Thursday, July 28, 2016

Animals: Language and Communication

Beware of scientists with an agenda. 

Humans have been evolving and changing genetically for millions of years.  Most of that time is hidden from us and we can only guess what life was like for the ancients who would eventually become homo sapiens.  What we know of human history for sure only extends back a few thousand years.  One can assume that humans were hunter-gatherers over most of those blank millions of years and deduce something from the record of hunter-gatherer societies that existed before their histories were contaminated by modern society.  Unfortunately, these societies exhibited a variety of behaviors and invited considerable speculation.  Not surprisingly, male anthropologists focused on evidence of male domination and warlike behaviors.  Female anthropologists, not surprisingly, managed to find evidence to support theories where human evolution was dominated by the development of social skills rather than delight in murdering one’s neighbor.

What we are told of the properties of other animals with whom we share this earth is often biased because the studies are conducted by humans who have inevitably begun with the assumption that humans are unique and all other animals must therefore be inferior.  The result of this perspective is smugly satisfying, but it causes us to miss the rich and complex lives that other animals around us are living, and to denigrate their actions based on emotion or intelligent reasoning as being merely instinctual.  Carl Safina wishes to disabuse us of such fantasies in his book Beyond Words: What Animals Think and Feel.  He uses detailed studies of the lives of elephants, wolves, killer whales, and dolphins, coupled with an amazing collection of anecdotal experiences to convince us that other animals are more similar to us in complex sociality than we might wish to believe.

The subject here will be the means animals use to communication with each other that takes the place of the language used by humans.  Those who study animals living freely in their natural habitats discover that communication is complex, it is frequent, and it has to be learned just as human children acquire meanings from their elders.  Also, it is often group specific, analogous to the way human groups differentiate themselves with ethnic languages.

“It seems a common human assumption that each species has one set of calls—no dialects, no differing languages analogous to those among humans.  An implicit assumption seems to be that their vocalizations are innate and don’t have to be learned.  Individuals taken from the wild as infants—as with zoo apes and circus elephants and killer whales—likely never learned important aspects of their own native ways of communicating with sound, gesture, context, and nuance.”

“Many birds have regional dialects.  Killer whales also have call vocabularies used by some groups and not shared by others.  Differences like this are everywhere around us, but our discoveries about them are ongoing.  We are still cataloguing such behaviors and describing calls.  Translating their communication, though, might turn out to be a difficult-to-reach itch.  For now, what elephants are saying and understanding is more sophisticated than is our understanding of what elephants are saying.”

Let us begin with what we know about elephant communication.

“Elephant song spans ten octaves, from subsonic rumbles to trumpets, about 8 hertz to about 10,000 hertz.  Studies with instruments that can shift very low sounds up into the range of human hearing show that if elephants are excited enough to be streaming from their temple glands, they’re also vocalizing.  It’s just that, often, their rumbles, though loud, are too low-frequency for humans to hear.”

“Elephants’ low-frequency rumbles create waves not only through the air but also across the ground.  Elephants can hear rumbles inaudible to humans over distances of several miles.  Their great sensitivity to low frequencies derives through ear structure, bone conduction, and special nerve endings that make their toes, feet, and trunk tip extremely sensitive to vibration.  So part of elephant vocal communication is sent through the ground and received through their feet.”

What emerges over and over again in animals studies is that the animals develop the tools they need for survival just as humans did.  However, given their physical characteristics, the environments in which they lived in while evolving, and the threats they encountered, the tools will be quite different for different species.  So different, in fact, that a casual observer may not even recognize that communication is taking place.

It seems that elephants required the ability to communicate over long distances to enhance their survivability—and they are better at it than most people think possible. 

“Hauntingly, elephants communicate over very long distances.  No one knows how they do it.  Even though the low frequency of their rumbles pitches much of the calling too low for human hearing, those calls are loud (115 decibels, comparable to loud live rock music at 120 decibels).  Loud enough that, in theory, animals six miles away can hear such calls.  We know that special receptors, called Pacinian corpuscles, in their feet help them pick up elephant rumbles traveling across the ground.  Have they another way of calling that penetrates even further?”

Since so little is understood about animal capabilities, Safina must resort to anecdotal accounts of events to make his points.

“In a privately owned wildlife sanctuary in Zimbabwe lived some eighty well-known, very relaxed elephants who hung around a tourist lodge’s artificial water holes.  Officials ninety miles away in Hwange National Park decided to reduce the park’s elephant densities by ‘culling’ hundreds of elephants (using helicopters to herd elephants to waiting marksmen, who were instructed to kill whole families).  On the day the distant slaughter started, the relaxed tourist-lodge elephants abruptly vanished.  Several days later, they were found bunched together in the corner of the sanctuary farthest from Hwange.  ‘Elephants are able to detect distress calls over large distances and are fully aware when their fellows are being killed,’ Cynthia moss has said.”

Perhaps observers have underestimated the capability of elephants to process signals sent through the ground.

Elephants live complex social lives that require suitably nuanced means of communications.  They live in families dominated by the matriarch, but they also must interact with other families.  They must communicate within the family and between families and make decisions as to who to trust to find water or food.  And they must remember and recall these interactions for future reference.

“Even if elephants don’t have a sophisticated syntax, they have a vocabulary.  They wield a communication kit with dozens and dozens of gestures and sounds and combinations.  Why don’t we understand them better by now?”

Elephants, like humans and many other animals, just like to have company to chat with. 

Before we sample another anecdote about elephants, a brief diversion to describe whale communication is necessary.

“The great ‘baleen whales’ can produce, as do elephants, sounds too low-frequency for human hearing.  But an elephant would be astonished to know what a whale can do with sound.  The big whales make sounds as loud as a medium sized ship.  You can’t hear it; their frequency is too low.  Yet whales very, very far apart can hear one another.  Whales such as finbacks swimming hundreds of miles from one another can migrate ‘together,’ their calls letting them stay in touch during their travels.”

What whales do with their sounds is fascinating.

