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Category: Heartland Economics (Page 1 of 2)

Saving Democracy: In the Next Recession Government Stimulus Will Not Be Enough to Help the Middle Class – Innovative Initiatives Are Needed

A recession is emerging with interest rate curves inverted, the end of the business cycle at hand, world trade falling and consumers and businesses beginning to pull back spending.  The question is: will monetary or fiscal stimulus turn around a recession?  In this post, we find both stimulus alternatives likely to be too weak to have the necessary economic impact to lift the economy out of a recession and will not help the middle class out of a stagnant financial position. Finally, we identify a new approach to government intervention based on an innovative ‘seed’ and multi-partner program to lift the middle class out of economic decline.

Our economy is at the nexus of several major economic trends formed over decades that are limiting monetary and fiscal options. The monetary policy of central banks has caused world economies to be immersed in liquidity yet resulting in limited growth. Central bankers in Japan and Europe have been trying to revive growth with $17 trillion injections using negative interest rates.  Japan can barely keep its economy growing with an estimate of GDP at .5 % thru 2019. The Japanese central bank, holds 200 % of GDP in government debt.  The European Central Bank holds, 85 % of GDP in debt and uses negative interest rates as well. Germany is in a manufacturing recession with the most recent PMI in manufacturing activity at 47.3 and other European economies contracting toward near zero GDP growth.  

Lance Roberts notes that world economy is not running on a solid economic foundation if there is $17 trillion in negative yielding debt in his blog, Powell Fails, Trump Rails, The Failure of Negative Rates . He questions the ability of negative interest policies to stabilize world economies,

You don’t have $17 Trillion in negative-yielding sovereign debt if there is economic and fiscal stability.”

Negative interest rates and extreme monetary stimulus policies have distorted financial relationships between debt and risk assets. This financial distortion has created a significantly wider gap between the 90 % and the top 1 % in wealth.

Roberts outlines in the 6 panel chart below how personal income, employment, industrial production, real consumer spending, real wages and real GDP are all weakening in the U.S.:

Sources: Real Investment Advice – 8/23/19

Trillions of dollars of monetary stimulus has not created prosperity for all. The chart below shows how liquidity fueled a dramatic increase in asset prices while world GDP declined by about 25 %:

Sources:World Inequality Lab, Thomas Piketty, Gabriel Zucman et al – 2018

There are a number of reasons monetary stimulus by itself has not lifted the incomes of the middle class. One of the major reasons is stimulus money has not translated into wage increases for most workers.  U.S. real earnings for men have essentially been flat since 1975, while earnings for women have increased though basically flat since 2000:

Source: U.S Census Bureau – 9/10/19

If monetary policy is not working, then fiscal investment from private and public sectors is necessary to drive an economic reversal.  But, will private and public sector sectors have the necessary tools to bring new life to an economy in decline?

Wealth Creation Has Gone to the Private Sector

The last 40 years has seen the rise of private capital worldwide while public capital has declined. In 2015, the value of net public wealth (or public capital) in the US was negative -17% of net national income while the value of net private wealth (or private capital) was 500% of national income. In comparison to 1970, net public wealth amounted to 36% of national income while the for net private wealth was at 326 %.

Source: Wealth Inequality Lab, Thomas Picketty, Garbriel Zucman et al – 2018

Essentially, world banks and governments have built monetary and fiscal economic systems that increased private wealth at the expense of public wealthThe lack of public capital makes the creation of public goods and services nearly impossible. The development of public goods and services like basic research and development, education and health services are necessary for an economic rebound. The economy will need a huge stimulus ‘lifting’  program and yet the capital necessary to do the job is in the private sector where private individuals make investment allocation decisions.  

Why is building high levels of private capital a problem?  Because as we have discussed private wealth is now concentrated in the top 1 %, while 70 % of U.S GDP is dependent on consumer spending.  The 90 % have been working for stagnant wages for decades, right along with diminishing GDP growth.  There is a direct correlation between wealth creation for all the people and GDP growth.

Corporations Are Not In A Position to Invest

Some corporations certainly have invested in their businesses, people and technology.  The issue is the majority of corporations are financially strapped.  Many corporate executives have made profit allocation decisions to pay themselves and their stockholders well at the expense of workers, their communities and the economy. 

S & P 500 corporations are paying out more cash than they are taking in, creating a cash flow crunch at a – 15 % rate (that’s right they are burning cash) to maintain stock buyback and dividend levels:

Sources: Compustat, Factset, Goldman Sachs – 7/25/19

In 2018 stock buy backs were over $1.01 trillion are at the highest level they have ever been since buybacks were allowed under the 1982 SEC safe harbor provision decision. It is interesting to consider where our economy would be today, if corporations spent the money they were wasting on boosting stock prices and instead invested in long term value creation.  One trillion dollars invested in raising wages, research and development, cutting prices, employee education, and reducing health care premiums would have made a significant impact lifting the financial position of millions. This year stock buybacks have fallen back slightly as debt loads increase and sales fall:

Source: Dow Jones – 7/2019

Many corporations with tight cash flows have borrowed to keep their stock price elevated causing corporate debt to hit new highs as a percentage of GDP (note recessions followed three peaks):

Source: Federal Reserve Bank of Dallas – 3/6/19

Corporate debt has ballooned to 46 % of GDP totaling $5.7 trillion in 2018 versus $2.2 trillion in 2008.  While the bulk of these nonfinancial corporate bonds have been investment grade, many bond covenants have become lighter as corporations seek more funding. Some bond holders may find their investment not as secure as they thought resulting in less than 100 % return of principal at maturity.

In a recession corporate sales fall, cash flow goes negative, high debt payments become hard to make, employees are laid off and management is trying to hold on.  Only a select set of major corporations have cash hoards to ride out a recession, others may be able obtain loans at steep interest rates, if at all.  Other companies may try going to the stock market which will be problematic with low valuations.  Plus, investors will be reluctant to buy stock in negative cash flow companies.

Thus, most corporations will be hard pressed to invest the billions of dollars necessary to turnaround a recession. Instead, they will be just trying to keep the doors open, the lights on, and maintain staffing levels to hold on until the day sales stop falling and finally turn up.

Public Sector is Tapped Out Too

In past recessions, federal policy makers have turned to fiscal policy – public spending on infrastructure projects, research development, training, corporate partnerships and public services to revive the economy.  When the 2008 financial crisis was at its peak the Bush administration, followed by the Obama government pumped fiscal stimulus of $983 billion in spending over four years on roads, bridges, airports, and other projects. The Fed funds interest rate was at 5.25 % at the peak, so interest rate reductions had a significant impact versus today at 2.25 %. It was the combined monetary and fiscal stimulus that created a V-shaped recession with the economy back on a path to recovery in 18 months. It was not monetary policy alone that moved the economy forward.  However, the recession caused lasting financial damage to wealth of millions. Many retirement portfolios lost 40 – 60 % of their value, millions of home owners lost their homes, thousands of workers were laid off late in their careers and unable to find comparable jobs.  The Great Recession changed many people’s lives permanently, yet it was relatively short lived compared to the Great Depression.

