The American Worker, Part II

     

Excerpted from Steven Greenhouse’s book The Big Squeeze: Tough Times for the American Worker (Knopf, 2008). Greenhouse is a labor and workplace reporter for The New York Times. 

Because of its length, this article is presented in four parts. 

Aggravating the time squeeze [that is more intense for American workers than for those in major European countries]  is a phenomenon known as job creep in which our jobs have spilled increasingly into our leisure time. Americans are finishing work memos on their home computers at eleven p.m., they are reading office e-mails on Saturdays and Sundays, and they are using their cell phones and BlackBerries to answer their bosses’ queries while on vacation. The Conference Board, the business research group, found that Americans are less satisfied with their jobs — just 47 percent are satisfied — than at any time since it started tracking the numbers two decades ago. “The breadth of dissatisfaction is unsettling,” the Conference Board wrote, its director of research adding, “The demands in the workplace have increased tremendously.” Americans are going deeper into debt than ever before. Millions of households have supersized their credit card balances, and many have taken cash out of their homes by obtaining second mortgages, arguably unhealthy ways to try to maintain a comfortable lifestyle on a less-than-comfortable income. In 2005, for the first time since the Great Depression, the nation’s personal savings rate sank below zero, meaning that Americans were actually spending more than they were earning. As a result, among the bottom two-fifths of households, nearly one in four spends at least 40 percent of its monthly income paying down its debts. And foreclosure filings, spurred by the sub-prime mortgage crisis, are expected to soar to as many as two million by the end of 2008. Two million would represent one in sixty-two households. Even as wages stagnated in recent years, many government officials triumphantly boasted that consumer spending had continued to rise. But this increase was largely due to soaring incomes at the top. From 1979 to 2005, a period when national output more than doubled, after-tax income inched up just 6 percent for the bottom fifth of American households after accounting for inflation, while it rose 21 percent for the middle fifth. For the top fifth, income jumped 80 percent and for the top 1 percent it more than tripled, soaring by 228 percent. A 2007 report by the Congressional Budget Office found that the top 1 percent of households had pre-tax income in 2005 that was more than two-fifths larger than that of the bottom 40 percent. (After taxes, the top 1 percent’s income in 2005 was still nearly 10 percent greater than the bottom 40 percent’s.) As Paul Krugman wrote, “It’s a great economy if you’re a high-level corporate executive or someone who owns a lot of stock. For most other Americans, economic growth is a spectator sport.” The nation appears to be on the threshold of recession, and as a result, America’s workers are likely to be squeezed not just by stagnant wages but also by rising unemployment. One of the most worrisome — and puzzling — aspects of the economic expansion that began in November 2001 is that wages have remained stubbornly flat, after factoring in inflation, even though the jobless rate has been low by historical standards. That wages have gone nowhere in a tight labor market underlines the American worker’s declining ability to command higher wages, and now with unemployment increasing, workers’ leverage to push for higher wages is bound to grow even weaker.

     

The squeeze is of course worst for those on the lowest rungs, including millions of workers who are part of our everyday lives: fast food workers, cashiers, child care workers, hotel maids, and nurse’s aides. Nearly 33 million workers — almost one-fourth of the American workforce — earn less than ten dollars an hour, meaning their wages come to less than the poverty line for a family of four ($20,614 in 2006). Despite strong economic growth, the number of Americans living in poverty jumped by 15 percent from 2000 to 2006 — an increase of 5.4 million to 36.5 million. For millions of low-income workers, the promise of America has been broken: the promise that if you work hard, you will be rewarded with a decent living, the promise that if you do an honest day’s work, you will earn enough to feed, clothe, and shelter your family.

      

Not only do workers on the bottom rungs lack money, but they often lack basic benefits. Three out of four low-wage workers in the private sector do not have employer-provided health insurance, while eight out of nine do not participate in a pension plan. Three-fourths of low-wage workers do not receive paid sick days, so if they need to miss two days’ work because they are sick or their child is sick, they receive no pay for those days — and often risk getting fired. A study sponsored by the Ford, Rockefeller, and Annie E. Casey foundations, “Working Hard, Falling Short,” concluded, “More than one out of four American working families now earn wages so low” — defined as income of less than twice the poverty line for a family of four ($41,200 in 2006) — “that they have difficulty surviving financially.” The study continued, “While our economy relies on the service jobs these low-paid workers fill . . . our society has not taken adequate steps to ensure that these workers can make ends meet and build a future for their families, no matter how determined they are to be self-sufficient.” In her book Nickel and Dimed, Barbara Ehrenreich described these workers as “the major philanthropists of our society.” Ehrenreich wrote, “They neglect their own children so the children of others will be cared for; they live in substandard housing so that other homes will be shiny and perfect.” Across America more than 50 million people live in near poor households, those with incomes between $20,000 and $40,000 a year. Katherine Newman, a Princeton sociologist, has described this large but often overlooked group as “the missing class.” The mass of workers who are barely getting by is likely to grow only larger, because the Bureau of Labor Statistics forecasts that low-wage jobs will account for six of the top ten categories in overall job growth between now and 2014: janitors, nursing home aides, waiters, home-health aides, retail sales workers including cashiers, and food-prep and fast food workers. America’s ailing health care system is a big part of the worsening squeeze.

