Derek Thompson

To help make sense of the Facebook IPO, we caught up with Steve Blank, a professor at Berkeley and Stanford and serial entrepreneur from Silicon Valley. This conversation has been edited and condensed.

THOMPSON: What does the Facebook IPO mean for Silicon Valley?

BLANK: I think it's the beginning of the end of the valley as we know it. Silicon Valley historically would invest in science, and technology, and, you know, actual silicon. If you were a good VC you could make $100 million. Now there's a new pattern created by two big ideas. First, for the first time ever, you have computer devices, mobile and tablet especially, in the hands of billions of people. Second is that we are moving all the social needs that we used to do face-to-face, and we're doing them on a computer.

And this trend has just begun. If you think Facebook is the end, ask MySpace. Art, entertainment, everything you can imagine in life is moving to computers. Companies like Facebook for the first time can get total markets approaching the entire population.

THOMPSON: That all sounds pretty good for Facebook, actually.

BLANK: For Facebook, it's spectacular. But Silicon Valley is screwed as we know it. 

If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years,  at best, whereas social media will go big in two years, what do you think I'm going to pick? If you're a VC firm, you're tossing out your life science division. All of that stuff is hard and the returns take forever. Look at social media. It's not hard, because of the two forces I just described, and the returns are quick.

THOMPSON: Half the tech and innovation world seems to think this is just evidence that we're in the middle of a dot-com remix. You disagree?

BLANK: In the last bubble, venture capitalists went into a frenzy if anything had an ear and eye. I don't think this a bubble. I think the valuations are a bit of a bubble, but social media is real.

THOMPSON: Is Facebook worth $100 billion?

BLANK: In the last bubble there were no customers. Facebook makes $4 per user. The users are customers. They produce real revenue. Nobody's debating whether Facebook can make money. They're debating how much more valuable Facebook's hundreds of millions of users can be, and how fast can they can grow that value. That's an execution problem.

THOMPSON: But you think Silicon Valley is screwed, whether Facebook lives up to that valuation or not. Why?

BLANK: I teach science and engineering. I see my students trying to commercialize really hard stuff. But the VCs are only going to be interested in chasing the billions on their smart phones. Thank God we have small business research grants from the federal government, otherwise the Chinese would just grab them.

THOMPSON: But there are some people doing interesting, daring things, like Vinod Khosla.

BLANK: He is. But think about this. The four most interesting projects in the last five years are Tesla, SpaceX, Google Driving, and Google Goggles. That is one individual, Elon Musk, and one company, Google, doing all four things that are truly Silicon Valley-class disruptive.

THOMPSON: Does this represent a large-scale failure among venture capitalists in the Valley?

BLANK: It's not like anybody is doing evil or bad. It's like what Willie Sutton said: Social media is just "where the money is."

THOMPSON: What's the fix?

BLANK: I don't know what the fix is. Thank God for federal government grants, and the NIH, and Musk, and Google.

THOMPSON: So is American innovation simply doomed, or is it more complicated than that?

BLANK: The headline for me here is that Facebook's success has the unintended consequence of leading to the demise of Silicon Valley as a place where investors take big risks on advanced science and tech that helps the world. The golden age of Silicon valley is over and we're dancing on its grave. On the other hand, Facebook is a great company. I feel bittersweet.

The most highly anticipated IPO in history didn't put on much of a show. As I type these words, Facebook is currently trading within decimal points of its initial price of $38. Even so, the company's market cap is higher than McDonald's or Pepsico.

Espen Robak is the president of Pluris Valuation Advisors, where he studies and values private companies trading on the secondary market. I talked to him this morning just as Facebook trading began. This conversation has been edited.

THOMPSON: Let's cut to the chase. Are the people buying Facebook today idiots?

ROBAK: It's funny, Henry Blodget made the point earlier today that companies aren't going to go public anymore until they're ready to trade sideways. We shouldn't expect to see a huge pop. But Facebook is a really rare investment. Is it perhaps the biggest internet property in the world? Yes. Is it a big risk? Yes.

If you want a stable mature tech company at a reasonable valuation, you should buy Apple or Google. If you want a brand new start up, you should chase some flavor of the month, a lot of which are on the secondary market. If want something that's going to have explosive growth, you should have invested in Facebook a long time ago. [Note: For the moment, Robak is prescient. He made this comment before Facebook's IPO was flat.]

THOMPSON: A day is just a day. How high will Facebook go in the next few months?

ROBAK: The people who bought in the secondary market came in right around $44. Those shares are locked for 180 days. So you've got to think those people thought the shares were worth in the $50s and $60s at least.

THOMPSON: So why was the IPO priced at $38?

ROBAK: The $38 figure is made up. It represents a managed number designed to pop a little, but not too much. But you saw LinkedIn. They priced at $45. Their last trades on the secondary market were around $35. They popped to $100, and they're still trading around there.

THOMPSON: To be priced in the $50s or $60s would mean Facebook is worth nearly $200 billion. That's not just McDonald's territory. That's Google territory. How on earth can a company with only $1 billion in annual earnings be worth as much as Google?

ROBAK:It might seem insane. But it's not insane if you think about the reach of the company as a web property. From that standard, it's already bigger than Google. Nobody knows what Facebook's revenue and profit model is going to be. If their revenue and profit model stays the same, this valuation doesn't make any sense. There's no way they can just squeeze enough plain old ad revenue to justify these numbers. They must change. We don't know what this is going to look.

THOMPSON: I find that a remarkable statement: "If their revenue and profit model stays the same, this valuation doesn't make any sense."It means investors are spending millions of dollars in the hope that Zuckerberg will pull a rabbit out of his hat.

ROBAK: Think of it this way.. Google has a pretty standard price-earnings ratio right now -- around 15 to 20. That's where Facebook will ultimately have to get. They need vastly larger profit. How many more ads can they sell? Four times more in the next year? I don't think so. They have to get revenues from somewhere else.

THOMPSON: Where will Facebook get that money?

ROBAK:I think the media has gotten this part right. All the data that Facebook is gathering about us will become valuable at some point. Right now, Google can charge so much more for their advertising because they know what you're searching for, what you want to click. Facebook can take all of this stuff you write about and turn it into metrics about what you want to buy. I can't tell you how, but I think that's the idea.

Facebook raised $16 billion in its initial public offering Thursday, valuing the company at $104 billion. Trading throughout Friday could increase that figure significantly. Facebook's market cap is already larger than Amazon.com, Visa, and McDonald's.

If the stock pops just 30%, Facebook's market cap will eclipse JP Morgan, making it more valuable than any bank in the United States. 

The graph below compares Facebook, in red, to about 30 of the most valuable companies in America. We will be updating this graph throughout the day.

The link to Facebook's live stock is here. The IPO was at $38.

Click to expand (last updated: 11:55am EST):

Will Facebook's business model be more like Google, the New York Times, or TV? To be worth $100+ billion, it will have to be something much more.

Is Facebook's IPO the next chapter in the greatest company of our time, or are Friday's buyers total suckers?

The only intelligent, honest, and true thing to say about this inevitable question is that nobody has any clue. In 1992, a company called America Online had a $70 million valuation after its IPO. A decade later, it was worth $150 billion. A decade after that peak, it is now worth only $1 billion. Online fortunes are built on hyper-active tectonic plates. Mountains of wealth accumulate from flat nothingness, rumble, push up toward the sky, and with alarming frequency, blow themselves up. The Internet is a super-seismic place.

The AOL of the 1990s and the Facebook of today are both penumbral Internet companies. Both permeated our lives in intimate ways. Both changed the way we interact with friends, receive information, and spend our time. Whereas AOL lived off subscriptions, and was vulnerable to competitors who offered Internet access for free, Facebook's currency is simply attention. Its competitors are, essentially, any company that can distract us more effectively.

Facebook's greatest asset is its immense capacity to distract us. The best social media companies manage to get 10% of their users to come back each day, according to Foursquare/Tumblr/Twitter/Zynga investor Fred Wilson. Ten percent isn't cool, Facebook contends. You know what's cool? Fifty percent. "The majority of Facebook users stay active and their daily active user numbers are more than half their monthly numbers," Jonah Peretti says, "meaning the majority of people login each day. It is freakin' crazy."

