A blog about business and economics.

March 23 2015 12:25 PM

Ted Cruz Has a Weird Obsession With Abolishing the IRS. About That.

Ted Cruz announced today he is running for president. It is what it is. The first-term U.S. senator from Texas became famous as a conservative firebrand who made life hell for Congress' Republican leadership by helping force a government shutdown, ostensibly in a failed attempt to defund Obamacare, or at least make himself a semihousehold name. It'll be interesting to see if the man has a similar effect in the presidential primary. Will his mere presence force other candidates to veer hard-right in order to avoid looking insufficiently dogmatic, thus lighting aflame their chances in the general election? Or will he simply make Jeb Bush look palatably mild for the rest of the electorate? Time shall tell.

In any event, the conservative id now has an official candidate, which means some of his pet policy ideas will get a little more attention. My personal favorite, which he mentioned during his speech today, is Cruz's oft-repeated conviction that we should eliminate the Internal Revenue Service—or, as he now likes to half-jokingly put it these days, "abolish the IRS, take all 125,000 IRS agents and put them on our southern border.” Cruz says this would be his second priority, after repealing Obamacare (of course). And it's kind of fun to contemplate. The U.S.-Mexico border is 1,954 miles long. Assuming we rotated those 125,000 newly reassigned agents on three separate eight-hour shifts (gotta guard the border 24/7, after all), we could install one agent roughly every 250 feet. That's less than a football field, people. We could basically handle border security like the world's largest game of Red Rover. Weekends would be a little more porous, but that's what overtime pay is for.

Still, getting rid of the IRS would leave the small matter of collecting taxes up in the air. Because, no, Cruz does not want to eliminate taxes altogether. Borrowing from Rick Perry and Steve Forbes before him, he wants to create a low, low flat tax that everybody could submit on a form the size of a postcard. Even that light level of taxation would require some enforcement, and his spokeswoman has previously acknowledged that the senator thinks there would need to be "a small department that would enforce the tax code.”

So, why bother with all this talk of abolishing the IRS altogether, if we'd need some government agency to do the exact same thing? It goes back to the conservative trope that President Obama has "weaponized" the IRS—remember the scandal over how it allegedly targeted Tea Party groups for audits?—and the only solution now is to tear out the whole bureaucracy, root and branch. “The last two years have fundamentally changed the dynamics of this debate [on the tax code],” Cruz said at a Heritage Foundation speech in January, “as we have seen the weaponization of the IRS, as we have seen the Obama administration using the IRS in a partisan manner to punish its political enemies.”

But enough tax talk. We look forward to hearing Cruz's plan for negotiating a Ukrainian peace deal through a game of Duck Duck Goose.*

*Correction, March 23, 2015: This post originally misspelled Ukrainian.

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March 23 2015 10:27 AM

Starbucks Won’t Try to Make You Talk About Race Today

Starbucks' amusingly ill-conceived plan to bridge America's racial divide through the power of stilted conversation has come to an end. Last week, CEO Howard Schultz released a message urging the company's baristas to start writing the words "Race Together" on customers' cups and possibly strike up chats with them about racial inequality in the United States. The idea was appropriately panned, because nobody (including people who are paid to crank out espresso at lightning speed) wants to talk with a stranger about the gross discrimination faced by America's black and Latino communities during the morning coffee rush.

Anyway, in a companywide memo Sunday, Schultz told his employees that they could put their sharpies away:

After a historic Annual Shareholders Meeting that focused on diversity and inequality, and an initial push for much-needed national discussion around these difficult topics, it is time for us to take stock of where we are, what we have learned from our efforts so far, and what is next.  
This phase of the effort—writing "Race Together" (or placing stickers) on cups, which was always just the catalyst for a much broader and longer term conversation—will be completed as originally planned today, March 22.

Sure. Had nothing to do with the tsunami of mockery. Nothing at all. Anyway, Schultz says there will be other #RaceTogether initiatives, but none will apparently involve buttonholing customers for a heart-to-heart discussion about inequities in criminal sentencing, or whatnot.  

So it's now safe to order your latte again. But in the meantime, a quick lesson. While looking at Schultz's memo, I noticed something interesting. Apparently the company has a plan to hire 10,000 so-called opportunity youth—teens and young adults who aren't in the workforce or enrolled in school—over the next three years. Which is, you know, very cool of Starbucks. More companies need to employ and train kids looking for their first foothold in the workforce. If the chain had decided to make more noise about that issue, rather than diving haphazardly into racial politics because Schultz decided to watch a little too much MSNBC, people would react a bit more positively. Progressive hiring practices are much more laudable than weird PR campaigns that have nothing to do with coffee.

