TOWARD A REALITY ECONOMY : MINIMUM WAGE HIKE — AND MORE

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^ new regulations governing big bank trading almost in place : Treasury Secretary Jacob Lew announcing

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Twice, since Here and Sphere’s inception last May, we have editorialized in favor of raising the legal minimum wage. To those editorials I refer you, if you’re interested : you’ll find them in our Archives section. Today, however, I want to expand upon the economic realities and policy choices that command our support for raising the minimum wage substantially. I understand that economic talk can be boringly statistical. But would you prefer exciting talk that was false or a fantasy ? After all, we’re talkiing the family’s income here; so I hope that you and I can be real for a while ? “Yes,” you tell me ? Good. Now for some facts :

1.Many political economists recently have written about the rapid increase of income inequality in America. Money is flowing ever faster to the top 1 % of earners and away from the bottom FIFTY (50) percent. Today the top 1 % of earners take in ten times greater a pecentage of America’s entire national income than it did fifty years ago. If current increase rates continue, the top 1 % of earners will soon control more income than the bottom SIXTY percent.

2.Incomes for the bottom 60 % of earners has barely grown at all in the past 30 years. That of the top 1 % has increased almost 100-fold. (Former Clinton economic adviser Robert Reich recently opined on this point. His column is well worth reading.)

The trend I have outlined has serious implications not just for the bottom 60 percent of earners bit for the entire economy. People whose incomes aren’t growing much at all can’t grow the economy without taking on more and more debt. The advent of credit cards in the late 1970s began a splurge of plastic money that eventually grew the spending economy by a full 20 percent of GDP. That splurge was the only reason that most Americans were able to grow their spending and thus grow the economy. But that splurge ended abruptly in 2008, and total credit card debt has fallen in almost every month since. Because credit card spending constituted 20 % of America’s 2008 GDP, a fall of merely 10 % in total credit card debt shaved a full 2 % off total GDP. Little wonder that since 2009 our economy has grown a slow 2.7 %; and little wonder that with consumer spending — which totals 2/3 of the ENTIRE economy — not growing at all, job growth has been slower than needed.

So the questions are ; ( 1 ) how are we going to get most family incomes growing again ? ( 2 ) how are we going to grow the economy fast enough so that businesses need to hire more people ? and ( 3 ) how can we assure that these new hires will benefit the economy rather than impede it ?

To these questions the Republican party, ever since the Bush ’43 years at least, has had one answer only : lower taxes for everyone. For most of us, so that we can spend more; for the top 1 %, because they are businesses owners, and the more money that business owners have, the more jobs they will create.

The first part of the GOP policy — lower taxes for most of us — did not work beause the added money in most of our pockets was far outstripped by the rush of income to the top 1 %, by price increases, and by credit card debt payments. The second part of the GOP policy was false to begin with. Businesses do NOT create more jobs because their owners have more money. They increase jobs because there is increased consumer demand for their products and services. If businesses see more money come in, while demand for their offerings barely grows, they put that money in the bank. They don’t invest it in new plant or research. They park it.

Today this huge accumulation of “parked money” — economists estimate it at FOUR TRILLION dollars (!) — overhsngs our economy like a mountain of tumors. And there it will stay, until the factor that totals TWO THIRDS of our entire economy — consumer spending — picks up significantly.

Parked money robs the economy in two ways. First, it does not spend and so generates no hires. second, it attracts money and financiers to its management : and reecently that has meant using parked money to speculate in trading markets, in search of arbitrage, the most useless of economic events. “Arbitrage” is simply the differences in the value of money in one place, or one time — or both — rather than another resulting from inefficiencies in communication. At the time of the Napoleonic wars — 200 years ago — when the Rothschilds first realized that profits could be made in arbitrage by acquiring information more rapidly than their trading rivals, arbitrage forced the world’s money markets to work together : out of which our present, world-wide economy has developed. Today, however, the inefficiencies that profit an arbitrageur are slight, and the huge amounts of money chasing them a damaging diversion from uses of money far better for the people who live in this arbitraged economy.

