A blog about business and economics.

Sept. 29 2014 7:01 PM

We May Never Know Whether Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge

Larry Ellison, the billionaire and until very recently CEO of Oracle, is famous for his outlandish pursuits. He delights in shooting hoops aboard his yacht The Rising Sun (reportedly the world's 10th largest) and owns 97 percent of the Hawaiian island Lanai. In a recent profile otherwise devoted to that significant geographic purchase, the New York Times notes another oddity: "There's a rumor—the truth of which remains murky—that Ellison once flew a fighter jet under the Golden Gate Bridge."

Could such a thing be true? The closest Ellison has ever come to addressing the epic rumor appears to be in a 2004 interview with Charlie Rose. Asked whether he had taken a joyride below the Golden Gate Bridge, Ellison told Rose that doing so would be against Federal Aviation Administration rules and "so of course not." Then again, if he had pursued such a stunt, Ellison added, he would have taken one of his fighter planes.

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In an effort to get to the bottom of this rumor, I called up the authorities at the Golden Gate Bridge, Highway and Transportation District. I spoke with several people, all of whom were familiar with the rumor of the Ellison joyride but none of whom could confirm that it had happened. One longtime sergeant, who declined to give his name, said there are similar stories around San Francisco's Fleet Week—that the Blue Angels would invert a plane and fly it beneath the bridge.

But that also seems to be hearsay. "We wouldn't do that," a member of the Blue Angels told the Charleston, South Carolina, Post and Courier in 2010. "It's really unsafe." She added that the sharp turns taken by the jets could leave onlookers with the impression that an aircraft had flown under the bridge. (Watch the YouTube footage below from about the 5-second mark to the 10-second one, and you'll see why.) At any rate, we may never really know if Ellison attempted this. But if it's too dangerous for the Blue Angels, it seems unlikely that Ellison tried—much less managed—to pull off the trick.

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Sept. 29 2014 3:06 PM

Want to Be Stinking Rich? Major in Economics.

Want to guarantee yourself a steady, well-paid career? Major in engineering. Want to take a shot at striking it rich? Then major in economics.

At least, that's how I'd sum up the findings of a new report and interactive tool from the Hamilton Project, which looks at how the value of a college degree changes depending on your major. This is already a pretty well-explored subject. But the Hamilton study is especially nifty, because instead of calculating what the "typical" college graduate can expect to make over the course of a career, like many researchers do, it shows a whole range of potential outcomes, from the fifth percentile of earners up to the 95th percentile. And of the best-paid graduates in all fields, economics majors rake in the most.

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To start off, here's the sort of graph you're probably used to seeing. Using data from the Census Bureau, which began asking college graduates about their majors in 2009, it shows the annual income that the median college graduate in four common majors can expect to make in each year of her career. Of the group, English grads make the least, business majors do a bit better, while engineering and econ grads jockey for the top spot. (Quick note: These numbers cover only graduates without advanced degrees. We'll come back to the grad-schoolers in a bit.)

Now check out how the view changes when, instead of tracking median graduate, we look at all graduates. The graph below depicts the range of lifetime earnings that graduates in each major can expect to make. Up until about the 57th percentile, engineers make the most. But then the earnings curve for economics grads basically goes parabolic. At the 95th percentile, they can expect to earn more than $3 million more during their lifetime than an engineering grad.

Does the outcome change if you start factoring grad school into the equation? Nope. Brad Hershbein, one of the study's authors, confirmed for me that "at the 95th percentile and above, economics outearns every other major," whether or not graduates have gone on to earn advanced degrees. For those with just an undergraduate degree, economics becomes the top-paid major at the 92nd percentile, passing engineers who specialize in energy and extraction technology (basically, kids who go to college in order to learn how to drill oil out of the ground). When you factor in Americans with graduate degrees, as in the graph below, econ becomes the top-paid major at the 94th percentile, where it passes biochemistry and molecular biology, which produce lots of doctors. I've thrown the energy engineers and history buffs onto the graph as extra points of reference.

