start his own company, RingZero later becoming RingCentral. RingCentral is headquartered in San Mateo and has offices in Denver; the Philippines; China; St. Petersburg, Russia; and the Ukraine with a total of about 900 employees. “What RingCentral is all about,” Shmunis observed, “is complete parity between landline phones, mobile phones, VoiP, tablet PCs and faxes. The Cloud is perfect for this and the PC wasn’t because Windows crashes, hard drives freeze and dogs eat power cords.” Moving to the current day, RingCentral is striving to expand their SMB market penetration but refuses to release precise numbers on how many SMB clients they have. Pursuing strategic relationships with partners such as Go Daddy, LegalZoom and Vistaprint are key for Shmunis’ SMB strategy. For example, Vistaprint is one of the world’s largest printers of business cards and has millions of small business-owner customers. Vistaprint sends out a RingCentral offer with every business card order. “Our biggest challenge is awareness,” Shmunis stated, “once you’re aware of us, you’ll use our product.” For access to some reviews of RingCentral’s (and others) service, see VoipReview.org . Asked about the widely rumored possible RingCentral’ IPO, Shmunis only says he “can’t comment on an IPO.” He is similarly coy about how RingCentral will turn out; whether the creation will sell in a trade sale or continue to grow as a publicly-traded or independent enterprise. How does Shmunis want RingCentral end up? “Our investors are pretty happy,” he says, “I’m not sure I want it to end up. RingCentral as a stand-alone might be best.” One thing is for sure, if RingCentral gets even a minuscule percentage of the gargantuan SMB market, it will be writing its own ticket.

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Vivian Weng: The Billion-Dollar Question: When Will the Fashion Tech Bubble Burst?

March 23, 2012

Just this past week, a friend asked me when I think the fashion start-up bubble will burst. What was interesting to me is that she didn’t ask whether I thought there was a bubble in the first place — she just assumed. It’s easy to see why someone might jump to this conclusion. Starting in 2007, with the early success of flash-sales pioneers such as Gilt Groupe and Ideeli, fashion start-ups began cropping up at an increasingly rapid pace. What was different than prior attempts in the space, however, is that venture capitalists and “serious” investors were paying attention. In the last 5 years, the momentum has only increased. Assembled Fashion, a conference focused solely on new business models in the fashion space, was completely sold out last November. The week after, Raise Cache put on a fashion show , where foursquare cofounder Dennis Crowley and venture capitalist Fred Wilson sported designs from 20 New York City-based fashion start-ups. But surely there cannot be customer appetite for hundreds of new fashion e-commerce sites, can there? Of course not. And, in fact, there are many examples of fashion ventures started in the last few years that no longer exist. In the flash-sales space, a wave of consolidation occurred in 2010 . This past year, two key players — DailyCandy’s Swirl and Prive — quietly shuttered their doors. Even Google, who entered the fashion world with its social shopping site Boutiques, has since gotten out. I would venture to guess that a similar wave of consolidation and “weeding out” will occur in other areas within the fashion space (for other trends in the online fashion world, see my post from Jan. 3, 2012 ). But in spite of all this, I would argue that what we’re seeing isn’t a bubble per se, but rather a natural and very necessary trial-and-error process, where everyone — entrepreneurs, fashion industry executives, investors — is learning what works and what doesn’t. In the past, the fashion industry has been so slow to adapt to technological changes that it’s only now trying out these new technology-enabled business models. A “bubble” implies that lots of cash is being poured into overvalued companies. This isn’t a bubble — a basic e-commerce site can be built for less than $50,000 these days, and no one’s balking at the valuations these start-ups are raising (at least not yet). The real billion-dollar question, then, isn’t when the bubble will burst but rather: What does the future hold for the “survivors”? Will they eventually IPO and become the next generation of blue-chip retailers? Or will they be acquired and digested by today’s big retail and media companies? In a recent interview , Gilt Groupe CEO Kevin Ryan acknowledged the possibility of an acquisition by Amazon. Gilt, Ryan pointed out, is currently the second-most valuable e-commerce company in the U.S. market, as Amazon has historically acquired any e-commerce player that surpasses the billion-dollar mark. So perhaps this is a billion-dollar question that only Amazon can answer.

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Algernon Austin: Blacks See Largest Decline in Health Insurance Coverage

March 23, 2012

Over the last decade, blacks experienced the largest decline in employer-sponsored health insurance coverage. If President Obama’s Affordable Care Act (aka Obamacare) is revoked, as the Republican presidential candidates are calling for, blacks and all other groups will find it increasingly difficult to obtain health insurance. From 2000 to 2010, the employer-sponsored health insurance coverage rate for black workers ages 18 to 64 years old dropped 8.6 percentage points. White and Hispanic workers also experienced health insurance declines, but somewhat smaller ones. Employer-sponsored health insurance coverage declined 6.3 percentage points for white workers and 6.6 percentage points for Hispanics. (Unless otherwise indicated, my employer-sponsored health insurance statistics are taken from my colleague Elise Gould’s report, ” A Decade of Declines in Employer-Sponsored Health Insurance Coverage .”) Children often receive health insurance coverage through their parents’ work. Thus, it is not surprising that black children would see large declines in employer-sponsored health insurance coverage given the trend for their parents. Like black workers, black children saw the largest decline in employer-sponsored health insurance coverage. Black children experienced a 14.1 percentage-point decline. For white and Latino children, the decline was 9.6 and 8.7 percentage points respectively. Most of these children who lost access to employer-sponsored health insurance were likely able to be covered by public insurance programs for children, but further detailed research on this point would be useful. Since most workers obtain health insurance via work, the massive job losses of the Great Recession led to steep declines in health insurance coverage. However, it is important to note that the decline in health insurance began even before the Great Recession. As Paul Krugman has observed , even from 2003 to 2007, during the best years of the prior business cycle, health insurance coverage declined for workers. This fact is another indicator that the American economy has not been functioning well for average workers. One piece of good news is the Affordable Care Act. Although we could have instituted more radical reforms like a Medicare-for-all program, the Act will likely go far in expanding health insurance coverage. The best evidence for this is the tiny uninsured population in Massachusetts. Massachusetts health care reform served as a template for the Affordable Care Act . In 2010, while 15.4 percent of the population nationally was uninsured, only 1.9 percent of Massachusetts residents were uninsured . The main expansion of health insurance coverage under the Affordable Care Act will begin in 2014, but we have already seen one of its positive effects. In 2010, the Act made it possible for young adults up to 26 years old to be covered by their parents’ health insurance policy. From 2009 to 2010, despite large job losses for young adult workers, their rate of health insurance coverage increased. They were the only age group that saw increases in health insurance coverage. In countries with universal health insurance, jobs losses do not lead to losses of health insurance like they do in the United States. The large job losses that blacks have experienced since the start of the recession has also meant significant losses in health insurance coverage. But it is important to remember that even during the best years of the Bush Administration, blacks and all other workers were losing employer-sponsored health insurance coverage. Without a reform like the Affordable Care Act, the decline in health insurance coverage will continue in good times and bad.

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Carol Roth: Using Mobile Content Effectively

March 22, 2012

As technology evolves at a breakneck pace and new tools are created to reach and connect with customers, many businesses are losing focus on how to effectively utilize the tools to drive the results they are seeking. As a business, you have to think about more than just the tools, you have the think about your audience and context. This becomes even more important as customer touchpoints and interactions increase. For example, let’s take QR codes. Say that you are using a QR code in an advertisement or even a window display. There are two pieces of context that you must take into consideration. The first is that your potential customer, should they scan the code, will be using a mobile device to retrieve information. Therefore, any information that is linked to that code needs to be mobile-ready. Second, is that if they are scanning the code, they have already gotten some information that is interesting enough for them to want to learn more. As Greg Slapp, CEO of leading free QR Code generator QRStuff.com said: Once a customer pulls out their smart phone to scan a QR code, they want to continue the conversation, not start it over from scratch. Far too many businesses don’t think about the logical next call to action once a code is scanned. They often take a customer back to a web home page or other information that repeats the same information the customer learned before scanning the code to begin with. This is very ineffective. So, what does this mean for your business and its mobile efforts? It means that you need to design a strategy where your collateral introduces a concept that is worthy of the customer taking action (i.e. scanning), Then it means that your web presence needs to be mobile friendly. Remember, the only gateway to your offer is through the smartphone, so once a customer engages with his or her phone, the information should be accessible in a mobile-compatible format. Finally, continue the dialogue. Know what collateral is driving the interaction and move the customer to the next logical step, whether that is delivering next-level information or letting the customer consummate a purchase without having to go back to square one. Don’t repeat what you have just told them to get them to scan the code in the first place. If mobile engagement is going to work, you have to move past the form of the tool to get into the nitty-gritty of its function and relevance to your business and your customer.

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Jed Kolko: Why Location Matters If You’re on the Fence About Renting vs. Buying

March 22, 2012

Time to buy? Since the housing bubble burst, prices have fallen so much that it is now cheaper to buy than to rent in 98 of the 100 largest U.S. metropolitan areas. That’s even true in many pricey real estate markets such as New York , Los Angeles and Boston , according to Trulia’s Winter 2012 Rent vs. Buy Index . With this Index, we track whether it is more affordable to rent or to buy a home by looking at asking prices for similar rentals and homes for-sale in similar neighborhoods on Trulia.com , while factoring other costs like taxes, insurance, maintenance and so on. Marking a big shift from the boom years, the cost of buying relative to renting has fallen a lot. But just because prices dropped and rents held steady or rose in most places, does that make now a great time to buy? The answer depends on you and on where you live. For starters, deciding whether to rent or buy a place is never easy. Even before looking at how much it’s going to cost you where you live, ask yourself this: have you saved enough for a down payment and can you qualify for a mortgage ? If not, then owning is probably not an option for you in the first place. Next, ask yourself if you’re ready to make a long-term commitment and stay put for at least five years? If not, then you probably should stick to renting because homeownership involves big upfront costs that only make sense if you don’t plan on moving again for a while. But if you answer yes to both of these questions, then it’s time to look at the numbers. Buying a home is more affordable than renting where our price-to-rent ratio is under 15 (see note below tables). The only places where this ratio is above 15 are Honolulu and San Francisco , which means renting might be more affordable than buying there depending on your personal circumstances, such as how much you benefit from the mortgage interest deduction. Top 10 Metros To Buy vs. Rent # U.S. Metro Price:Rent Ratio 1 Detroit, MI 3.7 2 Oklahoma City, OK 4.3 3 Dayton, OH 4.8 4 Warren – Troy – Farmington Hills , MI 5.4 5 Toledo, OH 6.0 6 Grand Rapids, MI 6.1 7 Cleveland, OH 6.2 8 Atlanta, GA 6.5 9 Gary, IN 6.7 10 Memphis, TN -MS-AR 6.8 Top 10 Metros To Rent vs. Buy # U.S. Metro Price:Rent Ratio 1 Honolulu, HI 17.0 2 San Francisco, CA 15.5 3 New York, NY -NJ 14.5 4 San Jose, CA 14.3 5 Orange County, CA 13.5 6 Los Angeles, CA 13.0 7 San Diego, CA 12.7 8 Colorado Springs, CO 12.0 9 Boston, MA 12.0 10 Albuquerque, NM 11.9 NOTE: The lists above rank the major metros where renting a home is most expensive relative to buying, and vice-versa. Price-to-rent ratios that are 15 and under indicate buying is less expensive than renting, while ratios that are 20 or higher indicate renting is less expensive than buying. Between 15 and 20, the rent-versus-buy calculation depends on tax deductions and other personal circumstances. In addition to Honolulu and San Francisco, New York and other California metros have relatively high price-to-rent ratios. At the other extreme, buying is very cheap relative to renting in Detroit and several other markets in the Midwest and South. Why is buying a much better deal in some places than others. Contrary to what you might think, the reason for this actually has little to do with the housing bust. Of the top 10 markets where buying is cheapest relative to renting , NONE are in Florida , Arizona or Nevada , which are the states where home prices fell most after the bubble. In fact, the price-to-rent ratio has much more to do with long-term factors, like economic growth and density. These long-term factors matter because people will pay more for a home if they expect prices to rise eventually and give them a better return on their long-term investment. Markets where buying is expensive relative to renting tend to have stronger economic growth over many years and little room to build new homes, like Boston and the San Francisco Bay Area: there, people expect home prices to increase over time. Buying is much cheaper than renting in slow-growing places with high vacancy rates and land to spare, like Detroit and Cleveland, where prices are unlikely to improve much in the future. So if long-term factors explain why the price-to-rent ratio is higher in some places than others, what does it mean for you if you’re on the fence about renting or buying right now? First, if buying in a local market looks like a good deal today, it will be a good deal tomorrow: The rankings won’t change much since they’re based on long-term factors. San Jose will have much higher price-to-rent ratio than Oklahoma City for years to come. Second, if you plan to stay put in your next home for a long time, think about what might happen to local home prices. Homeownership could turn out to be a much better deal than you think if local home values rise, even if buying looks expensive today. In deciding whether to buy or to rent, always take the long view.  

