A blog about business and economics.

July 29 2014 12:36 PM

Should We Redesign the Entire Welfare State to Fix Chronic Poverty?

At Bloomberg View, Megan McArdle writes that my colleague Jamelle Bouie and I are off-base in our criticisms of Paul Ryan’s rather paternalistic anti-poverty proposal, which we both think is overly focused on addressing the needs of the chronically poor, even though most people who experience poverty escape it after a relatively short period of time.

Her point is generally about budget math. Most people might not linger in the safety net for long, she argues, but Washington likely spends most of its aid dollars on those who do. I’m oversimplifying a bit, but think of it as a reverse version of the 80/20 rule, which says 80 percent of a business’s profits will come from 20 percent of its customers. A few families in deep long-term poverty are most likely going to consume a disproportionate share of the government’s aid dollars.

So, mathematically, I think the argument being made by Bouie and Weissmann fails; it obviously makes a lot of sense to focus on the group that generates a disproportionate share of our entitlement spending. At the very least, we should consider the strong possibility that those struggling with chronic poverty might need very different kinds of help than those dealing with a temporary income problem – rather than suggesting, as Bouie does, that we should obviously focus on doing whatever is best for people having an acute poverty episode because they’re the majority.

McArdle admits that we don’t actually know what percentage of government aid goes to the chronically poor, but her assumption that they consume a lot of it is probably sound. But that doesn't amount to a defense of Ryan’s plan.

If your overriding policy goal is to shrink federal spending over time, then yes, drastically redesigning an enormous chunk of the safety net in order to (maybe) move a relatively small group of people who seem to be stuck in intractable poverty toward work might make sense. Ryan’s plan would crunch up to 11 different programs into one, then require each beneficiary to meet with caseworkers and sign a contractually enforced life plan outlining how he’s going to get a job and get off the dole. It’s a radical re-envisioning of how the U.S. welfare state should work, and the only way to really justify it is if you think our current approach to poverty is so ineffective and expensive that we ought to scrap it and start from scratch.

But if your policy goal is, instead, simply to design a safety net that works for most Americans who come into contact with it, and cost isn’t your No. 1 worry, then burning down and replacing the one we have is just rash.

Nobody thinks the U.S. welfare state is perfect. Pieces of Ryan’s big idea might even improve it. Would it be nice if poor Americans could go to a single office for all their benefits? Absolutely. Could funding caseworkers tasked specifically with helping the chronically poor be useful? Sure. However, the majority of poor people aren't in dire need of adult supervision. To completely redesign programs that already work well (such as food stamps), while forcing every single person who needs a hand through a rough patch to submit to a new and intrusive bureaucratic regime, is simply overkill. Doing so might not even move many people out of poverty and could have any number of unintended consequences. (Would anybody be shocked if having to sign a life contract scared off some poor parents from trying to get benefits that they really needed?) Looking for specific places where the safety net is weak, and then fixing it in a targeted way, is the more responsible choice.

Ryan’s defenders, including McArdle, point out that he only wants a pilot program so that a few states can experiment with his approach. But remember, these aren’t lab experiments. We’re talking about lives and livelihoods. We ought to be careful with them.

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July 28 2014 5:54 PM

Grover Norquist Is Going to Burning Man

Now, some people might look at that tweet and conclude that Burning Man is officially dead. But really, Burning Man has been dead for a while, at least if you use the presence of middle-aged corporate types as your measure of mortality. Google's Eric Schmidt was there all the way back in 2007. And it makes a certain kind of sense that the founder of Americans for Tax Reform would make a pilgrimage out to the desert. He's a libertarian anti-tax crusader. Burning Man is a libertarian utopia. Why wouldn't he want to see some of his ideals in action?

Anyway, at this point there's no indication on his Twitter feed that Norquist is kidding. So if anybody finds him emulating a Sparkle Pony, dropping by the orgy tent, or done up like this guy, please take a picture for us.

July 28 2014 5:23 PM

The New York Times’ Explanation for Why It Still Drug-Tests Employees Is Ridiculous

Over the weekend, the New York Times editorial board came out in favor of full-on federal marijuana legalization, and as you can see above, it promised to take reader questions this afternoon at 4:20 p.m. (The paper of record is apparently also pro–stoner humor.)

In any event, I doubt readers will come up with a more interesting question than Huffington Post media reporter Michael Calderone, who over the weekend asked why, exactly, the New York Times Co. still drug-tests its new employees, especially if the editorial line is now officially pro-cannabis. While publisher Arthur Sulzberger Jr. might support the board’s position, a spokeswoman told Calderone the company wasn’t changing anything about its drug-testing regimen. “Our corporate policy on this issue reflects current law,” she told Calderone. “We aren't going to get into details beyond that.”

