A blog about business and economics.

May 16 2017 4:07 PM

The Presidency Is in Crisis. Why Are Financial Markets Still So Calm?

The U.S. body politic—our political markets—is in a near-constant state of Trump-induced hysteria. The outrages and mind-scrambling moments come so fast and loudly these days that any political junkie not walking around in a perpetual state of agitation simply isn’t paying attention. And yet the U.S. body financial—our stock markets—seems to be in a state of mindful bliss.

The main stock market indices, the S&P 500 and the NASDAQ Composite, have ground steadily upward so far in 2017, continuing to set new record highs. At the same time, the main measure of stock market angst has fallen to record lows. Here’s a 10-year chart of the VIX index, often referred to as the fear index, which is a proxy for investors’ concerns about stability in the markets.

What gives? After all, many people view the stock market as a kind of barometer of the president’s performance. As Treasury Secretary Steven Mnuchin told CNBC earlier this year, “This is a mark-to-market business”—meaning the stock market was keeping score. But that’s not true: While Trump’s approval numbers wallow deep in bear-market territory, stocks continue to levitate.

One explanation could be politics itself. With Republicans in control of the House, the Senate, and the presidency, many investors have reasoned that Trump’s professed agenda of tax cuts, deregulation, and infrastructure spending would kick economic growth into a higher gear and finally liberate the stock market—which tripled under Obama, by the way—to be its own best self. In this blinkered-but-persistent view, the fact that Trump and his Republican allies have been unable to pass any important legislation thus far simply gives more fuel to this thesis. Once those tax cuts are passed, the reasoning goes, the market will really take off—so buy now.

Gigantism also helps explain the performance of the stock market. Both the S&P 500 and the NASDAQ Composite are market-weighted indices, which means that the biggest companies exert the most significant influence on the direction of the indices at large. And just as the rich are getting richer, hoovering up an ever-larger slice of the pie for themselves, the biggest companies are getting bigger and more powerful. We see this in the technology space in particular, where Facebook, Amazon, Apple, Alphabet, and Microsoft are sporting 12-figure valuations and feeding off their own momentum. Those five stocks account for about 10 percent of all stock market valuation, and they are responsible for a disproportionate share of the recent rise of the NASDAQ. And these companies, which dominate global markets and enjoy fat margins, are largely immune from political concerns.

On top of all that, the economy is basically fine, and in some areas quite good. Yes, the economy’s growth as measured by the gross domestic product is stuck in low gear (what else is new?). But when it comes to employment, housing, retail sales, and industrial production—all the things that tend to undergird an economic expansion and make people feel good about owning stocks—things are basically dandy.

Finally, as Michael Santoli writes at CNBC on Tuesday, there’s a larger point. The stock market can do just fine in times of political turmoil and constitutional crisis. “In the middle of World War II, following the Battle of Midway in 1942, the Dow industrials surged 40 percent in a year even as the war news remained bad and the outcome unclear,” he writes. Pull up a long-term chart of the S&P 500 and overlay the many moments we’ve had cause to question the viability of the American project. You’ll notice that stocks churned higher through Iran-Contra, through the Clinton impeachment drama, and through the fevered aftermath of 9/11. It is true that stocks fell during the Watergate period and during the Bush v. Gore tussle of late 2000. But in both instances other significant factors (higher gas prices and inflation in the 1970s, the already-looming recession in 2001) contributed to the downticks.

This is not to say that stock markets will forever ignore the meshugas in Washington. Market sentiment—and the rationalization for investor behavior—can turn with remarkable speed. But for the moment, the fact that readers of Politico and Daily Kos are freaking out on the daily doesn’t mean we should expect the readers of Barron’s and to do so, too.

May 16 2017 3:29 PM

The Startup That Wants to Sell You a Subscription to New York City Tap Water Explains Itself

New Yorkers like to say their tap water is the best in the world. Surely, then, it’s worth a $1.99-a-month subscription to drink it when you’re away from your sink—right?

