How Inflation Matters

This past week Matt Yglesias over at Slate published a piece on “what the left gets wrong about the economy”. Basically, Yglesias says a society wide doubling of wages will invariably double prices, erasing the nominal gain and any increase in the standard of living. Raising real wages requires making things cheaper, and that happens when Schumpeter’s (originally Marx’s, but whatever) magical “creative destruction” is allowed to take place. The Internet may have destroyed print journalism, but the benefits of having the Internet – more online content, quick access to information, 4chan, etc. – outweigh the costs. By extension, we will all be made better when a similar “wave of technological change that’s transformed the media” starts “transforming the health care, education sectors, and transportation sectors.”

This mode of thinking gained a lot of traction after Daron Acemoglu and James Robinson published their widely popular book “Why Nations Fail”. In a nutshell, nations fail because entrenched elites find it in their interest to prevent the diffusion of new technology on the grounds that it challenges their power. Economists in the more classical tradition call this phenomenon dynamic inefficiency.

I’m inclined to agree with the idea that an economy operates best for all when it encourages innovation and technological diffusion. However, as I have pointed out before, how the rewards of new technologies are distributed deserves a ton of attention, lest we become a society where owners of technology (capitalists) reap all the gains while the masses stagnate.

I’m personally more interested in Yglesias first scenario, where everyone’s income doubles. Yglesia argues that while Slate doubling his salary would be met with an ear-to-ear grin, if everyone’s income doubles, then nobody’s real income changes. Gross Domestic Product (GDP, aggregate income) increases by 100%, but so does inflation, erasing any gains. The implications of this point are monumental for a society trained to fear inflation. Here, we have 100% inflation, with no serious damage done to the economy. The same number of goods are produced for the same number of people with the same purchasing power. The only difference being each good now costs twice as much in nominal terms. That’s okay though, because you now have twice as much income.

Inflation – like a lot of other economic issues – is at its core a distributional issue. For example, creditors hate inflation because their contractual agreements with debtors usually aren’t indexed to inflation. Inflation thereby transfers wealth from creditors to debtors. More generally, dollars are a unit of measure for the goods our society produces. Changing the number of dollars that represent those goods either increases or decreases the purchasing power one dollar has, but it doesn’t necessarily change how much we can produce/buy. Conversely, if the Fed targets a 5% inflation rate – which would be awesome – and distributes the newly printed dollars to the wealthiest 2% of earners – which would NOT be awesome – then that 2% of wealthy households will find themselves benefiting in terms of purchasing power even after prices rise 5%. Of course, they benefit at the expense of the 98% of the society who now experience a 5% decline in real income.

This may come as a surprise, but we don’t have to give the newly printed dollars to just wealthy people. We could as easily only give them to people at the bottom of the income range. For those people, inflation would increase their respective real incomes and standard of living. People with large incomes would lose, finding their unchanged number of dollars buying fewer goods. How tragic.

Point is – which I hope I’ve made clear – inflation matters only so much as how the new monetary units are distributed.

Why Meritocracy?

A very basic principle of debate in American society concerns the individual. Be you a Republican or Democrat, you understand America as a place for great individual achievement. Through individuals attuned to greatness, we get great ideas, great inventions, great leaders and so forth. Consequently, the obvious role of government provides conditions where opportunities for individual success are maximized. A political nostalgia for the good ‘ol days “when I couldn’t look at your zip code and…tell whether you’re going to get a good education”* appears all the rage rhetorically, and Americans of all political stripes consider increasing economic opportunities an extremely important priority.

Under the best available lighting, the internalization of ‘equal opportunity’ provides the foundation for the country we (Americans) desire. The traditional understanding of America makes meritocracy an ideal to strive towards. When President Obama speaks about infusing more fairness into the system, he assumes that the unequal application of rules weakens the link between merit – as an all-inclusive term – and success. You’ll hear no argument from me on that, for laws and institutions – however they exist – do determine how material goods and prestige are distributed. But, it may not be so that a meritocratic distribution is the best pedigree from which to judge.

