What the Pandemic Taught Us About the Homeless — and What We Shouldn’t Forget

The streets of our cities have been too empty and too full.

Emptied of cars and pedestrians, the streets of the pandemic became eerie still frames of an economy on pause. And yet, as we venture back to our sidewalks and storefronts, we are reminded that our streets also are a home, an imperfect and unsustainable haven for the transient masses we call “the homeless.” Never has it been starker than in the vacuum of social distancing that they are there, the only people who remained when all others retreated to the safety of their homes.

Thus begins my latest op-ed, co-authored with Thomas Hugh Byrne from Boston University and Benjamin F. Henwood from the University of Southern California, originally published in The Hill.

To read the full op-ed, click here.

Saving Capitalism From a Painful Demise

Below is my new article in the Winter 2015 issue of the Wharton Magazine. Thanks to editor Matt Brodsky for allowing me to reprint it here!

Retailers Need Consumers

American business leaders rallied around Franklin Delano Roosevelt in 1932 during his candidacy for the presidency, after which he immediately embarked on the most progressive legislative agenda in U.S. history to tackle the Great Depression. From today’s vantage point, it may seem surprising that titans of industry, executives from General Electric to Standard Oil to IBM, not only contributed to Roosevelt’s campaign but helped author many of his famous New Deal reforms. To the men who ran these companies, it was a simple matter of fiduciary responsibility — to current shareholders and to future ones — that they should ensure a more equitable distribution of prosperity, lest their own wealth be dashed to bits on the jagged rocks of a shrinking economy.

Today, we face a similar predicament. The great challenge of business in our time is reversing the destabilizing threat of inequality. While at first this may seem anathema to our profit-maximizing mission, distribution of income lies at the very heart of sustainable capitalism.

For this reason, today’s titans of industry have stepped forward to protest the growing distance between them and the rest of the country. Warren Buffett, Lloyd Blankfein, Stanley Druckenmiller, Bill Gross — legends whose lives and words are studied and idolized at the Wharton School — have all gone public with the wise advice that we steer away from those jagged rocks.

They are not alone in their concern. According to a recent analysis by the Center for American Progress, 68 of the top 100 retailers cite the flat or falling wages of the average American household as a risk to their business — a number that has doubled in the past eight years. A recent poll of small businesses similarly found a strong majority of them in favor of raising the minimum wage.

These business leaders sense an essential truth about our capitalism: Workers are consumers. They spend what they earn — or what they borrow. While the latter may work for awhile, it has limits — and calamitous risks. The only sure way to grow the economy in the long run is to grow consumer spending — and that means growing worker incomes.

In recent decades, workers’ incomes have not grown much, on average. Since the beginning of the Great Recession, the average household has lost 8 percent of its income, after adjusting for inflation. All the growth — and then some — has gone to the richest 10 percent of Americans. And most of that growth — 95 percent of total growth, to be precise — has gone to the richest 1 percent. And most of that growth has gone to the richest 0.1 percent. And so on.

Unsurprisingly, economic growth has been slower since the advent of this new trend. From 1950 to 1980, real GDP grew 3.8 percent per year, versus only 2.7 percent from 1980 to 2010. On the rare occasions when it has approached its previous faster rate, it was fueled by unsustainable borrowing. This is no coincidence. Recent work by economists Özlem Onaran and Giorgos Galanis has shown that most developed countries experience lower growth when the share of their income going to wages (as opposed to profits) declines. In the United States, for example, every 10 percent decline in the wage share causes the economy to shrink by 9.2 percent. In fact, that has been the experience of the global economy as well.

High wages are what economists refer to as a “positive externality.” They generate “spillover effects” that benefit the people who don’t pay for them. When workers receive high wages, they invest more in health and education, increasing their productivity and reducing the costs we all pay for a sicker, less-informed population. They motivate firms to invest in advanced technologies to reduce labor costs, making them more innovative and globally competitive. Workers who receive high wages are less likely to go out on strike, vote against free trade and immigration, protest in the streets, shirk on the job and commit crimes. That’s why, in an analysis of 19 developed nations from 1960 to 2004, economists Robert Vergeer and Alfred Kleinknect found that higher wage growth consistently led to higher productivity growth.

In other words, low wages may be good for one firm, but high wages are better for all firms. Yet many businesses would like to raise wages, but they fear losing ground to their competitors.

The only solution is collective action.

Economists have a collective action for precisely this sort of “coordination failure”: taxing the negative externality and subsidizing the positive. It is time that we recognize inequality for the negative externality that it is, slowing our productivity growth, roiling our markets with volatility, gridlocking our political system, and starving our economy of willing and able consumers. Inequality is a risk to our businesses, and it ought to be treated as such.

