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Dan Solin: The 401(k) Rip-off May Be Ending

by Dan Solin on April 17, 2012

Huffington Post…

It has long been my view that 401(k) plans are a national disgrace. They are rife with conflicts of interest between those who “advise” them and the participants who contribute to them. The investment options in the plan are chosen through a cozy, complicated and little understood process by which mutual funds make payments to brokers and insurance companies in order to get selected for a coveted place in the line-up of funds from which participants are required to make their selections. In any other context, these payments would be called bribes. In the 401(k) industry, they are known as “revenue sharing payments”, justified by tortured logic intended to obscure their real purpose, which is to populate these plans with expensive, actively managed funds likely to underperform index funds of comparable risk over the long term. The inner workings of the 401(k) system are shrouded in secrecy and mired in complexity, which is exactly the way the securities industry wants to keep it. There has been little scrutiny of how investment options are actually selected for inclusion in the plan. Justice Louis D. Brandeis famously stated that “sunlight is said to be the best of disinfectants”. 401(k) plans have been operating in very dense fog. Lawsuits challenging this unsavory process have had mixed results. Most have been dismissed as having no legal merit. Some have been quietly settled. None have gone to a trial on the merits, until now. Tussey v. ABB, Inc ( Case No. 2:06-CV-04305-NKL) is a class action brought in the United States District Court for the Western District of Missouri, Central Division, by present and former employees of ABB, Inc, who were participants in two 401(k) plans. The plans included mutual funds managed by Fidelity Investments. Affiliates of Fidelity served as investment adviser to the mutual funds in the plan and as recordkeeper to the plans. After a four week trial, U.S. District Judge Nanette K. Laughrey issued an extensive opinion. She found that ABB and Fidelity “… violated their fiduciary duties to the Plan when they failed to monitor recordkeeping costs, failed to negotiate rebates for the Plan from either Fidelity or other investment companies chosen to be on the PRISM platform, selected more expensive share classes for the PRISM Plan’s investment platform when less expensive share classes were available, and removed the Vanguard Wellington Fund and replaced it with Fidelity’s Freedom Funds.” The Court was especially critical of the process employed by the Pension Review Committee to replace the Vanguard Wellington Fund with Fidelity’s Freedom Funds. The Court noted the stellar, long term track record of the Wellington Fund. It found that the “… recommendation to add the Freedom Funds to the Plan’s investment platform and remove the Wellington Fund despite its excellent performance record was motivated in part by his desire to decrease the fees that ABB was paying and to maintain the appearance that the employees were not paying for the administration of the Prism Plan.” So much for acting in the best interest of the plan participants. As compensation for the misconduct of the plan fiduciaries, the Court assessed damages of $36.9 million and left open the possibility of awarding attorney fees to the plaintiffs. I contacted ABB and was told by their representative that it “strongly disagreed” with the decision and was “considering its options, including an appeal.” Dan Solin is a senior vice president of Index Funds Advisors. He is the New York Times bestselling author of “The Smartest Investment Book You’ll Ever Read,” “The Smartest 401(k) Book You’ll Ever Read,” “The Smartest Retirement Book You’ll Ever Read” and “The Smartest Portfolio You’ll Ever Own.” His new book is “The Smartest Money Book You’ll Ever Read.” The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Dan Solin: The 401(k) Rip-off May Be Ending

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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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Gerald McEntee: Let’s Get Women Out of the Red

April 17, 2012

Workers are under attack and women are bearing the brunt of it when it comes to pay . Who’s to blame? Corporate-backed politicians typified by Wisconsin Governor Scott Walker. Last week, in the dead of night, Walker signed a piece of legislation that rolls back progress on pay equity in his state, where women make only 75 cents for every dollar a man earns doing the same job. (Wisconsin’s rate was already worse than the disheartening national average of 77 cents on the dollar.) Walker’s legislation repeals a 2009 law that made it easier for victims of wage discrimination to have their day in court. His action adds another to the growing list of reasons Wisconsin voters want to recall him this June . Republican presidential hopeful Mitt Romney has yet to denounce Walker’s anti-worker, anti-women action. Recently, Romney’s campaign officials were stumped by a reporter’s question on the topic. The reporter asked if Romney supports the Lilly Ledbetter Fair Pay Act , the first law President Barack Obama signed, making it easier for women to sue in wage discrimination cases. Campaign officials were silent, then said only, “We’ll get back to you on that.” No public official should have to stop and think about pay equity. It’s the right thing to do. And it’s the smart thing to do. When women do not get paid fairly, we all suffer. Yet in places like Wisconsin, the systematic attacks on women’s pay and voices continue. Walker’s so-called “budget repair” bill passed last year broke the livelihoods of many women in the state, where the resulting layoffs and pay cuts disproportionally hit working women. Leah Lipska, a member of AFSCME Local 1 in Wisconsin, told her story in a letter to the Washington Post . She wrote, “Aside from my full-time job with the state, I have been forced to take a part-time job at a local pizza place. Even that’s not enough to make up for my decrease in pay since Governor Walker’s law. I got so far behind on my car payments, I had to ask my parents for help. I’ve even had to go to the local food pantry. [Walker] is no hero; he’s stolen our American Dream.” Nationwide, the reality of pay inequity for women of color is even bleaker. African-American women make about 72 cents for every dollar earned by a white man. Latina women, only 62 cents. In the 1970s, pay equity emerged as one of the most significant issues confronting women. AFSCME members in San Jose, Calif., staged the first pay equity strike , and AFSCME members in Washington state reaped the benefits of the largest pay equity court settlement to date. We have made some strides as a nation, through pay equity agreements at the bargaining table and in state and local legislatures. But progress has been far too slow and much too scarce. Today, pay equity remains so troubling an issue that President Barack Obama talked about it in this year’s State of the Union address. “An economy built to last is one where we encourage the talent and ingenuity of every person in this country,” Obama said. “That means women should earn equal pay for equal work.” Wisconsin gubernatorial recall candidate Kathleen Falk echoed these words recently. “As a woman, as a mother who worked full-time while raising my son, I know first-hand how important pay equity and health care are to women across Wisconsin.” Today, AFSCME members across the country are wearing red . We are wearing red because we, like Falk, know how important pay equity is. We are wearing red to stand in solidarity with the women we work with every day, the women who make America happen. We are wearing red to get women out of the red. “Another day, another 77 cents on the dollar,” doesn’t have a nice ring to it. We must finish what we started in the 1970s. We must stop the corporate-backed politicians who are trying to rewind history. We must make sure women earn equal pay for equal work.

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Chip Conley: The 7 Practices of PEAK Leadership

April 17, 2012

Why don’t we “practice” business? I’ve come to realize that — unlike medicine and law — we don’t think of our profession as business leaders as a “practice.” A few years ago, in the last downturn, I developed the principles of PEAK as an alternative operating model for my business based upon Abraham Maslow’s iconic Hierarchy of Needs pyramid. Reinterpreting this well-known theory of human motivation helped me to see that all stakeholders associated with a company have their own Hierarchy of Needs. My company Joie de Vivre tripled in size during this difficult period and I came to find out that a variety of other transformational companies like Harley-Davidson have used Maslow’s theory as a foundation for their business model. Business principles are only as good as the practices that back them up. Recently, with the assistance of some good friends, I’ve developed a set of PEAK Leadership practices that can assist any leader or leadership team to move from survival to success and on to being a transformative role model in their industry. When a company embeds these principles and practices in how they grow their leaders, the end result is PEAK performance: a phenomenon of sustained growth — both for the organization as well as for those within the organization. Practice 1: Embody an inherently positive view of human nature. The principles of PEAK have their roots in humanistic psychology and a basic belief that man is meant to “be all that he can be.” So, it’s not surprising that the fundamental first practice is assuring that a PEAK leader believes that humans — at their very core — gravitate to goodness when the right conditions exist for them to flourish. Creating what Maslow called “psycho-hygiene” in a company means focusing on people’s best qualities and believing in what’s been known for a half-century in business as a “Theory Y” perspective on management versus “Theory X.” With Theory X, management assumes employees are inherently lazy and will avoid work if they can. As a result of this, management believes that workers need to be closely supervised and a comprehensive system of controls developed. With Theory Y, management assumes employees may be ambitious and self-motivated. They believe the satisfaction of doing a good job is a strong motivation and seek to create the conditions for the employee to develop their own strengths to be successful. While this latter theory may feel intuitively right to many of us, is your organization still structured in a Theory X style of business? Practice 2: Create the conditions for people to live their callings. Great leaders understand there are only three relationships you can have with your work: a job, a career, or a calling. A job tends to deplete you and a calling energizes you. Most employees live in the bartering world of work. The company gives them a compensation package and recognition and, in return, the employee gives their time and energy. Yet, those that are living their calling have moved from external to internal motivation. And, these employees are not exclusively focused on the specific collection of tasks they perform and are more focused on the impact or purpose of what they do. The best hospitals have more nurses living their calling. The best airlines have the happiest flight attendants (Southwest). What are you doing to help your people find their sense of calling in what they do? Practice 3: Promote and measure the value of intangibles. In business, we are taught that leadership is all about managing what you can measure, but what’s most easily measurable is the tangible in life. Yet, is it the tangible or the intangible in business and life that creates value? In business, the metrics that track the tangible are well known: your profitability, assets & liabilities, cost structure, market share. Yet, in reality, these tangible metrics are the result of a series of intangibles that drive excellence: brand loyalty and reputation, employee engagement, customer evangelism, the ability to innovate. Great leaders nurture, value, and evolve corporate culture — one of the most valuable intangibles — as a key differentiator for their company. These intangibles are the inputs that drive the tangible output that most companies use to evaluate their performance. In the 21st century, great leaders are learning how to measure and benchmark these intangibles so that they’re not out of sight, out of mind. Which intangibles are most valuable to your business and how are you measuring them? Practice 4: Ability to move fluidly between being a “transactional” and a “transformational leader.” Author James McGregor Burns once wrote that, “Transformational leaders look for the personal motives in followers, seek to satisfy higher needs, and engage the full person of the follower.” Yet, most management decisions require only transactional thinking because the goal is purely to optimize existing resources. A great leader is able to move fluidly between addressing the foundational needs that people have, but also helping them see beyond the short-term so that they can be motivated by a compelling vision that helps them transcend their momentary challenges. How much of your time is stuck in the trenches as a transactional leader versus focusing on how to create transformation? Practice 5: Calibrate the balance between “Conscious” and “Capitalism.” Business has quite often been seen as a “zero-sum” game. One person’s win is another person’s loss. Taken to the global level, some believe that capitalism’s short-term gains are often to the long-term detriment of the environment and to certain communities. And, at this crossroads, in an increasingly transparent world, this is why great leaders have to think more broadly about the impact of their decisions, not just on the bottom line, but on their broader stakeholders. In many ways, Walmart took this step when they saw their stock price flat line even with sizable revenue and net income growth. Yet, for those socially conscious business leaders, cash flow is the blood that keeps your organization alive. Make sure the basic survival needs of your company are met. How do you balance the priorities of the broader community versus the financial needs of your company? Practice 6: Focus on your customers’ highest needs. Henry Ford once suggested, “If I asked my customers what they wanted, they would have said a faster horse.” PEAK leaders and companies understand what the customer wants even before the customer has articulated it and they realize that customer innovation requires a certain amount of mind reading and cultural anthropology. By doing this well (with Apple being the best example in the world), you create a movement and evangelists and reduce your need to spend money on traditional marketing. Are your customer satisfaction surveys just asking the obvious questions that will track their expectations and desires, but not their unrecognized needs? How can you “mind read” your customers? Practice 7: Lead to PEAK. Just as a Sherpa does in the Himalayas, great leaders meet their people where they are on the pyramid and help them to see the natural path to the peak. They recognize the value of loyalty and mentoring as a means of sustainable success in business. PEAK leaders champion personal development in tandem with corporate development knowing that there’s a synergistic effect of having a self-actualized individual in the workplace as evidenced at companies like Google. And, most importantly, they embody authentic leadership by being, not just by doing. How are you incubating a collection of great leaders? Conscious people pay attention. It’s true of spiritual leaders. It’s true of business leaders. PEAK leaders pay attention to the higher needs while not neglecting the base needs that provide a foundation for their organization. Leadership is all about making conscious choices and knowing that the higher you are in a company, the more magnified your decisions and behavior will be throughout the organization.

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Andrea Sittig-Rolf: The Audacity of Nope: Why Hearing "No" Can Help Salespeople Get to "Yes"

April 16, 2012

You may often think, “How can I increase my number of face-to-face appointments when so many companies aren’t buying right now?” The problem lies in the question itself. If you’re scheduling an appointment just to sell something, you may have a tough time getting the appointment. If the perception of your prospect is that the very reason you’re calling is to either sell them something over the phone, or schedule a meeting to sell them something, you’ll likely hear things like “It’s not in our budget,” “We’re not making any purchases now,” “We don’t have any money,” “We’re not in the market,” and “Our budget has been frozen.” In other words, you may be setting yourself up to hear “no.” If, however, you position your introduction over the phone as an opportunity to meet in person so you can learn more about your prospect and their potential future needs, you may have better luck. After all, if your goal is simply to learn about the prospect, you may not have an opportunity to sell them anything at all, so there’s less resistance to setting up a meeting. If you still encounter “no” when asking for that first meeting to start the discovery, and potentially selling process, here are some tips to get the meeting anyway. First, if you have a good sense of humor, use it, and you’ll be half way there. Making someone laugh breaks down the barrier between two otherwise strangers. If the response to your question in asking for a meeting is, for example, “We don’t have any money,” say “Neither do I, that’s why I’m calling YOU!” Now of course, part of the humor in this is your delivery, so you may want to practice a few times before trying it live. Another response to the all too common, “It’s not in our budget” objection is “In that case, now is the perfect time to meet! We’ve found it very beneficial to discuss future needs and our solution early so that if you decide to proceed, we can be of help during your decision-making process.” Notice I said, “If you decide to proceed” which implies that you’re not going to shove the sale down their throat, but that the prospect will be making the decision to proceed or not. It’s also a good idea to present yourself as a resource to the prospect, regardless of whether they’re in the market at the moment or not. Then, actually BE a resource for them, even if it means meeting several times, providing valuable information that will help them and offering advice in your area of expertise even if it’s outside of the potential solution you may have to sell them. Another good rule of thumb is to give something of value to your prospect three times before asking for anything in return, like an order. Providing something of value might mean something as simple as sending an email with an article relevant to a recent discussion the two of you had about their needs, or introducing your prospect to another member of your team or resource within your company who can provide expertise, such as an engineer or project manager. If you’re genuinely interested in helping them with their plight, regardless of having the entire solution to sell yourself, your sincerity will become obvious to the prospect and it will only make sense they buy from you when they’re ready to make a purchase. Also, the rule of reciprocity is at play here. It’s human nature to give back to those who have helped us. By helping the prospect first, you set up the dynamic of the rule of reciprocity and they will be likely to reciprocate the favor you’ve done for them, by placing their order with you. Once you’re ready to close the sale, if budget is still an issue, you can discuss payment plans, leasing options, no money down, 90-day payment and other terms that may make your solution more appealing to your prospect. Your willingness to work with them and their budget will increase your chances of ultimately closing the sale. You can also reflect back with the prospect to your earlier discussions about what was important to them which will help build the value of your solution, framing the money issue more as an investment than as a cost. Finally, sometimes the answer is “no,” but you know what? That’s okay too. Part of learning to love hearing “no” is knowing that it’s only a matter of time before you hear the word “yes.” The more “nos” you get, the closer you get to “yes.”