That is the concept behind Reefill, a start-up that aims to bring the subscription model to the simple, free act of filling up a water bottle at a cafe. The team wants to build 200 smartphone-activated water fountains in Manhattan. The idea is less to make money from the Nalgene crowd than to destroy Dasani, Aquafina, and the wasteful consumption habits of bottled-water-guzzling Gothamites. “It’s almost like smoking,” co-founder Patrick Connorton says of Americans’ love for bottled water. “We want to change behaviors. People’s needs are not being met.” Subscribers get a reusable, foldable plastic bottle that looks like a tall, white Capri-Sun with a cap.

On Monday, I met Connorton and co-founder Jason Pessel, who had [HG1] the idea for Reefill during a thirsty moment in Manhattan, at a crowded downtown café. “Living in Manhattan, there’s no place to get a drink of water,” Pessel says, adding a new gripe to the long list of irritating things about life in New York City.

May 16 2017 3:21 PM

A Reminder That, Thanks to Obamacare, the Uninsured Rate Is at a Historic Low

Not that any Republicans in Congress will care, but the Centers for Disease Control and Prevention reported Tuesday that the uninsured rate remained at a historic low last year. Just 9 percent of Americans lacked health coverage in 2016, according to the National Health Interview Survey, down from 16 percent when Obamacare passed.

This is not entirely happy news. On the one hand, it's a reminder of all the good the health law has done: There are 20 million fewer Americans without coverage today than before the legislation passed, and contrary to Republican talking points about Americans being forced to buy useless insurance, all signs suggest people are receiving more (and more affordable) medical care as a result. On the other, the uninsured rate basically held steady last year—it dropped a statistically insignificant one-tenth of a point from 2015—and 28.6 million Americans of all ages still lacked coverage. A full 12.4 percent of adults younger than 65 still don't have insurance. And given that open enrollment on the exchanges fell this year, it's possible that the uninsured rate will tick up a bit. If you told a citizen in France, Australia, or Canada that their health care system was about to transform into ours, they'd still think it was a catastrophe.


Obamacare could have reduced the uninsured population further if more states had co-operated with the law. In those that embraced its Medicaid expansion, 9.2 percent of adults younger than 65 were uninsured, compared with 17.9 percent in those that refused it. Some state governments have also subtly undermined their own coverage marketplaces in various ways—for instance, by allowing many residents to remain on old, pre-Obamacare plans, driving up the cost of new coverage.

But Obamacare was also designed in ways that would have allowed it to be easily improved. Lawmakers could have increased the subsidies for Americans to buy private insurance, or built a better, permanent reinsurance system in order to cushion losses among insurers who ended up with too many sick patients. Over time, with adjustments, Washington could have used the law's framework to bring the uninsured rate closer and closer to zero.

That possibility is dead for now as Republicans look to repeal and replace the law with something far less generous that will likely leave millions more without coverage once again. Even now, Donald Trump's threats about blowing up the exchanges are likely destabilizing them further. For all the desperately needed changes it has brought about, Obamacare's story may ultimately be about a promise unfulfilled.

May 15 2017 1:13 PM

The Pathetic Story Behind Donald Trump’s One-Page Tax Plan

The tax plan that Donald Trump's economic advisers unveiled last month was a bit of a mystery. After days of hype, the administration produced a single, generously spaced page of bullet points with about as much detail as your average grocery list. It was a lot like the barely sketched-out proposal Trump campaigned on, but somehow a little less thorough. The White House tried to frame it as a declaration of “core principles,” but even that would have been an overly generous description. If a couple of college Republicans split a bottle of Tito's and wrote a tax plan without access to the internet, their final product might have been almost as embarrassing. Almost.

Why would the White House even bother with such a half-assed effort? It was unclear. Yes, Trump was desperate to convey a sense of momentum before his first 100 days in office expired, but the one-pager mostly demonstrated his administration had nothing to show after months of supposed effort.