From 2000 to 2006, the number of Americans without health insurance climbed by 8.6 million, to 47 million. One study found that more than two-fifths of moderate-income, working-age Americans went without health insurance for at least part of 2005. Not only that, for employees who want coverage, companies are requiring them to pay more for it, and as a result, the cost of family coverage has soared 83 percent in just six years. As health costs consume more and more of the nation’s economic output — they account for 16 percent of gross domestic product, or GDP, up from 5 percent in 1960 — that necessarily leaves less money for wage increases.

Pensions, the other pillar of employee benefits, are under assault as never before. In May 2005, a bankruptcy judge allowed United Airlines to default on its pension plans and dump them on the federal agency that protects retirement benefits. Because that agency guarantees pensions only up to a certain amount, many United pilots will receive only half what they expected when they retire. United’s move was the biggest pension default in American history, releasing it from paying $3.2 billion in obligations over the following five years. One of United’s lawyers predicted that more and more companies would use this “strategic tool” to increase their competitiveness. Since then, US Airways and Delta have followed suit. When Delphi, the auto parts giant, filed for bankruptcy in October 2005, its chief executive, Robert S. Miller, threatened to slash the company’s pensions unless the workers agreed to massive wage concessions.

    

As part of this assault on pensions, Hewlett-Packard, IBM, Verizon, Sears, Motorola, and many other companies have embraced a riskier, far less generous type of retirement plan, 401(k)s, while turning away from the traditional plans that promised workers a specific monthly benefit for life after they retired. When Hewlett-Packard took that step, a company spokesman said, “Pension plans are kind of a thing of the past.” With pensions growing ever scarcer, more and more workers are convinced that they won’t have enough money to retire. Ominously, some economists have begun to warn that millions of Americans might have to continue working into their seventies.

To be continued

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The American Worker, Part I

Excerpted from The Big Squeeze: Tough Times for the American Worker, by Steven Greenhouse, a labor and workplace reporter for The New York Times (Knopf, 2008). Because of its length, this article will be presented in four parts.

In his job at a Wal-Mart in Texas, Mike Michell was responsible for catching shoplifters, and he was good at it, too, catching 180 in one two-year period.

But one afternoon things went wildly awry when he chased a thief — a woman using stolen checks — into the parking lot. She jumped into her car, and her accomplice gunned the accelerator, slamming the car into Michell and sending him to the hospital with a broken kneecap, a badly torn shoulder, and two herniated disks. Michell was so devoted to Wal-Mart that he somehow returned to work the next day, but a few weeks later he told his boss that he needed surgery on his knee. He was fired soon afterward, apparently as part of a strategy to dismiss workers whose injuries run up Wal-Mart’s workers’ comp bills.

Immediately after serving in the army, Dawn Eubanks took a seven-dollar-an-hour job at a call center in Florida. Some days she was told to clock in just two or three hours, and some days she was not allowed to clock in during her whole eight-hour shift. The call center’s managers warned the workers that if they went home, even though they weren’t allowed to clock in, they would be viewed as having quit.

Twenty-eight-year-old John Arnold works in the same Caterpillar factory in Illinois as his father, but under the plant’s two-tier contract, the maximum he can ever earn is $14.90 an hour, far less than the $25 earned by his father. Caterpillar, long a symbol of America’s industrial might, insists that it needs a lower wage tier to remain competitive. “A few people I work with are living at home with their parents,” Arnold said. “Some are even on food stamps.”

At a Koch Foods poultry plant in Tennessee, the managers were so intent on keeping the line running all out that Antonia Lopez Paz and the other workers who carved off chicken tenders were ordered not to go to the bathroom except during their lunch and coffee breaks. When one desperate woman asked permission to go, her supervisor took off his hard hat and said, “You can go to the bathroom in this.” Some women ended up soiling themselves.

Don Jensen anticipated a relaxing life of golf after retiring from his human resources post with Lucent Technologies in New Jersey, where he was in charge of recruiting graduates from Stanford, Cornell, MIT, and other top universities.

But when Lucent increased its retirees’ health insurance premiums to $8,280 a year, up from $180, Jensen was forced to abandon his retirement.

He took a job as a ten-dollar-an-hour bank teller.

As part of her software company’s last-lap sprint to get new products out the door, Myra Bronstein sometimes had to work twenty-four hours straight testing for bugs. She felt great loyalty to the Seattle-area company because its executives had repeatedly promised, “As long as we’re in business, you have a job.” But one Friday morning the company suddenly fired Bronstein and seventeen other quality assurance engineers. The engineers were told that if they wanted to receive severance pay, they had to agree to spend the next month training the workers from India who would be replacing them.

 

  

ONE OF THE LEAST EXAMINED but most important trends taking place in the United States today is the broad decline in the status and treatment of American workers — white-collar and blue-collar workers, middle-class and low-end workers — that began nearly three decades ago, gradually gathered momentum, and hit with full force soon after the turn of this century. A profound shift has left a broad swath of the American workforce on a lower plane than in decades past, with health coverage, pension benefits, job security, workloads, stress levels, and often wages growing worse for millions of workers.

That the American worker faces this squeeze in the early years of this century is particularly troubling because the squeeze has occurred while the economy, corporate profits, and worker productivity have all been growing robustly. In recent years, a disconcerting disconnect has emerged, with corporate profits soaring while workers’ wages stagnated.

The statistical evidence for this squeeze is as compelling as it is disturbing.

