Business Is Getting Political—and Personal

As anyone reading this blog is undoubtedly aware, Sarah Huckabee Sanders, the current White House Press Secretary, was asked last month by the owner of a restaurant to leave the establishment on the basis that she and her staff felt a moral imperative to refuse service to a member of the Trump administration. The incident, and the ensuing turmoil, highlights the extent to which business has become another political battleground—a concept that makes many anxious.

Whether or not businesses should take on political and social responsibilities is a fraught question—but not a new one. Writing for the New York Times in 1970, Milton Friedman famously argued that businesses should avoid the temptation go out of their way to be socially responsible and instead focus on maximizing profits within the legal and ethical framework erected by government and society. To act otherwise at the expense profitability, he reasoned, is to spend other people’s money—that of shareholders, employees, or customers—robbing them of their agency.

Though nearing fifty years of age, much of Milton Friedman’s windily and aptly titled essay, The Social Responsibility of Business Is to Increase Profits, feels like it could have been written today. Many of the hypotheticals he cites of corporate social responsibility—“providing employment, eliminating discrimination, avoiding pollution”—are charmingly relevant in the era of automation anxiety, BDS, and one-star campaigns. His solution, that businesses sidestep the whole mess, focus on what they do best, and play by the rules set forth by the public, is elegant and simple—and increasingly untenable.

One reason for this is that businesses and the governments Friedman imagined would reign them in have grown much closer, even as the latter have grown comparatively weaker. In sharp contrast to the get-government-out-of-business attitude that prevailed in the boardrooms of the 1970s, modern industry groups collectively spend hundreds of millions to get the ears of lawmakers, hoping to obtain favorable legislation or stave off laws that would hurt them. Corporate (and other) lobbyists are known to write and edit bills, sometimes word for word.

You could convincingly argue that this is done in pursuit of profit: Boeing, for example, spent $17 million lobbying federal politicians in 2016 and received $20 million in federal subsidies the same year. As of a 2014 report by Good Jobs First, an organization that tracks corporate subsidies, Boeing had received over $13 billion of subsidies and loans from various levels of government. Nevertheless, this is wildly divergent from Friedman’s idea of business as an adherent to, not architect of, policy.

As business has influenced policy, so too have politics made their mark on business. Far more so than in the past, today’s customers expect brands to take stands on social and political issues. A report by Edelman, a global communications firm, finds a whopping 60% of American Millennials (and 30% of consumers worldwide) are “belief-driven” buyers.

This, the report states, is the new normal for businesses—like it or not. Brands that refrain from speaking out on social and political issues now increasingly risk consumer indifference, which, I am assured by the finest minds in marketing, is not good. In an age of growing polarization, every purchase is becoming a political act. Of course, when you take a stand on a controversial issue, you also risk alienating people who think you’re wrong: 57% of consumers now say they will buy or boycott a brand based on its position on an issue.

This isn’t limited to merely how corporations talk. Firms are under increasing social pressure to hire diversity officers, change where they do business, and reduce their environmental impact, among other things. According to a 2017 KPMG survey on corporate social responsibility, 90% of the world’s largest companies now publish reports on their non-business responsibilities. This reporting rate, the survey says, is being driven by pressure from investors and government regulators alike.

It turns out that a well marketed stance on social responsibility can be a powerful recruiting tool. A 2003 study by the Stanford Graduate School of Business found 90% of graduating MBAs in the United States and Europe prioritize working for organizations committed to social responsibility. Often, these social objectives can be met in ways that employees enjoy: for example, cutting a company’s carbon footprint by letting employees work from home.

In light of all this, the choice between social and political responsibility and profitability seems something of a false dichotomy. The stakes are too high now for corporations to sit on the sidelines of policy, politics, and society, and businesses increasingly find themselves taking on such responsibilities in pursuit of profitability. Whether that’s good or bad is up for debate. But as businesses have grown more powerful and felt the need to transcend their formerly transactional relationships with consumers, it seems to be the new way of things.

Occupational Licensing Versus the American Dream

Imagine: You’re one of the 6.1 million unemployed Americans. Try as you might, you can’t find a job. But you’ve always been great at something—cutting hair, giving manicures, or maybe hanging drywall—so great, in fact, that you reckon you could actually make some real money doing it. What’s the first thing you do?

If your answer was something other than, “Find out how to obtain the state’s permission,” you’re in for a surprise.

A shocking amount of occupations require workers to seek permission from the government before they can legally practice. This includes not just the obvious, like doctors and lawyers, whose services, if rendered inadequately, might do consumers life-threatening harm, but also barbers, auctioneers, locksmiths, and interior designers.

This phenomenon is known as occupational licensing. State governments set up barriers to entry for certain occupations, ostensibly to the benefit and protection of consumers. They range from the onerous—years of education and thousands of dollars in fees—to trivialities like registering in a government database. At their most extreme, such regulations make work without a permit illegal.