First and foremost, meritocracies are not societies free of winners and losers. If success – a very relative concept itself – is a combination of the natural lottery, the social lottery, effort and luck, then a meritocracy minimizes the impact of the social lottery (the family/environment to which you are born) in favor of the natural (the genetic (?) package you’re endowed with). Effort becomes an active determinant too, but even under a generous distribution fractures quickly emerge. Within the first cohort of people, the winners include those whose skill set most closely mirrors what merit is defined as. Presumably different societies will have different conceptions of merit, so winners can look different. One society may value the aesthetic over the material, and accordingly distribute winnings to students of art, music and literature. In contrast, others may value psychopathic businesspersons and math majors with a knack for crafting complex algorithms to beat the market. I do not mean to judge the basis of merit. I’ll reserve that for the army of sociologists, psychologists, and writers who have found their personal conceptions of merit out of date.

My time here concerns the stability of meritocracy, given the religious zeal with which this society holds it. While the first batch of meritocrats may derive their success entirely from the distribution of merit-able skills, as these winners reproduce they transfer more than just genetic capacities. Offered to their children are better schools, closer access to successful adults, and the too often overlooked privilege of food, shelter, and health security. As time continues and with each successive cohort, inter-class distinctions become stratified and intra-class movement a remote dream – an American one.

Little I have said thus far is novel. The historical reaction of concerned meritocrats has focused on strengthening public school systems in distressed neighborhoods, philanthropy, and the inheritance tax. However, in a highly propertied society – where individuals retain control in the use of their wealth – strengthening public services, fostering altruism among winners, and preventing the inter-generational diffusion of wealth has only a symbolic effect – if that – on distribution. New York City Mayor Michael Bloomberg may plan on donating the entirety of his wealth, but it seems safe to assume his lineage will receive favorable treatment from John Hopkins University.

The givings of Bloomberg will undoubtedly benefit people beyond his family and close contacts. Some poor students may even attend John Hopkins, though demographics caution against romanticizing college as a tool of social mobility for the poor. I do not mean to attack the conscience of the merit-able as rooted in intentions other than altruism. But, all the charity in the world will not change the deep-seeded social reality of merit as an initial determinant of success and access to wealth as a tool for protecting it. Perhaps we should question the focus on opportunity. I would not go so far as to eliminate esteem as a good to be allotted for citizens who uphold the society’s principles. However, systematically depriving those who do not of well-being seems cruel and fractious. A commitment to equality of opportunity may have its place. But, by it’s side must be a commitment to equality of outcome.

*I’m curious what U.S. historical period Rice is alluding to.

Campus Organizing

At the core of any organization concerned with political change – whether structured hierarchically or horizontally – resides a group of individuals whose devotion to the organization’s goal exceeds the average. These members spend the most time planning actions, discussing strategy, and in general caring about the cause at hand. As the overarching body linking them together presumes, these individuals constitute the organizers. Like any other passion, over time the cause becomes part and parcel of the organizer’s identity. It slowly comes to dominate the organizer’s thoughts, conscious decisions, and social relations.

The creeping hegemony of the cause on the political organizer is both a gift and curse. A gift because the looming success will demand an incomparable time and energy from them, yet a curse because it makes the organizer fundamentally different. Few others will spend free time attending weekly extracurricular lectures by underground intellectuals on the intersectionality of race and gender struggle in a capitalist society, or of the merits of neo-pagan rituals as a tool for collective healing*. Even if advertised correctly, the consistency with which these events draw the same cohort of attendees cannot be dismissed. The unintended effect misdirects the passion of the organizer towards self-engagement and core preservation. Stemming from a political calculus run askew, efficiency in time and direction of energy – in my opinion a campus organizers most important trait – is lost. The ultimate victims, of course, are the beneficiaries of whatever we contend to organize on behalf of.

Those who know me – and most of those who dislike me – understand fully well I have little time for personal expressions of good faith outside of a strategy that maximizes bargaining power. Admittedly, forging a strong core identity falls within the confinements of maximizing bargaining power. But, a strict dependence on it as the centerfold of an organization’s outreach strategy – so as to continuously expand the core – builds a proverbially glass house around the committed.

