A blog about business and economics.

Oct. 20 2016 11:30 AM

Tesla Is Now Selling Cars That One Day Will Be Able to Drive Themselves

Tesla announced on Wednesday that cars in production now, including the company’s soon-to-be-released mass-market Model 3, can be equipped with the necessary hardware to enable fully autonomous driving at some point in the future. “The foundation is onboard to bring full autonomy,” CEO Elon Musk told the media in a phone call. The software is not yet ready. When it is, the car will achieve Level 5 autonomy, the company says. Need a pick-up? Tap the “Summon” button on your phone, and this car, which is on sale now, will come to you.

With that, Tesla appears to vault to the front of the pack in the race to produce self-driving cars. By the end of 2017, the company expects to demonstrate an autonomous cross-country trip from Los Angeles to New York. For now, we have to settle for this four-minute video showing a Model X on a short self-guided drive that culminates in the car parking itself. (There’s a human in the car to stay on the right side of the law, but he does not touch the wheel.)

Oct. 20 2016 12:29 AM

Hillary Made One Big Mistake Wednesday Night

Hillary Clinton has lots to be pleased about after Wednesday evening's presidential debate, which will mainly be remembered as the night Donald Trump refused to say whether he would accept the results of an election, trampling yet another bedrock norm of the American political system. Beyond that, Clinton herself delivered a strong performance. Barring a shocking turn of events, she appears to be on a glide path to the White House.

But I think there's at least one answer Clinton offered this evening that she'll come to regret. On three separate occasions, the candidate said she would not “add a penny” to the national debt (she'd used that same phrase before the debate, too). “I pay for everything I'm proposing,” she told moderator Chris Wallace. “I take that very seriously because I do think it's one of the issues we've got to come to grips with.” This is bad economics and bad politics. It may have been her most regrettable moment of the night.

First, the economics. At this moment in history, there is little to no reason why the United States should be worried about its debt load. Over the very, very long term, we might have to do something to keep entitlements from causing our national tab to spiral upward uncontrollably. (That would happen a lot faster if any of the gonzo tax cuts Republicans like Trump have proposed ever came to pass.) But we are not on the precipice of some debt-fueled disaster. And frankly, we've been shooting ourselves in the foot by refusing to borrow more during this era of rock-bottom interest rates, which would allow us to finance investments in infrastructure and push the economy back to its full potential for practically nothing. Investors are all but begging the United States and other countries for new bonds. We should oblige them.

Clinton, of course, has a fairly large infrastructure plan, which she hopes will stimulate growth and new jobs. But stimulus works by increasing the deficit and creating new demand. If she pays for her whole plan upfront with tax increases, she may end up blunting some of its positive effects on growth. So, by buying into the debt-phobic Washington consensus that says our borrowing is an existential emergency, she's undermining her own best laid plans to get the country moving again. Now, it may be the case that the only way a Republican House will ever pass an infrastructure bill is if it's 100 percent paid for. But that doesn't change the GDP math.

As for the politics: One problem is that, as of now, Clinton's claim doesn't seem to be entirely true. Her plans are mostly paid for through new taxes on the wealthy. But as of September, the Committee for a Responsible Federal Budget still thought that over a decade, her proposals would add an additional $200 billion to the debt, which will grow to about 86 percent of GDP. (To be clear, Clinton isn't saying she'll balance the budget. She's just saying her plans won't cause the debt to grow any faster.) That would be fine on substance, but Clinton has now boxed herself in with her fiscally prudent rhetoric about not adding a penny to our national tab. And if her programs do end up increasing the debt, I can only assume Republicans will be ready to cut TV spots of her promising not to, accusing her of trashing a campaign vow.

Beyond all that, the penny line is just unnecessary. This election is not being fought over fiscal policy. It's about groping and whether Donald Trump can be trusted with the nuclear codes. There's no reason Clinton couldn't give herself a little wiggle room on this issue. Unless she really is a debt hawk at heart. That, of course, would be a true pity.

Oct. 20 2016 12:17 AM

Trump’s Defense of His Tax Avoidance Is Getting Even More Brazen

Donald Trump, we know well by now, will never admit to any fault. But it was still stunning Wednesday night when, once again, the Republican presidential candidate tried to pin the matter of the taxes he has not paid on Hillary Clinton.

