A blog about business and economics.

Sept. 18 2014 6:02 PM

A Chinese Company Just Announced the Biggest IPO in U.S. History

After months of anticipation, Alibaba's initial public offering has cemented its place in history as the biggest IPO ever in the U.S. Shares of the Chinese e-commerce giant, which does more sales than Amazon and eBay combined, priced at $68 apiece on Thursday to raise $21.8 billion. No IPO in the U.S. has previously topped the $20 billion mark, though Facebook came close with $16 billion in 2012 and Visa raised $17.9 billion in 2008. The world record for largest offering is held by Agricultural Bank of China, which raised $22 billion in 2010.

Alibaba has been closely watched by investors as it planned its offering over the past several months. The company is a household name in China, where it is all but synonymous with online shopping. It is much less well known in the U.S., but essentially something of a PayPal meets Amazon meets Twitter meets Spotify meets Hulu meets plenty of other things. For almost every business you can think of, the odds are that there's an Alibaba equivalent.


The $68 share price values Alibaba's entire company at $168 billion, which the Wall Street Journal reports makes it "instantly one of the largest listed in the U.S." and gives it a larger market capitalization than Amazon's $150 billion. Alibaba stock is scheduled to begin trading on Friday on the New York Stock Exchange under the aptly named ticker "BABA."

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Sept. 18 2014 5:09 PM

Three CEOs Step Down in 30 Minutes

Sometimes it rains and sometimes it pours resignation notices from chief executives of major corporations. That's what happened this afternoon as first Oracle's Larry Ellison, then Clorox's Don Knauss, and finally JetBlue's Dave Barger said that they were stepping down from their posts. It is not clear at this time whether the near-simultaneous resignations are coincidence or the first phase of an elaborate marketing campaign for the new Atlas Shrugged movie.

The change at Oracle is effective immediately, with Ellison being replaced by a pair of executives: Safra Catz and Mark Hurd. Clorox said that Benno Dorer, currently the company's executive vice president and chief operating officer, will take over from Knauss starting Nov. 20. Knauss will stay on as chairman and a member of the board. Over at JetBlue, company president Robin Hayes has been appointed to succeed David Barger as chief executive beginning Feb. 16, 2015.


Anyway, we can only assume the retirees will enjoy their time in Galt's Gulch. Or on their gigantic yachts.

Sept. 18 2014 2:49 PM

Amazon’s Carrier Billing Lets You Pay for Digital Purchases in Your Monthly Phone Bill

The big Amazon news of the day is the company's sudden release of six new devices: four Kindle Fire tablets and two Kindle e-readers. Slate technology writer Will Oremus tried them all and reports that "each is either a successor or a variation on some device that has come before" and "not one is revolutionary." 

On the other hand, a quieter announcement involving Amazon on Wednesday might come closer to qualifying as revolutionary. Bango, a mobile payments company, said yesterday that it is working with Amazon and wireless carrier Telefónica Deutschland to let customers in Germany on Telefónica's O2 network pay for digital items such as e-books, music, and in-app purchases in their monthly phone bill starting next year.


This payment model is known as "carrier billing" and, according to Re/code, is common in emerging markets, where millions of people who own smartphones do not have credit cards. At the same time, Re/code notes that carrier billing is "gaining momentum" in Europe and other developed regions. Bango a month ago said that it was working with Deutsche Telekom to offer the same service across a variety of app and content stores, including BlackBerry World and Facebook.

Carrier billing is one of several systems vying to partly or entirely replace credit and debit cards. The new iPhone 6 and 6 Plus come equipped with Apple Pay, the company's stab at creating a global transactions empire. Google in March redoubled efforts to push Google Wallet and apps like Venmo are already well adopted among many smartphone users. What's interesting about carrier billing and other forms of mobile payments is the underlying assumption that access to smartphones will at some point exceed access to credit and debit cards.

In 2011, Farhad Manjoo dismissed the notion of universal mobile access as impractical, writing in Slate, "If we're looking for a payment method that everyone can use, we ought to choose something that everyone carries with them. You know what that isn't? A smartphone." But the growing popularity of carrier billing in emerging markets would seem to suggest otherwise. (A better point from that same piece: "Perhaps we should avoid it for security reasons. If someone steals your wallet but not your phone, at least you can call the police and your bank to report the crime. What do you do if your wallet is your phone—call them with your wallet?)

