A blog about business and economics.

April 18 2014 6:41 PM

Do White Castle Prices Tell Us Anything About the Minimum Wage?

Economists love hamburgers. Specifically fast-food burgers. This is partly because all right-thinking human beings love ground meat on a bun, but it’s also because the sandwich makes a handy yardstick for international financial comparisons. The ingredients and labor involved in preparing a Big Mac are pretty much the same no matter where you are in the world, so by looking at how many hours of toiling it takes a worker to earn enough to purchase one, you can get a sense of how wages really stack up across countries. The Economist famously created the Big Mac index in 1986 to see which currencies were overvalued. It started as a joke. Now, as the magazine proudly notes, it’s a subject of academic study.

Sadly, I don’t think the Wall Street Journal’s cheeky White Castle Minimum Wage Index” is destined for the same longevity. The paper looked at how many delicious steamed sliders (and don’t get me wrong, they are delicious) the minimum wage has been able to purchase over time. The point is that as it notes, in 1981, the $3.35 minimum could buy a whole dozen. Today, at $7.25, it could purchase just 10. This is supposed to illustrate “the dilemma caused by raising the minimum wage”—namely, that it leads fast food chains and other low-wage employers to raise prices. When the federal minimum jumped about 24 percent between 2007 and 2009, burger prices popped up by the same.


Graph: WSJ


Which is fair enough. Economists have regularly found that the minimum wage impacts fast food prices, which, as the WSJ notes, makes sense because industry is so reliant on unskilled labor. But two big problems. First, when I look at this chart, I mostly see the effects of steady inflation on burger prices post 1980 (presumably, they didn't only rise when labor costs went up). Second, if the goal is to capture broader living standards, it doesn’t make much sense to measure the value of the minimum wage over time using the price of a single product that’s so closely tied to it. The Big Mac is a great tool for geographical comparisons, because its production is so standardized across countries. You don’t need to control for those same cross-border differences when you look at wages and living standards in a single country over time. Better to just use inflation.

If you are going to use a single expense to measure living standards, though, you’re probably better off using something major like rent. As far as I know, nobody actually counts White Castle Burgers as a major line item in their monthly budget. Tasty as they might be.

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April 18 2014 4:45 PM

Why People Are Freaking Out Over General Mills’ New Legal Policy

Starting today, you might want to think twice about downloading a dollar-off coupon for Cinnamon Toast Crunch or a two-for-one discount on Yoplait. Those small savings will now cost you the right to sue.

General Mills, the massive food company behind Cinnamon Toast Crunch, Yoplait, Cheerios, and dozens of other labels, added language to its website this week that fundamentally alters its customers’ legal rights. Under the new terms, people who interact with General Mills in a broad range of ways—downloading a coupon online or entering a contest, for example—waive their right to class action and agree to resolve any disputes with the company through informal negotiations or binding arbitration.

To get a sense of just how broad the umbrella for these class action waivers are, here’s a relevant section on the changes from General Mills’ website:

In exchange for the benefits, discounts, content, features, services, or other offerings that you receive or have access to by using our websites, joining our sites as a member, joining our online community, subscribing to our email newsletters, downloading or printing a digital coupon, entering a sweepstakes or contest, redeeming a promotional offer, or otherwise participating in any other General Mills offering, you are agreeing to these terms.

Needless to say, people are unhappy. After all, who wants to think about forfeiting legal rights to a massive corporation when they’re just trying to get a discount on Pillsbury cookies and Toaster Strudel? And waiving your right to a class suit feels like a tall price to pay for a few dollars or cents in savings.

“I will have to take to wearing a hat into the grocery store that says, in boldface print of course, ‘By accepting payment for any purchases I may make, you hereby agree that trial by jury and lawsuits including class actions remain available means for the resolution of any disputes,’” says Ted Mermin, executive director of the Public Good Law Center and a professor of consumer law at UC–Berkeley School of Law. “'I will set my Web browser to carry a cookie conveying the same message.'”

Joking aside, class-action waivers, while disadvantageous to consumers, have been quite common ever since the Supreme Court upheld them in its 2011 ruling in AT&T Mobility v. Concepcion. “The case provides corporate America with another useful tip on how to avoid costly litigation: If you haven't already done so, rush to lock your customers and/or employees into invisible mandatory arbitration agreements that will bar them from challenging your misconduct in a class-action suit,” Dahlia Lithwick wrote in Slate at the time.

