Media attempts to explain the poor's inaction

INEQUALITY is on the rise, but the poor have not been rising up against it. Recent posts here disagree about why they are so quiet. W.W. argues that the poor aren’t bothered by inequality because they already have decent access to consumer goods, and the extra money the rich have doesn’t make them that much better off. Once one has an ordinary refrigerator, he writes, the added value of a luxury brand is not that great. W.W. is appealing to the familiar idea that the marginal utility of an extra dollar declines with income. As a general matter this is surely correct.

Yet we must ask: at what point does the marginal utility of income get so small that it’s not worth complaining about the fact that 95% of economic growth has gone to the top 1% since the end of the recession, while median income for non-elderly households has fallen by 11.6% since 2000? With people at the bottom suffering declining incomes, couldn’t they benefit substantially from an economy that distributed the gains of growth more equitably? In addition, people want more than just a bundle of consumer goods: they also want economic security and a better life for their children. Recent increases in the quality and decreases in the real prices of consumables don’t come close to making up for the insecurities of long-term unemployment, underwater houses and overwhelming student debt for millions of Americans. And the hollowing out of middle-class jobs—reflected in the fact that the percentage of Americans who identify as lower or lower middle class has risen by 15% since 2008, to 40%—raises fears that the increasing distance between rungs of the economic ladder are making it harder for young people to climb up. It’s a worrying sign that people under 40 are much less wealthy than their parents were at the same age, and that this was true even before the recession.

On the other hand, W.W.’s argument implies that the marginal utility of income to the top 1% is practically zero. Given that the top 1% now claim over 20% of America's income, and the top 10% claim half, there is a lot of room for increased taxation (in addition to the tax reforms preferred by this paper, in order to limit the loopholes and deductions that mostly benefit the affluent). This would impose negligible welfare losses on the rich, and provide considerable gains if redistributed to people who could really use it. Welcome to the Saez and Piketty club, W.W.!

So far we’ve only been considering access to private consumables. But people also care about access to state-provided goods. W.W.’s accounting ignores the connections between inequality and state-provided goods. This is evident on p.8 of his report, which claims that “half the increase in the college wage premium disappears when the housing costs borne by college grads are taken into account.” The high cost of housing purchased after college incorporates the value of public goods in the area, including schools, transportation, parks, roads, fire service, tree-lined streets and non-predatory police protection. People with a college degree are hardly frittering away their income in choosing to live in areas with high housing costs, given the attending benefits.

So the better-off manage to get access to better schools and nicer streets, even though they generally pay a substantially lower percentage of their incomes in state and local taxes than the poor. Zoning regulations such as building-height limitations, minimum lot sizes, and bars on multifamily units serve to maintain the high housing costs in wealthier municipalities, thereby limiting access to the superior public goods these areas provide. Such regulations end up concentrating the poor in high-poverty areas with meagre public goods, as the tax bases of poor districts remain low despite the higher rates.

Furthermore, zoning, along with other government policies and private housing discrimination, plays a critical role in sustaining de facto racial segregation of neighbourhoods, with particularly grim consequences for the prospects of African-Americans, who are disproportionately poor. In other cases, the better off, having provided themselves with private versions of certain goods, resist the taxes and initiatives needed for local governments to provide these as public goods to all. The wealthy suburbs of Atlanta, for example, are notorious for rejecting regional public-transportation projects that would include the poorer urban core. Why support buses, needed by the poor to get access to areas of job growth, when the rich own their own cars? Similarly, residents of gated communities have been resisting taxes to support public roads and parks because their association fees pay for private streets and recreational facilities.



Locally provided public goods are not the only problem. Much of the harm of inequality, I argue, is due to the disproportionate influence that wealthier people have over public policy at all levels of government. This is most evident in the financial sector, which has been both a principal beneficiary of rising inequality and a main source of pressure for regulations that have increased the share of income at the top. State actions, such as the Commodity Futures Modernization Act of 2000, which exempted derivatives from regulation, and the SEC’s relaxation of leverage limits in 2004, played key roles not only in enriching the richest but also in enabling the financial crisis. The sluggish recovery, driven by austerity policies reflecting the policy preferences of the wealthy, continues to harm millions. The financial sector is hardly alone. Expansion of health insurance has long been held hostage to the protection of the better-off. Medicare was won only by buying off physicians’ opposition with a state-supported cartel to fix the prices of doctors’ services, helping to drive health-care inflation ever since. Obamacare was won only by buying off pharmaceutical companies’ opposition through a ban on state bargaining to reduce drug costs. The list of inequality-increasing, competition-limiting policies undertaken at the behest of the wealthy goes on and on. 

