Tag Archives: economy

34 of 100 Don’t Work for the Man

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It’s no secret that today many more people in our economy are freelancers than in the past, but would you believe that the number is about 53 million people?

I was on the phone last night with Stephen DeWitt, the CEO of our portfolio company Work Market. He was talking about a specific community of people and I asked him how many of them were likely to be freelancers. He said “well the statistics say that 3 to 4 out of every ten people these days are freelancers.”

I thought that sounded high but after reading Mary Meeker’s Internet Trends Report, in which she says that “34 percent of the work force in the United States, 53 million people, now consider themselves independent contractors, short-term hires or other kinds of freelancers”, I think Stephen has it exactly right.

Look around you on the subway, the baseball park, the movie theater, 3 to 4 out of every ten people are freelancers. That’s a big number. And its growing pretty rapidly. Younger people are more inclined to be freelancers. Older people turn to freelancing for flexibility or economic necessity. And employers are more inclined to hire freelancers as technology makes the management and compliance requirements around freelancers easier to handle.

This has me wondering about the implications for things like benefits. I’m not sure about this, but I don’t think that freelancers qualify for unemployment benefits since they are typically tied to the company you worked for. If you don’t work for anyone how would you qualify for benefits? It also feels like we’ve already seen the impact on health insurance – it’s a safe bet that a good chunk of the uninsured are freelancers who don’t have companies to provide insurance. Even if the ACA is pushing many of them to buy their own insurance, they were an available market precisely because they didn’t have company-provided health insurance.

The excerpt above came from Fred Wilson’s blog and I agree with his last paragraph from that post:

It’s a new era we are living in and the nature of work is changing and changing fast. There are tons of opportunities in and around this trend and we are invested in some of them. It’s one of the big megatrends of this century.

Jobs and Money

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Why are jobs important? Well, beyond the obvious there’s the added benefit that it helps keep people out of trouble. From the May, 2015 issue of Rotarian Magazine:

Summer jobs can help prevent violence among disadvantaged students, according to a large-scale trial out of the University of Pennsylvania and the University of Chicago Crime Lab. The study involved 1,634 teenagers from 13 high-crime schools in Chicago, and a local program that places youth in part-time paid summer jobs and pairs them with mentors. The job-assignment intervention reduced violence by 43 percent over 16 months, with nearly four fewer violent-crime arrests per 100 students compared with the control group.

From the same issue of the magazine comes this little tidbit of info:

One percent of the global population owns nearly half the world’s wealth, according to a new report from Oxfam, and that share is expected to exceed 50 percent within two years. The richest 20 percent of the population owns most of the other half of the world’s resources, and the remaining 80 percent of people share just 5.5 percent. The combined wealth of the 80 richest individuals in the world has doubled since 2009, and surpasses the combined wealth of the 3.5 billion people in the bottom half.

From Scarcity Thinking to Abundance Thinking

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This Tedx New York talk will really get you thinking about things differently. The speaker presents two radical ideas: first, basic income guarantees for everyone to cover housing/food/health and the second is to allow bots to represent us. You might wonder what they have to do with each other, but the common thread is that we live in a time of technological abundance, not scarcity, and thanks to the coming wave of automation and the continuing impact this technology is having on our workforce we have to invert our thinking about public policy in response. Whether you agree or disagree I think the 17 minutes you spend with this will cause you think about how we think about things in our society:

Before you jump to any conclusions, one of which is most likely “Why in the hell should be pay people even if they aren’t working” you should stop and really think through what he’s saying and the opportunities that these ideas present. Once you allow yourself to move beyond the knee-jerk reaction of “I don’t want lazy lowlifes benefitting off my hard work” to really thinking this through I think that you’ll find that the premise leads to some interesting potential outcomes.

Squeezing the Middle

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The Wall Street Journal, that bastion of the liberal press <sarcasm>, has the story behind the squeeze on America’s middle class. In a nutshell the economy has rebounded nicely and consumer spending is up, but when you dig into the numbers you find that the spending is happening at the high and low end. Some interesting excerpts from the article:

Since 2009, average per household spending among the top 5% of U.S. income earners—adjusting for inflation—climbed 12% through 2012, the most recent data available. Over the same period, spending by all others fell 1% per household, according to Mr. Cynamon, a visiting scholar at the bank’s Center for Household Financial Stability, and Steven Fazzari of Washington University in St. Louis, who published their research findings last year.