What complete nonsense. Yes, marijuana is still an illegal drug. And yes, the business and editorial sides of a newspaper are technically separate. But as the Department of Labor makes crystal-clear, “The majority of employers across the United States are NOT required to drug test.” (The bold caps are the department’s formatting, by the way.) Unless the Times is secretly employing air traffic controllers, there’s nothing about “current law” that requires the Times to police its employees’ THC intake. If the paper is going to take a big moral stand, it seems like the company's policy should be consistent with it.

July 28 2014 5:19 PM

Did Cuts to Food Stamps Undo Family Dollar?

Two of America's biggest discount retailers merged into a 13,000-store chain on Monday when Dollar Tree said it was buying Family Dollar for some $8.5 billion. The deal is expected to help Dollar Tree better compete against companies like Walmart and Target, which have edged onto traditional dollar store turf with their huge inventories and low prices. What's less clear is whether the merger will help with a more fundamental problem: how to bring low-income shoppers back to stores.

In the years since the recession, dollar stores have been through a boom and bust of their own. For a few years, an influx of cash-strapped consumers buoyed revenue at discount stores. Dollar General, Dollar Tree, and Family Dollar saw annual sales surge by as much as 10 percent as shoppers turned to them for toiletries and groceries. As the number of Americans using food stamps soared from 26 million pre-recession to 48 million in 2013, a significant chunk of those dollars found their way to dollar stores. More than 40 percent of dollar store customers depend on some type of government aid, according to research firm Morningstar.

Then the boom slowed—and for Family Dollar, it busted. In April, Family Dollar chief executive Howard Levine announced that the chain would be cutting prices, closing "approximately 370 underperforming stores," and slowing new store openings as part of a comprehensive business review. When analysts asked about the impact of the government's $8.6 billion cut to food-stamp spending on the company's second-quarter earnings call, Levine demurred. "It's difficult to quantify, but I would certainly tell you that it's not a positive for our customers," he said.

By the third quarter, however, comparable store sales had declined 1.8 percent and Levine's tone changed. "It's still pretty tough out there," he told investors. "The low-end consumer has not benefited in this recovery at all. Unemployment trends remain high. The government cutbacks continue." Translation: Things aren't looking too good for our core consumer base, which means they aren't looking great for us either.

Some feel that Family Dollar suffered disproportionately from a decline in low-income consumer spending because of its two-tiered pricing strategy—offering steep discounts on some items to raise prices above a dollar or two on others. Dollar Tree, which has fared notably better, sells everything for a buck or less. For the immediate future, though, Dollar Tree plans to keep Family Dollar as a separate brand. With jobs reports and other economic data finally looking up, the wait-and-see attitude makes sense—maybe Dollar Tree purchased its faltering rival just as its prospects were bottoming out.

July 28 2014 4:16 PM

Why Your Uber Rating Shouldn’t Be a Secret

Just as Uber passengers rate their drivers, Uber’s drivers rate their passengers. This fact has been public for a while now—the company published a blog post explaining the policy back in April, titled “Feedback Is a Two-Way Street.” But plenty of customers aren’t aware that they are graded, in part because Uber’s app doesn’t show riders their score (which is on a one-to-five-star scale). To find out, you need to ask a driver or contact customer support.

For a short while last night, however, the digital curtain was torn away and Uber fans were given an easy way to see where they stacked up, thanks to a clever hack published by Aaron Landy on Medium. The trick blew up on Twitter, pockets of which began to seem like a high school hallway where everybody was comparing AP scores. Eventually, though, the company appeared to sweep in and disabled the hack.

Uber says it is “exploring” ways to make rider ratings public on the next version of its app. But up until now, the company’s squirreliness about the ratings seems bizarre. Keeping rider ratings semi-secret seems counterproductive if the goal is to promote good backseat manners—customers who have a low rating and don’t know it won't have the chance to mend their ways. Plus, allowing drivers to rate their passengers is just a fundamentally decent idea: Between road accidents and robberies, cabbies work in one of America’s most dangerous occupations, confronting all manner of weird, rude, and patently unhygienic behavior from riders day in and day out. Giving Uber drivers the option of avoiding fares with a history of aggressiveness or tactlessness might make the job a bit more humane. As one of my D.C.-based colleagues put it, “If I were a cabbie on U Street, and the person hailing me at 2 a.m. was someone with a history of puking in cabs, I would want to know.”  

