U.S. Births Down In 2009

CAVEAT: Trapped in a blog time warp - originally posted in May.

Births fell from an all-time high in 2007 of 4,316,233 to 4,131,019 in 2009, a decline of 4 percent. . . . In 2007, there were 69.5 births per 1,000 women ages 15 to 44 compared with 66.7 in 2009. This is referred to by NCHS as the fertility rate, but is also often called the general fertility rate (GFR).



By age, the largest decline was among women ages 20 to 24. Childbearing fell from 106.3 births pr 1,000 women in that group in 2007 to 96.3 in 2009, a 9 percent decline. . . . Fertility among the 25-to-29 age group, the next older, fell by 6 percent. That group, which has had the highest rate in recent years, dropped from 117.5 in 2007 to 110.5 in 2009. The decline was far less, only 2 percent among women in their 30s and even rose among women in their 40s, although latter group has much lower rates. . . .



[F]ertility rates have fallen . . . : 3% for non-Hispanic whites between 2007 and 2009, 4% for non-Hispanic blacks, 9% for Hispanics, 3% for American Indians and Alaskan natives, and 4% for Asian and Pacific islanders.

From here



The likely cause for the slump is the financial crisis and recession that followed. Birth rates are mildly cyclic. The U.S. has one of the highest fertility rates in the developed world, which was hovering at just over the replacement rate in 2007. The slump probably brings the U.S. to a bit below the replacement rate (which is about 2100 children per 1000 women per lifetime).



The shift accentuates the recent trend of fertility rates declining more for lower income, minority, and younger women, while declining less or increasingly among more affluent and older women, in substantial part due to fertility treatments (a trend that has also greatly increased the number of multiple births and parental age related congenital conditions). The last decade or so is the first time in almost a century in which affluent people have more children than less affluent people.



It is also a fit to the fact that the recession has dampened new household formation, and has pushed people into high school and college and out of the labor force.



While teen births are at near record lows, about 40% of all births are to unmarried mothers, including majorities of births to African-American and Native American women.



As an aside, fertility rates in some of the Baltic states are finally starting to recover after a profound post-communist era slump.

READ MORE - U.S. Births Down In 2009

Bust Hit New Single Family Homes Strongest; Employment Recovery Slow

The Real Estate Bust Was New Single Family Home Investment Dominated

Many components of new real estate investment took a hit in the housing bubble collapse that triggered the financial crisis. But, the dominant component of reduced construction investments has come from new single family homes. This is about 20% of the pre-bust peak right now and still well below late 20th century historical norms. New single family home investment plummeted to far below historical levels in the housing bubble collapse and remains where it fell today.

Other components of construction investments (single family home improvement, multifamily, commercial, etc.) have merely experienced a modest bump in the road and aren't far below pre-financial crisis levels today, although they too have experienced a slump.

The Employment Recession

Meanwhile, while the latest monthly job creation figures weren't horrible, in the bigger picture, the U.S. economy is in a pickle.

The number of jobs lost relative to the pre-recession peak is currently about the same point as it was at the deepest post-WWII recession where it stayed for only a couple of months in 1948. The situation has been that bad in the cuurrent employment recession for about two year and two months.

Jobs lost relative to pre-war jobs has been worse than the five months it spent there in 1957, and the situation has been that bad for about two yearsand four months. The employment recession has been worse than every employment recession since 1990 for two years and eight months already. These are the so called "post-modern" employment recessions which have tended to be more shallow, but longer lasting.

Four months from now, this will be the longest post-Great Depression employment recession in history, surpassing the four year long job slump that followed the tech bust in 2001.

It is almost certain that this employment recession will last much longer than four years. It is very unlikely that employment will recover to pre-financial crisis levels anytime in 2012 either given the trendlines of this employment recession.

Nothing that is going on in the domestic policy agenda or in the global economic situation suggests that the United States will be changing these trendlines dramatically any time soon. The U.S. government and almost all states (and most first world foreign countries) are taking Hoover style austerity measures instead of injecting demand into the economy with Keynsian/New Deal type stimulus efforts. The only remotely political plausible step that the U.S. could take which would provide a government spending boost that could pull the economy out of the jobs recession sooner would be to start some major new war (a solution that I heartily disfavor).

Given the growth in the labor force over three or four years that occurs naturally, the United States will be hard pressed to return to pre-financial crisis employement per population levels until late in 2013 at the earliest, and it could take until 2014 or later, or might never reach pre-financial crisis levels and produce a structural reduction in the amount of people employed in the U.S. relative to its population.

Current trendlines for this employment recession suggest a recover to pre-financial crisis levels sometime around the fall of 2013, about six year after it started.

2012 Election Implications

Naturally, if you are President Obama's campaign manager, this is not good news. Empirical studies of the impact of the economy on voter behavior in the election suggest that the relevant time frame starts around January of the year of the election, i.e. January 2012 in this election, about five months from now. Nobody thinks that the economy will have recovered to pre-financial crisis levels by then in employment, which is the most politically sensitive economic indicator. A double dip recession isn't out of the realm of possibility.

Republicans in the House of Representatives and the newly inked debt limit deal, however, severely restrain his ability to use government spending and employment to change the current trend, or enact major new economic legislation of any kind. They are playing to deny him any victories to campaign upon and their desire to deny him victories so will surely only heighten as the election grows closer.

Obama can try to blame Republicans for inaction, but only if he first makes a dramatic change of course and starts vigorously advocating for a course of action that Republicans refuse to take. Obama can hope that the Republicans nominate someone unelectable whose campaign will self-destruct and alienate the American people, but he has essentialy no say in that process. Republican brinksmanship in the debt limit deal wasn't well played in the court of public opinion. But, counting on Republicans to screw up isn't exactly a pro-active strategy that inspire much confidence.

The optimist narrative says that a Republican resurgence peaked too soon for Republicans to experience any further gains in 2012. The Tea Party gains in the off year 2010 election were a high water mark at which President Obama had already hit bottom and the Republican Party's enthusiasm levels had surged as much as they could. But, in 2012, voters can see from two years of Tea Party efforts to govern in Congress and in state governments where they made inroads, that their style of governing has little to recommend it. Divided government has also denied President Obama any major acts that could rally Republicans and independents against him as health care reform did in the 2010 election. Obama's major legislative steps are now old news, the credibility of efforts to frame him as a threat to gun rights that thrived in 2010 hasn't materialized.

U.S. troops will essentially be out of the Iraq War that President Obama campaigned against and reduced U.S. involvement in dramatically. And, President Obama is already starting to heed bipartisan discontent over the U.S. commitment in Afghanistan and may be able to back down from it without paying a political price for doing so now that Obama bin Laden has been killed on President Obama's watch. The bipartisan debt deal, which included defense budget cuts that President Obama's own new Secretary of Defense Panetta has already started to publicly complain about loudly, also makes it hard for Republicans to campaign on the need for more defense spending.

Republicans are trying to make the limited U.S. military involvement in Libya look bad. But, to do so risks looking like they back Gaddafi over the revolutionaries and the Arab Spring movement generally, but they are likely to be in a stronger position by the time the election comes around than they are now, and are likely to seem less like an Islamist radical political movement than some pundits were worried that the Arab Spring movement might have been at first. In any case, President Obama has already stepped back from an already brief level of central U.S. involvement in that conflict which France and Britain have taken the lead in managing, and may be in a good position to reduce U.S. involvement further before Republicans can form a united and vocal front in opposition to it that becomes part of the national conversation. This operation is unlikely to produce many U.S. casualties, and it gives Obama some way to tell the American people that the vast sums we spend on the defense budget is producing some results somewhere, an argument that pro-defense budget Republican factions will be wary of undermining. Republicans are not natural anti-war activists.

Presidential re-election campaigns are fundamentally referrendums on the incumbent. A Republican Presidential nominee will bear the burden of proof with the American people to show that President Obama needs to be replaced and will have to do so without the enthusiasm gap of 2010. This will be a tall order for anyone that the Republican base, newly infused with Tea Party extremists can feel comfortable supporting.

The Republican primary, while providing free press to the Republican nominee that will help familiarize general election voters with Republican policy frames, is also almost invariably going to remind voters just how extreme some of those candidates are and generate a fear factor that could seep to independents and even moderate Republicans if the ultimate nominee is too extreme. No consensus has started to gel in the GOP nomination race, which still lacks a clear front runner. Since some Republicans in Congress will surely hitch their wagons to more right leaning nominees whose campaigns will crash, burn and discredit those candidacies, the Presidental race prove to be a drag on some Congressional campaigns. Strict GOP adherence to a hard right party line over the last two years will also give Republicans fodder in their campaigns in newly redrawn and unfamiliar Congressional districts.

All in all, 2012 looks like it will be a base v. base grim war of attrition that will be fought without enthusiasm or strong central themes by both parties.

READ MORE - Bust Hit New Single Family Homes Strongest; Employment Recovery Slow

Recovery Still Not Complete

The U.S. GDP is still not back to pre-recession levels after adjusting for inflation. Per capita GDP is even further behind and will take even longer to return to pre-financial crisis levels.

Arpit Gupta notes that incomes fell significantly below consumption about a year and a half before the financial markets collapsed. Borrowing against inflated housing bubble home values postponed the time of reckoning for this excess consumption for a while, but not indefinitely.

READ MORE - Recovery Still Not Complete

An uneven wealth recovery

The wealth gap between whites and minorities widened during the financial crisis, quite the opposite of what many people, including me, had expected. Why?

The financial crisis was preceded by and largely caused by some regional housing bubbles (mostly in states that had mortgages perceived as non-recourse (California and Florida) or housing markets driven by investment from those states (Arizona, Nevada)). Measures of economical fundamentals in the housing market, like inflation adjusted housing prices and price to rent ratios have now returned to pre-bubble levels. So the wealth created by housing appreciation in regional housing bubble markets is gone and mostly likely gone for good. These regions are disproportionately Hispanic (wealth down about 66%) and Asian (wealth down about 50%).

The financial markets, meanwhile, which crashed on the housing bust, have largely recovered, because the financial markets weren't in nearly as much as a bubble as non-financial markets. Those assets are owned disproportionately by whites (wealth down about 16%).

