Abandonment of Middle Class – Page 2

Can Biden’s Union Roots Help Him In 2024?

The Daily Escape:

Red Mountain, San Juan Mountains, CO – September 2023 photo by Daniel Forster Photography

The “the biggest auto strike in generations” got under way last week, with 150,000 US autoworkers, including employees at Ford, Stellantis and General Motors walking off the job after contract negotiations failed to reach a deal. This strike, coupled with the likely government shutdown at the end of the month, will precipitate a very dangerous moment for the Biden administration.

From The Guardian:

“The United Auto Workers (UAW) union says workers have never been fully compensated for the sacrifices they made after the 2008-09 financial crisis, when they agreed to a raft of cuts to save the industry. The carmakers received huge bailouts and soon returned to record profits.”

The WaPo had a good article asking workers why they are striking. Most cited inflation and fairness:

“We’re not making enough money” said Petrun Williams, a 58 year-old Ford repairman. “People should be able to buy their own houses, but right now it’s not possible.”

This is going to be a difficult problem to tackle, because GM, Ford, and Stellantis are wildly inefficient giant bureaucracies with cost structures optimized to make $75,000 trucks, and their move into Electric Vehicles will take a lot of money and time before it pays off.

But the Biden administration isn’t necessarily helping: (Brackets by Wrongo)

“…Biden…is in a tough spot with the United Auto Workers….Through its industrial policies,…[Biden]…is giving away billions to automakers through production tax credits and loans, while supporting the transition to electric vehicles through consumer rebates and funds for charging infrastructure. Biden has promised that those incentives will lead not only to carbon emissions reductions but also good-paying union jobs.”

But the UAW leadership isn’t buying it. As the UAW goes on strike, their members don’t necessarily support Biden, but that doesn’t necessarily mean they support Trump either. Politico asked striking members if Biden had done enough to prevent the strike. They talked to Garry Quirk, the president of the local UAW union in Kokomo, IA:

“I don’t know what he’s done…Ask him. I don’t think he knows what he’s done. Seriously. I’m not trying to be mean.”

Quirk wasn’t freelancing: Fain and the union haven’t yet endorsed Biden’s reelection, throwing into doubt Biden’s standing in autoworker-heavy communities. But Politico reported that Biden had spoken that day with UAW president Shawn Fain and auto company CEOs. The chair of Biden’s Council of Economic Advisers said this week that Biden had been very much engaged.

But his efforts didn’t resonate with union member Denny Butler:

“Historically, man, if you didn’t vote Democrat years ago, and you were in the union, sometimes you got your ass kicked…I’m telling you what, the Democratic Party is not what it was 20, 30 years ago.”

So this is another Politico story about Obama voters becoming Trump voters and not looking back.

What Biden is fighting is the sense that the Democratic Party has not been truly on the side of union workers for a long time. It is true that today the Democrats are more on the side of unions. Neoliberalism is not nearly as powerful in the Democratic Party as it was during Obama’s time, or earlier.

But perceptions can be sticky. Clinton, Carter, and Obama (especially in the first term) all promoted corporate policies over the unions. Workers got screwed as factories closed, and no one offered much to workers beyond retraining programs that they didn’t want, and for the most part, didn’t lead to better jobs.

If you said that Republicans (including Mitt Romney) were no better, you’re correct. But today’s Republican Party offers a way to channel anger and resentment. Union members can opt for the GOP path even if the GOP doesn’t have the union’s interests in mind.

Despite Obama (and Biden) saving autoworker jobs through the 2009 auto bailout, they did little to hold the auto companies accountable. They allowed the expansion of two-tiered wage rates that the union is still fighting during the current strike.

The perception is that the UAW shrank and sacrificed, while the auto industry leadership got richer. Biden absolutely cares about unions, but he’s fighting against decades of belief that the Democrats aren’t what they used to be.

And no matter what Biden does, it’s going to be hard to get by that perception. There’s a mixture of anger and nostalgia that sticks in the minds of people who don’t really pay attention to the details of politics. Let’s take a look at the price of cars over the last ten years:

The Big Three automakers reported $21 billion in profits in just the first six months of 2023. Despite these enormous gains, the companies have cried poverty in response to union demands for wage increases that would make up for decades of pay stagnation. Worse, during the last year, the Big Three automakers have authorized $5 billion in stock buybacks, effectively giving those dollars to shareholders instead of to autoworkers.

The Economist had an excellent observation (paywalled):

“Late last year I took a trip…in a shiny new vehicle, Ford’s electric F-150. The car is in some ways an avatar for today’s Democratic Party. Joe Biden’s administration likes things that are made in America by union labor. It also wants to speed up the transition away from fossil fuels. The F-150 car ticks both boxes. It is also a high-end item that markets itself as a vehicle for working Americans.”

“That’s a bit like the Democratic Party too…with each passing election Democrats lose votes among actual working-class Americans and gain them with college-educated ones (some of whom can actually afford a $75,000 truck).”

“When we talked to a…UAW…representative near Detroit, it became clear the unionized workers are lukewarm on the green transition. Electric vehicles are less labor-intensive than cars powered by internal combustion, which is bad for the UAW members. In fact that is one reason why the union went on strike today. College-educated liberals, on the other hand, like electric vehicles a lot.”

Apparently union members see the problem much more clearly than the Biden Administration.

There could be a settlement reached between the unions and the companies at any moment, but it feels like this will be a protracted situation: If the UAW workers get the 40% pay increase they are asking for, they probably would learn to accept electric vehicles. Don’t hold your breath.

Biden’s relationship with America’s unions is deep and personal, but the next few months are really about his political strategy. And they’re an example of how the Democrats are always trying to balance competing aims.

Time to wake up America! Will Biden continue pursuing his environmental policies and risk losing even more support among working-class Americans? Or will he pump the brakes on environmentalism and alienate upscale Democrats? Biden won only 33% of white, non-college voters in 2020, so maybe that’s where his opportunity to expand his base in 2024 lies. But does Biden really have a path to take back more non-college voters?

To help you wake up, watch and listen to a recent version of the union anthem “Solidarity Forever”, written by Ralph Chaplin in 1915. Although it was written for the Industrial Workers of the World (IWW), the AFL–CIO have adopted the song as their own. Here it is sung in the Wisconsin capitol building in September 2011, by demonstrators who opposed then Governor Scott Walker’s “Wisconsin Budget Repair bill.”

