How Many Americans Live on Less Than $2 Per Day?
This month, Stanford University’s Pathways magazine gave new meaning to the phrase “third-world America” when it published an article reporting that, in any given month of 2011, 1.65 million U.S. households with children were living on less than $2 per person, per day—the sort of extreme poverty threshold usually associated with developing nations. According to H. Luke Shaefer of the University of Michigan and Kathryn Edin of Johns Hopkins, the number of families living under that low, low line has grown 159 percent since 1996. This, they argued, may have partly been the result of Bill Clinton’s welfare reforms, which made it harder for many families to receive cash assistance.
“The prevalence of extreme poverty in the United States may shock many,” the pair wrote. But is it really as prevalent as they suggest? A new report from the Brookings Institution argues: maybe not.
Part of the reason Shaefer and Edin’s headline number was so startlingly high—they calculated that the extreme poverty rate among households with children was a chilling 4.3 percent—could be attributed to a very narrow definition of income that ignored all noncash safety net benefits. Today, most of the government’s poverty-fighting efforts don’t involve straightforward cash. Food stamps? Housing vouchers? Tax credits? None were included. Once they accounted for those programs, only 613,000 families were living below the $2-a-day mark in 2011—still up by about half since the Clinton years.
At a bare minimum, then, hundreds of thousands of American households are living in true destitution. (For a family of three, the federal poverty line works out to about $17 per day, per person.)
According to the new Brookings report, however, even Shaefer and Edin’s most conservative estimates of extreme poverty might have been too high. If you look at data on income, the pair’s estimates essentially hold up. But Brookings fellow Laurence Chandy and MIT Ph.D. student Cory Smith found that if you examine U.S. consumption statistics, then the number of families surviving on less than $2 each per day falls close to zero.1
The Brookings chart below shows how estimates of extreme poverty can change, depending on your definitions and data source. Estimates based exclusively on cash income are on the far left; estimates including cash income and noncash government benefits are in the middle; and consumption-based estimates are on the far right.
Different Estimates of the $2 a Day Poverty Rate
America’s consumption data, which generally comes from the Department of Labor’s Survey of Consumer Expenditures, is notoriously shoddy. But critics generally complain about its failure to capture spending by wealthier households, which tend to underreport their personal budgets. Generally speaking, it’s thought to be a decent gauge of how middle-class and poorer families use their money.
So why does using consumption statistics lead to such drastically lower estimates of extreme poverty? It might be a data problem. It’s possible that the consumer surveys simply miss America’s poorest households, or that low-income families fail to report some of their income when asked. But even if the true extent of extreme poverty is ambiguous, the possibility that it exists at all should trouble us. “While the estimates we obtain vary,” Chandry and Smith write, “the fact that even some have millions of Americans living under $2 a day is alarming.”
1 Footnote: Interestingly, they also find that if you use the exact same methods researchers use to estimate developing world poverty, then the number of Americans living on $2 per day also falls to zero.
Zara Is Sorry for Making a Shirt That Looked Like a Nazi Concentration Camp Uniform
Zara says it is very, very sorry for selling the children’s T-shirt you see up above, which looks awfully similar to the uniforms Jews wore in Nazi concentration camps. The gold star says “Sheriff,” because the tee was apparently meant to invoke old westerns. (Were Texas law men ever into blue sailor stripes?) Anyway, here are some Jews dressed up at Buchenwald, as a frame of reference. Their stars have a big N on them, which stands for Niederländer.
Suffice to say, Twitter was outraged, and Zara is pulling the garment.
This seems like a tidy demonstration of why diversity is useful in the workplace. I’m just spitballing here, but it feels pretty unlikely that any Jews got a look at this shirt before it went into production. Had they, maybe one of them would have said: “Hey, this looks like something that might trigger my grandmother’s PTSD."
