A Problem With the Financial Services Industry

Notice I said a, not the.  There are myriad problems with the financial services industry.  This one is a relatively small problem, but I find it incredibly annoying.  This problem is that I have two bills due tomorrow.  The reason this is a problem is that tomorrow is Memorial Day which is a bank holiday, which means that the bills cannot be paid tomorrow.  I’ve been burned by this before, so I paid both bills on Friday, but it’s slimy to make a due date unavailable.

People who live paycheck to paycheck know exactly what I’m talking about.  Anyone else may be a little confused.  When money is tight, you need to be very aware of due dates, grace periods and pay days.  It’s the only way to avoid bounced checks and late payments which just create more fees that you can’t afford.  Putting the due date on an unavailable date just moves the due date up a day or two.  When the whole month is planned and delicately balanced, that day or two can make a big difference.  It would be super easy for companies to program in the fact that Sundays and holidays are unavailable, but they don’t.  Any opportunity to collect more fees is good for them and they aren’t too worried about it being bad for everyone else.

Anyway, that’s my little rant for the evening.  I hope everyone who gets a long weekend enjoys their extra day off.


Paid Sick Leave

I was sick this week.  A non-serious, but icky, kind of sick.  I won’t go into the details here.  But, I stayed home from work for a couple of days.  I believe very strongly in not infecting others when I’m sick.  I don’t send my kid to school when she’s sick either, even if it means I have to miss work.  The weird thing about all of this is that I can’t help but feel a little guilty whenever I miss work.  Why do I feel guilty about doing something that is not only good for me, but good for business and society as a whole?

Like most people of my class, I first entered the work force with part time, contingent and temporary positions in restaurants and retail.  I had little, if any savings, and if I didn’t show up to work, I didn’t get paid.  As a result, I didn’t take my first sick day for many years after I started working, and that one was only because I vomited at work just before my shift started.  There was no way to pretend I was fine.  It’s not that I never got sick.  It’s because I was broke and the money was more important than whatever ailment was bothering me.

The jobs I had used to encourage this kind of behavior.  Since I was there all the time, I heard the way the bosses complained about anyone who missed a shift.  And in my reviews every year, they would praise my attendance.  It got to the point where I internalized this mentality.  I was proud of myself for never taking a sick day.  I felt like it showed me to be strong and dedicated.

My attitude changed completely when I got promoted to management in a corporate retail store.  I realized very quickly that employees who show up no matter what are bad for themselves and bad for business.  They are less productive and they spread their sickness to other employees and customers.  It is unbelievably obvious that it is better to have one employee miss a few days than have all of your employees be at 50-75% of their usual capabilities.

The problem is, a huge chunk of those employees were part time, contingent and temporary, just like I was.  They needed every dollar of their paychecks, just like I did.  So, I couldn’t insist they stay home even though I wished they would.  Needless to say, I was very happy when Connecticut, my home state, passed a mandatory paid sick leave law.  While it doesn’t go far enough*, it is great for everyone in the state.  Now there is less reason for people to have to choose between getting paid and getting healthy.  It makes for happier and healthier citizens and more productive businesses.  But, this shouldn’t be a big surprise, many business organizations hate it.

I believe the reason for the hatred is that the business culture as a whole has internalized the attitude that still causes my guilt when I miss a day of work.  The economy is not made up of rational actors no matter how hard the free market advocates try to say otherwise.  A shocking number of business decisions are made because that’s the way it’s always been done.  It is one of those things that’s just passed down from person to person that a business doesn’t want to pay a person who isn’t doing work.  But, actual economic analysis shows that companies save money with paid sick leave (The Bureau of Labor Statistics says businesses save $1.17 per employee per week).  The opponents can’t seem to do any better than surveying managers who say they don’t like it.

It would be great if the rest of the country would catch up with Connecticut, and the rest of the civilized world, and pass their own mandatory paid sick leave laws.  And I need to get over my guilt when I take a day off.  I am helping myself, my family, my employer and society as a whole.  There is certainly no reason to feel guilty about that.

*The law only covers businesses with 50 or more employees and it doesn’t cover temporary or day labor.

