Tuesday, May 29, 2007

College Admissions Blues

The New York Times ran a decent article a couple of weeks ago about how hard it is to get into college these days. The hook was the crunch at the sub-Ivies, that is, at the safety schools of yesteryear that are now over the heads of a lot of good students who at one time may have felt entitled to Princeton or Yale. Lehigh now gets ten times as may applicants as it has spaces for. Its acceptance rate has dropped from 47% to 31% in just six years. "The admission rate at Pomona, in Claremont, Calif., was about 15 percent this spring; it was 38 percent 20 years ago. Bowdoin's rate was 18.5 percent this year and 32 percent eight years ago." This crunch is taking place all over the country.

What's going on? At least two things. The American middle-class is getting torn into pieces, with income rising steady and quickly only at the very top. There is a growing divergence between the fate of someone who goes to UT-Austin with the goal of a career in marketing and someone who goes to Duke with the goal of Harvard Business School and a major corporate career. Hence more students fight for Duke and Harvard, and more are at least trying to hang onto Lehigh and the University of Rochester. A good public BA isn't the gateway to a secure and prosperous middle class life in the way that it was at least for white folks a generation ago.

Secondly, the country hasn't been expanding the number of places in high-level universities. The elite private universities have had approximately the same sized first-year classes for decades, a period in which the country's population went from 200 million to 300 million people. Public universities did expand, but didn't expand at the top or in the middle as much as they stuffed lots of new college entrants into the bottom of the pyramid, especially the community college system. By the late 1990s, community colleges had 44% of all college enrollments. States did not spend enough after 1980 to make the new seats great seats at great schools. The "senior" public campuses - Michigan-Ann Arbor, Cal-Berkeley, Virginia-Charlottesville, etc. got much harder to get into. My school, the University of California system, was supposed to make all ten campuses as good as the original flagship campus, Berkeley. All the campuses were supposed to offer elite-quality education to state's masses of qualified students, meaning top quality for all. The newer campuses have succeeded to some extent, but never with enough money and by scrimping in all sorts of ways. Class size is massively larger at UC than it is at, say, Pomona College, and that's just one difference in the student experience. So more students are slotted lower in the quality ladder, and access to the top carries even more of a premium in an increasingly stratified society. Hence the rat race at the top.

The middle classes will not rise and expand as they have in the past until they start demanding a major reinvestment in higher ed. And they will have to do it for middle classes that are more diverse racially than at any time in US history. Middle classes of America, wake up!

PS. Universities are supposed to offer objective, unbuyable research. For a good look at how independent financial analysis is attacked by corporations, see Joe Nocera's good column a couple of weeks ago.

Monday, May 28, 2007

In Memorium

Memorial Day: in memory of the lost ones, the dead ones, the ones made dead for no reason, the ones made dead by the dumbness of the living, made dead by the dumbness of the living leaders, by the dumbness of the brain-dead ones who tolerate the leaders. In memory of the ones our dumbness kills and has killed all over the green earth. May we stop digging the green earth for the bodies of the ones our dumbness killed. May we stop killing them. May we stop being so dumb before so much more time passes, and we get to the next memorial day, and the many more acres of open graves that must be dug because we are so compulsively dumb.

Sunday, May 27, 2007

Dull but Important

Hilary Clinton offered a piece of a health care plan this week. The LA Times reporter didn't actually know enough to avoid saying a dumb thing - that Clinton is distrusted by the industry because she believes in big government. Actually, her 1993-94 fiasco of a health care plan was a giant circuitboard love letter to the managed care industry, offering them millions of tiny jacks to pull money out of every single wallet in the United States. So don't expect anything good from her now.

But she does say a few true things:
  • Premiums have almost doubled since 2000
  • the nation spends 16% of its gross domestic product on health care
  • 30% of the cost increase is related to the doubling of obesity among adults during the last two decades (crap I didn't know that one - we are in serious trouble)
  • and administrative costs are the highest in the world
Remember that last one. The most privatized health care system in the rich world has the highest administrative costs.

Health care needs a little public sector efficiency.

Wedge In Those Pay Gaps Everywhere!

Not content to grow inequality only between executives and employees, white- and blue-collar workers, and legal-financial elites and the ordinary middle-class, business leaders are driving a wedge between the CEO and numbers 2 and 3 in their own executive offices. Since there is nothing economically efficient about these incessant and widening gaps, they have to be explained through the pure self-interest of the very top people, coupled with a bizarre neo-capitalist culture in which creating inequality is a sign of one' s viritility and special destiny. See the article for the data and charts. See the image here for the symbolic meaning.