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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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Javier Garcia-Martinez: Science Deficit

April 16, 2012

The current worldwide economic situation is bringing scrutiny to how developed countries balance their national budgets, and for the scientific community this provides a timely and interesting opportunity to observe how public investment in scientific research and development (R&D) is being either increased or significantly reduced by different countries. Some countries believe that investment in R&D is one to help get out of the crisis; heavily investing in R&D can diversify their economies and increase their competitiveness. For example, France has announced a €35,000-million ($4.6-billion) investment in research. Germany has implemented a 5-percent increase in the budget of its main research institutions until 2015. But other countries are trying to reduce public expending at all costs. Recently, Spain announced a whopping 25.6-percent cut in its budget for R&D. It is interesting to note that Spain is, along with the countries that have been bailed out (Portugal, Italy, Greece, and Ireland), among the countries that spend the least amount in R&D. Conversely, countries that invest more in R&D have very low-risk premiums. It seems that public investment in R&D is the effective recipe against the contagious economic illness that many developed economies are suffering. One could think that at least the markets will react positively to short-term radical measures to reduce national deficits. Unfortunately, for those countries that are dramatically cutting in R&D, although markets will be benevolent to dynamic and competitive economies, they will be merciless to economies with high unemployment rates, lack of opportunities, and brain drain, trends that underinvestment in R&D will only aggravate. A good example was seen when Spain was significantly punished by the markets in the days after announcing these austere but unselective measures on March 30. Just few days later a national call for promoting scientific culture was announced by Fecyt, a government organization devoted to promoting science and technology. A crucial issue is how to convince now-young Spaniards that there is a future in science when there is no money there, and when the leaders of the country have decided that is not a priority. Furthermore, what does this mean for those who already decided to go for a career in science? In the past, companies have been incentivized via tax deductions to invest in innovation, but now many of those incentives are gone. How can we convince others to place a bet on R&D when the leaders of the country have decided that this is something superfluous, something that has to go in difficult times? However, the unprecedented reduction in government investment in R&D is only one of the recent measures announced that exacerbates our “science deficit” and that will impact our ability to create a more competitive and diverse economy in Spain. Since the end of last year, by law, no public institution can hire any new scientist, teacher, or professor, no matter how good, how capable of attracting funding, or how able to create new companies he or she is. This is especially dramatic for the researches under the Ramón y Cajal program, which include some of the most brilliant scholars of Spain, typically between 35 and 45 years old. Sadly, it seems that bright futures for these individuals exist only abroad. Suddenly closing programs that took years to build doesn’t make any economic sense, as the losses and opportunity costs will be far greater than the money saved. Similarly, pushing the best and the brightest away at their best time of their careers after investing so much in their education and training is possibly the worse decision a government can make to recover from an economic crisis. A similar cut has been announced in education (22-percent reduction), which is significantly higher than the average reduction in the national budget (16.9-percent). This is despite the fact that three out of 10 students in Spain are unable to finish the Obligatory Secondary Education (ESO) and Spain is 12 points below the average of the OCDE countries (18 points below in science) in the PISA study. As in the case of public investment in R&D, those countries at the top positions of the PISA ranking are also the ones with lower-risk premiums; more sustainable, competitive, and diversified economies; and better-paid jobs. Research and education seems to act as vaccine against the worst consequences of the crisis, which in the case of the Spain is unemployment, which reaches almost 50 percent for young people. In the U.S., the Obama administration has identified education as one of the key strategies for the future of the country, specifically focusing on the teachers, announcing a nation-wide program to train 100,000 teachers of STEM in the next 10 years. Balancing public budgets is not only necessary but urgent in many developed countries, because their economies are not able to grow at the level that will allow maintaining many public services. However, dramatic reductions in strategic programs and education, and closing the doors to the most talented, will have only limited, short-term budget impacts, and they come at the expense of making it impossible to create conditions that foster growth, competitiveness, and a dynamic economy.

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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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Hayden Bixby: Family Bonding at Tax Time

April 15, 2012

I put my return (and not-insignificant check) in the mail to the IRS Friday, and I have to admit that I’m sad to see another tax season come to a close. I’m not saying I love paying taxes, but I am saying that I love doing taxes. Please tell me I’m not alone! For one thing, I enjoy the little moments of success when TurboTax prompts me to enter some information that I, miraculously, can locate in the file I keep throughout the year. This makes me feel organized and prepared — and even maybe a little smug, as I consider how much money I’m saving by not hiring someone to do this work for me. I’m pretty sure I get this personality quirk from my dad, who also does his own taxes and is a source of my most valuable and most inexpensive tax advice. I confess I don’t always follow his suggestions (yes, I know it makes more sense to keep the money in my bank account throughout the year than it does to try for a refund… but refunds are so much more fun!) — but I notice that I hear the wisdom of his words far more often as I get older. And I get to hear from other family members at tax time, too. The flurry of text messages from my brothers, asking and giving advice throughout the process, is a comical distraction, as is the friendly competition among us to see who can unravel a complicated question most efficiently, or get the best tax rate, or locate obscure but required information. I know: Nerd Alert. But the best connection I’ve found between family and taxes happened this year, when my usually-Facebook-averse cousin suddenly started posting images of Montana’s new Tax Gnome. She and her team at the Partnership for Montana’s Future came up with a “Thank Taxes” campaign that captures photos of a goofy-looking garden statue next to various buildings, services, and events that tax dollars support. That’s right: taxes are getting an image make-over with the help of an extra from Gnomeo and Juliet ! Because she’s my cousin, I think she’s a genius for even being part of a team that would come up with this. But a little more YouTube-driven exploration led me to other “Thank Taxes” campaigns from states as diverse as Minnesota and Arkansas . So maybe thanking taxes isn’t a completely original idea. Neither this fact nor the fact that I can’t look at the Montana photos without thinking about discount airfares diminishes my sense that she is on to something. In the political climate of my whole adulthood, we have been bombarded with criticisms of and challenges to our tax system: who is and isn’t taxed enough? how should or shouldn’t our tax dollars be allocated and managed? what social programs should or shouldn’t be shored up by tax revenue? should or shouldn’t inherited money be taxed a second time as it enters the hands of a new generation? These questions aren’t inherently bad, but the language in which the debate is conducted is polarizing and confrontational. As George Lakoff reminds us whenever he can, we have been linguistically and rhetorically hijacked, submitting to terminological conversions that affect us on an unconscious level. The move from the “estate tax” to the “death tax,” for example, equates taxes not with the “she’s gone to a better place” kind of death, but the “there’s a murderer on the loose and I’d better get a gun to defend myself” kind. This and other brainchildren of Conservative think-tanks have more or less successfully demonized taxes and social programs in the American popular consciousness. In this context, I’m heartened by the efforts to reflect on the daily benefits of programs that serve our whole society and, yes, are funded with taxes on our hard-earned pay. I like being reminded that the tax dollars I pay result in benefits to me and the people I care about… and even people I don’t know. Anyone who attends public school, appreciates roads that are pot-hole free, has ever checked out a library book or called 911, or likes that fact that there are limits set on how much “byproduct” can legally be included in his or her hot dog might like to engage in a moment of reflection during tax time, too. It is in this cheerful spirit that I’ll log back in to TurboTax, get my family’s phone numbers on speed dial, and sit down to file my amended 2011 return… My 1099 from PayPal just arrived in today’s mail. Yay!

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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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Dave Johnson: The National Manufacturing Strategy Debate

April 14, 2012

President Obama has been pushing policies to boost American manufacturing. Democrats in Congress are pushing a package of bills under the label “Make It In America.” The Obama administration’s Gene Sperling gave a big speech recently describing the vital importance of a healthy manufacturing sector to our economy. But others say promoting manufacturing is “the wrong target” and reviving manufacturing won’t help revive our economy. So what’s the story? Gene Sperling, Director of the Obama administration’s National Economic Council gave a big speech at the recent Conference on the Renaissance of American Manufacturing . Sperling talked about how a manufacturing “commons” works, and why it is a good thing if government promotes this commons. A manufacturing commons is an ecosystem, in which manufacturers, suppliers, designers, innovators and all the other manufacturers, suppliers, designers and innovators all complement each other, creating a “cluster” effect. When all of these components are working together it creates a “virtuous cycle” but when they don’t it creates a “vicious cycle.” So because the sum of these parts is greater than the whole, each component’s interests do not align with the interests of the whole — and “our” (We, the People’s) manufacturing capacity is degraded, which degrades our standard of living. So government (We, the People) must play a role in promoting the whole effort. From Sperling’s speech: The ecosystems that grow up around these intersections of innovation and production tend to be complex. They are the result of evolutions that occur over periods of years and decades. Once the virtuous, reinforcing cycles are broken they are difficult to recreate, and they can turn to a vicious cycle. That’s why losing pieces of our manufacturing base should be such a serious concern. … For any single firm, the decision to move production elsewhere may make economic sense. But that decision impacts suppliers and the local talent pool. This makes the decision even easier for the next firm to leave and even harder for the next firm considering coming there to say yes. Job Loss Not Just Competition And Productivity Sperling traces the history of our manufacturing and shows that we didn’t lose jobs when competing with Japan, and didn’t lose jobs during periods of high productivity growth. He shows that what happened between 2000 and 2009 (the Bush years, and China in the WTO) with the loss of 50,000 factories and millions of manufacturing jobs was different , saying “the dramatic loss of manufacturing employment in the past decade was a break from the past and cannot be explained by the conventional view of productivity and technology gains.” Since 2000, the manufacturing sector lost nearly one-third of its workforce, a total of nearly six million jobs. Unlike the preceding decades, according to the Federal Reserve, manufacturing production, the measure of the physical amount of goods that we make, actually declined from 2000 to 2010 by 5 percent. This drop was not just a result of the recession. From 2000 to 2007, manufacturing production grew at only 1.3 percent per year, the worst peak-to-peak performance since World War II. Sperling explains why this loss is so significant to our economy: Manufacturing is special in that so many other jobs depend on manufacturing, extending “from the web of suppliers that support manufacturers to the communities where manufacturing plants often serve as an anchor employer.” For those of you here from towns across the U.S. that rely on a major manufacturer, or states like Michigan where I come from, you understand the impact of manufacturing. In addition to the web of suppliers, the expansion of an auto plant brings other types of businesses to town including new restaurants, retailers, and service providers feeding off of this economic activity. If an auto plant opens up, a Wal-Mart can be expected to follow. But the converse does not necessarily hold — that a Wal-Mart opening definitely does not bring an auto plant with it. So it is clear that this is not just about the back-and-forth of companies competing, we have a national interest in bolstering the manufacturing sector. Finally, Sperling described some of the administrations manufacturing initiatives. He did not come out and advocate for a coordinated national industrial strategy — which every major competitor has and we don’t have. But his speech did advocate “policy to support manufacturing.” This is at least a start. Criticisms And Agreements Matthew Yglesias at Slate, in “Forget the Factories” writes that it is “foolish” and worries about the, “troubling possibility that these ideas will actually guide policy in a second term rather than simply serve as props in a re-election campaign.” Yglesias writes that. It should be obvious that the path forward for America is to focus on our strengths in information technology and media, and not compete with the Chinese for manufacturing supremacy. Yglesias writes that manufacturing areas are “poor” while high-tech areas are “richer” and “more prosperous” and we should “earn from the most prosperous parts of the country, not to imitate Chinese clusters that are even poorer than America’s industrial hubs.” Also, “creating new billion-dollar software startups has a lot more to do with the future of American prosperity.” Yglasias concludes that we should “instead build and expand new industries that push living standards up and keep factory owners searching abroad for cheap labor.” Ezra Klein wrote a piece for the the Washington Post titled “Is industrial policy back?” in which he argued that “cozy consensus against industrial policy is, at least when it comes to manufacturing, flawed.” Describing what Sperling’s argument, Klein wrote: There is, in other words, a building argument that the market is failing to appropriately price the benefits of manufacturing firms. They’re worth more to the economy than they are to individual firms. And that’s the key to this new argument: Sperling isn’t saying America should support the manufacturing sector because it delivers good jobs, or it’s been important to America’s middle class, or even because China is competing unfairly. He’s saying there’s a market failure. And even the most orthodox economists will tell you that it’s appropriate for the government to intervene to correct market failures. Even so, he says the Obama administration isn’t really doing all that much, For all this, the Obama administration’s strategy to promote high-tech manufacturing is modest: A couple of tax cuts, mostly. Some money for research into basic technologies and new techniques. And a sustained effort to talk up the industry’s importance and thus signal to investors that America intends to fight for its manufacturing base. None of these are game changers. At least the consensus against doing anything is changing. Economist Mark Thoma writes in Is Manufacturing the Answer? , “At one time I would have been opposed to industrial policy, but I have been reevaluating my position lately (I can’t say I’ve been convinced as of yet, but I want to stay open-minded on the question).” He links to EPI’s Lawrence Mischel, who writes in Robert Lawrence misleads the New York Times on manufacturing , saying that, … closing the trade deficit would provide millions of jobs and boost the economy. For instance, my colleague Robert Scott has shown that growing trade deficits with China eliminated 2.8 million U.S. jobs between 2001 and 2010 alone, including 1.9 million jobs displaced from manufacturing. Similarly, correcting the currency imbalances with China, Hong Kong, Taiwan, Singapore and Malaysia could add up to $285.7 billion (1.9 percent) to the U.S. GDP, create up to 2.25 million jobs over the next 18 to 24 months (most in manufacturing) and reduce U.S. budget deficits by up to $71.4 billion per year. … manufacturing employment will not return to 25 percent of employment. Nevertheless, we can gain a lot of manufacturing jobs by strengthening the recovery and through appropriate trade and currency policy. This would provide millions of good jobs, aid many communities, and be good for the nation. Edward Luce of the Financial Times writes in “America reassembles industrial policy” that we do have an industrial policy, that favors oil and Wall Street, Whether it is the schooner-rigging of tax incentives for Wall Street — and the federal tax system’s subsidies for debt over equity — or the panoply of write-offs for Big Oil, Washington never stopped promoting favored sectors. Manufacturing was simply not among them. Most are of long pedigree. Some might say it would be easier to pass through the eye of a needle than to separate the fossil fuel sector from its Washington subsidies, which date from the second world war. No presidential hopeful would dare to suggest scrapping Depression-era farm subsidies because they skew so heavily towards key states such as Iowa. Luce points out that Facebook and Twitter might be glamorous, but making actual things is where innovation comes from, Facebook and Twitter may bring disruptive social change. But the most valuable innovation still comes from making products such as semi-conductors, batteries and robotics. Just Look Around I think a problem with economists (and a lot of big-city columnists and journalists) is that they somehow are unable to just look around them. All one has to do is drive around the midwest for a few days, Michigan, Ohio, etc. and you will see for yourself how important — and different — manufacturing is to the country, and what happens when factories close. It affects the entire community and those jobs are not replaced — and the ripple effect from the loss of a community’s jobs base is terrible. All the other jobs that manufacturing supports go away, too, when manufacturing goes away. I live in Silicon Valley. Facebook, Google and Twitter employ relatively few people relative to manufacturing. Apple sends its manufacturing to China , because in China working people don’t have any say , so they can treat workers there worse than workers here in our democratic society will allow. In fact, Silicon Valley has high unemployment , in some areas here as much as 25 percent or more of the office and light industrial buildings are for lease, and our downtowns and commercial streets have plenty of empty stores. They’re just newer , so they don’t look as bad as the downtowns across the midwest. But it is as bad. In February, economist Christina Romer wrote in a New York Times op-ed, “Do Manufacturers Need Special Treatment?” that argued that our government should not promote manufacturing. In it she wrote: American consumers value health care and haircuts as much as washing machines and hair dryers. And our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada. I responded, in Manufacturing On Planet Economus , and think my sentiments very much still apply in response to this ongoing discussion: Here is the difference: We can’t just keep servicing each other. This “service economy” thing hasn’t worked out so well here on Earth, and now we have a huge trade deficit. It is “better to produce real things” because that is what you sell to others to get the money to pay each other for haircuts (and scissors). Manufacturing brings so much along with it that entire economies have been, are and will be supported. China isn’t making its living by cutting each others’ hair. Neither is Germany, or other countries that have realized the importance of manufacturing and manufacturing policy to an economy. Manufacturing brings with it all the businesses in a supply chain, it brings the research and innovation that manufacturing requires, and it brings a lasting real infrastructure that requires enormous investment to duplicate elsewhere before competition is enabled. Today we have a tremendous current account imbalance that resulted from the terrible trade deficits suffered since we were invaded by this crowd from planet Economus, who told us we don’t need manufacturing — that we should transform ourselves into a “service economy.” And it will require enormous investment to restore the ecosystem that we allowed to escape to other countries in that period. Once you’ve got it, it’s hard to lose it, and once you lose it, it’s hard to get it back. Not so much with services. This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Mark Engler: ALEC Annoyed at Losing Sponsors? It Breaks My Heart