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So why are econ grads so good at making it rain? Part of it is that the finance and consulting industries like recruiting them, not necessarily for their specific skills, but because they consider the major a basic intelligence test. Granted, we're probably not seeing the effect of Goldman Sachs or Private Equity salaries in these charts, since they only stop at the 95th percentile of earners—but banking is a big industry, and it pays well. There's also an element of self-selection. Plenty of engineers have the math skills to hack it at a bank (film fans may recall Stanley Tucci's speech about how he once built a bridge in Margin Call), but choose a slightly less lucrative but probably more fulfilling career path. Not everyone wants to spend a career turning money into more money. No matter how well it pays.

Sept. 26 2014 4:49 PM

The Whimsical Adventures of a Tube of Burt’s Bees Lip Balm

Burt's Bees, or everyone's favorite natural skin care company that's actually owned by a multibillion dollar corporation, is rolling out its first television campaign to remind America just how natural it is. The first commercial (above) is scheduled to air Monday, and is on YouTube with the title "Burt's Bees: Uncap Flavor." The 30-second episode begins with two cartoon bees dropping a tube of beeswax lip balm from the clouds and then follows it as other (surely natural) flavors like pink grapefruit, honey, and cherry get mixed in.

Burt's Bees reportedly did not disclose its budget for the campaign, but spent $26.4 million on advertising in 2013 and $15.9 million in the first half of 2014. That might sound like a lot for a company that prides itself on its local roots and brand sustainability, but keep in mind that the earthy-crunchy business has been a subsidiary of Clorox since 2007, when it was acquired for $913 million. Clorox's quarterly ad spending, at last count, exceeded 9 percent of its total sales, or some $135 million. That doesn't mean the commercial isn't a fine one; it's short and cute and exactly what an ad for Burt's Bees lip balm should be. And at any rate, it's a lot better than when Burt's was in the news for beezin'.

Sept. 26 2014 12:46 PM

Bond King and Wall Street Eccentric Bill Gross Abandons His Throne

Bill Gross, the famed investor and "bond king" of Wall Street, said Friday that he was leaving Pacific Investment Management Co. for a position at Janus Capital Group, effective immediately. Janus, an investment firm based in Denver, that manages around $200 billion, is tiny compared with the $2 trillion bond empire that Gross built and co-founded in Pimco. But Pimco has also performed shakily in the past year with investors pulling more than $65 billion, and the firm was reportedly preparing to fire Gross on account of his controversial management style and erratic behavior.

Gross' departure, which, as a certain financial writer muttered in the Slate office this morning, is "the most important news that no one outside of Wall Street cares about," seems to leave Pimco with a significant management hole. (That same financial writer called for Gross' resignation earlier this year.) Mohamed el-Erian, the former co–chief executive officer of Pimco and longtime heir apparent to Gross' throne, rattled investors in January with his own departure from the firm. And even for those not interested in the nuances of bond fund management, Gross' resignation starts to dim the spotlight on one of the most colorful personalities on Wall Street.

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Gross, as the New York Times wrote in a 2009 profile, "has long been celebrated for his eccentricities." A former professional blackjack player who became obsessed with the game after reading Beat the Dealer: A Winning Strategy for the Game of Twenty-One, Gross turned $200 into $10,000 in four months and used the profits to pay for an MBA. His yoga routine includes balancing on his head in a position known as the "feathered peacock," and he has credited his time spent upside down with yielding some of his best ideas. Then of course there are his investment outlooks, which if nothing else, are among the most entertaining in the industry. We'll leave you with this classic excerpt:

All right fellow frogs, so we’re being repressed and shortchanged in order to allow Uncle Sam to balance its books. Whatta we gonna do about it? “Frogs of the world unite,” as Lenin might have said, and so here’s where I harken back to Mark Twain and my second lesser-told frog story. There was this other frog who instead of being tossed into a pot of hot water was left to cool its heels in a pitcher of cold milk. Unable to jump out, he churned and churned those frog legs until eventually the milk turned into butter and the hardened butter allowed him the platform to leap to froggy freedom! Well, let’s get churnin’, fellow frogs. If the U.S. or the U.K. or any other government is going to attempt to boil us alive, let’s make butter! Butter in this instance is what PIMCO characterizes as “cheap bonds.