The rich, especially the top 1%, have policy preferences to the right of the general public. The constant need of politicians to raise heaps of campaign cash forces them to cater to those who give it. No wonder, then, that members of Congress vote in accordance with the political preferences of wealthier members of their districts, and ignore the needs of the poor.  Maybe one reason the poor aren’t protesting louder is that lawmakers aren’t interested in listening.

Article Source:  A, E. "The Inaudible Majority." The Economist. The Economist Newspaper, 6 Feb. 2014. Web. 09 Feb. 2014.

Year Of Action On Inequality? Ten Days Later, Obama Cuts 8.7 Billion in Foodstamps

 Harlem residents choose groceries at the Food Bank For New York City, Dec. 11, 2013. in New York, N.Y. - John Moore/Getty


On Friday, President Obama added his signature to legislation that will cut $8.7 billion in food stamp benefits over the next 10 years, causing 850,000 households to lose an average of $90 per month. The signing of the legislation known as the 2014 Farm Bill occurred at a public event in East Lansing, Mich.

The food stamp cuts are one component of a massive omnibus bill which also includes billions of dollars in crop insurance and various other programs and subsidies involving American agriculture. Before he signed the legislation, President Obama praised it as an example of bipartisan problem-solving that would help create jobs and move the American economy forward.
“Congress passed a bipartisan Farm Bill that is going to make a big difference in communities across the country,” said the president.

Obama’s remarks also focused heavily on economic inequality, which he has previously called “the defining challenge of our time.” The Farm Bill, he said, would “give more Americans a shot at opportunity.”

When House Republicans originally argued for a food stamp cut of between $20.5 billion and $39 billion, the White House threatened to veto both of those proposals. During his Friday speech, the president did not say whether he was satisfied with the final $8.7 billion figure, or even mention the cuts at all. Instead, he praised the food stamp program and said that the final Farm Bill preserved much-needed benefits.



“My position has always been that any Farm Bill I sign must include protections for vulnerable Americans, and thanks to the hard work of [Senate Agriculture Committee chair Debbie Stabenow, D-Mich] and others, it does just that,” he said.  Stabenow, who played a key role in Farm Bill negotiations, fully embraced the cuts in a speech delivered shortly before the president took the stage.

“This is a nutrition bill that makes sure families have a safety net just like farmers do,” she said. “The savings in food assistance came solely from addressing fraud and misuse while maintaining the important benefits for families that need temporary help.”

Speaking to reporters on Air Force One before the speech, Agriculture Secretary Tom Vilsack made much the same point, saying that the $8.7 billion cut “probably makes the program more legitimate than it was.”

In fact, the benefits reduction would eliminate the state-level “Heat and Eat” policies currently employed in 15 states and Washington, D.C. Left-wing opponents of the Farm Bill, including Rep. Jim McGovern, D-Mass., expect the burden of burden of the cuts to fall disproportionately on the elderly and disabled.

“Poor people are getting screwed by this Republican majority [in the House] and Democrats in my opinion aren’t doing enough to push back,” he said. “I wish there had been more of a fight from the White House and others.”

McGovern also admitted to being “puzzled” by the White House’s silence on hunger and food stamp cuts. He predicted that Republicans’ success in getting a several billion dollar food stamp cut meant that they would soon try again for even more.

“They know they can’t get a $40 billion cut right off the bat, so what they’re doing is they’re chipping away at it,” he said.

Article Source:  Resnikoff, Ned. "President Obama Signs $8.7 Billion Food Stamp Cut into Law." MSNBC. NBC Universal, 01 Feb. 201. Web. 07 Feb. 2014.

Homelessness among D.C. families called ‘catastrophic’

The unexpected and unprecedented rise in family homelessness in the District this winter — bringing homelessness to levels not seen since the crises of the 1980s — is costing at least $20 million more than city leaders anticipated. And unless things change quickly, hundreds of these families could be stuck in shelters and hotels long into the spring of 2015.