I'm still surprised. While these results make sense for working class to upper middle class families, I'm surprised that the blows suffered by the upper class, who are disproportionately investing in investments like subordinated bonds and investment bank shares that were crushed in the financial crisis and have not recovered, and by stock options, which also seem not to have recovered, somehow weathered the financial crisis with surprisingly little long term harm to their net worth. Perhaps their investments in hedge funds, which did worse than billed but better than almost anything else in the financial markets, helped.

READ MORE - An uneven wealth recovery

The Tax Code and Systemic Risk

Simon Johnson at the New York Times discusses whether tax reform could make the financial system safer, for example, by reducing tax incentives to favor debt over equity which increases leverage in the economy and makes firms more vulnerable to economic downturns as a result. The topic is near and dear to my heart as I presented on May 29, 2009 at the Law and Society Conference in Denver entitled "This Financial Crisis Was Brought To You By The Internal Revenue Code" on essentially the same subject.

Some key points of my paper were these:

1. Aggregate tax rates don't have much influence on economic growth, but incentives to engage in one kind of economic activity rather than another good economic substitute for that kind of activity are extremely influential. For example, historically very specific provisions of the law regarding which kinds of charitable giving are entitled to tax deductions have profound influences on the porportion of taxable gifting made by that means. A wig tax destroyed the wig as a fashion accessory. Tax policy has a strong influence on home ownership levels in mortgage loan to value ratios in Europe and was an important factor in the housing bubble in places like California that lead to the financial crisis.

2. Another important but subtle difference was the tax distinction between obtaining a second mortgages for the non-conventional part of a mortgage loan (i.e. beyond 80% loan to value), and private mortgage insurance. Both protect the first mortgage holder in the same way. But, tax law favored second mortgages over private mortgage insurance during the housing bubble. This was problematic, because the insurance regulation model was much better at regulating systemic downside risk than the mortgage securitization market that governed underwriting of second mortgages.

3. The intense systemic losses that flow from systemic biases towards leverage in the financial sector was illustrated by the history of repeated cycles of mass bank failures during recessions as a result of industry-wide overleverage by investor owned banks until commercial banking was subjected to FDIC regulation, while mutual banks, which gave control to depositors who are a form of lender, effectively transforming them into equity holders, did not experience this frequency of bank failures in economic downturns. Management and ownership downside loss relative to upside gain incentives turn out to be pivotal in the degree of risk that businesses take on in the absence of direct government regulation of capitalization.

4. I also illustrated how a change in government policy in 19th century Japan that changes a system of equity based land finance to a debt financed system of land finance produced a mass wave of foreclosures then.

5. I explored how overleveraging made the housing bubble possible, how that overleveraging was facilitated by non-bank lenders who has strong incentives to in turn leverage their own balance sheets which the FDIC regulation of the commercial banking sector was not there to stifle.

6. The investment banking industry, in turn, poured money into these non-bank lenders making risky decisions in their investing decision because they had turned from an equity financed partner owned structure with a brokerage model to a highly leverage investor owned structure investing on their own accounts, and because they had heads I win, tails you lose incentive stock option and bonus based compensation structures. The shift in the investment banking industry business model was driven in part by the strong tax incentives for debt over equity that drove the investment bankers to seek the deregulatory measures that allowed them to restructure in this fashion.

7. This culminated in every major stand alone investment bank in the United States either going bankrupt or reinventing itself as a regulated commercial bank, in Lehman Brothers, one of the oldest investment banks on Wall Street, which was a key financier of mortgage backed CDOs and credit default swaps, going bankrupt, in the government purchase an 80% stake in the major insurance company AIG, in order to prevent defaults on credit default swaps it issued from destroying the financial sector, and so on. Commercial banks which were barred by the FDIC from acting on tax incentives to overleverage, in contrast, failed at an only slightly elevated rate relatively to other recessions.

8. I explore the fact that one of the reasons that this spread to the real economy with the GM and Chrysler bailouts that followed, was because these firms were vunerable because they were overleveraged. Defined benefit pensions (which look like debt obligations to corporations unlike defined contribution plans) and reliance on bonds rather than stocks for capital were both key factors here.

9. The key culprits in the tax code, in the end were: (1) the corporate tax law debt-equity distinction and incentives, (2) incentive stock option compensation tax incentives that encourage excessive risk taking by public company executives, (3) the home mortgage interest deduction and in particular the detail that it allows deductions up to the full value of the house for second mortagages and vacation homes but not for private mortgage insurance for first mortgage holders who have a greater incentive to be cautious in underwriting.

The take away lessons were that while we have never been successful at preventing recessions from happening, that tax code reform that ends tax subsidies of debt relative to equity and that would encourage executive compensation and entity financing approaches that give decision makers a reason to fear downside losses would lead to a more resiliant, less risk biased economy.

Eliminating the bias that favors debt over equity in combined C corporation and shareholder income taxation has been a darling of academic economists and tax lawyers (for good reason) for decades, particularly after the General Utilities doctrine removed the best tool for circumventing the distinction. Incentive stock options have always been a concern of those worried about unfairly low tax rates for the rich but also have impacts important the systemic risk in the economy on corporate executive decision making by removing downside risk while rewarding upside gain for executives. There is more than one way to reduce the incentive to overleverage residental real estate and not unduly favor buying with a mortgage over leasing a residence, but restraining the incentives where they are doing the most harm, even without total reform of that area of tax law, would have major stablizing economic effects for the nation.

READ MORE - The Tax Code and Systemic Risk

Principal Reductions In Mortgage Modifications Follow Pattern

Banks will sometimes modify mortgages to reduce principal if they are already shown at a discount on their books due to an acquisition from another bank, especially if the mortgages are currently not in default, but not if the write down will produce an accounting loss for the bank.

It seems that Wells and JP Morgan are happy to do principal reductions only on the mortgages they bought at a discount from Wells Fargo and WaMu respectively; Bank of America, meanwhile, which inherited a bunch of these loans when it acquired Countrywide, is not doing principal reductions, and I don’t think it’s a coincidence that the Countrywide loans were bought at very close to par.

The behavioral psychology here is very easy to understand. No bank wants to admit that it wrote idiotic loans, and write down its own assets from par. Meanwhile, it’s much easier to write up an acquired asset, if the amount you reduce the loan is less than the discount you bought the loan for in the first place.

Economically speaking, however, what the banks are doing here does not make sense. Either writing down option-ARM loans makes sense, from a P&L perspective, or it doesn’t. If it does, then the banks should do so on all their toxic loans, not just the ones they bought at a discount. And if it doesn’t, then they shouldn’t be doing so at all.

The truth is, of course, that banks should be doing principal reductions, and they should be doing them on lots of their loans, rather than just the ones they bought cheap. And the fact that they’re already doing this, entirely voluntarily, on some of their loans is the best possible indication that it makes perfect economic sense to do so on all of their loans. Even if doing so might involve admitting that the subprime crisis still isn’t fully over.

The implication is that the financial accounting reform may be a key to responding more rationally to the current and future asset bubbles.

The results also shed doubt on the prevailing assumption that banks act in an economically rational way, which makes reforms, like cramdowns in bankruptcy, that force lenders to act rationally rather than based on the reputational effect of a decision for actors in the organization look attractive.

READ MORE - Principal Reductions In Mortgage Modifications Follow Pattern

Jobs Situation Still Dismal

Job losses in this recession remain, by far, greater and longer lasting than in any economic downturn since the Great Depression. While economic data from before the Great Depression aren't as precise, the financial crisis that began in late 2007 is still in the running to be the second worst economic downturn in U.S. history from a jobs perspective. Only one U.S. recession since the Great Depression has had a higher peak unemployment rate, the early '80s recession with a peak of 10.8 percent, but it was a short sharp shock that quickly bounced back by comparison.


In June, the private sector created about 57,000 jobs, about half the number neeed to keep the unemployment rate constant. But, those gains were muted by the loss of 18,000 public sector losses.

The unemployment rate increased from 9.1% to 9.2%, and the participation rate declined to 64.1%. Note: This is the percentage of the working age population in the labor force.

The employment population ratio fell to 58.2%, matching the lowest level during the current employment recession. . . . [a] measure of labor underutilization that includes part time workers and marginally attached workers, increased to 16.2%, the highest level this year.

The BLS revised down April and May payrolls showing 44,000 fewer jobs were created than previously reported.

The average workweek declined slightly to 34.3 hours, . . . "average hourly earnings for all employees on private nonfarm payrolls decreased by 1 cent to $22.99. Over the past 12 months, average hourly earnings have increased by 1.9 percent." . . .

Through the first six months of 2011, the economy has added 757,000 total non-farm jobs or just 126 thousand per month. There have been 945,000 private sector jobs added, or about 158 thousand per month. This is a better pace of payroll job creation than last year, but the economy still has 6.98 million fewer payroll jobs than at the beginning of the 2007 recession.

There are a total of 14.1 million Americans unemployed and 6.3 million have been unemployed for more than 6 months.

Despite the dire situation, nobody in Washington is talking about stimulus and public sector layoffs killed 188,000 jobs in the first half of this year at a time when the economy needs more job creation, not less. The number of people working part-time because they can't find full time jobs and the number of people unemployed for more than six months are at near record highs.

Jobs have been below their peak for 42 months and are nowhere near returning to where they started. The longest previous post-war recession in jobs terms (the decline and recovery 2001 tech bust) created jobs to replace those lost in that recession in 48 months. But, that jobs slump was much more shallow; at its worst point 2% of payroll jobs were lost, while we are still 5% below peak now and we 6.3% below peak at the low point.

NPR noted this morning that GDP has actually been increasing for two years now, but the jobs situation is not catching up. Businesses are hoarding cash instead of investing. Interest rates remain remarkably low, but that isn't spurring more spending and borrowing. The leading economic indicators are negative, suggesting that we might even face a double dip recession.

This is happening at a time when the immigrant population of the United States is shrinking or constant. Inflation remains modest.

Politically, we are about six to eight months from the point at which the state of the economy starts to influence the next Presidential election. More pressingly, the U.S. will break though its debt ceiling by August 2 if corrective action isn't taken, possibly triggering a constitutional crisis or a default of the U.S. national debt that could have catastrophic economic consequences for the nation by driving up the interest rate that Treasury bond holders are willing to accept at a time when U.S. bonds have been a safe haven as many other developed nations are having to restructure or default on their sovereign debts and crisis after crisis looms on the horizon.