In 2005, median income for nonelderly households failed to increase for the fifth year in a row, after factoring in inflation. That is unprecedented in a time of economic growth. In 2006, median income for those households did finally rise, but it still remained lower — $2,375 lower — than six years earlier. That, too, is unprecedented. Even though corporate profits have doubled since recession gave way to economic expansion in November 2001, and even though employee productivity has risen more than 15 percent since then, the average wage for the typical American worker has inched up just 1 percent (after inflation). With the subprime mortgage crisis threatening to pull the economy into recession, some economists say this may be the first time in American history that the typical working household goes through an economic expansion without any increase in income whatsoever.

This, unfortunately, is the continuation of a long-term squeeze. Since 1979, hourly earnings for 80 percent of American workers (those in private-sector, nonsupervisory jobs) have risen by just 1 percent, after inflation. The average hourly wage was $17.71 at the end of 2007. For male workers, the average wage has actually slid by 5 percent since 1979. Worker productivity, meanwhile, has climbed 60 percent. If wages had kept pace with productivity, the average full-time worker would be earning $58,000 a year; $36,000 was the average in 2007. The nation’s economic pie is growing, but corporations by and large have not given their workers a bigger piece. The squeeze on the American worker has meant more poverty, more income inequality, more family tensions, more hours at work, more time away from the kids, more families without health insurance, more retirees with inadequate pensions, and more demands on government and taxpayers to provide housing assistance and health coverage. Twenty percent of families with children under six live below the poverty line, and 22 million full-time workers do not have health insurance. Largely as a result of the squeeze, the number of housing foreclosures and personal bankruptcies more than tripled in the quarter century after 1979. Economic studies show that income inequality in the United States is so great that it more closely resembles the inequality of a third world country than that of an advanced industrial nation. Many families are enjoying higher incomes, enabling them to buy a plasma-screen TV or take a vacation in Orlando, but this is frequently because fathers have taken on second jobs or more overtime hours or because mothers, even with toddlers, have opted for full-time paid employment. Millions of households have not slipped further behind only because Americans are working far harder than before. A husband and wife in the average middle-class household are, taken together, working 540 hours or three months more per year than such couples would have a quarter century ago, mainly because married women are working considerably longer hours than before. Viewed another way, the American worker’s financial squeeze has translated into a time squeeze. In a survey by the Families and Work Institute, two-thirds of employed parents responded that they didn’t have enough time with their kids, and just under two-thirds said they didn’t have enough time with their spouses. The typical American worker toils 1,804 hours a year, 135 hours more per year than the typical British worker, 240 hours more than the average French worker, and 370 hours (or nine full-time weeks) more than the average German worker. No one in the world’s advanced economies works more.

To be continued

Small Town Banks III

People’s Federal Savings and Loan on the corner of South Ohio Street and East Court Street across from the Spot restaurant in Sidney, Ohio by Louis Sullivan

The last chapter of this essay on the disappearance of small town banks today brought about by the new dependence of nearby big cities on other major world cities rather than on them.

By RUTH SIMON and COULTER JONES Dec. 25, 2017  for The Wall Street Journal

Another headache for bankers in rural areas, says Jerry Rexroad, CEO of Carolina Financial Corp. , is that “it’s very hard to find highly competent commercial loan officers who want to live in these small towns and can produce an adequate amount of production.” He said rural businesses often have less sophisticated reporting systems that make their finances tougher to analyze.

Carolina Financial, of Charleston, S.C., in November acquired First South Bank, of Washington, N.C. “The smaller towns are really more for deposit-gathering that gives you funds to lend to larger towns,” says Nick Nicholson, chief credit officer First South Bank.

Carolina Financial’s Mr. Rexroad says it is “equally committed to growing our market share in rural and urban markets,” and recently assigned senior loan officers to help cover rural areas.

Small-town businesses say bank pullbacks weaken local economies further.

PNC installed an ATM 6 miles from Woodland in Rich Square, population 884, when it closed its branch there in 2016, leaving the area without a bank branch for the first time since 1902.

“It’s hard to get a business to come in” when there is no bank to cash workers’ paychecks, says Rich Square Town Commissioner Reginald White. Rich Square has a barber shop, grocery, hardware store, pharmacy, post office and three restaurants. But the storefronts on one side of Main Street are vacant.

Horace Robinson, owner of Upper Cutz Barber Shop on Main Street, makes weekly deposits at the ATM. When he needs change, he unlocks his soda machine or one of the shop’s arcade games rather than drive to a PNC branch 17 miles away.

A PNC spokeswoman says the bank, “continuously evaluates its branch network to assure we are meeting customer needs in a cost effective way.” Customers, she says, “are banking very differently today” with online and mobile channels and ATMs.

After deciding to close the Rich Square branch, PNC “contacted 15 banks, in some cases multiple times,” in an unsuccessful effort to find another financial institution to take it over, she says. PNC donated the branch to the community, installed a full-service ATM and made other investments, she says.

The interior of People’s federal Savings and Loan by Louis Sullivan

Ms. Baker, the peanut-business owner, says 45 years ago, when her mother moved her ceramics classes from home to a storefront, a local banker took a personal interest in the business and gave her a loan.

In Ms. Baker’s 15,000-square-foot operation, workers make peanut brittle and water-blanch and fry peanuts, then season them or cover them in chocolate. It employs up to 18 during peak season.

When she sought a loan to expand into a new building, she figured the family’s decades-old relationship with Southern would help get her one. Instead, she says, a banker at Southern “told me I should close the business down” or operate it just during the busy Christmas season. PNC, she says, told her there wasn’t enough foot traffic to support a store.

She received a loan from Carolina Small Business, a nonprofit lender a two-hours’ drive away in Raleigh. It offers financing, education and training to small businesses but doesn’t collect deposits or offer checking accounts, wire transfers and other traditional banking services.