We should therefore see taxes not as penalties but as investments in a better, more equitable, more sustainable system. We should strive to prevent a “race to the bottom” in workers’ incomes; if we don’t, the day will come when no one will be left to pay the profits our shareholders demand. Business schools should teach courses about this issue, and business leaders should address it in their boardrooms. It is not merely a political issue. It is very clearly the business of Business.

Joseph Kennedy thought so when he went to work for President Roosevelt. As one of the nation’s most notorious stock manipulators, Kennedy might have been the last person we’d expect to join Roosevelt’s crew, but when Roosevelt named Kennedy as the first chairman of the Securities and Exchange Commission, he saw it as an opportunity to save the market from itself.

“We of the SEC do not regard ourselves as coroners sitting on the corpse of financial enterprise,” said Kennedy in a radio address to the nation. “On the contrary, we think of ourselves as the means of bringing new life into the body of the security business.”

As Wharton graduates, let us think of ourselves in the same manner, and act accordingly.

The Federal Government Didn’t Lose the War on Poverty. It Retreated.

U.S. Poverty Rate, 1959 to 2009

In 1904, half the population of New York City lived below the poverty line.

Half. Can you imagine? The poor were so numerous that they nearly outnumbered everyone else.

Today, less than 20 percent of New Yorkers live in poverty. That’s still a serious problem, but it’s a far cry from 50 percent.

Clearly, we did something right.

But in today’s political arena, we don’t talk about what we did right. We talk about what we’re doing wrong. We spend so much time talking about our problems and failures that we seem to have forgotten our nation’s great victories.

This historical amnesia is a dangerous mistake. It poisons our hearts with pessimism. It blinds us to the lessons and solutions we need. Most New Yorkers have no idea how prevalent poverty used to be — or how their predecessors made it go away.

And they’re not the only ones. “We have spent $15 trillion from the federal government fighting poverty,” said Rep. Paul Ryan on Fox News last month, “and look at where we are, the highest poverty rates in a generation, 15 percent of Americans live in poverty.”

Ryan is speaking on behalf of millions of Americans who believe that the War on Poverty was a failure, when in fact it’s one of the greatest success stories in our nation’s history.

If Ryan thinks 15 percent is high, he should go back a hundred years when the poverty rate was three times that. Back then, the government didn’t officially measure poverty, but historians have reconstructed close approximations based on the cost of living and the distribution of household income in those days. Thanks to their calculations, we now know that 44 to 45 percent of Americans lived in poverty in the early 1910s.

A generation later, after the Great Depression and World War II, the poverty rate had fallen to 22 percent.

Can you imagine? They cut the poverty rate in half — from 44 percent to 22 percent — in only a couple decades.

As far as wars go, that’s an astonishing victory. It should be celebrated alongside Gettysburg and Normandy. It should be commemorated and committed to our children’s memories. It should be studied by our civilian leaders in the same way that battlefield strategy is studied by our military leaders.

On this particular battlefield, the strategy that paid off was the New Deal, President Franklin D. Roosevelt’s ambitious series of programs that created jobs for the unemployed, Social Security for the elderly, regulation for the bankers, a minimum wage for the workers, and legal protections for the labor unions.

But the war was not over. One in five Americans still lived below the poverty line. And so, on January 8, 1964, President Lyndon B. Johnson stood before Congress and made it official: “This administration today, here and now, declares unconditional war on poverty.”

Congress proceeded to embark on the Great Society, patching the holes left in Roosevelt’s New Deal. They expanded health insurance with Medicare for the elderly and Medicaid for the poor. They increased Social Security benefits and education funding for poor school districts. They established civil rights and a permanent food stamp program. They invested in urban redevelopment, rural development, and public transportation.

A decade later, the poverty rate bottomed out at 11 percent.

For the second time in half a century, the United States had cut the poverty rate in half — from 22 percent to 11 percent. And just as before, this extraordinary victory faded from our memories, and the policies that spawned it faded from our favor. We allowed labor laws to go unenforced, public investment to decline, and the minimum wage to stagnate even as the cost of living soared. We deregulated banking, and we stopped trying to get enough jobs for the unemployed or enough education funding for poor school districts.

So it’s no surprise that the poverty rate rose to 15 percent during the Great Recession. A century of progress has been forgotten.

Eliminating that final 15 percent is one of the great tasks before us in the 21st century. As we craft new solutions, let us not forget to preserve the old ones — and to honor the memory of those who worked so hard to give us so much.

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This op-ed was published in Friday’s South Florida Sun-Sentinel.

Quote of the Day: Benjy Sarlin

If Perry’s to be believed now, his book’s take is that the New Deal was great, if only they had the foresight at the time to configure Social Security so that it didn’t need some minor fixes seven decades later to fix a modest medium-term shortfall after lifting three plus generations of seniors out of poverty. Since they didn’t, it’s a “failure”…

— Benjy Sarlin (TalkingPointsMemo)