What is needed now are ( 1 ) to flow money back into the paychecks of consumers and ( 2 ) to tax the advantages of arbitrage so that investment of money now parked becomes more profitable than arbitraging it.

It really is that simple. We do the ( 1 ) by increasing the minimum wage so that full workers don’ need public assistance to make ends meet and can even earn enough to participate in the discretionary spending economy ; by banning so-called “payday loans” and other loan schemes that prey on the survival conditions in which many of us live; and by assuring workers paid sick leave and single-payer health insurance, so that most of us don’t have to stress over life situations that deflect our work vigor and enthusiasm. If we then do ( 2 ) , we make it clear to those with large money that it benefits them to invest it, not park it, and to hire — and pay decently — knowing that everyone who is hired can then become an effective consumer of what invested money produces.

The more of us who are able to consume effectively, the stronger the economy. One reason why this is so is that someone who earns 50 times as much as another doesn’t spend 50 times more money. He or she spends maybe 30 times more. The rest of the money is saved, either out of prudence or because after one has bought one’s luxury stuff there isn’t anything else to buy. For most of us, however, almost every dollar available needs be spent, on necessities and on things useful to a normal life, such as a smarter suit of clothes (so that one looks successful, which is often needed in the businesses world) or a newer car (which won;t need repair down time any time soon)>

The above is, more or less, the economic policy of today’s Democratic Party. Apologists for the GOP policy sometimes call Democratic economic policy “socialism.” It is nothing of the kind. It is simply smart commercial regulation, an application of capitalism to the real deal rather than to what isn’t real at all. Which is why we prefer it.

Not to mention that paying full time workers a decent and useable wage is the right thing to do.

—- Michael Freedberg / Here and Sphere

ANNALS OF THE ECONOMY : MY FRIEND WALTER MICHALIK ASKED ME A QUESTION …

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^ Walt Michalik of Roslindale : a question that went right to the heart of economic matters

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Last night, at Hyde Park Main Streets’s tribute to City Councillor Rob Consalvo — retiring after 12 years service — I ran into an old friend, Walt Michalik, who lives in Roslindale and supported me the one time that I put aside political work for others to become a candidate myself. That was 1986. I had known Walt, and, very early on, as I visited “people of influence” in my “Rozzie” neighborhood seeking support, before I actually made a decision to run, I knocked on his door. (He was, in fact, my first such visit.) Walt was a Democratic activist. He knew that I was a Republican. So he asked me : “what is your opinion of the prevailing wage law ?”

For those who don’t know, the Prevailing Wage law, also known as the Pacheco Law, requires that on all State-funded contracts, the contractor pay his workers, whether they are union members or not, the same hourly amount that prevails in union-labor contracts. It wasn’t a law that I had thought much about and wasn’t something that I had planned to base my candidacy upon. So I didn’t answer Walter right away. But I knew a lot of ironworkers well, and I knew that they spent their big paychecks and thus brought a lot of prosperity to a lot of businesses. So an answer came to me :

“You know what, Walter ? I don’t see how taking money out of the pockets of workers helps the economy.”

Walter shook my hand, a handshake of solidarity.

Well, that was then. A generation has passed; and the answer that I came up with that afternoon opened the door for me to understanding how a democratic economy works — and should work ; it begins with the customer.

1.The less customers a business has, the less it prospers.

2.The less that a person earns (or receives by way of public assistance if that he needs), the less of a customer he can be.

3.An economic policy that impedes worthwhile money from accruing to most people defeats itself.  This axiom is one big reason why I support the welcoming immigration policy that until the past 90 years or so was America’s boon. Every immigrant is a potential customer and this grows the economy. This same axiom is why I support Massachusetts’s impending minimum wage hike. The more that workers earn, the more they can spend.

Quite frankly, the above is my ENTIRE economic policy. All else is commentary and implementation.