Operation SLOG Is Uber’s Aggressive Plan to Take Out Its Competition
Uber and Lyft are engaged in an all-out war for dominance in the emerging ride-sharing market. And Uber is dealing some pretty low blows to stay ahead. Two weeks ago, Lyft accused Uber employees of ordering and canceling thousands of rides on its service in a deliberate sabotage attempt. Uber denied these allegations. So Casey Newton at the Verge did some more digging into Uber's alleged tactics for destroying its competitors. From the Verge:
[O]ne Uber contractor The Verge spoke with said Lyft’s complaint had merit. "What’s simply untrue is that not only does Uber know about this, they’re actively encouraging these actions day-to-day and, in doing so, are flat-out lying both to their customers, the media, and their investors," the contractor said. Until now, the canceled Lyft rides have been understood as a kind of prank call designed to keep competitors’ drivers off the road. But interviews and internal documents suggest another reason: Uber’s recruitment program has vastly increased in size and sophistication, and recruiters cancel rides in part to avoid detection by Lyft.
Uber has a name for this recruitment program: Operation SLOG. It hit the ground in New York just as Lyft was preparing to launch in the city:
With Lyft’s arrival in New York imminent, Uber said it was creating a "street team" charged with gathering intelligence about Lyft’s launch plans and recruiting their drivers to Uber. Contractors were then handed two Uber-branded iPhones and a series of valid credit card numbers to be used for creating dummy Lyft accounts. Uber assumed every contractor would be caught by Lyft eventually; the second phone, according to a contractor interviewed by The Verge, was issued so "you would have a backup phone if and when that happened so you wouldn’t have to go back."
The Verge reports that contractors could earn $750 for each driver they recruited to Uber. The so-called street team used a private GroupMe forum to keep each other appraised of which Lyft drivers had already been pitched and had an online form they gave Lyft drivers interested in switching platforms to fill out. In one email obtained by The Verge, an Uber marketing manager ends a message to contractors with the hashtag #shavethestache. (Lyft drivers place a furry pink mustache on their cars.)
In a brilliant PR move that we cannot confirm but might assume was executed by Uber's newest hire, David Plouffe, the company did not respond to The Verge for comment until it had pre-empted the forthcoming story with a post on its blog that introduced Operation SLOG ("Supplying Long-term Operations Growth") as an aggressive but legitimate recruiting program. "We never use marketing tactics that prevent a driver from making their living—and that includes never intentionally canceling rides," Uber wrote.
Perhaps. But the way the stories are shaking out, it will probably take a lot more than a hastily compiled blog post for Uber to dispel that claim.
A Fight Over Legroom Forced a Plane to Divert. Airlines Should Have Seen This Coming.
On Sunday, United Airlines Flight 1462 from Newark to Denver was forced to divert to Chicago. When the plane landed at O'Hare International Airport, city police and TSA officers escorted from the aircraft two passengers who had caused an in-flight kerfuffle. The cause of their fight? Legroom.
The fight began after the first offending passenger (the Transportation Security Administration declined to give names) deployed the Knee Defender. This pocket-sized travel device locks in place the fold-out tray on the back of airline seats, preventing the person in front of you from reclining. It retails for $21.95, which seems a small price to pay for uninfringed legspace during an otherwise crammed flight. From the AP:
The fight started when the male passenger, seated in a middle seat of row 12, used the Knee Defender to stop the woman in front of him from reclining while he was on his laptop, according to a law enforcement official with knowledge of the situation who spoke on condition of anonymity because they are not authorized to speak.
A flight attendant asked him to remove the device and he refused. The woman then stood up, turned around and threw a cup of water at him, the official says. That's when United decided to land in Chicago. The two passengers were not allowed to continue to Denver.
The Knee Defender, as it turns out, is not strictly prohibited by the Federal Aviation Administration but is banned by most major U.S. airlines, including United.* Still, you can't really blame the passenger for trying, especially since airlines seem in the business of cramming ever-more passengers into ever-smaller seats. Seats that spanned 18.5 inches throughout the 1990s and early 2000s today have dwindled to just 16.5 inches in width. The space between rows has dropped by about 10 percent, from 34 inches to just 32 or 30 or even a measly 28 inches. At the same time, the typical passenger has grown taller and packed on extra pounds.
Shrinking and shortening seats, as Matthew Klein wrote earlier this year, are a sort of hidden inflation. Even if ticket prices themselves don't go up, paying the same amount for a worse customer experience makes the flight effectively more expensive. The trend shows no signs of reversing. A new "seating device" idea from Airbus replaces traditional seat cushions with bicycle-like ones and eliminates the tray table and headrest altogether. Late last month, Businessweek appended a story on airline legroom in Boeing aircrafts with this advisory: "The next version of Boeing's 737, the world's most popular jetliner, will have 200 seats. It was introduced in 1967 with 100."