More than 1,000 new homeless families will need shelter this winter if current rates continue, David Berns, director of the D.C. Department of Human Services, said Monday at a roundtable hearing. And only 250 families already in shelters are projected to leave. Adding to the urgency, Berns said, is that the D.C. General family shelter is full and so are all the inexpensive hotel rooms in the city.




Wintry onslaught heightens desperation of homeless families seeking emergency shelter in D.C.
The 110 homeless families placed into two Maryland hotels will have to be moved back to the District in the coming weeks, after Maryland officials raised concerns, he said. At the same time, many D.C. hotels where homeless families are staying need the rooms for the already-booked Cherry Blossom Festival and the coming tourist season. Homeless families currently are being sent to two D.C. recreation centers to sleep on cots in large, open spaces.

“It sounds bad, and it’s worse than it sounds,” Berns said.

Berns intimated that, without additional funding, he may in the spring need to close shelters for homeless singles that typically stay open all year, and he told city leaders that he wouldn’t want to have to resort to “equally horrid” measures such as no longer paying for hotel rooms. But, he said, the homeless family crisis has quickly become a long-term fiscal crisis.

“If we can’t move more families out, we’ll start next year already in a deep hole,” he said. “All our money will be going to maintain the families already in the system, rather than the new ones coming in.”

Advocates, homeless families and city leaders at Monday’s roundtable hearing described the homeless family crisis this cold winter as “catastrophic,” and they called for short-term fixes to more quickly move people out of crowded shelters and hotels and into apartments and stable homes. They also called for long-term solutions to replace some of the thousands of units of affordable housing the city has lost as it gentrifies, and better jobs for people with very limited means.

They urged city leaders to tap into some of the $300 million budget surplus from last year to get people into permanent housing with rent subsidies, which they said would be cheaper than the $50,000 a year it costs to house a family at D.C. General and the $31,000 to $43,000 it costs per family per hotel room annually.

But when it came to what to do about the crisis, Berns came up short.

“Right now, I don’t have any fresh ideas,” he said.

Since the city started offering only cots at recreation centers, Berns said the number of homeless families asking for shelter has dropped from an average of 30 a day down to 17 on the first day families were sent to recreation centers last week. On Monday, there were no families asking for shelter.

A group of advocates worked over the weekend on a plan to resolve the crisis that included hiring more staff members dedicated to looking for more affordable apartments, working with landlords to accept short-term rental subsidies and ensuring that the city’s Rapid Rehousing program is working.

Part of the reason for the backlog, advocates and homeless families said, is the city’s new philosophy of using Rapid Rehousing — providing short-term rental assistance for market-rate rentals and intensive help to get families to cover the costs themselves within four months to a year. Landlords don’t want to take short-term leases. And homeless families are too afraid to try it — instead they choose to stay in the shelter or hotels.

Cartrice Haynesworth , one of several homeless family members testifying Monday, said she’d rather have a voucher for a permanent subsidy or a rent-controlled public housing unit. But advocates said the city is no longer providing the former and there are no spaces at the latter.

Haynesworth decided to try Rapid Rehousing and Wednesday moved in to a $1,208-a-month, two-bedroom apartment. Since she’s been out of work, she receives $202 in Temporary Aid to Needy Families, plus food stamps for herself and her 11-year-old daughter. She will pay $64 a month toward rent and has, she said, all long way to go — getting a high school degree and finding a job — before she can cover it all.

“A lot of families that tried Rapid Rehousing are back at D.C. General, so families are afraid to try it,” she said. “That’s one of my fears.”

Council member Jim Graham (D-Ward 1), chairman of the Human Services Committee, who called the roundtable, said the city must find answers. “But we don't solve the problem by bringing people from hotels in Maryland and putting them in D.C. rec centers.”

 Article Source:  Schulte, Brigid. "Homelessness among D.C. Families Called ‘catastrophic’." Washington Post. The Washington Post, 04 Feb. 2014. Web. 06 Feb. 2014.

Energy companies continue utility shutoffs as bitter cold hits Detroit

Increasing numbers of low-income families in the Detroit area and the rest of Michigan are having their utilities shut off by the energy corporations, in the midst of bitter cold conditions. With temperatures falling below zero, residents are desperately trying a variety of means to heat their homes, including space heaters and propane, which greatly increase the risk of residential fires.

