A blog about business and economics.

Feb. 4 2016 10:31 PM

Hillary Just Successfully Attacked Bernie Sanders for Supporting a Bill Her Husband Signed

Going into Thursday night's Democratic presidential debate, pretty much everyone expected Vermont Sen. Bernie Sanders to criticize Hillary Clinton for accepting donations from Wall Street. And, indeed, he eventually brought up the millions of dollars her super PAC has collected, in part from donors in finance.

So, how’d she respond? In part, by criticizing Sanders for supporting a bill her own husband, former President Bill Clinton, signed into law. And weirdly, it was kind of effective.

Clinton started off by taking umbrage at Sanders’ “insinuation” that “anybody who ever took donations or speaking fees from any interest group has to be bought.” Which, all right, fine. “You will not find that I ever changed a view or a vote because of any donation that I ever received,” she added. Which, again, all right, fine. But then she moved onto a more interesting point:

While we’re talking about votes, you’re the one who voted to deregulate swaps and derivatives in 2000, which contributed to the overleveraging of Lehman Brothers which was one of the culprits that brought down the economy. I’m not impugning your motive because you voted to deregulate swaps and derivatives. I’m not saying you did it for any financial advantage. What we’ve got to do as Democrats is to be united to actually solve these problems and what I believe is I have a better track record and a better opportunity to actually get that job done.

What Clinton is referring to here is Sanders’ 2000 vote in favor of the Commodity Futures Modernization Act, a bill that essentially banned the government from regulating derivatives, such as the credit default swaps that helped bring down the global economy during the financial crisis. The legislation gets talked about less often than the repeal of the banking regulation law Glass-Steagall, which Sanders opposed. (It’s also a law Sanders has said he would like to revive and Clinton would not). But it almost certainly played a far greater role in setting the stage for Wall Street’s meltdown.

In some ways, Clinton’s critique here is a bit unfair. The version of the bill that Sanders supported as a House member, while certainly deregulatory, wasn’t quite as extreme as the final version that was passed into law. It’s also a little discordant since, once again, her own husband signed the bill. (He’s since said it was a mistake.)  

But fundamentally, it’s a fair retort. In Sanders’ view, Wall Street wins in Washington thanks to the corrupting power of money on politics. To some extent, that’s probably true. But it ignores the fact that sometimes, bad, industry-friendly ideas just become popular because they sound good at the time. In the late 1990s, there were lots of intelligent people on the center-left who thought deregulation was a legitimately brilliant idea. Deregulation was in the air and even Bernie Sanders, democratic socialist, wasn’t immune. Today, Democrats have changed their tune. And in Clinton’s view, ideas matter more than money.

Sanders, for his part, responded by talking once again about Glass-Steagall, which wasn’t particularly relevant.

*Correction, Feb. 5, 2016: This post originally included a photo from the NBC debate on Jan. 17, 2016, in Charleston, South Carolina, but misidentified it as a photo from the MSNBC debate held at the University of New Hampshire in Durham, New Hampshire, on Feb. 4, 2016. The photo has been replaced.

Feb. 4 2016 5:50 PM

Obama’s Big New Idea This Year: A $10 Tax on Every Barrel of Oil

As if the election cycle hadn't already supplied us with enough ambitious and politically doomed policy ideas, President Obama on Thursday called for a new $10 fee on every barrel of oil sold in the United States, which would be used to fund billions of dollars in new green transportation projects. The plan, to be phased in over five years, will be included the White House's annual budget, which it is preparing to release next week.

Think of this as an increase in the gas tax, but with slightly broader reach, and perhaps slightly better political optics. Any fee imposed on oil companies would likely be passed on to consumers in the form of higher prices, so motorists, airline passengers, trucking companies, and the like would eventually end up paying much of the bill (transportation is responsible for about 70 percent of U.S. oil use). The cost of other petroleum products, like plastics, would also rise a bit. As the White House clarified on a call with reporters, the fee would apply to imported oil, but not to exports from the U.S., so American-drilled crude wouldn't be at a disadvantage on the global markets.

A hike along these lines is probably long overdue. The federal gas tax has been stuck at 18.4 cents a gallon since 1993. Congress, fearful of angry suburban drivers, has refused to lift it, which has made adequately funding crucial infrastructure spending trickier over the years. One of the main benefits of taxing oil companies rather than commuters is that the fee is better hidden from the public—the cost might get passed downstream, but people have to think about it a little before getting mad. Plus, rhetorically, it's just easier for a politician to talk about making Exxon Mobil pay up than it is to ask car owners to pay more.