Because it takes so long to get to the closest PNC branch, where she does her business, Ms. Baker sometimes makes deposits at a Southern branch about 8 miles down the road. Doing business with two banks, “you end up having double fees.”

Simple transactions require more planning. Employees must leave earlier to cash their paychecks, says Ms. Baker, who plans to add automatic deposit next year. When the peanut business runs out of change, Ms. Baker and employees go through their pocketbooks.

Moving to a town with more foot traffic might have made sense, but her business “was like that last thing in our town,” she says, and “I didn’t want to take it away.”

A shuttered storefront in Rich Square, N.C. Photo: Veasey Conway for The Wall Street Journal

This concludes the three-part article on Small Town Banks.

Small Town Banks II

National Farmer’s Bank at Broadway and Cedar Street in  Owatonna, Minnesota, designed in 1908 by Louis Sullivan. A national architectural treasure, it has been called the most beautiful bank in America.

We continue the article on small town banks—how they are vanishing as the services these small towns once provided the big cities dry up due to globalization, making it harder and harder to conduct profitable business in these towns.

By RUTH SIMON and COULTER JONES  Dec. 25, 2017  for The Wall Street Journal

The Gap’s Effect

Around Roxobel, population 220, and other parts of rural northeastern North Carolina, the banking gap is hurting business. Three months after PNC closed a bank branch in Colerain, population 187, Tommy Davis closed his Nationwide Insurance office there. Losing the bank branch meant he had to drive 25 minutes each way daily to make deposits. And he lost foot traffic from people who once dropped by on their way to and from the bank.

“It’s really like a death sentence for a small town because the bank is the center of all activity,” says Mr. Davis, who owned the Colerain location for 20 years. He moved the business to Windsor, a larger town 25 miles away.

Twelve miles north of Roxobel in Woodland, population 729, Sharon Ramsey closed the DeJireh Grill because, she says, she couldn’t get bank financing. At first, she says, the restaurant “was turning a profit, but it was just enough to stay open.”

She was told she didn’t have enough credit history to qualify for a loan, Ms. Ramsey says. She closed DeJireh in 2013 after three years to focus on her variety store in nearby Conway, which lost its only bank branch several years ago.

Southern closed its Woodland branch three years ago. Then the local grocery store shut down. The loss of both means “most people drive through here” without stopping, says Joe Lassiter, owner of Lassiter’s Used Cars. He keeps no more than 10 cars on his lot, down from about 20 before.

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Barbara Outland, owner of Grapevine Cafe down the street, drives 11 miles to Murfreesboro, N.C., to get change and make deposits. Ms. Outland, 71, says that as defense against any thieves eyeing that cash she locks up at night with a .38 Smith & Wesson revolver “in my hand, in plain view for all to see.”

Woodland Mayor Kenneth Manuel says Southern rejected the town’s request for an ATM, saying it needed 4,000 transactions a month to justify one.

Southern Senior Vice President John Heeden declines to comment on Woodland. “It is never easy to make such decisions that impact our friends and neighbors in these close-knit communities,” he says, “and Southern Bank certainly takes these decisions very seriously.”

The bank, with $2.6 billion in assets, was started by local investors in 1901 as Bank of Mount Olive. It has 61 branches, including the only bank in Woodland’s Northampton County. Southern says that 36 of its branches are in towns with populations under 6,000 and that in most areas where the bank has closed branches, there is another bank fairly close. “Southern Bank embraces its ongoing commitment to serve rural communities that are overlooked by many of our larger competitors,” Mr. Heeden says.

In considering closures, he says, “profitability and market dynamics are primary drivers, along with other factors that can vary over time and by market.”

Interior of National Farmer’s Bank by Louis Sullivan

Economic Ills

Rural communities in parts of the U.S. have become less attractive to local banks because they are suffering from a variety of economic ills that have taken a toll on business activity and new business formation.

Weak school systems have made many rural communities less attractive to employers, says Peter Skillern, executive director of Reinvestment Partners, a nonprofit based in Durham, N.C., that works with rural communities.

Dollar stores and big-box retailers drained customers from some local shops. The financial crisis left some residents with battered credit and collateral. Populations dropped as youth moved out.

These communities have been hurt by declines in the textile and furniture industries, consolidation in agriculture and decreased government support for tobacco. Average annual employment in North Carolina’s 80 rural counties fell 6% between 2007 and 2016, according to the Raleigh-based NC Rural Center, compared with a gain of 11% in its six urban counties.

“It would be great if there were branches and people in all these rural communities,” says Kel Landis, former CEO of RBC Centura, which once owned the rural North Carolina bank locations purchased by PNC in 2012. “But I do understand, as a former banker, the economics. If you have a place that used to be thriving, but the downtown has closed up, having a branch there is a money-losing proposition.”

To be continued

Small Town Banks I

 

Merchant’s National Bank at 833 Fourth Avenue in Grinnell, Ohio, designed in 1917  by Louis Sullivan

We continue this story of small town America today: globalization, as was explained in our three blogs on the “megacity,” has left these small towns with no role to play in the economy. In the past it was these small towns (and many medium-size cities) that sustained the major cities through their manufactured parts and the skill of their artisans in a symbiotic interrelationship. Today cities like New York, San Francisco and Chicago reach overseas for the parts and skills they need, leaving small towns devoid of purpose. As a consequence, banks that traditionally were at the center of the town’s commercial life are closing because of the lack of any sustainable business, undermining the very life of the town. What is America without its small town life?