But Monday we have an answer. It comes toward the end of a deeply depressing Politico story about how President Trump's aides are apparently trying to stop each other from handing our moody adolescent in chief news stories that might convince him to do something stupid, since he tends to react rashly to whatever thing he has read last. It turns out that Trump basically ordered up his tax plan after seeing a New York Times op-ed by the four horsemen of intellectually impaired supply-side fanaticism:

More recently, when four economists who advised Trump during the campaign — Steve Forbes, Larry Kudlow, Arthur Laffer and Stephen Moore — wrote in a New York Times op-ed that “now is the time to move it forward with urgency,” someone in the White House flagged the piece for the president. [Fact checking note: Neither Steve Forbes nor Larry Kudlow are trained economists, and Stephen Moore only has as master's.]
Trump summoned staff to talk about it. His message: Make this the tax plan, according to one White House official present.
The op-ed came out on a Wednesday. By Friday, Trump was telling the Associated Press, “I shouldn’t tell you this, but we’re going to be announcing, probably on Wednesday, tax reform,” startling his own aides who had not yet prepared such a plan. Sure enough, the next Wednesday Trump’s economic team was rolling out a tax plan that echoed the op-ed.

To be clear, Trump's folks didn't follow the op-ed's advise word for word. Where Forbes, Kudlow, Laffer, and Moore wanted Trump to postpone individual-income-tax reform and just focus on cutting corporate taxes, the administration's page o' info dealt with both the personal and business side of the tax code. The point remains, however, that the president read an op-ed, got excited, and ordered his advisers to crank out something before anybody was remotely ready to do so.

While convincing the president to do the thing you just wrote is basically a pundit's dream come true, it's not how normal policymaking works in Washington, and for good reason: A policy team can't really function if it has to upend its plans because the president read a newspaper article he liked. Beyond that, crafting a monumental piece of legislation like tax reform is complicated, and rolling out a laughably undercooked one-pager and pretending it's an actual policy statement can only convince Congress it doesn't need to take your input seriously. Not shockingly, after the Trump team released its plan, House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell issued a bland joint statement that amounted to patting the president on the head and saying, “We'll take it from here.”

To sum up: Maybe the White House would function more smoothly if the president couldn't read? Make of that what you will.

May 12 2017 6:47 PM

Penn Station Is Getting a Private Operator. Why Not the Trump Organization?

Let’s just say it’s a bit of a fixer-upper.

After another week of delays at New York’s Penn Station, Govs. Andrew Cuomo and Chris Christie have come up with a plan to fix America’s busiest train station. Or something that looks like a plan, anyway.

In a joint statement released on Thursday, the governors called on Amtrak to install a private operator to care for its maligned transit hub. The passenger rail company’s CEO Charles Moorman told a committee of the New York State Assembly he was on board. “I’ve instructed my team to have Amtrak set up a new entity which will seek private sector partners to handle concourse operations, maintenance and deliver improvements,” he said.

Amtrak owns Penn Station, and as is often the case with inherited property, has struggled with its maintenance and management. My favorite anecdote about the station concerns the escalator to Tracks 15 and 16, which sat broken for four years in the late 1970s because Amtrak and New York's Metropolitan Transportation Authority, which leases space in the station, could not agree on who should pay to fix it.

May 12 2017 11:40 AM

Google’s Legal War With Uber Will Officially Play Out in Court

Uber’s legal troubles just took another out-of-control skid. An ongoing courtroom tussle involving the ride-sharing company will now play out in full view of the public, a federal judge ruled late Thursday. Judge William Alsup of the U.S. District Court for Northern California denied the tech giant’s motion for private arbitration in its litigation fight with Alphabet, Google’s parent company, which sued Uber for patent infringement in February.

Alphabet accuses Uber of conspiring to steal proprietary laser-based navigational technology from Waymo, a former Google X “moonshot” project that became its own company last December. The technology, called lidar, is critical to developing better self-driving cars—a market both Waymo and Uber are scrambling to dominate. As I wrote Thursday, the case hinges on the alleged actions of Anthony Levandowski, who has headed up Uber’s Advanced Technologies Group, Uber’s in-house driverless car operation, since July 2016. (Levandowski recused himself from all lidar-related work “through the remainder of the Waymo litigation” late last month.) Alphabet alleges that Levandowski, who formerly led Google’s self-driving car initiative, left in January 2016 with 14,000 files related to lidar under his arm and used them to start his own autonomous trucking company, Otto, which was then acquired by Uber. Waymo says Uber knew of and abetted Levandowski’s chicanery, which the ride-hailing company has denied. Alsup’s ruling sets the stage for a nasty public showdown between two industry rivals.