Ultimately, Politico notes that Obama's proposal could add about 25 cents onto the price of gasoline, which should be somewhere around $145 per driver, per year.

In theory, there are other policy advantages to an oil tax. Some advocates have suggested using it to replace all of the various fuel excise taxes the government currently collects. That would both simplify the IRS's job and perhaps help the public forget about the tax altogether. It would also act as a de facto carbon tax that would, again, reach beyond gasoline, and would encourage some amount of conservation. And though Obama doesn't seem to be going this route, the government could also tax a percentage of each barrel's cost rather than collecting a set fee, so that if the price of oil went up, Washington would get more revenue (of course, if the price went down, it would  collect less).

But given that most policy proposals are DOA at the moment, the White House's idea mostly seems like an experiment in messaging. We'll see if taxing oil is more politically palatable than taxing gasoline.

Feb. 4 2016 12:15 PM

Watch Martin Shkreli Troll Congress by Taking the Fifth Over and Over Again

Welp, Martin Shkreli trolled Congress pretty good Thursday.

The former Turing Pharmaceuticals CEO appeared before the House of Representatives’ Oversight and Government Reform Committee Thursday morning for a hearing about prescription drug prices—or, more precisely, about companies like Turing that wring profits out of hospitals, patients, and consumers by massively jacking up the price of old medications. Presumably, the committee members were looking forward to grilling the loquacious arch-villain of the pharma industry in front of C-SPAN's cameras. But instead, Shkreli stayed mum, smirking while using his pending indictment on charges of securities fraud as an excuse to plead the Fifth in response to all of the committee's questions, no matter how innocuous. Meanwhile, he largely chose to communicate his disdain for the whole event through facial expression—which, to be fair, was effective.

shkreli nodding2


Perhaps Shkreli really was acting on the advice of his counsel, who sat behind him throughout the event. Or perhaps he realized the best way to infuriate a few congressmen was to shut up. (I mean, Vice just ran a profile of the guy, reported post-arrest, titled “Why Is Martin Shkreli Still Talking?”) But overall, the hearing was sort of like watching a smartass high school student getting lectured by his assistant principal, but over gouging AIDs patients instead of, like, talking in class. By the time Shkreli was refusing to answer Rep. Trey Gowdy's questions about his purchase of a Wu-Tang Clan album, the whole thing had turned into high farce. Here's their full exchange:

Gowdy: Is it pronounced Shkreli?
Shkreli: Yes sir.
Gowdy: See there, you can answer some questions. That one didn’t incriminate you. I just want to make sure you understand you are welcome to answer questions and not all of your answers are going to subject you to incrimination. You understand that, don’t you?

Shkreli: I intend to follow the advice of my counsel. Not yours.
Gowdy: I just want to make sure you’re getting the right advice. You do know that not every disclosure can be subject to a Fifth Amendment assertion. Only those that you reasonably believe that could be used in a criminal prosecution, or could lead to other evidence.
Shkreli: I intend to use the advice of my counsel, not yours.
Gowdy: Do you also understand that you can waive you Fifth Amendment right? You gave an interview to a television station in New York where, if I understood you correctly, you couldn’t wait to come educate the members of Congress on drug pricing. And this would be a great opportunity to do it. So do you understand you can waive your Fifth Amendment right.
Shkreli: On the advice of counsel I invoke my Fifth Amendment privilege against self-incrimination and respectfully decline to answer your question.
Godwy: Well, Mr. Chairman, I’m vexed. He’s been willing to answer at least one question this morning. That one didn’t subject him to incrimination. I don’t think he’s under indictment for the subject matter of this hearing so the Fifth Amendment actually doesn’t apply to answers that are not reasonably calculated to subject you to incrimination. And even if it did apply, he’s welcome to waive it. I listened to his interview. And he didn’t have to be prodded to talk during that interview. And he doesn’t have to be prodded to tweet a whole lot or to show us his life on that little webcam he’s got. So this is a great opportunity if you want educate the members of Congress on drug pricing or what you call the fictitious case against you or we can even talk about the purchase of, is it Wu-Tang Clan? Is that the name of the album? The name of the group?
Shkreli: On the advice of counsel I invoke my Fifth Amendment right against self-incrimination and respectfully decline to answer your question.
Gowdy: Mr. Chairman, I am stunned that a conversation about an album he purchased could possibly subject him to incrimination.

As is his wont, Shkreli took to Twitter afterward to share his impressions.