To illustrate this article, presented here in three installments because of its length, we have chosen the small town banks designed by architect Louis Sullivan during the decade before the First World War, a period when these institutions were still an integral part of the vitality of the towns they served. Sullivan’s banks are considered architectural treasures, among the finest this country has produced.

By RUTH SIMON and COULTER JONES  Dec. 25, 2017  for The Wall Street Journal

 ROXOBEL, N.C.—Danielle Baker wanted a $324,000 loan last year to expand the peanut-processing business she ran from the family farm. She had a longstanding relationship with the Roxobel branch of Southern Bank, and she thought Southern would help fund the peanut operation she had spun off, too.

But that branch—the town’s only bank—closed in 2014.  A Southern banker based in Ahoskie, 19 miles away, said Bakers’  Southern Traditions Peanuts Inc. was too small and specialized, she says. A PNC bank branch also turned her down.

“If you are not a big company with tons of assets and a big bank account,” Ms. Baker says, “they just overlook you.”

She finally got a loan from a nonprofit in Raleigh two hours away that provides financing to small businesses but not other traditional banking services. She must drive 19 miles every afternoon to make cash deposits or get change for her cash register, and expects to make a two-hour trip when she wants to refinance. Without a local branch close to her business, she says, “it’s very aggravating on a day-to-day basis.”

The financial fabric of rural America is fraying. Even as lending revives around cities, it is drying up in small communities. In-person banking, crucial to many small businesses, is disappearing as banks consolidate and close rural branches. Bigger banks have been swallowing community banks and gravitating toward the business of making larger loans.

Distant banks with few ties to local communities—which often rely heavily on algorithms to gauge creditworthiness—are also less likely to have the personal relationships that have helped local bankers judge which borrowers were a good bet.

The phenomenon, almost automatically, is getting worse. Bankers say they don’t see enough business in small towns. Small towns say bank closings make it harder to do business.

“We’d like to make loans in all the markets we are in,” says R. Lee Burrows Jr., chairman of Union Bank in Greenville, N.C., population 91,495. “But sometimes the demand isn’t there,” he says. Banks’ “risk tolerance is substantially lower than it was pre-2008,” he says. Union was called “the little bank” until July, when it acquired another bank and moved from Kinston, population 20,923.

Southern Bancshares Inc. and PNC Financial Services Group Inc., the lenders Ms. Baker contacted, say they don’t comment on specific customers.

The interior of Merchant’s National Bank by Louis Sullivan

The value of small loans to businesses in rural U.S. communities peaked in 2004 and is less than half what it was then in the same communities, when adjusted for inflation, according to a Wall Street Journal analysis of Community Reinvestment Act data. In big cities, small loans to businesses fell only a quarter during the same period, mainly due to large declines in lending activity during the financial crisis. Adjusted for inflation, rural lending is below 1996 levels.

Of America’s 1,980 rural counties, 625 don’t have a locally owned community bank—double the number in 1994, federal data show. At least 35 counties have no bank, while about 115 are now served by just one branch.

“There’s been a slow seep, a slow letting air out of a balloon over a long period of time,” says Camden Fine, chief executive of Independent Community Bankers of America, a small-bank trade organization. “There’s less demand for credit. There’s less supply.”

Colorado State University economist Stephan Weiler found that declines in small-business lending in rural areas are linked to declines in the number of new businesses two to three years later—a phenomenon he didn’t find in urban areas. The falloff in lending is particularly important, he says, because other types of startup capital are typically scarcer in rural areas.

“To say that I am concerned is an understatement,” says Ray Grace, North Carolina’s commissioner of banks. The number of community banks is shrinking, and larger banks are taking deposits gathered in rural areas and deploying them in urban communities, he says.  “It sucks the capital out of rural communities.”

Between 2009 and June 2017, North Carolina counties currently considered rural by the Centers for Disease Control and Prevention lost 131 bank branches, banking-regulator data show. That 18% drop compared with a 2% drop in Mecklenburg and Wake counties, home to Charlotte and Raleigh.

The gap is the more striking because North Carolina is a banking center, home to Bank of America Corp. and BB&T Corp. Bank of America has eight branches in seven rural counties in the state, down from 21 in 17 rural counties three years ago. “As the U.S. population continues to move to larger population centers,” a Bank of America spokesman says, “we want to insure that our branch coverage matches where people are moving.”

To be continued

A Cashless Society

This article from The Los Angeles Times explores how once  again it is the poor who will suffer when traditional coins and bills are eliminated in favor of electronic currency in order to convenience the merchant. 

By MIKKI KENDALL  Jan. 2, 2018 for The Los Angeles Times

Many impoverished people don’t have credit cards or bank accounts. The very poor can’t take plastic if they’re begging on the street.

  

Conditions in the U.S. are nowhere near optimal for a leap to a cashless society; too many people would be left behind. Your millennial friend may be happy to accept money via Paypal or another app, your cafe may use an iPad instead of a cash register, but landlords in low-income areas still prefer money orders. It’s convenient for consumers to charge, say, an outing to the nail salon — but when you add the tip to your credit card bill, it may never make it to the worker.

   

The reasons one might not have a bank account — with an associated credit or debit card — are many and varied. Workers who lack photo identification may find it nearly impossible to obtain an account under current rules. Immigrants in the country illegally may fear losing access to savings in the event of deportation. More mundane: A poor credit history or simply not having enough money to maintain a minimum balance.