READ MORE - Jobs Situation Still Dismal

SCOTUS Dislikes Class Actions

Today, a conservative majority of the U.S. Supreme Court in a 5-4 decision, held that a sex discrimination case against Wal-Mart on behalf of its 1.5 million female employees could not be certified as a class action lawsuit. (There was wide agreement that the backpay due in the case could not be handled on a class basis, but there was deep dispute over whether the existence of gender discrimination at the company could be litigated in that manner.)

This is the latest of a string of cases that have disfavored class actions, such another this term that held that the right to conduct a class action arbitration could not be implied from a simple arbitration clause and that the fact that an arbitration clause expressly prohibits class actions could never be sufficient to render it unconscionable under a provision of the federal arbitration act that allows arbitration clauses to be invalidated if they would be unconscionable under state law.   The rulings have largely been statutory or based on court rules, thus they are more easily overriden than rulings based on constitutional grounds, but the rulings are colored by a deep distrust of the class action generally.

Concerns about class actions have also been a central to the tort reform movement, and have been an area where the movement has achieved more than one significant victory, by imposing major procedural limitations on securities law class actions, and by giving the federal courts jurisdiction over many class actions arising under state law that would not qualify for diversity jurisdiction.  Today's ruling, interpreting the class action rule in the federal rules of civil procedure, thus, has wider implications for class actions generally, than it would have a couple of decades ago, because more kinds of class action lawsuits are confined to the federal courts.

To some extent, the distate of big businesses for class actions, and plaintiff friendly group's support for them is simply a matter of mathematics.  In a situation where there are many people with small claims against a single business or small group of businesses, large numbers of people with claims will never choose to bring valid lawsuits because the litigation cost economics don't make sense, and except in the very clearest cases, the verdicts will be a mixed bag.  In contrast, a win in a class action will afford a remedy to everyone with a claim (or a proxy for them) and a win on behalf of all claimants is possible even when a win on the liability issue isn't a sure thing in any given isolated case.

There is also considerable controversy over the fact that "coupon settlements" and contributions to non-profit caues often replace money awards as typical class action remedies, that class actions are expensive to litigate and rarely result in a resolution on the merits by a judge, that there are often multiple competing class actions that must be consolidated arising from single incidents, that forum shopping can be especially problematic in these cases, and that the cases can seem to be attorney driven rather than focused on providing a remedy for a client.  The high cost and long litigation times involve in class action litigation don't speak well for a process which was invented to reduce litigation costs and handle numerous related small claims more efficiently than traditional litigation efforts.

On the other hand, class actions can put pressure on big businesses to comply with the law even when the state regulators of an industry are asleep at the switch, underfunded, run by a political appointee hostile to the agency's purpose, or are the victim of capture by the regulated industry.  Class actions can close the gap between the laws on the books regulating an industry or practice,  and the law as actually enforced.  It can function as a remedy to corrupt administration of regulatory laws.  Class actions are also an arguable preferrable way to regulate industries through decisions by private individuals rather than actions by state officials whom many people who are inclined towards libertarian political ideologies may distrust.

In employment cases, the key attraction of a class action is the question of proof.  It may be much easier to establish discrimination on a statistical basis than it is to prove that it was present in an individual case, and it may be easier to fashion an affirmative action remedy in response to statistically proven discrimination than it is to wade through the details of a money damage remedy on a case by case basis.

But, class action cases can appear to grant legislative or regulatory type authority to courts whose procedures are primarily geared towards resolving disputes that involve only narrow disputes between small numbers of people.  This tendency is particularly apparent in false advertising claims where very large numbers of people are exposed to advertising claims and considerably numbers of people may buy products that are falsely advertised, but the individualized consumer harm may be modest.  Negotiations between alleged wrongdoers and alleged victim's representatives may also lead to court sanctioned remedies, such as certain forms of affirmative action, that could never be approved as legislation in the absence of a violation of the law that is never provided on the merits in court.

The trend seems contrary to the trends in our economy, in which big corporations whose mistakes routinely impact large numbers of people in incidents with a common source, rather than isolated incidents of wrongdoing, are increasingly the norm.  If a big money center bank calculated interest rates on loans, or forecloses on houses improperly, it will usually be because some system has gone wrong or some computer program had an incorrect rule, with the error affecting hundreds of thousands of people nationwide, rather than because there was some isolated defect in one customer's particular case.  Serious misrepresentations to consumers in commerce not infrequently involve massive advertising campaigns rather than an isolated vendor and purchasers in an open air marketplace.  Serious discrimination in employment practices frequently flows from bad leadership at the top of an organization that guides subordinate managers, rather than individualized misconduct by low level managers.  In our modern era of quality control systems in manufacturing, systemic defeats in mass manufactured products are more likely to cause harm than isolated duds that aren't successfully removed from the assembly line: most defective products are the result of a design defect, either in the product itself or the manufacturing process.  An inability to remedy systemic wrongdoing by a big business in a collective way is out of step with an economic reality in which a large share of all wrongdoing has a systemic source.  In the long run, it may be more important to the functioning of our economic to solve systemic problems than to remedy the one off screw ups that can never be completely eliminated.

For what it is worth, big government agencies, like the I.R.S., have many of the same weaknesses in offering remedies to systemic errors that put individuals in low stakes cases in bind, that big businesses do.

Some problems in the way that big businesses and big government operate, may be flaws in how they do justice between third parties who deal with them, rather than actually benefitting these entities themselves.  For example, most securities fraud involves cases where a misrepresentation by a business causes a stock price to fail to reflect the truth for some period of time, which benefits some secondary market stockholders to the deteriment of other secondary market stockholders, while having little or no direct economic impact on the company itself and where only a tiny part of the benefit or harm accrues to company insiders.  Often the beneficiaries and victims of the misrepresentation have no knowledge that they are acting in the basis of a misrepresentation until after the harm has been done. 

Yet, if misrepresentations with immense economic consequences for stock traders routinely lead to no repurcussions for the parties who make them, the soundness of our financial system is seriously undermined.  Some of the parties most responsible in fact for the financial crisis, the major credit rating companies, had very little other than their pitiful compared to the amount at stake in the economy fees, in their decisions, and will bear no consequences for their mistakes, and there is a movement in the securities law world to treat accountants the same way.  Yet, if the people whose observations drive the market have little stake in being accurate, the financial markets are certain to repeat its world economy shaking mistakes.  Millions of people are out of work and have been for many, many months, in substantial part because the tiny number of people on Wall Street who determined how creditworthy bond issuers were had an insufficiently compelling incentive to get their decisions right.

Part of the barrier to the problem is that power dynamics and self-interest driven policy stances are often so transparent in the tort reform area and in the area of class action litigation in particular, that it is hard to separate and address sincere and legitimate concerns from merely self-serving ones in the policy arena.  Also complicating the effort to find a fair way to deal with the cases that drive class action litigation is that extremely loose class action standards and substantive law claims that can be brought as class actions in a handful of states like California create extremes of the process that suggest solutions that aren't necessarily appropriate for the more strictly regulated federal courts or courts in states like Colorado where class action litigation isn't nearly so common.

READ MORE - SCOTUS Dislikes Class Actions

Tough Times For Law School Graduates

The law school class of 2010 . . . set a new record--only 68.4 percent of them are in jobs that require them to pass the bar exam, the lowest share since the Association for Legal Professionals began collecting data.

Another 10.7 percent of the class of 2010 are in jobs that require or prefer a J.D., while 8.6 percent have jobs that require neither a law degree nor bar passage. The class' overall employment rate--for jobs in and out of the legal profession--is lower than it's been for any class since 1996, at 87.6 percent. So counting unemployed new graduates, the actual percentage of those in jobs that require bar passage is even lower, at 60 percent.

From here.

Median debt loads for law school graduates are little under $100,000.

In not unrelated news, leading Denver law firm Isaacson Rosenbaum, which until recently had 40 attorneys, and has 23 shareholders and 5 associates at the time of the announcement (and includes the author of the Colorado Appeals Blog), will disband at the end of the month after more than fifty years in business. The financial crisis slump did in this real estate deal heavy firm. Many of the remaining attorneys are landing positions with other firms around town, however.

READ MORE - Tough Times For Law School Graduates

Hancock Elected Mayor, Johnson Elected Clerk & Recorder

As a result of the Denver's municipal runoff election, Denver's new mayor is Michael Hancock, in a landslide, and its new clerk and recorder is Debra Johnson, by a nose. In both races, the winner of the runoff was the second place finisher in the first round.

Hancock brings a neighborhood oriented investment agenda and a commitment to ending abuses by the City's police force that have cost the city millions in settlements. He inherits a tight city budget and decades of wise municipal leadership that left Denver less hard hit in the financial crisis than many of its peers.

His personal biography is one of a man who has risen from humble circumstances as a black man in a poor Denver neighborhood from a family whose other members have not always stuck to the straight and narrow who has risen to lead his city, more or less the opposite of the life story of Chris Romer, his runoff opponent. He is also the second black Mayor of a mostly white and Hispanic city that had a KKK supported Mayor in the 1920s (Mayor Stapleton). Mayor Wellington Webb, Denver's first black Mayor, was a critical advisor in his campaign.

Most recently Hancock has served as the President of Denver's City Council, and endorsement from city council members who withdrew from the race or failed to make it to the second round of the election were key to his runoff round victory.

Voter turnout in the second round was about five thousand more (about 40% of ballots mailed were returned and considered valid) than in the first round, but runoff voters tended to return their ballots sooner than the first round voters who had more decisions to make and more candidates to choose from than in the runoff.

READ MORE - Hancock Elected Mayor, Johnson Elected Clerk & Recorder

U.S. Corporate Income Taxes Lowest In OECD As Share of GDP

The United States is the OECD country with the lowest corporate income taxes as a share of GDP (1.8%) in 2008, despite the fact that it has one of the highest marginal corporate income tax rates.  The paradox is a result of the fact that there are more generous tax credits and tax deductions in the American corporate income tax than in foreign corporate income taxes.  U.S. law generally permits corporations to take tax deductions for capital purchases much more quickly than over the useful life of the purchase and has a generous deduction for research and development expenditures, for example.  The OECD average is almost twice as much as the tax burden in the United States. 