April 13, 2012

It is a myth that Gandhi said, “First they ignore you, then they laugh at you, then they fight you, then you win.” But that old saying nevertheless carries a lot of truth when it comes to social movements. And it is always a pleasure to see a worthy target of activism move from disregard or mockery to going on the attack. Therefore, I was happy to see the right-wing American Legislative Exchange Council (ALEC) release a half-defiant, half-pathetic statement bemoaning the “coordinated and well-funded intimidation campaign against corporate members of the organization.” Its statement reads : ALEC is an organization that supports pro-growth, pro-jobs policies and the vigorous exchange of ideas between the public and private sector to develop state based solutions. Today, we find ourselves the focus of a well-funded, expertly coordinated intimidation campaign. Our members join ALEC because we connect state legislators with other state legislators and with job-creators in their states. They join because we support pro-business policies that promote innovation and spur local and national competitiveness. They’re ALEC members because they’re more interested in solutions than rhetoric…. At a time when job creation, real solutions and improved dialogue among political leaders is needed most, ALEC’s mission has never been more important. This is why we are redoubling our commitment to these essential priorities. We are not and will not be defined by ideological special interests who would like to eliminate discourse that leads to economic vitality, jobs and fiscal stability for the states. After about the third reference to “job creators,” it’s hard to miss that this is an operation nestled snugly within the depths of the far-right echo chamber, never passing over a chance to frame tax cuts for the top 1 percent as a moderate, bipartisan path to common bliss. In fact, far from sticking to promoting “improved dialogue,” ALEC has (with troubling effectiveness) advanced a slew of reactionary measures in statehouses throughout the country. Stand Your Ground? Check . Prison privatization? Check . Right to Work? Check . Discriminatory Voter ID laws? Check . The list goes on and on . These legislative outrages have inspired a coalition of progressive groups to fight back. They are going after the companies that are paying $25,000 annual dues to this far-right outfit — exposing these brand-sensitive patrons for aligning themselves with the conservative fringe. The tactic is proving very effective. On Wednesday, fast-food giant Wendy’s joined McDonald’s in ending its ALEC membership. Previously Pepsi, Coke, Kraft, Intuit, and the Bill & Melinda Gates Foundation all announced that they were jumping ship. This exodus is what prompted ALEC’s response. That organization complaining about a “well-funded, expertly coordinated” political operation surely merits placement in the pot-calling-the-kettle-black hall of fame. But these words serve as high praise for the organizations that have endeavored to expose the group’s corporate funders. Prominent among them is ColorOfChange.org , which has quickly established itself as a leader in the field of corporate campaigning. I previously lauded ColorOfChange.org for its successful effort to strip Glenn Beck of advertisers after the demagogue (then at Fox News) said that President Obama harbored a “deep-seated hatred for white people or the white culture,” among other batshit-crazy statements . Few in the mainstream media wanted to give the boycott credit for ousting Beck, preferring to believe that the cable news personality had simply outstayed his welcome on the network. Beck himself was not about to acknowledge activists’ impact, just as Kraft now says that it is leaving ALEC for a “number of reasons” — none, of course, related to the tens of thousands of signatures pouring in from ColorOfChange.org and allies such as the Progressive Change Campaign Committee . This is exactly what you would expect. Wendy’s, for its part, says that it didn’t renew its ALEC membership not because of pressure but because it “didn’t fit our business needs.” That, in the end, is a pretty good definition of the purpose of corporate campaigns — making businesses decide that it doesn’t “fit their needs” to attack workers, reinforce institutional racism, wreck the environment, or undermine the social safety net. In any case, it certainly doesn’t fit the needs of the rest of us. Cross-posted from the “Arguing the World” blog at Dissent magazine.

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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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Soraya Chemaly: Ann Or Hilary: Either Way, Motherhood Is a Dismal Financial Decision for American Women

April 13, 2012

BREAKING NEWS GUYS: It is ” arguable ” that one of the single worst financial decisions a woman can make in this country is to become a mother. Regardless of whether she gets paid for work that she does. And one of the most disastrous economic growth policies governments can pursue is to impede women’s ability to plan their families and be paid fairly for their participation in the labor force. And yet this is exactly what the Republican party is dedicated to doing. The result of “secondary” in importance “social issues” is to ensure that stay-at-home or not, women pay and pay and pay for their reproductive choices or lack thereof. Today’s cynical Hilary Rosen/Ann Romney “Gasp!” is nothing more than this week’s politically flavored sexist-media-loves-a-”cat”-fight . What is “working woman” versus “stay-at-home” code for? For the most part it is code for “what is a woman’s relationship to a man and what is his earning potential?” It’s a paternalistic, sexist framework that subordinates women either way. That’s why this is not about a mommy war. It’s about keeping women dependent, especially by DEvaluing the work of women who are mothers and caretakers (in and out of the home) — their time, their labor, their productivity — by making balancing work and family as hard as possible. It’s the way we penalize women for taking on the bulk of our society’s reproduction responsibilities while simultaneously telling them “it’s the most important job in the world.” You want to create jobs, stimulate and grow the economy? Stop harassing and penalizing women seeking independence and financial security. Allow people to plan their families and create systematized, institutional and cultural approaches to work/life balance for both men and women. What I am not hearing anyone say loudly and clearly in this Rosen/Romney snafu is that women’s ability — not desire or choice — to take part in the economy, to be productive in the economy, to help stimulate the economy is based on her freedom to make reproductive decisions or lack thereof and on the more active, unpunished by culture, participation of men in child care. Motherhood in America , taking place as it does in a vacuum of cultural, corporate and governmental support, and idealized as part of a paternalistic, heterosexual and gender-hierarchical social structure, is why women — most of whom have to earn a living either as supplemental or primary — have to stop working, work part-time, and cycle in and out of the work force. It’s why we have a debilitating gender pay gap — really a maternal pay gap when you examine it closely — and why women make up the majority of the poor. Consider these facts: Women make up more than 50 percent of the American workforce . 40 percent of wives earn more than their husbands . Women are more and more often heads of households, now 22 percent . The highest earning window for women, practically the only time they are not subject to the wage gap, is when they are single and childless, usually in their twenties. They have to live in cities and have gone to college. More than 50 percent of children born to women under 30 are born to single mothers . 60 percent of women with children under the age of three and 77 percent of mothers with school-age children remain in the workforce . When a woman has a baby, her chances of being hired go down , compared to a single woman, by 44 percent. When a woman has a child her pay drops by 11 percent . According to the Bureau of Labor Statistics , mothers works fewer hours, have to work part time more and cannot take on overtime. Fully 55 percent of stay at home moms would like to work , for pay, out of the home. Working mothers are penalized in terms of long-term success by having to work in an interrupted fashion that perpetually erodes their career tenures or experiences. The distribution of retirement income is gendered and unbalanced. If a woman “chooses” to be a stay at home mom, because entrenched pay discrepancy, cultural habits and a gender segregated workforce make that “choice” the most logical and financially rational, she is not compensated, either through pay or benefits, for her investment of time and effort and risks her long term financial security. This is why money is not ” more important to men ” and why bickering about mommy wars is a red herring. Ignoring demographic trends because they erode your privileges (which is different from being oppressive) does not make them go away. Mitt Romney and Republican legislators would like us to focus on what really matters to women. Ann Romney, because apparently women are either a different species or speak a form of English that Mitt et al. cannot understand in their particular female-deaf form of manliness, has assured them that, based on what she is hearing, it’s “the economy.” So — let’s talk about women, work and the economy. First , women’s work is often invisible and unpaid . Let’s pretend that Ann Romney is, like the 143 million other women in the country, not the wife of a multimillionaire Mormon Bishop and talk about her unpaid work as a stay-at-home mom. According to the Wall Street Journal , an average housewife would make $138,095 if she were paid for her labor (that is what she would have to pay someone else). Ann Romney is not your average housewife, but, let’s go with it. Ann Romney’s lost wages for 30 years of providing 24 hour unpaid childcare for her husband, running a household, nursing sick children, being a chauffeur, food shopping, cooking, being executive assistant to six boys and men and other assorted duties is $4,142,850. She also did this, graciously, while struggling with major illness. Ann Romney, like all “non-working” mothers, is not financially compensated for her labor. (She is however, also like other married women who work, taxed for her efforts.) Many women in this position are thought of as parasites and a net drag by abusive husbands . In addition, Romney gave up any hope of related benefits for social security, for example, and put her trust in Mitt Romney’s long-term good graces. For women involved in the 50 percent of marriages that will end in divorce , however, this is a terrible economic scenario. For unmarried women or those depending on dual incomes to survive, this is also not an option. For women not married to a multi-millionaire Mormon bishop — that would be well over 99 percent of the 142 million of the rest of us — the real costs of being an unpaid, full-time, hard-working stay-at-home mom is too high. I don’t begrudge Ann Romney her choice. She has not only put her financial well being but also her salvation into Mitt Romney’s hands. But that is not either available or desirable to the overwhelming majority of women. Second , family planning is the key to financial survival and security. Around 50 percent of pregnancies currently in the U.S. are unplanned (it’s a side effect of not teaching people how they get pregnant). Why do women seek abortions? Studies have shown that it’s because they have families and are more often than not financially strapped, tired, responsible for children and/or other family members, trying to improve their lot in life. It is because pregnancy and motherhood affects a woman’s health and healthcare costs, child and child-care related expenses, her pursuit of higher education, her ability to work productively and for financial gain, her ability to parent other children, her chances of relying on the state help for support and her risk of long-term poverty. You know what the real entitlement program I worry about is? The fact that the reproductive control experiences of the people advocating anti-family friendly policies is primarily limited to the changing of the temperature of their tighty-whiteys . You know what the opposite of PLANNED parenthood is, UNPLANNED parenthood. And you know what that costs to women, families, the government, and “the important economy” will be when they increase as they will if the Republican Party leadership has its way with women? • More unplanned pregnancies than virtually anywhere else in the industrialized world • An increase in abortions (whether safe and legal or not) • Decreased maternal health • Decreased relationship stability • Lower educational aspirations and accomplishments for women and their children, impaired female workforce participation • Increased health care costs related to poor prenatal and neonatal care • Increases in welfare program participation • Higher maternal death rates. It is safe to assume that unplanned pregnancies and reduced maternal health have the effect of reducing women’s workforce participation and reducing the social and economic status of women and children with all kinds of impacts on market stimulation, economic growth and government spending. By the way, poor, sick, tired and dead women cannot contribute to what is “really important” — that would be “the economy.” Third , gender equality, which requires reproductive freedom, justice and autonomy for women, means INCREASED ECONOMIC ACTIVITY. Women’s ability to plan and manage their pregnancies — with or without men — spurs economic growth. This is true all over the world. Countries with high gender equity indices usually have stronger economies because they understand the value of the human capital that women represent. As noted here , “In mature economies, attitudes toward gender equality and the actual possibilities for combining parenthood with gainful employment are decisive. Countries governed by traditional male-dominant attitudes run the risk of long-term economic stagnation.” If you do not support a woman’s right to choose when to become a mother, and you actively seek to deny her reproductive health options and reduce her ability to be paid fairly for her work, then you actively work against economic growth and prosperity, for individuals, families and the country. If you insist on modeling economic policy on an outdated, sluggish, pater-familia model then you will get an outdated, sluggish mater-familia bashing economy. The “less important social issue” policies — “getting rid” of Planned Parenthood, eliminating abortion, reducing access to contraception and affordable healthcare, abstinence-only miseducation, and more — through which Mitt Romney and the Republican party are eliminating women’s options (and therefore their families options) are an ECONOMIC DISASTER. In these ways Mitt Romney and the Republican party are committed to infringing on all women’s ability to live freely and healthily and to making sure that women continue to be penalized for their maternity to the detriment of families and THE ECONOMY.