Lies My Economist Told Me

There’s this weird feature in life where if people say things often enough, they become common knowledge and people stop questioning them.  The world of economics has raised the art of creating truths like this to its pinnacle.  We all know that governments are no good at picking winners.  We all know that regulation hurts business.  We all know that markets are good at solving problems.  And we all know that businesses have a duty to provide shareholder value.  If we stopped to question these supposed truisms, it would be obvious that they are all lies.

When it comes to picking winners, the government isn’t half bad.  The critics of governments, the fans of free markets, always like to point out the failures.  They love Solyndra and corn ethanol.  Now, I’m not saying that it was a good idea to back Solyndra with public money or that corn ethanol is a good idea.  But, since when is not being perfect enough to get labeled as bad?  The simple fact is that the government backed the internet, the telephone, electricity and the light bulb, the automobile, public education, airplanes and vaccinations among many other things.  Most of the technology we have today is directly because the government supported it and threw money at it.  NASA, the military and public universities are the three biggest sources of innovation and they are all supported by the government.  Private universities probably come next, but they still get a hefty chuck of their money from government backed grants, scholarships and loans.  Large companies spread this particular lie.  Google, GM, Exxon, Monsanto, etc. don’t want the government to pick a future competitor, so they pretend that they aren’t the product of government picks.

Regulation is necessary for markets to even exist.  Without markets, there would be no real business.  This is another case of size causing amnesia.  Where would Google be if the government hadn’t invoked anti-trust regulations against Microsoft?  How about Apple?   Where would Fox be without the Government protecting their copyrights?  Once a company is a dominant player, they find the regulations annoying so they lie and say that regulation is bad for business.  The fact is, without regulation we would either be stuck with a handful of monopolies or crime would be rampant (even more so than it is now).  Either of those situations would be far worse for business than any regulation.

There is one big reason why markets are terrible at solving problems and that is they can’t recognize actual problems.  Probably the most famous example of a market based solution to a problem is Bush’s cap and trade scheme to stop acid rain.  The thing is, it was a government solution.  The power companies didn’t say, “Wow, this pollution is causing acid rain and acid rain is bad for business so we better do something about it.”  The government said, “Hey, acid rain is a problem and you are causing it.”  The power companies accepted cap and trade to avoid something more onerous.  Calling it a market based solution is a lie to make the polluters look better.

Shareholder value is code for money.  Any company that says that they are trying to improve shareholder value is really saying that they want to make more money.  By itself, that isn’t so much a lie as it is politically correct.  It sounds bad to say, “I want to make lots and lots and lots of money because I’m greedy.”  So, they say, “I want to give back by increasing shareholder value.”  Where it becomes a lie is when shareholder value becomes the reason for doing business.  It’s kind of like those utility trucks that say, “Safety is our job.”  Clearly, if safety is your job, you are doing something wrong by climbing into a cherry picker on a busy street and messing with electrical wires.  Keeping the electricity flowing is your job, you just hope to be safe while doing it.  Any company that talks about shareholder value is saying that so long as they make money, we can go screw ourselves.  But, they know that actually saying that would make it harder to make money, so they lie.

It’s about time people start calling out these lies.  The range of economic opinions that are taken seriously right now is from libertarian to right of center. If these ideas worked, if they made life better, why all the deception?  I admit that it could just be stupidity.  A huge number of economists still model based on rational decision makers after all.  But it feels more like I’m being lied to.  And I wish it bothered everyone else as much as it bothers me.

The Job Market

Robert Paul Wolff writes a very entertaining blog called The Philosopher’s Stone.  Even when he is just bragging about his grandchildren, it is still utterly charming.  A little while ago, I read a post called Ein Gedankenexperiment A La Rawls.  In this post, he describes a thought experiment to determine what jobs would be worth in a free market.  The gist of it is that all jobs are handed out randomly to all the workers, all with the same salary.  Then, people start trading.  The value of the jobs will depend on how desirable they are and how difficult they are.  It shows how messed up our current system is.  Garbage collectors would be making much more than stock brokers in a free market, so clearly our labor market isn’t free.

