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Joshua Shulman: Rights Have to Be Enforced Somehow

by Joshua Shulman on April 18, 2012

Huffington Post…

There are two ways to enforce rights. A government agency can do it, or it can be outsourced to private contractors, which means plaintiffs’ lawyers. If we’re going to use a government agency, then we have to make sure they do it efficiently, because our tax dollars fund those agencies. If we’re going to use private lawyers, they’ve got to be able to make good money doing it, otherwise they’ll do something else instead. If neither of those systems works for us, then let’s not pretend that we care about the rights that we’re refusing to enforce. The New York Times presented a front-page article on April 17 about lawyers suing New York City businesses that don’t have good wheelchair access. The story is that the plaintiffs’ lawyers are finding violations — easy in New York City, with its many ancient buildings, narrow-aisled, with aging or nonexistent ramps — and then choosing a plaintiff from a cadre of disabled people. Then the lawyers threaten to sue the allegedly violating business, the plaintiff gets a few hundred dollars, the lawyer gets a few thousand, and it all seems like a shakedown to the poor business owner. Of course, this is not how it’s supposed to work. A wronged person is supposed to seek out the lawyer, not the other way around. So this article has provoked anger against the trial lawyers who are supposedly abusing the system for their own enrichment. Having lived in New York, I treasure the funky old out-of-compliance stores, where even a non-handicapped person has difficulty navigating the aisles. I love those places, and my personal belief is that a variance ought to be available to them so they can preserve their funky old character, even if it means that the “temporarily able-bodied” are the only people who can safely get in and out. But of course, that’s not the law. That’s not the choice that we as a country have made about this issue. The choice that we made, and the law that we passed to enforce that choice, is that almost all businesses open to the public have to be able to safely accommodate handicapped people. And then we as a country made another choice: the government would not be given the resources to enforce this law. Instead, we would give an incentive to private contractors (lawyers) to enforce the law, by forcing out-of-compliance businesses to pay the lawyers’ fees when the lawyer could prove that the business was out of compliance. So now we’re angry at lawyers for being too aggressive in their enforcement? Well, here’s a story about what happens when we choose the other path of having a government agency enforce the laws. The Equal Employment Opportunity Commission (EEOC) is supposed to investigate alleged employment discrimination, then if it finds a violation, negotiate with the violating business to fix it, and if that doesn’t work, then the EEOC may file a lawsuit against the business. Note that the EEOC is required to try to negotiate a workable solution before it files a lawsuit. Seems reasonable. But the EEOC is short of resources. They field about 100,000 complaints of discrimination every year. They recovered more than $450 million for employees last year, with a budget of $343 million. So you could say they’re running a profit, sort of. But they are still constantly understaffed, overworked, and simply don’t have anywhere near the resources needed to investigate every one of those 100,000 claims. So, like all government agencies, the EEOC has to decide how to most efficiently allocate their scarce resources. One obvious choice is to focus on companies that are practicing system-wide discrimination, so they can bring class-action suits. For example, CRST Van Expedited Inc. is one of the largest trucking companies in the United States. They have an “internship” program, in which women who want to become truck drivers are paired with male truck drivers, and left together unaccompanied for weeks at a time, with predictable results . By bringing a claim against a company like this, which has allegedly caused sexual discrimination and harassment against hundreds of women, the EEOC should be able to use its resources efficiently, right? Protect hundreds of women with just one big lawsuit, instead of trying to pick them off one at a time, which would take forever, and lots of agency resources. Well, the Eight Circuit Court of Appeals just slapped down the EEOC , saying that their lawsuit against the trucking company fails because the EEOC did not take the required step of trying to negotiate in good faith with the trucking company about each case individually . But doing that would eliminate the efficiency of having one big case instead of many small ones. The EEOC did negotiate with CRST about their (idiotic) program as a whole, but not about each individual case. Sure, in an ideal world, they would talk about each case separately. But in a world where efficiency matters, that’s a crazy requirement. It’s exactly the kind of requirement, in fact, that makes a government agency unable to perform its function of keeping the workplace free of discrimination. Which leaves it to whom, exactly, to to enforce our rights against workplace discrimination? Why, to the private lawyers, of course. In fact, one of the few women who opted out of the EEOC suit against this trucking company sued CRST privately. The jury awarded her $1.5 million . We as a country have to decide what rights we want to enforce, and whether to enforce them with government agencies, or with private contractors. But whipsawing back and forth is unfair. If we choose government agencies, then we’ve got to let them be efficient. Listen up, Eight Circuit. If we choose private contractors, then we’ve got to let the profit motive motivate them. Listen up, lawyer-bashers.

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Joshua Shulman: Rights Have to Be Enforced Somehow

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BJ Gallagher: In Sales — and in Life — Be a Go-Giver, Not Just a Go-Getter

by BJ Gallagher on April 17, 2012

Huffington Post…

I recently met Julie Larson, an Idaho consultant and organizer of a Facebook group called “The Go-Giver Group.” I’d never heard the term “Go-Giver” before and it intrigued me, so I asked her about it. She suggested I get in touch with Bob Burg, who coined the term in his book, The Go Giver . So I found Burg on Twitter and asked if I could interview him to find our more: BJG: I like the sound of your term, “Go-Giver.” Can you tell me more about it? Bob Burg: While my book (coauthored with John David Mann) is a play on the more well-known term “Go-Getter,” the two are actually not opposites. We love Go-Getters because Go-Getters take action and get things done. A Go-Giver is simply a person who has learned that shifting their focus from getting to giving (in this case, “giving” means constantly and consistently providing value to others) is not only a nice way to live life, but a very financially profitable way, as well. A Go-Giver is someone who lives their life and conducts business according the five laws John and I describe in the book: The Laws of Value, Compensation, Influence, Authenticity and Receptivity . Oh, and by the way; what is the opposite of a Go-Giver? That would be a Go-TAKER — a person who takes, takes, and takes without adding value to the other person, to the process, or to the situation. BJG: You and I had a brief exchange on Twitter the other day about the topic of selling. Selling seems to have a negative connotation in many people’s minds — why do you think this is so, and what (if anything) can sales people do about it? BB: Like most things that have a bad reputation, there is a seed of truth to it. That seed is the people who — in the name of “selling” – are actually con artists. They are not there to help the other person; they are there only to help themselves. Let me explain: Selling is simply a way of providing value to another human being and profiting as a result of the value you have provided. The old English root of the word sell — “Sellan” — actually meant “to give.” So, when you are selling, you are giving. What exactly are you giving? You’re giving time, attention, counsel, education, empathy and value. In a truly free-enterprise economy, a sale occurs only when the seller and the buyer both feel they will each be better off as a result of the transaction. Isn’t that beautiful? Therefore, it’s the job of the salesperson to provide value to their customer in a way that the customer sees that value. In other words, the seller must please the consumer. When a transaction takes place between two people who both feel good as a result of the exchange, that’s when mutual value has been created… and the economy expands. A country filled with people engaged in mutually profitable exchanges is indeed a prosperous country. I ask all salespeople to remember this: “Money is simply an echo of value. It’s the thunder to value’s lightening.” In other words, the value comes first. The money you receive is simply a direct and natural result of the value you provide. One of the best pieces of advice I ever received was about 30 years ago, from a very successful salesperson who was getting ready to retire. He probably saw me as a young up-and-comer to whom he could impart his wisdom (and I’m glad he did!). He said, “Burg, if you want to make a lot of money in sales, then don’t make money your target. Make serving others your target. Now, when you hit the target, you’ll get a reward. That reward will be money. But the money is only the reward for hitting your target of serving others — money’s not the target itself.” Wise words. Understanding that is the essence of being a “Go-Giver.” BJG: George Foreman has been quoted as saying: “I don’t care how many degrees and diplomas you have on your wall. If you can’t sell, you’ll probably die.” Since we’re all in the business of selling – ourselves, our ideas, our books, our workshops, our consulting services — what advice would you give business people and those who might not realize that selling is a part of their work? BB: I believe what Mr. Foreman said is absolutely correct. Everyone sells something, whether a product, a service, an idea, a concept, a philosophy, etc. Whether it’s selling a product or service to a client who needs/wants it, or selling a child on not taking drugs or why they should want to do well in school, we are all selling. Selling is simply communicating your ideas in such a way that the person with whom you are transacting comes to understand how they will benefit from them. Focus on the other person; on providing value to them in a way that they find it to be of value. The best, the most successful salespeople understand that in sales, “it isn’t about you; it’s about THEM.” So, my advice would be to learn selling, study selling. And understand that through selling you can help others, as well as yourself. As the great salesperson and sales teacher, Zig Ziglar famously said: “You can have everything in life you want, if you’ll just help enough other people get what they want.” BJG: Any final words of wisdom for my readers? BB: When it comes to sales, I have a favorite saying: “All things being equal, people will do business with — and refer business to — those people they know, like, and trust.” The best, most powerful, most effective way to elicit those feelings toward you is to focus on providing extraordinary value to them – not just through your products and services, but by being genuinely interested in them. For more information about Go-Givers and Bob Burg’s books and workshops, visit www.burg.com

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BJ Gallagher: In Sales — and in Life — Be a Go-Giver, Not Just a Go-Getter

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Terry Connelly: We Have Seen This Stock Market ‘Horror’ Movie Before

April 16, 2012

Here we go again. It’s the second quarter of the year, and once again — as in 2010 and 2011 — the hedge fund investors that missed the rally in the U.S. stock market have rebooted their “sky is falling” pitch to scare the rest of us out of our shareholdings. They do this so they can buy back into the market on the cheap and enjoy the rally that will occur in the second half of the year — just like the previous years. Two months ago, “a few” members of the Federal Reserve Board were favoring a QE. Now, they say it’s just “a couple.” So, one day it’s a strained reading of month-old Federal Reserve Board meeting minutes that concludes that the Board has taken additional monetary stimulus “off the table” because just “a couple” as opposed to “a few” have agreed that action may be necessary. (What if the “couple” happened to be Chairman Bernanke and Janet Yellen, his deputy?). In the end, a couple and a few are the same thing, but the market has overread “a couple.” Curiously, CNBC, the main market news outlet on cable, started promoting this thesis right away (presumably as part of its virulent anti-Obama campaign to talk down the market lest the President’s re-election campaign get any bounce from better stock prices and fatter 401(k)s and sure enough the market went down by triple digits. Then came the monthly jobs report showing only 120,000 net jobs created in March. Clearly a disappointing number compared with the more than 200,000 in February and January, except for the fact that these monthly estimates (which are based on a projection model for a set of interviews with employers, not an actual numerical “headcount”) are always wrong and corrected in subsequent months. On a corrected basis, the QUARTERLY jobs report — a more reliable indicator — shows a step up in hiring for each of the past THREE quarters, rising from 300,000 plus in Q3 2011 to 400,000 plus in Q4 2011 to more than 600,000 plus in Q1 2012. Of course, this data never made it onto CNBC. Then came the hedge fund hit to Spanish and Italian sovereign debt interest rates when the European markets opened Tuesday after the Easter holiday. Here’s how that happens: the hedgies don’t have to actually sell Spanish and Italian government bonds and take losses. All they have to do is bid up the price of credit-protection (the famous credit default swaps (CDS) that helped bring on the U.S. financial panic in 2008) on Spanish and Italian debt. The CDS contracts pay out only if the debt defaults, so a higher price implies a higher risk of default on the underlying debt. When that happens, investors tend to dump the underlying debt, sending the interest rates up. The hedge funds and other big investors know from the past two years of experience that such movements in the CDS markets move the European sovereign debt markets down and in turn, spook the U.S. stock markets into their now famous “chicken little posture.” Translation: you can manipulate the U.S. stock market down by 500 points or more over two or three days just by bidding up a few Euro debt CDS contracts on Italian and Spanish debt! But you won’t hear that on the supposedly informative CNBC. You just hear about the Spanish and Italian interest rate spikes, just like last year and the year before. You also hear about other European sovereign debt at just about this time of the year — after a run up in the U.S. market that some of the “big boys” missed out on. And so, on Tuesday after Easter, we went down 200 more points on the Dow. As CNBC cheers on the incipient “market correction” and puts on a series of chartists warning of free-fall. Just to top it off, the CNBC mavens chat incessantly about the coming downturn in corporate earnings on the first day of Q1 reporting season, quoting of course unnamed experts that earnings will actually fall for the quarter. Never mind that 3/4th of the early reporters — a small but at least “actual” sample — have already reported earnings that EXCEEDED estimate. Never mind that Alcoa, which was panned all day long by the cable Cassandras, actually reported earning revenues and earnings after Tuesday’s closing bell that also significantly exceeded estimates! Are we seeing a pattern here? It’s déjà vu all over again, as Yogi Berra would say. Fool me once, your fault; fool me twice, my fault; fool me three times, well, that’s the lot of U.S. equity traders, as they again fall for the hedge funds’ head-fake apocalyptic scenario in the second quarter, and take the rest of us down with them. What the hedgies and their shills at CNBC count on is the fact that average investors aren’t used to short selling, so they don’t understand that folks who come on TV and talk the market down might actually be “talking their book” just like the typical stock “promoters” they are justly suspicious of. Wise up, stock investors — you are being had, again — by some real pros that count on you having a short memory from the games they played the last two years, at just this time of the year. They, not you, made the money in the second half of the past two years. Wise up!

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Scott Bittle: The Long and the Short of It: America’s Jobs Problem Now and For Years to Come

April 16, 2012

When it comes to jobs, can the U.S. walk and chew gum at the same time? After several months of robust, promising job creation, the economy only added about 120,000 jobs in March, barely enough to keep up with population growth . Last week, the number of claims for unemployment also jumped up . Maybe we’re on the road to recovery from the Great Recession, but when it comes to jobs, the after-effects are still haunting us. We’re also facing a historic shift in the nature of work — one that could turn out to be as extraordinary and wrenching as the Industrial Revolution. The combined impact of technology and globalization mean many businesses can do their work as effectively and more cheaply with fewer employees in the United States. If they can — and if that’s what their competitors are doing — then they’ll automate and move jobs offshore. Those jobs aren’t likely to come back just because the economy picks up. This means we need to do something we just aren’t good at: having a serious debate on how to tackle a near-term problem while also looking at what to do for the future. As the candidates for president and Congress begin offering up their ideas on “jobs,” voters need to consider whether their proposals are aimed at creating jobs quickly or whether they’re aimed at strengthening the job picture over the long haul, say the next decade or two. The truth is the country really needs both, but we can’t expect short-term cures to fix long-term problems (like job losses due to globalization or technology), and we can’t expect long-term solutions to kick in quickly. You probably won’t hear any subtleties like this on the campaign trail. Generally speaking, politicians are in the confusion business, so drawing these kinds of distinctions isn’t their strong suit. Here’s a quick tour of some of the jobs ideas out there and their short-term and long-term implications: Cut payroll taxes : According to studies by the Congressional Budget Office (CBO), this is one of the better strategies for persuading employers to hire, and in a relatively short period of time. But unless we find some other way to fund Social Security and Medicare, this can’t possibly be a long-term solution. Both programs are paid for by payroll taxes, and both face serious long-term funding problems. Not collecting these taxes for years would make these shortfalls even worse. Cut income taxes : This gives people more money in their pockets, and that can bolster consumer spending and help merchants preserve existing jobs — maybe they can even expand a little. But when the CBO looked at 11 different ways to create new jobs quickly, this idea actually came in near the bottom. Over time, low tax rates can encourage wealthier Americans to invest in new ventures or stocks, which does support job creation over time. But those potential advantages have to be weighed against the country’s budget problems and our mounting federal debt. Have the government jumpstart big infrastructure projects : If the projects are “shovel-ready” (everybody is on board with the plans and the money), this can create jobs quickly. But if they’re not, getting all the approvals and raising the additional money can take years. This has been one of the biggest criticisms of the $787 billion “stimulus” program — rightly or wrongly, people expected bigger, faster results than they actually got. Obviously, construction projects don’t provide jobs forever, but major national infrastructure improvements like improving the electric grid can take decades to build. Plus, improved energy, communications, and transportation networks lay the groundwork for economic development in the future. Extending unemployment benefits : This does preserve and create jobs in the short term. When unemployed people have an income, even a small one, they’re more likely to spend at local businesses, so those businesses are less likely to lay off workers and more likely to hire. The CBO gives this strategy a high rating for helping create jobs quickly. But one of the most troubling problems we’re facing is the growth in long-term unemployment, where people struggle to find work for years. And the longer you’re unemployed, the harder it is to get back in the workforce. Unemployment benefits help people keep food on the table, but they don’t help get them back to work, especially when people’s skills are out-of-date for today’s jobs. Plus, supporting people who aren’t working for very long periods of time can become divisive. Eventually, a lot of the people who are working may come to resent paying for those who don’t, especially if they suspect that some people on unemployment aren’t really doing their best to find jobs. Investing in scientific research and cutting-edge technology : Again, this is mainly long-term. It provides some jobs for researchers and college professors when the grants come in, but discovering and commercializing innovations that open new industries and create thousands of jobs — well, that just doesn’t happen quickly. Pursuing more trade agreements : Opening up foreign markets for U.S. products can lead U.S. companies to beef up their work forces to meet the new demands, and most economists say that trade is good for jobs over the long haul. In the near term, though, some companies may lose business, reduce their work forces, or even close due to foreign competition. On the other hand, not trading with other countries could turn out to be even worse for jobs. Politicians have a knack for making their ideas on jobs (and everything else) sound quick and easy, but truth is more complicated, as well it should be. The United States needs a strategy to help people who need jobs now, and we need a plan to create good jobs for Americans in the years to come. Co-authored with Jean Johnson.

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Deborah J. Vagins: We Can’t Wait for Fair Pay

April 16, 2012

Would you know if the person sitting next to you at work was being paid significantly more than you to do the same job? If you suspected that might be the case, would you know what to do about it? You might start by simply asking the question. Unfortunately, there’s a chance that you could be fired for doing just that. Nearly half of American workers are either forbidden or strongly discouraged from discussing their pay with colleagues. Not just inquiring, but merely discussing — that means that in plenty of workplaces, you can be fired for just volunteering information about your own salary. That’s right: your conversation at the water cooler could cost you your job. This brand of punitive pay secrecy has dire implications for women, who even today — almost 50 years after the passage of the Equal Pay Act of 1963, still make just 77 cents for every dollar earned by men. For women of color, the facts are even worse : in 2010, African-American women earned only 62 cents and Latinas only 54 cents for each dollar earned by a white man. It’s these dismal statistics that force us to reluctantly mark Equal Pay Day this year on April 17, 2012 — the point into 2012 that a woman must work, on average, to make she same amount a man did in 2011 alone. The serious wage gap, combined with pay secrecy policies, means that many women are not only being paid less than their male co-workers, but they have no way of knowing it. And if they don’t know it, they can’t fight it. Thankfully, this Equal Pay Day, we can do something to change that. President Obama has the opportunity to take a huge step towards ensuring pay equality right now by signing an executive order that would protect people who work for federal contractors against retaliation for disclosing or asking about their wages. Federal contractors include any company that receives federal taxpayer dollars to do work for the government. About 26 million people in America work for such contractors — that’s over 20 percent of the entire U.S. workforce. For over 70 years , president after president, of both parties, have used the power of executive orders to protect employees who work in companies that contract with the federal government. These steps have often led the way later for expanded protections for all workers. Allowing all of these workers to discuss their salaries without fear of losing their jobs will give women an important tool for finding out whether or not they are being treated equally. And that’s the first step to fighting back against pay discrimination. This month, the president has put the issue of women’s economic security center stage. Speaking at a forum on women and the economy, he announced the release of a new report by the White House Council on Women & Girls, which details progress the administration has made in initiatives that support women throughout their careers. He also acknowledged the continued pay gap, noting , “Overall, a woman with a college degree doing the same work as a man will earn hundreds of thousands of dollars less over the course of her career.” And in an op-ed last week, he emphasized the importance of fixing that, writing “Closing this pay gap – ending this pay discrimination – is about far more than simple fairness, it’s about strengthening families, communities and our entire economy.” We couldn’t agree more. With 40 percent of women acting as the primary breadwinners in their homes, far too many families are taking home far less than they deserve. Women can’t wait any longer. That’s why it is so crucial that President Obama brings immediate relief to the millions of women employed by federal contractors by issuing an executive order that will protect them from retaliation for discussing their wages. Of course, federal legislation is still needed to protect all workers against discrimination. The Paycheck Fairness Act, a bill currently pending in both the House and Senate , would help close some of the loopholes in the Equal Pay Act of 1963, which have made that law less effective over time. Among a range of other provisions, it would prohibit retaliation against employees who inquires about or discloses wage information–much like the proposed executive order — but would extend coverage to all workers (with some limited exceptions), not just those who are employed by federal contractors. There’s no question that the Paycheck Fairness Act is necessary — but while Congress remains gridlocked, millions of women are still waiting for fair treatment. You can help to end that wait for millions of women. Take action today by urging President Obama to issue an executive order banning retaliation against federal contract employees for discussing their pay.

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Robert Teitelman: Stray Thoughts on the Rise of Shareholders

April 16, 2012

A post earlier in the week about a Gretchen Morgenson column in The New York Times continues to bug me. Morgenson was once again thumping the tub for “say on pay,” that is the ability of shareholders to have a greater say on corporate compensation schemes. The big takeaway here, to me, is that Morgenson and the corporate governance crowd continue to believe that some day, somehow, shareholders will take up their democratic responsibilities as owners and actively participate in corporate monitoring. I’m skeptical on empirical grounds, but whatever. More interesting is a stray thought that wandered through the post. From a certain perspective, governance arrangements — today that means shareholder hegemony — take on a kind of foundational importance, just as in democratic politics the constitution serves as a kind of governance operating system or source code. Rising from that model should theoretically flow a variety of either virtues or sins: alignment or misalignment of incentives; rough equality or inequality of pay; efficient or inefficient use of resources; good results or bad, which are then reflected in rising or falling shares; and, ultimately, in an economy that provides mobility, job creation and innovation — or the opposite. Historically speaking, we saw a shift somewhere in the ’70s from an earlier model that emphasized stakeholder interests — workers (often unions), communities, customers and shareholders — and that was embodied in a class of relatively large and stable corporations that dominated the landscape. This is often viewed as the bad old days of governance; and stakeholder governance, with its agency issues and separation of ownership and control, is the defective model that current governance theory has long defined itself against. The question then is a simple one, reflective of a complex historical situation: Why were many of the virtues we now seek — relative equality, lower CEO pay (relatively and objectively), global competitiveness, nearly full employment, considerable innovation (a difficult subject to pin down, of course, though there was little talk of technological stagnation in the ’60s, which stagnationists like Tyler Cowen look back on with nostalgia ) — more associated with that era of retrograde stakeholders than, say, the shareholder model of today? In short, if CEOs and boards used stakeholders to entrench themselves so effectively, why didn’t their pay go through the roof? Again, these are complicated and dynamic historical circumstances. It’s very true that American corporations existed in a kind of protected and hegemonic position in the three decades after World War II. With the rest of the industrial world trying to recover from the war, American corporations could do nearly anything they wanted. Globalism existed for American multinational companies, but it was relatively limited, hedged in by protectionism at home and abroad and restrictive regulations, particularly on the flow of capital and credit. It was also the last decades of high industrialism: Economies of scale prevailed, which allowed efficient output and plentiful jobs at relatively large and dominant companies. Even innovation was viewed as something best done on an industrial scale: It was the age that recalled not the Manhattan Project, but it was the heyday of Bell Laboratories which Jon Gertner lays out so well in his new book . It was also an era that came to a sudden and wrenching end with the stagflation of the ’70s. Still, while all those factors help explain relative equality and the dominance of large companies, they don’t begin to explain compensation and the destructive practices that are supposed to flow from “entrenched” management. So it’s intriguing. But now, like a dog chasing a stick, we head a little deeper into the weeds. Earlier this week, JW Mason, who normally posts on his own econoblog, The Slack Wire, wrote an essay as a substitute for Mike Konczal at Rortybomb. Mason explored the tensions and contradictions between two causal explanations of the financial crisis: The notion that the Federal Reserve had spawned the mispricing of assets (like mortgages) by keeping interest rates too low, and the argument, often made, Mason points out, by the very same economists, that global trade imbalances (well, mostly China) flooded the developed world with too-cheap capital. The post is well worth reading carefully, but what piqued my interest was Mason’s provisional conclusion that the real problem might not have been either of those phenomenon, but rather that the crisis represented a failure of the private financial system to optimally match up savings and useful investment ideas. Near the end of a fascinating comment discussion, Mason refers back to an earlier post on The Slack Wire on the subject of nonfinancial corporations and intermediation, that is banking. That post, in October 2011, opens up with one of the more fascinating graphs I’ve seen lately. It tracks nonfinancial corporate after-tax profits, dividends and total payouts from 1950 to 2011. I’ll let Mason lay it out: In the neo-liberal era, up until 1980 or so, nonfinancial businesses paid out about 40% of their profits to shareholders. But in most of the years since 1980, they’ve paid out more than all of them. In 2006, for example, nonfinancial corporations had after-tax earnings of $800 billion, and paid out $365 billion in dividends and $565 [billion] in net stock repurchases. In 2007, earnings were $750 billion, dividends were $480 billion and net stock repurchases were $790 billion. Mason goes on to compare what those numbers suggest about corporations to homeowners using residences as piggy banks: That is, a steady disinvestment has taken place. He then goes on to make a series of political arguments that you can accept or not. (A side note: Mason’s graph also casts a light on all the handwringing about companies hoarding cash after the crisis. In fact, while profits did plunge, the total payout mostly remained above that level — and for a time in 2009 the two ran together. Those very cries that companies must pay out more may suggest how far we’ve come in terms of shareholder expectations. It also points up the split between shareholder interests and workers. Companies were continuing to pay out to shareholders, not using the cash to rehire.) But what are the numbers really saying? Well, clearly something has changed (we should also be careful to note that the period 1950 to 1980 was not exactly “normal,” if normal means anything in this context). Here we take refuge not in economics as much as in economic history. If there’s any powerful trend that defined the shift in finance that was first strikingly evident in the ’70s, it was the rise of institutional shareholders, accompanied by the cult of performance and portfolio management. The historical context here is complex too — and it undermines some of the more reductionist arguments of the neo-liberal critique from the left — but it does trace a remarkable shift from equity markets that are sideshows for individual investors to institutionally dominated equity markets that have, since the ’70s, made a series of demands and arguments for their own prescience, efficiency, rationality and supremacy. The shift of governance from stakeholders to shareholders is only the most obvious sign of this demand for hegemony by shareholders. The track of rising corporate payouts is another piece of evidence. The question all this stirs up I’m in no position to answer: Are we better or worse off economically, socially and politically with shareholders in that pre-eminent a role? Is there a balance point? Have we, in a world of activist hedge funds and high-frequency trading, overshot that point? Has the cult of share performance, once such a tonic to a closed, inefficient and cartel-like Wall Street, devolved into rampant speculation? Is there — God forbid — a role for stable, even entrenched managers at, say, companies like Facebook or Google? (Felix Salmon goes after an entrenched Google floating an “evil” two-class share scheme here. ) Have we gotten corporate governance wrong? It’s easy to ask these questions but difficult to answer them. That said the ascendancy of the shareholder is a topic worth pondering. The original post can be found here . Robert Teitelman is editor in chief of The Deal magazine.