Critics of the importance of this ranking argue that this is mostly a result of shrinking corporate profits following the financial crisis, a crisis that hit the U.S. harder than it did big businesses in other countries.  But, it is hard to argue that the global economy didn't itself take a global hit in 2008.

Another complication in comparing corporate income taxes internationally is that publicly held U.S. corporations generally pay corporate income taxes, then distribute a large share of the after tax profits as dividends and pay individual income taxes on the distributed profits (albeit at a reduced top marginal rate).  In contrast, most countries tax distributed profits either only at the corporate level or only at the individual level.  Thus, the total taxation of corporate income is really somewhat higher than it seems looking at corporate income taxes alone, relative to other countries.  (The magnitude of this effect is small enough, however, that it would still leave the U.S. near the bottom of the OECD and very close to Germany.)  

On the other hand, many closely held entities that pay no corporate level tax in the United States because they are limited liability companies taxed as partnerships or S corporations would pay significant corporate level tax (which would be charged against individual level taxes) in much of the world.  If all of the individual income tax attributable to closely held limited liability entities in the United States were treated as corporate income tax revenue rather than individual income tax revenue in international comparisons, the size of the corporate income tax revenue flow would be significantly higher.

The bottom line, of course, is that it is easier to compare overall tax burdens between countries than it is to compare the burdens of particular taxes, because structural features of different tax regimes can make it appear that there are big differences between tax regimes for accounting purposes that have little economic relevance.

Still, none of these factors are sufficient to support the assertion that U.S. corporate income tax burdens make the U.S. uncompetitive in international business and cost it jobs, which is essentially the argument made by those arguing for lower marginal corporate income tax rates in the United States. Indeed, U.S. international competitiveness seems to be greater for publicly held corporations that are subject to these tax rates than for closely held businesses that have more favorable tax treatment. The U.S. small and medium sized business sector is notably weaker than its foreign competition, while its big business sector is fairly robust.

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College Graduates Usually Live With Parents After Graduating

When I graduated from college, I went straight to law school, and from law school, straight to a home that my wife and I shared with no one else but our cat.  I've never moved back in with my parents and neither did my brother after he graduated from college, nor did either of our spouses.  But, this pattern is increasingly rare. 

A new survey discussed by Time Magazine finds that 85% of college graduates move back in with their parents after graduating from college.  The iconic modern American twentysomething is comic strip character Dustin, who spends days looking for jobs and nights at home with his parents, and his undead television comedy counterpart "George" (played by Ellen Muth) in the series "Dead Like Me," both of which presciently debuted before the current economy made their protagonists' experiences so routine.  What is driving the trend?

Times are undeniably tough. Reports have placed the unemployment rate for the under-25 group as high as 54%. Many of these unemployed graduates are choosing to go into higher education in an attempt to wait out the job market, while others are going anywhere — and doing anything — for work. Meanwhile, moving back home helps with expenses and paying off student loans.

Failure to launch, is no longer the exception.  It is the norm in the current economy.  This also helps to explain why more and more young twenty-somethings are deferring getting married and having kids.  Household formation rates are at record lows.  We are experience the baby boom in reverse.

The particularly troubling part is that missteps at the beginning of a career often have a disproportionate impact on a person's entire work life.  If this is really just a temporary bump in the road, it isn't that big a deal in the greater scheme of things, but this may be a far more serious case of a nascent lost generation.  When the economy picks up again, that big businesses and professional firms that would have hired people from the last few crops of college graduates to entry level jobs that put those hires on a path to high end careers are likely to hire almost entirely from the most recent crop of new graduates, rather than trying to locate promising talent that was missed in the prior years when hiring was stopped or slowed.  Even for those new graduates who wash out of their plum first jobs a few years later as firms winow out all but the most talented prospects whom they promote, not starting off at a plum job may make the difference between being able to pay off students loans in five years and being able to pay off student loans in twenty years.

For bright new college graduates, their prospects are not totally crushed.  The current bought of unemployment is probably cyclic.  When the economy comes back, there will be jobs and it is always better to be in the job market with a college degree than to be without one.  But, jobless new graduates are left in a particularly frustrating position.  While commentators like David Brooks wants to call them lazy, what can they do?

It’s difficult to argue that they need to go to college, because they did. It’s difficult to argue that they can’t move to new jobs (unlikely to be homeowners) or suffer high health care costs (doesn’t health care reform allow employers to push their health costs onto their parents’ employer?). Unless we think that the graduating class of 2008 is fundamentally worse than the graduate class of 2006 I don’t see a technology problem.

Also for fun, the graduating classes post-Recession have increasingly large student debt loans, which should lower the reservation wage they’ll accept due to liquidity pressures. So the idea that everyone 20-24 is on vacation is harder to accept compared to earlier years.

New college graduates emerging out into the world this year are no more, and no less than unlucky.  They should have been born a few years earlier or later than the year that I graduated from high school, but they weren't.

We can hope, at least, that this will be merely a temporary circumstance.  But, it isn't impossible that this trend will endure.  For example, one of the major forces driving Islamic terrorism in the world is the existence of an immense class of unemployed college graduates across the oil rich states of the Middle East and North Africa.  Indeed, the suicide of a once too often discouraged college graduate in Tunisia was the spark the set off the wave of revolutions that have dislodged or tried to remove authoritarian regimes across tthe regime.  Similarly, this phenomena has been the norm in Japan ever since it experienced its housing bubble collapse triggered lost decade, long before the financial crisis, and it has defined a whole generation since then.  There is not obvious end to that trend on the horizon in Japan.

READ MORE - College Graduates Usually Live With Parents After Graduating

The New American Work Force

[I]n 1954, about 96 percent of American men between the ages of 25 and 54 worked. Today that number is around 80 percent. One-fifth of all men in their prime working ages are not getting up and going to work. According to figures from the Organization for Economic Cooperation and Development, the United States has a smaller share of prime age men in the work force than any other G-7 nation. The number of Americans on the permanent disability rolls, meanwhile, has steadily increased. Ten years ago, 5 million Americans collected a federal disability benefit. Now 8.2 million do.…There are probably more idle men now than at any time since the Great Depression, and this time the problem is mostly structural, not cyclical.

From Tyler Cohen at the Marginal Revolution citing David Brooks at the New York Times.

In parallel with the shift Cohen notes, the percentage of adult women in the work force has almost doubled from about 32% to about 65%.  About one in five American women will never have children, and the vast majority of those who do have children will also work for many years while they have children, sometimes even when the children are infants.  Also, both men and women are entering the work force later because they are more likely to finish high school and attend college, and a much larger number of working age adults are incarcerated now than were in 1954.

Finally, of course, unemployment rates are just under the double digits as we creep out of the recession caused by the financial crisis, and men have taken more of a hit in the current recession than women.  In contrast, 1954 was a point of relatively low unemployment, driven by a manufacturing economy that was serving a world market whose own capacity had not yet recovered from the capital destruction of World War II and the millions of men permanently removed from the work force by that war.

I'm not ready to jump to the "loser men" interpretation  that Cohen, citing David Brooks, does.  An increased number of permanent disability claims is to be expected as a generation of blue collar baby boomers ages.  Total labor force participation relative to the working aged population as a whole is at all time highs, unrivaled anywhere else in the world, and Americans work longer hours that workers in any other country.

The working aged men who are withdrawing from the labor force, in addition to growing ranks of graduate students and inmates and disabled blue collar workers, are mostly early retirees who have played by the rules, worked hard, saved money, raised children, sent them to college and are retiring early because they are prosperous, not because they are lazy.  Many young retirees use their years of early retirement to give back to the community and their families, contributions that were often slighted during the hectic years when they built up their nest eggs.  Early retirement is the American answer to the fact that we have so much less work-life balance, longer work weeks, and less vacation time than our developed world counterparts.  For my druthers, I'd prefer an economy where the average American works fewer hours per year, unemployment is lower, early retirement is rare because most people love their jobs, and men and women balance work and family in more similar ways to each other than we do today.  But, until we reach that day, I am not going to grudge the time that working age men who toiled intensely for a few decades and accrued a nest eggs take to retire early and smell the roses.

My father was anything but an early retiree, but what he spends his time doing in retirement is typical of retirees in reasonably good health of all ages.  He visits grandchildren and stepgrandchildren.  He helps an urban Cincinnati church reimagine itself and develop a plan for raising funds and turning itself around.  He directs a youth choir, commissioned the composition of one hymn and wrote another hymn himself.  He is civically active, writing letters to the editor and op-ed columns relevant to his professional experience.  He participates in a gourmet group and a community choir.  He keeps his home in good repair.  He keeps a watchful eye on the good health and well being of his neighbors and the neighborhood's esprit de corps.  He takes steps to move forward efforts to convert smelly feedlot manure into a renewable energy source.  He set up a volunteer training program for people in his small town and established a lecture series in his old department.  He stays connected to the people he has spent a lifetime building ties to across the nation and the world.  Of necessity, he spends a lot more time than he once did tending to his own good health, and as a consequence of his age, spends more time reading obituaries and attending funerals than he once did.  He spends more time on vacation travel than he once did, but no more than a typical French or German bureaucrat in the prime of his career does.  Just as we strive to find meaningful work in our lives working for pay, and some of us achieve that, we strive to find meaningful leisure in our lives when we are not working for pay and some of us achieve that as well.

What my father does in his retirement is not the same as work, admittedly.  He no longer has to fight pitched bureaucratic battles with the university facilities department over furniture acquisitions for his department.  He longer spends hours grading papers from students in his classes.  He no longer bears primary responsibility for finding internship opportunities for three dozen graduate students a year.  He doesn't have to deal with office politics or admissions decisions.  His days of pouring over long technical reports and attending endless meetings while serving as an advisor to a federal nuclear waste disposal project have come to an end.  But, like most retirees, early and late, he is not an "idle man."  The kind of person who works hard enough to retire early, even more so than the usual retiree, usually is constitutionally incapable of being idle even if they tried.  Early retirement may leave our nation with more really good golfers than we really need, but if one takes it as a given that economic production is a means to an end, rather than an end in and of itself, something economists sometimes forget, this shouldn't be terribly troubling.