As the United States transitioned from a manufacturing to a service-based economy, occupational licensing filled the “rules void” left by the ebb of labor unions. In the past six decades, the share of jobs requiring some form of license has soared, going from five percent in the 1950s to around 30 percent today. Put another way: over a quarter of today’s workforce requires government permission to earn a living.

There’s little proof that licensing does what it’s supposed to. For one, the potential impact to public safety seems wholly incidental to the burden of compliance for a given job. In most states, it takes 12 times as long to become a licensed barber as an EMT. In a 2015 Brookings Institution paper, University of Minnesota Professor Morris Kleiner, who has written extensively on the subject, states: “…economic studies have demonstrated far more cases where occupational licensing has reduced employment and increased prices and wages of licensed workers than where it has improved the quality and safety of services.”

Ironically, the presence of strict licensing regulations also seems to encourage consumers to seek lower-quality services—sometimes at great personal risk. When prices are high or labor is scarce, consumers take a DIY approach or forego services entirely. A 1981 study on the effects of occupational licensing found evidence for this in the form of a negative correlation between electricians per capita and accidental electrocutions.

A less morbid, but perhaps more salient, observation is that licensing often creates burdens that are unequally borne. Licensing requirements make it difficult for immigrants to work. In many states, anyone with a criminal conviction can be outright denied one, regardless of the conviction’s relevance to their aspirations. These policies, coupled with the potential costs of money and time, can make it harder for poorer people, in particular, to find work.

But surely, you might say, there must be some benefit to licensing. And technically, you’d be right.

Excessive licensing requirements are a huge boon to licensed workers. They restrict the supply of available labor in an occupation, limiting competition and in some cases raising wages. There’s little doubt that occupational licensing, often the result of industry lobbying, functions mainly as a form of protectionism. A 1975 Department of Labor study found a positive correlation between the rates of unemployment and failures on licensing exams.

Yet even licensed workers can’t escape the insanity unscathed. Because licenses don’t transfer from state to state; workers whose livelihoods depend on having a license face limited mobility, which ultimately hurts their earning potential.

Though licensure reform is typically thought of as a libertarian fascination—the libertarian-leaning law firm Institute for Justice literally owns occupationallicensing.com—it also has the attention of more mainstream political thinkers. The Obama Administration released a report in 2015 outlining suggestions on how the states might ease the burden of occupational licensing, and in January of this year, Labor Secretary Alexander Acosta made a similar call for reform.

Thankfully, there seems to be some real momentum on this issue. According to the Institute for Justice, 15 states have reformed licensing laws to “make it easier for ex-offenders to work in state-licensed fields” since 2015. Louisiana and Nebraska both made some big changes this year as well. That’s a great start, but there’s still much work to be done.

This article originally appeared on Merion West

Ben Carson’s Tragically Mundane Scandal

Whatever else it might accomplish, President Donald Trump’s administration has surely earned its place in history for laying to rest the myth of Republican fiscal prudence. Be they the tax dollars of today’s citizens or tomorrow’s, high ranking officials within Mr. Trump’s White House seem to have no qualms about spending them.

The latest in a long series of questionable expenses is, of course, none other than Department of Housing and Urban Development Secretary Ben Carson’s now infamous $31,000 dining set, first reported on by the New York Times.¹ Since the Times broke the story, Mr. Carson has attempted to cancel the order, having come under public scrutiny for what many understandably deem to be an overly lavish expenditure on the public dime.

At first blush, Secretary Mr. Carson’s act is egregious. As the head of HUD, he has a proposed $41 billion of taxpayer money at his disposal. Such frivolous and seemingly self-aggrandizing spending undermines public trust in his ability to use taxpayer funds wisely and invites accusations of corruption. It certainly doesn’t help the narrative that, as some liberals have noted with derision, this scandal coincides with the proposal of significant cuts to the department’s budget.

But the more I think about it, the more I’m puzzled as to why people are so worked up about this.

Let me be clear: this certainly isn’t a good look for the Secretary of an anti-poverty department with a shrinking budget, and it’s justifiable that people are irritated. At a little more than half the median annual wage, most of us would consider $31,000 an absurd sum to spend on dining room furniture. The money that pays for it does indeed come from private citizens who would probably have chosen not to buy Mr. Carson a new dining room with it.

And yet, in the realm of government waste, that amount is practically nothing.
Government has a long, and occasionally humorous, history of odd and inefficient spending.

Sometimes, it can fly under the radar simply by virtue of being bizarre. Last year, for example, the federal government spent $30,000 in the form of a National Endowment for the Arts grant to recreate William Shakespeare’s play “Hamlet” – with a cast of dogs. Other times, the purchase at hand is too unfamiliar to the public to spark outrage. In 2016, the federal government spent $1.04 billion expanding trolley service a grand total of 10.92 miles in San Diego: an average cost of $100 million per mile.

