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Monday, December 09, 2019 {{ new Date().getDay() }}

Obama Can Thank Women Voters By Supporting Real Economic Equality

As part of the series “A Rooseveltian Second-Term Agenda,” a way to recognize the economic needs of the women who helped re-elect President Obama.

Both candidates spent a lot of time and energy courting women’s votes in this election cycle. But as predicted, the gender gap yawned on Election Day and pushed Obama to victory with a 10-point chasm between him and Mitt Romney. How can President Obama thank the women who voted for him as he starts shaping the agenda for his second term? There are a variety of general economic policies that will benefit everyone, including women, such as spending federal stimulus money to kick-start a sluggish economy, ensuring the jobs being created in the recovery pay enough to support workers and their families, and bolstering a failing safety net to support the most vulnerable among us.

But while women hold down half of the jobs in our economy, they still face unique challenges and obstacles to full economic equality. If President Obama cares about women’s economic welfare as much Candidate Obama indicated, there are some important issues he can take on in the next four years.

—Truly equal pay for equal work: President Obama often talks about the fact that the first bill he signed into law was the Lilly Ledbetter Fair Pay Act, which helps address the gender wage gap. The act gives women more time to file a claim alleging discrimination since the truth may take a long time to surface. But while the act gets talked about like a panacea, it’s far from it. The number of pay discrimination complaints filed with the EEOC fell since the signing of the act, while the pay gap widened. This is because the gap is caused by a complex array of factors: occupational segregation, hostile courts, and plain old discrimination. A first step to supplement the Lilly Ledbetter Act would be prohibiting salary secrecy, forcing employers to allow employees to talk about their pay with each other, something half of all workers cannot currently do. It will be next to impossible for women to address discrimination if they don’t even know it’s happening. But we also have to talk about how to move women into non-traditional fields, appoint judges to the courts that will stand by women when they sue for discrimination, and raise pay for the service sector jobs that women already dominate. These are large issues, but without putting them on the agenda they’ll continue to hamper women’s equality.

—Paid time off to care for family: We are one of just three countries among 178 that doesn’t guarantee any paid maternity leave benefits. Fifty countries go further to offer leave for fathers. Among the 15 most competitive nations, we’re the only one that doesn’t have a paid sick days policy. The reality is that the work of caring for children—when they’re very young, sick, or not in school—still falls mostly to women. Yet they can still lose their jobs when they need to miss work for this important caretaking. And without offering paid benefits, we force many women to take on debt or go hat in hand to loved ones and friends to get through. Not only will paid family leave benefit women, it will benefit men and help to change the care-work equation. Men are more likely to take time off to be with a new child if the leave is paid—unsurprisingly, since families have such a hard time financing the lost income. And when men do take leave, they become more involved in their children’s lives. Universally, paid leave policies improve quality of life for all workers while leveling the playing field for women.

—Significant support for childcare: There are two sides to childcare. On one are those who need help caring for family and as mentioned above, they are almost entirely women. On the other are the caregivers, also almost entirely women. Our support for childcare is pretty dismal and getting worse. The cost of putting two children in center care exceeds median rent in all 50 states. At the same time, the majority of states have pulled back on childcare assistance for two years in a row. The Child and Dependent Care Tax Credit that gives parents who are paying for childcare a tax break has only increased once in the last 28 years. The government needs to invest heavily in supporting working parents, men and women alike, with skyrocketing childcare costs, allowing all who can and want to go to work to leave their children with quality caretakers. This is also a way to begin ensuring that these caretakers are well paid. In a national survey of in-home childcare providers, the most common answer to how much they make in a week is $500, or $26,000 a year—a pitiful amount, not to mention that many don’t receive any benefits. Given how much families struggle with the cost and how many domestic workers don’t make enough to live on, the government must step in.

American women have flooded the labor market in the last half-century. But our economy and society haven’t changed enough to meet them halfway. President Obama won’t be able to fix all of these problems in his second term. But he can begin to address them and put a spotlight on these societal problems that we still think of as private concerns. I’m sure women voters would be grateful.

Bryce Covert is Editor of Next New Deal.

Cross-posted from The Roosevelt Institute’s Next New Deal blog

The Roosevelt Institute is a nonprofit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo credit: AP/Susan Walsh

Reducing Abortions: It’s The Economy, Stupid

If we put women back to work, lifted them out of poverty, and funded social services they rely on, fewer women would turn to abortion.

It seems the cat’s finally out of the bag these days: conservatives aren’t just concerned with saving the babies from abortions when it comes to reproductive rights. They are now outspoken about being against access to contraception — and some of them have even come out against non-procreative sex. Women’s rights activists have long warned that they were coming for our birth control; now it’s hard to deny they were right all along.

One big clue this whole time has been a simple fact: if conservatives are so hell-bent on preventing abortions, one of the best things they can do is support family planning services and access to contraception. Yet the last time we saw an openly pro-family planning Republican was the ’80s, when George H.W. Bush was in office. Meanwhile, all Republican 2012 candidates have signed personhood pledges that endanger many forms of contraception, Santorum himself has said birth control is bad, and I’ve lost track of how many times Republicans have tried to defund Planned Parenthood, which supplies contraception to low-income women. But as Irin Carmon laid out, the connection between increasing access to contraception and lowering abortion rates is very clear.

There’s another clue that this isn’t about saving the babies. It’s the blind eye conservatives have turned to the economic factors that are leading more women to turn to abortion. A new report, “Abortionomics: When Choice is a Necessity,” shows that “lower incomes and rising unemployment are affecting Americans’ choices about pregnancies,” and in the recession abortion rates, particularly among poor women, are on the rise. Stephanie Poggi of the National Network of Abortion Funds says, “A lot of women are… telling us, ‘I’ve already put off paying my rent, my electric bill; I’m cutting back on my food.’ They’ve run through all the options.” In lean times, a child can seem like an overwhelming expense.

It’s not terribly shocking that when incomes are strapped, millions are out of a job, and many are falling into poverty, women are thinking twice about having a child. Raising a kid in this country is not a cheap undertaking. For a two-parent couple making under $57,600, the USDA estimates the costs of raising a young child to be $10,950 a year. The total cost of taking care of that child until he or she turns 18 averaged $226,920 in 2010, up nearly 40 percent over the last decade. As one woman in the report puts it, “I totally cannot afford another child. I knew immediately [upon learning about her pregnancy] what I had to do.”

Those without a job don’t have the income to cover these kinds of expenses. Over 12 million people are unemployed right now; almost 6 million of those are women. One unemployed woman in the report who chose abortion says, “At this time I am not working and neither is my partner… We are unable to support a child under our present circumstances.” If Republicans are concerned about reversing the rise in abortion rates, they need to focus on putting people back to work making decent pay. Putting women to work in large part means spending money at the state level to keep them on public payrolls.

But even after women are back at work, we still have to wrestle with a big factor: the high number of women living in poverty who seek abortions. One study found that 69 percent of women having abortions in 2008 made incomes lower than 200 percent of the poverty line, while women in that income category make up only 35 percent of the overall population. In fact, the report says, “while abortion rates generally have declined over the last 20 years…rates have increased among low-income women.” And a lot of women have been falling into that category lately. Recent Census numbers show that women’s poverty rate rose to 14.5 percent in 2010, the highest since 1993. Their “extreme poverty rate” — those whose income is less than half of the federal poverty line — is at 6.3 percent, the highest on record.

