The Actions of the Federal Reserve Bank Have Created an Economy That Hurts Workers And Has Devastated The Black Community
Atlanta Black Star - March 4, 2015, by Nick Chiles - The actions of the Federal Reserve have typically been undertaken to benefit banks and the financial services sector collectively known as Wall...
Atlanta Black Star - March 4, 2015, by Nick Chiles - The actions of the Federal Reserve have typically been undertaken to benefit banks and the financial services sector collectively known as Wall Street, but a new report by the Center for Popular Democracy reveals that the Fed’s traditional policies substantially contribute to the dire economic conditions of African-Americans across the country.
While there have been many reports showing how badly African-Americans suffered from the Great Recession and how middle and low-income Americans have not benefitted from the so-called economic recovery, which was really just a recovery for Wall Street, this report is one of the first to link the fortunes of specific groups like African-Americans to the actions of the Federal Reserve.
The Federal Reserve, the nation’s central bank, remains a shadowy presence to most rank-and-file Americans, who would hardly think of the Federal Reserve when assigning blame for their financial struggles.
The intentions of the Center for Popular Democracy, with assistance from the Economic Policy Institute, are clear just by reading the name of its report—”Wall Street, Main Street, and Martin Luther King Jr. Boulevard: Why African Americans Must Not Be Left Out of the Federal Reserve’s Full-Employment Mandate.”
In the explanation for the report’s rather trite title, the primary author, Connie M. Razza of the Center for Popular Democracy, said Martin Luther King Jr. Boulevard refers to African-American communities because “hundreds of U.S. cities have streets named for Martin Luther King Jr., often located in persistently lower-income Black neighborhoods.”
The report’s premise is that the Fed’s goal of keeping the national employment rate at about 5.2 percent—which the Fed considers “full employment” because it allows for movement in the job market—is actually devastating to the African-American community. The reason: When the national unemployment rate stays in the vicinity of 5.2 percent, the African-American unemployment rate is typically about 11 percent.
But because the Fed is dominated by the interests of Wall Street, the impact of its policies on Main Street or on African-Americans is not ever truly considered.
“Although the Great Recession officially ended nearly six years ago, the American economy is still far from healthy,” the report states. “Wall Street has had a robust recovery. Large corporations are making record profits. But the labor market remains weak.”
As Razza points out, the policy decisions of the Federal Reserve directly affect Main Street and MLK Blvd. The Fed’s primary job is keeping inflation stable, regulating the financial system, and ensuring full employment. But corporate and finance executives generally want to limit wage growth so that they maximize their future profits.
“But most people in America earn their living from wages, not capital income, and it is in their interest to see full employment whereby wages grow faster than prices in order to lift working and middle-class families’ living standards,” Razza writes.
Typically the Feds resolve this dilemma in favor of Wall Street, by intentionally limiting wage growth and keeping unemployment excessively high.
“The Fed’s policy choices over the past 35 years have led to increased inequality, stagnant or falling wages and an American Dream that is inaccessible to tens of millions of families—particularly Black families,” the report says.
As detailed in the report, the last eight years have been catastrophic for the nation’s African-American community in virtually every financial indicator studied by economists:
* In January 2015, the national African-American unemployment rate was 10.3 percent, more than twice the current white unemployment rate and higher than the 10.0 percent U.S. unemployment rate reached in October 2010, at the height of the recession.
* The contraction in public-sector jobs—which are disproportionately held by Black people and women—has meant that the African-American workforce has been disproportionately impacted by the recession. In 2011, the number of African-Americans who were unemployed and had most recently been employed in state or local government was higher than their share in the decline of state and local government job loss, suggesting that they were disproportionately laid off and faced more barriers to finding work after losing their public-sector jobs, according to the report. The loss of public-sector jobs also has potential implications for wage inequality since African-Americans and women who are employed in public service have historically suffered significantly less wage inequality than their peers in the private sector.
