Mark Schmitt

The Economy Summed Up: Pay Any Price, Bear Any Burden, to Avoid Creating Jobs

[Note: updated slightly in response to good comments below.]

The political analyst Charlie Cook's weekly column, available by free e-mail subscription here is a real treasure, and even though he's a horserace analyst, it usually offers much more than just the horserace. There's a single paragraph in today's column that I think sums up what we need to know about the economy and jobs better than anything I've read:

In December, the CEO of a California-based high tech firm told me that "there is no amount of overtime that we will not pay, there is no level of temporary services that we will not use, there is no level of outsourcing or offshoring that we will not do, in order to prevent us from having to hire one new, permanent worker in the U.S." As I travel around the country, meeting with business leaders, I hear similar, though less succinct thoughts in almost every sector and every part of the country. U.S. wages, health care, and other benefit costs have gotten so high -- and the press by investors for high stock prices is so great -- that the premium is on wringing every last bit of work out of as few employees as possible, to do anything but incur the costs of adding permanent employees. [emphasis added]

There is a lot to this anecdotal paragraph. First, it puts outsourcing/offshoring in context. It is not a phenomenon to be studied and accepted or discouraged or encouraged in isolation, but part of a larger trend that include various techniques to avoid actually hiring people.

I know of plenty of companies, large and small, as well as foundations and nonprofits where the stock price is not an issue, that are currently obsessed with limiting the "headcount" in just this way. They might spend more on consultants, on training short-term staff, on overtime, or on technology, but as long as they keep the actual number of employees from increasing, everyone's happy, or, I should say, management and shareholders are happy. This is a new phenomenon, different from the management-tier downsizing of the early 1990s, and also different from a recession in which companies are trying to cut short-term costs. Our entire nation is in the grip of Headcount mania.

Second, it strengthens a point that was true in the prosperous period of the late dot-com boom as well as today: We have been consistently invited to give up security in exchange for short-term prosperity. More overtime, more consulting, and more domestic outsourcing mean that some people and their families are doing well -- often better than they would be doing on a salary, and often with the chance to start their own businesses, even if it is doing just the same thing they used to do as an employee. Other examples of the tradeoff: We are rapidly giving up defined-benefit pensions, which ensure a fixed income for life, in favor of defined-contribution plans, which involve individual stock market investments, with the potential for greater returns but more risk. In calling once again for private accounts in Social Security, Bush is asking to do the same with that portion of national savings. We are giving up savings that used to be held in passbook accounts and certificates of deposit, in favor of mutual funds and stocks. These tradeoffs are not all bad. For many people, especially when we have a certain amount of security in the form of skills, or financial support or a home, there is vastly more opportunity in this economy than in the economy of the 1970s. But the loss of security comes at a huge price.

This must be part of the case for government going forward. Government, under the liberal consensus of the New Deal through the 1970s, did not redistribute income. Rather, government's greatest achievement was to create SECURITY -- the kind of security that created the opportunity to join the middle class. Deposit insurance, pension insurance, COBRA (the provision that allows people to maintain health insurance after losing a job), unemployment insurance, etc. -- these were the great achievements of American liberalism. And they are either becoming irrelevant, or completely neglected in the current climate. In the recession of the early 1990s, for example, there was a huge bipartisan effort to ensure that Unemployment benefits were extended again and again, even though, under the budget rules at the time, every extension had to be paid for with cuts elsewhere in the budget. Even though there is no such budgetary constraint today, we have now allowed the average period of unemployment to reach a record, and yet allowed the extended federal program that provides benefits beyond 26 weeks to lapse months ago.

As a candidate, Kerry should begin to talk about the role that government can play in providing the security that people need to navigate the rough waters of the economy. It is a role that Bush completely overlooks, or opposes, but that even liberals rarely talk about.

Third, the Cook paragraph shows that we must do something about the costs that prevent American businesses from hiring. Wages, at the low end, are not too high -- they're too low. (This resistance to hiring must not be used as an excuse to put off raising the minimum wage from its scandalous level of $5.15/hour, since the problem is not with low-wage workers but with workers whose skills allow them to demand higher wages.) The part of the problem that we can solve, must solve, is health care. In addition to the many injustices, inequalities and hassles in our health care system (to the extent that it can be called a system), there is the fact that it is a huge disincentive to job creation. Health care costs can represent up to a quarter of a low-wage worker's compensation, but most of all, they are totally unpredictable and going up rapidly. It means that every time a good (i.e., health-insurance-providing) company hires a permanent employee in the U.S., they take on a totally unpredictable burden, the cost of health insurance.