As noted in the chart above, public sector wealth has actually moved to negative levels in the U.S. at – 17 % of national income.  Our federal government is running a $1 trillion deficit per year.  In 2007, the federal government debt level was at 39 % of GDP. The Congressional Budget Office projects that by 2028 the Federal deficit will be at 100 % of GDP.

Source: Congressional Budget Office – 4/9/19

We are at a different time economically than 2008. Today with 80 % of GDP public debt, a Fed balance sheet with $4 trillion while the federal debt level is projected to grow to 100 % of GDP by 2028. In a recession federal policymakers will likely make spending cuts to keep the deficit from going logarithmic. Policy makers will be limited by the twin deficits of $22.0 trillion national debt and ongoing deficits of $1 trillion a year eroding investor confidence in U.S. bonds. The problem is the political consensus for fiscal stimulus in 2008 – 2009 does not exist today, or probably even after the 2020 election. Our cultural, social and political fabric is so frayed as a result of decades of divisive politics it is likely to take years to sort out during a recession. Our political leaders will be fixing the politics of our country while searching for intelligent stimulus solutions to be developed, agreed upon and implemented.

What Will the Next Recession Look Like?

We don’t know when the next recession will come. Yet, present trends do tell us what the structure of a recession might look like, as a deep U- shaped slow period over years, hurting the poor and working class the hardest:

  1. Corporations Short of Cash – Corporations already strapped are short on cash, lay off workers, pull back spending, are stuck paying off huge debts.
  • Federal Government Spending Cuts – The federal government caught with falling revenues from corporations and individuals, is forced to make deep cuts first in discretionary spending then social services and transfer funding programs. The reduction transfer programs will drive slower consumer spending.
  • Consumers Pull Back Spending – Consumers will be forced to tighten budgets, pay off expensive car loans and student debt, and for those laid off seeking work anywhere they can find a job.
  • World Trade Declines – World trade will not be a source of rebuilding sales growth as a result of the China – US trade war, and tariffs with Europe.  We expect no trade deal or a small deal with the majority of tariffs to stay in place. In other words, just reversing some tariffs will not be enough to restart sales. New buyer – seller relationships are already set closing sales channels to US companies. New country alliances are already in place leaving the US closed out of emerging high growth markets.  A successor Trans Pacific Partnership (TPP)  agreement with Japan and eleven other countries was signed in March, 2018 without the US, China is negotiating a new agreement with the EU. EU and China trade totals 365 billion euros per year. China is working with a federation of African countries to gain favorable trade access to their markets.
  • ­Pension Payments in Jeopardy – Workers dependent on corporate and public pensions may see their benefits cut from pensions which are poorly funded today. GE announced freezing pensions for 20,000 employees, the harbinger of a possible trend that will  reduce consumer spending
  • Investment Environment Uncertain – Uncertainty in investments will be extremely high, ‘get rich quick’ schemes will flourish as they did in 2008 – 2009 and 2000.
  • Fed Implements Low Rates & QE – The Fed is likely to implement very low interest rates (though not negative rates), and QE with liquidity in abundance but the economy will have low inflation, and declining GDP feeling like the Japanese economic stasis – ‘locked in irons’.
  • Unemployment Soars – workers in low wage jobs, support, non-core (HR, IT, Admin) jobs will be laid off first. Industries already weak in the economy feel the downward spiral the most: retail, materials, manufacturing, and energy. As the recession deepens, small businesses that can not get loans to get through the rough times so they close. Even medium businesses are hit hard, as they do not have the access to worldwide markets to offset declining US sales. The rate of multiple job holders is at an all time high now, it will continue to soar as workers try to sustain their standard of living in a contractor economy with no safety net for workers.

Next Steps:

A recession of the magnitude we expect will hit the middle class hard as they are the most vulnerable.  Their wages have been flat for most of the decade while the top 10 % have enjoyed the majority of income and wealth increases. Due to the private sector holding most of the positive wealth in the U.S. a new approach to simulating the economy will be necessary.

1.Corporate Stimulus

While most corporations will be cash poor, some companies will be cash rich.  Firms like Apple, Alphabet (Google), Microsoft all hold over $100 billion in cash.  Cisco and Oracle both have over $50 billion cash on hand.  These tech giants hold most of their cash overseas.  To spur spending in the right places for the economy, tax laws could be passed to reduce taxes when repatriated funds are spent on employee development, research and development, productivity and wage increases.  Google, Facebook, and Apple have taken a good first step on housing, with all three donating about $4 billion to housing programs. While housing may not seem like a ‘public good’ it has become a major issue in the San Francisco Bay Area from high growth businesses and long commutes to inexpensive housing 2 hours away. We would like to see the emergence of the ‘servant’ CEO from these companies and others in sectors of the economy with cash like banking, pharma, and health insurance.  Over 180 Business Roundtable executives released a declaration that corporations need to take responsibility for their communities, not just seeking profits. The introduction to their statement notes

“Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.”

Ensuring economic opportunity for all means corporate executives make investments in the future financial health of their communities.  Business leaders can take the lead by ending stock buybacks which totaled $1.01 trillion last year and investment those funds in employee development, pension plans, price reductions, productivity enhancements, maintain staffing levels and innovative research.  Otherwise the safe harbor policy the SEC approved in 1982 can be revoked to prod executives to make investment decisions to ensure the future of both their businesses and communities.

2. Transfer of Private Wealth and Income to Public Sector

Wealthy business people and individuals can take the lead in driving the passage of legislation transferring some wealth back to the public sector. In November, 2017 over 400 millionaires and billionaires sent a letter to Congress to strongly recommend against the passage of the Tax Cut bill which created a $1.5 trillion additional federal deficit while 80 % of the benefits went to the top 5%.  We will need more of this kind of active leadership across the political spectrum to make the necessary shift to finance the creation of public goods and services necessary to turnaround a recession.  Other wealthy individuals have called for increased taxes on income and wealth of the top 5 to 10 %.  Just changing the present tax laws back to 2016 levels would help to boost funding to fund fiscal stimulus programs in innovative ways. There is backing by some wealthy leaders to end the carry tax exclusion that hedge fund managers and others in the financial industry use to reduce taxes. 

Taxes as a percentage of profits has continued to fall from 1960 at 45 % to 15 % in the last year.  Corporate lobbying of Congress worked to reduce company tax rates, create loopholes and subsidies for some industries.

