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By Dave Oberting

 

My White Privilege

I was born into a middle-class Midwestern family. Both my parents were teachers. They stayed married to each other for 37 years until my father passed away about a decade ago.

The neighborhoods I grew up in were safe and secure. The kinds of neighborhoods where you could leave your door unlocked. Crime never entered my mind because there wasn’t any.

I spent twelve years in Catholic schools. They weren’t great schools, but they were safe. Aside from the occasional fist fight, there was no violence. We learned the basics.

There was also never any doubt that I would be going to college, both my parents had master’s degrees. There was also never any doubt that my parents would pay for it so that I graduated debt-free.

And most importantly, there was never any doubt that there would be a good white-collar job waiting for me when I graduated and a clear pathway to a successful career.

And here’s the key to this whole story — I took it all for granted. It was an entitlement. It was the definition of the American dream and it was mine by right.

When I think of white privilege, that’s it on silver platter.

 

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The Other Side of the Story

Many, if not most, African-Americans in the District of Columbia, and around the country, have been systematically denied the kinds of educational, economic and job opportunities that the average reader of this blog takes for granted.

Let’s look at a typical African-American child born in the District today: that child has a 72% chance of being born to a single mother. That child has a 47% chance of being born to a single mother who lives in poverty. That child will live in a District where poverty has grown steadily since 1989.

That child has a 45% chance of never graduating from high school, and as an adult, he or she will have a 20% chance of being unemployed, and a 39% chance of living in poverty themselves.

If that child is a boy, he will be 8 times more likely to spend time in prison than a white DC resident.

The median income for white District residents in 2014 was $113,631. The median income for African-American District residents was $41,394. That child will also grow up in a District that has become steadily less equal for the past 40 years.

Most critically, the median white household in the U.S. in 2011 had a net worth of $111,146, while the median net worth of an African-American household was $7,113.

There are many elements of racial justice, but when I think about District residents, what comes to mind first is finding some justice of the economic kind — which is primarily about the availability of and preparedness for good jobs.

Every District resident, regardless of skin color, is entitled to the privilege of taking a good education, good job training, and a good job for granted. Right now, they’re not getting it.

Dave Oberting is the executive director of Economic Growth DC, an economic policy organization focused on the District and its economy. Follow them on Twitter @GrowthDC. You can email Dave at dave.oberting@economicgrowthdc.org. 

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Data Information Knowledge

When a visitor comes to the District, they look around and see dozens of construction cranes, 300 shiny new restaurants opened in just the last two years and inevitably think the District must be booming.

There are certain segments of the economy that are doing well and affluent residents have benefitted tremendously, but there is another side to the story. For thousands of District residents at the lower end of the education and income distribution, things are not good.

For insight into what’s really going on with the District’s economy, we’ve assembled and analyzed a mountain of economic data. Click below to see the full presentation.

Today we’ve cleaned up a couple of errors. In particular, we under-reported some sales tax data. Sales tax has actually trended positive, so we changed the presentation to reflect that. We also made the job growth data easier to understand.

Check back often for new updates.

DC Economic Conditions Presentation 8-18-15 – Economic Growth DC

 

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In this article in the Washington Business Journal, reporter Michael Neibauer writes about an upcoming regulatory change by the District’s Department of the Environment:

 The District is proposing to prohibit non-road diesel engines from idling for more than a few minutes at one time, citing the emissions spewed by the equipment and the environmental and health damage those emissions may cause.

No sane person would say no to the idea of helping the environment and public health by decreasing the amount of carbon emissions produced on District construction sites.

But the way DDOE intends to implement this mandate makes no sense. They have proposed a rule that would deny a company the flexibility of keeping a piece of machinery idling for more than three minutes at a time.

This would lead to construction workers stopping what they’re doing every three minutes to rev up a machine, or to constant fines from DDOE investigators. Starting and stopping, whether for an engine or a power plant is less efficient than continuous operation. The lost productivity alone will lead to more emissions, negating the effects of the rule. It might make it worse.

That is the unwise micro-management of a construction site, and it’s a perfect example of the District regulating for process rather than regulating for outcomes. What is the outcome DDOE seeks in this case? They want to reduce carbon emissions, particulate matter and other criteria pollutants in the District by an unspecified amount.