There is no reason that risk should be the burden of some employers, while other employers evade health care costs entirely. This is why I find the idea of a system in which health insurance is attached to the individual rather than the job so appealing. It not only ensures near-universal coverage, it gives business predictability in their health care costs and requires all businesses to contribute, rather than letting some employers take advantage of others. The New America Foundation has the most detailed approach here, in a readable and persausive paper.

Finally, we should think about how we can change the culture of the corporation so that they feel less pressure from investors on the stock price. I don't expect politicians to make the argument that corporations should feel some responsibility to someone other than their owners, even though the limited-liability corporation is a creation of the government, and in fact another way of providing security so that people can take risks, and therefore the public has a right to ask for certain behavior in return. But even short of that horribly radical idea, companies should feel some flexibility to take a long-term approach, one that might depress the stock price in the short term but lead to a more profitable and vibrant company in the long term. I won't say more about this, because I know very little about it, but it does seem to be part of the story of the economy.

Vice Presidents

Over on Calpundit, Kevin Drum did a nice job of demonstrating that runners-up for the presidential nomination are rarely chosen as running mates, with Reagan's choice of Bush in 2000 and JFK's choice of LBJ in 1960 being the recent exceptions. There may be a lot of reasons for that (or, like the study about Senators' stock market returns, it may be an irrelevant statistical nothing), but one thing to note is that it is very unusual for someone to come out of the nomination fight looking good, but not winning. Usually "losers" look like "losers" in the first light after the election. In 1988, for example, the failed candidates: Gore, Gephardt, Biden, among others, each looked deeply flawed immediately after losing to Dukakis. That was a misperception, of course, because all three later reemerged as more than credible candidates. Edwards is highly unusual in that he comes out of the nomination fight looking just great, like the future of the party. The perception is that he only lost because he didn't have quite enough experience and the election schedule was too compressed -- nothing that reflects badly on his skills or ability to perform under pressure.

I'm not necessarily advocating that Edwards should be the running mate, just pointing out how unusual it is to have someone in his position, with the national recognition of having run in the primaries but also an unblemished image. There are other factors that might weigh in favor of another candidate, such as more experience, a key state or constituency, or the desire to have a governor matched with a Senator, although the list of current and former Democratic governors is shorter than it used to be.

If Kerry decides to use his choice of a running mate to bid for a key state, let me reiterate a point I made long ago: Senator Bob Graham not only is not the best running mate for Kerry, he isn't even the best choice among Democratic Senators from Florida. Senator Bill Nelson is MUCH BETTER: He's younger than Graham, about the same age as Kerry but with 30 years of experience, including six years of notable accomplishments as the state's insurance commissioner around the time of Hurricane Andrew. He's less quirky than Graham, whose positions on the Iraq war and on terrorism are serious but really complicated and whose endless diaries of his daily life strike anyone, even bloggers, as a little odd. According to the Almanac of American Politics, Nelson is reputed to be straight-laced and religious, but also "easygoing and folksy," which helped him defeat the uptight Rep. Bill McCollum in the 2000 Senate race and should pair well with Kerry. He's a Vietnam-era veteran, and flew in the space shuttle Columbia. He's a solid moderate-liberal who has not tried to cut to the right on either economic or social issues. I haven't seen him much, but I first noticed him speaking very powerfully against the Medicare prescription drug bill last November. He's also from the swing area of the swing state, Central Florida, and represented in Congress the generally Republican area known as the Space Coast. The only downside to Nelson, as far as I can see, is that unlike Graham, Bill Richardson, Janet Napolitano, Tom Vilsack or others being mentioned, he is not and has never been a governor. (He ran for governor, but lost in a primary to the saintly Lawton Chiles in 1994, the one setback in his career.) And he doesn't bring any "firsts" to the ticket. (Although Bush-Cheney/Kerry-Nelson would be a first in one respect: an all-Yale field. Although Cheney dropped out, before realizing later that continuing education did have some advantages, such as a draft deferment.)

So Edwards is perhaps my first choice, I love Governor Napolitano (more on that later), but I think Nelson might be my very strong second choice. Unless I'm missing something, he could deliver the state and the election.

Didn't You Used to Be Famous Or Something?