Sources: The Wall Street Journal, The Daily Shot – 6/29/19

Corporate taxes can be evaluated as a percentage of GDP as well where it is clear corporations were able to lower their federal tax burden from a peak of 6% in 1955 to a low of 2 % in 2012 a 66 % reduction, and is estimated to be lower with the Tax Cut Bill of 2017 lowering the standard tax rate from 35 % to 22 %.  The GAO in 2012 evaluated all the tax law benefits and deductions corporations enjoyed and found the effective tax rate was really 12.9 %.  Today, the effective tax rates is even lower as corporate federal tax receipts fell to an all-time low of $204 billion for fiscal 2018 a 31 percent decline from 2017. Some corporations are paying no federal tax at all. Amazon declared $11 billion in income for 2018 and paid no taxes.

Source: GAO – 5/13

One way corporations evade US taxes is by depositing billions in profits in offshore tax havens to shelter their profits from taxes.

Sources: Zucman – UC Berkelty, Torslov & Wier – University of Copenhagen, The Wall Street Journal, The Daily Shot – 11/13/17

Clearly the use of tax havens needs to end, as our federal government is losing billions of dollars of receipts to invest in the public goods this country so desperately needs.. Corporate taxes raised and loopholes plugged make sense to begin shifting the necessary funds over to the federal government.

The tax legislation process is critical for long term success and support.  Bringing corporate taxes back to levels seen over a decade ago would go a long way toward reducing the federal deficit and fund public services at necessary levels to create more economic opportunities for all. Multiple points of view across the political spectrum need to be sought out and brought together in a special congressional committee focused on writing a fair tax bill to get the federal budget on a firm foundation and fund Medicare and Social Security programs.

3, Deploy Innovative Multi Partner Economic Innovation Programs to Solve Economic Challenges – Heartland Region Development

At the heart of political divisions in our country today is the decline of a strong middle class and economic inequality at the highest level since 1929.  Building a strong middle class that enjoys the economic benefits of a secure home, job, health care and safe community will result in people seeing a common good emerging for everyone. Monetary policy has failed to provide economic benefits to the middle class, while boosting the values of financial assets largely held by the top 1%.  If a recession comes, what will happen to the middle class, and vulnerable people in our economy?

It is unlikely given the present financial structure of our economy that monetary policy alone which has failed the middle class with stagnant wages will somehow turn the economic status around for the middle class.  The decline of the middle class is happening in parallel with a fall in  GDP to 1.9 % forecast for the 3rd quarter of 2019.  Part of the decline in GDP is associated with a declining labor participation rate. There were 7.6 million job openings, last January with more than 8.6 million unemployed for a gap of 1 million jobs.  This gap started in the spring of 2018 for the first time in 18 years.  Part of the reason for the gap between job openings and job seekers is the imbalance in our labor force by skills and regional limitations. Millions are not working due to lack of education, skills, health, lack of child care or limited work opportunities in their area.  For the core workforce between ages 25 – 54 the participation rate recently has been declining since the peak in 2000.

Sources: Federal Reserve – St. Louis, The Wall Street Journal, The Daily Shot – 6/10/19
Sources: Bureau of Labor Statistics, CBO, NBER, Morgan Stanley – 8/9/19

The most vulnerable regions are in non-metro areas of our country where the economic boom on the coasts and big cities has passed them by. Research indicates a key contributing factor to the decline in participation of 18 – 24 years old group is the lack of young workers in non-metro regions.

Source: USDA – 2017

Poverty remains a major issue in rural areas of the country, Midwest and South.  These areas have lost millions of manufacturing jobs due to automation and moving factories offshore.  Lack of economic health, forces supporting businesses to leave, closing of hospitals and support services.  The opioid epidemic is highest in rural regions of the country.

Sources: US Census Bureau, The Economist, The Wall Street Journal, The Daily Shot – 10/18/19

Many of these rural, Midwest and Southern counties have been left out of the economic mainstream for decades as noted by the darkest purple areas of the chart. While, there single factor programs like enterprise zones with reduced taxes, or innovation institutes at major land grant universities we have not seen multi-factor programs that give a ‘focused force’ of economic impact necessary to turnaround these regions.  The Heartland was chosen for the first implementation in addition to the reasons above, there are additional cultural, health and education issues that need to be addressed. 

The Heartland is where: (1) mobility to take new jobs is the lowest in rural and small cities in the Midwest and South (2) there is the highest concentration of young people without a 4-year degree (3)  the lowest concentration of entrepreneurs is holding back business formation and development to create new higher paying jobs with a future (4) the largest number of people without health insurance are found in the South and rural areas of the Southwest and West  (5) slow speed Internet connections are the norm leaving many heartland regions way behind in the digital revolution where new jobs, opportunities for education and quality health are being developed and accessed (6) accounting for births, deaths and migration rural population has declined for five consecutive years.  It is deplorable that a complete socio-economic region of the country has so many factors that have not been addressed to extent necessary to transform people’s lives toward good health and fair share of prosperity.

Rural and small town America enjoyed a renaissance of increasing jobs and prosperity into the mid 1990s. During this time rural counties were home to more than one-third of all net new businesses establishments fueling the job creation engine. Yet, in the past ten years the economic conditions have changed dramatically, leaving these regions out of robust growth in coastal areas since the Great Recession.  For more details and research please read our blog: The Hallowing Out of Heartland America.

We think that the multi-partner program outlined below besides working in rural regions will work as well in economically depressed neighborhoods of our inner cities on the coasts or major cities of the Midwest with local modifications to take into account cultural, ethnic and societal differences. 

The Multi-Partner Economic Innovation Initiative

The Silicon Valley innovation process is a multi-organization model used as a base for the Multi-Partner Economic Innovation Initiative (MPEII).  Universities working as incubators, with investors, local and state government support, investors, highly educated workforce, and immigrants all contributed to making the Silicon Valley model successful in giving birth to Google, Facebook, Apple, LinkedIn, Twitter, and hundreds of other companies. We have added other necessary elements to jump start a slow growth economic regions like non-government organizations  providing training or recovery services, health providers to take on major issues like opioid addiction, faith-based organizations for counseling and financial assistance. Finally, federal government agencies will need to play a key role in turning around a slow growth region vulnerable in a recession to a spiraling down turn. We introduce the idea of a Federal Reserve Labor Bank, organized much like the present Federal Reserve for monetary policy yet with a charter to constantly build and renew our labor force for unimagined new jobs.

The MPEII would be structured as a non-profit corporation with representatives from all the organizations necessary to drive the coalition to success in meeting the economic objectives of the region.  The federal government rather than building a large bureaucracy would seed the development of the MPEII entities called Development Centers with $25 – 50 million, joined by corporate foundations, local and state government and social entrepreneurs. In our first imitative The Heartland Development Center (HDC) is the central innovative entity bringing all the partners together and taking leadership to drive solutions in rural regions. The HDC is formed as an investment organization, putting out a call for business plans from local social entrepreneurs to solve a local regional problem with the help of the MPEII organizations. The economic goals could be achieved by profit making companies or non-profit organizations where making a profit is not appropriate or not fitting within the development goals.

