A blog about business and economics.

Feb. 3 2016 6:29 PM

A Newswire Enforced a Noncompete Agreement Against a Young Journalist. That’s Outrageous.

In theory, noncompete clauses are intended to prevent employees with access to trade secrets from taking proprietary information with them to a firm’s competitor. But in recent years, these instruments have sprouted up in some of the most unlikely fields. In 2014, the Huffington Post discovered that sandwich chain Jimmy John’s was making low-level employees agree not to work for competitors for two years after leaving the company. Similar contracts have been found in Amazon warehouses, summer camps, salons, and doggy-daycare facilities. And now, the Wall Street Journal reports, legal newswire Law360 is attempting to enforce a noncompete agreement against at least one very unlucky journalist.

According to the Journal, reporter Stephanie Russell-Kraft left Law360 for a job at Reuters—only to find out weeks later that Law360 had notified Reuters of her noncompete clause. Reuters then fired Russell-Kraft for not disclosing the agreement—which prevented her for working in legal news for one year after leaving Law360—when she applied for the job. Russell-Kraft, who’d signed the agreement two years earlier, says she forgot about it—and now that she’s been unpleasantly reminded, she’s found that other publications are hesitant to hire her.

Feb. 3 2016 4:42 PM

No, Amazon Isn’t Crazy to Open Brick-and-Mortar Bookstores

The Wall Street Journal headline sounds like a joke: “Amazon Plans Hundreds of Brick-and-Mortar Bookstores, Mall CEO Says.” That mall CEO, the WSJ reports, claims that the online retailer will open hundreds of physical stores—“as I understand, 300 to 400”—to go along with its single physical location in Seattle. The irony is too delicious to ignore: Amazon, the company that helped destroy countless bookstores, independent and corporate alike, may be wandering into the realm of brick and mortar. But why would it want to? Is this for real?

As the New York Times explains, there may be some kernel of truth here, even if the company’s unlikely to roll out quite so many physical locations. Amazon itself has declined to comment on the matter, and that mall CEO—Sandeep Mathrani, the head of a company called General Growth Properties—hasn’t expanded on the remarks he made on an earnings call earlier this week. There’s reason to believe that there’s something to Mathrani’s remarks, though, because such a move from Amazon would make a surprising amount of sense.

Bookstores aren't quite thriving these days, but they're not in a state of steady decline either. Data from the American Booksellers Association indicates that retail store sales were generally up last year, if only slightly. That steady state may have been enough to capture Amazon's interest, especially given the other possible advantages: Generally speaking, we assume that retailers save money by minimizing their physical presence. As the Wall Street Journal points out, however, opening up more physical stores can help to lower delivery costs. In this regard, these hypothetical Amazon stores wouldn’t just serve to open up new profit channels; they also might help to improve old ones. Matthew Yglesias likewise proposes that Amazon might be looking to streamline its infrastructure, using retail locations to improve on same-day delivery and other benefits of its Prime service.

In this regard, the e-commerce behemoth may actually be learning from smaller online retailers. Companies, such as Warby Parker, which were formerly online-only properties, have increasingly begun to open retail locations. In some cases, these moves may be effectively promotional, a kind of advertising for the brands that has the bonus of allowing them to move inventory. But in many cases, real-world stores help retailers meet customer needs that are difficult to satisfy online and allow them to engage with customers more personally.

Human fallibility is a factor here too. Retail stores encourage customers to try out items that they might otherwise refrain from purchasing, since physical locations make it easier to return an item that disappoints. This was apparently a key factor for Saks Fifth Avenue parent Hudson’s Bay Co. when it purchased online flash sale site Gilt Groupe earlier this year. Some analysts have suggested that’s a consideration in Amazon’s possible brick-and-mortar move as well. As the Wall Street Journal suggests, customers may be more willing to take a chance on an impulse purchase in a physical store—all the more so if they know they can easily renege on their purchase later. In this regard, it’s likely no accident that Mathrani first floated the Amazon rumor in the context of discussing increased mall foot traffic from customers returning unwanted online purchases.

