Why the Success of Strangers Matters

Last week I attended NPR's Planet Money's presentation at Laxson Auditorium. If you haven't listened to any of their podcasts, I recommend that you do so. They explain complicated issues in very understandable ways.

Their presentation was themed, "Why we're so screwed." They basically covered the problems with the US economy, the causes of US debt, and other things related to the two. It was all very interesting, but one thing in particular jumped out at me: the benefits of preschool.

One of the points they made was the difficulty of job re-training. A study conducted by economists at the University of Chicago showed that there were no discernible benefits for unemployed adults that underwent job training; in some cases the participants actually did more poorly than members of the control group that didn't undergo the training. They (Planet Money folks) compared this finding with another study that looked into the benefits of preschool. In that study, children that went to preschool scored higher in every metric when compared to children that didn't attend preschool. So the children that attended preschool had a decreased likelihood of being arrested, had more income, better health, obtained higher levels of education, etc.

The reason that preschool education seems to yield such positive outcomes has to do with 'soft skills.' Things like conflict resolution, using words to communicate effectively, and being friendly with others are all examples of soft skills. People without these skills have a harder time as they grow up; and unfortunately, these skills are difficult to learn as an adult.

The researchers that conducted the preschool study estimated that for every dollar spent on granting a child the opportunity to attend some sort of preschool program, that society experiences something on the order of a 800:1 benefit. That is to say, for every dollar we invest in sending a child to preschool, we would see 800 dollars paid back in various ways. Fewer people would wind up in prison, saving costs, and more people would achieve higher levels of education leading to higher incomes for more people. There are other costs that are saved, but those are probably the most notable.

There are criticisms of this study and its implications. Not every preschool is going to be equal, and the benefits gained would therefore not be as dramatic as this study may suggest. But even if the study is exaggerating the financial benefit several times over, it's clear that some benefit would be had by having every child attend some sort of preschool program; maybe not 800:1, but a 500:1 or 200:1 is still an insane payback ratio.

This is one of the things that I think is often overlooked in discussions regarding 'human investment.' By that I mean programs that are designed to essentially invest in people, so that may include a preschool program, or assistance in education, or some sort of drug rehabilitation program. These programs most tangibly benefit the people that employ them, but they also benefit our society as a whole. If a drug addict is able to kick the habit thanks to some sort of drug rehab program, all the costs associated with policing that person, the costs associated with the drug trafficking employed to supply that person with the drugs, and all the other various costs paid by society, are done away with.

That concept seems to often times be absent from discussions surrounding these types of programs. While there is a price to be paid for helping people, there is also a cost for not helping those people. If someone I don't know is able to get an education thanks to a government program or government assistance, I am, and society in general is better off because of it. That person is far less likely to be engaged in illegal activity and is more likely to be an asset to their community and society.

Spoiler: Healthier People Need Less Health Care

Posting has been slow, as I have been sick. Now that I'm all better I hope to begin posting again regularly! So...

I read an article on Wonkblog a little over a week ago and have wanted to share it. The article focuses on a strategy that the Cleveland Clinic and its efforts to tackle health care costs for its employees.

Basically what the clinic did was force its employees to become healthy. They forbid smoking on the campus they're located on. If you violate this twice, you're fired. They stopped carrying sugary drinks, forcing anyone who wanted one to bring it from home. They raised premium prices, but with a catch. If you are attending a healthy-living class, a gym or something like that, then you were refunded the increase.

All of this has led to a decrease in the clinic's spending on health care for its employees, and all because employees have gotten healthier, not because access or quality of care were cut. With the biggest driver of America's debt being fueled by exploding health care costs, this offers an interesting potential solution national health care prices.

I don't ever see anything as extreme being enacted for programs like Medicaid, the VA or Medicare (remember Death Panels? and that was only about the creation of an advisory board focused on procedures that yield poor results), but I wouldn't be surprised if more private firms move to incentivize their employees to be healthier.