The People – At the center of this economic imitative are the people. The voter participation level during the 2018 – mid-term election hit a 50 year high at 47.5 % with 110 million Americans voting in congressional races. This engagement in the political process at the local, state and federal is crucial if we are to develop the consensus moving forward to solve our economic problems.  Voters need to demand that corporate, private investors, government and related organizations needs to change polices to focus on building the middle class, protecting our environment, cutting the costs of education and ensuring equal opportunities and a level playing field for all that participate in our economy. In our Heartland example implementation to bring our rural and southern regions into the economic mainstream, local communities, and leaders from multiple institutions need to be involved in making the changes necessary to bring a lasting economic boost to the Heartland.

Universities – The HDCs in selected rural and southern regions would be located in nearby universities for support to be forward looking with local students and professors – consultants as core staff along with local leaders to solve major challenges. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care. There already is an imitative by Congressman Ro Khanna, to fund a modern version of the Morrill Act, that funded the development of land grant universities to support agricultural development in the U.S in 1862. Fifty universities would receive grants of $50 – 100 million to fund technology centers to focus on training and development programs for 21st century jobs. This bill is a good start, the HDC is extension of this imitative to provide a ‘focused force’ on solving regional economic problems and create an innovation ecosystem that is self-renewing.

Federal, State, Local Government – Federal government funding is necessary for a cross regional program with multiple components along the scale of the Marshall Plan after WWII for re construction of Europe.  State and Local governments have the local knowledge, leadership and links to local universities, health providers and non-government organizations that will be helpful in forming the consensus required to focus people and resources on the key problems with workable solutions. The Federal Reserve has analysts who have completed research and continue to monitor the economic health of the 12 Federal Reserve districts that will be helpful to base programs on patterns in the facts.  We propose that a pilot ‘Federal Labor Reserve Bank’  (FLRB) be created in the 12 districts to focus on the labor issues, composed of governors in the 12 areas with labor expertise in corporations, universities or labor leaders.  The FLRB would set minimum wages for key regions conduct studies like the Fed beige report, called a ‘lavender’ report on the health of the workforce in each region.  The report would identify key labor trends, wage issues, and obstacles to creating a thriving workforce. The FLRB would offer loans to key entities with assistance from the Federal Reserve to providing of key training and development initiatives, in a timely manner. The FLRB’s mission is to build a thriving labor force and take on major challenges like identifying why the labor participation rate is so low compared to pre – 2008 levels and implement programs accordingly to increase the rate. Every month the FLRB would review how well it is doing in achieving goals of increased labor participation rate, increasing wages for the middle class and other goals as established by the Governors.

Corporations & Investors – Companies in these slow growth regions need support in multiple areas that are unique to the economics of each area.  Major employers should be included in the steering councils of the HDCs to provide valuable local guidance to HDC leaders on where to focus resources, training for job candidates and the product and sales direction of their businesses. Many corporations have investment groups and can be invited to participate in the HDC program, to achieve results for their business that they are willing to share with the community. Venture capitalists, angels and private equity firms will be encouraged to participate and may be invited to be on the HDC steering council. Telecom firms need to be invited to bid on digital infrastructure projects which may be funded by government grants. It is likely that some of these Internet projects may not be profitable for telecom companies or they would have already laid the fiber optic cables and setup the links to homes in these areas. Like the Rural Electrification program in the 1930s, the digital infrastructure must be in place for rural areas to gain fast access to the Internet.  Plus, high speed Internet access is a requirement to build innovation centers and create businesses with 21st century high technology jobs.

Non-Government Organizations, Foundations & Health Providers – Health services in many rural regions has deteriorated along with companies leaving the loss of jobs.  Unemployment rates are often twice the national average.  The lack of health service providers and hopelessness of not having a job is driving disease and death rates higher.  The CDC reports deaths due to cancer, heart disease and respiratory illness are 15 – 35 % higher in rural areas since the Great Recession. A number of communities have no hospital closer than 2 – 3 hours away.  Doctors setup a practice based on government rural doctor incentive programs, then leave after they have put in their required tenure.  Opioid overdoses are concentrated in rural states and Midwest region.

Source: CDC – 2017

A health services revitalization plan needs to be developed by region which includes hospitals, clinics and incentives for doctors to come, stay and build a practice in reach region. Often, the lack of high speed Internet limits the opportunities for health providers to shift to electronic records, services and even use of tele-medicine which would be helpful to reach out over long distances. Health and job candidate support are related as one research organization found that for many manufacturing employers in Indiana that for factory floor jobs as many as 45 % of the workers tested positive for drugs.

Training, career development, and apprenticeship working closely with universities can make a major contribution in a coordinated effort to put unemployed workers to work. NGO groups like the Opportunity@Work program are one approach to attack the job training challenge.  The training group started in the Obama White House focuses on providing Internet economy job training to workers in the heartland to gain digital skills for jobs in fields like programming and information technology.

Colorado has invested in its CareerWiseto bring businesses, colleges and vocational training groups into partnerships providing all Colorado high school juniors and seniors with a dual career path leading to a community college associates degree plus key skills.  Students can begin working on the factory floor as juniors learning key company job skills, and are guaranteed full time employment at the end of their apprenticeship along with financial support to earn a community college degree. 

Faith Based Organizations – many faith based organizations provide counseling services, welfare, foods services and other resources to those in need.  Working closely in the HDCs with their steering councils programs can be coordinated and focused in areas where churches, synagogues or mosques are located.  FBO groups often have been in neighborhoods for many years, with a deep understanding of the needs, trends and social issues that are unique to their area.  Leaders and staff in the HDC would do well to establish good connections with these groups to gain insights into which programs, services and resources are needed to turnaround the economic situation in their community.

In the end, Americans have always pulled together, solved problems and moved ahead toward an even better future. After a reversion to the mean in our capital markets and an economic recession things will get better.  A reversion in social and culture values is likely to happen in parallel to the financial reversion. The complacency, greed and selfishness that drove the present economic extremes will give way to a new appreciation of values like self-sacrifice, service, fairness, fair wages and benefits for workers, and creation of a renewed economy that creates financial opportunities for all not just the few.

Trust in the Federal Government at 20 Year Low

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Photo: promarket.org

To build the common good, we need to have our citizens feel that their government is functioning well enough to handle domestic and international problems. A trust peak of 83 % was made in 2001 right before the 9/11 event where the public trusted the government a ‘fair amount’ to handle international problems slightly less for domestic.  Gallup reports that in January 2019, the figure for trust to handle international problems had sunk to 35 %, with domestic slightly higher at 41 %.

