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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 kind of neighborhood where you could leave your door unlocked at night. 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. There were no metal detectors. We learned the basics.

There was also never any doubt that I would go 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 with a clear pathway to a successful career.

And here’s the key to the 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.

We probably all define white privilege in different ways. For some, it’s a myth. For me, it was the right to pursue the American dream without obstacles or roadblocks.

 

Image result for economic justice

 

The Other Side of the Story

Many African-Americans in the District of Columbia, and around the country for that matter, have been systematically denied the kinds of educational, economic and job opportunities that the average Borderstan reader takes for granted.

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 40% 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-Americans 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.

Making it Right

Sometimes we forget the full name of Martin Luther King’s pilgrimage to the nation’s capital in 1963 was the “March on Washington for Jobs and Freedom.” It was no typo that “jobs” came before “freedom” in the title. Dr. King knew the right to a decent full-time job is the most fundamental entitlement there is. So how do we make it right?

My rule is this: there is no justice without economic justice and there is no economic justice without economic growth.

The District government owes every African-American DC resident (and every other resident) an economy that grows fast enough to create a sufficient number of good jobs. Since 2007, DC’s economy has grown at an average rate of 1.28%. That’s not fast enough to get it done. The U6 unemployment rate (a broader measure of unemployment) is 11.6%.

For District residents who don’t hold a four-year college degree, the unemployment rate is 22%. The unemployment rate for white DC residents is 4.1%, for African-Americans it’s 20%.

The District’s economy needs to be stimulated. Since there can be no deficit spending, what’s left are reforms to our tax and regulatory system. We have to make the District a better, easier and less expensive place to do business.

Secondly, too many District residents have not had the opportunity

 

Dave Oberting is a candidate for an at-large seat on the DC council in next year’s election. Follow him on Twitter @Oberting2016. Email him at dave@oberting2016.com.

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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?

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DC Real GDP 2006-2014

 

The chart above illustrates the District’s economy in real chained dollars. That’s economist speak for dollars that have been adjusted for inflation. It and the chart below reflect the fact that the District’s growth has been slow and uneven over most of the last decade.

 

DC Real GDP Growth Rates 2007-2014

 

The economy grew from $103.41 billion to $105.02 billion in 2014. That represents a rate of growth of 1.55%. That’s better than the 0.61% contraction that took place in 2013, and better than the 1.28% average annual growth rate since 2006, but it’s well below what is considered healthy by most economists. And it’s certainly not fast enough to make a dent in the District’s high unemployment and growing rate of poverty.

Estimated U6 Unemployment Rate by Ward     Deep Poverty

 

In addition, the BEA used fuller and more precise measurements of the economy to go back and revise downward the size of the District’s economy in prior years. Yes, the economy has returned to growth, but it’s marginally smaller than we thought it was last year.

Interestingly, the District did outperform both Maryland (0.83% growth), and Virginia (0.02% growth). In fact, Terry McAuliffe’s Virginia is about twenty bucks away from a recession.

Click here to see the statistics on what the District has missed out on during the last decade of slow/no growth in terms of jobs and income. Hint — it adds up to approximately 51,000 private sector jobs, 7,000 District government jobs, and $4 billion in lost annual income for DC residents.

It is within the District government’s power to shift its economy into a higher gear, but it will require intense focus and smarter policy. The work of the tax revision commission should be the beginning of tax reform, not the end, and we need to add to it a vigorous overhaul of the way the District regulates almost everything.

Additionally, our labor markets have become more rigid and inflexible over the last decade. It’s become more difficult, more expensive, and more risky to hire anyone. Our labor market is ripe for reform and modernization. Those aren’t the only necessary steps, but they’re a start.

Should this “lost decade” continue, here’s what the average District resident can expect:

  • Fewer jobs
  • Many fewer good jobs
  • Less affordable housing
  • Less housing, period
  • Fewer new restaurants
  • Fewer new retail stores
  • Fewer new companies created in the District
  • Fewer companies moving to the District
  • A less dynamic District
  • More income inequality
  • Less economic inclusion
  • Less tax revenue
  • A corresponding reduction in social services
  • Less upward mobility
  • Less opportunity for promotion and advancement
  • Less of the Streetcar project
  • Fewer improvements to Metro
  • Fewer new bus routes
  • Higher taxes
  • Higher fees
  • Bye bye budget surpluses
  • More crime
  • More violent crime
  • More traffic
  • Fewer new parks and green space
  • Fewer small retail businesses
  • Slower population growth or contraction
  • Lower graduation rates
  • As Jimmy Carter would say, a general malaise
  • There are sure to be more. Let us know  what we’ve missed at growth@economicgrowthdc.org

Click here to see the alternative: A Pro-Growth Agenda

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Today we published an annual report of our activities from this past year as well as a look ahead at the initiatives and priorities we intend to focus on in 2015-2016. The report is 120 pages, so please do not try to read the whole thing. It was designed to be flipped through until you come to a topic of interest. We want to thank all of those individuals and organizations who have supported Economic Growth DC and the Foundation this past year. We look forward to continuing our relationship in the future.

2014-2015 Economic Growth DC Review & Outlook

 

 

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Why the District government should focus on the reform of its regulatory system is straightforward: as a famous economist recently said, “Regulatory burdens do not exist in isolation. Someone must eventually bear the cost, either through reduced wages, lower profits, or higher prices for every consumer.”

Where to start reform is the simple part. The specifics on how you go about it are not so simple. The underlying goal must be to change the incentives that require regulators to write ever more regulations in order to justify their existence.

The classic quip, “regulators regulate” is classic because it’s true. The job of a regulator is to write rules and enforce them. That’s how they’re paid. That’s how they’re measured. That’s how they’re evaluated.

Cutting Red Tape

With the current set of incentives, a regulator must be in perpetual motion — constantly writing new rules and revising/expanding older ones. Constantly looking for new problems that can be solved with a clever rule.

But what if we changed the way regulators are compensated, measured and reviewed?

Another way of looking at the financial crisis is that we had too many regulators at the SEC, the Federal Reserve and the Treasury writing new rules and not enough of them enforcing the rules already written. The mortgage crisis was a massive regulatory failure, but it wasn’t because there weren’t enough rules.

On the contrary, there were too many rules that were so complex as to make them easy for smart lawyers to pervert, evade or exploit.

What if we transitioned some regulatory personnel from promulgating new rules to the enforcement of a radically revised, reshaped and simplified regulatory scheme?

Instead of being compensated for every new rule you write, what if you were compensated for every piece of red tape you cut, the number of rules you reform and how you reduce the costs of compliance without jeopardizing consumer protections.

We hope you’ll read this seminal article on the fatal flaws of hyper-regulation. There is a smart middle-ground between the Wild West and insanely burdensome regulatory overreach. We’ve got to find it fast.

How Radical Regulatory Reform = Good Government