It is freakin' crazy. If Facebook were merely the widest social network by number of users, dayenu. If it were the deepest social network by the quality of engagement and the quantity of personal detail, dayenu. But it's the widest and the deepest! That sort of thing has to be worth $100 billion, right?

Right?

THE CASE AGAINST FACEBOOK

In 1995, two students launched a website called TheGlobe.com from their Cornell dorm rooms. It resembled a proto-Facebook, letting users create personal pages with a place for pictures and writing. It had members (2 million) and a business plan (sell ads).  The day of its IPO, TheGlobe.com's stock price sextupled -- a record pop for its time -- and approached $100. Where is it today? Exactly.

This calls for some context. TheGlobe.com's population was nearly the size of New Mexico and couldn't make money. Facebook's is nearly the size of India and it just made a billion dollars. Still, the New Yorker's John Cassidy calls Facebook "the ultimate dot-com," and he doesn't mean it as a compliment. To him, Mark Zuckerberg's juggernaut is TheGlobe.com on gorilla steroids. It has members (125 billion "friends"), engagement (300 million daily photo uploads), and a business plan (sell ads). But for a $100 billion valuation to make sense, Cassidy calculates that Facebook would have to make somewhere between $5 billion and $10 billion within a few years. Last year, Google made just shy of $10 billion.

Warning signs are twinkling. Between early 2011 and 2012,  Facebook's costs grew at twice the pace of their revenue -- 95% to 45%. Its ad revenue declined in the first quarter of this year. This week, GM, the third-largest advertiser on Facebook, announced they have decided to remove all ads from the site. "It's not an advertising mechanism," said Martin Sorrell, chief executive of ad giant WPP.

But it is an advertising mechanism. Its short-term strategy is advertising -- the company makes four out of every five dollars of revenue from ads -- and its long-term strategy is advertising. The company reportedly hopes to turn user comments into mini ads. Either way, the future of Facebook depends on its 900 million users: how much detail we're willing to share, how many ads we're willing to take, and how valuable our attention on Facebook appears to be.

THE PRICE OF ATTENTION

Although Facebook earns more than 82% of its revenue from advertising, its IPO might not be the most important moment for Madison Avenue on Friday. This is the week that broadcast executives pitch their new shows to television advertisers. Billions of dollars of marketing will be decided by a few flashing screens of programming. Facebook should pay attention.

"One of the most successful forms of advertising ever is the yellow pages," Michael Wolff writes in an insightful column this week. "Its costs are low enough to make its relative lack of effectiveness still worthwhile to the advertiser, and there are enough advertisers. That's the Google model; it's the ultimate yellow pages. And that's the current Facebook model."

Facebook has to become more like TV, Wolff contends. Television ads work, because companies can buy slots of time between programs that attract a certain kind of audience. The per-person costs aren't high, as they're spread across millions of people. Even a pricey for a 30 second-spot on Desperate Housewives comes out to only 79 cents per household, according to Eduardo Porter's The Price of Everything. This doesn't sound so different from Facebook, whose advertising works (in theory), because companies can buy slots of space that attract a particular kind of audience. As with television, it allows marketers to display information to a segment -- such as guys born between 1970 and 1990 who live in northern Virginia and like Coldplay.

But here's the rub. In 2011, Facebook made $4 per user per year. To earn its market cap of $100 billion today, it would have to earn five-times that figure per user. This sets up a tug-of-war over user information. Facebook has lots of it. Advertisers want to see more of it. Users want them to see less of it. The true value of Facebook could depend on who wins that turf war.

THE SOCIAL UNIVERSE

The upside is that Facebook has created something without precedent: an addictive product for hundreds of millions of people who spent their time creating, for free, something of huge importance to advertisers, which is personal information about their lives and interests. The downside is that Facebook is still extremely protective about the sort of ads it displays, partly because it's extremely sensitive to the fact that its users consider Facebook private. In a recent poll, more than half of respondents said they felt "not safe at all" using Facebook to purchases goods and services.



Ultimately, Facebook isn't like Google, or the yellow pages, or TV, and it doesn't want to be. It wants to be something totally new: an infrastructure for the social web that can attract old-fashioned ads, create new ads that blend user content and marketing, create software that underpins that social web, and charge monopoly rents for its sprawling influence. And its investors are betting on the fact that no company this wide, this deep, this addictive, and this influential could possibly fail.

When JP Morgan announced a shocking $2 billion loss, chief executive Jamie Dimon admitted the amount could double to $4 billion by the end of the year. Instead it has increased by 50% in a matter of days. Two billion has become $3 billion, as hedge funds and other investors "have fueled faster deterioration in the underlying credit market positions held by the bank," DealBook reports.

It is, as Conor Sen quipped on Twitter, "like a BP oil spill in derivative form."

Two numbers add some perspective. The first number is $400 million. That's the sum Dimon warned that financial regulation, in particular the Volcker Rule, could cost his bank in the first year of trading. JP Morgan's unlucky bet has fueled its loudest critics. "In other words," Rep. Barney Frank said, "JP Morgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them." We cannot know that strict implementation of the Volcker Rule, when it is finally defined and fully implemented, would have prevented this transaction, since there are few public details about the nature of the big loss.

The second number is $3 billion. No, not the $3 billion lost by the investment office in this set of transactions, but the $3 billion profit JP Morgan is still expected to earn in the second quarter, after factoring in the current loss. "What's more," Nelson D. Schwartz and Jessica Silver-Greenberg report, "the chief investment office earned more than $5 billion in the last three years, which leaves it ahead over all, even given the added red ink."

Bank runs in Greece could signal the death rattle of the euro zone as we know it. Here's why the whole thing might have been doomed in the first place.

Last week, I shared what I called the funniest graph I'd ever seen about why the euro was toast. It showed that the countries making up the euro zone were more different from each other than basically every random grab bag of nations you could name, including (unbelievably) every country beginning with the letter "M."


That graph came from Michael Cembalest, chairman of Market and Investment Strategy for Asset Management at JP Morgan. I wondered how our 50 states might compare across these measures of dispersion, despite the fact that the U.S. has not only a monetary union (i.e.: we all use dollars) but also a fiscal union (i.e.: we pay we lots of taxes to the federal government, which doles them out across all 50 states).

Cembalest answered with a second graph, this one showing fiscal transfers between rich states, like California, and poorer states, like Missouri. The graph, pictured below, makes a complicated point very simply. The U.S. federal government uses automatic fiscal transfers, such as Medicaid, to protect the indigent and old and sick, no matter where they reside. The euro zone doesn't have a comparable fiscal union. Instead it has debates about how much the hard-working Germans should bail out the lazy PIIGS (their words, not mine). What Germany might call "a permanent bailout," we just call "Missouri."

This morning, Cembalest sent over five more charts. Together, they explain five big differences between the US and the EU.

The 1st difference is taxes. In the US, people pay most of their taxes to the federal government, which has the power to spend that money on health care, defense, and income security in any state it pleases. If one state has a natural disaster, the feds use this general fund to help with the bill. But in the EU, people pay the overwhelming majority of their taxes to individual countries. Upshot: no fiscal union.


The 2nd difference is labor costs. One key ingredient in the euro crisis is the price of work between the core and the periphery. Spanish wages have gone way up since 1999, making their goods uncompetitive, while German labor costs have not increased since the euro was adopted, which has supercharged their exports. For the euro zone to be workable, Spain and Germany must converge, and that means a lot of pain in Spain. In the US, the two regions with the biggest differences in labor costs -- the southwest and the far west -- are much closer together.


The 3rd difference is income variation: Throughout the 20th century, personal income growth across the U.S. converged dramatically. It's true that New Yorkers tend to earn more than Mississippians, but the difference between regional income isn't what it used to be.


The 4th difference is growth rates: "In theory," Cembalest writes, "the lower the dispersion of growth across countries/regions, the easier it is to maintain a given monetary policy stance for the entire union." In other words, the growth rates of the U.S. states are more similar than the growth rates of countries in the euro zone.


The 5th difference is labor mobility: Basically: We move more of it. That matters because when working people move around, they even out the economic differences between regions of the country. As the regions move toward each other in competitiveness, it reduces the need for fiscal transfers between them (see Difference #3).