One can argue that an economic system that compensates some of our most skilled physicians, executives, lawyers and engineers so well that a large fraction of them withdraw their valuable skills from the monetary economy early is out of kilter.  Surely, my inlaws, who are both medical doctors and both retired early, would have probably done so a little bit later if medical doctors were paid less than they are in our economy and they needs to work longer to be economically self-sufficient.  In that world, they would have spend a few more years treating patients and a little less time playing golf in their golden years.

But, I can hardly fault them. They were cogs in the machine and did what made sense at the time.  The way that the profession was designed when they were actively participating in it, medical doctors had to work exceedingly long hours and carry pagers whereever they went missing children's birthday parties and family time after school, foregoing extended vacations, and generally giving extremely intensely of themselves to serve large numbers of people in medical need with cutting edge skills and technology that provided great benefit to those patients.  They didn't have the option of living more balanced lives while they were working, and that system had built into it the incentive of an early retirement as a reward for that very intense work using skills so scarce that the United States established an immigration visa to secure people with these skills that it was unable to produce in sufficient numbers at home.  If the hope of early retirement hadn't been available in the long run, lots of doctors in their generation would probably have decided that their toil simply wasn't worth it and would have deprived the health care system of their skills far sooner.

The economy at large is experiencing basically the opposite of what most of academia is experiencing.  While old academics are lingering in their tenure track positions long past the traditional retirement age, leaving little room for the ranks of new professors seeking to fill their shoes, in hot parts of the private sector, the millionaire entrepreneurs and executives and physicians of the last long economic boom are making way for their ambitious, young, tech savvy successors.

Indeed, one of the many reasons that upper middle class managerial and professional workers experience low rates of structural unemployment than less skilled workers is that upper middle class workers can afford to retire early and free up jobs for younger workers.  In contrast, many blue collar workers often can't hope to save enough too retire early and continue to fill jobs that reduce the opportunities available for their younger successors.  Still, many middle class, as opposed to upper middle class retirees are workers who have been laid off from long, physically demanding careers as soldiers, as cops, as firemen, and factory workers whose unions, aware that large numbers of them would experience permanent disabilities anyway if they didn't retire early, worked with management to desire jobs that allow for early retirement.

Getting up and going to a paying job is something that people do because they need to support themselves and their families, and because the economy needs certain jobs to get done.  There is no shame in working and no one wants to be unable to support themselves.  But, it is a mistake to assume that getting up and going to a paying job has intrinsic moral value.  There is nothing morally wrong with an early retiree in his early 50s lingering over the newspaper while having breakfast, and spending the rest of his day doing what he thinks is the most valuable use of his time when money is not an object.

Economists tend to think that rational actors want nothing more than more money.  But, most people simply want to have enough money to allow them to be secure in their ability to meet their comfortable but modest economic needs.  Once that goal is accomplished, increasingly sooner for much of the nation's upper middle class in this more prosperous age, earning more money becomes a much lower priority goal.  Sometimes these activities will produce money anyway, but money is no longer the point.

I'm sure that a reporter with a little gumption could find men who don't fit the narrative that I've outlined and fall into the stereotype that David Brooks is trying to conjure. 

I know of several men with good educations and/or professional experience in Denver who spent time as homemaker husbands and/or returned to school for more education, when their own careers hit bumps during bad job markets and their wives had jobs.  Yet, isn't this something that the feminist revolution has been bracing us for, and encourging us to welcome, over the last several decades?  And, at any rate, this remains a statistically minor blip that only accentuates a larger trend of more people seeking graduate educations, blue collar boomers wearing their bodies out, more people spending long years in prison, more people retiring early, and a bad economy driving up unemployment rates.

I'm sure that a not insignificant number of working aged men, particularly men with criminal records or substance abuse problems have simply given up after long, fruitless job hunts, are dependent upon family or friends or lovers, and do little but drink too much and watch television.  In earlier days, when our economy needed lots of unskilled labor for mindless jobs because we hadn't yet mastered automation, people like that would have worked at abundant assembly lines all work and gotten drunk and wasted time after hours and on the weekends.  Now, a lot of that work has been offshored or automated.  There are still unskilled mindless jobs in our economy, but there aren't nearly as many as their used to be, while there are almost as many people chasing after them.

But, for the most part, America's meager safety net doesn't afford men who are not financially secure early retirees the option of leaving the labor force whether they want to or not.  More so than any other developed nation in the world, Americans must work or starve and die.  Leaving the work force is a very expensive luxury purchase for most Americans not to be made lightly, and men and women alike do so in our economy at their peril.

Like any other nation, we have "loser men."  We also have "loser women," "loser children" and "loser seniors."  But, for the most part, those loser men are the men who have no choice but to continue working at unfulfilling, dead end, low paying jobs because they have no other choice and didn't manage to save anything for their futures, not the early retirees who have left the work force entirely.

READ MORE - The New American Work Force

Back Door Cramdowns?

The general rule under the United States bankruptcy code is that when loans are secured by collateral in a reorganization (rather than a liquidation), that the loan is broken up into two parts for bankruptcy purposes - one equal to the value of the collateral which is entitled to receive value in the bankruptcy equal to at least the value of the collateral (often by being given a loan with a principal amount equal to the value of the collateral and otherwise the same interest rate, amortization period and other terms as the original loan), and with the othe part equal to the remainder of the loan that receives the pennies on the dollar or no payout that other general unsecured creditors (like ordinary corporate bond holders and credit card copmanies) receive. The reduction of the loan to the value of the collateral is called a cramdown. Mostly, cramdowns apply to business property bought with secured credit and vacation properties with mortgages.

Residential mortgages and most car loans aren't eligible for cramdown treatment in bankrupty. The debtor must either reaffirm the loan in full, even if the collateral is worth less than the loan, or surrender the property.

There is a gray area in the case of residential mortgages that is turning out to be quite relevant. Often, a house in bankruptcy in an areas where there has been a housing price bubble collapse will have two mortgages. The first mortgage will clearly not be eligible for a cramdown. But, what about the second mortgage? If the value of the house is less than the amount of the first mortgage, is the second mortgage really a mortgage at all? Or, is the second mortgage really just an unsecured debt like a credit card because its claim against the collateral is contingent and only a remote future possibility?

A recent newspaper article in the Mercury News reviews this legal battle. According to the article, "bankruptcy lawyers say the provision has been used effectively on hundreds, if not thousands, of cases in the Bay Area during the past two years." The California Mortgage Bankers Association is unhappy about this trend, but sees few options on the legislative front in a divided Congress. On the other hand, "there are no complaints from investors in first mortgages, like the pension and retirement funds represented by the Association of Mortgage Investors."

Income tax deductability and funding from mortgage backed securities made splitting low down payment mortgages into a a conventional first mortgage with an 80% loan to value ratio, and a second mortgage with a higher interest rate that covered the balance except for a small down payment, attractive compared to a single larger first mortgage with title insurance. Second mortgages used to extract cash from a house that had appreciated in value during the housing bubble were also popular.

The issue has a special tenor in California where residential mortgages are generally non-recourse. There, the only way that a lender can collect is out of the collateral, so a bankruptcy proceeding that wipes out a second mortgage lien wipes out any remedy for the lender.

There are two narratives that explain the trend to deny the cramdown to residential mortgages.

One is that it protects lenders from being penalized by artificially low appraisals in bankruptcy court. If the property is really worth less than the loan, a rational bankruptcy debtor would give up the property and escape the mortgage debt in bankruptcy, so a cramdown should only take place if the appraisal undervalues the property providing an undeserved benefit to the debtor. Similarly, an appraisal based only on current comparables fails to capture appreciation in real estate that may be available in a short time during a temporary real estate price slump. These concerns don't seem to have been well supported, however, by the experience in Chapter 12 farm bankuptcies, where cramdowns are allowed.

The other narrative is that home owners aren't rational. They attach sentimental, and dignity related and moving cost related value to their home that no lender could realize if the home were foreclosured upon or surrendered. In this narrative, denying residential home owners a right to cramdown mortgage loans is a way of giving residential mortgage owners more than their fair share in a bankruptcy every time a debtor keeps a home that has a fair market value of less than the face value of the loan.

It is unclear how common this situation is in Denver. Internet real estate appraisal service Zillow.com says 41% of meto Denver homeowners owe more on their mortgages than their homes are worth, and many of those homes would have second mortgages. But, Standard & Poor's/Case-Shiller, which experts believe is more accurate (Forbes actually dropped them as a source after obvious gross errors in their statistics were pointed out), concludes that housing values have declined far less than Zillow concludes, and hence far fewer homeowners are upside down. Case-Shiller consistently ranks Denver as one of the twenty major housing markets least impaired by the housing bust, while Zillow counts Denver as the second hardest hit market in the nation. Like other observers, I'm strongly inclined to give Case-Shiller more credit than Zillow for accuracy on this point. Too much other data corroborates the conclusion that Denver's real estate market has declined less than those of many other markets in places like California, Arizona, Nevada and Florida.

READ MORE - Back Door Cramdowns?

Westminster Mall Slated For Major Infill Development

Following the successful examples of redevelopments the moribund Cinderella City mall in Englewood, the Villa Italia mall in Lakewood (now Belmar), and the Southglenn Mall (now "the Streets at SouthGlenn, a 70-acre outdoor shopping, entertainment and residential area"), the City of Westminster, a Denver, Colorado suburb, has acquired most of the property in the dying 108 acre Westminster Mall ("all but the Sears store, the Brunswick Zone and a small office building, all of which will remain open. The city also plans to keep the J.C. Penney store open.") near U.S. 36 and Sheridan Boulevard, which it plans to redevelop as a municipal downtown with "5 million square feet of offices, residences, restaurants and shops."

Westminster Mall opened in 1977 with 30 stores. Within 10 years, it became among the most popular malls in metro Denver, adding May D&F and Mervyn's in 1986, followed by J.C. Penney a year later. At its peak, the mall had about 300 stores, a far cry from the 15 that remain open today. The city and the current owner invested $10 million to renovate the mall in 2000-01.

These suburbs were frequently developed in the wake of the construction of the interstate highway system as bedroom community subdivisions, rather than as traditional municipalities with a central commercial and government downtown district, usually had strictly segregated residential and commercial zones, and saw little downside to sprawling parking lots that were distant from individual shops in retail district, a set of flaws that has left these communities without souls or character that left them vulnerable to New Urbanist land use approaches.