The spending rebound following the recession “appears to be largely driven by the consumption at the top,” Mr. Cynamon said. He and Mr. Fazzari found the wealthiest 5% of U.S. households accounted for around 30% of consumer spending in 2012, up from 23% in 1992…

Revenue for such luxury hotel chains as St. Regis and Ritz-Carlton rose 35% last year compared with 2008, according to market research firm STR Inc. Revenues at midscale chains such as Best Western and Ramada were down 1%…

For the first time, U.S. builders last year sold slightly more homes priced above $400,000 than those below $200,000. As a result, the median price of new homes exceeded $280,000, a record in nominal terms and 2% shy of the 2006 inflation-adjusted peak.

Total sales last year, however, were up just 1% compared with 2013, and more than 50% below their average from 2000 to 2002, before the housing bubble…

There are some real issues with this kind of market, not the least of which is that it doesn’t do enough to create the kind of economic ripple that benefits everyone. For instance the fact that builders are focusing on fewer, but larger and more expensive houses definitely has a down side:

Homes are generally the biggest purchase Americans make. Housing dollars ripple through the economy by triggering spending on appliances, furniture and landscaping.

Fewer homes means fewer new buyers and that means fewer appliances, furniture and other household goods and services sold. In the end that means fewer jobs. Fewer new homes being built also means that demand for existing homes will rise, which leads to higher prices and thus even more would-be buyers are priced out of the market. That puts more demand on rentals which leads to higher rent; higher rent means less money to save each month which helps put a down payment ever further out of reach. In other words a very nasty cycle.

Of course markets are inherently cyclical and at some point in the future this will all turn around, but what’s become very apparent is that the Great Recession continues to have a negative effect on our country long after it officially ended. The middle class has been bearing the brunt of it, and it looks like people are starting to figure it out. It will be interesting to see if anyone in the political field figures out how to use that to their advantage; someone like, say, Elizabeth Warren.

Race as a Distraction

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In college, way back in the dark ages of the 1980s, I had a roommate from Scotland who was intrigued with the racial discord he observed in America. To him it made no sense that people would hate each other based on their race, but of course it made total sense to him that the Catholics and Protestants back in Scotland were in a constant state of discord. He'd say, and I'm paraphrasing here, "Why do you Americans hate each other for what you are? At least in Scotland we hate each other for what we choose to believe."

Whenever race comes up as a topic I think about those words. Indeed, it's totally illogical for us to hate one another for something we have no control over. In fact it's probably the most absurd reason for people to hate and distrust each other. On the other hand, probably the most logical reason for any group of people to dislike another is if one group has disproportionately more of anything – wealth, food, opportunity, etc. – than the other, particularly if the group with less feels that the other group has gotten it off of their backs.

That's why the new data about the true nature of poverty in America, and the plight of working class whites in particular, should scare the bejeezus out of this country's power structure. Once all of the poor and struggling working class folks from every race realize they have more in common with each other than with the wealthy of their own race they will form a formidable body to deal with. From the article linked above:

As nonwhites approach a numerical majority in the U.S., one question is how public programs to lift the disadvantaged should be best focused — on the affirmative action that historically has tried to eliminate the racial barriers seen as the major impediment to economic equality, or simply on improving socioeconomic status for all, regardless of race.

Hardship is particularly growing among whites, based on several measures. Pessimism among that racial group about their families' economic futures has climbed to the highest point since at least 1987. In the most recent AP-GfK poll, 63 percent of whites called the economy "poor."…

While racial and ethnic minorities are more likely to live in poverty, race disparities in the poverty rate have narrowed substantially since the 1970s, census data show. Economic insecurity among whites also is more pervasive than is shown in the government's poverty data, engulfing more than 76 percent of white adults by the time they turn 60, according to a new economic gauge being published next year by the Oxford University Press.

