Power & Market

Now You Can Join the Fed's Community Advisory Council

04/20/2021Robert Aro

There could be a real opportunity to get on “the inside” of the Federal Reserve. Last Monday it was announced:

Federal Reserve Board accepting applications for its Community Advisory Council

Known as the CAC, the Advisory Council:

advises the Board on issues affecting consumers and communities and complements two of the Board's other advisory councils whose members represent depository institutions—the Federal Advisory Council and the Community Depository Institutions Advisory Council.

Think of the CAC as an advisory board which advises the (Federal Reserve’s) board… which helps to advise other boards. The CAC meets in Washington, DC to:

provide a range of perspectives on the economic circumstances and financial services needs of consumers and communities, with a particular focus on the concerns of low- and moderate-income consumers and communities.

Looking back at the last CAC meeting minutes on October 1, 2020 provides an idea of the scope of economic questions the board asks itself:

To what extent are Council members seeing the effects of COVID-19 on small businesses in their communities?

Are permanent closures threatening the entrepreneurial ecosystems of their communities?

What tools or policies can help mitigate these effects?

The minutes seem quite long, having many stats, various ideas and even anecdotal evidence. For the questions above they mention difficulties lower income communities, women, and minorities are all facing, as well as the usage of Paycheck Protection Program (PPP) loans. They even mention:

Another round of PPP is critical to helping save these smaller businesses…

Speaking of which, the PPP weekly report noted that as of April 11, 2021, the $755 billion to date has been approved, as seen below:

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This is the liquidity facility which provides forgivable loans. It will continue to be of interest as to how this will end, considering only $64 billion is listed on the Fed’s balance sheet, or just under 10% of all forgivable loans. Whether the loans will be paid or forgiven remains to be seen…

Recommendations, such as “another round of PPP” are the type of work the CAC is encouraged to put forward to the Federal Reserve. Of all the questions the CAC was asked, nothing regarding the sustainability of programs such as the PPP, debt or money supply concerns, the economic impact nor morality of nearly $1 trillion in forgivable loans was ever mentioned.

Unfortunately, billions of dollars are at stake here, requiring “experts” in various fields to recommend how to distribute these dollars; no economic calculations necessary. Perhaps that’s why the application calls for qualifications such as:

knowledge of fields such as affordable housing, community and economic development, employment and labor, financial services and technology, small business, and asset and wealth building, with a particular focus on the concerns of low- and moderate-income consumers and communities. Candidates do not have to be experts on all topics related to consumer financial services or community development...

Applications due by June 11. Should you win the position as CAC member you’ll be able to meet in Washington, on a semi-annual basis, normally for a two-day meeting. If you think you have what it takes to best plan communities across the country, then feel free to apply and good luck.

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No, There's No Reason to Feel Sorry for Robinhood

02/24/2021Ryan McMaken

As the dust settles following the GameStop frenzy in late January, it is clear that one of the biggest losers in the controversy in Robinhood. Robinhood is a trading app that markets itself as a platform for ordinary retail investors seeking to buy and sell securities without the cost of an expensive broker. Or, more romantically, Robinhood claims it has "democratized" investing.

But things didn't play out that way for the company. As buying of GameStop shares intensified in January 28, Robinhood (among other brokerages) halted the buying of GameStop (and some other shares, such as AMC) citing an inability to post sufficient collateral at clearinghouses. This is how a recent Forbes article summed it up

With the ability to easily buy more and more stocks using Robinhood’s app, the pile-on became a gold rush, as more speculators flooded to the platform to get “in” on the bounty. News about the booming GameStop and AMC stocks spread far and wide.

That’s where the trouble started.

Robinhood doesn’t directly execute customer trades.

Instead, it directs the transactions through a clearinghouse, which pays for the trades as the information it gleans lets it more effectively direct its own trading decisions.

Buyers and sellers are quickly matched digitally. However, the “settlement” of the trade—the actual transfer of payment and shares between parties—typically takes two days after the transaction. So clearinghouses require brokers, such as Robinhood, to have enough money on deposit to ensure that a trade can clear—even if the broker is waiting for a separate payment from a client to finish processing.

