Small business owners were a little more optimistic during April but are generally still cautious.
That's the finding of a survey released Tuesday by the National Federation of Independent Business.
The NFIB's Index of Small Business Optimism rose 2.6 points to 92.1 last month, erasing a drop of 1.3 during March. The index was compiled from the survey of 1,873 NFIB members.
The index has averaged 90.7 since the recession, reflecting concerns about the economy and the potential impact the health care law will have on small businesses when it's fully implemented Jan. 1. So the April gain doesn't reflect a big rebound in owners' sentiment.
Many owners are pessimistic because their sales are weak. More owners said sales fell during the first quarter than those who reported sales gains.
And many owners still expect business conditions in six months to be weaker than they are today—a sign that the pace of expansion and hiring at small businesses will remain slow. Four percent say this is a good time to expand, but that's unchanged from March.
The NFIB reported last week that owners picked up their hiring pace slightly during April, the fifth-straight gain. The number planning to add jobs rose 6 points, but that gain brought it only to a break-even point.
By Peter Morici
College is too expensive, graduates can't find decent jobs and pay off their loans, and students, parents and educators all share in the blame. Now, President Barack Obama's is proposing a plan that would forgive more student loan debt -- but that will only make a bad situation worse.
More than half of recent graduates are working as waiters, taxi drivers or some other occupation that does not require a college education. The number in minimum wage jobs has doubled since 2007.
Slow growth and a tough jobs market is one reason, of course. But just as important: Too few college students choose tough majors like nursing, engineering and accounting that enjoy a robust demand for graduates. Instead, many still opt for liberal arts subjects, such as politics and history, and emerge with few practical skills subjects such as politics, history and other liberal arts, and emerge with few practical skills for the working world.
Good jobs abound for technicians in health care, computers and other fields, and the Labor Department finds most rapidly growing occupations don't require a bachelor's degree. However, parents fear their children, without a four-year diploma, will lack the flexibility to navigate a lifetime of changing conditions.
If students are lazy and parents are risk adverse, university professors and presidents are far worse. Professors simply teach less and do more research of questionable value than they did in the past. In the 1950s and 1960s, a significant track record of publications was not required for tenure at most undergraduate faculties—advancing the frontiers of science and the arts was mostly the work of professors in post-graduate departments.
Nowadays, professors at all levels must publish to win tenure, but much of what they do adds little value to either the practical world or the advancement of knowledge in a purer sense. But it does require teachers to carry lighter teaching loads. Once tenured, many professors don't publish much, but still keep their light teaching schedules.
University bureaucracies are even worse—presidents and deans often have staffs bigger than CEOs and managers running much larger businesses. And faculties, which make virtually all decisions by consensus, spend endless hours in committees advising presidents and deans, and are supported by mind-numbing bureaucracies, too.
University presidents are politicians, not business managers. They understand who makes the choices (students), who pays the bills (parents) and who they must please in the Alice-in-Wonderland world of university governance—faculty.
They are rational: Instead of encouraging students to study useful subjects and containing sky-rocketing costs, they focus on fund raising and lobbying government officials to facilitate more student loans. Tuition jets into the stratosphere, students amass huge debt, and universities produce a lot of high-quality unemployment.
President Obama is rational, too. Parents, students and former students all vote. Instead of radically refocusing national policy to expand vocational education in high schools and community colleges, he promises to increase the percentage of Americans with four-year diplomas.
His proposed "Pay as You Earn," which came late last year, would forgive billions in student debt with federal dollars. Borrowers in the program would make payments equal to 10 percent of their monthly income, after rent and basic living expenses, and after 20-years of on-time payments would be forgiven of all debt—regardless of how much they had borrowed.
What the program fails to account for is that debt forgiveness simply encourages young people and parents to make poor choices, including borrowing too much. It will also embolden colleges to keep pushing up tuition—things the nation can't afford. It certainly won't help graduates find jobs.
To compete in the global economy and create good jobs at home, America needs workers with the right skills. That means limiting access to college to those who can genuinely profit from a university education, requiring professors to teach more and in on subjects that are truly useful in the workplace, and redirecting more of what the nation spends on education into other channels of vocational training.
By Joshua Zumbrun
U.S. households reduced debt during the first quarter by 1 percent to the lowest level since 2006, resuming a deleveraging trend in the wake of the financial crisis, according to the Federal Reserve Bank of New York.
Household debt fell to $11.2 trillion in the first quarter compared with a peak burden of $12.7 trillion in the third quarter of 2008. Consumers reduced debt by $110 billion after increasing their borrowing by $31 billion in the fourth quarter of 2012, while delinquency rates fell “across the board,” the Fed district bank said in a statement. Student debt bucked the trend, rising to a record $986 billion.
“Household deleveraging has resumed its previous trajectory,” Wilbert van der Klaauw, a senior vice president and economist at the New York Fed, said today in a statement. “We’ll look to see if this pace of debt reduction and delinquency improvements will persist.”
Consumers are repairing their post-crisis balance sheets as the Fed tries to spur the expansion and enliven the job market by holding the main interest rate at zero and buying $85 billion in bonds every month. More than four years of record stimulus have yet to reignite household borrowing, and the unemployment rate has exceeded 7 percent since December 2008.
