Don't Just Complain, Participate!

   Roger Sherman, United States Senator 
from Connecticut (1791-93)

Our political system is still the most brilliant one ever designed, so just complain, participate in it!

Thomas Jefferson and other early American political leaders who endorsed Republicanism for the newly created United States believed that the best kind of world to live in was one in which political sovereignty rested with the citizens and not with autocrats or aristocracies.

For representative government to really work, it was thought that civic virtue should first be cultivated widely so that passion for the public good would tend to prevail over narrow, personal and commercial interests. The people’s elected representatives in the legislative branch could then draw on this virtue and look out for the best interests of both majority and minority groups when they wrote the laws necessary for the administration of good government. This civic virtue of citizens was very much about citizens being politically informed, aware, and engaged with their government.

The franchise was very limited in our country’s early years, and of course only relatively few could vote. It would certainly be reasonable to assume that America’s early leaders didn’t even take into account the will of more than just a fraction of the constituents they were elected to represent. But most citizens today can vote in elections if they choose to, and thanks to constantly evolving technologies, they have never had more ways to communicate their positions to whom they elect to represent them in the U.S. Congress.

I suspect that one reason behind why things haven’t been working so well in Washington is that too little of the American electorate is really engaged in our country’s political life. By this I mean voters actively debating political positions among themselves and then expressing their views and positions to their elected representatives on a regular basis. A mid-2010 Washington Post-ABC news poll confirmed growing voter apathy towards the job Congress is doing. This poll also confirmed that only 29% of voters were inclined to re-elect their representative in November 2010. Apparently, voter sentiment hasn’t been so low since the big political re-alignments of 1994 and 2006, when opposition parties swept to power.

Despite the heated, polemic exchanges at town hall meetings that you can watch by the dozen on YouTube, you have to ask if members of congress are really getting a representative sample of all the material viewpoints of their constituents. To me, it seems entirely possible that voters can indeed get the political outcomes they desire that are proportionate to their degree of civic engagement if they collectively persevere in expressing their views.

When was the last time you picked up the phone, wrote a letter, or sent an e-mail to express your views to your representatives in congress? As a proponent of strong financial regulatory reform, I’ve been doing it a lot myself lately and really encourage others to share their viewpoints.

I should ask around more about it, but I often find that, while my friends may be bothered by a particular problem within the public realm, they still don’t express their views on it to their representatives who really the ones in the position to effect change. This inaction is unfortunate, because while the volume of messages from constituents may prohibit members of congress from providing much personal attention to each one, the total number of constituents expressing a particular position certainly does matter to how that member will vote.

So I encourage you to organize your thoughts and then speak up about the problems and possibilities in the public realm that are important to you through letters, e-mail, phone calls, personal office visits to your Representative or Senators. Consider using social media tools to regularly share information and express your views, write and give speeches, consider participating in interviews by podcast. Consider contributing to your own blog regularly then turning the content into a book later.

I’m not sure if civics is taught in schools anymore, but each generation of Americans will need to learn for itself what our country’s founders clearly understood: that active civic participation does matter and that the regular exchange of views is required to achieve political outcomes that are more satisfactory to us all.

Moving Beyond a Lay-Off Culture Towards a More Stable Workforce

I've had a dream or two in which the United States economy reached a level of full employment (95% of the workforce or above employed) and stayed there. Also in these dreams was an economy in which workers would tend to keep their jobs if they did them to the best of their ability and they committed themselves to regular updating of their skills over time.

I sometimes wonder what it must of been like to have been in the labor force between the years of 1948 and 1968 when stable employment in our country helped an American middle class ride an escalator into steadily improving standards of living. Sadly, some missed out on this ride, but most did not.

Then something went wrong with stable employment during the 1970's, and then something went very wrong with the hopes of many for stability in employment beginning after the 1980 Presidential election. Some might say that the decline of labor unions, the collapse of the Berlin Wall, and NAFTA strongly accelerated the trend. But don't also forget the business fad of "re-engineering" popularized by Michael Hammer in his 1993 book Re-engineering the Corporation , offshoring, and the productivity pay-off to employers who could now easily substitute information technology for labor after many years of investment.

Economists are still telling us today with a straight face that that raising productivity will lead to higher living standards over time. But this certainly isn't what happened at all after the 2000 Presidential election when productivity surged while real incomes of four-fifths of American households went nowhere. By this time, our euphemistically named "flexible" economy really began to rest on what had become to a large extent, a lay-off culture.

Unit labor cost is defined as the ratio of hourly compensation to labor
productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them. Increases in productivity is supposed to reduce employer's unit labor cost allowing for higher wages.

Unit labor costs in non farm businesses fell 5.9% in the fourth quarter of 2009, the result of productivity increasing faster than hourly compensation. Unit labor costs decreased 4.7% from the same quarter a year earlier, the largest four-quarter decline since this started being tracked in 1948. And where did incomes go? Where you might expect--nowhere!

Allen Sinai of the economics research firm Decision Economics stated it pretty directly when he was quoted as saying in a February 11, 2010 New York Times article: "American business is about maximizing shareholder value. You basically don't want workers. You hire less, and you try to find capital equipment to replace them."

Microeconomic theory may consider labor as purely one of the substitutable inputs that go into production, but of course, labor is more than just that because wages exchanged for it are central to human well being. I try to be careful about making predictions, but clearly labor dislocation has gotten so out of hand during a Great Recession that followed a lay-off culture lasting more than a generation, that the future will be bright for employers who become well known for not laying off workers and finding other ways to reduce their fixed costs. The value of this good reputation in the future markeplace for America's "talent" will be built right into the employer's brand equity and be measurable.