The transition has also been inspired by ongoing Red Queen hypothesis style conflicts between municipalities for a stronger tax base. 


The Gallagher Amendment, passed by voters in 1982 in Colorado and phased in over the next several years causes residential real estate to be taxed at a lower percentage of its value than non-residential real estate. Also, for a variety of reasons, many municipalities have tended to favor sales taxes over property taxes as a revenue source. This means that communities with predominantly residential real estate tax bases and little retail development must impose much higher property taxes to pay for the same municipal services as communities with substantial commercial, and in particular, retail development. The combination of higher property taxes and inferior municipal services, in turn, drives down housing values in these communities creating a vicious circle. Cities with office building developments can turn to head taxes and, at least, benefit from larger property tax bases, but the bedroom communities planned in the late 1950s, 1960s, 1970s and early 1980s have suffered in this local taxation environment.

Retail development, in contrast, through a combination of its non-residential property tax rates and the sales tax revenue that it generates typically raise far more in local taxes than the cost of the governmental services that they consume (and draw significant volumes of tax dollars from non-residents), subsidizing municipal services for residents of the municipality and making housing in those municipalities more attractive.

So, there is a strong incentive for local governments in Colorado to do everything possible in a never ending struggle to lure retail developments with robust sales from their neighbors, even if this creates excess retail capacity in the aggregate that leaves a suburban landscape littered with dead shopping malls that have failed to keep up with the competition. For example, in the case of the Westminster Mall, the City and County of Broomfield's new Flatiron Crossing Mall and thriving retail development in Boulder sucked much of the remaining life out of the older Westminister Mall.

Mixed use mall to downtown redevelopments try to mute the competition by not focusing so intensely on destination retail shops that can be picked away easily by new retail developments.  Instead, they favor of residential uses and governmental uses that are sure to stay put, and location sensitive retail options that are more likely to continue to be supported by local residents even if a new destination retail mall springs up. These developments also bet that the steady stream of traffic from residential and commercial and governmental users who are relatively wed to the location will make the area attractive to other retail uses on an ongoing basis.


These redevelopments try to boost the brand of the suburb's housing stock (and hence property values) by giving the municipality more of an identity, a more positive character and more definition.

This development joins a major new development planned for the Chatfield Reservoir area, the redevelopment of the old University Hospital complex on Colorado Boulevard, and a number of transit oriented developments along light rail lines that are heating up as the real estate industry in Denver starts to recover from the financial crisis. Insiders in the industry that I've spoken to discount these major projects as mere "dreams" until more concrete steps to implement them progress, but the planning for a wave of new real estate development in the Denver metropolitan area, much of it infill, is underway.

READ MORE - Westminster Mall Slated For Major Infill Development

Jobs Situation Still Bad And Other Bad News

There are currently 130.738 million payroll jobs in the U.S. (as of March 2011). There were 130.781 million payroll jobs in January 2000. So that is over eleven years with no increase in total payroll jobs.

And the median household income in constant dollars was $49,777 in 2009. That is barely above the $49,309 in 1997, and below the $51,100 in 1998. . . . The aughts were a lost decade for most Americans. . . .

There are currently 7.25 million fewer payroll jobs than before the recession started in 2007, with 13.5 million Americans currently unemployed. Another 8.4 million are working part time for economic reasons, and about 4 million more workers have left the labor force. Of those unemployed, 6.1 million have been unemployed for six months or more.

From here.

The availability of jobs and the real wages paid in jobs are the numbers that matter most to the vast majority of Americans. Housing values relative to mortgage debt, for which we also have a lost decade or worse, is one of the few other numbers that matters for the minority of Americans, but majority of middle class Americans, who own homes.

Beyond those numbers, investment and retirement and education account balances matter, but far less so, and those numbers didn't have a great decade either. And, after that we worry about how the real wages get spent. An increasing share of real wages is getting spent on health care and college tuitions, and that squeeze on family budgets in most cases more than offsets the fact that taxes are the lowest that they have been in sixty years (although they are certainly not the least complex to comply with in that time period) and that financial investments are starting to bounce back.

A longer term perspective on the last few decades is also in order.

The lot of the working class in America has been basically stagnant for the last four decades, even as the economy as a whole has seen substantial economic growth in that time period. Less educated workers have had regular periods of unemployment and stagnant real wages, their children have had less opportunity for socio-economic advancement than their parents did. Even socio-economic advancement through marriage has declined. And, the institution of marriage has suffered tremendously for working class Americans. Divorce rates have surged and marriage rates have dramatically declined for the working class without sufficiently compensating increased stability in non-marital intimate relationships. At first, the same thing seemed to happen for more educated couples, but the trend for them reversed they are now less likely to divorce and more likely to get married and have successful marriages than their parents.

In the last couple of decades, the stagnation that hit the working class first has worked its way up the social class ladder. Soon, low level white collar workers were as squeezed a blue collar workers. In last decade or so, even lower level managerial and professional workers, and college graduates with less elite credentials have failed to capture a significant share of the expanding economic pie whose fruits have grown more and more concentrated at the very, very top. Just before the financial crisis, this concentration of wealth and income reached levels not seen since the eve of the Great Depression. Despite initial optimism that the financial crisis would have a leveling effect that would counteract these excesses, later assessments have suggests that this hasn't happened to nearly the extent most people has expected.

The economic story of the last few decades had still been a story of great prosperity on average until late 2007, and remains a story of prosperity over time frames longer than a decade. But, it has not been a story of shared prosperity. As a whole, economic growth has continued to match trendlines, but broken down by social class, the vast majority of Americans our economy doesn't look like its thriving.

Worse yet, we don't really have any good economic theory to tell us why this is happening and how to fix it. Economists have been so fixated on macroeconomic productivity growth and political economy virtues or lack thereof of government involvement in the economy, that they have been content to simply throw changes in the distribution of wealth between social classes in the economy into a black box whose results are measured but mechanisms are ill understood.

Sociologists and some economists at the fringe of the profession have observed qualitatively that this seems to be related to the increased importance of knowledge or creativity in our economy, but most are a far cry from being able to tell a coherent story that explains why we don't build things anymore and what is making this knowledge and creativity important, and whether there is anything short of outright transfer payments that could lead to a better deal for those who are not part of an information elite.

The obvious hope would be to create a better trained workforce that can better meet our nation's needs. But, given our already highly educated by international standards workforce, and evidence trickling in that passing out more credentials isn't necessarily producing gains for those who receive them that are all that great in excess of sorting effects, it is hard to say that this extremely expensive strategy for leveling the playing field would actually work. It appears that one of the main reasons that our European competitors, at least, have a more level playing field is that they do have more generous tax and transfer payment methods for directly equalizing outcomes and forcing people to share their prosperity. Not all prosperous economies have deindustrialized to the extent that the United States has, but there isn't decisive evidence to indicate that manufacturing goods is a better strategy than providing services.

One of the narratives floating out there, called the "Great Stagnation" suggests that the problem is not temporary. Instead, it may be a new status quo, as technologically driven advancements in technology slow down because we know a greater share of everything that there is to know, and the people who can expand the pie with their knowlege has to be sweeter (and hence is harder to share with others) because the available pool of people who can make those kinds of contributions to the economy is shrinking.

We aren't a poor nation. We have a high per capita GDP. We have a highly educated work force that devotes intense effort to keeping our nation's economy productive. Sustained homelessness and health threatening hunger are still very rare by international standards. Crime is modest. We pay a public health price for failing to provide universal health care, but many people who are uninsured end up not needing health care that costs more than they can afford and can't secure with credit. Housing is more affordable right now than it has been in a long time, and an average person can afford a pretty impressive package of goods and services, particularly when you recognize that technology has been today's versions of what we used to buy better in many respects than it used to be. Unemployment is high, but doesn't seem to be continuing to surge out of control. Even if our level of material prosperity per capita didn't increase at all, we can afford a pretty decent life for all with only some pretty modest tweaking of the status quo. Part of the policy issue before us as a nation is how much we need to continue to focus on making an already large economic pie bigger and need to have never ending economic growth, and how much we need to accept that we are producing what we can and make better distributions of it from a social welfare perspective.

The lack of a real national agenda or plan for recovery would be terrifying in other countries, but, while it certainly doesn't help moral much, our political leaders have long ago given up almost entirely on attempting to craft one in favor of throwing themselves upon the mercies of the decentralized decision making methods of a market economy that nobody really understands as well as they would like to understand it.

READ MORE - Jobs Situation Still Bad And Other Bad News

Kudos To Calculated Risk

Calculated Risk, in the sidebar, recounts the high praise that it has received as a leading econ blog from the mainstream media. Regular readers of this blog will know that I cite to it frequently.

A bit like How Appealing (also in the sidebar) in the legal area, it is mostly an information aggregating blog with some fairly basic analysis, rather than a place for long form analysis in depth, or economic theory, or anything more than the most narrow forms of political economy (mostly related to the effectiveness of various specific financial crisis responses). Like other good information aggregating blogs, there are usually several new posts every day. It monitors the key economic indicators, with a focus on housing, the bond markets and unemployment (I presume the author is a debt security or housing industry financial analyst of some type), with enough massaging to capture what is meaningful about them, and a sidebar that includes headlines from most of the leading econ blogs in the blogosphere.

The comment to the posts are numerous but worthless. The original posts, however, offer the fact you need to understand, in an evidence based way from credible sources, what is going on in the macroeconomy.

READ MORE - Kudos To Calculated Risk

Financial Risk and Insecurity

A few stray thoughts on risk.

1. One of the core organizing principles of bankruptcy law, securities law, the policy analysis of appropriate debt-equity levels in corporations, the regulation of gambling, Social Security policy, mandatory insurance regimes and more is the notion that generally speaking, people should only be putting at risk money that they can afford to lose.

For example, SEC private offering rules limit allow only "accredited investors" to invest significant sums of money in investments that are not subject to the disclosure regimes that applies to publicly held companies. Generally, qualification for this class of investments is some combination of wealth and sophitication, and criticism of the rules often argue that they are insufficient because they don't adequately protect the unsophisticated wealthy. But, part of the reason for a purely wealth based restriction on investments that pose potentially higher risks than the ordinary investment is the notion that the wealthy can afford to lose the money and go on in life, while widows, orphans and middle class families cannot.

