The inequality war comes to retirement communities

Did you know that Facebook has a streaming video channel?  Well, it does.  You can access it by touching the second icon from the left at the bottom of the app on your smartphone. I discovered a Bloomberg-produced program called “At What Cost.”  A recent 5-minute episode calls attention to the 60% of Americans who live paycheck-to-paycheck and claims “even those earning six figure salaries can still feel financially insecure.”  The 60% figure rang true for me as I had recently read (and cited in this blog) a study by Ray Dalio that identified the same 60/40 split pointing out that “the average household in the top 40% earns four times more than the average household in the bottom 60%.”

But, averages can be deceiving.  An income that affords a family a middle-class lifestyle in, say, Nebraska doesn’t provide the same in California.  A recent Fast Company article points to examples of those making $75,000 per year and up who can’t afford anything near the average $1.6M cost of a San Francisco home. The housing crisis in California, if it can be called that, extends to 55+ retirement communities. The Wall Street Journal ran a story of the battle between residents of Oakmont Village over the addition of pickle ball courts.  The average cost of a home in Oakmont has doubled over the last few years and newer residents want to upgrade the facilities.  Their proposed development, at a $300,000 cost that would be borne by all residents through an increase in maintenance fees, amounts to socializing the costs of amenities. 

There’s no relief in sight for the middle class.  Government programs to address income inequality have typically been targeted to the lowest 20% of income earners and tax benefits to encourage saving, investment and home ownership help the wealthy more than the bottom 60%.  After all, if you’re living paycheck-to-paycheck, you can’t afford to set aside money for the down payment on a house, your kids’ college fund or your retirement.  

Further, programs directed at alleviating poverty often work at cross-purposes to their objectives. In the absence of federal increases in the minimum wage, states and local governments are experimenting. Initial outcomes are not encouraging. Analyzing the impact of a minimum wage increase in the city of Seattle, the National Bureau of Economic Research found it resulted in a slight lowering of income for those in the restaurant industry. As the hourly wage went up, the number of hours worked went down.  Go figure. 

Similarly, wealth transfers haven’t lifted the bottom 20% out of poverty.  Since LBJ declared the War on Poverty, it has become entrenched in our inner cities and is now mirrored in rural committees devastated by loss of industrial jobs, breakdown in families and drug addiction. This has occurred despite that the bottom 20% receiving more than 84% of its income from government sources.  (To arrive at this figure, one must include  non-cash benefits like food stamps, Medicaid, and subsidized housing that are not included in the government’s income data.)

I recently pointed out that nearly 2 billion people have been lifted out of poverty in India, China and the developing world through capitalist reforms that have enabled the poor to climb the income ladder.  Yet, the focus of policy discussions in the U.S. have focused on doubling down on failed policies rather than removing barriers to upward mobility.  Citing licensing requirements, land use regulations and (yes) the minimum wage, the Archbridge Institute asserts, “… barriers are typically imposed by some level of government.  Usually justified by claiming to protect citizens from some kind of harm, these policies often end up as little more than legal obstacles that prevent people from being able to take the calculated risks necessary to climb the income ladder.”    

At a local level, communities can improve public education, develop skills-based training programs and collaborate with businesses to create jobs.  But, most of our tax dollars and, therefore, the resources to address our economic challenges go to Washington and come back to us in one-size-fits-all programs that don’t work in at a local level. 

The pitched battle in Washington over this issue and every other is unlikely to achieve any breakthroughs in the near future.  But, something’s got to give.  Skirmishes like those in Seattle and Oakmont are the tip of the iceberg.  As the interests of the middle class become more aligned with those who live in poverty, diverging visions of how to maintain our prosperity will disrupt the current political order.  

WHO WILL LEAD? 

Mr. Rogers' solution to urban poverty

Remember Mr. Rogers?  My kids would sit in rapt attention watching his show on public television.  For some reason, his soothing voice and always-nice patter drove adults crazy, much like the purple dinosaur that succeeded him as toddler favorite.  The theme song for the show, It’s a Beautiful Day in the Neighborhood, might well describe the Rochester, NY suburb in which I now live. 

Nice neighborhoods create a terrific environment for kids.  Growing up, my brothers and I went to good schools, had a strong family culture and always felt safe.  Eighty-six percent of my high school graduating class went on to college. 

Last week, NPR reported on a study by a Harvard University team, led by Professor Raj Chetty.  Titled the “Moving to Opportunity Study (MOS)”, the team reports on new data about neighborhoods and how they affect economic prospects.   This study was a follow up to the Equality of Opportunity Project, a study that examined the factors leading to equality of opportunity in the 50 largest cities in the U.S.  Their conclusion, which I first discussed in a blog post in February 2104 (Confessionsof a Former Yuppie), was that cities with less segregation, more stable families and better education tended to have greater social mobility.