According to FDIC research, nearly 16 million American adults are unbanked; an additional 24.5 million are underbanked, reliant on services such as payday loans, cash advances and other “alternative” products. These men and women are largely reliant on cash. It’s true that many have access to reloadable debit cards such as Green Dot, Rush or those available at big box stores such as Wal-Mart. But those cards can carry significant fees for the consumer as well as for the merchants that accept them. Green Dot even charges users a fee to check their balance.

Workers who live from paycheck to paycheck can easily slide from the traditional banking world to the underbanked world and then to the unbanked.

Traditional banks may only tolerate so many bounced checks, and may not only close accounts belonging to “bad” customers but bar them from ever creating a new one. That ding on a credit report can have a cascading effect, touching everything from housing to future employment prospects. Finally, the interest on a payday loan or the fees on a reloadable debit card can push a person deeper into debt, and poverty.

If you carry cash instead of a high-fee debit card, you’re better off — unless of course merchants refuse to accept your hard currency.

After my divorce in 2001, I had to completely overhaul my life financially. My ex-husband had not been the most responsible person when we had a joint account and it took me some months to repair the damage to my credit. I remember what it was like to use a currency exchange to cash my paychecks. I remember having to pay bills there, buy money orders and so on. I eventually saved enough money to maintain the required minimum balance at a bank, and I mostly use cards now. But from my vantage point, I can see that the cashless future won’t be easy and convenient. For too many, it’ll be a new hardship.

Mikki Kendall is a writer from Chicago. She is the author of the forthcoming book “Hood Feminism” and can be found online @karnythia.

European Union Finds Leading Fight for Open Trade a Tough Task

Activists staging a protest against the EU-Canada trade deal in front of the Austrian Parliament in Vienna in September. Photo: Joe Klamar/Agence France-Presse/Getty Images

The other side of the coin: Europe, which, unlike our president, believes in globalization and open trade, is having difficulty convincing its own citizens of its benefits. Perhaps the world is not yet ready for completely open borders.   

By EMRE PEKER  Dec. 28, 2017 for The Wall Street Journal

BRUSSELS—The European Union started this year by announcing a global trade offensive to counter rising U.S. protectionism. Now the bloc faces an uphill battle to prove it can deliver.

With U.S. President Donald Trump’s “America First” policies upending the world trading system championed for seven decades by the U.S., the EU was quick to suggest it would assume the mantle of globalization’s standard-bearer.

“Those who, in the 21st century, think that we can become great again by rebuilding borders, reimposing trade barriers . . . are doomed to fail,” European Trade Commissioner Cecilia Malmström said in January, four days after Mr. Trump’s inauguration. “It is important the EU shows confidence and leadership.”

Almost a year later, Brussels has a mixed record of success on the trade front. While the EU strives to fill the void left by the U.S. as an advocate of trade liberalization, it is also grappling with political divisions among its 28 members and calls for safeguards against China’s rising economic might.

Mr. Trump withdrew the U.S. from the 12-country Trans-Pacific Partnership on his first day in office, and soon after froze trade talks with the EU and demanded a renegotiation of the North American Free Trade Agreement with Canada and Mexico.

Brussels responded by extending a hand to all the trading partners the White House shunned.

So far, that has produced an agreement on world’s biggest trade deal, between the EU and Japan. It has also spurred frenzied talks to complete negotiations, or start new ones, with partners from Latin America to Asia.

The EU has also provisionally implemented a deal with Canada that slashed almost all tariffs between the two trading partners.

Brussels, however, fell short on its ambitious agenda of clinching deals this year with Mexico and Mercosur, the South American bloc grouping Argentina, Brazil, Paraguay and Uruguay. . . .

European Commission President Jean-Claude Juncker, the bloc’s top executive, has made strengthening the EU’s role in global trade his first priority as Washington retrenched.

In September he asked EU governments to approve fast-track negotiations with Australia and New Zealand, seeking to engage two more U.S. trading partners burned by Washington’s exit from the Pacific trade pact.

“Partners across the globe are lining up at our door to conclude trade agreements with us,” Mr. Juncker said. “Europe has always been an attractive place to do business.”

EU governments still haven’t greenlighted Australia and New Zealand talks, and such hesitation has frustrated efforts to get any EU trade pact fully approved.

Yet EU governments, leery of the populist backlash that fueled Britain’s decision to exit from the bloc and resistance to the Canada trade deal, are reluctant to yield more powers to Brussels.

Most European leaders—including strongly pro-EU ones such as French President Emmanuel Macron —want to preserve a national say in trade pacts. Some EU governments also demand safeguards against China, whose mix of state support, acquisitiveness and domestic protection have prompted the EU to bolster its trade defenses and consider screening foreign investments.

Next year will test the EU’s capacity to deliver on its liberal trade principles. . . .

. . . with the U.S. considering unilateral action against Chinese trade practices, Brussels will likely lack critical support from Washington in pressuring Beijing to abide by international rules.

“When the EU and the U.S. are not aligned, you have a much more fragmented landscape, with no clear leader, and it’s much harder to drive policy,” said Stephen Adams, a former EU trade official now with U.K.-based advisory firm Global Counsel. “The ambition can leak out of the process very quickly.”

Almost Everything Is Wrong With the New Tax Law

BN-WT601_3ll6Y_OR_20171227102908The president’s signature and his notes on his Oval Office desk, Dec. 22. Photo: Brendan Smialowski/Agence France-Presse/Getty Images

This article, surprisingly critical of the new tax law, appeared in this morning’s Wall Street Journal, which has otherwise written favorably about the new law. Mr. Blinder, who wrote the article, is a professor of economics and public affairs at Princeton University and a former vice chairman of the Federal Reserve. 