In my experience, the most important duty a campus organizer must fulfill is outward expansion – building concentric circles around the core of students of allies willing to support the greater cause though donate less physically. Given the short lifespan of students, expansion has to be a constant and directed heavily towards underclassmen. Perhaps the new supporters will not be willing to risk arrest in pursuit of a goal or to attend weekly planning meetings, though maybe they will write letters to administrators, or show up at rallies. Students of different capacities and support all should be targeted, and more importantly, the organizers doing the recruiting have to gauge the extent of support. A simple question – “How do you feel comfortable becoming involved?” – will usually suffice. When it comes time for the core to meet, the makeup of your supporters and the coalition of student organizations should be a top consideration and determinant of future plans.

None of my thoughts thus far should be viewed controversially, though recent experience tells me to expect a vitriolic resentment regardless. If outward expansion becomes widely understood by centers of political organizing on campus, the nature of our work will in turn change. Thus far, we treat ourselves as one of the 500+ student organizations on campus. We reserve spaces on campus for meetings and attract speakers to tell us – and only us – what we already know. We distribute literature that attracts more organizers, but few else. Within each of these practices lies the subtle belief that as a center for political organizing, supportive students will find us.

Might I propose however, in lieu of the shortcomings of place-based organizing, a more dynamic approach. Perhaps the key to expansion lies in meeting the masses where they are. Going to their communities, to their meetings, to their social functions, and eliciting their support. Creating a network of communication between the core of organizers and outside student organizations. Assigning organizers as liaisons between the core and the supporters. Using the new supporters to pressure our opposition to buckle on issues through tactics comfortable to the different levels of student support. In sum, building a narrative that encompasses the entire campus.

It is painfully obvious our culture and methods attracts a devout minority. Let not the hidden frustration within each of us towards that reality hinder the growth necessary for success.

*Perhaps the endless cycle of lectures and panels on obscure (to the masses) matters is just a grand waste of time.

It’s About the Children: Union-Busting in 2012

I encourage my meager readership to take the hour and watch PBS Frontline’s latest documentary, ‘The Education of Michelle Rhee‘. It takes a look at the controversial appointment of Michelle Rhee as Chancellor of the Washington, D.C. Public Schools. In her time in office, Rhee gained notoriety for advocating the elimination of tenure for educators, linking teacher evaluations to student test scores, and closing dozens of urban schools deemed failures. Overall, I think the documentary tries too hard to find the center between advocates and opponents of Rhee-styled school reform – a misplaced example of ‘neutral’ press – but it’s informative nonetheless.

Regardless, the production got me thinking and reading a lot about public education. On a personal note, I have spent 13 of 20 years of existence enrolled in the public education system. It would be improper of course to broadly associate my experience in the suburbs of North Syracuse and Cicero to the students of Noyes Education Campus (watch the documentary). Primary and secondary public education enrolls 50 million children throughout the country. A fine number of those children receive a great education. Perhaps the only thing Michelle Rhee and her cohort and I agree on is that a scary number do not.

Without getting too caught up in the documentary, it’s important to recognize the connection between Rhee’s policies and the national school reform movement. Codified, by Democrats no less, in President Obama’s and Secretary of Education Arne Duncan recent ‘Race To The Top’ program are many of the same policies advocated by Rhee. Under ‘Race To The Top’, states are rewarded for adhering to a more national curriculum, linking teacher pay and retention to standardized test scores, and encouraging the development of privately operated, publicly financed non-unionized charter schools (which often arise from the ashes of closed public schools despite no evidence of their success). Along these guidelines, state public education systems are ranked and receive millions of dollars in federal aid.

A common thread running through both ‘Race To The Top’ and Rhee’s chancellorship is an attack on teachers. The explanation given for ostracizing public educators is simple and plays into both the importance with which society views education and the willingness to assign blame elsewhere: teachers in low-performing schools, a la the magic of collective bargaining, are overpaid and guaranteed job security despite being terrible at their profession. Therefore, in the service of low-performing students, teacher protections have to be eroded so that they can be fired at the whim of administrators ostensibly for not raising test scores. In ‘The Education of Michelle Rhee’, a major goal of the new leadership is to eliminate ‘ineffective’ teachers by all means necessary, a process Rhee seems to enjoy all too much. Teacher unions have rightly fought this erosion of protections, with administration and local governance often responding by closing down their schools and opening private charters staffed by the unorganized with no job protection whatsoever.

