A blog about business and economics.

Oct. 21 2016 6:26 PM

The Latest Proof That Europe Is a Complete and Utter Political Wreck

Have you ever heard of Wallonia, home of the Walloons? It sounds like a place Roald Dahl might have invented, but is in fact the small, French-speaking region of Belgium, with a population of about 3.5 million. It is not, typically, a star player in world affairs. But as of now, the Walloon Parliament may be about to single-handedly bring about the collapse of a free trade deal between Canada and the European Union that has been in the works for seven years, providing the world with yet another example of the EU's utter political disarray.

The politics of this situation are almost as byzantine as they are absurd. Canadian and European officials have been trying to finally wrap up the Comprehensive Economic and Trade Agreement, or CETA, a historic deal that would nix 98 percent of tariffs between the two sides. But under its own rules, the EU needs unanimous consent of all 28 of its member nations in order to ratify a new trade pact—and Belgium is awkwardly holding out. While its federal government supports the accord, it can't officially sign without the blessing of its five regional parliaments.


That’s where Wallonia comes in. Last week, lawmakers there voted 46–16 to reject CETA, which has been a target of large, left-wing anti-globalization protests across Belgium. Negotiators were left scrambling to write up some side language that would accompany the deal that they hoped would appease the Walloons' concerns. It hasn't worked yet, and on Friday things came to a head. Canadian Trade Minister Chrystia Freeland marched out of talks in Brussels “on the verge of tears” and all but declared the deal dead. "It seems evident for me and for Canada that the European Union is not now capable of having an international accord even with a country that has values as European as Canada," she said, adding that "Canada is disappointed, but I think it is impossible." Others seem more hopeful; EU Trade Commissioner Cecilia Malmström, for instance, tweeted that “Good progress had been made in most areas of concerns for Wallonia in talks on CETA. I sincerely believe this is not the end of the process.” But things are certainly looking dicey.

Wallonia is a bit like Belgium's rust belt—a relatively poor region suffering from industrial decline and high unemployment (the Financial Times has called the city of Charleroi “Europe's Detroit”). As Tim King has explained for Politico, its socialist-led government shares many of the same concerns about trade deals as the rest of Europe's left. As far as CETA goes in particular, it's raised issues about agricultural protections and the controversial arbitration process investors can use to sue states, otherwise known as ISDS, that for better or worse is included in most modern trade deals, and has caused alarm among U.S. liberals skeptical of the Trans-Pacific Partnership.

But the absurd thing isn't that Walloons may have qualms about CETA. It's that they're currently exercising veto power over a trade pact that would affect more than 500 million people. It's as if Ohio's state legislature could unilaterally decide whether or not the United States signed onto the TPP. Nobody in their right mind would design a system of governance that way.

You can blame this situation on the EU's own technocrats who, in an unusual step meant to appease globalization skeptics in the wake of Brexit, decided to give national and some regional parliaments veto power of CETA. In theory, that was a pragmatic gesture toward democracy. In practice, the bizarre precedent it has set is calling into question whether the EU will be able to hammer out new trade deals going forward, including a secession agreement with the United Kingdom. Even if this deal somehow survives the Walloon insurrection, this episode is one more sign of how Europe is fraying at its seams.

Oct. 21 2016 4:54 PM

Here’s How the Federal Government Made the Maps That Crippled Black Neighbhorhoods

If you want to understand the modern American city, consider exploring a new interactive mapping project from the University of Richmond’s Digital Scholarship Lab. Building off several previous projects, Mapping Inequality is a database of more than 150 federal “risk maps,” the New Deal DNA that would dictate decades of disinvestment in cities. These maps, as Oscar Perry Abello writes for Next City, illustrate "how the great government-baked wealth-creation machine of the 1930s only worked for white people."


They’re a reminder that letting huge swaths of the American city fall apart was essentially federal policy beginning in the Great Depression, when banks began to withhold lending to certain communities based on color-coded risk maps.


The Home Owners’ Loan Corporation, or HOLC, brought together mortgage lenders, developers, and real estate professionals in hundreds of American cities to design four-color maps. Neighborhoods were shaded green (“best"), blue (“still desirable”), yellow (“definitely declining”) or red (“hazardous”), in descending order of credit-worthiness. These maps, which came to shape not just the distribution of mortgages but other types of investment, were the origin of the term “redlining.” The practice was not made illegal until 1977, and continues in practice.