Read it and weep.

By ALAN S. BLINDER  Dec. 27, 2017 for The Wall Street Journal

Dec. 20, 2017, should go down in political history as a day of infamy or absurdity, probably both. After passing a massive tax bill without a single Democratic vote—something highly unusual in itself—congressional Republicans gathered with President Trump on the White House steps that day to engage in an orgy of self-congratulation.

The president patted himself on the back so vigorously that he might have required physical therapy. One after another, Republican senators and representatives competed for the honor of offering the most unctuous praise for their Maximum Leader. But Sen. Orrin Hatch of Utah, who was previously thought to be level-headed, set a new standard for fawning by declaring that Mr. Trump may be the greatest president ever. Ever? Not Lincoln? Not Washington?

Was this love-fest because Republicans had just passed an economically sound and wildly popular tax bill that was winning praise from tax experts and scoring marvelously in public opinion polls? Not quite. Polls show that Americans hate this bill.

As they should.

First, while the president is wildly inaccurate when he claims the Tax Cuts and Jobs Act is the biggest tax cut in history—as a share of gross domestic product, the Reagan and George W. Bush tax cuts were far larger—it may be the most regressive. Ordinary people don’t know the details—does anyone at this stage?—but they understand that the new law is larded with provisions custom-made for the rich and superrich while offering mere crumbs for the middle class. Further, once the phase-outs occur at the end of 2025, even most of the crumbs disappear. The Tax Policy Center estimates that the share of tax cuts accruing to the top 0.1% of taxpayers will rise from 8% in 2018 to an astounding 60% in 2027 if Congress doesn’t extend the expiring cuts.

Second, the act emphasizes cutting taxes on corporations, not on people. Few Americans buy into the “trickle down” argument that tax benefits showered on corporations will translate mostly into higher wages and vastly faster economic growth. Most of the economic evidence supports their skepticism.

 Third, the tax cuts blow a large hole in the federal budget, and most Americans think the deficit is already too large. Have you noticed how Republican politicians stop caring about the deficit when their minds turn to tax cuts for the rich? Some of them are already clamoring for cutbacks in spending on income support, nutrition and health care because—you guessed it—the budget deficit is so large. They didn’t even wait for the ink to dry.

 

Fourth, many Americans are rightly suspicious of deals that get rammed through Congress on a strictly partisan basis, with no public hearings, but with language drafted by lobbyists under cover of darkness. But Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan understood the wisdom of the old adage that a rotting fish smells worse the longer it sits on the dock.

Let’s imagine that Mr. Trump and the Republicans really wanted to reform the tax code, rather than just deliver tax cuts to the rich. What might they have done instead?

First, Congress could have simplified the tax code rather than complexified it. To be fair, there is some genuine simplification in the Tax Cuts and Jobs Act. A few loopholes did get closed, and the near-doubling of the standard deduction will make paying taxes easier for millions of Americans. Terrific. But the new law also includes complex new provisions for taxing pass-through income from unincorporated businesses and corporate income that is earned (or, rather, booked) abroad. These defy description, will baffle people for years, and will spawn quite a few tax shelters.

Second, the tax changes could have been designed to be distributionally neutral, as the 1986 tax reform was, or even progressive. But once you decide to concentrate on reducing the corporate income tax, giving a sizable tax preference to pass-through business income, cutting the estate tax, and lowering the top income tax rate, you are headed down a highly regressive road.

Third, a true tax reform would have been revenue-neutral—again, as the 1986 reform was. Some taxes would have gone up while others went down, leaving only a negligible effect on the budget deficit.

 Fourth, a Congress truly focused on tax reform would not have thrust a completely unrelated dagger into the heart of ObamaCare. I refer to the repeal of the penalty that enforces the individual mandate. This mean-spirited provision is a first step toward “repeal without replace,” a foolish and cruel approach that Congress rejected last summer. Notice that the huge savings from this provision don’t come from cutting anyone’s taxes. They come, according to Congressional Budget Office estimates, from 13 million Americans dropping off the health insurance rolls over a decade.

And that’s just a hint of what’s to come. Already, Republicans are taking aim at other parts of ObamaCare, Medicare, Medicaid, food stamps and more. Class warfare? Yes, score the first round for the upper class.

The Megacity III

This is Part III of an article about how world cities—such as Seattle—are more closely tied financially to other world cities such as Shenzhen, China, than they are to neighboring Spokane or Tacoma.

SeattleSeattle, Washington

By EMILY BADGER  Dec. 24, 2017 for The New York Times

Inventing ‘New Stuff’ Before Anyone Can Catch Up

People in Rust Belt towns where Google has no office still use the search giant. Facebook and Twitter still require physical assets in server farms. Uber, a quintessential Bay Area company that is both global and digital, operates in about 250 American cities.

But these kinds of ties aren’t truly spreading the Bay Area’s prosperity. Server farms don’t create mass middle-class employment. Using Google isn’t the same as having a hand in engineering it.

Yes, Uber’s innovation eventually reaches smaller cities in Texas and Ohio. “But the economic benefits of it are at Uber headquarters,” said Michael Storper, an economic geographer at U.C.L.A. “The people who got rich off of it are not going to be in the small area. They’re going to be where it’s invented.”

