New York City’s powerful teachers union said Wednesday it was prepared to strike or go to court to stop the city from reopening schools that have yet to meet the union’s COVID-19 safety demands.
“If we feel that a school is not safe, we are prepared to go to court,” said Michael Mulgrew, president of the United Federation of Teachers, at a public briefing. “We are prepared to stand and fight.”
The union chief, joined by health and medical experts and community leaders, including City Council Speaker Corey Johnson, laid out a set of criteria each of the city’s thousands of schools must meet in order to reopen — protocols he said would keep students, teachers and their communities safer and provide more clarity than the city’s current plan. Besides things like personal protective equipment, signage and social distancing, all of which the city says will be in place by Sept. 10, the union is calling for every single student, educator and staff member to have a positive antibody test result or receive a diagnostic test at least 10 days before a school opens for classes.
“No New York City school should open unless it meets all the criteria that we will present for you here today,” Mulgrew said. “What happened in March cannot happen again in this city.”
Inevitably, classes would have to be delayed from their Sept. 10 start date in order to meet the union’s demands, Mulgrew acknowledged. But rather than a uniform first day, he proposed a gradual reopening as individual schools became ready.
That would mean a delay of several weeks, until late September or early October, for schools if stakeholders, including City Hall and the Department of Education, worked quickly, he said. The union’s ultimatum comes amid growing calls for New York City to delay the start of in-person classes.
Last week, the leader of a union representing the city’s principals sent a letter to Mayor Bill de Blasio and schools Chancellor Richard Carranza, urging more time to train teachers and to make necessary building updates. A union representing nearly 23,000 lunch workers and crossing guards sent a similar letter last week, asking for a delay to the school year.
But the teachers union has been working closely with Mayor Bill de Blasio and the Department of Education to come up with the city’s current school plan, and throughout negotiations had not asked for required testing for teachers and students.
“This is fear mongering,” said Miranda Barbot, spokeswoman for the city’s Department of Education, in a statement. “We spend hours a day, literally, talking to the UFT about policies and procedures and have delivered on a robust and practical testing protocol, a nurse in every building and a 30-day supply of PPE for every school.”
Ms. Barbot called the city’s back-to-school plan the most rigorous in the country. “It seems like they just don’t want to say the quiet part out loud: They don’t want to open schools at all for students and families.”
Mulgrew said he presented the union’s additional criteria to the mayor last week, and now he’s waiting to hear back. De Blasio has said there’s enough time to get everything ready in time for the September start date.
But among the biggest challenges Mulgrew raised is adequate testing. A safe reopening would require monthly screening of all teachers and random student testing each month, with higher rates of testing in neighborhoods with known outbreaks, said Mark P. Jarrett, deputy chief medical officer at Northwell Health who advised the union’s report.
Also on MarketWatch: Why the COVID-19 ‘baby bust’ could impact stock prices for the next 30 years
Mulgrew also raised concerns about contact tracing, which he said would need to be carried out school-wide within 24-hours of a positive test result. A union-led team of around 100 inspectors were also going around to every school to check on the status of ventilation system upgrades and other building preparations, he added.
New York City is the only major school district in the country attempting any form of in-person learning this fall. Districts from Los Angeles to Chicago will start the school year completely remote. Under the current hybrid-learning plan, students will return to classrooms a couple days a week and learn remotely on the other weekdays, while mandatory mask-wearing, social distancing and cohorting students to limit exposure will take place in school buildings.
Mulgrew and the community leaders at Wednesday’s briefing, including Johnson, Hazel N. Dukes, president of the NAACP in New York, and Randi Weingarten, president of national teachers union the American Federation of Teachers, threw their support behind opening New York City schools this fall.
“No one is looking to throw up obstacles,” said Johnson at the union’s news briefing. On the contrary, he said, he wants New York City to “be the model.”
Congrats on making it through half the week! Don’t miss these top stories:
An executive order President Donald Trump signed Aug. 8 calls for distributing an additional $300 in weekly unemployment benefits from a $44 billion fund set aside for disaster relief.
Apple hit $2 trillion market cap during trading Wednesday.
‘The rampant income inequality and gentrification of the past 20 years were bound for a correction of some kind. It wasn’t sustainable,’ Matthew Conlon writes.
Decline in mortgage forbearance applications is a positive sign, writes Sanjiv Das.
Most believe they’ll be exposed to COVID-19 on campus. Notre Dame and North Carolina universities already canceled in-person classes over outbreaks.