Feb. 3 2016 6:50 PM

Compared With Other Rich Countries, the United States Is Pretty Bad at Fighting Poverty

The United States has been wrestling with how best to eliminate poverty ever since the days of Lyndon Johnson. The solution, however, isn't really all that complicated: If people don't have money, you give it to them. The U.S. cut elder poverty by about half in the late 1960s and early 1970s by expanding Social Security. And today, in the richer corners of Europe and the English-speaking world, governments use straightforward redistribution to keep their poverty levels well below ours.

Here's an illustration of that point, based on 2010 Luxembourg Income Study data included in the Stanford Center on Poverty and Inequality's most recent “State of the Union Report.” If you only measure by market incomes—earnings before taxes and government benefits, shown in blue—the U.S. has a slightly lower poverty rate than most other similarly wealthy nations. But once you take taxes and social spending by the government into account, as shown in red, our poverty rate is generally higher. We start out ahead and finish behind.


Jordan Weissmann

It's not as if the U.S. is particularly good at helping specific vulnerable populations, either. Take child poverty. Using the U.S. poverty rate as a benchmark once again, we're less effective at bringing down our rate of youth impoverishment than most of our peers in Northern Europe or the Anglophone world. (Again, Greece, Italy, and Spain are another story. To make matters worse for them, these figures were gathered before the worst of the euro crisis.) We let kids dangle in need.


Jordan Weissmann

A conservative might counter that countries like Denmark or France are just papering over poverty by handing out benefits rather than combating its root causes through better schools or job training. But even countries like Finland, which has higher labor-force participation than the U.S. and an education system that's globally envied, still have fairly significant amounts of poverty (by our standards, at least).

They choose to combat it with cash. We don't.

Feb. 3 2016 6:29 PM

A Newswire Enforced a Noncompete Agreement Against a Young Journalist. That’s Outrageous.

In theory, noncompete clauses are intended to prevent employees with access to trade secrets from taking proprietary information with them to a firm’s competitor. But in recent years, these instruments have sprouted up in some of the most unlikely fields. In 2014, the Huffington Post discovered that sandwich chain Jimmy John’s was making low-level employees agree not to work for competitors for two years after leaving the company. Similar contracts have been found in Amazon warehouses, summer camps, salons, and doggy-daycare facilities. And now, the Wall Street Journal reports, legal newswire Law360 is attempting to enforce a noncompete agreement against at least one very unlucky journalist.

According to the Journal, reporter Stephanie Russell-Kraft left Law360 for a job at Reuters—only to find out weeks later that Law360 had notified Reuters of her noncompete clause. Reuters then fired Russell-Kraft for not disclosing the agreement—which prevented her for working in legal news for one year after leaving Law360—when she applied for the job. Russell-Kraft, who’d signed the agreement two years earlier, says she forgot about it—and now that she’s been unpleasantly reminded, she’s found that other publications are hesitant to hire her.

Feb. 3 2016 4:42 PM

No, Amazon Isn’t Crazy to Open Brick-and-Mortar Bookstores

The Wall Street Journal headline sounds like a joke: “Amazon Plans Hundreds of Brick-and-Mortar Bookstores, Mall CEO Says.” That mall CEO, the WSJ reports, claims that the online retailer will open hundreds of physical stores—“as I understand, 300 to 400”—to go along with its single physical location in Seattle. The irony is too delicious to ignore: Amazon, the company that helped destroy countless bookstores, independent and corporate alike, may be wandering into the realm of brick and mortar. But why would it want to? Is this for real?

As the New York Times explains, there may be some kernel of truth here, even if the company’s unlikely to roll out quite so many physical locations. Amazon itself has declined to comment on the matter, and that mall CEO—Sandeep Mathrani, the head of a company called General Growth Properties—hasn’t expanded on the remarks he made on an earnings call earlier this week. There’s reason to believe that there’s something to Mathrani’s remarks, though, because such a move from Amazon would make a surprising amount of sense.

Bookstores aren't quite thriving these days, but they're not in a state of steady decline either. Data from the American Booksellers Association indicates that retail store sales were generally up last year, if only slightly. That steady state may have been enough to capture Amazon's interest, especially given the other possible advantages: Generally speaking, we assume that retailers save money by minimizing their physical presence. As the Wall Street Journal points out, however, opening up more physical stores can help to lower delivery costs. In this regard, these hypothetical Amazon stores wouldn’t just serve to open up new profit channels; they also might help to improve old ones. Matthew Yglesias likewise proposes that Amazon might be looking to streamline its infrastructure, using retail locations to improve on same-day delivery and other benefits of its Prime service.

In this regard, the e-commerce behemoth may actually be learning from smaller online retailers. Companies, such as Warby Parker, which were formerly online-only properties, have increasingly begun to open retail locations. In some cases, these moves may be effectively promotional, a kind of advertising for the brands that has the bonus of allowing them to move inventory. But in many cases, real-world stores help retailers meet customer needs that are difficult to satisfy online and allow them to engage with customers more personally.