Sources: Gallup, The Wall Street Journal, The Daily Shot – 2/

This is a crisis in public trust for sure.  Government took a big hit in trust with the Nixon Watergate scandal, the Bill Clinton impeachment and finally the 9/11 terrorist attack.  Do we feel our government can handle a fast moving international world that is increasingly dangerous to U.S. interests and people?  Domestically, the civic dialog has sunk to a new low in lack of civility and respect, largely due to the example of our President.

How do we restore the trust so our government can function the way it needs to in protecting our freedoms, ensuring domestic tranquility and equal opportunities?  Trust can be strengthened by government becoming more responsive and transparent in its functioning.  We need sunshine laws that require Congress disclose all appointments during the day, who they meet with and the interests or corporations they represent.  All senators and representatives need to hold regular Town Hall meetings to listen and understand the needs of their constituents while respecting differences.  On a national level we need a President who will show through his example how to listen to others, use inclusive processes, research and science in making policies.

For groups feeling left out of the economic mainstream; in our core inner cities, Midwest and rural areas of the South, government needs to be engaged in actively solving their problems. Government falls short by implementing band-aid programs that do not go to the heart of issues: like the opioid epidemic which strikes rural communities twice as hard as coastal areas. We have proposed a Heartland Venture Marshal Plan to invest in a variety of infrastructure needs in the Midwest including: healthcare, upgraded digital Internet access, job training, improved college access, apprenticeships and self-renewing economic systems similar to Silicon Valley’s innovative infrastructure. Internationally, our country needs to rejoin the democracies of the world by supporting the Paris Climate Accord, strengthening NATO, supporting the U.N., treaties with Russia on nuclear missiles and the Iran nuclear agreement. We need to overall treat our allies as partners and our adversaries warily. It is time to make the changes before a major crisis domestically or internationally forces our government processes to change possible in ways that a poorly designed and thought through.

Midwest Hit With Tariffs & Shutdown Adds to Years of Recession – Needs A Heartland Venture Marshall Plan

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Photo: heartlandhospice.com

Midwest farmers are declaring bankruptcy at a rate not seen since the Great Recession.  As prices for corn, soybeans, milk and corn decline to decade lows, the Minneapolis Federal Reserve reports that Chapter 12 bankruptcy filings in 5 states of the Ninth District.

Sources: United States Courts – Fed Ninth District, Federal Reserve Ninth District, FedGazette – 11/14/18

The Federal Reserve notes that based on the level of bankruptcies and the trajectory of the increase that bankruptcies will only increase. The government shutdown is exacerbating farmland pain.  The Trump administration announced last summer $12 billion in farmer subsidies.  But, because of the shutdown many farmers applying for subsidies and loans to plan for spring planting are not receiving the money they need. Many farmers and agriculture businesses are affected by the Department of Agriculture shutdown versus coastal states as shown below.

Source: Axios – 1/12/19

China turned to Russia and Brazil for soybeans in particular in the 4th Qtr of last year.  US sales to China dropped to almost zero. As a negotiating tactic, China last week did pledge to buy more soybeans as traders in Chicago noted last week an increase in sales orders. However, when China switched purchases to major suppliers last year it will be difficult for US farmers to unhook those deals already in place. As one farm owner noted, “ it just seems like it’s one thing after another, over and over.”

Heartland challenges have actually been going on for years even before the Great Recession with the loss of millions of manufacturing jobs since China joined the WTO in 2000.  The rural regions of the country have seen their wages grow at half the rate of metro areas.  The opioid epidemic has cost thousands of young workers future careers, unemployment is twice what it is in the East and West. The digital internet infrastructure in rural areas is quite often at analog rates 4 times slower than broad band.  Companies are at a disadvantage versus their metro competitors with slow bandwidth.  Rural region hospitals are closing at an increasing rate leaving many rural people with hundred mile or more drives to the nearest emergency room. Life expectancy in Mississippi is the same as Libya.  Heartland America has been left out the metro mainstream economy for the past 20 years. Our post – The Hallowing Out of Heartland America shows how rural regions have fallen behind in many infrastructure areas including: healthcare, Internet bandwidth, jobs, education with limited upward mobility for young people.

Next Steps:

The Heartland Venture Marshall Plan is similar in concept as the Marshall Plan deployed by the U.S. to rebuild the infrastructure of Europe after WWII, but instead of a government bureaucracy the Silicon Valley style innovation venture model is used.  Venture development is designed to start small, build on successful prototypes and use multiple sources of funding to gain as much support as fast as possible to make the venture a success.  Failure is part of the success fast, try several prototypes, do it, tweak it, try it again until it works or achieves the goals we set for the venture.

Here is a summary of the idea from our post of September 2017:

We propose building a startup non-government organization. We are recommending a different approach by the Federal government to act as an investor in a non-government organization called a Heartland Development Center.  An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care.

The Federal government would seed the financing of these NGOs in key regions with additional funding from local and state governments, and major corporations who would benefit from the newly available job force tuned to their needs. HDCs would be ‘startup’ organizations installed at Land Grant universities bringing in leaders in their respective fields – ie. business formation – Y Incubator, preventive health – Cleveland Clinic, or training – Opportunity@Work as contractors to the HDC.  These NGOs would establish continuously renewing innovation processes to stay in touch with their citizen – customers and businesses. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down. The HDC startups would be piloted in 3 non metro areas, where they would tune their business and socio economic models for maximum impact, then use those working models to implement HDCs in 25 or more other key regions for 5 – 10 years.”

Economists see the opportunity to invest in rural regions to jump start a part of the economy in innovative ways. Joseph Stiglitz, nobel prize winning economist for example advocates turning blue collar rural areas into ‘green collar’ hubs focused on developing innovative environmental technologies, systems and services.

Congress sees the need as well, as Congressman Ro Khanna – D-17 California is working on legislation patterned after the land grant college Morrell Act of 1862 to make an investment in technology job development in rural sections of the U.S. Khanna has supported computer programming training in West Virginia and toured the Midwest with Silicon Valley executives and venture capitalists to encourage investments in the Heartland. He points out that there is no need to send jobs to China, Brazil or India when there are people in our Heartland who can do those jobs well and at lower cost than expensive coastal regions.

There is one indicator of the desperation that many rural people feel is the fact that the opioid epidemic has a 50 % greater incidence in the Heartland than in our metro or coastal cities. We need to be building bridges through programs like the Heartland Venture Marshall Plan between our coasts and the inland empire to bring together our people developing consensus and shared experiences. Each HDC would be staffed by a equal mix of apprentice and college graduates from local rural education systems and metro university graduates. They would comprise a ‘Heartland Service Corp’ modeled on the AmeriCorp program with a benefit of complete forgiveness of student debt for two to four years of service depending on the debt balance. We would be building shared experiences of our young people to bridge the gap between inland and coastal cultures. These young people can innovate new opportunities to create an economic future that works for all.