* Wages have been stagnant or falling for the vast majority of workers since 2000, the report states. While at the median, wages for white workers have risen only 2.5 percent in 14 years, African-American workers have seen a wage cut of 3.1 percent over the same period. In fact, in two-thirds of the states for which data are available, the median real wages of African-American workers declined between 2000 and 2014. The fastest declines were in Michigan (down 15.8 percent), Ohio (down 13.7 percent) and South Carolina (down 11.6 percent).
* Between 1989 and 2001—a period of comparatively robust job growth and a tight labor market during the late 1990s—the wealth gap between whites and African-Americans narrowed. In 2001, Black households had roughly 16 percent the wealth of white households, compared with 6 percent in 1989. By 2013, median African-American household wealth was only 8 percent that of whites.
The report states that the wealth disparity began growing during the housing boom, precisely because of the racist practices of American banks. Between 2004 and 2007, at the height of the boom, white household wealth increased 23 percent, while African-American household wealth actually declined by 24 percent.
“The convergence of wage stagnation and banks’ preying on African-American communities with risky mortgage products (which banks backed with overvaluations of collateral property), led to African-American borrowers being more likely to receive subprime loans than white borrowers,” the report says. “These loans were frequently made as second mortgages, drawing down equity that homeowners had built up. Discriminatory subprime lending practices drained wealth from African-American homeowners before the recession and certainly made Black wealth significantly more vulnerable during the housing crisis.”
One of the most telling statistics in the report is the detailing of the jobs that the economy has regained during the recovery. If the public needed a clear indication of why so many people are still struggling though Wall Street is back, here it is:
While lower-wage industries accounted for 22 percent of job losses during the recession, they account for 44 percent of employment growth over the past four years. That means lower-wage industries today employ 1.85 million more workers than at the start of the recession.
Mid-wage industries accounted for 37 percent of job losses, but 26 percent of recent employment growth. There are now 958,000 fewer jobs in mid-wage industries than at the start of the recession.
Higher-wage industries accounted for 41 percent of job losses, but 30 percent of recent employment growth. There are now 976,000 fewer jobs in higher-wage industries than at the start of the recession.
And here’s another startling fact showing how much America’s economy has been tilted in favor of corporate America and against workers for a generation. Between 1948 and 1973, the hourly compensation of a typical worker in America grew in tandem with productivity. But since 1973, productivity grew 74.4 percent while the hourly compensation of a typical worker grew just 9.2 percent.
“This divergence between pay and productivity growth has meant that workers are not fully benefiting from productivity improvements,” the report says. “The economy—specifically, employers—can afford much higher pay, but is not providing it.”
So what should the Fed do to help Main Street and MLK Blvd. begin to enjoy the economic “recovery?” The report suggests a change in the structure of the Federal Reserve System so that fewer representatives from the financial industry and corporate America are appointed to the Fed’s governing board and more regular people are added. This would make the Fed more sensitive to the needs of Main Street and MLK Blvd., so that “the voices of consumers and working families can be heard.”
The Center for Popular Democracy suggests that the Fed keep interest rates low “so that the numbers of job openings and job seekers are balanced and everybody who wants to can find a good job.”
In addition, it wants the Feds to provide low- and zero-interest loans so that cities and states can invest in public works projects like renewable energy generation, public transit and affordable housing that will create good new jobs.
The Fed should study the harmful effects of inequality, according to the Center, and examine how policies like raising the minimum wage and guaranteeing a fair work week can strengthen the economy and expand the middle class.
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How Trump's Criminal Justice Plan Is Really More For-Profit Incarceration
How Trump's Criminal Justice Plan Is Really More For-Profit Incarceration
The DOJ and the Trump administration seem to be working to expand private prison profits at the expense of communities of color...
...
The DOJ and the Trump administration seem to be working to expand private prison profits at the expense of communities of color...
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Southern Cities Are Passing Paid Sick Leave—But Republicans Won’t Let Them Have It
Southern Cities Are Passing Paid Sick Leave—But Republicans Won’t Let Them Have It
Texas advocates for paid sick leave haven’t given up hope, however. They plan to wield the sheer amount of popular support for these ordinances in their favor and against the state politicians who...