March 20 2015 4:39 PM

Burger King Is Letting a Chicken Choose Where Its Friends Will Be Eaten, and That’s Kind of Screwed Up

Meet Gloria the chicken. Gloria is 3 years old. Gloria is from California. Gloria has her own hashtag. Gloria has always “aspired to take the spotlight.” And now she’s getting it because Gloria is being carted around the country by Burger King as part of a marketing stunt in which she is repeatedly asked to decide whether the people of that town will be able to devour her feathered friends, in the form of chicken fries, for a limited time off the Burger King menu.

Yes, the latest fast-food stunt is letting the food itself make the tough choices. Burger King last sold its popular chicken fries in summer 2014 and, since then, executives have “agonized over the decision of whether or not to bring them back,” a release explains. So they decided not to decide, and to let a chicken “randomly” make the selections instead. (After all, you can’t blame the company for skipping your town if it was up to a chicken!)

This week, Gloria made the first four stops on her nationwide tour. Four times, she was placed between two yellow feed bowls—one bearing the word yes, the other no—outside a local Burger King. And each time she was live-streamed so that you, Internet user, could watch where she would peck.

We can all agree this stunt is absurd. But it's also kind of messed up, right? At the very least, it's not exactly tactful. Burger King says the tour is traveling with a big batch of chicken fries so that restaurants Gloria chooses “yes” for can instantly have the item added to their menus. (If you’re keeping track: Gloria pecked “yes” in Atlanta and Colmar Manor, Maryland, and “no” in Bayonne, New Jersey, and Henderson, North Carolina. Orlando, Florida, is up next.) So basically, Burger King is sending a live chicken on tour with a bunch of dead chickens all because the company’s execs couldn’t make up their minds, or thought this would be cute, or something like that.

There is only one reasonable takeaway: Fast-food companies are really bad at doing cute. As you may recall from McDonald’s semi-disastrous “Pay With Lovin’ ” promotion in February, being asked to hug a companion in order to get a Big Mac was pretty awkward. But that’s nothing compared with sending your own species to the deep fryer. We feel for you, Gloria.

March 19 2015 6:20 PM

The Company Behind the Super Bowl’s Sleaziest Ads Thinks It’s Worth $2.7 Billion

GoDaddy, the Web-hosting company known for risqué and often shocking Super Bowl commercials, thinks it could be worth up to $2.72 billion. Yes, that GoDaddy, the one that had supermodel Bar Refaeli stage a prolonged kiss with a generic awkward nerd in 2013, and the one that angered animal-rights activists this year by having a homeowner unceremoniously ship off her puppy. The company said in an amended initial public offering filing on Thursday that it plans to sell shares for between $17 and $19. That range would allow GoDaddy to raise up to $418 million from investors.

The road toward an IPO has been a long one for GoDaddy. The company first sought to go public almost a decade ago, but in August 2006 pulled those plans amid a shaky market. (At the time that GoDaddy backed out, 37 companies had nixed their IPOs for the year, putting 2006 on track for the most IPO cancellations since the dot-com collapse in 2001.) But in June 2014 GoDaddy decided to make another attempt and filed its Form S-1. Once again, its timing wasn't ideal. That summer saw cloud storage company Box repeatedly push back its own IPO plans as the tech sector wavered. But this January the market perked up, and Box and its fabulously coiffed CEO finally had their long-awaited debut. Now GoDaddy might be ready for the same.

In preparing to become GDDY on the New York Stock Exchange, GoDaddy has made what seems like a sincere effort to grow up. The videos of its most infamous ad spots—including the Bar Refaeli one—can no longer be found on the company's YouTube page. This year’s puppy-filled spoof of a Budweiser ad may not have pleased everyone, but it certainly beat the company's usual scantily-dressed-women shtick. Even the company’s amended IPO documents have aimed to demonstrate maturity. Filings from last August showed revenue growth in GoDaddy’s newer Web-hosting service and business applications outpacing that of its older domain registrar operation. In November, an amended filing pointed to increasing year-over-year revenue for GoDaddy and a shrinking net loss.

That said, GoDaddy still isn’t profitable. But hitting the market with “negative earnings” is increasingly (if concerningly) the norm for companies these days. And perhaps most importantly, GoDaddy hasn’t set an IPO date yet. So it has some time to keep working on its finances—and its image—before handing the reins over to investors.

March 19 2015 3:10 PM

Are We All Worrying Too Much About the Fall of Working-Class Men?