And rush they have. AT&T, Sprint, eBay, Amazon, and Dropbox are just a handful of the companies that have introduced arbitration clauses and class-action waivers into their terms of service—aka those dense pages of legalese that only the rarest of users ever bothers to read in full. “Class action waivers are everywhere,” says Florencia Marotta-Wurgler, a professor at New York University School of Law. Her research shows that fewer than one in 1,000 people will click on website links to view the full terms of a contract before hitting “I agree.”

What’s so unusual about the General Mills situation is that consumers, all of a sudden, are taking note. That’s at least in part because the changes have drawn extensive and critical coverage from the media, but also because the scope of how consumers can become subject to this agreement is unprecedented.

“What's unusual about General Mills' move is that we haven't seen such a broad-based waiver from a consumer packaged goods company,” explains Eric Goldman, a professor at Santa Clara University School of Law and director of its High Tech Law Institute. “General Mills is using a direct point-of-contact with its customers—its Web interactions—to create new contract terms that would be difficult or impossible through the normal distribution chain.”

Compounding that is the fact that General Mills largely botched the rollout of its new policy. Rather than broadcasting the changes, the company quietly added the terms to a legal statement online and has since appended a thin gray advisory bar to its website. Initially, though, the New York Times reported that placing an order through the General Mills online store did not trigger any sort of notice that the company had changed the legal terms governing the purchaser.

When consumers aren’t made to explicitly agree with terms of use, a major change like a class-action waiver won’t be considered enforceable unless the company can demonstrate it gave “reasonable notice.” This notification needs to be fairly prominent, so the initial update on the General Mills website may not have made the cut. “Courts have said it’s not reasonable notice when companies do way more than that,” Marotta-Wurgler notes.

We reached out to General Mills for comment, and a spokesman referred us to a post on the company's blog. "The policy doesn’t preclude a consumer from pursuing a claim. It merely determines the forum," they write. "Arbitration is a straightforward and efficient way to resolve such disputes."

Even if the General Mills changes do hold up, legal experts say it might not be such a bad thing. “I will say that I will be grateful to General Mills if its foray into forced arbitration makes people start to ask a little more seriously whether we really want a society in which fundamental rights can be waived with the click of a mouse,” says Mermin. If nothing else, people certainly are talking.

April 18 2014 3:08 PM

Why Pope Francis Has Been an Effective Leader

This story first appeared in Inc.

One year ago, Cardinal Jorge Mario Bergoglio from Argentina become Pope Francis. Upon his election, the new pope asked the crowd at St. Peter’s Square at the Vatican, “Pray for me.”


Since then, the 77-year-old pontiff, who took the name Francis after St. Francis of Assisi, has become a popular leader in part because of his informal and inclusive attitude. Positioning himself as a champion of the poor and disenfranchised, he has refused to live in the papal palace, rides the “popemobile” without the bulletproof glass casing, and urged priests to give money to those less fortunate and not to drive expensive cars. His first year has been marked by events like his first Holy Thursday, when he washed the feet of young prisoners in an act of uncommon humility.

Many Catholics also have been encouraged to see that Francis has taken less hardline positions on some issues than his predecessors. He has said he does not judge gay people as long as they “seek God and are of good will,” and recently came out to say divorcees should not be condemned by the church.

Sally Wilson, a non-Catholic who recently traveled to St. Peter’s Square from Texas, tells NPR that the pope has particularly wide appeal: “I think his serving humanity and his love of people have an effect that makes him feel like he’s a pope for all, not just for Catholics.”

But the real secret behind Francis’ effectiveness may be the fact that people feel like he actually loves his job. 

Father John Wauck, a professor at the Opus Dei Pontifical University of the Holy Cross in Rome, tells NPR he has seen many popes, but what separates Pope Francis’ leadership is his positive disposition.

“He is not a showman in the way John Paul was, and he’s not retiring in the way Benedict was. Francis is completely comfortable in his own skin. He is transparently a happy person,” Wauck says. “It sounds really simplistic, but unfeigned happiness on the part of a public figure is not that common.”

April 18 2014 9:38 AM

Walmart-2-Walmart Will Compete With Major Money Transfer Services

First organic foods, now financial services. Walmart has announced that it will roll out an in-store money transfer service for customers beginning April 24. The news came just over a week after the retailer said it was jumping into the organic foods market and would carry Wild Oats organic food items at a fraction of competitors' costs.