In early October, the New York Times revealed that Trump claimed an amazing $916 million tax loss in 1995, one that likely allowed him to avoid paying federal personal taxes for almost two decades. In both Wednesday night’s presidential debate as well as the town hall–style one held earlier this month, Trump blamed Clinton for the fact that he took advantage of the tax code to ether his tax burden. Here’s how he started on Wednesday:

We're entitled [to large tax breaks] because of the laws that people like her passed to take massive amounts of depreciation and other charges, and we do it. And all of her donors, just about all of them, I know Buffett took hundreds of millions of dollars, Soros, George Soros took hundreds of millions of dollars.*

A moment later, he concluded: “If you don’t like what I did, you should’ve changed the laws.”

Translation: Everyone does it! So why not me? Also, it’s your fault.

The law that Trump is probably discussing—it’s not, after all, ever fully clear what he’s discussing—came about in 1993, during the presidency of Bill Clinton. That year, real estate “professionals”—that is, businesspeople who worked on their real estate interests at least 750 hours a year (or a little more than 14 hours a week)—received the ability to write off their losses against their personal earnings.

First, no: Not everyone does it. After Trump made a similar assertion about billionaire Democratic donors during the second presidential debate, Warren Buffett stepped forward to say that he has never carried forward a loss like Trump did.*

Moreover, Hillary Clinton wasn’t in any position to do anything about the legislation signed by Bill Clinton. She was first lady in 1993, the same position she held in 1995, the year we know Trump took advantage of the break. But Trump’s complaint appears to be that she didn’t single-handedly repeal the law after she was elected to the U.S. Senate in 2000—five years after he employed the strategy. She couldn’t single-handedly change the law. And as we should all recall, Clinton did vote—unsuccessfully—in 2001 and 2003 against the income-tax cuts successfully pushed by the George W. Bush administration, cuts that disproportionately benefited high earners.

And what about now? Clinton is now advocating a plan that would limit developers taking advantage of something called like-kind exchanges—that’s when they avoid paying taxes on profits by taking the money and buying another property—to $1 million a year.

As for Trump, who conveniently didn't say whether he thinks his income tax avoidance was a problem, even though he’s criticized much less fortunate Americans for doing the same: His tax plan, according to many analysts, would actually increase the tax breaks available to real estate honchos like himself. Deplorable.

*Correction, Oct. 20, 2016: This post originally misspelled Warren Buffett’s last name. It also misquoted Trump as saying “all of her donors” took large tax breaks. He was referring to Hillary Clinton’s donors.

Oct. 19 2016 11:27 PM

The Decline of American Political Civility, in One Chart

Our attention has been drawn to an illuminating statistical trend that has taken shape over the course of the 2016 presidential debates: The Handshakes-per-Debate Index (HDI) of American political civility seems to be in linear decline.

Oct. 19 2016 2:26 PM

Legal Weed Is Now More Popular Than Hillary Clinton or Donald Trump

We live in a time of political acrimony, a moment when both candidates for president are loathed by large chunks of the public and our elections have come to feel like quadrennial skirmishes in a cultural civil war.

But you know what voters are starting to agree on? Weed. Gallup reports today that 60 percent of Americans now say they favor legalizing marijuana, a new high since the pollster started asking about the topic 47 years ago. To put that in perspective, Hillary Clinton has an average favorability rating of just 43.8 percent, according to HuffPost Pollster. Donald Trump clocks in at a mere 34.7 percent. Even President Obama, who has enjoyed a late-term spike in popularity as America has pondered his potential replacements, only enjoys about 54 percent favorability—meaning pot is more popular than POTUS and his would-be successors.


Gallup isn't alone in its findings, either; earlier this month, Pew reported that 57 percent of Americans thought marijuana should be made legal, up from 32 percent 10 years ago.

So, on the one hand, these are the kinds of poll numbers that make federal legalization feel like an inevitability, especially since they'll likely get more lopsided as millennials become a larger share of the electorate. A full 77 percent of Americans under 35 think we should end the ban on pot, according to Gallup, compared to just 45 percent of those over 55. Hillary Clinton has already said she would take the baby step of moving marijuana to schedule II classification, which would make FDA-approved marijuana-based pharmaceuticals legal while leaving the current network of medical dispensaries and recreational pot shops in much the same legal limbo they currently operate in. But a solid majority of the public says it’s ready for more dramatic action.

In theory, at least. As ace Washington Post weed analyst Christopher Ingraham points out, the actual marijuana legalization initiatives on the ballot in several states this year aren't quiiiite hitting the 60 percent support mark seen in national polls. In royal blue Massachusetts, where you might expect support to be higher than the national average, 55 percent of voters say they'll vote to make recreational weed legal. “This is because there's a significant difference between support for marijuana legalization in the abstract, and support for a concrete ballot measure with a lot of nuts-and-bolts proposals for how marijuana legalization would be regulated and enforced,” Ingraham writes. “A voter might support the idea of marijuana being legal, for instance, but not like a law that could lead to an actual marijuana shop in their neighborhood.”