Michael Linden presents this clever, smart graph that shows spending, taxes, and the deficit all lower today, as a share of GDP, than in Obama's first year:

We have, on this site, focused like a laser beam on the job crisis for the young. But today, a compelling report from the GAO reminds us that among those who have lost a job, older Americans might just have it worse.

Actually, they absolutely have it worse. Americans over the age of 55 are the least likely to find another job and the most likely to take a significant pay cut for the next position.

Who they are: Since 2010, more than half of all unemployed older workers -- or 1.1 million people over the age of 55 -- have been out of a job for more than six months. Forty-two percent have been out of work for more than a year (see graph).

Even when older people find new work, the new wage is typically only 85 percent of the old salary. By comparison, typical displaced worker between the age of 20 and 54 finds a new wage that's at least 95% of the old salary.

Why they can't find work: There's the health care reason and the technology reason. Experts told the GAO that employers are reluctant to hire older workers because they "expect providing health benefits to older workers would be costly." Others said computer skills often hold back the elderly, especially when the job application is all online. 

Where they go: Laid off and locked out, older Americans are increasingly likely to retire early.* About 140,000 more older workers applied for Social Security retirement benefits than the program expected in 2009. The recession has also coincided with a sharp increase in applications for disability benefits. It's clear that, in addition to the 1 million of older Americans who have been looking for work unsuccessfully for more than six months, hundreds of thousands of other older workers have dropped out and retired early.

Why retiring early is no solution: If they choose to drop out of the labor force, older Americans are faced with a slew of bad options. If they have defined contribution pensions, they will retire poorer because they will have had less income to contribute to pensions. If they have defined benefit pensions that use "years worked" in their formula, they will also retire with less to draw down on. If they choose to dip into Social Security early, the monthly retirements will be reduced permanently. And if they accept disability payments, they aren't allowed to look for work. The upshot is that, despite all of our personal and public retirement plans to prepare the elderly for retirement, each plan is weakened in an environment of high unemployment among seniors and near-seniors.

To sum up, although the young face the highest unemployment and the worse income depreciation, it is the oldest generation that faces the longest duration of unemployment.  Somewhat paradoxically, older workers are both more likely to be employed and more likely to be long-term unemployed than any other group.

* Along with lower engagement among young people, early retirement is one major reason why economists are seeing lower-than-expected participation in labor markets. This makes our unemployment rate seem better than it really is, because the rate is calculated by dividing unemployed people in the labor force by the total number of people who have or want a job. When fewer people seek work, the denominator shrinks and the rate is depressed.

Here's a true story about college in America. In a world of unsure investments -- where home prices rise and fall by 30% and hedging can lose you $2 billion in a jiffy -- college remains perhaps the last sure(-ish) bet. The typical college graduate earns $570,000 more than the average person with only a high school diploma over her lifetime, Michael Greenstone and Adam Looney concluded in their remarkable report on the value of a higher education. With an annual rate of return of 15.2 percent, college has outpaced just about every other general investment category, including gold, corporate bonds, U.S. government debt, and hot company stocks.

But here's another true story about college in America. It's crazy-expensive and getting more so every year while middle-class incomes stagnate or worse. As states cut back on support, families are having to pick up the tab. This has sent student debt skyrocketing past $1 trillion. The share of students taking out loans to attend public college has increased from 46% in 1992 to 62% in 2008. In 1993, about 2 percent of students at nonprofit private colleges took on more than $50,000 (2008 dollars) in debt. In 2008, it was 8.6 percent.*

Both of these true stories played loudly in my head when I read the New York Times' wonderful and comprehensive front-pager on student debt. That we have record-high student debt in this country is a sign of both true stories, the good and the bad. More people investing in a college education? Great news. More people too deep in college debt to take the jobs they want, buy the cars they want, own the homes they want, and start the lives they want? Really bad news.

The long article begins zoomed in on Kelsey Griffith, a graduate of Ohio Northern University, who owes $120,000 in student debt. That is a shocking sum, the kind of debt that distorts a life. It's also not typical. It is, in fact, decidedly atypical. Half of all indebted college students owe less than $12,500. Ninety percent owe less than $50,000. Griffith is the 3%.

This graph, courtesy of our Jordan Weissmann, tells the rest of that story:

I don't present this information to discredit Griffith's debt crisis, but to frame it. Extremely expensive private schools like Ohio Northern and George Washington graduate students with average debts above $30,000. Among for-profit schools, one in four families owes more than $50,000 in debt. A concerted effort to name and shame schools high-debt schools would send important signals to administrators to slow tuition inflation. Colleges set prices that families agree to pay. Colleges can independently decide to control their prices, or families can collectively reject higher-debt education for cheaper alternatives.

But, at the risk of wheeling out my favorite dead horse, the other part of the student debt crisis is all of the debt that students aren't taking on because they're not going to college. College grads still earn more, work longer, and are employed at higher rates than everybody else. Their investment -- that is, their debt -- benefits the country at large in the form of a more-skilled workforce, higher productivity, higher GDP, more taxes, and so on. Newspapers can't report on this part of the student debt crisis, because there is no headline statistic to report on. You can't put a number on how much money some promising inner-city student is giving up in lifetime earnings by not attending college or how much it's taking away from federal income taxes through 2030. But just because those statistics are invisible don't mean they're not real.

Here's a statistic that is real: More than 50% of 21-year-olds in America today have dropped out of the college-graduation track, either by not finishing high school or by not going on to college. That is a blight worth talking about. This group, too, is hobbled by a great debt.

*Update: Edited to reflect corrections printed by the New York Times, per an email from the Education Department. Also see this piece, passed along by Jason DeLisle at the New America Foundation, which points out that (a) 34% of graduates from 2008 had no loans to begin with and (b) the typical borrower owed about $20,000 one year after graduation -- more than the $12,500 average cited by the New York Fed study graphed above, but less than the often-cited $25,000 figure, which represents average, rather than median, debt for current student borrowers.

The last word on unpaid students


This summer, millions of students -- some graduating, some between school years -- will spend the summer working. Some will work at restaurants and on retail floors, where working is called "working." Some will work at think tanks and non-profit organizations, where working is called "interning." Estimates put the number of unpaid interns every year between 500,000 and one million. So, in a country where working for free is mostly illegal, a student population somewhere between the size of Tucson and Dallas will be working for free, in plain view.

A few years ago, I was a proud part of unpaid intern nation. I took unpaid internships at two think tanks, a campaign and a magazine. Were they useful? Definitely. Were they moral? Harder question.

Last week, I solicited comments on the dubious morality of unpaid internships. Hundreds of you responded. One large group spoke out in defense of unpaid internships. The other called them bad for students, bad for workers, and bad for society. I do not consider this an easy question. The lines between externships, volunteered time, education-on-the-job, and real work are not drawn in bright neon colors. But I'm coming down in the second camp: Unpaid internships aren't morally defensible.

WORK vs. EDUCATION

Are internships indistinguishable from education? If they are, it's perfectly permissible that they be unpaid. Education doesn't pay salaries to students. Students aren't paid to take Psych 101. They're not paid to apply to graduate school. More than 90% of employers think that students should have between one and two internships before they graduate, according to a new study from research by Millennial Branding and Experience, Inc. Internships have become an inextricable part of the college experience and a pre-req for post-graduate employment.

But this presents a Catch-22 for lower-income students who want to work in politics, research, journalism, non-profits, or other industries that traffic in unpaid internships. These students need work that pays money, but they also need an internship to work in the field. As a result, poorer students are at permanent disadvantage in the summer internship market ... unless, as many of you suggested, we force schools to pay interns with credits or stipends.

But this outcome is unsatisfactory. Cash-strapped schools already face declining public funding. Now they're supposed to pay employers for work done by students? Surely, some colleges could do more to recognize the value of internships and improve their career services offices. But they shouldn't be in the job of paying other companies' salaries.

It's all well that unpaid internships are -- as a few commenters pointed out -- "better for students than actual college." But that's not a good reason to deny millions of workers salaries just because they're young. Plenty of entry-level positions better prepare people for work than college. If it is relevant that an unpaid internship is "useful", does it follow that only useless internships should have salaries? Of course not. Utility and salary have nothing to do with one another.