(After all, if teacher quality is the prime issue, what better solution than making the material conditions of their profession all the worse? Then, in light of the even smaller paychecks and nonexistent security, maybe some of those brilliant Harvard grads that flock to Teach for America for two years – only to leave for Wall Street or administrative positions within the school district – will actually turn teaching it into a career. Who better to combat urban pedagogical decay than Ivy Leaguers who have never experienced being poor or attending public school?)

The ‘school reform movement’ is just another hatchet job to destroy public unions, the last vestige of organized labor in this country. School reformers, both Republicans and Democrats alike, talk a great game. They care about the development of our most prized asset, our children. But, they offer no evidence – because it doesn’t exist – to support their brand of change. Charter schools do not perform better than public schools; teachers with their M.A.s in education are not overpaid; and, tying the job security of educators on a yearly basis to the performance of their students on standardized tests causes organized cheating at a frightening frequency. The reformers may be concerned with the education urban children receive, but their package shows no proof of change. Conversely, if implemented with our approval, it will all but destroy education as a career that provides.

More optimistically, not all is without hope. The Chicago Teachers Union won a huge battle this past fall, where a seven-day strike was held not in dispute over wages/benefits, but over the ‘school reforms’ highlighted here. There may be a concerted effort to – by effect if not design – destroy the union, but I can guarantee it will not go down without a fight.

Lastly, I don’t want to be mistaken for brushing aside the issues plaguing low-performing schools. But that’s a matter of poverty, not teachers. You’ll hear more from me on that front soon.

The Student Loan Debt Bubble That Isn’t

The semester break is coming to an end. Mine consisted mostly of basketball and books. I assume your curiosity.

Anyways.

A month or two ago, in one of the first (of few) posts on this blog I discussed the meaning of an economic bubble. To summarize, bubbles occur when buyers assume the price of an asset will rise irrespective of its intrinsic value. Infected with a bout of confidence, buyers will buy today and sell tomorrow at the inflated price. The process is repeated many times over, and as the price rises, the bubble inflates. Eventually, confidence in rising prices gives. The asset price falls back to its ‘real’ value and the owner – who borrowed to finance the acquisition – is left underwater, owing more in loans than the asset is worth.

The title for most notorious economic bubble in the 21st century American conscience without doubt belongs to the housing bubble. Its massive effects still linger six years post-deflation. Moving forward however, observers are forewarning of a new – apparently potentially disastrous – round of speculation: the student debt bubble. As I understand it, the accusation rests upon three pillars: the increasing cost of tuition, the growing student loan debt outstanding, and the (assumed) dim prospects for repayment.

I’m not convinced. In order for student debt to constitute a bubble, there has to be proof that the asset being purchased, a college education, is overvalued. A widely cited 2010 report from the Georgetown University Center on Education and the Workforce found that college graduates on average earn $1 million more than those who only graduate high school. To put this astonishing figure in perspective, over a 40 year career in the labor force, college graduates earn $25,000 more annually than high school graduates. The income divide itself is almost equal to the average debt an actual holder of student debt – not graduates, an important distinction – owes. Turns out the tale your parents and teachers told you about college breeding success is largely true.

When confronted with statistics concerning a college education’s return on investment, those spreading fear about the looming insolvency – both on the left and right – will turn to student debt outstanding passing the $1 trillion mark this year, a burden larger than any other consumer debt, and doubts about the labor market for recent graduates. To put the $1 trillion point in context, though it stands above credit card and other consumer debt, it pales in comparison to the $13 trillion mortgage debt outstanding. And, that’s after the housing bubble. Further, the debt figure alone says nothing of a bubble. It’s not as if the housing market with all that debt is on the verge of another bubble. People take out debt when they believe the investment will pay off. Bubbles occur when the widespread belief governing investment is false. In this case, that means when the cost (tuition) exceeds the return (wage premium). As I stated earlier, that simply is not the case.

Lastly, the labor market. At this point, the bubble argument is ditched, switching instead to a collective default in light of meager employment prospects. That itself is a worthy mention. Bubble’s don’t pop when people default on their loans. They pop when the underlying asset loses its worth, and the owner of said asset can no longer borrow against it to finance their debt. Default results from the devaluation, not the other way around.  We have already seen that the underlying asset, human capital in the form of a college education, has and continues to deliver tremendous benefits.