So the details and logistics involved in legalization matter. But Americans are increasingly comfy with the broad concept. And if California votes as expected this November to join Washington State and Oregon and by legalizing marijuana, we may have to rename the West Coast ganja alley. My best guess is that federal legalization turns into an issue akin to allowing gays and lesbians to serve openly in the military, where after a series of unsatisfactory intermediate steps, Washington finally pulls the trigger once the idea has become so overwhelmingly popular it would be silly not to move on it. Give it eight years.

Oct. 19 2016 1:34 PM

The U.K. “Is Renowned for Its Excellent Food and Drink,” Deluded Brexit Masterminds Insist

Selling “innovative British jams” to France was only an hors d’oeuvre for the United Kingdom’s Brexporting feast. The post-Brexit plan for enhancing the U.K.’s culinary fame now also envisions selling beer to Germany, whisky to Japan, poultry to China, and tea to India. (In other news, the U.K. will be shipping snow to Canada.)

Theresa May’s government, which is negotiating plans to leave the world’s largest trading bloc, intends to drive the country forward with a rejuvenated export sector. (The pound has conveniently fallen to its lowest level against the dollar in several decades, which could certainly help.) Food and drink is the country’s largest manufacturing sector, and will be at the heart of the upcoming Brexit negotiations.

It’s easy to laugh (or cry) at a country staking its economic future on the one thing it has been famously, even indulgently, bad at. In some ways, the plan floats on the same current of deluded, nationalistic British grandeur that propelled the Brexit campaign. “The UK is renowned for its excellent food and drink,” the report begins, as sunny as the London sky. If there is a foodie culture in the U.K., it is eclectic and internationalist, inextricably tied up in the country’s post-war immigration boom. How fitting that a government that came to power largely on anti-immigrant sentiment now aims to promote traditional British foodstuffs abroad.

Oct. 18 2016 6:03 PM

A Conservative Group Just Made a Great Argument for Government Spending

I know. It’s hard right now to take your eyes off Donald Trump's exploding oil tanker of a presidential campaign. Now may not seem like the time to argue about fiscal policy, as we might in a normal election cycle.

But at some point Americans will have to go back to arguing about things like taxing and spending. And when it comes to that topic, this week marked a small but fascinating milestone in the world of Washington policy thinking, as one well-known conservative think tank essentially abandoned one of the oldest arguments for why governments shouldn't run budget deficits.

For a long, long time, economists have argued that government borrowing hurts economic growth by “crowding out” private investment. Instead of lending to businesses, the thinking goes, savers end up lending to Washington to finance its deficits, which means companies have less to spend on things like new factory equipment or software that will set up the economy for long-term growth.

Crowding out isn't the only argument against deficit spending. But it's certainly a major one that's considered entirely orthodox. When the Congressional Budget Office makes its long-term economic projections, for instance, it incorporates the effects of government crowd-out into its math. As a result, the concept has historically been a potent talking point for conservative policy advocates and politicians—balance the budget and we'll free up money for investment, leading to more prosperity down the line.

But there have always been reasons to question the extent to which crowd-out is a real problem. And in our weird world of post-recession economics, there's good reason to doubt whether it's an issue at all. That's because the whole concept of crowding out is based on the idea that there's only so much money out there for governments and businesses to borrow. But for more than a decade now, the world has seemingly had the opposite problem. There are too many savings floating around and not enough investment opportunities to suck them up, which has led to persistently low interest rates and swollen asset prices. Nobody is exactly sure why this has happened, though there are plenty of theories. All the way back in 2005, Ben Bernanke theorized that emerging economies like China had created a “savings glut” by building up their currency reserves to fight off financial crises. More recently, Larry Summers has popularized the idea that the world is facing a period of “secular stagnation.” But either way, in a world where governments and corporations can get paid to borrow, nobody's really worried about the limited supply of savings, so concerns about crowding out seem a bit anachronistic.