Given high demand for the shorted stocks and the climbing prices, Robinhood’s deposit requirements suddenly jumped ten-fold, according to a company blog post.

So Robinhood “put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.”

The fact that this move also helped billionaire short sellers at hedge funds was not lost on the general public, and the many immediately began to accuse Robinhood of intervening to help Wall Street oligarchs at the expense of ordinary investors. 

Was this the case? 

It doesn't matter all that much. What matters is that Robinhood was unable or unwilling to serve its customers in the way that Robinhood claimed it always would. 

According to Robinhood's narrative, its management had no other choice. And this has led some commentators to defend Robinhood, claiming that it was a victim of circumstance and it wasn't really conspiring against ordinary investors. 

But so what?

Even if Robinhood was being perfectly honest with everyone, the fact that it had to cut off its own customers from promised services reveals to us that Robinhood's management is at the very least incompetent and was unable to plan for future events which would have been anticipated by truly insightful or competent entrepreneurs. 

The company's ineptitude was showcased in a recent discussion between Rob Portnoy and Robinhood CEO Vlad Tenev. Tenev bragged that the company's block on further GameStop purchases meant "we were able to protect the firm." But Portnoy correctly pointed out that if "protecting the firm" means "screwing over" the customers, there's something very wrong going on over at Robinhood. We have a word for "protecting the firm" by harming customers. It's "exploitation," or "ripping people off." In response, Tenev threw out some bromides about how "if the market breaks down" they can't serve their customers. This assumes, of course, that letting investors buy what they want constitutes a "breakdown" in the marketplace. That's a rather bizarre assertion. Ultimately, even if we assume Robinhood was in no way conspiring against anyone, the fact remains that—as pointed out on CNBC—Robinhood put itself in a scenario it should not have put itself in. 

In other words, doing business with Robinhood now is an "enter at your own risk" sort of proposition. It's clear that in spite of all of Robinhood's claims about offering the everyman a way to participate in the markets, investors who do business with Robinhood can't trust that it will actually deliver the services it claims it will deliver.

That's as good a reason as any to forever ditch any company that acts with such ineptitude in giving the customer what he or she wants. 

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New Unemployment Increased to 1.4 Million Last Week as Recovery Falters

07/25/2020Ryan McMaken

Listen to the Audio Mises Wire version of this article.

New unemployment claims increased during the week of July 18, rising to 1.41 million over the previous week's total of 1.3 million (seasonally adjusted).

Last week was the first week of increasing job losses after sixteen weeks of gradual declines since March. Job losses peaked during the week of March 28 when a stunning 6.8 million workers filed for unemployment benefits.

Since then, weekly totals of newly unemployed had gradually declined until last week's increase.

In total, since mid-March, more than 52 million workers—41 percent of the working age population between 25 and 56 years of age—filed for unemployment benefits.

As of the week of July 11, "continued claims" for unemployment were sought by 16.1 million workers nationwide. Continuing claims had peaked at 24.9 million unemployed during the week of July 4. A decline in continuing unemployment from 24 million to 16 million shows some progress, but a "normal" total for continuing claims in recent years is less than 3 million. Arguably, "excess unemployment" at the moment totals at least 13 million.

The rising unemployment comes partly as a result of state governments forcing the closures of some businesses, or restricting operations, in the name of mandatory social distancing.

Not only has this reduced possible working hours for employees, but it has likely reduced business owners' efforts to expand their businesses due to the extreme uncertainty that accompanies "emergency orders" now issued by governments. These orders are not subject to debate or any meaningful legislative process, making them far more unpredictable than ordinary legislation.

Revenue has declined precipitously for many businesses in recent months.

The approximately 16 million workers who continue to collect unemployment benefits will face a big problem next week as the additional $600 unemployment benefit will run out. CNBC explains:

Tens of millions of Americans who lost their jobs because of the coronavirus pandemic have been able to collect an extra $600 in weekly federal unemployment benefits over the past few months on top of the standard amount given by their state. For many households, the enhanced benefits have been a financial lifeline amidst record job loss and a burgeoning recession.