Recovery Friendly Companies Rebuild Labor Force

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: mswcareers.com

One of the major challenges today in building our labor force participation rate is the millions of young people we are losing to drug addiction.  New Hampshire is leading the way with 70 recovery friendly companies  participating in a program for recovering drug and alcohol addicts to begin working by receiving training and then a job with decent pay. These workplaces are willing to accept employment gaps and brushes with the law.  The firms view addiction as a medical problem – like maternity or surgery.  Their work environment openly encourages discussion of addiction and paths toward recovery offering mutual support for recovering employees.

Work provides a sense of self-worth and self-respect to people on a recovery path.  Plus, addicts join a community, ending the isolation they feel from their substance abuse.  In a supportive community they can stay sober and learn about the lifestyle changes they need to make to stay sober. There are about 22 million Americans in recovery according to U.S government data.  Yet, with a low 3.7 % unemployment rates 9.2 % of workers in recovery are involuntarily unemployed notes theRecovery Research Institute at Massachusetts General Hospital.

New Hampshire experienced the third highest rate of overdose deaths in the U.S. in 2016.  Taking the challenge of recovery head on, the state now has over 60,000 recovering addicts working and a state unemployment rate of 2.7%.

“Most thoughtful business leaders want to do the right thing by their employees when it comes to addiction, and to [addiction in] their families,” observed KeithFlynn, the spokesman for the New Hampshire Business and Industry Association. The idea for the came from Gov. Chris Sununu when he was operating a ski resort where one of his employees had an addiction problem.  Instead of viewing the addiction as a reason to fire the employee, he developed a program of recovery and continued work. When Sununu become governor in 2016 he set about developing the program now in place.  The program helps 60,000 recovering substance abuse users and their families, while opening up a new group of prospective workers to New Hampshire businesses.  It is time that we looked at addiction as a medical problem instead of a criminal one, and developed programs nationwide to turn the lives of addicts around while increasing the labor force participation rate.

David Sawyer, a PersianGulf War veteran, summed up his experience at a New Hampshire recovery friendly company this way,

“Is it finding work through recovery, or finding recovery through work?” he posed a question, continued by noting “I don’t think recovery would have been so successful if I hadn’t been working.”

GM: Case Study to End Share Buy Backs

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: GM Lordstown plant to be closed – gmauthority.com

Yesterday, GM announced a series of plant closings and layoffs of 15,000 workers in North America.  GM attributed the need to shift its focus to electric car development, trucks and SUVs that consumers were buying, as sedan sales are falling.  Actually, auto sales worldwide have been dropping for the past year.

Source: Bloomberg – 11/27/18

Jesse Colombo, analyst at Clarity Financial notes that while GM’s announcement focused on electric car development the plant shutdowns and layoffs really were driven by of slowing auto sales.  The auto market has been shifting rapidly with the development of driverless cars, ride sharing reducing the need to own a car, and urbanization causing policy makers to fund more public transit. The auto maker announced that it will end production of the Chevy Volt electric sedan with sales falling short of targets. GM has targeted gig economy drivers for ride sharing companies like Uber and Lyft by offering an on demand service for the Chevy Volt at $225 per week in Austin.  It is not clear what will happen with this on demand service marketing beta test with Volt production being halted.  GM has partnered with Lyft, and made a $500 million dollar investment in the ride sharing company 2 years ago.  Thus, GM has made some investments in key new markets and technologies, yet is behind in adjusting to sedan sales which fell by 11 % in third quarter.

At the same time the auto market is undergoing rapid change, GM executives have been taking care of themselves as a first priority.  Wolf Richter, editor of the Wolf Report blog reports that GM spent $13.9 billion in stock buy backs since 2014.

Sources: Wolf Richter, Wolfstreet.com, Y- Charts, Marketwatch – 11/27/18

GM stock purchases took shares off the market to reduce supply, while expecting stock demand would move the share price up.  However, as Richter notes GM share price has actually fallen 10 % in that four year period. So, much for boosting the price of shares to pad the executive stock compensation plan.  Instead of investing in new technologies, research, new plants, employee training, increasing wages and other key transition programs GM completely wasted $13.9 billion dollars.  Poor management judgement is now causing 15,000 workers to lose their jobs in the U.S. and Canada.  While we will not know over the last four years if good business investments would have prevented all the layoffs it is certain the economic damage to Midwest and Canadian communities could have been significantly mitigated.

Next Steps:

Goldman Sachs estimates that S & P 500 corporations will complete $1.0 trillion dollars in stock buybacks this year.  One trillion dollars will be wasted by U.S. corporations as productivity investments have lagged over the past 5 years, and average real wages have been stagnant for the 80 % in income since the Great Recession.  As the GM example demonstrates, besides hurting employee wages, making U.S. companies less competitive and inflating stock prices now workers are losing jobs due to executive mismanagement and myopia on stock price.

Prior to 1982, the Securities Act of 1934 held that stock buybacks were a form of ‘stock price manipulation’ and were not allowed by the SEC.  This policy was overturned by an E.F. Hutton executive, John Shad as SEC Chairman appointed by President Reagan.  He created a ‘safe harbor’ policy where corporations could purchase their own stock, only a certain times during the trading day, with disclosure quarterly and blackout periods prior to earnings reports. Corporations have used buy backs since then but stock buy backs took off in 2015 to $695 billion and almost doubled to $1 trillion for 2018.

We recommend an end to the stock buyback safe harbor provisions and a return to the pre-1982 policy, management in many corporations has lost their bearings on why the company exists – first priorities being workers, their families, customer communities, society and the nation not their own compensation plan. Making the corporation profitable and valuable to shareholders is a means to achieving our societal goals of a decent wage, quality housing, and the ability of families to support their children.  In October, we posted an analysis on how major corporations like Boeing, GE and American Airlines underfunded their pension plans while executing  billions of dollars in stock buy backs. Executives need to take responsibility for full funding of all pensions not wasting money on stock buy backs. It  is time with so many middle class and economic investment needs that corporations receive a direct SEC policy shift to end stock buy backs.

Building the Economic Power of Youth

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: opportunityinsights.org

Last week a non-profit research and policy organization, Opportunity Insights published a startling map and database linking the success of children in poverty to their neighborhood to climb out of poverty.  A key finding is that children growing up in neighborhoods where there is low income continue to live in poverty as adults.  Though of more interest is that all factors being equal children where there where two parents in the household did significantly better than children in one parent households.  Family structure made a significant difference.

Source: Opportunity Insights – 10/4/18  (areas in blue, children who grew up in low income areas tended to make more money, children in dark red far less)

Certainly, households with just one bread winner, generally automatically means that there  is less income in that household.  Opportunity Insights notes that often single parent communities do not have the same ‘social capital’ as two parent communities.  In terms of parents that can support their children, tutoring after school, going to after school activities and a father who is there to provide support to the mother.  Particularly, for boys having a father in the household seemed to be determinative in future opportunities boys enjoyed in adult life.  Key to forming the right skills for a higher income is an example of a mother or father working a job, focusing on nurturing their children’s skills and being an advocate for the child in the school system.