Reclining seats, of course, compound the shrinking-seat problem by allowing the most egregious recliners to steal the last few inches of legroom from the reclined-upon. The Knee Defender is one attempt to pre-empt this. You can also politely ask the recliner to retract his chair, but that often doesn't go over well. Slate's Dan Kois has suggested a more comprehensive fix: ban airplanes from installing reclining seats at all. The cheap and much-hated Spirit Airlines does this—packing more passengers onto its flights than carriers like JetBlue and United but keeping its seats rigidly upright. Boeing is toying with seats that recline less.
Taking away legroom and squishing people into planes like sardines makes great economic sense for airlines, but sooner or later someone was bound to crack. That happened on Sunday with United Airlines Flight 1462. The irony in this case was that the quibbling passengers were seated in the Economy Plus section—where there was already an extra four inches of space.
*Correction, Aug. 26, 2014: This post originally misidentified the Federal Aviation Administration as the Federal Aviation Authority.
Burger King Says It’s Not Trying to Dodge Taxes by Moving to Canada. Is It Telling the Truth?
Burger King swears it’s not moving to Canada for the taxes.
The fast food chain is officially set to purchase Tim Hortons, the Canadian purveyor of coffee and doughnuts, for a cool $11.4 bllion, financing the buy with the help of Warren Buffett's Berkshire Hathaway. In doing so, Burger King will set up the combined company’s official headquarters in Canada, meaning that for tax purposes, the King will no longer be a U.S. citizen. These sorts of tax-inversion deals have had Washington politicians, including President Obama, in a tizzy for months. Populist-minded Democrats are railing against the merger—Ohio Sen. Sherrod Brown says Americans should eat Wendy’s and White Castle instead—while Republicans say it’s further proof our corporate tax code is driving businesses away.
Burger King itself, however, is doing all it can to convince the business press that, no, the decision to relocate its paper address isn’t about tax rates. Here’s how the New York Times describes the company’s stated intentions:
But while Burger King will relocate north of the border, raising concerns about yet another company moving abroad to reduce its tax bill, the switch in corporate nationality appears more aimed at appeasing Canadian regulators wary of a foreign company buying a national icon like Tim Hortons. In fact, Burger King is expected to save only a little, if any, on taxes through the so-called corporate inversion.
The two companies emphasized that each will continue to be run from their current home bases, with Tim Hortons operated out of Oakville, Ontario and Burger King from Miami. Neither is altering their franchisee agreements or business models.
Burger King's corporate line is only half convincing. Under Canadian law, federal regulators do essentially have the power to block foreign takeovers of domestic companies that they decide aren’t “in the national interest”—and “national interest” is a pretty mushy term. Sometimes national security gets invoked, as when the country stamped out an Egyptian billionaire’s attempt to buy a Canadian telecom. Sometimes the rationale is more economic. When the Australian mining company BHP Billiton tried to acquire Potash Corp. of Saskatchewan, a fertilizer maker, the government said no in part because Canadians were worried about handing control of an important local industry to a giant multinational.
Could a Tim Hortons deal have run into similar resistance if Burger King hadn’t adopted Canadian citizenship? It seems like a silly thought—Burger King surely isn’t going to start shutting down Timmy’s branches in Toronto and Ottawa just for spite. Moreover, Tim Hortons was owned by U.S.-based Wendy’s for around a decade without any obvious ill effects on Canada’s national doughnut reserve. That said, people get worked up about local fast food chains, and it’s not impossible to imagine political pressure building against the deal out of national pride.
But the idea that Burger King won’t really get any tax advantages out of relocating to Canada, where the corporate rate is about 15 percent compared with 35 percent in the U.S., seems transparently untrue. Yes, it will continue paying American corporate rates on its U.S. profits, just like any other foreign company. But Canadian citizenship will likely give it more opportunities to use various accounting and business tricks to shift profits north of the border and out of the reach of the IRS (multinationals with foreign subsidiaries excel at that sort of thing).
Inverting will also leave Burger King more flexibility to move its international profits freely. As conservatives and business groups regularly complain, the U.S. is unusual in that it taxes profits that domestic companies earn abroad. That’s why companies like Apple keep great troves of cash sitting overseas. In moving to Canada, at least in name, Burger King eliminates that problem, which may be especially important since its growth plans are focused on the international markets.