“In the 1970s, scientists realized that humpback whales sing structured songs.  Strangely, even if they are coming from thousands of miles apart, males converging on mating grounds all sing the same song.  Humpback song is composed of about ten different consecutive themes, each made of repeated phrases of about ten different notes requiring about fifteen seconds to sing.  The song lasts about ten minutes.  Then the whale repeats it.  For hours in the ocean, in their season of courtship, the whales sing.  Each ocean’s song is different, and over months and years it changes in the same way for the thousands of whales in each ocean, the song somehow a continual work in progress, fully shared.”

“Sometimes the change is sudden and radical.  In the year 2000, researchers announced that humpback’s song off Australia’s east coast was ‘replaced rapidly and completely’ by the song Indian Ocean humpbacks off Australia’s west coast had been singing.  It seems a few ‘foreigners’ made the trek west to east, and their song became such an instant hit with the easterners that everybody had to sing it.  The researchers wrote ‘Such a revolutionary change is unprecedented in animal cultural vocal traditions.’  And once a phrase in the song disappears, it has never again been heard, despite over twenty years of eavesdropping.”

The reader might be wondering what whale songs have to do with elephants.  Actually, very little, but it was such a great story that it just had to be included.  The important thing to remember is that both species like to express themselves at low frequencies below the detection level of humans as sound.  We are now ready to describe a haunting encounter that was also makes so great a story it absolutely must be included.

Safina includes an observation made by Lyall Watson as he stood on a cliff overlooking South Africa’s seacoast.  He was watching a whale that had surfaced and then submerged again when he felt what he described as a “reverberation in the air.”

“The strange rhythm seemed to be coming from behind me, from the land, so I turned to look across the gorge…where my heart stopped…”

“Standing there in the shade of the tree was an elephant…staring out to sea!...I recognized her from a color photograph put out by the Department of Water Affairs and Forestry under the title ‘The Last Remaining Knysna Elephant.’  This was the matriarch herself…”

“She was here because she no longer had anyone left to talk to in the forest.  She was standing here on the edge of the ocean because it was the next, nearest, and most powerful source of infrasound.  The under-rumble of the surf would have been well within her range, a soothing balm for an animal used to be surrounded by low and comforting frequencies, by the lifesounds of a herd, and now this was the next best thing.”

“My heart went out to her.  The whole idea of this grandmother of many being alone for the first time in her life was tragic, conjuring up the vision of countless other old and lonely souls.  But just as I was about to be consumed by helpless sorrow, something even more extraordinary took place…”

“The throbbing was back in the air.  I could feel it and I began to understand why.  The blue whale was on the surface again, pointed inshore, resting, her blowhole clearly visible.  The matriarch was here for the whale!  The largest animal in the ocean and the largest living land animal were no more than a hundred yards apart, and I was convinced that they were communicating!  In infrasound, in concert, sharing big brains and long lives, understanding the pain of high investment in a few precious offspring, aware of the importance and the pleasure of complex sociality, these rare and lovely great ladies were commiserating over the back fence of this rocky Cape shore, woman to woman, matriarch to matriarch, almost the last of their kind.”

“I turned, blinking away the tears, and left them to it.  This was no place for a mere man…”

Language experts bicker back and forth over whether or not animals should be deemed to possess languages.  From Wikipedia we obtain these comments on the topic.

“Animal languages are forms of non-human animal communication that show similarities to human language. Animals communicate by using a variety of signs such as sounds or movements. Such signing may be considered complex enough to be called a form of language if the inventory of signs is large, the signs are relatively arbitrary, and the animals seem to produce them with a degree of volition (as opposed to relatively automatic conditioned behaviors or unconditioned instincts, usually including facial expressions).”

“Many researchers argue that animal communication lacks a key aspect of human language, that is, the creation of new patterns of signs under varied circumstances. (In contrast, for example, humans routinely produce entirely new combinations of words.)”

If one doubts the ability of animals to communicate at a level worthy enough to be considered in possession of a language, consider the behavior observed in dolphins.  Rewards and/or punishments have long been used to train animals to perform specific tasks on demand.  Safina tells the tale of two dolphins who were trained by Karen Pryor in the 1960s to respond to a signal to “do something new.”  Think about that for a moment.  To get an animal to understand the concept of “do something you haven’t done before” is quite impressive.  To get two animals to then collaborate on deciding what that something new should be and then execute it is something that humans would have trouble dealing with.

“When the Hawaiian bottlenose dolphins Phoenix and Akeakamai got the signal to ‘do something new,’ they would swim to the center of the pool and circle underwater for a few seconds, and then do something entirely unexpected.  For instance, they might both shoot straight up through the surface in perfect unison and spin clockwise while squirting water from their mouths.  None of that performance was trained.  ‘It looks to us absolutely mysterious.’ researcher Lou Herman related.  ‘We don’t know how they do it.’  It seems as if they confer using some form of language to plan and execute a complex new stunt.  If there’s another way of doing it, or what that might be, or whether there’s some other way to communicate that humans can’t quite imagine—dolphin telepathy?—no human knows.  Whatever it is, for the dolphins it’s apparently as routine and natural as human kids saying, ‘Hey, let’s do this…’”

The method of communication between dolphins that is recognized by humans does not seem to be consistent with such complex behavior.

“From everything we understand at present, it appears that dolphins’ whistles convey information that is simple and repetitive, not complex, not specific, not highly patterned; not a word based, large-vocabulary, syntax-equipped language.  Yet few who love dolphins—myself included—really want to accept that.  The calls just sound too complicated and varied.  And so, waiting, we listen, hoping to someday hear more.”

Could dolphins have developed a language that was too complex for humans to comprehend?  Or, might they have developed a method of communication that humans have yet to even detect?

Safina has a tale to tell about dolphins that brings us ever closer to the twilight zone.  It was recorded by a researcher named Denise Herzog who had been spending time studying a group of free-living dolphins in the Bahamas.