The new financial product, Walmart-2-Walmart Money Transfer Service, is a partnership with financial services firm Ria that will allow customers to transfer funds between more than 4,000 Walmart stores in the U.S. As with most Walmart products, the company says its prices will undercut those offered by competing services. “Walmart-2-Walmart brings new competition and transparent, everyday low prices to a market that has become complicated and costly for our customers,” Daniel Eckert, senior vice president of services for Walmart U.S., said in a statement.


Here’s how it will work. To make a transfer, customers will walk into a store, go to the designated “money center” or customer service desk, and fill out a form with the transfer amount, recipient’s name, and state the funds are heading to. Cash and debit cards will both be accepted for payment. Walmart-2-Walmart will then transfer the money and the person on the other end can pick the cash up at any store in the specified state within a few minutes, Walmart spokeswoman Sarah McKinney said.

Customers using Walmart-2-Walmart will pay $4.50 to transfer up to $50, and a flat rate of $9.50 to transfer between $50 and the maximum of $900. Walmart says that competitors charge $4.75 to $5 for transfers below $50, and anywhere from $11 to $76 for larger sums.

Financial services make up a relatively small portion of Walmart's business—just 1 percent of U.S. sales in 2013, according to Reuters. But with Walmart-2-Walmart, the company is hoping to tap into the 28 percent of Americans who classify as either unbanked (they don't have their own bank accounts) or underbanked (they have poor access to the financial services normally offered by banks). For these people, money transfers often make up a large and important part of basic household bookkeeping.

Walmart will continue to offer other financial services and money transfer options, such as MoneyGram, which facilitates international and online transfers. Walmart-2-Walmart will stick strictly to domestic, in-store transfers, but analysts say the service could still prove a formidable threat to companies like MoneyGram that rely on the business they get from Walmart locations.

“The bigger loser is MoneyGram,” Rahul Agarwal of Guggenheim Partners told Reuters. “MoneyGram gets a quarter of their revenue through that agreement.” Shares of MoneyGram International fell 3.2 percent Thursday on the news, while Western Union, another provider of money transfers, saw its stock drop 5 percent.

Walmart expects its new service and competitive fees to be a traffic driver for stores across the U.S. It would also seem that hosting the transactions on-site might keep some of that money in-house for good, if customers turn around and spend the funds on Walmart products.

April 17 2014 11:07 AM

The Great Whitefish Shortage Strikes Passover

Midway through Passover, Jewish families across the country are reckoning with the one plague no one could avoid—the polar vortex.

Whitefish, the main ingredient in the Jewish holiday staple known as gefilte fish, is in short supply after record lows and a lingering deep freeze have left the Great Lakes ice-coated and inaccessible to fishermen. Distributors are feeling the pinch as they’ve turned away requests for the fish while customers are torn between feeling nostalgic for tradition and secretly pleased to forgo an appetizer that, according to some, tastes like cat food.


To get a sense of how bad and wide-ranging the whitefish shortage really is, I called up Kevin Crespel, a manager at Universal Seafood in North Hollywood. Crespel said his company usually sells a couple hundred pounds of whitefish a week, but lately it’s dropped to basically zero. They’ve been substituting with another fish, a Mediterranean white seabass, which, he assured me, is still kosher.

“It’s the worst deep freeze since 1979, when 95 percent of the surface was covered,” he said. “Now it’s around 90 percent. It’s still melting and the boats can’t get out because there are still chunks of ice everywhere.”

Even if they can get onto the lakes, many fishermen choose not to take that risk. The nets they use to catch whitefish can cost tens of thousands of dollars, and one or two snags on a sharp bit of ice can render them useless. Whitefish comes mainly from the Great Lakes and western Canada.

As supply dwindled, prices shot up. Crespel said whitefish typically sells wholesale for $9.95 a pound, but lately has risen to $14.95 a pound. Consumers are likely paying even more than that, by the time local distributors and delis tack on their own fees. “People aren’t really willing to pay that right now,” he says. The Mediterranean white seabass, on the other hand, costs a mere $7 a pound.

Universal Seafood has held up fine through the shortage because whitefish is a small, if consistent, part of its business. Even with warmer temperatures around the corner for most of the country, Crespel said it could be weeks or even months before the ice melts enough to let fisherman resume their activity on the Great Lakes.

Thankfully, not all is lost for Passover observers. Unlike 2008, there's no shortage on matzo.

