Student Loans: The New Debt Peonage

Today most people believe that we live in a modern enlightened society that is superior in every way to societies of the past. In this narrative, the forces of human progress have moved us inevitably from oppressive feudal relations that limited freedom and opportunities to a benevolent capitalism that allows for human liberation from bonds of servitude. But the self-congratulatory celebration may be premature. It is based on the assumption that the corporate elite and dominant classes of contemporary capitalism are somehow less rapacious and predatory than the feudal lords of the past.  This would be a mistake.

Today the financial oligarchy has a stranglehold over our political and economic system. The latest victims are college students. A new form of debt peonage is spreading across the land. It is driven by student loans and it follows a familiar script found in earlier forms of servitude. Students are promised that a four-year university credential will guarantee employment, material success, and economic security.  But in order to receive these benefits one must pay a price. As the cost of a college degree rises, increasing numbers take out private student loans as an investment in their human capital.

But the promise is illusory. Jobs are scarce. Those that are available pay low wages.  With debt payments hanging over their head, graduates are forced to take jobs they would normally forego for the hope of better prospects elsewhere.  Tying students to jobs in order to work off their debt is a potent form of social control, as effective today as it was in the bad old days of entrapment and debt bondage.

Even those who can find semi-decent paying jobs discover that a large chunk of their income is consumed by student loan debt payments. Chances of qualifying for a home mortgage under such debt conditions are slim to none. Thus, discretionary spending is curtailed, material comfort postponed.  

The latest figures are staggering.  Student loan debt now exceeds credit card debt. 37 million Americans owe close to $1 trillion in student loan payments. 

While the financial sector may benefit from this arrangement, it puts an enormous drag on the national economy that depends on college graduates to purchase new homes and fill them with appliances and furniture. Instead, record numbers are joining the ranks of the “boomerang children” who return home to live with their parents until they can establish financial stability, which is increasingly remote.

As we sociologists like to say --- student debt is not a personal problem, it is a social problem; it will require an organized social movement and some radical social policy to solve this growing national tragedy.

Business Climate Florida-Style

Governor Rick Scott and Enterprise Florida recently unveiled a new public relations logo proclaiming Florida as the “Perfect Climate for Business”.  Intended as a fresh campaign to attract business and jobs to the state, the upbeat message was drowned out by the ill-advised and insensitive use of a necktie to represent the letter ‘I’ in Florida.

Predictably -- how could the creators of the logo not anticipate this? – it prompted an outcry from women’s organizations claiming the new logo communicates a sexist male-oriented message – more along the lines of “Florida: a perfect business climate for men”.  

While the state flubbed its public relations campaign, there are more substantive reasons for critiquing the state’s business climate efforts. Namely, they are based on a set of principles and policies that are generally hostile to average working Floridians.

The long-standing “war between the states” over jobs and industry is waged with three primary forms of ammunition -- tax rates, labor costs, and “public private partnerships”.

How well has this three-pronged strategy served the state of Florida?

Rick Scott has made low taxes -- and its corollary less government – a cornerstone of his business-friendly approach. Scott claims that “Cutting taxes is essential to economic prosperity” and advances a budget “focused on the goal of shrinking government, reducing your taxes, creating private sector jobs”.  

This supply-side economic mantra – that low taxes and less government equals more jobs -- has become an article of religious faith among Republicans and Democrats alike. Unfortunately, there is no evidence that shrinking government and reducing taxes will create more jobs or economic prosperity.

An enormous amount of empirical research has examined the relationship between state tax rates and job growth. The general conclusion is that the effects are either non-existent or negligible; and most agree that there will be no positive effect if government spending is also slashed. This is because, contrary to the prevailing ideology, public spending is an important source of job growth (public and private) and it can also enhance the productivity of the private sector.

There are several reasons for the weak effect of taxes on job growth. First, for most businesses taxes are a small part of the cost of doing business. When businesses are surveyed about decisions to expand or locate in a state, taxes are rarely a major factor.  Second, the more critical factors are the quality of the education system, the condition of the infrastructure, and the general quality of life. Starving the public sector will not address any of these factors and, in fact, may only make them worse.