But on July 31, that enhanced benefit will end — and that could have dire consequences for millions of households.

Political pressure is mounting to continue the benefit, and to pass another stimulus and relief package overall.  Given that tax revenues have collapsed, this will require essentially "printing" the money necessary for an expansion of the "CARES" Act. The US is now on track to produce more than $3 trillion in deficit spending for the 2020 fiscal year, which ends on September 30.

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Now That We're Officially in Recession, What Lies Ahead?

06/10/2020Robert Aro

On the heels of what might be heralded as one of the most important Fed meetings in over a decade, all we can do is speculate about what our central planners have in store. Meanwhile, consider the anticapitalist mentality running rampant in the world around us: the global pandemic, civil unrest across the USA, sky-high world central bank balance sheets, nearly $26 trillion in US debt, the highest unemployment rate since the Great Depression, the Bank of England calling for the worst economic slump in the last three hundred years, the Fed still having potentially trillions of dollars more in unused liquidity facilities at its disposal, and the stock exchange on the verge of reaching all-time highs once again. Then The Economist has the audacity to publish an encouraging article that suggests "Don’t Worry About Inflation—Yet" with the headline quote:

Monetary stimulus is unlikely to spark sustained price rises while labour markets remain depressed.

Because, according to The Economist,  money creation, combined with less goods and services produced, doesn’t lead to a rise in prices. Nor does it cause a rise in the prices of assets such as stocks and contribute to the overall unaffordability of life for the average family. Don't forget to factor in a $14.3 trillion household debt level which has now surpassed the debt level during the Great Recession. Yet we’re supposed to think that this is acceptable since interest rates are low and "inflation" appears to be "feeble" according to mainstream news sources.

As for the Fed, they remain under media blackout. No comments have been made publicly this week or last. However, billionaire hedge fund manager Steve Druckenmiller highlighted the disconnect between the stock market and reality best on CNBC:

What is clearly happening is the excitement of reopening is allowing a lot of these companies that have been casualties of Covid to come back and come back in force.

Surely, the several trillions of dollars that were literally created out of thin air by central banks had something to do with the rally in the stock market. Or, explained differently, if the Fed had not taken  extensive measures to support the economy by purchasing trillions of dollars in debt, would the stock market have rallied as it has?

As we watch the market continue to rise, the disconnect with reality becomes even more pronounced. The National Bureau of Economic Research (NBER) press release on Monday declared the obvious:

The committee has determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020. The peak marks the end of the expansion that began in June 2009 and the beginning of a recession. The expansion lasted 128 months, the longest in the history of U.S. business cycles dating back to 1854.

The good news is that the NBER offered a faint source of optimism at the conclusion of the statement, noting:

The unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.

With countless challenges ahead, it will sadly be up to a handful of wealthy elites to steer the economy in the direction they see fit. Although the FOMC statements are normally templated and lackluster, it’s the Q&A that provides valuable insight into the mind of a planner. We can only hope someone will ask questions such as “How does a central bank unwind a $7 trillion balance sheet?” or “What does a $750 billion bond/exchange-traded fund program have to do with the Fed’s mandate?” But if not, at least we’ll get to hear about their invaluable economic projections!

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Notes on Trump's Executive Order for Tech Companies

05/29/2020Jeff Deist

Listen to the Audio Mises Wire version of this article.

Donald Trump's executive order issued earlier this week purports to prevent online censorship by effectively instructing federal agencies to reinterpret the Communications Decency Act of 1996 (CDA). In particular, Trump has a well-founded complaint with the infamous section 230 of the CDA, which grants tech companies a certain level of immunity from various civil lawsuits, including defamation lawsuits. By doing so, section 230 not only attempts to preempt state law to the contrary—federal preemption is almost always bad— but also creates a class of actors that enjoys the status of a neutral platform or common carrier but exercises editorial discretion.