We are circling back to the beginning.

Monday, May 21, 2007

Dumbness about Immigration

This morning's New York Times has a front-page story about how worried business supposedly is that immigration reform will cause them labor shortages. Neo-classical economic theory says that the way to cure a shortage of something is to pay more for it. So why aren't the conventional econ-heads at the Times and in corporate America saying well we should pay more for farm labor and drywallers and dishwashers and then more people will want those jobs?

The simple answer is because our leaders put our economy on the low road 30 years ago - the low-wage road where it has come to depend on rock-bottom wages to keep prices down to keep the crap raises of most Americans flowing into the stores. Things still aren't cheap enough for our crap wages: the US has had a negative savings rate since 2005, meaning we're floating our trips to Wal-Mart with credit cards, just like the country as a whole.

We could also have a virtuous cycle - remember John Maynard Keynes and Henry Ford? We could pay more wages, giving people more money to spend, causing more demand, allowing manufacturers and growers to actually raise their prices when they needed to. Supposedly that's all now impossible in the global economy. But that in turn is because we assume it's impossible.

The LA Times had a small piece on a conference about the trouble undocumented students face when they try to continue their studies. This goes under the rubric "middle classes of the world unite" - help a foreign-born kid finish school.

We should do two things at once: 1) demand living wages in all industries, with real accounting to show that in a rich country this is indeed possible; 2) offer full public services to people who work steadily and/or grow up in the U.S. If we do (1), meaning more vulnerable econ levels will be less vulnerable, it will be easier to get the public to do (2). And much economic theory says that the value created by better-educated workers will more than pay for the cost of educating them.

Saturday, May 19, 2007

Average In Michigan

Look at the nice house. See the nice couple. Everything looks very normal. But normal isn't what it used to be.

The New York Times had a good piece on what it means to be normal in America these days, as opposed to being, say, married to one of the founders of LBO pioneers (sorry, we're supposed to say "private equity" firm) KKR and serving as the president of the Museum of Modern Art in Manhattan.

Average means
  • earning $66,000 a year with two incomes.
  • spending 1/7th of your income on interest on your consumer debt (up from 1/9th in 1980).
  • owing collectively $880 billion to credit card companies, up from $8 billion in 1968 (in today's dollars).
  • owing collectively $17.1 billion in 2006 — up from $12.8 billion in 2003,
  • saving less than zero since 2005.
Meanwhile, back in New York, Henry Kravis's firm spent $29 billion last month buying First Data, one of the country's largest credit-card processing companies. They offered 26.4% more than the market value of the firm. But what the hell - debt in Michigan is only going to grow. Kravis is worth at least $1.4 billion personally, and that's going to grow as well.

From the Democratic Party's left: Robert Reich on sharply increasing the income tax on incomes above a million a year; John R. MacArthur saying "tariff" isn't a dirty word.

Wednesday, May 16, 2007

Krugman Torn On Trade

Paul Krugman has become one of the few semi-egalitarian voices on economic affairs in the major media (his New York Times colleague Bob Herbert is another, along with various business journalists at that paper like the great Louis Uchitelle). But Krugman has long been a fairly orthodox free trader in the Robert Reich mold. He's worried about the social consequences of lost manufacturing jobs and global wage competition, and yet he abhors traditional government remedies. The latter always get called "protectionism," which all enlightened people naturally hate. If you support some kind of tariff or trade restriction, you must belong to a union.

Krugman's piece on Monday shows how completely Democrats have accepted Republican free trade policy even when it paralyzes their brains. There is a "dark side" to globalization, he writes, but we can't go back to "old-fashioned protectionism." NAFTA hasn't worked for Mexico, but we can't just get rid of it. After a bit of this handwringing, he flips it around a little. We do need "labor standards," but actually these don't work.

Floundering, he settles for a nice shot at the Bush Administration, which is his speciality:
The Bush administration, by the way, opposed labor standards, not because it wanted to keep imports cheap, but because it was afraid that America would end up being forced to improve its own labor policies. So the inclusion of these standards in the deal represents a real victory for workers.
That was fun. But what what do the Democrats do when they stop attacking Bush policy as the work of selfish, inefficient crooks? In Krugman's case - nothing. He winds up changing the subject. Let's move on from trade, he says: helping workers should start with universal healthcare.