It’s more important than ever to do it early given expectations of more COVID-19 outbreaks that will burden our overstretched health-care system.
A new working paper looks at the effects of the 1918 influenza and COVID-19 pandemics on mortality and the economy, plus the role of non-pharmaceutical interventions.
With some anti-oil language already softened, the future of the influential fossil fuel industry remains one of the stickier features in the Democratic party’s climate approach.
The number of people filing for unemployment benefits has fallen sharply in the past few weeks, and based on Google search trends, they are likely to keep dropping.
President Donald Trump likes to paint Joe Biden as beholden to the progressive wing of the Democratic Party, a “Trojan Horse” for the left. Is that accurate?
The coronavirus pandemic is causing a decline in the U.S. birth rate and that affects the pool of potential stock buyers, writes Mark Hulbert.
To hold, or not to hold?
That’s the question from a guy who just learned that his recently deceased grandfather left him 7,000 shares of Apple AAPL, +0.61%.
This person’s grandfather put money earmarked for college into Apple in 2003 when the Reddit poster enlisted in the military, he stated in a thread on that forum.
The person told Reddit users about his windfall on Tuesday, a day before Apple’s market capitalization crossed the $2 trillion milestone on an intraday basis.
Assuming the stock stayed at its midday trading levels around $467.50, the man with 7,000 shares is looking at a $3.27 million stake in the iPhone and Mac maker.
In fact, if he doesn’t do anything until at least the end of the month, he’ll have 28,000 shares of the tech behemoth. Apple is undertaking a four-for-one stock split, but experts are quick to note such a split has no bearing on the company’s value. In other words, this guy will still have $3.27 million if Wednesday’s midday price sticks.
“What I need to know is should I move it around or keep it rolling all in AAPL?” the poster, whose screen name is “Big-Weed,” said.
Fellow Reddit users chimed in with three forms of advice: hold; diversify; and run far, far away from the online forum and find a professional to help out.
One user said the man shouldn’t do a thing, because that positions him alongside the likes of Warren Buffett. The Oracle of Omaha’s Berkshire Hathaway Inc. BRK.B, -0.34% BRK.A, -0.25% held 245,155,566 shares of Apple as of late March, according to a Securities and Exchange Commission filing.
“That grandpa is world famous well known investor holding it strong, where is the risk? … This is a hold for life stock,” said the user, “AlgoWinner.”
Another user said the man should get ready to sell most of the holding after the stock splits and there’s a sugar rush of highs from even more Apple shares hitting the market.
After those transactions, this user, “ace425,” said the original poster should get “a paid off house and lock the rest of those in low risk diversified investments. … Don’t touch or risk your core capital and you will enjoy a lifetime of that sweet American pie so many of us can only dream of feasting on.”
MarketWatch checked in with some pros for their take. The Reddit user’s first mistake was even letting people know he’s come into big-time money, according to Kashif Ahmed, president of American Private Wealth, a financial advisory firm in Bedford, Mass.
“If all of the sudden you become rich, you all of the sudden have 48 cousins,” Ahmed said. He tells clients and potential clients to clam up about windfalls, he said.
Beyond those street smarts, there’s some tax know-how to consider. Because of the “step-up in basis” under current estate-tax rules, an asset’s value resets for capital-gains-tax purposes upon inheritance.
Suppose another grandpa bought a stock at $5 per share. Then his grandson inherited it at $10 per share and sold it at $12 per share. The rule means the tax kicks in on the profit from a sale at $10, not $5, per share.
So if this man is going to unload Apple stock and diversify his investments, Ahmed said, he should act fast with a climbing stock price in order to minimize a tax bill. By the way, Ahmed added, this guy should be selling and diversifying.
“If I was him, I’d sell the whole thing, immediately go back and buy [exchange-traded funds] that are broad-market or tech-focused,” Ahmed said. That move diversifies the man’s holdings, while retaining exposure to Apple, he said.
“Nothing is forever. … The day of reckoning will come for all stocks,” he said.
Which is better to own in a rising-rate environment: Bond mutual funds, or individual bonds?
Retirees and soon-to-be retirees have been asking this perennial question with increasing frequency in recent months. That’s because they think there is a near certainty that interest rates will be higher in five or 10 years’ time. If they’re right, of course, bonds purchased today will fall in price.