The link between addressing poverty and lowering the abortion rate may be uncomfortable for conservatives like Mitt “I don’t care about the very poor” Romney, but it’s one of the most important factors. As the report notes, “low income women often have difficulty affording preventive contraception and sometimes address this problem by reducing frequency or dosage use, thereby increasing the risk of unintended pregnancy in the group most likely to decide they are unable to afford to support an additional dependent.”

And lastly, the point conservatives may enjoy the least: we need to increase spending on social services. As the report puts it, “As funding for social services declines, more women may be expected to determine that economic constraints make abortion the only viable option.” The report is mostly talking about services that provide access to contraception. But there are other services that we’re cutting back on that will impact the decision to have a child. For example, 37 states pulled back on child care support in 2010 due to tight budgets. Yet the average cost of full-time care ranges from $3,600 to $18,200 annually. That’s a huge part of the cost of raising a child, but we’re giving parents less support to pay for it.

Women choose to terminate pregnancies for all sorts of reasons and should be able to access abortion care when they do. Tight budgets aren’t the only reason to choose not to have a child. But economic factors that prevent families from having children should be high on conservatives’ list. If we ease those families’ financial situations, they may not have to turn to terminating a pregnancy. But instead conservatives are fighting access to contraceptives, cutting off funding for services that would make life easier for women living in poverty, and blocking job creation policies.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

What $100 Million Could Do For Out Of Work, Underpaid Teachers

Instead of spending the money to train new teachers, we could focus on putting laid off teachers back to work and keeping them there by paying them better.

News came out today that President Obama is announcing a new plan to spend $100 million on training 100,000 new teachers over the next decade. Responding to a call from American businesses to provide more high-skilled workers, Obama’s plan will focus on training more STEM teachers — aka those teaching science, technology, engineering, and math.

Spending more money on education is a healthy priority, but is this the right tactic? The plan seems to presuppose that there is a dearth of teachers right now. Yet the opposite is true — we’ve been laying them off in droves in response to tight state and local budgets. So there is a whole pool of people that we could put back to work doing what they already want to do. The number of jobs in “local government education” — in other words, elementary school teachers — has been falling steadily since February 2008, according to the BLS. We’ve lost 217,900 of those jobs since then, and things aren’t getting much better, even with seemingly good signs in the latest jobs report. Those education jobs were down 9.6 percent since December.

So rather than enticing and training a new army of teachers, perhaps we could start by putting the ones we’ve already got back to work. It would likely be a lighter lift to retrain them. And it would help ease the ongoing womancession.

But this plan also misses a larger problem: that we lose teaching talent because we don’t value the profession enough. If you’re educated in STEM, which some report pays 87 percent higher than the average private sector job, why would you go into teaching, an under-paid and under-appreciated field?

This is a serious problem for our education system. A report from McGraw-Hill lays out some recommendations on how the U.S. can take on the fact that its butt is being kicked on global test scores. The numbers are pretty embarrassing: on average, American students came in 15th in reading, 19th in science, and 27th in math. So what was the report’s number one recommendation for changing those figures? Raise the status of the teaching profession. The report notes that the countries with the top scores are also those that typically pay teachers better. In fact, our high school teachers work longer than other countries, yet we spend less on teacher salaries than the average OECD country. This is a big reason that nearly 50 percent of new teachers leave the profession within the first five years, according to a 2005 NEA report. Their reasons for leaving were poor pay and poor working conditions.

I applaud the idea of spending $100 million on education, particularly in a “recovery” period still taking a heavy toll on those working in that sector. But there may be much better uses for the money, and in all reality we need a much larger sum to make real change in our education system. We do need to recruit more people to the teaching profession. If we help people stay in those jobs by firstly employing them and then paying them what they deserve, we may take care of the problem.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Justice On The Cheap Isn’t Justice At All

Budget cuts for police departments and court systems mean justice won’t be handed out evenly — or at all.

We can all recite the opening of Law and Order. “In the criminal justice system, the people are represented by two separate yet equally important groups: the police, who investigate crime; and the district attorneys, who prosecute the offenders.” As much as the show gets wrong about the real world, this narration gets it right: it takes both law and order (i.e. police and court systems) to serve justice to the people. Yet neither of those services is free. We are officially in an age of austerity and our justice system isn’t immune to the ravages of budget cutting. We’re getting justice on the cheap, and like that electric blanket you bought at the dollar store, it’s just not functioning correctly.

It’s no secret that state budgets have been hit hard by the recession and that the stimulus money that helped patch the holes is mostly gone. Public employees have been in the spotlight as they’ve been laid off and their bargaining rights have come under attack in response to the financial crunch. On the order side of the justice equation, police departments are no exception to the squeeze. By the end of 2011, 12,000 police officers were expected to have lost their jobs. That drop would be the first job decline in law enforcement in 25 years. This is just a sign of larger financial troubles. As a Justice Department report on the situation put it, it is “no longer a fiscal possibility” for governments to allocate half of their budgets to public safety. “The economic decline has severely affected law enforcement agencies’ operating budgets across the nation,” it states, leading to over one third of departments in a survey to report budget drops of more than 5 percent since 2009.

This has a real impact on our police force’s ability to prevent and respond to crimes. About half of the agencies that responded to a recent survey said budget cuts had or would cause changes in the services provided to their communities. That includes 8 percent of the departments that are no longer responding to any car thefts and 9 percent of departments that are no longer responding to any burglar alarms. At all.

But that doesn’t mean all crimes go unpunished. While offenses like theft, beatings, and even domestic abuse are falling to the wayside, drug enforcement is keeping apace. There were around 50,000 people arrested for marijuana possession in New York City last year, but an expose by the Village Voice showed NYPD officers were encouraged to downgrade or ignore other crimes. Part of this is due to the pressure of reporting lower violent crime rates, but there is also a monetary motive at work. Drug arrests bring in money in a variety of ways, but perhaps the most direct incentive is the competition among police departments across the country for federal anti-drug grants. As the Huffington Post reports, “The more arrests and drug seizures a department can claim, the stronger its application for those grants.” It also reports, “police can seize property from people merely suspected of drug crimes,” and most of the cash from those assets goes back to the department.

This is likely why the percentage of homicides solved by police in Chicago dropped from 70 percent since 1991 to under 40 percent, yet the overall number of drug arrests increased 264 percent between 1980 and 2003. The need to go after the money distorts which cases get solved and which suspects get pursued — and that will only get worse if budgets continue to be crunched.

Things aren’t much prettier back on the other side. Even if the police do pursue your case, once you’re in court you may not find you can take it much further. A report by the American Bar Association, “Crisis in the Courts: Defining the Problem,” blames cuts in funding. “The failure of state and local legislatures to provide adequate funding is effectively — at times quite literally — closing the doors of our justice system,” it says. This has led to “hiring freezes, pay cuts, judicial furloughs, staff layoffs, early retirements, increased filing fees, and outright closures.”

The cuts have had a real impact. Fourteen state court systems have had to shorten their hours or even the number of days they’re open. Twenty-two have tried to offset the cuts by increasing filing fees and/or fines. Fourteen states have laid of staff entirely. Not to mention the furloughs and pay freezes that can’t be motivating judges and clerks to perform their jobs to the utmost of their capabilities. All of these dysfunctions have meant that states face the dilemma of putting untried defendants in local jails or releasing potentially violent offenders because further pre-trial detention is either “constitutionally impermissible or practically impossible.”