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David Tereshchuk: Under-reported: Man-Bites-Dog Story of Global Poverty

March 21, 2012

Oh wow! — a media storm over the great Goldman Sachs being disavowed by one of its own in an Op-Ed article (in the New York Times ) that became, controversially, a news story. Overtaken only by a storm over a semi-journalistic public radio show ( This American Life ) disavowing one of its own episodes attacking the great Apple, Inc. Amid all this tortured media navel-gazing, I found myself staring instead at some other quite different information — straight news, not opinion pages material — that is going largely unattended. I’ve been helped here by a whistle-blower who is coincidentally another Goldman Sachs man. It’s actually their top Asset Management executive, Jim O’Neill. And “flag-waver” or “horn-tooter” are probably better terms for him — since we’re not talking about raising a disturbing alarm here. Pretty much the opposite. And it’s nothing to do with Goldman. Indeed, it is some really good international news that’s evading our close attention, even though O’Neill — an astute man who, like me, I’ll say gratuitously, attended high school in Manchester, England — has been eager this week to tell anyone who will listen. The trouble is, this good news seems counterintuitive. There’s been a global financial crisis, right?Along with that there’s been a serious price hike in food-prices, and now oil-prices, correct? Unemployment is staying stubbornly high in countries desperate for post-recession recovery, isn’t it? And remember the United Nations’ Millennium Goals from the turn of the century? Especially that crucial First Goal which committed the international community to the lofty ambition of “halving the proportion of people living in extreme poverty” by 2015. If you’ve been following the not-very-numerous but always well-meaning media outlets who care about these issues, that goal has for years appeared doomed to failure, given the grim global conditions as reported. Well, the good news is that the facts contradict that pessimism. A World Bank report by its Development Research Group reveals the surprising secret… the world’s poor are now doing better, in fact. Somewhat astonishingly, if we look at the commonly accepted measure of “extreme poverty” — meaning living on less that $1.25 dollars a day — then the goal has already been achieved — was in fact achieved by 2010, a full five years earlier than the target. While in 1990, when the goal was being discussed and formulated, nearly half the developing world’s population (actually 43 percent, well over two-and-one-half billion people) lived below that daily income level, and by the time the first decade of the 21st Century was coming to its close, that proportion had dropped to less than a quarter (22 percent — or 1.29 billion people). Here’s the Bank’s own multlmedia summary of the findings, at a little over three minutes: video platform video management video solutions video player “And to top it all off,” says Goldman’s O’Neill, who can scarcely contain his glee, “it is those who were the absolute worst off that have made the most progress”. What indeed is perhaps the big surprise-within-the-surprise is that, while we might imagine the improvement can be ascribed to the vast and very singular industrialization of China … that simply isn’t the case. Even if you exclude China’s case — gargantuan part of the gobal landscape though it is — the global improvement is still enormous. And Africa — so often considered simplistically as the mother of all basket-cases — turns out to be aggressively improving its grim statistics. Sub-Saharan Africa — generally speaking the poorest region of the world — had by 2008, says the report, reduced that $1.25-a-day poverty rate to 47 percent, the first time it ever dipped below the 50 percent level. And since then it has continued to see falling numbers for the extreme poor, setting in reverse the continent’s previously dispiriting, steady upsurge through the 1980s and ’90s. I’m reminded of working with Kofi Annan, the UN Secretary-General at the time the Goals were published to great fanfare, and his speechwriter Edward Mortimer, as we made a TV program about the world financial scene. Annan was anxious that we emphasize what he impishly (or sardonically?) called “Africa’s best kept secret,” meaning that a lot of money could be made, quite legitimately, through quite above-board transactions, in Africa. He would extol the healthy rates of return at the Johannesburg or Lagos stock exchanges, rolling in then at 25 percent or more. It’s good to be able to point up some under-appreciated economic betterment taking place in Africa nowadays, and taking place to the benefit of more than just the financial elite. Just as it’s good for any journalist, once in a while, to write a “Man Bites Dog” kind of story. * * * * Read more of David Tereshchuk’s media industry insights at his weekly column, The Media Beat , with accompanying video and audio. Listen also to The Media Beat podcasts on demand from Connecticut’s NPR station WHDD, and at iTunes .

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Erica Diamond: The Interview With Craig Newmark, Founder of craigslist

March 21, 2012

If you follow this blog, you know that I go after what I want. With RELENTLESS DETERMINATION. There is an interview I’ve wanted for some time. It was Craig. THE  Craig, founder of craigslist (who nicely corrected my spelling of CraigsList, explaining it should be written in all lower-case). The way he spells craigslist and his newest initiative, craigconnects , is just so very Craig — understated, modest, simple. When I interviewed him, I kept challenging him for more MEAT, more stories, more guts, for all my women who love details. But I learned something from Craig. Sometimes, less is more. He’s concise and precise. But that doesn’t mean he isn’t all heart. Cuz he is. When I blamed my demand for more ‘meat’ on the battle of the sexes… that women are ‘oversharers’ and men are ‘undersharers,’ he told me, “That’s all I got.” So, in the words of my uncle who always tells his daughters to “land the plane” when they go off on a tangent, enjoy this simple, but powerful interview from a remarkable entrepreneur and do-gooder in this universe, Craig Newmark. As an entrepreneur myself , since the age of 24, I am fascinated by people who have a vision and who successfully bring that vision to human beings around the globe. It seems only fitting that Craig should be here. Without further ado… Craig, I have been a long-time user of craigslist and have made quite a bit of spare change selling my old high chairs, baby car seats and strollers! What a great site and concept. Tell us how the idea was born, and why do you think craigslist became as successful as it did? It seems an easy enough concept to copy. What made it so unique? Well, in ’94 I was at Charles Schwab & Co., showing people the Internet and suggesting we’d do business that way someday. Also, I saw a lot of people helping each other out. In ’95, early, it seemed time for me to give back, and I started a simple arts and technology events mailing list. Also, I solicited feedback, and did something with that feedback. We continue that ask/act cycle to this very day. What seems to make craigslist work is our deal about “doing well by doing good,” and by providing a platform where people can help others with everyday basic stuff. That starts with helping get a job and a home, and goes from there. The “doing well by doing good” thing is unique in our area, as far as I can tell. Your bio on Twitter says, “Customer service rep and founder for craigslist.” Either you’re a very humble man, or I’m not sure what! Tell us what craigslist means to you today, and tell us more about your newest initiative, craigconnects.org. I earn my living wage by being a Customer Service Representative.  Haven’t coded software at all this millennium, so it’s really that simple. craigslist does serve as a platform where people help each other for the basics, and also, shows people that the Internet is good for mutual support. I do feel pretty good about that. In the short term, craigconnects is about me standing up for people who do really good work in areas I believe in.  Some of these are helping vets and military families, back-to-basics journalism and fact checking, open government, consumer protection, and technology for the public good.  I just did a long blog post on our craigconnects.org website talking about what we’ve done in the past year. craigconnects, in the long term, is my attempt at figuring out how to get everyone to work together for the common good. My deal is that the Internet will provide a number of platforms for making that happen. I’m giving twenty years to that effort. Tell us about your thoughts on keeping the Internet free. I know you have a strong voice on this matter. This has been quite a hot topic lately with SOPA. SOPA was about shutting down websites at the whims of the powerful, often to suppress free speech. Free speech is a big part of what a “free Internet” is about. We need to prevent bad legislation from preventing people from helping each other out. SOPA was about that. More importantly, the SOPA thing was a wakeup call for the Internet community, and we’re realizing that we need to work together to stop similar malicious efforts. As an entrepreneur named ‘ Time Magazine’s  Top 25 Most Influential People on the Web’ what 3 tips would you share with someone who wants to start their own business, online or other? Many of our readers are wannabe entrepreneurs and mompreneurs. What do you feel makes for a great recipe for business success? Well, I figure people should treat others like they want to be treated, which translates into serious customer service. Realize that you can’t make everyone happy. Do something real, and keep it simple. When are you the happiest? When I feel like I’m deeply engaged with what I should be doing with my life. I do love playing with babies, see the photos of Charlie and me on Facebook . What do you make of all this social media madness and online explosion? What’s real and what’s hyped and falsely inflated? I think it’s real and effective when done well. However, there are people professing social media expertise who lack it, yet they’re billing hours for it. People need to reality test, and also to stay the course. And finally, I often ask in my interviews, what is on your Bucket List? I don’t really have one. I’m tired. ***** About Craig Newmark, in his own words… I’m Craig Newmark. Here’s the first thing: I’m not as funny as I think I am, but sometimes I can’t help myself. I was born in Morristown, N.J., in 1952. Right now, I live in SF. There are other places I think about living, but San Francisco and I seem to be a pretty good fit at the moment. When I went to college I was going to study physics, but instead I got into computers. I had a lot of hair back then. And just like you’d expect I wore a plastic pocket protector and thick black glasses that were taped together. I earned my bachelor’s and master’s in computer science from Case Western Reserve University. I was and will always be a nerd. I was with IBM for 17 years, and then worked for GM, Bank of America, and Charles Schwab until the late 1990s. In 1995 I started helping my friends out by putting stuff together online about events in San Francisco. That project became craigslist — but who knew? Now we’re one of the 10 most-visited English language web platforms on the planet. Really not because of me, I’m really bad at business stuff, but because at least I was smart enough to hire Jim Buckmaster to run the biz and I mostly got out of the way. See, most people assume I run craigslist, but I don’t. It’s run by a small group of very smart people who have stayed loyal to the idea that it should be simple, fast, mostly free, and “bottom-up” oriented. I’ve been involved, of course. I’ve done customer service from the beginning and am committed to it forever. It keeps me anchored to reality. Beyond that, I’ve learned a lot that can be applied to the common good and I’m doing that on craigconnects . I don’t expect to be a “leader” with this thing. I’d rather be a builder. I’d like to build a way for people doing good work to connect, to learn from each other, protect each other, and then I want to get out of their way. I hope you’ll join in and help. Thanks! — I’d love to know what your thoughts.