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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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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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Matthew Kavanagh: Transformative Development: How Jim Yong Kim Might Change the World Bank

April 13, 2012

Since President Obama nominated Dr. Jim Yong Kim as President of the World Bank commentators have weighed in on his past writings, his nationality, his part in upholding an unjust U.S. domination of the Bank, and his qualifications. But at the heart of this presidential decision is a fundamental question of focus and mission for the World Bank. Jim Kim represents a break from the past — as both his supporters and detractors agree — and would surely steer the Bank in new directions. Interestingly, so too might Dr. Jose Antonio Ocampo, the Columbian economist and former UN official, leaving for the first time two heterodox candidates to head one of the World’s most fraught institutions. What seems to be unsaid in discussions of Dr. Kim, however, is that the new direction is likely toward a focus the stated mission of the bank: the elimination of poverty. A Focus on Delivering Development Dr. Kim’s career gives us a fairly clear understanding of what he would prioritize as World Bank president. He would be, without question, more expert and experienced in development than any World Bank president since its inception. He led the World Health Organization’s 3×5 initiative that, as the journal The Lancet notes , “helped change forever the way we thought about AIDS.” Most recently he’s run the Ivy League Dartmouth College. But it is in founding Partners in Health and more recently in pioneering the field of “delivery science” in global health that we see where Kim would take the bank and the fight against global poverty. At Partners In Health, he and the other pioneering physicians worked to break the mold on medical care in impoverished settings — bringing world-class medicine to people when the general wisdom said it was neither feasible nor “cost effective.” Again and again, Dr. Kim and PIH proved the dominant voices in the development community wrong — showing, for example, that anti-retroviral treatment of AIDS in Africa and the Caribbean could succeed when leading economic and development experts said it was not practical or did not meet the economic conditions ” test for action .” Now some of these same economists are campaigning against Dr. Kim. But to imply, as some have, that Kim’s experience is somehow limited to charity shows a willful misunderstanding of what is unique about Partners in Health. The group’s outlook is medical, but where Dr. Kim has worked in Rwanda, Haiti, Peru, and the former Soviet Union they have managed to transform communities: building and staffing schools, training and (against the development grain) paying community health workers through effective employment strategies, and building community-based research for development. Later Kim brought experts in business, economics, and health together to create the Global Health Delivery Project and the Dartmouth Center for Health Care Delivery Science to bring rigorous study to the actual delivery of health care to impoverished communities. It is in this work that we see what Dr. Kim is likely to do quite differently than other candidates as World Bank President: focus on community-level development in education, health care, infrastructure, and employment and take transformative practices to scale to change nations. And in doing so, he and others have shown that when people demand drugs or doctors or classrooms, well-done health and development can transform the relationship between people and government. To some observers this may seem obvious — isn’t this the raison d’etre of the World Bank today? And yet it is at the heart of a question about the Bank’s future. Challenging Bank Orthodoxy The stated mission of the World Bank is poverty reduction and achieving the millennium development goals on health, education, food, and sustainability. But at the heart of the fight over the future of the Bank has been the word “growth,” which appears nowhere in that mission or in its public description of itself. Long time Bank insiders and orthodox publications like the Economist have taken to challenging Kim’s credentials. Kim, they say, isn’t sufficiently focused on pure economic growth. They cite his suggestion that increases in Gross Domestic Product and corporate profits have often failed to trickle down to poor communities. But in 2012 is this really a question? Who but the most committed neoliberal economists believes that growth alone will end poverty? And to be fair, Dr. Kim has responded to his critics agreeing that, “Economic growth is vital to generate resources for investment in health, education and public goods.” But he clearly has a vision beyond GDP. Here we see the real decision in the 2012 World Bank Presidency race: a vision of the World Bank focused on community-level development results vs. a Bank focused primarily on GDP growth. Only for those who believe in the latter are folks like Larry Summers or PepsiCo’s CEO Indra Nooyi ” better qualified ” for the job than Dr. Jim Kim. For the GDP-purists, Dr. Ngozi Okonjo-Iweala is a better pick as a U.S.-trained free market, growth-oriented economist who spent over twenty years working at the World Bank. And yet during this time the Bank too often failed in exactly the areas the bank is supposed to be focused on: poverty reduction, health, and the Millennium Development Goals. For example: The most recent ten-year evaluation showed that three quarters of World Bank health programs in Africa failed by their own unambitious measures and a recent report suggest the Bank is remains focused on short-term domestic-only financing for health that undermines efforts to halt infectious disease. In the Bank’s education efforts “fewer than half of projects have succeeded in achieving education quality, labor force, management, learning, or efficiency objectives.” At the International Finance Corporation, the arm of the World Bank dedicated to the dubious mission of fighting poverty through financing “companies and other private sector partners” only 13% of IFC policies even had any objectives related to people in poverty. The majority (60 percent) of their advisory programs actually delivered no identifiable benefits to society, let alone to the poor. Why? Because despite rhetoric to the contrary, the Bank’s focus has often drifted from achieving development for people living in poverty. The World Bank’s failures have not been lack of focus on economic growth, but a lack of focus on delivering results to communities it claims to serve. What the Bank needs is someone willing to have audacious goals, to use the bully-pulpit of the World Bank to push for pro-poor policies, and to work to transform a massive institution into an effective institution for impoverished communities. The next Bank president will need to transform the agency’s ideology and practice and move the thousands of staff and consultants along with them. We need an expert in delivering development and cutting through policies that have failed in the past. Dr. Jim Yong Kim’s track record shows he can pull off exactly that. Regardless of the outcome this presidential decision will portend change at the Bank: a serious candidacy by Ocampo and Okonjo-Iweala challenging U.S. dominance is only positive. And hopefully a merit-based selection process will emerge in which the World Bank’s board actually debates the who and the how of delivering for communities. For many of us, though, the key question is who will actually challenge the ways of doing things at the Bank.

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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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Ben Cohen: Why Wanting to Be Rich Is a Form of Mental Illness

April 12, 2012

In modern society, we are conditioned from an early age to want things we don’t need. An entire industry has been built around manipulating us into buying products we believe will make us more attractive, happier and respected. Children watch other children on TV play with newer and better toys, and they automatically want what they don’t have. When adults see good-looking people driving superbly designed cars, the subconscious message is “Buy this car, and you will become more attractive.” Of course if you can’t afford it, implicitly you are a loser. As we get older, the manipulation becomes more damaging — life choices are made in order to fulfill an implanted image of what we think we should be — we work unfulfilling jobs to pay for the products we think we must own, or worse, go into debt and spend a life time paying it off. The cycle is vicious. As the wealth divide gets wider, those less fortunate want what the rich have. And in today’s society, they can, as long as they go into debt. And that is the point — feel inadequate because you don’t make enough money, buy stuff you don’t need to compete with people you don’t actually know, go into debt then work all the hours God sends to pay it off. This is our definition of a functioning economy, as eloquently articulated by George Bush after the terrorist attacks on 9/11. “Go shopping,” he told Americans in response to the faltering stock market. Consume and all will be well. The desire to become rich is seen by some psychologists as a form of mental illness. Oliver James wrote a brilliant book Affluenza about the corrosive effect of capitalism on people’s mental health. The desire to be obscenely wealthy, he argues, is a sickness caused by advertising and spiraling wealth inequality. And it has spread around the Western world like a virus. And even if you do happen to be wealthy, it turns out that isn’t actually all that great either. The effects of rampant materialism are, according to research, pretty damaging to the human psyche. An international survey of over 90,000 people published in the journal BMC Medicine found a direct correlation between wealth and depression. Wealthier countries recorded higher levels of mental illness, while citizens in poorer countries were happier and better adjusted. Despite being told that being rich should make you happy, it in fact does the opposite. In Britain, mental illness levels have been soaring for years, in direct tandem with economic growth. A 2004 report by the Nuffield Foundation found that “Rises in mental health problems seem to be associated with improvements in economic conditions.” The richer we are it seems, the sadder we become. It is no wonder, then, that so many people resort to anti-depression drugs to get them through their lives. I personally cannot count the number of people I grew up with who had everything handed to them on a plate, yet were incapable of leading normal, happy lives. Some of them turned out OK, but most now work jobs they hate in order to buy things they don’t need to impress people they don’t really even like. Fighting the system is next to impossible. There are too many entrenched interests to make any sort of meaningful difference because our society is geared toward making us feel isolated, fearful and greedy. The solution? In my opinion, don’t fight it, just ignore it. Turn off the television, talk to your neighbors, join a club, play a sport and interact with other human beings as much as possible. It’s a lot more rewarding than buying an ipod. Ben Cohen is the editor of the recently relaunched TheDailyBanter.com .

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Robert Pagliarini: How You Can Better Influence People

April 11, 2012

I’ve always been fascinated by FBI profilers. Those are the folks who get inside the heads of criminals to try to figure out why they do what they do. There is a great deal of power that comes from being able to quickly analyze someone to determine what they are all about — think about how useful this could be for a life coach , therapist, or manager. There are numerous tools and techniques to help you analyze someone. Popular ones include the Myers Briggs Type Indicator and DISC Assessment , where you try to classify someone’s personality. Then there are numerous books on interpreting body language, analyzing eye movement, and even decoding handwriting. The most accurate method I’ve discovered for assessing what drives another person is based on ” human needs psychology ,” a theory of human behavior developed by Tony Robbins . Yes, that Tony Robbins — the one who has directly impacted more than 50 million people through his books, tools, and live events ( watch Oprah Winfrey do a firewalk at a Tony Robbins event ). Human needs psychology provides an answer to the elusive question, “Why do human beings do the things they do?” The theory says that there are six fundamental needs that everyone has in common (every person includes your mother-in-law, President Obama, terrorists, you, and everyone else.) And here’s the best part — because we all share these same needs, once you can decipher which top two needs someone values more than the others, it instantly gives you an edge in knowing what drives them and how to influence them. Here are what Robbins’s theory postulates as the six human needs: 1. Certainty. The need for stability, security, comfort, and to feel confident you can avoid pain and gain pleasure. 2. Uncertainty/variety. The need for change, new stimuli, and for the unknown. 3. Significance. The need to feel important, special, unique, or needed. 4. Love/connection. The need to belong and to feel closeness with someone or something. 5. Growth. The need to expand, learn, and grow. 6. Contribution. The need to give beyond oneself and to support others. Do you think you should communicate differently with someone whose No. 1 need is “certainty” than if his or her top need is “significance?” If your goal is to build rapport, nail that interview, or get funding for your venture, I sure hope so. The question becomes, “How can you discover someone’s top needs?” To answer that, we go to Mark Peysha, CEO of Robbins-Madanes Coach Training , an online company that teaches leaders, therapists, and others how to quickly and efficiently create lasting change with their clients or employees. The training is based on a framework created by Robbins and Cloe Madanes, a renowned teacher, one of the originators, of the strategic approach to family therapy. According to Mark, there are three basic ways to understand another person’s top needs: 1. Ask them. This is obviously the most straightforward approach. People are fascinated by the concept of the six human needs, and they love an opportunity to talk about what matters most to them and how they perceive what’s important. 2. Observe what they focus on. Is the person focused on safety and comfort, or are they more driven by the need to stand out? Do they seem to crave connection, or do they crave variety and entertainment? Listen to what they communicate and watch for what they value. You can learn a lot by the process of elimination. 3. Contextual. It’s best to observe someone in more than one environment. When people go into certain situations, you can learn a great deal from how they respond — their top needs will often rise to the surface. So how can you use human needs psychology? Get practice profiling people you already know. Look at their communication and behavior through the lens of these six needs. Ask yourself which needs are most important to this person. Get practice looking for and identifying needs in others so it becomes a habit and so you can get the edge in knowing what drives them and how to influence them.

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Sara Hanks: Now the Really Hard Work Begins

April 11, 2012

With the ink still drying on the just signed JOBS Act, we are witnessing a new phase in America’s economy that will democratize access to capital and change the landscape for investors. This new period will look like “the wild, wild West” now that the law is unleashing the power of the Internet to allow citizens to invest in startup businesses. That’s what’s known as crowdfunding, something previously limited to non-profit groups or businesses promising non-monetary returns. The technology community is positively giddy about this development, which will expand the pool of investors dramatically and reduce entrepreneurs’ dependence on established financial institutions for access to capital. Now, the really hard work begins as the Securities and Exchange Commission begins writing the rules governing crowdfunding. Just as websites that will facilitate crowdfunding (known as “portals”) build out their physical infrastructure to be prepared for when the rules are adopted, we must also work on building a moral infrastructure too. Yes, moral. That’s because this is an entirely new form of capital market, and the tech community and excited entrepreneurs should acknowledge that while we all have new opportunities, there are new responsibilities too. Everyone who worked hard to bring this revolution to life will now have to work even harder to make sure it is not rife with fraud. If that were to happen, it will die an early death. For crowdfunding to succeed, entrepreneurs, investors, and regulators will all have to cooperate. But the SEC has the hardest job of all the players (full disclosure, I worked at the SEC for four years). The SEC rightly has serious reservations about companies at the most risky stage of development pitching securities to the most vulnerable investors on the basis of minimal disclosure that no one has vetted. And if things go terribly wrong, who will be blamed? The SEC. So the crowdfunding industry has an obligation to work with the SEC to ensure that investors understand just what they are getting into. We also need to make a special effort to work with groups like AARP and faith organizations to protect older Americans and those who are most vulnerable to fraud and affinity scams. In return, the SEC should be amenable to Congressional wishes that it adopt crowdfunding rules in a timely manner and not impose additional costs and burdens on crowdfunding intermediaries. In particular, the SEC’s registration process for portals should be timed so that registration could coincide with final adoption of the crowdfunding rules 270 days from the time President Obama signed the legislation into law. The responsibility lies not just with the SEC, however. Funding portals will need some form of due diligence to weed out bad actors whose only business is ripping off investors. The company I founded, CrowdCheck, will employ securities attorneys to perform due diligence on startups to make sure they are who they say they are and help entrepreneurs navigate disclosures and filings. We will be part of the crowdfunding community that seeks to keep a level playing field for both investors and start-ups, and we hope other crowdfunding portals will take that responsibility seriously as well. Start-ups must feel responsible to their investors and to the community that has fought for crowdfunding because we believe it can work. Entrepreneurs need to transparently define what they are offering, and be very clear on those terms and how they will handle relationships with their “crowdholders.” And venture capitalists need to help the crowdfunding industry work out how best to help companies graduate from crowdfunding to venture capital funding. Since the Internet has already democratized media, shopping, and social networking, it was only a matter of time before it disrupted our old model of financial investing. My hope is that angel investors and venture capitalists will be creative and embrace this new marketplace as well. Most of all, citizen investors need to take a lesson from the playbook of professional investors and treat it seriously. Investors have a moral obligation to actually think before they invest. They can’t act as if they are buying lottery tickets. Get informed, watch out for fraud, and fund those who most deserve a shot at the American dream. Crowdfunding does embody some of the most important aspects of what makes America American: entrepreneurialism, passion, risk, and a desire to give everyone a chance to show what they can do, no matter what their background. But it only works if we apply other American virtues: hard-headed realism and intelligent investing.

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Vitaliy N. Katsenelson: Not Buying Best Buy

April 11, 2012

Best Buy’s CEO Brian Dunn did a courageous and proper thing for shareholders by resigning. He was not the right person to lead Best Buy into battle against online-only competitors that use Best Buy’s spacious and beautiful stores as the showroom for their products. To make things even worse, smartphones make comparison shopping so much easier nowadays, and structurally, Best Buy cannot have lower prices than its online competitors. Its stores also lack the breadth of selection of Amazon and they are at a permanent, competitive cost disadvantage. The new strategy Dunn announced a few weeks ago of closing big stores and opening a lot of smaller stores for mobile sales makes little sense. It is basically morphing Best Buy into a Radio Shack. It would be great if this strategy had worked for Radio Shack, but it didn’t. Radio Shack’s margins are collapsing, and that is why its stock is scratching as-far-as-my-chart-goes-back lows. I don’t know what the solution is for Best Buy. It must involve a much tighter collaboration of physical stores and its Internet presence — the stores need to be turned from a liability into an asset. Or maybe a logistical miracle that would allow Best Buy to deliver a much, much greater range of products (like, hundreds of thousands) to its customers on the day they order them. One thing is for certain: The new strategy will require thinking that cannot be delivered by somebody who spent 28 years in the Best Buy box. It requires a Netflix or Amazon-like strategy, where management was willing to bring forward (and flawlessly execute) a disruptive strategy that undermines its current cash cowing business. Amazon did this by bringing electronic readers to the masses, which undermined its core book business. Netflix did it with streaming. I am sure I’ll get plenty of dissenting emails about Netflix: “We don’t know if its model will be successful down the road,” etc. I’ll admit, I don’t know what Netflix’s streaming business is worth. But one thing is for certain, if it did not bring out streaming, it would have been dead in three to five years. Now it has a fighting chance to survive and maybe even create value for shareholders. I am a value investor, and so when I see a stock dangling at six times earnings I’d be lying if I told you that I did not have an inkling to seriously consider it for our portfolios. But Best Buy is not a retailer that missed a fad (stacked the shelves with wrong-color shirts, etc.) — those sorts of situations often present great buying opportunities, as the problems are easily fixed. Best Buy is a retailer that so far has missed a structural change that may make its business obsolete. It is only cheap if the “E” projected for next year will be there. So far the market is betting that it won’t, and I have no insight that encourages me to disagree with the market. Reminder: The VALUEx Vail conference is June 20-22 in Vail. This is not your typical conference — think of it as the TED of value investing. Though this is a not-for-profit event, I hope what you’ll learn from attending will generate profits for you. You can find out more about VALUEx Vail here . Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email, click here or read his articles here . Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy Katsenelson’s Active Value Investing (Wiley, 2007) book.