Cuts to our court systems don’t just mean distorted justice; they are also the definition of penny wise but pound foolish. Fully funding a court usually makes up about only 1 to 2 percent of a state and local budgets. Yet the costs of court-related delays in foreclosure cases in Florida alone have been estimated to be almost $10 billion. With the soaring caseload continuing to roll in from the foreclosure crisis alone, it makes no sense to be cutting back on our justice system.

One sure way to deny equal justice to the citizens of this country is to continue starving police departments and court systems of funding. If we’d rather continue our history of blind justice for all, we’ll have to get much smarter about what we shield from the budget cutting axe.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Michelle Obama And The Fossilized Role Of First Lady

Women make up half the workforce, get degrees in droves, and have their own careers. So it’s little wonder that a role that requires women give that all up is an awkward fit.

As long as there have been presidents in this country, there have been first ladies at their side. The role is traditionally to act as a homemaker and hostess, tending to the family and the White House. This was the purview of middle and upper class wives, after all. But now that we live in an era where women represent almost half of the workforce, pursuing independent careers and even sometimes acting as the breadwinner for their families, we’re still playing catch up. The role of first lady in particular continues to be murky and old-fashioned. Not elected, yet married to the most powerful man in the country. Highly influential, yet often resented for using that influence. And above all, educated and often professionally successful, yet expected to give up their careers. It’s an anachronistic role that has fossilized an older ideal of womanhood and wifeliness. And it traps many smart women. Enter Michelle Obama.

When Michelle Obama entered the White House, I was hopeful that we would see a return to the model of a strong first lady who stakes out an agenda. After all, she’s a Harvard-trained lawyer who had a career of her own. But I quickly became impatient. Mrs. Obama — or advisers — seemed more interested in preserving her sky-high poll numbers than giving her an aggressive agenda. She tackled obesity — but never touched agriculture policy or our health care system. She reached out to military families — but said nothing about our need to bring troops home.

I held her in contrast to Eleanor Roosevelt, who had tremendous influence on the White House and the country. But in an excerpt from her new book The Obamas, Jodi Kantor shows there may be more similarities between the two than I had been giving credit for. Kantor’s interviews “show that [Obama] has been an unrecognized force in her husband’s administration and that her story has been one first of struggle, then turnaround and greater fulfillment.” Something similar could be said about Eleanor Roosevelt, except perhaps the part about going unrecognized. Both women, successful professionally, struggled with their roles in the White House when they first arrived. Yet it seems that Obama may be starting to follow a trajectory similar to Roosevelt’s — exerting her influence over her husband’s administration and beginning to find her place. As well she should. The role makes little sense given the changes to our workforce, and smart, powerful women must make it their own.

Both women faced their coming roles with anxiety after their husbands won the election. As Kantor reports, “Even as Mrs. Obama dazzled Americans with her warmth, glamour and hospitality early in the presidency, she was also deeply frustrated and insecure about her place in the White House.” Nothing could be truer of how Eleanor Roosevelt felt about her coming duties. As Blanche Wiesen Cook wrote in her biography Eleanor Roosevelt, “After the election of November 1932, ER worried that her talents would not be used; that she would become a shut-in, a congenial hostess in the political shadows politically sidelined.” Obama tried to delay moving to the White House; Roosevelt went further and allegedly told friends she would run away with FDR’s bodyguard, Earl Miller.

This ambiguous and potentially confining role came for both women after highly successful careers that they were asked to drop upon taking up residence in the White House. Cook writes that Roosevelt “enjoyed many careers and was all in a day teacher, editor, columnist, and radio commentator” before the presidency. This was in the ’30s, before World War II opened the floodgates for women to enter the workforce, but it was a sign of changing times.

Obama was, of course, a Harvard-trained, practicing lawyer. She exemplifies the high numbers of women seeking higher education today and moving (albeit slowly) into male-dominated professions. Obama, unsurprisingly, at first chafed at the change: as Kantor writes, “A Harvard-trained lawyer, she had given up her career for what initially seemed to her a shapeless post, and she tried to wriggle out of some ceremonial events that she saw as not having much purpose.” Roosevelt also at first obliged grudgingly — although later on went back to work as a unionized reporter, among other roles.

Both of these stories display the inherent contradictions first ladies face. Both women were/are smart and successful, yet were/are supposed to give up all public roles, become the country’s hostess, and stand by their man. It’s little wonder that upon entering, Obama told her aides she

never wanted to be the kind of first lady who interfered with West Wing business… It was her husband’s administration, not hers, she sometimes said. She had little appetite or expertise for policy detail, and she knew the history of first ladies — like Nancy Reagan and Mrs. Clinton — who had been deemed meddlers, unelected figures who wielded unearned power.

That’s what tradition dictates. But it goes against her intelligence and skills. Once in, she told her advisers she “wanted a more central role in communicating the administration’s message,” particularly in selling health care reform. West Wing advisers declined, haunted by the ghost of Hillary Clinton past.

It’s taken some time to adjust, but it looks like Obama is warming to the fact that she can make this role what she wants. Kantor writes that later on, “Michelle Obama’s trajectory in the White House was changing. She was mastering and subtly redefining the role that had once seemed formless to her, and becoming more acclimated to her new life.”

For starters, she’s begun to play a similar role within the administration that Roosevelt did: keeper of her husband’s conscience. The role of the West Wing advisors is often to figure out what deal is possible; these first ladies look for what deal is the right one. Cook wrote of Roosevelt, “FDR liked to boast that he was a “practical politician.” He knew how to compromise, make deals, be duplicitous. ER understood the nature of the game, but wanted some assurance that it would be played for the right reasons, the most needful causes.” Obama similarly, as it would seem from Kantor’s article, butted heads with advisers because she “cherished the idea of her husband as a transformational figure” and “she saw herself as a guardian of values.”

The idea that women are no longer confined to the kitchen and tending to children still makes some people queasy. But it’s been our reality for half a century. Our policies still haven’t caught up, and the role of first lady is perhaps even more outdated. Here’s hoping that Michelle Obama is allowed to take control of it, make it her own, and influence this country for the better.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Access To Contraception Is An Economic Issue

Supporting family planning saves the government and low-income women money. The GOP should be challenged when it threatens to take that support away.

People tend to want to split debates along the line between economic issues and social ones. But that line isn’t always so easy to demarcate. Case in point: Contraception was a big item on the agenda at the first of two GOP debates this weekend, but many commentators were impatient for questions about the economy. Yet questions about women’s access to contraception have everything to do with the economy, and not just for the women who use it.

Investing in contraception access makes sense for the economy at large, particularly in an age of austerity. Globally, every dollar spent on contraceptive services saves $1.40 in maternal and newborn health care costs by helping prevent unintended pregnancies. More specifically, every dollar invested in contraceptive access saves $4.02 in Medicaid expenditures that would have gone to pregnancy-related care. But there’s still room to save more — half of all pregnancies in the U.S. each year are unintended, and those who consistently and correctly use contraception make up only 5 percent of unintended pregnancies, leaving the rest to many who can’t get what they need.

Access to contraception is also a class issue, and the class divide in unwanted pregnancies is growing. When Republicans threaten to defund Planned Parenthood or Title X funding, which subsidizes family planning services, they threaten to make it more difficult — or impossible — for low-income women to get the contraception they need. It’s a dire need that affects almost all women: virtually all those aged 15-44 who have ever had sex have used at least one method. The typical woman has to use contraceptives for about 30 years to achieve the number of children she wishes to have. And 43 million women — seven in 10 — are sexually active but don’t want to get pregnant. Hard to do without contraception.