This week, the conservative Tax Foundation—the Republican authority of choice on all things related to the tax code—publicly agreed that crowding out is so passé. It said so in a long, wonky post about the in-house economic model it uses to assess the impact of tax cuts on the economy. Basically, the foundation’s analysts don't think budget deficits created by giant tax cuts like the ones Donald Trump has proposed will hurt growth over the long term, because corporations and the Treasury will always find more money they can borrow:

Economists all agree that both budget deficits and private borrowing require saving. But the question is how scarce that saving is. At Tax Foundation, we believe saving is not nearly as scarce as the Penn Wharton model shows.
We believe this for a number of reasons: for one, many mainstream economists are discussing ideas like Secular Stagnation and the Global Savings Glut. These ideas suggest there’s oodles of cash on the right side of the equation, looking around for investments to finance and coming up short. As a result, interest rates are coming down in developed countries around the world as the savers bid up the prices of financial instruments.
Under these kinds of circumstances, worries about unavailable saving seem misplaced.

From a political perspective, there are a few funny things about this line or reasoning. First, it's just as good a justification for massive government spending as it is for budget-busting tax cuts. But aside from that, it also weakens the argument for tax cuts on investment income, which, of course, conservatives desperately want. One of the big points in favor of lowering the tax rate on capital gains is that it will lead people to put more money into stocks and bonds, leaving the companies with a bigger pool of money that they can invest. But if there's already an effectively infinite global pool of cash that companies can borrow from, leading people to save even more might be counterproductive, since it will just exacerbate the glut. When I brought that up on Twitter, the Tax Foundation folks countered that cutting capital gains rates will make companies invest more, because they won't need as high a rate of return on new projects to make their investors happy. But that's not exactly the standard argument you hear for slashing the capital gains rate. (I'm also skeptical about it, given that business investment in recent decades has proved to be pretty insensitive to the cost of capital, which also influences profits—but now we're getting a little deep.)

In any event, we've reached an interesting left-right convergence on the idea that budget deficits, in some very important ways, don't really matter anymore, or at least don't matter the way they used to. Of course, centrist wonks are going to keep incorporating crowding out into their economic projections. But if anything, that shows why you have to take those sorts of estimates with a grain of salt; we’re at a point where there are profound disagreements about the basic ways issues like taxes affect the economy. When we're all done rubbernecking at Trump, there'll be lots to argue about.

Oct. 18 2016 4:06 PM

Who Made Domino’s Great Again?

Domino’s stock is hotter than a jalapeño pizza, up 46 percent since the start of the year. In a third-quarter earnings report released Tuesday, America’s largest pizza delivery company announced that revenues were up 17 percent over last year, which is actually fairly typical of the chain’s recent financial performance.

But it is a little confusing. When, and why, did the world start loving Domino’s?

I’d insert a joke here about the taste, but as a New Yorker, I could lose my rent-controlled apartment and municipal retainer fees for even ordering the stuff. But many people are saying that even here at the heart of the Pizza Belt, where Domino’s operates a modest 70-odd locations, the pizza has obtained a kind of cult status. Domino’s pizza is not an ironic fetish; it’s a genuine predilection.

It was only seven years ago that a couple of North Carolina Domino’s employees filmed themselves smearing their snot all over Domino’s foodstuffs. It was only six years ago that the tagline of the company’s big ad campaign was, basically, We Know Our Pizza Was Bad.

Oct. 18 2016 11:37 AM

Craft Brewers Are Battling a Hops Shortage

Hops: They're delightful. They give beer its bitter snap and create those lovely piney, citrusy aromas in your India pale ale. Unfortunately, farmers apparently can't produce enough of the little green flowers to keep up with the demand from the ever-growing number of American breweries. And according to the Wall Street Journal, that shortage is one factor slowing down the rise of craft beer sales—which last year increased 8 percent, “ending six years of double-digit growth.”

I wouldn't exactly say it's time to pour one out for the craft beer boom based on those numbers, but the hop problem does illustrate how what economists call “frictions”—and what the rest of us call real life—can muck with the laws of supply and demand. Given the boom in fancy beer sales, you'd expect American farmers to be planting hops like mad to cash in on a blooming industry. And indeed they are. Farmers are devoting 65 percent more acres to growing hops than they were five years ago, according to the Journal. But it takes a few years for hop plants to reach their full yield. (That's a friction.) In the meantime, new craft breweries are still popping up every other day—from 2012 to 2015, the total number jumped some 75 percent. Making matters worse, hot, dry weather ended up destroying a good chunk of Europe's most recent hop harvest (apparently climate change is going to ruin our beer).

The upshot is that right now, supply can't really stretch to meet demand, which has made hops—particularly hot new breeds that beer nerds are clamoring for—much more expensive. As Reuters reported earlier this year, “Prices of some hop varieties have risen by up to 50 percent, industry sources say, while industry insiders say others are up to five times more expensive or simply not available.” Since breweries generally purchase hops using three- to five-year contracts, not all of them are suffering from the price hikes right at this moment. But many are, and newer brewers that haven't locked in their supply are struggling.