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Richard Komaiko: The Ultimate Irony of Groupon

April 11, 2012

Just yesterday, a Pennsylvania class action lawyer, Howard G. Smith, filed a class action lawsuit against Groupon on behalf of all shareholders who bought in during the infamous IPO. The complaint alleges that Groupon misrepresented or failed to disclose information that they had an obligation, under Securities Laws, to share with prospective investors. According to MarketWatch , “no class has been certified” at this time. Here’s what that means in plain language. When large numbers of people have been harmed in the same way by the same defendant, each of them could file a lawsuit on their own, which is very expensive. Alternatively, they can merge all of their lawsuits into one, which totally changes the economics of litigation. All of a sudden it becomes very cost effective to sue, because the overhead of the legal fees is defrayed over large numbers of plaintiffs. Needless to say, it’s in the interest of the plaintiffs to do this, but courts are cautious about when they should and should not permit it. When the court decides to permit it, that’s called certifying the class. The principal factor that courts look to when deciding whether or not to certify a class is the number of people who come forward to announce that they believe they have been wronged. And often times, these types of law suits can sink or swim depending on whether or not the class gets certified. In other words, the fate of Groupon literally depends on whether this class action lawsuit “tips.” The irony is just too delicious… This post originally appeared on AttorneyFee

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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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Joseph Rauch: Why Obama Should Raise Taxes in 2013

April 10, 2012

If my title didn’t catch your attention, I’ll say it again: Obama is going to win the election this year and when he does, I want him to raise taxes on wealthy Americans by repealing the Bush tax cuts or introducing new tax legislation on the “1 percent” as well as capital gains. Why he will win is an entirely different issue, so for now I’ll just explain why raising taxes on the rich is a good idea. Proponents of tax cuts often ask the question, “Why punish success?” I think the implications of this question and the beliefs of those who pose it are much more important than the question itself. The first implication is that raising taxes on wealthy Americans, commonly referred to as job creators or investors, will make these job creators stop creating jobs and investing/stimulating our economy. I believe this is false because raising taxes will not affect the potential of an investment. In other words, a good investment will still be profitable and appealing and allow wealthy Americans to create jobs and stimulate the economy even if they have to pay a little more money in taxes as a result. I am certain that taxes would not stunt the growth of an industry if the idea behind it has potential and if the investors see this potential. The second implication of “Why punish success?” is that raising taxes on the rich is class warfare. Hyperbole aside, this is also not true. Raising taxes on the rich in any capitalistic society is simply logical. We have a massive debt to China, and one of the most feasible ways to pay them back and regain our economy is to generate revenue by raising taxes. Raising taxes on rich people is the most sensible solution simply because they have more money. A member of the “1 percent” will still be able to live the same lifestyle and will not have to make significant sacrifices if their taxes are raised while a tax increase for a poor American can mean the difference between sending a child to college or not. It is not class warfare, just math and the idea that shaving a piece off a loaf of bread is not so tragic if the loaf is as big as a refrigerator. I believe the last purpose of the “Why punish success?” question is to generate sympathy for wealthy Americans by creating the illusion that all rich people gained their wealth by working incredibly hard throughout their life. Proponents of tax cuts for the wealthy want people to think, “How could I possibly be so spiteful as to raise taxes on someone simply because they worked hard and earned every penny they have?” While many of the “1 percent” percent are rich because they worked hard on brilliant ideas or creating businesses, the life stories of these people are not the definition of becoming wealthy. The less inspiring story is that a lot of wealthy Americans (in this case I mean Americans that make more than $300,000 dollars a year) are rich because their parents were rich and afforded them connections, opportunities and the financial support to go to a top-tier college. Thus, rich people with rich parents usually have their inheritance to thank more than hard work, not that these people aren’t capable of working hard in addition to their given advantages. There are also a lot of Americans that become rich due to having luck in their investments and not necessarily skill in predicting the market. I always chuckle when I think of the people who were persuaded into investing into some little company named Google because they thought the worst case would be they would lose a little money if the company bombed. The logic of believing rich people are necessarily rich because they worked hard is also dangerous because of its implications about other Americans. If rich people have lots of money because they worked hard, then are poor people inherently lazy, and are middle class Americans inherently not quite lazy but not hard-working either? Fortunately, some of the wisest and most influential of the “1 percent,” whose financial savvy and hard work earned them their fortunes, such as Warren Buffet and Irwin Jacobs, do not see taxes as punishment and have stated that their taxes should be raised. Jacobs stated that the economy was healthy during the Clinton years when taxes were high and Buffet argued that it was unfair for him to pay fewer taxes than some of his staff. I hope these men act as shining examples and that Warren Buffet does not continue to be a pariah due to his statements. If Obama raises taxes on the “1 percent,” the worst-case scenario is that they will be upset. Many of them will moan and make threats, but please do not take this as a stereotype of being rich. Rich people will not like increased taxes simply because they are human or rather because they are American. However, if Obama wants to raise their taxes, he has to change his attitude a bit from what is was in his first term and be less willing to compromise. The word bipartisan has a nice ring to it but is generally a waste of political time and effort for both parties. I’ll try to use a positive analogy by saying that American politics is and should be, for better or worse, a lot like American football. The opposing teams smash into one another and try to score more points than the other team. The fans of the winning team cheer and the fans of the losing team boo and have to swallow their pride and cheer again next game. In conclusion, I believe this is the attitude that the formerly naïve Obama should have in his second term if he wants to implement new tax legislature or repeal the Bush tax cuts.

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Brad Reid: The Supreme Court Applies Immunity to Prevent Suits

April 10, 2012

A significant preliminary issue in any suit against governmental bodies is the application of sovereign immunity. Sovereign immunity, historically phrased as the king can do no wrong, early became a part of the U.S. legal system. Governments may only allow suits to proceed against themselves by some affirmative action (waiver) of sovereign immunity. The U.S. Supreme Court recently has once again addressed immunity in two decisions with Justice Alito writing the opinions. In one recent case, a licensed pilot sued the Federal Aviation Administration, the U.S. Department of Transportation, and the Social Security Administration for mental and emotional distress for revealing his confidential medical information (FAA v. Cooper). The federal Privacy Act allows suits for “actual damages” if the government intentionally or willfully violates it. In discussing giving up sovereign immunity (waiver) the Supreme Court majority noted that the Government is entitled to the most favorable interpretation of protection. Since “actual damages” in the Privacy Act is somewhat unclear, the Court understood the phrase to mean a “proven precuniary loss,” not mental or emotional distress. Justices Sotomayor, Ginsburg, and Breyer dissented finding a broader meaning of the phrase “actual damages,” and stated that the narrow meaning was contrary to the purpose of the Privacy Act. These three Justices also dissented in a 2004 Privacy Act decision. The majority opinion in 2004 interpreted “entitlement for recovery” to require damages beyond a willful or intentional violation being proven (Doe v. Chao). A second recent unanimous Supreme Court decision granted absolute immunity from suit to a federal grand jury witness (Rehberg v. Paulk). The plaintiff alleged that an investigator for a district attorney’s office had presented false testimony in violation of a federal civil rights statute (42 U.S.C. Sec. 1983). The Court explained that this immunity from suit was the same protection already granted trial witnesses. Furthermore judicial precedents, the need for witnesses not to fear retaliatory litigation, available perjury remedies, and secrecy considerations for grand jury witnesses favored this result. Related but distinct from sovereign immunity is the “government contractor defense.” This defense broadly prevents military equipment manufacturers from being sued when equipment is constructed to government specifications. It was famously applied in 1988 by the Supreme Court in litigation involving a Marine helicopter crash to end a suit brought against the manufacturer (Boyle v. United Technologies). There were four dissenting justices. In January, 2012, a three judge panel of the Federal Court of Appeals for the Fifth Circuit decided that the legal remedies for the heirs of civilian convoy drivers who were killed in Iraq were those remedies granted by the Defense Base Act and Longshore and Harbor Workers’ Compensation Act (Fisher v. Halliburton). These statutes grant workers’ compensation type awards. Federal law preempted state law tort claims of negligence and fraud against the Army contractors that the heirs had sued. Consequently, the public policy question to consider is how broadly to extend immunity from suits? The general arguments in favor of immunity are that retaliatory or frivolous lawsuits will be time consuming and detract from official duties, individuals will be deterred from seeking careers in public service or exercising their best judgment for fear of litigation, and burdensome and lengthy suits will waste public resources. The general arguments against immunity are that injustices will not be remedied, immunity discourages due care, and individuals or entities are exempted by immunity from the standards that apply to the rest of society. There are numerous additional forms of immunity from suit not discussed in this brief comment that are further subdivided into absolute and qualified.The general legal trend presently seems to expand immunity from suit based upon strict statutory interpretation of waiver provisions. Under this view statutory language is very precisely, and critics would say too narrowly, defined to prevent suits.

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Susan Harrow: James Bond Brand Shaken Up: Swigging Heineken in New Movie Skyfall

April 10, 2012

James Bond drinking beer? Not a suave move Bond. James Bond swilling beer is a huge branding bomb. We know and love this sophisticated spy for his elegance, savoir-faire and swagger, not for sipping the foam from a heady Heineken. Famed for his signature beverage of a vodka martini “shaken, not stirred,” Bond has caved to down the brew for a purported 45 million dollar marketing deal from Heineken. Picture this: a beautiful Bond girl approaches the current James Bond guy, Daniel Craig, at a bar in some sensual island hoping to be seduced by him — and then eyes his drink — a can of beer. Game over. Lesya Lysyj, a representative of the Dutch brewer says, ”James Bond is a perfect fit for us,” Maybe he is, but beer isn’t a “perfect fit” for his brand. She adds, “He is the epitome of the man of the world.” Not after this commercial caper. According to Ad Age the Heineken brand has had a partnership with the film for 15 years, but this is the beermaker’s most visible move to capitalize on the Bond name. This unfortunate decision has caused quite a stir among fans and inspired jokes from the likes of Peter Sagal and his guests on the popular NPR Show, “Wait Wait…Don’t Tell me.” In this week’s show Sagal quipped, “His tuxedo is just printed on a T-shirt now. We’re looking forward to having him sidle up to the bar in his tuxedo T-shirt and he’s going to order a brew.” Guest panelist Adam Felber added, “He’ll be Jimmy Bond now.” Sorry, but beer is bad for the Bond Brand. Say it ain’t so James. We want our Aston Martin, Rolex wearing, martini drinking man to stay true to his elegant, womanizing ways, not throw one back like the rest of us working stiffs. Susan Harrow is the author of Sell Yourself Without Selling Your Soul . She runs a Media Consultancy where she helps everyone from Fortune 500 CEOs to celebrity chefs, entrepreneurs to authors grow their business through media coaching and the power of PR. For more information please contact Susan .

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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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Mike Lux: Rick Warren’s Dependency

April 10, 2012

Rick Warren’s recent comments on the Bible and dependency show him to be profoundly out of touch with the scripture he claims to hold sacred, as well as lacking a basic understanding of government programs related to poor people. Here’s the quote I am referring to: Well certainly the Bible says we are to care about the poor… But there’s a fundamental question on the meaning of “fairness.” Does fairness mean everybody makes the same amount of money? Or does fairness mean everybody gets the opportunity to make the same amount of money? I do not believe in wealth redistribution, I believe in wealth creation. The only way to get people out of poverty is J-O-B-S. Create jobs. To create wealth, not to subsidize wealth. When you subsidize people, you create the dependency. You — you rob them of dignity. Warren here is clearly showing his own dependency on right-wing mythology. First of all, no one I know in Democratic or progressive politics (and I do know a lot of folks) advocates that everyone has to make the same amount of money — that is the ultimate mythological conservative straw man. (The only writer I know that actually advocates for that is the author of the biblical Book of Acts : “all who shared the faith owned everything in common; they sold their goods and possessions and distributed the proceeds among themselves according to what each one needed.”) In fact, the vast majority of government assistance (over 90 percent, in fact) for lower-income people consist of Social Security, Medicare, and Medicaid-related nursing home coverage for senior citizens; school lunch, Head Start, pre-natal, early childhood, public education money, and other programs for young children; student loan and job training programs for students and laid-off workers looking for jobs; and SSI checks and other programs for those too disabled to work. Then there are government jobs themselves — teachers, cops and firefighters, road construction workers, etc, which Warren ignores completely. So unless Warren is expecting 85 and 5 year olds, or maybe desperately ill people, to work for their bread, this dependency thing is a load of bunk. Finally, it is important to note that some government benefits also go to people working full or part time whose wages are so low they are still below or close to the poverty line. Maybe Pastor Warren knows these facts, maybe he doesn’t, but when you have his platform in life as a person so many people listen to, it is morally important for you to check out your facts first instead of being dependent on partisan and mean-spirited mythology. Beyond his bad facts and ugly mythology about government spending to help low-income folks survive and maybe gain a toehold into the middle class is Warren’s apparent lack of any knowledge about what the Bible he claims to revere says about helping the poor. Let me give the good pastor some examples of what I mean. I don’t think Pastor Warren has ever read the Book of Isaiah, for example. You don’t have to read far: in the very first chapter, Isaiah calls on the rulers (yes, the government, not just individuals) of Israel to hear what God tells them: You multiply your prayers, I shall not be listening. Your hands are covered in blood, wash, make yourselves clean. Take your wrong-doing out of my sight. Cease doing evil. Learn to do good, search for justice, discipline the violent, be just to the orphan, plead for the widow. A little later, in chapter 10, Isaiah is at it again, attacking the government of Israel but not for creating dependency: Woe to those who enact unjust decrees, Who compose oppressive legislation to deny justice to the weak and to cheat the poorest of my people of fair judgment, To make widows their prey and rob the orphan… To whom will you run for help, and where will you leave your riches? Isaiah goes on and on like this, for chapters and chapters. But maybe you haven’t read Isaiah, Pastor, or perhaps you just don’t like it very well since it teaches such pro-dependency lessons. Maybe we should turn to some other prophets you might like better. Oh, wait. Jeremiah says to the rulers of Israel “the very skirts of your robe are stained with the blood of the poor.” Lamentations says about Israel, “All her people are groaning, looking for something to eat.” Ezekiel speaks of the rulers of Israel this way: “You have failed to make your weak sheep strong, or to care for the sick ones, or bandage the injured ones.” Okay, maybe you never liked reading the prophets. What about Psalms; they are so comforting. Oh, wait, maybe not, or at least not to conservatives. There’s Psalms 9-10, for example, talking about the wicked ruler who “watches intently for the downtrodden, lurking unseen like a lion in his lair, lurking to pounce on the poor.” Or Psalms 22, which proclaims that God “has not despised nor disregarded the poverty of the poor, has not turned away his face, but has listened to his cries for help… The poor will eat and be fulfilled.” Even if it creates dependency, I guess. And Pastor, sorry, it doesn’t get any better for you on this dependency notion you have in your New Testament. Jesus’ mother Mary in Luke said her son would “pull princes from their thrones and raise high the lowly” and “fill the starving with good things, sending the rich empty away.” She didn’t mention whether that would cause dependency, but I tend to doubt she was too worried about it. In Jesus’ first sermon in Luke he called for a year where the rich would be forced to forgive their debts to the poor. In Matthew 14, Jesus’ disciples told him he should send the crowds away so they could buy food for themselves, and Jesus replied “there is no need for them to go, give them something eat yourselves.” In Matthew 19, he told a rich man that he should go and sell all his possessions (in spite of the fact he was a job creator!) and give all the money to the poor.” And in Matthew 25:31-46, Jesus said that God would gather all the nations (yes, the nations, not just individuals, something conveniently overlooked by conservatives) to judge who had given food to the hungry, water to the thirsty, clothes to those lacking them, who had welcomed strangers and helped prisoners and the sick. All this must sound a lot like promoting dependency to Warren. And by the way, whether poor people are helped by government or individual charity, wouldn’t it be promoting dependency all the same according to conservatives? (Right-wing hero Ayn Rand sure thought so.) Now you may think I’m being selective with these particular quotes, that these are the few times in the Bible where helping the poor are mentioned. Sorry, Pastor Warren; take a look for yourself, go ahead and read the entire thing. The poor are mentioned more than 2,000 separate times in the Bible, well over a hundred by Jesus himself — and unless I missed something somewhere, not one time is it to castigate them for their laziness or fret that they are growing too dependent on help. I am consistently stirred to anger by these false prophets of Christianity. Pastor Warren, you have every right to have whatever religious and political beliefs you want to have, but don’t proclaim you are preaching the Christian Bible and then reject most of the things the people you are supposedly following said.