May 11 2017 6:55 PM

Republicans Used to Support a Watchdog Role for the Press. Not Anymore.

Since 1985, the Pew Research Center has been asking American adults whether they support a “watchdog” role for the media. Specifically, its survey asks whether they believe that criticism from news organizations helps to hold political leaders accountable, or keeps our leaders from doing their jobs.

Over the years, respondents across the political spectrum have generally favored a critical press as an important check on politicians’ power. But the degree of that support has always varied somewhat between Democrats and Republicans, and the two parties’ stances have flip-flopped several times. These flip-flops are not random: Whichever party holds the presidency tends to hold a less favorable view of media criticism while the party out of power rediscovers its thirst for hard-hitting investigations. Republicans were all for watchdog journalism during the Bill Clinton years while Democrats’ tolerance for it dwindled. Then came George W. Bush, and Republicans lost their taste for media criticism while Democrats couldn’t get enough of it.

During the Obama years, interestingly, the trend lines converged at last: A majority of both Republicans and Democrats agreed that a skeptical press was good for the country. As of last February, during the presidential primary campaign, 77 percent of Republicans and 74 percent of Democrats held this view.

This week, Pew released its 2017 findings, and the results were strikingly different—and maybe troubling.

Democratic support for oppositional journalism rocketed to 89 percent in the survey conducted this March, breaking the previous record for either party by some 15 percentage points. At the same time, Republican support plummeted to 42 percent, near a record low—resulting in a 47-percentage-point partisan split. Previously, the largest gap between the parties in the survey’s history was 28 points, shortly after the re-election of George W. Bush.

In other words, Democrats and Republicans aren’t just more divided than ever in terms of where they get their news. They’re more divided than ever on the fundamental role of the press, with 56 percent of Republicans now feeling that watchdog journalism does more harm than good.

Pew survey
Left and right have never been more split on the value of a critical press.

Pew Research

Since Trump’s election, the parties have also grown farther apart on other key indicators, including trust in media and perceptions of media bias.

Pew survey 2
Republicans are much more likely to see the media as biased.

Pew Research

Directionally, none of these trends are shocking. Anyone paying attention knows liberals have been devouring critical coverage of the Trump administration, and it’s understandable that the president’s Republican supporters would have less patience for the media frenzy. You could call either side hypocritical, but that misses the point. Intellectual consistency and tribalism are always in tension, and the latter is not unique to any political party.

What’s noteworthy here is the magnitude of the partisan split relative to the historical context. It’s not like the past 32 years have all been smooth political sailing: the 1990s gave us the “Clinton crazies,” the 2000s, “Bush Derangement Syndrome.” Yet when it comes to how the public viewed the media, those years look positively harmonious compared with the dawn of the Trump era.

The survey can’t tell us what’s driving the disparity, but two obvious culprits come to mind. First, Trump is a uniquely polarizing figure in presidential history, one whose very election was viewed by Democrats not merely as a defeat but as an unthinkable travesty that threatened the fabric of the republic. Trump’s actions so far have done little to dispel that view.

At the same time, there’s been a change in the tenor of both liberal and conservative media. Perhaps fueled in part by the race for online traffic and social media shares, partisan outlets that reside outside the mainstream have both grown in stature and become more shrill. Many liberal websites have come to consider themselves part of the anti-Trump resistance. Meanwhile, conservative outlets have taken up Trump’s attacks on the media as a whole—remember, Trump and some of his aides consider the Fourth Estate the “opposition party”—encouraging their audiences to regard even the nation’s largest journalistic institutions as purveyors of “fake news.”

Conservative charges of liberal bias in the media aren’t new, of course—but there’s a real leap between spinning the news and making it up. The more Trump lies, and the more the media call Trump a liar, the harder it becomes to achieve any kind of bipartisan consensus on what’s true and what isn’t. That undermines the premise on which investigative journalism operates—the premise that you can build a case for official wrongdoing based on factual evidence, whose fundamental truth must be acknowledged even by those who dislike the political implications.