The MetLife Foundation and San Francisco-based Civic Ventures, a think tank focusing on baby boomers, work and social purpose, recently released a report that suggested that the United States will in fact experience a four million worker shortage with in ten years. If this report is in fact correct, than employers have a strong competitive incentive not wait to begin re-hiring workers and to keep their employees happy going forward by rewarding them appropriately and treating them fairly. But to be competitive within this changed environment, employers will also need to build and maintain their reputations for low or no lay-offs.


Three excellent articles on this subject are:

"Slash and Earn", appeared in the March 20-26, 2010 issue of The Economist
http://www.economist.com/business-finance/displaystory.cfm?story_id=15731230.

"Worker shortage coming as population ages: report", MarketWatch, March 22, 2010
http://www.marketwatch.com/story/worker-shortage-coming-as-population-ages-report-2010-03-22

"Median income rose as did poverty in 2007; 2000s have been extremely weak for living standards of most households", EPI, August 26, 2008
http://www.epi.org/publications/entry/webfeatures_econindicators_income_20080826/

Getting Serious About Financial Literacy

The House bill to create a Consumer Financial Protection Agency

We’re now 18 months out from the near financial meltdown of September 2008 and 27 months out from when the economy began to enter a downturn in December 2007. Households throughout the country have been forced through unemployment, underemployment, or reduced household wealth to make tough choices about spending and managing large debt levels. In these difficult economic times, in my view, good personal financial management needs to be more widely practiced and refined to the level of an art. If nothing else happens from doing so, good spending and saving habits re-enforced by financial literacy and good management skills, could be in place more broadly at the start of the next age of prosperity.

Although some of us are good at handling our money and saving for the future, many people are not. We all benefit as a country, however, when most households do a better job at it. Perhaps the most important financial objective for households in the long-run is to build up their wealth (that is, their net worth--assets, such as home equity, minus liabilities, such as mortgage debt). I’m certain that widespread financial literacy would help get them there.

The Federal Reserve announced last week that household net worth continued to slowly increase to $54 trillion at the end of last year, following a plunge to $48 trillion in early 2009. It had peaked at $65 trillion in 2007. It’s interesting to note that a large chunk of this increase in household net worth came from a drop in household debt, as an increasing number of financially stretched consumers defaulted on mortgage and credit-card debts. It would have been better of course if these consumers were able to get rid of this debt by paying it back instead. The bad employment situation being what it is, greater financial literacy would have helped better position households to do just that.

When looking at the impact of financial literacy on individuals consider this. In 2007, the Center for Retirement Research at Boston College conducted at survey which found the value of a typical 401K retirement account for a worker approaching retirement was just $78,000. During the financial crisis that followed a year later, retirement accounts more weighted in stocks then lost 30% of their value, although they rebounded a bit later. But perhaps good financial literacy could have led to more saving by many workers earlier in life and more comfortable retirements later on.

I’ve had some trouble finding a definition of financial literacy that I’m completely satisfied with but one that I will go with here is: the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being. It includes the ability to discern financial choices, discuss financial issues without discomfort, plan for the future and respond competently to life events that affect everyday financial decisions.

Do we dare ask ourselves--just how financially literate are we? For example, how many of us:

• know our exact bank balance from manually balancing our checkbook?

• prepare personal balance sheets on a regular basis so that we know exactly what we own relative to what owe?

• prepare a budget at least annually, so that we may meet long-run financial goals, and track our spending against it?

• take the time to really understand the risks with our investments?

To successfully handle our financial resources and get ahead over time, it’s quite clear that we have to really take the time to organize, check, study, and evaluate lots of details and make decisions continuously or pay someone to do it for us. But even if we pay someone else to prepare our taxes and manage our investments, we still need have a fundamental understanding about it. Providing this attention is often not easy to do with so many competing demands on our time.

I consider financial literacy and the ability to make good decisions from it, a core life skill--like understanding and practicing good nutrition, but it’s skill that even some of the best educated in our country can neglect.

Financial illiteracy (and aliteracy) is sub-optimal, un-necessary, and can be addressed provided that there is a societal and personal commitment to reverse it. I believe that regular reading on topics like budgeting, taxes, investing, retirement planning, and the economy throughout our lives can by itself go a long way towards building and maintaining our financial literacy. But there are also many educational resources available for those motivated to learn--some of the most useful exist online, are interactive, and improve in quality all the time.

High school and community college courses on personal financial management have grown increasingly common. Although personal financial management has been traditionally thought of as a remedial topic of study, and as such has been absent from baccalaureate degree curriculums, perhaps now’s time to reconsider including it.

Even the federal government has become more involved with promoting it. In 2003, Congress created The Financial Literacy and Education Commission with the mandate “to improve financial literacy and education of persons in the United States.”

With a slowly growing economy, unemployment is now expected to remain high for years. Our national debt is expected to approach 100% of GDP by 2012 so income taxes for individuals are certain to increase even if government spending grows more slowly. Financial resources are seriously inadequate for an aging population. But, as a first line of defense, financial literacy and good financial management habits that begin early and remain robust throughout life will certainly improve upon these circumstances.

Welcome!

Welcome to The Erudite Corner!

A place intended to share thoughts and ideas in
the spirit of the 17th and 18th century Age of
Enlightenment when scientific reasoning was applied
to human nature, society, and religion with emphasis
placed upon liberty, democracy, and happiness.
Celebration of the powers of reason was central to
this age.