There's another important societal component contributing to the economic struggle of millions of individuals in this country, and it's one we need to deal with head on: the breakdown of the traditional family. Again from the article:

–For the first time since 1975, the number of white single-mother households living in poverty with children surpassed or equaled black ones in the past decade, spurred by job losses and faster rates of out-of-wedlock births among whites. White single-mother families in poverty stood at nearly 1.5 million in 2011, comparable to the number for blacks. Hispanic single-mother families in poverty trailed at 1.2 million…

Marriage rates are in decline across all races, and the number of white mother-headed households living in poverty has risen to the level of black ones.

As a man who has been happily married for a long time I'm obviously a fan of the family structure. However, whenever the topic of single parent homes comes up for public debate we get pulled into the moral/religious rabbit hole and never address the economics of single parenthood. Why do we insist on approaching this problem from a moral standpoint, haranguing young men and women about their sinfulness and almost guaranteeing they'll tune us out, and not instead concentrate on developing societal structures that will help deal with a very real problem? I'm not smart enough to have a solution here, but it doesn't take a rocket science to realize that the answer is not browbeating people back into church and insisting that they live they way great-Grandma and Grandpa did. 

Our leaders, whether in industry or government, need to begin to deal with the reality that is portrayed in this new data or our country will soon be in even deeper doo-doo. They can no longer hide from the reality that our middle class is disappearing and that our "land of opportunity" could quickly become an empty slogan if they don't change things, and fast.

The Rise of 14th Street

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As a teen growing up in Northern Virginia in the early 80s I'd venture downtown with some of my buddies to witness firsthand the depravity that was on display on 14th Street. I really was too stupid to realize how dangerous it was to go down there to park and watch hookers pick up johns, dealers sell their weed/coke/whatever and pimps managing their "personnel." To me and my buddies it was like going to live theater, except that when we saw the inevitable beatings, assaults and brawls and realized that the blood that was spilled and the bullets that flew were very real, we retreated to our suburbs and ventured downtown only to visit the clubs in Georgetown or Foggy Bottom.

It's from that perspective that I read this article in the Washington Post about the gentrification of the 14th St. corridor.  Whether or not you're a fan of gentrification you have to be amazed at how a city can literally be transformed.

The formerly riot-scarred corridor has gone into gentrification overdrive, a boom fueled by investors looking for a safe place to park hundreds of millions of dollars, the relative ease of obtaining a liquor license, and the arrival of thousands of new residents longing to live downtown.

The result: more than 1,200 condos and apartments and 100,000 square feet of retail are being built or have hit the market in just the past nine months. At the same time, at least 25 bars and restaurants have opened or are under construction along 14th Street, adding more than 2,000 seats to the city’s dining scene at warp speed…

The street’s renaissance began decades ago, with the establishment of Studio Theatre (founded in 1978 and expanded in 1987) and other performing arts venues. But the pace of change accelerated after a successful community lobbying effort to lure Whole Foods Market to P Street, between 14th and 15th streets. A steady progression of improvements followed, with carryouts, auto repair garages and pawnshops giving way to sit-down Thai restaurants, fitness studios and window displays of $5,000 sectional sofas.

This next part interested me from a professional standpoint since I work for an apartment trade association:

Veteran commercial real estate broker Andrew McAllister, who has done $1 billion worth of business along 14th, likened the District’s post-recession situation to last call on a Friday night.

Were we the “best-looking chick? We were the only chick at the bar,” he said.

Washington quickly found itself at the center of a national apartment building boom, spurred by the transformation of millions of former homeowners and would-be home buyers into renters. Many of them experienced unemployment or had their credit ratings decimated by foreclosure. Others couldn’t muster the bigger down payments required to obtain mortgage loans.

Washington’s status as an oasis of job security, in particular, made it one of the nation’s top destinations for the young, highly educated and affluent, putting the city on track to drawmore newcomers between 2009 and 2011 than it had during the previous decade.

A note for our folks here in the Triad: notice how important jobs were to the revitalization of downtown Washington? Our small cities are doing a great job focusing on the redevelopment of their downtowns, but until we get significant job growth it will be hard for our cities to really take off.

Credit Where Credit is Due

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Remember "It's the economy stupid?" The first President Bush certainly does, because that phrase famously summed up the soon-to-be President Clinton's campaign focus in beating him. Here's the thing – Clinton ended up getting too much credit for the economic recovery that occurred during his first term, and Bush-the-first didn't get enough credit for making the tough and politically disastrous policy decisions that kick started the recovery in the first place.