Sept. 25 2014 6:35 PM

How the Rich Conquered the Economy, in One Chart

When you write about the economy every day for a living, you can start feeling numb toward charts about income inequality. After all, the story doesn't change much week to week, and usually neither do the visualizations. But this one, from Bard College economist Pavlina Tcherneva, somehow still feels astonishing, and has stirred up a bunch of attention today. It shows how much of U.S. income growth has been claimed by the top 10 percent of households during economic expansions, and how much was claimed by the bottom 90 percent. Guess who's gotten the lion's share in recent years?

Through midcentury, when times were good economically, most of the benefits trickled down to the bottom 90 percent of households. Then came the Reagan era and actual trickle-down economics. Suddenly, the benefits started sticking with the rich. Since 2001, the top 10 percent have enjoyed virtually all of the gains.

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This isn't a totally new story. But it is a vivid and visceral illustration of what we've basically known to be true for a while (the graph is updated from this paper). Meanwhile, as a point of comparison, The Week's Ryan Cooper points to a similar graph of Sweden, where, until recently, economic gains were much more evenly dispersed. As he notes, even in the era of globalization and high finance, it's clearly possible to structure an economy so that it benefits someone other than the rich.

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Sept. 25 2014 6:19 PM

Subprime Auto Lenders Are Using This Terrifying Device to Track Their Borrowers

The New York Times has a big story out on the dangers of subprime lending—and in this case, those dangers aren't just financial. In the article, Michael Corkery and Jessica Silver-Greenberg examine the lengths to which auto lenders are going to ensure that the riskiest of borrowers make their payments on time. For many, the technique of choice is installing a "starter interrupt device" in the borrower's car that allows the lender to track the car and remotely disable its ignition.

If this sounds a tad bit problematic, that's because it is. From the Times:

Some borrowers say their cars were disabled when they were only a few days behind on their payments, leaving them stranded in dangerous neighborhoods. Others said their cars were shut down while idling at stoplights. Some described how they could not take their children to school or to doctor’s appointments. One woman in Nevada said her car was shut down while she was driving on the freeway.
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Lenders defend the use of starter interrupt devices as allowing them to make loans to the millions of Americans who otherwise would not qualify. In 2013, around 25 percent of all new auto loans were made to borrowers with credit scores below 620. The recent surge in this kind of lending—fueled by Wall Street's appetite for high-risk, high-return investments—has sparked fears that subprime auto loans are the new subprime mortgages. Yet again, the iffy assets are being pooled, sliced, packaged, and repackaged almost beyond recognition. Some banks have loosened credit standards so much that they are helping people who have lost their jobs or recently declared bankruptcy to take on loans for thousands of dollars.

In August, economists at the Federal Reserve Bank of New York examined data on subprime auto lending and concluded that the boom was not too concerning. They noted that while auto finance companies have ramped up their lending to subprime borrowers, banks remain more cautious. "Subprime lending is definitely on the rise in absolute terms, although the increase in prime auto lending over the same period makes the relative increase in the subprime share less pronounced," they wrote.

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What the Times story makes clear is that questionable financials are only the tip of the iceberg with subprime auto lending. In addition to safety concerns, the geotracking starter interrupt devices have prompted ethical questions about surveillance and debt collection. One woman told the Times that when her daughter developed a high fever, she could not drive her disabled vehicle to an emergency room. Another feared the tow truck used to repossess her vehicle would lead her abusive husband to the shelter she was hiding at. And while many states prevent lenders from seizing cars until borrowers miss payments for 30 days, some consumers claim their vehicles have been shut off with little warning only a few days after a deadline passes.

Sept. 25 2014 1:24 PM

Stand Out by Closing the Executive Pay Gap

This article originally appeared in Inc.

Are CEOs properly compensated, compared with unskilled workers? If you think so, you're in the minority. That's one takeaway from recent research by Chulalongkorn University’s Sorapop Kiatpongsan and Harvard Business School’s Michael Norton.