An article published Monday in the Detroit Free Press, titled “Michigan customers behind on utility bills face shutoff, even in winter,” related the story of Nathan Blair, husband and father of two young girls, who recently had his utilities shut off just as temperatures plunged to negative four degrees.

Blair’s wife, Victoria Concord, 29, told the Free Press, “I was surprised they shut it off,” she said. “To shut it off if you have children is a little extreme.”

The Free Press pointed out that utility shutoffs frequently occur during the coldest months of the year, despite the common misconception that such shutoffs are illegal. In January 2013 alone, the Free Press reported, more than 25,000 DTE and Consumers Energy (CMS) accounts were disconnected, and a further 169,407 households were cut between January and September 2013.

While the companies provide some protections for seniors from utility shutoffs under programs such as the “Winter Protection Program,” these measures are extremely limited. As the Free Press noted, “Experts, however, cautioned that a moratorium only postpones the inevitable. Senior citizens who fail to make payments through the winter when they are protected from utility disconnection in Michigan face a reckoning in the spring because bills add past due to current charges. That kind of snowballing effect makes it even harder for struggling residents to catch up.”

Since the crash of 2008, millions of Americans been plunged into poverty. The utility companies have responded to the crisis by carrying out countless shutoffs against working class families. Through September 2013, DTE reported 169,407 shutoffs and CMS reported 118,203 shutoffs. Shutoffs have escalated rapidly since the beginning of the economic crisis, with DTE shutoffs two and half times greater in 2011 than in 2007.

At the same time, the utility providers continue to reap huge profits and benefit from federal tax relief. DTE and CMS paid no federal taxes between 2008 and 2010, and they increased executive compensation from $9 million to $14 million and from $7.3 million to $12.4 million respectively over the same period.

These companies are now continuing their practice of leaving working class families in the cold, in the midst of record-breaking low temperatures resulting from the “polar vortex.”

Across the US, rising energy prices are taking a larger and larger bite out of household budgets already strained to the breaking point. A January 2013 report published by the American Coalition for Clean Coal Electricity, “Energy Cost Impacts on American families,” found that more than half of US households spend more than 20 percent of their family budget on energy costs.

According to projections provided by DTE, the average Michigan customer will have seen their bills increase by 13 percent between November 2013 and January 2014.

While energy prices continue to rise, the Obama administration has presided over drastic reductions in federal heating aid for poor families disbursed through the Low Income Home Energy Assistance Program (LIHEAP). From 2010 to 2012, LIHEAP funding was cut from $5.1 billion to $3.5 billion as a result of cuts approved by the Obama administration. As a result, Michigan has lost $100 million in residential heating assistance from the federal government over the last two years.

DTE wields enormous power in Michigan politics, enabling the company to exploit and victimize the population with impunity. Far from being prosecuted for the dozens of deaths that have resulted from its aggressive shutoff policies, DTE has now been given control over the public lighting system by the mayor of Detroit, David Bing, who sat on the company’s board for some 20 years and retains close ties to the company.

The Free Press noted that, “instead of a moratorium on shutoffs”—an idea, which was floated after a 93-year-old veteran, Marvin E. Schur, froze to death in his Bay City home in January 2009—“Michigan legislators instituted a program last year to ensure better funding for utility payment assistance.” This involves a monthly 99-cent surcharge on customers to fund utility assistance for low-income residents. “Utilities could either levy the surcharge or agree to no winter shutoffs,” the Free Press wrote.

“DTE and Consumers are among the utilities that levy the surcharge and were approved in October for state grants of $16 million and $10.9 million, respectively, that are to be used to assist low-income customers.” This can only mean that the utility giants rejected such a ban and are continuing their criminal practice of shutting off low-income families in the middle of winter, with the sanction of state legislators from both big business parties in Lansing.

“We try to err on the side of caution, but we also want our customers to understand they are responsible for the energy they consume,” Whitney Skeans, a spokesperson for Consumers Energy, told the Free Press .

In 2010, utility shutoffs by DTE resulted in a series of deadly house fires in Detroit that claimed several lives, including two wheelchair-bound brothers on Dexter Avenue and three children on Bangor Street. In both cases, the company sought to deflect attention from its responsibility by blaming the tragedies on “energy thieves” who hook up houses to DTE power lines. With the backing of the state, DTE demanded arrests and launched a spying campaign against Detroit residents, which included the use of aerial infrared photography to determine which houses still had heat after being turned off for non-payment.