Households in the first quarter improved their debt payment patterns as delinquency rates on mortgages fell to 5.4 percent from 5.6 percent, on home equity loans to 3.2 percent from 3.5 percent, on credit cards to 10.2 percent from 10.6 percent and on student loans to 11.2 percent from 11.7 percent, according to the New York Fed.
“We’re much closer to the end of the deleveraging cycle than the beginning,” said Gennadiy Goldberg, U.S. strategist at TD Securities Inc. in New York. “If the housing recovery continues at the current pace, deleveraging could end very soon.”
Falling delinquencies have helped bolster bank shares. The KBW Bank Index of 24 financial institutions has risen 32 percent during the past year compared with a 23 percent gain for the Standard & Poor’s 500 Index. The S&P 500 rose 1 percent to 1,647.72 at 12:10 p.m. in New York trading.
Mortgage debt led the decline, falling to $7.93 trillion from $8.03 trillion, along with credit card balances, which decreased $19 billion to $660 billion, according to the Fed regional bank.
The largest increase in lending occurred in student loans, according to the New York Fed survey. Total student debt rose to $986 billion in the first quarter from $966 billion in the fourth quarter of last year.
The statistics are based on figures from a nationally representative random sample provided by the Equifax Inc. credit bureau.
A panel of bankers that advise the Fed warned last year that patterns in student lending resemble the mortgage crisis that helped lead to the worst recession since the Great Depression.
“Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis,” the Federal Advisory Council said in minutes of a Feb. 3, 2012 meeting, that were obtained by Bloomberg News through a Freedom of Information Act request.
The bankers said student lending shares features of the housing crisis including, “significant growth of subsidized lending in pursuit of a social good.” In this case, the focus is on higher education rather than expanded home ownership.
The deleveraging coincided with bank easing on the standards and terms for many types of loans, according to a separate quarterly Fed survey of senior loan officers. Demand for business loans increased, while “on the household side, the survey results were more mixed,” the Fed said last week in a description of the April 2-16 survey.
Banks in the U.S. have boosted lending as the economy gains strength. The total value of loans at U.S. banks climbed 3.7 percent in the past year to $7.3 trillion in April, according to a separate Fed report on the assets and liabilities of commercial banks. Lending to businesses has led the way, with commercial and industrial loans climbing to $1.55 trillion in April, an increase of 10 percent from a year earlier.
The cars roll endlessly off the local assembly lines of the industry's biggest automakers, more than 10,000 a day, into the eager hands of Brazil's new middle class. The shiny new Fords, Fiats, and Chevrolets tell the tale of an economy in full bloom that now boasts the fourth largest auto market in the world.
What happens once those vehicles hit the streets, however, is shaping up as a national tragedy, experts say, with thousands of Brazilians dying every year in auto accidents that in many cases shouldn't have proven fatal.
The culprits are the cars themselves, produced with weaker welds, scant safety features and inferior materials compared to similar models manufactured for U.S. and European consumers, say experts and engineers inside the industry. Four of Brazil's five bestselling cars failed their independent crash tests.
Unsafe cars, coupled with the South American nation's often dangerous driving conditions, have resulted in a Brazilian death rate from passenger car accidents that is nearly four times that of the United States, according to an Associated Press analysis of Brazilian Health Ministry data on deaths compared to the size of each country's car fleet. In fact, the two countries are moving in opposite directions on survival rates — the U.S. recorded 40 percent fewer fatalities from car wrecks in 2010 compared with a decade before. In Brazil, the number killed rose 72 percent, according to the latest available data.
Dr. Dirceu Alves, of Abramet, a Brazilian association of doctors that specializes in treating traffic accident victims, said poorly built cars take an unnecessary toll.
"The gravity of the injuries arriving at the hospitals is just ugly," he said, "injuries that should not be occurring."
Automakers in Brazil point out that their cars meet the nation's safety laws. Some said they build even tougher cars for the country because of its poorly maintained roadways and rejected any notion that cost-cutting in production leads to fatalities.
But the country's few safety activists perceive a deadly double standard, with automakers earning more money from selling cars that offer drivers fewer safeguards — a worrisome gap for new middle-class households, whose surging spending power has outpaced consumer protections taken for granted in more developed countries. The problem extends beyond Brazil, with economic forecasts showing the majority of global growth in auto sales taking place in emerging-market nations as the world's auto fleet doubles to 1.5 billion by 2020.
"Entry-level cars in Brazil are incredibly dangerous, it can't be denied. The death rate from accidents is far too high," said Maria Ines Dolci, coordinator of the Rio de Janeiro-based consumer defense group Proteste. "The manufacturers do this because the cars are a little cheaper to make and the demands of the Brazilian consumers are less; their knowledge of safety issues is lower than in Europe or the U.S."
Read More: World's 10 Largest Auto Markets
Manufacturers earn a 10 percent profit on Brazilian-made cars, compared with 3 percent in the U.S. and a global average of 5 percent, according to IHS Automotive, an industry consulting firm.
Only next year will laws require frontal air bags and antilock braking systems on all cars, safety features that have been standard in industrial countries for years. The country will also have new impact regulations on paper, at least; Brazilian regulators don't have their own crash-test facility to verify automakers' claims about vehicle performance, nor are there independent labs in the country.