The bill proposed to alleviate the state’s budget shortfall by taking away the ability of public sector unions to bargain collectively over pensions and health care, as well as ending automatic union dues collection by the state. Walker stated that without the cuts, thousands of state workers would have to be laid off. After two days of arrests for “holding signs” on the first floor of the Wisconsin State Capitol, the Solidarity Sing Along took to the rotunda in joyful defiance:

The law passed and remains in effect today.

The Economic Value Of College Is Collapsing

The Daily Escape:

Thor’s Hammer, Queen’s Garden Trail, Zion NP, UT – September 2023 photo by Michelle Strong

We all believe that college graduates make, on average, a lot more money than high school graduates. Economists call the gap that exists between the incomes of college graduates and high school graduates the college wage premium.

But, Paul Campos points out that in recent decades the growth in the college wage premium has been largely caused by declining wages for high school graduates, because wages for college graduates have been almost completely stagnant. For example, here is the Congressional Research Service’s (CRS) median hourly wage in 1979 and 2019, (40 years apart) for someone with a Bachelors degree (in 2019 dollars):

1979: $26.42

2019: $28.85

But it’s worse than that: Over the last 20 years of that 40 year period, the median hourly compensation of people with four-year college degrees increased by a total of $0.31, or 31 cents, just over a penny per year.

From Campos:

“The flip side of all this is that wages have declined for people who have gone to college but either not gotten a degree, or not gotten more than a two-year associate’s degree, falling from $22.86 in 1979 to $20.00 in 2019. And the decline has been even sharper for those with high school diplomas or less — thus driving up the “degree premium” for several decades’ worth of college graduates whose own compensation has not actually gone up, even as the cost of their degrees has gone through the roof.”

Here’s a chart from the CRS:

For both high school and no high school diploma categories, wages have fallen in absolute terms. So as college costs have risen, the college wage premium has stayed about the same because wages for the less educated have fallen dramatically.

As the NYT explains, the college wage premium has one important limitation:

“…It can tell you how much college graduates earn, but it doesn’t take into account how much they owe — or how much they spent on college in the first place.”

The NYT explains how a group of economists devised another way to look at the relative value of a college education: The college wealth premium. The wealth premium is the measure of how much more wealth college graduates can expect to accumulate as opposed to those with no more than a high school degree: (emphasis by Wrongo)

“Then the researchers looked at the wealth premium, and a different picture emerged. Older white college graduates, those born before 1980, were, as you might expect, a lot wealthier than their white peers who had only a high school degree. On average, they had accumulated two or three times as much wealth as high school grads of the same race and generation. But younger white college graduates — those born in the 1980s — had only a bit more wealth than white high school graduates born in the same decade, and that small advantage was projected to remain small throughout their lives.”

More: (emphasis by Wrongo)

“When the researchers looked at young Americans who had gone on to get a postgraduate degree, the situation was even more dire. ‘Among families whose head is of any race or ethnicity born in the 1980s and holding a postgraduate degree, the wealth premium is … indistinguishable from zero,’ the authors concluded. ‘Our results suggest that college and postgraduate education may be failing some recent graduates as a financial investment.’”

This means that Millennials with college degrees are earning a good bit more than those without, but they aren’t accumulating any more wealth. We all know why:

“The likely culprit…was cost: the rising expense of college and the student debt that often goes along with it. Carrying debt obviously diminishes your net worth through simple subtraction, but it can also prevent you from taking important wealth-generating steps as a young adult, like buying a house or starting a small business.”

Since 1992, the sticker price has almost doubled for four-year private colleges and more than doubled for four-year public colleges, even after adjusting for inflation. Over the last 15 years, more young Americans have borrowed to cover those rising costs. From the NYT:

“In 2007, total student debt stood at $500 billion. Today it is $1.6 trillion….Among student borrowers who opened their loans between 2010 and 2019, more than half now owe more than what they originally borrowed.”

When you factor debt into the equation, the financial benefit of a college education begins to look very different. The NYT reports on Douglas Webber of the Federal Reserve, who found that the premium now varies much more than it used to:

“The “downside risk” to enrolling in college, he argues, has become “nontrivial.”

When you look at Webber’s data, higher education is a financial gamble that can still sometimes produce a big windfall, but it can also bring financial disaster:

“If your tuition is free and you can be absolutely certain that you’re going to graduate within six years, then you enter college with a 96% chance that your gamble is going to pay off, meaning that your lifetime earnings will be greater than those of a typical high school graduate.”

But going to college isn’t free. If you’re paying $25,000 a year in tuition and expenses, Webber calculates that your chance of coming out ahead drops to about 66%. At $50,000 a year in college costs, your odds are no better than a coin flip: Maybe you’ll wind up with more than the typical high school grad, but you’re just as likely to wind up with less.

Americans can count, so they are aware that college education has become a financial gamble. They understand that going into high five-figures of debt (that doesn’t go away in bankruptcy) in order to earn a 5-figure salary doesn’t make a lot of sense.

In 2009, 70% of that year’s high school graduates went to college. In the fall of 2010, there were more than 18 million US undergraduates. It’s been falling ever since, dipping below 15.5 million undergrads in 2021. The percentage going straight to college is now 62%.

This tracks polling. In 2019, the percentage of young adults who said that a college degree is very important fell to 41% from 74%. About one-third of Americans now say they have a lot of confidence in higher education. Among Gen Z, 45% say that a high school diploma is all you need today to “ensure financial security.” And almost half of American parents say they’d prefer that their children not enroll in a four-year college.

But, education is an essential pillar of our democracy. The rejection of higher education by so many should be extremely concerning for the future of our nation. You should read the NYT article. Here are Wrongo’s conclusions:

Colleges and universities are pricing themselves out of the market. Pigs get fat; hogs get slaughtered.
Turning higher education into a revenue-maximizing enterprise for the benefit of these institutions is a social disaster.
Higher education’s leadership has zero accountability for their role in making a college education so expensive.

Homeschoolers Want Your Tax Dollars

The Daily Escape:

Rich Mountain Fire Tower, Marshall, NC – August 2023 photo by Michael Morris. This photo has a painterly quality to it.

Americans’ interest in homeschooling has soared in recent years. Migrating from mainstream education to homeschooling tracks with the rising fears among parents that schools are failing their children.