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John Fullerton: Financial Statesmanship for a New Economy

March 21, 2012

Reactions to departing Goldman derivatives salesman Greg Smith’s ” Why I am Leaving Goldman Sachs ,” which appeared as an op-ed in the New York Times last week, have ranged from the hyperbolic — Robert Reich’s ” If you took the greed out of Wall Street, all you’d have left is the pavement ” — to the addicted — Mayor Michael Bloomberg’s “we need their taxes” (my paraphrase). Both views are problematic, as I will address. But first, some historical context: Wall Street has always been rife with conflicts of interest. Avoiding all conflicts of interest would destroy the lucrative integrated banking business model, so Wall Street has long proclaimed “we don’t avoid conflicts, we mange them.” Clearly, that no longer works. During the nearly twenty years I spent at JPMorgan (previously known as the Morgan Guaranty Trust Company of New York), the strong and principled leaders on Wall Street — names like JPMorgan’s Lew Preston and Dennis Weatherstone, Goldman’s John Whitehead and John Weinberg, and Lazard’s Felix Rohatyn — acknowledged these conflicts and took great pains to manage their firms’ affairs in such a way as to avoid even the appearance of conflicts of interest in their dealings with clients, regardless of the forgone revenue opportunities. These leaders were financial statesmen, role models for a generation. I stayed at what we now call “the old JPMorgan” (prior to the merger with Chase in 2001) for nearly two decades because of culture. It was far from perfect, but the firm had a special culture that demanded integrity and valued teamwork. “Only first class business, and that in a first class way” was a famous saying of J. P. Morgan, Jr. It is interesting to read the full context of this statement , still posted on Morgan’s website to this day. I wonder what happened to the belief that banking is a profession, as Morgan believed, rather than “just a business” as it is today. There was an arrogance about the culture of integrity at the firm when I had the privilege to work there, but it was real. I think it was also quite unique on Wall Street. But in fairness, we were served a lot of Kool-aid. When I started my career in the 1980′s, JPMorgan Chairman and CEO Lew Preston had a saying that was etched in the minds of all of us young bankers and was passed on for years after Lew’s departure in cult-like fashion: “When we make errors, let us be sure they are errors of judgment, not errors of principle.” There are no financial statespeople like Lew Preston or John Whitehead on Wall Street today, able to see that the colossal firms they oversee have become too big and complex to manage or govern. They systematically exploit conflicts of interest to the extent they can get away with it, as a central component of their business models. As society fully understands, these firms are incompatible with a resilient financial system that serves the long-term needs of the real economy. The servant has become master, confusing means with ends. But this does not mean that there is nothing on Wall Street above the pavement but greed, now or in the past, as Robert Reich suggests. There are many smart, hard working, honest people working in a system they did not create, nor particularly like. Some will walk away when they feel they can. Some like Greg Smith will leave with a bang. Many will carry on oblivious to the inevitable consequences of the system. There is no going back, too much has changed. And much of what’s currently wrong has always been there, yet on a smaller scale and therefore less dangerous to society as a whole. Looking forward, I can imagine three potential outcomes: Financial Statespeople emerge into leadership positions on Wall Street and lead these firms to a sustainable position serving the real needs of an economic system in profound need of transformation. In a letter exchange I had with Lloyd Blankfien back in 2009, I offered up such a proposal for Goldman in what I called the ” Goldman Sachs Historic Restructuring Speech “. While I never expected Blankfein to have the courage to follow my (unsolicited) advice, I also never could have imagined that he would subsequently embarrass himself and the entire industry trying to defend a truly sinister transaction like “Abacus” in front of the US Congress. A second outcome where governments restructure the industry by placing hard lines that eliminate the biggest conflicts of interest while downsizing the speculative casino to the safe side show it should be appears equally unlikely at this time. But it remains a possibility, even if politically unlikely given Wall Street influence in Washington. The third and unfortunately most likely outcome is that the bankers win in the short term and we continue to subsidize what are otherwise unsustainable business models and the bonuses they throw off, making it hard if not impossible for healthy alternatives to emerge at a scale that matters. In fact, the regulations imposed will have the perverse affect of making it even harder for new entrants to compete away the business of the entrenched due to the high compliance costs that only the giants can absorb. In this scenario, we inevitably drive headlong into the next financial crisis with further economic violence done to people in the real economy. Which finally brings us back to Mayor Bloomberg’s “we need the tax revenues” reaction. Bloomberg has been a good mayor in my opinion, perhaps a great mayor. He is a strong leader. Yet his response reveals how much trouble we are in, particularly looked at from a financial center like New York (or London), but also true when looked at from the unsustainable underfunded pension obligations of many states in the union. We have become addicted to speculative finance to achieve unsustainable financial returns to keep the entire system from imploding under a mountain of unserviceable liabilities right at the time when resource constraints will make it harder for the developed economies to grow out of these debts, debts made far worse by the inevitable crashes that the unsustainable system perpetuates. It’s time for financial statesmanship to emerge on Wall Street. Surprise us.

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Simon Johnson: Fiscal Affairs: "JOBS" Disaster Looms

March 21, 2012

The House “JOBS” bill is a thinly disguised repeal of investor protection in the United States. This legislation would help unscrupulous people in the securities industry, but it would be bad for nonfinancial businesses — by raising the risks to investors, it would push up the cost of capital for honest entrepreneurs. Investment professionals belonging to the CFA Institute have expressed their serious concerns and strong opposition. Attempts to amend this legislation — and to make it more sensible — failed in the Senate yesterday. The Senate will vote today on whether to adopt the main provisions of the House bill. Passing this bill would be a major public policy mistake — akin to the disastrous (and bipartisan) deregulation of the financial sector in the 1990s. This kind of excessive deregulation leads to disaster — and to fiscal crisis. (For more background and the historical comparison, see this piece .) President Obama claims he wants strong investor protection. Where is he on the specifics of the JOBS bill? Why is the White House staying so much on the sidelines during this critical Senate process? The president should rally Democratic Senators against the House bill and press again for an amended and more responsible piece of legislation. If the Republicans refuse to agree to sensible investor protections — flying in the face of American tradition and established best practice (and lessons learned the hard way in the Great Depression) — that is a great issue for the general election in November. Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You , available from April 3rd. This post is cross-posted from The Baseline Scenario .

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Bill Bartmann: It’s Time for a "Regulatory Cocktail" Against Unethical Debt Collectors

March 21, 2012

Medical researchers came up with a breakthrough in the 1980s in their quest to cure patients of HIV. They developed the Highly Active Antiretroviral Therapy, which non-scientists called a “drug cocktail.” Even though any single medicine was not powerful enough to cure people with HIV, it was discovered that the right cocktail of drugs could be highly effective. Many U.S. attorneys general are working with each other and with the federal government to employ the same strategy to control and eventually eradicate the scourge that is unethical debt collectors, because just one strategy alone seems not to be enough. West Virginia Attorney General Darrell McGraw saw how the settlement against a major debt collector in a class-action lawsuit would pay out a lousy ten bucks per victim. Exercising his rights to protect the citizens of West Virginia, McGraw then brought his own suit against the company for using false affidavits when obtaining default judgments against West Virginians and for not including necessary details when suing consumers. Attorney General McGraw said : Many consumers are frightened or unaware of their rights when they are sued and fail to respond to these groundless lawsuits, leaving them subject to judgments on debts that cannot be proved. Companies such as Midland rely upon this fear and typically drop their lawsuits if consumers know their rights. Minnesota Attorney General Lori Swanson is prosecuting agencies who work with attorneys to scam consumers. Debt-settlement companies align themselves with lawyers so they can use official-looking letterhead to collect fees up-front for promising to help consumers with their overwhelming debts. Then they fail to deliver, leaving the consumers in even-deeper debt. Attorney General Swanson said : “It’s particularly galling. Here you’re seeing people who have a special privilege — the privilege to practice law — abusing consumers who are down on their luck.” Illinois Attorney General Lisa Madigan is going after lawyers who specialize in requesting arrest warrants for consumers behind on their bills. One example is a 53-year-old woman who was stopped for a broken taillight. When the police ran her name, she was handcuffed in front of her kids and hauled away for a $2,200 debt that had turned into a default judgment. The Wall Street Journal surveyed just nine counties in the U.S. and found more than 5,000 such arrest warrants issued since 2010 for debt-related cases. Attorney General Madigan said: “We can no longer allow debt collectors to pervert the courts.” Texas Attorney General Greg Abbott has gone after multiple debt-collection companies, including one whose employees took the arrest-warrant threat to a whole new level. Their employees claimed to be associated with law-enforcement agencies and the IRS. They would insist that consumers pay their debts or risk facing arrest, prosecution, and imprisonment. Massachusetts Attorney General Martha Coakley is onto the game some debt collectors play of threatening consumers with legal action while hiding the fact that the debt is “time-barred”; in other words, the debt has passed the statute of limitations for any legal action. Her amended regulations would require that consumers be informed of that fact. Ohio Attorney General Mike DeWine has banded together with 18 other states to go after NCO Financial, a large debt-collector, for a whole range of violations, including extracting money from consumers for debts they did not owe, and charging excessive interest. Ohio has a tradition of pursuing debt collectors. As Attorney General in 2010, Richard Cordray investigated two other debt-collection firms, and now he heads the Consumer Financial Protection Bureau. He therefore has first-hand knowledge of the games debt collectors play. No doubt that is why Director Cordray has already proposed regulations that would involve on-site federal inspection of the top debt collectors representing 63 percent of collections in the U.S. More bad news is in store for crooked debt collectors. Recently, state and federal officials gathered to announce the $25 billion mortgage-servicing settlement. Attorney General Lisa Madigan used that event to reinforce the regulatory cocktail that’s being assembled against the worst debt collectors: Know that this is neither the beginning nor the end of our work to hold banks and other institutions accountable…. Today’s settlement should serve as a warning for financial institutions: there are consequences for engaging in practices that jeopardize the stability of our communities and our economy. Bill Bartmann is CEO of CFS II, a debt-collection company. His companies have helped to settle debts of more than 4.5 million people without ever filing suit against a customer.

