CPD IN THE NEWS

A former aide to Federal Reserve Chair Janet Yellen has broken ranks with his former employer and issued a blueprint for a sweeping reform of the U.S. central bank, including regular government audits and shorter term limits for policy makers.

Dartmouth College professor Andrew Levin targeted four areas of change for the Federal Reserve system: make the Fed a fully public institution; ensure the process of picking regional Fed presidents is transparent; set seven-year term limits for regional presidents and Board governors; and make the entire Fed subject to external review.

The proposals were taken up by the union-backed activist group Fed Up, which promoted them Monday in a conference call with journalists, and come during an election year where the central bank has been a campaign topic.

“There is one key principle in this document which is the Fed needs to become a public institution,” Levin said. “Pragmatic, reasonable Fed reform should be able to be passed by the Congress, by both parties. That is my hope.”

The Dartmouth professor worked two decades at the Fed, and was a special adviser from 2010 to 2012 to former chairman Ben S. Bernanke, and Yellen when she was vice chair, according to his biography page at the university.

Legislative Plans

Republicans in the U.S. Senate and the House of Representatives last year proposed legislation that included reforms of the central bank, though none has become law. Fed spokeswoman Michelle Smith declined to comment.

As recently as February, Yellen said that while the Fed might be structured differently if it were created today, she believed it still worked well and wasn’t “broken.”

“Of course the structure could be something different and it’s up to Congress to decide that -- I certainly respect that,” she said at a Senate hearing. “I simply mean to say I don’t think it’s broken the way it is.”

The Fed system, which sets interest rates for the U.S. economy, is made up of a Board of Governors in Washington and 12 regional Fed banks. It was created by an act of Congress, yet private banks hold stock in the regional Fed institutions as a result of the way the capital structure was set up when the Fed was born more than a century ago.

“The Federal Reserve is the only central bank that I know of that isn’t a fully public central bank,” Levin said in an interview.

Levin said the 12 regional banks should become fully public entities, meaning they have to somehow eliminate or repurchase the stock they have issued to private member banks. He also proposed banning anyone affiliated with financial institutions overseen by the Fed from serving as a regional Fed director.

Three Classes

Each regional Fed has a nine-member board of directors which includes three Class A directors who represent private member banks, three Class B directors picked by the private banks to represent the public -- typically local business people -- and three Class C directors chosen to represent the public by the Fed board in Washington.

The presence of financial interests on Fed boards has been a long-standing source of criticism. Currently, for example, James Gorman, chairman and chief executive of Morgan Stanley, sits on the New York Fed Board as a Class A director.

Prior the passage of the Dodd-Frank financial reform act in 2010, Class A directors also helped pick the 12 regional Fed bank presidents, subject to the approval of the board in Washington. That potential conflict of interest, with bankers appointing their own supervisors, was limited by Dodd-Frank, which restricted the selection process to Class B and Class C directors.

Levin said the current system of picking Fed presidents, which is led by regional board directors, is too secretive. He recommended the reserve bank boards accept nominations from the public, publish a list of eligible nominees, and then engage in a “selection process that involves genuine public participation.”

The Dartmouth professor also said that the entire Fed system should be subject to “external reviews” and disclosure requirements “just like every other key public agency.”

“The Government Accountability Office should produce a regular annual review of all aspects of the Fed’s policies, procedures, management, and operations,” Levin wrote in his proposal. The Fed has strenuously objected to calls by Republican lawmakers that monetary policy decisions be subject to GAO audit. In the interview, Levin said the GAO should focus on the management and operations of the Fed system, “not so much on monetary policy.”

“Part of the financial crisis was due to mismanagement in the division of supervision at the Fed,” Levin said in an interview. GAO reviews would provide assurance to the public and Congress that the “Fed is a well-managed organization,” he said.

By Craig Torres

Source

The New American - May 9th, 2013 - On Wednesday the New York City Council voted 45-3 to pass the New York City Earned Sick Time Act, a bill that will require employers with more than 20 employees to provide five paid sick days to each of them every year while mandating that those employees using their sick days can’t be fired. The law would become effective on January 1, 2014, and companies with more than 15 employees would be required to comply with the law starting in 2015.