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D. Sidney Potter: Stories From the Frontline: Why Is Mortgage Aid, Hater-Aid?

April 16, 2012

As a continuing topic from the post entitled, “Stories From the Frontline: Robo Signers vs. the Silent Enemy,” the following is a continued look into the operational innards of mortgage operations centers. Why is the banking industry — for the most part, since I personally detest over generalizations, resistant to essentially doing the right thing and/or at least doing it in a timely matter? It is almost fascinating that acclimatization is loathed, rather than embraced. It is not often one gets to be a white knight in the face of such Armageddon-like financial tragedy, but these banking guys in the C-suite found a way to do it without really trying. Sociologists would call that cognitive dissonance. For example, I was engaged a few years back as a mortgage operations consultant for one “Too Big to Fail” bank that shall remain nameless (let’s just say it’s logo is a stage coach), whose loss litigation team had to consist of less than 30 full time members! Albeit, this was back in 2009, and banks were gonna through a deer in the headlights stage in adjusting their operational capacity to meet the massive avalanche of foreclosures coming upon them, but this mind you was a very apparent understaffing at this particular banks’ headquarter location. Out of curiosity and in passing, I asked the vice president in charge of this ‘start-up’ department, where were all the loan modifiers. Her reply, and slightly stunned response, was that they were working on it! Hello, did you not get the memo that the economy just got pierced wide open with a set of vice grips for open heart surgery and that it may have forgotten to administer itself with anesthesia. (Maybe the email went to her junk mail). The silent enemy — who are a form of malfeasant employees, are not necessarily a conniving bunch; and like the poisonous affect a few drops of python venom has on a healthy 200-pound man, so to can a few bad men within an industry that is entrusted in safe keeping our money. In the end, those individuals who work in loss mitigation centers for the banks are to a point, contributorily responsible for the prolonged economic recession. Like the 1977 movie Network , one wants to open a window and yell out “I’m mad as hell and I’m not going to take it anymore.” Mortgage mess, be over already, will you. But ultimately, these loan modifiers who are known as LMs (aka Lone Morons) are good Germans. And good Germans do what good Germans do best, and that is they do what their told. But consequently, they benefit financially by their individual group conformity — and as luck would have it, results in some of them not losing their own home to foreclosure. How ironic. Poetic justice almost sings again. The loss mitigation business, is not the only industry to do well when a mega-disaster hits. I’m not an expert on the histrionics of vaccinations, but somebody had to have made a killing with the onset of the black bubonic plague or even the polio epidemic at the turn of the last century. During and after every disaster there’s clean up to be done. What about German uniform manufacturers (for soldiers and prisoners), in the 1930s and ’40s? And lest we forget about German oven makers in the 1940s. Business most have been brisk. Couldn’t keep up with the demand. And in present day America, watch how many insurance claim adjusters come off unemployment whenever there’s a massive tornado. They call it tornado season for a reason. As a banking professional, you start to fill like you’re in the ‘body bag’ business of the mortgage industry. It doesn’t make what you do anymore digestible knowing that it’s God’s work, depending upon your mindset in which you try to convince yourself that you’re at least helping people. Metaphorically, it’s like being on a parole board and realizing that even though it’s usually a 3 to 5 board vote, your one vote could be the difference in properly adjudicating for the inmate/prospective parolee their future. Hence, some of the mortgage operations consultants — such as myself, take the contrarian point of view that a loan modification applicant ought to be helped, not hurt. For many bankers, the word help is a four letter word. And hence, that is the narrow bandwidth in which you live in — in which you can justify your professional credentials, and your professional wherewith all, and still look another mortgage ops professional in the eye without drawing scrutiny, scorn and contempt from others. And once again, you’d like to think that you’re doing God’s work, vs. the atypical maladjusted mortgage ops professional in the next cube over, whose’ pulling down $2k-plus a week while simultaneously casting judgment over others. For this reason, you come across some (although not nearly enough — since everyone has their best interest in hand), mortgage ops professionals who become the moral equivalent of Supreme Court Justice Anthony Kennedy. You become the swing vote. You become the unseen voice of reason. You become the final arbitrator, who may be able to justify the investigation or non-investigation of a mortgage applicant for suspected fraud. Realizing that another person fate is dependent upon you checking a box off on an intake sheet, or that the approval or denial of a loan modification may affect the uprooting of an entire family, or that because of professional peer pressure you deny a financially healthy loan applicant a cash-out “refi” that he is otherwise entitled to. This can sometimes be a heady undertaking. Without equivocation, you become the final denominator. Quite often, mortgage ops consultants are responsible for Monday morning quarter backing. You act as a referee of what’s just occurred. And sometimes you don’t always get instant replay and/or a commercial break to thoughtfully analyze the situation. In effect, you step atop a pedestal and decide (more or less), to fully adjudicate in your subjective opinion who wins or losses. Almost like Caesar summoning his court and deciding which of two remaining Gladiators to feed to the lions — or maybe both of them, for pure entertainment purposes. Even Caesar loved ratings. Some mortgage ops consultants where unfortunately ex-mortgage brokers who had no compunction, reluctance or guilt in seeing some hard working customers lose their home as a result of a loan modification specialist being short sighted. And in Caesar fashion, raising their clenched fist and pointing their thumb down. Next Huffington Post segment. Stories From the Frontline: Please Tell Me I’m in Kansas.

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Jim Kukral: The New Business Model of Book Publishing

April 16, 2012

I’ve written previously about how Amazon’s Kindle and their KDP Select program is bringing new writers to the book publishing world, bypassing traditional publishers. But sometimes, established writers are finding a new voice there too. Randy Cassingham is one of the first online publishers: his This is True column went online in 1994. It’s his full-time gig: over the years, it has brought him several million dollars in income, and he lives on 45 acres in western Colorado, where he looks at gorgeous snow-covered mountains from his home office. “TRUE” (as Cassingham calls it) is biting social commentary, using weird news as its vehicle. It’s funny and has a loyal following: thousands pay $24/year to get the full column by e-mail each week. Tens of thousands get a free sampler. It might be the first example of an online “fremium” business model. In the early years, he turned down two unsolicited syndication deals to bring the column to newspapers — turning them down because he didn’t want to give up control of his work, he says. Good move: now he’s compiling his archives into Kindle books, where he can get a 70% royalty on sales, rather than the 12.5% that Dutton (part of the Penguin Group) pays him when it turned another of his websites into a book. And it’s working: Cassingham told me that in the first two weeks of Kindle book sales, the five volumes he has posted so far earned more than $1,400 in royalties from Amazon. “I’m boggled,” he told me by e-mail. “Imagine if I actually concentrated on this income pillar. Or had more than five books available. Or I sent one or more titles out for review somewhere, or advertised, or did ANY kind of promotion to anyone other than my existing readers!” Imagine indeed! Then he realized that a throw-away human interest feature he includes in This is True, the “Honorary Unsubscribe” of someone who died in the previous week, could also be good book material. “These are the people you wish you had known,” he says. “Take the inventors I’ve featured. Did you know the same guy invented both the computer hard drive and the video cassette? What a fascinating guy!” He has also featured the inventors of the contact lens, the hovercraft, the Hawaiian shirt, even the guy who thought of putting a peanut inside an M&M. Then, he says, getting excited as he looks through his archive, “there are the medical researchers, responsible for saving thousands, even millions of lives, spectacular entertainers that died virtually forgotten, and…” Just as he says: the kind of people you wish you had known. That book just came out on Amazon’s Kindle this week, and it’s the first of several in that series. Cassingham told me that “I’m glad I have a block of 100 ISBNs” — International Standard Book Numbers, which are used to identify books for retailers, including Amazon — “I’m going to need them.” Cassingham used to have the material now coming out in his books available free in various web archives. He counted on Google’s Adsense program to bring in ad money, but it hasn’t worked as well as he had hoped, even though it’s all original work. “TRUE’s archive,” he admitted, “which had more than five volumes of material, only brought in $559 for the entirety of 2011.” Compared to more than $1400 in the first two weeks on Amazon, it’s no wonder Cassingham is starting to take the archives down. If someone follows a link to an archive page that has been removed, they now see information on what book it’s in — with a link to its Amazon sales page. ( Example ) Self-publisher J.A. Konrath laments on his blog that he wishes he had the rights to his first novels, now that he has sold more than 700,000 copies of his later efforts, self-published on Kindle. Cassingham doesn’t have that problem (not counting his one book with Penguin). His only problem now is getting his existing work converted to Kindle as fast as he can. As more established, quality authors who kept the rights to their work figure out that it’s to their advantage to publish themselves on Kindle rather than beg for contracts from “big” publishers, there will be an explosion of great work available in e-book form. It’s truly the start of a new model of mainstream book publishing. Amazon CEO Jeff Bezos said so pretty much himself in a letter to shareholders last week. Speaking about his Kindle Direct Publishing platform, he said, “The most radical and transformative of inventions are often those that empower others to unleash their creativity – to pursue their dreams. These innovative, large-scale platforms are not zero-sum — they create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers.” What do you have to say about it? Please leave a comment.

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Robert Kuttner: You’ve Come a Long Way, Ben

April 16, 2012

I heard a terrific speech last Friday by the Federal Reserve Chairman, Ben Bernanke. In his address, to a Russell Sage-Century Foundation Conference on the causes and cure of the financial crisis, Chairman Bernanke said just about everything a progressive would want to hear. Read it for yourself and see if you agree. The financial industry, he said, had been characterized by “high levels of leverage; excessive dependence on unstable short term funding; deficiencies in risk management in major financial firms; and the use of exotic and non-transparent financial instruments that obscured concentrations of risk.” In other words, Wall Street went berserk; and markets did not correct themselves. Add a little more invective about Goldman Sachs and Rolling Stone ‘s Matt Taibbi could not have put it better. As for the regulators, “gaps in the regulatory structure” allowed very large firms and markets “to escape comprehensive supervision.” There were “failures of supervisors” and “insufficient attention to the stability of the system as a whole.” Bernanke added that though the immediate losses in the tech bust of 2000 were about the same as the losses in the value of housing — $7 to 8 trillion — the dot.com crash “resulted in a relatively short and mild recession with no major financial instability,” while the sub-prime collapse brought down the entire economy. Why? Because of the massive disguised leverage and related abuses in the shadow banking industry that caused financial markets to grind to a halt. Bernanke defended the Fed’s policy of driving interest rates nearly to zero, including buying securities as necessary from the Treasury and from private financial markets. In pursuing these policies, he has braved attacks by the right and by several inflation-phobic regional Federal Reserve Bank presidents. So does Bernanke deserve the accolade bestowed in the April Atlantic magazine cover profile by Roger Lowenstein, “The Hero?” Not entirely. Bernanke certainly gets an A for using monetary policy to keep the economy from collapsing. But if you look at Bernanke over the past ten years, what you see more than anything else is a learning curve on matters of regulation. Lowenstein misses that. Supreme among those supervisory agencies criticized in his speech that failed to contain escalating abuses was the Bernanke Fed itself. Bernanke, in his scholarly writings about the failure of the Federal Reserve to head off or cure the Great Depression, emphasized failures of monetary policy. He said not word one about regulatory failures. “The correct interpretation of the 1920s,” he wrote in 2002, “is not the popular one — that the stock market got over-valued, crashed, and caused a Great Depression. The true story is that monetary policy tried overzealously to stop the rise in stock market prices.” But that view is not only wrong but at odds with the views that Bernanke espouses today. The over-leveraging, conflicts of interest, and regulatory lapses of the ’20s were precisely analogous to the market abuses and supervisory corruption that caused the bubble and crash of our own era. Bernanke also gave a now (in)famous scholarly paper in 2004, in which he spoke of “The Great Moderation,” meaning a world of “reduced volatility”, low interest rates and plentiful capital. Bernanke utterly missed what was really occurring. Today, he would recognize that “moderation” as a fools’ paradise — the result of the reckless and un-policed creation of leverage by the shadow banking system. Though Bernanke was determined not to repeat the mistakes of his predecessors once the system crashed in 2008, when he acted to pump in as much money as necessary, it was only later that he learned the regulatory lessons. In the spring of 2009, he was on the side of Larry Summers and Tim Geithner in wanting to prop up large, effectively insolvent banks rather than acting to nationalize them and break them up in the public interest. The Fed also resisted releasing documents on the bailout, whose disclosure was required by Dodd-Frank, until ordered by the courts. Today, however, Bernanke is increasingly on the side of the regulators in wanting to crack down on abuses in the banking and shadow-banking systems. Which is a very good thing, because the Dodd-Frank bill, which is only a partial solution to those abuses, is under assault from all sides, and so are the other regulatory agencies. The Republican House, urged on by Wall Street, is trying to gut Dodd-Frank’s regulation of derivatives. Thousands of Wall Street lawyers and lobbyists are flooding the zone to undermine the rule-making process necessary to implement Dodd-Frank. Congress is also trying to starve regulatory agencies that have new enforcement responsibilities. The D.C. Court of Appeals threw out the SEC’s first set of rules to implement Dodd-Frank on the ground that the Commission failed to do an adequate cost-benefit analysis. This brand of cost-benefit analysis mainly looks at compliance “costs” of banks. It ignores the cost, running into the tens of trillions, of the collapse itself. The Fed’s actions are not subject to this brand of cost-benefit analysis. Nor is the Fed captive to Congressional actions limiting its enforcement budget, since the place creates money. It is an odd feeling, certainly, seeing the largely undemocratic Fed, long an agency historically beholden to Wall Street, as an important ally in the effort to clean out the financial system and to prevent the next collapse. I’d be much happier if Congress had passed even tougher legislation, and if President Obama and his Treasury Secretary — that would be Tim Geithner (!) — were leading a popular crusade for deep financial reform. Bernanke, thanks to his baptism by fire in the crisis, has steadily moved from regulatory dove to regulatory hawk. Several of his colleagues deserve credit, too, notably Governor Sarah Bloom Raskin, who prodded the Fed to take an assertive stance pressing for more housing and mortgage relief, and Governor Daniel Tarullo, the Fed’s point man on banking regulation. The Fed remains a deeply undemocratic institution, structurally in bed with the financial industry. But in times like these, we take allies where we can find them. And Ben Bernanke’s odyssey deserves our respect. Robert Kuttner is co-editor of The American Prospect and a Senior Fellow at Demos. His latest book is A Presidency in Peril .

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Simon Johnson: Jim Yong Kim for the World Bank

April 15, 2012

A decision on choosing the next president of the World Bank is expected this week — perhaps as early as Monday. The Obama administration nominated Jim Yong Kim, president of Dartmouth College and a noted public health expert. The reaction to this nomination from development economists and people experienced in the business of lending to poor countries has been overwhelmingly negative. They are making a big mistake. Mr. Kim would make an excellent World Bank president. There are three issues. First, should the president of the World Bank continue to be an American? Second, should this position be held by someone with a primary background in economics and finance? Third, should this job go to a person — like Mr. Kim — who has specialized on public health? The job of running the World Bank should not necessarily go to an American — just as the job of managing director at the International Monetary Fund should not be presumed to go to a European. The divvying up of these important positions is a de facto arrangement that became established in the 1940s and 1950s, but it has really outlived its appropriateness. There should be an open competition for both positions — and Mr. Kim faces appropriately strong competition from Ngozi Okonjo-Iweala, a well-respected Nigerian finance minister and former senior official at the World Bank. There is no question that the White House wants this job to go to an American, mostly because no administration likes to be the one to give up such prerogatives. And gone are the days when anyone put up by the United States would necessarily be chosen — even the controversial Paul Wolfowitz went through with surprisingly little push back, although he ran into trouble subsequently. But Mr. Kim is a brilliant nomination, precisely because he is so far from the mold of standard World Bank presidents. For a full write-up of his accomplishments, see this piece by Anjali Sastry and Rebecca Weintraub. (Sastry is one of my colleagues at MIT, where she teaches a very successful course that integrates global health and management issues, follow her @anj_sas; Weintraub is a physician and prominent public health specialist.) The World Bank does not need “more of the same” in terms of vision from its leadership. Like it or not, the World Bank will continue to issue bonds and make loans to countries for infrastructure and other projects, typically at an interest rate that is somewhat below what is being charged by the private sector. It will also try to raise donor funds that can be shared with very poor countries, preferably in a productive manner. The World Bank will also continue to struggle having a profound impact on people’s lives with these standard development lending activities. To understand this point, look at two books. Bill Easterly’s The Elusive Quest for Growth is a brilliant account of what has gone wrong — repeatedly — with thinking about development, including but not limited to the World Bank. Daron Acemoglu and Jim Robinson’s new bestseller, Why Nations Fail , provides all you need to know — and probably more than you can stomach — about why some countries stay so poor. The very sad truth is that powerful people in some places do very well, in their own estimation, when the rest of the country remains in ruins. And there is nothing the World Bank — or anyone else in development economics — can do to break through and share prosperity more broadly in those places. (You can follow Easterly and Acmeoglu/Robinson on twitter: @bill_easterly and @WhyNationsFail; the conversation around @WhyNationsFail is particularly lively and informative at present.) But public health is different. In contrast to the lack luster performance of development economics over the past half century, public health intellectuals and officials have completely transformed health outcomes around the world. This process started early in the 20th century but really picked up pace in the 1940s and 1950s (for more historical background and medical details, see “Disease and Development,” a 2007 paper co-authored with Daron Acemoglu.) The very poorest people in the world did not participate fully in this global health transformation — partly because of the problems outlined in Why Nations Fail. But leaders like Mr. Kim — and in fact Mr. Kim himself — are leading a second breakthrough, in which better health services are being delivered even to very poor people in some of the most difficult conditions imaginable. There is a great deal more to be done. The World Bank does good work supporting public health initiatives, but it could do much more. If Mr. Kim becomes World Bank president — and preferably stays in that position for a decade — we should expect to see a great deal more progress. The task now is to mobilize private donors, pharmaceutical companies, and officials in a robust coalition focusing on improving health and increasing life expectancy. The mortality of children under the age of five is likely to be a top priority in that context. Reducing maternal mortality should also get a great deal of attention. All of this is completely achievable. Public health has done well in the past half century. We should provide more resources and encourage greater success. Save and improve millions of lives. Mr. Kim is exactly the right person to lead the next transformation of global health outcomes. Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You , available now. This post is cross-posted from The Baseline Scenario .

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Mohamed A. El-Erian: What the Return of Market Volatility Tells Us

April 15, 2012

Four of last week’s five daily trading sessions saw the Dow move by more than a hundred points. The wide fluctuations of the index reminded investors of the unsettling market volatility of last year. In the process, and after a wonderfully strong first quarter, questions multiplied as to whether stocks would again be subject to a mid-year correction. By looking at the factors behind the recent volatility, including how it played out in different segments of the global markets, you will see that a big part of the answer depends on policymaking here and in Europe — a particularly uncomfortable situation for those who rightly believe that valuations and correlations should reflect underlying fundamentals. The renewed volatility in stocks was due to conflicting signs of additional central bank liquidity support, both in Europe and the US. By providing time (and hope) for economic and financial fundamentals to heal properly, such support is seen as critical to sustain the recent rally in risk assets. Yet, in listening to different voices here and across the Atlantic, equity investors come to different conclusions as to whether additional liquidity will indeed be forthcoming. Some officials seem committed to renewed unusual central bank activism. Others feel that this would only postpone the inevitable adjustments required on the part of governments, companies and individuals. And there seems to be no way, as yet, to get both groups on the same wavelength quickly. Market volatility has also been accentuated by competing narratives about the economic outlook. Last week, several companies’ quarterly earnings reports, led by Alcoa, were supportive. The problem is that they conflicted with the more worrisome macro data, including a Chinese growth slowdown (though 8.1 percent would be deemed great anywhere else in the world), the undershooting of a much-followed US sentiment indicator, and mounting signs of recession in Europe . These two narratives are, once more, finely balanced; and the tug of war will continue until one side asserts itself — either through a policy breakthrough or through a policy breakdown. No wonder so many analysts are warning that stock market volatility may be with us for a while. In understanding the implications, it is good to reflect on what other market segments are telling us — particularly global bonds where last week’s differentiation was both noteworthy and insightful. Compared to stocks, US Treasury bonds experienced less volatility (both in absolute and relative terms). This was partly due to a measurement issue: As only the bond market was open when the disappointing March employment number was released, yields reacted on that Friday while stocks had to wait for the following Monday. But even when adjusting for this by extending the comparison to two weeks, the contrast is still there. Investors in the Treasury segment appears less conflicted. This market segment signals a muted growth outlook, and one that may even trigger additional Federal Reserve intervention in the form of a new QE. Signals of a challenging outlook are much, much louder in European bond markets — and rightly so. Last week, yields on peripheral government securities went from flashing orange to again flashing red, with Spanish risk spreads near or at record levels (as measured by credit default swaps). All this speaks to the unsettling situation of markets that remain highly dependent on policymakers who, themselves, are stuck in the muddled middle: unable to deliver sustainable outcomes or to exit from their market interventions. This is the unfortunate reality of an “unusually uncertain” outlook, blunt policy tools, and a rather dysfunctional political context. Mohamed El-Erian is the co-CEO of Pimco, which oversees nearly $1.8 trillion in assets and runs the Pimco Total Return Fund, the largest bond fund in the world. Cross-posted from CNBC.com

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Mark Axelrod: A Roadmap for America’s Future: Highway 21 Not To Be Confused With Highway 61 Revisited

April 13, 2012

Sometimes it’s not a good idea to use certain symbols to represent things, especially when the subtext involved, well, makes you look stupid. Take Paul Ryan’s Roadmap for America’s Future. On the website there’s a picture of a cherubic Paul Ryan wearing a greenish sport coat (too long at the sleeves), a blue button down shirt and what appears to be a burgundy and white diagonally stripped tie. To borrow a line that Kevin Garnett once said to Craig Sager, “Go home and burn that outfit.” Perhaps, the fact it shows really bad taste in clothes, is Ryan’s point. That is, nothing seems very coordinated and by virtue of that “bad taste” it’s supposed to indicate that clothing is not what’s important to Paul. That may be, but if clothes make the man then you can finish the cliché. But what’s more egregious than Ryan’s outfit is what’s opposite Ryan; namely, a supposed information sign one might see on the highway with the words A ROADMAP FOR AMERICA’S FUTURE (with the word “ROADMAP” in decidedly larger font than the rest) next to an Interstate “21″ sign. Now one shouldn’t confuse Interstate 21 with U.S. Route 21 which is a north-south United States highway running from Hunting Island State Park, South Carolina to Wytheville, Virginia. Interstate 21 doesn’t exist, but that’s not what the sign is supposed to mean. The Interstate 21 sign is (Ready?) supposed to represent the 21st Century! (Wink, wink, nod, nod.) How clever these political people are. How subtle. But why, might you ask, is it so egregious to use highway signs to indicate America’s future? Well, because the interstate highway system in this country is falling apart — so if the metaphor is meant to mean that following Ryan’s budget will take America to its future, then, well, the future doesn’t look very healthy. The Interstate Highway System was authorized by the Federal Aid Highway Act of 1956 which, ironically, was better known as the National Interstate and Defense Highways Act of 1956 since it was originally thought of as a key component for defense. Eisenhower was impressed with the German autobahn as a major part of a national defense system that would be vital in deploying military supplies and troops in case of foreign invasion. So, it’s all the more ironic that Ryan would use these transportational signs as a way to convey to the American public that the road to a better future is to follow his roads. To refresh Mr. Ryan’s mind (if not his metaphor) , in a 2007 article written by John W. Schoen: 33 percent of the nation’s major roads are in “poor or mediocre condition.” 36 percent of major urban highways are congested. 26 percent of bridges are “structurally deficient or functionally obsolete.” That was in 2007. According to the 2009 Report Card for America’s Infrastructure : Americans spend 4.2 billion hours a year stuck in traffic at a cost of $78.2 billion a year — $710 per motorist. Roadway conditions are a significant factor in about one-third of traffic fatalities. Poor road conditions cost U.S. motorists $67 billion a year in repairs and operating costs — $333 per motorist; 33% of America’s major roads are in poor or mediocre condition and 36% of the nation’s major urban highways are congested. Current spending level of $70.3 billion for highway capital improvements is well below the estimated $186 billion needed annually to substantially improve the nation’s highways. Final grade for America’s Roads: D-. That’s just slightly higher than an F+ and if your son or daughter came home with that final grade, then I’m not sure you’d be pleased about it. So, where does Congress stand on trying to raise the highway grade from a D- to something one might consider a passing grade? As Bloomberg reported on March 29, 2012 : Road projects in every U.S. state would have been affected if Congress failed to act by March 31. The U.S. would have been forced to stop collecting all but 4.3 cents of the 18.4 cents-per-gallon federal tax on gasoline, putting further strain on the Highway Trust Fund, which pays for highway and transit projects. Most Democrats said a vote on a two-year, $109 billion highway plan, passed by the Senate March 14 and blocked in the House, would give states and localities more certainty. “This extension kicks the can down the road,” said Representative Nick Rahall of West Virginia, the top Democrat on the House transportation committee. “It fails to rebuild America just as the construction season begins.” Blocked by the House? You mean to say the Republicans in Congress tried to block the same plan to help rebuild the US highway system that Paul Ryan is advocating to be the “road to the future?” The word “hypocrite” is a great word. It comes from the Greek hypokritēs which means, “actor” and, by extension, “mask” since that’s what an actor wears. In this case, the word fits Ryan perfectly since regardless of the clothes he wears, the mask remains the same.