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Their other key finding is a fascinating distillation of what people think CEOs should make compared with unskilled workers. Here are the numbers, according to Gretchen Gavett’s superb summary on the Harvard Business Review blog:

  • U.S.-based respondents to the survey Kiatpongsan and Norton used believe that, ideally, CEOs should earn 6.7 times what unskilled workers earn. 
  • The actual CEO-to-worker compensation ratio at U.S.-based companies in the Fortune 500 is 354. That's right: On average, Fortune 500 CEOs earn 354 times what unskilled workers at their companies do. In actual numbers, the average CEO compensation is $12,259,894, compared with $34,645 for their workers. 

What does it all mean for today’s leaders and entrepreneurs? From my perspective, these numbers present a clear opportunity to differentiate yourself—specifically, to brand your company as a leader in progressive compensation practices.

Why would you do this? Mainly because you’ll earn extreme employee loyalty and customer respect. Consider the recent six-week saga that played out in New England at Market Basket, a supermarket chain of 71 stores. The short version of the saga is this: Employees were willing to lose their jobs to protest the firing of a longtime CEO who they believed was exceptionally generous in terms of compensation and benefits. Moreover, during the six weeks, customers largely sided with fired CEO Arthur T. Demoulas and the employees. It was as if they felt, to quote a headline in Esquire, that “the last stand for the middle class” was taking place in the parking-lot protests at Market Basket’s headquarters. 

What steps can you take, then, to brand yourself as an organization taking a stand against what many see as unjust compensation disparities? Interestingly, it’s another supermarket leader—John Mackey, co-founder of Whole Foods—who has famously advocated for making compensation transparent. One of the main transparencies at Whole Foods is this: Whole Foods caps executive pay at 19 times the pay of the average store worker.

Here’s the thing. In 2007, Whole Foods raised the executive compensation cap from 14 times the average pay to its current 19 times. The reason, Mackey stated in a letter to all employees, was “to make the compensation to our executives more competitive in the marketplace.” In addition, Mackey told Inc. last year that raising the cap might happen again in the future, if Whole Foods again needs to remain competitive for executive talent.

The point here is not to nitpick at Whole Foods. It’s only to say that the company faces a different executive recruiting-retention challenge than that of its ratio-free rivals. And if it needs to increase the ratio, it needs to manage how employees and other shareholders will react to that change. But those seem like small prices to pay for maintaining a policy that brands the company’s compensation practices as unassailably progressive. 

Sept. 25 2014 9:37 AM

Coffee Is Killing Your Productivity

This article originally appeared in Inc.

You already know that caffeine is a drug, but really thinking about what that means in terms of physiological effects on your body can be a little alarming.

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Travis Bradberry, co-founder of emotional intelligence testing and training company TalentSmart, is out with a new post on LinkedIn that makes the case as to why your daily coffee habits are terrible for your personal productivity. Bradberry points to research from Johns Hopkins Medical School, which suggests that those good vibes and the boost in energy you get from drinking a cup of coffee are the results of temporarily reversing the symptoms of caffeine withdrawal. 

In other words, that euphoric short-term state that you enter after drinking coffee is what nonhabitual caffeine consumers are experiencing all of the time. The difference is that for coffee drinkers, the feeling doesn't last. “Coming off caffeine reduces your cognitive performance and has a negative impact on your mood. The only way to get back to normal is to drink caffeine, and when you do drink it, you feel like it’s taking you to new heights,” Bradberry explained. “In reality, the caffeine is just taking your performance back to normal for a short period.”

It gets worse. Bradberry goes on to explain why coffee also results in a loss of inhibitions. He says that caffeine triggers the release of adrenaline—the source of the “fight or flight” response. “The fight-or-flight mechanism sidesteps rational thinking in favor of a faster response. This is great when a bear is chasing you, but not so great when you’re responding to a curt email,” Bradberry writes. 

What's more, once caffeine is in your system, it takes a very long time to leave. If your morning ritual involves having a cup of coffee at 8 a.m., 25 percent of that caffeine will still be in your body at 8 p.m. When you do turn in for the night, any caffeine left in your body will result in reduced REM sleep—the deep sleep your body needs to recharge.