Let’s say it’s 0.007%, just to pick a number out of a hat. Why not tell Clark Construction or Miller & Long that you want them to reduce the carbon emissions on their job site by 0.007% and let them come back to you with a plan for meeting that objective.

That gets you to the right outcome without the heavy hand of government gumming up the works on every construction site in the city.

Outcomes people, outcomes.

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In a previous post, Where to Start with Regulatory Reform, we made the case for changing the incentives that govern the way regulators are measured and compensated. Today, we offer a starting point for the District’s regulatory reform efforts:

The Problem

In a Washington Post article dated July 10th about Aetna’s withdrawal from the DC health insurance exchange, well-respected health policy consultant Bob Laszewski had this to say:

 

“The District has never been thought of as an attractive market. It’s not a state — it’s one city, one moderate-sized city, and it’s also known for extreme regulation. When you have a small market that gives a lot of regulatory trouble, for insurers, it’s like why bother?”

 

Aetna said why bother. Who knows how many other organizations have said as much when considering whether to do business in the District over the last decade. Yes, we’re a relatively small market, but we have a high level of disposable income. The profit-making opportunities should outweigh the lack of overall size of the market.

We believe the District government should be making a public and serious effort to make the District a better, easier and less expensive place to do business. The area in which we have the most control over the cost and ease of doing business in DC is our regulatory system. The District government should undertake a highly visible effort to reform the way we regulate almost everything.

Keep in mind, the District’s economy has grown at an average rate of only 1.28% since 2007, and it grew at a rate of 0.47% over the last two years. All of the most important challenges we face — a real unemployment rate in double digits, an increase in extreme poverty, growth in inequality, and a homelessness crisis — can all be traced directly back to slow growth.

How to fix it

Only the deep, structural reform and modernization of the way we regulate will create the framework from which our economy can break loose from the bonds of slow growth and meet the needs of all its citizens.

 

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The work of modernizing the District’s regulatory architecture will be painful and slow. It’s technical in nature and requires the help of subject matter experts in a range of disciplines. It is not glamorous by any means, which is why most politicians don’t like to touch it. But it has to be done, and somebody’s got to do it. It’s time to man the barricades.

One of the keys to any regulatory reform is changing the incentives for regulators. As it stands, a regulator is compensated and measured based on how many rules get written. We’ve got to stop measuring process and start measuring outcomes.

Where to start

We’ve targeted four areas as being particularly ripe for reform:

  1. Labor Markets — As described in this op-ed in the Washington Business Journal, the District’s labor market has become sclerotic and inflexible. The op-ed calls for the creation of a labor market commission similar in scope to the tax revision commission that recently overhauled the District’s tax system.
  1. Telecommunications — Telcom companies are heavily regulated by the FCC, including the infamous Title II regulations originally designed for the regulation of the railroads. DC’s local telcom market is as competitive as it’s ever been. The time has come to overhaul the PSC and the way it regulates telecommunications companies that do business in the District.
  1. Healthcare —  If there were a more favorable regulatory climate, the District’s health market is large enough to warrant being here. Simplifying the way we regulate both insurers and healthcare providers will attract more of both.
  1. Criminal Justice — From decriminalization through sentencing reform, there is strong bipartisan support for the reform of the criminal justice system. Oftentimes you have to dig to find the moral basis for regulatory reform. When it comes to the criminal justice system, it’s there for everyone to see.

Over the next few months, Economic Growth DC will be establishing committees of experts in each of these subject areas who will come together to produce recommendations for reforms. If you are an expert in any of these subject areas and would like to contribute to our efforts, contact us at regulatoryreform@economicgrowthdc.org.

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658,893 people call the District of Columbia home. Approximately 60,000 of those residents have at least one criminal conviction and have spent at least some time in prison. It is believed that 50-55% of that group is unemployed. The number is a little lower for women, and a little higher for men, but in that range.

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Economic Growth DC has a number of organizational goals. One of those is to bring the unemployment rate in the District down to under 5% in all eight wards. This will take some work because in the predominately African-American parts of the District, the real unemployment rate is more like 20%. In order to make a serious push towards 5%, you have to be able to do something about finding jobs for returning citizens.