Remember, in 1996 social media did not exist. Search engines like Alta Vista and Netscape were rudimentary; most people still typed site addresses into their browsers. The CDA was aimed primarily at internet service providers such as AOL, which Congress ostensibly wanted to shield from any liability for the actions, communications, or content of users. After all, when two individuals engage in a criminal conspiracy by phone prosecutors don't indict the cellular network provider. The CDA made sense in an era when the internet was in its infancy.

But fast-forward twenty-five years, and social media companies have been thrust into the role of "community standards" police. Search engines, particularly Google, are the gatekeepers and curators of the information we consume. These tech companies now appoint themselves arbiters of truth and propriety, and not only with regard to politics and campaigns. Hate speech and harassment, both ambiguous and ever shifting, are grounds for removal or suspension from platforms. Unorthodox or politically incorrect views on scientific issues surrounding global warming, vaccines, and COVID-19 are regulated by invisible algorithms or unaccountable employees of tech companies. "Bad" websites and blogs disappear from search results, or are buried so deep as to become invisible. 

By any measure, these actions by technology companies—banning, suspending, shadow banning, and demonetizing—are based on the content involved or the identity of the user. In both cases, editorial judgment is applied. This is inescapable. So to the extent that the CDA immunizes editorial decision-makers or their tech company employers against liability for damages from lawsuits otherwise recognized by state law or common law, libertarians have every reason to object. But as with most cases of favoritism in law, the answer is repeal of special privileges rather than more legislation. 

A few additional summary comments:

  • Executive orders are inherently suspect and generally bad, not simply because of (at this point laughable) constitutional concerns, but because they establish another layer of de facto "laws" for which you and I have little legal recourse. If the CDA needs amending, let Congress do it. Better yet, scrap it.
  • Yes, Facebook, Google, Twitter, Amazon et al. are private companies, despite their deep entanglements (including contracts) with the federal government. Virtually every industry and every large company is in bed with Uncle Sam, from subsidies and lobbying to protectionist legislation. If we allow such entanglements to justify even deeper levels of regulation, we only further erode what ought to be a bright-line distinction between private sector and state.
  • Yes, these companies have deeply illiberal biases, and even outright illiberal agendas, from a libertarian perspective.  
  • No, private companies are not required to give you or anyone else access to their platforms.
  • No, the First Amendment does not apply to private companies.
  • "Fact checking" is inherently and inescapably political. Who are the disinterested angels charged with performing  these checks? Which facts are checked, and whose facts are checked? What about half-truths and distortions, as opposed to outright falsehoods? 
  • We are all "media" in an age of instantaneous social sharing platforms and camera phones. The First Amendment did not create or contemplate a special class of institutional press that enjoys enhanced protections from government. Kids on bikes have as much right to "cover" the situation in Minneapolis as CNN, and your Facebook posts deserve the same protections as Wolf Blizter's nightly show.

What to do, then? Peter Klein lays out one path forward:

  • Repeal the CDA. 
  • Enforce contractual agreements between platforms and users.
  • Avoid all attempts at viewpoint neutrality regulation.
  • Remove government-created entry barriers for new entrants (including the CDA). 
  • Don't treat information as property (e.g., don't act as if users "own" "their data" and enforce regulations on portability).
  • Finally, Trump simply should move to Gab or a similar platform. Many of his 85 million followers would follow, and this would do more to "punish" Twitter (and encourage new competitors) than any legal action.
Image source:
Getty
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New Donation to the Mises Institute Archives: The Voluntaryist Collection

05/22/2020Mises Institute

We received a new donation from Mr. Carl Watner entitled The Voluntaryist Collection. The highlight of the donation includes the six-volume set: The Collected Works of Lysander Spooner. Within the collection is a series of personal inscriptions that Mr. Watner collected at libertarian conferences over the years, including by Murray Rothbard, George Smith, Leonard Liggio, Joe Peden, Mike Coughlin, Charles Shively (editor of the six volumes), Daniel Siegel (publisher), Wendy McElroy, Chuck Hamilton, John Mueller (cofounder of Laissez Faire Books), and Robert LeFevre.