That hasn’t stopped the media from doing investigative journalism in the Trump era, of course. On the contrary, the national political press has shown more watchdog spirit over the past year than it has in a long time. As Politico’s Jack Shafer put it: “Trump is making journalism great again.”

Yet observers have marveled at Trump’s apparent imperviousness to an unceasing string of revelations that were widely viewed as potential career-enders. This survey offers a clue as to why that is: The majority of his supporters now view investigative news reports, not as an important check on presidential power, but as just another form of partisan attack.

You can read the full Pew Research report here.

May 11 2017 11:25 AM

This Luxury Mall in Havana Is the Perfect Monument to Cuba’s Confusing Tourism Industry

Ensconced in a gleaming white building complete with colonnaded facades and a luxury hotel, Cuba’s newly opened Manzana de Gómez shopping center stands out amid Havana’s colonial skyline. Inside the century-old structure, high-end shops peddle pricey wares by Lacoste, Mont Blanc, and L’Occitane en Provence. As reported by the AP on Wednesday, mallgoers gawk and take selfies in front of window displays, using cell phones that have become increasingly popular ever since the Central Committee of the Cuban Communist Party, which runs the government, lifted its ban on mobile-phone ownership in 2008. Galleries on the ground floor exhibit cheaper but far from inexpensive wares targeted to Havana’s emerging middle class. Miami's Yusnaby Post, a Spanish-language resource for Cuba news, recently tweeted out images of the mall and hotel's cushy appointments:

Boasting boutique international brands making their first forays into Cuba, the upscale mall in the historic center of the island nation’s capital city has emerged as a ready-made symbol of the communist country’s national struggles with social equality and its budding embrace of capitalist consumerism. The five-story spectacle is the brainchild of Gaviota Tourism Group, a branch of the Cuban armed forces that offers services ranging from buses and car rentals to restaurants and catamaran excursions. Part of a complex network of government bureaucracies involved in the tourism industry, Gaviota might also be the closest thing the communist nation has to a private sector. The group owns the mall and its top-floor hotel through Cimex, its 20-year-old corporate outgrowth. But the hotel’s day-to-day operations are carried out by the luxury Swiss hotelier Kempinski—an example of an increasingly common arrangement for the nascent tourist economy, which lacks a deep bench of private-sector service professionals to draw on.

May 10 2017 4:20 PM

In Other Disturbing News, the Census Director Resigned Tuesday

While we're all on the subject of government personnel moves, you may have missed the news that Census Bureau Director John Thompson unexpectedly resigned from his position Tuesday. Nobody seems to be quite sure why the man is leaving. But he's doing so in the midst of a battle over funding the statistical agency, which is finding itself starved for cash at the precise moment it has to ramp up for the all-important 2020 census.

This is alarming. The decennial census is critical to ensuring that Americans are fairly represented in Washington, since it's used as the basis for congressional redistricting. A mishandled census could undercount poor and minority populations, putting some states and many cities at a demographic disadvantage. That alone makes the possibility that Trump might appoint a political hack to replace Thompson frightening. But, to make matters worse, the administration has reportedly toyed with the idea of adding a question to the once-a-decade survey about immigration status, which some experts believe could scare many households out of responding. When a new director comes in—as of now, the administration doesn't have a replacement picked—it's conceivable that plan may get a new life.

Thompson has been the census' director since 2013, and though his term technically ended in December, he was expected to stay on for at least a while longer. His goodbye statement didn't offer any real explanation for his move—“My tenure at the Census Bureau has been a richly rewarding capstone to my federal career,” it said. But as Tara Bahrampour notes at the Washington Post, it comes just shortly after Congress handed the census an appropriation “that critics say is woefully inadequate.” Thompson also testified to Congress last week that a snazzy new electronic data collection system that was meant to save expenses would cost 50 percent more than expected. A Republican committee chair called the overrun “a real source of concern.”

The bureau has to keep a lid on its budget because Congress instructed it not to spend a penny more on the 2020 census than it did on its effort in 2010, which turned out to be the most expensive population count in the government's history after costs spiked. There may have been good reason for that—the U.S. is growing every year, after all; more and more households rely on trickier-to-look-up mobile phones instead of landlines; and the country has a increasing population of minorities and non-English speakers, who can be trickier to count.