How's that for a grim world for coffee lovers? Even if you're not ready to give up your daily caffeine intake, Bradberry’s points do provide a reason to consider at least cutting back. As Inc.'s Jessica Stillman pointed out in a recent post, the most important thing to consider when limiting your caffeine consumption is when and if your body really needs it. For example, after a good night's sleep, your body is refreshed. So consider holding off on brewing that cup of coffee—at least till late morning anyway. 

Sept. 24 2014 3:59 PM

There Aren’t Enough Marriageable Men

In 2012, a record one-in-five Americans 25 or older had never been married, the Pew Research Center reported today.* This wasn't surprising, as matrimony has been on a decline for decades now. However, Pew did offer an extremely elegant, two-part illustration of the role economics have played in that process.

Part I: What are America’s young, unmarried women looking for in a mate? A steady job.

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Part II: What do young, unmarried men lack? Steady jobs. For every 100 never married women between the ages of 25 and 34, there are just 91 employed and never-married men the same age. Where once America had a surplus of working single men, now it has a shortage.*

A dearth of eligible bachelors isn't the only reason marriage has been on the wane. Young people are getting married later in part because they spend more time in school. Back in the day, couples got hitched, then got settled financially; today, they prefer to get their finances in line first. Oh, and then there's birth control, changing social mores about sex out of marriage, etc.

But economics are an obvious and unavoidable dimension of the issue. That's why it's far-fetched to think we can revive the institution of marriage in a meaningful way without addressing the underlying forces that have left young men in such shabby financial shape.  

*Correction, Sept. 24, 2014: This post originally misstated that Pew's report was released Tuesday. It was published Wednesday. It also misstated that the number of employed and never-married men between the ages of 25 and 34 for every 100 never-married women the same age. There are 91, not 90.

Sept. 24 2014 1:12 PM

The “Typical” Billionaire Has $3.1 Billion and Other Fun Facts About the World’s Wealthy Elite

What does a "typical" billionaire look like in the year 2014? The annual Wealth-X and UBS Billionaire Census, which gives an in-depth accounting of the world's wealthiest people, devotes an entire section to answering this question. Here are a few bullet points:

  • The typical billionaire has a net worth of $3.1 billion.
  • The typical billionaire is 63 years old. (It was 62 last year.)
  • The typical billionaire has nearly half of his or her wealth in ownership of privately held businesses.
  • The typical billionaire owns four properties worth some $94 million altogether.
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Want to break it down further? According to the survey, there are a record 2,325 billionaires in the world today, up 7 percent from the previous year. Their total wealth increased 12 percent in the same period to $7.3 trillion, which is equal to 4 percent of global wealth and greater than the combined market capitalization of all the companies in the Dow Jones Industrial Average. As might be expected, men account for 2,039 of billionaires worldwide (or more than four in five) and $6.4 trillion of their combined wealth.

Billionaires also have what the Wealth-X/UBS report charmingly refers to as a "billionaire network." The typical billionaire has "business or personal relationships with another nine UHNW [ultra high net worth] individuals, three of which are billionaires," it notes. That means the typical billionaire has a friend circle worth an estimated $16 billion. The "must-go" events on their social calendar, according to the report, include sporting events (particularly the U.S. Masters and PGA Championship), the Davos World Economic Forum, and various elite art shows (a good deal of which are sponsored by UBS).

Should you wish to track down a billionaire, you're best off looking in New York, home to 103 billionaires—far ahead of the runners-up, Moscow (85) and Hong Kong (82). You could also try crashing an alumni event at the University of Pennsylvania, which counts 25 billionaires among its graduates (Harvard and Yale are close behind). In terms of regions, Europe still has the largest number of billionaires, as you can see in the map from Statista below, and tiny little Liechtenstein boasts the highest number of billionaires per capita, at five.

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Those are the world's typical billionaires. But luckily for former Oracle CEO Larry Ellison—atypical, at least by his net worth of nearly $50 billion—Wealth-X and UBS report that a good chunk of the world's billionaires also share his passion for yachting.

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