For parents frustrated with their child’s public school education, the pandemic provided another reason to give homeschooling a try. Homeschooling has become a significant element in education in the US. According to the National Home Education Research Institute (NHERI), there are 3.7 million homeschooled students in the US, about 6.7% of the school-age children in K-12. The popularity of homeschooling is growing rapidly, with an annual growth rate of 10.1% between 2016 and 2021.

Home schooling is legal in all 50 states, with the highest number of homeschoolers in North Carolina, Florida, and Georgia. About 10% of states have strict laws regulating homeschooling: New York, Vermont, Rhode Island, Massachusetts, and Pennsylvania. Another 18 states have no to low regulation, while 11 states provide complete freedom to parents regarding homeschooling. In New Jersey, parents do not have to let anyone know about their decision to homeschool their children. They don’t even have to produce any kind of proof at any time, explaining that their kids were homeschooled. Here’s a view of homeschooling regulation in the US:

Source: HSLDA

In many states, there is little oversight of homeschooling. And for many, what regulations do exist were adopted in the 1980s, when homeschooling was almost exclusively provided by a family member at home. Now, with the number of homeschool students soaring, much of the educating is now being provided by third parties.

The WaPo reports that there is an emergence of “microschools” provided by for-profit companies, such as Prenda which provide online courses and syllabi to the microschools. Last year, Prenda served about 2,000 students across several states by connecting homeschool families with microschools that host students, often but not exclusively in homes. The local educator is called a “guide” for students who study math and reading online while depending on the “guide” for other subjects. Families pay Prenda $2,199 per year, plus additional fees set by the guides, which can range from $2,800 to $8,000 per child although there is often a multi-child discount.

Many similar options to Prenda are transforming home schooling in America. More from WaPo:

“Demand is surging: Hundreds of thousands of children have begun homeschooling in the last three years, an unprecedented spike that generated a huge new market. In New Hampshire, for instance, the number of homeschoolers doubled during the pandemic, and even today it remains 40% above pre-covid totals.”

“For many years, homeschooling has conjured images of parents and children working together at the kitchen table. The new world of homeschooling often looks very different: pods, co-ops, microschools and hybrid schools, often outside the home, as well as real-time and recorded virtual instruction. For a growing number of students, education now exists somewhere on a continuum between school and home, in person and online, professional and amateur.”

Still more:

“Microschools sometimes provide all-day supervision, allowing parents to work full time while sending their children to “home school.” Hybrid schools let students split their days between school and home. Co-ops, once entirely parent run, might employ a professional educator.”

All of this is adding to the conundrum of how K-12 education is financed in the US. The WaPo says that about a dozen states allow families to use taxpayer funds for home-school expenses. Education Savings Accounts, or ESAs, direct thousands of dollars to families that opt out of public school, whether the destination is a private school or their own homes.

Nonprofits, including school-choice advocates, are directing millions of dollars in charitable giving toward homeschool organizations, linking two powerful but traditionally separate movements into one interest group that seeks to move taxpayer money away from the local public school system into private hands.

In the past, homeschoolers and school-choice activists didn’t see themselves as aligned. The latter group wanted taxpayer money to pay for charter, private and religious schools, whereas homeschoolers looked to limit any government involvement.

But since the pandemic, they found themselves in common cause. Historically, homeschool advocates have been wary of any government money or involvement, for fear it would lead to rules and regulations.

But many school-choice advocates incorporate support for homeschoolers into their advocacy work, including for school vouchers that give these families tax dollars to pay education costs. Where they used to be a defensive constituency, today they have become partners.

And venture capitalists have invested tens of millions of dollars in new businesses to serve what they see as a growing, and potentially huge market. One entrant is Outschool, an online marketplace for classes, which has raised $255 million since 2015. This year, Outschool has delivered 500,000 live learning sessions to more than 150,000 students globally.

WaPo says Prenda has raised about $45 million. Primer, another microschool company formed to serve homeschoolers, has raised about $19 million, though its campuses are becoming more like tiny private schools, an example of the fuzzy line between traditional and home schooling. WaPo spoke to Michael Moe, founder of GSV, a venture capital firm in the Silicon Valley, who has invested in several education technology start-ups: (brackets by Wrongo)

“The mega trend of [school] choice is wildly important to us…All these shifts create opportunities for companies providing solutions that allow parents and communities to take more control of the learning.”

That’s “venture capitalspeak” for more privatizing of the commons in search of higher financial returns.

Vouchers that once paid only for tuition at private and parochial school can now, in some places, be used for homeschoolers. Most sweeping are Education Savings Accounts, or ESAs, which allow families to claim state tax dollars to use at their own discretion for any education expense.

This increasingly means taxpayer money is following the student out of the public school. It flows to whatever a family chooses. That can include things like Prenda’s fees, online classes or home-school curriculum, as well as tuition at private schools.

In Detroit, a program called Engaged Detroit , is a cooperative that’s part of a network specifically to serve Black families looking for schooling options in response to the pandemic. Among Engaged Detroit’s backers is the VELA Education Fund, which has made more than 2,400 grants totaling more than $28 million since 2019. VELA’s primary funders are longtime advocates for school choice: the Walton Family Foundation and the Charles Koch foundation, Stand Together.

There are pluses and minuses to homeschooling. There are situations where it’s appropriate to homeschool, but the loose oversight and lack of expertise might mean that some homeschooled kids are going to be at risk. When parents say they don’t trust the trained/educated teachers in their public school, but instead want their kids to get the viewpoints of only one or two specific people, the kids are entering a small world. Later in life, they’ll have to adjust to a larger reality.

Wrongo is fully aware of the weaknesses of our public school systems. It’s possible that SOME of these small private schools that they say are “home schools”, are teaching those kids better than some public schools do. So Wrongo is ok if kids learn there. But there should be no problem with requiring these kids to take end-of-year minimum standards tests, proving that they learned the base-level material in each subject.

Without some testing, society has no idea if these kids learned anything. The lack of oversight, particularly in those situations where taxpayer money was diverted to homeschooling, seems well—Wrong.

The literature is clear: Some homeschooled children have attended Ivy League schools and won national spelling bees. Some have also been the victims of child abuse. Some are taught using the classics of ancient Greece, others with Nazi propaganda.

Many parents say home education empowers them to withdraw from schools that fail their children. Or they want to provide instruction that better reflects their personal values. But should the rest of us pay for those individual decisions?