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Joanne Lang: Breaking Free From Fear of Failure

April 13, 2012

As a start-up founder, I’ve come to expect new and interesting experiences on a regular basis. It’s part of what makes being an entrepreneur so exciting. Not long ago, James Logan, Program Director for the Chester County Chamber of Business & Industry , asked me to be the keynote speaker at their Annual Small Business Dinner. I’d never given a keynote before, and like many people, I find public speaking a bit unsettling. However, another wonderful aspect of being an entrepreneur is the amazing support I regularly receive from those around me. After a lovely lunch with Nancy Keefer, the Chamber President, and James, I was so buoyed by their enthusiasm and encouragement that I accepted their invitation to speak. I decided to use this opportunity to reflect on my entrepreneurial experiences over the past year. I wanted to identify lessons learned that would be useful in both the corporate and start-up worlds and I realized that the most important and valuable lesson I had to share was breaking free from fear of failure and embracing the opportunity to learn from failure. Because I think these lessons are worth sharing with others, I’ve included excerpts from my keynote below. Several years ago, I had a big idea that originated from my direct experiences as a mom of 4 children: While I used LinkedIn to organize my career and Facebook to organize my social life, there was no single, private and secure application to help me quickly and easily organize my family and home life. At the time, I was a member of SAP’s original cloud technology team, and I was convinced that Software as a Service was the answer. However, in order to turn this idea into a reality, I had to take the plunge from a safe, senior position at SAP to the unknown waters of a bootstrapped start-up. Because I was the primary income earner in my home, this was a difficult and risky move to make. So what stopped me from pursuing my idea at that time? Fear of failure. Sharing my idea with naysayers just furthered this fear. I’ve heard Arianna Huffington refer to the obnoxious roommate in her head, and this was exactly how I felt. Everyone who discounted my idea fueled the obnoxious roommate in my head that made me doubt myself and fear failure — especially in regard to competing with large, well-established companies like Google. And of course, there was the state of the economy to consider. Then my son had a life-threatening medical emergency and I could not give the paramedic the information he needed. I thought my son was going to die and I felt like a failure as a parent. My son is fine now, but that experience taught me new way of thinking — a positive way of thinking. Instead of worrying about failure, I began to think, “What if this will work?” I put the perceived risks into a perspective that made sense to me: “What is the worst thing that can happen — will it hurt my children?” Once I kicked out that obnoxious roommate in my head, I achieved things that I would never have imagined. My idea, AboutOne, now has partnerships with Microsoft and Suze Orman. We’ve closed a Series A for $1.8M led by an amazing investment group called Golden Seeds , and I’m part of the 6% of women in tech who have received venture capital funding. I was featured in a documentary film about start-up life called CTRL+ALT+COMPETE . In order to find the repeatable models necessary for my start-up to grow quickly, I had to learn that if you are not failing you are not trying enough new things; I had to learn to encourage my team to celebrate and openly share failures so we could learn from those lessons. When I look back at my previous corporate job, I realize that I never failed and I now wonder if that was really a good thing. I wonder if CEOs of large companies should allow their teams to fail, and to celebrate those failures as opportunities to learn and improve. Entrepreneurial opportunities in the US are fabulous. Because of this, AboutOne has been able to help millions of people quickly and easily organize their family and home lives, even when they feel that they are too busy or don’t know how to get started. I’ve also been able to show my children that if they work hard and have faith in themselves, they really can live their dreams. As a mother, I feel these lessons about breaking free from fear of failure and embracing the opportunity to learn from failure are as important for my boys as they are for my company and myself. Originally posted on Joanne’s blog, Notes from the CEO

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Alan Jenkins: Racial Discrimination by Banks Only Worsens the Foreclosure Crisis

April 13, 2012

Is there a house in your neighborhood that everybody hates to walk past? You know, the one with broken and boarded up windows, trash left to gather on the lawn, and grass so overgrown it’s becoming a habitat for rodents? If you have a house like that in your community, you know it’s more than just an eyesore. Neglected, vacant houses depress property values throughout the community, and can threaten health and safety. They erode the sense of community and stability that creates vibrant localities, and they hamper economic resiliency. With a national foreclosure crisis still in full swing, such houses are all too common. You might be surprised to learn, though, that if you have problem properties like that in your neighborhood, there’s a good chance your absentee neighbor is a bank. More shocking still, banks are neglecting houses they own in minority communities even more frequently — much more frequently — than those they hold in white communities. A detailed, undercover investigation unveiled last week by the National Fair Housing Alliance and several regional partners shows not only that banks too frequently fail to maintain foreclosed properties that they own, but that they tend to neglect their properties in communities of color at a much higher rate, with devastating consequences. A large number of the neglected, bank-owned properties have broken or missing doors and windows, inviting vandalism and trespassers. And many have safety hazards that endanger the public. Those and other defects are significantly more prevalent in bank-owned properties located in communities of color. Another finding is that, on average, the banks are not marketing houses located in communities of color as aggressively to individual homebuyers as they do properties in white neighborhoods. The properties in white neighborhoods are, for example, more likely to have clear and professional “for sale” signs. When banks both poorly maintain and poorly market foreclosed houses, the properties tend to stay vacant longer and to eventually be sold to speculators, rather than to people who would make the houses their home. The discriminatory differences are stark. In Dayton, Ohio, for example, 60 percent of bank-owned properties in African American neighborhoods had broken or unsecured doors, compared to only 18 percent in white neighborhoods. In Atlanta, properties in African American neighborhoods were almost five times more likely than homes in white neighborhoods to lack a “for sale” sign. And in Dallas, 73 percent of the bank-owned homes in predominantly non-white neighborhoods had trash on their properties, while only 37 percent in white areas did. Neighbors of all races who live near foreclosed, bank-owned properties, the investigation found, are pulling together to keep them presentable — doing maintenance the banks should be doing, like mowing lawns and removing trash. But in communities of color, neighbors reported seeing home improvement contractors working on those properties at only half the rate seen by neighbors in predominantly white areas. The bank behavior identified by this investigation is unethical, unlawful, and harmful to our economy. It breaches our basic national values of equal opportunity and the common good. It violates the Fair Housing Act of 1968, signed 44 years ago this week in the wake of Dr. Martin Luther King Jr.’s assassination. And it is holding back our economic recovery by, among other things, depressing home prices and hampering sales. It’s hard to know all the reasons why banks are discriminating in this way. Bias and unfounded stereotypes about minority communities and homes, however, are a likely root cause. The investigators controlled for 39 race-neutral factors like building structure, water damage, and curb appeal, so the different treatment is indisputably about race, and not class or other home or neighborhood characteristics. This investigation should be a wake up call for banks, regulators, local governments, and the neighbors of these bank-owned properties. Among the solutions identified by the National Fair Housing Alliance are anti-discrimination investigations by the Consumer Financial Protection Bureau and other enforcement agencies, making information about bank-owned properties more publicly accessible, and prioritizing buyers who will occupy these properties over speculators who may warehouse them. As Americans struggle together toward a lasting economic recovery, good neighbors are more important than ever. It’s time to remind America’s banks that this includes them. Cross-posted from Race-Talk .

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Jared Bernstein: A Debate on Inequality, Opportunity, and Politics

April 13, 2012

Had a rousing debate on inequality last night with Scott Winship from Brookings, moderated by Reihan Salam, both of whom lean conservative, and both of whom brought generally interesting and provocative views to the discussion. The conservative take on the issue tends to fluctuate from mild denial (Winship, not Salam), to which I strongly object, to “is it really that big a deal?” with which I disagree but find interesting and challenging. On the denial front, what you mostly get is the “if-you-just-adjust-it-this-way-or-that-way-it-all-goes-away.” Scott raises immigration, incarceration, family structure, employer-provided health insurance, deflators, to name just a few. Some of these don’t affect inequality, like deflators (although Scott cited research that finds prices grow more slowly for poor people); others cut “the other way” — incarceration disproportionately takes lower earners out of the mix, so putting them back in would widen the gap between lower and middle-wage earners. Most of these are dealt with in the CBO data shown in the figure below, including health care, family size, taxes and transfer payments. So, yeah, there’s a lot more inequality and forgive me if I won’t swim in de-Nile on this point. More interestingly, both Scott and Reihan raised questions about how much all this inequality matters. The first argument is that there’s nothing zero-sum about the rise in inequality. Romney’s or Buffett’s or Gates’ or Zuckerberg’s gains are not anyone else’s losses. That’s hard to accept, given that it’s not just that most people’s real incomes kept going up like they used to, just not as fast as those at the top. Income grew more slowly for middle- and low-income households and poverty rates were stickier (i.e., less responsive to growth) in times of rising inequality. The divergence of median compensation from productivity suggests that in the age of inequality, the typical worker is simply not capturing as much of their contribution to growth as was formerly the case. In economese, some of what these and other rich guys and gals capture are ” rents ,” which are not zero-sum. We see this most commonly in the growth of financial markets as a share of the American economy, an important factor in not just the growth of inequality but in the bubble-bust cycle that’s done so much damage of late. In the 2000s, the median income of working-age families stagnated and poverty went up, even as the economy grew and the capital-gains powered income of the top 1% soared (see figure). Since the current recovery began, profits have soared, inequality is back on the rise , and the pay of average workers has stagnated of late. My own longer-term analysis of the factors responsible for the diminished elasticity of poverty with respect to growth finds inequality to be the most important factor (see figure here ). The latter 1990s provides a very useful counterexample. With true full employment upon the land — my favorite inequality antidote — inequality actually diminished between the middle and bottom (the top continued to pull away — cap gains, again), low wages grew with productivity for a New York minute, and poverty rates fell sharply. Inequality, at least in the bottom half of the wage scale, compressed and a lot more growth reached a lot more people. Similarly, Scott doesn’t buy that inequality negatively affects opportunity, despite all the arguments here . From that post, I keep coming back to this anecdote, because I think it’s so emblematic of the problem: …once you start looking for these linkages between inequality and opportunity, they show up everywhere. Here’s a great example from this AM’s WaPo, where public schools facing budget cuts–the disinvestment in public goods noted above–turn to parents to raise funds, and not for one-off trips to Mount Vernon, but for science curriculum, guidance counselors, smaller class sizes, music classes, etc. Of course, the affluent parents can raise hundreds of thousands; the poor parents, barely hundreds. It’s a classic example of inequality reinforcing itself through educational opportunity. One of the problems, admittedly, is that, as noted, this is anecdotal. And most of the other evidence that inequality thwarts opportunity is too, showing that, for example, the inequality of enrichment expenditures on kids or college completion rates grew as income inequality grew. It’s evidence but it’s circumstantial. But it’s convincing to me, and to most others who’ve looked at this closely, so I don’t for a second buy the argument that inequality is economically benign. More challenging was their point that income concentration is a lot more politically benign then I’ve been thinking. As I argue in this deck (slides 16-18), hopefully well known to OTEers, while money in politics has long been a problem, it’s gotten a lot worse as there is so much more income at the top and so much more leeway for that income to “buy” the politics it wants. Read Hacker and Pierson’s book , and you find it awfully hard to avoid the conclusion that we’re stuck in a nasty feedback loop, where the increased concentration of money in politics locks and blocks–it’s locks in policies that perpetuate its growth, and blocks policies that would ameliorate it. An egregious example of late is that one person -Sheldon Adelson, whose net worth according to Forbes in $25 billion (yes, that’s with a ‘b’)-by dint of the Citizen’s United decision, was able to keep a candidate in a national primary for months on end. That strikes me as profoundly undemocratic, and is a potent symbol of how corrupt our political system has become. But Reihan and Scott argued that perhaps this was less portentous than all that. It was basically just a rich guy wasting some money, indulging a fantasy or something (hey, whatever turns you on, I guess). As Scott put it, if Gingrich wins the election, I’ll have a point. And of course he won’t. That’s interesting, although it’s a bit weird to contemplate that allegedly smart investors would make such foolish investment. But are they really that foolish? They’re using their unimaginable riches to steer the ideology, and they’re doing it throughout the system, from local school boards to national elections. This is scary and damaging to America. I’m open to good arguments from smart people like Scott and Reihan. But I simply don’t see how these extreme economic, social, and political imbalances are so benign. I fear they’re cancerous, and if we allow ourselves to be distracted by adjustments to deflators or we over-discount correlations because we haven’t yet determined causality, that cancer will metastasize and America will be in real trouble. Added bonus/penalty : here’s Scott and me debating this stuff on the radio yesterday.

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Steve Clemons: New Economic Thinking vs German Ordnungspolitik

April 13, 2012

photo credit: Reuters German Minister of Finance Wolfgang Schäuble in his welcome note to an Institute of New Economic Thinking convening of some of the world’s leading economic theorists and practitioners in Berlin this week wrote: I would also like to point out that it is not just new thinking that we need.  Rather, it is often equally important to recall older ideas and approaches that may have fallen out of the limelight in the meantime.  For example, we in Germany have sharpened our focus on the necessity of pursuing economic and fiscal policies that are consistent with the principles of markets and competition — what we call Ordnungspolitik .  This approach can make crucial contributions to the concrete design of policies and especially institutions.  In my view, Germany’s “debt brake” is an institution that lays the groundwork for reliable long-term policymaking and that by itself can counteract undesriable fiscal and economic developments. Ordnungspolitik seems to roughly translate into a government debt-averse, laissez-faire approach to economic policy that runs along similar lines to what Republican House Budget Committee Paul Ryan is promoting. What is frightening many in Europe today is that Schäuble’s views are mainstream in Germany, a current account surplus national oasis in a world plagued by debt desertification. In other words, Germany is not only unwilling to extend a real lifeline to other sinking economies in Europe, it’s using this moment in history to promote an ideological austerity that it wants to compel other nations — when their economies are reeling — to do the same as the price for German support. George Soros , anchor speaker among many luminaries at this INET conference , has offered contrarian views to those of Schäuble and published this oped in yesterday’s Financial Times , ” Europe’s Future Not up to Bundesbank .”  However, in the side chatter here, most believe that the gap between Germany’s economic prescriptions and floundering European siblings won’t be bridged. There is sort of a feeling among many here that the European titanic is sinking and that Germany has control of all the life boats and won’t let them out. In a way, developing ‘new economic thinking’ is similar to researching and promoting use of renewable energy sources — vital but it takes a long time and major investment to retrofit a world organized around traditional energy.  Soros and some others at this conference have been arguing that the very foundation of equilibrium-driven economics is wrong, that markets are instead prone to bubbles and collapse and require constant regulatory involvement.  But just as the gap between Germany on one side and Spain, Italy, Greece, Portugal, and others on the other is growing — so too is the gap between market fundamentalists like German Finance Minister Schäuble and ‘new economic thinking’ market skeptics. While millions of other-than-German Europeans may sink given Germany’s tenaciousness about a debt brake for all and a conservative Ordnungspolitik, also hit hard could be President Obama’s reelection aspirations.  Stay tuned. — Steve Clemons is Washington Editor at Large at The Atlantic , where this post first appeared. Clemons can be followed on Twitter at @SCClemons

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David Isenberg: Soldier or Contractor? It Doesn’t Matter; in the End Both Still Get Screwed

April 13, 2012

Despite all the attention paid to the use of private military and security contractors on battlefields it is true, as many in that industry say, that it is not that new; at least not as an organizational phenomenon. In fact, the problem of adjusting American military organization to new social, political, and strategic realities has perplexed military thinkers since the closing days of World War II; proposals for reform have proliferated since the end of the Vietnam War. Substitute outsourcing and privatization for new realities and the challenge seems much more familiar. Put simply, the U.S. once had a vertically integrated process to transport troops, run supply chains, and maintain equipment. Today, the military outsources these functions to private companies. These workers drive trucks, cook meals, maintain equipment, and provide security. Nation-building activities include building roads, schools, and dams in Iraq and Afghanistan. When these jobs are subcontracted, soldiers and civilians work together in coordinated duty and employment. This integrated model constitutes a new war-labor paradigm. Still, every now and then an unappreciated aspect of the readjustment comes to light. That is the subject of this article. In 2010 Michael H. LeRoy, a professor at the University of Illinois College of Law published a paper exploring the question of how losses are compensated when civilians and soldiers are seriously injured or killed in integrated settings. In that paper, The New Wages of War — Devaluing Death and Injury: Conceptualizing Duty and Employment in Combat Zones , subsequently published in the Stanford Law & Policy Review in 2011) he found that co-mingling military service and civilian employment raises new questions about legal remedies for Americans who are killed or injured serving their country. To paraphrase Rudyard Kipling’s famous poem, “Ballad of East and East,” East is no longer East and West is no longer West. Increasingly, soldiers serve under the direction of contractors. Meanwhile, civilian employees work for private sector firms that are directed by the military. Thus, some soldiers engage in non-combat activities such as building water treatment plants, while civilians work in combat support roles such as guarding mess halls and supplying troops. LeRoy points to two incidents that help illustrate the two poles of the paradigm. First, was a Halliburton supply convoy that tried to deliver supplies to U.S. troops in Iraq. Six truck drivers were killed after their group was ambushed in 2004. The day before, a similar convoy was attacked, killing a co-worker. The work so unsafe that managers contemplated an interruption of services, but they decided to go forward, leading to the death of their employees. The workers’ survivors, suing in tort, believed that job ads misrepresented the safety of work in Iraq. A judge rejected Halliburton’s defense that it has immunity from suits as a government contractor. Thus, the survivors’ legal claims are proceeding to trial. In the other case soldiers served on a non-combat mission under a civilian contractor. As they worked at an Iraqi water treatment plant, they developed bloody noses — a sign of poisoning from the sodium dichromate in pipes. Fearing-long term effects from this deadly toxin, the soldiers sued KBR. An Indiana court will decide whether their claims are dismissed under a doctrine that bars tort recovery for injuries that arise during military service. LeRoy asks should the soldiers only receive service member benefits, or should they be allowed to pursue tort and other remedies? Is this just a technical legal issue or does it have greater significance? According to LeRoy: When courts award or deny monetary relief in these war labor cases, they decide whether civilians and soldiers perform “work” or “service.” The distinction has profound consequences for compensating war losses. This study sheds light on growing judicial scrutiny of the integrated use of civilians and troops by asking: How are civilians and soldiers who are co-mingled in this military system paid for death and injury? Do sovereign immunity theories bar recovery? Do courts order arbitration of these claims? If courts try claims, what laws apply: torts or worker’s compensation? LeRoy examined injuries to both soldiers and civilian contractors and what, if anything, the received in way of compensation. He found that: Private military forces do not usually qualify for workers’ compensation because they work beyond state borders. Only a few states apply this law for injuries outside their jurisdiction. The Federal Employees’ Compensation Act is a workers’ compensation law for federal employees, but it does not apply to contractor employees. Thus, most private military force employees fall in a workers’ compensation void. However, the Defense Base Act applies to some of these workers. It pays civilians who are killed or injured on public works projects outside the United States. He also found that that no soldiers received workers’ compensation for their losses. This is not surprising. When soldiers die during active duty, the United States provides survivor benefits. These include monthly payments to spouses, children, and other dependents under the Dependency and Indemnity Compensation and Survivor Benefit program. Alternatively, survivors are eligible for lump sum payments from the death gratuity program. This provides a maximum benefit of $ 100,000. Service Members Group Life Insurance supplements this automatic benefit by allowing soldiers to buy up to $ 400,000 in insurance. But in some cases, servicemen or their estates and survivors, believed that death and injuries were proximately caused by contractors. But these lawsuits were unsuccessful. Courts applied sovereign immunity doctrines to dismiss these claims. This doctrine reflects a long-held view that the United States must give consent before a party may sue it. In specific instances, the federal government has waived its sovereign immunity — for example, where individuals sue on a government contract LeRoy has reviewed the legal cases against various contractors by both soldiers and contractors and has created, as one would expect from an academic, a typology. I won’t try to explain it here but some of his findings are noteworthy. The cases in the typology lead me to suggest four public policy options for compensating civilians and soldiers who are killed or injured while they work together in a war zone. Before I discuss these possibilities, I explain how the current array of contractor defenses present obstacles to these alternatives. The success of contractor immunity defenses appears to have several objectionable short-term effects. They terminate court proceedings that result in intensive fact-finding. A potential byproduct of ending discovery is to shield contractors from answering questions that implicate public interests. Contractors have a special relationship to military commanders. It does not necessarily follow, however, that sexual assaults of civilian workers should be hidden from public scrutiny, or that air-taxi companies with poorly trained pilots should be free from judicial discovery when their possible negligence kills service members, or plausible claims of contractor indifference to the likelihood of civilian-employee slaughter by enemy ambush should not be tried to a United States civilian court. LeRoy offers five options Option One: Preserve the Status Quo Option Two: Create a Federal Workers’ Compensation Policy for Civilians Who Work with Military Forces in War Zones Option Three: Apply Extra-Territorial Provisions in Current State Workers’ Compensation Laws to Civilians Injured in a War Option Four: As a Condition for War Contractors, Private Employers Should be Required to Pay More Generous Death, Disability, and Health Insurance Benefits Option Five: Improve the Compensation System for Soldiers Who Are Killed or Injured While Serving with Private Contractors On the plus side LeRoy found that doing nothing, Option 1, is better than it sounds. He noted: The present method for resolving death and injury claims does not necessarily need to change. Most civilians and service members are able to try cases in civil law courts. This means that judges are open-minded in responding to the new war-labor paradigm. In other words, courts are not dismissing complaints simply because incidents occurred: (a) outside the United States, (b) in active combat zones, and (c) in conjunction with military command. These three points are remarkable given that courts usually dismiss liability suits against contractors by applying immunity doctrines. In sum, courts are grappling with the new war-labor paradigm but have ponderous methods to rule on claims. On the negative side LeRoy looked back at the infamous case of CACI International., Inc. v. St. Paul Fire and Marine Ins. Co ., when the U.S. military contracted with a private company to interrogate detainees in the Abu Ghraib prison. After detainees and their survivors sued the company for abuses committed by CACI employees, the contractor sued to have its insurer defend it in this lawsuit. Interestingly, the detainees sued on an employment tort – negligent hiring and supervision. The insurance firm refused to defend CACI because its contract only covered activities in the United States. Affirming a lower court ruling that relieved the insurer from a duty to defend the contractor, the Fourth Circuit rejected CACI’s arguments that the policy provided coverage for activities that occur a “short time” outside the coverage area. LeRoy found this troubling. His article concluded thusly: Viewed in the context of this study, CACI raises difficult questions: If Iraqi detainees have a possible employment-law cause of action against a military contractor, why are the seriously or fatally injured employees of these contractors forced to endure many years of pre-trial maneuvers to bring their damage claims before a United States court? Why do United States troops face the same types of obstacles for recovery when Iraqi detainees are cleared to sue war contractors in American courts? And, if a war contractor is willing to pay for liability insurance for its aggressive interrogation business in an Iraqi prison, why does the same type of contractor not provide workers’ compensation for cooks, mechanics, guards, engineers, pilots, and truck drivers who work in the same combat area? The United States has set an inexorable course for privatizing and commercializing the waging of its wars. However, when companies contribute to the death or injury of service members or civilian employees, there needs to be a better method to improve the compensation for these losses.