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Richard Barrington: Retirements Survey Finds Many Tripping Over Financial Hurdles

April 10, 2012

The 2012 EBRI Retirement Confidence Survey is out, and the results reflect the importance of continuing to strive for new goals as you move through life. The EBRI is the Employee Benefit Research Institute, and their long-standing annual survey of the confidence that American workers have in their financial prospects for retirement is a good benchmark for both economic conditions and the state of U.S. retirement savings . As you might imagine, retirement confidence has taken a beating in recent years. One of the root causes suggested by the survey results is that the difficulty of meeting short-term goals might be so great that people never get around to focusing on long-term goals. A look at some of the issues covered by the EBRI survey provides some insight into the sequence of financial hurdles people face. Progressing through financial goals There are many subjects covered by the EBRI survey, but one way to think about the results is to view topics in the order people naturally face them as they move through life: Meeting day-to-day needs. The first order of business is getting a job; this may be fundamental to meeting your financial goals, but it is by no means easy. 42 percent of survey respondents cited job insecurity as the most pressing financial issue facing Americans today. Of course, until you can move beyond worrying about day-to-day needs, you have little hope of preparing for long-term ones. Getting out of debt. People often borrow money to get by, so then the challenge becomes getting out of debt. 62 percent of survey respondents cited debt as being a problem to some extent, with 20 percent calling it a major problem. Debt can be a huge barrier to retirement saving: While 67 percent of workers with no debt problem said they were either very or somewhat confident in their retirement finances, only 22 percent of those with a major debt problem expressed the same levels of confidence. Saving for retirement. With employment and debt being such hurdles, it’s no surprise that many Americans haven’t adequately addressed retirement saving. Only 52 percent of worker respondents were very or somewhat confident in having enough money to last through retirement. In 2007, this figure was 70 percent. Sustaining wealth in retirement. The challenge doesn’t end with retirement. Between stock market setbacks and falling rates on savings accounts , making money last through retirement has become tougher than people expected. The percentage of retirees who are very or somewhat confident in having enough money to live comfortably through retirement is now 63 percent, down from 79 percent in 2007. The difficulty of meeting each of these goals, as reflected by the low level of confidence people currently have in each case, reinforces the importance of working toward these goals throughout your adult life. A sequence of goals will help you keep moving forward, and what the survey suggests is that if you aren’t moving forward, you will quickly find yourself moving backward. The original article can be found at Money-Rates.com : ” Retirements survey finds many tripping over financial hurdles ”

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Chris Weigant: Occupy’s Next Crossroads

April 10, 2012

The movement that Occupy Wall Street began is at another crossroads, it seems. It isn’t the first such fork in the road, and it certainly won’t be the last. What happens next is anyone’s guess. Is the Occupy movement poised for a comeback? Or is it about to be co-opted altogether? Can both, in fact, happen simultaneously, and would that be a good thing or not? This week kicks off an effort known as “The 99 Percent Spring” by an impressive coalition of groups with solid lefty credentials (labor, Van Jones, MoveOn.org, etc.). The goal is to hold a series of “teach-ins” that will train 100,000 people (half in person, half online) in nonviolent protest techniques. The Huffington Post reports on the details: The organizing is not aimed at any one event, rally or issue and the effect will be unpredictable. Training tens of thousands of people in arrest techniques to make a political point tends to inspire people to put that training to use. Each training session lasts a full day and covers a lot of ground. The curriculum is broken into three basic areas: explaining broader economic issues such as income inequality and attacks on workers’ rights, encouraging participants to tell their stories of economic injustice and hardship, and teaching the nuts-and-bolts of nonviolent direct action. If the phrase didn’t have such militaristic overtones, I would call it “boot camp for protesting.” Lefties have decided that the Occupiers were onto something and are looking to expand and build on what Occupy Wall Street set in motion last fall. The 99 Percent Spring folks aren’t organizing any one protest over any one particular issue; they are merely training people how to go about doing so for the upcoming election year. They’ve even got some Occupiers teaching their seminars. But, as with all things Occupy, some purists are already charging that it’s all an attempt to “co-opt” them, their message, and their movement. The Occupy movement is planning a very concrete (and ambitious) event for May 1: a nationwide “general strike.” They fear outside groups will dilute their message and taint them by association, somehow. This is, to a large extent, silly. Here’s a quick question: is the Occupy movement inclusive or exclusive? As with all things Occupy, there is no one clear answer; it is both at the same time, in a way. The movement is inclusive, as evidenced by the fact that to join, all you had to do was show up. Anyone could be part of the “General Assembly,” if physically present when the group met. But Occupy also has a creeping sense of exclusivity to it, as well, mostly in fear of the dreaded fate of being “co-opted” by others (up to and including their biggest worry: being co-opted by the Democratic Party). “Being co-opted” is defined differently depending on whom you talk to, but it generally means some outside group would somehow hijack the Occupiers’ pure message and bend it to their own aims. At the same time, the Occupiers are attempting to encourage (one might say “co-opt” if one were being ironic) other groups to support their cause in a visible way — labor groups, especially. The re-launch of Occupy Wall Street (Occupy 2.0?) is slated for May Day, and the Occupiers would love it if they brought the country to its knees for a day as workers everywhere walked off their job in solidarity. That’s really the only way a general strike could work. The May Day plans and the 99 Percent Spring don’t seem to be mutually exclusive but complementary. If the folks who attend the 99 Percent Spring turn out in force on May Day in cities across the country in support of the Occupy protest, how can anyone involved in either see that as a bad thing, especially if the 99 Percenters teach others what they’ve learned, and so present an image to the media of peaceful, nonviolent protest techniques that are time-tested and proven? Any successful movement needs both dreamers and doers. If composed of mere dreamers, nothing ever gets accomplished. If composed of mere doers, things may get accomplished, but without any real direction toward any goal. A prudent mix of both is required not only to move but to move forward toward something. This requires both a lot of people out in the streets and the discipline that people trained in the art of protest and street theater can bring. The Occupiers should be proud of what they’ve achieved already: the change in the conversation in Washington and on the nation’s airwaves. The phrase “99 percent” is used in the discussion now, and the ideas behind that simple phrase have gotten enormously more attention than they did before anyone set foot in Zuccotti Park. That is not easy to do in American these days. Compare the coverage pre-Occupy and post-Occupy in the media on the subject of jobs, for instance. Pre-Occupy, the entire conversation was about slashing the federal budget. Post-Occupy, the conversation has at least shifted somewhat toward the economic plight of millions of Americans. It’s hard to remember now, but pre-Occupy this was deemed “old news” or “not news” by national news directors and editors, and now it will likely be a centerpiece of the upcoming presidential campaign. That is a big victory, even if a bit intangible. The problem of the Occupy movement has always been defining a path forward. Seeing the utopia at the end of the rainbow is always easier than trying to figure out how to get there, to put it another way. Asking Occupiers what they would change about the system brought forth many admirable goals: ending the power of Big Banking, getting rid of lobbying and money in politics, solving the student loan crisis, and many other worthy ideas. But when asked how to achieve those goals, many Occupiers shied away from working within the existing political system altogether, seeing it as so corrupted and ineffectual as to not be worth the effort. But how else is any of this stuff supposed to happen? Overturning the Citizens United decision, just to pick one, would likely (at this point) require an amendment to the Constitution. This would be an enormous achievement, and a fundamental realignment of money in politics, but it would also require an almost Herculean effort to pass. That effort would have to take place not only on the national political level (Congress) but also in statehouses across the land (ratification), and it would take years and years of very hard work to accomplish. That’s not to say it isn’t worth such an effort, but absent such effort it is never going to happen . All movements face this ultimate dilemma: work within the system, or work to create an entirely new system. But creating an entirely new “paradigm” would be even harder than passing an amendment to kill the Citizens United decision — and getting large groups of people to agree on what that new system would be seems (at this point) to be an almost impossible task for the Occupiers. The Occupiers need to ask themselves some very bedrock questions about what it is they are trying to do, and how exactly they plan to get there. Here is how I would compose such a self-examination: Do you want to get something done? Or do you just want to get on television? Do you want to take steps, however small, toward your ultimate goals? Or do you just want to make a certain point, and make it as loudly as you can? Can you accept the fact that in order to achieve any change at all, it will likely have to come from the same corrupt system you are protesting? Or will you remain pure and not change anything in any concrete way? Will you welcome fellow travelers along the path you foresee, even those who might have their own ideas about what to push for next, or will you exclude any group that doesn’t share your ideological purity? What is the point of your movement, and how do you see yourselves getting there? These are important questions, and I am quite obviously biased in the way I have framed them. I do believe that “the system” needs a good grasp by the collar and a healthy shakeup every now and again, but I also believe that ending “the system” and building a new one from scratch on better, more utopian lines is simply not going to take place in my lifetime. Call me a cynic if you must, but there it is. Working within a corrupt system to achieve even incremental change is hard: it takes a long time, and it takes a monumental amount of effort (and some luck). It is not easy. The only easy thing is getting frustrated by the glacial pace of change and giving up on “the system” altogether. The other thing change requires is numbers. Taking over a park — even in every city in America — is one thing. But getting millions of Americans who likely largely agree with your basic goals to influence politicians is another. Achieving even that is going to require some helping hands, which is why the 99 Percent Spring and the Occupy Wall Street folks would do far better to march forward hand-in-hand than worry too much about being “co-opted” or about anyone’s ideological purity.   Chris Weigant blogs at: Follow Chris on Twitter: @ChrisWeigant Become a fan of Chris on The Huffington Post  

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Andrea Learned: Sustainability’s Neglected Frontier: The Young and the Entrepreneurial

April 10, 2012

Where should we be looking for sustainable business change today? Perhaps it should not be toward the usual corporate suspects, many of which are slow to decide on even minor operational and product development shifts. The more compelling view may instead come from looking in the entrepreneurial direction. I’ve been covering corporate sustainability for a while now, but, admittedly, my passion for it has waned. What most big companies can achieve in their attempts to change centuries old operational systems struggles to compare with the game-changing energy, ideas and commitment I’ve recently come across in the young entrepreneur community. The potential sustainability impact of what those in Seattle (my own city) and those of similarly innovative minds on many other college and university campuses across the nation/globe is what strikes me to the core of my ever-hopeful, change-through-business soul. A week ago I spent a day with representatives of the Pacific Northwest’s emerging generation of sustainability and socially-minded entrepreneurs, and it blew me away. To fully disclose, and though the thoughts I share here are my own, I participated in this event in my social media role for the University of Washington’s Center for Innovation and Entrepreneurship, covering their Environmental Innovation Challenge (EIC). After being at this gathering, I realized that corporate sustainability likely has nothing better than the potential for paradigm shift that bubbles inside the men and women now attending our colleges and universities. But, back to the actual event. As the 23 student teams made their two-minute pitches early on, it was all my Twitter-happy fingers could do to capture each of their cool ideas and smart thinking. And, I was not the only one impressed. Even the highly experienced Seattle-area entrepreneurs who judged the challenge seemed to have the same feeling as me, which was that our economy will do just fine — as long as we identify, support and encourage this generation of student sustainability innovators. (Many also said something like “Darn, why wasn’t I this smart when I was that age?”) A quick look at three of the winning innovations from this one event demonstrates why there is great sustainability promise in our next generation of entrepreneurial minds: • An alternative to freeway “jersey barriers” made from something so often found lying shredded near them: old tires. • Sustainable shelter-building materials packaged in an easy to transport barrel as an alternative to post-disaster relief transitional housing. • A radical re-design of non-stick cookware surfaces that eliminates the coating altogether. ( More on those innovations , including some video.) Such incredible ideas might never have made it to prototype or professional business plan format were it not for an approach now starting to get more emphasis on campuses: multi-disciplinary collaboration. The various combinations of students developing these particular innovations, in fact, reflected a mix of undergraduate and graduates, and included engineering and science students working right alongside business majors. Creation at this level comes from true teamwork, and sustainability innovation demands collaboration like nothing else. If I seem enthusiastic, it’s because I’ve been so newly reminded of this and want to spread the word: Students are not some separate entity to be forgotten (until they graduate) in our struggling but sustainability-pursuing economy. Instead, these inspiring men and women are the beginning of a talent pipeline that is already changing our world. Before our very eyes, sustainable innovation is turning the young and restless into the young and entrepreneurial. Here’s hoping your company is paying attention.