Both of those put Mr. Carson’s $31,000 dining set in a bit of perspective. It is neither as ridiculous as the play nor as great in magnitude as the trolley. So why didn’t either of those incidents receive the kind of public ire he is contending with now?

The mundanity of Mr. Carson’s purchase probably hurts him in this regard. Not many of us feel informed enough to opine on the kind of money one should spend building ten miles of trolley track, but most of us have bought a chair or table. That reference point puts things in perspective and allows room for an emotional response. It’s also likely this outrage is more than a little tied to the President’s unpopularity.

Ironically, the relatively small amount of money spent might also contribute to this effect. When amounts get large enough, like a billion dollars, we tend to lose perspective – what’s a couple million here or there? But $31,000 is an amount we can conceptualize.

So it’s possible that we’re blowing this a little out of proportion for forces that are more emotional than logical. But I still think the issue is a legitimate one that deserves more public attention than it usually gets, and it would be interesting if the public were able to apply this kind of pressure to other instances of goofy spending. Here’s hoping, anyway.

A version of this article originally appeared on Merion West

1. I wrote this article the day before word broke that Secretary of the Interior Ryan Zinke had spent $139,000 upgrading the department’s doors.

The CBO Feels the Love

The Congressional Budget Office isn’t known for its awesome marketing or pithy statements. It’s never been recognized by Buzz Feed for its social media use. Nevertheless, the Congressional Budget Office (CBO) is enjoying an unusual amount of love on Twitter.

Here’s how you really know they’ve made it: The title of yesterday’s National Review Morning Jolt was, “The Congressional Box Office is Very ‘In’ Right Now.”

Two nights ago, it tweeted a four-word message with a link to its analysis of the American Health Care Act (AHCA) that has received far more attention than is normal for the CBO twitter account. As of writing this post, the tweet in question has racked up 62 responses, 846 retweets, and 542 likes.

That might not sound like a lot; the truth is, it isn’t. Donal Trump’s tweets, for example, often receive tens of thousands of ‘likes.’ But relative to the usual engagement on the CBO’s tweets, it’s absolutely ridiculous.

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Since January first of 2016, the CBO has tweeted 120 times. The median numbers of responses, retweets, and ‘likes’ to those tweets were respectively 0, 3, and 2. In fact, this latest tweet is responsible for nearly half of all the reactions garnered by the CBO’s account over that time period.

So what does this tell us?

The most obvious insight is that people are paying more attention to the CBO since the administration change. That’s not surprising; the CBO evaluates economic and budget proposals, and there are quite a few shakeups going on in that department right about now. The agency has been firing on all cylinders to keep up with demands from Congress, doubling the frequency of its tweets since Trump took office (.48 tweets/day compared with .24 tweets/day during the previous year).

In the final year of Barack Obama’s presidency, the CBO only averaged 9.5 ‘retweets’ per tweet–and that’s including a January 17th tweet that was responsible for 405 retweets alone (if you exclude that post, the account averaged 5 retweets per post). Since the beginning of the Trump administration, that average has jumped to 39.6 (7.6 if you don’t include the latest viral tweet).

Another insight: Negative feelings about the AHCA are driving the CBO’s recent popularity surge. The only two tweets with significant activity in the past year (look at the spikes in the graphs above) were about the AHCA and the effects of repealing the Affordable Care Act (ACA). A cursory glance through the responses to both tweets reveals that most of the commenters are detractors of the current administration who oppose changes to the ACA.

It would be a mistake to use this as a proxy for national consensus on the AHCA, however. Twitter often skews liberal.

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For the record, the CBO writes a killer blog (I use the term loosely, for obvious reasons). It’s a great source of unfiltered information about economic ideas from Washington. You can sign up to receive email updates from it here. And, if the CBO is reading this, don’t forget about us when you get famous.

What’s Up with U.S. Public Education?

*I wrote this a while ago, but didn’t publish. I was on vacation–sue me. I know the internet has the attention span of a five-year-old, and people aren’t really talking about DeVos anymore, but I’m hoping this is still interesting to someone.

The confirmation of Betsy DeVos as Secretary of Education was perhaps the hardest-won victory of President Trump’s nascent administration. Opposition to the DeVos ran deep enough to require Vice President Pence to cast a historic tie-breaking vote.

To hear it from those on the Left, DeVos is uniquely unqualified for the position. Her lack of personal experience with the public school system, coupled with her one-sided approach to education and purported ignorance of education policy make her unsuited to the position, they argue.