But if those bonds are held until maturity, and assuming their issuers don’t default, they will return 100 cents on the dollar—fully recovering any paper loss they incur along the way. That certainly seems like a big advantage that individual bonds have over bond mutual funds.
In fact, however, this advantage doesn’t really exist. Consider the returns over the next 10 years of two hypothetical bond portfolios:
• A 10-year Treasury purchased today and held until maturity in August 2030
• A portfolio that each August sells its 10-year note (which now has 9 years left until maturity) and with the proceeds purchases a brand new Treasury with a 10-year maturity.
For all intents and purposes, believe it or not, these two portfolios will have an identical return—even if interest rates rise between now and August 2030. Any differences in return, which will be tiny, will be due to transaction costs.
To understand how this can be, consider the transaction that this annual-rebalancing portfolio undertakes one year now. For illustration purposes, assume that the 10-year Treasury yield TNX, +0.89% has risen a full percentage point between now and then—from its current 0.69% to 1.69%. The original 10-year note bought today would a year from now trade at 91.7% of par ($917 per $1,000 of face value); that’s the price that reflects a yield to maturity (from both interest and capital appreciation) of—you guessed it—1.69% annualized.
As a result, by selling the original 10-year note bought today, and buying a brand new one a year from now that yields 1.69%, your subsequent return will be equal to that of simply holding on to that original. As Vanguard puts it in a primer on the subject: “The fact that an investor is able to get principal back at a specific maturity date adds no economic value compared with a mutual fund that does not have a specific maturity date.”
Cliff Asness, founding principal at AQR Capital Management, is blunter. In an article for the Financial Analysts Journal a few years ago, he wrote that those who think individual bonds are superior than bond funds in a rising-rate environment “belong in one of Dante’s circles at about 3½ (between gluttony and greed).”
Asness continued: “Bond funds are just portfolios of bonds marked to market every day. How can they be worse than the sum of what they own? The option to hold a bond to maturity and ‘get your money back’…is, apparently, greatly valued by many but is in reality valueless. The day interest rates go up, individual bonds fall in value just like the bond fund. By holding the bonds to maturity, you will indeed get your principal back, but in an environment with higher interest rates and inflation, those same nominal dollars will be worth less. The excitement about getting your nominal dollars back eludes me.”
Duration targeting and bond laddering
Of course, most retirees who invest in individual bonds own several at once, forming what is known as a ladder. That is, they own a portfolio of bonds of different maturities; when one matures, the proceeds are reinvested in a bond with a long-enough maturity so as to maintain the ladder’s average maturity. This approach is also known as duration targeting.
Duration targeting and bond laddering are functionally equivalent to a bond mutual fund, of course. So I perhaps set up a false dichotomy at the beginning of this column when I presented the choice as between individual bonds and bond mutual funds. Perhaps the more appropriate question is how to protect our bond investments (whether they be individual bonds or funds) from the ravages of higher interest rates.
The answer: Hold on long enough. A bond ladder’s long-term return will come very close to its initial yield, even if interest rates rise throughout the holding period. That’s because the higher interest rates that the ladder earns when reinvesting maturing bonds make up for losses the other bonds in the ladder incur because of those higher rates.
That is the surprising finding of a study that was published in 2015 in the Financial Analysts Journal, entitled “Bond Ladders and Rolling Yield Convergence.” Its authors were Martin Leibowitz and Anthony Bova, managing director and executive director at Morgan Stanley, respectively, and Stanley Kogelman, a principal at New York-based investment-advisory firm Advanced Portfolio Management.
The authors derived a specific formula for how long you need to hold the ladder in order to have high confidence that your total return will equal the starting yield: One year less than twice its average maturity (a.k.a. duration target).
To illustrate, consider the iShares Core U.S. Aggregate Bond ETF AGG, -0.03%, which over the years has had an average duration of around 5.3 years and which has rarely deviated very much from that. (Its current effective duration, according to Morningstar, is 5.5 years.) Employing the formula the study’s authors derived, that means that your total return in the fund will come very close to its initial yield provided you hold the fund for 9.6 years.
To test the formula, I went back 9.6 years ago, to the beginning of 2011, when the iShares Core U.S. Aggregate Bond ETF yielded 3.91%. Guess what its total return since then has been, according to FactSet: 3.82% annualized.
This ETF’s current dividend yield is 1.2%. While that’s not so high as to make you jump up and down for joy, you can have confidence that, should you hold on for the next decade, your annualized return with the fund will be quite close to this yield—even if interest rates rise markedly between now and 2030.