Walking down K Street on a beautiful Washington morning, two men walking toward me -- one looks familiar. My first thought: that's Rep. Norm Dicks of Washington (aka, the congressman from Boeing). No, it's not Dicks, oh, it's Al Gore's former aide and telecomm lobbyist Roy Neel, now better known as Howard Dean's last campaign manager. Oh, and that man with him, oh, gee, isn't that Howard Dean?

Of course it's K Street, and no one reacts to a politician and lobbyist walking together on K Street. But still, it was amazing to see these two guys strolling almost unnoticed, to realize that as recently as New Year's Day, one of them was considered very likely to be the Democratic nominee, and that now they were getting the same look that you might give Peter Frampton if you passed him on the street.

And yes, I'm a geek for being able to recognize Roy Neel. Or Norm Dicks, for that matter, even if I got it wrong.

All in all, a vivid reminder of just how much can happen in politics in a few months. And eight months to go before the general election.

The Poverty of David Brooks

David Brooks' shtick since coming to the New York Times got old fast, but now it's disgraceful. As a Weekly Standard writer, he at least showed some imagination and a range of interests, but on the op-ed page
-- which for many people is the one and only opinionated/analytical thing they regularly read -- he has fallen back on hackwork that wouldn't cut it on National Review Online.

All the hallmarks of Brooks' style were in play yesterday, particularly the appearance of condescending respect for liberals in order to twist the skewer a little more discreetly. But it's the substance that is most
disturbing:

[Senator John] Edwards deserves some praise because he is the only major candidate who talks consistently about the poor. The problem is that he talks about poverty in an obsolete way, which suggests he has learned nothing from the past 40 years.

Edwards talks about poverty in economic terms. He vows to bring jobs back to poor areas and restrict trade to protect industries. He suggests that if we could take money from the rich and special interests, there'd
be more for the underprivileged.

This kind of talk is descended from Marxist theory, which holds that we live in the thrall of economic conditions. What the poor primarily need is more money, the theory goes.

From "deserves some praise" to "pinko" in just three twisted sentences -- that's good. The problem is, there's nothing "Marxist" about the idea that poor people need more money. Hello? What is it they need more? Prayer cards? Abstinence education? The only way a poor family becomes not-poor is with money.

The question is how best to increase the income, assets and prospects of poor families, without fostering the sort of dependence that we all understand that traditional welfare -- no-strings attached income transfers -- can create. What is the combination of education, hard and soft skills training, tax and other incentives to "make work pay," minimum wage increases, union organizing rights, child care, localized economic policies to create jobs, macro-economic policies to create jobs, health care, and safety net programs to ease transitions that will most effectively reduce the hardship of the poor and near-poor?

After the quick pivot, Brooks unveils his next move, which is to use liberals or moderates to support radically conservative points. He cites Isabel Sawhill of the Brookings insitution for the point that "we could double the amount we spend on welfare programs, and we would not make an important dent in poverty." That's true, but for the simple economic reason that welfare benefits are not and have never been sufficient to lift an eligible family above the poverty line, in any state, and they have always been so minimal that, even doubled, they would not cross above the poverty line. Sawhill's point was made in the very "economic terms" that Brooks derides as "obsolete." Welfare was not a failed anti-poverty program. It's not an anti-poverty program at all.

Really, it's Brooks who's talking about poverty in obsolete ways, and I don't mean just that that seems descended from such 19th century theorists as the Darwinian Herbert Spencer and Samuel Smiles, the English reformer and author of "Self-Help." More to the point, Brooks is writing as if Bill Clinton and welfare reform had never happened. He writes as if the shift to linking most benefits to work had never happened. I was a little unfair to Clinton in a previous post on Edwards, and given the chance to correct the record, I'd like to point out that one of Clinton's lasting achievements was to take the issue of welfare and the behavior of the poor off the table, enabling someone like Edwards to talk about poverty without apology, which wasn't possible in 1992.

Liberals like Clinton (though not all liberals) didn't have to be dragged to the recognition that welfare was an insufficient anti-poverty strategy. They understood it. They wanted to add strong supports for work, child care, real training requirements, and even time limits. (In the 1992 campaign, Harvard social scientist David Ellwood convinced Clinton that, by investing $10 billion a year in other supports, one could have a five-year time limit on welfare that no one would ever actually reach.) What Republicans or "conservatives" added to the mix was the idea of making welfare a block grant to states, rather than making it variable with economic conditions (which would have been a disaster if the economy had not done well, but as it turned out, it meant that states had extra money); the rejection of education as a legitimate use of a welfare recipient's time; and extraneous crap such as "abstinence-only education."