True enough. But Democrats are going to have to cough up most of the Reaganite salt-water they've swallowed over the past 25 years before they will do anything of the kind. If they could talk themselves into managing market forces - i.e. HMOs - enough to provide universal healthcare, maybe they could figure out how to keep trade from sitting on average wages for the next 25 years just like it has done for the last.

Pound a Dem on the back and see what comes up.

Tuesday, May 15, 2007


How am I supposed to feel about Chrysler being sold by Daimler to a private equity firm named after the three-headed dog that guards the gates of hell and led by Dubya's former Treasury Secretary? A few thoughts:
  • Why can't American business make money in its flagship industry of the 20th century, automobiles? Chrysler first went broke in 1979, during the Carter Administration, and has been up and down my whole adult lifetime.
  • Does innovation have anything to do with profits? Chrysler has been more creative than the other Big 3 and it hasn't helped.
  • Daimler is getting $7.4 billion minus some costs for a car company it bought for $36 billion in 1998. Holy cow! How much money do you have to lose before you say "sorry, we're idiots! And not just us, but all those other executives, equity kings, and M&A lawyers who think just like us!"
  • Writing in today's Wall Street Journal, Gregory Zuckerman et al. have probably gotten at the real story - Cerberus the 3-headed dog wants Chrysler's auto loan business. America may not make anything anymore, but we are good at charging points.
  • Will the business press ever stop saying "synergies and efficiencies" about mergers and acquisitions and say "monopoly power" or at least "market dominance"? The euphemisms make everybody dumb.
  • Will the 3-headed dog chew Chrysler employee health benefits to the bone? Several reports say Daimler didn't want to hack the company's liabilities there. Can America afford health care for the non-rich?
  • Meanwhile, Bob Herbert reports in the NYT that half of all US workers have no paid sick leave, 80% of the bottom quarter by income have none, and 86% of food service workers have none. Herbert concludes that worklife for most US workers is stuck in the nineteenth century.
He's right. And so it goes.

Sunday, May 06, 2007

M. Sarkozy: Govern from the Left, or Fail

There are two pieces to the prosperity puzzle for any country in the contemporary world. The first is a flexible capacity for production, one that can adapt to changing conditions. The second is a social system that apportions resources correctly, both to minimize suffering and to keep the population secure, content, creative, and, of course, flexible.

The past 25 years has seen a never-ending focus on the first part of the puzzle and the eclipse of the second. Politicians in the United States, the United Kingdom, Germany, Spain, Chile, Poland, Ireland, and elsewhere have focused obsessively on deregulating businesses, cutting their taxes supposedly to free up investment capital, weakening labor protections, encouraging layoffs and other formers of worker recycling. This focus has been an enormous boon to the Right in each of these countries, which has collectively found in economic flexibility a recipe for short-term business gains and political success, since the policies that serve business self-interest also serve the Right's wealthy supporters.

The other half of the puzzle - proper social systems - has been allowed to decay. The quality of social services has mostly declined in the West, even as their cost has risen. Economic insecurity is on the rise everywhere, with the Right successfully making a virtue of the necessity that follows their political victories. For thirty-five years, the bottom 80-90% of the populations of these countries - the vast economic majority - has seen their living standards stagnate or decline. The fall of the Soviet Union, which should have discredited economic dictatorship and the police state, instead discredited socialism and, more generally, social democracy and the accompanying concepts of broad-based social development. The theory of social systems has been defensive and reactive - great work has been done on the concrete effects of welfare reform and dramatic increases in incarceration rates, but little of it points to a new vision of society.

France has been a partial exception to all this, but a weak one. For special historical reasons, it has done a better job than most of celebrating high-quality public services in areas like health care and public transit, and France's are among the best in the world. Its public secondary school system, battered by racial conflict and policy confusion, remains superb.

And yet even France has been unable to explain the causal connection between a strong society and a strong economy. A terrible misunderstanding - the idea that justice diminishes efficiency - has meant that even the left believes right-wing economics to be more efficient than its own. Sarkozy would occasionally concede that the French must be “protected,” but this didn't matter because he remained, from first to last, the candidate of economic vitality and competitive winners. Until the left can make the same kind of claim, founded both in better economics and better social justice, the Sarkozys of Western countries will almost always win. The excepts to this rule - Mitterrand, Clinton, and Blair - were so compromised by conceding the Right's vision of economics that their legacies will at best be dim.