Why bring that up now? Because it's interesting to see how President Obama is blamed for things that he literally has no control over, like high gas prices, but gets no credit for things he had a direct hand in, like an improving economy. He is also being criticized for budget deficits that were largely made necessary by the policy decisions of his predecessor, President Bush-the-second. Could Obama have made policy choices that kept the deficit from growing as much as it did in his first term? Sure, but many economists think that would have been much worse for the economic recovery we're seeing. In fact some argue that his policies weren't aggressive enough – that larger short-term deficits might have led to a faster, steeper economic recovery. 

What further complicates the issue in this election cycle is that President Obama came into office as the US economy was in an unprecedented-in-our-lifetime freefall. In the same way that it's difficult to prove a negative, it's also difficult for a sitting President prove that the economy could have been in worse shape if his policies had been different. Quite frankly it's easier for a challenger to say that things could/should have been much better and that it's the President's fault that they aren't; he literally doesn't have to prove it since it's a matter of opinion.  That's how Clinton took out Bush Sr. and that's how Romney is trying to take out Obama. 

It remains to be seen if the recent economic improvement will be enough to convince voters that Obama is worth keeping around. If it's not, Romney will inheret a growing economy and unless he really screws up he'll be given far more credit for it than he deserves.

While Hucksters Lead Us Into the Economic Abyss

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This piece from Freakonomics should scare the you-know-what out of anyone in this country with an ounce of sense:

If you follow the economic policy debate in the popular press, you would be excused for missing one of our best-kept secrets: There’s remarkable agreement among economists on most policy questions.  Unfortunately, this consensus remains obscured by the two laws of punditry: First, for any issue, there’s always at least one idiot willing to claim the spotlight to argue for it; and second, that idiot may sound more respectable if he calls himself an economist.

How does one fight the pundits? Well, some economists are trying to do it by regularly polling their counterparts of all ideologies about various issues and reporting on their findings:

Their “Economic Experts Panel” involves 40 of the leading economists across the US who have agreed to respond on the economic policy question du jour.  The panel involves a geographically and ideologically diverse array of leading economists working across different fields.  The main thing that unites them is that they are outstanding economists who care about public policy.  The most striking result is just how often even this very diverse group of economists agree, even when there’s stark disagreement in Washington. 

So what did they find? Among other things:

Let’s start with Obama’s stimulus. The standard Republican talking point is that it failed, meaning it didn’t reduce unemployment. Yet in a survey of leading economists conducted by the University of Chicago’s Booth School of Business, 92 percent agreed that the stimulus succeeded in reducing the jobless rate. On the harder question of whether the benefit exceeded the cost, more than half thought it did, one in three was uncertain, and fewer than one in six disagreed.

Or consider the widely despised bank bailouts. Populist politicians on both sides have taken to pounding the table against them (in many cases, only after voting for them). But while the public may not like them, there’s a striking consensus that they helped: The same survey found no economists willing to dispute the idea that the bailouts lowered unemployment.

The sad thing is this is literally the equivalent of a sick person being surrounded by doctors who know what's wrong with him, but rather than hear a proper diagnosis from a trained expert he only hears a prescribed cure from a bunch of drunken snake oil salesmen. When it comes to our economy isn't it about time we start hearing from the doctors directly?

The Coming Collapse of the Middle Class

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Below is a video of a speech Elizabeth Warren gave at the University of California about the stress on today's middle class families.  She provides lots of interesting data, but what I found most compelling was her comparison of a middle class family of four (two parents, two kids) in 1970 and 2003:

  • In 1970 most families had a single earner, in 2003 the vast majority were two-income families.
  • Average incomes were up in 2003 compared to 1970 due to the second worker, but fixed expenses (mortgage, health care, taxes, child care, cars) were 50% in 1970 and rose to 75% in 2003.
  • Discretionary expenses for items like clothes and food actually went down significantly between 1970 and 2003.  

It's a long video (almost an hour), but it really is worth a look to see how much pressure is on the middle class these days.  Even if you aren't a fan of Warren's it is still worth watching to get a sense of how things have changed in just one generation.

Last point I'll make is that this speech was given in 2007, before the economy tanked. I wonder how some of these numbers would look now.