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Shira Lazar: How Office Star Rainn Wilson Is Bringing Soul to YouTube

March 21, 2012

Rainn Wilson, the star of the NBC comedy The Office and creator of Soul Pancake, sat down with me at SXSW to talk about how he’s built his passion project SoulPancake.com into a real business with soul. Wilson describes the site as an “online community for people who want to explore life’s big questions, philosophy, spirituality, and creativity.” Soul Pancake was recently given an investment from YouTube as part of their $100 million dollar fund. He shared some of their programming details (talking to rock bands about life’s big questions and having a storyteller travel around the world) and what this disruption means for traditional entertainment. Wilson also admitted to us that “every time I strangle a cat, I think about it’s soul.” Check out the rest of this awesome interview here:

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Patrick FitzGerald: Conversations Every Entrepreneur Should Have

March 21, 2012

You have an idea and you’re quite sure it’ll be successful. It might revolutionize the way people shop, eat, exercise, sleep, watch tv, you name it. What’s next? Before you embark on writing that business plan or applying to business school, take some time to talk. To whom? Everyone. Talk to your family: Your family, for better or worse, knows your flaws, strengths, weakness, and desires. For the most part, they also have carte blanche to be perfectly honest. Entrepreneurship isn’t for everyone but the freedom, self-expression, and potential rewards are quite attractive. As you walk your family through your idea though, they will, and should, undoubtedly be more worried about your sanity than your concept’s clarity. How will you make money, who will pay your bills, why would you quit your current job? These are all super relevant issues that you need to have a handle on or at least be able to wrestle with. Proving or pitching to your family that this is the right move is usually a good, safe environment in which to work on your convincing and salesmanship skills. Ultimately, familial support of your entrepreneurial endeavor will come around. Talk to your friends: Similar to your family, your friends know what makes you tick. Even more so, most people, friends included, will have a skeptical view of your concept. It’s human nature. Your friends will likely tell you all of the reasons why it’s a bad idea, what’s wrong with it, and why it won’t work. Don’t shy from this. Once you’re past the family threshold, it’s your job now to convince your circle of friends of the validity. Some won’t get it (frankly, due to latent jealousy of your entrepreneurial gusto). Others will, but they will put you through the ringer. All in all, you’re not out to convince all of your friends but the honest feedback , suggestions and reminders are valuable and most of all free. Talk to your potential customers: Far and away, this remains the ultimate challenge. More often than not, budding entrepreneurs spend an inordinate amount of time writing business plans, research industry trends, obsessing over real and imagined competitors and basically avoiding the obvious. While there is a natural fear towards pitching your idea too early, the best and most obvious form of information will be your potential audience. Talk to them about their business. What are their struggles, concerns, needs, and demands? If you’re lucky, you will hear your solution embedded in the conversation but ultimately you will learn more from these conversations than you will from anything else. It’s important to properly prepare your business by doing research, understanding your timeline and roadmap, and focusing on your product’s flaws and strengths. However, as you’re doing so, take some time to talk to your family, friends and customers. These are the best conversations you’re likely to have.

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Lloyd Chapman: The Best Way for Congress to Help Small Businesses is to Not Close the Small Business Administration

March 21, 2012

While Congress and the Senate are churning out a number of bills to project the appearance that they are helping small businesses, they are ignoring the largest problems facing America’s more than 28 million small businesses . Small businesses employ over half the private sector workforce, are responsible for over half the GDP and 90 percent of all U.S. exports, and according to the U.S. Census Bureau, create over 90 percent of net new jobs . A study by the Kaufmann Foundation found that small businesses have created virtually 100 percent of all net new jobs since 1980. Conversely, that means Fortune 1000 firms haven’t created one net new job in over 30 years. However, on January 13, 2012 President Obama held a national press conference to announce plans to combine the Small Business Administration (SBA) with the Department of Commerce and four other federal trade and commerce agencies — a move that any Washington insider can tell you is a trick to close the agency and wind down all federal programs for small business, woman-owned firms, minority-owned firms and veteran owned businesses. The stupidest thing that our government can do, with our country in the grips of the worst economic downturn in 80 years, is to close the only federal agency that helps America’s 28 million small businesses. But my guess is that is exactly what they’ll do because the giant corporations that own our politicians want every penny the government spends, even if it destroys our national economy. In fact, they’ve been trying to close the SBA for decades. Republicans in Congress have been trying to close the SBA by combining it with other agencies since Ronald Reagan was president. Reagan tried twice. His 1985 budget proposed abolishing the SBA and his budget director David Stockman tried to convince the Senate to close the agency as well. In 1996, House Republicans authored a bill to combine the SBA with the Department of Treasury. The Bush Administration cut the SBA budget by more than 60 percent and tried to close the SBA by combining it with the Department of Commerce. In August 2011, Republican Sen. Richard Burr also proposed legislation to close the SBA , again by planning to combine it with the Department of Commerce. And now, President Barack Obama is proposing to do the same thing, which threatens every federal program designed to assist small businesses. I believe that Republicans over the past three decades and now President Obama are using the proposal to consolidate the SBA as a ruse to wind-down federal small business contracting programs that mandate that 23 percent of all federal contract dollars must go to small businesses, including 5 percent go to women-owned businesses, 5 percent go to minority-owned companies and 3 percent to veteran-owned companies. By winding down these federal small business contracting programs, large businesses — which are some of the largest contributors to political campaigns every year — stand to gain billions in federal funds meant for small businesses every year. The second major problem Congress is refusing to address is the fact that since 2003, over a dozen federal investigations have found that the overwhelming majority of federal contracts reported by the SBA to be going to small businesses are actually winding up in the hands of some of the largest companies in the world. In 2005, the SBA Office of Inspector General (SBA-OIG) released report 5-15 , which described the diversion of billions of dollars a month in federal small business contracts to corporate giants as, “one of the largest challenges facing the Small Business Administration and the entire federal government today.” President Obama recognized the magnitude of this problem in February 2008 when he released the statement : Helping small businesses is part of our movement for change and the end of politics as usual. 98 percent of all American companies have fewer than 100 employees. Over half of all Americans work for a small business. Small businesses are the backbone of our nation’s economy and we must protect this great resource. It is time to end the diversion of federal small business contracts to corporate giants. However, since taking office, President Obama has failed to adopt even a single policy to end fraud, abuse and loopholes in federal small business programs. In fact, many of his policies will dismantle or weaken federal small business contracting programs. For example, the latest data from the Federal Procurement Data System indicates that, of the top 100 firms that received the highest dollar amount in federal small business contracts in fiscal year (FY) 2011, 72 of those companies were actually large companies, including some of the largest corporations in the world. On Sept. 9, 2011 the Obama administration also announced plans to dismantle a federal contracting program originally established through the efforts of Martin Luther King Jr. and the passage of the Civil Rights Act — a move that could economically devastate minority communities. The Obama administration’s proposal is to end federal programs that establish, for the Department of Defense (DOD), NASA and the U.S. Coast Guard, a five percent federal contracting goal with minority-owned small businesses. If Congress really wants to help small businesses, it’s really simple: 1) Not only should they vote to not consolidate the SBA with other federal agencies… 2) …They should reopen all the SBA offices around the country that closed during the Bush administration and provide the SBA with the kind of budget that the only agency that exists to help small businesses should receive — somewhere in the neighborhood of $4 billion dollars a year, as opposed to the less than $1 billion it currently receives in annual funding. And 3) Congress should pass H.R. 3184, “The Fairness and Transparency in Contracting Act,” which would prevent publicly traded corporations from receiving federal small business contracts. Here’s my guess — sadly you won’t see any of my recommendations happen because the corporate giants that are hijacking tens of billions of dollars worth of federal small business contracts a year are the ones that decide which legislation gets passed and who gets elected to Congress. They’ve spent millions in recent years lobbying Congress. That’s why even though the SBA Inspector General recently testified before Congress that the diversion of federal small business contracts to large companies is currently the number one management challenge facing the SBA, and has been for the last seven consecutive years, it is unlikely that Congress will act to end the rampant abuses that have cost our nation millions of jobs. The House Small Business Committee even proposed cutting the SBA’s FY 2013 budget by $10 million dollars in a recent markup . With our country already in the grips of the worst economic downturn in 80 years, the best way to ruin the economy is by destroying all the federal programs that exist to help small businesses. Small businesses are proven to be this nation’s chief engine of economic stimulus and job creation but President Obama plans to close the only federal agency that exists to help America’s 28 million small businesses. Anyone running for a top political office, who doesn’t have a plan to help the nation’s 28 million small businesses and end the diversion of federal small business contracts to corporate giants, doesn’t deserve to serve in the White House or Congress.

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David Isenberg: PSC = Privateering Security Contractor