“At the beginning of one research trip, as Herzog’s vessel approached the familiar dolphins she had been studying, they ‘greeted us but they acted very unusual,’ not coming within fifty feet of the boat.  They refused invitations to bow-ride, also odd.  And when the captain slipped into the water, one came briefly nearer and then suddenly fled.”

“At that point, someone discovered that one of the people aboard had just died during a nap in his bunk.  Spooky enough.  But then as the boat turned to head back to port, ‘the dolphins came to the side of our boat, not riding the bow as usual but instead flanking us fifty feet away in an aquatic escort….they paralleled us in an organized fashion.’  After the crew had attended to the sad business at hand, when the boat returned to the dolphin area, ‘the dolphins greeted us normally, rode the bow, and frolicked like they normally did.’  After twenty-five years with those dolphins, Herzog never again saw them behave the way they did when the boat had a dead man aboard.  Perhaps in a way we don’t understand, dolphin sonar lets them scan inside a boat and somehow realize and communicate among one another that a man in a bunk has a heart that is still.  Perhaps they detected that a human had died using another sensory system, one that we humans neither possess nor suspect.  And what does it mean for dolphins to become solemn in response to a human death?”

Humans seem determined to maintain their assumed perch as the best that evolution has provided.  Perhaps it would be wiser to recognize that other animals, such as elephants, whales, wolves and dolphins, are more appropriately considered brothers and sisters rather than subspecies.  We might yet have a lot to learn from our near kin.

The interested reader might find these articles informative:

Monday, July 18, 2016

Donor-Advised Funds: Finance, Politics and the Perversion of Charitable Giving

At one time charity was thought of as aid to the poor and unfortunate.  Over time this quaint notion has been overcome by events as charity became a tax dodge by which the wealthy avoid as much tax on their wealth as possible.  This source estimates that only about a third of charitable contributions are actually targeted at the poor.  Modern finance and generous tax regulations have now created paths by which charitable deductions can be gained without ever actually making a contribution to charity (Yes, that is correct!).  Charitable contributions have also become the vehicle by which the wealthy pursue their private political agendas.  They try to impose their will upon us and we reward them by subsidizing their efforts with a tax deduction.

The topic here will be the recent creation and growth of what are referred to as “donor-advised funds.”  Lewis Cullman and Ray Madoff provided a concise description of this financial entity in an article that appeared in The New York Review of Books: The Undermining of American Charity.  These authors are most concerned that these funds make receiving a charitable deduction easier and more economical for donors but provide a mechanism whereby actual distribution of the funds to a charity can be delayed indefinitely.

“Most Americans have never heard of donor-advised funds and would be surprised to learn that, measured in donated dollars, the second-most-popular ‘charity’ in 2015 (just behind the United Way) was not the Red Cross, the Salvation Army, or Harvard or other universities. It was Fidelity Charitable, an organization created and serviced by Fidelity Investments for the purpose of holding charitable donations. Fidelity Charitable acts as a middleman, attracting its customers’ charitable donations and managing them in separate client accounts. Money in such donor-advised funds is invested and held until the clients give instructions (‘advise’) about distributions to operating charities.”

Fidelity created he first of these funds for the obvious reason that it was another mechanism whereby they could market, manage and collect fees on yet another pile of money.  The donor/investor gains an immediate tax deduction and doesn’t have to bother with how to best use the money until later—or even much, much later.  Fidelity, and others who have produced competing funds, like to advertise them as a means of creating a “charitable legacy” for the donor/investor’s descendents.  The tendency to hoard the contributions rather than distribute them to charities is thus encouraged.  This means fees can be charged for managing these funds forever since there is no deadline imposed on the distribution to an actual charity.

“This tendency to hoard rather than spend DAF [donor-advised fund] funds is borne out by the most recently available statistics from the IRS, which show that the median annual payout rate from all DAFs was 7.2 percent, while nearly 22 percent of all DAF sponsors reported no grants at all.”

Donor/investors love these funds because of the conveniences they provide.  For example, the donation of property rather than cash is greatly facilitated to the financial advantage of the donor.  It is this ability to provide a larger tax deduction than through a direct contribution that has made the donor-advised funds popular.  The authors provide some examples.

“….commercial DAFs make it easy for donors to make contributions of property—including shares of stock—rather than cash. These donations can save an additional 20 percent in the capital gains taxes the donor would otherwise pay. Thus, while a gift of $100 cash by a high-income taxpayer can save that taxpayer nearly $40, a gift of $100 of property can save the taxpayer close to $60 in combined income and capital gains taxes.”

Also facilitated is the contribution of what are referred to as “complex assets.”

“For financial institutions the words “complex assets” refer to property that is not publicly traded stock. Complex assets can include such varied holdings as commercial and residential real estate, art, private business interests, and even mineral rights, yachts, and taxidermy collections. A significant part of the work of commercial DAF sponsors consists of acting as a tax-free clearinghouse for complex assets.”

Donor-advised funds (DAFs) also provide an advantage over private foundations when it comes to garnering tax deductions.  They can value complex assets at current value for tax purposes, while private foundations must use initial value.

“Congress specifically prohibited donations of complex assets to private foundations from being deducted at their market value because it was concerned about problems of valuation. Since there is no ready market for complex assets, the donor must get an appraisal to set the value for the donation. Appraising is not an exact science and the donor has an interest in coming up with as high a value as is legally supportable. In addition, the DAF has little incentive to challenge this valuation.”

“For example, if a donor invested $100,000 in a hedge fund, and it grew to be worth $2 million, the donor would get only a $100,000 deduction if it were given to a private foundation, but would get a $2 million deduction if it were given to a DAF. This ability to provide a larger deduction for donations of complex assets has fostered the growth of DAFs.”

Also, if a donor has an asset assessed at $2 million contributed to a DAF and the object is eventually converted to cash yielding only $1.5 million, the donor is still entitled to a $2 million tax deduction.

Is there any wonder that DAFs have gained popularity?

“According to the National Philanthropic Trust, annual contributions to DAFs hit an all-time high of $19.66 billion in 2014. The increase in contributions, combined with a rising stock market, “drove total donor-advised fund assets above $70 billion for the first time.”3 The leader, Fidelity Charitable, has had particularly strong growth and it is widely expected that in 2016 it will surpass the United Way and receive more donations than any other charity in the country.”