In the end, the argument that Burger King is just trying to appease some touchy Canadian regulators seems a bit thin. Taxes are almost certainly part of the equation. Keep that in mind if you feel the need to re-evaluate your Whopper habit.
Everybody Relax: An MIT Economist Explains Why Robots Won’t Steal Our Jobs
If you’ve ever found yourself fretting about the possibility that software and robotics are on the verge of thieving away all our jobs, renowned MIT labor economist David Autor is out with a new paper that might ease your nerves. Presented Friday at the Federal Reserve Bank of Kansas City’s big annual conference in Jackson Hole, Wyoming, the paper argues that humanity still has two big points in its favor: People have "common sense,” and they’re "flexible."
Neil Irwin already has a lovely writeup of the paper at the New York Times, but let’s run down the basics. There’s no question machines are getting smarter, and quickly acquiring the ability to perform work that once seemed uniquely human. Think self-driving cars that might one day threaten cabbies, or computer programs that can handle the basics of legal research.
But artificial intelligence is still just that: artificial. We haven’t untangled all the mysteries of human judgment, and programmers definitely can’t translate the way we think entirely into code. Instead, scientists at the forefront of AI have found workarounds like machine-learning algorithms. As Autor points out, a computer might not have any abstract concept of a chair, but show it enough Ikea catalogs, and it can eventually suss out the physical properties statistically associated with a seat. Fortunately for you and me, this approach still has its limits.
For example, both a toilet and a traffic cone look somewhat like a chair, but a bit of reasoning about their shapes vis-à-vis the human anatomy suggests that a traffic cone is unlikely to make a comfortable seat. Drawing this inference, however, requires reasoning about what an object is “for” not simply what it looks like. Contemporary object recognition programs do not, for the most part, take this reasoning-based approach to identifying objects, likely because the task of developing and generalizing the approach to a large set of objects would be extremely challenging.
That’s what Autor means when he says machines lack for common sense. They don’t think. They just do math.
And that leaves lots of room for human workers in the future.
Technology has already whittled away at middle class jobs, from factory workers replaced by robotic arms to secretaries made redundant by Outlook, over the past few decades. But Autor argues that plenty of today's middle-skill occupations, such as construction trades and medical technicians, will stick around, because “many of the tasks currently bundled into these jobs cannot readily be unbundled … without a substantial drop in quality.”
These aren’t jobs that require performing a single task over and over again but instead demand that employees handle some technical work while dealing with other human beings and improvising their way through unexpected problems. Machine learning algorithms can’t handle all of that. Human beings, Swiss army knives that we are, can. We’re flexible.
Just like the dystopian arguments that machines are about to replace a vast swath of the workforce, Autor’s paper is very much speculative. It’s worth highlighting, though, because it cuts through the silly sense of inevitability that sometimes clouds this subject. Predictions about the future of technology and the economy are made to be dashed. And while Noah Smith makes a good point that we might want to be prepared for mass, technology-driven unemployment even if there’s just a slim chance of it happening, there’s also no reason to take it for granted.
Buffalo Wild Wings Invests in Tacos and Pizza
Burger King stole the restaurant world's spotlight today with its potential bid to buy Canada's beloved Tim Hortons, presumably to avoid paying high U.S. corporate taxes. But another interesting announcement came out of Buffalo Wild Wings, when the company said it had made a majority investment in Mexican chain Rusty Taco and a minority one in upscale pizza restaurant PizzaRev.
Dallas-based Rusty Taco is a relatively small chain with additional locations in Colorado and Minnesota. It falls into the red-hot fast-casual dining sector and specializes in "street-style tacos" according to a press release from Buffalo Wild Wings. PizzaRev is mostly located in California and geared toward the all-natural, health-conscious crowd based on a quick glance at its menu (gluten-free pizza dough and toppings like fennel seeds and arugula feature prominently).
"Buffalo Wild Wings' investment is part of our strategy to partner with emerging restaurant concepts that have the potential for significant growth, can work throughout the country and have a highly engaged management team with a passion to grow the business," Kathy Bennings, Buffalo Wild Wings' executive vice president and chief strategy officer said in a statement.