The innovation of the Mapping Inequality project is that it is links maps from scores of American cities with contemporaneous neighborhood reports, which allows you to toggle easily between maps and more detailed descriptions. What’s revealed is how the mapmakers’ obsessive focus on racial “infiltration" dominated the outcome of appraisals.


Oct. 20 2016 11:30 AM

Tesla Is Now Selling Cars That One Day Will Be Able to Drive Themselves

Tesla announced on Wednesday that cars in production now, including the company’s soon-to-be-released mass-market Model 3, can be equipped with the necessary hardware to enable fully autonomous driving at some point in the future. “The foundation is onboard to bring full autonomy,” CEO Elon Musk told the media in a phone call. The software is not yet ready. When it is, the car will achieve Level 5 autonomy, the company says. Need a pick-up? Tap the “Summon” button on your phone, and this car, which is on sale now, will come to you.

With that, Tesla appears to vault to the front of the pack in the race to produce self-driving cars. By the end of 2017, the company expects to demonstrate an autonomous cross-country trip from Los Angeles to New York. For now, we have to settle for this four-minute video showing a Model X on a short self-guided drive that culminates in the car parking itself. (There’s a human in the car to stay on the right side of the law, but he does not touch the wheel.)

Oct. 20 2016 12:29 AM

Hillary Made One Big Mistake Wednesday Night

Hillary Clinton has lots to be pleased about after Wednesday evening's presidential debate, which will mainly be remembered as the night Donald Trump refused to say whether he would accept the results of an election, trampling yet another bedrock norm of the American political system. Beyond that, Clinton herself delivered a strong performance. Barring a shocking turn of events, she appears to be on a glide path to the White House.

But I think there's at least one answer Clinton offered this evening that she'll come to regret. On three separate occasions, the candidate said she would not “add a penny” to the national debt (she'd used that same phrase before the debate, too). “I pay for everything I'm proposing,” she told moderator Chris Wallace. “I take that very seriously because I do think it's one of the issues we've got to come to grips with.” This is bad economics and bad politics. It may have been her most regrettable moment of the night.


First, the economics. At this moment in history, there is little to no reason why the United States should be worried about its debt load. Over the very, very long term, we might have to do something to keep entitlements from causing our national tab to spiral upward uncontrollably. (That would happen a lot faster if any of the gonzo tax cuts Republicans like Trump have proposed ever came to pass.) But we are not on the precipice of some debt-fueled disaster. And frankly, we've been shooting ourselves in the foot by refusing to borrow more during this era of rock-bottom interest rates, which would allow us to finance investments in infrastructure and push the economy back to its full potential for practically nothing. Investors are all but begging the United States and other countries for new bonds. We should oblige them.

Clinton, of course, has a fairly large infrastructure plan, which she hopes will stimulate growth and new jobs. But stimulus works by increasing the deficit and creating new demand. If she pays for her whole plan upfront with tax increases, she may end up blunting some of its positive effects on growth. So, by buying into the debt-phobic Washington consensus that says our borrowing is an existential emergency, she's undermining her own best laid plans to get the country moving again. Now, it may be the case that the only way a Republican House will ever pass an infrastructure bill is if it's 100 percent paid for. But that doesn't change the GDP math.

As for the politics: One problem is that, as of now, Clinton's claim doesn't seem to be entirely true. Her plans are mostly paid for through new taxes on the wealthy. But as of September, the Committee for a Responsible Federal Budget still thought that over a decade, her proposals would add an additional $200 billion to the debt, which will grow to about 86 percent of GDP. (To be clear, Clinton isn't saying she'll balance the budget. She's just saying her plans won't cause the debt to grow any faster.) That would be fine on substance, but Clinton has now boxed herself in with her fiscally prudent rhetoric about not adding a penny to our national tab. And if her programs do end up increasing the debt, I can only assume Republicans will be ready to cut TV spots of her promising not to, accusing her of trashing a campaign vow.

Beyond all that, the penny line is just unnecessary. This election is not being fought over fiscal policy. It's about groping and whether Donald Trump can be trusted with the nuclear codes. There's no reason Clinton couldn't give herself a little wiggle room on this issue. Unless she really is a debt hawk at heart. That, of course, would be a true pity.