Even if Mayor Bloomberg vetoes the bill, the council will likely override it, making the law effective anyway. This will impact the employers of more than one million employees who currently have no paid sick days provided for them. The costs to be borne by those employers weren't provided in any public announcements.

The AFL/CIO explained why such legislation was needed:

In addition to the potential loss of wages for working families, the lack of paid sick days forces many people to go to work when they are contagious and [make] co-workers and customers sick.

No paid sick time also decreases [the] productivity for workers who show up unable to perform to their normal level of ability.

The Center for Popular Democracy (CPD) was joyous over the vote, calling it “a historic agreement to give over one million New Yorkers the right to take paid days off from work to care for themselves or a sick family member. The new legislation represents a major step forward for workers’ rights.” The CPD was joined by Make the Road New York; 32 BJ SEIU, the largest property service workers union; NYC City Council’s Progressive Caucus; the Working Families Party; A Better Balance; and the NY Paid Sick Leave Coalition.

Bill Lipton of the Working Families Party was equally ecstatic: "This is a sweet victory. It provides economic security for New Yorkers, and a shot in the arm for the paid sick days movement across the country."

The bill was first introduced by council member Gale Brewer, a permanent politician and long-time progressive political activist, back in July 2009 but went nowhere for nearly four years, owing to resistance by City Council Speaker Christine Quinn. Quinn’s change to allow a vote coincided nicely with her announcement in March to run to succeed Mayor Bloomberg.

Brewer exulted in the victory:

After 4 years of non-stop advocacy and coalition building, I want to thank the Paid Sick Days Coalition members and my Council colleagues with all my heart for support [of my bill] and never giving up.

I also extend my thanks to Speaker Quinn and her staff for their contributions to this legislation….

The argument over [paid sick leave] was always about common sense and fairness. I believe this law enshrines the principle that American exceptionalism is not just about large profits and small elites, but a workplace that is safe, fair and respectful of the lives of workers.

Approximately one million New Yorkers will now have the fundamental right to a paid day off when they or a family member falls ill, and no worker will be fired if they must stay home. This is a tremendous accomplishment of which all fair-minded New Yorkers can be proud.

Four major cities have already passed paid sick leave laws — Portland (Oregon), San Francisco, Seattle, and Washington, D.C. — while similar measures are being considered in 20 others. On the national level, two other progressives, Sen. Tom Harken (D-Iowa) and Rep. Rose DeLauro (D-Conn.), are pushing the Healthy Families Act, which proposes essentially the same thing as Brewer’s bill: seven paid sick days each year required to be paid for by employers with more than 15 employees. The National Partnership for Women & Families outlined the benefits of such national legislation:

• Paid sick days provide families with economic security;

• Providing paid sick days is cost effective to employers;

• Paid sick days reduce community contagion;

• Paid sick days can decrease health care costs.

Each of these assumptions can be rebutted successfully, but none does it better than Ayn Rand, who always asked “At whose expense?” and Henry Hazlitt in his book Economics in One Lesson, which also asked about the unseen consequences of such meddling. The "broken window fallacy" is also helpful in understanding what progressives refuse to see: Someone must pay for such mandates, usually someone silent or impotent, without enough political influence to stop such “progress” — usually the taxpayers or employers unlucky enough to have a successful business large enough to be included in the mandate.

Some of the unseen consequences would naturally include higher employment costs to the business owners, as these are, in effect, pay raises to employees. The business owners' higher costs would be reflected in higher prices to consumers, which would likely reduce competitive advantage in a market niche. More likely, however, owners will discover that they can’t afford all the people working for them and will be forced to reduce their payrolls through terminations or attrition. That will increase social costs, as those no longer working will start receiving unemployment benefits provided by the state.

In the longer run, however, making employers less competitive will shrink rather than expand the general economy. Some will not hire new workers. Others may decide to retire, deciding that it’s no longer worth the effort, as government becomes more and more intrusive. Still others may choose to move out of the city, or the state, to more tax-friendly environments, further reducing the city’s economic output.

The biggest cost of all, however, is the continued and growing acceptance of government intervention as a way to solve perceived social “problems” and giving progressives more opportunities to expand the power and reach of government

Perhaps the best rebuttal is to review the bill of rights of another country, well-known to historians, which also had a progressive agenda very similar to that of Quinn, Brewer, and the AFL/CIO. It stated:

Citizens … have the right to work, that is, are guaranteed the right to employment and payment for their work in accordance with its quantity and quality….