If a fear of rising rates was keeping you out of bonds, you might therefore want to reconsider.
Many students are taking a pandemic gap year.
More than one in five college undergraduates don’t plan to enroll this fall, according to a new College Reaction/Axios poll of about 800 students taken Aug. 16-17. And 85% of those surveyed believe they are likely or very likely to be exposed to the novel coronavirus that causes COVID-19 if they are on campus.
That’s not too surprising, as coronavirus outbreaks have been reported across several universities that just recently reopened. Four colleges and universities suspended in-person classes already this week, including Notre Dame and the University of North Carolina, after reporting clusters of dozens of students and faculty testing positive for COVID-19.
The schools that are reopening their campuses have been strategizing how to bring students back safely since the spring, cobbling together heightened sanitation measures, mask mandates, smaller class sizes, limiting the number of students living on campus, and rolling out hybrid curricula mixing in-person and online learning sessions.
And some, including Penn State, are asking students to sign agreements akin to liability waivers that acknowledge the students are assuming the risk of contracting COVID-19 by participating in school activities, which has raised some eyebrows.
No wonder 22% of college students longing for a “normal” on-campus experience are choosing to postpone their enrollment until 2021, according to the College Reaction/Axios poll. Indeed, Harvard, which will be fully remote this year, said 20% of its incoming freshman class have deferred. Most students told Axios they will be working instead (73%), while around 4% are taking classes at a different school, and 2% plan to do volunteer work.
Still, the majority are on board with being on campus. This aligns with a previous College Reaction/Axios poll published last month, which found that 76% of surveyed students planned to go to campus if their schools gave them the option, and 66% said they would attend in-person classes if those were on the table. Most were willing to wear face masks and download an app to conduct contact tracing — and 79% said that they wouldn’t attend parties the way they did before the pandemic.
But that’s been much easier said than done. An incoming William & Mary sophomore admitted to MarketWatch last month that, “I don’t think a lot of students will stick to their word and stay away from parties or social events, including me.” And indeed, some of the recent campus outbreaks have been traced back to students not taking social distancing rules seriously.
Several University of Connecticut students have been evicted from campus housing after a viral video showed the young men and women partying in a packed dorm room without wearing masks.
Most of the infected Notre Dame students were seniors living off-campus who were infected at “gatherings” where social distancing rules were not followed, and masks weren’t worn, the “Today” show said, and Oklahoma State reported 23 COVID cases at a single sorority house.
The University of North Carolina has traced its clusters to dorms, a frat house and other student housing, with the school’s independent student newspaper calling out both the students and the university for the “clusterf—.”
“We all saw this coming,” the editorial board wrote. “University leadership should have expected students, many of whom are now living on their own for the first time, to be reckless. Reports of parties throughout the weekend come as no surprise. Though these students are not faultless, it was the University’s responsibility to disincentivize such gatherings by reconsidering its plans to operate in-person earlier on.”
Indeed, another notable statistic from the latest College Reaction/Axios poll: only 58% of surveyed students said they would notify their school if they saw someone breaking campus safety protocol.
As of Wednesday morning, the overall number of U.S. COVID-19 cases rose to 5.48 million, and the death toll grew to 171,833, according to Johns Hopkins University data. The daily U.S. death toll more than doubled on Tuesday to more than 1,300 Americans.
NEW YORK — I remember the Daily News headline: “FORD TO CITY: DROP DEAD.”
It seemed preposterous. Gerald Ford had announced at the National Press Club the day before that he would veto any federal financial bailout for New York City. Also, he never actually used those words.
Still, a president threatening the capital of the western world? Pshaw!
I had known I would live in New York City since my earliest family excursions there as a tyke. As the family car would ascend the rise over Queens that revealed the skyline, I was filled with awe and wonder. I had to be there, to know it.
“ ‘NYC was alive in a way the suburbs couldn’t touch: teeming with the creative expression and diversity that seemed stifled by neat green lawns.’ ”
I had begun to regularly commute to the city by train or car from Long Island in my early teens. My lifelong fascination was becoming a full-blown love affair. NYC was alive in a way the suburbs couldn’t touch: teeming with the creative expression and diversity that seemed stifled by neat green lawns and nice families.
