January 26, 2013

Posted by orrinj at 6:48 AM


Why the Founding Fathers Loved the National Debt (William Hogeland, Jan 25, 2013, Bloomberg)

[T]he Founding Fathers were deeply committed to -- some might say obsessed with -- supporting a national debt. And during the founding period, the threat of default came not from conservatives but from what the founders, at least, saw as a radical left.

It's a fact so little-understood as to remain startling that the Constitution, far from trying to limit federal borrowing and shrink government, was specifically intended to create a large and mighty government capable of taxing all Americans for the purpose of funding a large federal debt.

Although many historians today focus on the Revolutionary War debt to foreign countries, the kind of debt that captivated the founders themselves, and served as one of the main prods to forming a nation, was domestic. It involved multiple tiers of bonds, issued by the wartime Congress and bought by wealthy American investors, who hoped to finance the war in return for tax-free interest payments of 6 percent. The first American financiers, in other words, were also the first American nationalists.

Both the young Alexander Hamilton (savviest of the founders regarding finance) and his mentor Robert Morris (the wartime Congress's superintendent of finance and America's first central banker) believed that a domestic debt, supported by federal taxes collected from all the states, would unify the country. It would concentrate wealth, and yoke that wealth to a consolidated government. The goal was a nation capable of grand projects -- ultimately an economic empire to compete with England's.

Other famous founders worked with Morris and Hamilton in building nationhood around the public debt. James Madison, who became Hamilton's political enemy in the 1790s, was among his closest allies for nationalism in the 1780s. Madison's famous "Federalist No. 10" conveys a horror of default on the domestic debt as deep as anything ever expressed by Hamilton.

In letters written before the Constitutional Convention to George Washington, another supporter of sustaining federal debt via taxes, Madison made clear the nationalists' shared desire to shore up public credit by throwing out the Articles of Confederation and forming a nation. Edmund Randolph opened the convention by charging the delegates to redress the country's failure to fund -- not pay off, fund -- the public debt by creating a national government with the power to do so.

...deep in debt.
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Posted by orrinj at 6:43 AM


A House Divided : Why do middle-class blacks have far less wealth than whites at the same income level? The answer is in real estate and history. (Thomas J. Sugrue, January/February 2013, Washington Monthly)

Every once in a while, a scholarly book fundamentally shifts how we understand a problem. One of those books was published in 1995, two years after my parents sold their house. Sociologists Melvin Oliver and Thomas Shapiro's Black Wealth/White Wealth stepped into a stale debate about race, class, and inequality in the United States with new data and a fresh perspective. The authors acknowledged the gains of the civil rights era: Black-white income gaps had narrowed. Minorities were better represented at elite institutions of higher education than could have been imagined in 1960. And while in the '60s the most prominent black elites were car dealers or owners of "race businesses" that catered to black customers, by the end of the twentieth century the number of black engineers, lawyers, and corporate executives had grown. Newsmagazines trumpeted the high incomes of black sports stars and celebrities. "The New Black Middle Class" became a tagline. African Americans might not have wholly overcome the legacy of centuries of slavery and segregation, but they had come a long way.

But Oliver and Shapiro told another story, a sobering one about the persistent gap between black and white wealth. They methodically gathered and analyzed data about household assets, like real estate holdings, bank accounts, stocks and bonds, cars, and other property, that constitute a family's portfolio. Their findings were staggering: despite all of the gains of the previous quarter century, the median black family had only 8 percent of the household wealth of the median white family. The asset gap was still strikingly wide among middle-class and wealthy blacks, who, despite their high incomes, still had about a third the assets of comparable whites.

The racial wealth gap has several specific causes beyond the broad legacy of systematic racial segregation, discrimination, and unequal opportunity. Wealth is passed down from generation to generation--even if only modestly. But going back generations, blacks had little opportunity to get a stake hold. Upon emancipation, they were mostly penniless, without land or access to credit (see Reid Cramer, "The American Dream, Redeemed," page 45), and almost all blacks were excluded from the various Homestead Acts that, beginning in 1862, allowed so many poor white families to accumulate land and, with it, wealth.

Meanwhile, most African Americans earned too little to save; most lacked access to the loans and capital necessary to start a business or buy stock or own their own homes. Lack of financial assets made African Americans more vulnerable to unemployment and medical emergencies, less likely to be able to pay for their children's college education, and more likely to be stuck with the burden of supporting impoverished parents or to face poverty themselves in old age.

Even with the coming of Social Security and stronger protections for organized labor under the New Deal, most blacks were excluded from the benefits because they worked as tenant farmers or domestics who were not covered by the new plans. Two other Depression-era federal programs--the Home Owners' Loan Corporation and the Federal Housing Administration--encouraged homeownership and bankrolled suburbanization, but in the North and South alike, whole neighborhoods were redlined, many of them black.

Many African Americans lost out on the benefits of the post-World War II GI Bill as well. As Ira Katznelson points out in his book When Affirmative Action Was White, of the 3,229 home, business, and farm loans made under the GI Bill in Mississippi during 1947, black veterans received only two. Until 1968, it was virtually impossible for blacks to get access to the kinds of long-term, low-interest mortgages that made wide-scale homeownership possible.

