Is Marriage Only for the Rich?

09 April 2015 | By ken in Society | 3 Comments

The End of the Working Class

It is common knowledge that professionals are more likely to marry and less likely to divorce than less educated workers.

But according to sociologist Andrew Cherlin, the picture has become more complicated as real wages decline. For several decades now, both members of a couple, whether or not they are professionals, have needed to work to make ends meet. Pooling two incomes provided the necessary solid financial foundation. But, he adds, what works for professionals increasingly does not work for the working class. As Cherlin noted, “we have seen declines in marriage among high school graduates who are stuck in the middle of the labor market.”

“In the past few decades, as factory work has moved overseas or become automated, the jobs that sustain these families have dried up for men. At the same time, changing economic and cultural currents have also strengthened the position of women. The combination of these economic and cultural shifts have led to “the fall of the working-class family,” Cherlin said.

“What’s happening is that high school-educated women don’t see good marriage prospects in the future and so they are using their economic independence to start their own families. So, yes, women’s independence is part of this story, but this [alone] doesn’t necessarily lead to lower rates of marriage. It only does so when the possibility of finding a good marriage partner isn’t encouraging.”

Another part of the story is about “individualism.” In the old days that meant working hard, striking out on one’s own, succeeding in your career. “Today,” according to Cherlin, “it often means striving for personal growth, individual development, a happier sense of self. That change occurred among the middle class a few decades ago. It’s now occurring among the working class. We’re now seeing young working-class men and women talk about their lives in the same kind of therapeutic personal-satisfaction sense that the middle class has been showing for decades.” And that expectation is growing among the working class, “even though their economic lives are highly unstable and unsatisfactory.”

In an interview in The Guardian, he sees this as part of the “slow disintegration of the American working class over the past few decades.”

He believes “more than half the young adult working population” are now struggling for a level of economic security and personal fulfillment they are unlikely to achieve. Without a college degree, “their prospects in the labor market have declined substantially and their family lives have changed too.”

So, yes, women’s independence is part of this story, but this [alone] doesn’t necessarily lead to lower rates of marriage. It only does so when the possibility of finding a good marriage partner isn’t encouraging.

If this is not discouraging enough, he added some pessimistic reflections on the future of work in general, echoing what many others have been saying. “On some days I wonder if we just no longer have enough work for everyone to do.”

We have to wonder about the long-term effects. Unemployment is bad enough, but adding crushed hopes and chronic lack of fulfillment is a recipe for social malaise and high levels of emotional conflict.


20 March 2015 | By ken in Society | No Comments Yet

Freedom of Choice

We think of pizza by the slice, sometimes a whole pie, so we haven’t noticed how big an industry it has become. But Big Pizza is as big as virtually anything else in our economy – and as political.

A new Bloomberg report notes that while some parts of the food industry have responded to pressure from government agencies and food activists to offer healthier options, the pizza sector has chosen instead to fight back.

Reporting on this in The New York Times, Paul Krugman noted what has become by now a familiar story: “The pizza lobby portrays itself as the defender of personal choice and personal responsibility. It’s up to the consumer, so the argument goes, to decide what he or she wants to eat, and we don’t need a nanny state telling us what to do.”

Yet as more Americans become obese, it has become a public health issue, one that we all end up paying for. Moreover like most things in our country, it has become a focus of partisan politics. Krugman notes that “heavier states tend to vote Republican.” They are well represented in what “the Centers for Disease Control and Prevention call the “diabetes belt” of counties, mostly in the South, that suffer most from that particular health problem. Not coincidentally, officials from that region have led the pushback against efforts to make school lunches healthier.”

To be sure, kids, being kids, often don’t like their spinach, and they will go hungry until they pass a Pizza Hut on the way home. But that’s just the point of departure for what has become a war, as “major pizza companies have become intensely, aggressively partisan. Pizza Hut gives a remarkable 99 percent of its money to Republicans.” Krugman concludes: “over all, the politics of pizza these days resemble those of, say, coal or tobacco.”

In their book, Nudge, published a few years back, Richard Thaler and Cass Sunstein proposed an approach to such problems they called “libertarian paternalism.” That is, they suggest, “choice architects” can subtly influence personal choices. One of the examples they offer is the organization of food in school cafeterias. How it is displayed and where it is placed can induce students to pick healthier meals – or cookies, chips and fries. Nothing is forced, but choice architects help us steer a middle course between authoritarian control and random exposure to temptation.