Oct. 20 2016 12:17 AM

Trump’s Defense of His Tax Avoidance Is Getting Even More Brazen

Donald Trump, we know well by now, will never admit to any fault. But it was still stunning Wednesday night when, once again, the Republican presidential candidate tried to pin the matter of the taxes he has not paid on Hillary Clinton.

In early October, the New York Times revealed that Trump claimed an amazing $916 million tax loss in 1995, one that likely allowed him to avoid paying federal personal taxes for almost two decades. In both Wednesday night’s presidential debate as well as the town hall–style one held earlier this month, Trump blamed Clinton for the fact that he took advantage of the tax code to ether his tax burden. Here’s how he started on Wednesday:

We're entitled [to large tax breaks] because of the laws that people like her passed to take massive amounts of depreciation and other charges, and we do it. And all of her donors, just about all of them, I know Buffett took hundreds of millions of dollars, Soros, George Soros took hundreds of millions of dollars.*

A moment later, he concluded: “If you don’t like what I did, you should’ve changed the laws.”

Translation: Everyone does it! So why not me? Also, it’s your fault.

The law that Trump is probably discussing—it’s not, after all, ever fully clear what he’s discussing—came about in 1993, during the presidency of Bill Clinton. That year, real estate “professionals”—that is, businesspeople who worked on their real estate interests at least 750 hours a year (or a little more than 14 hours a week)—received the ability to write off their losses against their personal earnings.

First, no: Not everyone does it. After Trump made a similar assertion about billionaire Democratic donors during the second presidential debate, Warren Buffett stepped forward to say that he has never carried forward a loss like Trump did.*

Moreover, Hillary Clinton wasn’t in any position to do anything about the legislation signed by Bill Clinton. She was first lady in 1993, the same position she held in 1995, the year we know Trump took advantage of the break. But Trump’s complaint appears to be that she didn’t single-handedly repeal the law after she was elected to the U.S. Senate in 2000—five years after he employed the strategy. She couldn’t single-handedly change the law. And as we should all recall, Clinton did vote—unsuccessfully—in 2001 and 2003 against the income-tax cuts successfully pushed by the George W. Bush administration, cuts that disproportionately benefited high earners.

And what about now? Clinton is now advocating a plan that would limit developers taking advantage of something called like-kind exchanges—that’s when they avoid paying taxes on profits by taking the money and buying another property—to $1 million a year.

As for Trump, who conveniently didn't say whether he thinks his income tax avoidance was a problem, even though he’s criticized much less fortunate Americans for doing the same: His tax plan, according to many analysts, would actually increase the tax breaks available to real estate honchos like himself. Deplorable.

*Correction, Oct. 20, 2016: This post originally misspelled Warren Buffett’s last name. It also misquoted Trump as saying “all of her donors” took large tax breaks. He was referring to Hillary Clinton’s donors.

Oct. 19 2016 11:27 PM

The Decline of American Political Civility, in One Chart

Our attention has been drawn to an illuminating statistical trend that has taken shape over the course of the 2016 presidential debates: The Handshakes-per-Debate Index (HDI) of American political civility seems to be in linear decline.

Oct. 19 2016 2:26 PM

Legal Weed Is Now More Popular Than Hillary Clinton or Donald Trump

We live in a time of political acrimony, a moment when both candidates for president are loathed by large chunks of the public and our elections have come to feel like quadrennial skirmishes in a cultural civil war.

But you know what voters are starting to agree on? Weed. Gallup reports today that 60 percent of Americans now say they favor legalizing marijuana, a new high since the pollster started asking about the topic 47 years ago. To put that in perspective, Hillary Clinton has an average favorability rating of just 43.8 percent, according to HuffPost Pollster. Donald Trump clocks in at a mere 34.7 percent. Even President Obama, who has enjoyed a late-term spike in popularity as America has pondered his potential replacements, only enjoys about 54 percent favorability—meaning pot is more popular than POTUS and his would-be successors.


Gallup isn't alone in its findings, either; earlier this month, Pew reported that 57 percent of Americans thought marijuana should be made legal, up from 32 percent 10 years ago.