In 1975, I was devouring theatre on and off-Broadway, the sprouting art scene in Soho, the cafes and jazz clubs of Greenwich Village and the concerts at Carnegie Hall, the Beacon Theatre, Lincoln Center and in Central Park. Gerald Ford didn’t frighten me. I was already a New Yorker in my mind. I’ve lived here, in three different boroughs, since 1981.
It’s sometimes said “this city is for the young and the rich”. I’ve been young in NYC, and my life here has been more than rich.
I’ve watched the Thanksgiving Parade from the Dakota; had gigs waiting tables and driving Rolls Royces, I’ve done carpentry and painting, and had too many sunrises legal proofreading. I’ve taken over restaurants in water pistol fights with Andy Warhol, Jerry Hall and the artist Keith Haring, walked the avenue with Gregory Peck as he obliged Atticus fans by graciously kissing their babies.
You can’t put a “best before” tag on New York. I’ve had after hours encounters with the legendary jazz bass player Jaco Pastorius and Sassy (Sarah Vaughan) in Harlem. They were the days when creativity, the feeling of possibility and, yes, crime were high in New York. I was robbed at gunpoint and humbled in service for the homeless: Park Avenue to park bench! But it is an unfinished journey.
And yet it’s becoming a trend of late to pronounce NYC dead. A recent retweet TWTR, +1.15% by President Trump said: “Leave Democrat cities. Let them rot.”
A piece in Marketwatch this week quoted a financial author and “proud” New Yorker who bemoaned the COVID-related loss of the commercial and residential real-estate frenzy, cultural gatherings and his favorite restaurants. He predicts a permanent flight from Gotham: “It’s finished.” He said it won’t recover this time. “This is different!” he said.
Of course, it’s different. It’s always different. No one had ever incinerated buildings with jetliners until 19 years ago. As I recall, all of these gloomy inevitabilities were looming post-9/11, as a city galvanized and girded, uniting against terror and dread. It was a wonder to behold. And this time is different from 9/11.
Something that returns as different — even vastly different — is not dead.
Recovery and redemption are not “dead” or “finished.” There are things lost forever about the scrappy New York of the 70’s that I miss and there are things about the hyper-monetized New York of 2019 that I would gladly part with, but change isn’t death.
Doubtless, New York City is down and reeling: More than 32,000 souls perished in the dark months when New York state was the epicenter for the coronavirus pandemic. The loss and fear were traumatizing. There has been significant flight of businesses, residents and a gutting of indoor gatherings (theatres, restaurants, and the like).
I, for one, will not forsake my city. She stole my heart when I was five.
I was working out of town in mid-March when my work was suspended. I have remained away in a bubble since quarantine to be available to my fragile, elderly parents and keep them in their home. My wife and I return to our apartment periodically and continue to pay rent and overhead on our city businesses.
“ ‘The great metropolises — Rome, Paris, London, Berlin — have all been wracked by plagues and war and upheaval.’ ”
We’re not bailing. New York is where we trained for and entered our professions. It’s where we met and fell in love and married. But more than that, New York is where we made a compact to commune with the entirety of humanity, not just the people like us.
We live in a time fueled by grievance and entitlement. Sure, the narcissists of the world have always come to New York. But New York has also always been the destination for dreams and possibility.
The bemoaning of a lost New York City of sensory indulgence ignores the wealth of history of the city I revere: the city of inclusion, of the great societal advances that followed the Triangle Shirtwaist Fire and the Great Depression. New York and New Yorkers don’t kick her when she’s down. We roll up our sleeves and help.
The loss of residents and businesses, of restaurants, bars and theatres, is terrible. The road back will be arduous, and no one can know what lies ahead. It’s the same the world over. As someone once said, “We’re in the hallway,” unsure of where it leads. Nobody likes the hallway. Not “knowing” sucks.
To say NYC is finished, however, gravely underestimates the human heart and spirit that have always infused her. The extraordinary capacity of New Yorkers was revealed in both the nightly celebration of health care and essential workers, and in the humility and discipline that have made the city and state the model for how to quash and reopen in the midst of a novel coronavirus. Not everyone can leave.
My Brooklyn-born Dad always spoke to me of “lifters and leaners”. The “leaners” are going to reject a NYC that isn’t how they’ve decided it’s supposed to remain. The “lifters” will look to care for and tend to the needs of the present.
In many ways, the rampant income inequality and gentrification of the past 20 years were bound for a correction of some kind. It wasn’t sustainable. NYC will become something it’s never been before. Kinder/gentler? We’ll see. But finished? Pshaw!