The Pizza Industry works the other side, using advertising and promotions to influence us in the direction of pepperoni, extra cheese, calories and fat because that is where the profits are. In both cases our unconscious is at work, as we end up making choices without really thinking about them.

To be sure, we are not going to choose something we don’t like. Spinach will probably never prevail, at least among kids. But the more we think about anything the more options we end up having, and this is just where those who want to promote health, especially among children, might concentrate their attention. In addition to drugs, we could work on developing options that will help “choice architects” steer kids towards health.

It has to work below the radar. If people feel they are being controlled they will rebel, and the food industries whose profits are at risk will help them fight back. In an environment unfriendly to health, consciousness helps us choose wisely. But typically we let our minds follow the path of least resistance.

Negative Interest

05 March 2015 | By ken in Society | No Comments Yet

A Glimpse Through the Looking Glass

This is odd: “about $3 trillion of assets in Europe and Japan … now have negative interest rates.” That means depositors have to pay banks to hold their money. Sounds like Alice in Wonderland.

Why would anyone agree to that? Why not just keep your money in the cookie jar or under a mattress? But Nouriel Roubini, the economist, called “Dr. Doom” for predicting the 2008 crash and subsequent depression, had some good answers to that question in his commentary on Project Syndicate. For one thing, those of us who maintain balances in our checking accounts without interest are doing virtually the same thing, when you factor in the depreciating effect of inflation. We may be losing a bit of money, but it’s safe in the bank, and it’s accessible. If we live in economies threatened with significant deflation, it makes even more sense. On the other hand, if you keep it at home, it could get lost or stolen or by eaten by mice.

The more interesting question is why would banks would want to offer negative interest? There are real limits to profitability as the rates are usually nominal, and I can’t imagine them relishing a competition with each other to pay out more.

Governments like it, however, especially in a time when economies are stagnant. It encourages people to spend. If there is a cost to parking your money in a bank, you’re more likely to buy that new car instead or take the vacation you’ve been putting off.

But at a time when there are powerful arguments to break up banks that are “too big to fail,” it is also a way to keep them under control and demonstrate their usefulness. Negative interest will not flood them with cash, encouraging them to speculate. Investors will be less inclined to expect them to generate outsized profits. And that together with regulations requiring them to hold on to more of their assets to cover potential losses (a topic I covered in my last post), it does a lot to restore banks to their traditional role of protecting against speculation and volatility.

That’s not being said, of course, as bankers have gotten used to using our money to make more money for themselves, no longer being content with their traditional, conservative role. They are not actually arguing for negative interest – or, even, offering it to their customers, at least in this country. It’s just not profitable enough.

But it would make our financial system more secure. It also sends a message that money isn’t just an opportunity to make more money, and that bankers can be more than just “a lot of mouths with expensive tastes,” as Warren Buffet characterized them a few days ago.”

Negative interest will not have a major impact on our financial system. Roubini reminds us that solving our economic problems would require far more significant efforts: “central banks and fiscal authorities need to pursue policies to jump-start growth and induce positive inflation.” That would require “fiscal stimulus, especially public investment in productive infrastructure projects, which yield higher returns than the bonds used to finance them.”

But it might get us all thinking.

Banking Reform Comes Through the Back Door

23 February 2015 | By ken in Society | No Comments Yet

“A Humbling Transformation”

After many high profile failures to reform banking, thwarted by the power of the banking lobby, including efforts to break up banks “too big to fail,” it now seems that a simple and obvious rule has made a significant difference. The Federal Reserve ruled that they simply had to keep more cash on hand to cover potential losses.

For many years, including those leading up to the credit bubble and the 2008 crash, banks ingeniously tried to increase the leverage of their assets. They took liabilities such as mortgage debt and repackaged them as bonds, simultaneously removing them from the negative side of their balance sheets and creating new products to sell, in effect, adding new assets.

Assisted by the ratings agencies that did not fully grasp the slight of hand involved and gave the bonds “Triple A” ratings, those bonds proved wildly popular with investors. That is, until the collapse of the housing industry exposed the fact that the bonds were not actually assets, but based on debt, bad debt. Subsequently, the Fed ruled that the banks had to keep more cash on hand, real cash, not speculative cash.