As things stand, carrier billing still represents a small subset of mobile purchases. According to online data site Statista, charges to a phone bill in 2013 made up just 4.4 percent of mobile payments in the U.S. Credit and debit cards facilitated the vast majority of those transactions, at a combined 95 percent. Carrier billing is also limited—at least in the form described by Bango for Amazon—to being used for a relatively narrow type of purchase (digital goods).

That said, in 2013 there were an estimated 245 million people worldwide making mobile payments with an estimated global transaction volume of $235 billion. Statista projects those figures will grow to 450 million global users doing $721 billion in transactions by 2017. And just because carrier billing is currently constrained to digital purchases doesn't mean it will stay that way forever. It does sound dangerously convenient for consumers—and enticingly lucrative for retailers—to have phone charges and other purchases all appear in the same monthly bill.

Sept. 17 2014 12:13 PM

“For a While Liquidity Led to Stupidity”

In case you thought that economics was all about numbers, one professor has given it a poetic turn. On Friday, Wellesley College economist Karl Case—who together with Nobel laureate Robert Shiller created the famous S&P/Case-Shiller Home Prices indices—honored his longtime colleague with an original poem on real estate bubbles and the financial crisis.

"Reflection on the Housing Market: Seven Years After the Fall," which was reprinted in full with Case's permission on the Wall Street Journal's Real Time Economics blog, spans 21 stanzas and takes its readers from the beginning of the real estate boom to the lingering fallout of the recession. The poem appears to have been first published in 2010, but Case has updated some stanzas and added others to reflect the passage of time. For example, there's now a bit about people living with their parents:

In the longer run a lot depends
On the rate of household formation
That depends in part of course
On the rate of immigration
It also matters what kids do
Like living with Mom and Dad
Or doubling up till they get a job
To pay for their very own pad

Case has some fun turns of phrase in his poem ("For a while liquidity led to stupidity") and some genuine commentary on economic policy ("The guys at the Fed have repeatedly said/That their mandate includes employment/But with rates at zero no one's a hero/No weapons left for deployment"). And at least one thing hasn't changed in Case's poem since the original: his opinion of politicians. The updated version of "Reflection on the Housing Market," like its predecessor, ends with this zinger to Capitol Hill: "Politicians, of course, are starting to shout/That they want more retribution/It's better, I think, if they used their time/Helping to find a solution."

Sept. 16 2014 4:16 PM

The iPhone 6 Marks a Fresh Chance for Wireless Carriers to Kill Your Unlimited Data

Apple is enjoying a record success with its iPhone 6. In its first day of pre-orders, the iPhone 6 received some 4 million requests—doubling the number the iPhone 5 got in its first 24 hours two years ago. Demand is so strong that Apple announced it is already exceeding the initial pre-order supply. While a "significant amount" of the devices will be delivered to customers starting this Friday, the company said "many" of the pre-orders will have to wait until October.

Should you want to get in on the iPhone 6 craze, you'll have ample choices from wireless providers. Verizon, Sprint, and AT&T are selling the 16 GB version starting at $199 with a two-year contract, while T-Mobile is carrying it contract-free for the full list price of $649. As per usual, at least one carrier is also using the iPhone 6 as a chance to break the customers still clinging to unlimited data from their plans. Verizon customers who wish to have their unlimited data grandfathered in with an iPhone 6 are once again being told that they must buy the device outright. If they choose to do that, the unlimited data will cost $30 a month on top of $55 to $90 per month for voice and texting fees.


Is the hefty upfront cost worth it in the long run? That depends on how much data you use. We crunched the numbers for a single smartphone on Verizon's standard More Everything plan as well as one on AT&T's Mobile Share Value plan to see how long you'd have to use your device—and with how much data—before keeping an unlimited plan would pay off.

250 MB
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Hover on Plan Above to Compare Price

As you can see from the interactive graph above, Verizon users who consume 3 GB or less of data a month shouldn't bother paying the full list price on the iPhone 6 to keep their unlimited data; they'd be better off purchasing a two-year contract (assuming they don't plan to hang onto their phone much longer than that). But for people who use 4 GB of data or more a month, it's a smart investment.