2. One of the common ways to define the line between the rich and the merely upper middle class is that the rich don't have to work to meet their needs, and instead, can rely on their wealth to support themselves.

One can imagine a similar tack in defining other social classes. The poor are those who cannot support themselves from either their property or their labor. The working and middle and upper middle classes, together, can support themselves through their labor but need to work to support themselves, with the differences between those classes being mostly the level of comfort that they can afford themselves and the kind of work thath they do.

But, another way of thinking about social class in the middle range is in terms of security. How secure is one's job? Do you have adequate life insurance if you died? Do you have adequate disability insurance if you were disabled on a temporary or permanent basis? Do you have health insurance to allow you to receive medical treatment if you are sick or injured? Do you have adequate insurance to deal with a serious casualty to a car or a home or a tort lawsuit against you? Do you have adequate insurance to avoid ruin if you were sued for professional malpractice? Do you have sufficient savings or access to credit to defend yourself or a family member adequately in the event of a criminal prosecution? Could you take advantage of an opportunity to send a child to a good quality, expensive private school or college? How long could you afford to be unemployed before your life would fall apart? Could you economically weather a drug addition for you or your family and pay for treatment?

One of the reasons that the financial crisis crept up on us is that while a lot of people were able to maintain their lifestyles on a day to day basis, that the insecurity and fragility of their lifes increased.

There are a lot of people who are on the brink of disaster. A money without income would cause them to default on their credit cards, their lack of health insurance or inadequate health insurance means that they could afford to pay for the medical bills in a major illness or injury, they have no savings to prevent even a small financial misstep in revenue or expenses from leading to the loss of a home to foreclosure, eviction from a rental home, or repossession of a car.

A large share of these individuals get lucky and manage. They do get in enough money to pay the bills by happenstance and good luck and clever financial juggling. They don't get sick when they don't have health insurance. The avoid criminal prosecutions. They find a job swiftly after losing their old one before it all falls apart.

One can have a modest income and not be insecure. A lot of low ranking civil servants (e.g. postal workers, school janitors, parking enforcement agents, pre-school teachers, and library assistants), enlisted soldiers, military veterans, union employees (e.g. many grocery workers), clergy and simply thrifty prudent people who have never had very high incomes fit in this category, for example. This class of the low income but not insecure also includes a lot of bohemian trust funders often toiling away in "glamorous" but low paying positions - as ballet dancers, artists, poets, performance artists, non-profit professionals, eternal graduate students and post-docs, and lower tier politicians.

There are also reasonably high income earners who are fairly insecure. Many athletes and entertainers can be expected to have brief careers that produce high but intermittent incomes. Properous prostitutes and drug dealers are in much the same situation. Some farmers and fishers and foresters and miners make good incomes when commodity prices are high and yields are good, but have the thin safety net of the self-employed and if they have significant leverage may risk losing it all in less good times. Personal injury lawyers can make a lot of money in one case and then have long dry spells. Also prone to bursts of wealth between slow periods are commission salespeople and employees of high end establishments who are compensated mostly with tips. There is a significant shift from having enterprises meet their needs from employees to having them meet their needs from a disorganized safety-net free class of one job at a time independent contractors that has increasingly moved up their income ladder.

A step down from those on the brink of disaster is the growing class of people who aren't entirely destitute but also can no longer afford to "play by the rules." They are in default on one or more debts. They didn't pay their car registration or the taxes they owed. Their mortgage is upside down in a recourse mortgage state and they have no realistic hope of selling their home in anything other than a short sale for the foreseeable future. They are missing tuition payments at private schools or colleges. The numbers over at Calculated Risk every month suggest that the percentage of people in this situation is soaring. Rather than being chronically poor, they are the formerly middle class and working class but are in the midst of the long fall without a safety net that American society makes possible

There has always been a class of people who are prone to intermittent unemployment, but this class of people has grown, and the class of people who are intermittently underemployed has has grown invisibly but dramatically: skilled tradesmen who become day laborers in bad times; teachers who become substitute teachers and retail workers in bad times; farmers who do handyman work when crop revenues are modest and more skilled construction work isn't available in the off season; construction business owners and engineers who do ordinary construction work rather than managing others when the industry is weak; CPAs who do simple book keeping when more sophisticated employment is not available.

Public policy has a few nods to these classes of people - the right to cure a mortgage or rent payment that is in default, the Chapter 13 bankruptcy, COBRA, the right to emergency stabilizing treatment at emergency rooms, credit counseling agencies, offers in compromise and installment payment tax plans, personal recognizance bonds and probation sentences for criminal defendants, and unemployment insurance, for example, but the effort isn't very comprehensive or thoughtful.

READ MORE - Financial Risk and Insecurity

Fuzzy Descriptions Of What Should Be

Sometimes ideas about how to solve the problems in our society are fuzzy.  You have an intuitive notion about what they should look like before you have a rigorous argument for why they should be that way or how we will get there.  The intuition may be accurate, may be nostalgia for a past that may never have even been, or may be inaccurate products of cognitive biases.  But, it doesn't hurt to articulate and examine them in incomplete form.  This is what I'm doing today.

* We need to develop more middle ground in our economy and social class system between winner-take-all successes and those who are just getting by; to invigorate the middle class.

For example, lawyer income is bimodal.  The high end is a cluster of lawyers making very high earnings working at big firms (or sometimes botiques) for big businesses and their senior managers; it also has a modest number of plaintiff's lawyers who have been very successful at taking them on in big dollar case.  The low end has lawyers in small and medium sized firms and government agencies dealing with the issues presented by small businesses and individuals.  There is very little middle ground.

The absence of middle ground is surprising, because there is an obvious niche to fill.  In theory, it makes sense to have lawyers making in between incomes, with credentials that are good but not top ten law school honors and law review and Supreme Court clerkship class, working less insane hours than large firms, doing what they call in the trade "commodity work" (i.e. recurring, predictable, moderate stakes matters, as opposed to "bet the company" disputes and deals that big firms want) , doing competent work in an assembly line fashion, and charging less for it.  There are some specific areas where this happens: foreclosure practice, a few tax dispute resolution shops and insurance defense law firms.  But, there are lots of kinds of practice where one would expect it, but you don't see it: employment cases and a lot of business planning work.

We also have a lot of valueable legal work that isn't done, or is done by overworked and underpaid idealists, because it is hard to make pay.  This includes a lot of family law in low asset/low income households, a lot of termination of parental rights litigation, a lot of criminal defense work for moderate to low income individuals, representation of consumer defendants in debt collection and eviction and foreclosure cases, a fair amount of probate litigation in low asset estates, and immigration law work in areas other than employer visas.  Lawyers with seven years of post-high school education are very expensive ways to meet the public need to counsel and advocacy in these areas, but many individuals who are involved in these kinds of disputes aren't qualified to represent themselves competently.  If independent specialized paraprofessionals who could just hand child custody cases, or just handle criminal defense work, or just handle immigration work could do these kind of cases with an associates or undergraduate pre-professional degree, rather than a law degree, unmet legal needs could be filled in an affordable way that is more competent than the status quo without really impacting the market for existing lawyers much, and a lot of middle class jobs would be created in the process.  In some cases, the most sensible way to handle these cases would be the way we handle most criminal cases - with their services provided by a government agency with professional employees on payroll, but this wouldn't have to be the case.

This has happened somewhat in the area of tax law, where certified financial planners and certified public accountants, tax preparers, and enrolled agents before the IRS fill the gap between what people need and what they can afford that lawyers cannot bridge.  In the area of bankruptcy, in theory, independent paraprofessionals are mere scrivners, but in practice, they subtly provide more guidance to bankruptcy petitioners than their formal duties suggest.  There is also a very small niche conceirge/personal assistant niche of people who help people with personal consumer disputes sometimes formalized as a "health care advocate" when it involves medical bills.

Another example is in the mental health field.  We have psychiatrists, whose investment in becoming an M.D. makes them very expensive and gives them an immense amount of training that is irrelevant to what they actually do, who can prescribe mental health medications but are too expensive to take a more wholistic view, and a lot of psychologists, counselors, and the like who have some relevant education and credentials, but can't prescribe the medications that would be necessary to best address some of the cases that they encounter.  Some states are experimenting with empowering lower paid mental health professionals to write some prescriptions.  Colorado has a provision that allows some non-medical doctors to do this, but the rules are very restrictive. 

It would also be good if mental health could move to a less transaction/fee for service/medical model, to something closer to a pastoral care kind of model where anyone in the appropriate group, however defined, would receive care as needed, despite the tendency (often desirable) toward commodification in other parts of professional practice.  Some mental health issues are episodic and succeptible to being "cured" but many are life long conditions that are fundamentally a part of who someone is and always will be.  An injury/disease model of care is a poor way to address those cases.

We are seeing the development of middle ground to some extent with the establishment of urgent care centers as middle ground between family practice and the ER, and the establishment of retail location based clinics staffed mostly by RNs at places like Walgreens, Wal-Mart and King Soopers that handle not-so-urgent primary care needs like vaccinations and well child checkups and minor infectious diseases and pregancy testing.  We are also seeing the resurgence of the midwife who is not an M.D. as a middle ground health care provider.  Indeed, to some extent, the evolving health care industry model of having many different professions dealing with specialized parts of the total problem, after receiving intermediate levels of training and receiving intermediate levels of pay, is a model that would make sense in other.

* We need a more healthy environment for medium sized businesses.

Another area where a gap has emerged, not unrelated to the gap in legal services, is the gap between the truly small business and the large publicly held business.  There aren't mid-range lawyers because there aren't mid-range enterprises for them to represent in the numbers that there used to be. 

The United States is particularly deficient in the ranks of its medium sized businesses - small restaurant and retail chains, manufacturing ventures that employ a few hundred people, and so on.  We have some really impressive very national and multinational firms that account for an increasing share of our economy, and we have a large sector of not very economically important proprietorships or very small businesses, but surprising few that involve dozens to hundreds of employees, that involve single or double digit millions of dollars of revenues, that involve dozens to hundreds of equity investors.  Venture capitalist and angel investors can funnel small businesses to the big time, and consolidators come along and turn industries dominanted by small firms into industries dominated by big business now and then, but somehow, medium sized businesses seem to lack staying power.