The authors are concerned that depositing funds into an intermediary like a DAF rather than a direct contribution to a charity delays, often indefinitely, access by the charities to the resources they need.  Lewis Cullman is particularly sensitive to this issue.

“Lewis Cullman is a New York philanthropist who, at the age of ninety-seven, has given away over 90 percent of his wealth to charitable causes.”

He has been particularly irate about the role private foundations that were set up to make charitable contributions actually play in extending wealth indefinitely to generations of a wealthy person’s heirs.  He is also unhappy because DAFs are now vehicles to which a private foundation can make a “charitable” contribution to fulfill the obligation to spend 5% of assets annually on charitable activities.

“Finally, DAFs are also detrimental because they disrupt the flow of money from private foundations to operating charities. Private foundations are required to distribute 5 percent of their assets each year and these distributions typically go to operating charities. However, according to current tax rules, contributions to donor-advised funds qualify as required distributions for private foundations. This means that a private foundation can meet its payout requirement by giving funds to a DAF, which itself has no payout requirement.”

There is another perversity about DAFs that seems to leave the authors a bit puzzled.  The managers of a donor-advised fund are not required to follow the requests of the donors when it comes to utilization of the funds.  They can legally do pretty much anything they want with them.

“Despite such references to control, legal agreements between donors and DAF sponsors in fact provide that the donor cedes all legal control over donated funds.  Although a donor is given the right to make recommendations (sometimes referred to as ‘advisory privileges’), this is not much of a ‘right.’ DAF sponsors are legally allowed to ignore donors’ advice about the disposition of their DAF funds.”

“For most donors, this will have little practical effect; donors will advise and the DAF sponsor will follow the donor’s advice. This is because the business model of commercial DAF sponsors is to profit from the fees they secure and not from appropriating donor funds. However, not all donors have been so lucky. In one case, a DAF sponsor went bankrupt and the donated funds were seized to pay its creditors. In another case, the DAF sponsor used donated funds to pay its employees large salaries, hold a celebrity golf tournament, and reimburse the cost of litigation when a dissatisfied donor sued. In both cases, courts ruled against the donors and upheld the rights of the fund sponsor to exert full legal control over DAF funds.”

Why would Fidelity and other fund managers construct an entity that could potentially act quite differently from how it was advertised to its customers?  Perhaps the Fidelities of the world knew more about how the wealthy choose to spend their money than those who focus only on charitable contributions.

Let us now see how a DAF appears to someone who is concerned about political spending.  Jane Mayer has written about the way in which the wealthy use charitable contributions to impose their views on the general public in her book Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right

Those who would wish use their money to influence public opinion have the nearly perfect vehicle available: private foundations set up to contribute to charitable activities.

“By 1930, there were approximately two hundred private foundations….By 1950, the number had grown to two thousand, and by 1985 there were thirty thousand.  In 2013, there were over a hundred thousand private foundations in the United States with assets of over $800 billion.  These particularly American organizations, run with little transparency or accountability to either voters or consumers yet publicly subsidized by tax breaks, have grown into 800-billion-pound Goliaths in the public policy realm.”

“Private foundations have very few legal restrictions.  They are required to donate at least 5 percent of their assets every year to public charities—referred to as ‘nonprofit’ organizations.”

It was this designation of “nonprofit organizations” as the legal equivalent to charitable organizations that would allow what Mayer refers to as the “weaponization of philanthropy.” When Congress created this interpretation of nonprofits as “social welfare” entities early in the twentieth century it was not expected that the wealthy would use them as a means of propagating personal political agendas while hiding the source of funds.

It is quite easy for a non-profit organization of any kind to be designated as a vehicle for tax exempt contributions.

“….to qualify as tax exempt, such groups had to certify that they would be ‘operated exclusively for the promotion of social welfare.’  The IRS later loosened the guidelines, though, allowing them to engage marginally in politics, so long as it wasn’t their ‘primary’ purpose.  Lawyers soon stretched the loophole to absurd lengths.  They argued, for instance, that if a group spent 49 percent of its funds on politics, it complied with the law because it still wasn’t ‘primarily’ engaged in politics.  They also argued that one such group could claim no political spending if it gave to another such group, even if the latter spent the funds on politics.  Experts likened the setup to Russian nesting dolls.  For example, at the end of 2010, the Center to Protect Patient Rights reported on its tax return that it spent no money on politics.  Yet it granted $103 million to other conservative groups, most of which were actively engaged in the midterm elections.”

Many hundreds of millions of dollars were distributed by wealthy individuals through their private foundations to organizations that were set up to counter global warming science, defeat the Affordable Care Act, kill environmental regulations, and promote the continued use of fossil fuels and other pollutants.  And they were also used to elect appropriately conservative Republican politicians.  With these vehicles the wealthy could confuse those who might wish to learn who was providing all this money by shuffling funds back and forth between multiple organizations.  However, the system was complicated to manage and not perfectly opaque.  Then along came donor-advised funds.

Mayer introduces us to a DAF named DonorsTrust that explicitly advertises its ability to protect donors from any public connection between themselves and any of the organizations to which they contributed.

“Founded in 1999 by Whitney Ball, an ardent libertarian from West Virginia who had overseen development of the Koch-funded Cato Institute, DonorsTrust boasted one key advantage for wealthy conservatives.  It made their contributions appear to be going to Ball’s bland-sounding ‘donor-advised fund,’ rather than to the far more controversial conservative groups she distributed it to afterword.  The mechanism thus erased the donors’ names from the money trail.”

“Between 1999 and 2015, DonorsTrust redistributed some $750 million from the pooled contributions to myriad conservative causes under its own name.”

For an outfit like DonorsTrust, and for its investors, the ability to pool funds and expend them in a coherent, targeted fashion is critical.  If a donor-advised fund had to explicitly wait for donor advice on spending, this political use would not have been possible. 