On the Right, the response has been to call into question the political motivations behind opposition to DeVos. Teachers’ unions, after all, are some of the biggest spenders in U.S. politics and their economic interests are threatened by the kind of reforms DeVos’ appointment might foreshadow.

It’s hard to know if either or both sides are being overly cynical. I don’t pretend to have any deep knowledge of DeVos or her new mantle. But one thing seems empirically true: the status quo of public education isn’t above reproach.

More Money, Same (Math, Science, Literacy) Problems

According to data from the National Center for Education Statistics (NCES), per pupil spending on public education has increased roughly 1.7% annually since 1980. Student performance, however, has largely stagnated over the same period by various metrics. To somewhat immodestly quote myself:

The statistics are damning: Literacy rates among 17-year-old Americans peaked in 1971. Standardized testing reveals that math scores peaked in 1986. Test scores show a lack of improvement in math, science, and reading, in which respectively 25%, 22%, and 37% of American students are proficient.

This kind of stagnation isn’t typical among other nations; the United States showed much smaller levels of inter-generational improvement than other OECD nations. Up until about 1975, Americans were scoring significantly higher in math and literacy than Americans born before them. Since 1975, scores have plateaued, even adjusting for race and foreign-born status of students. As [Gallup’s] study states, this implicates the entire US school system.

Test scores aren’t the only indicators of educational dysfunction. Fully 60% of first-year college students need to take remedial courses in either math or English (to be fair, you might attribute this in part to college admission policies). Companies are also reporting longer vacancies for STEM positions and increasingly are forced to delay projects or look outside the U.S. for workers.

To be clear, it’s not that US public schools are producing particularly terrible outcomes (though they’re admittedly middling among the developed world). The real problem is spending on public education is becoming increasingly inefficient; we’re putting more and more resources into it and receiving little or no additional benefit. This is a long-term trend that should be addressed immediately to avoid throwing good money after bad.

In fairness, I have to point out that speaking of public schools in national terms risks obscuring that some public schools–usually found in high-income neighborhoods–perform incredibly well. However, unequal educational outcomes are often considered a bug, rather than a feature, of the public school system, which charter schools have in some cases been able to address with varying degrees of success (though there are charges that this is only possible because charters are given greater latitude in selecting their students).

The Status Quo Is Hard on Teachers, Too

There is a perception among some that public school teachers are profiting hand over fist as a result of teachers’ unions, to the expense of students. But the truth is a little more complicated.

On one hand, strong teachers’ unions have engendered some policies that arguably favor educators over students. Teacher firing rates, for example, are extremely low. This is especially true for tenured teachers, of which an average of 0.2 are dismissed per district for poor performance annually, according to the National Center for Education Statistics.

This is made possible (at least in part) by what effectively amounts to state-sanctioned local monopolies on education. Constraints on demand impede normal market mechanisms from weeding out inefficient suppliers (at least, that’s the theory embraced by school choice advocates). This isn’t illogical, and it explains the somewhat rare rift between black parents and the Democratic party line on school choice.

Consider a thought experiment: Imagine families were forced to shop for food only in their own neighborhoods. What might we expect to happen to the quality of food consumed by people in poor areas? What if we put limits on the amount of new stores that could open?

In this light, it might be accurate to say that policies that require students to attend schools in their district prioritize the school system over the scholars.

On the other hand, a lot of teachers are being harmed by the current system–particularly the young and good ones.

Under current agreements, teacher compensation rates are in large part determined by longevity, both within the profession and teaching district. Young teachers–especially women teaching young children–are often underpaid relative to other professions.

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Source: No Recovery, Gallup 2016

Additionally, collective bargaining agreements have led to pay compression (a narrowing of the pay gap between high and low performers) among teachers, which penalizes high performing teachers and benefits low performing teachers. Correspondingly, there has been a detectable decline in standardized test scores of new teachers since the 1960s.¹

The combination of longevity-driven pay and salary compression has made teaching a less attractive profession for the best candidates, who can earn more in other comparable fields. A 2014 survey by the American Federation of Teachers revealed merely 15% of teachers report high levels of enthusiasm about their profession, despite 89% feeling highly enthusiastic at the beginning of their careers.

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What might we say about an education system that grows increasingly expensive without improvement for students or teachers? We might say that it needs work and we should be open to new ideas, in whatever form they might come. It might also be wise to proceed with caution; for better or worse, this is the system we have right now.

I don’t know if Mrs. DeVos’ agenda will result in improvements. The divergent problems of climbing spending and poor teacher incentive could prove difficult to address simultaneously, especially in the current political climate. But we should all remember the true goal of an education system–public, private, or somewhere in between–is to efficiently increase human capital. How that happens should be of secondary concern.

  1. The study I cited found these results to be true only among female teachers. For some reason, scores of incoming male teachers improved slightly over this period. If anyone has any theories as to why this might be, I’d love to hear them.