Over 7 million of those women get contraception from publicly funded family planning clinics, and many will have nowhere else to turn if those clinics are defunded. One-quarter of all poor women who obtain contraceptive services each year do so at a place that gets Title X funding. Many of them likely do so because they have no insurance — four in 10 women of reproductive age don’t. This is part of why Title X-supported centers saved taxpayers $3.4 billion in 2008, or $3.74 for every dollar spent on contraceptive care, by helping these women avoid unwanted pregnancies. If these centers shut down, low-income women without coverage are hit first and hardest. They’re left with no other options.

But even women who are lucky enough to have health insurance may not be able to afford contraception. Many can’t afford the high co-pays. Contraception often requires a prescription, yet one in five health care providers report that most clients seeking contraception struggle to pay for the necessary doctor’s visit.

None of this is to dismiss the excruciating levels of unemployment we’re currently experiencing or the miserably low rates of economic growth. The GOP candidates better have something to say about how to fix the economy and put people back to work. But when they also have extreme views about whether women should be allowed or able to access contraception, it’s no small point for them or the economy at large. They’re making an economic move when they threaten to curtail access.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Why Is The Government Saving Money By Driving Students Into Debt?

The latest budget deal cuts Pell Grants, one more blow to the old system that helped students pay for college directly.

It’s no secret that college graduates are struggling under huge debt loads. The overall debt owed is set to hit $1 trillion this year.

Rising debt loads are fueled by two simultaneous trends: soaring tuition and falling assistance. As James Surowiecki writes, “Since the late nineteen-seventies, annual costs at four-year colleges have risen three times as fast as inflation.” And the days when a college education could be financed through government assistance like the GI Bill or Pell Grants are quickly disappearing. Grants used to cover two-thirds of financing an education. Now two-thirds of college financing comes from loans.

In the face of these pressures facing graduates, the government might be expected to offer more assistance. And Obama announced an executive order in October that tries to ease burdens. It allows grads to cap repayments on their federal loans at 10 percent of their discretionary income come January (which is two years before it was already set to happen). After 20 years, all the remaining debt on those loans would be forgiven — five years earlier than it would have been without his order. On top of this, some borrowers with more than one federal loan can consolidate them, which could reduce their interest rates (slightly). But even that most immediate impact, consolidating loans, is only likely to save the average borrower between $4.50 and $7.75 a month, a barely noticeable sum.

Now news came out this week that the last-minute budget deal to fund the government and avert a shut down included cuts to Pell Grants. The maximum grant will be preserved at $5,550, but changes to the eligibility criteria will make as many as 100,000 recipients ineligible. The maximum amount a family can earn without contributing anything toward tuition will drop from $30,000 to $23,000. It also retroactively limits the number of semesters that a student can use grants, from 18 to 12. In sum, these changes will mean less money for fewer people to pay for a college education.

Even as the government has shifted further and further away from directly subsidizing higher education — i.e. giving out money that doesn’t have to be paid back — it is still subsidizing education costs. It just does so through multiple tax breaks for student loans, which are far less visible to the average American. And the cost of these tax code subsidies isn’t cheap. As my colleague Mike Konczal notes, the government shells out about “$22.75 billion… through the tax code to make college tuition and student debt more manageable.” This means that in order to finance an education, the government is basically assuming students and their families will take on huge debt burdens.

Compare that number to the total cost of the Pell Grant program. It cost the government $36.5 billion in 2010. While that’s a larger sum, the government is still shelling out both amounts — but only looking to cut money from the aid that doesn’t entail students miring themselves in debt.

Those tax subsidies should also be compared to what it would cost the government to simply provide free public higher education: by Mike’s estimate, $15-$30 billion. If the government is looking to save money, it could do worse than shifting funds lost to tax breaks that subsidize indenture to giving out aid directly through either grants or simply free public ed. In fact, if it no longer had to lose money through tax breaks or pay out money for Pell Grants, the savings of free public colleges could be pretty nice.

Because this debt does have a real life impact on the students who carry it. As I’ve written before, research shows that higher debt loads narrow the career choices students make upon graduation. By cutting down on direct aid and therefore pushing more students toward debt, the government is complicit in Wall Street’s brain drain. And this debt can hang over them for an entire lifetime. Almost 10 percent of people ages 55-64 still have student loan debt. The bankruptcy code doesn’t allow this type of debt to be discharged.

As unemployment rates and income levels make clear, a college education is an important asset. The government has choices it can make in how it helps people finance those educations. One path leads to debt loads that skew students’ life courses. Why would we choose that one?

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Cutting Back On Childcare Assistance Puts Single Mothers In The Hole

As states pull back on support for childcare services, single mothers will have an even harder time building wealth and staying out of debt.

Single mothers aren’t faring very well in the recovery. Their unemployment rate was 12.4 percent in November, up from 11.7 percent in June 2009. An unemployed single mother will clearly need help with at least one thing to go out and get another job: childcare. And those who have jobs are still trying to make ends meet, potentially working longer hours and in need of someone to care for their children. But just as the need for childcare assistance is surely rising, states are cutting back. A new report from the National Women’s Law Center shows that those in need of assistance were worse off this year compared to last year in 37 states when it came to income eligibility limits to qualify, waiting lists, copayments, reimbursement rates, and eligibility for assistance to parents looking for a job.

Denying women support for childcare will directly impact their ability to save and their need to take on debt. As a report from NYU Wagner, “At Rope’s End,” says, “The hefty costs associated with single parenthood, which include childcare, housing, food, health insurance, among others, decrease the likelihood that, even with a stable income, these mothers will be able to accrue wealth.” And paying for childcare is no small cost. The average price of full-time care can range from $3,600 to $18,200 annually, according to the NWLC report, and At Rope’s End estimates that this cost accounts for over three-quarters of single mothers’ monthly expenditures.

The effects can be seen in single women’s wealth building and debt loads. Wealth is measured by subtracting total debt from total assets; single mothers have a median wealth of only $100. Meanwhile, over three-fourths of single mothers have some kind of debt, and the most common form is credit card debt. Almost half of single mothers — 47 percent — have that type of debt, and the median amount is $1,200. When childcare takes up three-quarters of your budget, the other expenses likely have to be put on plastic to make ends meet.

And of course credit card debt can quickly become an expense in and of itself. While about a quarter of single mothers have debt related to education and about 30 percent have debt to own homes, the interest rates are quite different. The 30-year fixed mortgage rate is at a record low of 3.94 percent. The interest rate on federal Stafford student loans is 6.8 percent and is 7.9 percent for PLUS loans. Compare that to the average credit card interest rate, 16.75 percent. Any revolving balance left on a credit card will quickly increase the amount of money owed. Not to mention that while student and home debt is certainly a heavy burden on many right now, they at least go toward paying for a potential asset. Credit card debt gets you nothing.

Childcare assistance is not just about the need to support young children’s development, or about helping unemployed single mothers get back to work, or making sure employers have female employees who are able to show up at work. Those are all issues. But it’s also about keeping single mothers out of debt and helping them build the wealth they need to provide for their families.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

How To Break A Capital Strike? Full Employment

If banks want to threaten capital strikes, the government should fight back by putting people to work and taking power away from banks.