This may, however, create the situation wherein employers discriminate against unhealthy candidates (obese, chronically ill, etc.). Anyways, interesting case study that I thought was worth sharing!

Is the Occupy movement out of touch?

Doug Schoen, a former Clinton pollster, has come out with a Op-Ed warning the Obama administration that supporting OWS wouldn't be in his electoral favor because the movement "reflects values that are dangerously out of touch with the broad mass of the American people." Schoen argues this because the protesters have a "deep commitment to left-wing policies: opposition to free-market capitalism and support for radical redistribution of wealth, intense regulation of the private sector, and protectionist policies to keep American jobs from going overseas."

I certainly don't see anything wrong with any of that, but I could imagine it making some voters uncomfortable. That falls apart quickly enough when you see the polling that lead Schoen to characterize the occupation this way.

"Sixty-five percent say that government has a moral responsibility to guarantee all citizens access to affordable health care, a college education, and a secure retirement—no matter the cost. By a large margin (77%-22%), they support raising taxes on the wealthiest Americans, but 58% oppose raising taxes for everybody, with only 36% in favor. And by a close margin, protesters are divided on whether the bank bailouts were necessary (49%) or unnecessary (51%)."

Its easy to see why the political establishment can't understand OWS if those are what a former Democratic pollster thinks are radical views. Social Security and Medicare are popular programs across political lines, and that statistic on raising taxes on the rich is only marginally different from the results in a Gallup poll on the topic last month, where 70% of people polled favored increasing taxes on corportations and 66% supported increasing income taxes on individuals making more than $200,000 and families making more than $250,000.

Getting President Obama reelected isn't my area of interest, and i'd be unlikely to take him very seriously regardless of how he tried to embrace OWS, should his administration decide to. However, this kind of article isn't really directed at decision makers in Washington. It's goal is to marginalize the Occupy movement and further frame American political discourse in a way that makes liberals appear radical, conservatives appear moderate, and people like you and me not appear at all.

There's a more thorough take-down of the Schoen Op-Ed by Steve Kornacki available on Salon.com.

The Source of Corporate Power

Browsing my usual blogs this weekend, I came across an interesting post by Jared Berstein, former economic adviser to VP Biden. The post discusses the job market and the impact that large and small businesses have in that market. Having no particular insight or experience in this field, I had assumed that a large percentage of people worked in small businesses. My assumption for this is generally from media coverage surrounding this topic, and the political discourse that generally surrounds it; all the talk of hurting small business and small business owners.

What Bernstein points out, however, is that while the majority of businesses are small--employing between 1 and 100 people--nearly two-thirds of employees are employed by large businesses. So, despite constituting roughly 80% of all businesses, firms that employ between 1 and 100 people only pay out only 30% of total payroll. That means that 20% of businesses account for approximately ~70% of payroll paid out.

I thought that this was an interesting statistic; it isn't necessarily counter intuitive, but it is a little surprising given the political weight given to the "small business." I decided to look at in employment in Chico, just to see if we matched this trend. I couldn't find a breakdown like the one Bernstein supplied specifically for Chico, but I did find one for Butte County. As you can see, we don't exactly match the national trend exactly, but we do follow it loosely. If I was able to find the data for employers that have between 100 and 500 employees, I think the data would look more similar to Bernstein's graph; unfortunately I could only find data for less than 500 employees, and more than 500 employees. Still I think the graph helps to make the point.

Even though small businesses far exceed the number of large businesses, not only in total number of businesses but also in payroll and total employment, the ratio for each is significantly less than that of larger businesses. In other words, each small business has "less bang for its buck." Small businesses comprise 88% of the total number of businesses, but account for only 61% of payroll and 57% of employment. I mean, that's common sense; large businesses employ more people per business and therefore pay more out.