Experts say those requirements alone are not sufficient to meet basic safety standards. Some models sold in Brazil, like the Chinese-made JAC J3, scored only one star in a recent crash test despite having air bags and antilock brakes.
An independent pilot effort known as the Latin New Car Assessment Program has run initial tests of Brazil's most popular car models, and the results are bleak.
The cheapest models of four of the five top-selling cars, made by General Motors, Volkswagen and Fiat, received a one-star rating, out of five stars, while other top sellers also scored poorly. Such a rating means cars provide little protection in serious head-on wrecks, compared to four- or five-star rated cars, which are virtually the minimum that consumers in the U.S. and Europe buy.
"The difference is you're talking about somebody dead in the vehicle or dying very quickly, or somebody being able to get out of the vehicle themselves," said David Ward, director general of the London-based FIA Foundation for auto safety, which supports the Euro and Latin NCAP programs. "It's definitely a difference between life and death."
The squat Ford Ka hatchback sold in Europe scored four stars when it was tested by Euro NCAP in 2008; its Latin American version scored one star.
Ford acknowledged that particular Ka is built on an outdated platform, and said it cannot be compared with the European version of the same name — it's that different. The company said it aims to have all its cars produced in Brazil built on updated, global platforms by 2015.
The Mexico-produced Nissan March compact sold in Latin America received a two-star rating from Latin NCAP, while the version sold for about the same price in Europe, called the Micra, scored four stars. The crash tests found the Latin American model had a weak, unstable body structure that offered occupants little protection in even non-serious wrecks.
In an emailed statement, Nissan said the March sold in Brazil is "practically the same model" offered in Europe. "The difference in the results achieved in Europe and Latin America is due to variations in the NCAP tests applied in different parts of the world."
Not so, said Alejandro Furas, technical director for the Global NCAP crash test programs.
"We perform the frontal crash test exactly in the same way as the Euro NCAP," he said. "The March and Micra were tested in the same lab, with the same type of crash test dummies, under the same conditions with the same people running the laboratory."
The Euro NCAP tests are more complete. They include side-impact and other tests, while the Latin American version only records front-impacts. Each type of impact test is individually scored on a 16-point scale.
The March sold in Brazil obtained a 7.62 rating in its frontal-impact test. The Micra fared much better, 12.7 points.
Italian automaker Fiat said in an emailed statement that "in general, Brazilian projects receive more reinforcements" within the cars' bodies to fortify them against the nation's "harsher roads and terrain."
However, NCAP tests found that Fiat's best-selling car in Brazil, called the Novo Uno, had an unstable body structure and scored it just one star.
Crash-test footage shows the front of the car folding up like an accordion, giving it a 2.0 point rating, the second lowest of the 28 cars NCAP has examined. Consumers purchased nearly 256,000 Novo Uno's last year — the second-most popular car in the country.
Renault's safety standards also vary. The French company builds its Sandero in Brazil, selling 98,400 cars last year. That car scored one star on the Latin NCAP test, but the model sold in Europe, made by Renault's Romanian subsidiary Dacia, scored three stars.
Renault said the safety record of the Sandero and its other cars were on par with autos of the same class in Brazil.
One of those is the VW Gol, Brazil's best-selling car for the last decade.
Volkswagen said it strives to maintain a global standard for body strength, putting the same number of welds on the same models regardless of where they're produced, and using high-strength steel in Brazilian cars. It added that since 1998 it's given Brazilian consumers the option of buying a car with air bags — its Gol Trend model with two frontal air bags scored three stars, while the same model without air bags scored one star.
The company didn't respond to requests for figures on how many consumers requested air bags.
"Structural integrity during a crash is a global standard for Volkswagen," the company said in an emailed statement. "The passenger compartment for the Gol remained stable and thus guarantees survival space for occupants."
Latin NCAP has tested three VW models. The Gol and the Polo had stable bodies. The Bora sedan, however, was rated as unstable, though other factors helped it score three stars.
And then there are the cars the companies do not market outside Latin America, such as the Celta by GM. Celta is Brazil's No. 5 car in terms of sales, with 137,615 sold last year. It received one star after its door unhinged and the passenger cabin roof bent into an inverted V shape during its crash test.
General Motors had no comment other than to say that its cars in Brazil are legal.
An engineer for a major U.S. automaker, speaking only on condition of anonymity for fear of losing his job, said he has watched for years as his company failed to implement more advanced safety features in Brazil, simply because the law did not require them.
""The automakers are pleased to make more profitable cars for countries where the demands, whatever they may be, are less rigorous," he said. "It happens everywhere — India, China and Russia, for example."
About 40 million Brazilians moved into the middle class during the past decade with more income than ever to buy their first car. The growth potential is enormous: One out of every seven Brazilians owns a car, while the U.S. vehicle fleet covers nearly every American.
But as auto sales boom in Brazil, so have the number of accidents and deaths.
An analysis of Health Ministry data shows that 9,059 car occupants died in vehicle crashes in Brazil in 2010, according to the most recent statistics available. That same year, 12,435 people in the U.S. were killed in car crashes, though the U.S. passenger car fleet is five times larger than Brazil's. The result: Brazilian automobile crash victims died at four times the rate as those in the U.S.