Unlike drivers, though, who can be booted from Uber’s network if their score falls below a 4.5, it’s unclear that poorly reviewed riders suffer much in the way of consequences for their lack of etiquette. Here’s how New York’s Kevin Roose described it:

One Uber driver told me that although Uber doesn't normally take action against users with low ratings (though drivers can punish them simply by refusing to pick them up), a driver who rates a passenger lower than a 3 out of 5 stars will effectively trigger a "block" function that keeps that rider from appearing on the driver's app in the future. Drivers who are harassed, attacked, or otherwise harmed by riders can file complaints and, in extreme cases, get the offenders removed from Uber's system. But triggering real consequences requires drivers to take a stand—and few do.

Of course, this doesn't explain or excuse Uber’s lack of transparency when it comes to ratings. Perhaps the company is worried that customers will drop the app once they find out they’ve been stuck with a three-star rating, possibly for arbitrary reasons. (Cabbies can be jerks, too.) If that’s the case, though, Uber should reconsider the ratings in the first place. If a customer isn’t likely to get top-notch service from a company because of a number floating in the digital ether, he should know about it. Uber already occupies a space somewhere between a private business and public utility in the cities where it’s most successful. The larger it gets, and the more people come to rely on it, the more pressing these transparency issues become.

Which brings us to a particularly touchy issue: the potential for discrimination. Uber has fought hard to prove that its drivers don’t avoid pickups in low-income or minority neighborhoods. But if poor or black and Hispanic riders did—for whatever reason—receive systematically lower scores, and received worse service as a result, it would be a problem for the company and for any city that came to depend on Uber as part of its transportation infrastructure. I don’t know if there’s a foolproof way to insure against that possibility. And it ultimately may be a reason to worry about Uber displacing traditional cabs. But keeping ratings out in the open seems like a logical first step. At the very least, if riders began to suspect something was amiss, they could bring it to the attention of regulators.

Sunshine seems like the best policy here. And in case anybody is wondering if I’m writing this article out of a sense of personal grievance, let it be known that my Uber rating is a perfect 5.

July 25 2014 12:48 PM

Lyft Is Launching in New York City Tonight

Two weeks after regulators brought a screeching halt to Lyft's New York City launch, the ride-sharing service has reached an agreement with the attorney general's office to begin serving customers in all five of the city's boroughs. Starting at 7 p.m. this evening, you can expect to see Lyft's pink-mustachioed cars roaming the streets alongside New York's famous yellow cabs.

On its blog, Lyft is heralding the agreement as a victory for ride-sharing services and affordable transit. "This agreement is the first big step in finding a home for Lyft's peer-to-peer model in New York," the company writes. "Community-powered transportation—neighbors driving neighbors in their personal cars—ensures broader access to more affordable rides in places with limited transit options, like the outer boroughs of Brooklyn and Queens."

As great as that sounds, it's not really a coup for community transportation. A statement on the attorney general's website puts things more bluntly: "In the agreement entered into today, Lyft has agreed to operate in New York State in full compliance with existing laws and regulations. The company will launch in New York City with commercial drivers only and will operate in a manner that is consistent with existing laws and regulations." Beginning Aug. 1, Lyft will also cease its current operations in Buffalo and Rochester.

The deal that the AG's office has reached with Lyft sounds a lot like one it settled on with Uber, the competing ride-sharing platform. Unlike in other cities, where Uber tends to offer a commercial service and a more casual ride-sharing option, its New York operations are purely commercial (their drivers are commercially licensed and their cars commercially insured) to comply with regulation.

Lyft resisted going this route initially because, as co-founder John Zimmer told me recently, asking Lyft to become a commercial car service would be like asking Airbnb to become Hilton or telling eBay to open up a storefront. "That's just not what we do," he says. But for now, it looks like Lyft is willing to bite the regulatory bullet to expand its market into New York.

July 25 2014 12:23 PM

The Most Important Thing to Remember About Poverty: It’s Rarely Permanent

Paul Ryan, Republican action hero, finally unveiled his long-awaited anti-poverty plan yesterday. Ryan’s centerpiece proposal, which he calls “opportunity grants,” would require low-income Americans that wanted benefits to meet with case workers and craft “a customized life plan” to help them move from welfare to work.

Jeff Spross of ThinkProgress referred to the idea as “church basement paternalism,” which is appropriate given that it would all but require impoverished individuals to wear a promise ring reminding them of their vow to get a job.