What inspired me to write about this is, as has been the case with several of my previous posts, the Occupy Wall Street movement, among other things. One of the largest gripes of protesters is the excess power of corporations. I agree largely with that take on things. But I think it is important to keep in mind that these large businesses (and true, not all of them are the corporations being protested against) employ a lot of people. What I think is important to fight for, and what is largely being fought for, is the transformation of corporations. To want to eliminate them outright is unrealistic. What is realistic is to want to change their structure, make sure employees are treated well, and that they can easily unionize if they desire. Additionally, I think it's important that, even though large corporations employ a lot of people, their political power should be reigned in (some corporations do not exercise excessive power, however). What other specific transformations corporations should go under, I don't know exactly (with the exception of what I listed). Matt Taibbi, writer for Rolling Stone magazine, has a list of potential goals for the occupy movement that are generally related to excessively powerful corporations here.

Another inspiration for this post came from the political clout that small businesses seem to have. I understand that there a lot of them, but there aren't a huge number of people necessarily associated with them; that is to say they don't employee the majority of people and don't pay the majority of total payroll. I find that interesting. I suppose some of it could just be political rhetoric or political posturing. Taking the side of the "small guy" usually looks good. Whatever it is, small businesses seem to hold a special place in American's hearts, regardless of how much they actually comprise our job market.

How The Lion King Explains Occupy Wall Street

I've touched on some issues I think have inspired the Occupy Wall Street movement, most notably student loan debt and a severe lack of job opportunities.I think that covers at least a certain section of the Occupy movement. More broadly, however, I think there is within the movement a sense of powerlessness; that government has grown to be unresponsive to the majority of Americans. Martin Gilens, a political scientist at Princeton, did a study on this subject. He went through over 2,000 survey answers, given from 1980-2000, and concluded that policy changes happen with the majority of wealthy Americans favor it; it didn't matter how many poor or middle-income Americans favored a particular policy, government didn't enact policy unless there was a majority of upper income Americans in favor of it. This dynamic reminded me of a scene from the film The Lion King.

Simba had just run away after his father, Mufasa, died. After collapsing from exhaustion, a group of buzzards swarm around Simba's unconscious body. Cut to the awkward duo of Timon and Pumbaa charging in to partake in some Buzzard Bowling. After bowling the buzzards away, the duo discovers the unconscious Simba. The following dialogue ensues:

Timon: Geez! It's a lion! Run, Pumbaa! Move it!
Pumbaa: Hey, Timon, it's just a *little* lion. Look at him. He's so cute and all alone! Can we keep him?
Timon: Pumbaa, are you nuts? We're talking about a lion; Lions eat guys like us!
Pumbaa: But he's so little.
Timon: He's gonna get bigger.
Pumbaa: Maybe he'll be on our side.
Timon: A - huh! That's the stupidest thing I ever heard. Maybe he'll b-... Hey, I got it! What if he's on our side? You know, having a lion around might not be such a bad idea.

Now imagine that Pumbaa is poor or middle-class. He gave his opinion, they should keep Simba for protection. Timon, imagine he's both the upper class of American society as well as the governing institution, disregards the idea, even calls it stupid; call that the governing institution side of Timon. Upon further consideration, "upper-class Timon" comes to the same conclusion; Simba would be a nice bodyguard. Because "upper class Timon" thinks that keeping Simba around is a good idea, they keep him around. Pumbaa's opinion did not matter, it was entirely Timon's decision.

This is not a healthy dynamic. Gilens does not, unfortunately, get into pinpointing the exact reasons for this, but he does lay out some possibilities. There's the obvious one: richer people give more to politicians. He concludes by saying that he hopes that his next project looks into the mechanisms by which the wealthy actually influence policy.

I suspect it's only a matter of time before Pumbaa joins the ranks of the Occupy Wall Street Movement. Down with Timon!