The dangers come down to basics, engineers said: the lack of body reinforcements, lower-quality steel in car bodies, weaker or fewer weld spots to hold the vehicles together and car platforms designed decades before modern safety advances.
"The electricity used in building a car is about 20 percent of the cost of the structure," said Marcilio Alves, an engineering professor at Brazil's premier University of Sao Paulo and one of the few independent researchers in the nation looking at car safety.
"If you save on electricity, you save on cost. One way to save electricity is either reducing the number of spot welds or using less energy for each spot weld made. This affects structural performance in the event of a crash."
In a car with no air bags and an unstable body structure, a driver's biggest danger is the steering wheel.
A weak body structure and fragile steering column make it easier for the wheel to slam into the driver's chest and abdomen in frontal crashes, the deadliest and most common, causing serious damage to vital organs.
Ward talks of steering wheels that break off and "float" during wrecks in poorly made cars — moving around the cabin in the driver's area. That means that even if an air bag is deployed, the steering wheel may go around or under it and directly hit the driver.
Many Brazilian car bodies also don't contain crumple zones, areas that absorb energy during wrecks. The omission endangers occupants' lower limbs, as foot wells rip off and expose feet and legs to car parts slamming into them from the front.
"If a car's body cannot absorb the energy of a crash, it will logically result in more damage, more injuries to passengers," said Alves, the doctor who specializes in traffic accident victims.
One auto engineer described the situation by sketching two car body designs with identical perimeters, but one depicted internal gaps — missing body reinforcements.
He worked three decades for Volkswagen and spent the last 10 years as an independent engineering consultant for big automakers. He asked that his name not be published for fear of losing contracts and benefits.
"The secret of a car's body being able to withstand the crash test are the weld spots," he said.
"Let's say this is a German car," he pointed to the gapless sketch. "It's really sophisticated. Nothing is missing."
Then he pointed at the car made in Brazil, full of incomplete ink strokes.
"The Brazilian version looks the same from the outside, but it's missing pieces," he said. "In one version they include the reinforcement, in the other they don't. What's of interest is the final shape. What's inside, nobody can see."
In 2008, Carlos Alberto Lopes, then a 23-year-old waiter, was riding in a one-star car traveling about 50 mph on a rainy highway in the southeastern Brazilian state of Minas Gerais when the road curved smoothly left. The car hydroplaned, skidded into an embankment and rolled several times down a long incline. Of the four occupants, Lopes was the only one with serious injuries, leaving him paralyzed from the waist down.
Lopes says the three-point seatbelt he was wearing didn't lock his body in place, allowing him to repeatedly hit the collapsing roof as the car rolled. He suffered a crushed vertebra.
"If the seatbelt had locked when the car rolled I wouldn't have hit my back. None of this would have happened," Lopes said.
A study by a chain of Brazilian rehabilitation centers where Lopes is being treated found that in 2011, 40 percent of the patients it worked with in Sao Paulo with serious spinal injuries were hurt in traffic accidents.
Lopes never considered a lawsuit. In fact, in more than a dozen interviews with accident victims left paralyzed after crashes, not one considered taking legal action against vehicle manufacturers.
That's in part a reflection of the lack of police investigations into car accidents, the majority of which, like Lopes', only result in simple "occurrence bulletins" that include minimal information.
But it's also indicative of the deference Brazil's new middle class consumers show to automakers and most other industries.
"We're 20 years behind the U.S. and Europe in terms of consumer awareness," said Dolci, coordinator of the Proteste consumer defense group. "The new, emerging middle class entering the market has little information on car safety. They think little of automobile security. It's this very class of consumer the automakers are targeting and to whom they're selling a mountain of cars."
Accidents like Lopes' involve more than a poorly built car.
Drivers fail to obey traffic laws, which many of the region's governments notoriously don't enforce. Cars must navigate crumbling roads and poorly designed highway systems that all but make gridlock and accidents unavoidable. And many drivers simply value perks such as alloy wheels and sound systems over unseen crumple zones.
In 1965, there were 47,089 motor vehicle fatalities in the U.S. That same year, consumer activist Ralph Nader's famous indictment of the auto industry was published, Unsafe at Any Speed. The book ignited a national discussion on auto safety and ultimately led to reforms that dramatically refashioned the industry's standards, helping lead to a 32 percent drop in deaths by 2011.
Nader said halting the growing number of auto deaths in Brazil would take "a public uproar, product liability lawsuits, selective boycotts by motorists or by mandatory Brazilian law equalizing safety standards with the safest engineering required in other countries."
"These responses in the past have worked in other countries confronted by auto industry double standards for protecting lives on the highway. Such actions are long overdue but now Brazilians know the truth in more detail," he said.
The Brazilian government says its new laws mandating frontal air bags and anti-lock brakes will dramatically improve safety, as will new impact standards. But because there are no independent crash-test centers in Brazil, companies will not face the same scrutiny as elsewhere. They will run the impact tests themselves and present the results to the government for approval. Because there is no "conformity of production" clause in the Brazilian legislation, cars won't be spot-checked to ensure they meet safety laws.
Alexandre Cordeiro, the top government minister overseeing auto safety laws, acknowledged that the government doesn't have its own crash-test center — but said Brazil will monitor crash tests conducted outside the country.