Returns may be less pressing for booksellers than they are for other merchants, but that doesn’t mean physical stores don’t offer other advantages over a website: Whether or not it’s Amazon’s true intent, the company’s  stores—should it ever open them—may work best if they're pleasant places to be, contributing to collective pleasure instead of simply assuaging personal regret. For most of us, reading is a fundamentally solitary act: To take up a book is typically to embrace silence. Nevertheless, bookstores as such may be at their best when they move beyond algorithmic personalization, looking to the interests of entire communities, much as Waterstones has in the U.K. Amazon’s done a terrific job of targeting us in our individuality, selling us on products that appeal specifically to our tastes. With its still hypothetical brick-and-mortar stores, it may have the opportunity to let us expand our palates.

Regardless of what it’s up to, it’s clear that Amazon has money to burn, even if that means making things even more uncomfortable for Barnes and Noble in the meantime. In fact, that might be exactly its intention.

Feb. 3 2016 12:24 PM

St. Louis Doesn’t Have an NFL Team Anymore, but It Still Has to Pay for One

Now that the Rams are moving to Los Angeles, the city of St. Louis no longer has a (generally mediocre) NFL franchise to call its own. It is, however, still stuck paying off the bonds used to finance the team's old home, the Edward Jones Dome. Reuters reports Wednesday that the stadium is still "saddled with about $144 million in debt and maintenance costs.” Without the Rams around to chip in, covering that bill is about to get more expensive for residents, who will no longer enjoy the collateral benefit of watching their home team stumble toward a sub-.500 record year after year. From Reuters:

Taxpayers will now shoulder the remaining payments for the Edward Jones Dome with only the help of revenue from tractor pulls, volleyball tournaments, concerts and the like.
St. Louis Board of Aldermen President Lewis Reed has asked the NFL to help pay off the stadium, but so far has gotten no response.
“The fans are being left holding the bag,” Reed said. “I think they should factor that into the total cost of the move."

Right. Roger Goodell would surely sooner feed his first-born to a tank of pirahnas.

Thankfully, the city of St. Louis, with its population of about 317,000 and recently downgraded credit rating, isn't responsible for the full cost off the entire debt. According to the local Fox News affiliate, the city contributes about $6 million per year toward the stadium's bond payments, while St. Louis County pays another $6 million and the state of Missouri covers another $12 million. Taxpayers still owe $129 million on the bonds alone, which are scheduled to pay off in 2021. Previously, the Rams paid $500,000 per year to use the facility.

All of this is another object lesson in the hideous economics of professional sports stadiums—which are, according to pretty much every credible expert, a waste of public money. When teams lobby for a government-subsidized facility, they regularly hire consultants to produce optimistic reports claiming the new stadium or arena will become an anchor for future economic development as new businesses sprout around it. This is basically a fiction: Fans tend to spend on sports tickets in place of other entertainment, so a football team's gain is the local movie theater's loss. Meanwhile, the team's profits go disproportionately to owners and players who often live out of town, thus funneling money out of the local economy. But beyond all that, those sunny predictions about costs and benefits never take into account the possibility that the team will simply peace out of town before the city is done paying down the cost of their field, leaving behind an enormous white elephant that will likely need to be demolished, since any new professional sports franchise in town will inevitably demand its own new stadium. Likewise, those reports don't factor in the likelihood that teams will use the threat of leaving to demand publicly financed upgrades in the future.

Anyway, poor St. Louis. The NFL is a vampire. So it goes.

*Correction, Feb. 3, 2016: This post originally stated that taxpayers still owed $129 billion on the bonds, which is obviously implausible. Thankfully, that $144 million figure cited in the first paragraph was right all along.

Feb. 1 2016 6:42 PM

Wish the U.S. Were More Like Denmark? This Graph Shows We’ve Got a Long Way to Go.

Maybe it's just because the Iowa caucuses are upon us, but I couldn't help but think about Bernie Sanders when I saw this graph. Based on LIS data, it comes from a new report by Stanford professor Karen Jusko that tries to quantify just how stingy America's social safety net is compared with those of other economically advanced nations. Each bar shows what countries spent on various welfare programs as a percentage of what it would have taken to raise all their citizens' income to 150 percent of the U.S. poverty line in 2011—or about $33,000. The United States laid out about half of what would have been necessary to accomplish that feat. Denmark, which Sanders famously suggested the United States should look to as a model, spent about 75 percent of what was necessary.

What does that mean in terms of actual poverty reduction? Another chapter in the Stanford Center on Poverty and Inequality's State of the Union report offers some revealing numbers. Based on market incomes alone, Denmark's poverty rate was actually slightly higher than ours in 2010, when the LIS data were gathered—but once you take taxes and government social spending into account, theirs falls to 3.2 percent, whereas ours sits almost three times higher at 9.2 percent. It's a long road from here to Scandinavia.