Buffalo Wild Wings is a favorite among analysts and was named the fastest-growing casual dining chain in the U.S. by Nation's Restaurant News last June. Interestingly and perhaps coincidentally, its decision to expand into tacos and pizza gives it a similar selection to Yum! Brands, the parent company of Taco Bell, Pizza Hut, and KFC. Heather Leiferman, a spokeswoman for Buffalo Wild Wings, says this is because tacos, along with chicken wings and pizza, "are one of America's most popular foods." Fair enough.
Whereas Pizza Hut, KFC, and Taco Bell are firmly into the fast-food dining sector, Buffalo Wild Wings and its new investments are much more focused on the fast-casual segment. It's a great place to be in the restaurant business right now—called by some the sweet spot of the industry, it led growth in 2013 with an 11 percent increase in sales. Buffalo Wild Wings is already riding the fast-casual boom in chicken wings. Maybe it can get on board for pizza and tacos as well.
You Say Potato, Russians Say 72 Percent More Expensive Potato
Earlier this month, the Russian government banned food from those countries that sanctioned Russia over its actions in Ukraine. At the time, Russians spoke out in support of the bans, and Vladimir Putin’s approval rating soared to 87 percent according to a poll released on Aug. 7, the day the food bans on produce, meat, and dairy from the EU, the U.S., Australia, Norway, and Canada were put in place.
Now, however, the bans have forced a dramatic increase of Russian food prices. According to Statista, the price of potatoes has gone up 72.7 percent since Jan. 1. Chicken and pork prices have increased 25.8 percent and 23.5 percent, respectively. Overall, food in Russia has become 10 percent more expensive. (Of course, the impact isn't only on Russians—the food ban means, for example, that Polish apple growers will likely not be able to reap the profits of their harvest.)
Russian Prime Minister Dmitry Medvedev, when announcing the bans, said that they would be in effect for one year, adding, "There's nothing good about sanctions, I've already said that many times, and this retaliation wasn't easy for us. … We were forced into it, but even under these conditions, we're sure we'll be able to turn things to our benefit."
Meanwhile, in response to the closure of four McDonald’s branches in Moscow last week—a move ostensibly made for health reasons but widely recognized as another strike against Western powers—Deputy Prime Minister Arkady Dvorkovich has promised that McDonald’s will not be banned outright. Maybe Russia could go so far as to deprive its citizens of fast food in response to sanctions, but as Yekaterinburg Mayor Yevgeny Roizman put it, “Hitting your own people doesn't make any sense.”
How to Make a Profit off Rising Coffee Prices
Something big is happening to coffee. One after another, major players in the market have announced plans to raise their prices. The cost of packaged coffee sold in stores from Starbucks and Dunkin' Donuts and Maxwell and you-name-it is rising between 8 and 10 percent to compensate for the increased prices of blighted and drought-stricken coffee beans. Many of those price hikes have already taken effect. But some—like the up-to-9-percent raise for Keurig Green Mountain Coffee's K-Cups—don't hit until the fall. And herein lies a great business opportunity.
Call it coffee arbitrage. Coffee sellers are raising prices by a specific amount on a specific date in the future—creating the chance to buy low and sell high in quick succession. For example, on Nov. 2 a 24-pack of Green Mountain Coffee's Nantucket Blend K-Cups will likely cost $16.49 (its current list price). But the following day, that same 24-pack could go for as much as $17.97. That means if you bought the pack on Nov. 2 and resold it the next day at its new list price (or more realistically, slightly less than that), you could make a profit of $1.48 on the exchange.
Now for the real question: Could you make a lot of money off of coffee arbitrage? Gabriel Chodorow-Reich, a professor of economics at Harvard, tells me that he's skeptical. First, he says, you'd want to sell the K-Cups as close to the time of the price increase as possible so that inflation didn't eat away at your potential profits. Second, to carry out the operation on a big enough scale to make real money, you'd need to consider some logistics: Where will you get the money to buy large quantities of K-Cups? How will you pick them up? And once you've acquired them, where will you store them? Then there's the opportunity cost of buying and holding the coffee—the money you use for that can't be used for anything else. And finally, to sell everything quickly, you're going to need some sort of distribution network.