One has to wonder what exactly Fidelity had in mind when they created this type of vehicle that provides so much flexibility to its managers.

Recall that only about 30% of “charitable” contributions are charitable in the Biblical sense—providing aid to the poor.  Note also that those who make charitable contributions but are not in a position to itemize deductions on their tax returns receive no financial benefit from their contributions.  The tax deduction for “charitable” contributions benefits mostly the wealthy who often are engaged in some form of self-aggrandizement or are trying to promote or impose a personal agenda.  It is rather dumb to provide a tax system that subsidizes these latter activities.

The interested reader might find these articles informative:

Tuesday, July 12, 2016

Low Wages Are Bad for the Economy: Parasite Businesses

It has long been recognized that certain businesses that proudly tout their low-wage, low-price models as being “good for America,” are actually using tax revenues to cover business expenses—effectively stealing from us to pad their profits.  They pay their workers so little that most must turn to some form of public assistance to survive.  Outrage at these practices gets muted by economic pundits who describe the necessity of letting the market work its magic and by accommodating journalists who fall for this nonsense.  In fact, there is no labor market at the lowest wage scales.  There, employers have absolute power and there is nothing save minimum wage legislation between workers and abject poverty.

Using Walmart, McDonald’s and the restaurant business in general as examples of what he refers to as “the parasite economy,” Nick Hanauer takes on this issue in a refreshingly straightforward manner.  Hanauer is a Seattle-based entrepreneur and venture capitalist, and the founder of Civic Ventures, a public-policy incubator.  His article, Confronting the Parasite Economy, appeared in The American Prospect.

Hanauer argues that the low-wage model is not only bad for the workers who must endure it, but it is bad for everyone because it is harmful for the economy in general.

“There are two types of businesses in America today: those that pay their workers a living wage—the real economy—and those that don’t—the parasite economy. And all of us who live and work in the real economy should be royally pissed at the way the parasite economy is sucking us dry.”

The real economy depends on consumers earning enough from wages to purchase things beyond the bare essentials and create the demand that generates business investment and hiring.

“The difference between these two economies is stark. The real economy pays the wages that drive consumer demand, while the parasite economy erodes it. The real economy generates about $5 trillion a year in local, state, and federal tax revenue, while the parasite economy is subsidized by taxes. The real economy provides our children the education and opportunity necessary to grow into the next generation of innovators, entrepreneurs, and civic leaders, while the parasite economy traps them in a cycle of intergenerational poverty.”

“The real economy delivers on the promise of capitalism.  The parasite economy relentlessly undermines it.”

The crime of the parasite companies is that they benefit from the demand generated by the wages paid by other companies, but refuse to return that revenue back to the economy by providing enough income to their own workers to participate as consumers.  People earning at or near the minimum wage are incapable of acquiring bare necessities without assistance let alone participating in the economy as consumers.  Instead their employers use their low-wage practices to siphon money out of the economy and into their own pockets.

“These are the real deadbeats of the parasite economy: companies with a business model predicated on a cheap supply of taxpayer-subsidized labor, growing fat on the vast wealth of consumer demand generated by the middle-class wages of the real economy, while leaving employees with little if any discretionary income of their own.”

“….low-wage workers at parasite companies—mostly giant and profitable corporations like Walmart and McDonald’s—cannot afford to robustly consume our products, or most anybody else’s, in return. The parasite economy is simply bad for business.”

Hanauer provides a few examples of how low-wage policies have forced workers to seek government assistance.

“A leading advocate of the parasite economy is the National Restaurant Association (the other NRA), which has worked assiduously to keep wages low. The federal minimum wage for tipped workers, unchanged since 1991, is a shocking $2.13 an hour. Lest you think all those workers are raking in tips, as a small elite of servers in high-end urban restaurants do, the median hourly wage for restaurant servers, including tips, is just $9.25 per hour. Tipped workers are more than twice as likely as the average worker to fall under the federal poverty line, and restaurant servers nearly three times as likely, according to a 2011 study by the Economic Policy Institute.”

“In the fast-food industry, more than half of all families—52 percent—are enrolled in at least one public assistance program, at a combined cost of $7 billion a year. (Until 2013, McDonald’s even provided a “McResources” hotline to help its impoverished workers apply for government aid.) And Walmart  alone, according to a 2014 report from Americans for Tax Fairness, costs U.S. taxpayers an estimated $6.2 billion a year in public assistance to its 1.4 million mostly low-wage workers—coincidentally, an amount roughly equal to the  $6.5 billion a year the company lavished on stock buybacks over the previous decade. Quite simply, McDonald’s and Walmart and other businesses in the parasite economy have grown to rely on the tax dollars of other companies and other workers to indirectly subsidize their payroll—and their immense profits.”

Parasites like Walmart and McDonald’s are big enough and powerful enough to force other companies who might otherwise not be so mean-spirited to follow their examples.  The net result is an enormous burden placed on public welfare programs. 

“Today, a majority of the money we collectively spend on anti-poverty programs doesn’t go to the jobless, it goes to the working poor. According to a recent analysis by the Economic Policy Institute,  69.2 percent of all public benefits go to non-elderly households with at least one working member, nearly half of whom work at least full-time. In 2014, the EITC alone cost U.S. taxpayers $67 billion, directly supplementing the incomes of the working poor and, thus indirectly, the payrolls of their parasite employers. The Child Tax Credit (CTC) cost the federal government another $58 billion; food stamps, $80 billion; housing vouchers and rental assistance, $38 billion—again, all programs that largely benefit families of the working poor.”

“And then there’s Medicaid. According to the Kaiser Family Foundation, total state and federal Medicaid spending cost U.S. taxpayers $475 billion in 2014. Conservatives disparage Medicaid as a costly ‘entitlement,’ but an entitlement to whom? Workers can’t work when they’re sick or dead; that’s why real-economy companies provide their workers with health insurance and paid sick leave. But parasite economy companies pass that cost off to taxpayers.”

Hanauer wishes to make sure we realize that low wage policies result from choices made, not from economic necessity.