Texas advocates for paid sick leave haven’t given up hope, however. They plan to wield the sheer amount of popular support for these ordinances in their favor and against the state politicians who block them. “Our state leadership is out of touch with what the majority of Texans believe and want for their communities,” says Michelle Tremillo, executive director of the Texas Organizing Project, a community organizing group behind the paid sick leave ordinance.
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Minnesota pension board looks at private equity strategy
Minnesota pension board looks at private equity strategy
Toys R Us has not fared well in recent years. And critics, led by New York’s populist-leaning Center for Popular Democracy, accused the huge equity-investment firms of making hundreds of millions...
Toys R Us has not fared well in recent years. And critics, led by New York’s populist-leaning Center for Popular Democracy, accused the huge equity-investment firms of making hundreds of millions in fees and dividends on the failed retailer over the years.
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Is the Fed Due for a Revamp?
US News & World Report - November 13, 2014, by Katherine Peralta - Building on momentum from earlier this year, a group of policy advocates, economists and community organizations is calling...
US News & World Report - November 13, 2014, by Katherine Peralta - Building on momentum from earlier this year, a group of policy advocates, economists and community organizations is calling for more transparency at the Federal Reserve, imploring that the Fed consider the plight of many who haven’t enjoyed the kind of recovery that recent positive economic data suggest.
The push for more access to the Fed is gaining momentum among the public and in Congress, though revamping a decades-old central banking system that’s helped stabilize the economy through multiple crises is not without controversy.
As two of the Fed’s most vocal critics of its current monetary policy near their retirement at the beginning of next year, a coalition called “Fed Up” is asking that the public have more say in the process of appointing their replacements and future Fed leaders. Members sent letters outlining their concerns to the Fed and will meet Friday with Fed Chair Janet Yellen in the District of Columbia.
As it progresses toward its dual objective of price stability and full employment, the Fed has said it will eventually raise short-term interest rates, which have been kept near zero since 2008 to stimulate growth. The coalition says since the economy isn’t yet strong enough to stand on its own, the Fed should maintain its easy-money policies, which make lending cheap for borrowers and businesses but don’t do much to boost those on fixed incomes like retirees.
“We're going to talk about our request that the Fed create more transparency in a democratic process for appointments and that it adopt more pro-jobs, pro-wages policies, more expansionary policies, so as to get us to full employment,” says Ady Barkan, staff attorney at the left-leaning Center for Popular Democracy, which is part of the coalition. “They need to target higher wage growth instead of stepping on the brakes the moment that wages start to rise, which is what the hawks want to do."
The term "hawk" refers to those who see the labor market as strong enough to merit a faster interest rate hike to keep inflation in check and pertains to outgoing regional Fed bank presidents Richard Fisher of Dallas and Charles Plosser of Philadelphia. Doves, like Yellen, believe that there is still enough slack in the labor market to warrant maintaining as low interest rates as possible.
Each of the 12 regional Federal Reserve banks selects its own president through a process that’s criticized as rather opaque. Those presidents rotate on five of the 12 seats on the Federal Open Market Committee, the group at the Fed that sets interest rates. The remaining seven members of the committee, including Yellen, are appointed by the president and confirmed by the Senate.
The 12 regional presidents report back to the rest of the Fed about economic trends from their respective districts on a regular basis – a compilation of data amalgamated in a “Beige Book” published eight times a year and used to assess the economy’s health.
A spokeswoman for the Philadelphia Fed said it has retained the services of executive search firm Korn Ferry to replace Plosser and “will consider a diverse group of candidates from inside and outside the Federal Reserve system.” A Dallas Fed representative said the bank’s board of directors is meeting today to discuss the presidential search process to replace Fisher.
Stronger economic data this year have prompted many to wonder whether the Fed should start raising interest rates sooner rather than later. The U.S. economy’s reached the lowest jobless rate in six years and has enjoyed the strongest stretch of job gains since 1999.