Human fallibility is a factor here too. Retail stores encourage customers to try out items that they might otherwise refrain from purchasing, since physical locations make it easier to return an item that disappoints. This was apparently a key factor for Saks Fifth Avenue parent Hudson’s Bay Co. when it purchased online flash sale site Gilt Groupe earlier this year. Some analysts have suggested that’s a consideration in Amazon’s possible brick-and-mortar move as well. As the Wall Street Journal suggests, customers may be more willing to take a chance on an impulse purchase in a physical store—all the more so if they know they can easily renege on their purchase later. In this regard, it’s likely no accident that Mathrani first floated the Amazon rumor in the context of discussing increased mall foot traffic from customers returning unwanted online purchases.

Returns may be less pressing for booksellers than they are for other merchants, but that doesn’t mean physical stores don’t offer other advantages over a website: Whether or not it’s Amazon’s true intent, the company’s  stores—should it ever open them—may work best if they're pleasant places to be, contributing to collective pleasure instead of simply assuaging personal regret. For most of us, reading is a fundamentally solitary act: To take up a book is typically to embrace silence. Nevertheless, bookstores as such may be at their best when they move beyond algorithmic personalization, looking to the interests of entire communities, much as Waterstones has in the U.K. Amazon’s done a terrific job of targeting us in our individuality, selling us on products that appeal specifically to our tastes. With its still hypothetical brick-and-mortar stores, it may have the opportunity to let us expand our palates.

Regardless of what it’s up to, it’s clear that Amazon has money to burn, even if that means making things even more uncomfortable for Barnes and Noble in the meantime. In fact, that might be exactly its intention.

Feb. 3 2016 12:24 PM

St. Louis Doesn’t Have an NFL Team Anymore, but It Still Has to Pay for One

Now that the Rams are moving to Los Angeles, the city of St. Louis no longer has a (generally mediocre) NFL franchise to call its own. It is, however, still stuck paying off the bonds used to finance the team's old home, the Edward Jones Dome. Reuters reports Wednesday that the stadium is still "saddled with about $144 million in debt and maintenance costs.” Without the Rams around to chip in, covering that bill is about to get more expensive for residents, who will no longer enjoy the collateral benefit of watching their home team stumble toward a sub-.500 record year after year. From Reuters:

Taxpayers will now shoulder the remaining payments for the Edward Jones Dome with only the help of revenue from tractor pulls, volleyball tournaments, concerts and the like.
St. Louis Board of Aldermen President Lewis Reed has asked the NFL to help pay off the stadium, but so far has gotten no response.
“The fans are being left holding the bag,” Reed said. “I think they should factor that into the total cost of the move."

Right. Roger Goodell would surely sooner feed his first-born to a tank of pirahnas.

Thankfully, the city of St. Louis, with its population of about 317,000 and recently downgraded credit rating, isn't responsible for the full cost off the entire debt. According to the local Fox News affiliate, the city contributes about $6 million per year toward the stadium's bond payments, while St. Louis County pays another $6 million and the state of Missouri covers another $12 million. Taxpayers still owe $129 million on the bonds alone, which are scheduled to pay off in 2021. Previously, the Rams paid $500,000 per year to use the facility.

All of this is another object lesson in the hideous economics of professional sports stadiums—which are, according to pretty much every credible expert, a waste of public money. When teams lobby for a government-subsidized facility, they regularly hire consultants to produce optimistic reports claiming the new stadium or arena will become an anchor for future economic development as new businesses sprout around it. This is basically a fiction: Fans tend to spend on sports tickets in place of other entertainment, so a football team's gain is the local movie theater's loss. Meanwhile, the team's profits go disproportionately to owners and players who often live out of town, thus funneling money out of the local economy. But beyond all that, those sunny predictions about costs and benefits never take into account the possibility that the team will simply peace out of town before the city is done paying down the cost of their field, leaving behind an enormous white elephant that will likely need to be demolished, since any new professional sports franchise in town will inevitably demand its own new stadium. Likewise, those reports don't factor in the likelihood that teams will use the threat of leaving to demand publicly financed upgrades in the future.

Anyway, poor St. Louis. The NFL is a vampire. So it goes.

*Correction, Feb. 3, 2016: This post originally stated that taxpayers still owed $129 billion on the bonds, which is obviously implausible. Thankfully, that $144 million figure cited in the first paragraph was right all along.

Feb. 1 2016 6:42 PM

Wish the U.S. Were More Like Denmark? This Graph Shows We’ve Got a Long Way to Go.