John Hope Bryant, CEO of Operation Hope, a for purpose non-profit group helping low income people through financial coaching and skills development to build a secure economic future. Bryant notes that 63 % of middle income Americans cannot afford a $500 car repair or $1000 in emergency health care. Without financial independence, people cannot protect themselves from social injustice, economic manipulation and profiling, People need to learn how to build personal ‘capital’ to dig out of the community that keeps them in poverty. He observes growing up in Compton, a California low income community, that children in the neighborhood grew up with no positive aspirations.  They continue to be surrounded by negative roles models: drug dealers, loan sharks, and criminals who have the economic power.  Yet, they don’t have the ‘capital’ or knowledge on how build wealth in a positive way and key relationships.  A person with no hope is a dangerous person, who becomes angry, vengeful and desperate. Bryant says there are three types of issues for children in poverty neighborhoods:  low aspiration and few opportunities for 25 % of the problem, poor role models and a negative family and community environment for another 25 % and finally low confidence and self-esteem for 50 %.

Next Steps:

The Labor Force Participation Rate for  adults ages 24 – 54 is 82.5 % is at a new low, and has been declining since the Great Recession. The opioid crisis, a symptom of the hopelessness that many of our young people feel today is causing millions of otherwise productive people to not join the labor force.  Deutsche Bank completed an analysis of how the opioid epidemic is hurting labor participation in many states.

Sources: OECD, Deutsche Bank Research – 9/10/18

Researchers found that states in the South (overlays the poverty areas in the neighborhoods map above) Alabama, Mississippi, Arkansas and East Central – West Virginia there is a high correlation of opioid prescriptions and labor force rate.

It clear from a moral, ethical and economic standpoint we need as a country to invest in our young people who face increasing challenges in becoming upwardly mobile.  How do we do it?

John Hope Bryant is investing in people in these neighborhoods by providing families and individuals with tutoring to increase credit scores (maps of FICO scores of under 500 map into the above areas too) and how to get low cost loans.  Bryant sees developing entrepreneurial skills in starting new businesses as a way to move economically ahead as well.  More important is learning how high income people became wealthy through building relationships and developing the courage and skills to start a new business.  As he notes, moving from one failure to the next to learn and see trial and error as a necessary part of the path toward creating a product or service of value. The entrepreneurial process builds self-esteem and confidence so crucial in transforming lives and creating opportunities.

Opportunity@Work, a non-profit group originated in the Obama White House, then spun off is tackling the education issue head on with training focused on helping those outside of the economic mainstream to get jobs in the new economy. The group helps candidates get the skills they need in high tech, then making the connection between employers and workers with a non-traditional resume.  In addition, they are pioneering new ways to finance education so that students will not be saddled with thousands of dollars of education debt when they start their careers.  Opportunity@Work is targeting assistance for 1 million people to get hired in the next decade.

We have proposed that a Marshall Plan-like initiative with an entrepreneurial approach be led by the federal government, venture capitalists, corporations, health providers, non-profits and universities to gain a beachhead in many low income communities particularly in rural areas of the Midwest and South. The Heartland Initiative brings key leaders in many fields to focus with high impact on enabling a community and its people to join the economic mainstream from upgrading Internet speeds to providing local access to affordable health care and counseling for mental health issues.  It is a multi-faceted project because there are connected issues, it is one thing to provide a young person with training, but if they are still taking opioids they will fail a drug test by a hiring firm.  Details about the Heartland Initiative are in our post, calling for a new approach to social programs using an entrepreneurial model with seed financing and cooperative groups to spring into action.

We need to bring those that have been on the economic sidelines back into the mainstream of our economy if we are to make any progress as a nation on building an economy that works for all.  With mounting national debt in the trillions of dollars, student debt at $1.5 trillion and opioid deaths at epidemic levels we need to see building the economic power of our youth as one solution to our economic challenges.

Building Economic Independence Can End Hopelessness

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: operationhope.org

The greatest threat to a civil society are people without hope.  They are angry, feel the system is rigged and look for scapegoats as the cause of their poor economic standing. This group left out of the economic mainstreams is located in rural regions where globalizations has taken jobs, and in inner cities where companies have fled to the suburbs. These people that John Hope Bryant calls, The Invisible Class, are off the economic grid, and largely left out of the political mainstream as well except when they demonstrate on the streets when a policy has gone too far.

Economic independence is crucial if we have an economy that works for the 99 % not just the 1 %. To build economic opportunities our governmental policies and programs must ensure a level playing field for all people and support a high quality education for all income levels.

It is about building our society for the common good. It means enabling building enterprises, non-profits and organizations that serve people. Our policies should be about enabling the ability of people to build. We need to rethink our framing of labor from a cost to an asset which it always was. Capital means in the Latin root ‘knowledge in the head’ derived from the capital end of a column at the top in a building.  Poverty is not about money so much as a dearth of relationships and know how to build the skills toward a productive life, where money is a indicator of success.

Somehow the early accountants working for middle age Venetian families invented double entry accounting systems with debits and credits called assets money, land and equipment while labor was labeled an expense. Labor is viewed as an expense to this day because the owner-entrepreneur has to pay employees to work.  Workers have had the ‘cost’ yoke around their necks ever since.  Yet, are employees really a cost?  The staff are the ones doing the work, creating the product or service and solving the problems – money does not create the product or service only people do. CEOs are often heard to say that employees ‘are our key asset’ but then treats them like second class citizens in making policies in the company, gaining a fair share of the profits or enjoying job hours flexibility. Today, Wall Street applauds wages being stagnant for the 80 % while profits go up and wealth accumulates for The Elite.

We need to change our perspective about people and their labor. How do we build an economy that works for all? One way is to focus on enabling, The Invisible Class with economic independence.  Bryant points out that most of these people have credit scores at 550 or below, so they can’t get jobs, buy automobiles, or purchase a home.  In short they can’t participate in the economic mainstream. Bryant’s Operation Hope program teaches those in poverty how to increase their credit scores, start businesses and strategies for accumulating wealth.  By bringing them into the economic mainstream they can begin to feel more confident about their lives and the future. Operation Hope has partnered with Bank of the West who invited Bryant to locate Operation Hope offices inside their branches. Bank of the West in a far reaching vision understands educating prospective customers on the good use of credit and finance will make them better customers and likely to come back for additional services.

We need to learn from programs like Operation Hope, understand its key elements and see how to implement its tenets and power on a major scale like the Marshall Plan if we are to make a dent in the level of poverty in the Heartland or cities.  The only way we are going to increase the size of our economy in a fundamental way is to empower millions of workers who are out of the economic mainstream.  We have more companies going bankrupt then new businesses being started for the first time since WWII. It  is time to recognize we have people who are assets with innovative skills to can build an economy that works for all.