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Daniel Burrus: Stop the Presses: The Future of Newspapers

April 12, 2012

According to the  Newspaper Association of America ,  2011 was not a good year for newspaper advertising , with total revenue down 7.3% — almost $2 billion, and a percentage point more than the previous year’s loss. To be blunt, that’s not surprising. In fact, what is surprising is that it was only down that much. Let’s face it, newspaper publishers still haven’t quite understood how to maximize and leverage the digital world, and thus increase their advertising revenue. The newspaper business is, unfortunately, focused on the second word, “paper,” instead of the first word, “news.” As a result, they are still making their online news static rather than dynamic, meaning that it is still one-dimensional. The online versions of most newspapers are nothing more than a piece of paper online. A better approach is for newspaper publishers to give us an online version that’s a two-dimensional experience. They could give us interactive maps, videos, audio interviews, and the ability to actually go to the news site and take a look with a live cam. For example, recently where I live in Southern California there were  several big boats that caught fire in a marina.  All I saw in the newspaper’s online reporting was a written article about the fire and a picture. What could they have done? They could have given me video footage. They could have set up a live feed and let me take a look at the fire in real time. They could have given me an audio feed to the reporter covering the fire so I could get off-the-cuff comments that were not a part of the written story. They could have given me some additional interviews. These are just a few suggestions for how newspapers can make their information truly dynamic so we can start thinking digital and stop thinking paper. Also, why isn’t the newspaper getting more social? Local newspapers are about local news. Yet I don’t see that social component appearing in most outlets. In the newspaper world, that could be very innovative, since so few of them are doing it currently. Am I saying that newspapers should stop doing a print version and focus solely on online? Of course not. You need both. The paper version is a way to hook people. People see it, pick it up, look it over, and get hooked. The online version is usually the option for long-term fans. So we still need both, but they don’t need to be identical copies of each other. So let’s finally get rid of that paper-based newspaper idea. It’s time to make the online newspaper more dynamic, more interactive, and more social. It’s time for newspaper publishers to shift into the communication age so they gain more readers and advertising dollars. Article first published as  Stop the Presses: The Future of Newspapers  on Technorati.

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John Arensmeyer: Don’t Forget About the Small Business Health Care Tax Credit

April 12, 2012

With tax day rapidly approaching, small business owners still have a chance to cash in on a health care reform provision reserved just for them: health care tax credits. The Affordable Care Act was designed to address one of small business owners’ most serious problems — a lack of access to affordable coverage. Since its enactment, employers across the country have been able to claim the credit and reinvest in their business. Nan Warshaw, owner of Bloodshoot Records in Chicago, Illinois, is one of them. Nan was able to save nearly $6,000 with the Affordable Care Act’s small business tax credit in 2010, helping offset her group coverage cost. “We’re still filing our 2011 returns, but we anticipate saving nearly that amount again,” she said. “With us paying the full contributions for our employees’ insurance, it really is a relief to get some help with those costs — and this is certainly the first time we’ve been financially rewarded for looking out for their wellbeing.” Nan is one of hundreds of thousands of employers already seeing her health care costs decrease with the help of the tax credits. According to national opinion polling we released in 2011, one-third of small business owners who currently don’t offer health coverage are more likely to start doing so because of them, and 33 percent of employers already offering it said they’re more likely to continue doing so. Currently, businesses with fewer than 25 full-time employees who pay at least 50 percent of total premiums are eligible for a credit of up to 35 percent of their premium contribution. In 2014, that will jump to 50 percent. For a rough estimate of how much your business could save, check out Small Business Majority’s tax credit calculator . In this tough economy small business owners are struggling to compete, and in some cases, just keep their doors open. Like some of the law’s other key components, the tax credits are intended to boost entrepreneurs’ bottom lines, bettering their chances of offering quality coverage. Some use it to become more competitive by bulking up benefits packages, while others purchase new equipment. Still others put it toward their employees’ share of premiums. For Ron Nelsen, owner of Pioneer Overhead Door in Las Vegas, Nevada, the credit eased worries that group costs might spiral so far out of control that he’d be robbed of his commitment to offering insurance. “When I heard about the new health care law, I was relieved something was finally being done to help entrepreneurs like me,” he said. “In 2010, I got back $2,235 just for offering insurance to deserving employees. And this year, I received even more. Most importantly, I’m not thinking about having to tell the guys they’re on their own when it comes to health insurance.” Nationally, 309,000 small businesses saved money through this provision in 2010. An even larger number should benefit this year. And research shows the uptake could be even greater. Our opinion poll found 57 percent of small business owners do not know about the tax credits. It’s time to change that. To help them, we must get the word out and do everything we can to make sure this important provision is taken advantage of. In this economy, every little bit helps. John Arensmeyer is the founder & CEO of Small Business Majority

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Wray Herbert: The Surprising Benefits of Corporate Disunity

April 12, 2012

I love reading accounts of the West Wing’s inner workings, because they are studies in the predictable quirkiness of human psychology. Presidents and their trusted staffs always arrive in the White House with a unified message and team spirit, and they inevitably disintegrate into factions — ideological purists and pragmatists, seasoned vets and young Turks. It’s just as true of Obama’s West Wing today as it was of Nixon’s and FDR’s, and probably every presidency back to the founding. The common wisdom is that such factions are a bad thing, not just for the White House but for any complex organization. Internal bickering takes key leaders off message and saps energy and hurts job performance. But Margaret Ormiston isn’t so sure. Ormiston is a psychological scientist at the London Business School, and together with Elaine Wong of the University of Wisconsin — Milwaukee, she has been studying the consequences of such organizational fragmentation. Her work suggests that disunity may actually have some hidden benefits, including the promotion of more ethical business practices. The scientists’ theory goes like this: As unified leadership teams splinter into factions, the key players become more competitive and more vigilant in monitoring one another. Competition and monitoring have downsides, but they can also influence organizational decision making in positive ways. Specifically, factions foster intense scrutiny and discussion of competing agendas, which in turn lead to more ethical choices and judgments. To test this idea, Ormiston and Wong examined existing data on leadership teams at about 50 Fortune 500 companies. They ranked each leadership team’s degree of fragmentation, based on tenure and education as well as the homogeneity of competing factions. They also measured how centralized, or decentralized, the decision making power was in each company — figuring that disunity would be more beneficial in organizations where decision-making power was dispersed. Finally, they examined each company’s ethical record over a three-year period — measures like charitable giving, for example, or disregard for the local community economics. When they crunched all the data together, the results were unambiguous. As reported on-line in the journal Psychological Science , the more fragmented a company’s upper management was, the more ethical its record — but only in organizations where decision making was decentralized. In companies that consolidated power at the top, fragmentation did not lead to more ethical decision making. It just led to fragmentation. That’s a lesson for any organization, whether its business is business or governing.

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Sandy Abrams: Mompreneurs: Should You Consider a Franchise?

April 11, 2012

This may be the year of the entrepreneur, but does that include franchising? Brenda Dronkers says: Yes! There are so many reasons that right now is a good time to buy into a franchise. For women in particular, there are so many low cost as well as home-based franchise brands. In the past, it seemed that franchising was geared more for the brick and mortar, high investment, high strung entrepreneurs. However, these days, with options like tutoring services, food trucks, home services and so many other industries adding a low cost franchise opportunity with flexible work schedules, it is primetime for women in franchising. Brenda Dronkers knows about franchising. She’s the founder and former president of Pump It Up, the Inflatable Party Zone. Founded in 2000, she grew it to what is now the largest children’s recreational franchise system in the country. She sold majority ownership in 2007 after sales hit $70 million. Brenda’s kids were 4,9, & 11 years old in 1999 when she attended a church carnival. There were two big inflatables in the church warehouse that were by far the most fun attraction at the carnival. Kids would wait in line to jump up and down for a few minutes then swing around to get right back in line again. Brenda found herself awestruck in two ways. The first was that both her youngest and oldest kids were both completely enthralled with the inflatables. Usually her kids weren’t entertained with the same activity since they were seven years apart. Secondly, she realized that because these were inside, there was no weather issue allowing for year-round fun and parties. Without a college education or biz experience, ten weeks after this aha moment, Brenda opened her first Pump It Up. If you are considering buying a franchise, Brenda recommends that you ask yourself these questions: Can I follow training and directions easily? Can I follow someone else’s system requirements? Am I a multi-tasker? Can I fund the franchise until it is up and running successfully? Last but certainly not least… Do I have my family’s support? If you answered yes to all of those questions, then franchising may be for you. If in fact it is, Brenda suggests these questions be asked of a potential franchise: How long has the franchisor been in business? What kind of ongoing support will the franchise offer? Does the franchise have a solid growth plan? How do the rest of the franchisees like working with the brand? How much freedom does the franchise give you? Brenda describes how she managed to balance mom & biz when she first launched: When I began PIU, my children were 4, 10 and 12. When hubby was at the firehouse, I took them with me to the PIU when I had parties booked. I had an office, and I taught them all to make goodie bags (free child labor, except for all the ‘goodies’ they grabbed). I brought a TV, books, toys and made a play area/homework room for them. This lasted for about six months, and then I was able to hire a manager to work the parties. I did the rest of the business from home. Many moms, if given the chance, would choose to work from home once they have their baby like I did. As moms, we have this amazing way of being able to balance our home and business life. It will take some practice, but it can be done. For many moms franchising can be an effective, flexible, rewarding and supportive business option. There are lots of franchise systems set up by franchisors that are focused on targeting women who want to work from home. Out of the approximate 3,500 franchise opportunities, Brenda says that about 1,000 are home-based options. She recommends the following franchises for mompreneurs who prefer to be home based: Games On the Go: This is a mobile RV that travels to birthday parties and events. The RV is full of retro games, such as Pac Man, Donkey Kong and more It has a very low start-up cost and is designed to be run from a home office. Stroller Moms: This is a franchise that trains you to host stroller fitness classes in your neighborhood. This is not only a great source of revenue, but the mompreneur actually makes friends and can take her baby to work! Bark Busters: This franchise will teach its franchisee to train dogs. So, if you love dogs, what a great way to get out of the house, and run your own business as well. Home Helpers: If you love senior citizens, you may love Home Helpers. The franchisee of this franchise work’s from home, making appointments to visit and assist senior citizens…o n your own schedule! Brenda talks about the benefits of going with a franchise as opposed to starting your own similar type of biz: When you invest in a franchise, you are investing in a proven business model. I was very blessed that PIU was a hit. According to About.com, studies show that franchises have a success rate of approximately 90 percent as compared to only about 15 percent for businesses that are started from the ground up. The increased probability of success usually far outweighs any initial franchise fee and nominal royalties that are paid monthly. Also, many franchises participate in women’s funding opportunities, or have pre-registered with the SBA to avoid lending issues. Franchising is amazing. But not all franchises are created equal. If you decide to explore franchises, be sure to use your talents as a woman…practice discernment and use your intuition as you speak to these franchise brands. Any doubt, find another brand. There’s such a variety of options available and if you spend enough time researching, Brenda is confident that you will find the right business match. You too can then jump for joy!

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Hulya Aksu: Women in the SoLoMo Boardrooms

April 11, 2012

Those of us who pay attention to marketing trends have all probably heard the term “SoLoMo” by now. Companies are encouraged to appeal to a hyper-connected and technologically savvy, new consumer base through the use of social, local and mobile applications. Seems like a no-brainer. What entrepreneur wouldn’t want to utilize sites like Facebook and take advantage of the ever-progressing and near-universal use of mobile technology to promote their businesses? The problem is that the SoLoMo is missing something that is in many respects also a no-brainer. The Wo(men)! There is more. Women are the savviest of savvy tech junkies, whether they know it or not. Consider the illuminating data compiled by Aileen Lee in her March 20, 2011, TechCrunch post, ” Why Women Rule the Internet .” In it she states, Comscore, Nielsen, MediaMetrix and Quantcast studies all show women are the driving force of the most important net trend of the decade: the social web. Comscore says women are the majority of users of social networking sites and spend 30 percent more time on these sites than men; mobile social network usage is 55 percent female according to Nielsen. Women are not only outnumbering men in social media usage, but they are spending more time on the social sites that they visit. The importance of women consumers to businesses is only amplified when we take into account that women also control family budgets — the purse strings. Lee also tackles this point: In e-commerce, female purchasing power is also pretty clear. Sites like Zappos, Groupon, Gilt Groupe, Etsy, Pinterest and Diapers are all driven by a majority of female customers. According to Gilt Groupe, women are 70 percent of the customer base and they drive 74 percent of revenue. And 77 percent of Groupon’s customers are female according to their site. These are profound numbers. Women are fueling the economy as we know it. So if we are such avid users and are socially connected, then why are we not among the founders and the leaders of the companies that serve us? I publish Modern DC Business Magazine and in our latest issue we covered the burgeoning technology startup scene in Washington D.C. This year, I was also invited to be a part of a private group of hand selected CEOs that represent the technology community of Washington D.C. While I did meet women who are leaders in their companies, our numbers in boardrooms sadly did not mirror our dominance on the web. I am unfortunately a minority as a publisher and technology startup founder. Recently, I was a part of a startup pitch contest at one of the most prestigious law firms in the D.C., and the room was filled with Angel investors and venture capitalists, along with 12 companies’ founders eager to score the cash they needed to catapult them into mainstream success. As I quietly sat in my chair waiting for the presentations to start, a man, who upon making eye contact with me exclaimed: “Wow, we don’t see too many women at these events!” How illuminating, I thought. But he was right. I was one of the few women present at the event. One of the women presenting entrepreneurs could not hide her excitement when she saw me in the audience. Yes, another one of us. At risk of sounding too dramatic, I couldn’t help but draw similarities to a bygone era when companies were encouraged to sell products to minorities but not hire them into leadership positions. You obviously can’t mandate companies to hire women into their executive teams or flick a switch and have women spontaneously establish technology companies. But things can be done now to ensure that future generations of women will have access to the highest levels of success in the boardrooms of America. Encouraging young girls to enter the sciences and entrepreneurship early could be a good start. But there needs to be an overall shift in the way we think about women in leadership before any reform can actually take root and be meaningful. Companies too, can make a difference, and can do so in the short term rather than waiting for a generational shift in priorities. SoLoMo companies can begin hiring smart and qualified women into leadership roles to help better communicate and connect to the women who keep these companies afloat. It is time to be an “uncool” company if your boardroom doesn’t represent your consumer’s demographic representation. That would be a good start, and who knows, it may perhaps serve as a smart strategy in other industries as well.

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Robert Shiller: 10 Ways Finance Can Be a Force for Good

April 11, 2012

The finance profession gets maligned after every financial crisis. The anger is especially strong now, after the most recent financial crisis, which began in 2007, and the anger that is felt about it goes far beyond the Occupy Wall Street movement. The crisis is often viewed as more than an unfortunate accident, but as a revelation of an underlying moral fault. Of course, some people in finance are evil, but that is true in every walk of life. Maybe the wrongdoings of financiers loom especially large in our imagination, since some in finance make so much money doing it. We naturally want a more equal society where most people feel fulfilled and sense a basic respect from others. But, we have to think about how achieve that kind of equality without disrupting our goals or disturbing our standard of living. Moving forward from here, we need to think about how we can make finance work toward a society that is both comfortable for all of us and stimulating and forward-moving as well. In my view, doing that means tinkering with some of the financial institutional structures so that they work better for everyone, and expanding the scope of finance to cover more of our risks and activities. That means enlisting the help of people with financial expertise. Throwing a lot of financial people in jail or shutting down financial institutions are not on my list. In my new book Finance and the Good Society (Princeton) I advance some ideas how this can be done, in our new information-technology-rich society: 1. Advance the benefit corporation. From the initiative of the nonprofit B Lab, the first law allowing benefit corporations was created in Maryland in 2010, and now eight states have them. A benefit corporation is a for-profit corporation that has some additional social or environmental purpose other than just making profits. Each benefit corporation can define its own purpose and will attract its own kind of idealists as investors. My guess is that this new idea will turn out to be a winner, that will yield some of our most profitable corporations because of the employee and community support they will inspire. The amazing example of Wikipedia, with its unpaid authors, shows how public purpose can motivate people. 2. Create what I am calling, in my new book, participation nonprofits, nonprofits that might run schools or hospitals or the like, but that raise money by selling shares to the public. Such a firm pays dividends from its profits into a special account in the name of the shareholder. The shareholders get a charitable tax deduction for making the investment, but can use the dividends in the account only for further charitable contributions, including purchasing shares in participation nonprofits, or can spend them on themselves in some predefined emergency situations such as a medical crisis. With participation nonprofits, charitable giving will be more fun for the donors, for they could watch their money grow and feel their influence grow with it, if they invest wisely, fulfilling a natural human need for stimulation and appreciation. For example, the Wikipedia Foundation might have been even more successful if it had been set up as a participation nonprofit, and found some revenue opportunity associated with their mission. Instead of operating on a shoestring of the mere 75 employees it has today, I’ll bet it would have received many billions in donations by now, which it probably could use for a much expanded social purpose. 3. Create what I am calling continuous-workout mortgages, mortgages whose contract specifies from the beginning that the loan balance will be reduced in contingencies like a decline in home prices or a severe economic recession. In the current crisis, we are hampered by the fact that few troubled homeowners are getting workouts on their mortgages. This has been a significant factor in the severity of the crisis, since people who are underwater on their mortgages are not likely to spend, or to move to take a new job. Workouts could be not only preplanned but also made continuous, responding day by day to every change in the economic situation of the homeowner. 4. Get risk-management markets for real estate risks going on a high level. In 2006, my colleagues and I worked with the Chicago Mercantile Exchange to launch the world’s first futures exchange for single-family homes. The market is still going, though trade is very weak. But the CME Group has just launched new options on home prices, which may rekindle the market. If this initiative does not work well either, we need to come up with another initiative to make these markets work, which will enable private mortgage issuers to use them as risk management devices so that they can do such things as create continuous workout mortgages without taking on unacceptable risks by doing so. The financial crisis might largely have been prevented if we had such markets. 5. Empower lobbyists on behalf of the 99%, the people who make up all of the population except the very wealthy. There is nothing wrong with lobbyists per se, for they give needed information to lawmakers. Every interest group should have lobbyists, including the working class and the poor. Financial lobbying is especially important since lawmakers cannot be expected to have expertise on difficult financial concepts. The problem has been that the financial lobbyists have grown dramatically in resources in recent decades, while other groups’ lobbyists have not. Supporting a better balance of lobbying efforts needs to be emphasized. 6. Advance the cause of risk management for the very poor. There are billions in the world today whose survival depends on subsistence farming. Farms ought to be able to insure their crops against failure due to bad weather. Traditional crop insurance has not worked because crops are difficult to verify and there is thus a moral hazard problem. Now that weather reporting is more detailed, and now that agronomists better understand the relation between crops and weather, we can base insurance on the weather changes that affect crops. The take-up by farmers of such insurance has been slow, despite demonstration programs sponsored by the World Bank and other donors. We need to experiment more with marketing forms until we get these right. 7. Create more sophisticated forms of public debt. At the present time, national governments tend to rely exclusively on conventional debt to finance their deficits, in contrast to companies who use both debt and equity as well as a plethora of other financial devices. A simple first step would be for governments to sell shares analogous to the shares in corporations that are traded on stock markets. My Canadian colleague Mark Kamstra and I have proposed that governments with deficits, instead of borrowing more now, start selling what we call trills: each trill promises to pay a dividend equal to trillionth of GDP each year to the owner, in perpetuity. Investors who are optimistic about GDP might love these investments, and governments would then find that they are cushioned against financial crises like the present crisis since their required dividend payments decline then. 8. Create tradable social policy bonds. The idea, first articulated by Ronnie Horesh in New Zealand, is for governments to create bonds that pay out if some specified social policy objective, such as an increase in public awareness of some important issue or a decline in some specified crime rate. By creating such bonds, an incentive is created for private sector initiatives to solve them. An entrepreneur can profit by buying the bonds and taking steps to solve the problem. The entrepreneur does not have to wait to profit until the day when the policy objective is finally met, for, if these bonds are traded on public markets, the price of the bonds will tend to increase in anticipation of the fulfillment as soon as the prospect is apparent. 9. Create an inequality indexation scheme in the tax code. We would pass a law now that specifies that taxes will be indexed to inequality: tax rates on higher incomes will be automatically raised at any future date when inequality surpasses a specified threshold level worse than it is today. It should be politically much easier to create such a contingency plan now, to be triggered only at a future date if some specified level of higher inequality is reached, than to raise taxes later after such inequality is a reality and a political constituency for the newly rich is created. Just as, with fire insurance, one must insure a house before it burns down. So to, if we are to view increased inequality as a risk with a financial solution, we should take risk-managing actions while it is still just a risk. 10. Create livelihood insurance, insurance offered to individuals against declines in the average income paid to people in their professional specialty. We already have disability insurance, insurance that protects individuals against loss of income due to illness. In the information age, we ought to be able to expand such insurance, without triggering moral hazard, to protect people against possibly catastrophic drops in lifetime earnings that sometimes occur when people’s occupational income suffers a serious hit because of some technological innovation or change in the economy. If people are able to insure their livelihoods against such events, they will not only rest easier, they will be able to be more adventuresome in their career choices. All of these ideas are expansion of basic financial technology toward the broader social benefits. The first step in making any such things happen is first to appreciate the kinds of financial institutions we already have, as well as their defects. We need then to improve and build up this financial infrastructure so that it works better in our lives. Robert Shiller is professor of economics and finance at Yale University. This month Finance and the Good Society appeared and also a new revised version of his free video online Financial Markets course, part of Open Yale , was launched.

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Kristie Arslan: Mr. President, Focus on the ‘Baffle Rule,’ not the ‘Buffett Rule’

April 11, 2012

President Obama is calling on Congress to raise taxes on the wealthy in a speech today, and he’s using a clever example to describe it. Calling it the “Buffett Rule,” he’s calling for tax law changes to ensure the Warren Buffetts of the world don’t pay a lower tax rate (due to their investment income) than their secretaries. Tax fairness is a top priority for the National Association for the Self-Employed , but we’re much more interested in tax laws that impact the 22 million self-employed Americans who aren’t household names but who create a whole lot more jobs than Mr. Buffett. In honor of the millions of Americans who are struggling this week to figure out the home office deduction and other baffling tax laws, we’re calling on Congress and the president to change all tax laws that are so baffling that taxpayers don’t take advantage of them. Let’s call it the “Baffle Rule.” The tax deduction for the use of a home office is one of the biggest headaches for taxpayers. It is probably the most notoriously complex and confusing broad-based tax credit offered by the federal government. An estimated 9 million Americans work out of their homes, but there are perhaps millions of these entrepreneurs each year who don’t claim this tax credit, simply because they don’t understand it. This is especially true for self-employed taxpayers, who usually prepare their own taxes. Unlike Mr. Buffett, they don’t have a platoon of tax lawyers on speed dial, so in many cases they just give up on the deduction out of frustration or fear of an audit from an incorrectly filed return. The NASE is asking Congress to simplify this deduction, by allowing home-based businesses to take a standard $1,500 deduction for home office expenses. By making the tax rule less confusing, more self-employed taxpayers will take advantage of it, thus providing more resources for these small businesses to grow and create jobs. Tax credits don’t work to encourage behavior if Americans can’t understand them, so let’s get Congress and the president to enact the “Baffle Rule” this year, so that our taxes for next year are friendlier and less baffling to the self-employed and small businesses.

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Jodie Levin-Epstein: Is Marriage a Poverty-Buster?

April 11, 2012

” The Myth of the Disappearing Middle Class ” (Washington Post, March 29, 2012) by Brookings Institution Senior Fellow Ron Haskins asserts that the lack of opportunity in 21st century America is largely driven by the failure of individuals to behave responsibly, particularly the failure of parents to marry. “The Myth” demonstrates the mathematical attributes of marriage (it also raises a host of other issues reverberating in the blogosphere). The arithmetic seems hard to beat: two incomes must be better than one. Haskins, who steered welfare reform for House Republicans, cares about results ; here he is typically careful with his data and provides a lot of it: Brookings Institution calculations of census data for 2009, a deep recession year, show that adults who graduated from at least high school, had a job, and were both at least age 21 and married before having children had about a 2 percent chance of living in poverty and a better than 70 percent chance of making the middle class — defined as $65,000 or more in household income. People who did not meet any of these factors had a 77 percent chance of living in poverty and a 4 percent chance of making the middle class (or higher). Unless young Americans begin making better decisions, the nation’s problems with poverty and inequality will continue to grow. Marriage (before children), high school graduation, and working are all great goals shared by many across the political spectrum. The sequence makes sense. Policies and programs to achieve the goals are valuable. But Haskins’ view scrambles together the data on good outcomes with the idea that gumption can move anyone into a higher-income cohort. The numbers simply celebrate how those who have a foot on the ladder can move up it. Haskins’ analysis considers the importance of missing rings but is essentially silent on the role of missing rungs. The question really ought to be what do we do when individual responsibility is no match for the economic forces that can envelop people as they move toward the desired goals? To note a few: Graduation from high school is particularly challenging for students enrolled in the nation’s dysfunctional “drop out factories,” which, by definition, graduate fewer than 60 percent of their students; while the good news is that the number of such schools declined 23 percent between 2002-2010, about 2 million students are still trapped in these failed institutions. Graduation from high school, while far better than dropping out, too often fails to adequately help job seekers. In March 2012, adults age 25 and over who had high school degrees faced an unemployment rate of 8 percent. Employment for youth is generally precarious, but within communities of color unemployment is a crisis : among those looking for work, youth unemployment (ages 16-24) stood at 16.5 percent in February 2012, essentially double the overall rate of 8.3 percent; black youth employment is more than triple the overall rate at 26 percent (large differences by race appear even among college graduates ; unemployment for white college grads in 2010 was 4.2 percent, while for African Americans it was 7.3 percent). Providing a child quality early care is out of reach for too many families: only one in six children federally-eligible for child care assistance receives any help. In 22 states, families seeking child care assistance face waiting lists or frozen intake. But is marriage invariably a poverty-buster? It turns out that one plus one does not always add up to two stable incomes. Particularly for those with precarious incomes the decision to get hitched includes a special calculation that adds in an assessment of economic instability and liability. As Stephanie Coontz , an expert on marriage observes, a woman “will certainly end up better off financially if she marries a man who is able to keep a job and is willing to share his resources. But she also has to weigh the very real possibility that he will become an economic liability if he loses his job or misuses the couple’s resources.” Income instability comes in many forms, not just a worry about job loss. Research that tracked young men ages 18 to 32 has shown that “changing jobs and having a large number of jobs end up lowering wage rates and reducing marriage rates .” Marriage may be more readily achieved by those who can woo with promises of economic stability. As reported in ” Marriage is for the Rich “, the rates of marriage are dramatically higher at higher incomes (even while rates are declining at all incomes). For low-wage workers, the math of marriage in which one plus one adds up and becomes two incomes may be true only infrequently over time. That creates instability. And while all workers may risk a job or earnings loss, there may be a low-income tipping point where instability feels boundless, not just some blip from which to bounce back. For some low-income couples, a future that anticipates economic liability makes it tough to tie the knot. It seems the poor and the rich share a crush on stability. So, when Haskins concludes “Yes, the nation needs its safety net, but improvements in personal responsibility would have a greater and more lasting impact on poverty and opportunity,” his assertion begets a question for all of us. Do you think factors such as limited educational opportunity and jobs that are inherently precarious (e.g. hours that are unpredictable) make it more difficult to succeed even for those who are trying to reach each benchmark, including marriage? I do.