Last week, Massachusetts Attorney General Martha Coakley announced she would be suing the five biggest mortgage servicers over robo-signing. The very next day, GMAC Mortgage said it would withdraw most of its lending in the state. It offered up the excuse that “recent developments have led mortgage lending in Massachusetts to no longer be viable.” What recent developments would those be? Asking mortgage companies to adhere to the rule of law?

This could be called, as Matt Stoller was quick to point out, a capital strike — a lender refusing to lend in protest of government policy. A capital strike is a theoretical situation in which lenders decide to shut down the economy by refusing to invest and hire workers in reaction to government intervention that forces them to make bad business decisions. Sound familiar? While banks saw their profits rise to $29 billion in the first three months of 2011, a 66.5 percent increase over the same period last year, the loans they gave out declined at the end of 2010 and hiring has been sluggish. They’re not investing and hiring.

Wall Street is not in all probability actually on a capital strike. Besides the fact that the idea of all the firms getting together and executing an organized action is far-fetched, the reason they’re not investing and hiring is because the economy (and therefore demand) sucks, not because the government hasn’t given them enough backrubs. While the term “capital strike” used to be thrown around on the far left, the John Boehners of the world are now using it as a threat against enacting any government policy that might hurt the business sector’s feelings. The idea is that if the government enacts too many regulations, raises taxes too high, and otherwise does things that business doesn’t like, we risk them shutting down the economy.

Capital doesn’t have a great reason to be on strike. Think times are bad? Firms are making a third more profit than they did before the recession. Feel overburdened by regulation? Only the large corporations are worried about new regulations — small businesses aren’t feeling affected. Taxes got you down? Taxes on corporate earnings are at a 60-year low.

So besides GMAC’s targeted action, it’s highly unlikely that Wall Street has gotten together and decided to strike against the government. What’s more likely, as Peter Frase suggests at Jacobin, is that the threat of a strike is having the same effect:

[J]ust as in a labor strike, sometimes you don’t actually have to go out on the picket line: you just have to convince the other side that you’re ready and willing to strike. Just as a union might use a strike authorization vote to increase its leverage at the bargaining table, so the right’s economic propaganda is designed to tilt the political playing field away from labor and toward capital.

This is what John Boehner claims to be so worried about and what makes so many inveigh against Obama’s supposedly anti-business policies. If we don’t placate Wall Street, it’ll shut down the whole economy! Do what it wants so that no one gets hurt!

But as Frase points out, just because a group goes on strike — be it labor or capital — doesn’t mean we have to give in to their demands. When workers strike, management can either negotiate or try to break the strike. So if we follow the capital strike logic and assume that capital is threatening a strike (whether or not it would really do so), the government, as management, has the choice to negotiate or break the strike.

Wall Street got us in this mess. Why should we give in to its threat to strike? Instead, the government can break it — and the best way would be for it to spend money in pursuit of full employment. It would seem on first glance that full employment would be in the best interest of the banks: employed people can spend more money on goods, increasing demand, greasing the wheels of the economy and therefore profits. Yet we can look back to the 1930s and 40s to understand why full employment could be the best tool for breaking capital’s grip on our politics.

FDR also faced a slowdown in investment and called it a capital strike meant to take down his presidency and the New Deal. Roosevelt’s Assistant Attorney General Robert Jackson himself said the slowdown in investment was a “general strike — the first general strike in America — a strike against the government — a strike to coerce political action.” The New Deal was a concerted effort to get people back to work. Why was capital so dead-set against it? In 1943, economist Michal Kalecki asked the same question: “The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them?” His answer had two important points. Firstly, if raising employment is left solely to the laissez-faire market, then “capitalists [have] a powerful indirect control over government policy.” Anything to shake their confidence has to be avoided. Once the government takes over that function, though, that power is diminished. Secondly, those capitalists also lose power when workers aren’t as dependent on their current employer for a job. If under full employment a worker is almost guaranteed work, he has much better leverage to demand higher wages, better benefits, etc. from his employer. Either way, banks will lose their hold over the economy.

Breaking the threat of a capital strike in this way is a win-win. It first and foremost puts people back to work. But it also has the nice effect of loosening Wall Street’s stranglehold on politics. Its power will diminish. Sounds good to me.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Dealing With Credit Card Companies Is A 99% Problem

The top 1 percent holds a tiny fraction of consumer debt, letting them avoid the hassle of credit card disputes.

There was some good news from the New York Fed this week. Consumer debt fell about $60 billion in the third quarter of this year, and credit card accounts declined by 6 million. Overall, the number of open accounts is 23 percent below the peak in 2008 and balances have also fallen 20 percent.

Certainly some of that decline is due to charge-offs. But perhaps many more customers are jumping ship because of dissatisfaction with card companies and their terms. The newly operational Consumer Financial Protection Bureau established a Consumer Response office and a system for addressing consumer complaints when it launched in July. The Bureau just released a report on those complaints. Between then and October, consumers submitted 5,074 credit card complaints, which amounts to over 50 a day.

So what were people frustrated about? By far the largest complaint had to do with billing disputes, at 13.4 percent — you know, when the bank hikes your interest rate after the first year for no reason, or raises your already exorbitant annual fee, or puts your minimum payment toward the lowest interest rate account (all kosher under the CARD Act). The next largest complaint was about APR or interest rates, at 11 percent. When one woman reported an APR of 79.9 percent and the average interest rate is up to 16.75 percent, it’s not hard to see why. And while the CFPB breaks out complaints about fees, overall those frustrations make the top five at 8.5 percent.

Americans paid about $20.5 billion on penalty fees in 2009 . That doesn’t even include the extra principle they’re paying down due to interest. But not all Americans are worrying about how much income they’re losing to the banks.

A study by G. William Domhoff found that the top 1 percent of American households holds only 5 percent of consumer debt. The rest of us are saddled with the resulting 95 percent. This despite the fact that the 1 percent owns 40 percent of the wealth. It also has 62 percent of the country’s business equity, 39 percent of trusts, 38 percent of the stocks and mutual funds, and 28 percent of the non-home real estate (think vacation homes).

This means that while most of us struggle to pay our credit card bills each month, dodging fees and trying to avoid interest, it’s not a high concern for the 1 percent. Maybe they spend the extra time managing their vacation homes.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

How Colleges Condemn Students To Indebtedness And Constrain Their Life Choices

The protesters at UC Davis are right to be angry: rising student debt loads have extraordinary effects.

Behind the horrific images of a UC Davis policeman nonchalantly pepper spraying a peaceful group of seated students is the reason why they’re seated. What’s forced them out of their classrooms and dorms and into tents on the quad? A lot of issues, certainly, as the Occupy movement is taking a stand against many dysfunctional aspects of our society. But as one of the students who was sprayed put it, “The #OWS movement is global, but it’s expressed locally in ways that are relevant to each city. People who are in NYC go to Wall Street. Oakland takes the port. At Davis, we have a university.”

University students have a right to be pissed off. Beyond the fact that they’ll be graduating into a world where Wall Street dominates the economy but gives little value back, corporations have more say in our political system than citizens, and neither is held accountable, they’re facing the short-term constraints of gargantuan student debt loads, set to hit a total of $1 trillion this year — more than all credit card debt combined. The graduates of 2010 who had student loans owed an average $25,250; compare that to the average graduate in 1993, who only owed $8,462. Those numbers are daunting, but what do they mean for students’ futures?