At AT&T the deal appears to be better: Holders of unlimited data are not required to purchase the iPhone 6 outright to keep their grandfathered plans. Still, there's a catch. AT&T starts reducing data speeds—aka "throttling" unlimited users—after the first 3 to 5 GB are used each month. So as much as the unlimited plan seems financially worth it if you use more than 2 GB of data, the actual benefits are more limited.

T-Mobile, on the other hand, still offers an unlimited data option on its Simple Choice Plan. Because the plan does not include annual service contracts, T-Mobile also requires users to buy their devices outright. But once you do that, it charges less each month than Verizon does on its grandfathered unlimited plan.

Sept. 16 2014 2:35 PM

Germany’s Nationwide Ban on Uber Lasted All of Two Weeks

For a short time, Uber appeared to be facing a significant challenge abroad. At the start of September, a German court placed a nationwide ban on the company's peer-to-peer transportation service, UberPop, after ruling that it competed unfairly with the local taxi industry. Should Uber continue to operate illegally, the court cautioned, the company could face fines of up to 250,000 euros (or about $330,000) and also risked having its employees jailed for as long as six months. It took only two weeks for Germany to lift that ban.

A court in Frankfurt overturned the broad ban against Uber on Tuesday, saying that taxi drivers had brought their case too late for the injunction to remain in effect. The court did not rule definitely on whether Uber's services are legal in Germany, but for now the company is free to resume operating there. Uber said in a post on its blog that it "welcomes the decision." It added that Germany is one of its "fastest growing markets" in Europe and its ridership there is expected to double in size by the end of the year. Taxi Deutschland, which filed the suit, plans to appeal the decision.


Uber, in its typical brash fashion, all but ignored Germany's ban while it lasted. It continued running UberPop and proclaimed on its blog that German sign-ups for its service more than tripled in the first 24 hours after the ban went into effect. In doing so, Uber was making a familiar bet that public demand for its service would ultimately override attempts by local regulators to suppress it. The general logic behind Uber's fast and aggressive expansion is that it's worthwhile to defy authorities if it exposes more people to Uber's service. Because only once those people try Uber do they know they want Uber. Based on the latest events in Germany, that bet has paid off once again.

Sept. 16 2014 12:43 PM

Middle-Class Incomes: Still Dead in the Water

One day, there will probably be some news about middle-class incomes worth celebrating.

Today is not that day. In its big income and poverty report, the Census Bureau reported that the median household income was $51,939 in 2013, statistically unchanged from a year before. I'm thinking of a word. It begins with "stag" and ends with "nation."

Sept. 16 2014 12:22 PM

Poverty Rate Falls for First Time Since 2006, Remains Way Too High

The official U.S. poverty rate fell last year for the first time since 2006, dipping to 14.5 percent, according to a new annual report by the Census Bureau. For the past several years, it had hovered around 15 percent. In total, 45.3 million Americans lived under the poverty line during 2013, including some 14.7 million children.

The official poverty rate is sometimes criticized as unreliable because of its odd origins and narrow definition of income. The statistic was basically MacGyvered into existence in the 1960s by a lone Social Security Administration economist who based it on cost of food for a family of three, since that was just about the only data on living standards she had to work with. Since then, the stat has only really been updated for inflation. While it counts cash payments such as Social Security towards a family’s finances, it doesn’t account for benefits such as food stamps. As a result, it vastly understates the decline of material need in America over the decades.


That said, it does provide a decent snapshot of poverty as it exists today. For several years, Census researchers have been honing an alternative statistic known as the Supplemental Poverty Measure, which takes into account more government benefits along with geographical variations in the cost of living for a much more sophisticated approach to quantifying need. But in 2011, the SPM was only 1 percentage point higher than the cruder, official measure we've been using since the Johnson days.

In short, poverty has been high for years now, and its persistence has been one of the clearest indicators of the weaknesses of the economic recovery. Last year’s drop, while welcome news, came far too late.

Sept. 15 2014 7:27 PM

Could IUDs Be the Next Great Weapon in the Battle Against Poverty?

There aren’t any simple solutions to poverty. But of the tools we have, making effective birth control cheap and easily available for low-income women is pretty much a no-brainer. Growing contraception use has already helped bring down America’s teen pregnancy rate to its lowest levels in more than half a century. And in a New York Times op-ed published this weekend, Isabel Sawhill of the Brookings Institution makes a compelling case that the humble IUD could help halt the ongoing rise of single mothers, who are disproportionately impoverished.