Further, Florida is already regarded as a “low tax state”.  The Tax Foundation ranks Florida 5^th on the State Business Tax Climate Index for 2013. The absence of a state income tax goes a long way in vaulting Florida to top-ten status. If there are only four states with a better tax climate than Florida, why is the state economy so anemic? There are obviously other explanations that have nothing to do with tax rates.

Governor Scott has also proposed to reduce and eventually phase out the state corporate tax. But it is already the 13^th lowest among the 50 states.  Again, what do we have to show for our current low corporate tax rate in the way of attracting innovative high tech industry or high paying jobs? 

One thing Florida has accomplished from these tax policies is membership in the “Terrible Ten” states with the most regressive state tax systems. According to the Institute on Taxation and Economic Policy, Florida – which relies heavily on sales and excise taxes for revenue – is ranked #2 among the states that “ask their poorest residents — those in the bottom 20 percent of the income scale — to pay up to six times as much of their income in taxes as they ask the wealthy to pay. Middle-income families in these states pay up to three times as high a share of their income as the wealthiest families.”

As it pertains to labor costs, Florida proudly brandished its status as a so-called “right-to-work” state. This law prohibits compulsory union membership and dues collection from employees even when they are represented under its collective bargaining agreement. This law is designed to effectively limit the strength and breadth of union organizing and collective bargaining. The result has been a state that lags behind in worker compensation and quality of work life, but not in poverty.  Studies of the impact of RTW laws confirm this pattern.  Florida also has the 7^th highest level of income inequality among the states.

In spite of the promise, the right-to-work law has never attracted manufacturing or high tech industries to the state.  Florida is 44^th in employment in the manufacturing sector. The Information Technology and Innovation Foundation has ranked states on a “New Economy Index” based on five areas: knowledge jobs, globalization, economic dynamism, the digital economy, and innovation capacity. Among the ten bottom-dwellers on this index, eight are right-to-work states. Florida places 21^st on the New Economy Index. 

Instead, the low wage pattern prevalent in the state of Florida has contributed to high levels of economic insecurity among the working population. According to a Rockefeller Foundation study of economic insecurity in the states, Florida ranks 4^th on the “Economic Insecurity Index” (behind the perennial leaders of dubious distinction – Mississippi, Alabama, and Arkansas) that measures the proportion of individuals who lose at least 25 percent of their available household income, due to either changes in income or changes in out-of-pocket medical spending, and who lack sufficient liquid financial wealth to fully cushion the loss.

The third piece of the state business climate strategy -- public-private partnerships (PPPs) -- involves, invariably, taxpayer incentives and subsidies to lure, retain, and encourage business expansion.   These PPPs have been hyped as the best possible way to solve all economic challenges. Adding “private” to public also makes the policies more legitimate in a political climate that devalues and discredits any role for the public sector.  While these PPPs may occasionally generate some innovative and collaborative solutions and projects, more common is simply the public sector financing, subsidizing, and catering to the needs of the private sector independent of any gain for the general public; in other words, corporate welfare. This form of “rent-seeking” has been aggravated as corporate interests have captured the political system through direct and unlimited financial contributions to public officials, and as businesses use the threat of capital flight to receive public benefits.

One indication of the severity of this problem is a study conducted by two organizations that make very strange political bedfellows -- Integrity Florida and Americans for Prosperity. The study, not the first of its kind, takes aim at Enterprise Florida, the state agency responsible for distributing public monies to corporations, and concludes that the system can be characterized as “pay-to-play” cronyism and “corporate welfare”.  Further, it finds that Enterprise Florida has failed to meet its jobs targets, does not hold the welfare recipients responsible for the promised jobs, and has a habit of doling out incentives to well connected corporations for expansions that had been planned anyway.

At the same time that states and cities are slashing public services that meet the needs of the larger working and economically deprived population, large gifts are handed out to the private sector under the increasingly unassailable banner of public-private partnerships.