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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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Neil McCarthy: Radical

April 9, 2012

Time to go radical. Reasonable is not working. If I hear one more politician or ersatz journalist rail about the need to find bi-partisan common ground in the sweet spot of a centrism where immediate deficit reduction and job growth live in some sort of economic harmony, I am going to get sick. It isn’t going to happen. It can’t. Over the last thirty years, conservative orthodoxy has simply pulled too much demand out the economy. That is what happens when (1) wages stagnate, the result of unions collapsing and globalized wage arbitrage taking over, and (2) bankers get unregulated free rein to peddle “products” that put consumers in long-term hock, which is what they accomplished when everyone was allowed to use their home as a credit card. Once those same bankers turned mortgages into cash for speculators via the now-infamous mortgage-backed securities, the con was complete. The ensuing real estate bubble created the impression that there was a free lunch (in the form of ever rising asset values). And then the bubble burst. Today, consumers are still over-leveraged (thanks to that explosion of private debt over the last decade), but banks can’t lend enough (given the shakiness of their balance sheets — where all those mortgage-backed securities are still being held at par — and the perceived need to adhere to credit standards that were ignored in the run up to 2008). So private spending is still weak. The March jobs report was a big disappointment. The private sector produced a mere 120,000 jobs that month . Wall Street (and just about everyone else) expected the number to be in the 200,000 range and it wasn’t even close. The recovery from 2008 continues unabated. But its pace is anemic and uncertain. In this world, conservatives continue to talk about immediate deficit reduction, business confidence and fears of inflation, certain that dealing with the first and the second is necessary to curb the third and produce jobs. All of this, however, is pure economic bunk. As Paul Krugman has continually pointed out to anyone willing to listen, we have not begun to put a dent in the job losses that came in the wake of 2008. The percentage of “prime age” workers who are actually employed — a real number, unlike the unemployment rate, which is distorted by failing to count those who stop looking — went down by about five points during the collapse and has gone up by less than one in the “recovery.” At the same time, our nominally low inflation rate (about 2% overall, even with the recent gas price hike) shows no sign of precipitously rising any time in the near future. Businesses are not hiring and producing because there is not enough demand (unemployed debtors don’t have a lot of walking-around money), not because they are worried about the tax and regulatory environment. The near term solution to all of this was a sufficient stimulus and some inflation. The conservatives, however, made the former impossible, and the chattering classes (including a lot of professional economists who should know better) have scuttled the latter. What we have, therefore, and have had for some time now, is an economic crisis that our political culture seems powerless to confront and solve. The problem here is not a lack of ideas. We have known how to pull ourselves out of depressions and severe recessions for at least 80 years. You do it by getting the government to increase consumer demand given that the private sector can’t or won’t. This typically involves some form of government spending — either on infrastructure (which creates both an immediate bump up in demand and also helps with long term productivity), welfare spending (food, housing, etc., which just increases demand), or targeted tax cuts (which increase demand so long as they are properly targeted to those who will spend the money rather than bank it). None of this, however, is politically possible now. A deficit which could create problems in the medium and long term is being used to eliminate any rational economic response to demand problems in the short term. It is also being used to eliminate any policies which could devalue private debt, which is what inflation and/or various forms of foreclosure relief would do. And the folks manning the barricades as deficit hawks circa 2012 are the same people who brought you the Bush tax cuts of 2001 and the two unpaid-for wars of the last ten years, which cumulatively turned the Clinton surplus into Bush’s sea of red ink. But hypocrisy has no cost in American politics. So it is practiced with abandon. I am a believer in incremental progress. I understand that American federalism is very slow. It is far easier to stop something than it is to pass anything. And that was the Founders’ collective intent. Over our two hundred plus years of history, therefore, progressives have always had to fight a two-steps-forward-three-steps-back war against reactionaries and the status quo. Their opponents changed — from slaveholders to industrialists to stock speculators to sexists. But the process rarely changed. Except when it did. Because, from time to time, progressives have abandoned the marble temples of incremental American federalism and… Gone radical. They’ve raised hell, hit the streets, jumped to the front of the bus, crossed the bridge, burned the draft cards, or camped out on the Mall. Unable to change the conversation from within, they altered it from without. Unwilling to defer to authority, they defied it. And underestimated by a smug establishment, they created a new one. That is where we are today. The system isn’t working. Twenty years ago, in his presidential campaign, former Massachusetts Senator Paul Tsongas made a point of admonishing unreconstructed New Dealers and trade unionists to stop bashing business. And the Democrats heard him and stopped. But now the other side has turned bashing labor… or women… or gay people… into a cottage industry. And that has to be stopped too. Progressives have to hit the streets. The kids have to vote like they did in 2008. The Wall Street occupiers have to return to Zuccotti Park. The conversation has to change. The people who change it will not be the bankers, hedge funders, or politicians checking out the “internals” on their polls. Because we have to stop talking just about margin… or return on investment… or individual responsibility… or the swing voter. And begin talking about redistribution… and economic fairness… and justice. We need to rediscover what it means to be a citizen in a democratic republic. Rather than just a consumer in a capitalist economy. We need to go radical.

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Sen. Fritz Hollings: Untying the Knot

April 9, 2012

Grover Norquist has the President and Congress tied in a knot. Norquist’s pledge against taxes forbids bipartisanship. Defeating a bipartisan budget last week in the House of Representatives patterned after Bowles-Simpson, Norquist said : “… the need for compromise is ‘nonsense.’” Budget rhetoric in Washington is askew. Instead of discussing taxes we ought to be discussing the merit of programs and how to pay for them. But programs are never debated. It’s always “for taxes” or “against taxes.” It’s the “size of government.” It’s never paying for government by cutting programs or increasing taxes. For eight years under President Bush, Congressmen Boehner, Cantor, and Ryan voted for tax cuts, wars and prescription drugs and never paid for them. Now, Congressmen Boehner, Cantor and Ryan want to pay for tax cuts, war, and prescription drugs with spending cuts. President Obama is running annual deficits of $1 trillion or more. I would like to see their list of $1 trillion in spending cuts. In 1948 we had a rule in the South Carolina House of Representatives that on second reading, any spending bill had to have a certificate from the Controller that the expenditures were within the revenues or the bill was sent back to the Ways and Means Committee. In 1959, as Governor of South Carolina, we raised taxes and in 1960, South Carolina was the first southern state to receive a AAA credit rating. All Governors think of paying for this year’s government. We used to in Congress. In 1993 without a single Republican vote in either the House or Senate, we cut spending and increased taxes — even on Social Security — and the U.S. enjoyed its strongest economy for 8 years. We gave President Bush a balanced budget in 2001. But today in Washington, we never pay for this year’s government. We just debate 10 year plans to cut $4 trillion in spending for later Congresses to do the cutting. It’s a grand charade. To untie the knot in Washington, we have to excise the cancer of money on the body politic. First, we must amend the Constitution: “The Congress is empowered to regulate or control contributions and spending in federal elections.” This doesn’t commit to a particular solution — that’s for later Congresses. But authorizing Congress to limit spending will limit Norquist and the lobbyists, limit fundraising, give time for the Senator to do his or her work, and return control of the government back to the people. This will take time. There is an immediate solution to deficit spending and creating jobs — just replace the 35 percent Corporate Tax with a 6 percent VAT. The 2011 Corporate Tax produced revenues of $181.1 billion. A 2011 6 percent VAT would have produced $728 billion. This will cut taxes, eliminate loopholes, give instant tax reform, promote exports, free up $2 trillion in offshore profits for Corporate America to create jobs in the United States, provide billions to avoid deficits, and create millions of jobs. Everyone in Congress is for these initiatives, but not one of the 535 members will introduce the VAT solution, nor will President Obama. Why not? Because Corporate America doesn’t want to increase the cost of their China exports to the United States. U.S. exports to China are taxed twice: the 35 percent corporate tax and a 17 percent VAT when exports reach China. China’s exports to the United States are tax free. 141 countries compete in globalization with a VAT that is rebated on exports. Wall Street, the big banks, and Corporate America are the biggest contributors to the President and Congress. Contributions for reelection in Washington come before the nation’s economy. Talk shows and the political pundits don’t mention the VAT solution because the press and media are owned or in bed with Corporate America. In 2006, the Princeton economist, Alan Blinder, estimated that for the next decade off-shoring would cost the U.S. Economy an average of 3 to 4 million jobs per year. We are off-shoring jobs faster than we can create them. The recession ended over 2 ½ years ago and we wonder why the recovery is anemic. The economy would come alive by replacing the 35 percent corporate tax with a 6 percent VAT.

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Amalia Negreponti: When Did They Forbid Love?

April 8, 2012

I loved it when on Thursday night I read the phrase, “We have always wanted Google to be a company that is deserving of great love.” in Larry Page’s dispatch that appeared on the company’s website for investors and Page’s personal profile on Google Plus. Of course the over-use of the word “love” (seven times in his 3,459 word ” 2012 Update from the CEO “) brought a wry smile to my face. The exaggeration seemed to me to take the weight out of that hefty word: love. Yet I was strangely moved. In the way we always are, despite the jaded, skeptic, ironic, maybe more practical and realistic side to ourselves scoffing at us for being so naïve. Indeed, Google’s declarations of “doing no evil” and “trying to make the world a better place” may not inherently differ from the official politically-correct spiel of many other major companies. Page’s fervent wish for Google “to be loved” may also have more to do with increasing revenue and profit (therefore, money), or endeavoring to close some enemy fronts and win users hearts back (leading to unhindered development and profit, thus… money) than with the four letter-word. Yet I can think of nothing for which I would risk being duped or disappointed, other than love. The following day, I was shocked to read some of the negative or ironic feedback the use of this evidently subversive word by a company CEO, generated in some circles. “It’s a megalomaniacal goal when a person says they want the world to love them or their creation”, one critic said speaking to the Financial Times . Since when? And more importantly, why? Especially if that person or company want to be deserving of our love! Why does it have to be all about the money? Isn’t it crazy to forbid love from an aspect of life? This prohibition is also in striking contrast with how intimately people feel about the Internet and the companies that dominate its world. How they trust them and become dependent on them — emotionally and practically. Less than half of the public trust financial services and banks to do what is right, making them the least-trusted industries for the second year in a row, according to an annual survey by public relations firm Edelman. Trust in government officials, regulators and chief executive officers as “credible spokespeople” dropped the most in the 12-year history of Edelman’s Trust Barometer survey. However faith in technology and the Internet has remained steady, despite the sector’s incontrollable growth, with a staggering 79 percent of those who participated in the survey, saying they trusted it. Combined with the intimacy and sharing the Internet commands and provides, love is only a stone’s throw away from this leap of faith. I must confess I do love the Internet. At an impressionable age, I gave my heart — and probably an extensive amount of information about me! — to Google because it was free and because through it I researched my way from adolescence to adulthood and from there to maturity. Nowadays I am a Twitter, Skype, iPad, Kindle, and Blackberry devotee. Quite a few years ago when the Internet was something you did alongside your life, instead of your life being something that happened to you while you were online, the place in our hearts that Internet companies now occupy through their products and creations, was held by beloved friends and family. If this infatuation that grew into a permanent relationship (with its fair share of dependency and addiction!) is not also related to love, I don’t know what is. That said, no person, let alone company, can survive on love alone, no matter how much you may try. Even if, for a short period of time you manage to, you may well find the love another holds for you, evaporating or turning to strife as the money well dries up. Cinderella becomes loved by the man she loves but she also gets a kingdom thrown in as well, for good measure! In Sex and the City , Carrie comes to the Big City to find “love”. She finally, exhaustingly, manages to do so in the arms of an implausibly romantic Mr Big who conveniently also happens to be a multi-millionaire (and hunk). Now that is a happy end! Even in perfect lives and fairy tales, you cannot survive without some combination of love and money. That the corporate world does not accept the bald truth of this fact does not really surprise me. One has only to take a look at the financial mess the money-generating world has landed the U.S. and Europe in, to realize the toll their conviction that business is “really, only about the money” is having on all of us. To realize the toll this stubborn misunderstanding is taking on the companies themselves, one has only to look at how public opinion, even their clients are regarding them: with every negative emotion ranging from suspicion, loss of respect and trepidation, to full-blown rage and hostility. This shows up in financial results too and it is not pretty. Sure, a company always has to be about the money — and how to make more of it in order to make shareholders happy. It also has to be about engaging in lawful and ethical behavior that creates respect and — a reasonable amount of — trust. Why, if it does all that, shouldn’t it aspire to be loved by consumers? To be deserving of love. Who forbade love and said it should all be only about the money? Are they that scared they wouldn’t be loved, or is it just because they know they don’t deserve to be loved? In this Larry Page is right, I think, when he writes, “But we recognize this (deserving to be loved) is an ambitious goal because most large companies are not well-loved, or even seemingly set up with that in mind.” Love is inherently scary, like all “major” stuff. It’s right there, in the big league, together with Life and Death. Nothing scares me as much as the fear that I may love someone but they may not love me. It is a risk you can never eliminate. That is where “deserving” comes into the equation. We may not be able to control who we love yet as adults we can all recognize the concrete steps a person or company takes, to become deserving of our love. Therefore, mixing love with business can become less fraught with risk. Yet, to me, it’s scarier to think that a person or group of people (company) who affect and often define me, are a daily presence in my life, know my most intimate secrets and are privy to even my craziest thoughts and searches, may not care about acting in a manner that deserves my love. So in a way I get Google: Kike a few other major online companies, they have touched and daily affect so many peoples’ lives (almost all of us) that a bond is created. This attachment is, of course, based on mutual self-interest, dependency and on expediency. It is more than that however. Like all things that start off as entirely interest-based (work) or gut-based (sexual attraction), our relationship with Google has also become deeply emotional. We are afraid it might betray us, using everything it knows about us, in some dire or merely lucrative way. Google is afraid we might abandon it and choose someone else over it. As for the need to be loved, it precedes, infinitesimally, even the need to love. It is our greatest strength but also what ultimately makes us most vulnerable. It is what makes the Internet human in peoples’ eyes. It is what makes HuffPost a community, a family. It is what, for today’s teenagers, makes life before the mobile Internet, before Instant Messenger, Google, Facebook, Twitter, Pinterest and so many others, inconceivable. The need Google expressed, to be loved, to be found deserving of love is nothing more than putting to words a reality all we tech-geeks have come to realize: that the Web is alive. So, like with every creation, love inevitably has become one of the defining factors of the Web and the Internet companies that play a major part in our lives. Whether we like it or not, we are all susceptible to love.

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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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Mike Lux: B Rapoport: Friend, Mentor, Great Progressive

April 7, 2012

I just learned that one of my dearest friends and mentors died Thursday night. Bernard Rapoport, or B as he loved to be called, was deep into his 90s, but still was handing out money from his foundation (his last board meeting was last weekend) and going into his office to work the phones as late as Tuesday of this week. It is hard to imagine someone so full of life is gone. B gave money to almost every progressive cause and candidate around, and raised money for practically all of them as well. He started organizations, chaired the University of Texas Board of Regents, demanded every politician he knew raise his taxes, told proud stories of his communist parents, introduced everyone he knew to everyone else he knew, and always had a grand time doing all of it. The first time I ever met him was when I had driven to see him in Waco, and he turned me down in about 30 seconds flat for the environmental group I was raising money for, telling me there were lots of rich people giving money to environmental causes, that he had to reserve his for helping labor and poor people organize. He then invited me to stay for a while; we told stories for three hours, and then he invited me to dinner and to stay the night. Didn’t get the check, but got one of my best friends of all time. We have been allies in every cause and on every campaign ever since. B delighted in telling people that his mother, when people asked what he did for a living, would say sheepishly, “Well, he’s a businessman, but he is a very learned man nonetheless.” B made a lot of money in his life, working with unions to provide good insurance policies for their members, but he never forgot his parents’ values or his progressive instincts. He was friends with presidents and senators and speakers of the House (at least the Democratic ones), but his heart and his friendship went out to just about everyone he met — I would often see him trading stories or having a drink with waiters and bellhops he knew, and a couple of them mentioned to me over the years that B had given them money for their kids’ scholarships. B was a voracious reader (I think B quoted Thorstein Veblen more times than all the other folks I ever met combined), and he had an annual tradition of sending out his favorite book of the year to thousands of friends across the country. He also helped countless authors pay for their research and publish their books. But he didn’t know much about pop culture. I had a friend who dated Cybill Shepherd for a while at the height of her “Moonlighting” fame, and he let me stay at her place in LA when I was out there. B called while I was in LA, and when I returned his call, I of course had to tell him where I was. He wasn’t impressed because he had never heard of her. He asked me, “So is this some candidate you are going to want me to give money to?” B Rapoport was one of the greatest men I have ever known, and I will always be in his debt for the friendship he made with me, the things I learned from him, the stories he told me. Our progressive movement, of which he was always such a leader and friend, will miss him dearly as well. He was one of the good ones.