Amanda Terkel wrote a fantastic in-depth article looking into the “brain drain”: hordes of fresh grads, the best and brightest our country has to offer, getting funneled into Wall Street. These students aren’t just economics majors or business school grads. They’re engineers, computer programmers, scientists. There are a lot of factors that contribute to the banks’ gravitational pull. Recruiters from finance and consulting firms are allowed to give money to career development offices in some universities in exchange for more access to students. And then there’s the increased status of going to Goldman or Citi, the peer pressure. That’s a new phenomenon. Before bank deregulation in the late 70s and 80s, banking was thought to be a snoozy line of work. Booming profits changed that.

The pay is hard to resist. Terkel reports that the average salary at Goldman Sachs is $430,700 and $256,596 at Morgan Stanley. While it could take some time to get to that level, starting salaries are quite comfy. Grad students of UC Berkley’s business school were given starting salaries of $7,839 a month — which would add up to $94,000 a year — for internships at big banks. As she writes, “without a cultural shift and reforms that rein in the financial industry’s sky-high profits and salaries, a disproportionate number of the best and the brightest will continue to head to Wall Street.” The numbers bear her out. As she reports, “In 2007, an astonishing 47 percent of Harvard University seniors said they planned to go into finance or consulting, according to a survey by The Crimson.” While that number dropped after the financial crisis, 39 percent of Harvard Business School graduates went into finance this year, up from 34 percent last year.

This trend isn’t just caused by aggressive recruiting and peer pressure, however. It’s based on sound economic decisions. In a 2007 study, “Constrained After College: Student Loans and Early Career Occupational Choices,” authors Jesse Rothstein and Cecilia Elena Rouse found that “debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid ‘public interest’ jobs.” They found a very specific relationship between debt and career choices. They report, “we estimate that an extra $10,000 in student debt reduces the likelihood that an individual will take a job in nonprofits, government, or education by about 5 to 6 percentage points,” pushing them toward higher paying positions. In fact, an additional $10,000 in debt skews graduates to jobs that pay $2,000 more in annual salary and reduces the likelihood that they’ll take a job that pays under $41,000 by 6 percentage points. That $94,000 starting salary is starting to look pretty good.

This makes inherent sense. If you have a huge load of student debt to pay back, does it really make sense to take your expensive college degree and go make an eventual salary of $47,730 as an elementary school teacher or $40,000 at a small nonprofit?

So what’s driving this rise in student debt? This is where the university comes into play. The study found that while the effect a college degree had on raising a student’s wages rose 27 percent between 1993 and 2005, tuition far outpaced that growth — rising by 63 percent at public four-year colleges and 43 at private colleges. In fact, one of the drivers of the UC Davis protest was the fact that current proposals will raise tuition there to $22,068 by 2015, up from $12,192 this year and $5,357 six years ago. These changes aren’t due to rising costs of providing quality educations, but to “room and board charges [that] have doubled in actual dollars since 1982 to enhance campus life,” as reported by Andrew Hacker and Claudia Dreifus. They argue, “colleges have embraced a host of extraneous activities — from obscure sports to overseas centers — and tacked most or all of their tabs onto students’ bills.” One significant cost at UC Davis, it would seem, is paying the salaries of the very policemen who pepper sprayed students. Lt. Pike has earned more than $100,000 for the last three years, more than 40 percent of which came from student fees.

What this means is that universities first hike tuitions to cover extraneous “campus life” costs, putting students further and further into debt and pushing them toward higher paying jobs, then give Wall Street recruiters premium access to their students. Rising tuition isn’t all to blame for student debt loads, of course. The government has pulled back on grants that help finance educations without needing to be paid back, giving students who can’t afford tuition outright no where to turn but loans. But the institutions that are supposed to help open wide a full range of possibilities for students may be having the opposite effect.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

We Don’t Need Better Parents. We Need Better Systems.

Increased parental involvement is crucial for children’s learning. To improve it, work on the challenges parents face in raising their kids.

As part of the United States’ dire need for better education outcomes for our children, Thomas Friedman pointed out this weekend that research shows we may also need, as he puts it, better parents. A recent study shows, “Fifteen-year-old students whose parents often read books with them during their first year of primary school show markedly higher scores in PISA 2009 [a global exam] than students whose parents read with them infrequently or not at all… Parents’ engagement with their 15-year-olds is strongly associated with better performance in PISA.”

Dana Goldstein follows up on this, defending him from the “collective ‘duh,’ followed by ’so what?’” as she puts it. Because what can schools and governments really do to change parents’ behavior? But as she points out, there are school reformers who have decided that there actually are steps they can take to change parenting. They just have to put in the time and resources.

I completely agree that parenting is a crucial aspect — one of the most crucial, the research is now showing — of educating children. And parents can therefore use more support, outreach, and guidance. This is a worthy use of our resources. But what they really need is someone to address the systemic challenges they face in raising their children.

I found Goldstein’s example of a school reformer getting involved with parenting telling. She describes Mike Feinberg, KIPP charter school founder, going to the home of one of his students who never did her homework to speak with her mother, who says she can’t pry her daughter from the TV. He then tells the mother, “I don’t want to do this, but you give me the TV, or your daughter is not in KIPP anymore.” She relents, and Feinberg takes the TV away from his crying student, telling her she can earn it back by doing her homework. She earns it back.

I haven’t read much about Feinberg, and I’m not out to impugn his character. I am sure that he had the very best intentions for his student in doing this. But rather than reach out to his student’s mother to find out her needs, get her more involved, even give her parenting advice, he simply decides to do the parenting for her. This is the risk run by saying that we need “better parents.” What we’re saying is that schools and governments know how to parent better than parents do. Parental negligence does exist and compel the state to intervene. But letting your daughter watch TV instead of doing her homework doesn’t qualify, no matter how I might disagree with that decision.

To paint with a broad brush, when we talk about parenting we’re mostly talking about mothers. On an average day, women spend over an hour providing care to their children; men spend 26 minutes. Not to mention that a quarter of American households are headed by women. And when we talk about low-income families, which is where school reformers like KIPP are usually focused, we are often talking about communities of color. In 2009, over a quarter of Latino and African-American families lived below the poverty line, compared to 9.4 percent of white families.

And there has been an uptick recently in criminalizing mothers of color, as well documented by Julianne Hing in Colorlines. Take the case of Raquel Nelson, who was blamed for letting her son run into the road when he was hit by a drunk driver. There has been newly ruthless prosecution of using tiny amounts of drugs during pregnancy. And just last week, news broke that a Mississippi mother was given a three-year prison sentence for lying on her food stamp applications in order to feed her children.

Mothers are even being demonized for — get this — trying to ensure a better education for their children. Kelley Williams-Bolar was charged in January with falsifying records when she used her father’s home address to get her daughters into a better school; Tanya McDowell was prosecuted for a similar crime in April.

Pointing the finger at parents also avoids talking about the larger problems. Goldstein pointed out in an earlier blog post that in fact when women of color refuse to marry, they’re often making a sound economic choice because of high levels of unemployment and incarceration in their communities. As she says, “If we want to get to the root causes of the ‘family values’ issues in poor neighborhoods, we need to think not only about culture, but take a broad approach to social and economic policy-making.” Those are the root problems, not whether or not parents are letting children watch TV (or eat junk food or date early or whatever else we’re worried about). Women of color don’t parent in isolation. They’re trying to cope with systems that are working against them. You want better parents? Fix those systems.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Employers And Banks Bilk Workers With Payroll Cards

A new trend has emerged in which low-wage employers pay their workers with unregulated, high-fee prepaid debit cards.