March 20, 2012

If you follow maritime news in even the most cursory fashion you’re likely aware that, due to attacks by Somali pirates, that private security companies are increasingly involved in protecting commercial shipping against pirates. That in itself is not news. But current efforts are still embryonic. Despite the rush of companies into the briny blue to win contracts, the drafting of standards by their use, and the acceptance of at least some governments to their use, the utilization of PSC is still largely the result of an agreement between a maritime shipper and a PSC. But that is sort of a maritime beggar they neighbor policy. It works okay for the leading shippers who have money to spend on security but not so well for those who don’t. It is similar to the old joke about the justice system: “Capital justice is for them who have the capital.” But can PSC do even more? The answer is yes, according to Todd Hutchins, a U.S. naval Surface Warfare Officer. Last year his article ” Structuring a Sustainable Letters of Marque Regime: How Commissioning Privateers Can Defeat the Somali Pirates ” was published in the California Law Review . His premise is that piracy is a complex problem that threatens maritime safety and interferes with global commerce. Today, despite costly naval interventions, Somali pirates viciously attack seafarers across expansive stretches of the Indian Ocean. Powerful nations from around the globe have been unsuccessful at stemming the problem because they have focused on capturing and prosecuting a relatively small number of seagoing pirates, while allowing pirate networks to operate with near impunity. To prevent future attacks, an effective and sustainable deterrence regime must be implemented to target the financiers and sophisticated kingpins who lead pirate networks. What is his solution? In a Back to the Future approach he wants to use a classic solution — privateers . This is not only a private sector alternative with a long and honorable tradition, combining profit and patriotism, but is one that is expressly allowed under the U.S. Constitution; Article 1, Section 8, Clause 11 — [Congress shall have Power...] To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water. Hutchins notes that, scholars have considered the possibility of issuing letters of marque to private actors as an antipiracy strategy. He further develops the concept by considering how such a legal framework could be structured under both domestic and international regimes, and how it might effectively deter pirates while adequately compensating and controlling privateers. But unlike other scholars, he proposes establishment of an international system of issuing letters of marque. This approach would build on the current multilateral antipiracy efforts underway in the Indian Ocean; avoid questions of legitimacy or international wrangling over the illegality of privateer actions, and enable individual nations to avoid becoming entangled in fighting and prosecuting pirates. More on that in a moment but first consider the economics of the issue. He notes that the current approach is economically foolish. Thus far, the response to Somali pirates has focused on utilizing large naval warships to patrol the seas off Somalia. At present, thirty nations (deploying over forty naval vessels) patrol the Gulf of Aden. The costs are staggering. According to United Nations Under-Secretary-General Antonio Maria Costa, a single naval vessel off the Somali coast costs $ 100,000 a day, and the aggregate annual operational cost of all the nations patrolling is about $ 1.5 billion. These figures far surpass the ransoms paid to pirates, which raises the question: Why do the European Union and the United States allocate scarce resources to the problem when their economies are in shambles? It is important to remember that Hutchins is not advocating the use of armed security teams aboard ship, which has become a new market segment of the PSC industry. He writes, “While this option might be less costly than stationing a naval fleet in the area, it is still prohibitively and unnecessarily expensive. Already operating with almost no profit margin due to the global recession, shippers would have difficulty assuming these additional costs. Moreover, teams on every ship would be extraneous since pirates attack very few of the 20,000 ships transiting the Gulf of Aden.” Instead, he is advocating something more ambitious; a strategy for proactively dismantling pirate networks and uprooting the kingpins that fund, direct, and profit from piracy. Thus he believes the solution to piracy in the waters off of Somalia may lie in letters of marque, which are legal authorizations enabling private entities – privateers – to use force on behalf of the state to harass or prey on vessels belonging to foreign nations or individuals. This is not the place to go into detail on letters of marque though their use goes back centuries both in the United States and other countries. Although privateers fell out of use starting in the mid-nineteenth century they did not become extinct. And in recent years there have been calls to rely on them again. After the 9/11 attacks, Congressman Ron Paul suggested issuing letters of marque against terrorist assets. He argued that using private forces to hunt terrorists would be more advantageous and cost-effective than war or regime change. His Marque and Reprisal Act of 2001 classified the attacks of 9/11 as “air piracy” and directed the president to issue letters of marque against Osama bin Laden. Congress did not enact the proposed law. In 2007, Ron Paul again introduced the Marque and Reprisal Act authorizing and requesting the President to commission, under officially issued letters of marque and reprisal, so many of privately armed and equipped persons and entities as… the service may require, … to seize outside the geographic boundaries of the [United States] and its territories the person and property of Osama bin Laden. On April 15, 2009, Congressman Paul again advocated issuing letters of marque, this time to “Special Ops/Special Forces operators who are ready, able, and willing to have a go at the Somali pirates.” This proposal was in keeping with the traditional understanding of letters of marque and privateers under international law. But Congress failed to act on this proposal. Hutchins says a new Letters of Marque regime is required because: Since the Somali government lacks law enforcement capacity, foreign diplomatic measures will have little effect on changing the behavior of Somali citizens. Moreover, pirate networks operate across an expansive geographic range through a network of specialized nodes for command and control, logistics, financing, and recruitment. Wartime strategies, such as coastal bombardment of pirate bases or shore invasion, would result in heavy casualties. The possibility of military occupation to restore law and order seems unlikely, especially given the strong public sentiment against intervention after Iraq, Afghanistan, and failed past engagements in Somalia. Patrolling millions of square miles of the Indian Ocean would be impracticable and cost-prohibitive for the U.S. Navy and its coalition partners. Allowing private professionals to operate against pirates under letters of marque is consistent with the international law of reprisal and is permissible as individual or collective self defense. ***** Since privateers conduct operations on behalf of governments, essentially functioning like military vessels, they would be entitled to board, search, and seize pirate vessels. Consequently, if privateers discovered evidence of piracy onboard a suspect vessel, they could seize the vessel, arrest persons on board, and subject such persons to the jurisdiction of the courts of the state that issued the letter of marque. Under the principle of universal jurisdiction, the state that issued the letter of marque could also take any assets of pirates and their backers within the state’s territorial jurisdiction. Prosecuting individual Somali pirates, particularly the increasing number of minors, is not nearly as important as crippling the global network of financiers, backers, and negotiators. Issuing letters of marque allowing privateers to seize assets, such as ships, high-speed engines, weaponry, and telecommunications equipment vital to the operations of pirate backers would be a cost-effective way to halt their operations. Privateers could proactively seize pirate skiffs and mother ships with ties to the gangs from pirate controlled cities, such a Eyl and Hadahere, as they leave port. Seizing these hard assets would be more effective than prosecuting personnel. So how do today’s private contractors play into this? Since states have a right under international law to hire contractors and private individuals to support their military efforts, it seems reasonable that international authorities would be entitled to do the same. Private security forces have played an increasingly important role in modern conflicts – in some instances performing functions nearly identical to their uniformed counterparts. For example in Iraq, private contractors have defended bases, trained the Iraqi army, and interrogated prisoners. Letters of marque do not alter these recognized roles, but rather change the way the government compensates contractors, allowing private enterprises to collect payment through prize courts. A new letters of marque regime would not alter the practice of employing contractors, but would merely alter their form of compensation. Of course, given the problems that have cropped up in recent years with private security contractors in Iraq and Afghanistan there are concerns about control and accountability of modern day privateers. Hutchins notes steps Congress could impose additional qualifications on the conduct of privateer operations. Privateers should be required to provide a large bond to cover payments for any vessels or persons improperly seized. This would discourage unlawful takings. Additionally, privateers should be required to provide justification to regional military commanders via satellite phone, stating the evidence that a particular vessel may be involved in piratical activities. Alternatively, when military commanders glean information about pirate movements from ground intelligence or unmanned aerial vehicles, they might direct privateers to specific targets. Another approach would be to require privateers to seek judicial permission – similar to a warrant – from an international tribunal or domestic court prior to attacking a suspected target. These measures would reduce the possibility of mistakenly taking innocent vessels. Authorities could also specify disciplinary actions, such as criminal punishments, sanctions, and forfeiture of bonds for privateers that misbehave. Further, in a domestically administered system, subjecting modern privateers to the Uniform Code of Military Justice, as Congress has done with contractors engaged alongside U.S. forces in combat, and with privateers in 1812, would reinforce their subjugation to military authorities. Hutchins also thinks that steps can be taken to incentivize privateers because, let’s face it, there’s no money in just capturing a pirate skiff or mother vessels But there are bounties and rewards, which likes letters of marque, have a long and honorable tradition. During WWI, British sailors were entitled to receive a bounty, even for missions on land. In America, the Continental Congress paid a bounty of twenty dollars per cannon and eight dollars per man captured. Recognizing the need to incentivize actual military effectiveness, Congress passed the Bounty Act as one of its first bills after the Constitution was ratified. Under the Bounty Act, the U.S. government paid sailors bounties for taking enemy prizes. The Supreme Court upheld the payment of substantial bounties to persons responsible for the capture or destruction of enemy fleets. After all, the U.S. government uses bounties to encourage the enlistment of private citizens in law enforcement activities, such as bail enforcement officers — also known as bounty hunters. There was a twenty-five million dollar bounty on Osama bin Laden. Privateers will be motivated by a bounty whether funded by the public coffers or via collections from civil penalties against pirate assets. Issued in tandem with bounties, letters of marque provide an efficient way to confiscate pirate vessels prior to attacks. Furthermore, letters of marque also provide a method of seizing or destroying land-based assets used by pirates in their “ports.” Prize jurisdiction extends to seizures made “in ports,” and such jurisdiction does not end merely because the goods have landed. Case law suggests privateers can use letters of marque to seize and destroy the land-based assets of pirate kingpins located near the shore. Finally, letters of marque allow for the seizure of pirate leader assets on behalf of the issuing nation so letters of marque enable enforcers to broadly target the pirate network kingpins, who have amassed fortunes. According to experts, “the commanders and generals – the financiers and the organizers behind it all – are in Dubai, Nairobi, Mombasa, and even Canada and London, sitting in their hotels, communicating via laptops, and making big money.” These ringleaders have turned regional piracy into a global criminal enterprise and are conducting intelligence gathering in the heart of the shipping community and at the Suez Canal. They also have significant U.S. assets and are rumored to be wealthy and well educated. Observers suggest that current strategies, which focus on seagoing Somalis, neglect the leaders who command and control pirate operations. Intelligence officials have long known that “Somali pirates do not randomly attack vessels in the Gulf of Aden and Indian Ocean; they rather select their targets via the help of a London-based consultant group.” These international backers are largely responsible for the growth of piracy as they finance operations and provide logistical support. They also profit the most, taking the lion’s share of ransom payments. Over the past decade they have likely amassed hundreds of millions of dollars from ransom payments. Letters of marque would allow privateers to seize these assets, providing them with a lucrative incentive to attack the piracy problem at its root.

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Judith Samuelson: Can Goldman Sachs Find Its Purpose?

March 20, 2012

A teacher at a prominent business school takes her students through a simple exercise each semester. Every student must register a new company, which means paying a $60 fee and describing the new enterprise’s purpose on a form. The professor’s teachable moment in this: Purpose is the starting point, and as the principal of the business, you get to decide. Although Goldman Sachs may have stated a purpose at its 1869 founding, executive Greg Smith’s recent resignation letter , and the stir it has caused, offers the chance to hit the pause button and ask, once again, “What is the Purpose of Goldman Sachs?” It’s an important question for all businesses to ponder, because purpose is the organizing question for everything that comes after that — vision, strategy, business plan, metrics. One executive I know thinks in terms of inputs and outputs. The purpose and vision and strategy are the inputs. Attracting and aligning talent to fulfill the vision and strategy is key to your success. If you succeed at building a culture that is aligned with the purpose, including giving careful thought to the hallmarks of success and metrics of progress — then the outputs are the goods and services rendered, and profits, and other forms of measurable value. Purpose is an input. Profits are an output. When profits get confused with purpose, that’s when the problems begin. I don’t know how Goldman Sachs will answer its own purpose question. I think it is clear that “Wall Street” as an industry has become too focused on success on its own terms, rather than in service to Main Street and the long term health of the economy and society. The implications of this are significant and have been playing out for over a decade. Further, the news from Washington suggests we will fail at righting the ship through the give and take of the political process and regulation. What can be done? In the closing chapter of The Big Short , author Michael Lewis makes the case that the turning point for the industry was when the storied partnerships of yore went public — replacing the culture of “My Partner’s Money Is At Risk” with one that plays with Other People’s Money. Paul Volker made the same case after the Goldman resignation letter went viral. But that genie is out of the bottle. Could Goldman lead the way and get us back on track? I can’t think of a better place to start. Imagine what might be possible if this talent-rich and influential institution put service to clients and society back at the center of the bull’s eye and then — importantly — modeled for the whole industry the strategy and incentive systems to make it stick. Goldman has lots of reasons today to take a bold step. Last week, DealBook circulated a story about a softening of interest in Wall Street offers at top business schools and colleges. On the Street, like in any service industry, it’s all about the talent. Millennials want more from their jobs. The rest of us need our best talent assigned to the right problems. This is a teachable moment. Goldman has everything it needs to move to the head of the class.