Paul Krugman and others have made a living the past five years off of James Carville’s famous quip, “It’s the economy, stupid!” In the ashes of a historic recession, all have suffered from unemployment, though some more than others. However, when it comes to recipients of Bachelor degrees, what’s amazing is how unusual the labor environment is. The following graph shows in blue the unemployment rate for workers with Bachelor Degrees aged 25 and over, and in red the national unemployment rate:

(graphs a bit blurry; my apologies, still learning)

As you can see, much like the preceding fifteen years, the post-recession years are marked by an unemployment rate of college graduates much lower than that of all workers. Because changes mirror the civilian unemployment rate, it stands to reason a general recovery would deal with the unemployment ordeal (it’s a crisis when the privileged lack employment) and the made-up student debt issue. To be fair, the graph only shows graduates above the age of 25. What about recent graduates, you ask? Their unemployment rate stands at 6.3%, much lower than the 9.4% of 2010, and further evidence there is nothing peculiar happening.

In summation, the whole ‘student debt bubble/crisis’ is phony in my (unpretentious, of course) opinion. It displays an shocking ignorance of economic bubbles and the plight of the struggling. There are a lot of people suffering in the United States of America in 2013. Some argue an indebted class of college graduates should be included in this bunch. It doesn’t take courage – or creativity – to victimize the most privileged class of individuals the world has ever seen. Quite conversely, in the words of Galbraith, “Courage is required of the man who, when times are good, says so”. Times are good for college graduates. With poverty appallingly high and the meager social welfare programs that exist on the chopping block, let’s not waste time trying to fix what already works.

Gender Neutral Housing and Political Strategy.

Today at about noon, approximately sixty BU students stormed President Brown’s office on the top of 1 Silber Way to demand an explanation and subsequent meeting concerning the Brown Administration’s decision to renege on their promise of Gender Neutral Housing in the coming Spring semester. The organizing that led to this decision included a town-hall meeting at the Center for Gender, Sexuality, and Activism and an online petition that in two days garnered over 2,000 positive responses. Regardless of your opinion of today’s action,  Administration’s abrupt choice to not respect their past promise with Student Government  is unacceptable. When Administration establishes a conduit through which students, administrators, and trustees can discuss campus policies, honesty should be expected of all parties. The decision to not respect this process shows an utter disrespect for both the idea of student-administration cooperative relationships and the work of students who have devoted their lives to surveying students, compiling data, and drafting a damn-good proposal.

That much is incontestable, in my opinion. Focusing on past wrongs creates a narrative that can bind a group of diverse individuals. In this case, the anti-administration narrative united CGSA/anti-authoritarians (for whom administration represents the devil incarnate) and Student Government officials (by nature more conservative in ideology and action). However moving forward, past wrongs and personal insults have to be cast aside in favor of reasonable organizing and strategy.

I am afraid the Gender Neutral Housing for BU Coalition (GNHBU) did not heed this message in their proposed action today. Instead of analyzing the costs and benefits of an indefinite occupation of President Brown’s office (which ended in one hour), GNHBU marched forward with a textbook disobedient strategy. When myself and sixty others first entered Brown’s office, unofficial group leaders were offered a discussion with an assistant to President Brown to (presumably) discuss the nature of our unorthodox visit. Seemingly without even entertaining the option, the group broke into ‘Mic-Check’, and proceeded to ‘voice their anger’ for the next five minutes. After that fiasco, any hope of negotiations with Administration were essentially quashed. The group sat down, stayed there for about 45 minutes, and left with little serious dissent after Dean of Students Ken Elmore entered with a stern look and serious ultimatum: leave in two minutes, or face arrest and suspension from the University.

In typical ‘nonhierarchical’ fashion, the group proceeded to discuss future actions on the steps of 1 Silber Way for about 30 minutes, finally deciding to march throughout the GSU yelling about the police brutality they were not (almost?) victim of (no one was arrested, though police were seen with clubs, pepper spray, and a boatload of zip-ties).

Is this a victory for GNHBU organizing on campus? I have to side against. If organizers had any serious desire to meet with administrators and discuss the rationale behind their decision to table GNH, they would have acted accordingly. That behavior does not include a culture of disruption and an utter disrespect for all officials who had the unfortunate experience of dealing with us. And to be clear, I think a physical demonstration of GNH supporters was entirely necessary and appropriate. Taking that physical display to the head of BU Administration was appropriate, too.