In some ways, Americans may be worse off than these numbers suggest, as they don't include government funding for health care. Washington, of course, spends lots of money on programs like Medicare and Medicaid. But unlike its industrialized peers, the U.S. still doesn't have universal coverage.

In other ways, the U.S. does better at poverty relief than the chart lets on. With all of its social spending, Greece could theoretically have raised more of its citizens above the 150-percent-of-poverty mark in 2010 than the United States. But because its welfare programs do a worse job specifically targeting the poor, Jusko explained to me, more of its population still ends up in need.1

Still, poverty fighting isn't really Americans' forte. “The big takeaway,” Jusko told me, “is that even though there are countries with similar rates of market-income inequality and market-income poverty, the U.S. does an especially poor job of redistributing.”

1Also, if these numbers were updated for 2016, I'm sure depression-racked Greece and Spain would look far more dire.

Feb. 1 2016 2:53 PM

Chipotle’s E. Coli Crisis Is Officially Over. We Still Have No Idea What Caused It.  

Burrito lovers, you can leave home again: The two E. coli outbreaks that plagued Chipotle Mexican Grill starting in October are finally over, according to the Centers for Disease Control and Prevention. The CDC has just closed the book on its investigation into the two outbreaks, which sickened at least 60 people nationwide—55 in the initial outbreak, and five in the second, smaller one—it announced on its website Monday. The dangers now “appear to be over,” reads the report. How comforting.

The bad news? Although the CDC rigorously tested Chipotle’s menu items, reviewed its records, and interviewed dozens of nauseated customers, the source of the sicknesses remains a mystery. The CDC “was unable to identify a single food item or ingredient that could explain either outbreak,” it admitted on its website. (Investigators did say that the two outbreaks likely shared the same culprit, so that’s something.) Something to discuss during the mandatory and much-needed shutdown day the chain has instituted for Feb. 8, perhaps?

All told, the beleaguered chain has borne six significant outbreaks in the past six months, including bouts of norovirus, E. coli, and salmonella. Some of the main changes Chipotle has implemented in response “include moving the chopping of tomatoes and lettuce to a centralized location, and blanching onions to kill germs before they're chopped,” reports CNBC. That’s good, because the ingredients most likely to cause foodborne illness are fresh produce, as I explained last month. In the only outbreak with a known culprit—an outbreak of salmonella that spanned 22 stores in Minnesota—the sicknesses were traced back to contaminated tomatoes.

So how is Chipotle faring now? Well, it’s definitely getting pummeled with lawsuits; at least nine people have sued so far, and plenty more are pending, reports the Chicago Tribune. But it’s also doing a little dance, ‘cause stocks are up 4 percent Monday! Big-burrito high five.

While some burrito lovers have fled to other chains, one group has remained by Chipotle’s side throughout the debacle: the youth. "Young adults represent the largest share of Chipotle's overall traffic," as Bonnie Riggs, a restaurant industry analyst for the NPD Group, which tracks consumer awareness about food safety outbreaks, tells CNBC. "Their willingness to overlook any food safety concerns to eat at Chipotle could be a result of unabashed loyalty or lack of awareness." Or, I’ll hazard, an extreme aversion to traveling more than 0.1 miles from their college campus.

To paraphrase a memorable Washington Post article on the devoted cult of Chipotle: A little vom can’t stop the nom.

Jan. 29 2016 2:05 PM

How Iowa Businesses Cash In on the Caucuses

This post originally appeared on Inc.

Every four years, presidential hopefuls from around the country descend on the state of Iowa

Jan. 28 2016 11:44 PM

Ted Cruz to the Sick: Drop Dead

Pressed on how exactly he planned to replace Obamacare during Thursday’s Republican debate, Ted Cruz offered a subtly callous answer that suggested he had no plans to guarantee health coverage for Americans with pre-existing conditions.

“I realize everyone opposes Obamacare and you're not alone,” Fox News' Bret Baier began. “But today there are millions of people who gained health insurance from Obamacare and they now rely on it. So the question, Sen. Cruz, if you repeal Obamacare, as you say you will: Will you be fine if millions of those people don't have health insurance, and what is your specific plan for covering the uninsured?”