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James Kwak: Fiscal Affairs: Someone Is Wrong in The Times*

April 7, 2012

James Stewart has doubled down on his infatuation with Paul Ryan. Ryan’s budget, he says, is a viable centrist starting point for budget negotiations, and attacks from “left and right” are mere “partisan rhetoric.” This is several different kinds of crazy. First, Stewart repeats his belief that Ryan’s plan would increase taxes on investment income. But that belief has no basis other than Stewart’s own belief that it would be a good idea. As I pointed out before, Ryan’s own budget argues against raising taxes on capital gains and dividends. The only thing Stewart can find is Ryan’s apple-pie platitudes about the need for tax reform. But Ryan’s own vision of tax reform, as evidenced by his budget’s own words, doesn’t include higher capital gains taxes. (In addition, as a signatory to the Taxpayer Protection Pledge, Ryan is sworn to “oppose any and all efforts to increase the marginal income tax rate for individuals and business.” That sounds to me like it includes the capital gains tax rate, which is a marginal income rate.) This is further evidence of columnists’ ability to project their own fantasies onto Paul Ryan’s handsome face. More generally, Stewart pins high hopes on Ryan’s embrace of tax reform. But all Ryan’s budget actually says about tax reform can be summed up in two points: tax reform is good; and tax rates should be lower (25 percent for the top individual rate and for the top corporate rate, both down from 35 percent today). This of course allows credulous people to see themselves in Paul’s blue eyes (see above). But if you want a serious starting point for tax reform, you should look at Simpson-Bowles or Domenici-Rivlin , both of which spelled out actual tax expenditures they would close (or Feldstein, Feenberg, and MacGuineas , or White House Burning , or any one of many other policy proposals that do the same). Ryan’s “tax reform” is nothing more than a few talking points designed to score political points (why else would you specify the lower tax rates but not the closed loopholes), not a starting point for anything. Stewart also plays the “centrist” card with unprecedented aggressiveness. He cites attacks by the Club for Growth as proof of Ryan’s reasonableness. But when it comes to military spending, the Club for Growth isn’t attacking Ryan from the right; it’s attacking him from the left . Democrats want to reduce military spending as a share of GDP; so does every bipartisan deficit reduction panel; so does the Club for Growth (which thinks that the automatic spending cuts in the Budget Control Act should be respected). Ryan, by undoing the automatic spending cuts to preserve defense spending, is to the right of the budget debate, not in the center. In other words, everyone knows that if you want to reduce the deficit you have to cut defense spending–except Paul Ryan and James Stewart. Then there’s Medicare, one of the few areas where Ryan is willing to spell out his cost-cutting proposals. For Stewart, this shows that Ryan is a brave warrior against entitlement spending. But simply tackling entitlement spending doesn’t make you reasonable, centrist, or worth listening to; everyone who talks about the deficit talks about tackling entitlement spending. (Even Simon and I do, although our entitlement cuts are smaller than most other people’s.) It’s the actual proposal that matters. And Ryan’s proposal is only one step from the far-right fringe–that’s the step he walked back since last year. Last year he was going to convert Medicare into a voucher program where you could use your voucher toward insurance from a private company, but the value of the voucher was artificially capped so it would buy less and less health care over time. This year the only difference is that now you can buy insurance from a private company or from traditional Medicare. But in either case, the important points are: (a) the vouchers are designed to grow more slowly than the cost of health care, meaning a huge transfer of cost and risk from the government to individuals; and (b) reliance on the private market to reduce costs and improve outcomes (something it’s failed at dismally for the last forty years). Having a Medicare plan shouldn’t win you any points; it’s what’s in the plan that matters. At least for most of us. This inattention to actual policy is how Stewart can think that “within the Ryan budget proposal is the outline of a grand compromise not all that different from the one President Obama and the House majority leader, John Boehner, reportedly came close to reaching last summer: long-term deficit reduction through tax reform, higher tax revenue and spending cuts.” Well, yes, if you’re going to stick to the level of abstract generalities, I guess the Ryan budget is similar to the Obama-Boehner deal in that both included tax reform and spending cuts. In practice, though, the Obama-Boehner deal was nothing like the Ryan budget. We know the tax reform was completely different because Boehner was offering higher tax revenues that were not entirely due to supply-side fantasies. Ryan only achieves higher tax revenues by dictating that his plan will bring in 19 percent of GDP in tax revenue; nowhere does he say how we would actually achieve this while slashing tax rates. We also know the spending cuts were completely different, because Obama-Boehner did not convert Medicare to a voucher system (they did include spending cuts, but they kept the same benefit structure), while Ryan does. Finally, here’s one more way to think about the Ryan budget: This picture shows all government spending except for Medicare, Medicaid, CHIP, Social Security, and net interest. (The data are from Tables 1.1, 1.2, 3.1, and 8.5 of the OMB’s 2012 budget, historical tables.) It’s a close approximation for discretionary spending, and it’s what the CBO uses in its long-term projections . The Ryan Budget would reduce spending on everything except Social Security and health care to the lowest levels since before the Great Depression. Furthermore, those numbers include defense spending. Since Ryan’s budget proposes to protect military spending from the automatic cuts in the Budget Control Act, I think it’s fair to assume that he won’t want to cut defense spending to historical lows. Since World War II, defense spending has never fallen below 3.0 percent of GDP. Assuming that defense spending never falls below that level, you get this picture: This is a blatant assault on the entire federal government except for health care, Social Security, and defense. This is not a courageous, centrist starting point for a real deficit solution. * See XKCD . James Kwak is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You , available from April 3rd. This post is cross-posted from The Baseline Scenario . Read more from the Fiscal Affairs series here .

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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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Ron Ashkenas: Rejection Is Critical for Success

April 6, 2012

There are few experiences more painful than being rejected . We vividly remember the hurt of not being picked for a sports team, not being invited to a social event, or not being accepted to university. Our basic human need to belong causes these incidents to stick with us through the years. Even as adults, at various times in our careers we’re not selected for jobs , promotions, or projects; or even less significant benefits such as parking spaces, preferred offices, or new computer equipment. Whether it’s fair or not, the hard reality is that everyone cannot have everything. Accepting rejection however is not an easy process — for children or adults — and many of us handle it poorly. When this happens repeatedly, it often leads to two types of dysfunctional patterns in organizations: entitlement and resignation. Entitlement is when someone feels that he deserves certain benefits, no matter the reality of the situation. For example, I recently worked with a company that reduced costs by moving staff members into smaller offices and having them share meeting rooms, printers, and other services. A few people refused to accept the new standards, arguing their unique needs for privacy, space, and administrative support. They felt entitled to these benefits and considered anything less to be a rejection of their status and personal self-worth. At the other extreme is resignation , when people avoid situations where they might be rejected. In the example above, some people resigned themselves to the reduced space by not engaging in conversations about how the design of the office would work. By passively accepting the new constraints, they made sure that none of their ideas were rejected (because they didn’t offer any). This may have been psychologically comfortable, but the organization didn’t benefit from their contributions and their buy-in to the new facility was minimal. In light of these behaviors, leaders need to encourage a more conscious and healthy toleration of rejection. While all employees should feel comfortable offering ideas, raising issues, and making observations — they should do so with the knowledge that they may be rejected. If they get discouraged or angry about not having their ideas accepted, they might shut down and stop contributing. Similarly, if employees feel so self-important that the organization should never turn them down, their sense of entitlement will make it difficult to drive constructive change. It’s easier to talk about learning from rejection than to actually experience it. Rejection often triggers painful emotional doubts about our own competence and self-worth, so we either try to avoid it or pretend that it doesn’t matter. A more constructive approach is to remember that rejection can be beneficial: It can force us to come up with more ideas, redirect us to different paths, and keep us humble and open to learning. How has rejection helped or hindered your career? Author’s Note: The original draft of this post quoted the Rolling Stones song ” You Can’t Always Get What You Want ,” but my HBR editor deleted the reference because she thought it “would detract from the ideas.” It seems that even regular HBR bloggers get rejected from time to time. Cross-posted from Harvard Business Online .

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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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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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Dan Mulhern: What Steve Jobs Got Wrong — and How You Can Get It Right

April 5, 2012

Two things evoke anger in me in leadership theory and in leadership life. I despise lies (a topic for another day). And I will always resist the jerk-as-leader and those who apologize for him. By jerk, I mean the person whose ego is chronically inflated, who acts as if their opinion is worth more than others’, and perhaps most important, who overtly or covertly demeans other people. We’re all fallible and hurt others, sometimes even intentionally. But any account that says you can be a great leader and not accept responsibility and struggle with the tendency to be a jerk is simply wrong . If you justify the jerk — in your dad, boss, spouse, CEO, among your team, or worse, in yourself — I implore you to think again. Walter Isaacson’s acclaimed biography Steve Jobs has refueled the debate about jerks in management. Isaacson, in this month’s Harvard Business Review , comes to the defense of Jobs as “great man,” and rejects those who take his biography as grounds for concluding otherwise. In Isaacson’s alliterative explication: “His petulance and impatience were part and parcel of his perfectionism.” In his view, because Jobs had great products and accomplishments in mind there almost had to be collateral damage. He marshals two types of evidence to defend his claim. Apple’s extraordinary leadership — in a literal sense — revolutionized seven different industries. How can you not say he was an amazing leader? Second, the biographer challenged Jobs about his rough style and Jobs replied “Look at the results… These are all smart people I work with, and any of them could get a top job at another place if they were truly feeling brutalized. But they don’t.” The success of Apple is incontrovertible. It is utterly astounding. And, as Isaacson persuasively argues, it was Jobs’ personal passion for perfection that was at the core of that culture. Remove his personal drive and you lose not only remarkable product breakthroughs but the culture that relentlessly developed great products. Again, awesome. I would go further to say that perhaps the greatest reason people were so loyal to Apple/Jobs was the repeated feeling of winning, of delivering, of innovating. It was worth the suffering and public humiliation that Jobs doled out and openly admitted was his style. So, why not cut him slack, and just accept there are always downsides to results-focused leadership styles? Two reasons. First, high standards — even perfectionism — are not inconsistent with respecting people as people. You can care for people and therefore set a high bar, and you can lead by example demanding superlatives of yourself. You can and should reject poor work (but not workers); and at some point you can and should fire poor workers (yet not humiliate them as as people). Having loyal workers who are not “truly feeling brutalized” is hardly proof that it’s okay to be a jerk. The truth is we know people stay with abusers, but that doesn’t make the abusers’ behaviors justified. The notion that people sometimes need to get beat up or publicly embarrassed to really perform at their best is a wrong-headed idea made up by jerks. Finally, I would suggest that Jobs’ own philosophy must incline us towards more humane business leadership. If you would pursue perfection in products, then why not in how you deal with people? How does not “truly feeling brutalized” stack up on the perfection scale? Why are people exempt from the drive for elegance, simplicity, and perfection. Lastly, Isaacson credits Jobs’ experience sitting in Zen meditation with giving him extraordinary focus and discipline. Yet it seems elemental (in my reading and experience with meditation) that meditation generates presence of mind, such that if you experienced the urge to take someone’s head off, you could choose not to be enslaved to that “instinct” of perfectionism. With self-discipline you can still be honest, corrective, high-bar setting yet not fire hose the person whose efforts have inflamed you. Deal with your inner-jerk to lead with your best-self! Cross-posted at the Everyday Leadership blog .

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Jenny Kassan: JOBS Act: Crowd Funding Could Give a Boost to Small Business

April 5, 2012

Today the President will sign the Jumpstart Our Business Startups (JOBS) Act in to law, a complex and by no means perfect bill that contains at least one ‘no-brainer’ win for both businesses and investors: crowd funding. This bipartisan legislation fulfills the President’s call to reduce regulatory burdens that prevent many small and young businesses from raising capital — specifically by allowing crowd funding and expanding mini-public offerings. The legislation is remarkable, as it (rightly) reverses more than 90 years of restrictions on raising capital at the grass-roots level. How we got here is historic as well — it illustrates what power lies in everyday individuals. An impact that will now be felt around the country as small businesses and startups look to crowd funding and other non-traditional means of raising capital. The movement began in 2009, when author and economist Michael Shuman wrote an article for Community Development Investment Review , a publication of the San Francisco Federal Reserve Bank. In it, he wrote: “Existing laws place huge restrictions on the investment choices of small, ‘unaccredited’ investors — a category in SEC vernacular that includes all but the richest 2 percent of Americans. The regulations prohibit the average American from investing in any small business, unless the firm is willing to spend $50,000 to $100,000 on lawyers to prepare a private placement memorandum or public offering — thick documents with microscopic, ALL CAPS PRINT that no human being has ever been observed actually reading.” The good news is that local businesses could get a huge investment boost with some modest securities reforms that would cost little or nothing. That simple idea gained momentum in the summer of 2010, when the Sustainable Economies Law Center (SELC), a nonprofit based in Oakland, California, wrote a letter to the Securities and Exchange Commission (SEC) requesting an exemption for crowd funding. The SEC received approximately 150 letters of support for the proposal. SELC volunteers then talked to staff at the President’s Office of Technology about the idea and the President supported the idea of an exemption for small securities offerings, which he announced in his jobs speech in September 2011. Legislation creating an exemption for small “crowd funded” investments passed the U.S. House of Representatives in November by an overwhelming majority — almost a unanimous vote of approval. With the final law being signed today, it reverses laws restricting investments that date back to the 1930s. What impact will this have on Main Street? The opportunity for growth, new startups and entrepreneurs whose ideas never make it past the dinner table due to lack of funding is vast. The impact on local business is undoubtedly also going to produce more resilient communities and cities where investors can now invest their money to build real wealth in the communities they care about. The vast majority of the American public, the 99 percent of us who are “unaccredited” investors, will soon have the opportunity to keep their money local. The half of our economy made up of small, independent businesses will now have access to capital that previously could only go to giant public companies. Americans have $30 trillion dollars invested in securities — imagine if even 10 percent of that went from Wall Street to Main Street. What could $3 trillion dollars do in our communities? Of course there is the potential, and frankly the likelihood, for abuse and failure. Investors who don’t proceed cautiously can (and some will) lose money on failed investments. There will be a rush of companies offering portals that will potentially fleece customers by charging unnecessary fees. But while some will try to make a quick buck, the broader opportunity gives me cautious optimism. There are some mechanisms in place that protect consumers from losing everything (they cannot invest more than 10 percent of their net worth for example) and there will be opportunities for savvy networks of small businesses to connect and create their own portals thereby owning an even bigger piece of the investment market. Next month I’ll be leading a conversation around how to accelerate community capital for small entrepreneurs at the Business Alliance for Local Living Economies (BALLE) Conference in Grand Rapids, Michigan. The topic of crowd funding will no doubt dominate interest and hopes for many. While crowd funding alone isn’t a silver bullet, it does play an important role in revitalizing the entrepreneurial small busines ssector of the economy. Its simplicity and ingenuity is American capitalism in its finest form.

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