The MOS dug deeper.  In the 1990’s, the federal Department of Housing and Development (HUD) provided vouchers to 4600 families in poor neighborhoods that enabled them to move to better neighborhoods.  A follow up by HUD, reported by the National Bureau of Economics after 10 to 15 years, found improved health among those who moved to better neighborhoods.  However, their economic prospects hadn’t improved.

But, the Harvard team found that, after 20 years, the children of those families were performing better in measures of economic self-sufficiency.  For example, they were 30% more likely to have gone to college and their annual incomes were 30% higher than their peers in the neighborhoods they had left behind. 

Further, the study validated that the earlier a child moved out of poor neighborhoods, the better they did.  “Every year matters,” avers Dr. Chetty.

This study tracks with other studies done at both Princeton and Stanford, reported by CityLab last year.  It seems clear, or perhaps intuitive, that one’s surroundings affect behavior, values and other attributes leading to economic well-being. 

Perhaps that’s what made me think of Mr. Rogers’ Neighborhood.  It was a positive environment that emphasized emotional development, self-worth, values and the behaviors that contribute to well-being.

Even in poor neighborhoods, there are attributes of households that lead to success.  As I discussed in a post in March of last year (Movin’ on Up: How George JeffersonSucceeded), a study – the Early Childhood LongitudinalStudy (ECLS) – attributed success to the level of the mother’s education, the number of books in the household and two parent families, among many other factors.  Black children underperformed all others but if one controls for the other factors, black children performed as well as their white and Asian peers. 

In other words, there was no difference in the performance of white and black children from two parent families with a well-educated mother and a home full of books.

Those in government and the non-profit community concerned with social welfare and income inequality would do well to consider these data when formulating solutions.  It is unlikely that a one-size-fits-all central planning approach to these challenges will succeed.  As a friend of mine, Germaine Smith-Baugh, CEO of the Urban League of Broward County, puts it:  “Give me a family and I’ll give you a block.  Give me a block and I’ll give you a neighborhood.  Give me a neighborhood and I’ll give you a community.”

Mr. Rogers would have agreed.

WHO WILL LEAD?

Obama, SNAP and conservative Americans

Every time someone tells me the stock market is about to take a tumble, I think I should take some money off the table.  I reallocate my portfolio from time to time. But, I worry that the bubble may burst at any moment (especially since we have seen it happen twice since the turn of the Century).

I have the luxury of such worries.  Since 2009, the major stock market indices have more than doubled.  Life is good. 

What else has experienced as nearly a dramatic increase?  Food stamps!  The government’s Supplemental Nutrition Assistance Program (SNAP) has expanded from $33.5 Billion in fiscal year 2009 to$47.6 Billion in 2013 – an increase of nearly 60%.

Meanwhile the poor have become a main topic of our national political debate.

The President has framed this year’s Congressional campaign by expressing two clear ideas.  One is correct; the other is not.

First, the proposed 40% increase to the minimum wage will not lift anyone out of poverty.  Many of the poor are permanently unemployed and earn nothing.  And, many minimum wage workers are second income earners in two income households.  In other words, they’re not poor.  Even for a 40-hour per week minimum wage worker, an increase from $7.25 to $10.10 would raise an annual salary from about $15K to $21K – a big increase, to be sure, but hardly enough to lift one out of poverty. 

Speaking of his political opponents, the President has also said, “Their philosophy is simple: You’re on your own… [I]f you’re out of work, can’t find a job. Tough luck, you’re on your own. You don’t have health care: That’s your problem. You’re on your own. If you’re born into poverty, lift yourself up with your own bootstraps, even if you don’t have boots. You’re on your own.”

And, on this score, he is correct.

Where is the conservative solution?  If you are a Christian (as many conservatives are), you “must be open-handed to your brothers”.  Is that ethic reflected in the political rhetoric we hear from conservatives in Washington?

It’s easy for conservatives to point to the flaws in the current system of entitlements for the poor.  It needs to be overhauled.

If your household income is $15K today, you are eligible to receive federal assistance with a value of about $25K through a combination of housing, Medicaid, SNAP and the Earned Income Tax Credit (EITC).

If you increase your income, you get less help from the government.  Is it any wonder that conservatives believe that liberal programs have created a “culture of dependency”?

Yet, I believe there is a conservative constituency that will support effective programs to help the poor.   That constituency will respond to solutions that appeal to their charitable instinct and are both community-based and fiscally sound.

Churchgoing Christians have demonstrated a consistent track record of charitable giving.  On average, they give more than 4 times as much to charity as non-denominational citizens. 

Here in Rochester, NY, charities that support the poor are abundant:  Catholic Charities, Foodlink and the University of Rochester Medical Center provide moral, material and medical support to the community.   Rochester Cares matches volunteers with opportunities to help.  Local churches and organizations like Voices Against Poverty live up to Christian ideals providing spiritual and financial support. 