In the end, one should question all business climate policies based on the fraudulent claims of neo-liberal supply-side economics -- if you give private corporations everything they want – low taxes, weak unions, cheap labor, deregulation, and taxpayer incentives – this will bring jobs and prosperity to all. We have a long record of contrary evidence at the national level starting from the 1980s to the present.  As with most policies, some win and some lose and we now know that the presumed benefits will not “trickle down” and that a rising tide does not “lift all boats”. Record income inequality and the lingering Great Recession are the daily reminders.

If we want to improve the quality of life of Floridians it will require more than gifts to the corporate class; it will also require government policies that directly improve the employment and living conditions of the working classes.

Destructive (and Costly) Competition

Jaxport aspires to be one of the leading East Coast ports. Unfortunately, so does Miami, Savannah, Charleston, Norfolk, Baltimore, Philadelphia, and New York/New Jersey.

Therefore, we now have a “war between the ports” -- intense competition among East Coast ports for the anticipated increase in cargo associated with the expansion of the Panama Canal. Almost every port is making significant investments in infrastructure and seeking Federal funding for coastal engineering projects. For Jaxport this involves the request to deepen the St Johns River channel to 50 feet at an estimated cost of $1 billion.  In New York/New Jersey they are actually planning to raise the Bayonne Bridge -- for another $1 billion.

Many of these infrastructural re-engineering plans were first conceived prior to the Great Recession. At that time there was a unique set of unsustainable conditions responsible for the massive consumption of imported goods from Asia; namely, a housing bubble and debt-driven consumer demand. Those days are long gone.

Today one must consider the extent to which current overcapacity will continue to plague the shipping industry even if the global economy recovers. The future of Jaxport may depend on the simple matter of supply and demand. An oversupply of container ships and port terminal space and infrastructure, in the face of depressed global trade and commodity imports, could result in widespread underutilization or excess capacity for all maritime ports.

Observers of the maritime port industry are beginning to highlight the irrational and dysfunctional situation of multiple East Coast ports competing and expanding for limited and continuing depressed levels of container cargo.  The Journal of Commerce notes the “serious overhang of unused terminal capacity” and the fact that major East Coast ports such as Savannah, Charleston, and New York/New Jersey are all currently operating at less than 60% container capacity.  In spite of this, East Coast ports are still projecting $15 billion in infrastructural upgrading over the next ten years.

Investment in, and the building and expansion of, maritime port facilities does not generate its own demand. In the language of economics, the demand for these services is “derived”, meaning that it is a consequence of the demand for something else, namely goods that are either imported or exported.  In a global recession, where the demand for goods is severely depressed, port economies will suffer regardless of the modernized state of the port terminal facilities or the depth of their channels.  And the losers will not just be the ports that are unable to attract the cargo, but also the taxpayers who are financing these port mega-projects.

All of this has led inquisitive observers to ask why there is no national policy that would evaluate the various ports and allocate scarce resources based on a rational assessment of the costs and benefits of each project in relationship to each other.  This would inevitably necessitate picking winners and losers and creating a division of labor among the ports as well as a hierarchy of prominence. But it would also avoid the wasteful duplication and redundancy of a current system that seems intent on building a greater number of deep channel ports than are needed to accommodate the given level of cargo.

Such concerns recently prompted Congress to ask the Army Corp of Engineers “how the Congress should address the critical need for additional port and inland waterway modernization to accommodate post-Panamax vessels.”  In response, the Army Corp recently released its report titled “U.S. Port and Inland Waterways Modernization: Preparing for Post-Panamax Vessels”. While acknowledging the great uncertainty in predicting the volume or direction of global cargo flows, the report also emphasized that the “expanded canal could provide a significant competitive opportunity for U.S. Gulf and South Atlantic ports and for U.S. inland waterways – if we are prepared.”

More specifically, with regard to the issue of an East Coast port hierarchy, the report makes a distinction between “post-Panamax ready” and “cascade ready” ports. Post-Panamax ready ports would have a depth of 50 feet and accommodate the largest vessels. . Cascade-ready ports would include lower-tier ports and accommodate the re-deployed smaller vessels.