At the same time, DTE launched a publicity campaign, promoting its charity, the Heat and Warmth Fund (THAW), and its Winter Protection Plan (WPP). In addition to only protecting seniors from winter shutoffs, these programs place families into payment plans, in return for limited subsidies, which essentially keep households permanently in debt to DTE. In many cases, families cannot keep up with the payment plans and lose service anyway.

In response to the deadly wave of fires in 2010, the Socialist Equality Party organized a “Citizens Inquiry into the Dexter Avenue Fire: Utility Shutoffs and the Social Crisis in Detroit.” Afterwards, the Inquiry issued a series of recommendations, including:

1) “The shutoff of utilities should be immediately stopped and made illegal”

2) “DTE workers should refuse to comply with company instructions to shut off utility service.”

3) “The utilities, including DTE, should be nationalized and transformed into publicly owned, democratically run entities. Essential services such as gas, electricity and water should be provided to people as a basic human right, not on a for-profit basis.”

The Socialist Equality Party insisted that all workers have the right to basic necessities of life, regardless of ability to pay.

On Monday afternoon, the WSWS spoke with Detroit residents outside a DTE office on Seven Mile Road, with forecasts that area wind chill temperatures would fall to 30-40 degrees below zero by Tuesday morning.

Bernard told a WSWS reporter, “I came in here to pay $236. That was the minimum amount they said would stop them from shutting off our utilities. They wanted me to pay $560, but I just don’t have the money.

“People on my block are using whatever they have, space heaters, stovetops, anything they can think of. Finding an alternative way to keep warm has become necessary to survive. And you know the company is making good money. These companies are getting rich while we freeze to death.”

Daryl outside DTE office in northwest Detroit

Tametria, a Detroit resident and mother of three, said, “They set me up on a payment plan, where I was supposed to pay $300 every month. I kept up with most of the payments, but when I lost my job, they still shut us off. I have three kids, and now we’ve had to move in with a friend.

“I came in today and they said I have to pay $2,600 to get my house turned back on. It’s unbelievable. We can't move back into our house because we can’t afford those thousands of dollars.”

Daryl said, “DTE changes my rates practically every month. They’re constantly trying to squeeze every penny out of us. I keep my gas nearly at zero and they are still charging me an arm and a leg.”

Article Source:  http://www.wsws.org/en/articles/2014/01/28/dtes-j28.html

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Some Major Banks Will No Longer Offer Payday-like Advances

The high-cost, quick-fix deposit advance loans offered by some banks will be discontinued in 2014 after consumer advocates dubbed the products as debt traps.

As of Saturday, both Fifth Third Bank and Wells Fargo, which had customers in Michigan, will put limits on new customers enrolling in deposit advance products.

Existing customers will have a bit more time to use such loans before the credit products are phased out, but consumers still must prepare for change ahead.

A deposit advance is a small-dollar loan, often for about $500 or less, that's marketed as something to get your finances out of a jam. To be able to get an advance, customers must have direct deposit of a paycheck or other income to a checking account or prepaid card.

The deposit advance is often repaid with the next direct deposit. The bank is often paid first before any other bill payments.

The problem is that if a consumer lives paycheck to paycheck, the consumer can have a hard time paying off a short-term loan without taking on another loan.

After regulators took a tougher stand, banks offering such loans announced plans in January to ultimately end deposit advance. The other banks phasing out the current deposit advance services are Regions Financial, U.S. Bank, Bank of Oklahoma, and Guaranty Bank.

Wells Fargo said new consumer checking accounts opened Feb. 1 or later will not be eligible for its Direct Deposit Advance service. But changes for existing Wells Fargo Direct Deposit Advance customers will take place in mid-year.

Fifth Third said it will no longer enroll customers in its Early Access service Feb. 1 and it will phase out its deposit advance product to existing customers by year end.

What kind of new products might be rolled out is unknown. Fifth Third, for example, said extensive research shows that its customers face a need for this service.

Jack Riley, senior vice president, marketing director for Fifth Third Bank in Southfield, said the bank is working on an alternative product.

Regions Bank already has launched a new fixed-rate installment loan secured by money in a Regions savings account, called the Regions Savings Secured Loan. The bank also plans to develop other credit alternatives, too.