A JOB BY ANY OTHER NAME

An overwhelming number of unpaid internships are jobs by another name. We accept that they are not salaried because they are temporary, because the work is done by students, and, not insignificantly, for the simple reason that we choose to call them internships -- a position we've come to consider unpaid.

If you have worked in the Washington, D.C., research or non-profit sector, you know that often the roles of an intern and, say, a research assistant overlap. The reason that companies pay one and not the other is that they know they can get away with it. A 19-year old student has little bargaining power, especially if she wants to work in an industry where unpaid internships are the norm. ("If you don't pay me, I'll go to that other magazine that has better muffins," is not a strong negotiating stance.)

For hundreds of thousands of students a year, the status quo is fine. It is mutually beneficial to an affluent student and a cash-strapped firm for work to be done for free, in exchange for the possibility of a job or recommendation in the future.

But not every mutually beneficial relationship should be legal, and not every one is. An easy example is: It is mutually beneficial for a 17-year old to offer money to a bartender in exchange for a vodka shot, but we have collectively decided that this sort of thing ought not to happen, because we don't want to live with its broader effects. The broader effects of unpaid internships are (a) a tendency for employers to take advantage of young labor by offering the currency of experience in lieu of actual currency, and (b) a widening of the social inequality gap as lower-income students are implicitly barred from this so-called  "educational" experience, which is their gateway to full-employment in the field of their choosing.

The Labor Department's guidelines require that internships must resemble an education rather than a job; that interns cannot work in the place of paid employees; and that their work not be of "immediate benefit" to an employer. If you've ever had an unpaid internship, you know that these rules are flouted more routinely than speed limits. But rather than hold up these rules as quixotic laws begging to be violated and laughed at, ask yourself three questions:

(1) Is there no overlap between paid and unpaid work at your company? (2) Can you deny that unpaid internships deny to low-income students an experience that many employers consider mandatory? (3) Would a minimum wage salary paid to a handful of students compromise your company's financial position? I cannot imagine an honest person with passing knowledge of unpaid internships in America answering any of those three questions "yes."

Work is work, no matter who does it. It ought to be paid.

Here is Barney Frank's statement on JP Morgan's of $2 billion loss in derivatives:

This regrettable news from JPMorgan Chase obviously goes counter to the bank's narrative blaming excessive regulation for the woes of financial institutions.  Interestingly, in the Economist's long attack on the financial reform bill, one of their leading examples of the harm the bill is doing was JPMorgan Chase's assertion that complying with the new rules will cost $400 to $600 million at the outset (a number which will obviously go down as compliance processes are set in place).  In other words, JP Morgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them.

Here is the quote Frank is referring to :

Jamie Dimon, JPMorgan Chase's boss, reckons the direct costs to his bank, America's largest, will be $400m-600m annually. "Additional regulations resulting from the Dodd-Frank act may materially adversely affect BB&T's business, financial condition or results of operations," said one regional bank in its recent annual filing to the SEC. Other institutions are said to be in the process of drafting similar statements, or, at the least, planning to acknowledge the costs in the conference calls that surround quarterly earnings.

 

Facebook co-founder Eduardo Saverin has renounced U.S. citizenship a week before the company's IPO is set to increase his net worth by about $4 billion.

Saverin's just getting in on the hot new trend: leaving the country for (probably) tax-related reasons. Renunciations have increased eight-fold since the early 2000s, according to the IRS. Last year hit a record 1,780.

As Reuters reported, the United States is one of the only countries to tax its citizens on income earned while they're living abroad. While the super-rich do face an "exit tax," this move will ensure that most of Saverin's capital gains are taxed at Singapore's zero-percent tax rate. Saverin has been a Singapore resident and investor for many years.

States are famous for "stealing" businesses from each other with low tax rates and subsidies. Advanced countries have competed down corporate income taxes to attract subsidiaries. Capital gains and income taxes will probably have a same effect on a small share of highly rich and highly independent investors. Two thousand people isn't exactly an exodus worth changing public policy. But we shouldn't be shocked that lower-tax countries have some natural advantages for international investors and business over the United States, where the rich are indeed required to support big social programs.

Don't freak out when Facebook's rejected co-founder skips the country. Freak out when Facebook thinks about following him.

On April 22, 2011, Texas Governor Rick Perry, who has resisted the science of man-made global warming, led the state in prayer: "I, Rick Perry, Governor of Texas, under the authority vested in me by the Constitution and Statutes of the State of Texas, do hereby proclaim the three-day period from Friday, April 22, 2011, to Sunday, April 24, 2011, as Days of Prayer for Rain in the State of Texas."
Prayer can't hurt, and it surely won't stop the rain. But Texas is getting close to the point where it will require a miracle of global politics and coordination to avoid summers like 2011 in the future.

For the most part, scientists are loathe to pin specific weather events -- hurricanes, droughts, floods -- to human-induced climate change. More than loathe, actually. "Statistical nonesense" was the way MIT atmospheric scientist Kerry Emanuel characterized such claims in 2005.

But James Hansen disagrees. In a recent column for the New York Times, Hansen wrote that "we can say with high confidence that the recent heat waves in Texas and Russia, and the one in Europe in 2003, which killed tens of thousands, were not natural events -- they were caused by human-induced climate change."

The proof is in his paper, a peer-reviewed survey of climate variability that Hansen shared with Time. Hansen scans the world for "extreme climate outliers" -- temperatures more than three standard deviations (σ) warmer than climatology. Here 12 maps of the world going back to 1955. Red and brown areas are in the danger zone with "anomalies that exceed 2σ and 3σ."
Zooming in on the United States with four charts dated 1934 (top left), 1936 (bottom left), 2006 (top right) and 2011, we see this:

The economics of mega-millionaire athletes ... and the huge gap between rich and poor teams

ESPN's annual money survey of 278 teams across around the world found that we pay wages equal to $15.7 billion to the 7,925 athletes in 14 sports leagues in ten countries.

Of the 15 teams with the highest average salary, eight were European football (ahem, soccer) clubs. In the graph below, they are outlined in red. Baseball teams, led by the New York Yankees, took three of the top 15 spots, and they are outlined in green. NBA teams, led by the Los Angeles Lakers, snagged the last four spots. They are in solid blue.

One angle into this fun study is the "economics of superstars." Real Madrid isn't just a nice group of boys from the larger Madrid metro playing against their friends from around Spain. It's an international team, comprised of international superstars, with a rabid international audience. That the top soccer teams from Europe have a worldwide audience means they have a worldwide revenue base, especially from TV deals and licensing. That's why Barcelona can pay $217,014,221 a year to field their team, making them the most expensive sports team in the world. And it's why the NFL and NBA can afford ever-rising salaries. If sports money comes down to audience, more televisions and internet connections around the world means the rights to broadcast the world's most popular teams are getting ever-more lucrative.

Another angle is team sizes. The NBA squads are all in the top 70 of ESPN's list of highest average salaries. But their total salaries aren't nearly as high. The Indiana Pacers, for example, are number 167th in the world. Think for a second and you can intuit why. Football has teams of 11. Basketball has teams of 5. It turns out James Naismith designed a relatively labor-efficient game.

Finally, after a year where we almost lost a season of the NFL, and then the NBA, to labor disputes, let's take a look at how salaries from the top five teams in the NBA and NFL compare to the bottom five. And let's compare this with baseball. (Once again, these figures are average salary per team.)

In basketball, the average Laker salary is 85% more than the average Cavalier salary. In football, the average Steeler salary is 85% more than the average Bengal salary. (Brief aside: Poor Ohio, literally.) But in baseball, the average Yankee salary is 300%[edited] more than the average Athletics salary.

Which of these leagues doesn't have a salary cap? You can probably guess.

The economics of unpaid internships are as clear as the ethics are muddy. Employers want cheap workers, especially with the economy weak, and it doesn't get any cheaper than free. Students and recent graduates want experience and work at any price, and they're willing to settle for zero.