Time to wake up America! Homeschooling may offer certain advantages, but also comes with a set of disadvantages that should also be considered. And it’s clear that those who would privatize K-12 education want to take funding from the public school systems wherever they can.

To help you wake up, listen to Steely Dan’s “My Old School” from their 1973 album “Countdown to Ecstasy”. Steely Dan always used outside musicians, and on the record, they had the late Skunk Baxter on guitar and four (!) saxophones. But Steely Dan didn’t like to tour. Today, we’re going to see a rare video of a Steely Dan live performance on “The Midnight Special” where Skunk had a blistering solo for the song’s finale:

The Problems With Childcare

The Daily Escape:

Sunset with Cosmos flowers, Blue Ridge Mountains, Franklin, NC – August 2023 photo by Amy Barr

Monday’s Wake Up Call is that we’re in the middle of a childcare crisis, one that dates back to WWII. Daycare costs too much, daycare workers don’t earn enough, and many daycares don’t make money and are going out of business.

Today, anyone who has tried shopping for day care knows that it’s a tough marketplace. Care.com, an online platform where people can hire housekeepers, pet caretakers, nannies, and more, publishes a yearly Cost of Care Report to help US families understand the cost of childcare. Their June 2023 report found that on average, US parents spend 27% of their household income on childcare expenses:

“Households with children make up 40% of the total US population. And with a national family median household income of $91K, child care costs for the typical American family are even more staggering:

– 45% of families earning less than $100K annually will spend more than $18,000 on childcare in 2023, amounting to 18% of their household income (HHI).

-43% of families earning less than $75K will spend more than $18,000, amounting to 24% of their HHI.

-39% of families earning less than $50K per year will spend more than $18,000, amounting to a whopping 36% of their HHI.”

And increasingly, economists are saying that more women would be working if childcare was available. From Axios:

“In a research note about Friday’s jobs report, the chief economist at consulting firm RSM US did something surprising: Instead of talking about rate hikes or soft landings, he made the case for universal child care.”

Axios quotes RSM’s Joe Brusuelas:

“Childcare for kids under the age of 5 is increasingly an issue for more mainstream economists who are concerned about the prospect of long-term labor shortages in the US. Universal childcare is the most realistic way to help expand the labor force at a time when the economy needs workers the most,”

“The US needs more workers, and there are more women sitting on the sidelines of the labor market than men.

-Right now, close to 86% of working-age men are employed compared with 75% of women. That’s a record for women, but it’s also far below the rates for men — there’s room to grow.

-Substantial childcare investments, like those proposed in the now defunct Build Back Better bill, could increase mothers’ employment by 7 percentage points, with bigger jumps for low-income families, according to estimates in an NBER paper published last year.”

The underlying problem is the economics of childcare. First, it’s difficult to get information about childcare costs either online or over the phone: Daycares often only share their prices after you have visited their facilities. And many daycares have waitlists stretching from six months to a year.

Economists say that long waitlists are a classic sign that something’s wrong with that particular marketplace. In this case, waitlists indicate that daycare prices are too low. But parents say that the price for daycare is actually too high. NPR reports that the median price in daycare for an infant in a large county in the U.S. is $17,000 a year. Also, more than 60% of families can’t afford the full cost of quality day care.

Meanwhile, daycare owners can barely afford to stay open. NPR interviewed a daycare provider in Iowa who said that salaries are 83% of their monthly budget:

“Five percent goes to their loan payment. 4% is operating expenses, cleaning supplies, snow removal, play kitchens, things like that. Three percent is utilities. Another 3% goes to groceries….And 2% is for their insurance and their building insurance and worker’s comp.”

Along with labor, that equals 100%, meaning the center makes no profit. It’s probable that the daycare owner’s pay is in the 83% labor total, but still it means zero profit. The Iowa daycare pays its staff between $12 to $15 an hour, while the local Chick-Fil-A advertises $16.75/hour to start. The Iowa daycare has a census of 72 kids, which requires 25 staff.

Daycares are required by law to hire a ratio of staff/per child, a higher number than other low-wage industries, like fast foods need. In fast food, labor is about 25% of the total costs, and the volume of sales is in the tens of thousands, not the 72 kids that a wage increase would effect in the Iowa daycare.

Since labor costs are such a high percentage of total costs in daycare, increasing wages means prices paid by families of children in daycare have to rise drastically to cover the higher costs. Wrongo did a back of the envelope calculation for the Iowa center. If their base pay was $12/hour and it was raised to $15, the average monthly charge for one of the 72 children already in daycare would increase by $360/month, or about 47%!

The broken system is made worse in the US because we don’t have long maternity and paternity leaves.

Funding for childcare that was put in place during the pandemic is set to run out in September. Once we hit that “childcare cliff,” 3.2 million children will lose federal funding. More centers will either have to raise prices, cut staff or shut their doors.

Universal childcare has a tortured history in the US. During World War II, women replaced men in the domestic workforce. But who would take care of the children? The US government answered by enacting the Lanham Act, the first and only universal child care program in American history. An estimated 550,000 to 600,000 children received care through these facilities, which cost parents 50 to 75 cents per child, per day. The program ended in 1946.

Nixon vetoed a universal childcare bill in 1971 that would have created federally-funded public childcare centers across the US because Conservatives argued that the bill was communist and that it would be the end of the American family. A group called Iowans for Moral Education asked “Whose Children? Yours or the State’s?”

Time to wake up America! If you don’t want society to help take care of kids, you’re an asshole no matter what reason you give for being against funding. These kids didn’t ask to be here and they have done nothing to deserve not having societal support. If you think you can make America great again by making it harder to take care of kids, you’re wrong.

To help you wake up, watch and listen to a scene from the 2003 film “Daddy Daycare”. In this scene, Charlie (Eddie Murphy) and Kim (Regina King) try to find a good preschool for their son Ben, but it turns out to be impossible. Life’s still like this 20 years later:

Monday Wake Up Call – July 17, 2023

The Daily Escape:

Comb Ridge, UT & AZ – July 2023 photo by RC Bullough Photography

Wrongo and Ms. Right were urban pioneers in NYC in the early 1980s. We rented a loft on Maiden Lane in the financial district. Back then, we had to go uptown or to Hoboken, NJ for groceries because there were so few people living amongst the downtown forest of office towers.