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Preetam Kaushik: Starbucks Finally Coming to India: Will It Knock Out the Indian Coffee Retailers?

April 10, 2012

One of my Indian friends abroad was returning home after a three year stint in Japan and mentioned, “Well, the only thing that I would not find in India and I can’t live without is Starbucks.” “But, there are Café Coffee Day and Barista, the Indian Coffee chains, if all you want is a hang out joint and some good tea or coffee,” I said. “No, they are not the same, they don’t even serve Tazo Chai Tea Latte,” was the curt response. Well, it’s only an individual example, but kind of opens up a window to understand how brands develop and make your life incomplete without them being around. It is also precisely this sentiment that would welcome Starbucks in India. However, Starbucks is looking at a much bigger market than merely those who eagerly await its arrival. Indian coffee consumption has doubled up in the last decade to 100,000 metric tonnes . While the main players in the retail coffee chain in India are Café Coffee Day, Barista and Costa Café, it is really only the Café’ Coffee Day that has the largest market share. With over 1250 cafés across various cities in India, Café Coffee Day is progressing at a growth rate of nearly 30 percent a year. In Contrast, Barista remains slightly an upmarket Café with about 250 cafes across the county and Costa Coffee, still lesser at about 100 Cafes. Who amongst these is really the competitor for Starbucks really depends on how the company positions itself in India. Starbucks is partnering with Tatas with a 50: 50 Joint Venture to launch the first set of the 50 retail coffee chains across India by the end of the year. The first launch is estimated in August. Finally! The question one likes to ask is not what is bringing Starbucks into India, but what has really kept it out for so long. It may be the Foreign Direct Investment Policies for single brand retail companies, where the bar was kept at 51 percent. Apparently, Starbucks has long been interested in coming to India but somehow it didn’t work. However in the last few years, contemplating a Franchisee Model and was in talks with Kishore Biyani of The Future Group, India. It however does not work for many brands who do not want to partner with any Indian brand, such as Apple and IKEA. It is only in January, 2012, that the Indian Government allowed 100 percent FDI for single brand retailer raising from 51 percent. The only condition that comes with 100 percent FDI is that the companies who take the 100 percent route must procure 30 percent from smaller Indian companies . It is interesting that despite the 100 percent FDI allowance now, Starbucks has chosen to go for a joint venture with the leading Indian Conglomerate Tata, that too with a 50:50 partnership stake. The two companies who are signing in MO U’s are working on the finer print for the Indian chains set to launch soon. Starbucks is already in agreement with the company over sourcing its coffee from India. Although the final arrangement between the tie up is still not public, it wouldn’t be a surprise if TATAs, who are also in the hospitality business, run some of the retail stores out of their own properties. Starbucks, which runs over 1900 retail stores in over 58 countries, is planning to launch stores in all leading cities in the first round this year. However, it is estimated that Indian market currently has the capacity to absorb more than double the stores it already has. What brings Starbucks to India, when it is a known fact that Indians are not known for their love for coffee? In a country where the predominant beverage across the country remains ‘tea’ and the coffee drinking South Indians drink milky and sugary filtered coffee, it may not sound like a very naturally inclined market for Starbucks. However it is not the affinity for coffee, but the size of the Indian middle class which is estimated at 300 million that is attractive for brands like Starbucks. It is also true that Starbucks isn’t really all about Coffee, the branding apparently is hooked on to the coffee, but Starbuck offers more than the Coffee anywhere in the World and wouldn’t it be fair to expect that there would be something special for Indian market too. Café Coffee Day is no different, it does sell snacks, tea and so many soda based drinks, not remotely connected with Coffee. That brings the discussion to the buzz that is going around in the internet world. From the Washington post to the Wall Street Journal, blogs are talking about suggestive or anticipated menu for the Indian palate courtesy Starbucks. While the guess is that “Frappuccino” and the “Latte” , should remain there, some suggest Starbucks could benefit from having Alphonso Vivanno Lassi for Indians and may also consider change of name for ‘Tazo Chai Tea Latte’. Some suggestions are around having a ‘real masala tea’ as well as serving ‘coconut water’. One could imagine Indian obsession with mangoes, diary and sweet getting twisted into some interesting new beverages. It’s not a long wait now. Starbucks Corp. is serious on spreading its wings in Asia. One, the middle class in any of the East and South Asian countries is growing and the success in China has been definitely impressive for the company. The China success where cafeterias have become a national pastime of the sorts for the middle class, India must be an inspiration. The China experience shows that it is the young from the middle class that are its typical customers. While all across Asia Pacific the Café market is growing and is estimated at 10 percent to 30 percent, Mr. Wang, head of the Starbucks Asia Pacific finds Korea as one of the most promising market . Mr. Wang believes that their entry into the Indian market will lift up the entire coffee market in the country. Self-assured yet cautious, Mr. Wang seem not too worried about the local or national competition from existing brands. One of the reasons he cites is that theirs is a proven global brand. The other being their attitude that any competition helps you remain focussed, keeps them working hard on standing out. Or as they say, there may be a place for everyone to co exists. Interestingly, Mr. Wang who is a trained lawyer thinks that Starbucks culture is about being either a rule breaker or a rule maker. The company, he insists, relies on innovation and engaging customers and the market. Starbucks, he conveys, stands for its goals on sustainable growth, farmer equity and environmental awareness. The Starbucks would like to work with coffee farmers to better yields without reducing chemical inputs. The joint venture between the Tata and Starbucks will be called Tata Starbucks Ltd. It is Delhi and Mumbai which would host the first of these stores. Well, for those who won’t like to go to a café for their coffee, they can still relish a new product that both groups will together launch ‘Tata Tazo”. For the rest, long chats await in a few months from now at Starbucks.

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Renee Blodgett: Entrepreneurs Should Think Globally Far Beyond Silicon Valley’s Borders

April 10, 2012

While Silicon Valley may be the “hub” for technology startups and where the world thinks the top creativity and talent reside, there is plenty of innovation coming out of other parts of the world. In the states, Denver, Boston, Los Angeles, Washington DC, Portland and Seattle are all making strides. Just this past week, I was informed of a few startups out of Montana which just closed small rounds. Outside the states, many entreprenuers and VCs alike know about the flood of activity coming out of Israel, the UK and mobile apps from developers in Eastern Europe, Asia and South Africa (Memeburn is a growing social media and start-up blog for the developing world and a hot new Cape Town-based start-up conference is unveiling in the fourth quarter). Paris-based LeWeb is one of the hottest start-up and technology conferences around and given its growth and diversity, it’s not just focused on Europe anymore. In the last six months alone, I’ve met 6 French entrepreneurs who are moving from Paris to the Bay Area to increase their likelihood of getting funded and hiring the “right” names. Canada, the Netherlands, Belgium, Singapore too are all sprouting up new initiatives and innovations. I talked to the Singapore folks at SXSW who fed me fabulous chicken wings at their booth. (there was a huge international presence this year). They have a presence in Silicon Valley and are hoping to grow it in the coming months and years, as is Ireland with Enterprise Ireland, who is responsible for the funding, development and international growth of start-up companies in Ireland. The popularity of the Dublin Web Summit and the Founders conference are both strong indicators that the number of entrepreneurs and smart ideas coming out of Dublin and other pockets of the country is on the rise. Ireland also had a strong presence at SXSW with 30 companies on-site under the Enterprise Ireland umbrella. Part of their pitch to the social media and technology world was not just of their own talent, but to encourage others to bring their businesses to Ireland. Ireland has a €10 million fund for international start-ups. While it may not be brand new, many may not be aware of it. Why Ireland, besides the natural reasons of it being a gorgeous country with landscape to die for and a country loaded with smart, witty storytellers? What many may not realize is that Ireland has the most business friendly tax regime of any country in Europe or the Americas, which is pretty attractive when your budgets are small and you’re trying to raise early capital. It is obviously English-speaking as well, which makes it easy for Canadians and Americans to migrate east and Ireland’s geographic position and EU membership provides easy access to money flow on the continent. The World Bank’s ‘Doing Business’ report rates Ireland as the easiest EU location to start a business. And, the Irish Government has an assertive pro-business economic policy, offering a 12.5% corporate tax rate and 25% R&D tax credit. For those solely focused in Silicon Valley, perhaps it’s time to think a little more global. With more expansive thinking will come additional resources, capital and creativity not to mention interesting culture, social benefits and economic development outside of what northern California has to offer.

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Russell C. Smith: Reinventing Capitalism: Strange Currencies in the Marketplace

April 10, 2012

As a species, human beings have excelled at hedonistic adaptation. It’s one of the main reasons we’ve become the dominant species on the planet, and have survived over the past 12,000 years, when many other animals that roamed the Earth far longer didn’t accomplish anything resembling modern civilization. Dinosaurs had millions of years to evolve, but they never got around to developing a Gap Outlet, much less online shopping. Adaptation, altering behavior on a reward/punishment basis, and always staying ahead of the competition — enabled humanity to create civilization and all the institutions, organizations, and social structures that evolved along with us. When coins and paper currency overtook the barter system, societal structures adapted and those with the gold wanted to hold onto the gold. Modern capitalism and economic theories have only been around for a brief time in the history of humanity. And when it comes to economics, most of what’s been written, argued about, and speculated upon was done so before the Internet Age. As the Internet continues to expand and morph into its next iteration, helping to reinvent and demolish one industry after another, one can easily imagine the Internet soon altering huge segments of how capitalism works in the digital age. It’s safe to say there’s been no other time in the history of the world when so much information on peoples’ purchasing habits has been gathered, stored, catalogued, and most importantly… used. Impulse buying is done quickly, with a swipe of a credit or debit card, without much thought as to how a person’s overall buying timeline connects back to every other purchase ever made. Buying everything on credit or debit is now the norm in our society, and people who still use cash on a daily basis will soon become an anachronism, similar to those odd individuals who don’t always carry a mobile communication device. If the constant tracking of one’s buying habits already has a decades-long history, and everyone in society is now expected to be on-call and constantly tethered to a mobile phone, how does this consumer surveillance and over-connectedness play out in the long run? One of the easiest ways a mega-corporation can change your behavior is to offer reward points to you for every purchase you make. And with smart phone and microchips becoming more prevalent in our daily lives, don’t be surprised if you’ll soon be able to accumulate points automatically, even in your sleep. You already receive points for special deals, so why not for regular daily purchases — having your morning Starbucks Latte, drinking a Coke at lunch, or filling up at the same Shell station every afternoon. You’ll get more and more points for buying, choosing, picking anything, anytime, anywhere. You’ll become a walking preferred card for hundreds of global brand that will embed themselves into your behavior. And eventually, you may receive real rewards for your loyalty, not just rewards the corporation chooses for you. Eventually a person could accumulate far too many points to spend in a lifetime, similar to the way some frequent flyers have racked up so many miles they just don’t have enough time to use them all. Internet sites specializing in point trading could easily become the next big online business. Individuals could sign up and trade reward points with others, which would go toward buying tangible items on eBay or Swap.com. In the near future, it’s easy to imagine companies like Facebook or Google creating their own brand of currency. A far fetched idea? Not really. Just ask anybody who’s spent money on Second Life currency so they could buy virtual products or experiences. In a few years you might be buying Starbucks coffee with Star Bucks. It’s often be said by politicians that small businesses are the driving force of a healthy economy, and right now further growth of small businesses are what will create a more sustainable economy. Small businesses have struggled through these hard times, and adapted to the harsh economic realities. The complete failure of trickle-down economics has been apparent for some time, and new methods of achieving successes are tried daily, in every city in the country, online, and in every possible way. One proven method has been for small communities to invent their own currency exchange. In Traverse City, Michigan, the community developed a local currency known as Bay Bucks in 2006, and it’s billed as a the “homegrown local currency.” And Ithaca, New York has been using Ithaca Hours as a form of local small business currency since 1991. In the pioneering, can-do spirit, their website proclaims Ithaca Hours “promotes local economic strength and community self-reliance.” More than one economic seismic shift could happen over the next several decades. Finding inventive ways to get off shaky ground and move toward a more a sustainable economic climate is certainly on everyone’s mind. If capitalism has proven anything, it’s that it serves our hedonistic sensibilities well — providing citizens with everything they desire, all the time, if only they can pay for it. When a majority of the population agrees it’s finally time to reinvent capitalism so that it works for the majority and not just the ultra-wealthy, the super rich may decide to openly condemn the same system they’ve championed for so long. Witness the voices of mega-rich capitalists who realized it was time to promote a better future and change the world. Bill Gates aimed higher, began a charitable foundation, and decided to use a portion of his sizable wealth to rid the world of Malaria, and Warren Buffett has suggested to other billionaires they should set an example by giving more, or at the very least be taxed appropriately to their wealth, while also using their riches to transform the state of the world. After all, the one formidable task huge amounts of capital can be used for is to improve lives on a global scale.

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Jared Bernstein: What Is This Thing Called… Escape Velocity?

April 10, 2012

A number of economists, myself included, have been talking for awhile about the underlying strength of the recovery in terms of “escape velocity.” The idea we’re trying to convey — or at least the one I’m contemplating — is a virtuous cycle of growth begetting jobs, which in turn generates incomes, which supports more growth, etc. Others talk about it in terms of “taking the training wheels off” of the economy, which I also kind of like in the sense that an economy that’s growing too slow is like a wobbly bike ride, where there’s not enough speed to ensure stability. The training wheels analogy also implies that the bike has enough momentum to take off fiscal and monetary stimulus… we’re already taking off fiscal stimulus, by the way — and too soon. Well, someone asked me a good question the other day: how would we know if we’ve achieved escape velocity? The best answer is, of course, multiple quarters of real GDP growth above trend, which right now is generally thought to be in the 2-2.5% range (perhaps a bit lower given slower labor force growth, but that could accelerate as the improving job market pulls more folks back in from the sidelines), followed by consistent quarters of robust job growth. We started kinda, sorta, maybe, seeing something like that in recent months, with GDP averaging north of 2% and employment above 200K. But both of these trends are still too shaky for many economists’ comfort (last Friday’s jobs report didn’t help), and while forecasts disagree, some predict slower growth ahead, jobs settling in around 150-200K, and unemployment staying about where it is, in the low 8′s. That’s about what I expect in the near term. It’s not bad — it’s progress, moving steadily in the right direction –, but neither is it fast enough to ensure the bike doesn’t wobble, especially if it hits a bump. But there’s another, related version of self-sustaining growth that also warrants a close look.* I don’t have time to do it justice right now (Monday night basketball beckons!), but I can get things started, and I encourage others to join in. In this version, you assume that absent a flock of albatrosses around its neck, the economy can pretty much be expected to grow at trend. I admit, there are many important nuances of great import that this theory brushes over (is not the underlying trend insufficient from the perspective of truly full employment; what about the structure of jobs? Too much finance? Too little job growth among startups? Accelerated labor-saving technology? A structural gap between pay and productivity?) I worry intensely about all of those questions — but it’s also true that absent the weights around its neck, the economy is a lot more likely to be on track toward self-sustaining growth. Trend growth may not be sufficient for solving our structural problems. But it’s surely necessary. So, how do you gauge our economic progress in this regard? One good way is to think about the corrections that need to take place and see how far along they are. Once they’re complete, we’re more likely to hit escape velocity. Like I said, I’ll get the party started and will add more in days to come. The first and one of most important corrections is housing. True, it was a home price bubble that got us into this uniquely deep mess, but it’s also the case that housing, goosed by low interest rates, is a traditional escape route from recession. Here, two slides suggest the correction is largely, but not wholly over. First, the Case-Shiller price index doesn’t appear to have bottomed and similarly, the residential investment contribution to GDP has yet to show any life. Sources: 1, S&P’s Case-Shiller Index, 2, NIPA Next, the TED spread. This is a measure of riskiness in credit markets, and back in the heart of the GR, we talked about targeting the TED , recognizing that if it remained high, there was little hope of credit markets coming back on line. Think of the TED spread as a measure of blood pressure in the veins of credit. It’s picked up a bit lately, but clearly credit default risk is way down from its heights. It’s fair to say that this correction is and no longer weighing on the economy. Source: FRED, 3mos LIBOR minus 3mos T-bill (that’s right, I got the TED from FRED, like I SAID) What else? There’s household indebtedness — very important, and well-analyzed here , related to housing, of course, and not yet fully corrected. But that’s where I’ll start when I can get back to this. *I thank the great econometrician Jim Stock for helping me to crystallize these thoughts, but any mistakes in logic or measurement are mine, not his. This post originally appeared at Jared Bernstein’s On The Economy blog.

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Jacqueline Corbelli: Insights on Tech as an Agent for Transformative Change, on Madison Avenue and Beyond

April 9, 2012

When you think about advertising, it’s not likely that the latest tech gadget immediately leaps to mind. But, new technologies and digital devices play a vital role in how today’s digitally connected consumers engage with and experience life, and as an extension brands. Over the past ten years, technology has helped redefine the way businesses in most industries add value. From online banking to internet advertising, the business landscape has been reshaped by the ways consumers discover, interact with, and absorb information and content. And there’s a pattern — when technology proves it can enhance our experience as consumers, it tends to catch on. Pure technology solutions on the other hand (‘technology for the sake of technology’), most often, do not. From advising CEOs on how to best harness and capitalize on the promise of technology, to my current role leading the TV advertising company I founded and architected off the same premise back in 2003, I consistently find that true technology solutions feed our desired behaviors and preferences as consumers, rather than simply change or replace them. Smart phones, tablets, mini-laptops, connected TVs — the value to us of this ever-increasing array of devices lies in the ways we combine our use of them to specifically fit our life; our decisions are most often guided by choice, ease of use and control. As part of my new contributed blog series, I’m going to cover the various ways technology is influencing our behavior, what and why we adopt and the impact of true technology solutions on the world — from mental models to business models, economic development to keeping a business relevant to consumers. All with a persistent focus on the winning formula: a sustained commitment to increasing the impact and quality of the end consumer experience. I’ll begin with one of my latest passions, advertising. Digital Killed the TV Star? Digital media reporters have asserted that Silicon Valley is the new Madison Avenue. With so much focus on digital and social media, you would have expected technology to successfully kill the 30-second TV commercial. Not true. In fact, TV advertising and how you experience it has been going through a decade of gradual transformation that allows your favorite brands to build an interaction and relationship with you, through deeper engagement and an ongoing dialogue. It’s a widely held belief that as consumers we hate advertising; many point to our desire to skip commercials in favor of a TiVo or VOD experience. However, the latest statistics on the topic show there is a place for advertising in consumers’ lives. That, indeed, when made enjoyable and to fit seamlessly with the way we prefer to watch television, ads not only “break through” the clutter and noise of our busy lives, they actually can inspire us to voluntarily watch and interact with them — at a rate of millions per week, to be exact. As a result, major consumer brands — and the country’s top advertisers — have set their sights on the latest in interactive TV advertising as a way to build an ongoing dialogue with their target consumers. Here are just a few of the brands running the newest, most innovative forms of interactive TV ads that viewers can watch right now: Axe, via Xbox and iPhone iAd Degree for Men, via Xbox Dr. Pepper, via Xbox, DIRECTV and Dish GM Chevy Sonic, via DIRECTV and Xbox Hellmann’s, via Dish and Verizon FiOS Suave Keratin Infusion, via DIRECTV, Cablevision and iPad iAd Tresemme, via DIRECTV and Dish Red Bull, via Xbox What’s most shocking to some is the results these interactive campaigns are generating. iTV ad campaigns average 3 to 5 percent click rates. For some perspective, this compares to best performance benchmark online of just less than one percent. In addition, TV viewers are spending up to 15 minutes playing custom branded games, downloading recipes, entering sweepstakes, ordering products and more, all with their remote control. According to Nielsen, these interactive campaigns consistently outperform traditional TV and online advertising in generating awareness, engagement and ROI. I’ll touch more on these compelling figures in my next blog post, “New Digital Technologies Set to Advance Interactive TV Advertising.”

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Harlan Green: The Terrible Cost of Bush II’s Deficit

April 9, 2012

It is now becoming evident just how much damage the GW Bush budget deficit has done to the U.S. In part from the tax cuts of 2001 and 2003, which sharply reduced taxes on income, capital gains, and corporations, two wars and the Great Recession that began halfway through Bush’s second term, the deficit now threatens not only our fiscal soundness, but our status as the world’s economic powerhouse. It was VP Cheney who maintained that Reagan had said deficits don’t matter, but President Reagan raised taxes some 11 times during his tenure to save the budget, and the economy, as his Budget Director David Stockman described so well in The Triumph of Politics . In other words, President Reagan didn’t dare go as far as Dubya and VP Cheney in creating a deficit that siphoned off revenues to the wealthiest 1 percent and raised corporate profits to the highest in history as a percentage of GDP, while almost causing the disappearance of our middle class while endangering Medicare and social security. So it shouldn’t be a surprise that Republican Paul Ryan’s 2013 budget proposal passed by the Republican House follows in GW Bush’s footsteps. President Obama assailed it as “… a Trojan horse, disguised as deficit-reduction plans,” said the president at an Associated Press luncheon in Washington on April 3. “It is thinly veiled Social Darwinism.” Obama was referring to the fact that Ryan’s plan doesn’t really reduce deficits. Because it calls for trillions of dollars in spending cuts without raising revenues, 62 percent of which would come from low-income programs, just as the Bush II budgets did. And both revenue increases and spending reductions are necessary to pay down the budget deficit. In fact, the new tax cuts at the top would dwarf those for middle-and lower-income families, says The Center for Budget and Policy Priorities, a non-partisan think tank. After-tax incomes would rise by 12.5 percent among millionaires, but just 1.9 percent for middle-income households. It’s Bushonomics all over again. What was most unconscionable about the Bush tax cuts was that they occurred during his first recession — from March to November 2001, caused mostly by the dot-com bubble bust. In fact, he was starving the government of revenues at the same time that he was planning two wars, as has been revealed in several books by Ron Susskind , including The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O’Neil . Now we have a yawning federal deficit that continues to grow past $15 Trillion. Bush Treasury Secretary Paul O’Neill, who was fired by VP Cheney for advocating that the four Clinton years of budget surpluses be used to put social security and Medicare on a more secure footing, described the result of the debate that led to such a disastrous decision in The Price of Loyalty . It was to return government to its 1900 size, the era of William McKinley and the Robber Barons, by reducing government spending enough “to shrink it down to the size where we can drown it in the bathtub”, Grover Norquist , architect of the no tax increase pledge signed by more than 200 Republican legislators, once famously said. So we now know what makes up the current $15 trillion federal debt. Most of the deficit was created by the Bush tax cuts , war spending, and the second Great Recession that occurred under the Bush presidency — from June 2006 to December 2007 — says the CBPP . It resulted in the most anemic recovery since WWII, with just 5 million jobs created, not even recovering from the 8 million jobs lost since 2000, and the median household income decline from $56,000 in 2000 to $52,000 in 2011 dollars, where it was in 1997, according to the New York Times and Moody’s Analytics . Graph: CBPP/org That cost of the Bush II deficit is just now becoming evident, because of its growing size and the fact that budget matters are so arcane and hard to understand by the public and politicos alike. But all of the Bush tax cuts contributed to the deficit, because they weren’t paid for. GW Bush wouldn’t cut back spending to match the loss in revenues because he wanted to pay for his wars, so he borrowed the monies. Whereas during the Clinton era, legislators had agreed to pay-as-you-go rules, where spending cuts had to match tax cuts. And the Great Recession has continued to grow the deficit. In fact, if just the Bush tax cuts were extended it would increase that deficit by $4.6 trillion over the next 10 years, says Andrew Fieldhouse and Ethan Pollock of the Economic Policy Institute , a labor think tank. That means we are now facing its terrible cost. Republicans have proven their ideology of starving the beast of government ends up starving the economy of growth, except for the 1 percent who are their supporters.