One hears the political Right talk about businesses being “job creators.” But businesses CANNOT create ANY jobs unless there are customers for its products or services. The more customers, the more jobs. Angel investors for start-up businesses want to know, first of all, who and how large will be the “market” — i.e., the customers — for that start-up’s offerings. No “angel investor” I have ever presented to requires the business plan to pay workers so little that they need public assistance to make ends met. Just the opposite ; angel investors want the start-up’s workers paid enough that they will stay, not leave, and thus (1) see the venture through to success and (2) avoid the huge costs, in money and time, of hiring and training replacements. I also know no “angel” investor who doesn’t want a start-up’s workers to not have paid sick time. Angel investors know that life is hard enough; a start-up shouldn’t make things harder for its workers than they already are.

Just who, then, does the political right speak for as it pursues “job creator” corporate tax breaks and opposes both workers’ wage hikes and the social safety net ? It doesn’t speak for workers, obviously, and it doesn’t speak for venture capitalists or the management of smart businesses. So who then ?

Speculators figure prominently among those who push this destructive agenda. Stock market funds often push publicly owned companies to cut back everything and anything in search of maximum immediate buy and sell gains. For the sake of purely paper windfalls these money poolers would trouble every other interest in our society. Unhappily, these money pools have drawn to them more and more money that, instead of investing in economic innovation, which bears vast risk and takes long time to accrue, seek sharp-fingered quickie hits; arbitrage — the most economically useless item in the entire money picture.

Even the money-lender has his place in an economy. Yes, he seeks interest on his money and does no work to earn it other than to have it to lend. But the money lender knows that if the borrower doesn’t prosper, he won’t get paid back. Yes, the lender may, if not paid back, claim the borrower’s assets as security; but no money lender wants those assets; he wants his interest and he wants his principal repaid.

For the stock trader, however — the arbitrageur — it;s just the opposoite,. He DOEs wnat that asset. He buys it at current value and dumps it at whatever higher value he can squeeze out of it by whatever means and as soon as possible, even if it means destroying the business and laying off its workers. This is what Bain Capital did, famously, during Mitt Romney’s partnership there and was a major reason why his candidacy for senator in 1994 earned the enmity of a majority of voters.

Not all stock buyers and hedge funders pursue a strategy of profit by desruction. Many investors buy in or the long term — and the huge success of a long term investment, wisely chosen, says all that needs be said : look at Warren Buffett, who has become a multi- billionaire by buying and holding, forever it seems, well chosen businesses whose management he supports and whose growth — in the classic economic manner I have outlined — he encourages. But for every dollar invested with the Warren Buffett sort of investor, 1000 dollars are invested these days with swift destroyers.

It is difficult to conceive legislation that will curb the economics of profit through destruction, that will not also limit the free movement of capital to positive purposes. But we are not helpless as a society to limit the impact of arbitrage money. We can impose a strong societal disapproval upon those who would profit by hurting all who stand in profit’s way. We can continue to angel-fund innovation businesses and support their entrepreneurs — and approve them socially too, social approval being one of a society’s strongest ways of policing good works and bads. At the same time, we can make it quite clear that he who would take money out of the pockets of workers lies beyond the pale of approval.

You don’t have to be a Wal-mart. You can be a Costco. It is an outrage that we allow low-wage employers to leave their staff no choice but to need taxpayer dollars in order to make ends meet. It’s also a no-growth policy, maybe even a recession policy. It is stupid. And immoral.

So how do we fight this stupidity ? Simple. It really does start with the question that Walt Michalik asked of me on a February afternoon 27 years ago.

—- Michael Freedberg / Here and Sphere

 

BOSTON MAYOR RACE : A TALE OF TWO CITIES

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^ John and Meg Connolly — and an array of Boston Public School parents — at last night’s Elks hall rally

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The candidates for Mayor of Boston talk all the time about bringing the city together or about everybody, in whatever neighborhood, wanting the same thing. This is true. Yet campaigns are about differences. Campaigns don’t alleviate those differences, they emphasize them. Thus the differences magnified in the campaigns of this election’s two perceived leaders, Marty Walsh and John Connolly.