So, what does this mean about your beer? Chances are, it's going to get a bit more expensive in the next few years. And since beer buyers are pretty price-sensitive, that suggests we should continue to see sales growth cool off a bit. But beyond that, I imagine brewers will try to compensate by moving to less hoppy styles. So I hope you like sours. Can I recommend this gose?

Oct. 15 2016 9:41 AM

Donald Trump Also Gave One of His Accusers Some Really Bad Financial Advice

Not only did Donald Trump allegedly attempt to sexually assault a former contestant on The Apprentice, he also allegedly offered her incredibly bad financial advice.

Summer Zervos, a Huntington Beach, California, restaurant owner and contestant on Season 5 of The Apprentice, recounted her harrowing experiences with the Republican presidential candidate in a Friday afternoon press conference. According to Zervos, she stayed in touch with Trump after he told her “you’re fired” on the show in the hopes he could arrange a position for her in his organization.  Eventually, in 2007, Trump invited Zervos to meet him for dinner at the Beverly Hills Hotel. But instead of eating in the hotel’s famed Polo Lounge, Trump asked her to meet in a private bungalow on the hotel grounds, where he attempted, she says, to coerce her into having sex, kissing her “aggressively,” and “thrusting his genitals” against her. Zervos fought Trump off, telling him she came to eat dinner with him.

That’s the truly appalling part. What allegedly happened next was merely mystifying and, well, bad. After Trump stopped haranguing Zervos for sex, she says, he went on to offer some ghastly real estate guidance. As Zervos recounted at the press conference:

The conversation then focused on the fact that I had a mortgage on my home, which I told him was in good standing. He spoke about how he was able to maneuver to get out of debt. He told me that I need to let my house go into default and tell the bank they could take it back. He advised that the bank would then take anything to help rid themselves of a problem loan. He told me to call the bank and tell them I was leaving the keys on the table, and tell them to just pick it up. He said that would be a mini-version of what he does. He urged me not to make another payment on my home loan.

If you are thinking of trying this, don’t. Just don’t.

Many, many people missed payments on their mortgages during the housing crisis, around the time of Zervos and Trump’s encounter, and for years after. If only they could have convinced their mortgage lender to “take anything!” But not only did banks not make a deal, as Trump would put it; they instead immediately began to assess penalties, late fees, and other charges onto the loan, making the financial situation of the beleaguered home owner much worse.  In millions of cases, the homes would be lost to foreclosure.

Even if by some miracle the kind of default Trump allegedly suggested worked (which wouldn’t happen!), it would have all but destroyed Zervos’ credit record for years. Zervos is not a multimillionaire (or billionaire) real estate developer, or someone making a mint playing a successful real estate developer on a so-called reality television program, or someone profiting by licensing her name. Zervos owned a popular restaurant in Huntington Beach. If hard times came, she would have needed excellent credit in order to even have a chance.

And didn’t she know it! Like Trump, Zervos’ restaurant-owning family declared bankruptcy in the early 1990, and lost almost everything. “They went bankrupt at the same time that Donald Trump did,” she told the Orange County Register in 2006. “He came out a little better than we did.”

So how did Trump do it? The funds Trump borrowed were significantly larger than the amount of money owed by the typical homeowner or small businessperson. Banks negotiated and made deals with Trump when his finances hit a rough patch not because he was such a savvy deal-maker and negotiator, but because they had loaned him so much money that they couldn’t afford to hang him out to dry. According to Reuters, which looked into Trump’s 1990s financial woes, these arrangements were not dictated by Trump but instead arranged by the banks and other lenders so they could get as much of their funds back as possible. It’s one thing to foreclose on a house worth hundreds of thousands of dollars, another thing entirely to take over a property worth hundreds of millions of dollars. No surprise, this is not how Trump recalls it. He claims he threatened to ensnare his lenders in legal proceedings that would go on for years, and that they immediately caved. Not true! And if Trump couldn’t get a deal the way he suggested Zervos should, certainly she wouldn’t have made it work either.

None of this to say that Trump didn’t follow his own advice. He did! But it wasn’t with banks. It was, instead, with small contractors and business owners who worked on properties including his casinos and golf courses. In a number of cases, he would refuse to pay bills, and then, when pressed, often threatened them with litigation, and then offered to settle the claims for pennies on the dollar.

They literally couldn’t say no. There’s a word for that.