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Raymond J. Learsy: The New York Times Sheds a Tear for Wall Street Paydays

April 8, 2012

Andrew Ross Sorkin, The New York Times ‘ and CNBC’s subtle apologist for Wall Street, Goldman Sachs et al slinks again –this time in a featured babble on the growing difficulties being encountered by the Wall Street folk to strike it big time. Mr. Sorkin presents us with a laundry list of why the cascade of wealth that has been showered on Wall Street players is coming to an en end. That henceforward times are going to be tough with its implication that we should all be more charitable and understanding in our judgments of the errant behavior that has done so much to bring our economy close to its knees. He plaintively intones, “It is harder than ever to become one of the world’s wealthiest individuals by working on Wall Street.” He then goes on to draw a distinction between the Wall Street Poobahs such as JP Morgan’s Jamie Dimon, Goldman’s Lloyd Blankfein being the poorer cousins of the hedge fund crowd, a bit like saying they all belly-up to the same bar, but one set is drinking scotch, the other ordering gin. Then, brimming with a subtext of the unfairness of it all, that the Wall Street types haven’t reached the herculean heights of wealth such as the likes of a Bill Gates. Without any qualifier, thereby implying Bill Gates’ billions were achieved by the same razzle-dazzle as the Wall Street players and their speculative excesses. No mention that Bill Gates earned his billions by his exemplar of American meritocracy, thanks to his entrepreneurial vision and courage through which we have all realized richer lives — this, in stark contrast to the largely self-enriching crony capitalism of Wall Street laid bare by the events of 2008 and thereafter. In the meanwhile, working in the trenches, getting their hands dirty on farms, on assembly lines, tending the sick in emergency rooms, driving the trucks or buses, getting splattered with oil working on a rig, or whatever day to day undertaking in which they were engaged, clearly those below were too busy to take heed of Mr. Sorkin’s concerns. Last year alone these hard working souls pulled in the following paydays from their one year’s sweat and labor: Ray Dalio, Bridgewater Associates,$3.9 Billion Carl Icahn, Icahn Capital Management,$2.5 Billion James H. Simmons, Renaissance Technologies Corp,$2.1 Billion Kenneth C. Griffin, Citadel,$700 million Steven A. Cohen, SAC Capital Partners,$585 million If timing is everything, than the timing of Mr. Sorkin’s article becomes ever so curious coming just one week after the publication of these humungous sums. There he was, as so often before, trying to steer our focus from the excesses of Wall Street’s “Big Money” parade.

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Job Creators Alliance: What the Federal Government Can Learn From Florida

April 8, 2012

The headline numbers of 121,000 in March and 240,000 in February were well below the consensus expectations, which ran about 205,000. Private payrolls increased by 121,000, with the bulk coming from private services at 90,000. Gains were strongest in business services (31,000), education and health (37,000), and leisure and hospitality (39,000), but gains in these sectors were below what had been observed in recent months. On the goods-producing side of the ledger, construction payrolls fell by 7,000. Manufacturing payrolls, however, grew by 31,000 and, along with gains in leisure and hospitality, suggest that some underlying labor market strength in cyclical sectors remains in place. The public sector shed 1,000 jobs, and recent trends there suggest that the persistent declines in public sector payrolls have subsided. The three-month average change in public sector payrolls is now 1,000, versus the -22,000 average monthly change recorded in 2011. Finally, net revisions to previous months added 4,000 jobs, continuing the pattern of upward revisions to the data, but at a slower rate. EARNINGS GROWTH STAGNANT Average hourly earnings rose 0.2 percent, compared with an upwardly revised 0.3 percent in the previous month (initial estimate: 0.1 percent), and the y/y change now stands at 2.1 percent. The average workweek was unchanged at 34.5 hours, in line with expectations, while the February data were revised higher to 34.6 from 34.5. Aggregate hours worked increased at a 3.7 percent 3m/3m (saar) pace in March, compared with 4.1 percent in February and 3.4 percent in January. The payroll proxy for labor income (aggregate hours worked times average hourly earnings) rose at a 5.6 percent 3m/3m (saar) pace after rising 5.8 percent last month and 5.0 percent in January. The household survey also took on a weak tone, with employment falling by 31,000. This is well below the three-month average of 415,000 and breaks eight consecutive months of household employment gains. THE CLAIMS DROP BECAUSE CLAIMANTS DROP OFF The unemployment rate fell to 8.2 percent (8.192 percent unrounded), reflecting a drop in the participation rate of one-tenth, to 63.8 percent. Overall, the report had an undeniably weak tone and will raise doubts about the strength of the labor market. Given that the report reflects only one month of data and some of the underlying cyclical sectors registered payroll gains, I do not view it as conclusively signaling a shift to a lower trend rate of employment growth. THE BOTTOM LINE OF THE BOTTOM LINE Although the unemployment rate went down to 8.2 percent, the number of jobs created was only 121,000. This is basically in line with population growth. The only reason the number of unemployment claims went down is because the overall labor force participation went down — those hundreds of thousands who are no longer eligible for unemployment. This is what happens when you give people less incentive. The president says we have tried ‘on-your-own economics’ but now we can see how ‘government-run, high-tax, heavily-regulated, bureaucrats-pick-the-winners-and-losers economics’ destroys job growth. The 121,000 new jobs are in line with what you would expect with GDP growth and income growth. As I have always said the prior job growth was not in line with the low GDP and income growth we were seeing. Our low GDP and income growth during this period should have given us job growth of 120,000-150,000 a month, rather than the anemic growth we had in February and March. What this says to me is the growth in jobs is a just bounce from too many layoffs during the recession beyond what the GDP at that point was indicating. The effect of the administration’s policies are finally showing. One month is not a trend, but we finally have a correlation between the GDP and Income growth. And on the bright side, we have job growth in the service industry that serves alcohol. THE FLORIDA EXCEPTION One state that stood apart from national trends was Florida. What they saw there was amazing, and it was the result of a government approach to economics that was 180 degrees from what the White House wants. With the release of March’s data, Florida has now had 11 consecutive months of job growth. Their unemployment is at a three-year low . These job growth trends are a result of Florida’s reducing regulation, easing the tax burden on small businesses and delivering two consecutive balanced state budgets without tax increases. This is the example we need in every state, and most especially in Washington, D.C. The parties must come together to create a positive business environment, with established and common sense rules, a reduction in bureaucratic induced burdens, and the removal of uncertainty and ambiguity that comes from arbitrary and radical policies. By David Park, Chairman, Job Creators Alliance David Park is Managing Partner at Austin Capital, LLC, a merchant bank that assists small companies with financial consulting, and is also Chairman of the Job Creators Alliance , a nonprofit comprised of current and former major business leaders who are committed to the defense and preservation of the free enterprise system.

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Women 2.0: From Idea to Patent: Inventing Blinx and Replacing the Traditional Paper Business Cards

April 6, 2012

By Carrie Chitsey (Founder & CEO, 3Seventy) When we started our mobile company over three years ago, we were attending several tradeshows to learn more about mobile and innovation. We developed a handy SMS (text messaging) technology using keywords for our company so people could reach us after the shows. We thought it was unique and would help us stand out from the piles of paper business cards. With Blinx , people could now whip out their phones regardless of device (regular mobile or smart phone), text our name to a short code, then instantly get our business card. It would download into their phone and a reporting system showed ROI on your business card. This showed the user who was requesting their card and who downloaded it. What we quickly discovered was other people loved the concept, and wanted one of their own. We kept hearing, “Where do I buy that?” from individuals we met. After further discussion, it went from a fun idea to something we wanted to make and patent. Getting Down to Business — The Patent Process Developing a product for patent meant that we had to develop a new website, get payment processing, develop an easy user interface and create a business model of how we were going to make money. This was done while furthering the technology to a 2.0 platform with more functionality. We developed a new mobile website to signup, added advertiser network, a new keyword logic and shortened signup process. The next step was to document the process and technology and start working on the patent. The patent process was not an easy one — we spent about three months going back and forth writing the documentation of our product, the process and the technology. We had a handful of people working on this and then spent another 30-60 days getting it into the format the Patent Office requires it to be in (we started this way but apparently it changes). Once the patent was filed we got letter of acceptance for the provisional patent in about four months. The provisional patent was out there for about 1.5 years and we then got the final patent about two years after filing. While launching the product to the masses, we aligned the launch with SXSW. We rented a 50-foot tour bus, blasted music, provided free beverages and food and educated the audience about our new product. The product name was originally “BlinxMe.com” but we nicknamed it “Blinx.” We wanted the name of the product to be catchy and we wanted people to say “blinx me your card.” Sustaining our Brand We have broadened our demographic beyond business people to include aspiring environmentalists, moms, college students and singles who are in the dating scene. Blinx has been mentioned in Fast Company and was named one of the Top 10 Dating Technologies by Match.com. Sometimes, you end up with a product that you weren’t setting out to create for the masses. Blinx is a sub-brand of our parent company 3Seventy, so it’s not our core business. It is however, a fun product that we love to use and talk to customers about. Try it yourself by getting a free card here . Editor’s note: Got a question for our guest blogger? Leave a message in the comments below. About the guest blogger: Carrie Chitsey is the Founder and CEO of 3Seventy . She been a serial entrepreneur in many sales, marketing and technology ventures. Carrie brings the pragmatic experience of working for the Big 5 Consulting Firms and the vision of a forward thinking, “out of the box” entrepreneur. She has received a Six Sigma Green Belt and is certified in multiple technologies such as Avaya, Siebel, Nortel and others. She serves on the board of several charity organizations in Texas.

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Matt Bieber: To Bet or Not to Bet? Why Gambling on Elections Is Wrong

April 6, 2012

Many mornings this spring, my roommate, Teddy, and I have speculated about how the Republican candidates are likely to fare in states we’ve never visited. Our third roommate, Ben, stays quiet and seeks out the most reliable polling information he knows. “InTrade has Romney up by 4,” Ben will say. When he does so, my stomach churns a bit — and not because of Romney. InTrade — which bills itself as the “World’s Leading Prediction Market” — is a website that allows users to create betting ‘markets’ and buy or sell ‘shares’ in any yes-or-no prediction they can dream up. Shares range from $0 to $10, and their prices reflect the market’s overall confidence that the event in question will happen. Right now, for example, it costs a user $9.74 to buy a share in the market that Ruth Bader Ginsburg will be the next Supreme Court justice to retire or resign . In other words, the market thinks there’s a 97.4% chance that this event will take place. (InTrade’s election-specific predictions are quite accurate — and much more so than many polls.) You can also bet on election outcomes. Will Rick Santorum win the Pennsylvania primary ? Will Pat Toomey be the Republican VP nominee ? Will Barack Obama be re-elected? But as much fun as it can be to speculate about these questions, I can’t bring myself to feel good about the idea of gambling on election outcomes. It’s not because I oppose gambling in general; I think betting on how much money The Hunger Games makes on its opening weekend is just fine. (A little silly maybe, but fine.) Instead, my objection has to do with a feeling that our elections are profound, even sacred opportunities to express our highest ideals, and that gambling profanes them. Now, that’s not to say that our elections actually are particularly high-minded affairs. They usually aren’t. But they could be, if only we’d take ourselves and our democracy seriously enough to insist on it. Gambling on elections cuts the other way. It’s as if the InTraders are saying, “None of the stuff that’s at stake in these elections matters to us. We just care about getting ours.” (You can imagine the more cynical version: We’re screwed either way, so we might as well make a few bucks betting on when the ship will go down.) Maybe I’m being unfair. After all, some of these folks could be dedicated activists who also enjoy expressing their commitment to a particular candidate by putting money behind the campaign — gambling as a gesture of hope or faith. My roommate Ben has an even more sanguine take. Not only is betting on elections morally acceptable, he thinks, it’s actually valuable. After all, prediction markets provide a kind of information that you can’t get anywhere else. This information comes in the form of prices, which Ben takes to be an important signal of people’s real feelings about a matter. People might lie to pollsters, his thinking goes, but they’re less likely to lie to themselves when they’re deciding how to bet on Santorum stock . When Ben first explained this line of thinking, I felt a familiar kind of ethical tension. While I’m not comfortable gambling on elections, that fact that other people do so creates something I value. (After all, I want to know which candidate the markets think is going to win — and above all, I want my candidate to know so that his or her campaign can develop the most effective strategy.) But that doesn’t answer the basic question: how should we regard gambling on elections in the first place? Perhaps an analogy will help. Right now on InTrade, you can place bets on whether the U.S. or Israel will launch an air strike on Iran this year . (In fact, you can place different bets based on when you think a strike might occur.) When I told a friend about this, he responded, “Why would you create an incentive to rejoice at war?” He’s right. When we bet on trivial things — basketball games, American Idol — we don’t put our moral selves at stake. Regardless of how things turn out, the world won’t be meaningfully better or worse. But when we gamble on things like war (or elections), we create incentives for ourselves to want things that may run counter to our best moral instincts. No, I don’t want to see Tehran burn, but it would be nice to have that $50. These incentives encourage us to balance things that cannot be balanced. They may even affect our political behavior — distorting our priorities and inviting us to be a little more (or less) vocal than we might otherwise be. If that example seems extreme, take something closer to home. Would you bet on how long a friend’s marriage might last? How about the month in which a family member might die? If you said no, my guess is that you did so because you understand what another friend recently suggested to me: that part of being moral involves responding appropriately to things with moral weight. The world is a complicated and uncertain place. But that doesn’t mean that everything in it should be treated like a March Madness pool. Some things matter more. Some things are sacred, even. Gambling sullies them and sullies us. Note: this article originally appeared at The Wheat and Chaff .

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Jennifer Hamady: Reevaluating Ownership

April 6, 2012

I was on a train this morning, where I saw an advertisement — in Spanish — for attorneys offering to secure compensation for the victims of accidents and malpractice. The number to call was: 1-888-MARGARITA™ Setting aside the word choice someone thought appropriate for promoting legal services to New York’s Spanish-speaking community, I’d like to take up the pervasive use of the trademark in our culture today. My interest in the subject has been growing for a while, given that everywhere I look — on the internet, in magazines, on television, and in newspapers — the ™ and ® symbols (trademark pending and registered, respectively) abound. They’re becoming as common as commas, yet with a far greater impact than often overused punctuation. For those of you unfamiliar with what those little symbols mean, they mean that you can no longer freely use whatever comes before them. Those words, common as they may be, are now effectively the business property of someone who has chosen to link up their professional ambitions, services or products with them. This issue came to a head for me on a recent walk in midtown. I gazed up to see a mural of Sean “Puffy” Combs promoting his new Vodka. Under the name were the words: Perfectly Smooth. With a big fat ® after them. Are you kidding me? If I’m a baker, I can’t write on my website that my cake’s texture is perfectly smooth? I can’t — if I’m an auto-detailer, a plastic surgeon or a floor sander — describe my work this way. Can I? In my own field of voice, the trend to lock in language has also blossomed. There are thousands of trademark applications and successful registrations each year for companies, websites and services that include the words voice, vocal, tone, breath, breathing, body, note, notes, support, sing and singing, to name only a few. Mix them up, throw a ™ after them, and everyone else is left unable to say much of anything. I’m not saying companies shouldn’t be able to protect the unique titles and content that distinguish their brand. Service and trademark laws were created for this reason and thus, why Nike, lululemon, and Wikipedia — deservedly so — have been granted trademarks. These companies have earned the right to utilize the laws created to protect imagination, hard work and commitment to a corporate and cultural identity. Yet this law, appropriate as it is, also serves to protect — and in the process, prevent others from using — monikers and phrases that are in no way original or imaginative. Even those who are neither in, nor yet successfully in, business may — with little more than a simple website and a dated pamphlet — take national and even worldwide professional ownership of words and phrases that have for centuries been used in the common vernacular. It is interesting that the legal lockdown of conversational language is progressing while copyright law and rights are being so thoroughly challenged. While “perfectly smooth” and “margarita” are now effectively off the professional English-speaking market worldwide (as well as, in translation, in many others) entire albums, books and movies are being publicly shared without acknowledgement of or compensation for those who created them. For some — particularly those from younger generations — this doesn’t seem like such a big deal. It’s not only appropriate, but fair, to get songs, movies and books for free. These boys and girls weren’t around when copyright laws were put in place to protect the creations — and livelihoods — of men and women who spent entire lifetimes generating high quality literary, cinematic, theatrical and musical works for the rest of us to enjoy and benefit from. To these kids, while their laptops, iPhones and clothes are decidedly theirs , so too are the blood, sweat and tears of every composer, author, director and screenwriter that has ever lived. Before you argue the theoretical or legal specifics of creative ownership, hear me out. I’m not saying that the rules should never change. Certainly they do and certainly we must embrace them, lest we are to be left in the proverbial and technological dust. But we also have the right to question — beyond our comfort and our convenience — why the rules are changing. Is the expansion of free access to musical, literary and artistic creations in order to inspire and educate people of all ages, nations and means? Or to serve the greed that may be so easily fulfilled by technology that happily, if not legally, makes everything freely accessible? Similarly, is the expanded use of trademark law in order to serve and protect inspired business owners and their unique ideas and brands, or to provide an economic boon for that branch of government, as well as for the lawyers that profitably interface with it in the filing and fighting of claims? Penalties for using trademarked words and phrases — even in personal blogs — are already on the books, including words and phrases you used long before someone chose to submit a check for $375 to the patent and trademark office in Washington, D.C. Some would argue that the path we’re on is inevitable, thanks to our historical and current cultural notions of “ownership.” Land, people, animals and now language… is there nothing — or no one — that we are unable to intellectually convince ourselves that we have a right to own ? Our inability to see ourselves as an interdependent and collective whole leaves us with a view of the world as scarce and therefore, we are determined to grab rabidly — desperately — for what we want. It’s like the sandbox all over again, only now instead of screaming “Mine!” at each object we want, we type up on-line applications, hire lawyers and file and cease-and-desist orders. Certainly there needs to be protections for creators to ensure that their brands — and content — may be fairly delivered to and received by the public. But with respect to common words and phrases, we’ve gone too far. Unless, that is, you don’t mind your local bar advertising that their “popular tequila-based drink” is “flawlessly even.”

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The Technician: Getting Down to Business

April 6, 2012

By Alex Lewis At some point or another, many of us have had the idea of starting our own business. There are a variety of reasons for this — chiefly, the potential to make a profit. Instead of forcing yourself into a career with a set salary or wage, your ability to make money as an entrepreneur is limited only by your imagination. Many great American success stories have been self-made businessmen and businesswomen. Now is the time for you to write your own destiny. David Neeleman, founder of JetBlue, started his first foray into free enterprise while he was an accounting student at the University of Utah. Using a few connections he had in Hawaii, he sold discount, all-inclusive vacations to this tropical paradise. It didn’t take long for his business to take off. In fact, he started making so much money he found it necessary to drop out of college before attaining his degree. He has since opened, or at least played a role in, five different air carriers. If this man can be as successful as he is, there is no doubt in my mind one of you can do the same. Personal knowledge in a particular field is an excellent foundation from which to begin. When I was in high school, I was heavily involved in FFA. Besides learning about farming and growing crops in a greenhouse, we gained knowledge of basic business and accounting practices. With this acquired knowledge, I opened my own greenhouse business back home. Thus far, I consider it a success. Contrary to what you may think, it is possible to start a business with limited resources. Your largest concern, financing, isn’t difficult to come by, depending on the type of business you would like to start. For example, I started my greenhouse business with a few hundred dollars I had saved for some time. If you plan it out well, it is very possible to get a business going with less than $100. Think intelligently, and you’ll see your bank account grow. The advent of computers and the Internet has completely revolutionized the way business is conducted. Never before has anyone been able to reach as many customers as today. You can have access to millions of customers with just the click of a mouse. The best part is, you don’t even have to own a designated website to complete transactions. Online marketplace, eBay, is used for buying and selling a variety of goods around the globe. There are many success stories of entrepreneurs using this website to make millions of dollars. If you have an old coin or something of use lying around your house, put it up for sale on eBay. You can use the profit to buy something else and then sell that something else for yet more profit. There has never been a better time than now to start your business. Barriers to entry are low, and it is feasible to start a business with limited resources in today’s marketplace. When you allow your creativity to take off, before you know it, you’ll find out you’re in business.

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Blair Bowie: Disempowered Bankers Start Super PAC, Reveal Plans for World Domination

April 6, 2012

The American Banker Association recently announced that after years of being ignored in the halls of power, it will at last be creating its own super PAC to serve as its proverbial “big stick.” For too long, the banking industry has been stuck at 13 on the list of industries giving the most to members of Congress , drowned out by such vehemently anti-banking interests as “Misc. Finance” (12), “Lobbyists” (7), “Real Estate” (5), and “Securities and Investment” (3). American Banker editor-at-large Barbara Rehm writes, “Frustrated by a lack of political power and fed up with blindly donating to politicians who consistently vote against the industry’s interests, a handful of leaders are determined to shake things up.” While I am highly skeptical of the sentiment that “Congress is not afraid of bankers”, given that banking lobbyists outnumber banking reform advocates 25-1 and that the Chairman of the Senate Financial Services Committee seems to believe that “the banks own the place,” the most ridiculous thing about this announcement may just be ABA’s willingness to reveal its strategy for skirting the non-coordination rules. The Supreme Court and FEC explicitly prohibit Super PACs from coordinating with candidates and their campaigns. I generally interpret this to mean that having a direct conversation with a candidate is a violation of the rules. Yet Matt Packard, the Super PAC’s chairman, is apparently quite excited about using his new stick in that context, “If someone says I am going to give your opponent $5,000 or $10,000, you might say, ‘Yea, okay’. But if you say the bankers are going to put in $10,000 or $500,000 or $1 million into your opponent’s campaign, that starts to draw some attention.” When is Packard imagining himself having this conversation and what will he be asking for to call off the hounds? This statement speaks volumes about how the industry thinks about its involvement in politics. Note too that Packard says they may be directing money “into your opponent’s campaign.” He means that in the same way that one might give to Restore Our Future to support Romney right? Nope. While the coordination rules are twisted enough when it comes to candidate specific super PACs, Friends of Traditional Banking plans to go even further. The independen expenditure-only committee, according to Rehm’s description, will exist not to “touch the money,” but to direct it to the candidate’s actual campaigns. This is starting to feel like the scene where the Bond villain reveals his whole plan for world domination. Even with a feckless FEC on the beat, Friends of Traditional Banking seems to be inviting federal investigation. Rehm reports that the first thing prospective donors have been asking Utah Bankers Association president Howard Headlee is, “Is this legal?” Luckily, Headlee seems to have a Trevor Potter button for that.