Conventional wisdom says that working-class men have less earning power today than they did in the 1960s and 1970s. You’ve read the story plenty of times. Factory jobs were replaced by poorly paid service sector work, leading to a somewhat steady decline of wages for the bottom half of male earners.

This narrative is a key part of how liberals tend to explain the dissolution of two-parent families over the past half-century. As men lost the ability to fill their old roles as breadwinners, traditional family structures disintegrated. Financial strains kept young couples from marrying, but not from having children, and women—who were entering the workforce and earning more—became wary about wedding fathers who seemed unable to deliver steady paychecks. Thus, the theory goes, we got the dramatic rise of single-motherhood.

Some conservatives say that this tale is basically a fiction, and this week, as writers have been debating the sources of social decay in blue-collar America, both the Manhattan Institute’s Scott Winship and the New York Times’ Ross Douthat have raised some statistical objections to it. If you look reallllly carefully at the data, they argue, men’s incomes have not in fact declined by much, but instead are more or less flat over time. Aside from arguing about how to appropriately adjust income figures for inflation, they note that more low-income workers today are Hispanic than in the middle of the 20th century. And even if they don’t make much, some of those men are, in fact, far better off than their immigrant fathers. For non-Hispanic men, meanwhile, “the experience of the last four decades looks much more like stability than loss,” Douthat puts it.

I might not use the word stability. Winship was kind enough to send me his data series, which I used to produce the graph below. In his post, he notes that if you "compare 1969 to 2007, earnings at the 25th percentile among non-Hispanic men rose 7 percent." While that may be true, his comparison masks the fact that the 1970s and 1980s were a time of relative economic turmoil for that slice of workers. Their annual pay fell 29 percent from 1973 to 1982. It recovered a bit during the later Reagan years, only to plunge once again. They've been up and down with the business cycle since.  


Jordan Weissmann

Why focus on the roller coaster of the 1970s, '80s, and early '90s? Because, according to the Census Bureau, that's when the biggest shifts in American family structure took place, especially for white and black families.

If you reach up the income ladder, things look a little more placid, at least by Winship's account. According to his favored measure (in green), median male earnings are up since 1979. But, as you can see, that result changes depending on precisely who is counted, and how you measure for the rising cost of living.


Scott Winship

The main point, regardless, is that by Winship's own analysis, the past 40 years or so have been an incredibly rocky time for at least a quarter of non-Hispanic American males. And it was arguably rockiest at the moment in history when two-parent families were unwinding fastest.

This isn't to say that the economy, and growing inequality, are the only reasons family structure has changed in this country. As I wrote earlier this week, our cultural mores regarding sex, marriage, and parenthood are almost certainly a causal factor as well. So is the war on drugs, which incarcerated so many fathers. The fact that female pay has been rising this whole time has almost certainly contributed as well; now that they can rely on their own income, women are probably a lot less willing to settle down with a not-so-great guy with a menial job than they were in 1973. In the end, it simply isn't easy to separate all of this stuff. It's all inter-related and has created feedback loops that probably did more to break down the ideal of the two-parent family than any one of these changes would have on its own.  

But the claim that working-class men have been doing basically OK this whole time isn't just counterintuitive; it's simply not true. And you can't simply write their troubles out of this story.

March 19 2015 1:16 PM

Target Finally Agrees to Pay Up for Its Massive Data Breach

The 40 million-odd victims of the great Target data breach of 2013 may finally get some compensation for their troubles. Target has agreed to pay $10 million to establish a fund for victims of the data breach, according to a 97-page settlement reached in a class-action lawsuit. Those looking to collect will need to fill out a claim form that asks, among other things, whether they used a credit or debit card at a Target in the U.S. between Nov. 27, 2013, and Dec. 18, 2013, and whether they have reason to believe that their information was compromised as a result of doing so.

In addition to outlining monetary relief, the settlement also instructs Target to designate a chief information security officer (it already has), maintain a “written information security program” that it monitors and evaluates with metrics, establish a process for responding to security risks, and create a formal program to train Target employees on data security. “We are pleased to see the process moving forward and look forward to its resolution,” Target spokeswoman Molly Snyder told Reuters.

Victims of the breach will be eligible for up to $10,000 in compensation each. Losses covered by the claim form include unauthorized/unreimbursed charges, fees for hiring someone to correct a credit report, various late and declined payment fees, and similarly various costs for monitoring accounts or replacing important documents in the wake of the breach. For each type of loss, victims can also file for up to two hours of “lost time” (billable at $10 per hour). The key point seems to be that claimants must submit “reasonable documentation that the claimed losses were actually incurred and more likely than not arose from the Intrusion.” Hopefully, those 40 million people were keeping good records.