Yesterday, I asked you to tell me your experiences and opinions about unpaid internships. Hundreds of you responded. Here is the first batch of answers -- against unpaid internships. And here is the second batch - in defense of working for free.

'UNPAID INTERNSHIPS ARE A GREAT THING'

Unpaid internships are a great thing. Too bad too many people are putting pressure on companies to end them.

Internships were once called apprenticeships. They allowed (mostly) young men to spend time learning a trade by paying the company with a time of free labor. It was a winner because after the apprenticeship men could look forward to a lifetime of higher pay by becoming a skilled tradesman.

Unfortunately the nanny state needs to end that. The horror of teaching people a trade while not paying a mandated minimum wage is considered so 17th century to today's more enlightened beings. Horror of horrors, people could learn skills to last a lifetime without going through a federally mandated re-education training program. Can't allow that to happen. - Buckland

Unpaid internships: Better for students than paid-for college?

If I had 100,000 dollars of grants and loans and cash to do all over again, I might just pay to intern for four years. The liberal arts degree has to be exposed as a fraud. If I told an industry leader, "I'll support myself for four years to be truly an apprentice", that seems infinitely more valuable than a traditional four year college experience, if the goal is ultimately about job placement. I have a library card. I can read and research at will without a term paper as incentive. - Robert Wohner

'What's the matter with free training?

I agree that making an unpaid internship a de-facto requirement to even be considered for employment is dead wrong. It amounts to a "free trial period" for the company/organization.

But there has to be an appropriate middle ground that recognizes the value that an employer provides to the intern through training without turning it into an exploitative situation. I simply don't believe that any and all unpaid internships are, by definition, exploitative. Why should an employer - who may not even be your future employer - have to train you for free? - R_Alexander

The harsh reality: Unpaid internships are messy, useful, necessary

As an undergrad at a state school, I worked every summer because my parents couldn't afford to pay for my living expenses. I also worked during the school year at my university's library. Recognizing how important an internship was, I arranged my schedule to be able to intern for 9 months at a consulting firm for 15hrs a week during my Sr. year. The internship was unpaid, but the experience was invaluable. I got to see first hand how corporate America works. While I did things like write briefs, prepare excel files, and make presentations (all stuff I knew how to do), I learned how to do those things in a professional setting.

That internship greatly helped me get into graduate school, thanks to a great letter of recommendation. It also helped me land a graduate assistant position that has paid for all of my schooling. Finally, it helped me land a high paying job at a major consulting firm. So I greatly appreciate my unpaid internship, even though it required a lot of sacrifice (I had to work weekends and drop out of student government).

I do however recognize the challenges that unpaid positions place on students from lower income families. I applaud efforts by schools to provide funding. My graduate program had a fund to pay for half of an internship, if the employer would pay the other half. Unfortunately, not enough of these programs exist.

The area that has the biggest problem with unpaid internships is the nonprofit sector. In DC, every organization is basically run by unpaid interns, and they get to do this because they are nonprofits. If you want to work for a nonprofit, you have to have multiple internships. What is sad is that these nonprofits really don't have the money to pay people, which makes the nonprofit/think tank/capitol hill world nearly off limits to those without outside support. - Holland Avery

In defense of my unpaid internship

I did an unpaid internship with a Fortune 200 (actually it may have been in the top 100 at that time) company quite some time back. It was only a part time engagement, maybe 10-12 hours per week for a semester if I recall correctly. I didn't mind it being unpaid, really, for a couple of reasons:

1) It gave me the opportunity to put some relevant work experience on my resume at a time when I needed it, and to also secure a good reference. 2) I did get the opportunity to learn/train on some resources that my school did not have available, broadening my skill set. This was done in a way that also ended up with my delivering some work of value to the company. Again, things I could list on my resume, and needed to do so. I took an active initiative in shaping my internship into a positive and valuable learning experience. I knew what I wanted to get out of it and I asserted myself to make sure that I got it. I can imagine that a student that didn't do so and just expected this to be done for them could end up being disappointed and even misused. It really is quite challenging to design an internship experience that is not going to end up being a waste of time for both the student and the employer. If there isn't going to be any cash in it for the student, then there really should be something else of value that they can expect to get out of it. If there isn't that either, then these things really are not worth doing. - stefanstackhouse

'An unfortunate economic reality'

Taking unpaid internships has become an unfortunate economic reality. Bluntly, why should a firm spend money taking on an over-entitled and technically untrained college student when another is willing to work for free?  If a hungry student from China/India is willing to outwork me for free, and with a smile on their face, shame on me. We're in an economic recession, remember?

Fortunately, an unpaid position isn't necessarily the "slave labor" that this article makes it out to be.  If the position you're interning for is a career and not a job, you shouldn't really be interning for wages, but rather, experience. Indeed, what I've found most valuable from my past internships have been the networking opportunities, enhanced technical expertise and credibility, and more importantly, knowing whether this is something I'm really cut out for. I value that more than cash right now.

The problem, therefore, is not so much that no wage is being distributed, but that most students have no clue why they are even interning in the first place. As with all big decisions (marriage, college, children), I think we need to stress the importance of considering why we do the things we do, work included.

How about this- in exchange for charging exorbitant tuition fees, why don't colleges briefly explain to their students why internships are important? How about colleges explain what a student should hope to get out of their experience, and whether they should be even doing these internships in the first place? Now THAT is something that is worth paying for.

Disclaimer: Currently working in the financial services industry, multiple unpaid internships, everything financed through scholarships and part-time jobs, everything learned on the job. Glad I worked for free.

THE UNFORGIVING ECONOMIC LOGIC OF UNPAID INTERNSHIPS

The unpaid internship is basically a deal where the employer pays the employee (or labor donor, as it were) not in cash, but in the form of value of exposure to the field of work and experience, which is a form of marketability to try and actually snag paid work in that field. With such a brutish labor market, especially for new college graduates, there is an immense demand to pay for such an opportunity. And of course, from the "employer's" POV, as anyone who has taken marketing and/or economics 1001 can attest to, there is no better price than FREE!

Unpaid internships offer 'value other than money'

Unpaid internships - are they forced labor? Huh? I thought they were voluntary. If a student is being exploited, exactly what is stopping him/her from leaving? If he/she doesn't leave the unpaid internship, then I would expect that there's value somewhere. I had several unpaid internships in the early 90s when I was getting ready to finish my BA - gave me something to put on my resume! Gave me some insight into how companies worked. Gave me insight into what I wanted to do and what I didn't.

There is value there other than money. Most Bachelor grads that I've met have NO IDEA how to work in a business environment, what professional behavior is. They are scared/hesitant to talk to people (need to learn to project confidence), and just plain green. If there are no paid jobs available (and they can afford not to work - there's the rub), then unpaid internships are a great stepping stone.

If students start suing because they are being 'exploited' then guess what - internships will stop. They will become too risky for companies to do. And guess what - college graduates will be getting Starbucks/retail jobs instead of business/professional jobs and it will become more difficult for them to get a start.

Now, it sounds like there are definitely abusers out there - companies that get a lot of work out of interns on an ongoing basis and use interns as a substitute for paid employees. That's not on.

But again, there still is such a thing as free will. I'd expect interns to punish these companies through social media, through websites reviewing internships, I'd expect they would be exposed and be forced to change practices. Anyone know if there are sites like this out there? Glassdoor or jobitorial equivalents? - Paula Cassin

'Paid in kind'

In my mind my internships weren't unpaid, they were paid in kind(work experience, references and connections). So, while I didn't get paid with US currency, I was given something much more valuable: evidence that I could deliver professional quality work using the knowledge and skills I was gaining from my degree program. I went into my first job (after receiving my degree) with two professional references in the field I had studied in.

The value of unpaid internships: Part I

I was an intern for a member of Congress while I was in college. I opened mail, answered phones, took tourists for visits in the Capitol, ran gopher errands to other offices. Eventually I started helping draft correspondence, research legislation, and help with more substantive work.

My internship was invaluable. I had an extremely flexible schedule and I had a chance to see the sausage being made as it were.

Internships in DC are almost a rite of passage, especially on the Hill.