April 16 2014 6:43 PM

The Scars of the Housing Bust (in One Very Telling Chart)

If you’re ever starting to suspect that we’ve left the Great Recession behind for good, I sincerely recommend reading The House of Debt blog. Launched by economists Amir Sufi and Atif Mian in advance of their upcoming book, it’s a fast-acting cure for misplaced optimism. While browsing it, I was struck by the graph below, illustrating how the housing bust is still hamstringing American spending. The blue line traces the consumer-spending trend in states where home prices fell the least, while the red line traces it in states where they fell the most. Each group contains about 20 percent of the U.S. population. And as you can see, the crash states are still well behind. Before adjusting for inflation, their spending had just barely returned to 2006 levels as of 2013.


House of Debt

Sufi and Mian have made the academic case that spending before the recession really was driven by the “wealth effect” of rising home prices. People saw their housing values rocket up, and felt richer. Often, they took out second mortgages to spend. When the market crashed, so too did their finances. It may sound like an intuitive point to some, but it's a key part of understanding why the recovery has been so underwhelming. The difference between states that got the full brunt of the housing collapse and states that didn’t, as shown in this chart, suggests that its scars are still very much with us. And they probably will be for a long while.

April 16 2014 5:55 PM

Yellen Lays Out Three Main Fed Concerns in Speech

In case you missed it, Janet Yellen spoke today at the Economic Club of New York. Most of her comments were familiar: She reiterated Fed officials' expectations for continued, moderate economic growth and for short-term interest rates to remain low for "some time." She said the central bank projects the economy could return to healthy levels of employment and inflation by the end of 2016.

"If this forecast was to become reality, the economy would be approaching what my colleagues and I view as maximum employment and price stability for the first time in nearly a decade," she said.

Yellen outlined three big questions that central bank officials will consider as they assess the ongoing economic recovery:

  1. Is there still significant slack in the labor market?
  2. Is inflation moving back toward 2 percent?
  3. What factors may push the recovery off track?

Labor market slack was a focus of Yellen's first public speech back in March, where she argued against giving up on the long-term unemployed. On Wednesday, she said again that the high long-term unemployment rate might fall if the economy picks up steam.

Inflation has slowed as of late, and Yellen said inflation that persisted below 2 percent could "pose risks to economic performance" by allowing adverse economic events to trigger deflation. She noted that as slack in the labor market diminishes, the Fed expects to see less of a drag on inflation.

With regard to the third and final question, Yellen gave the catch-all response of "myriad factors continuously buffet the economy."

One interesting and newish point in Yellen's speech was a shifted evaluation of how the harsh winter may have affected financial markets and the broader economy. In her March speech, Yellen said weather was "in part" to blame for the recent slowdown in economic activity. On Wednesday, she modified that statement to say a "significant part" of the lag could be attributed to weather.

April 16 2014 4:55 PM

Google Misses on Q1 Earnings as Mobile Drags Down Ad Prices

Shares of Google tumbled more than 5 percent just after the bell on Wednesday, following first-quarter earnings that appeared to suggest the search giant is struggling to adjust to a shift to mobile advertising.

Google missed on both the top and bottom lines. It reported revenue of $15.42 billion, shy of the $15.52 billion that analysts had predicted. Earnings per share were $6.27, also below estimates for $6.42 a share. The company’s stock price, which closed at $556.54, fell to around $524 in after-hours trading on the news.


The average cost-per-click for ads on Google and sites in its network fell roughly 9 percent over the first quarter of 2013, and was more or less unchanged from the last quarter of 2013. The overall number of paid clicks on those ads increased approximately 26 percent over the first quarter last year.

That drop in price is largely because of a broader shift to mobile, where small screens limit the number of displayable ads and make marketers more selective. Bloomberg reported that the cost-per-click for search ads on smartphones plunged 35 percent during the first quarter in the U.S., while ad prices on tablets rose.

April 16 2014 3:11 PM

The Upside of Double Down

KFC has found its McRib.

The chicken chain, which has become a bit of an afterthought in the great race to innovate the next bizarro fast food delight (here’s looking at you, waffle taco), is planning to bring back its Double Down sandwich for a limited time starting April 21, according to USA Today. Sandwich is of course a loose term here. The Double Down, in case you’ve forgotten, consists of two pieces of fried or grilled poultry with a layer of bacon, cheese, and special sauce between them. There’s no bread, but it’s all wrapped up so it can be eaten by hand. It’s basically half-assed chicken cordon bleu for diners who have trouble with forks. 