The false yet pervasive axiom is that business gives life and public services drain it away. Sarkozy's victory in the recent presidential elections will have the ironic effect of showing its limitations. The reason is simple. France is not large or dominant enough economically for it to muscle its way through the inefficiencies of conservative economics as the US has done. American conservatives from Reagan on could indulge in their completely one-sided notion of development - all business, no society - only under special circumstances. The country was already wealthy, had a huge internal market, dominates the global economic system, and had military and financial power clout to win every bargain into which it enters. American financial and political leaders could conceal declining wages, benefits, and quality of life for the economic majority with massive foreign borrowing to fund domestic deficits, similar foreign subsidies to keep interest rates low, and cheap money policies that allowed rising stock and housing prices to create temporary wealth effects for the middle classes that, in the long haul, have done poorly. The Right was also helped by its incessant attacks on both people of color (as degenerate and lazy) and on blue-collar workers (as inflexible and obsolete), for these destroyed the political standing of much of the economic majority, leaving a clear field for conservatives.

None of these options are available to France. It is a medium-sized country with a second-tier economy that has no chance of competing with the US, China, or India through deregulation. No politically imaginable amount of flexibilization will make it like the US, to say nothing of countries where manufacturing workers earn 50 euros a month or less and have no health and safety protections. Nor can it imitate the U.S. immigrant labor strategy, whereby wage levels have been steadily reduced in important sectors such as hospitality, agriculture, and construction through the use of low-wage and often undocumented workers. France cannot even compete in status-quo quality industries - It lags well behind Germany in export revenues and general reputation - though that makes sense given its highly educated workforce and excellent technological capabilities. If Sarkozy lives by the neoliberal sword he will die by it - or more accurately, France will die, while his wealthy backers do as well as their counterparts in the US, England, Mexico, and Russia.

Sarkozy's only chance for success is to dump the Anglo-Saxon neoliberalism that he has ridden to victory. There are three critical strategies here. The first is to increase funding to the economically strategic public sectors that have lagged in France. This begins with education and research, and it includes languages and cultural disciplines as well as technological ones. This strategy will require a higher-quality version of the second piece of the puzzle - emphasizing public sector activities that add value in addition to maintaining those that sustain decent life.

A second key concerns the economic side. Now that he has won by hammering the inefficient state, Sarkozy will need to hammer the inefficient business world - its rigid hierarchies, its authoritarian executives, its culture of ritual and mistrust. If Nixon went to China, can Sarkozy go to the CAC-40 CEOs and say big business, reform thyself?

A third key is racial. The campaign was disgracefully silent on racism in France, on the warehousing of immigrants and their racialized French-born children, on their far worse public services, their limited life chances, the constant exclusion and hypervisibility, the general insult to republican ideals incarnated in their everyday experience. White French folks are likely to follow their American cousins in destroying the public services they associate with brown and black folks. IF French republicanism still matters today, it will matter by offering the first Western model of cross-racial negotiation and equal development. At the moment, this seems unlikely, and Sarkozy has gone out of his way to be part of the problem. If France fixes this, it will fix its society, and rebalance its society and economy. If France cannot include its own people of color, it will continue to deteriorate economically.

The French are among the most brilliant people on earth. Let's hope that they can help their new president be half as brilliant as they are.

Friday, May 04, 2007

Duelling Dumbness

The Wall Street Journal today has an example of an increasingly common kind of piece: middle-class people who wanted to ride real-estate to riches are getting caught in the housing downdraft and trying to bail out. Many of the buyers are suing developers to get out, some on grounds of trivial non-performance (a door to a common area that turns out not to be lockable), others on grounds that they, the honest middle-income folks, didn't make enough money to make the home purchase they did and should have been turned down. "You gave me what I asked you for, but you shouldn't have. Why did you? See you in court!" It's hard to know who to root for in this one, since all parties were working every angle to cash in big. One builder spokesperson summed up the other side by saying "These are not situations where a woman bought a unit and she's now a widow and can't pay," he said. "These are people who don't want to close because they can't flip and make $100,000."

The LA Times had a piece about child care that will no doubt disappear immediately. But it shows how state funding for child care would actually help the economy by freeing up parents to work longer, take better jobs, or something similar. I bring this up because every day the news has been showing the depressing shift in middle-class thinking from public services as their platform of life-and-work satisfaction and affluence to depending on price inflation in things they own. In the 1990s they looked to stocks, in the 2000s it has been real estate. Either way the middle-class now associates their own affluence with buying something cheap that they can then sell dear. They don't associate their well-being with social development or the general welfare.

The whole scheme works for a while but not for long. It works for some but not for all. Any chance we'll figure this out in time?