"Regarding front- and rear-end crash tests, our cars are as secure as European or American cars," Cordeiro said.
However, when asked about the stark differences in performance that the NCAP tests document between Brazilian and European cars, Cordeiro acknowledged improvements need to be made, saying "we need to evolve and we're working on it."
Over the years Ward said he has watched the same battles play out over auto safety — the only thing that changes is the location.
"The sad thing is, this has been the experience in the 1960s in the U.S., in the 1990s in Europe and now in Latin America," Ward said. "The industry does the least it can get away with until they're forced to do something different. It's maddening."
By Kara Scannell
A prominent member of the Saudi royal family is at the heart of a US criminal probe into whether Barclays made improper payments in the kingdom, with investigators scrutinising two separate incidents linked to a son of King Abdullah.
The US Department of Justice is investigating two transactions, probing whether Prince Turki bin Abdullah bin Abdel Aziz - a wing commander in the Saudi air force who was recently made deputy governor of the capital city of Riyadh - was paid illicit fees by Barclays, according to six people familiar with the investigation.
The revelation shines another unwelcome spotlight on Barclays' business dealings in the Middle East. The bank remains under investigation in the US and UK over the terms of a crucial capital injection by Qatar in 2008.
In addition to the alleged payment connected to the 2009 award of a Saudi banking licence from the CMA, the local regulator - as reported by the Financial Times last November - Barclays is also being investigated over a separate alleged transaction linked to the prince. This was in connection with earlier attempts by the bank to recover a large loan on which the borrower had defaulted in 2002.
The US authorities' enquiries threaten further damage to the kingdom's international ties. Its relations with the UK and the US have been under strain for much of the last decade over prosecutors' inquiries into BAE Systems and its dealings with another Saudi prince. The US authorities went on to fine BAE $400m in 2010 for improper business dealings in the kingdom and in Europe.
Barclays acknowledged in a statement that the bank had appointed Prince Turki, "acting through his corporate entity, Al Obayya, to advise it on strategic issues in the Kingdom of Saudi Arabia, as well as on its CMA licence application".
It added: "Barclays is fully co-operating with the investigation. Barclays is not aware of any improper payments made to the CMA or any of its officials relating to the grant of a securities licence." The bank disclosed in February that it was being investigated by US authorities in connection with the US Foreign Corrupt Practices Act though gave no details.
According to two people familiar with the case, the loan, worth about $900m in total, had been taken out to develop military compounds which were then leased to the Saudi defence ministry.
More from the Financial Times
A dispute arose between the bank and the Saudi government because the bank claimed the loan carried a form of government guarantee. The matter escalated to a lawsuit filed in New York by Barclays and Dresdner Bank, another of the syndicated lenders, against the Saudi ministries of finance and defence. The lawsuit was settled in 2003, according to court records.
Prince Turki was approached to try to resolve the matter, according to people familiar with the case.
While other banks were also involved in the lending syndicate it was Barclays that led the operation to recover the money. The DoJ is investigating whether any fixing fee was paid to the prince or his company.
In the later banking licence application, the authorities are similarly scrutinising Prince Turki's role in the grant of the licence in 2009.
In a statement Al Obayya denied being party to any "improper conduct". It said the prince was a minority shareholder and held no executive role. Its relationship with Barclays had been to support it "with various practical and administrative tasks relating to the establishment of its presence in the kingdom." It added that it "would have been in no position to influence the process" of obtaining a licence "as the process is transparent."
The FT received no response to requests to the prince to comment submitted via email, telephone and letter to his secretary at the office of the deputy governor in Riyadh. The DoJ declined to comment.
As close to 2 million college students prepare to graduate, a study finds that many of them face what it calls a "unique paradox." While the young people are qualified—even overqualified, in many cases—to enter the workplace, most of them feel ill-suited to tackle the harsh realities of an evolving job market.
The wide-ranging study was conducted by the consulting firm McKinsey & Co. in conjunction with online student hub Chegg. It involved more than 4,900 graduates, most of whom finished college between 2009 and 2012, and suggests that graduates are growing increasingly disillusioned with the employment outcomes of their education.
In what may be the most troubling finding, more than half (53 percent) of participants said that they would "do things differently if they had to do it all over again," choosing a different major or a different school.
This "should be an alarming call to action for all of us," said André Dua, a director at McKinsey and lead author of the study. "We need to have a national discussion about how to better prepare students."
The study comes on the heels of the publication of the book "Is College Worth It?", by former Secretary of Education William Bennett. In it, he questions the value of attending the vast majority of colleges. According to Bennett, only 150 of America's 3,500 colleges are actually worth attending.
Indeed, the McKinsey study found that a disturbing one-third of graduates "did not feel college prepared them well for employment."
Students 'Flying Blind'
Half of graduates said when evaluating a school before applying, they didn't consider graduation or employment rates, or the starting salaries of alumni—essentially "flying blind" through the admissions process, the study said.
Many policymakers and the Obama administration have begun calling on colleges to collect and publish such information. But many schools remain reluctant and argue that the value of an education shouldn't be reduced to a simple analysis of results, pointing to cumulative earnings over time of those with a college degree.