“While there are parasite companies and parasite jobs, there are no parasite industries or occupations, and there is no line of work worth doing that cannot command a living wage. For every Walmart, there’s a Costco. For every McDonald’s, there’s an In-N-Out Burger. For every single mom waiting tables at the local diner for $2.13 an hour, there’s a healthier, wealthier counterpart earning $13 an hour or more (soon to be $15!) in Seattle or San Francisco or in the thousands of real-economy businesses nationwide where management understands that the ‘minimum wage’ is meant to be a minimum, not a maximum.”

To make his point, Hanauer compares Costco with Sam’s Club, Walmart’s big-box equivalent.  Costco is well known as an employer that pays its workers well; Walmart is well known as a employer that doesn’t.

“To the casual observer, the two chains look virtually identical: cavernous warehouses stacked high with pallets of heavily discounted goods, from groceries to apparel, electronics to major appliances, and everything in between. Both chains earn a substantial portion of their profits from annual membership fees ($45 a year at Sam’s Club, $55 at Costco), and both chains offer myriad other discounted services to their members, from insurance to travel to banking. Together, the two chains dominate the warehouse retail category: Sam’s Club claims the largest geographic footprint, with 652 stores located throughout the U.S. and Puerto Rico, compared with Costco’s 492 stores. But Costco is the perennial market leader in paid members (currently 84 million, while Sam’s Club had 47 million in 2012), gross revenue ($113 billion in 2014 versus $57 billion), and pre-tax earnings ($3.2 billion versus $2 billion).”

“, which relies on worker-reported data, lists an average wage for a Sam’s Club cashier at less than $10 an hour, while a Costco cashier earns nearly $15. Costco’s wages may start only a couple bucks an hour higher than at Sam’s Club, but Costco quickly rewards workers for their loyalty and experience. A 2008 article in Slate reported that a Costco cashier with five years’ experience earns $40,000 a year plus benefits—enough for a two-cashier Costco family to find themselves firmly ensconced in the American middle class, enough to pay into the federal treasury rather than draw out of it.”

Labor costs at many large corporations are not as large as one might expect.  A study performed in 2011 estimated that at that time Walmart could have raised the minimum wage paid to its employees to $12 per hour and maintained its income if it only raised its prices by 1.1%.  Would anyone have even noticed?  Another study estimated that the burden of a $15 wage on McDonald’s would force them to raise prices by about 10% in order to maintain income.  Would the world come to an end if a dollar meal cost a dime more?

If the answer is to raise the minimum wage dramatically, what are the consequences? Economists like to assume an efficient labor market and predict that workers will suffer job losses.  Some economists actually take the time to look at data and arrive at more optimistic conclusions.  Hanauer prefers to use his high-wage home state of Washington as an example.

“Washington has long recognized the fundamental law of capitalism—that when workers have more money, businesses have more customers and hire more workers. That is the model that we have been following here, and our economy has been booming as a result. At $9.47 an hour (indexed to inflation), Washington state’s minimum wage had long been the highest in the nation, and as one of a handful of states with no tip penalty, our tipped workers already earn four and a half times the $2.13-an-hour tipped minimum wage in much of the rest of the country.”

“And yet according to Bloomberg, high-wage Seattle supports the second-highest concentration of eateries per capita in the nation—trailing only even-higher-wage San Francisco. And according to the Paychex IHS Small Business Jobs Index, Washington also enjoyed the highest rate of small-business job growth in the nation, while even higher-wage Seattle ranks second by major metropolitan areas.”

Seattle, in 2014, passed the first $15 minimum wage in the nation, one that would be reached over a period of a few years.

“Restaurateurs and right-wing think tanks warned of ruin. Businesses would close. Workers would lose their jobs. The invisible hand would punch us in the mouth. But it never happened. “

“As the Puget Sound Business Journal recently reported in a front page story titled ‘Apocalypse Not: $15 and the Cuts That Never Came,’ six months after the first wage increase went into effect, Seattle’s restaurant industry is growing faster than ever. Even celebrity chef Tom Douglas, who had warned that Seattle could lose a quarter of its downtown restaurants, has continued to add restaurants to his local empire. ‘Douglas has now changed his mind about the law,’ the PSBJ reports, ‘saying he was “na├»ve” to think that restaurants would raise pay on their own.’ That he was. And then on February 15, 2016, The Seattle Times reported that ADP’s national survey of economic vitality ranked Washington state number one in the country for both wage and job growth. And you thought higher wages killed jobs. Not hardly.”

Essentially every nation is concerned about low demand that has caused slow economic growth.  At the same time businesses have used their power to implement policies that have allowed them to drive wages ever lower in real terms.  Can they not realize that this will not go on forever?

There is a solution to slow growth.  All one has to do is put more money in the hands of consumers.  The easiest way to do this is a significant rise in the minimum wage.  Experience has shown that such a rise will cause a ripple effect generating increased wages well above the new minimum level.  Let’s do it!

The interested reader might find these articles informative:

Saturday, July 9, 2016

Republicans and the Tightening Demographic Noose: Asian Americans

Much has been said of the Republican Party’s difficulties with the Black and Latino minorities in the United States.  Republican acceptance of the traditionally racist policies that continue in the former slave states that make up the core of the Party’s constituency will continue to keep blacks voting Democratic.  Latinos possess a different political and cultural legacy, but have coalesced into a generally anti-Republican stance driven by the extreme anti-immigrant policies espoused by Republican candidates.  There is, however, another significant minority that receives little attention with regard to voting and election impacts—the Asian Americans.

Karthick Ramakrishnan provides an assessment of the Asian-American minority with regards to political viewpoints and voting tendencies.  His article, How Asian Americans Became Democrats, appeared in The American Prospect.  Ramakrishnan is professor of public policy at the University of California, Riverside, and director of AAPI Data and the National Asian American Survey. 