Banking industry experts voiced concern about the new guidance. "Forcing banks out of this business limits options for consumers and pushes them towards payday lenders and fly-by night entities," said Richard Hunt, president and CEO of the Consumer Bankers Association, in a statement.

"While federal regulators encourage banks to serve consumers in need, their actions and policies suggest otherwise," Hunt said.

The Federal Deposit and Insurance Corp. and the Office of the Comptroller of the Currency issued tougher guidance on such short-term loans in November for the banks they supervise.

Regulators said the deposit advance had some similar characteristics to a payday loan — such as high fees and a lump-sum that must be repaid in a short time.

Taking out such a loan at the bank, of course, may lead some consumers to think it is safer than a regular payday loan product.

But the bank products effectively had annualized rates that could range between 225% to 300%, according to the Center for Responsible Lending.

Typically, a bank charges fees in increments of $20 with a fee of $10 per every $100 advanced.

The inability for many consumers to easily repay such loans is a real sticking point.

Tom Feltner, who is the director of financial services at Consumer Federation of America, which is a consumer-advocacy group, said that many times deposit advance loans drove banking customers into a cycle of repeat borrowing and triggered extra rounds of overdraft fees.

"If $400 is due in full, that creates a strong incentive to have to borrow that money again," Feltner said.

Banks looked at how much money was coming in via direct deposit before making such loans.

But the bank would not take into account a customer's regular mortgage payments, utilities or other bills.

Regulators now want banks to consider a borrower's ability to repay, among other things.

Consumer advocates applauded the end of current products.

"It's great news that banks are getting out of the payday loan business," said Lauren K. Saunders, managing attorney for the National Consumer Law Center.

Saunders suggested that banks need to come up with a more affordable small loan product, and a genuine alternative to a payday loan. Among other features, she said, such a product should have a longer time frame for repayment, such as 90 days or longer, and charge an annualized percentage rate of 36% or less.

Resource:  Tompor, Susan. "Some Major Banks Will No Longer Offer Payday-like Advances."USA Today. Gannett, 02 Feb. 2014. Web. 02 Feb. 2014.

U.S. Justice Dept Joins The Target Credit Card Data Breach Investigation

The investigation behind Target’s data breach, which affected 40 million customers and is one of the largest hacking incidents in retail history, just intensified. The U.S. Justice Department has joined the hunt for the perpetrator, which already includes the FBI and the Secret Service, which usually oversees the federal government’s credit card fraud cases.

U.S. Attorney General Eric Holder told the Senate Committee that his office is trying to find the hackers who are responsible for the data breach, as well as anyone using stolen data to commit credit card fraud.

Between Nov. 27 and Dec. 15, credit and debit card numbers from 40 million Target customers were stolen. Then earlier this month, Target said that up to 70 million additional customers also had personal information stolen, including email addresses and phone numbers.

Last week, the FBI warned U.S. retailers to prepare for more data breaches involving the same kind of malware used against Target, which harvests data from point-of-sale systems, including cash registers and credit-card swiping machines.

Target is not the only company affected. Neiman Marcus also said that its data had been breached, with 1.1 million customer cards exposed, and Reuters reports that several other retail chains have also been affected. The FBI said that the malware used, RAM scraping, is becoming increasingly difficult to track down because one variation, Alina, is frequently updated remotely.

TechCrunch’s John Biggs recently wrote a post with more details about the specific form of malware used on Target, which grabs sensitive data from point of sale terminals. Data security expert Brian Krebs found that the version of the software that appeared on Target computers had been designed to hide itself from anti-virus software. He also traced it to a programmer called Antikiller who sold it on hacker forums.

“The accessibility of the malware on underground forums, the affordability of the software and the huge potential profits to be made from retail POS systems in the United States make this type of financially motivated cyber crime attractive to a wide range of actors,” the FBI wrote in a confidential report that was sent to retail companies.

Target’s data breach has far-reaching implications. In addition to the $3.6 billion fine the corporation is liable for, retail companies now have to deal with eroding customer confidence about how they manage their credit card information.

Article Source:  Shu, Catherine. "U.S. Justice Dept Joins The Target Credit Card Data Breach Investigation." TechCrunch. AOL Inc., 29 Jan. 2014. Web. 02 Feb. 2014.