Thanks to welfare reform, we are now well beyond the equation of poverty with welfare. Welfare rolls are down by more than half, but the poverty rate is not. And the hardship and economic insecurity of the near-poor -- whether those who have left welfare and are now precariously living in the low-end job market, or those who were never on welfare -- is the next issue. In fact, I don't think that Edwards was talking about poverty so much in the literal, below-the-poverty-line sense as in a general sense that families making less than $25,000 or so, without health insurance, with few transferable skills and a precarious job, are in worse shape than ever.

Brooks pretends to acknowledge this, when, in another of his more generous sentences, he says that "while conservatives were right about the basic nature of poverty [that is, that it's not about money, apparently], liberals are right when they point out that simply getting people off welfare and into the world of work is not enough... we're going to need support programs to complete the successes of the 1990s."

And then Brooks's third tactic: the glib "no one is talking about this." This is the laziest columnists' gambit. Sometimes it's true, of course. But more often, it relies on the reader just nodding along and assuming it's true. And of course it's not true. Edwards wasn't advocating a negative income tax, or some raw transfer of income from the wealthy to the poor. He was calling, in some detail, for exactly the "support programs" that Brooks calls for, for exactly the mix of education, health care, child care, macro policies, job-creation incentives, organizing rights and other things that I talked about above. One might disagree on some of them -- I disagree on trade, for example -- but to say "nobody's talking about" the supports needed to help people escape poverty is inane.

Chapter 12: In Which I Am Actually Asked for My Opinion...

A question from a reader:

-------- Original Message --------
Subject: Brooklyn Heights is getting blitzed today.
Date: Sun, 29 Feb 2004 06:28:00 EST
From: XXXXXX
To: [email protected]

We have to decide Kerry or Edwards. Do you have an opinion you wish to esxpress?
S____
Brooklyn Heights

__________________________

Interestingly, my own neighborhood, Cobble Hill, just south of Brooklyn Heights, has NOT been getting blitzed. In fact, I have to remind myself to go vote tomorrow. We have received not one phone call, not one robo-call, not one piece of mail, not one canvasser. We have not seen one poster or one TV ad for any of the Democratic primary candidates. And yet we are on every list imaginable. We used to get robo-called by Howard Dean almost daily, despite what I thought was my very public criticism. Very strange.

Anyway, I don't think I've been shy about expressing my opinion, which is basically great respect for Senator Edwards. I liked the way he talked about tax policy from the very beginning of his campaign (i.e., talking about how favoring investment income over work income is "the most radical idea since socialism") and the way he has talked about poverty in the later stages of his campaign. And I'm extremely impressed at his ability to not flinch at the rise of Dean, unlike General Clark, who let his whole campaign be a reaction to Dean, instead of justified on its own terms. Edwards has shown a lot of discipline.

So I will vote for Edwards, probably just as a way of acknowledging his language, his positive campaign, his future, and perhaps the idea that he should be Kerry's running mate. But I won't shed a tear if/when Kerry wins. He's done a remarkably good job since taking command of his campaign last fall, almost entirely without mistakes. And I don't put too much weight on any distinction between Edwards and Kerry on the elusive quality of "electability." Yes, Edwards might have an easier time in Southern Ohio, Northern Florida, West Virginia, and some other key areas of potential swing states. (He would not win North Carolina and that's not the point.) But Kerry has a little more experience with big-time national-level politics -- he was a major target in 1996 -- he's a superb debater, and I feel a little more confidence that he can deal with $100 million worth of crap without crumbling. I've also begun to think about who can actually govern the country after the election, because if the new president faces an instant backlash, as Clinton did in 1994, it will be almost as disastrous as if Bush wins. That's going to be a major topic of this weblog in the next few weeks. I have a little more confidence in Kerry's ability to do some of the things that a Democrat will need to do in order to govern successfully, but again, it's a guess.

So my opinion winds up reading like a New York Times editorial, with lovely things to say about both candidates, and an endorsement so mild that it probably has no impact. But that's fine. We are fortunate to have two candidates with the right values, comparable but very different political skills, and very good chances to win in in November, whether they run together or not.