At his “Mondays With Marty” events — “community conversations” in the argot of today — Marty Walsh has drawn hundreds of listeners to his message of “best practices” education, improving the Downtown Boston economy, fighting the “heroin epidemic,” and setting up an office of diversity in City Hall so that the City’s departments “reflect what Boston looks like.” Walsh speaks passionately at these Mondays, if a bit quickly, and with a sincerity that touches everyone who hears him. Yet from East Boston to Dudley square in Roxbury and West Roxbury to Charlestown, Walsh’s Mondays seem to draw mostly people age 35 to 50 — the peak working years — who speak of, or look like, harried lives. He’s every bit the union workers’ candidate that he has been labeled as, and though he draws all kinds of work-age people, not only union workers by any means, the tones of voice of those who address questions to him is often gravelly, even anxious, the voices of people who work with their hands or whose work is always hands-on, and as hurried as is Walsh’s speaking.

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^ urgency : a full house at Marty Walsh’s Haley house “Monday” conversation (Council candidate Jack Kelly center top)

Walsh’s Mondays are front-line work. There’s an air of “now” in them. As much as Walsh speaks of future directions, his “Mondays” listeners want to know what is going to happen on Tuesday morning. The passion in Walsh’s listeners is palpable. You can feel it rumble. That passion arises from the urgency. Tuesday morning is just one night’s worry away. No candidate’s supporters show more angst than Walsh’s.

Is the urgency of Walsh’s supporters a bad thing ? Not at all. But it’s why his plan to sell City hall and begin the revitalization of Government Center as a “24/7 economic usage zone” moves them. His plan is for now, for immediate, doable action. Same with Walsh’s call that, “at my first meeting after I am elected will address the heroin epidemic.” Walsh knows that his voters can’t wait for improvements that may take a long while to bring about, or that may not happen at all. The difficulties that Walsh’s people want addressed will happen first thing Tuesday morning : traffic on Charlestown Neck, folks being priced out of their homes, how’s my son going to get a technology job, the lack of people of color in the higher-up Police department. And even if the last issue in this list seems like a task for another day, it isn’t. It’s something that Walsh’s supporters of color live with every day. (And Walsh does have many, many people of color supporting him and working in his campaign. He is seen as the candidate of burly white guys — and his stand-outs reinforce that perception — but he is much, much more than that.)

Walsh’s most recent “Monday,” at Haley House near Dudley square, drew an overflow crowd, standing room only and then some. Almost all were people of color. It was an event built on urgency and then some; on rescue.

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Marty Walsh : politics as rescue — for the folks at Haley House

Walsh spoke quickly. “Unemployment in Dudley is ten percent.,” he began. “This neighborhood lacks home ownership — a high percentage are renters. This neighborhood lacks education. We must make Madison Park High School work…as it hasn’t. Bring back ‘voke tech’ programs; they’re not here today.

“we are not preparing our kids for jobs,” he sprinted. “We have to do better… As mayor we’re going to strengthen our schools…turnaround schools..additional resources for ‘level 3’ schools. we need new school buildings !”

Walsh then jumped right into laying out his plan to sell City Hall and revitalize the Plaza area. And from there to “build work-force housing. Charge the buyer just the cost of construction, sell the buyer the land for one dollar. we have to do better…”

He spoke like a man being chased by demons, by wolves, of all sorts, every kind of clamoring need. “Violent kids ? We can lock them up all day, but it’s not working. We need to give kids a pathway to a job. More opportunities than just construction.”

The event was supposed to last only an hour,. It lasted two. Many questions were asked. Urgent ones. Walsh had sepcific answers to all of them. He has an agenda, and he knows every component of it and all are urgent. No wastage at all, no frills, no waiting.photo (81)

^ The questions and requests don’t stop : Marty Walsh “Monday”-ing in East Boston

And that is what his people are like too.

How different a city John Connolly lives in ! Last night we attended his “GOTV” — get out the vote — rally at the Elks Hall in West Roxbury. The room was almost as full as Walsh’s Haley House “Monday’ despite being much bigger.