Since reading the piece, I keep thinking about it.  I like the thought experiment, but I believe it is missing a key feature of a truly free market and I want to make a modification.  In a truly free market, there needs to be an option to opt out.  If you imagine a market for dinnerware, there will be some pieces that are rare and coveted and they will sell for a lot.  There will also be some pieces that are chintzy and those will sell for a little.  But there are also some people that will say, “No thanks.  I’ll just use my hands.”  It is even probable that the chintzy dinnerware winds up disappearing because people would rather eat with their hands than purchase it.

In order to add the opt out feature to the labor thought experiment, we just need to posit a guaranteed minimum income.  This is an idea with some pedigree from Hayek on the right to Galbraith on the left.  Once the guaranteed minimum income is in place, when the jobs are handed out randomly, the options become to keep the job given, to try to trade for a different job or to opt out.  The dynamics of the market would be largely the same.  The biggest difference is that no one would take certain types of jobs.  There would be no worry about necessary jobs being unfilled because those would have to pay more.  And there would be no worry about fun jobs being unfilled because people would want them.  The jobs that would disappear would be the jobs that are neither fulfilling nor necessary.  I can’t imagine many middle managers would come out of this system.

When all is said and done, there would be a much smaller work force, but it would be a much more efficient workforce.  Perhaps we could even get a glimpse of Plato’s ideal state rather than the city of pigs he describes in The Republic.  Unfortunately, the people who are always talking about market efficiency and freedom would never go for this.  They have too much to lose since their jobs aren’t really necessary.  And they run the world.  So, this will remain a humble thought experiment.

The Kid Economy

Some time between my childhood and now, the kid economy disappeared.  When I was young, I had a paper route and I shoveled driveways.  When I was in high school, I scooped ice cream and when I was in college, I washed dishes and cooked.  I had friends that were lifeguards, camp counselors, mowed lawns, etc.  Now, most of these jobs are done by adults.  Sure, there are still some kids who work summer jobs in restaurants, but not as many.  It’s even illegal in some towns to go door to door to see if someone wants their driveway shoveled or their lawn mowed.  I think this is a real problem.

I don’t know why this change occurred.  I can only speculate.  But, I would guess it’s a variety of factors.  School has changed. Now they are giving more homework and starting homework younger than ever before.  This is a problem in and of itself, but when kids are in school six hours a day and then have hours of homework on top of that, it is more than a full time job.  They just don’t have time to work.  The economy isn’t great.  If an adult has been out of work long enough, newspaper delivery starts to seem more appealing.  If adults take the traditional kid jobs, the kids are out of luck.  I’ll bet it’s cheaper for the companies, too.  An adult with a car can cover a lot more territory than a kid on a bike.  They may pay the adult more, but not that much more.  If she covers ten times more area, it is considerably cheaper.  I wouldn’t be surprised if lawyers and over-sensitive parents have something to do with it, too.

So, why is it a problem?  The companies are more profitable and it helps with adult unemployment.   The problem with the companies being more profitable is twofold.  On the one hand, they aren’t.  Many newspapers are struggling or closing.  Saving a few cents on labor isn’t going to fix their problems.  And the companies that are profitable, like News Corp and Tribune media, are just throwing a few extra bucks on the pile.  There may be some gross good in the extra profit, but no net good.  And as for helping with adult unemployment, that may be true, but it is contributing to adult underemployment.

Of course, the adults aren’t why I think it is a problem.  It is a problem for kids and for the future.  It may sound like a cliche, but work teaches kids a lot.  And the things they learn are different than the things they learn in school or at home.  School never teaches us how to talk to a manager or a customer.  Your parents can’t teach you about money like a job can.  Whatever threats your parents make, they aren’t going to fire you or let you starve.  Back when I was a hiring manager, it was always obvious whether someone was looking for their first job or had worked before.  And the people who got hired even though it was their first job were almost always worse employees.

Now, I’m not saying I want to bring back the good old days or reinstate child labor.  I certainly don’t want kids working in textile mills or on construction sites.  But I do want to see kids mowing lawns and shoveling driveways.  I want to see kids delivering papers and working for parks and rec.  It’s an inexpensive way to get better kids.  And that would be better for all of us.