Mr. Watner's generous gift will be included in the Mises Institute archives, alongside the donations of great libertarian thinkers such as Rothbard, Dr. Robert Higgs, Dr. Ralph Raico, Mr. LeFevre and the Freedom School, and more.

The Mises Institute archives remain one of the world's leading research centers for Austrian economics and libertarian thought, providing a unique resource for research fellows who continue to make their own contributions to the ideas of liberty.

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Never Let a Good Crisis Go to Waste

03/19/2020Peter G. Klein

Remember the Golden Age of Laissez-Faire, the grand epoch brought to a tragic end by the COVID-19 crisis, which laid bare its failures for all to see? Me neither.

And yet the New Narrative is already being written. "The Era of Small Government Is Over," writes Jamelle Bouie in the New York Times. US federal, state, and local government spending was 32 percent of GDP in 1980, 37 percent in 2018. It peaked at 39 percent during the Obama stimulus and never fell below 31 percent during this period. So much for the neoliberal consensus!

No matter how you measure government intervention—number of pages in the Federal Register, tax burden, size of the federal workforce, amount of rent seeking and private contractors on the government dole, or just qualitative, subjective assessments of the role of the state in private life—we've had Big Government as far back as anyone alive can remember. And yet, like former Chicago mayor Rahm Emanuel, you can be sure that pundits, politicians, and professors won't let the current crisis go to waste.

After touting a variety of new and expanded government programs to combat the crisis, Bouie warns us—apparently without irony—that "some people are using this crisis to push their preferred ideas." He points to tax-cut proposals by "supply-side ideologues" Art Laffer, Stephen Moore, and Steve Forbes (most of which are actually favored by economists). Thank goodness Mr. Bouie's proposals are based on pure science.

The prolific Mariana Mazzucato writes in The Guardian that we should "use this crisis as a way to understand how to do capitalism differently." Specifically, she wants government to play a more active role in shaping economy and society:

Since the 1980s, governments have been told to take a back seat and let business steer and create wealth, intervening only for the purpose of fixing problems when they arise. The result is that governments are not always properly prepared and equipped to deal with crises such as Covid-19 or the climate emergency. By assuming that governments have to wait until the occurrence of a huge systemic shock before they resolve to take action, insufficient preparations are made along the way.

Instead, she tells us, governments "should move towards actively shaping and creating markets that deliver sustainable and inclusive growth. They should also ensure that partnerships with business involving government funds are driven by public interest, not profit." 

To be sure, the governments that dominate the social democratic, corporatist, welfare states in all countries could be larger and more intrusive than they are. Most of us are grateful for the small pockets of liberty that remain. If we aren't careful, however, as I noted last week, these pockets may soon be gone. 

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No, Authoritarian Governments Do Not Outperform "Open Societies" in a Crisis

03/13/2020Per Bylund

There are some very disturbing calls for quick-fix "solutions" following the reporting of how countries have and have not handled COVID-19. It is not about how contagious or dangerous the virus actually is, which is not my expertise, but the typical and dangerous misunderstanding of the supposed efficiency of hierarchy and, therefore, the effectiveness of control societies, authoritarian rule, and dictatorial regimes.

To put it simply, the claim is that China "handled it right," was able to do something by acting fast and forcefully, and, by implication, that open societies are impotent to threats and fundamentally fragile. But this is exactly wrong. This misconception arises out of a common but fundamental misunderstanding of social organizing (such as society, markets, etc.). And, interestingly, it is put forth by people who should definitely know better, including influential investors and entrepreneurs in Silicon Valley.

There is some limited truth to the argument that a centralized power can act faster and more forcefully (that is, brutally and without respect for individuals or groups of people), but it is based on embarrassingly ignorant assumptions. To be true, it requires that the regime, those in power, have the correct information and act in the best interest of society. Those are not simply exaggerated assumptions but are in fact never true.