Here's how Cruz responded:

If I am elected president, we will repeal every word of Obamacare. Now, once that is done, everyone agrees we need health care reform. It should follow the principles of expanding competition, empowering patients, and keeping government from getting between us and our doctors. Three specific reforms that reflect those principles: No. 1, we should allow people to purchase health insurance across state lines. That'll create a true 50-state national marketplace while will drive down the cost of low-cost catastropic health insurance. No. 2, we should expand health savings accounts so people can save in a tax-advantaged way for more routine health care needs. And No. 3, we should work to delink health insurance from employment, so if you lose your job, your health insurance goes with you, and it is personal, portable, and affordable, and I tell you, Bret I think that's a much more attractive vision for health care than the Washington-driven, top-down Obamacare that is causing so many millions to hurt.

Notice what's missing: Any mention whatsoever of how patients with pre-existing conditions, who were routinely denied coverage by insurance companies prior to health reform, would be taken care of. Obamacare, of course, dealt with this issue by requiring insurers to cover everybody, while also requiring that every adult buy insurance so healthy customers could subsidize older, sicker ones and balance out the markets. Standard conservative alternatives to Obamacare have gone a separate route, proposing heavily subsidized “high-risk pools,” which amount to special insurance plans for the sick.

In order to function properly, high-risk pools would theoretically require a substantial amount of government backing, which is perhaps why Cruz doesn't call for them. But he also didn't suggest anything in their place Thursday. Health savings accounts will help people cover basic checkups and some specialist visits. Letting people buy insurance across state lines might indeed make it easier for people to find plans offering basic catastrophic coverage (and not much else) at rock-bottom prices. Making insurance portable from your job would, well, make it portable. But there's zilch in those principles that applies to pre-existing conditions. It may be that Cruz simply expects that states will once again set up their own high-risk pools, as many did before the Affordable Care Act. But those plans were poorly used because of the threadbare and expensive coverage they offered. 

This isn't the first time Cruz has outlined his principles on health care this way. It's an oblique way of telling the sick to drop dead, and not much more.

Jan. 28 2016 4:40 PM

An Occasion to Weep About the Cost of Rent

The U.S. Census Bureau reports Thursday that the cost of renting a home continued to rise through the end of 2015, as vacancies remained low and home-ownership declined. The median asking rent for vacant units hit $850 in the fourth quarter, up from $799 a year earlier.

After adjusting for inflation, rents have now passed the peak they hit during the housing bubble. I’d guess we should expect more of the same as the historically high percentage of young adults living with their parents leaves the nest and crowds the market. That’s of course assuming we can avoid a recession long enough for them to all find financial stability. Happy Thursday!



Jan. 28 2016 3:21 PM

“Craft” Vodka Is on the Rise, Even Though It’s Basically a Silly Sham

The vodka business is a wonderful testament to the brute power of consumer marketing. By federal dictate, America's best-selling liquor is required to be a neutral spirit, “without distinctive character, aroma, taste, or color”—which is to say, flavorless alcohol that will slip unobtrusively into your Bloody Mary at brunch. And while aficionados might be able to pick out the typically subtle differences between brands when drinking it straight from a frosted shot glass or on the rocks, the nuances tend to be lost on tipplers who've doused their vodka with tonic water or cranberry juice. Thus, purveyors tend to spend a lot of energy thinking about things like advertising and elaborate bottles that at the extreme end can start looking like pieces of modern sculpture; one brand famously went so far as to commission starchitect Frank Gehry for a design.

Which is what makes the predicament faced by some of the industry's titans sort of amusing. Big vodka, Bloomberg reports, is dealing with its own version of the craft revolution that has troubled large beer brewers. Much like beer, total vodka sales have flat-lined in the United States as more drinkers embrace whiskey, and the top distillers—Smirnoff and Absolut, which together claim about one fifth of the $18 billion market—are losing ground to smaller rivals. In particular, they've been beset by Tito's Handmade Vodka, made by Fifth Generation in Texas, and New Amsterdam, produced by E&J Gallo Winery in California, whose combined sales passed Absolut's volume in 2014.