But the coalition argues that despite what the national numbers may say about the recovery, they don’t necessarily speak to the experience of a lot of people who still feel the recession in their communities.
Even though the Dallas metropolitan area had one of the strongest monthly job gains in the country in September and has a jobless rate of 5 percent, well below the national rate of 5.8 percent, Connie Paredes, a volunteer with the Texas Organizing Project who will meet with Yellen Friday, says the economy in Dallas still feels “not that great.”
“There are a lot of statistics out there about the unemployment rate and how things have gotten better. It doesn't really reflect the fact that there is a lot of underemployment,” Paredes says. “There are a lot of college graduates who aren't able to find jobs. There are a lot of professionals who have to take on extra jobs in order to make ends meet.”
But attempting to change the appointment system might not be the solution to get more “everyday” voices before the Fed. Guy Lebas, chief fixed income strategist at Janney Capital Markets, says it’s a “solution in search of a problem.”
“There’s very little wrong from an economic perspective with how the Fed selection process works now, and a majority of the members who have input into monetary policy are democratically selected,” Lebas says.
Yellen herself has said it’s important to maintain a diverse group of viewpoints within the Fed.
“I believe decisions by the Federal Reserve Board and the Federal Open Market Committee are better because of the range of views and perspectives brought to the table by my fellow policymakers, and I have encouraged this approach to decision-making at all levels and throughout the Fed System,” she said in an Oct. 30 speech in Washington.
There’s also a push in Congress for changes at the Fed. The new GOP leadership could introduce a new version of former congressman and presidential candidate Ron Paul’s Audit the Fed bill, which, as its name implies, calls for a full audit of the Fed – including internal discussions on monetary policy – by the Government Accountability Office. Critics worry if passed, the bill would allow Congress to interfere with the Fed’s decision-making.
And a level of independence from the public may not be such a bad thing, says Gary Burtless, a senior fellow at the Brookings Institution, citing the Fed’s handling of the economic crisis – which included bailing out large financial institutions and beginning unprecedented and controversial economic stimulus programs.
“I realize many things the Fed did, although most economists think were entirely justified, are still immensely unpopular among the public, but so what?” Burtless says. “We do have this layer of insulation that I think we should protect. The events of 2007 through 2009 confirm the absolute importance of having that level of insulation so that members of the Federal Reserve Board don’t worry that their deliberations, their decisions about monetary policy, are going to be immediately undone by populist and perhaps poorly understood objections from the general public.”
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Kenny Leon teams up with Marvel stars for Puerto Rico benefit
Kenny Leon teams up with Marvel stars for Puerto Rico benefit
Actress Scarlett Johansson has been in Atlanta working on Marvel’s latest “Avengers” project and keeping up with the harrowing updates out of storm-ravaged Puerto Rico. It could be Christmas...
Actress Scarlett Johansson has been in Atlanta working on Marvel’s latest “Avengers” project and keeping up with the harrowing updates out of storm-ravaged Puerto Rico. It could be Christmas before power is back on throughout the island and access to a steady supply of clean drinking water is still a challenge more than a month after Hurricane Maria hit.
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Why It's a Big Deal Hillary Clinton Plans to Shake Up the Fed
Why It's a Big Deal Hillary Clinton Plans to Shake Up the Fed
Hillary Clinton is taking on the United States Federal Reserve System, but in a wonky, bottom's-up way that shows her understanding of a complex and widely misunderstood organization. This is not...
Hillary Clinton is taking on the United States Federal Reserve System, but in a wonky, bottom's-up way that shows her understanding of a complex and widely misunderstood organization. This is not "End the Fed" or even "audit the Fed" — she wants to rebuild it from its fundamentals at the regional level.