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Robert Weissman: The Summers of Our Discontent

March 20, 2012

“Just between you and me, shouldn’t the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?” Do those sound like the words of a man who should be running the world’s leading economic development institution? They don’t, but the man who put his name on the memo in which those words appeared — Lawrence Summers — does in fact appear to be the Obama administration’s leading candidate to head the World Bank. For the sake of hundreds of millions of people for whose lives and life chances are shaped in some significant part by World Bank policy, please urge President Obama not to nominate Larry Summers to be World Bank president. The World Bank is supposed to be the development bank for the world’s poor. It has a very poor record of fulfilling its mission — precisely because it has pushed the kind of deregulatory policies that Summers has advocated. By indefensible tradition , the United States is given the power to name the Bank’s president, and it has always named an American — even though the Bank is governed by a board that represents the world’s nations, and the Bank’s mission is to serve poor countries. In 2005, the Bush administration named neoconservative Paul Wolfowitz to run the Bank. That ended in disaster, when Wolfowitz was forced to resign amidst a personal scandal. It’s hard to imagine the Obama administration is on the verge of making a similarly outrageous pick to head the Bank, but that seems to be the case. What’s the matter with Larry? Consider his public service career. As chief economist at the World Bank, Summers authored (or at least put his name on) a 1991 internal memorandum that argued for the transfer of waste and dirty industries from industrialized to developing countries. “Just between you and me, shouldn’t the World Bank be encouraging more migration of the dirty industries to the LDCs (lesser developed countries)?” wrote Summers. “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that. … I’ve always thought that underpopulated countries in Africa are vastly under polluted; their air quality is vastly inefficiently low [sic] compared to Los Angeles or Mexico City.” Summers later said the memo was meant to be ironic, or a thought experiment. What Summers never explained was how he disagreed with the memo’s “impeccable,” if ironic, logic. Indeed, that kind of logic has guided World Bank policy for decades, as it has pushed deregulation, privatization and corporate globalization, with horrific results. The Bank needs as its leader someone who categorically rejects this way of thinking. As Deputy Secretary and then Secretary of the Clinton administration Treasury Department, Summers helped lead the deregulatory charge that enabled the financial crash of 2008 and the Great Recession. Among his notable achievements was stifling the efforts of Brooksley Born, then head of the Commodity Futures Trading Commission, to investigate and regulate the trade in financial derivatives. The trade in unregulated financial derivatives amplified the financial crisis far beyond the unavoidable troubles connected to the popping of the housing bubble. AIG made aggressive bets on credit default swaps that went bad with the housing bust, and led to a taxpayer-financed rescue of more than $130 billion. AIG was able to put itself at such risk because its CDS business was effectively subject to no governmental regulation or even oversight — a direct result of the efforts of Summers and his confederates in the Clinton administration. In recent decades, blind financial deregulation has contributed to a long series of financial crises with absolutely catastrophic results in developing countries. The World Bank does not need a financial deregulator as its leader. As Harvard University president, Summers set records for offending vast portions of the faculty . He also provoked a firestorm with comments suggesting that innate differences helped explain why relatively few women have top scientific positions. Effectively running the World Bank requires managing a vast bureaucracy and dealing sensitively with diverse global constituencies. The job requires finesse, about the last word anyone would use to describe Summers. The job also requires someone able to function as an advocate for women’s empowerment, given the gendered inequality and power imbalances in the global economy. The history is not yet written on Summers’ role in the Obama administration. What is clear is that the Obama economic team both failed to deliver a large enough stimulus plan to address the economic and jobs crisis it inherited, and that the administration made a political decision to coddle rather than confront the Big Banks and Wall Street interests responsible for the mess. Not exactly the kind of performance that recommends being given the top job of dispensing economic advice to developing countries. The World Bank has its own colossal failures to answer for. For 40 years, it has promoted a brand of market fundamentalism that has served rich corporate interests but impoverished hundreds of millions in the developing world. Bank-imposed privatization and downsizing of the public sector has left poor countries unable to educate their young, treat the sick or build up their economies. The Bank’s penchant for mega-development projects has devastated ecosystems around the world, destroyed the livelihoods of millions of indigenous people and small-scale farmers and set developing countries on dirty and unsustainable energy pathways. Yet for all its failures, there are many very good and committed people at the World Bank, and the institution exerts a dominant role in policymaking in poor countries. Who runs the World Bank makes a lot of difference. The people of the developing world deserve a lot better than Larry Summers. Unfortunately, those people have no power to determine who will run the Bank. People in the United States do. Tell President Obama not to nominate Larry Summers to head the World Bank.

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James Perry: Banks Could Learn a Thing or Two

March 20, 2012

Plunging from revered financial arbiter to America’s anathema — the lending industry has descended in dramatic fashion. Expressions of lending industry scorn are now standard fodder in a near constant flow of blogs, newspaper articles, editorials, evening news reporting and cable news analysis. Consumer scorn is not only shared around kitchen tables, places of worship and work place water colors, rather, it is embodied in the Occupy Movement. In fact the movement so embodied the public’s disdain, that at the urging of the Occupy Movement, people en masse closed bank accounts at major banking institutions and opted for credit unions. Arguably, in the last ten years we have not seen a more visceral example of capitalism gone awry. Lending institutions got away from core business principles that required fiscal soundness, conservative growth, honesty in business and a recognition of the interconnectedness of profitability and community. The principled belief that a stronger local, state and national community results in a stronger more consistent bottom line for lending institutions is not just feel good chatter. In fact, the existence of lending institutions relies upon this business principle. If lenders strip all equity and worth from communities then they end up destroying the very source of their income and ultimately, their entire business. Regrettably, we have seen lending institutions all too eager to feast on the hen that lays the golden eggs. It was the cause of the tumult and eventual ruin of Lehman Brothers, Country Wide Mortgage, AIG and others. Perhaps a refresher course in the form of a business school style case studio would do well by CEO’s of top lending institutions. Enter Kiva New Orleans . Kiva New Orleans is a non-profit small business lender where quite literally, you make the loan. Any and everyone in the world, can visit the Kiva web site and loan capital to small businesses. Here’s how it works . Interested small businesses and entrepreneurs, are counseled and qualified by business experts. Once qualified, they post information about their business model and the exact purpose and goal for the loan on the Kiva website. In the post, they explain their business model and loan repayment strategy all with an eye toward persuading site visitors to loan them the capital necessary to make their business grow. Visitors to the Kiva site commit $25 to $250 pooling as much as $10,000 to capitalize the proposed project. The small businesses then make use of the capital and repay the loan over 24 to 36 months. Kiva businesses have a 98.91 percent repayment rate . So clearly Kiva lenders are not the typical bunch of Armani wearing Wall Street money guys. Instead regular people looking for a chance to help community while simultaneously generating income examine business proposals and build their own loan portfolios. Kiva, has been operating since 2004 lending more than $ 293 million over only eight years . Seeing a need for community minded capital in the United States of America, Kiva decided to launch loan projects in Detroit and New Orleans . The results have been incredible. I interviewed staff of Kiva New New Orleans and found out that in only 6 months, 32 area small business entrepreneurs received loan capital, totaling $272,500. 100 percent of these businesses are minority-owned. 66 percent are women-owned. 57 percent are start-ups. 88 percent are low-income. And amazingly, but not surprisingly, 100 percent of these minority small business entrepreneurs were turned down for loans from traditional funding sources… you know, the Armani Suit Wall Street types. So there is a clear lesson to be learned from the greed induced profit by any means lending model that has spurred a financial crisis inducing massive home foreclosures and nearly bankrupting America. Respect and compassion for community is a requisite ingredient in the mixture that constitutes responsible lending. A business model that destroys the very thing that sustains it, will fail in the long term. The Kiva approach proves that real people get it. It is only the Wall Street types whose hunger for profitability leads them to devour the hand that feeds them. And while recent $25 billion dollar fines paid by major actors in the lending crisis may send a strong message. It surely is not enough. In fact the entire lending system may need to be retooled. And I know that I suggested a business school refresher course for big bank CEO’s, but maybe I was wrong. Perhaps what they really need is a good old talking to by some the regular people who made loans through Kiva to grow business and make community strong.

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David Halperin: Leaked Memo Reveals That House GOP Leaders "Directed" For-Profit College Lobbying Strategy