To put it more harshly, when global cities need other communities today, Ms. Sassen said, it’s often to extract value out of them. New York bankers need Middle America’s mortgages to construct securities. San Francisco start-ups need idle cars everywhere to amass billion-dollar valuations. Online retail giants need cheap land for their warehouses.

The rest of the country may receive the innovations that flow out of global cities, and the benefits to consumers are real. “But by the time that’s done, the cities have already invented something new and made themselves richer again,” Mr. Storper said. “Before anywhere else can catch up, San Francisco has already leapt ahead again with new stuff they’ve invented.”

The advantages bestowed by the global economy keep compounding from there. Research by Filipe Campante at Harvard and David Yanagizawa-Drott at the University of Zurich finds that when two cities are linked by direct flights across the globe, business links between them increase as well, such that places with more connections grow more economically. Those economic benefits, though, don’t appear to touch places more than 100 miles beyond the airport.

Shenzhen-650x260Shenzhen, China

“The Torontos, Ottawas and Waterloos in countries like Canada and the U.S., they will link with Shenzhen in China, they will link with Munich and Stockholm in Europe,” Mr. Bathelt said. “And other places will be kind of left out.”

Greg Spencer, another researcher at the University of Toronto, has analyzed the global footprints of the world’s 500 largest firms in advanced industries like machinery, digital services and life sciences — mapping their headquarters, regional offices, manufacturing plants, warehouses, retail stores.

In the international network that emerges, global cities stand out. Other places connect to the global economy by going through them.

“I keep coming back to the idea that a lot of this is about power,” Mr. Spencer said. He means relative power — which places are gaining or losing it as the geography of the economy shifts, too. “Not only are they losing their power,” he said of the places left out, “but they’re losing their connection to the power centers as well.”

That dynamic also leaves smaller places at the mercy of global cities, where decisions are made about which plants to close or where to create new jobs. And so Tulsa, Buffalo and Tucson turn to Seattle as supplicants for a windfall of Amazon jobs. None of them have what Amazon really wants, though: an international airport with daily direct flights to Seattle, the Bay Area, New York and Washington.

Emily Badger writes about cities and urban policy for The Upshot from the San Francisco bureau. [The Upshot provides news, analysis and graphics about politics, policy and everyday life for the NY Times.] She’s particularly interested in housing, transportation and inequality — and how they’re all connected. She joined the Times in 2016 from The Washington Post. @emilymbadger

This concludes this three-part article.

The Megacity II

This is Part II of an extraordinary article about a new phenomenon, the megacity, that has closer ties to other world cities than to the smaller cities that surround it. Consequently, it quickly surpasses them in skills and profits. 

nyc-2New York City 

By EMILY BADGER Dec. 24, 2017 for The New York Times

The Rise of Global Cities

For much of the 20th century, wages in poorer parts of the country were rising faster than wages in richer places. Their differences were narrowing, a product of migration between the two and gains from manufacturing that helped lift up regions that were once deeply poor. Then around 1980, according to work by the Princeton researcher Elisa Giannone, that convergence began to stall. Cities full of highly educated workers like Boston, San Francisco and New York began to pull away. And that pattern, Ms. Giannone finds, has been driven entirely by what’s happening with high-skilled workers: When they cluster together in these places, their wages rise even more. That widens inequality both within wealthy cities and between wealthy regions and poorer ones.

“Big changes have been happening over the last 30 years,” Ms. Giannone said. “Now we’re actually seeing the impact of them.”

Those changes have come from multiple directions — from globalization, from computerization, from the shift in the United States away from manufacturing toward a knowledge and service economy. These trends have buffeted many smaller cities and nonurban areas. The uncomfortable political truth is that they’ve also benefited places like San Francisco and New York.

“The economic base has shifted in a way that highly favors cities — and big cities — because it’s now based on knowledge, on idea exchange, on agglomeration,” said Mark Muro, the policy director of the Metropolitan Policy Program at the Brookings Institution.

Boston, Massachusetts

Programmers benefit from having more programmers nearby, in ways different than when  assembly line workers gather together. The forces of agglomeration, which big cities enable, are strongest in the kind of knowledge work that has become central to the economy.

For all of the talk of how globalization has cost America manufacturing jobs, it has created American jobs, too — but the high-paying ones have tended to go to such cities.

Ms. Sassen argues that a global economy has created new kinds of needs for companies: accountants specializing in Asian tax law, lawyers expert in European Union regulation, marketers who understand Latin America. Global cities must connect to other global cities to tap these resources, which have become more valuable to them than lumber and steel.

Inventors in these global cities are also increasingly connecting to one another. Using the addresses of patent co-inventors, Mr. Mudambi [Ram Mudambi, a professor in the Fox School of Business at Temple University] has traced a steep rise starting in the early 1990s of global connections from a few American metro areas, which are today among the most prosperous in the country.

Many American companies still create physical things, in addition to inventing digital products and ideas. But globalization has changed who benefits from their business, too, enabling firms to separate intellectual work from routine work and scatter those roles across the globe. The knowledge work has tended to stay in the United States. The routine work is what was historically performed in the hinterland. And that in large part is the work that has gone overseas.

“The hinterland for Silicon Valley is Shenzhen,” said Timothy Sturgeon, a senior researcher at the M.I.T. Industrial Performance Center.

Emily Badger writes about cities and urban policy for The Upshot from the San Francisco bureau. [The Upshot provides news, analysis and graphics about politics, policy and everyday life for the NY Times.] She’s particularly interested in housing, transportation and inequality — and how they’re all connected. She joined the Times in 2016 from The Washington Post. @emilymbadger

To be continued