Other liberal-leaning writers have already raised plenty of objections to Ryan’s proposal, both from a humanitarian and practical perspective. Poverty is a psychologically stressful experience that has actually been found to reduce individuals’ mental bandwidth. Threatening to take away people’s food or housing assistance if they don’t hit a contractually stipulated life goal doesn’t seem like it would help their long-term well being, and the punishment could ultimately send them reeling deeper into poverty.

But here’s the fundamental issue with the plan: There’s not much evidence that the vast majority of the poor need this kind of hand-holding. As I’ve written before, for most Americans who experience it—and you’d be shocked how many do—actual poverty is a temporary detour through life. It happens, and you recover. Actual chronic poverty is relatively rare. 

In 2011, according to the Survey of Income and Program Participation, the annual U.S. poverty rate was 14 percent. But only 3.5 percent of Americans were chronically poor, meaning they had been impoverished for three straight years. According to research by Mark Rank of Washington University in St. Louis, 38.9 percent of Americans experience at least one year of poverty between the ages of 25 and 60; 11.6 percent experience five years or more. During those same years, 44.8 percent use a means-tested safety net program, such as food stamps, but only 16.4 take advantage of one for at least half a decade.

One take-away from these numbers is that, yes, chronic poverty is real, and we need to work toward fixing it. But another is that, by and large, most people don’t need a life contract to escape poverty; the existing safety net catches them and helps them back onto their feet.

To his credit, Ryan makes some of these distinctions. The animating idea of his plan is that our approach to poverty should be customized person by person. His plan even distinguishes between the sort of approach the government could take to help a woman facing “situational poverty” versus someone stuck in “generational poverty.” He clearly sees the poor as individuals, which is far better than many politicians.

But in order to make custom poverty prevention a reality, he wants to tear down a system that already works fairly well for the majority and has without question diminished material deprivation in this country. Step one of his plan involves taking 11 different anti-poverty programs—including food stamps, Section 8 housing vouchers, and Temporary Assistance for Needy Families—and combining them into a single funding stream that would be block-granted to states. Then that money would be distributed through nonprofits and public agencies, with the help of caseworkers and life contracts. It’s a radical re-imagining of a massive chunk of the welfare state that entails all sorts of potential downsides. (For starters, he wants to do all this without adding spending. Would money for benefits instead go to fund an army of caseworkers? It’s unclear.) While Ryan has so far only proposed his idea as a pilot program to be deployed in a handful of states, you have to remember that we’re also experimenting with human lives.

Is our approach to poverty so deeply broken that any holes in the current safety net can’t be patched? Do we really have to tear down the entire apparatus and replace it with intrusive babysitting? The numbers suggest otherwise.

July 25 2014 11:56 AM

Rising Coffee Prices Spook Starbucks Investors

Some 16 months ago, Starbucks purchased its first farm, a 600-acre plot in a lush region of Costa Rica. The acquisition was a defensive one. With the help of local farmers and a team of researchers, Starbucks planned to develop new varieties of coffee beans that could better withstand Hemileia vastatrix, a parasitic fungus that is blighting coffee crops around the world. In its third-quarter earnings call on Thursday, chief executive Howard Schultz said that consumers will get a first taste of those agricultural efforts when the fall rolls around.

"In September, we'll be offering an extraordinary micro-lot reserve coffee, the first coffee developed on our own farm in Costa Rica," he said. "Expect to see an expanding and evolving portfolio of proprietary coffees under the 'Reserve' brand from our coffee farm in Costa Rica and around the world in the future."

From the looks of things this morning, it will take more than the promise of a new bean variety to reassure investors about Starbucks' ability to maintain profits amid rising coffee prices. Shares are down about 2.5 percent after the company said that increased commodity and worker costs could weigh on its long-term earnings growth—bringing it in on the "lower end" of projections—in the following year.

In an effort to offset those increasing costs, Starbucks announced in June that it was hiking the price of ground and whole-bean coffees it sells in grocery stores by roughly 8 percent—an increase that kicked in early this week. The decision followed similar moves by Folgers, Kraft Food Groups, and J.M. Smucker Co., the distributor of Dunkin' Donuts packaged coffee. Starbucks has also hedged its bets on the coffee market and locked in about 60 percent of its coffee purchases for the coming fiscal year, its chief financial officer said on the earnings call.