The value of unpaid internships: Part II

I'm currently doing a (barely) paid internship for a think tank in D.C., and it's provided valuable insights into the way think tanks operate. I now know what to expect, have a great line on my resume, and am going to be employed full-time in an unrelated field. However, I will always have this under my belt, and it is a great talking point during interviews that shows the diversity of my ability (and contributes a name-brand institution to my resume).

The value of unpaid internships: Part III

I work for a nonprofit organization and we have a nearby university that has a nonprofit management grad program. My comments are industry specific.

The interns we get from this grad program DEMAND to be given substantial work. They are snippy when they don't have "enough" to do. They complain to their program directors when they aren't given entire projects to manage. They think they should be able to write grant proposals and plan events. We actually have to actively manage their expectations of the amount of responsibility they will have.

There are other nonprofits in town that are so strapped for resources they actually do depend on interns to manage projects, and those are the internships the interns claim they prefer - they actually snark about our organization because we are well-run enough that we don't "need" to do this. We actually have a "reputation" as having a bad internship program, because we hew closely to the supposed ideals of the Labor Dept (aka the law).

Also, I would point out that nonprofit orgs don't use interns to replace hypothetical paid employees. If we didn't have the interns, the work just wouldn't get done. Or, we would lean more on our volunteer corps to do it. But if there's no intern to answer phones at the front desk, the front desk goes unmanned. It's that simple.

Finally, I would add that a lot of students I have encountered in nonprofit management grad programs are there because they want a credential. Many of them have already worked in the nonprofit world and just think the master's degree will boost their job prospects. A strict "internship" where they are just observing me and getting under my feet is an utter waste of their time. They are sort of like the mid-career professional who is suing the producers of "Black Swan" because he thought all the coffee fetching he did was beneath him. (Which it was. He's 40, and he knows what it means to work for a paycheck.)

More »

Update: Read the rebuttal, In Defense of Unpaid Internships

The economics of unpaid internships are obvious. Employers are desperate for cheap work, and "free" is pretty cheap. Workers are desperate for, well, anything, and students and recent grads are willing to negotiate their wages down to zero. But the ethics aren't so clear-cut. If unpaid internships are the key to better jobs and bigger salaries, should we be concerned about the millions of lower-class students who can't afford to work for free?

Yesterday, I asked you to tell me your experiences and opinions about unpaid internships. Hundreds of you responded. Here is the first batch of answers -- against unpaid internships. Forthcoming today: in defense of working for free.

THE BIG PICTURE: The vast implications of a class that can afford to work for free

I think that it's important to consider the implications that all of this unpaid (and likely stemming from the upper-class) labor has on society as well, especially within the industries that largely require entire chunks of time and resources from those aspiring to join them. Particularly within the public sector, one glaring example of this is the field of legislative aide job opportunities that are often only handed out to those who have toiled away for months (and indeed sometimes years) on end as campaign volunteers.

This creates a setup where an entire profession (any job offering Congressional support) effectively shuts out the very large proportion of the college-aged population who do not have parents (or some other richer benefactor) that can afford to subsidize living costs for however long they need to gain the extensive and unpaid experience necessary to enter the good graces of a Congressman or Senator. The implications of this are far-reaching and structural; and reinforce the culture of privilege already rampant in Washington D.C. where not only do federal lawmakers themselves often lack valuable perspective on the issues plaguing lower- and middle class Americans that constitute the majority of the nation's citizenry, but also with the advisors and assistants working for them, who by virtue of being able to land their jobs in the first place already were fortunate enough to have been born into the nation's wealthy economic minority. This creates a cycle of dissonance between the real world economic reality that Americans face and what the legislative class in Washington understands the proper solutions are to those very problems.

'Unpaid internships cannot continue to exist'

Unpaid internships cannot continue to exist. It's really immoral.

1. Not only is college ridiculously expensive, students are now required to spend their summers for no money? For example, in the broadcast industry, internships are concentrated in New York, Atlanta, and Los Angeles. The costs to move there and work for no money eliminates thousands of low-income students from what is essentially required to gain future employment after graduation. And the press wonders why their ranks are so often colorless. I literally did a clinical trial to pay for a summer I spent doing an internship. Which was fun but most people aren't so adventurous with medications they put in their body.

2. The idea companies are paying to provide experience is nonsense. If a friend pays thousands of dollars to take a photoshop or HTML class in college, employers are getting free labor to utilize that skill. If the company was instructing students in photoshop, I'd see the value. But those skills are required to get the internship in the first place. So what is the point of learning a skill when it is being used for nothing? Companies that otherwise would have to pay a worker for that technical ability can utilize it for free. So, not only do students pay internship credits, pay for housing, they pay for the skill to work for free. That's wrong.

3. In economics, people value what they pay for. When companies have a financial investment in someone, they are more inclined to gain a full return on that investment. If I'm a zombie on the 17th floor, anything I add is to their credit, but they have no risk if I'm not. Which is why its hard to differentiate between committed interns and lackluster ones. Companies have no real interest in an interns personal or professional development. But if they pay for that intern, they do. In a corporate environment, interns take ALL the risk, employers take none.

Unpaid interns 'lower wages for everyone'

My experience has been that they overall devalue the actual work being done, lowering wages for everyone, not just the unpaid interns. Furthermore the use of interns in general as draftsmen has all but eradicated a legitimate career path for high school graduates. - Evan MacKenzie

Unpaid internships are the new entry-level position

If internships still worked to give people valuable skills that they didn't have in exchange for some free labor I'd be all for that, but for the most part it seems people are looking for interns that come fully trained and with a lot of experience already. When the recession hit jobs that would have been well paid the year before turned into unpaid "internships." My wife was looking for work during that time, and it wasn't unusual for her to see ads on Craigslist like "Artist intern needed. MFA required. Must have minimum 5 years professional arc welding experience in shop environment. Must have proficiency with sanders and drill press and know how to crochet. Please bring portfolio and listing of everywhere your work has been shown. Must have network of gallery and "art world" contacts. Internship requires 6 month to 1 year commitment and is unpaid."

We would have chalked these things up as either ads from already famous, well established artists or so much Craigslist wishful thinking...but the thing was on the other end we worked with the people who were "hiring" the interns and they weren't anymore successful, and in some cases not even as successful as my wife's business was. There would be no paid job at the end of the tunnel for any of those interns, because the people who hired them didn't make any money. Yet they still didn't have a shortage of people willing to work for them for free, mostly because they wanted to have something they could put on their resume to show they had been "doing something" with their time.

'Nursing internships'!?'

Hospitals are jumping on board to the free-labor train with "Nursing Internships." They now prefer that you work anywhere from 4-12 weeks unpaid, then they'll consider you for employment. Total horsesh*t.

THIS IS KEY: The difference between an apprentice an intern

An apprentice would be taken into the master's household with food and shelter provided. That doesn't happen with unpaid internships. Only kids that have someone else to rely on for food and housing can take advantage of the opportunities provided.

I don't particularly care if colleges offer academic credit for internships. I would like to see them offer food and housing for kids that work internships when not in school. It would probably be counterproductive to require employers to do so, and the schools are already fleecing the kids because price signals are so poorly understood in education. Sack some administrators or something. Slow down campus renovation for a while. I imagine this would be about the cheapest way to improve outcomes for students a college could provide. - wjaredh

'The system works against class mobility'

The problem is not that the unpaid interns themselves necessarily get a bad deal, the problem is that the system works against class mobility.

Only the comparatively privileged can afford to make the "investment" of accepting an unpaid internship. I have several friends who had to give up their unpaid internships in order to work paid jobs elsewhere when they found they couldn't make ends meet.

Now as for the old-fashioned system of apprenticeship, I'm not really qualified to say whether they tended to increase class mobility or not. I know that in many fields the apprentices tended to come from the same social class as the "master", and that it was not unusual for the family of the apprentice to pay for the privilege of having their son work there. At the same time, such practices were not universal. I think it is clear though that in many cases the apprentices at least received room and board - something obviously not provided by most of today's unpaid internships.