"Could you do it? Maybe," Chodorow-Reich says. "But you sort of have to run through the storage costs and the opportunity costs of your money and the time and the distribution network and weigh all that against the price increase." Because of all this, coffee arbitrage is unlikely to meet the technical definition of arbitrage: a sure possibility of making money with no possibility of losing money. "In this case, it can’t just be that you buy up a bunch of beans and think you’ll be able to resell them—you have to lock in a futures contract for those beans once the price has gone up," he says.
If you do attempt coffee arbitrage, K-Cups are likely your safest bet—they'll keep longer than coffee beans, which you'd need to unload before they spoil. And at any rate, law professors say that attempting to make a buck off rising coffee prices is a legitimate business venture. "I'm happy to report that this raises no legal issues—you are free to buy and sell coffee in massive quantities," Ryan Bubb, a professor at New York University School of Law, emailed. It might not be the next gold rush, but the window for coffee arbitrage is open and now is the time to act.
Burger King Wants to Buy Tim Hortons, Move to Canada, and Stop Paying U.S. Corporate Taxes
On Sunday, the Wall Street Journal reported that Burger King is in discussions to buy Tim Hortons—Canada’s much-beloved answer to Dunkin’ Donuts—and move its official headquarters north of the border, a so-called tax inversion deal that would let it avoid paying high U.S. corporate rates.
U.S. corporate taxes are high, and it's anything but a shock that companies would go to extreme lengths to avoid them. But inversions—in which a U.S. company buys a smaller foreign corporation, then essentially moves its home address abroad for tax purposes—have been the subject of continuous outrage in Washington this spring and summer as the deals have grown more common. President Obama has slammed self-deporting businesses as “corporate deserters” that are “not doing right by the country and by the American people.” He's called on Congress to fix the tax code in order to make these mergers more difficult. But because nobody really expects Capitol Hill to act—Republicans only want to deal with inversions as part of more comprehensive tax reform—the Treasury is considering unilateral measures meant to limit them.
If a well-known consumer brand like Burger King actually ditches its citizenship, it’ll add some fuel to the fire. But beyond the political implications, it’ll be fascinating to see how diners respond.
As the New York Times notes, the recent spate of inversions has mostly involved pharmaceutical companies, such as AbbVie and Mylan. Pfizer may still be pursuing such a deal with Britain’s AstraZeneca after its first attempt failed. For drug companies, these deals make perfect sense: Most aren’t household names, and in the end people aren’t going to boycott the medication they need because they sense a company lacks the requisite degree of economic patriotism. But a burger chain? Americans have no shortage of places where they can fill up on starch and grease. Pharmacy chain Walgreens abandoned its own plan to invert, partly out of fear that customers would revolt. It’s a little surprising that Burger King, a perennial also-ran behind McDonald’s, would take the same risk. But it will be an interesting test of how much the American public really cares about this sort of thing.
For what it’s worth, the tie-up might not entirely be about avoiding the IRS. The combined chain may not even save that much on its tax bill, according to the Times’ sources:
The American corporate tax rate is about 35 percent, while Canada’s is about 15 percent. But people briefed on the deal negotiations said that the main driver in the talks was not taxes. Burger King already pays a tax rate of roughly 27 percent, and would shave off only a couple of percentage points by moving to Canada, according to the people briefed on the matter.
Another point of attraction for Burger King is that Tim Hortons is pretty much synonymous with coffee in Canada—and coffee is an area Burger King has had trouble breaking into. In 2006, the last number I could turn up, Tim Hortons had 62 percent of Canada's java market, compared with 7 percent for Starbucks. With around 4,500 locations worldwide, Tim Hortons has a market cap of $8.4 billion, according to the WSJ. Burger King, despite having 13,000 restaurants around the globe, is worth about $9.6 billion.
Canada's regulators, according to the Times, have the power to “block a merger if it is deemed to not be in the best interests of the country.” Many Canadians might feel some nationalist pride about any American co-opting of their favorite doughnut shop, which is so Canadian that it was co-founded by a former hockey player. (Then again, Tim Hortons has answered to American overlords before: Wendy's bought it back in 1995; the companies divorced in 2006.)
Making the combined company Canadian, at least on paper, may placate those patriotic concerns—at least for the Tim Hortons half of the equation. As for Burger King: If this deal happens, I wouldn’t be surprised if McDonald’s ads started featuring a few more American flags.