While Bank of America backed down in the face of public outrage against charging customers $5 for using a debit card, there’s been a focus lately on the fact that big banks still charge customers for using cards — it’s just that the cards are prepaid debit cards, and the money loaded onto them is from government benefits. Janelle Ross at the Huffington Post had two hard-hitting exposes on how banks are profiting from the distribution of unemployment benefits. I followed up to point out that they also make a killing off of distributing food stamps, even more so because they make money off of both fees from customers and payments from governments for taking the work off of their hands.

Felix Salmon points out that this trend shouldn’t have to be negative. Checks, he says quite vehemently, are outdated. “They’re expensive, insecure, anachronistic, and dangerously reliant on the less-than-stellar delivery record of the US Postal Service,” he writes. Checks are “a technology which deserves to be killed off with extreme prejudice.”

Missing from the discussion of unemployment benefits and food stamps is the fact that low-wage employers are now turning to the same idea. But perhaps it would seem on its surface that employers who are similarly doling out money — this time, salaries and wages — without the use of paper would be a win for everyone. Wal-Mart, one of the most gargantuan of low-wage employers, announced last year that its payrolls would be distributed completely paper-free. For employees with traditional bank accounts, that means they can simply get their checks through direct deposit. But for the 17 billion unbanked Americans, that won’t be possible. The solution for them is the payroll card, which is basically a prepaid debit card with wages loaded onto it. According to a company spokesperson, about half of its 1.4 million employees use direct deposit. That leaves the other half, about 700,000, with no option except payroll cards. Wal-Mart isn’t alone in this practice. The FDIC estimates that these cards were used to distribute $15.9 billion in wages in 2007; that number is expected to reach $60 billion by 2014. One group estimates that there will be over 17.5 million cards in use this year alone. Where Wal-Mart goes, the industry will follow.

And some will win out from this arrangement. Trees stand to benefit from the approximately 200,000 pounds of paper no longer required to process Wal-Mart’s paychecks, saving 3,116 of them from being chopped down. Because of this, the company also stands to save substantial money. By eliminating 18 million paper paychecks per year (with the conservative estimate that each check costs the company $2), it will net $36 million in savings from no longer cutting the checks — which doesn’t factor in saved resources from labor and distribution.

But will the employees benefit? True, cards can be more convenient, and Wal-Mart is so generous as to allow them to load paychecks from other jobs onto the cards. But as the Consumers Union and National Consumer Law Center have pointed out, “the employer’s benefit could be the employee’s burden if the cards have high and numerous fees, offer payday-loan type credit features or are simply too complicated or difficult for employees to use.” Just as with regular prepaid debit cards, which are almost completely unregulated and come with a host of fees, workers can face charges for ATM transactions, point-of-sale purchases, not using the card, replacing the card, overdraft transactions, live customer service, reloading the card, or getting funds by check. The Consumers Union and NCLC offer some helpful ways to protect workers, including providing written disclosure of terms and conditions (like these fees) before issuing cards, giving employees the chance to opt out of the cards, and keeping the cards from offering payday-lending type features. But while many states have enacted regulations on payroll cards, they aren’t uniform, and some still have no regulations at all.

While employers benefit from the use of these cards to the possible detriment of their workers, the other players that make money from this arrangement are the banks and servicers who facilitate the cards. The banks are set to lose $14 billion this year due to new laws tamping down on how much they can charge merchants for debit swipe fees. But those rules won’t apply to transactions with prepaid debit cards, whether they be for unemployment benefits, food stamps, or wages. Ross spoke with an industry analyst, who estimates that banks are aiming to recoup 30 to 50 percent of what they’re losing from swipe fees through other fees such as these. But as Ross reports, “Banking experts say the real money lies in the fees the bank collects for a range of services,” and it’s not hard to see why when they have open season to charge consumers for anything. The potential convenience of a card is endangered by the possibility of wages being whittled away by fees.

Bryce Covert is Editor of New Deal 2.0.

Cross-posted from The Roosevelt Institute’s New Deal 2.0 blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Move Your Money, But Be Careful Where It Goes

A word of warning to those fleeing big banks and bringing their money to nonbank lenders.

This past Saturday was “Bank Transfer Day,” in which 40,000 frustrated customers joined the 650,000 who had already switched their money out of bank accounts with the Too Big To Fail behemoths to smaller community banks. The preliminary results are encouraging: On that day alone, customers deposited $90 million with credit unions and had moved $4.5 billion in the weeks leading up to it.

It’s easy to understand frustration with these banks. It wasn’t too long ago that Bank of America and a handful of others were threatening to charge customers for using debit cards, even though profits from consumers are helping keep some of these banks afloat. Bank fees can add up, particularly for lower income people who may not be able to keep minimum balances, use direct deposit, avoid overdraft fees, and otherwise stay away from banking fees.

But that frustration may be leading some into the arms of even more pernicious institutions: those that serve the unbanked. Before Move Your Money, about a quarter of American families, or 60 million people, were already considered unbanked or underbanked, meaning that they have little to no relationship with traditional banks. But someone has to fill that hole. Those who step in see a real business opportunity, as the ranks of the unbanked are growing.

The traditional stand-ins are payday lenders, check cashers, and prepaid debit card companies. The first problem with these institutions is that they avoid the scrutiny and regulation that is supposed to reign in traditional banks (although the CFPB stands to change all of that). On top of that (and likely because of it), they come with extremely high interest rates and hidden or unexpected fees. For example, payday loans can come with interest rates that exceed 450 percent when annualized. That doesn’t include fees, which can include an upfront $45 — no small price for those with stretched budgets. Check cashers often skim between 2 and 4 percent of each check’s value. That could add up to $40,000 over a customer’s working life.

Prepaid debit cards are a burgeoning market in and of themselves. It’s expected that Americans will load $37 billion onto prepaid cards this year, and by 2013 that number is expected to reach $672 billion. This could mean killer profits for those offering the cards. But an AARP study found that they “may actually be an expensive alternative to traditional banking sources” due to monthly costs and other fees. Consumers can be hit with fees for using ATMs, calling customer service, activating an account, or simply not using the card.

All of these loosely regulated institutions have been making tidy profits from the gap between traditional banks and mattress stashing. Now new entrants are getting into the game, showing the perceived business potential in offering these products. The New York Times reported this week that Wal-Mart has slowly been building up an offering of financial services. More than 1,000 locations across the country let customers cash checks, pay bills, wire money, or load cash onto prepaid debit cards. As with everything else it sells, it’s found a way to offer things on the cheap: It offers cards that normally cost $4.95 to buy and $5.95 a month to maintain for $3 for each fee. It only charges 1 percent to cash checks under $300 and a flat rate of $3 per check for checks from $300 to $1,000. But these fees can still add up.

Beyond being swindled by fees and interest rates, banking with nonbank institutions supports businesses that are likely no better than the large banks. Taking money out of Bank of America and bringing it to Wal-Mart is no way to free yourself of the corporate world. And shady nonbank lenders that escape regulatory scrutiny don’t need to be bolstered with our business.

So yes, move your money. Just be careful where you put it.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

How Banks Take A Big Bite Out Of Government Benefits

Consumers witnessed a victory this week when Bank of America backed off its threat to institute a $5 fee for using a debit card, following a public outcry that led most of the other big banks to foreswear similar moves. But not everyone has been spared debit card fees. As Janell Ross pointed out at The Huffington Post yesterday, banks are making nice profits from doling out government benefits through prepaid debit cards.