I do think there is much to be said for the apprenticeship model of education. But that is separate from whether people are paid or not. Medical students in their residency are essentially apprentices, but they are paid. The same could be said of law clerks. - Lasker

The Labor Department's bizarre rules

Since one of my close relatives is about to begin an unpaid internship, in a situation with which I am very familiar, I was very interested in those Labor Dept. requirements. They boiled it down to a list of six criteria, most of which seem ... somewhat reasonable. Requirements 2, 3, 5, and 6 seem workable. Unpaid internships should be primarily for the benefit of the intern, closely supervised, not linked to a future job, and the terms of the internship should be clearly understood up front.

But requirements 1 and 4 seem mostly concerned with making sure the employer does not benefit in any way from the intern's services. These rules emphasize that "The internship ... is similar to training which would be given in an educational environment," and that "The employer ... derives no immediate advantage from the activities of the intern." In fact, it goes on to suggest that the employer's "operations may actually be impeded" by having the intern. How do we train someone in the skills necessary to do some sort of work without having them actually perform, at least on some level, that kind of work?

This seems absurd. We don't demand that actual colleges provide education without deriving "immediate advantage" from their students. They get paid MONEY for providing this training. Why is it somehow wrong for an employer to derive some benefit from providing valuable training to an intern? Would that not be similar to an "educational environment" where the student gives up something (MONEY) in order to receive training? Why can't an intern trade his or her time and effort in a similar way? The obvious answer is that they should be allowed to, which is why these internships exist.

I'm not against some kinds of safety precautions here - limits on hours, working conditions, that kind of thing. But insisting that employers provide the benefit of training to an intern while actively striving to eliminate any possibility of benefit to themselves? That is ridiculous.

WAKE UP, EVERYBODY: 'It absolutely is free labor'

I went to Smith College, and at least when I was there they had a program called "Praxis" which provided each student a $2,000 grant, one-time only, to compensate for unpaid work done over one summer during college. It's a start. I know it was implemented specifically to address the issue you raised here: that lower-income young people simply can't afford to take unpaid internships, and thereby miss out on some key stepping stones.

Overall, it's my experience as well that the legal guidelines for "internships" are a total joke. It absolutely IS free labor for the employers, and I wish the trend was heading more in the direction of shunning than normalizing.

How can progressives support free internships?

I actually got into a heated argument with senior management at my previous employer over this. My former boss (the organization's President) fancied himself as a progressive, so when it came time for us to hire summer interns I strongly advocated we pay them a reasonable hourly rate to make the opportunity accessible to those that don't have parents who can support them while they work for no pay. I was promptly shot down. It's not as if we didn't have the budget! $10-15/hour without any type of benefits is chicken-scratch. I would often spend more money on a single business-class ticket to China than paying an intern to work 20-hours a week for 3-months at $15/hour.

Nope, my old boss would rather spend no money so he could bring in wealthy interns from his ultra-expensive Alma mater. Progressive my ass...

'It is a crime to not pay your interns'

I graduated in December 2010 from the University of Oklahoma with a Bachelor's Degree in International and Area Studies. It's pretty obvious that if I wanted to do something related to my major, then I would have to move out of Oklahoma. I started searching for all kinds of internships in DC to "get my foot in the door". The more and more I looked, though, I noticed that none of these were paid internships. It caused a lot of stress in my life.

How could a person like me, from small town Oklahoma, afford to live in Washington, DC, where the average rent is more than my parents monthly house payment? And without any pay? I don't come from a privileged family and feel guilty when I ask them for money, even $20. I worked two jobs throughout college to pay for school, car insurance, and gas, among many other things. (I am proud to say that I graduated debt free, too) There was no way that I would be able to utilize the Mommy and Daddy Foundation, as so many people do out here. It really is a class thing. Sorry, but all these Georgetown kids who don't have to worry about funds and can get an internship on the Hill just doesn't seem fair to me. How are small town people, such as myself, ever going to get a chance to come out here if there is no way they can afford it?

I am fortunate and grateful to say, that I landed a paid internship in Washington, DC that recently turned into a full time job with a salary, health care and benefits- something the average 24 year old can't say. Every single day I entered my hours into my intern timesheet, I was so grateful that I was being paid and that I wasn't a burden on my family. I am one of the lucky ones. That said, I really feel like it is a crime to not pay your interns, especially in expensive cities such as Washington, DC or NYC.

'This is supply and demand'

This is Economics 101, where supply and demand curves intersect to determine the true price of an intern, zero. If the economy doesn't do better, this curve may even shift downward because of increased supply, meaning interns will have to pay for the privilege of working for companies.

If you don't care about the middle class, don't worry about unpaid internships

In the years since 2009, my pre-professional graduate program has eliminated about half of its paid assistant-ship positions for graduate students, positions that came with funding, gave grad students valuable work experience in the field that we're going into, and helped keep the departments we were working afloat financially (since we were doing work that would otherwise be done by fulltime workers with a degree). The work that those students used to do has been replaced by a combination of unpaid internships and, even more insidiously, for-credit practicum and independent study opportunities, where students pay the school for the chance to do labor that they would have been paid to do as recently as 2009, and that some of their peers are still getting paid to do. If you fail to get an assistant-ship and opt not to work for free, or not to pay for the privilege of working at some point during graduate school, you will probably not be able to find a job after you graduate because experience is now required for entry level positions.

The shift towards students paying the full price of their education (as state subsidies to universities decline and tuition goes up) and away from employers being willing to actually train their employees (even in skilled jobs that don't require a college degree it helps to have a certificate from a vocational high school or community college in the field you're going into), is a new phenomena in the last thirty years. It was not the system under which the baby boomers worked their way into the middle class. I think a trend where students increasingly have to either work for free or pay to work to get entrance into professional fields and jobs that require skilled labor will contribute to a combination of a decline in economic mobility and increased debt in the U.S. If your labor isn't rewarded with pay then you need to get money to live on elsewhere, and the two places most students turn are their parents (for those who already have opportunity and extra cash lying around) and loans. Some students do take on a second paid position to supplement their unpaid position, but that can increase their loan burden by making them stay in school longer and those students tend to have lower retention rates.

If you don't care about students from lower and moderate income backgrounds having the same opportunities as kids whose parents can afford to support them into college and graduate school, if you don't care about working yourself out of poverty and into the middle class being a real possibility for most people, if you don't care about US citizens taking on increasingly high levels of debt to finance their ability to work, then I would say don't worry about unpaid internships and decreasing state support for education. But if you do care about those things, then I think you should take a serious critical look at both phenomena.

'No one who believes in equal opportunity could support such a system.'

I'm a recent college graduate working in the sales department at a mid-sized company. I didn't know I wanted to be a writer when I was in college. I do now.

Unfortunately, you can't just practice writing, put together a portfolio, and then send off clips and resumes to prospective employers. An entry level writing gig, often even freelance work, requires prior experience and contacts, two things that an unpaid internship is perfect for obtaining.

However, I have school loans, rent, and utility bills to pay. The economy is still in a recession, at least for workers (if not their employers), and my hourly wage is adequate for living in a three bedroom apartment with three other people, but not much else. As a result, taking a few months off from my job, even if they would allow me to do so (which they wouldn't), would simply be unaffordable. Even after saving for nearly a year, working long but rewarding hours at an internship with one of the local media outlets just isn't financially practical.

I can of course continue to save, and eventually spring for 12 weeks of career forwarding servitude, but by that time I will be even older and at an even greater disadvantage. Every new season that goes by that many more people are getting a leg up in an extremely competitive field where every edge counts.

I would love to work for free to pursue the career I want. And an internship is a great way to do that. But far from being an egalitarian or meritocratic institution, unpaid internships unintentionally reinforce already existing socio-economic divisions. No one who believes in equal opportunity could support such a system.

More »

Unpaid internships are on the rise. Tell us your stories -- and your opinions -- about working for no pay

Update! Read the our double-barreled commenter response. In defense of unpaid internships, here. Against unpaid internships, here.

My name is Derek, and I was an unpaid intern.

I begin with a confession, because the unpaid internship has become something of a dishonor, if not a scandal. And, as New York Times reporter Steven Greenhouse wrote in his blockbuster take-down of the institution in 2010, I might have helped various companies conspire to break the law -- even if it's the murkiest, most broken law in the country.