Tough times lay ahead. New York is not going to be “finished” by a plague, though. The great metropolises — Rome, Paris, London, Berlin — have all been wracked by plagues and war and upheaval. And the throngs return, as they will to New York, a great metropolis.
Death knell be damned. Go ahead — kvetch. Leave! Get out of the way, there’s good work to be done.
This essay is part of a MarketWatch series, ‘Dispatches from a pandemic.’
A startling lack of Black appointees to the highest echelons of U.S. financial regulation has contributed to entrenching institutional racism by ensuring it does not receive sufficient attention.
New research from Georgetown Law Professor Chris Brummer highlights the stark lack of minorities, especially Blacks, in leadership roles at major regulatory agencies like the Securities and Exchange Commission and the Federal Reserve.
“ “The absence of African American financial regulators poses enormous challenges from the standpoint of participatory democracy, and economic inclusion.” ”
The headline figure is just plain shocking: Just 10 of 327 individuals appointed to senior financial regulatory roles since the New Deal of the 1930s was Black.
“Perhaps one of the biggest open secrets in Washington, D.C. is the virtual absence of African American financial regulators in the United States government,” wrote Brummer in the report.
“Across the federal government, they are missing, and have been missing for generations, with at best short appearances by single political appointees two to three years at a time,” Brummer writes.
There are no Black commissioners at the Securities and Exchange Commission (SEC), he points out–or at the Commodity Futures Trading Commission. There has never been a Black chairman of the Fed, the Federal Deposit Insurance Corporation, SEC, or CFTC. And today, the staffs of political appointees on both sides of the aisle remain, with few exceptions, “almost devoid of African Americans.”
|Black political appointees to regulatory agencies|
|Name||Agency||Position and years served||Appointed by||Political party|
|Andrew Brimmer||Federal Reserve Board||Governor, 1966-74||President Lyndon Johnson (D)||Democrat|
|Harold A. Black||National Credit Union Administration||Member, 1979-81||President Jimmy Carter (D)||Republican|
|Emmett John Rice||Federal Reserve Board||Governor, 1979-86||President Jimmy Carter (D)||Democrat|
|Aulana Peters||Securities & Exchange Commission||Commissioner, 1984-88||President Ronald Reagan (R)||Democrat|
|Isaac Hunt||Securities & Exchange Commission||Commissioner, 1996-2001||President Bill Clinton (D)||Democrat|
|Yolanda T. Wheat||National Credit Union Administration||Commissioner, 1996-2001||President Bill Clinton (D)||Democrat|
|Roger Ferguson||Federal Reserve Board||Governor, 1997-2006; Vice Chairman, 1999-2006||President Bill Clinton (D)||Democrat|
|Sharon Bowen||Commodity Futures Trading Commission||Commissioner, 2014-17||President Barack Obama (D)||Democrat|
|Mel Watt||Federal Housing Finance Agency||Director, 2014-19||President Barack Obama (D)||Democrat|
|Rodney Hood||National Credit Union Administration||Member, 2005-09; Chairman, 2018-current||President George W. Bush (R); President Donald Trump (R)||Republican|
|Source: Chris Brummer|
Why does this matter?
America’s startling 10:1 racial wealth gap is due not only due to institutionally racist practices, but also to racist rules and laws that, when enforced strictly by whites, tend to persist unabated. For instance, government-mandated mortgage lending discrimination , followed by years of more subtle but still crippling racism, have thwarted Blacks’ ability to built capital from housing, a key source of wealth accumulation.
So what’s the solution? Some Democrats in Congress have introduced a new bill that would require the Fed to work to narrow the racial wealth gap as part of its formal mandate.
That seems like a symbolic step in the right direction. However, it would not solve the problem of U.S. presidents who have historically not appointed Black experts to top regulatory positions.
The Federal Reserve is a case in point, with the Fed’s board having had only three Black governors in its entire history, and Raphael Bostic becoming the first-ever Black president of a regional Fed bank in 2017.
And this an institution with a direct anti-racism mandate already in the form of the Community Reinvestment Act, which requires that the Fed to make sure that banks are not redlining minority communities.
“The CRA plays a vital role in bringing banks together with community members, small businesses, local officials, and community groups to make investments in their community’s future,” said Fed Gov. Lael Brainard earlier this year.
Still, banks are trying to “reform” the 1977 law in a way that would use more generic metrics for compliance, which in turn would dilute the legislation’s anti-racism intent in the first place.