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Lynn Parramore: Capitalism’s Dirty Secret: Corporations Don’t Create Good Jobs Anymore, They Destroy Them

April 6, 2012

Co-authored by William Lazonick and Ken Jacobson Corporations are not working for the 99 percent. But this wasn’t always the case. In a special five-part series, William Lazonick, professor at UMass, president of the Academic-Industry Research Network, and a leading expert on the business corporation , along with journalist Ken Jacobson and AlterNet’s Lynn Parramore, examine the foundations, history and purpose of the corporation to answer this vital question: How can the public take control of the business corporation and make it work for the real economy? For the last four decades, U.S. corporations have been sinking our economy through the off-shoring of jobs, the squeezing of wages, and a magician’s hat full of bluffs and tricks designed to extort subsidies and sweetheart deals from local and state governments that often result in mass layoffs and empty treasuries. We keep hearing that corporations would put Americans back to work if they could just get rid of all those pesky encumbrances — things like taxes, safety regulations, and unions. But what happens when we buy that line? The more we let the corporations run wild, the worse things get for the 99 percent, and the scarcer the solid jobs seem to be. Yet the U.S. Chamber of Commerce wants us to think that corporations — preferably unregulated! — are the patriotic job creators in our economy. They want us to think it so much that in 2009, after the financial crash, they launched a $100 million campaign, which, among other things, draped their Washington, DC building with an enormous banner proclaiming “Jobs: Brought to you by the free market system.” But the truth is that unfettered corporations are just about the worst thing for creating decent jobs. Here’s a look at why, and where the good jobs really come from. Taming the Wild Horses Corporations are kind of like wild horses. They can run you down. Or sweep you around in circles till you’re exhausted. And in today’s world, they’ll surely run off and take your jobs to China or someplace else if you don’t learn how to tame them. Bad things happen when corporations are unconstrained by strong national policies that force players to think long term, behave decently, and refrain from dumping their short-term costs on the rest of us. They tend to focus single-mindedly on maximizing profits for shareholders at the expense of all else — including jobs. Executives set their sights on a path to short-term boosts in share prices paved with layoffs, wage cuts, and jobs moved overseas, while slashing research and development and investing in the skills of their employees. The U.S. Department of Commerce found  that from 2000 to 2009, U.S. transnational corporations, which employ about 20 percent of all American workers, cut their domestic employment by 2.9 million even as they boosted their overseas workforce by 2.4 million. The result was an enormous loss of jobs nationally, as well as a net loss globally. In the 1990s, these companies added more jobs at home than abroad. What changed? 1) The rise of India and China, with 37 percent of the world’s population, as hotspots for off-shoring; and 2) the availability of tens of millions of workers in these places, many with college degrees, to do the jobs previously done by American workers. In India, indigenous companies like TCS, Infosys and Wipro along with transnationals like IBM, HP and Accenture employ hundreds of thousands of college-educated workers to perform IT services, in large part for American firms. In China, the electronics contract manufacturer Foxconn (headquartered in Taiwan) barely existed a decade ago, but now employs about 1.2 million workers, with Apple its single biggest customer. And yet Big Business still trumpets itself as the American Job Creator Fairy. Apple has released a report claiming to have created half a million domestic jobs — a highly dubious number which takes credit for everything from the app industry to FedEx delivery jobs (never mind that drivers would be hauling someone else’s gadgets if Apple went out of business). It’s true that in the U.S. managers, engineers and other professionals have found good jobs at Apple. But the non-professional employees are just barely scraping by. A study of the iPod value chain in 2006 calculated that among Apple’s domestic employees, professionals earned around $85,000, not counting stock options, but the retail workers in Apple’s stores earned only $26,000. This is troubling because as Apple has grown in size, most of the employees it has hired in the U.S. work in retail. Are these jobs paths to long-term, stable careers ? Quite likely they are not. While a company like Apple whistles “God Bless America”, executives are not going to talk about the job losses induced by off-shoring, nor the horrifically abused foreign workforce that moving jobs to China has produced. And they’re not going to tell us about Apple’s preference for hiring part-time employees who can’t afford to buy health insurance. When such uninsured people have health emergencies, someone has to pay, and the burden falls on the taxpayers. Here is what Apple executives tell us instead : “We don’t have an obligation to solve America’s problems.” The Real Deal Corporate executives have lost the sense that they owe anything to the public. They have forgotten that the 99 percent, as taxpayers, have made huge investments in them. They fight to lower taxes as if all the money “belongs” to the companies. They fight regulations as if the public doesn’t have the right to interfere in their business. All nonsense. Despite the anti-government rhetoric from conservative leaders, the truth is that the government, elected by the people, plays a critical role in creating the conditions in which companies can succeed and good jobs can flourish. The government is able to invest in human capital through key services like education. What’s the point of a job if you don’t have an educated worker to fill it? The government also creates job-friendly conditions by investing in infrastructure. How can you get to work if your roads and bridges are falling apart? And it boosts job creation through investing in technology. How could Google create its amazing search engine without state investment in the creation of the Internet? When the government invests in the knowledge infrastructure, businesses can then employ and train people who can, in turn, engage in the kind of organizational learning that leads to that wondrous thing called “innovation.” We learned this once before. After Wall Street financiers ran amok to cause the Great Depression in the 1930s, the government responded by putting in place regulations on banks and corporations, a highly progressive tax system, and a robust social safety net. President Franklin D. Roosevelt created the conditions in which good jobs were possible with programs like the Civilian Conservation Corps and other New Deal initiatives. He focused on the development of highways, railways, airports and parks, investing in the future rather than focusing solely on short-term profits. The GI Bill, rather than leaving graduates with big debts, left them well educated and therefore with a chance of to provide a middle-class life for their families and to retire with dignity. After victory in World War II, America was able to emerge as the world’s most powerful nation because it had a large middle-class and a strong industrial and technological base. The horses of Big Business were tamed, and they could be harnessed to do useful things for society. Then came the Reagan Revolution and Big Business freed itself from the regulations, unions and taxes that had curbed its worst instincts and it began to shred the nation’s economic and social safety net. The gap in income inequality grew, and jobs were eliminated and outsourced. Long-term investment in innovation and human capital slowed down, while fraud and financial speculation took off. Today, corporate executives ask for more special treatment and freer rein in calling the shots in our economy, and they threaten to pack their bags if we don’t agree. Some politicians and policy makers respond to this blackmail by saying that we have to create a “friendly business climate” to convince them to stay. But what makes a “friendly business climate” — low wages, minimal taxes and so on — creates a very hostile climate for the 99 percent, which is ultimately bad for everyone — business included. The state of Mississippi and Rick Perry’s Texas, where city and state officials bent over backwards to lure Big Business with subsidies and other perks, are hardly bursting with good jobs. Many researchers have concluded that tax rates are actually not terribly important to where a company locates. Further, a common rule of thumb for business headquarters location is that quality of life for key personnel is decisive. True, vastly different levels of regulation in the U.S. and China is a problem for which there are no easy answers. But there are real costs to ignoring the environment and keeping workers in a state of misery. If you want job growth, you have to have demand growth: profits and consumption go hand in hand. That’s why the best way to unleash America’s job-creating potential is to support rights and protections for ordinary people. A climate friendly to the 99 percent is not just fair, it makes the best sense for the economy. We need to remember the complementary roles that government and business have to play in creating well-paid, stable employment opportunities and then ensuring that people can access these opportunities over the course of their careers. To get corporations working for the 99 percent on the job front, we have three major challenges: 1) Education : Young people from low-income groups (especially black and Hispanic people) need schooling and training to move to good career jobs. 2) Incentives : Corporations must have incentives to retain educated and experienced workers instead of laying them off or off-shoring their jobs. (To do so forces valuable workers into low-skill jobs and wastes their human capital, which was expensive to acquire.) 3) Investment : Executives of financialized corporations who want the government to invest in the knowledge base have to make complementary investments in people that can keep the U.S. economy innovative and generate good jobs. That would mean changing the single-minded focus on boosting company stock prices through buybacks and other financial manipulations that serve the 1 percent but no one else.

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Adrian Nazari: Credit Card Breach: It Can Happen to Anyone, Do You Know What to Do?

April 6, 2012

Joining the likes of Zappos, Michael’s, Sony, Epsilon and the New York Yankees — Global Payments Inc. is the latest company to make headlines with a data breach originally reported to have compromised more than 10 million card numbers. Global Payments is a large third-party payment processor for Visa and MasterCard, and handles a substantial number of transactions for Discover and American Express as well. Global Payments has since confirmed that the breach was limited to their North American systems and believes that “fewer than 1.5 million card numbers may have been stolen.” An investigation is currently underway but we won’t fully know how many cardholders were impacted, or how extensive the breach, until the dust settles and the investigation is completed — which could take weeks, or even months. Are You Protected Under Federal Law? The good news for cardholders, if you can call it that, is the theft was limited to credit card numbers and did not include names, Social Security numbers, or addresses. This means the information that was stolen is limited to fraudulent credit card charges, which consumers are protected from by federal law. On credit cards, the Fair Credit Billing Act limits the liability for fraudulent charges to $50, and if a card number is stolen — and not the actual card — cardholders are not responsible for any of the fraudulent charges. For debit cards, consumers are covered under the Electronic Funds Transfer Act and are not be liable for unauthorized charges if the card was not physically lost or stolen. The main difference between the two is that with a debit card being directly tied to a checking account, cardholders have the additional frustration and inconvenience of waiting on the bank to investigate and return the fraudulently used funds. How Will You Know if Your Card was Compromised? Chances are, if your data was breached, you have already received — or will soon receive — notification from your bank or card issuer. When a consumer’s personal data is breached there are mandatory security breach notification laws in 46 states that require businesses to notify you if your personal information has been compromised in a breach. In most cases the bank or card issuer will automatically re-issue a new card with a new account number, effectively eliminating the extent of the theft. But, if you have not received an official notification, don’t assume you are in the clear; contact the issuer or check your account online to find out. Thieves are smart and may lay low and wait months, or even years before using the data they’ve stolen, and could hit you when you least expect it. What Steps Can You Take to Protect Yourself? Whether you think your data may have been compromised or not, one thing is clear: No matter how cautious we are as consumers, we are all vulnerable when it comes to the security of our personal information. We may not be able to prevent a data breach from happening, but we can take steps to protect ourselves and limit the damage if it does: Check your credit and debit card accounts regularly for any unauthorized transactions. If you can, don’t wait until your statement arrives to check for unusual activity or unauthorized charges. If you spot any unusual charges, contact the issuer immediately. Avoid sharing too much information online, including social networking sites. It doesn’t take much for a thief to steal your identity — a name, an address, a pin number. They don’t need your Social Security number or specific financial information to succeed. Review your credit reports for any unusual activity. The Fair and Accurate Credit Transactions Act (FACTA) gives you the right to a free copy of your credit report, once every 12 months, from each of the three credit reporting agencies through www.annualcreditreport.com , the federally mandated website. Monitor your credit and credit report information every month to catch any suspicious loan or credit activity, or sudden, unexpected drops in your credit score. Most of these services cost money but there are also free resources like CreditSesame.com, where you can get your free credit score with monthly updates to help pinpoint unauthorized or sudden changes to your score or balances, which are often indicative of credit card fraud or identity theft. What Can You Do to Minimize the Damage? By taking these precautions you’ll be able to identify whether or not your information or identity have been compromised. In the unlikely event that you are a victim of identity theft, it’s crucial to act immediately. Report the theft. Notify the affected account or company to report the theft immediately to stop any further charges or theft. Place a fraud alert on your credit report. A fraud alert lets creditors know that you may be a victim of identity theft and will alert creditors and keep an identity thief from opening new accounts in your name. To place a 90-day fraud alert on your credit reports you only need to contact one of the three credit reporting agencies to have the alert show on all three of your credit reports. File a police report. If the extent of the theft is more severe than fraudulent credit card charges, you’ll want to file a police report to document the crime and keep the damage from escalating even further. There’s no surefire way to prevent identity theft, but if you follow these basic guidelines, you can minimize the damage and save yourself a much larger financial headache in the event it does happen. Adrian Nazari is the Founder and CEO of CreditSesame.com , a free personal finance resource that gives consumers the power of bank-level analytics — providing comprehensive credit and debt analysis, monthly access to your free credit score, and personalized savings advice to help improve your finances, build wealth, and save money.

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Victor Cha: Why China Can’t Cut Off North Korea

April 6, 2012

North Korea’s latest threats of a rocket test beg the question of why China does not do more to stop its little communist brother from acting so rancorously. After all, there is no other country in the world that provides as much food and fuel to the regime. Without this sustenance, North Korea would perish. So why doesn’t China just cut them off? China would certainly have a lot to gain by taking a harder line. It could end the black hole of Chinese economic assistance for the past half-century that has been North Korea. It could relieve itself of the frustration of three decades of preaching reform on its neighbor. Beijing has used every visit since 1980 by North Korean leaders to tour them around Chinese cell phone, fiber optics, and car factories, but to no avail. China could help its own reputation as a regional leader by putting pressure on Pyongyang to stop the provocations, which would seem to be important as China prepares for its transition of leadership to Xi Jinping next year. Indeed, the last thing Xi needs is for the world to blame him for all of North Korea’s truculence, yet Beijing is always stuck cleaning up after North Korea’s mess and acting as its defense lawyer in the court of public opinion. This is hardly the best way for a new leader to come to power in China. Using its economic leverage to tame North Korea would also help immensely to build some bona fides in the U.S.-China relationship, which is otherwise growing more tense and antagonistic. Why doesn’t China bite the bullet? Contrary to what you might expect, the answer has little to do with communist ideological allegiance than with grand strategy, local politics, and economics. In terms of strategy, the policymakers in Beijing do not see a tough line, which could lead ultimately to a North Korean collapse, as being in China’s strategic interests. This is because the decision makers on North Korea are not in the foreign ministry in China, they are in the party and in the military. And for both groups, a collapse of North Korea would leave a united Korea, that is a military ally of the United States, directly on its border. Such an outcome would only reinforce in Chinese minds an important lesson of history – instability on the Korean peninsula has never redounded to Chinese interests. The last two times this occurred, the result was war with Japan (1895) and the U.S. (1950), which cost China dearly. What China loses in economic handouts to the North, it is rapidly making back in a series of lucrative mining contracts. According to Goldman Sachs, the North’s relatively well-endowed mineral deposits are worth 140 times the country’s GDP, including deposits of some rare earth minerals. Starting from about 2007, China has been undertaking a strategy of economic predation investing heavily in copper, coal, iron, gold, zinc, and nickel mines to feed its growing economy. Moreover, it can operate in the North on its own terms without concerns for compliance with international labor standards or precautions. The late House Speaker and iconic American politician Tip O’Neill reminded us that all politics is local. That is certainly the case for China when it comes to North Korea. The country sits adjacent to Jilin and Liaoning provinces in China. These two inland provinces do not do nearly as well as the booming coastal provinces. Beijing cannot afford instability in the North that could lead to a potential flow of hordes of refugees into these provinces. Moreover, stability allows for the mineral resources to flow from North Korea into these two provinces, and also allows for Chinese use of the only year-round ice-free port in the area for the landlocked provinces. For all of these reasons, China has worked itself into an uncomfortable corner when it comes to North Korea. It can’t stand the way Pyongyang drags China’s name through the mud with every provocation. At the same time, it cannot turn the screws for fear of causing the regime to unravel. For North Korea’s part, it does not like the way China mistreats it like a poor province, and sucks it dry of resources, but has little choice in the matter if it wants to survive. Does the Chinese leadership like this mutual-hostage situation? Absolutely not. Is Beijing more comfortable with a friendly yet weak and sometimes embarrassing North Korea on its southern flank than they would be with a rich, powerful, democratic, US-aligned, unified Korea? You bet. Victor Cha is professor at Georgetown and former director of Asian affairs on the National Security Council (2004-7). He is the author of The Impossible State: North Korea, Past and Future [Ecco, $29.99].

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Mike Lux: Darwin: Scientist but Not Economist

April 5, 2012

I wrote a book that came out in early 2009 called, The Progressive Revolution: How The Best In America Came To Be , that talked about the history of the American political debate. One of my fundamental arguments was that conservatives are using the same arguments against modern day progress that their ideological ancestors used against the progress we made throughout history. What I underestimated, though, is how fiercely and broadly the modern conservative movement is trying not only to block advances in progress, but to actually roll back the gains of our history. Things that had seemed long settled only a few years back when I wrote that book are now being fought over anew, and not by trivial people on the fringes of our politics but by most of the leaders in the Republican Party. Over the last couple of years, we have seen the Supreme Court overturn 100 years of precedent in dramatically expanding corporate political power, and have seen Supreme Court Justices imply in oral arguments that Medicaid might be unconstitutional; we have seen leading Republican presidential candidates openly calling for the repeal of child labor laws, argue for letting the states ban contraception, and say that Social Security is unconstitutional and a Ponzi scheme; there was a Republican governor and presidential candidate, Rick Perry, who opened the door to his state seceding from the union; there is a Republican senator who called for a repeal of the Civil Rights Act of 1964 (although he later pulled back from that under intense pressure); and the Paul Ryan budget, passed twice by the Republican House and unreservedly endorsed by their presumptive, ends Medicare and Medicaid as we know them, and calls for a 95 percent cut in domestic spending over the next four decades. This was the stuff of the extremist fringe — the John Birch Society, the militia types, the neo-Confederacy fan boys in the South, the Ayn Rand apostles, the Christian Dominionists — until fairly recently. But this group of outside-the-mainstream ghouls has become the twisted heart and soul of the 2012 Republican Party. President Obama’s speech this week went after the extremists who control the Republican Party hard, and he nailed it. As a history buff, and someone who wrote at length about the original Social Darwinists in my book, I was glad to see him explicitly tie Ryan and Romney to their Social Darwinist ancestors: This congressional Republican budget is something different altogether. It is a Trojan Horse. Disguised as deficit reduction plans, it is really an attempt to impose a radical vision on our country. It is thinly veiled social Darwinism. It is antithetical to our entire history as a land of opportunity and upward mobility for everybody who’s willing to work for it; a place where prosperity doesn’t trickle down from the top, but grows outward from the heart of the middle class. And by gutting the very things we need to grow an economy that’s built to last — education and training, research and development, our infrastructure — it is a prescription for decline. Just to give you a flavor of the original Social Darwinists, their intellectual founder was British writer Herbert Spencer, who happily applauded the divine right of Kings and “anyone who can get uppermost”. He attacked democratic forms of government, as well as trial by jury, where “12 people of average ignorance” would dare to sit in judgment of great corporations or wealthy people. In the U.S., the leading Social Darwinist was a Yale professor named William Graham Sumner, who said that every society had a choice between only two alternatives: “liberty, inequality, survival of the fittest” or “un-liberty, equality, survival of the unfittest.” It is ironic that the modern Republican Party is a place where most of its adherents reject Charles Darwin’s ideas on science yet have embraced them fully on economics. Here’s the problem, though: Darwin was a scientist, not an economist. His ideas have been accepted, and have thoroughly stood the test of time, in the realm of science. But when applied to economic policy in the U.S. in the 1880-90s, the 1920s, and the Bush era at the turn of this century, they have caused economic depressions and the massive destruction of the middle class every time. President Obama’s messaging on this is right where it needs to be. This paragraph is beautiful: In this country, broad-based prosperity has never trickled down from the success of a wealthy few. It has always come from the success of a strong and growing middle class. That’s how a generation who went to college on the G.I. Bill, including my grandfather, helped build the most prosperous economy the world has ever known. That’s why a CEO like Henry Ford made it his mission to pay his workers enough so they could buy the cars that they made. That’s why research has shown that countries with less inequality tend to have stronger and steadier economic growth over the long run. This is an election where it is very clear that people are going into the voting booth unhappy with the economy and with both parties. For the most part, they aren’t going to have faith in anyone on the ballot, and they aren’t going to be feeling optimistic about winning the future. They are going to need to see a clear contrast. On the one hand, they need to understand just what the Republicans are offering: a Social Darwinist, Ayn Randish future where all the benefits go to the wealthiest, who got that way because they are the “fittest” — where only the wealthy “job producers” get any benefits at all from government. On the other, they need to see Democratic candidates from the presidential level on down who they believe will fight without pause or fear for the middle class and those trying to climb the ladder up into it. From the looks of the president’s speech Tuesday, that is exactly what we will get.

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Jeff Jarvis: The Importance of JOBS

April 5, 2012

The JOBS bill being signed by President Obama today is critical to the emergence and growth of the next generation of industries as ecosystems. Those ecosystems are made up of three layers: Platforms (Google, Amazon, Salesforce, Facebook, Kickstarter, Federal Express, Foxconn), which make it possible for entrepreneurial ventures to be built at lower cost with less capital and reduced risk at greater speed. To provide the critical mass that large corporations used to provide — to, for example, sell advertising at scale or acquire distribution or acquire goods or services at volume — sometimes these ventures need to band together in networks (Glam, YouTube, Etsy, eBay). This is how I simplistically draw it on a whiteboard: Our economy — equity markets, regulation, taxation — has been built to support The Firm : large companies that controlled the entire chain from design to manufacturing to marketing to distribution, gaining efficiency and control as they gained size. The new ecosystem still benefits large companies if they are platforms, as today much — perhaps most — of the value created via the net falls to new corporate behemoths: Google, Amazon, Facebook…. But it’s at the entrepreneurial layer that the real work is being done, the real efficiency is being found, and the real value is being built. But they need capital — not much, but they need it. And they need to be able to recognize the value they create. That’s what I hope Steve Case and others worked toward with the JOBS bill. Andrew Ross Sorkin worries that the new law’s loosened regulation for some companies will mean that more will lose money. But Henry Blodget counters that it’s not the SEC’s job to save you if you’re stupid enough to invest in Groupon (told ya!). The lighter regulation certainly bears watching . But the part of the bill that encourages me is the ability of small companies to raise small amounts from small investors. I see this as economically democratizing on both sides of the transaction: more small companies disrupting large firms and more real investors able to get in on the opportunities (and risks) of a platform-enabled entrepreneurial economy. Such small-scale investment has already been possible in the U.K. — not just possible but encouraged through 30 percent tax break on investments. Recently I got an email from a company set to benefit, Escape the City (soon to be renamed escape.co), which helps would-be refugees from London’s financial district build new and, one hopes, better lives outside it. Cofounder Mikey Howe kindly wrote to me because he’d read What Would Google Do? and said it helped him think in new ways. (Thank you, Mikey.) Howe wrote on the occasion of the company sending a letter to its 57,000 members inviting them to pledge to invest in the venture. Within one hour, $6.6 million was pledged. I checked back with him three weeks later and 2,200 members had pledged $15 million (more than they will end up raising). What’s exciting is not just that a small company can more easily raise investment funds but that this small company knows its potential investors. They are members of the service already: a community of customers and investors. Imagine what that relationship could do to help a startup, when your users, your customers have a stake in your success. (I also enjoy the notion that their venture attempts to disrupt the financial district they left.) Start Something You Love: Escape the City…1 year on from Escape the City on Vimeo . Until the JOBS bill, about the closest thing we had in America was Kickstarter . My entrepreneurial journalism students are eager to try to use it to raise funds — perhaps a bit too eager, I caution them, for funding a single product or project does not a sustainable strategy make (any more than begging for grants from foundations). But properly used, Kickstarter reduces risk by performing the best possible market research (pre-orders) and allowing an entrepreneur to use her customers’ capital to start her venture while also turning customers into marketers. Kickstarter could not sell equity. Should it? I think that’s an entirely different proposition. In any case, now we can see Kickstarters of a new sort help more new companies. See also the U.K.’s Funding Circle , which loans capital to startups (and which just got an investment from New York’s Union Square Ventures). The irony of the JOBS bill’s title (it stands for Jumpstart Our Business Startups) is that it may end up killing more jobs than it creates as it funds highly disruptive and highly efficient new ventures that will try to replace large and now inefficient companies in old vertical industries. (See my post, the jobless future .) But if the disruption is inevitable — and I believe it is, across many industries from media to retail, banking to travel and even manufacturing — then the only sane response is to find the opportunity in the change. The JOBS act helps more people, entrepreneurs and investors, find more opportunity. That, more than bailouts, is the wise role for government to play in the shift from an industrial to a digital economy.

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Annie McKee: The Evil Boss Reconsidered

April 5, 2012

“I can’t stand my boss.” “My boss is incompetent.” “I hate my boss.” “My boss is clueless.” It’s a sad situation, really, when statements like these are at the center of so many conversations at work. But it’s true: bosses are disliked, despised, disrespected and detested. More people leave jobs because of their bosses than because of pay issues, working conditions or the job itself. In fact, in a Gallup survey, fully one half of all workers would fire their boss if given the opportunity . So, if we want to improve our workplaces and work lives, we better start by looking at why so many leaders are falling short on such a grand scale. I’ve spent the last decade or so on the other side of this question — how to help leaders get better at what they do. It’s more fun to look at the problem with a solution in mind, but I keep coming back to the fundamental fact that too many leaders really do wreak havoc on people and organizations. Why does this issue persist? There are countless reasons, but a few stand out: First: We promote people for the wrong reasons. We revere the mind and we promote people who seem smart — regardless of their ability to deal well with people. We worship money and reward individuals for making it for our companies, no matter the collateral damage to people along the way. By the time a person has significant leadership responsibility, he or she has gotten loads of positive feedback — money, praise, promotions, you name it. Why should they think there is anything wrong? And if we do notice the problems with these dissonant individuals, it’s hard to convince anyone — so we see again and again that the easiest thing to quiet the storm is to promote them again. Second: Even if people want to learn how to lead, it’s difficult, if not impossible, to get this kind of development at work today. Most of our bad bosses have not learned anything at all about how to manage or lead people — that is, other than the basic plug-and-play that is the stuff of most leadership development programs in organizations. Fact: billions of dollars are wasted on leadership development programs every year , partly because they are designed and conducted in ways that ignore the vast proven practices for meaningful learning. The result: a few people learn something, most people learn very little — and even those small gains are lost over time — and we’re talking lost after only a few weeks or months, not years. And even the companies that have good programs have sidelined most of them for the last four years. Four years! That’s a generation in management terms, and accounts for the exceptionally low rate of employee satisfaction these days. Third: These bad bosses are completely, totally stressed out. If they ever had self-awareness, self-management or the capacity to create a resonant environment, these skills have become casualties of the Sacrifice Syndrome . We expect so much of our leaders, work is incredibly demanding, and our home lives aren’t easy either. Try working 24/7 for a few years, and see what happens. With that kind of stress, our brains are designed to shut down, to go myopic — and in that state you can say good-bye to clear thinking, good judgment and positive relationships at work or home. In the end, organizations create their own monsters. These bad bosses aren’t usually evil. Don’t get me wrong, I’ve met a few who are. I even worked for one. They are soul destroying. But so are the well-intended, generally good people who have turned into insecure, credit-seeking, micromanaging nightmares. What can you do? 1. The first thing you need to do is check to see if you are one of them. If you have become the person everyone loves to hate, it’s time for a change. It won’t necessarily be easy, but if you want to get back to the person you really are, you’ll need to take a hard look at what got you to this place. You’ll likely need to make some pretty major changes to your lifestyle so you can deal with the stress that is inherent in your job. You may need to put yourself in a learning mode — get a coach, find a good leadership program, develop daily routines that support you to be at your best more often, maybe even get a therapist. Yes, it might require even that. At the least, you’re sure to need to focus on personal growth. Professional development simply doesn’t happen without it. 2. If you’re not the problem — still a good leader, still creating a resonant environment for your team — you need to find ways to protect yourself from the dissonance around you. You can start by making sure your psychological defenses are strong and in place. Make sure you know that the behavior directed your way that hurts so much is not about you. It’s about your boss. It is his or her stress, not yours. It’s her insecurity, his lack of understanding about how to manage people. Defend yourself by refusing to let your bad boss hurt you. 3. You can also take some solace in looking down and around you. Make sure that you’re not “kicking the dog.” Instead of passing on the bad behavior, do just the opposite. Get yourself to the point where you can share positive emotions, not negative. Create an environment that is full of promise and excitement, not doom and gloom. Engage your natural optimism and focus on hope. Focus on empathy and compassion so you can direct your activities toward supporting others. Hope and compassion are two ways to literally shift your brain into a mode that helps you deal with stress — while you are also protecting and inspiring others. 4. Finally, you can stop the madness by promoting the right people. Don’t focus so much on results, focus on how people get results. Look under the rocks — what are they doing to people? Are they killing people to reach goals? Squeezing the life out of their team to get that last half percent of growth in the business? If so, it’s not worth it when you consider the debris they have left in their wake. No matter how unpleasant it is, you really do need to learn to give people honest feedback about their leadership skills. It’s time we look beyond smarts and focus on emotional intelligence — those are the skills that make good leaders and are the antidote to the bad bosses out there. It may be common sense, but it’s not common practice — so if we want high performing and compassionate organizations, it’s time to turn this around.