But, not understanding how to use numbers to extract concessions is catastrophic to an organization. With only sixty students, Dean of Students can make a credible threat to arrest everyone, knowing he has the required cell capacity. That is not to say sixty students working together can muster considerable political power. I fervently believe sixty students dressed in their Sunday best, quiet but militant, have the political power to set up a meeting with whomever at this University we desire.  But, it has its limits. Here, the limit  exists well before an indefinite occupation.

Today’s events strike at a deeper idea I have struggled with of late. Simply telling Administration “screw you” gratifies the self, but it does little to achieve your organization’s goals. I’m becoming more and more convinced the politics of the young left is not about winning, but establishing autonomous zones where privileged college kids can live according to their ‘radical’ societal rules. If we appear radical and hell-bent on disruption, our cause will draw fewer and fewer supporters, only until those left are those who by nature abide by the mini-society’s rules. I can only pray that conclusion is not intended.

As for me, I care about winning politically, because I believe the causes I represent benefit all of society, and not just the personal expression of me and my clique. The expression of feel-good and do-good activists contrasts in stark fashion. What we saw today, I’m afraid, undeniably qualifies as feel-good.

Right-to-Work in Michigan

So the successful push for ‘right-to-work’ (RTW) legislation in Michigan has caught many by surprise. Despite tens of thousands of union workers and supporters flooding the Michigan Capitol in what the Detroit Free Press termed the largest Capitol protest in Michigan history, the Republican-dominated Michigan legislature passed and Governor Rick Snyder (R) signed the RTW bill Tuesday. For those unaware, RTW legislation makes illegal union-employer contractual clauses that force all employees benefiting from union negotiating contracts to pay union fees.

The so-called ‘right to work’ presents Michigan unions with a free-rider problem. Previously, all workers paid (in the form of union dues) unions and received benefits through union-negotiated higher wages and better benefits. Now, through eliminating the fee requirement, workers in unionized shops can receive union provided benefits without paying. Some might reason – including myself – that if workers choose to not pay union dues, they should not receive representation. However, U.S law, a la ‘duty of fair representation’, states otherwise.

Below, I use basic game theory to illustrate how both ‘right-to-work’ imposes a free-rider problem, and the implications of that problem.

Imagine a factory with two workers, Jack and Liz. Jack and Liz are represented by a union, though are not required to pay union dues (RTW). The union is entirely funded by Jack and Liz, and the union’s operations depend on union dues. Therefore, if Jack and Liz both decide not to contribute, they reap no benefits. However, if only Jack (or only Liz) contribute, both receive benefits (duty of fair representation).

I show the game in strategic form below. Jack and Liz each have two choices; they can either contribute to the union or not contribute. Contributing costs 5, not contributing 0. If both contribute, the union provides a benefit of 18 (to be split evenly). If only one contributes, the union provides a benefit of 10, again to be split evenly.

	Contribute		Don’t	Liz
Contribute	4,4		0,5
Don’t	5,0		0,0
Jack

In determining whether to contribute or not, Jack determines his best-response to either of Liz’s choices. If Liz contributes, he is best off not contributing (5>4), and if Liz does not contribute, he is indifferent between contributing and not contributing (0=0). The same can be said of Liz. There are three equilibrium in this game (shown in bold), none of which include both Jack and Liz contributing. The three equilibrium represent the free-rider problem.

The progressive response to the conservative RTW legislation holds RTW an attack on unions under the guise of worker freedom. Given unions are legally bound to represent all workers (whether union members or not), RTW will have the effect of weakening unions bargaining ability and threatening their very existence. But, these conclusions only hold when unions are bound to represent paying members and non-members alike. If unions only represent paying members, the free-rider problem no longer applies. In that situation, the choice to pay (political convictions aside) rests upon the return the union in question provides. So, perhaps in light of the popularity of RTW legislation and the idea of ‘rights’, progressives can tap into the freedom kool-aid and pass legislation (right-to-be-represented?) ending the ‘duty of fair representation’.

Disclaimer: In assigning payoffs, I assume each additional dollar the union receives allows marginally less work than the previous dollar. Hence, when both contribute 5 the payoff is 18, and when only one contributes 5, the payoff is 10.