Even after the passage of civil rights laws, dozens of studies showed that minorities had a harder time getting access to market-rate mortgages. Moreover, black home buyers were likely to be steered to neighborhoods of older housing stock, often in declining central cities, places where housing values often depreciated rather than appreciated. This meant that blacks, if they were lucky enough to be homeowners, were often trapped in neighborhoods on the margins, economically and politically. As it turns out, the Sugrues and the Smiths were fairly typical of the black and white families that Oliver and Shapiro studied in the mid-'90s. And what has happened since then is even more disheartening.

Beginning in the '90s and lasting until the bursting of the real estate bubble, some progress was made. The percentage of black households that owned their own homes increased from 43.3 percent in 1994 to 47.2 percent in 2007. Partly this reflected a still-growing black middle class; partly it reflected important government efforts to end racial discrimination in mortgage lending, along with the arrival of new, responsibly crafted forms of mortgages for which more people, particularly African Americans and Latinos, could qualify.

If we'd had a white president he could have used the stimulus bill to pay off or down these mortgages.
Posted by orrinj at 6:25 AM


I Don't Want My Preschooler to Be a 'Gentleman' (LYNN MESSINA, 1/10/13, NY Times)

My 4-year-old son, Emmett, swallows a spoonful of cereal and asks me if I know what a gentleman is. Surprised, I tell him I have some idea; then I ask what the word means to him.

"A gentleman lets girls go first," he says, explaining that every day at naptime all the girls go to the bathroom before the boys.

His explanation, along with the quiet solemnity with which he delivers it, is completely endearing and yet it makes my heart ache. This adorable little boy, who is only beginning to learn the ways of the world, just got his first lesson in sexism -- and from a teacher who, I don't doubt, believes she's doing something wonderful for womankind.

She isn't the only one.

Start to complain about your preschooler adopting gentlemanly behavior and you quickly discover how out of step you are with the rest of the world. Almost everyone I mention it to thinks it's lovely and sweet. What's the harm in teaching little boys to respect little girls?

...is behaving well even towards women who aren't ladies.

Posted by orrinj at 6:21 AM


Solving the Immigration Puzzle : Some want illegals to return to their native countries and 'wait in line' like everyone else. There is no line. (JEB BUSH AND CLINT BOLICK, 1/24/13, WSJ)

There is no "line." Critics of comprehensive reform often argue that illegal immigrants should return to their native countries and wait in line like everyone else who wants to come to America. But unless they have relatives in the U.S. or can fit within the limited number of work-based visas, no line exists for such individuals.

For most aspiring immigrants, the only means of legal admission to this country is an annual "diversity lottery" that randomly awards visas to 55,000 foreigners. There are roughly 250 applicants for each visa every year. The absence of a meaningful avenue of access increases the pressure for illegal immigration.

The U.S. needs workers of all types. The birthrate in this country has fallen below the level necessary to sustain the population at the very time that millions of Americans are leaving the workforce and expecting retirement benefits. The nation needs energetic young workers to spur the economy and support an ever-increasing social-welfare burden.

The only alternatives to increased immigration are mounting debts or reduced social services. A practicable system of work-based immigration for both high-skilled and low-skilled immigrants--a system that will include a path to citizenship--will help us meet workforce needs, prevent exportation of jobs to foreign countries and protect against the exploitation of workers.

America especially needs high-skill workers. The K-12 education system is not producing nearly enough graduates with the skills needed for a vibrant 21st-century economy. This country has attracted, and still does attract, the best and brightest from throughout the world to its universities and businesses. But once here, even the most talented students are not assured that they will receive visas enabling them to work following graduation, and high-skill workers and entrepreneurs have no sure path to citizenship.

Other nations--including Canada, New Zealand and even China--are luring away students, workers and entrepreneurs with more sensible and welcoming immigration policies. If we do not adapt, we will be increasingly unable to compete.

Amnesty promotes illegal immigration. The U.S. must find a fair way to deal with its 11 million illegal immigrants without sending the message that America's laws can be broken with impunity. 

Posted by orrinj at 5:55 AM


Making the case for negative interest rates (Allan Dodds Frank, 1/25/13, Fortune)

The Federal Reserve, says Blinder, should stop paying interest to banks for their overnight deposits and should move to charge them for parking money. He says if the Fed set negative interest rates for overnight deposits - in effect charging a fee - banks would have to figure out better ways to make money and one obvious alternative would be to lend more to customers. [...]

While citizens fail to understand the positive role the Federal Reserve played, Blinder also says people have a right to be angry about the ongoing practice that encourages banks to keep their deposits out of general circulation.

"I have been advocating - and have not yet quite convinced (Federal Reserve Chairman) Ben Bernanke, although I am still working on it - that the Fed should lower, first to zero and then probably to negative, the interest rate it pays banks for holding reserves at the Fed," Blinder said Thursday. "When I want to be polemical about it, I say things like: 'My bank pays me one basis point on my checking account. Why are you paying my bank 25 basis points on their checking account?'"

The problem, and the proximate cause of our last three soft economic patches, is that we haven't moved on from the 70s.  We require the Fed to be vigilant about an inflation threat that no longer exists. Thus, it periodically cranks rates--especially when there's a new chairman--into the teeth of deflationary pressure.

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