The banks’ efforts to thwart this new rule were ineffective because the logic behind it was so obvious. Clearly, banks had to remain solvent to protect those who entrusted their money to them, and they had failed at that, forcing the government to bail them out. Then the role of the mortgage-backed securities in our economic collapse was obvious when tens of thousands of home-owners defaulted on mortgages that the banks and mortgage companies who sold them knew they had little chance of paying off. The bonds then proved virtually worthless.

This common sense step has led to what The New York Times has called “a humbling transformation” in the banking industry. The banks had gotten used to huge profits as a result of their freedom to speculate.

This new rule, obvious in the light of what happened, has led to what
the New York Times has called “a humbling transformation”
in the banking industry. Now with their hands tied, unable to
speculate as freely as before, “Bonuses are shrinking. Revenue growth
has stalled. Entire business lines are being cut.”

As Timothy Geithner, the former Treasury secretary, put it: “We have substantially reduced the amount of risk they can take.” Less risk, less profit – but less risk to us all.

There is something relieving to see common sense, once again, at work in the financial industry. We have gotten used to thinking only Nobel laureates could understand it, which has had the effect of making us all vulnerable to fraud. Perhaps there can be an influx of common sense in other ways as well: cutting taxes reduces revenue, does not increase it; eliminating estate taxes does not benefit the poor, who have no estates; moving our businesses off shore only benefits shareholders, not job holders, while forcing government to raise revenue elsewhere.

The Times quoted a bank analyst: “You are hard-wiring a change into the banking industry. . . . When we look back 10 years from now, we are going to say the biggest impact was from capital rules.”

Corporate Succession

16 February 2015 | By ken in Society | No Comments Yet

Getting It Right

Disney’s CEO, Robert Iger, is getting a lot of credit in the press for designating his eventual successor, even though the succession will not occur for 3 more years. That may be because his own ride to the top was so bumpy.

As James Stewart put it in the Business Section of The Times: “Mr. Iger’s predecessor, Michael Eisner, elevated and discarded some prominent candidates to succeed him — Jeffrey Katzenberg and Michael Ovitz, in particular — in a multiyear drama that eventually led to a shareholder revolt and Mr. Eisner’s ouster.” Eisner made a mess of it, and Iger may well have wanted to avoid that spectacle.

There are a lot of reasons for the process to be troubled, starting with the fact that the person leaving the top job can be ambivalent about giving up the powerful role. He may not want to leave, even if the must. Or more narcissistically, he may not want to be succeeded by someone who will be seen as better than he was.

David Larcker, a professor at the Stanford Graduate School of Business noted that “the track record for handpicked successors who follow highly successful chief executives isn’t encouraging. In a recent research paper, he found that the share price of companies run by chief executives who were selected by their predecessor tends to underperform the Standard & Poor’s 500, sometimes by large percentages.” (That’s how corporate boards assess success.)

The reason, he suggests, is what he calls the “Mini-Me syndrome,” the tendency of CEOs to prefer people like themselves. (Not as capable of being successful, like them, I suppose he means, but similar in a way that blinds their judgment.)

In this case, Thomas Staggs, Iger’s chosen successor sounds as if he could not be improved upon. According to The Times, Staggs “is very artist-friendly. He’s a musician. He’s warm and friendly, and he’s got a gorgeous family.” He “is also popular on Wall Street and was repeatedly named by Institutional Investor magazine as the entertainment industry’s top chief financial officer.”

What concerns me here is that is seems almost too perfect for the part.
The really important question, though, is he good enough for the job?
Absent in this account of succession is any attempt to characterize the
problems he will face or to assess the special qualities or strengths he
would need to bring to solving those problems.

Maybe because Disney is in the entertainment business, they think
primarily of casting the role, but the account in The Times lists a
multitude of issues he will face.

One man who worked closely with Staggs mused: “The problem, if there is one, is how big can Disney get? How do they keep the growth rate?” As The Times noted: earnings showed “a 19 percent increase over the previous year. . . . Last week, the stock hit a record high of $102, and it is up more than 30 percent over last year. . . . But the studio entertainment division’s 33 percent gain and the closely related consumer products earnings increase of 46 percent were even more impressive because of Disney’s remarkable series of hit feature films.”

Stock analysts and investors expect continuous growth, and that’s how Staggs will be measured.