Of the 10 million students at four-year colleges in the U.S., more than 75% have at least one internship before graduating. We don't know how many of those internships are unpaid, but Ross Perlin, the author of Intern Nation, estimates that it's up to one-third. "It's the only major category of work that I know of that is not tracked at all by the Bureau of Labor Statistics," Perlin said.

NOT PAID, NOT LEGAL?

If you've ever had an unpaid internship, there is a distinct chance that you participated in unlawful activity.

The Labor Department has strict guidelines for unpaid interns, and every year, thousands of companies dutifully flout them. Technically speaking, internships must resemble an education rather than a job. Interns cannot work in the place of paid employees. Nor can their work be of "immediate benefit" to an employer.

Every unpaid intern I know -- and every unpaid internship I've had -- broke at least one, if not all, of these rules. And repeatedly. We worked nine hours a day or more. We shared work with salaried co-workers. We strove to provide "immediate benefit" to our employers, in the form of fetching drinks, organizing bookshelves, writing briefs, editing documents, fiddling with Excel, and presenting ourselves as free safeties of the office -- happy to roam, eager to tackle something new. This is what we knew to do. This is what college students do with their summers.

And, increasingly, it is what college graduates do with their full years. The official unemployment rate for 20- to 24-year-olds was 13.2% in April. But the unofficial numbers are staggering. Less than 50% of students graduating between 2009 and 2011 found a full-time job within a year of finishing school, according to the John J. Heldrich Center for Workforce Development at Rutgers University. There are no hard numbers on internships and unpaid internships, and therefore no numbers on any rise or fall in internships. But in this environment of few jobs and record numbers of college graduates, it is reasonable to think unpaid internships are on the rise.

WHAT TO DO

Earlier this year, a former intern with the Hearst Corporation sued over her unpaid internship. You can blame the companies for side-stepping a unrealistic law. You can blame the law for vagueness. You can blame the interns for settling for zero-pay, or even the colleges for not offering credit for vocational experience. Less than 30% of colleges offer academic credit for internships, according to the National Association of Colleges and Employers.

But I worry the problem is somewhat intractable. I loved my internships. I wouldn't be where I am without them. But I also recognize that my parents' income afforded me those internships. Without their summer cash, I would have had to seek work at Best Buy, or Starbucks, or another place that paid more than zero dollars an hour. As students of privilege cluster in posh unpaid internships that open doors while lower-income students cluster in retail and food preparation jobs, income inequality yawns. Having extra money allows for unpaid internships, which lead to jobs that pay yet more money. Even if unpaid internships are a win-win for employers and students, this is not what egalitarianism looks like.

How do we fix it? I'm not sure. But I want you to tell me. Share your internship experience or perspective in the comments below, and I'll round up the best ones and publish them in a new post on this blog later this week.

The Atlantic's new special report on the past and future of the world's global capitals begins with the 10th most powerful city in the world, which resides at the center of a continent in crisis

Alfred Escher was gravely ill. Not for the first time in his life, nor the last.

In 1856, the Swiss academic-turned-politician-turned-entrepreneur had already served as a foundational Zurich statesman and as the architect of the nation's famous railway system. But Escher had higher ambitions for his rail empire, and he needed money to pay for them. So he founded a bank, Schweizerische Kreditanstalt, which changed the direction of Zurich's economy for the next two centuries.

The bank still exists to this day. You know it as Credit Suisse.


One hundred and fifty years after Schweizerische Kreditanstalt, Zurich is the most important financial center on the European continent, forming a nearly equal triangle with Paris and Frankfurt, two other banking juggernauts in neighboring France and Germany.

Situated as it is at the heart of a crumbling multinational institution, Zurich is oddly both apart from and a part of the economic crisis surrounding it. Switzerland is part of Europe, obviously, but it is not part of the EU, nor does it use the euro. It sidestepped the slow-motion disaster of the currency, while at the same time experiencing a not-so-mini currency crisis of its own.

After the Great Recession, the Swiss National Bank cut interest rates to zero to encourage investments and maintain the competitiveness of the Swiss franc. But as Europe's periphery toppled like dominos, investors have fled from the euro to the franc, driving up its price relative to its neighbors. As this weakened exports, Switzerland's GDP growth fell to 2.1% in 2011. There is reason to expect it could continue to slide. Half of Swiss exports go to the EU.

The outcome of a stronger franc is especially fascinating in Zurich, which earlier this year received the dubious honor of being crowned the Most Expensive City in the World for Americans. At a time when advanced economies are seeking growth that pushes us outside the gravitational pull of the recession, many countries are using monetary policy to depreciate their currency to trade more competitively. But Switzerland, which is also under pressure to reform its famously secret banking laws, is beloved by international investors at its own peril, and at the expense of higher prices for tourists and global consumers.

Still, these headwinds are coming up against a major financial engine. In the Global Financial Centres Index released in March 2012, Zurich finished in the top ten across all areas of financial competitiveness, including business environment and market access. For the last ten years, GFCI has named Zurich the second best financial center, only after London -- where finance accounts for a higher share of business than even New York.

The euro zone has Greece. The United States has Mississippi. Or Missouri.

The difference between the U.S. and Europe is that when the Greek economy "pulls a Mississippi" (or perhaps I should say, when Mississippi "pulls a Greece"), the EU and the U.S. have 180-degree opposite reactions. Over here, we calmly write checks to Mississippi in the form of Medicaid and unemployment insurance, no questions asked. Europe has no comparable "Peripheraid" for its weak peripheral states. Instead, it has chaos.

Michael Cembalest, the JP Morgan analyst and author of the my favorite new chart about monetary unions -- it's not a crowded field, admittedly -- passes along another clever graph which shows fiscal transfers (don't worry, that's just another word for money) between the rich California-Connecticut-Illinois-New Jersey-New York quintuple and poorer states like Tennessee. If similar, seamless transfers existed in the EU, the rich north would have to send to Portugal and Greece at least an additional 30 cents for every dollar they paid in taxes, year after year after year.

(But don't stress out. It's a good thing.)

I want a wantologist.

On Sunday, I learned that a "wantologist" -- what, you don't have one? -- is somebody paid to figure out what you want. Arlie Russell Hochschild, writing in the New York Times, quotes Katherine Ziegler, wantologist, helping a client to figure out what it is that she wants. The conversation went something like this:

What do you want? "A bigger house."

How would you feel if you lived in a bigger house? "Peaceful."

What other things make you feel peaceful? "Walks by the ocean."

Do you ever take walks nearer where you live that remind you of the ocean? "Certain ones, yes."

What do you like about those walks? "I hear the sound of water and feel surrounded by green." 

After realizing that the thing she wanted wasn't a bigger house so much as the thing a bigger house would afford -- peace of mind -- the client built a little room filled with green plants. This decision no doubt saved many tens of thousands of dollars in the process, depending on the price of the plants. The wantologist earned her salary.

***

Two generations ago, there was no such thing as a wantologist, a dating company, a nameologist, a life coach, a party animator, or a paid graveside visitor, Hochschild informs us. Today, they're everywhere.

Is that bad? Hochschild claims it is. She predicts that we're entering a dark age of emotional emptiness. We, an anxious people, work harder and harder to afford the salaries of people to make us less anxious, which ironically deprives us of family time, which makes us more anxious. Apparently, paying people for emotional and psychological needs is turning us into emotional psychos.

Maybe she's right. I see it the other way. I think wantology sounds pretty great. I love party animators. I don't currently employ a life coach, but I like knowing I could, in the future. Rather than mark the beginning of something truly dark, the wantologist represents the continuation of one of the happiest long-term trends in modern history -- the explosion in wealth that we often don't take for granted when we write about the miserable short-term prospects of the economy.

FEEDING OUR NEUROSES

Food is not an obvious place to begin in the Defense of the Wantologist, but anyway, that's where we're starting. For 100,000 years, the great priority of all societies was the production of food. The inability to make enough of it is one reason why real wages famously stagnated for the hundreds of years (if not thousands, or tens of thousands) before the industrial revolution. This graph of subsistence wages in various cities around the world gives you a good idea of what economists call the Malthusian Trap. When populations collapsed, as they did after the Black Death, wages rose. When populations grew, wages collapsed over time to the subsistence level, indicated in the Y-axis by "1" in the graph below.