New Amsterdam doesn't sell itself as particularly artisanal. But Tito's does, with a label proudly proclaiming that it is "crafted in an old-fashioned pot-still by America's original microdistillery." Some buyers have been disappointed to find that this is more a description of the booze's roots than of its present-day production process. Tito's hit the market in 1997 when it was still a scrappy, small-scale operation, but by 2013 Forbes reported that it had grown into a "26-acre operation that produced 850,000 cases last year" in "massive buildings containing ten floor-to-ceiling stills and bottling 500 cases an hour." Angry (or opportunistic) drinkers later filed class-action suits claiming that the company had misled consumers with its packaging. A judge in one of the cases recently dismissed most, though not all, of the claims (whether the vodka can fairly be said to be "crafted in in old-fashioned pot-still" is still up for legal dispute), but the idea that Tito's is still a homespun upstart should be good and dead by now. Like most vodka makers, the suits allege, the company simply buys neutral grain spirits in bulk from a commercial manufacturer, then distills them again at its own high-tech facilities to finish the product.

The ironic thing about the Tito's controversy is that there isn't much reason to care about whether a Vodka is made in small batches or at Smirnoff-esque volume. With complicated spirits like bourbon or gin, the sensibilities of an individual distiller often make an enormous amount of difference in the product, and small-batch producers are free to experiment and crank out a truly unique product that might not be replicable (or marketable) on a mass scale. With something as indistinct as vodka, where consistency and price are basically the name of the game for most buyers, highly professional mass production may actually be a plus. 

Still, the rise of Tito's and other small distillers has inspired some piggy-backing by the big players (one is reminded of Bud Light's newly retro beer can). Absolut, for instance, changed its bottle for the first time since it hit shelves in 1979; it now informs shoppers that Absolut is “crafted in the village of Ahus, Sweden.” As if anybody should care.

Jan. 26 2016 1:44 PM

Could This Map Make Donald Trump President?

So far, the scenarios that professional pollsters have envisioned in which Donald Trump becomes president of the United States still seem a tad far-fetched. The flaxen-headed race-baiter may be the Republican primary favorite—betting market analyzer PredictWise gives him a 47 percent shot of winning, while runners-up Marco Rubio and Ted Cruz are stuck at 30 percent and 11 percent respectively—but clinching the White House would require such extraordinary political feats as somehow capping his losses among Hispanic voters after demagoguing on immigration for the better part of a year.

If Trump does have a path to victory, however, I'm guessing it can be found in the map below, which you should think of as a rough guide to which parts of the U.S. have lost the most to globalization in recent years.


David Autor, David Dorn, and Gordon Hanson

The image is from a recent paper by economists David Autor, David Dorn, and Gordon Hanson, and shows how badly different regions of the country were exposed to economic competition from China during its rise to manufacturing dominance (the darker the area, the more import competition local industry would have faced compared to other regions). As you might expect, some of the worst-hit pockets are dotted along Rust Belt blue states that a Republican nominee would very much like to pick off, like Michigan, Ohio, and Pennsylvania. Others can be found in electoral targets like Colorado, New Hampshire, and Virginia.

Trump has, of course, campaigned hard on the idea that he's the one man canny, tough, and independent enough to reverse the ravages of globalization and ... deep sigh ... make America great again. And while his stated positions on trade with China in particular aren't all that different from Mitt Romney's in 2012—like Romney, Trump's biggest promise is that he'd label China a currency manipulator—he's sold them a lot more compellingly. His hard-line immigration stance and protectionist rhetoric have already won over lots of alienated white voters in the primary. It's not completely outside the realm of imagination that he could do something similar in the general by targeting all those brown spots on the map, especially if he's facing off against Hillary Clinton, who has been squishy on trade herself, and whose husband helped give us NAFTA while normalizing trade relations with China. It's not clear any other leading Republican would be able to pull off a similar act—certainly not a free-trade advocate like Marco Rubio.

Which, in a way, might mean that at this point Trump really is the Republican party's best bet. By abandoning immigration reform and largely tolerating Trump's most vicious rhetoric, the GOP has practically bet that it can win the presidency by turning out mass numbers of the so-called missing white voters who stayed home during the 2012 campaign. That bloc is largely made up of less-educated Northern and rural whites and overall looks a lot like Ross Perot's old constituency, which thrilled to Perot’s anti-NAFTA message. Trump is, in many ways, echoing Perot's playbook, but posing as a sort of populist third-party candidate within the Republican fold (leave aside the fact that, again, his actual policy platform, insofar as he's described it, isn't all that populist). Could that actually win him the general election? I personally doubt it. But this election, what do the pundits know?