Others said that such information would unfairly bias applicants and damage enrollment because of something schools can't legitimately be expected to control: the economy.
Still, some consumer advocates are dubious.
"If someone's borrowing money to pay for college, there's a fair presumption that they will earn enough money to pay it back," said Mark Kantrowitz, publisher of Edvisors.com and an expert on financial aid. "It's important that students and their families be able to make a more informed decision about the trade-off between college affordability and college quality."
"It's unconscionable," said Amy Laitinen, deputy director for higher education at the New America Foundation, a Washington think tank. "This is one of the biggest investments students are ever going to make, and they have little to no information about what the return on their investment will be."
Education to Employment
"We think this all points to the need for a systems approach to the 'education to employment' challenge we face," said McKinsey's Dua. It's critical to arm students with the information they need to make better college and career decisions, particularly given the realities of a shifting labor market, he said.
"We need to educate high school students before they even think about college," said Dua, adding that all colleges need "to integrate work experience into student life."
But implementing such a change will be a challenge, according to Kantrowitz.
"If you think of a college as a business, they're all about selling you on enrolling," he said. "It takes a lot of courage for a college to focus on what's in the student's best interest, as opposed to their own financial interests."
Still, said Laitinen of NAF, our ability to meet the challenge will mean the difference between success and failure for a generation of students.
"You wouldn't go to buy a car without doing basic research," she said. "But here we are spending tens of thousands of dollars on a school, and we know almost nothing about it—other than maybe the mascot."
There are signs that policymakers are listening.
The Student Right to Know Before You Go Act, co-sponsored by Sens. Ron Wyden (D-Ore.), Marco Rubio (R-Fla.) and Mark Warner (D-Va.), aims to press colleges receiving federal funds to provide students and their families with data on graduation and employment rates.
"It's really exciting," Laitinen said of the bill, citing the strong bi-partisan support it's received so far.
By Mark Koba
Anyone curious about the future of health care in the United States needn't look much further than Massachusetts, which already has its own form of health care reform—Romneycare.
Signed into law in 2006 by then governor and later GOP presidential candidate Mitt Romney, the measure had backing from both political parties and became a blueprint of sorts for Obamacare—which goes into full effect next year.
There are some some key differences between the two laws: For example, Romneycare has lower penalty fees, lower numbers of workers before insurance is mandated for small companies, and it's funded differently. But Romneycare provides at least a small window for what's coming in 2014, say analysts.
"They have strikingly similar broad strokes, and what's happened in Massachusetts is a good reflection of what's ahead nationally," said Kosali Simon, a professor and health economist at Indiana University.
"Both aim at expanding health insurance coverage as much as possible and improving the quality of health care," Simon said. "More people will have insurance through the mandates, which both have, through the mandates and subsidizing low-income workers."
The percentage of uninsured was much smaller in Massachusetts than the national figure, Simon said, but she added that the total number of people without insurance has declined by 5 percentage points in Massachusetts. "More people will have insurance next year across the country, and people will have better health care coverage," she said.
What may not happen across the country next year, if Romneycare is any guide, is a dumping of insurance coverage by businesses. Fears circulated that many companies in Massachusetts would stop offering health insurance to workers starting in 2006 because of the costs. The thinking was that firms would rather pay the penalties for not offering insurance than to pay for the insurance itself.
But during the life of Romneycare, and even the year before, the percentage of firms with three or more workers that offer insurance rose from 70 percent to 76 percent, according to the Massachusetts Employer Survey.
It looks like that sentiment could repeat itself nationally. Nearly 70 percent of benefits professionals said in a poll that their companies "definitely will" keep offering coverage to full-time workers next year, according to a recent survey from the International Foundation of Employee Benefit Plans.
(Read more: When It Comes to Health-Care Reform, the IRS Rules)
Another reflection of the future from Romneycare —and not for the best—is what's happening to small businesses.
Health insurance premiums went up by double-digit percentage points for small business policies in the state for four out of the first five years of the reform law, according to the Retailers Association of Massachusetts. Some of that is a result of rising health care costs, but some is also from additional coverage—such as mental health—that businesses must offer under both reform laws.
Adding to the problem for small businesses in Massachusetts was that many did not take part in an insurance exchange set up to help lower costs. The exchange was halted after a year due to a lack of participation.
The Retailers Association of Massachusetts say that costs under Obamacare—which exempts businesses with less than 50 workers from the mandate, while it's 11 in Massachusetts—could rise in the double digits again in the state next year.
State health insurance exchanges set up through Obamacare, which are either run by the states or the federal government starting this October, are supposed to help reduce costs. Analysts aren't so sure.
"I would say that both plans don't really focus enough on reducing health care costs," said Peter Marathas, a health and benefits lawyer in the Boston office of Proskauer.
"Since Romneycare, costs for employers have gone up at least five percentage points over the national average," Marathas said. "There's administrative costs, premium costs, and it all ads up. We really need to focus on that, and these laws don't in my opinion."
Romneycare was expected to prevent businesses, especially smaller ones, from hiring more workers as they attempted to avoid going over the 11-person limit and being penalized if they didn't offer health insurance coverage. Those fears exist with Obamacare as well.
But a study last year by the Urban Institute said that Romneycare did not result in any significant job decreases, and that any job hiring freeze was due more to the troubled economy. Going forward, things might not be so clear cut.