The (Understandably High) Price of Fair Trade

The Chico Peace and Justice Center is having its annual dinner on Wednesday, October 19 at the Chico Masonic Center located at 1110 W. East Ave; be sure to grab your tickets soon. The dinner starts at 5pm. You should go! Okay, plug over. I mention this for two reasons: one is obvious, this is a blog run by volunteers at the CPJC! The second is because many, if not all (my memory fails me) of the items at this dinner will be fair trade goods.

Fair trade, for the unfamiliar, is a trade system that aims to have fair wages, participatory workplaces, environmental sustainability, public accountability, educate consumers, and respect for cultural identity. If you've ever purchased fair trade goods, you've probably notice that most of them are more expensive than their non-fair trade counterparts; things like tea, coffee, clothes. This isn't always the case, but it tends to be. This is caused by several factors, some of which I'd like to discuss.

One reason has to do with something I learned last semester at Chico State called full cost pricing. Basically what this means is that the price of a good should include more than just labor and resource cost. The cost should factor in things like social and environmental cost. At a normal fast food restaurant you pay $.99 for a cheeseburger which covers the cost of the ingredients, labor, transportation, and other production costs. Absent from this price are costs associated with the environmental and social impacts. With these costs, that $.99 cheeseburger now costs more, but is now produced is a sustainable way. The employees are able to earn a living wage, work in safe conditions, and the environment is managed in a way that can be sustained.

Current attempts to enact something resembling this revolve around putting a price on CO2 emissions. The most noteworthy idea that has been considered is the "Cap and Trade" legislation which passed the house a few years ago, but never stood a chance in the Senate, and therefore never became law. The idea behind this legislation was that it put a price on environmental impact, which would have led to more sustainable production of goods. Unfortunately, it wasn't passed, and even it had been written into law, it wouldn't have done anything to alleviate social impacts.

What we get to experience now is what is referred to in economics as a negative externality. An negative externality is this: Say my factory makes a widget and I sell that widget to someone in Country X. That's great for me, and great for Country X. We've both taken part in a beneficial transaction. Unfortunately, my factory dumps millions of gallons of pollution into a nearby river that runs behind your house. Because of this, you can't swim in that river, nearby vegetation dies, and you develop some sort of illness. Those are the externalities. You were in no way a part of this transaction, you never consented to any of our dealings, but you get to deal with the consequences of it. This is an important concept when discussing why fair trade might be more expensive: many of these externalities are either factored into the cost of the good (dumping millions of gallons of waste into rivers is not an environmentally friendly / sustainable practice, at least I cannot imagine a way in which it would be, but I think this example illustrates what an exteranility is very clearly) or are avoided entirely through more sustainable, and likely more costly practices.

This post is getting long, so I'll just end it with this: Sustainability is an important issue. How we achieve sustainability is just as important. My hope is that if you are thinking about how to reach that goal, that this post--the idea that a potential model to employee is that of Fair Trade and full cost pricing--will help to guide some of your thinking. If not, oh well!

End the Fed! Wait, why?

As I passed through the Occupy Chico crowd today, I noticed several signs conveying the same basic message: End the Fed. Of all of the messages I've seen and heard surrounding the Occupy Chico and Occupy Wall Street crowd, I've found this one to be the most perplexing.

Criticisms of the Fed are understandable, and given our current situation, very justified; but to want to end the Fed outright doesn't make much sense. Think Progress blogger, Matthew Yglesias, had a reader write into him with similar thoughts, wondering why people wanted to end the Fed, and requesting a "must read" list for anyone that wants to understand the importance of the Fed and monetary policy. I figured I'd piggyback on Yglesias' recommendations, and share them with you. A piece written by Yglesias, outlining the importance of the Fed, among other things. A piece by Paul Krugman outlining, in a very easy to understand way, what monetary policy is and how it works. Here's a piece, by Dean Baker, for those who shutter at the idea of a weaker dollar created by the actions of the Fed.

Anyways, I hope this helps to influence some people's thinking in regards to the Fed.