But by the 2020 census, lower Manhattan was the fourth fastest-growing residential neighborhood in NYC. Since the pandemic, downtowns have looked more like the ghost towns of the 1980s with so many workers adapting to remote work. And they seem to be staying away.

Things are going to get interesting. We may be at the beginning of a massive structural change, not just a temporary blip impacting office towers: It seems that companies have figured out they won’t ever need this vast amount of vacant office space. Brookings says that office utilization averages less than 50% across major US downtowns. While The Gothamist reports that national office vacancies are at a high of 19.2% (compared to 12.6% in early 2020). They also report that McKinsey predicts that remote work will erase $800 billion from urban office real estate values.

This has many cities thinking about conversion of office space into residential space. In NYC, 25 Water Street, which was once home to the Daily News and JPMorgan Chase, has a plan to gut the offices, carve out courtyards and add 10 floors to the 22-story structure. GFP Real Estate and Metro Loft bought the building, formerly known as 4 New York Plaza, in December for about $250 million.

One loophole is that the Financial District doesn’t require that the conversions include any affordable housing. So this project will not have any apartments with capped rents for low-income units. That isn’t true in other parts of the City, like Midtown, Queens or the Bronx.

Boston is testing an incentive program for developers to convert empty downtown offices into housing. Mayor Michelle Wu announced that the owners of repurposed buildings could get up to 75% off on their property taxes. Boston’s office market vacancy rate climbed to 14.2% in the second quarter, the highest level in 20 years, according to data from CBRE Group Inc. And median monthly rent for a one-bedroom apartment has jumped 8% in the past year to $2,800.

Boston’s downtown has about half of the city’s office space. An October 2022 report commissioned by the city found that economic activity downtown remained 20% to 40% below pre-pandemic levels for industries like retail.

Back in NYC, Mayor Eric Adams is also proposing incentives to designate 136 million square feet of office space for conversion to residential development. It’s worked before: A 1995 tax break for conversions helped create 13,000 new apartment units in Lower Manhattan.

Brookings raises the question of what the taxpayers’ interest should be in these conversions:

“To what extent are current high office vacancies a market problem whose burden falls on the private sector (property owners and investors) and to what extent do they represent a market failure and policy problem to which government must respond with financial support from the public?”

The advocates of tax breaks and other financial incentives say it will:

Help drive foot traffic to downtown businesses struggling from a lack of commuters.
Bolster municipal coffers, as cities often rely on property taxes from office buildings.
Supply much-needed housing amid a shortage that has many paying exorbitant rents.

It seems that office-to-home conversions are no more a comprehensive remedy for housing than e-bikes are for transit issues. Few office buildings are truly suited for conversion. It’s often more straightforward for developers to knock down the existing structure and build condos from scratch.

Moreover, the best thing that cities can do to encourage more housing is to loosen zoning restrictions, allowing multi-use and apartment buildings to be developed rather than just supply tax breaks.

The battle lines are drawn. The 25 Water St. developer said state and city lawmakers will have to pay up if they actually want to turn vacant offices into homes:

“The politicians, if they want to create housing in New York City out of these buildings, they will need to provide significant incentives….And if they want to provide affordable housing, those incentives would have to be even higher.”

Time to wake up America! We can’t let our mayors give away more tax revenues to developers! We’re unsure if the current rate of office utilization will improve or not, so cities need to be smart about what they do next. To help you wake up, we dust off an oldie. Here are the Rolling Stones with “Salt of the Earth” from their album “Beggars Banquet”. Performed live at the Rolling Stones Rock and Roll Circus in 1968. This was the first tune where Keith Richards had the lead vocal:

Sample Lyric:

Raise your glass to the hard-working people
Let’s drink to the uncounted heads
Let’s think of the wavering millions
who need leaders but get gamblers instead

How To Think Differently About Housing

The Daily Escape:

Sunrise, Outer Banks, NC – June 2023 photo by Stephen P. Szymanski

Wrongo and Ms. Right have 12 grandchildren, only one of which is still in high school. The other 11 are out of school and pursuing their careers or are finishing their education. Only one of the 12 owns a home. Their experience with real estate is representative of what most younger Americans face in today’s real estate market. Ben Carlson uses data from Redfin to show us that mortgage payments are way up over prior years:

The median mortgage payment was up by more than $1,000 over four years. Carlson reminds us that this is just the monthly mortgage payment, it doesn’t include insurance, property taxes or upkeep. This is part of the reason that housing affordability is more excruciating — the pace of the increases has happened so quickly. We’ve simply never seen prices and rates rise this fast in such a short period of time. And asking prices are up as well:

Note that at the end of May 2023, the median asking price was $397k, up from $300k in May 2020, a 32% increase in four years.

But high mortgage rates and rising home prices aren’t deterring all buyers. John Burns Research shows buyers still outnumber sellers by a wide margin in today’s market. They report that as of April, even with 7% mortgage rates, 78% of all real estate agents say that buyers outnumber sellers in their markets.

And for rentals, the national median rent for a one-bedroom apartment has climbed to $1,504, according to research from Zumper. That’s significant: It’s only the second time in history that it has risen past $1,500. But the median doesn’t represent what you’ll pay in big cities:

In America, buying an investment property near work is more lucrative than actually working. The growth of asset values has outstripped returns on labor for four decades. Last year, one in four home sales was to someone who had no intention of living in it. Investors are incentivized to buy the type of homes most needed by first-time buyers: Inexpensive properties generate the highest rental-income cash flows.

Harvard’s Joint Center for Housing Studies found that in 2019, the median net worth of US renters was just 2.5% of the median net worth of homeowners: $6,270 versus $254,900. There’s no better example than the economic challenges to America’s young persons than trying to find (relatively) affordable housing near where they work.

A very interesting article in the May 23 NYT Magazine suggests a possible solution to housing inflation. Vienna, Austria began planning it’s now world-famous municipal housing in 1919. Prior to that, Vienna had some of the worst housing conditions in Europe. Vienna’s housing program is known as “social housing” (Gemeindebauten), a phrase that captures how the city’s public housing and other limited-profit housing are a widely-shared social benefit:

“The Gemeindebauten welcomes the middle class, not just the poor. In Vienna, a whopping 80% of residents qualify for public housing, and once you have a contract, it never expires, even if you get richer.”