Maybe it's just because the Iowa caucuses are upon us, but I couldn't help but think about Bernie Sanders when I saw this graph. Based on LIS data, it comes from a new report by Stanford professor Karen Jusko that tries to quantify just how stingy America's social safety net is compared with those of other economically advanced nations. Each bar shows what countries spent on various welfare programs as a percentage of what it would have taken to raise all their citizens' income to 150 percent of the U.S. poverty line in 2011—or about $33,000. The United States laid out about half of what would have been necessary to accomplish that feat. Denmark, which Sanders famously suggested the United States should look to as a model, spent about 75 percent of what was necessary.

What does that mean in terms of actual poverty reduction? Another chapter in the Stanford Center on Poverty and Inequality's State of the Union report offers some revealing numbers. Based on market incomes alone, Denmark's poverty rate was actually slightly higher than ours in 2010, when the LIS data were gathered—but once you take taxes and government social spending into account, theirs falls to 3.2 percent, whereas ours sits almost three times higher at 9.2 percent. It's a long road from here to Scandinavia.

In some ways, Americans may be worse off than these numbers suggest, as they don't include government funding for health care. Washington, of course, spends lots of money on programs like Medicare and Medicaid. But unlike its industrialized peers, the U.S. still doesn't have universal coverage.

In other ways, the U.S. does better at poverty relief than the chart lets on. With all of its social spending, Greece could theoretically have raised more of its citizens above the 150-percent-of-poverty mark in 2010 than the United States. But because its welfare programs do a worse job specifically targeting the poor, Jusko explained to me, more of its population still ends up in need.1

Still, poverty fighting isn't really Americans' forte. “The big takeaway,” Jusko told me, “is that even though there are countries with similar rates of market-income inequality and market-income poverty, the U.S. does an especially poor job of redistributing.”

1Also, if these numbers were updated for 2016, I'm sure depression-racked Greece and Spain would look far more dire.

Feb. 1 2016 2:53 PM

Chipotle’s E. Coli Crisis Is Officially Over. We Still Have No Idea What Caused It.  

Burrito lovers, you can leave home again: The two E. coli outbreaks that plagued Chipotle Mexican Grill starting in October are finally over, according to the Centers for Disease Control and Prevention. The CDC has just closed the book on its investigation into the two outbreaks, which sickened at least 60 people nationwide—55 in the initial outbreak, and five in the second, smaller one—it announced on its website Monday. The dangers now “appear to be over,” reads the report. How comforting.

The bad news? Although the CDC rigorously tested Chipotle’s menu items, reviewed its records, and interviewed dozens of nauseated customers, the source of the sicknesses remains a mystery. The CDC “was unable to identify a single food item or ingredient that could explain either outbreak,” it admitted on its website. (Investigators did say that the two outbreaks likely shared the same culprit, so that’s something.) Something to discuss during the mandatory and much-needed shutdown day the chain has instituted for Feb. 8, perhaps?

All told, the beleaguered chain has borne six significant outbreaks in the past six months, including bouts of norovirus, E. coli, and salmonella. Some of the main changes Chipotle has implemented in response “include moving the chopping of tomatoes and lettuce to a centralized location, and blanching onions to kill germs before they're chopped,” reports CNBC. That’s good, because the ingredients most likely to cause foodborne illness are fresh produce, as I explained last month. In the only outbreak with a known culprit—an outbreak of salmonella that spanned 22 stores in Minnesota—the sicknesses were traced back to contaminated tomatoes.

So how is Chipotle faring now? Well, it’s definitely getting pummeled with lawsuits; at least nine people have sued so far, and plenty more are pending, reports the Chicago Tribune. But it’s also doing a little dance, ‘cause stocks are up 4 percent Monday! Big-burrito high five.

While some burrito lovers have fled to other chains, one group has remained by Chipotle’s side throughout the debacle: the youth. "Young adults represent the largest share of Chipotle's overall traffic," as Bonnie Riggs, a restaurant industry analyst for the NPD Group, which tracks consumer awareness about food safety outbreaks, tells CNBC. "Their willingness to overlook any food safety concerns to eat at Chipotle could be a result of unabashed loyalty or lack of awareness." Or, I’ll hazard, an extreme aversion to traveling more than 0.1 miles from their college campus.

To paraphrase a memorable Washington Post article on the devoted cult of Chipotle: A little vom can’t stop the nom.

Jan. 29 2016 2:05 PM

How Iowa Businesses Cash In on the Caucuses

This post originally appeared on Inc.

Every four years, presidential hopefuls from around the country descend on the state of Iowa