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Ken Jacobson: Whose Corporations? Our Corporations!

April 5, 2012

Corporations are not working for the 99 percent. But this wasn’t always the case. In a special five-part AlterNet series, William Lazonick, professor at UMass, president of the Academic-Industry Research Network, and a leading expert on the business corporation , along with journalist Ken Jacobson and AlterNet’s Lynn Parramore, will examine the foundations, history and purpose of the corporation to answer this vital question: How can the public take control of the business corporation and make it work for the real economy? Historically, corporations were understood to be responsible to a complex web of constituencies, including employees, communities, society at large, suppliers, and shareholders. But in the era of deregulation, the interests of shareholders began to trump all the others. How can we get corporations to recognize their responsibilities beyond this narrow focus? It begins in remembering that the philosophy of putting shareholder profits over all else is a matter of ideology which is not grounded in American law or tradition. In fact, it is no more than a dangerous fad. The Myth of Profit Maximizing “It is literally – literally – malfeasance for a corporation not to do everything it legally can to maximize its profits. That’s a corporation’s duty to its shareholders.” Since this sentiment is so familiar, it may come as a surprise that it is factually incorrect: In reality, there is nothing in any U.S. statute, federal or state, that requires corporations to maximize their profits. More surprising still is that, in this instance, the untruth was not uttered as propaganda by a corporate lobbyist but presented as a fact of life by one of the leading lights of the Democratic Party’s progressive wing, Sen. Al Franken. Considering its source, Franken’s statement says less about the nature of a U.S. business corporation’s legal obligations – about which it simply misses the boat – than it does about the point to which laissez-faire ideology has wormed its way into the American mind. The notion that the law imposes a duty to “maximize shareholder value” – a phrase capturing the notion that profits are mandatory and it is the shareholders who are entitled to them – is so readily accepted these days because it jibes perfectly with assumptions about economic life that constantly come down to us from business and political leaders, from academia, and from the preponderance of the media. It is unlikely to occur to anyone under the age of 40 to question this idea – or the idea that the highest, or even sole, purpose of a corporation is to make a profit – because they have rarely if ever been exposed to an alternative view. Those in middle age or beyond may have trouble remembering a time when the corporation’s focus on shareholders’ interests to the exclusion of all other constituencies –customers, employees, suppliers, creditors, the communities in which it operates, and the nation – did not seem second nature. This narrow conception of corporate purpose has become predominant only in recent decades, however, and it flies in the face of a longer tradition in modern America that regards the responsibilities of a corporation as extending far beyond its shareholders. Owen D. Young, twice chairman of General Electric (1922-’40, 1942-’45) and 1930 Time magazine Man of the Year, told an audience at Harvard Business School in 1927 that the purpose of a corporation was to provide a good life in both material and cultural terms not only to its owners but also to its employees, and thereby to serve the larger goals of the nation: “Here in America, we have raised the standard of political equality. Shall we be able to add to that, full equality in economic opportunity? No man is wholly free until he is both politically and economically free. No man with an uneconomic and failing business is free. He is unable to meet his obligations to his family, to society, and to himself. No man with an inadequate wage is free. He is unable to meet his obligations to his family, to society, and to himself. No man is free who can provide only for physical needs. He must also be in a position to take advantage of cultural opportunities. Business, as the process of coordinating men’s capital and effort in all fields of activity, will not have accomplished its full service until it shall have provided the opportunity for all men to be economically free.” This holistic declaration was echoed, albeit in more specific and practical terms, by the chairman of another massive US corporation, Johnson & Johnson, during World War II. In his 1943 “ Credo ,” a somewhat modified version of which can be found on the company’s Web site today, Robert Wood Johnson II identified five distinct constituencies and established an order of priority in which they would be served by his firm. Johnson & Johnson’s “first responsibility,” he wrote, was to its customers: “the doctors, nurses, hospitals, mothers, and all others who use our products.” In second place came employees; in third, management; and in fourth, “the communities in which we live.” The interests of the stockholders, the corporation’s “fifth and last responsibility,” appear subordinate in his mind both to the firm’s sound operation, which depends on attention to the interests of the other constituencies, and to its long-term welfare: “Business must make a sound profit. Reserves must be created, research must be carried on, adventurous programs developed, and mistakes paid for. Adverse times must be provided for, adequate taxes paid, new machines purchased, new plants built, new products launched, and new sales plans developed. We must experiment with new ideas. When these things have been done the stockholder should receive a fair return.” A Shift in Accountability By 1978 the era of deregulation had begun and signs had appeared that corporate attitudes were shifting. In that year another GE chief executive, Reginald H. Jones, wrote that the “central principle of the present system is that a director’s accountability is to the owners of the enterprise.” Having set aside the broader visions of corporate duty held by his GE predecessor Young and by Johnson, Jones in effect moved the firm’s responsibility to its shareholders from last on the list to first: “If this principle is abandoned, if other corporate constituencies are placed on a plane with shareowners, if directors are required to represent directly the interests of nonshareowner groups…there will be no clear measure of directors’ responsibility because there will be no clear consensus on primary corporate goals.” His personal preferences aside, however, Jones realized that Americans were not yet ready to accept firms’ turning their backs on the general good, and that he and his fellow executives had something to gain from being accommodating: “If the concern is social responsiveness, or ‘public accountability,’ the short answer is that in this country at this time, no large corporate enterprise can afford to be perceived as oblivious or contemptuous of matters of genuine social or public concern. These enterprises have to earn from the general public and their political representatives – and earn from year to year – the right to continue to function without radical new governmental constraints.” The dawn of Ronald Reagan’s presidency found the corporate community on the fence. The “Statement on Corporate Responsibility” issued in October 1981 by the Business Roundtable, which groups the CEOs of the largest US firms, recognizes six constituencies – customers, employees, communities, society at large, suppliers, and shareholders – as forming the “web of complex, often competing relationships” within which corporations operate. It accepts the idea that “shareholders have a special relationship to the corporation” but doesn’t allow their interests to trump all others: “Balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management. The shareholders must receive a good return but the legitimate concerns of other constituencies also must have appropriate attention. Striking the appropriate balance, some leading managers have come to believe that the primary role of corporations is to help meet society’s legitimate needs for goods and services and to earn a reasonable return for the shareholders in the process. They are aware that this must be done in a socially acceptable manner. They believe that by giving enlightened consideration to balancing the legitimate claims of all its constituents, a corporation will best serve the interest of the shareholders.” Even after eight years of Reagan and amid the burgeoning of free-market ideology, the Business Roundtable remained reluctant to place shareholders first, affirming in 1990 that “corporations are chartered to serve both their shareholders and society as a whole” and adding creditors to the 1981 list of constituencies, which it otherwise retained intact. It was only in 1997, in a new statement whose title substituted “Corporate Governance” for “Corporate Responsibility,” that it renounced attempts to balance the interests of corporate constituents and, having reversed its view, argued that taking care of shareholders was the best way to take care of the remaining stakeholders, rather than the other way around: “In the Business Roundtable’s view, the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders. The notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors.” This doctrine, known as “shareholder primacy,” now reigns in the corporate world today, and it has so increased the power of those whom it has benefited that it will not be easy to dislodge. Those who propagate it believe, or would have us believe, that it is based in law; in fact, it is supported by no more than ideology. They believe, or would have us believe, that it reflects incontrovertible and eternal truths; in fact, it is an expression of transient self-interest. They believe, or would have us believe, that it honors long precedent – but, as we have seen, its ascendency is recent, and, rather than honor it undermines precedent. Yet despite these contradictions, corporations and their allies have been exceedingly successful at selling their viewpoint to the American people. An important step toward countering their influence can come in refusing to accept the legitimacy of shareholder primacy. Up to now, this fad has had the power to neutralize opposition in part because it has obscured the tool needed to challenge it: a clear understanding of the economic realities. For this reason, we must learn what contributions all stakeholders – not just the shareholders, but all the others as well – make to the corporation, and the extent of the risks and rewards those contributions truly entail. We must learn about the interrelation of business and government in all its complexity, going far beyond the headlines about taxes and regulation to discover who needs whom for what, and who does what for whom. And we must learn what rights corporations legitimately hold, what privileges they enjoy, and what duties they are obliged to carry out. Without this effort, without this knowledge, we are in danger of continuing to be held captive by a fad.  

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Mohamed A. El-Erian: Markets Wake Up to Central Banks’ Complicated Tradeoffs

April 5, 2012

This week’s market action serves as a vivid reminder of how dependent valuations are on central bank policies, and especially the aggressive provision of liquidity by the Federal Reserve and the European Central Bank. The question for markets thus boils down to whether central banks will do more; and the issues these institutions face are extremely and increasingly complex. The global sell-off started on Tuesday with the release of the minutes of the most recent FOMC meeting. They were read by many as signaling less eagerness on the part of the Fed to embark on yet another round of liquidity injections (“QE3″). Virtually every asset class promptly slumped, including bonds, commodities and equities — a reflection of how liquidity, rather than fundamentals, partly underpins recent market strength. The sell-off in risk assets accelerated on Wednesday as the European Central Bank also cautioned about expectations of yet more unusual policy activism on that side of the Atlantic. The disappointing Spanish government bond auction was also a problem, coming at a time of mounting market concern about the country’s outlook. This time around, however, German and U.S. government bonds decoupled reflecting the “flight to quality” trade — out of risk assets and into what are regarded as safe heavens. Against this background, it is natural that investor conversations center on whether central banks will renew their liquidity injection programs if markets continue to sell off. Some believe that the institutions have no choice but to do so. Others are less sure. This uncertainty is not surprising. The analysis conducted here at PIMCO, including research for next week’s presentation of the Homer Jones Memorial Lecture at the St. Louis Federal Reserve, confirms that central banks face extremely complicated policy challenges: They are dealing with what Chairman Bernanke correctly called an “unusually uncertain outlook.” They are forced to use blunt tools. They receive very little support from other government agencies. And their repeated interventions inevitably distort price signals, alter market functioning, and disrupt liquidity. In sum, the critical trade-off in policymaking — between benefits, costs and risks — is becoming less attractive for central banks. Thus, recent signals of their hesitancy to do more, especially in light of improving economic data. When push comes to shove, however, we suspect that central banks may ultimately resort yet again to their printing presses, especially if meaningful economic and financial weaknesses reappear. Remember, this is not about what central banks SHOULD do; rather, it concerns what they are LIKELY to do. And in being forced to inject liquidity into the global system, central banks would be driven not by positive motivations but, rather, negative ones. In their hearts, central banks know that their policies cannot by themselves deliver the desired economic outcomes; and they are increasingly aware of the collateral damage associated with their unusual policy activism, as well as the unintended consequences. But they also feel that, for many reasons, they cannot be seen to stand on the sideline while politicians bicker, other agencies dither, and the economy stumbles. The markets’ obsession with central bank policies will not go away any time soon. Moreover, it will evolve over time to also include the question that holds the key to sustaining over time the bull market: whether central banks will be able to hand off the policy challenge — either to a robust economy or to other institutions that have better tools yet, for a host of reasons, have preferred to remain on the sidelines until now? Dr. Mohamed El-Erian is CEO and Co-CIO of PIMCO, the global investment manager. This post originally appeared at CNBC.com . © 2012 CNBC.com

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Paul Boden: I Ain’t No Broken Window

April 5, 2012

James Q. Wilson, the person credited with coining the theory of broken-windows policing , died last month and people are starting to ask what “Broken Windows” is all about. Those of us who have been identified as no more than a broken window are sick of it. The broken-windows theory holds that one poor person in a neighborhood (or, using Wilson’s words, “a single drunk or a single vagrant”) is like a first unrepaired broken window. If the window is not immediately fixed, if the vagrant is not immediately removed, it is a signal that no one cares, disorder will flourish, and the community will go to hell in a handbasket. For this theory to make sense, you first have to step far far away from thinking of people, or at least poor people, as human beings. You need to objectify them. You need to see them as dusty broken windows in a vacant building. Wilson himself admits that his reasoning here seems unjust on the individual level, but goes on to argue that not dealing with a single drunk or vagrant who hasn’t even harmed anybody may lead to “a score of drunks or a hundred vagrants” who could destroy an entire community or downtown business district. That is why we now have Business Improvement Districts (BIDs) with police enforcement to keep that neighborhood flourishing and poor unsightly people out of it. There are now over 1500 BIDs worldwide and their number is growing. And we are right back to Jim Crow Laws, Sundown Laws, Ugly Laws and Anti-Okie Laws, local laws that profess to “uphold the locally accepted obligations of civility.” Such laws have always been used by people in power against those on the outside. In other words, today’s Business Improvement Districts and broken-windows policing are, at their core, a reincarnation of various phases of American history none of us is proud of. Central to the argument is the need to adhere to “locally accepted obligations of civility.” But who is setting these “locally accepted obligations of civility?” Where is our “human civility?” We have gone from the days where people could be told “you can’t sit at this lunch counter” to “you can’t sit on this sidewalk,” from “don’t let the sun set on you here” to “this public park closes at dusk” and from “you’re on the wrong side of the tracks” to “it is illegal to hang out” on this street or corner. Of course a tired shopper can sit on the sidewalk to rest between stores and the people that lined up for two days waiting to get the new iPod can loiter and none of them will ever be ticketed, moved on, or arrested. These are the civilized people; they are consumers. They are us. The people these laws are enforced against are not us. They are them. And their mere presence makes us uncomfortable, so therefore they are not civil and need to be replaced with someone more like those of us who set the locally accepted obligations of civility. Jim Crow Laws, Sundown Laws, Ugly Laws, Anti-Okie Laws, and Broken Windows Laws, its all the same old wine — just in a new bottle. I guess history really does repeat itself and that’s sad.

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Brian Hamilton: It’s a Good Time to Start a Business: Five Things You Need to Know

April 4, 2012

The economy is improving. Private company sales and profit margins are up and steadily increasing, GDP is growing, and there are signs of life in the real estate markets. However, while the unemployment rate is declining, it is still too high. Now is the perfect time to employ yourself by starting a business. Here is advice on the five things you need to know before you get started. 1) Do what you love. Find something that you know and something that interests you. 2) Start a low capital business. You’re not going to get a loan from anyone. Start small and build slowly and steadily. 3) Find something that is really needed in the marketplace. Do something that people don’t want to do or cannot do themselves. 4) Keep your overhead low. Hire slowly and do without. 5) Follow the customer. Value and listen to your customers — your best source of market research and the reason you’re in business.

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Lenwood Brooks: Government Spending on Autopilot: Prepare for the Crash

April 4, 2012

Last summer, a Federal Aviation Administration advisory committee study on the use of autopilot inaircraft drew a sobering conclusion: too much reliance on automation and technology are degrading pilots’ flight skills. Indeed, reports indicate autopilot malfunctions were a contributing factor in numerous airline accidents in recent years. Perhaps members of Congress should consider the implications of those findings as they take up this year’s federal budget and appropriations process. Because with a majority of federal spending now running on autopilot, we’re setting ourselves up for a fiscal crash. What do I mean when I say the budget is “on autopilot”? Right now, vast swaths of government spending are classified as “mandatory.” That means certain programs are funded automatically. In other words, they are funded outside of the yearly congressional budget and appropriations process. Most Americans don’t realize it, but more than half of federal spending falls into the mandatory spending category: think Social Security, Medicare and Medicaid. (To be exact, 56 percent of all federal spending was spent on mandatory spending during the government’s last fiscal year.) Meanwhile, as of last year, just over a third (37 percent) of the federal budget is categorized as “discretionary” spending. This is the part of the budget over which Congress has decision-making power through the yearly budget and appropriations process. In the last year, Congress has attempted to tackle spending in two ways. First, in August 2011, Congress passed the Budget Control Act, which laid out steps to reduce the deficit over ten years in exchange for an immediate increase in the national debt ceiling. But if you look closer at these numbers, many of the “cuts” are not actual reductions in spending — they simply represent a slower rate of spending growth — and entirely come from the discretionary spending category, the smallest part of the federal budget. The Budget Control Act also established the so-called super committee to identify further potential deficit reduction targets. However, the committee failed to arrive at an agreement by its November deadline, so a series of scheduled automatic cutstotaling $1.2 trillion are now slated to go into effect in January of next year (and will be spread out through 2021). According to the non-partisan Congressional Budget Office, of these cuts triggered by the super committee’s failure, 71 percent — almost three-quarters — come from discretionary spending categories. Getting a serious handle on growing spending in Social Security, Medicare and Medicaid, some of the biggest programs in mandatory spending? It won’t happen under this plan. Worse yet, after the bitter trench warfare and brinksmanship of the 2011 debt ceiling deal, not only have we failed to achieve serious budget savings, it’s probable we’ll hit the debt limit again this year, sooner than was originally expected. That means Congress is likely to find themselves in a new debt ceiling showdown before a single cut triggered by the super committee’s failure has taken effect. Do you see a pattern here? Congress has repeatedly abdicated its responsibility for effective oversight and decision-making on critical questions of how the federal government spends money. At a House Oversight and Government Reform on March 21, Representative Trey Gowdy (R-SC) proposed an interesting hypothetical question to Treasury Secretary Tim Geithner. If the upcoming debt ceiling increase could be “the last debt ceiling increase you could ask for — the final one — and you had to make it large enough for all current and future obligations, what would the request need to be?” “I just can’t do it in my head,” Geithner eventually said when pressed on the question. But the number “would make you uncomfortable.” There is a reason the number causes an uncomfortable feeling: autopilot spending is driving this nation into bankruptcy. President Obama has shown little inclination to step up and show real leadership on this issue. Meanwhile, the budget proposal from Rep. Paul Ryan, the Wisconsin Republican who chairs the House Budget Committee, is an improvement. Credit Ryan for seeking to preserve the Medicare guarantee while keeping costs down and personalizing Medicare for seniors. However, his budget proposal doesn’t address the growth in Social Security spending. What should Congress do? Take a cue from the world of aviation. One recommendation stemming from the FAA autopilot study cited above is that pilots should devote more time to manual flying, rather than relying on automated systems, so they are better prepared at recognizing the warning signs of an emergency. “We’re forgetting how to fly,” explained the committee co-chair, a pilot himself. There’s a lesson for Congress there: enough with the autopilot spending. Congress must take control of the federal budget process, which means taking responsibility for all spending programs to get the deficit under control. If Congress doesn’t start relearning how to fly, we all need to be prepared for a fiscal crash. Lenwood Brooks is policy director of Public Notice, an independent, nonpartisan, nonprofit dedicated to providing facts and insight on the economy and how policy affects our financial well being.

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Gene Marks: Prospective Employees: Please Show Me Your Facebook Page

April 4, 2012

We call her Aunt Dolores but she’s really not our Aunt. She is… now see if you can follow me… the 70-year-old sister of my sister’s father-in-law. We see her a lot at family functions. A year ago Aunt Dolores got on Facebook. And so that she could live up to her reputation as the “fun” aunt, she “friended” my teenage kids. They accepted. What happened next is no surprise. She saw pages that shocked her. Girls and boys trash talking each other. Lewd and racy photos. Profane and filthy comments. Inappropriate postings on each others’ walls. And that was just in her Bridge Club group. The activity on my kids’ pages was even worse! And then Aunt Dolores committed the ultimate Facebook faux pas: she commented on my son’s wall in response to something stupid another kid wrote. Grandparents and older relatives heed my warning. If you want to have an online relationship with your younger relatives remember this: stay silent! Aunt Dolores violated the code. Her reward: instant un-friending. My wife and I aren’t bad parents. We’ve sat through excruciatingly long middle school plays, listened without comment as 22-year-old teachers gave us advice on raising children and endured endless drives to Virginia, Maine and parts of Pennsylvania where most inhabitants have one eye and are married to each other’s cousin — just so that we could cheer on our kids as they played soccer, baseball, squash and track. Yes, squash. But we’ve drawn the line at Facebook. We don’t go there. The amount of dribble, trash talk and mostly undecipherable nonsense exchanged between middle and high school-aged kids would make any grown man’s brain melt after an extended period of exposure. When it comes to their online activities I have to cross my fingers and trust that my kids use judgment. I am being incredibly naive. But this is a battle I’m not up to fighting. You would think I would feel the same about Facebook privacy for prospective employees. But I don’t. In fact my stance, as a small business owner and employer, is different. When someone applies to work at my company I want to see what they’re up to on Facebook. Recently the House of Representatives voted down a bill that would restrict employers’ access to prospective and current employees’ Facebook pages. In a blog published last week, PCWorld ‘s Tony Bradley argued that he does not want employers to have any access to his Facebook page saying it is an invasion of privacy and a breach of security. “The practice is at least unethical, if not illegal,” he wrote . “There is simply no valid reason for an employee to give you his or her Facebook credentials — or any other password for that matter.” I respect Tony’s opinion on this issue. He’s a good writer and I’m a fan of his. But he’s not an employer. I’m an employer. And if you want to work for me, then I want to see what you’re up to on Facebook. I understand if this upsets you. It would upset me if I was applying for a job too. I wouldn’t want anyone digging into my Facebook activities. If you’re anything like my kids you probably have lots of things on your Facebook timeline that do not do you proud. As a parent that concerns me even more. You can’t be responsible for others writing on your wall or tagging you in pictures when you’re out having fun. You’re human and like all of us you’ve written things that you now regret. And maybe you’d prefer not to share the fact that you’re a member of the Maroon 5 fan group. Believe me, I wouldn’t want to reveal those details either. But as a prospective employer I want to see what you’re up to on Facebook. I don’t want your “password.” I don’t want to be able to go onto Facebook and be you. I don’t even want to monitor your activities on Facebook once you’re hired. All I want is to be “friended” for a short period of time while I’m evaluating you as a prospective employee. Because if I’m going to be a “friend” to you by giving you a job and allowing you to enter into my company, my community, my life, my employees’ lives… is it not so unreasonable to ask to be your friend in return? I may not even look at your page. It may not even be necessary. And if I do visit your site I doubt I’d even spend much time there. Like most employers, I get it. We know that our employees have personal lives and do goofy things. You should see the moronic exchanges I still have with my fraternity brothers… and we graduated college more than 25 years ago. I don’t really care about that stuff. But there are some activities that would raise my antenna. I’m no human resources expert, but I am looking for extreme issues. Is your online behavior severely inappropriate? Do you belong to any groups or participate in any activities that could be construed as harmful, racist, demeaning or offensive? Are you a member of the KKK, the Nazi Youth or the New York Mets fan club? Are you crossing a professional line in your personal life that I can’t ignore? This is my livelihood. Why do I care? Because before I hire someone I want to know as much information about that person as possible. And there are three reasons why. For starters, I have to consider the welfare of my existing employees. I can’t bring someone into the company who is disruptive or abusive or just not a good fit. At the age of 47, I am still the world’s worst judge of human character. I need all the help I can get. A simple interview doesn’t suffice. Checking references is never enough. A resume doesn’t tell me everything I need to know. If Facebook helps me determine that a prospective employee may be offensive to others in my office I want to know that. Whenever I hire someone I feel like I’m taking a gamble. Any information that can help me reduce this risk is welcome. Access to a candidate’s online activities would be very helpful. Secondly, for most small businesses hiring a new employee is no small matter. It’s a large risk. We are investing our time, resources and money in a new person. This is a person who will be representing my company to my customers, suppliers and partners. Who I hire says a lot about me and my company. If, after six months, it turns out to be a failure the result could be a major setback. We want to avoid this from happening. I hire someone with the intention of employing them for life. I don’t want to have to do this all over. So, again, the more information I have during the review process the better. Finally, in a close contest with another candidate, access to Facebook could turn out to be to a prospective employee’s benefit. Maybe there’s some educational activity that wasn’t on a candidate’s resume. Maybe the candidate is part of a group or has friends that I know who could serve as that extra little reference that I need. Maybe that candidate is doing something special online, like writing poetry or recommending books that sets that person apart or serves as a deeper connection to me. I’m not looking at just a piece of paper. I’m looking to invest in a person. I want to know everything about that person. I want to feel right about that person before I open up my life to him or her. And make no mistake: for any small business owner, our business is our life. And what if, as I was asked recently on MSNBC’s “Your Business,” a candidate refused my request to give me access to his or her Facebook page? Would that impact my decision to hire that person? It may. I wouldn’t be upset with that person because, like I wrote earlier, I wouldn’t be thrilled about giving up my privacy either. But, if by refusing to share with me information that other candidates are sharing, I may not know enough about this candidate to hire him or her. Is LinkedIn enough information? Maybe. But I always want more. It’s 2012. Most of us evaluate employees like it’s still 1960. We look at resumes and have an interview and call up a reference or two. Times have changed. The process for hiring people is changing too. Social media is now a deep part of our culture. And it should also be part of the hiring process. Another version of this post appears on The Philly Post .

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