To paraphrase Mitt Romney, the Federal Reserve is people, my friend. Hillary Clinton's recent proposal to change the roster of Fed officials who ultimately make monetary policy and regulatory decisions might be the most effective Fed-reform idea since the financial crisis. Generally, the public pays attention to little more than the face of the organization — the Fed's chairperson, currently Janet Yellen — who announces and explains the Fed's decisions. But beneath Yellen functions an intricate and influential bureaucracy that's dominated by interests from the financial sector, the vast majority of them white men, and may well be blind to the reality of a vast majority of Americans.
The Federal Reserve was set up in 1917, in the wake of a financial crisis, as a private national bank that could serve as lender of last resort to other banks. If a bank needed money to make good on deposits, it could go to the Fed for a short-term loan. It was, since its inception, a bankers' institution, run for banks, by banks. But its role has clearly evolved as credit markets have developed and as the Fed's mandate was changed to pursue price stability (low inflation) and full employment at the same time, while helping to regulate the sector for which it also serves as lender.
As the Fed's mission has expanded, its governance has not. The Fed is run by a seven-member board in Washington, D.C., and a dozen regional bank presidents based in financial centers throughout the country (New York, St. Louis, Kansas City and Cleveland, among others). While the crew in D.C. is selected by the president and vetted by Congress, the regional bank presidents are chosen by the financial industry and tend to be either bankers or career Fed employees. Of the 12 bank presidents, two are women and only one is not white.
New York's regional president is Willian C. Dudley, previously a Goldman Sachs managing director. Robert S. Kaplan of Dallas was a former vice chairman at Goldman. Neel Kashkari, a known financial reformer, is nonetheless a former employee of PIMCO, one of the world's largest asset managers and a subsidiary of German financial behemoth Allianz. Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta is a former Citigroup executive.
Clinton's proposal would remove bankers from the regional boards of directors. Those boards choose the regional presidents and generate most of the information and perspective that the Federal Reserve governors use to set monetary policy. Clinton clearly understands how the Fed functions. Donald Trump has said he would not reappoint Janet Yellen as chair. Fine. But appointing the Fed chair is merely the most high-profile action a president can take in this regard. It doesn't change the system, and the Fed is known as the Federal Reserve System for a reason.
This is Clinton at her best – she knows how the government works. The region Federal Reserve boards do not get a lot of press. Most people do not know that they are staffed with chief executives from Morgan Stanley, Comerica, KeyCorp and private-equity firms like Silver Lake, and if they do know it, they do not understand its importance.
The Fed is generally a topic of political bluster. "I appointed him and he disappointed me," complained George H.W. Bush about Alan Greenspan, when the Fed chair refused to cut interest rates in the face of a recession that probably cost Bush his re-election in 1992. Before that, Ronald Reagan had to endure Chairman Paul Volcker raising interest rates so high in an effort to combat inflation that out-of-work construction workers were mailing bricks and wooden beams to the Fed in protest.
The idea that the Fed often acts contrary to the interests of working people is not new, but aside from requiring the Fed to pursue full employment in addition to price stability in 1977, presidents who are unhappy with the Fed have done little more than complain. Even after Greenspan disappointed Bush, Bill Clinton reappointed him to the post. When Greenspan retired, Ben Bernanke, an intellectual heir, took the helm. When he retired, Yellen, also an intellectual heir, took over. The power to appoint the Fed chair and governors is not, clearly, the power to change things.
Clinton is digging deeper. Changing the roster of the regional boards will hopefully help more accurate economic information trickle up to the chairperson and the federal governors. Perhaps, even, a labor representative or somebody with closer ties to the common American experience could become a regional bank president.
In her quiet way, tinkering with the inner workings of a near-century old quasi-government institution that is arcane to most, Clinton has a chance to achieve radical, lasting financial reform.
BY MICHAEL MAIELLO
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Issue committees pump $86M into Colorado election
For some corporations and advocacy groups, Colorado's jam-packed ballot has meant opportunity.
And they don't just care about political candidates. In fact, issue committees — which stand...
For some corporations and advocacy groups, Colorado's jam-packed ballot has meant opportunity.