So, on the one hand, these are the kinds of poll numbers that make federal legalization feel like an inevitability, especially since they'll likely get more lopsided as millennials become a larger share of the electorate. A full 77 percent of Americans under 35 think we should end the ban on pot, according to Gallup, compared to just 45 percent of those over 55. Hillary Clinton has already said she would take the baby step of moving marijuana to schedule II classification, which would make FDA-approved marijuana-based pharmaceuticals legal while leaving the current network of medical dispensaries and recreational pot shops in much the same legal limbo they currently operate in. But a solid majority of the public says it’s ready for more dramatic action.

In theory, at least. As ace Washington Post weed analyst Christopher Ingraham points out, the actual marijuana legalization initiatives on the ballot in several states this year aren't quiiiite hitting the 60 percent support mark seen in national polls. In royal blue Massachusetts, where you might expect support to be higher than the national average, 55 percent of voters say they'll vote to make recreational weed legal. “This is because there's a significant difference between support for marijuana legalization in the abstract, and support for a concrete ballot measure with a lot of nuts-and-bolts proposals for how marijuana legalization would be regulated and enforced,” Ingraham writes. “A voter might support the idea of marijuana being legal, for instance, but not like a law that could lead to an actual marijuana shop in their neighborhood.”

So the details and logistics involved in legalization matter. But Americans are increasingly comfy with the broad concept. And if California votes as expected this November to join Washington State and Oregon and by legalizing marijuana, we may have to rename the West Coast ganja alley. My best guess is that federal legalization turns into an issue akin to allowing gays and lesbians to serve openly in the military, where after a series of unsatisfactory intermediate steps, Washington finally pulls the trigger once the idea has become so overwhelmingly popular it would be silly not to move on it. Give it eight years.

Oct. 19 2016 1:34 PM

The U.K. “Is Renowned for Its Excellent Food and Drink,” Deluded Brexit Masterminds Insist

Selling “innovative British jams” to France was only an hors d’oeuvre for the United Kingdom’s Brexporting feast. The post-Brexit plan for enhancing the U.K.’s culinary fame now also envisions selling beer to Germany, whisky to Japan, poultry to China, and tea to India. (In other news, the U.K. will be shipping snow to Canada.)

Theresa May’s government, which is negotiating plans to leave the world’s largest trading bloc, intends to drive the country forward with a rejuvenated export sector. (The pound has conveniently fallen to its lowest level against the dollar in several decades, which could certainly help.) Food and drink is the country’s largest manufacturing sector, and will be at the heart of the upcoming Brexit negotiations.

It’s easy to laugh (or cry) at a country staking its economic future on the one thing it has been famously, even indulgently, bad at. In some ways, the plan floats on the same current of deluded, nationalistic British grandeur that propelled the Brexit campaign. “The UK is renowned for its excellent food and drink,” the report begins, as sunny as the London sky. If there is a foodie culture in the U.K., it is eclectic and internationalist, inextricably tied up in the country’s post-war immigration boom. How fitting that a government that came to power largely on anti-immigrant sentiment now aims to promote traditional British foodstuffs abroad.

Oct. 18 2016 6:03 PM

A Conservative Group Just Made a Great Argument for Government Spending

I know. It’s hard right now to take your eyes of Donald Trump's exploding oil tanker of a presidential campaign. Now may not seem like the time to argue about fiscal policy, as we might in a normal election cycle.

But at some point Americans will have to go back to arguing about things like taxing and spending. And when it comes to that topic, this week marked a small but fascinating milestone in the world of Washington policy thinking, as one well-known conservative think tank essentially abandoned one of the oldest arguments for why governments shouldn't run budget deficits.


For a long, long time, economists have argued that government borrowing hurts economic growth by “crowding out” private investment. Instead of lending to businesses, the thinking goes, savers end up lending to Washington to finance its deficits, which means companies have less to spend on things like new factory equipment or software that will set up the economy for long-term growth.

Crowding out isn't the only argument against deficit spending. But it's certainly a major one that's considered entirely orthodox. When the Congressional Budget Office makes its long-term economic projections, for instance, it incorporates the effects of government crowd-out into its math. As a result, the concept has historically been a potent talking point for conservative policy advocates and politicians—balance the budget and we'll free up money for investment, leading to more prosperity down the line.