Vienna isn’t a small town. Its population is just under 2 million, and if it were in the US it would be our fifth largest city, between Houston and Phoenix.

The availability of Vienna’s social housing also helps to keep costs down even for private housing:

“In 2021, Viennese living in private housing spent 26% of their after-tax income on rent and energy costs on average, which is…slightly more than the figure for social-housing residents overall (22%).”

One of the reasons Vienna’s social housing works is that it is not means-tested; it is open to middle class people. And as a result, the residents care more about whether their grounds stay clean and beautiful. In the US we restrict public housing to the poorest of the poor, making public housing something to escape from, not to enjoy.

Meanwhile, 49% of American renters are paying landlords more than 30% of their pretax income, In New York City, the median renter household spends 36% of its pretax income on rent.

The key difference is that Vienna prioritizes subsidizing construction, while the US prioritizes subsidizing people, like with housing vouchers. One model focuses on supply, the other on demand. Vienna’s choice illustrates a fundamental economic reality, which is that a large-enough supply of social housing offers a market alternative that improves housing for all.

Calls for a federal social-housing plan in America might sound far-fetched but the US government is already deeply involved in the housing market. There’s generous support for homeowners and deliberately insufficient support for the lowest-income households. In 2017, the US gave $155 billion on tax breaks to homeowners and to investors in rental housing and mortgage-revenue bonds, more than three times the $50 billion spent on affordable housing.

For many, housing expense can be an economic burden. And it’s hard to even contemplate what it would mean to have it not be a problem. What’s mind-boggling is how social housing gives the economic lives of Viennese an entirely different shape.

Imagine where the rest of America’s young adults’ income might go if they were able to spend much less of it on housing. Vienna’s program is a look into a world in which homeownership isn’t the only way to secure a financial future.

A Few Wealthy A—holes Want To Secede From America

The Daily Escape:

Poppy bloom, Picacho Peak SP, Picacho, AZ – February 2023 photo by Leila Shehab

Wrongologist blog commenter Terry McK had this to say responding to Wrongo’s post about Speaker McCarthy and his lieutenant Marjorie Taylor Green’s antics surrounding gifting Tucker Carlson with the J6 videos:

“We lie to ourselves about the nature of our government…..Nor have we a marketplace of ideas. We could have – but the marketplace is dominated by the intellectual equivalent of soda and snacks….Now most speeches are performance art delivered to an empty chamber. ”

He’s correct. Here are a few recent developments that track with Terry’s thinking. First, Joe Perticone in the Bulwark: (emphasis by Wrongo)

“A strange proposal is working its way through the Idaho state legislature that would have that state envelop more than a dozen of Oregon’s most conservative eastern counties—in effect, shifting the border between the states 200-plus miles to the west. While last Wednesday’s vote in the Idaho House approving this “Greater Idaho” idea is nonbinding, it does legitimize the movement that has long been promoting the plan.”

A Bluer Oregon and a Redder Idaho. This movement is by the far-Right members of Idaho’s government. And among the 15 Oregon counties targeted to become part of Idaho, 11 have so far formally expressed their support for the plan. So unlike Taylor Greene’s rantings about a national divorce, this idea has a lot of elected officials on board.

Second, Ars Technica reports that:

“Two Republican lawmakers in Idaho have introduced a bill that would make it a misdemeanor for anyone in the state to administer mRNA-based vaccines—namely…COVID-19 vaccines made by Pfizer-BioNTech and Moderna.”

This probably won’t go anywhere. And state-level politicians everywhere also have tons of bad ideas.

Finally, a sober look how some of the wealthy in the fancy towns across the western US are angling for succession or civil war comes from Vanity Fair’s James Pogue. Writing about Jackson Hole, Wyoming:

“…there was a constant traffic of small jets and private aircraft, humming into and out of a town that has become a modern refuge for people with remote jobs…many of them driven to the Northern Rockies by a worry…that the rest of America is on its way toward environmental, political, or economic breakdown.”

Pogue speaks with Catharine O’Neill, great-great-granddaughter of John D. Rockefeller. She’s a Conservative who worked in Trump’s State Department and after the 2020 election moved to Wyoming:

“She…views the corporate elite as enemies of America and believes that we’re on the cusp of a populist uprising against the brand of transnational capitalism championed by Republicans for most of the last half-century.”

She lives on a 580-acre “vertically integrated cattle operation” she started. Today she’s anti both Parties but would happily vote for Tucker Carlson if he’d step forward. These are the thoughts of the “dissident right”. A few of the wealthy have created secretive groups to help people “exit’ from society and from what they see as a failing American system.

From Pogue:

“Who even needs a civil war,” one…texted me recently, “when the institutions are doing such a good job of delegitimizing themselves?”

This cohort sees the Northern Rockies as one of a few places in America that will be livable once life in much of America is fighting heat waves, floods, storms, and fires. They’re focused on how to live through “managed decline,” the wind-down period after the age of cheap fossil-fuels and rapid economic and technological progress wane.

They’re certain that will also bring about the erosion of America’s “state capacity”, the government’s ability to do things. Then our “real economy” will hollow out, and our political divisions will worsen, even more than currently.

But this movement isn’t only supported by the wealthy. Average American workers are increasingly priced out of housing and better educational opportunities for their kids. Many of these workers have service jobs that support the wealthy from Los Angeles to Jackson Hole, and from Cape Cod to Miami Beach. A Moody’s Analytics report says that for the first time in 20 years, the average American is “rent-burdened”, meaning they put at least 30% of their income towards housing.

This makes many middle class Americans very susceptible to arguments by the dissident right about how corporate elites and modern capitalism are hurting their chances to realize the American Dream. This was the basic thrust of the “Occupy Wall Street” movement in 2011. Now, the right wing is trying to take up their cause.

Will there be a second civil war? It doesn’t need to be a war. People don’t understand how easy it would be to launch an insurgency in America. We should take a lesson from the way the Taliban defeated the American military using small arms, and there are plenty of small arms in America. Insurgencies are less a war than an extended political conflict, in which the insurgents try to get governments to overreact. And when they inevitably do, the insurgents build support. It doesn’t take all that much to create a plausible scenario for conflict.

This is Wrongo’s second wakeup call this week. We can’t do much about the wealthy who tell themselves that they’re better off without America.

But we can and must do a lot to persuade average Americans not to fall victim to their rhetoric.