 

Estimated U6 Unemployment Rate by Ward

 

That basic premise has led us down some interesting roads as it relates the criminal justice system. For instance:

  • You would be shocked at how many people are let out of prison without basic identification — no driver’s license, no birth certificate, no social security card, no nothing. And, because of new federal rules, it has become more difficult to obtain identification upon release. You often need a utility bill in your name to prove residence, but if you’re homeless or living with your aunt, you can’t produce a utility bill. In almost all cases, you have to provide proof of identity, usually in the form of a driver’s license, to get a job. It’s like the government inadvertently said we’re going to make it as difficult as possible for a returning citizen to find work.
  • The criminal justice system has provided a mechanism for a person who’s served their time to go thru a court supervised process to get that conviction expunged or sealed. But, we’ve made it so difficult, cumbersome and expensive to go through that process that almost no one does. One of the main ways a returning citizen is denied a job is because of the criminal background check. Here we have this process authorized by the constitution that legally permits a person to clean up their record — something that would go further towards helping them find work than almost any other measure —  and yet we’ve made it so convoluted that it’s next to impossible.
  • We’ve discovered that the average person is likely to commit at least one crime a day because we have managed to criminalize just about everything. At the federal level, there are over 3,000 criminal offenses, and over 300,000 regulations that carry criminal penalties. That’s just flat out of control. The need for broad decriminalization in the District, and around the country, is compelling.
  • The U.S. has 5% of the world’s population and 25% of the world’s prisoners. One of the significant reasons for that is mandatory minimum sentencing. During the “war on crime” we took away a judge’s discretion on sentencing. It’s time to return that responsibility to the bench.
  • The conditions where most District residents are incarcerated are deplorable. That’s why we have an entire DC government agency, the Criminal Information Council, that does nothing but inspect and report on conditions in prisons where DC residents are held. Improving the quality of programming while in prison, specifically job training , is a key to reducing recidivism.
  • Next to a job and a place to live, mental health care is the most vital need of returning citizens. The overuse of solitary confinement can cause serious and long-lasting mental health problems. We have to do a lot better at identifying and treating PTSD and all of the other mental problems that prison invites.

What is it we plan to do about all this? At the policy level, we will continue to work an these various elements of criminal justice reform with an eye towards making it easier for returning citizens to obtain and keep a job.

At a programmatic level, we don’t think it’s realistic to expect large numbers of returning citizens to find work without active assistance. By making use of our job placement industry experience, we have proposed a program that will create a small team of job placement professionals who will do nothing but place returning citizens into employment. The business plan can be found here: Operation Capstone

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State-level GDP figures for 2014 were released on June 10th. Click below to see how the District’s $105.02 billion economy is broken down by industry. Economic Growth DC is working with the District’s Office of Tax & Revenue to properly define, classify, and calculate the District’s “technology” sector, as well as the “creative economy.” The industries highlighted in red represent ones that could potentially be classified as “technology.”

DC Economy By Industry 2014

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The DC Board of Elections held a hearing this past Thursday to debate the appropriateness of a proposed ballot measure that would, if approved, increase the District’s minimum wage to $15 per hour. While there is no valid legal reason to keep the measure off the ballot, there are a plethora of policy and practical concerns that should be considered.

 

$15 Minimum Wage

 

Firstly, the minimum wage, in general, is a flawed policy that was created to cover up a much greater government failure. If you’re an adult resident of the District, and you’re earning $10.50 an hour, then we, as a society, have failed you.

Somewhere along the spectrum of our education and job training systems, we have failed to transmit to you the skills that you need to command a middle-skill, middle-income job. We’ve also failed to provide to you a sufficient number of those middle-class job opportunities.

What the District owes you is the opportunity to acquire a set of skills that permit you to earn a middle-class living. To a certain extent, the minimum wage interferes with that by restricting the number of entry-level jobs in DC that provide that crucial first step into the job market.

Also consider:

  • Increasing the minimum wage is bad for low-skill workers because it will reduce the number of minimum wage jobs available in the District. An increase in the minimum is good for some workers, but it’s catastrophic for the DC residents who lose their jobs altogether, and then find it harder to obtain a new job.
  • Of the minimum wage jobs that do exist in the District, about 30% of them are held by DC residents. Should the minimum wage in DC rise to $15 per hour and the minimum wage in Virginia remain at $7.25 and $11.50 in Maryland, that figure could shrink to as little as 15% as DC workers are displaced by better qualified out-of-state workers.
  • Realize that labor is a perfectly normal good. It’s susceptible to the laws of supply and demand. When the cost of labor goes up, the demand for labor goes down. It’s not the “theory” of supply and demand. It’s a law, just like gravity.
  • A $15 minimum wage will accelerate a process already in motion — automation. As labor costs rise, businesses are incentivized to substitute technology for labor. McDonald’s is installing ordering kiosks and Applebee’s is using tablets to reduce labor costs.
  • A $15 minimum would hurt teenagers trying to enter the job market. They will be competing with older, more experienced workers and will lose out on the opportunity to get crucial early work experience.
  • There is a popular theory that increases in the minimum wage increase labor productivity by increasing employee satisfaction and retention. But the definition of an increase in productivity is that it requires fewer inputs (hours of labor) to produce the same amount of output. Any productivity increases would be negated by the fewer number of hours required to complete that work.
  • If labor costs increase without a corresponding increase in revenue, or a decrease in other costs, someone has to lose. The business owner will probably absorb a portion of those additional costs, but they’re going to squeeze savings from somewhere else. If you can’t raise prices because of competitive pressures, that means other costs will have to be cut. In most businesses, labor accounts for as much as half of all costs. This is how workers lose hours and jobs.
  • If enough costs cannot be squeezed from existing operations, small businesses with low margins, like retail stores, are susceptible to being driven out of business. This is happening regularly in jurisdictions that have adopted a $15 minimum such as San Francisco and Seattle.

 

Going out of business

 

Most importantly from a policy perspective, a minimum wage ballot measure is a usurpation of a core function of the legislature. Setting the minimum wage is one of the central prerogatives of an elected legislature. Considering that this ballot measure also indexes the minimum wage to inflation, once the District council gives this power up, it’s gone forever.

If this ballot measure makes the ballot, the DC electorate should reject it because it is ultimately not in the best interests of low-skill workers. If the electorate doesn’t reject it,  the Council should overrule it because setting the minimum wage is the proper role of the legislature.

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Our executive director, Dave Oberting, and Ed Levin, a labor lawyer with the law firm of Saul Ewing LLP, wrote an op-ed in today’s Washington Business Journal calling for a comprehensive reform of our labor markets.

The District government has intervened in the labor market at least half a dozen times in the past two years. The aggregate impact of those interventions has been to make it more difficult, more expensive, and more risky to hire anyone.

The folks behind these laws take a micro-view of the labor market. They’re asking themselves what they can do to make it easier for an individual District resident to find a job. This is a noble endeavor, but the unintended consequence is it makes it more difficult for everyone to find work by reducing the total number of jobs available in the District.

Click below to see the op-ed:

WBJ Op-Ed: Reduce Jobs in DC? Easy!

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Our executive director, Dave Oberting, will be appearing on The Kojo Nnamdi Show on Monday, 7/6 at noon. He will be appearing with Ed Lazere, the executive director of the DC Fiscal Policy Institute, and they will be discussing taxes and the DC economy. WAMU is 88.5 FM on your radio, or you can listen live online by clicking here: WAMU 88.5 FM

If you’re able to tune in, be sure to send us your feedback. You can email Dave at dave.oberting@economicgrowthdc.org.

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As part of her $12.9 billion budget request, Mayor Bowser proposed to raise the District’s sales tax rate by 0.25%. That bump would have raised $22 million in FY 2016 or about 0.17% of the total budget.

The mayor also proposed a 4 percentage point increase (from 18% to 22%) in the the parking tax that would have raised $9.9 million in 2016, or 0.07% of the total budget.

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Neither tax increase would have a material impact on revenue nor the economy, other than to offer a small encouragement to shop and park less, so why was it important for the DC Council to reject them? In a word — stability.

Tax rates affect the behavior of every District resident and every business. A stable tax system allows families and small business owners to plan more than twelve months in advance.

Rejecting this tiny tax increase sends a giant message to the people who make investment, hiring and spending decisions in DC. It will increase the confidence of businesses and consumers, clearing the way increased capital spending and consumption.

Chairman Mendelson and the Council should be congratulated for using some foresight. It’s not something governments are known for.

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Just a side note on the budget: DC approved a $12.9 billion budget. The District has 658,893 residents. New York City, with a population of 8,406,000, passed a $78.5 billion budget. That equates to per capita government spending in DC of $19,578. New York, a city of similar political disposition with about the same level of services, will spend $9,338 per person. Where, exactly, does our tax money go?