Working Class Left Out of Economic Recovery

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: thedailybeast.com

As the stock market continues to defy gravity and news stories herald the second longest economic recovery since WWII, yet many working class people are left out of the recovery.  A recent report by the St. Louis Federal Reserve shows that non college graduates have lost ground or are just maintaining their economic status since 1998.

Sources: The New York Times, Federal Reserve Bank of St. Louis – 9/14/18

College graduates continue to make strides in income and dramatically increased wealth versus the median since 1989.  Though college graduates who were Black or Hispanic actually saw a decline in their wealth levels versus the median.  However, non-graduate whites while gaining some income versus the median saw their income largely stagnant and wealth accumulation flat.  Non graduate Hispanics and Blacks fared even worse than whites in the case of blacks making zero progress over the median in wealth and half the progress of whites in income over the last 30 years.

William R. Emmons, an economist at the St. Louis Fed and a co-author of its report, noted in a New York Times story, ‘the most striking result was the steep declines among white families headed by someone without a college degree. Members of this group — labeled the white working class — not only were left behind financially, but also lagged in other measures of well-being, like self-reported health, homeownership, and marriage or cohabitation rates.’

Next steps: 

We have noted in posts the urgent need for a comprehensive ‘Marshall Plan’ like imitative in our nation’s Heartland.  Unemployment is two to three times higher there, high quality education is not as accessible, the opioid epidemic is gripping major sections of the Midwest and rural South while there is a failing infrastructure with slow Internet speeds.  All this lack of investment leaves our Heartland citizens out of the economic and career opportunities that other regions have enjoyed since the Great Recession.   We recommend that the federal government provide seed funding, borrowing from the successful Silicon Valley mode of venture investment, for partnerships between universities and colleges to develop innovation centers for job training, health services, enhanced apprenticeship programs, startup incubators and installation of high speed internet fiber optic systems.  There is no time to waste, this initiative needs to be implemented immediately to prevent even further widening of the economic gap between coastal regions and our Heartland.

Declining Mobility Limits Millennials Careers, Economy

 

Image: dailymail.co.uk

More millennials are living with their parents than ever before due to lack of income, availability of housing and marriage later in life.  Moves by people under age 35 are continuing to decline.  Seniors are moving a bit more but overall they are staying put in their homes for retirement, as the cost to move to a new home is soaring.  Home prices have increased on average by 6.7 % per year over the past five years, skewed toward large square foot homes for upper income buyers.

Source: Trulia – 1/31/2018

Overall Americans are not moving like they used to in the 1990s, and before the Great Recession. In 2017, 34.9 million Americans moved to new residences, translating to a household mobility rate of 10.9%, which is the lowest rate in the last 50 years since the Census Bureau has been tracking this statistic. Lack of mobility is showing up in total household formations including rental units, new and existing home figures.  For all of 2017 there were only 400,000 household units formed, notice this is a similar pace to the aftermath of the Great Recession.

Source: Federal Reserve of St. Louis, 1/2018

The mobility that is taking place is from major cities to major cities or coast to coast.  We noted in our post on Heartland Economics that one of the issues that faces many rural regions in the South and Midwest is lack of new jobs, digital infrastructure, health and education services.  When young people in these regions cannot receive the education they need to build a career where there are jobs in the cities they stay where they are in low wage jobs with few prospects of advancement. The opioid epidemic is worst in rural regions in the country where a sense of hopelessness has set in for many people.  While in the last quarter some of these regions have seen an increase in jobs, this increase in economic activity is likely to be a passing surge from a very low economic base to begin with that will not last without long term investment.

Next Steps:

Why should we be concerned with lack of workforce mobility?  Because, when people do not move to take on new jobs, or start families or get away from home, home purchases decline, furniture sales drop, appliance sales fall and the overall economic life blood of our economy stagnates. What do we need to do?  Raise wages for workers to a decent level in each metro and rural region of the country, so people can build a nest egg and make a down payment on a home.  Rental unit pricing needs to be addressed in a way that is fair to the multiunit owner while holding down rental costs. The most recent Tax Bill passed in December of 2017 eliminated the provision for tax deductions by employers or workers for unreimbursed moving expenses.  This provision needs to be reinstated to drive the costs of moving down.  Interest on first mortgages should be made tax deductible for all regions of the country with a special emphasis on low income first time buyers. In rural regions we recommend special tax zones be established to offer incentives for investors to setup businesses there, with partnerships with local universities to build incubators for startups much along the model pioneered in Silicon Valley yet tuned to the needs of the region.  The size of our workforce is declining, we have young people staying at home so we need to address the issue of lack of mobility head on to provide the  life opportunities to our young people that earlier generations enjoyed.

Driver Connects Patients with Cancer Treatments

Image: wahospitality.org

Cancer treatment in the U.S. cost $87.8 billion in 2014, with 1.7 million new cases being diagnosed each year.  In a analysis by the American Cancer Society, patients paid $3.8 billion in out of pocket expenses for their care in 2014.

Source: American Cancer Society – 4/2017

One of the major problems in cancer care is the physician centric model the U.S. has today, which can create major delays in treatment and sometimes mismatches the patient with a specific type of cancer with the correct care program.

Driver, a startup with over $100 million in venture backing has developed an application on the Internet to help patients correctly identify the type of cancer they have and match them to clinical trials and treatment programs. The software allows the patient to be proactive about managing the course of treatment without being totally dependent the treatment processes of their healthcare provider. Driver has partnered with the National Cancer Institute (NCI) to provide access to the latest information on cancer treatment trials. NCI has also validated the matching process that Driver employs.

“There is an air gap between knowledge and patients that has existed in cancer care since the 1850s,” said Driver co-founder Will Polkinghorn. “We want to close that space, “ in a recent Bloomberg interview.

The Driver app puts the patient in the driver’s seat so they are empowered to take command of their care.  As time is of the essence in cancer care, educating patients and giving them access to the information to initiate their care is crucial.  While the target is to provide the application and cancer identification workup at low cost, the initial trial starting this month in the U.S. and China will cost patients $3,000.

We have been an advocate of innovative ways to provide health care to patients.  Empowering patients to take direct management of their care instead of being dependent on a bureaucracy in a health provider network is an interesting approach.  Providing updated information, access to clinical trials with direct identification of the specific cancer the patient has, will possibly ensure greater accuracy and speed in the treatment process, thus saving more lives and reducing costs. Innovative solutions that disrupt the present status quo of extremely expensive health insurance, provider, drug manufacturers and federal government complex need to shift if we are to see a lower cost, higher quality healthcare system.  In particular, our Heartland healthcare providers are falling behind in providing standard health care to our people.  We need to turn this spiraling down in care with soaring prices, now.

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