But there have always been reasons to question the extent to which crowd-out is a real problem. And in our weird world of post-recession economics, there's good reason to doubt whether it's an issue at all. That's because the whole concept of crowding out is based on the idea that there's only so much money out there for governments and businesses to borrow. But for more than a decade now, the world has seemingly had the opposite problem. There are too many savings floating around and not enough investment opportunities to suck them up, which has led to persistently low interest rates and swollen asset prices. Nobody is exactly sure why this has happened, though there are plenty of theories. All the way back in 2005, Ben Bernanke theorized that emerging economies like China had created a “savings glut” by building up their currency reserves to fight off financial crises. More recently, Larry Summers has popularized the idea that the world is facing a period of “secular stagnation.” But either way, in a world where governments and corporations can get paid to borrow, nobody's really worried about the limited supply of savings, so concerns about crowding out seem a bit anachronistic.

This week, the conservative Tax Foundation—the Republican authority of choice on all things related to the tax code—publicly agreed that crowding out is so passé. It said so in a long, wonky post about the in-house economic model it uses to assess the impact of tax cuts on the economy. Basically, the foundation’s analysts don't think budget deficits created by giant tax cuts like the ones Donald Trump has proposed will hurt growth over the long term, because corporations and the Treasury will always find more money they can borrow:

Economists all agree that both budget deficits and private borrowing require saving. But the question is how scarce that saving is. At Tax Foundation, we believe saving is not nearly as scarce as the Penn Wharton model shows.
We believe this for a number of reasons: for one, many mainstream economists are discussing ideas like Secular Stagnation and the Global Savings Glut. These ideas suggest there’s oodles of cash on the right side of the equation, looking around for investments to finance and coming up short. As a result, interest rates are coming down in developed countries around the world as the savers bid up the prices of financial instruments.
Under these kinds of circumstances, worries about unavailable saving seem misplaced.

From a political perspective, there are a few funny things about this line or reasoning. First, it's just as good a justification for massive government spending as it is for budget-busting tax cuts. But aside from that, it also weakens the argument for tax cuts on investment income, which, of course, conservatives desperately want. One of the big points in favor of lowering the tax rate on capital gains is that it will lead people to put more money into stocks and bonds, leaving the companies with a bigger pool of money that they can invest. But if there's already an effectively infinite global pool of cash that companies can borrow from, leading people to save even more might be counterproductive, since it will just exacerbate the glut. When I brought that up on Twitter, the Tax Foundation folks countered that cutting capital gains rates will make companies invest more, because they won't need as high a rate of return on new projects to make their investors happy. But that's not exactly the standard argument you hear for slashing the capital gains rate. (I'm also skeptical about it, given that business investment in recent decades has proved to be pretty insensitive to the cost of capital, which also influences profits—but now we're getting a little deep.)

In any event, we've reached an interesting left-right convergence on the idea that budget deficits, in some very important ways, don't really matter anymore, or at least don't matter the way they used to. Of course, centrist wonks are going to keep incorporating crowding out into their economic projections. But if anything, that shows why you have to take those sorts of estimates with a grain of salt; we’re at a point where there are profound disagreements about the basic ways issues like taxes affect the economy. When we're all done rubbernecking at Trump, there'll be lots to argue about.

Oct. 18 2016 4:06 PM

Who Made Domino’s Great Again?

Domino’s stock is hotter than a jalapeño pizza, up 46 percent since the start of the year. In a third-quarter earnings report released Tuesday, America’s largest pizza delivery company announced that revenues were up 17 percent over last year, which is actually fairly typical of the chain’s recent financial performance.

But it is a little confusing. When, and why, did the world start loving Domino’s?

I’d insert a joke here about the taste, but as a New Yorker, I could lose my rent-controlled apartment and municipal retainer fees for even ordering the stuff. But many people are saying that even here at the heart of the Pizza Belt, where Domino’s operates a modest 70-odd locations, the pizza has obtained a kind of cult status. Domino’s pizza is not an ironic fetish; it’s a genuine predilection.

It was only seven years ago that a couple of North Carolina Domino’s employees filmed themselves smearing their snot all over Domino’s foodstuffs. It was only six years ago that the tagline of the company’s big ad campaign was, basically, We Know Our Pizza Was Bad.