March 18 2015 7:40 PM

Target Employees Are Getting Raises. They Can Give Walmart Partial Thanks.

Target plans to raise the minimum wage it pays employees to $9 an hour starting next month, Bloomberg reports, citing a source “with knowledge of the matter.” The decision, if true, would make Target the latest addition to a list of big retailers that have upped their worker pay in recent months. Walmart, Gap, Ikea, and TJX, the parent of T.J. Maxx and Marshalls, have also made similar changes.

Walmart’s mid-February announcement that it would raise its hourly minimum to $9 for full-time workers was likely the most important factor in tipping Target’s scale. But across retail, prospects for workers are looking up. The industry’s “quit rate”—a measure of how many people quit their jobs in a given month—is rising. When that number climbs, it’s usually interpreted as meaning that workers are both more willing and more able to leave their jobs, presumably because they think they can find better or higher-paying work elsewhere. That, in turn, can prompt companies to raise wages in order to retain staff.

Looking at the economy more broadly, the jobs market has been enjoying a healthy growth streak and may finally be getting tighter. That said, while the assumption is that at some point wage growth will start picking up as well, so far this hasn’t really happened. In a sign of the mixed economic messages we’re getting, the Federal Reserve’s policymaking committee earlier today dropped the word “patient” from its statements about monetary policy but remained cautious about the possibility of raising interest rates for the first time since the recession. “Just because we removed the word patient from the statement doesn’t mean we’re going to be impatient,” Fed Chair Janet Yellen said at a conference following the statement’s release.

It’s probably too soon to look at the wage increases retailers are announcing and say whether that momentum will carry over to the rest of the labor market. Nevertheless, it’s good news for the workers in that industry. And considering how Target just laid off 1,700 employees at its headquarters in Minneapolis, it’s nice to think that at least some of those savings might be going back to its lowest-paid employees.

March 18 2015 5:52 PM

If You Live in Seattle or Work in the Empire State Building, Starbucks Delivery Is Coming

The on-demand economy already has cars and takeout and cars combined with takeout. Now it’s about to get a jolt of caffeine. Starbucks said Wednesday that it will begin testing a new delivery service in Seattle and at the Empire State Building in Manhattan in the second half of 2015.

The on-demand service in Seattle will be facilitated by delivery company Postmates, and a key factor will be fleetness. But can Postmates really deliver coffees (or lattes, or venti mocha cookie frappuccinos) so fast that they’re still hot on arrival? “Speed is the number one thing,” Postmates CEO Bastian Lehmann told Re/code. “We’re actually working with Starbucks on trying to figure out what the best delivery containers are. Is there a packaging that we can develop together? Is there a cup that’s a better to-go cup?”

Starbucks is likely counting on the strength of its mobile app to support orders on the new delivery platform. Back in November, Starbucks revealed during an earnings call that 16 percent of its transactions in the U.S. were done over mobile—about 7 million payments per week—and that the number of mobile payments was growing by nearly 50 percent each year. Linking delivery to that mobile platform should yield a ready-made audience. At least in Seattle, the service will also probably benefit from the fact that Seattle at one point had more Starbucks per capita than any other major U.S. city.

At the Empire State Building, Starbucks’ “green apron” service will work a little differently—an employee of the Starbucks already located in that building will bring the order directly to the office. Both types of deliveries will carry some kind of fee that hasn’t yet been disclosed. “The truth is we’re not sure exactly how it will play out,” Adam Brotman, Starbucks’ chief digital officer told Re/code. “Is one the national approach and one for dense urban environments only? We are truly in learning mode right now but we’re excited about them both.”

As Brotman said, the two services are fundamentally different, so it’s hard to know how they’ll pan out. Putting aside Seattle, it’s kind of mind-boggling that there are professionals in the Empire State Building who would rather pay to have their coffee delivered than take an elevator to the Starbucks conveniently located inside the building, wait in line for a bit, and bring said coffee back to their office. Or that the kind of people willing to pay a premium for coffee delivery wouldn’t already have office minions to run the errand for them.

March 18 2015 12:44 PM

Germany Partly Banned Uber. Yes, Again.

When it comes to car-hailing apps, Germany appears to be a little confused. On Wednesday, a regional court imposed a nationwide ban on UberPOP, a peer-to-peer service similar to UberX that Uber offers in European cities, and said that violations could incur fines of 250,000 euros ($264,825). If this sounds familiar, it’s because Germany did something very similar back in September, when a court in Frankfurt ruled that Uber was competing unfairly with local taxis and barred it from operating in the country. That ban ended up lasting all of two weeks.