Education reform is the focus of non-profits like e3 Rochester, the Coalition for Common Sense in Education and the Rochester Education Foundation.

But, it’s important to understand that voluntary charitable contributions will not be sufficient to provide what’s needed to support the poor.  Americans give approximately $40 Billion to charities each year.  If you spread that across the 48 Million SNAP recipients, it amounts to about $800 perperson.  Governments – local, state and federal – must participate to support any transformational effort.

It’s also important to understand that the federal government alone cannot do it.  That is not because of a lack of funds.  It is because central planning doesn’t work as has been demonstrated by the last 50 years of Great Society programs.

Helping the poor doesn’t require increasing already massive government programs. It requires thinking carefully about who is in need and how their need can best be met. In some cases, the right solution will involve the government. In others—such as a failing family culture, children caught in ineffective schools, or people permanently dependent on government —the right answer is for the government to get out of the way.

The only question is…

WHO WILL LEAD?

Why we moved from sunny Florida to Rochester, NY

Downtown Rochester, NY

A friend termed it “wonderfully counterintuitive” when we told him we were moving from Florida to NY’s third largest city to semi-retire.  Most people weren’t that polite.  A more typical response was a Catch-22 inspired question, “are you crazy?”

The truth is that 18 years in Florida left us burned out by the hot, sticky weather, and with a sense that we never quite fit in.

We’ve always had a connection to Rochester.  My wife and I met here when we worked at Citibank and we’ve traveled here for summer vacations many times over the years, finally investing in a condo on Canandaigua Lake a few years ago.  Still Rochester is not a logical choice for most and has its own array of good, bad and ugly.

The Good

Rochester is a college town with a highly educated populace and the entertainments that educated north easterners enjoy — music, theatre, museums, outdoor sports and dining.  

Kodak founder George Eastman wasn’t the city’s founder but he might as well have been.  He laid the groundwork for technical manufacturing that continues to be a Rochester strength. He established the Eastman School of Music, among the best music schools in the country. His name adorns buildings at both of the major universities here and his mansion – now a museum – anchors its swankiest street, East Avenue. 

The festival season kicked off last week with the Lilac Festival.  Next month, the highlight will be the Rochester International Jazz Festival.  Last year’s attendance approached 200K.  You don’t have to enjoy jazz to appreciate the festival or to appreciate its significance.  In a small city, an event like RIJF wouldn’t exist were it not for a ready audience of people who crave non-mainstream entertainment.

The job engine of Rochester was The Big 3 (Kodak, Xerox and B&L).  In the wake of their now diminished presence, a very entrepreneurial culture has sprung up.

But, the emotional connection springs from Rochester’s existence at the juncture of Brooklyn wise-ass and Midwest nice.  Sarcasm is not mortal combat here; it’s just fun.

The Bad

If you know the difference between latitude and longitude, you know the winters are bad here.  This one just ended was among the worst with record setting, sub-zero temperatures.  But, we have our consolations, too.  I have considered proposing a new city motto, “Rochester – No hurricanes, tornadoes, earthquakes, floods, drought, wildfires, mud slides or dustbowl but Icy”.  Whaddaya think?

More than the weather, taxes are at the top of the ‘Bad’ list.  New York has the highest tax burden of any state in the nation.  We also have the highest debt per capita; so, there’s little hope of relief in the foreseeable future. 

The Ugly

When I worked here in the last century, downtown Rochester was an energetic place.  Citibank’s offices were located at State and Main along the Genesee River.  At lunchtime, it bustled with be-suited bankers, lawyers and other professionals.  There was a robust choice of upscale restaurants.  It was a cool place to hang out.

That’s no longer the case. The city feels hollow. 

A local study now rates Rochester as the fifth poorest city among the nation’s 75 largest. We have the state’s second highest crime rate (Buffalo is slightly higher), more than 3 times that of New York City.

Rochester is not alone in this quagmire of poor neighborhoods, weak families, lousy schools and lack of opportunity.  It’s a national problem. It’s not only a shame; it’s shameful for a nation of so much wealth.

The programs implemented and promoted by liberals for the last 50 years have not worked. But, it’s worse that conservatives seem to be in denial.  To say that everyone should succeed on their own merits ignores the lack of equal opportunity among our urban poor. 

Rochester’s city school system has been ranked worst in the state and, to make matters worse, the state’s best (in Pittsford) is only a few miles away.

 

The Erie Canal in Fairport, NY

Local efforts among the non-profit community have shown some progress. National organizations like the Urban League are active here.  And, there is also an active charter school movement in the city.  By September, the city will have 14 of them.

But, none of these efforts have reached the critical mass necessary to lift the community out of poverty.

Yes, we love it here.  But, we are happily ensconced in the charming, little Village of Fairport along the Erie Canal.  For Rochester to be a great city again, we must find a way to address our greatest challenge:  our inner city, urban poor.

WHO WILL LEAD?