March 20, 2012

For-profit colleges like ITT, DeVry, Kaplan, and the Art Institutes — sometimes called subprime schools because they leave many students deep in debt while taking billions of dollars from taxpayers — continue an expensive lobbying push to influence Congress and avoid accountability. Republic Report has received a 2011 draft strategy memo by the biggest for-profit college trade association, APSCU, outlining a plan to keep taxpayer money flowing to poorly-performing schools and to derail investigations of fraudulent activity. The six-page APSCU draft document reveals: The group’s strategy for passage of key bills in Congress was “directed by” the “House Republican leadership.” APSCU appeared to closely integrate its efforts to get favorable votes in Congress with its political strategy of donating to Senate and House candidates and influencing elections — a clear, and troubling, illustration of how the wealthy for-profit education industry uses its financial muscle to avoid federal accountability, despite overwhelming evidence that many schools in the sector engage in waste, fraud, and abuse with taxpayer money. Faced with a significant effort by Kentucky Attorney General Jack Conway to investigate abuses by for-profit schools, APSCU planned to “seek opportunities to isolate Conway efforts” from other state attorneys general. A source with knowledge of the industry confirmed the authenticity of the June 2011 draft memo, a “100-Day Plan” for the organization, and said that the memo was an accurate account of APSCU strategy and plans. According to the draft, the memo was requested by the APSCU board chair, Art Keiser, CEO of Keiser University, in the wake of the resignation of APSCU CEO Harris Miller. The memo was addressed to the APSCU board of directors from Brian Moran, then serving as APSCU’s interim president and now its executive vice president of government relations and general counsel (and also the chairman of the Virginia Democratic Party). (Miller was forced out of the job after a series of missteps, including an ill-advised parody video uploaded to YouTube and reposted by the Democratic blog Blue Virginia.) While it is unclear who drafted the memo, and it is clearly labelled a draft, those making edits on it included then-senior vice president for communications Bob Cohen, as well as several APSCU staff members who focused on Congress and on federal regulation. You can read the full document here . In a discussion of APSCU’s legislative strategy, the memo addresses a bill to repeal Obama Administration rules that would tighten standards regarding credit hours and ensure at least minimal oversight by states of schools receiving federal aid. The memo states, “As directed by House Republican leadership, we will reinforce the traditional sector’s support for the bill with House and Senate.” The traditional sector refers to non-profit and public colleges, some of whom also opposed these Obama rules. It’s fascinating to learn that not only does the House GOP membership vote with near-unanimity to shield the for-profit college industry from accountability, but that the Republican leadership is so helpful that APSCU sees GOP leaders as “directing” aspects of the industry’s legislative strategy. (This bill did pass the House , with every GOP vote a yes, last month. Former Republican Congressman Steve Gunderson became the new CEO of APSCU in January.) Another bullet point, referring to other potential legislation, again uses the phrase “as directed by House leadership.” The memo also states that APSCU would back a “House leadership supported legislative vehicle” to repeal the Administration’s “gainful employment” rule, the hotly-contested regulation that would cut off federal aid to schools that repeatedly leave most of their students with overwhelming debt. The APSCU memo’s discussion of legislative strategy is completely integrated with mentions of electoral matters — that APSCU would continue “relationship building” with the Democratic Congressional Campaign Committee; that the group would “Develop Senate Political Strategy, which identifies 12 competitive Senate races in 2012″ and would “aggressively target APSCU PAC giving towards the 12 Senators identified in the Senate Political Strategy.” It appears from the memo that the activities of the APSCU PAC, or political action committee, and the activities of APSCU, which is an IRS-recognized 501(c)(6) trade association, were closely tied. In its IRS form 990 filing for the previous year, 2009-2010, APSCU, then called the Career College Association, answered “no” to the question, “Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office,” but obviously times have changed. The memo also anticipates planning for the group’s presence at the 2012 Democratic and Republican national conventions. In addition, the draft memo describes an effort to cope with a widening investigation by state attorneys general of deceptive recruiting, student loan defaults, and other misconduct by some of the subprime colleges. The memo reveals the existence of “weekly APSCU Task Force calls” to address the investigation, and calls for “state attorney general outreach.” It also states that APSCU would seek to “isolate” Kentucky AG Conway, who is leading the bipartisan group of attorneys general investigating industry behavior. (One item on the memo’s agenda was the upcoming July 2011 Conference of Western Attorneys General in Hawaii, where in fact there was a panel favorable to the for-profit colleges; while the panel moderator was Iowa AG Tom Miller, who is one those investigating for-profit schools, all three panelists were representatives of the industry.) The memo also indicates that APSCU would advance “Project Rose,” the Shakespearean/Orwellian effort, exposed last week in Republic Report, to compel industry members to alter “the vernacular of our sector” by, for example, renaming a high-pressure “call center” an “enrollment-assistance center,” calling a “recruiter” a more sympathetic “counselor,” and stopping use of the term “piece of business” because “applicant,” a.k.a. prospective student, sounds much nicer. There is even more to consider in the APSCU draft, especially for wonks deeply engaged in the higher education debate. But all citizens should be concerned about the relentless lobbying of this industry — with high-priced lobbyists like Trent Lott — for policies that allow abuses to go unchecked, that allow the worst actors to get the same benefits as those actually trying to serve students. There are quality programs in the for-profit sector — I’ve personally seen them. But I’ve also met students who were misled and left with worthless credits or degrees and insurmountable debt, and there are thousands of them across the country, people struggling to provide for themselves and their families — low-income people, immigrants, veterans, military spouses. With many for-profit education companies receiving around 90 percent of their income from federal financial aid, and with for-profit colleges accounting for about 13 percent of U.S. college students but nearly half of all loan defaults, it’s time for smart policies that direct federal aid to programs that actually help students to learn and get jobs, rather than programs that ruin their lives. My attempts to contact Brian Moran of APSCU for comment resulted in a call from an APSCU consultant, who accepted my offer to review the APSCU memo. But neither she, nor Moran, nor anyone else at APSCU got back to me to discuss, despite followup. I would be glad to present APSCU’s perspective in a future post if I hear back. The original version of this article appeared on Republic Report .

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Olivier Blanchard: The Logic and Fairness of Greece’s Program

March 20, 2012

To get back to health, Greece needs two things. First, a lower debt burden. Second, improved economic competitiveness. The new program addresses both. Bringing down the debt Some countries have been able to work down heavy public debt burdens. Those that were successful did it through sustained high growth. But in Greece’s case, it had become clear that high growth–let alone sustained high growth–was not going to come soon enough. Debt had to be restructured. The process was long and messy. After all, bargaining between creditors and debtors is rarely a love affair. In the process, foreign creditors were often vilified in Greece as bad guys–rich banks, who could and should be willing to take a hit. But in the end, banks belong to people, many of them saving for retirement, who saw the value of their bank shares go down in value. All said, the PSI (private sector involvement) deal –the largest ever negotiated write-down of public debt–has reduced the debt burden of every man, woman, and child in Greece by close to €10,000 on average, a sizable contribution on the part of foreign savers. Greece now has to do its part―with sustained political commitment to implement the difficult but necessary set of fiscal, financial, and structural reforms that have been agreed as part of the program supported by Greece’s partners in the eurozone and the IMF. It is a huge challenge, no doubt. But it is also an opportunity-to take advantage of the economic space opened up by private and official creditors. Will Greece seize it? Fixing public finances First, it has to bring down its fiscal deficit further. Otherwise, this will simply negate the progress which was just made on the debt. The fiscal effort which has been accomplished already is truly impressive, with the primary deficit coming down from 10 percent to less than 3 percent. The reduction and the rescheduling of debt will help cut interest payments, but this will not be enough in itself to fix the hole in the public finances. Greece is still running a primary deficit, and it will soon need to run a primary surplus. There is simply no alternative. Much spending will need to be cut. And, on the tax side, given the harsh measures that have to be taken, much of the focus of the program is on fairness, on making sure that richer people do indeed pay their fair share. Reducing the current account deficit Equally, or perhaps more importantly, Greece has to reduce its current account deficit. For two separate reasons. First, no country can run a large current account deficit and borrow from the rest of the world forever. Second, as fiscal austerity cuts into domestic demand, the only way to return to growth is to rely more on foreign demand to reduce the current account deficit. And Greece still has a very large current account deficit, at close to 10 percent of GDP, despite the depressed level of output. To reduce a current account deficit, there is no secret: the country has to become more competitive, sell more abroad, and buy less from abroad. At the moment, Greece’s exports amount to only about 14 percent of the goods it produces. By how much does Greece need to improve its competitiveness? It is difficult to be sure, but an improvement in competitiveness―or a real depreciation―of about 20 percent seems to be what is required. Strategy for improving competitiveness There are two ways to become more competitive: become much more productive, or reduce wages and nonwage costs. The first way is much more appealing. But there is no magic wand. While many sectors in Greece show a large productivity gap, the reforms needed involve changes in regulation and behavior, none of them easy to achieve. The program designed with the Greek government tries hard to identify where and how progress can be made. The list is long, but implementation is hard, results uncertain and, in any case, will not come tomorrow. This leaves decreases in relative wages, at least until higher productivity can kick in. In countries with flexible exchange rates, this can be achieved through currency depreciation. In a country which is part of a common currency area, it has to be achieved by decreasing nominal wages and prices. In Greece, wages have increased faster than productivity growth for years, compounding the problem. Unit labor costs―which is a key measure of competitiveness―increased by over 35 percent during 2000-10, compared to just under 20 percent in the euro area. This has to be undone. The best way forward would have been a negotiation between social partners to reduce wages and prices, and avoid a long and painful process of adjustment. This did not happen. The program tries to accelerate the process, while protecting the most vulnerable . The harsh reality is that the adjustment has to take place one way or the other; otherwise competitiveness will not improve, demand will not increase, the current account deficit will continue, and unemployment will remain very high. The faster it does take place, the less pain there will be. No viable alternatives Were there less painful alternatives? I do not believe there were, or are. For example, the notion which is sometimes floated that large infrastructure projects might boost growth, increase productivity, and improve the fiscal and current accounts, is fanciful. The problem of Greece is not primarily a problem of physical infrastructure. Projects financed by state funds would do little to impact growth in the short term, would make the fiscal deficit worse, and would only delay the inevitable adjustment. What about leaving the Eurozone? Euro exit followed by a sharp depreciation could achieve the relative wage and price decline that Greece needs, and achieve it faster. (Note: the relative price and wage decline would not be avoided; it would just happen faster). Indeed, if Greece had had its own currency to start with, this would surely have been part of the program. But Greece is part of the Eurozone. And, leaving aside the large costs of no longer belonging to the Eurozone, the dislocations from a disorderly exit–from the collapse of the monetary and financial system, to the legal fights over the proper conversion rates for contracts–would be very, very large. Long climb The bottom line: will the program work? Greece will have to climb a mountain at least as high as the one it has just climbed and success will hinge crucially on the government’s sustained and strong implementation. In all programs, unexpected events will happen, and the program will no doubt have to be readjusted along the way. As Christine Lagarde has said, “the risks remain exceptionally high.” All this is true. But it is also true that the program deals squarely with the two most fundamental issues facing Greece―not only high debt but also low competitiveness. And it is fair, both in asking for shared sacrifices, not only within Greece, but also between Greece and its creditors. From iMFdirect blog.

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William Hartung: Throwing Money at the Pentagon