Citizens … have the right to rest and leisure … the reduction of the working day to seven hours … [and] the institution of annual vacations with full pay….

Citizens … have the right to maintenance in old age and also in case of sickness or loss of capacity to work … ensured by the extensive development of social insurance for workers and employees. [Emphasis added.]

These are, of course, the rights enshrined in the 1936 Constitution of the USSR.

A graduate of Cornell University and a former investment advisor, Bob is a regular contributor to The New American magazine and blogs frequently at www.LightFromTheRight.com, primarily on economics and politics. He can be reached at badelmann@thenewamerican.com.

Source

Five students are suing the state for a better education — for some.

In September, five anonymous students filed a suit against the state in Suffolk County Superior Court alleging the cap on the number of charter schools in Massachusetts unfairly denies them their right to a quality education. The students had entered charter lotteries, but failed to win coveted spots in one of the public-ish schools. Instead, the students say, they were assigned to attend schools in their home districts that had been deemed “underperforming” by the state.

Since No Child Left Behind, school reform has been more concerned with helping some children find ways out of the traditional public school system than improving education for everyone. Charter schools are a symptom of this escapist philosophy, which is unfortunate because the idea of a charter school education is a good one.

Typically founded by nonprofits and members of the community, charter schools often concentrate education around one subject. Locally, these concentrations include the arts, social justice, and Mandarin. Students enroll in charters through a blind lottery that anyone can enter. Placing students in schools that encourage their passions is excellent education. And it produces some positive results. For example, in 2013, Credo, an independent education research firm, analyzed the impact charter schools have had on Massachusetts. In math and reading, researchers found that charter school students perform better in the subjects compared to those in traditional public schools.

The problem with charter schools is the education provided comes at the cost of traditional public schools. Charter schools are publicly funded, but work independently of a hometown district. Last year in Massachusetts, participating school districts paid charter schools $369.7 million to educate students. Charters receive per-student fees from sending districts — money that would otherwise stay in the home school’s till. Children fleeing an underperforming school district take money with them that is needed to improve the local education system.

I’m not proposing students be forced to attend failing schools. A student should have the choice to attend the school that best fits her educational needs. I am asking the state’s politicians to take a hard look at how charters are managed, funded, and how students are enrolled – because the current system is inadequate. Earlier this month, Gov. Charlie Baker proposed a bill that would increase the number of charter schools in the state. The bill would permit 12 new or expanded charter schools each year in districts performing in the bottom 25 percent on standardized tests. Massachusetts already has 81 charter schools with a waiting list of 37,000 students. A bill to expand the cap on charter schools in the state passed the House last year, but floundered in the Senate.

Here’s what needs to happen with charters:

Improve special education and non-native English speaker recruitment: While charters typically serve about the same number of low-income students — and more students of color — as traditional public school systems, they enroll far fewer non-native English speakers and students with special education needs. The Credo audit found that in traditional Massachusetts public schools that send children to charters, 17 percent of students received special education services, whereas in charter schools this population made up 12 percent of the student body. Traditional public schools had 10 percent English language learners in the student body, while charters had 6 percent.

Submit to School Committee authority: Charters don’t play by the same rules as traditional public schools. The schools aren’t subject to the authority of an elected school committee and have a legal pass around some of the state’s educational and special education requirements.

There’s good reason for more oversight. Private management of charter schools. A new report claims more than $200 million in fraud and wasted taxpayer funds has been lost to the charter school sector (“The Tip of the Iceberg: Charter School Vulnerabilities To Waste, Fraud, And Abuse” by Alliance to Reclaim Our Schools and the Center for Popular Democracy). It’s hard to say whether this same kind of scandal could occur in Massachusetts. Charter schools need to, at the very least, be subject to more public scrutiny and submit to the budgeting and policy authority of a local, elected school committee.

Analyze funding strategy: Charter schools should not be succeeding at the cost of the education of students in underperforming districts. Something must be done that will allow students to pick the education that is best for them without penalizing struggling schools.