Jimmy Carter’s 1976 stump speech included this:

“I’ll never lie to you”…and…”we need a government as good as its people…”

Would living his message today help us hold the country together?

Ohio’s Airborne Toxic Event

The Daily Escape:

Roan Mountain, NC – February 2023 photo by Spencer Carter. Roan Mountain has the largest naturally growing gardens of Catawba rhododendrons in the world.

Back on February 3, a Norfolk Southern (NS) train carrying hazardous materials derailed near the town of East Palestine, Ohio. Federal investigators say a mechanical issue with a rail car axle caused the derailment. After several days of underreporting, we now know what happened.

Here are some facts: The derailment included 50 cars, 20 of which carried toxic materials, 14 of those contained vinyl chloride. The subsequent fire burned for three days. Then there was a “controlled release” of poisonous gas. And finally, effects of the poison were felt on locals, their animals, and local waterways.

The axle problem is important since it is the cause of all the hardship in East Palestine. Trains use steel wheels on steel rails because they produce 85+ % less friction than rubber truck tires do on roads. The contact point of a wheel on the rail is about the size of a dime. Compared to trucks, trains are cheaper (4 cents vs 20 cents per ton-mile in the US), and more sustainable: One ton of freight can be moved over 470 miles on a single gallon of diesel fuel.

But sustaining that economic advantage requires the railroads to maintain all that steel in good working order. Otherwise if things go wrong with a train that’s 4.5 miles long, they can go very, very wrong. And reporting seems to indicate that NS didn’t maintain its steel wheels correctly.

Also, the derailed NS train was not classified as a “high-hazard flammable train,” despite its hazardous and flammable cargo. Such a classification would have lowered its speed and affected its route. From Lever News:

“Though the company’s 150-car train in Ohio reportedly burst into 100-foot flames upon derailing — and was transporting materials that triggered a fireball when they were released and incinerated — it was not being regulated as a “high-hazard flammable train,” federal officials told The Lever.”

Apparently when current transportation safety rules were first created, a federal agency sided with industry lobbyists and limited regulations governing the rail transport of hazardous compounds. That decision effectively exempted many trains hauling dangerous materials including the NS train in Ohio, from the “high-hazard” classification and its more stringent safety requirements.

Generally, workers want safety and the bosses want money. Safety requires additional time, more workers, and money. Deregulation contributes to the lack of safety. Using vinyl chloride in a chemistry lab requires safety equipment. Tank cars containing thousands of gallons of it should require more than the government apparently thinks is safe.

Wrongo always looks at the politics in these sorts of industrial disasters because they are usually caused by the economics created by politics.

Given how dangerous these chemicals are, and given how they are used and transported, we have to expect accidents like this to happen. But the government should be able to tell us whether the current accident rate is higher or lower than expected, and if higher, what should be done to correct the problem.

We trust the bureaucrats that make the rules to balance safe operations against the risk of an airborne toxic event like this. Wrongo’s brief look into this one incident doesn’t evidence that kind of trust. It appears that the bureaucrats who make the rules on railroad safety were influenced by the industry and wrote a rule that puts the economics for the railroad industry ahead of public safety.

These issues exist everywhere in the relationship between industry and government. There’s always pressure by the industry on the bureaucrats to deregulate. In a man-made disaster, that can place greater burdens on the communities, like just happened in East Palestine.

This is what the Michael Lewis’s book “The Fifth Risk” is about: People who go to school, get extensive training and then work in obscure corners of the government. Lewis talks about how important these people are, and how for decades they’ve been denigrated, vilified, and ignored, largely by Republicans.

This is another area in which the GOP is awful in a completely lopsided way to Democrats.

The existence of corporations who can impose risks on the rest of us is what happens when there is unequal political power. We need a state with a strong regulatory system to protect us. The state must build regulatory regimes for chemical spills that shift the risks back onto those who create them.

NS in this case, has said that they will be fully responsible for the damages caused in East Palestine.

That’s encouraging, but how does that little town with a population of less than 5,000, or even the state of Ohio hold NS to their word?

It’s Impossible To Buy A $200k Home Anymore

The Daily Escape:

Mt. Hood sunrise – February 2023 photo by Mitch Schreiber Photography

Happy Valentine’s Day for those who celebrate! If you don’t celebrate, find someone or something to give a little bit of love to.

In all of the hype about the Super Bowl and Rihanna’s halftime show, you may have missed that homes selling for less than $200k have basically disappeared in America.

John Burns, a real estate consultant, reports that they are now 0% of the new home market. They were 40% of the market 10 years ago. Burns also says that $500k+ new homes have grown from 17% of the market to 38% of the market during Covid. He provides this handy chart showing how average home prices have changed since 2010:

At the same time, sales of homes going for $500k or more (red line) have shot up from less than 10% to nearly 40% of the new homes market and represent the largest share of new home sales.

This isn’t great for Millennials looking to buy their first homes, or for retirees who have to downsize. It also explains why many first-time homebuyers are angry.

It’s not only the $200k and under segment that has fallen off a cliff. New homes going for between $200k – $300k now make up just 11% of the total, down from 80% of all new home sales in the year 2000.

Ben Carlson shows Federal Reserve new home price data going back to 2000 that breaks down new homes price points more clearly. He says that those being sold for $750k and up have gone from less than 1% to more than 10% of the market.

A few reasons for the shifts: First, we’re not building enough new houses anymore. Second, we’ve seen changing tastes drive demand toward larger homes, helping move the market to a new floor in home prices. Inflation didn’t help either.

We overbuilt in the 2000s housing bubble, and that led to more than a decade of underbuilding ever since. There was a brief spike during the pandemic housing craze but that has abated with mortgage rates rising so rapidly in the past year.

In 2002-2006, we were building around 120,000 new homes per year. In 2022, it was more like 65,000 units per year. Tastes have changed as well. Houses today are substantially larger than they were in the 1950s, 1960s, and 1970s.

In his book The Fifties, David Halberstam talks about how the housing market played a huge role in the rise of the suburbs following World War II. Then houses were about 1,300 square feet. In the 1970s, the median size of a new home in the US was 1,525 square feet. Today it’s around 2,500 square feet.

Tastes have changed. People want bigger houses. They want open floor plans for entertaining, bigger bedrooms with more bathrooms, and more storage space for all of their stuff.