Asian Americans are better educated and more affluent than African Americans or Latinos.  While early immigrants were poor laborers and were discriminated against, and there is the legacy of the forced interment of the Japanese during World War II, recent immigration is composed more of educated people seeking greater opportunity rather than those driven by economic deprivation.  Given this background, Republican pundits once assumed that Asians would be more at home with the economic policies they promoted.  At one point, they might have been correct, but as the Republican Party changed, so did the voting habits of those with an Asian heritage.

“In 1992, the majority of Asian Americans had voted for George H. W. Bush, creating the impression that as an upwardly mobile and affluent group, they would continue to vote Republican.  But 20 years later, in an astounding shift, Asian Americans moved 40 points toward the Democrats in presidential elections.  Since they are also the fastest growing racial group in the United States, the change has major implications for the future of American politics.”

What caused this change in political support?  According to Ramakrishnan it was due to changes that occurred in the two political parties.

“The actions of parties and political leaders over the past two decades provide a far better explanation for the politics of Asian Americans today than do the disparate cultural traditions that immigrants have brought with them.”

Ramakrishnan claims that Democratic leaders made a conscious effort to recruit Asian Americans to their way of thinking by becoming more business friendly starting with the Clinton administration.  Of more consequence seems to be the repulsion generated by the changes in policy incorporated in the Republican agenda.  While immigration issues may not be identified as highest priority, Asian Americans seem to have deep feelings about welcoming immigrants, encouraging diversity, and according respect to people of other heritages—matters at which the Republicans fail miserably.  Asian Americans also believe that government has a significant role to play in society, are willing to pay higher taxes for improved services, support gun control measures, and reject the Evangelical Christian sentiment that drives the Party.

Surveys of Asian American sentiments have produced the following results.

“A 2014 AAPI Data survey of Asian American registered voters found that 41 percent would consider switching their support away from a candidate who expresses strong anti-immigrant views.”

“Another development pushing Asian Americans away from the GOP has been the rise of Christian conservatism in the Republican Party.  The 2012 PEW survey on Asian Americans indicated that the strongest level of Democratic Party support comes from Hindus and those who claim no religious affiliation (these groups make a significant share of Indian Americans and Chinese Americans, respectively).”

“National surveys have shown that on issues that matter to them such as education, job creation, and health care, Asian American voters have consistently favored the Democratic Party and the positions the Democrats endorse.  For example, Asian American majorities have supported steps to expand health-care access, such as the Affordable Care Act [Obamacare]….Asian Americans are also strong supporters of gun control….and they tend to support bigger government spending even if it means paying higher taxes….”

As the political parties have become more polarized, Asian Americans have moved more firmly to the side of the Democrats.

“Although Bill Clinton won only 31 percent of the Asian American vote in 1992 (or 36 percent of the two-party vote if we exclude Ross Perot), Al Gore won 55 percent in 2000, followed by John Kerry with 56 percent in 2004, and Obama with 62 percent and 73 percent in 2008 and 2012 respectively….Obama won every major national origin group of Asian Americans in 2012…..”

In 2012, Obama received the greatest support from Indian Americans at 84% of the vote and the least from Vietnamese Americans at 62%.

One should expect that Asian-American support will again go predominately to the Democratic candidate in 2016.  What might that imply in terms of an electoral advantage?

Josh Richman tried to produce such an analysis based on data available at the time just before the 2012 election.  His analysis should still be relevant.  It appeared in The Mercury News in the article Asian-American voters could become game-changers in presidential election

Richman concluded that although the Asian American population was not large (about 5%), it was large enough to matter in battleground states where every vote counts.

“Coupled with Pacific Islanders, Asian-Americans represent the nation's fastest-growing minority group. Census data show that the population grew by 41 percent nationwide from 2000 to 2011, but at higher rates -- in many cases, much higher -- in nine of 11 states likely to be key battlegrounds in November's [2012] presidential election.”

Richman also produced this chart to support his contention.

In a close race, Asian Americans are now numerous enough to swing an election—and it seems it will only get worse for the Republicans as time goes on.

The interested reader might find the following articles informative:

Saturday, July 2, 2016

Trump, Immigration, Latinos, and Elections

Immigration, illegal or otherwise, has been one of Donald Trump’s signature issues.  He has made claims and promises that are both outrageous and incredible, yet they have endeared him to his followers.  His talk of building a wall between the US and Mexico and his references to Mexicans as “rapists” and “criminals” have certainly aroused passions from those with a Latino heritage.  While such talk has proved popular with voters in Republican primaries, what are the consequences of Trump’s policies for the Republican Party as a whole?  Peter Beinart provides some insights into what the future may hold in The White Strategy, an article that appeared in The Atlantic

Beinart provides this lede:

“Embracing white nativism in the 1990s turned the California GOP into a permanent minority. The same story may now be repeating itself nationally.”

California was a Republican-leaning state not too long ago.  It was also a state in which passions ran high over illegal immigration.  Politicians tried to take advantage of the resentment against illegal immigrants by curtailing the rights and benefits that might be available to these illegals, but in so doing that they offended the entire Latino population.  California governor Pete Wilson tried to be the Donald Trump of his day.

“But Trump is not the first Republican to put illegal immigration at the heart of his presidential bid. Pete Wilson did it 20 years ago. On a late-summer day in 1995, with the Statue of Liberty as his backdrop, the then-governor of California declared that he was entering the presidential race because ‘there’s a right way to come to America and a wrong way. Illegal immigration is not the American way….’.”

Wilson and his collaborators had initiated a number of legal actions that would prove troubling for him and his party.

“….Proposition 187, a California ballot initiative Wilson had successfully championed the year before, which denied undocumented immigrants public education, nonemergency health care, and other government services. It was the beginning of a ferocious reaction to Latino immigration in the Golden State. In 1995, Elton Gallegly, a Republican congressman from California and the chair of a House task force on immigration reform, recommended an amendment to the U.S. Constitution to deny automatic citizenship to the children of undocumented immigrants. In 1996, California voters passed Proposition 209, which prohibited public universities and other state institutions from giving preference to racial and ethnic minorities. In 1998, Californians passed Proposition 227, which curtailed bilingual education.”