At the moment, the Census Bureau is struggling with the task the Republicans have set of accomplishing more with less. T-minus three years from the census, the bureau typically ramps up its spending for several years of “dress rehearsals,” in which it tries out new systems and irons out the kinks to make sure everything goes according to plan once it's time for the real survey. “These last Census tests are really, really of utmost importance in ensuring that everything has been planned. That the forms you want to use, the procedures you want to use, are effective and tested,” former Census Bureau Director Steve Murdock, now a professor at Rice University, told me in February. “I would say you really can’t overestimate the importance of the pre-census activities.”

They may be especially key this year, given the launch of the new digital data system, which is meant to cut down on the need for expensive field offices and for hiring census takers to canvas neighborhoods. But for now, the census isn't getting its usual appropriations bump, and as Bahrampour wrote last month, “The bureau is so short on funds that it has cancelled tests that were planned for this year and suspended development of a communications campaign.” The possibility that the agency simply won't be adequately prepared in three years, leading to a botched count, doesn't seem too far-fetched.

The question of whether the Trump administration will try to change the census questionnaire in potentially damaging ways is still mostly speculative. One of the many draft executive orders that circulated at the start of the administration—such heady days, weren't they?—would have added a question about immigration status to a section of the census that actually no longer exists. That tells you how well the idea was thought out. But the idea hasn't gone away, and whomever the administration selects to fill Thompson's shoes might not push back.

So, on the one hand, we should probably worry that the Census Bureau now has a leadership gap as it struggles to prepare for a crucial undertaking that's could determine America's balance of political power. On the other hand, how badly do you really want a Trump appointee filling that role?

May 9 2017 6:43 PM

Obamacare’s Most Troubled Market Just Got Saved by Blue Cross Blue Shield

First, the good news.

As of today, residents of Tennessee no longer have to worry about whether they will be able to buy health coverage next year through Obamacare's insurance marketplace. The state's Blue Cross Blue Shield affiliate announced it would sell plans in the Knoxville area, which had been left without a carrier for 2018 after Humana said in January that it would abandon the state exchange.

The possibility that residents in 16 different counties would lack an insurer had turned Tennessee into the go-to example for Republicans who wanted to argue that the Affordable Care Act was in the midst of collapse and a cautionary tale for liberals about how intransigent states could undermine the health law. Vox's Sarah Kliff published a typically excellent dispatch that sorted through the state's problems earlier this month, which I highly recommend—but the short version is that insurers were never able to sign up enough healthy, profitable customers in the Tennessee's rural and woodsy eastern reaches to create a stable market. In part this was because federal and state lawmakers made it easy for people who wanted cheap coverage to avoid the exchanges, either by letting them hold onto grandfathered pre-Obamacare coverage, or through special plans sold through the farm bureaus. That left the local ACA market dominated by a thin population of older, sicker customers.

For now, at least, the state has avoided an outright crisis.

There's plenty to worry about going forward, however. First Blue Cross Blue Shield suggested that it will have to ask for another big rate hike this year in order to “price in the downside risks” that the Trump administration will cut off essential subsidies, as it has threatened to do, or laxly enforce the individual mandate. The carrier also says it's worried about Obamacare's tax on insurers, though that seems less unpredictable (unless Congress kills it as part of repeal). More broadly, the insurer, which is a nonprofit, wants regulators to know that its decision to sell plans in Knoxville isn't a vote of confidence in the exchanges overall. “In fact, we can’t justify doing so based solely on current political uncertainty, but instead we believe it is an extension of our mission to serve our fellow Tennesseans, especially those who do not have other options for coverage,” it writes.

Trump's unpredictability may make insurance more expensive in states beyond Tennessee, too. Carriers serving Maryland, D.C., and Virginia as well as Connecticut have asked for large rate increases going into next year, citing both the unexpectedly high cost of insuring their customers and uncertainty over the fate of the individual mandate. The president may claim Obamacare is failing, but his administration's rhetoric is causing some of its tremors.

Anyway, at least Tennesseans will have coverage available. That just leaves us with Iowa to worry about now.