I won't speculate about whether this comes from the myth that a king is an enlightened despot, even appointed by a god, that we've been told for centuries by those who benefit from such a lie. What matters is that although hierarchy can indeed act swiftly, it always acts on the wrong information. And, from the point of view of society at large, it acts with the wrong objectives, placing the will of the leadership before that of people in general. In a control hierarchy like that in China, accurate information does not flow freely and certainly not upwards to the decision-makers.

The same thing is true, albeit with lesser such pressures, in any government (and corporate) bureaucracy.

Neither are the bits and pieces of local information are put together and condensed properly. Nobody in such hierarchies has an incentive to do "the right thing," especially for common people. The incentive is to watch their own backs. As in all bureaucracies, especially political ones, the number one priority is to avoid getting caught with responsibility for something that turns out bad. Keep your head down and follow the rules; make sure the higher-ups are satisfied, on whatever ground, and keep your subjects in check. If you don't play it safe, you'll be sacrificed at the stake if something goes wrong.

Those calling for swift action and pointing to China's quarantining multimillion-people cities as a "success recipe" to stop the contagion must believe either that the hierarchy properly transmits the right information and filters out irrelevant data (which is simply impossible) or that information does not matter (the horrific "we must do something" view, which will be deadlier than the virus).

It is true, as Danielle Pletka argues, that dictatorships only make pandemics worse. Swift, forceful action on the *wrong* information, or without respect for human life and liberties, is and can be nothing but disastrous. History is littered with examples of such regimes, and their track record is without exception abhorrent.

It may seem counterintuitive, but the truth is that decentralized decision-making and market-style systems always beat centralization and powerbecause they aggregate and condense information much more appropriately and because they allow for actions more appropriate to local conditions. I understand that fear, fueled by alarmism, can lead to panic and poor judgment. But the call for authoritarianism as a solution, regardless of the threat, is much worse than poor judgment.

It is not only ignorance of how hierarchies work, but a type of ignorance that has historically always ended in mass murder. If it sounds like a quick fix, stay away. It may be quick but not a fix. It is incumbent upon us to not listen to the false prophets and to resist the temptation to believe impossible promises.

Centralization is one such promise that has always been offered as a solution but has never delivered. Unless you're the one seeking and are granted the power, like the kings of old. And their common denominator was not to altruistically serve common folks. As in any time of crisis, the best course of action is to keep a cool head and not panic.

The call for authoritarianism, ignorantly presented as a quick fix, is at best irresponsible. But it could turn out to be much, much worse. 

Formatted from Twitter: @PerBylund.

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New Addition to the Mises Institute, Daniella Bassi

12/31/2019Mises Institute

The Mises Institute is happy to welcome Daniella Bassi to our staff!

Ms. Bassi will act as assistant editor for mises.org, our journals, and our full slate of new books for 2020.

Ms. Bassi joins us from the College of William and Mary in Virginia, where she edited publications for the Omohundro Institute of Early American History and Culture.

She also was the senior editor for the University of Vermont History Review while earning her master's degree there.

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Not All Indian Reservations Are Alike

10/16/2019Ryan McMaken

Back when I taught political science, a phrase I used when preparing students for the tests was "he who makes distinctions well, teaches well."

That is, if we're talking about regime types, dear student, you better know the difference between a totalitarian regime, and a regime that is merely authoritarian. If we're talking about eighteenth-century American ideologies, you better know the difference between Alexander Hamilton and Thomas Jefferson. If we're talking economic policy, know the difference between fiscal policy and monetary policy.

And when it comes to different groups of Americans often considered to be homogeneous, it is often helpful to dig a little deeper to see some of the differences.

One such group is indigenous Americans. Or in the common parlance: "Indians."

Often, whenever one reads a news-media article about Indians, it usually begins with a few sentences about how poor they are, and how terrible the reservations are in terms of their standards of living. Usually, the Pine Ridge reservation in South Dakota is mentioned.

But at all reservations equally poor?