"We have heard reports from across the retail community, including our restaurant members, that the penalty mandates are affecting expansion, franchising and hiring decisions today," said Neil Trautwein, vice president and employee benefits policy counsel of the National Retail Federation, in congressional testimony about Obamacare in 2011. The Congressional Budget Office estimated in 2011 that employers will create 800,000 fewer jobs by 2021 as a result of the law's policies.
Overwhelming the System?
Massachusetts added some 400,000 new people to the health insurance rolls when Romneycare started. Fears were that such a large number of people would overload the system, creating longer waiting periods to see doctors and flooding hospital emergency rooms—even in a state that has the highest doctor-to-patient ratio in the country.
The Massachusetts Medical Society reported that 19 percent of residents said they waited longer than usual to see a doctor in 2012, down from 25 percent in 2008. Emergency room visits remained high until 2010, when they dropped nearly four percent, according to a report by Blue Cross Blue Shield of Massachusetts Foundation.
It's expected that 14 million Americans will be added to the system from Obamacare in 2014 and 27 million by 2017, according to the Congressional Budget Office.
(Read More: President Vows Obamacare Will Meet Deadline)
"A big problem for Obamacare will be coordinating all the care for the new people," said Simon. "It's going to be very rough at first."
Massachusetts Approval Ratings
Whether the nation as a whole will come to embrace Obamacare is in doubt, say analysts. What they have liked so far is the provision that allows children to stay on their parent's insurance policy until the age of 26, something that's in Romneycare.
Also coming with Obamacare, and which Romneycare has now, is that no one can be denied insurance coverage due to a prior condition. Lifetime caps on coverage also go away.
But also ahead are the complexities of Obamacare—the bill has more than 900 pages to it, Romneycare had around 70. And there's the cost.
"Financing for Obamacare is going to be paid through taxes, fees and Medicare savings," said Kosali Simon. "Romneycare had some exsting funds for it and got federal funds. Massachusetts paid a lot less for it than what they got from the federal government."
Most people in Massachusetts are in favor of what they get from Romneycare. Surveys over the past five years show an approval rating by state residents of around 60 percent, while 30 percent oppose it.
Whether Obamcare gets that kind of approval rating remains to be seen, said Peter Marathas.
(Read more: White House, Republicans Spar Again Over Obamacare)
"There's a lot to like in Obamacare with the extended coverage and having kids on the insurance longer," he said.
"I wouldn't throw it out as a law," Marathas said. "But I'd really like it if lawmakers could sit down, re-think some of it and really work on cutting costs and making sure everyone is covered at an affordable price."
By: Yuval Rosenberg
The rising income inequality of recent decades could be headed for a turn. That intriguingly optimistic idea, suggested by J.P. Morgan economist Michael Feroli this week in a note to clients, hinges on some other shifts happening in the economy. And it depends on economists being right about the causes of rising inequality, as Feroli explained:
In other words, over the past few decades, people in developed economies who were educated enough to take advantage of the technological advances won higher wages. Those who couldn't keep up with the technological advances got left behind financially as well. In what economists have described as a race between education and technology, education lost—and so did many workers.
Those trends may have started to turn in recent years, Feroli writes. College enrollment rates have climbed, driven in part by a bad economy that made the investment in education more appealing. A study published last year by the Federal Reserve Bank of Chicago found that college enrollment increased slightly more than would have been expected based on historical trends, with about 2.1 million more people going to school between 2007 and 2010 than trends from earlier in the decade would have suggested.
On top of that, the pace of technological progress may be slowing, Feroli suggests. His evidence: "In the second half of the 1990s, the real price of computer equipment declined at a 24 percent annual rate, indicating an extremely rapid pace of increase in computing power. Over the last five years those prices have fallen at only a 6 percent annual pace, consistent with progress occurring at a much slower rate."
Feroli says some data indicate that structural factors have been closing the gap between "haves" and "have nots" for several years, but cyclical factors—the Great Recession and not-so-great recovery—have overwhelmed that improvement. "As the economy hopefully moves back toward full employment, this alone should reduce inequality," the economist writes. "Furthermore, if the leading explanation of inequality is correct, and recent trends in education and technological advance continue, we could see a further compression of wages."
(Read More: Putting a Price Tag on High School Graduation)
It's reason for optimism, tempered by a few large caveats. First, those recent trends in education and tech could still fall off. People might pull away from school as an improving labor market calls or the rising costs of college scares them off. Technology could gallop ahead once again—and are the real prices of computer equipment a good gauge of technological advancement at this point anyway?
Second, as we mentioned at the top, the economists could be wrong—hey, it's happened before. The technology vs. education theory may not really explain what's caused the income gap to widen.
"The technology story of rising income inequality actually doesn't fit the data when you look at it," says Heidi Shierholz, an economist at the liberal-leaning Economic Policy Institute. "A huge share of the increase in wage inequality is happening within education groups and within occupation groups."
(Read More: Job Picture Improves for Boomers' 'Encore' Careers)
Feroli acknowledges all those risks to his inequality forecast and calls them "legitimate." Still, he writes, "it is not a stretch to say that the next few years have the best chance in a generation to witness a narrowing in income inequality."