“The absence of African American financial regulators poses enormous challenges from the standpoint of participatory democracy, and economic inclusion,” Brummer writes.
One crucial area where regulatory racism manifests itself most acutely is in housing, where legislation drafted from the 1930s through the 1960s contained actively racist language that excluded Blacks from the benefits of American capitalism.
“Financial regulators are routinely involved in making critical determinations as to who is afforded taxpayer-backed financial assistance in times of economic distress, under what conditions, and much more,” he added.
“Consequently, the absence of African Americans deprives the community from having members present in decisions that not only impact them directly, but are often made in their name.”
Pedro Nicolaci da Costa writes about economics from Washington.
The job of slicing up the economic pie in the U.S. has traditionally fallen to Congress, with the Federal Reserve tasked with making sure there is enough to go around. But this could soon change.
Under proposals put forward by Democrats in Congress, the mandate of the Fed would be tweaked for the first time since 1977, when its objectives were made explicit: promote maximum employment, stable prices and moderate long-term interest rates. Under the new proposals, the central bank would gain an additional task of reducing racial inequality.
In short, the central bank could be handed the pie cutter and told to make sure everyone gets a fair share.
If passed, the Federal Reserve Racial and Economic Equity Act would shift some of the responsibility for addressing systemic racial inequality away from Congress. Given that the nation’s politicians have failed to level the playing field to date, that may not be a bad thing.
My work with economist Valerie Wilson finds that the economic position of Black Americans is equivalent to their relative position in 1979, with Black men earning on average 31% less than white men and Black women 19% less than white women.
When you factor in the incarcerated population, Black Americans are no better off than they were in 1950.
As a former chief economist at the U.S. Department of Labor who has researched racial inequality, I believe that the proposed changes to the Federal Reserve’s mandate would improve the economic status of Black Americans and that the Fed can achieve this in three key ways.
The main tool the Fed has in guiding the U.S. economy is through the setting of interest rates. Adjusting its benchmark interest rate changes the cost of borrowing for companies and consumers, which in turn can stimulate or subdue their spending. When the unemployment rate is extremely low — as it was prior to the pandemic — the Fed may increase interest rates. This puts a brake on private consumption and investment and protects against inflation.
The problem is that currently the Fed focuses on the national jobless rate, the same one reported every month in the news. This figure obscures the wide variation among different regions and demographic groups, not to mention that it ignores the growing share of Americans who are underemployed.
At present, the Fed uses the national unemployment rate to help guide its rate setting. But even during times of prosperity, the Black American jobless rate is roughly two times the white rate.
As a result of the Fed targeting the national unemployment rate — which is roughly equal to the white rate — interest rates are hiked before many Black Americans fully experience the benefits of a deep and lengthy economic boom. My research with former Fed economist Seth Carpenter shows that when the Fed puts its foot on the brakes, the Black jobless rate rises more. Black teen unemployment suffers the most from this brake pumping.
But in line with a change to the mandate to include reducing racial inequality, central bankers could ditch the national rate as its target and instead use the Black unemployment rate. Doing so would still maintain strong economic growth for white Americans but would enable the Fed to set rates in a way tailored to addressing the economic needs of Black people too.
The Fed can also use tools handed to it under the Community Reinvestment Act to narrow racial wealth differences and provide Black Americans with greater access to credit. The law, enacted in 1977, requires the Fed to use its oversight powers to encourage financial institutions to help meet the credit needs of the communities in which they do business, particularly in low- and moderate-income neighborhoods.
The new proposals specifically call on the Fed to aggressively implement the act.
This is important because many Black consumers continue to experience discrimination getting loans and mortgages.
Proposals for a new law would ensure that policy makers and the public are made fully aware of racial economic disparities. Under the proposal’s terms, the Fed would be required to report on recent racial, ethnic, gender and education gaps in income and wealth, with the Fed chair expected to identify racial disparities in the labor market through periodical congressional testimony. The chair would also have to make public how the Fed intends to reduce these gaps.
This is important because the proposed law could be viewed as lessening Congress’ traditional role of using fiscal policy such as taxation and spending to address issues of inequality. Instead, the Fed’s new data collection and analysis responsibilities would put additional pressure on lawmakers to act.