After all, some reservations have forests and ample access to water. Others are in the middle of deserts with few natural resources. Some relatively near metro areas and all the services they provide. Some reservations are hours from good healthcare and good shopping.

Well, it turns out that all reservations certainly aren't all the same.

Looking at the top-25 most populous reservations, we find that the median income among people who self-identify as Indians varies from $18,890 on the Gila River reservation (AZ) to $79,167 on the Agua Caliente reservation (CA). That's for the period from 2013 to 2017.

The overall US median income during the period was about $57,000, which means the median income for Indians on the Isabella and Tulalip reservations were about equal to everyone else.

Indeed, given that many reservations are in rural areas, it's helpful to compare incomes not to the US overall, but to the incomes of Rural Americans. The rural median income for the same period is $44,020. That means income for the median household on the Agua Caliente, Isabella, Tulalip, Uintah and Ouray, Osage, Wind River, and Puyallup reservations are all higher than the median household in rural America.

A the lower end, however, we do indeed find grinding poverty and remarkably low median incomes that are less than half of the national median income.
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Even on the reservations with higher median incomes, poverty rates at the lower end remain elevated. The overall US poverty rate of 14.6 percent (against, from 2013-2017) was lower than all of the 25-largest reservations. The US rural poverty rate of 17.2 percent was lower than all but two (Osage and Tulalip) of the reservations.

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One aspect of reservation populations that is often ignored, however, is the fact that on many reservations, people who self-identify as Indian are in the minority.

Among the 25-most populous reservations, the portion of the resident population that was Indian ranged from 1.7 percent on the Agua Caliente reservation to 96.8 percent on the San Carlos reservation.1

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Reservations with lower proportions of non-Indian residents tend to be poorer. This may reflect several factors:

  • Residents on reservations that are more geographically isolated tend to encounter fewer non-Indian residents, thus leading to less intermarriage, and fewer residents who are not Indians.
  • Geographically isolated reservations tend to be poorer, and poorer reservations tend to attract fewer non-Indians engaged in commerce and employment on or near a reservation.
  • In many cases, reservations with more laissez-faire economic policies have more "checkerboarding," or mixing of privately owned and tribally-owned lands within this reservation. Checkerboarding may correlate with higher incomes.

In general, rural reservations are often affected by many of the same problems that rural communities in general encounter. There are fewer jobs, and the jobs that do exist often pay lower wages than in metropolitan areas. The US rural median income, for instance is approximately $44,000, while the urban median income is approximately $59,900.

Geographic isolation tends to be a clear factor in cases where the tribe owns a casino. When the casino is near a metropolitan area, it attracts large numbers of visitors to the reservation who spend freely. The most extreme case of this, perhaps, is the Mdewakanton Sioux of Minnesota (a group of under 1,000 people) which owns two casinos within the Minneapolis metro area. Members of the tribe receive nearly one million dollars per year in payments from tribal business organizations.

Another extreme case is the Agua Caliente reservation which is adjacent to Palm Springs, California. The tribe and is one of the city's largest land owners. Only a tiny percentage of residents are actually enrolled in the tribe.

Less-extreme examples of relatively prosperous reservations include the Southern Ute reservation — near the college and resort town of Durango Colorado — and the Tulalip reservation, which owns a casino and business park near I-5 in Washington State, near the Seattle-Tacoma metro area.

[A note on the data: In the first and second graphs, I've used median incomes that correspond to the group labeled  "AIANa," which according to the Minneapolis Fed's report on reservation incomes, "includes only individuals who self-identify racially as American Indian or Alaska Native alone." In the third graph, the Indian population corresponds to "AIANac" which "includes AIANa individuals and also those who self-identify as American Indian or Alaska Native in combination with other races." See report here: https://www.minneapolisfed.org/indiancountry/resources/reservation-profiles/]

Photo credit: I-5 Design & Manufacture via Flickr (image cropped)

  • 1. The number of residents who are members of the tribe governing the reservation is lower than the number of residents who self-identify as Indian.
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