And they don't just care about political candidates. In fact, issue committees — which stand on the front line of fights over proposed amendments and propositions — have raised more than 10 times the amount of money of Colorado Democrats and Republicans seeking state or local office. These committees have drawn in more than $86 million, a staggering difference when compared to the approximately $7.3 million raised by state and local Democrats and Republicans.
These statewide issue fights — this year races concerning ColoradoCare, the minimum wage and a so-called "right to die" proposition have dominated much of the conversation — can give out-of-state groups a chance to get more bang for their buck and jump into statewide elections, which might affect their bottom line more than federal races, Colorado State University political science professor Bob Duffy said. States like Colorado are less expensive to campaign in than, say, California, which makes it appealing for groups looking to affect legislation without breaking the bank, he said.
ELECTION: Haven't voted yet? Here's what to know
"Typically those elections are cheaper and also low-information elections," he said, pointing out that sometimes people have less information about statewide ballot measures than more high-profile races. "So a little money can go a long way. A big fish can have a much bigger impact in a small pond than they can in a big pond."
In the fight over Amendment 72, for example, the parent company of tobacco giant Philip Morris has bankrolled No Blank Checks in the Constitution, a group fighting against the proposed hike in cigarette taxes. Philip Morris is one of the largest tobacco companies in the world, and is known for products including Marlboro cigarettes. It has so far spent more than $16 million on the campaign. That alone is more than Democrats and Republicans running for state and local offices have raised.
"Obviously cigarette sale declines puts a real crimp in their bottom line, and they have an opportunity (to fight it), and it's probably cheaper to do it here than in California, for example," Duffy said.
Oftentimes out-of-state groups will use statewide races as a test case to see how effectively they can influence it — and again, it makes most sense to do that in a less-expensive race than in a large state with lots of media markets — and sometimes it's meant as a warning shot to groups who might be considering similar legislation in other states, Duffy said.
Opponents of the "right to die" proposition have gotten much of their funding from Catholic groups. The Archdiocese of Denver, for example, has contributed more than $100,000 to the campaign fighting Proposition 106, which would allow physicians to prescribe lethal doses of medication to terminally ill patients who met certain criteria so they could end their own lives.
Colorado Families for a Fair Minimum Wage, a group advocating for Amendment 70, which would raise the state's minimum wage to $12 an hour by 2020, has raised almost $5 million, including more than $1 million from the Center for Popular Democracy Action, a New York-based advocacy group which focuses on several social justice issues. Keep Colorado Working, a group opposing the hike, has raised about $1.7 million, and has also received out-of-state support, including $50,000 from Florida-based Darden, the company that owns Olive Garden and LongHorn Steakhouse, among other brands.
"Especially after 2010, some federal election rulings unleashed some money," Duffy said, referencing a few court decisions on campaign finance, included Citizens United. "The floodgate really opened up."
By Alicia Stice
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Overnight Finance: Trump keeps up attack on Amazon
"We hope that John Williams's tenure as president will not be characterized by the same disregard for the public as his appointment was." -- Fed Up, a coalition of progressive non-profits focused...
"We hope that John Williams's tenure as president will not be characterized by the same disregard for the public as his appointment was." -- Fed Up, a coalition of progressive non-profits focused on reshaping the central bank.
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Concerns About New Part-Time Work Trends and Proposed Remedies
The Diane Rehm Show - August 7, 2014 - The number of people working part-time who would rather work full-time is almost double what it was seven years ago at 7 million people. Despite signs of...
The Diane Rehm Show - August 7, 2014 - The number of people working part-time who would rather work full-time is almost double what it was seven years ago at 7 million people. Despite signs of economic recovery, many businesses say they are still struggling and depend on part-time workers, especially those who work on-call. New federal data show that almost half of all part-time workers under age thirty-two work unpredictable hours, leaving them with reduced paychecks and scrambling for child-care. A discussion about the latest trends in part-time work and the push for new laws that protect employees. Listen to the full program here.
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