Here’s Sawhill’s argument, slightly condensed. “Marriage is disappearing,” she writes, and out-of-wedlock childbirth is becoming the norm, with more than 40 percent of new mothers unmarried. Some conservatives say the government should respond by working harder to promote matrimony—but they have little idea of how to do it. Some liberals (including yours truly) say we need to accept widespread single motherhood as a fact of American life and expand the safety net to accommodate them—but that will, admittedly, cost money.


Sawhill believes we should split the difference. “What we need instead is a new ethic of responsible parenthood,” she writes. That starts with making sure women don’t get pregnant before they’re ready, since almost 70 percent of out-of-wedlock pregnancies are unplanned. How? In part by raising awareness about the challenges of single motherhood, and in part by promoting IUDs and other long-acting reversible contraceptives that are inserted in a woman’s body and must be removed by a doctor.

Many women, Sawhill reasons, end up pregnant because they misuse their birth control (the pill doesn’t work if you forget to take it). But IUDs and implants are basically foolproof—according to one major study, they are 22 times less likely to fail than the pill—because they don't require effort to use once implanted. Although the devices have had a troubled reputation due to health scares they caused in the 1970s and 80s, today’s models are safe. And while price turns some women off from them—an IUD can cost $1,000 upfront—Obamacare now requires health plans to cover the whole cost of the devices, just like other contraceptives. Medicaid also pays for them in states that have expanded the program under health reform. But Sawhill thinks we should do even more to make long-acting contraceptives widely available, for instance by educating doctors who aren't up to speed on their benefits.

“If these or other new forms of contraception were more accessible and less costly, and if more people understood how effective and convenient they are, unplanned pregnancies would decline,” she writes.

The nice thing about Sawhill’s argument is that, even if she frames it as a third path between conservative and liberal approaches to fighting poverty, it can complement either nicely—unless social attitudes get in the way. You won’t find many progressives who are opposed to the idea of making effective contraceptives available on the cheap to every poor woman in America. Fiscal conservatives could get on board, too, since helping low-income women avoid unintended pregnancy prevents the government from having to make welfare program payments when the child is born. According to Brookings’ calculations, preventing an unplanned pregnancy saves Washington at least five times what it costs. You’re most likely to find opposition from the religious traditionalists, like the groups that have challenged Obamacare's contraception mandate in court, who just can’t abide the idea of subsidizing birth control on principle. But good policy ideas are always going to make somebody unhappy.

We shouldn't expect better birth control availability to work miracles. Researchers have found that around 40 percent of accidental pregnancies result from the misuse of contraceptives. On the one hand, that demonstrates just how much of a difference fail-safe options like IUDs can make. On the other, it shows that getting many couples to use contraceptives at all is still a formidable challenge. A giant educational campaign might help raise awareness, but Brookings’ own projections suggest that such a push would only reduce the number of children born to unmarried parents by just a few percentage points. That would be wonderful progress, but it wouldn’t be the end of single motherhood. Even if change came faster, there would still be millions and millions of one-parent families in need of a stronger safety net in the U.S..

But in the end, that simply means nobody should fixate on better birth control as a silver bullet for poverty (Sawhill, to her credit, doesn’t). There’s no good argument against promoting effective contraceptives. Like I said, it’s a no-brainer.

Sept. 15 2014 3:00 PM

Apple Will Allow Ingrate Public to Return the Sacred Gift of U2

Realizing that some users might feel a little icky about the corporate crypt keepers of their personal media collections reaching a ghastly digital arm through the Internet and foisting a U2 album into 500 million iTunes libraries, Apple has backtracked slightly.

Apple posted specific instructions for removing U2’s Songs of Innocence from users’ libraries six days after gifting the album to every iTunes user and automatically downloading it from the cloud into the libraries of those who had that feature enabled. Apple went as far as to create a specific link to automatically remove the album in only four more manual steps than the process that put it there.


I’m being hyperbolic with the affront here, but it’s a creepy precedent, and over the weekend I did have to skip over U2 songs I never asked for on my phone. Also, is Apple betraying a note of petulance in its page title, which refers to an "iTunes gift album"? Come on you ingrates, we bought you a present, and this is the thanks we get? It's almost as if people have no idea how much it costs to buy 500 million U2 albums directly from Bono. It's almost as if... people have never heard of U2.