It’s also true that homebuilders aren’t incentivized to build starter homes anymore. In the 1950s the government helped out the troops and their families. With the GI Bill, the federal government took some of the risk that homebuilders wouldn’t be able to find mortgages for all the new houses they were building.

Local zoning regulations have made it difficult to get approvals to build new homes. So builders have moved upmarket in home size to justify those upfront expenses. Starter homes aren’t as profitable as they once were.

There’s a big change in the buyer’s market as well. The WSJ quotes John Burns: (emphasis by Wrongo)

“You now have permanent capital competing with a young couple trying to buy a house.” Burns estimates that in many of the nation’s top markets, roughly one in every five houses sold is bought by someone who never moves in.”

The Atlanta Journal-Constitution in an article last week entitled: “American Dream For Rent: Investors elbow out individual home buyers. Metro Atlanta is ground zero for corporate purchases, locking families into renting’. The Journal says a generational housing shortage, inflated construction costs and a surge in consumer demand all contributed to the historic rise in prices.

But there’s little doubt that a flood of cash from institutional investors has exacerbated it. They quote Maura Neill, a realtor in Alpharetta:

“They go after every listing under $500,000…it’s like clockwork…The property gets listed and, sight unseen, they make offers within an hour.”

This is late-stage capitalism at work. Young working couples are increasingly shut out of buying homes. America is failing them. It would be helpful for families to build equity by purchasing homes instead of renting.

Pricing families out of home ownership carries risks to a cohesive society.

We should have a federal tax policy that disincentivizes ownership of multiple single-family homes, by investment funds. The way to remedy this is to steer investors to other assets that don’t directly impact individual welfare to the same degree as single family housing.

Biden’s Speech Showed His 2024 Strategy

The Daily Escape:

Sea smoke at Portland Head Light – February 2023 photo by Rick Berk Photography

(The Wrongologist is taking a few days off. The next column will appear on Tuesday, 2/14. Enjoy your nachos and jalapeno dip on Sunday.)

Wrongo and Ms. Right watched the State of the Union (SOTU) extravaganza. You have already read many insightful observations, so Wrongo’s facing the daunting task to come up with something original for you. Let’s start with some data. CNN’s flash poll of SOTU viewers found that 72% had a positive reaction to Biden’s speech, while:

“71% said Biden’s policies will move the country in right direction — up 19 percentage points from before his speech.”

That’s a win. Politico reported that:

“…the White House is ecstatic that the GOP’s ‘boos, taunts, groans, and sarcastic chortles’ helped Biden paint them as ‘unreasonable and chaotic.’”

It was the most confrontational SOTU address ever, but Biden seemed up to handling the catcalls. Like CNN, most pundits gave Biden good marks for the speech. It ran from “best Biden speech ever!” to “Biden Kills It” to Kate Riga of Talking Points Memo tweeting:

Everyone’s talking about how House Republicans underestimated old man Biden. His speech was an early look at his 2024 general election strategy. Biden is a career politician. Maybe he learned somewhere along his way to the Oval Office that you are only as unpopular as your enemies are popular. In that case, he’s a winner.

Based on Sarah Huckabee Sanders’ GOP rebuttal, Trumpists and their ilk plan to treat 2024 as another braying appeal to their grievance-filled base. They’re adding a rich creamy layer of culture war to help spin up their base, along with their evergreen awfulizing about the national deficit. From JV Last:

“Where Biden spent the majority of his speech talking about steel workers, bridge projects, insulin prices, and junk fees, Sanders insisted that Biden has surrendered to “a woke mob that can’t even tell you what a woman is.” And that “his administration has been completely hijacked by the radical left.”

OTOH, Biden’s 2024 strategy won’t be a re-run. It’s different and new. As Eugene Robinson says in the WaPo:

“The call to action during President Biden’s State of the Union address on Tuesday — “Let’s finish the job” — would never be mistaken for soaring poetry.”

That also resonated with Jon Last, who agrees that “Finish the Job” will be the campaign’s guiding theme. Here are the implied pillars of Biden 2024:

The economy has to keep growing and it must help everyone.
The deficit must be cut to the extent possible over the next six years.
Biden’s great accomplishments were achieved with bipartisan help of centrist Republicans.
The government needs to keep funneling money to small towns and rural areas, something that he started with the infrastructure bill.
The risky ideas of the MAGA Republicans who plan to torpedo Social Security and Medicare will be front and center in the campaign.

Instead of the Republicans’ embrace of the culture wars, here’s what Biden had to say: (emphasis by Wrongo)

“My economic plan is about investing in places and people that have been forgotten. Amid the economic upheaval of the past four decades too many people have been left behind or treated like they’re invisible.

Maybe that’s you watching at home.

You remember the jobs that went away. And you wonder whether a path even exists anymore for you and your children to get ahead without moving away. I get it.

That’s why we’re building an economy where no one is left behind. Jobs are coming back; pride is coming back because of the choices we made in the last two years.

This is a blue-collar blueprint to rebuild America and make a real difference in your lives.”

A “Blue-Collar Blueprint” is a smart way to brand your 2024 agenda, instead of some focus-group tested acronym or clever name. Sometimes it just makes sense to say what you mean. As Ron Brownstein wrote in The Atlantic: (brackets by Wrongo)

“He [Biden] repeatedly noted how many of the jobs created by his economic agenda are not expected to require a four-year college degree.”

Jon Last contrasts Biden’s strategy with the GOP strategy, which he thinks is doomed to failure:

“Republicans believe they can increase the number of votes from one group of Americans (their base) by….attacking another group (the coastal elites). Further, Republicans believe that the number of votes they will win through this use of negative polarization will be greater than the number of votes they might otherwise gain by trying to empathize with and persuade the out-group.”

That’s a re-run of Trump 2020.

Biden isn’t going to play defense in 2024. The GOP’s core strategy is always to sway working-class voters and use that political base to implement policies that enrich corporations and the wealthy at the expense of their base.

If Biden can find a way to drive a wedge into that Republican coalition, and peel off 3%-5% of their working-class supporters, it would translate into a big victory in 2024.

The Wrongologist

Geopolitics, Power and Political Economy

Category: Abandonment of Middle Class

The Economic Value Of College Is Collapsing

Monday Wake Up Call – July 17, 2023

Ohio’s Airborne Toxic Event

Biden’s Speech Showed His 2024 Strategy