This Corps report does not indicate which ports will be post-Panamax and which will be cascade, but it clearly suggests a movement toward planned port differentiation as individual port infrastructure projects are evaluated.

Based on conversations with knowledgeable observers of the port logistics industry, there is considerable opinion that Jacksonville will fall into the lower or second tier. This does not mean that Jaxport and the port-logistics sector will play an insignificant role in the regional economy. It simply means that a more realistic scenario must be acknowledged. This position was recently advanced on the pages of the Jacksonville Business Journal where it was suggested that Jaxport modify its mega-port aspirations and pursue “Plan B” involving a focus on niche markets and “trade with the fast-growing countries of South and Central America, Brazil first and foremost.”

Taken together, these recent developments would indicate that there is an emerging consensus toward a more rationalized and strategic plan for East coast ports, an acknowledgement that not all ports can aspire to post-Panamax status, and that Jaxport would be a likely candidate for “cascade” status. 

Given the dollar and potential environmental costs of deepening the St Johns, this might be the best strategy for Jaxport, Jacksonville, and the region.

Austerity Is Not The Answer

Austerity Is Not The Answer

[This appeared in the Jacksonville Business Journal, February 1, 2013)

                  Among organized segments of the business community and the corporate elite there are demands for sharp cuts in government spending and a call to balance the budget and reduce deficits. Many even believe that this is the solution to our ongoing economic crisis. But under current conditions, this makes very little economic sense.

                  The fallacy of this approach was starkly exposed in the run-up to the fiscal cliff. Almost all parties – Democrats and Republicans alike – expressed a desire to avoid the fiscal cliff because it was seen as potentially jeopardizing the economic recovery or throwing the economy back into recession. This was not because budget deficits would have increased as a result, but because deficits would have been sharply reduced due to automatic cuts in government spending coupled with an increase in taxes for all Americans. The fear that these two factors (government spending cuts and reduced income) would threaten the economy actually vindicates Keynesian policy proposals. It would suggest that the key to economic recovery is more (not less) government spending and higher (not lower) wages for workers, not fiscal austerity.

                  The logic of the Keynesian approach makes sense if one considers the primary source of the continuing economic crisis – insufficient consumer demand. We are currently suffering a “demand side crisis”. This means that the primary economic problem is not high taxes, budget deficits, regulations, or high labor costs but too few customers for the goods and services offered by a consumer capitalist economy.  Surveys of business have confirmed this as the leading reason for why employers are not taking on more workers.

For a long time we were able to avert this inevitable demand-side crisis because consumers were able to rely on credit cards and home equity to fuel consumption. Those days are long gone. The government is now the spender of last resort and the only way out of the crisis is government spending and higher incomes for workers.   

                  Reducing the deficit, or balancing the budget through sharp spending cuts, will not solve the problem of weak consumer demand; this will only make matters worse. Another common argument, that cuts in government spending will lower interest rates, generate business confidence, and stimulate new investment, is equally questionable. It is based on a belief in what the economist Paul Krugman calls the “confidence fairy”-- private investment will magically increase in response to austerity measures. But until there are customers to move the goods, there is unlikely to be new investment. And there is no evidence that the current deficits are fueling higher interest rates.

                  So it is difficult to understand why business would support austerity.  After all, government spending would reduce unemployment, put people back to work, fund infrastructure projects that generate contracts for businesses, and create more consumers.  This would benefit all business, large and small. 

                  It may be that those who are insisting on sharp reductions in government spending are motivated more by conservative anti-government ideology than the actual economic consequences. The fiscal cliff and the debt ceiling are seen as opportunities to roll back the public sector and, in particular, further eviscerate what remains of the social welfare and social insurance system that they describe as “entitlements”.

                  But on purely economic grounds, it is difficult to support the austerity option. Even the International Monetary Fund, which has a long history of wreaking havoc on Third World economies through the imposition of austerity measures, has recently come out against austerity as a strategy to generate growth and employment.  In Europe millions have turned to the streets to protest the devastating socio-economic costs that austerity measures are exacting on their nation.   

  

                  The evidence is clear. If we want expansion rather than contraction, reject austerity.