I compare the Double Down to the McRib because they’re now both officially fast food events—culinary oddities that cause a commotion by periodically sweeping, comet-like, through menus. That said, they may actually serve slightly different business functions. Writing for the Awl in 2011, Willy Staley made a great speculative case that the McRib was essentially a commodities play. McDonald’s consistently brought it to market during the fall, when the price of pork was at a low. As pork got more expensive, it would disappear again from whence it came. (Which is to say, cold storage.) Meanwhile, at least according to a quick search of Google Trends, the buzz it generates doesn’t seem to affect the overall frequency of searches for McDonald’s.

Bringing back the Double Down, on the other hand, strikes me as a pure PR play. It’s debut in 2010 led to a brief media sensation—Sam Sifton, the New York Times’ dining critic at the time, pronounced it “a disgusting meal, a must-to-avoid”—and its initial sales convinced KFC parent company Yum! Brands to keep it on menus indefinitely. Eventually, it slowly drifted off menus. But returning to Google Trends, it seems that when commotion over the Double Down peaked, the overall attention paid to KFC popped as well. 

And right now, KFC could probably use all the attention it can get. Chick-Fil-A recently usurped its throne as the king of American chicken chains.* And while Yum’s annual report doesn’t break out Taco Bell, Pizza Hut, and KFC, Yum’s U.S. same-store sales across all brands were flat in 2013.

So heck, why not bring back a greasy fascination? Look, I’m already writing about it. And you're reading! If it’s a publicity stunt, it’s already working at least a little.

*Correction, April 16, 2014: This post originally misspelled the name of fast food chain Chick-Fil-A.

April 16 2014 11:42 AM

Another Father of Bitcoin?

More than a month has passed since Newsweek opened the conspiracy floodgates with a cover story claiming that bitcoin’s founder was an unassuming, Toyota Corolla–driving, model-train-loving man in California named Dorian Satoshi Nakamoto. One of the pieces of circumstantial evidence was that the punctuation and “other format quirks” in the original bitcoin proposal were “consistent with how Dorian S. Nakamoto writes.” After the report broke, Nakamoto issued a statement to “unconditionally deny” Newsweek’s story and his involvement in bitcoin.

Now, researchers from a British university have run their own comprehensive forensic linguistics analysis and ID’d a new candidate as the digital currency’s “probable creator”: blogger and former George Washington University law professor Nick Szabo.

The “Project Bitcoin” study examined linguistic similarities between the bitcoin paper and hundreds of documents written by 11 other individuals rumored to be its author, including Nakamoto. Jack Grieve, a lecturer in forensic linguistics at Aston University and the leader of the study, said in a statement that the “number of linguistic similarities between Szabo’s writing and the Bitcoin paper is uncanny”:

Our study adds to the weight of evidence pointing towards Nick Szabo. The case looks pretty clear-cut. Szabo is an expert in law, finance, cryptography and computer science. He created “bit gold”, a precursor to Bitcoin, and was looking for collaborators in 2008. Did Nick Szabo create Bitcoin? We’re not sure, but we think he probably wrote the paper so it’s certainly worth a closer look.

The hedging in that statement makes pretty clear that the researchers have learned the lesson of the Newsweek debacle, carefully avoiding claims of a smoking gun. A spokesman for Aston University said the report has not been peer reviewed and is not set to be in the near future. Szabo did not respond immediately to a request for comment.

The Aston University release goes on to detail the correlations between Szabo’s writing and the text of the bitcoin paper:

The results showed that of the eleven Szabo is by far the closest match, with a large number of distinctive linguistic traits appearing in both the Bitcoin paper and Szabo’s blogs and other writings. This includes the use of: the phrases “chain of…”, “trusted third parties”, “for our purposes”, “need for…”, “still”, “of course”, “as long as”, “such as” and “only” numerous times, contractions, commas before ‘and’ and ‘but’, hyphenation, ‘-ly’ adverbs, the pronouns ‘we’ and ‘our’ in papers by a single author; fragmented sentences following colons and reflexive (-self) pronouns.

And here’s one last point: The study notes that the bitcoin paper was drafted using LaTeX, an open-source document preparation system. Szabo, they add with a hint of conclusiveness, uses LaTeX for all his publications, too.