March 20, 2012

A Lesson in Republican Math Cross-posted with TomDispatch.com If you’ve been fretting about faltering math education and falling test scores here in the United States, you should be worried based on this campaign season of Republican math. When it comes to the American military, the leading Republican presidential candidates evidently only learned to add and multiply, never subtract or divide. Advocates of Pentagon reform have criticized President Obama for his timid approach to reducing military spending. Despite current Pentagon budgets that have hovered at the highest levels since World War II and 13 years of steady growth, the administration’s latest plans would only reduce spending at the Department of Defense by 1.6 percent in inflation-adjusted dollars over the next five years. Still, compared to his main Republican opponents, Obama is a T. rex of budget slashers. After all, despite their stated commitment to reducing the deficit (while cutting taxes on the rich yet more), the Republican contenders are intent on raising Pentagon spending dramatically. Mitt Romney has staked out the “high ground” in the latest round of Republican math with a proposal to set Pentagon spending at 4 percent of the Gross Domestic Product (GDP). That would, in fact add up to an astonishing $8.3 trillion dollars over the next decade, one-third more than current, already bloated Pentagon plans. Nathan Hodge of the Wall Street Journal engaged in polite understatement when he described the Romney plan as “the most optimistic forecast U.S. defense manufacturers have heard in months.” In fact, Romney’s proposal implies that the Pentagon is essentially an entitlement program that should receive a set share of our total economic resources regardless of what’s happening here at home or elsewhere on the planet. In Romney World, the Pentagon’s only role would be to engorge itself. If the GDP were to drop, it’s unlikely that, as president, he would reduce Pentagon spending accordingly. Rick Santorum has spent far less time describing his military spending plans, but a remark at a Republican presidential debate in Arizona suggests that he is at least on the same page with Romney. In 1958, the year he was born, Santorum pointed out , Pentagon spending was 60 percent of the federal budget, and now it’s “only” 17 percent. In other words, why cut military spending when it’s so comparatively low? Of course, this is a classic bait-and-switch case of cherry-picking numbers, since the federal budget of 1958 didn’t include Medicare , Medicaid , the Environmental Protection Agency , or the Occupational Safety and Health Administration . The population was 100 million less than it is now, resulting in lower spending across the board, most notably for Social Security . In fact, Americans now pay out nearly twice as much for military purposes as in 1958, a sum well in excess of the combined military budgets of the next 10 largest spending nations. Of course, in a field of innumerates, Santorum’s claim undoubtedly falls into the category of rhetorical flourish. It’s unlikely that even he was suggesting we more than triple Pentagon spending — the only way to return it to the share of the budget it consumed in the halcyon days of his youth. (Keep in mind that profligate Pentagon spending in that era ultimately prompted President Dwight D. Eisenhower to coin the term “military-industrial complex.”) Still, Santorum clearly believes that there’s plenty of room to hike military spending, if we just slash genuine entitlement programs deeply enough. He would undoubtedly support a Pentagon budget at Romney-esque levels, as would Newt Gingrich based on his absurd claim that the Obama administration’s modest adjustments to the Pentagon’s record budgets would result in a “hollowing out” of the U.S. military. Mitt Romney at Sea But let’s stick with the Republican frontrunner (or stumbler). What exactly would Romney spend all this money on? For starters, he’s a humongous fan of building big ships, generally the most expensive items in the Pentagon budget. He has pledged to up Navy ship purchases from 9 to 15 per year, a rise of 50 percent. These things add up. A new aircraft carrier costs more than $10 billion; a ballistic missile submarine weighs in at $7 billion or more; and a destroyer comes with a — by comparison — piddling price tag of $2 billion-plus. The rationale for such a naval spending spree is, of course, that all-purpose threat cited these days by builders of every sort of big-ticket military hardware: China. As Romney put it late last year, if the U.S. doesn’t pump up its shipbuilding budget, China will soon be “brushing aside an inferior American Navy in the Pacific.” This must be news to former Secretary of Defense Robert Gates, who noted in a May 2010 speech to the Navy League that the fleet is larger than the next 13 navies combined — 11 of which, by the way, belong to U.S. allies. As for the Chinese challenge, much has been made of China’s new aircraft carrier , which actually turns out to be a refurbished vessel purchased from Ukraine in 1998 and originally intended to be a floating casino. It would leave the U.S. with only an 11 to 1 advantage in this category. It’s true that China is increasing the size of its navy in hopes of operating more freely in the waters off its coast and perhaps the contested South China Sea (with its energy reserves), but it is hardly engaged in a drive for global domination. It’s not as if Beijing is capable of deploying aircraft carriers off the coasts of California and Alaska. In the meantime, Romney’s shipbuilding fetish doesn’t add up. It’s as ludicrous as it is expensive. Romney is also a major supporter of missile defense — and not just the current $9-$10 billion a year enterprise being funded by the Obama administration, primarily designed to blunt an attack by long-range North Korean missiles that don’t exist. Romney wants a “full, multi-layered” system. That sounds suspiciously like the Ronald Reagan-style fantasy of an “impermeable shield” over the United States against massive nuclear attack that was abandoned in the late 1980s because of its staggering expense and essential impracticality. If the development of Romney’s high-priced version of a missile shield were again on the American agenda, it would be a godsend for big weapons-makers like Boeing, Lockheed Martin, and Raytheon, but would add nothing to the defense of this country. In fact, it stands a reasonable chance of making things worse. Given the overkill represented by the thousands of nuclear warheads in the American arsenal, the prospect of a nuclear missile attack on the United States is essentially nil. As arms experts like Dr. Theodore Postol of the Security Studies Program at the Massachusetts Institute of Technology have pointed out, in the utterly unlikely event of a massive nuclear missile attack, Romney’s plan would be virtually useless . There’s just no way to provide a near-perfect defense against thousands of warheads and decoys launched at 15,000 miles per hour. The only reasonable defense against nuclear weapons would be to get rid of them altogether, a course suggested by scores of retired military leaders, former defense officials, and heads of state. Even Henry Kissinger has joined the “go to zero” campaign, supporting a far more sensible approach to the nuclear dilemma than Romney’s fantasy technical fix. The Romney anti-missile program would, however, do more than just waste money. It would restore the Bush administration’s plan to emplace a long-range anti-missile system in Europe officially aimed at Iran but assumedly capable of taking out Russian missiles as well. Given that the Obama administration’s far more limited plan for Europe has already caused consternation among Russia’s leaders, imagine the harsh reaction in Moscow to the over-the-top Romney version. It could put an end to any hopes of further U.S.-Russian nuclear reductions — a significant price to pay for a high-tech boondoggle with no prospect of success. Ensuring a Cost-Overrun Presidency If you were hoping that, with an eye to fighting yet more disastrous wars in the Greater Middle East like the $3 trillion fiasco in Iraq, the U.S. would raise ever larger armies, then Mitt’s your man. While Secretary of Defense Leon Panetta’s latest plan would reduce the Army and Marines by about 100,000 over the next five years — essentially rolling back the increases that were part of the post-9/11 buildup — the former Massachusetts governor would double down by adding 100,000 more troops to present force levels. His rhetoric and the bona fides of his neoconservative advisors suggest that one place President Romney might send those bulked up forces would be to Iran as “boots on the ground.” He has repeatedly claimed that, if President Obama is re-elected, Iran will get a nuclear weapon, and has asserted that if he is elected it will not. He has mocked the president for not being “tough enough” on the Iranians and implied that a Romney administration would consider force a go-to option against that country, rather than a threat meant to back up a diplomatic strategy. Keep in mind that if Romney were to follow through on these costly undertakings and others like them, it would only add to the good old-fashioned waste and fraud that’s the norm of Pentagon contracting these days. As former head of the Joint Chiefs of Staff Admiral Mike Mullen pointed out , the post-9/11 national security spending binge played havoc with any sense of fiscal discipline at the Pentagon, eliminating the need to make “hard choices” or “limit ourselves” in significant ways. In his former position as Pentagon procurement czar, Under Secretary of Defense Ashton Carter acknowledged that “in a decade of ever-increasing defense budgets… it was always possible for our managers… when they ran into a technical problem or a difficult choice to reach for more money.” Romney’s Republican math would ensure that this will continue. Defense giants like Lockheed Martin, whose F-35 combat aircraft has more than doubled in price over original projections, must be salivating at the prospect of another cost-overrun presidency, which would result in soaring profits and few punishments. And let’s not forget the “spend more” brigades in the Republican House, led by Armed Services Committee Chairman Howard “Buck” McKeon (R-CA). Having received more than three-quarters of a million dollars in campaign contributions from weapons contractors since 2009, he has never met a weapons system he didn’t like. Under a Republican administration, McKeon and his pork-barrel pals in Congress would have free rein to jack up spending on weapons and personnel with little concern for the impact on the deficit. If a Republican president were to follow through on his campaign pledges, massive Pentagon increases and a dogged resistance to raising revenues would also result in major hits to every other item in the federal budget, from education to infrastructure. According to a report by the Center on Budget and Policy Priorities, the Romney budget plan could cut domestic discretionary programs by as much as 50 percent over the next 10 years. In an April 1967 speech against the Vietnam War, Martin Luther King assailed the buildup for that conflict as a “demonic destructive suction tube” that drew “men, money, and skills” away from solving urgent national problems. Romney’s military buildup would waste far more money than was expended during the Vietnam years. His presidency would exceed King’s worst nightmare. When will someone ask him to explain his fuzzy math? William D. Hartung is the director of the Arms and Security Project at the Center for International Policy, a TomDispatch regular , and the author of Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex . (To listen to Timothy MacBain’s latest Tomcast audio interview in which Hartung discusses how to manipulate Pentagon budgets, click here , or download it to your iPod here .) Follow TomDispatch on Twitter @TomDispatch and join us on Facebook. To stay on top of important articles like these, sign up to receive the latest updates from TomDispatch.com here .

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Denise Bowyer: Smith and Lesson

March 20, 2012

Roger Smith, CEO and Scott Smith, President of American Income Life and National Income Life Insurance Companies could have told you years ago, exactly what Greg Smith, ex Goldman Sachs Executive, told us a few days ago. “Wall Street is greedy. Goldman Sachs puts profits ahead of clients. The system is rigged to benefit wealth creation for the very privileged. The Golden Rule is — those who have the Gold Make the Rules.” Perhaps the public shaming of Goldman Sachs will force cultural changes within their organization and others on Wall Street, maybe not. The toxic and destructive environment portrayed by Greg Smith is really a much bigger story about a corrupted system of players, politicos, and public media mouthpieces. Unfortunately, there are those who are intent on putting a gun to the head of the middle class — their story is the same. We need to take away their license to destroy. It’s time to change the Golden rule and enforce a system that provides oversight, accountability and transparency. Let’s start now. Here is an example. JOBS — Roger Smith states, “It is not the time to strip away the few rules that hold companies accountable while raising capital. The Jumpstart our Business Startups (JOBS) ACT should NOT be signed without significant investor protection language. Without some real oversight and safeguards, I fear that that investors and crowd funders just might get trampled under the weight of “billion dollar emerging growth companies” running to raise money. ” My understanding is, under the bill, investment banks that underwrite stock offerings could publish research reports before the IPOs, offering investor’s information that would compete with the regulated disclosures required by the SEC. Seriously, as investors who do you believe would protect your interest, Mary Schapiro at the SEC or the likes of Lloyd Blankenfein at Goldman Sachs ? I’m taking Greg Smith’s advice and steering clear of Goldman Sachs. I don’t hold out hope that public shaming will change the likes of GS or the many companies who put profits before people. Now is the time to support companies that create a culture that honors the contract between Main Street and Wall Street. Now is the time, to support companies with years of practice; in serving the clients interest, accepting the moral responsibilities of stewardship, and putting long term interests ahead of transactional profits. We all make choices. Now is the time to choose wisely, your future depends on it.

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Justine Rivero: Report: 38% of Us Can’t Afford a Financial Emergency

March 20, 2012

Nearly 4 out of 10 consumers admit to having just enough money to pay their monthly bills with no cushion leftover for financial emergencies, reveals a report from Yahoo! Finance and Fitness Magazine . According to the rest of the report: 29 percent of consumer have enough money for monthly bills and emergencies 13 percent are stretched thin and behind on monthly bills 9 percent say they are “up to my ears in debt” The survey attempted to measure how financially fit consumers are in their approach to money. Results suggest that while consumers are still struggling in their day-to-day money matters, they are also growing more financially savvy. In one interesting and nearly unanimous statistic in the report, 82 percent of women polled would rather win $10,000 than have actress Jennifer Aniston’s body. While it looks like we’d take financial compensation over superficial needs, we’re also getting wiser about how to use that money. This tax season, almost half of all consumers plan to use their tax return to pay their bills, while 32 percent plan to save it. Only 11 percent will splurge their tax return on vacations and gifts. Consumers’ financial attitudes are becoming shrewder, even in the face of difficult financial circumstances. While one out of four of us are living paycheck to paycheck, consumers are staying on top of some financial responsibilities such as paying down their credit card debt. According to CreditKarma.com, credit card debt decreased 15 percent since this time last year, with the average credit card debt of $6,105. CreditKarma.com , a website where you can get your free credit score, also reports that the average consumer credit score is 659, considered poor credit. We’re making strides in some financial areas, but we’re still faced with the challenge of building credit, increasing income and finding a sense of long-term financial stability. The unemployment rate is steadily declining in most states and economic recovery is picking up, and hopefully consumers’ day-to-day financial struggles ease while their smart financial attitudes keep rising. Justine Rivero is the Credit Advisor for CreditKarma.com , a free credit management website that helps more than 5 million consumers access their truly free credit score and free credit monitoring.

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