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Like Walsh’s supporters, Connolly’s come in all colors — a city once torn by racism seems largely to have moved past that burden, at least among the politically attuned. Immediately evident, however, was that Connolly’s ralliers were of all ages and, so it seemed, of diverse life and economic status. Many men wore suits and ties : they might have come directly from a Back Bay Association meeting. Most looked like shopping mall folkss, but some looked recognizably  like politics junkies. I saw veterans of Kevin White’s and even Ray Flynn’s City hall following ; old Arthur Lewis and Bob Cawley people too (both were State Senators decades ago in Connolly’s home area of Roslindale.) I spoke to retired teachers, young students, mothers with babies and pregnant mothers-to-be. Connolly’s parents looked on — Lynda the retired Chief Judge of Massachusetts District Courts, Mike a former Massachusetts Secretary of State (but, as Connolly said, “to me they’re my parents who made me what I am today”). I’ve known Mike and Lynda for over forty years, and, I suspect, so had many in the room.

The people sounded confident, acted it. Tough s Connolly said, “the next six days you have to work harder than ever,” no one seemed harried. People stood and waited relaxedly for Connolly to arrive — he had attended an earlier, Transportation Issues Forum at Boston Public Library downtown — and when he did arrive, though everyone cheered, it was a relaxed cheer. Excited, but not impatient. Patience is a Connolly virtue.

Connolly has two campaign chairmen : State Rep Ed Coppinger and a radio announcer from 101.3. Coppinger is white, the radio guy Black. Both gave their introduction speeches after which spoke one of several Boston Public school parents on stage — a slender woman with nine children, she proudly announced — and then spoke Connolly’s wife Meg, who is pursuing a doctoral degree in Mental Health. She orated off written remarks. It all seemed very carefully planned, like a televised Victory night. Planning is a Connolly virtue.

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Planning : Meg Connolly introduces her husband John

And then the man himself spoke. “I am energized to meet people in every corner of this City,” he said. “We all want the same thing. we all care and want to have a bright future together.”

Connolly praised Mayor Menino, the man he had moved, back in February, to challenge : “We are a better city for his time in office and the sacrifices he has made.” I think we’ve all heard something like that being said about someone we are showing the door to. But i digress…

And then, finally, Connolly spoke with passion : “we are more and more a city of the very rich and the very poor. The task for the next mayor is to break that equity gap.

“It starts with a great job,” Connolly explained. “A great job makes that difference for a family. And then there’s housing. We have great plans for affordable housing and for expensive condos but we have no plan for middle level housing. We don’t have a pathway from renter to owner. I want a real pathway. A priority from day one.”

The gathered campaigners clapped. They appreciated Connolly’s remarks, agree with them. Appreciation is a Connolly virtue.

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^  “ready one day one” is the theme : John Connolly speaks

Connolly now rose to a higher plane : “Jobs and housing matter because they are directly connected to a safe neighborhood. The neighbors who live in the three neighborhoods where 80 percent of the crime occurs bear the burden of crime. They are OUR neighbors ! (Pause.) We have some children who will hear bullets as a regular part of their childhood. And children who will not.”

It was eloquent, it was true — too true, every word. the room was silent, because everyone present knew that it is sad as well.

The speech was peaking now. “I want a City hall with someone who comes up to you with an i-pad and says, ‘how can i help ?” I want to take everything that I have learned from all of you and give every child a quality education. That is the best way to bond this city together. WE NEED BETTER SCHOOLS !”

If in reading my report you are thinking, “Connolly sounds like Martin Luther King orating ‘I have a dream,'” you grasp my thoughts exactly. Connolly is running a campaign of dreams. Passionate ones, yes, and all good. Political dreams, however, take time to get to, time to accomplish. Connolly’s supporters feel that time is on their side; that they can make use of it and proceed upon it. Nor are they wrong. Because after the Tuesday morning that challenges Walsh’s people like a road hazard challenges a driver, there is Wednesday, and a week, month, year, decade. As for Boston people, so for the City itself.

And so Connolly’s campaign addresses time extended —  seeks, and has garnered, votes from Boston people who live in extended time, a time for setting forth a dream and moving — patiently — toward it.

—- Michael Freedberg / Here and Sphere