It’s obvious that in a sour economy like ours, usage of programs like unemployment benefits, food stamps, and cash assistance will skyrocket. It used to be that most of these programs distributed actual money to beneficiaries. Food stamps were quite literally stamps. These days, however, things have been ‘modernized’ so that many benefits come through prepaid debit cards administered by banks like JP Morgan, Bank of America, and other behemoths.

So what’s the problem? Doesn’t this just make it more convenient for users? Isn’t plastic easier than cash?

The first problem is that users, who are clearly already strapped for cash if they’re turning to government benefits, are finding themselves hit with fees for using the cards. As an example, Ross points to one analysis that California families will pay over $16 million in surcharges to access benefits this year. While there has been a lot of action around limiting swipe fees and much outrage at charging customers to use regular debit cards, prepaid debit cards are a whole other animal. Even consumers using them to access their privately earned money may be charged for buying the cards, swiping the cards, and withdrawing money. And people getting benefits through them aren’t any exception: They face charges for withdrawing money too many times, using an out-of-network ATM, drawing more money than is in the account, leaving the card inactive for a certain period of time, and some even charge per purchase.

Secondly, big banks are making a tidy profit by acting as middlemen for what should be publicly provided services. In just three months, from July and September, Ross reports that U.S. Bancorp, which provides unemployment benefit debit cards, made $357 million in revenue in the division that handles the cards. That amount is more than one-fourth of its total revenue. I previously reported that JP Morgan made $5.47 billion in net revenue for most of last year in the division that handles food stamp cards, and it was up two percent is the last three months of the year. The head of the division himself has said, “Volumes have gone through the roof in the last couple of years… This business is a very important business to JPMorgan in terms of its size and scale.”

And while banks only make money off of unemployment benefits by charging fees to use cards, they are paid directly by state governments to administer food stamps. Florida, for example, paid JP Morgan $50 million over the last three years to administer the program. The bank is paid for each case it handles, meaning its profits rise as the rolls of those using food stamps rise (and numbers are really rising — they were up to 43.6 million Americans in February).

And there is a third, larger problem: it’s another iteration of what Suzanne Mettler has nicely termed the “submerged state.” The submerged state encompasses government policies that have become more and more skewed toward hidden delivery mechanisms: from student loans subsidized by the government but offered by private banks, to tax incentives and tax breaks to aid people and encourage shared values, to benefits and services that are contracted out to private players. The direct role of the government in all three of these is obscured or completely invisible to the average American.

This is problematic in two ways. The first is that, as pointed out above, hefty profits accrue to the private sector when it can exploit the gap between the government and its beneficiaries. This isn’t equally shared across the entire economy, however; most of the profits go to the FIRE sector, which Mettler points out have “outpaced growth in other sectors of the American economy… not from ‘market forces’ alone but rather from their interplay with the hidden policies that promoted their growth and heaped extra benefits on them.” More profits mean more money to spend on lobbying to protect the very policies that allow them to profit off of these services. Rinse, wash, repeat.

It also affects political engagement. Mettler is famous among a certain subset of the blogosphere for a chart showing that majorities of people surveyed who had in fact benefited from government programs — many of them belonging to the submerged state — said they had never “used a government social program.” This is the larger danger of allowing the private sector to carry out government programs: “polices of the submerged state obscure the role of the government and exaggerate that of the market, leaving citizens unaware of how power operates, unable to form meaningful opinions, and incapable, therefore, of voicing their views accordingly,” Mettler writes. It will only lead to a less engaged, and therefore less democratic, electorate.

Contracting banks out to provide benefits through plastic cards may at first glance seem like a win — governments are spared the hassle of delivery, beneficiaries are spared the hassle of paying with cash — but in the end it only benefits the banks.

Bryce Covert is Editor of New Deal 2.0.

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

Being In The 99 Percent Could Be Hazardous To Your Health

Cross-Posted From The Roosevelt Institute’s New Deal 2.0 Blog

One loud message from Occupy Wall Street is an outcry against income inequality. The flipside of that issue, and another grievance of the movement, is sky-high levels of personal debt. When working Americans are taking home less during the recovery, and have seen their share of national income falling for three decades, they must turn to debt to plug the holes and cover the basics. And there are millions of Americans who aren’t even lucky enough to have a job right now.

All of these grave economic concerns are also issues of public health. Strikingly, it turns out that each of the protest’s main causes — income inequality, unemployment, and high levels of debt — are all making us unhealthier.

Foreclosure is now shown to not just be a financial strain, but a mental and physical one. As Craig Pollack and Julia Lynch write in the New York Times, “A growing body of research shows that foreclosure itself harms the health of families and communities.” The authors cite a paper released by the National Bureau of Economic Research that found people who live in places with high rates of foreclosure — New Jersey, Arizona, California, and Florida — are at significantly more risk of being hospitalized by diabetes, high blood pressure, and heart failure. The authors found that in their own survey, 32 percent of people facing foreclosure in Philadelphia reported missing doctor’s appointment and 48 percent had let prescriptions go unfilled, which is “significantly higher” than other people in the area.

It’s not just a risk to physical health, but also greatly affects mental health. More than one-third of those in their survey had symptoms of major depression. The NBER study found a higher number of suicide attempts. And for every 100 foreclosures, that study found a 12 percent increase in anxiety-related hospitalizations and emergency room visits.

It’s pretty clear that foreclosures, as Mike Konczal says, are a lose-lose-lose situation financially. Neither the borrower, the lender, nor the community benefit — they all suffer. It’s also clear that they’re a lose-lose situation in terms of health.

It’s not just foreclosure that’s affecting our health. Unemployment also takes its toll. As the Washington Post reported, “A 2009 survey by Mental Health America, a mental health advocacy group, concluded that the unemployed were four times more likely to report symptoms of mental illness than a working individual.” Another study by Rutgers University’s John J. Heldrich Center for Workforce Development found highly increased levels of stress for the jobless, and 11 percent sought professional help for depression in the past year. These findings are corroborated by larger research, which finds a strong correlation between high levels of unemployment and suicide, an a recent CDC study found that “the U.S. suicide rate has ticked up every time the economy has fallen into recession since the 1929 stock market crash.”

And last but not least, the very issue of income inequality itself, a phenomenon starkly on the rise for the last three decades, is making us sick. More than income or absolute wealth, inequality that has the biggest impact on health, Time reports. This plays out across the globe:

At a basic level, a country’s overall economic success does predict its people’s well-being, but the healthiest and happiest countries in the world are not the richest. Rather, they are countries where wealth is shared widely and more equally… Indeed, in country-to-country comparisons, researchers find that the greater the difference between the richest and the poorest in a society, the worse off everyone in that society seems to be.

Japan and Scandinavia, which have more equal societies, also experience “greater life expectancy, lower infant mortality, reduced obesity, heart disease and mental illnesses, and lower rates of murder and addictions.”

These financially related health problems will end up creating a vicious cycle, as many people do not have the money to treat them and may even turn to credit cards to pay for health care, landing themselves in more debt. Not to mention that health issues can even come in the way of finding a job for those who are unemployed. It’s important to keep in mind that the economic problems facing so many Americans today have impacts far beyond their wallets.

Bryce Covert is Editor of New Deal 2.0.