While coffee might be a source of continued worry, at least Starbucks has a new bright spot. Food options and particularly breakfast sandwiches are an "increasing driver" for midday and afternoon traffic in the chain's stores. That's a big reversal, as food for a long time was "a weakness and a challenge for us," Schultz said. Sales of breakfast sandwiches alone grew 40 percent over the previous year. Hear that, McDonald's? The breakfast wars clearly aren't over yet.

July 25 2014 7:00 AM

Six Reasons LinkedIn Is the Place to Find Love

This story originally appeared in Inc

Most of us are familiar with LinkedIn as the No. 1 social site for career networking. LinkedIn can help you get a job and show off your credentials and, unexpectedly, even help you find love. Here are six reasons LinkedIn is love's secret weapon.

1. It has a huge network. With more than 300 million users across 200 countries and territories, LinkedIn boasts a significant number of targets for Cupid's arrows. And better yet, these are prime potential dates. LinkedIn is a network of driven, working professionals, not sketchy men taking shirtless selfies.

2. It offers the most important info about potential suitors. LinkedIn makes it easy to review possible matches based on the info that matters—where you're from, where you went to school, and what you do. While these elements are admittedly unromantic, they say a lot about an individual and are significant indicators of potential compatibility.

3. It shows who recently viewed your profile. LinkedIn may not label itself as a dating site, but it sure acts like one. LinkedIn will reveal other users who recently viewed your profile. To get the full info on your viewers, you'll need to dish out bucks for the premium service. This is common practice with dating sites like Match.com.

4. You can deduce a lot from the little info LinkedIn gathers. The data LinkedIn gathers about its users probably won't tell you Ted's favorite sports teams or that Jessica loves to Netflix-binge on Orange Is the New Black. Instead it will help you understand users in a way you'd be hard-pressed to do on normal dating sites. Do they have a lot of different jobs within a short time period? They may still be trying to find themselves or could lack commitment.

5. It shows trusted friends of friends. Most LinkedIn users have a broad network of connections, with most users liberally accepting connection requests. There isn't much personal information you need to keep hidden, as is the case with Facebook. No one is sharing bachelorette photos on LinkedIn, which means there's no need to be stingy with accepting connections.

This results in large networks of various connections—maybe the new girl at your workplace went to college with a high school buddy of yours. The world is smaller than you think, and it shows on LinkedIn. Having even a remote connection between two users increases credibility and helps users feel safe meeting one another in the real world.

6. LinkedUp proves love isn't so far away. LinkedUp is a Tinder-style app that syncs up with a user's LinkedIn account. LinkedUp shows users in close GPS proximity with their profession, hometown, and connections through other LinkedIn users. The app also lets users filter potential mates by job, industry, age, and gender. As so with Tinder, if two users give each other the thumbs up, they are encouraged to chat. While it's not uncommon for dating apps to use Facebook data to match two lovebirds up, LinkedUp is the first that uses LinkedIn data.

The love lesson here is clear—if you're on the market, keep those LinkedIn profiles up to date and upload your most flattering headshot. LinkedIn isn't just for job searching—it could be where you meet the love of your life. Watch out world, Cupid is wearing a tie!

See also: How to be Happy

July 24 2014 5:37 PM

Chocolate Is the Latest Foodstuff to Become Super-Expensive

Sure, most food is expensive these days, but chocolate is on a tear. On Thursday, Mars, the company behind the likes of M&M's and 3 Musketeers, said it was raising prices for chocolate products in the U.S. by about 7 percent to make up for higher ingredient costs. The decision followed a similar move from Hershey a week ago, which announced an increase of roughly 8 percent in wholesale prices to offset increased commodity, transportation, and manufacturing costs.

The hike in chocolate prices is being driven by the soaring cost of cocoa beans, which has risen 18 percent this year alone. On the one hand, poor yields from major cocoa producers (68 percent of the world's cocoa comes from Africa, according to the World Cocoa Foundation) have limited supply of the beans. On the other, demand has soared as part of a trend for higher cocoa content in chocolate candies and products. The New York Times reported in late 2013 that chocolate prices in certain markets had gained 40 percent or more from the previous year.

In an April report on the global cocoa market, the World Cocoa Foundation noted that the rate of increase in cocoa production "may slow in the coming years, as cocoa trees are sensitive to changing weather patterns"—aka climate change. Should that forecast prove true, we can likely expect to see other chocolate manufacturers bumping up their prices for sugary confections. In the meantime, we can only hope agricultural organizations will find a fix for the sensitive plants, lest cocoa beans become as endangered as the drought- and blight-stricken arabica beans that are a staple of coffee.

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