Prior to these actions, Latinos were quite willing to vote for either political party.

“When Wilson announced his presidential campaign, California was a Republican-leaning state. Between the end of World War II and the end of the Cold War, it had gone to the Republican presidential candidate nine out of 11 times and elected a Republican governor seven out of 11 times. Republicans controlled the governor’s mansion, the state assembly, and a majority of statewide elected offices. And while the state’s growing Latino population posed a challenge to GOP dominance, Latinos had shown themselves willing to vote Republican in substantial numbers. According to exit polls, Ronald Reagan won 44 percent of California Latinos in 1984. Republican Governor George Deukmejian won 46 percent in 1986. Pete Wilson himself won 47 percent in 1990.”

The effect of the Republican moves was to increase political activism among Latinos and it also solidified the notion that the attack on illegal immigrants was really an attack on all Latinos.

“Feeling themselves under assault, California Latinos registered to vote in epic numbers. From 1994 to 2004, according to Latino America, by Segura and Matt A. Barreto, the voter-registration rate among California Latinos grew 69 percent—more than twice as fast as the state’s Latino population. Latino voters also swung sharply against the GOP. Republicans, who had lost the Latino vote by six points in the 1990 gubernatorial race, lost it by 46 points in 1994, then by 61 points in 1998.”

In addition, a significant number of non-Hispanic whites, particularly the young, were appalled by the Latino-baiting and moved to the left into the arms of the Democratic Party.

What have Republicans gained from this anti-immigration stance?

“Almost two decades later, the California Republican Party still has not recovered. Latinos—who now constitute almost 40 percent of California’s population and more than a quarter of its eligible voters—have voted Democratic in every presidential election since 1996 by at least 40 points. Democrats today control every statewide elected office, and make up close to two-thirds of the state Senate and assembly, along with almost three-quarters of California’s delegation to the U.S. House of Representatives.”

Does this mean that the California backlash will spread across the country and render the Republicans members of a permanent minority party?  Before addressing that question, Beinart provides us some necessary insight into Trump supporters and the Republican Party of today.

“Until recently, immigration did not sharply divide the two national parties. In 1986, 42 percent of House Republicans, along with 64 percent of House Democrats, voted for a bill giving legal status to millions of undocumented immigrants—and Ronald Reagan signed it into law. A study of public attitudes in the early 1990s noted that ‘the weakness of the connection between party affiliation and opinions about immigration is striking’.”

Surveys taken today tell us that the correlation between attitudes on immigration and party affiliation are quite strong.

“In their recent book, The New Immigration Federalism, the Santa Clara University School of Law professor Pratheepan Gulasekaram and the University of California at Riverside political-science professor S. Karthick Ramakrishnan find that the rate of immigrant population growth, the percentage of Spanish-speaking households, and local economic conditions all fail to predict state policy toward immigrants. But the partisan tilt of the state does: It is ‘by far’ the strongest correlate to policy, they write. Overwhelmingly, Democratic-leaning states pass pro-immigrant laws. Overwhelmingly, Republican-leaning states pass anti-immigrant laws.”

The current Republican Party is dominated by the former slave states of an earlier era.  In most of these states racial feelings continue to dominate political life.  For much of the twentieth century this region was staunchly Democratic and bound together politically by its racial policies.  When the Democratic Party came out in support of civil rights for blacks, the Republican Party made a play for the white southerners and welcomed them into what was at one time a much bigger tent.  In the process of “going southern” the Republicans came to be dominated by race.  Republicans depend on white voters, having driven away minorities and many whites with their racially-tinged policies.

As a consequence, the correlation between party affiliation and views on immigration policies is really a correlation between racial attitudes and views on immigration policies.

“It is this connection between views about immigration and views about race that best explains why immigration has become such a partisan wedge. Since the 1970s, political scientists have demonstrated that whites who express a higher level of resentment toward African Americans are more likely to identify as Republicans. Since the 1990s, as the political scientists Zoltan Hajnal and Michael Rivera detail in a 2014 paper, a similar correlation has emerged between resentment toward Latinos and Republican partisanship.”

Trump, by arousing passions over immigration issues, has forced the entire Latino community to act as a group under attack.

“As in California in the 1990s, Republican nativism is sparking a surge in Latino voter registration. Since Trump entered the race last summer, the number of immigrants becoming American citizens in Texas has risen from 1,200 a month to 2,200 a month, and a higher percentage of the newly naturalized is registering to vote. The trend is similar nationwide.”

“According to polling of registered voters by the firm Latino Decisions, Trump’s unfavorability rating is 88 percent among foreign-born Latinos, and 86 percent among Latinos born in the U.S. Among Latinos who earn less than $40,000 a year, it is 90 percent, and among those who earn more than $80,000 a year, it is 85 percent. Among Mexican Americans, Trump’s unfavorability rating is 90 percent. Among Cuban Americans, historically the most Republican Latino group, it is 82 percent.”

Will anti-immigration policies and anti-Latino attitudes cause the firmly red states to flip into the Democratic column?  That is not likely.  The core Republican states of the South have always been essentially single-party states with whites voting as a bloc.  Until these regions acquire enough minorities or white migrants from other regions of the nation, nothing is going to change.

Unfortunately for them, to win a national election Republicans must win a number of swing states whose constituencies and political views are more fluid.  In many of these the Latino population is growing and becoming more active politically.  This will narrow the options available to accumulate the necessary electoral votes to win a presidential contest.

Texas provides one of the more interesting situations.  It has long been a dependable Republican state.  However, it has a large and growing number of Latinos.  If the Republicans were ever to lose this state and its 38 electoral votes, it would be essentially impossible to ever elect another Republican president.

The Republican Party has Trump because its voters wanted Trump.  But with Trump they are playing with fire.  Trump is solidifying the party as the home of only white voters, ceding minorities to the Democrats.  As in California in the 1990s, the Republicans are also risking losing the young whites who currently identify as Republicans.

A party depending upon angry old white voters can’t last very long.

The interested reader might find these articles informative:

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