Some of the areas where small and medium sized businesses thrive are dying out or on borrowed time.  Liquor stores in Colorado fiercely defend their perogatives, because they know that if grocery stores can sell their goods that they will die.  Wal-Marts have shuttered thousands of small town independent businesses because they are more competitive on price.  Better quality control and marketing have led franchises to squeeze a large share of the independent fast food businesses out of the market.  Blockbuster pretty much wiped out the independent videostore industry through consolidation and competition before it collapsed itself.  Small evangelical churches are losing ground to megachurches.

There are exceptions.  Craft brewing of beer and spirits and small vinyards seem to be holding their own.  Medium sized venture charter schools seem to be springing up left and right.  Urgent care centers and ambulatory surgery centers are cutting into the near monpology that large hospitals used to have on those kinds of medical services.  There are a host of new medium sized medical marijuana ventures.  Farming seems to be shifting from proprietorships to medium sized operations.

But, we need to better understand what leads medium sized ventures to be optimal from an economy of scale perspective, and look at the possibility that modest policy changes that don't do undue damage to consumer prices can make the economy more attractive to medium sized businesses in parts of the economy. 

We also need to get a better philsophical grasp on what medium sized ventures can offer the economy that big businesses and small businesses do not so that we can promote medium sized ventures in parts of the economy where they add value that the current economic system may not be adequately capturing.  For example, one of the lessons of the financial crisis has been that there are systemic risks involved in having "too big to fail" enterprises in the economy.  It is also becoming increasingly clear that the existing model of management dominated publicly held corporations that are highly insultated from shareholders is an ineffective way of keeping senior management performing well, making prudent judgments for the long term, and keeping senior management from self-dealing in its own compensation.

Some of the gap is less monetary.  We need to have more institutions where it is easier to reach someone in the organization with real authority.  We need to have more firms that have humanity and individuality.  We need to break up centers of wealth and power so that our society is not dominated by plutocrats.  We need the "warm glow" that comes from dealing with something other than a massive impersonal bureaucracy.  We need institutions that recognize that consumers would prefer not to deal entirely with robots and powerless bureacrats on the other side of the phone in who knows where when you have a problem.

Put another way, what benefits to big businesses have over medium sized businesses and why?  Is the problem that our securities laws and tax laws don't facilitate the financing of these businesses well?  Is the problem that big businesses have better economies of scale in regulatory compliance?  Is it a matter of marketing?  Is it a shortage of executive leadership?

In the legal industry, this is central to the discussion about the "death of big law".  Big law firms seem to be offering increasingly little value added simply by being big.  There seem to be few common assets and synergies.  Whole departments routinely jump ship to form their own firms or join other firms.

The approach to regulating unnecessarily large firm size in all industries, through anti-trust laws has largely been a bust.  So, we need to throw out that model and look for different ways to create the right incentives for these businesses to thrive when it is appropriate.

* We need to find better options for members of the less educated working class.

One of President Clinton's iconic stances was his plea that working people who played by the rules should get a fair deal in life.  If you graduate from high school, marry before having children, stay married even when times are tough, make your best efforts to find work when you are not disabled, don't commit crimes, and do your job reasonably competently, you ought to be able to expect a decent, if modest life for your family like a decent place to live in a safe neighborhood, access to the health care you need, an ability to send your kids to college if they are academically up to it, a safety net when you can't find work for no fault of your own, a chance to retire when you are old.  Few developed countries in the world do a worse job of fulfilling that promise.

In truth, we need an even broader promise.  We need to have an economy that makes playing by the rules going forward a good option, even if you aren't married to the other parent of your children, even if you somehow or other failed to get a high school diploma in your late teens, even if you have committed a crime in the past, even if you really screwed up on your job in the past and were fired for good cause, or if you incurred more debts than you could pay destroying your credit, or what have you.

We need to have a system in which somebody feels responsible for finding the most productive and meaningful thing that we can put each person who is able and ready to work to do, to insure that people who take that path get what they need to have a decent life, and to subsidize the difference between the value that they create and what it costs to provide a decent life if necessary.

We should find something for people to do that adds value to society first and figure out how to turn that value into money second.  Better to have someone doing work that has a market value of $5 an hour and to subsdize the rest of the cost of having them live a decent life, than having that person sit idle and trying to deal with the costs that are created when that person's family can't get by.

There are some people whose lives are screwed up because they are simply dysfunctional people.  But, most of the people in the United States whose lives are screwed up are willing to work, would place a lot fewer burdens on the public if they had the resources to meet their basic needs, but can't manage to earn enough to meet their basic needs.

For example, there are some hard core homeless people who are just incapable of functioning in normal society, often due to severe untreated mental health issues or disabilities or disagreeable personalities.  But, there are far more for whom the problem is simply not having enough money to afford a modest apartment.

A lot of child abuse and neglect, a lot of families that have trouble staying together, a lot of crime, a lot of failure in the education system, is driven by poverty pure and simple, and would go away with a steady job that pays enough to support a family.

Sometimes a little skill training or further education will allow the person to find employment and provide for their family without further assistance, but often it won't.  Some people will need help finding decent work only in periods of high unemployment, others will be persistently hard to employ.  In a minority of cases, it may be easier simply to let someone have a pension and not trying to find anything for them to do, as we do in the case of people who are classified as having total disabilities or are retired.

* We probably devote too many resources to selling things.

Economics suggests that the amount of a particular good or service that is sold and the number of people involved in selling it, are only dimly related.  Supply, demand and price are the key factors in sales volume.  If labor was more scarce, we could sell just as many cars and refrigerators and annuities and nails and houses with fewer people.  Commission sales have Malthusian tendencies.  The sales force expands until everyone involved in selling is barely making it, instead of staying at a size just large enough to sell what the market wants with a minimum of staff making maximal compensation.  Big box stores have made their fortune, in part, by recognizing this fact and having smaller sales staffs per dollar of revenue so they can offer lower prices.

In part, this is a good thing.  Selling stuff is often a mid-level job that lots of people can do that seems to create demonstrable value, so it has picked up a lot of the slack as farming, fishing, forestry, mining, manufacturing, utilities, and so on have become more efficient and no longer require such a large share of the labor force.  But, the ratio of people who actually make the stuff we need in the economy, to the people who are selling and administering and financing the distribution of that stuff once it has been made seems like it has gotten out of hand.  It takes nine administrators to send out bills for the work of two and a half doctors.  Marketing costs have become a substantial share of the costs of all sorts of goods and services compared to the cost of the goods itself.

It isn't that marketing and administration aren't important.  We don't want to end up like the Soviet's with factories churning out goods that nobody wants to buy because marketing isn't given the importance that it deserves.  But, is our economy really better off with an Aurora Mall that has a third or more of its retail space devoted to selling cell phones and associated accessories, with large number of locations at the same mall often all competing to sell goods made at the same factory and services provided by the same operations company?

* Our society is goods rich and service poor.

People who would often really benefit from services don't receive them because they can't afford them from their own earnings.  Our nursing homes and hospitals are frequently understaffed.  Our probationers and parolees are frequently undersupervised.  Our classrooms could benefit from having more teacher's aides in them.  Our kids could use more mentoring and tutoring.  Our neighorhoods would be nicer is our sidewalks were professionally clearned every time it snowed and our sidestreets were professionally cleared by people with the right equipment, rather than waiting for snow to melt off roads and for individual households to clear these sidewalks.  Our jobless could use more career guidance and training.  Our ailing bridges and road could use more repairs.  Our addicts could use more counselers.  Our criminal defendants could use more public defenders and investigators to manage the crushing case loads.  Our old houses could use more maintenance and rennovations.  Our call centers could use shorter waits and better quality service.  We would benefit from a society with more art and more performing artists.  Lawn care professionals would probably do a better job that the do it yourselfer homeowners usually do.

Efficiency is a good thing.  But, when it comes to providing services it is harder to sever the amount of labor provided and the amount of benfit confered by the services.  The quality of a refrigerator is an objective thing, and is no worse if it can be achieved with fewer man hours.  Fifteen minutes of therapy can rarely be as helpful as two hours of therapy, even with an extremely qualified therapist.

We need some better way to turn idle labor into beneficial services, and to turn beneficial services into money for the people who provide those services, so that we can increase the size of the pie and as a result, make our society more affluent.  But, for some reason, the market economy is failing to do that, in part, because the people who need services often have trouble affording them when they need those services.

We seem close to the point where we are producing all the goods that our society needs.  But, we need to find a way to redirect effort that goes towards selling goods and services and administrating their provision and potential work that goes idle because no one has found an economic way to utilize it, into efforts to create additional services that have value. 

The mismatch between ability to pay, and need for goods and services is reducing our society's productivity. 

* We need more authoritative attention to complicated problems.

No court system in the world has as few judges per lawyer, or per case, as the United States.  As a result, our court procedures tend to focus on reducing judicial effort even when more judicial effort would create value.  There are some classes of cases where this is not a problem, because they are largely pro forma, or where this merely shifts work from the public sector judiciary to the litigants who really care about the outcome.  But, there are lots of cases where taking the time to understand and deal meaningfully with the merits of a dispute early on would make a huge difference in the maount of private sector time devoted to resolving it.

The tendency isn't limited to the courts.  Public policies that are clearly failing, like the crack-powder cocaine differential in the criminal justice system, persisted for a couple of decades before legislators did something about the problem.  Judicial calls for legislative reform of an issue that comes up in a case producing a bad result frequently go unheeded.  Prison administrators who know that abuses are taking place under their watch don't have the inclination or the authority to solve those problems.  Failing schools fester for decades, for want to guidance and leadership from someone with authority on what to do about them.

One of the bigger problems in a democracy is that the need for an electoral or legislative mandate denies people on the ground the authority to deal with problems that they understand better than anyone else and solve them, even if they know of a solution that would work.

* We work too much.

Americans work more hours per year than any other country in the world.  We take few vacations.  We have very little maternity leave.  We rely heavily on day care.  We retire late.  We have few holidays and little personal time.  Part-time jobs are often not viable alternatives even for those who would prefer to work fewer hours for less money.  We need to find a way to negotiate more balanced alternatives.

READ MORE - Fuzzy Descriptions Of What Should Be