I believe this could have a profound long-term impact on not only individual Black families but the national economy as a whole. The availability of much more data that clearly shows just how wide the racial inequality gap is would put pressure on Congress to find ways to help Black Americans accumulate wealth and the means to secure and affordable housing. This would likely result in lower health-care costs, increased housing values, and lower crime. This in turn could lead to less spending on social services, with savings redeployed to community enterprises that raise overall productivity.
Likewise highlighting racial discrepancies in employment could force Congress to introduce proposals to bring equitable child care and education to Black communities, as well as better transportation and reliable technology, all of which would raise worker productivity.
Changing the Fed’s remit is no silver bullet. But at a minimum, the provisions of the proposed act — to make reducing inequality part of the Fed’s mission, to ensure that racial economic disparities are not ignored and to require robust reporting on labor-force disparities — could provide a federal response to racial disparities that moves the needle on improving the prosperity of Black Americans.
And it comes as America’s reckoning with systemic racism has received fresh urgency and scrutiny following the killing of George Floyd.
Despite this fresh impetus, the act faces an uphill battle. It is unlikely to become law under present political circumstances. And even if the Democrats succeed in winning the Senate and presidency in November, the chances for the act’s success are uncertain.
But if over time more Fed governors are appointed that support the proposed mandate, the act’s elements could become policy and practice. This updated mandate would represent a down payment by one of the nation’s most powerful institutions to end systemic racism.
William M. Rodgers III is professor of public policy and chief economist at the Heldrich Center for Workforce Development at Rutgers University.
The stock market will be feeling the impact of COVID-19 for decades to come. That’s because the pandemic is causing the U.S. birth rate to fall. A report from the Brookings Institution, predicts between 300,000 and 500,000 fewer births in 2021, calling it the “Covid Baby Bust.”
You have plenty of time to plan for the long-term impact of this baby bust. Based on past research into demography and the stock market, the declining birth rate in 2020 and 2021 won’t affect the stock market until 2035 at the earliest. In fact, its impact from then until 2050 could be positive.
The basis for these bold assertions is the demographic indicator that researchers have found to be best correlated with the stock market’s long-term return: The so-called Middle-Young (MY) Ratio, which is calculated by dividing the size of middle-aged cohort (ages 35-49) by the size of the young cohort (ages 20-34).
(There is a complicated theory that explains why this ratio is correlated with the stock market, which is beyond the scope of this column to describe. Interested readers would do well to read one of the first academic studies on the subject: “Demography and the Long-Run Predictability of the Stock Market,” by John Geanakoplos of Yale University, Michael Magill of the University of Southern California, and Martine Quinzii of the University of California, Davis.)
The chart below plots this MY Ratio along with the S&P 500’s SPX, +0.23% trailing 16¼ year annualized total return after inflation. I picked this time horizon because of a conversation I had in 2002 with Yale’s Geanakoplos. Based on the MY Ratio, he forecast that the stock market’s return from then until the late 2010s would be mediocre at best.
He was largely right. As you can see, the stock market’s trailing 16¼-year return hit its low around that time and has since turned up. The chart also suggests that demographic winds will continue blowing in the stock market ahead until around 2035.
This chart will need to be revised if the birth rate this year and next declines as much as the Brookings Institution is projecting, and especially if this condition persists beyond 2021. That’s because this year’s births will start showing up in the “young” cohort in 2040. And since that cohort is the denominator of the MY ratio, as it gets smaller the ratio as a whole becomes higher (other things being equal).
This year’s births will be in the “young” cohort until they are aged 34, which will be in 2054. At that point they will graduate into the “Middle-Aged” cohort and start exerting downward pressure on the MY ratio.
To be sure, analyzing the net effect of myriad demographic factors is incredibly difficult. Alejandra Grindal, senior international economist at Ned Davis Research, explained some of these factors in an email:
“Those people within the 35-49 age category from 2035-2045 are in large part children of Gen-Xers, which was a small population cohort to begin with. The people having children now are likely millennials, which is a very large cohort. This means that even if the fertility rate declines, the MY ratio could still increase (again, there are a lot of unknowns, such as immigration and the fertility rate of gen-Z, etc.). But lower fertility rates, which have been happening for some time, will nonetheless weigh on the ratio’s upside potential.”
The bottom line: It will take decades for the stock market to return to the pre-pandemic “normal.” Rather than fantasizing that it will, we instead should focus on how to exploit the “new normal.” And one way of doing that is focusing on demography’s long-term impact on the stock market.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at firstname.lastname@example.org