The Obama administration and House Republicans called for an investigation of the Internal Revenue Service for singling out some anti-tax Tea Party groups for extra scrutiny of their applications for nonprofit status.
The flagging of such groups was “inappropriate action that we would want to see thoroughly investigated,” White House spokesman Jay Carney told reporters today in Washington. “We certainly find the actions taken on this to be inappropriate.”
House Majority Leader Eric Cantor said the House would investigate the IRS for targeting the groups. “The IRS cannot target or intimidate any individual or organization based on their political beliefs,” Cantor, a Virginia Republican, said in a statement.
Earlier today, Lois Lerner, the IRS’s director of exempt organizations, said career employees singled out the groups for further examination based solely on their names, not their applications.
“They didn’t do it correctly,” Lerner said today at a conference of tax lawyers in Washington. “We would like to apologize for that.”
The chairman of the House Ways and Means Committee, Michigan Republican Dave Camp, announced today that the panel would hold a hearing on the IRS action. “The IRS absolutely must be non-partisan in its enforcement of our tax laws,” he said in a statement.
By being categorized as nonprofit groups under Section 501(c)(4) of the tax code, organizations don’t have to disclose their donors even when engaging in political activity. Spending by groups that don’t identify their contributors has increased since the U.S. Supreme Court, in its 2010 Citizens United decision, removed limits on independent spending by corporations and labor unions.
Nonprofit groups spent $1 billion in 2012 on campaigns, with more than two-thirds benefiting Republican candidates, according to the Center for Responsive Politics, a Washington-based research group that tracks campaign spending. That was triple the $300 million they spent in 2008.
House Republicans pressed the IRS for more information. Ways and Means oversight subcommittee chairman Charles Boustany Jr. of Louisiana asked for the names of the IRS officials who singled out the Tea Party groups and said he wants all communications involving the words “Tea Party,” “patriot” or “conservative.”
House Oversight and Government Reform Chairman Darrell Issa of California, who already had sought an inspector general investigation into the IRS questionnaires, said today the committee will “aggressively follow up” on the report.
“The fact that Americans were targeted by the IRS because of their political beliefs is unconscionable,” Issa and Representative Jim Jordan of Ohio, chairman of the regulatory affairs subcommittee, said in a statement.
Senate Republican leader Mitch McConnell of Kentucky today called on President Barack Obama to “conduct a transparent, government-wide review aimed at assuring the American people that these thuggish practices are not underway at the IRS or elsewhere in the administration against anyone, regardless of their political views.”
“Who is ultimately responsible for this travesty?” he said. “What actions will the Obama administration take to hold them accountable?”
A national anti-tax Tea Party group today rejected Lerner’s apology.
“The IRS has demonstrated the most disturbing, illegal and outrageous abuse of government power,” said Jenny Beth Martin, national coordinator for the Tea Party Patriots, said in an e-mailed statement. “This deliberate targeting and harassment of Tea Party groups reaches a new low in illegal activity and overreach.”
The IRS is under pressure from Senate Democrats and watchdog groups to crack down on spending by such nonprofit groups. Senator Carl Levin, a Michigan Democrat, said in an interview last month that he would hold hearings on why nonprofit groups are being allowed to spend their money on elections.
Levin, chairman of the Senate Permanent Subcommittee on Investigations, said in a statement today he agreed that Congress should investigate whether the IRS “has been impartial” in enforcing its rules. At the same time, he said, it’s also legitimate to look at the agency’s “failure to enforce the law requiring” nonprofits to be “engaged exclusively in social welfare activities, not partisan politics.”
Republicans have pressured the IRS to leave these organizations alone. In March 2012, a group of Senate Republicans expressed concern that the IRS had singled out some Tea Party organizations seeking non-profit status. IRS Commissioner Douglas Shulman told a House subcommittee that month that the agency wasn’t “targeting” particular groups.
The Tea Party organizations were among about 300 organizations seeking nonprofit status that received a higher level of attention by IRS employees, according to the IRS.
“While I’m glad to see the IRS apologize for unfairly targeting conservative groups, this frankly isn’t enough,” said Senator Orrin Hatch of Utah, the top Republican on the Senate Finance Committee. “We need to have ironclad guarantees from the IRS that it will adopt significant protocols to ensure this kind of harassment of groups that have a constitutional right to express their own views never happens again.”
The watchdog group Citizens for Responsibility and Ethics in Washington is suing the IRS and petitioning the agency to ban nonprofit organizations from political spending because it says the law requires such groups to be “operated exclusively” for social welfare activities.
In addition, Representative Chris Van Hollen, a Maryland Democrat, has sued the Federal Election Commission to require nonprofit groups to disclose the donors of money they spend on political campaigns.
Lerner said political spending by nonprofits “can’t be their primary activity” and the agency has a responsibility to review applications. In this case, though, about 75 of the 300 organizations singled out for scrutiny by career employees were added to the list solely because of their names, such as “Tea Party,” not the information they provided.
“They didn’t do this because there was any political bias going on,” Lerner said. “They didn’t have the appropriate level of sensitivity.”
Lerner said the groups were asked inappropriate questions, such as who their contributors were. She said new IRS questionnaires were sent to some groups, while others didn’t need to supply new information.
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