Wednesday’s decision will not affect Uber Black and Uber Taxi, two other tiers of service that Uber operates in Germany, the company told Reuters in a statement. Uber is also reportedly working on a “new alternative ridesharing service” that would be legal according to the courts. Taxi Deutschland, the German taxi group behind the suit against Uber, had essentially argued that Uber was cutting corners by facilitating transport between passengers and drivers without the proper licensing. Uber, for its part, has maintained that it should not be governed by the same rules as traditional taxi companies because it's merely a platform linking drivers to riders.

Uber has sparred with governments and the traditional taxi industry just about everywhere it operates, but the fights have been especially heated in Europe. Uber has faced bans in Belgium, Germany, Spain, France, and now Germany again. Last summer, major cities across Europe came to a standstill as tens of thousands of taxi drivers filled the streets to protest Uber’s services. Just this week, French police raided Uber’s Paris headquarters for six hours—seizing smartphones, emails, and documents—as part of an investigation into UberPOP. Uber condemned the raid as an “attempt at intimidation.”

So far, Uber’s default approach has basically been to keep operating, regulators be damned, until popular support for its services forces authorities to change their minds. That’s what it did after Germany imposed a ban the last time, and in the end Uber came out on top. As of today, UberPOP is still operating in Germany and may be able to do so for several weeks as it awaits a final ruling from the regional court. The company says it plans to appeal the decision, which an Uber representative called a “fundamental infringement, in particular of our right under European law to establish and provide a service.”

*Correction, March 19, 2015: The headline of this post originally misstated that Germany had banned all Uber services. The court has only banned UberPOP, a peer-to-peer service that Uber offers.

March 17 2015 7:59 PM

Facebook Messenger Is Rolling Out Mobile Payments. Venmo Should Be Scared.

There are lots of mobile payments apps out there, but none has won over teens and twentysomethings quite as fast as Venmo. In the fourth quarter of 2014, Venmo processed $906 million in payments—29 percent more than it did in the same period a year earlier. Venmo is smooth, simple, and most importantly social. You might join Venmo because you need its service, or you might sign up because all your friends already did and you’re experiencing some serious money-transfer FOMO.

So if another company with major social clout and an enormous user base decided to get into the mobile-payments business, that would be very bad news for Venmo. Especially if that company happened to be Facebook.

On Tuesday, that finally happened when Facebook began rolling out a long-rumored payments feature to its Messenger app. From the looks of it, Facebook is going for the same simplicity that’s made Venmo a success. To send money, users compose a message to a friend, tap a “$” icon, enter the amount they want to send, and then tap “pay” and fill in their debit-card information. To complete the transfer, the friend on the other end simply opens the message and fills in her debit card number. According to Facebook, the money moves right away, though it might take your bank one to three business days to make the funds available.

The goal of the new feature, Facebook product manager Steve Davis explained to Re/code, is to keep Facebook users in the Messenger app rather than having them go elsewhere to finish discussing a transaction. “We realized that there were all these conversations that were forced to go somewhere else in order to actually finish,” he said. “You had to go to another platform to actually pay another person.”

Notably, Facebook’s announcement emphasizes the new service’s security features. The company says it encrypts the connection between its users and Facebook, and uses “layers of software and hardware protection that meet the highest industry standards.” Anti-fraud specialists will monitor accounts for suspicious activity. Users can also add a personal identification number or multifactor authentication to their accounts for increased protection. Last month, an article in Slate documented several apparent security flaws in Venmo, including the absence of multifactor authentication and the fact that users weren’t notified of changes to their email and password credentials. Venmo has since updated its security features to address those problems.

According to Re/code, Facebook’s entire payments system was built in-house. (David Marcus, the head of Facebook Messenger, was formerly the president of PayPal, which absorbed Venmo in 2013.) In contrast Snapcash, a payments system Snapchat introduced last November, was a collaboration between the popular messaging app and payments company Square. Messenger also isn’t Facebook’s first foray into handling money—for years it has allowed users to purchase games or gifts through its platform.

That said, this is Facebook’s first attempt to truly facilitate peer-to-peer transactions, and it could be huge. Venmo doesn’t publicize its user numbers, but as of November 2014 Facebook said it had 500 million users on Messenger. To become a formidable mobile-payments competitor, Facebook needs only a fraction of those people to start sending money. Venmo, watch out.