The student plantiffs suing for their right to attend charter schools say the state charter cap unfairly denies their right to a quality education, but that right cannot come at the cost of the rest of Massachusetts’ students.•

Source: Valley Advocate

When the Federal Reserve considers raising interest rates on July 28—and then again every six weeks after—MyAsia Reid, of Philadelphia, will be paying close attention. Despite holding a bachelor’s degree in computer science, completing a series of related internships, and presenting original research across the country, Reid could not find a job in her field and, instead, pieces together a nine-hour-per-week tutoring job and a 20-hour-per-week cosmetology gig. The 25-year-old knows that an interest-rate hike will hurt her chances of finding the kinds of jobs for which she has trained, and earning the wage increase she so desperately needs.

A Fed decision to raise interest rates, expected sometime this year, amounts to a vote of confidence in the economy—a declaration that we have achieved the robust recovery we need. “We are close to where we want to be, and we now think that the economy cannot only tolerate but needs higher interest rates,” the chairwoman of the Federal Reserve, Janet Yellen, told Congress during a July 15 policy briefing.

But for many millions of Americans, the recovery has yet to arrive, and for them, a rate hike will be disastrous. It will put the brakes on an economy still trudging toward stability; stall progress on unemployment, especially for African-Americans; and slow wage growth even more for the vast majority of American workers.

The general argument for raising interest rates is that it will prevent wage costs from pushing up inflation. However, there is no data suggesting price instability; nor is there any indication that wages have risen enough to spur such inflation. For the overwhelming majority of American workers, wages have stagnated or even dropped over the past 35 years, even as CEOs have seen their compensation grow 937 percent. During the same period, wage gaps between white workers and workers of color have increased, and black unemployment is at the level of white unemployment at the height of the Great Recession. Meanwhile, the labor-force participation rate is less than 63 percent, the lowest in nearly four decades, suggesting that many Americans have simply given up looking for work.

Yellen has herself often urged the Fed to look at the broadest possible employment picture. Yet, during her recent congressional testimony, shedownplayed the Fed’s ability to address racial disparities, saying that the central bank does not “have the tools to be able to address the structure of unemployment across groups” and that “there isn’t anything directly that the Federal Reserve can do” about it. She cited, rightly, a range of other factors, including disparate educational attainment and skill levels, that contribute to economic and social disparities between racial groups. But she also glossed over the importance of the economic environment in shaping workers’ unequal chances.

One defining metric in shaping workers’ chances is the unemployment rate. A high unemployment rate facilitates racial discrimination. When there are too many qualified job candidates for every job, employers can arbitrarily limit their labor pool based on unnecessary educational requirements, irrelevant credit or background checks, or straightforward bias. A tight labor market, by contrast, makes it much harder for employers to succumb to prejudices and overlook qualified workers simply because of bias. When the number of job seekers matches the number of job vacancies, African-Americans, Latinos, women, gays and lesbians, injured veterans, and formerly incarcerated workers finally get their due in the workforce.

The late 1990s, when unemployment was at about 4 percent, bear out this thesis. During that rosier era, black unemployment was 7.6 percent, and the ratio of black family income to white family income rose substantially.

As the guardian of monetary policy, the Federal Reserve has a number of tools for encouraging a tight labor market, and one of those tools is to keep interest rates low. By keeping rates low, the Fed creates a hospitable environment for job growth by lowering the borrowing costs for consumer and business spending—including hiring new workers. By contrast, raising rates deliberately suppresses spending by consumers and businesses. In the process, it slows job growth, holds down wages, and unnecessarily maintains racial disparities.

With so many workers still struggling, there is no need to cut off this recovery prematurely. Inflation remains below the Fed’s already-low 2 percent target, unemployment and underemployment are too high, and wage growth and labor-force participation are too low. In fact, the Fed should be doing everything within its power to keep nudging the recovery forward for the workers still caught in the slipstream of the Great Recession.

The Federal Reserve should not raise interest rates this week, nor when it meets again six weeks after that. It should not raise rates at all in 2015. Doing so would cause tremendous harm to the aspirations and lives of tens of millions of working families, and would disproportionately hurt African-Americans.

MyAsia Reid knows the difference that a full-employment economy can make. She is ready to participate in the economic recovery. And she will be watching as the Fed decides whether to hold to a strategy of strengthening the recovery or pursue a new strategy that jeopardizes her chances and her community.

Source: The Nation