A blog about business and economics.

May 9 2016 11:27 AM

Trump Says the U.S. Can’t Default on Its Debt Because It Prints Money. He’s Right.

I hate doing this. But Donald Trump said something somewhat outlandish-sounding that happens to be correct and people are intrigued. So here goes.

A few days ago during an interview with CNBC, the Republican Party's presumptive presidential nominee seemed to suggest that, if the U.S. ran into trouble with its debt, he would ask creditors to accept partial repayments—which is to say, he'd go kamikaze and default. “I would borrow, knowing that if the economy crashed, you could make a deal,” he said. “And if the economy was good, it was good. So, therefore, you can’t lose.” Binyamin Appelbaum of the New York Times noticed these comments and helpfully pointed out that they were absolutely insane—the merest whisper of a hint that the U.S. president would be open to a default would rock global markets to their core. Of course Trump, being Trump, hedged his initial crazy talk, suggesting that what he really wanted to do was buy back U.S. debt at a discount. This, as Appelbaum noted, is a dubious but somewhat less bone-chilling idea.

But Trump—being Trump—is still peeved about the Times' reporting. So on Monday morning he went to town on the paper and in the process let loose an interesting comment: “This is the United States government. First of all, you never have to default because you print the money. I hate to tell you. So there’s never a default. But the point is it was reported in the New York Times incorrectly." 

What's this? The U.S. can never default? Is it true? You can get deep in the weeds here, but for all practical purposes, yes, Trump is right. When a country prints its own currency, markets don't typically worry about them running out of money, and thus are willing to lend freely. That allows nations like the U.S. to issue new debt in order to cover their old obligations. This is why comparisons between the U.S. and Greece are inherently ridiculous. Greece uses the euro, which it does not control, and therefore only has a finite sum of money at its disposal to make good on what it owes. Its coffers can run dry. The U.S., on the other hand, has infinite dollars.

There is a catch, of course. At some point, if the U.S. borrows and spends enough, that could lead to a major bout of inflation. For creditors, severe inflation can be the equivalent of a default, since the value of their bonds drop. As a rule, markets seemingly worry less about that possibility than they do about outright nonpayment. But in the far-off nightmare scenario wherein the U.S. suddenly turns into a full-on Venezuela- or Zimbabwe-style basket case, that might keep us out of the debt markets, in which case we'd have to pray for the benevolent folks at that the Federal Reserve to co-operate either by buying Treasurys or letting the government overdraw its account. But again, that's all deep down this rabbit hole.

This all serves a narrow, but important, point. The fact that the U.S. controls its own currency does give us flexibility when it comes to debt. If it weren't for our ridiculous, self-imposed debt ceiling, default would rarely, if ever, be something people seriously discussed.1 You can tack this onto the short list of things, along with monetary policy, that Trump seems to be clear-headed about.

That doesn't necessarily include the broader issue of managing the U.S. debt, however. Trump seems to have imported his idea about buying back U.S. Treasurys at a discount from the corporate world. When companies get into trouble and the markets start doubting their credit-worthiness, the value of their bonds tends to drop. If those companies happen to have cash on hand, that gives them a chance to buy back their own debt for less than face value. (Donald Trump's own distressed companies have apparently used this move.) Now how might this apply to America's sovereign debt? Well, when interest rates rise, prices on old Treasurys fall. (After all, if you can get a new bond at a higher yield rate, why would you pay as much for an old one with a lower yield?) So Trump thinks that "if interest rates go up and we can buy bonds back as a discount, if we are liquid enough as a country we should do that."

This would not be totally without precedent. The U.S. Treasury actually went on a bond-buyback spree during the budget-surplus era of the early 2000s, though it was mostly designed to do technical things like manage the supply of Treasurys available at different maturity rates. But if it really wanted to, the U.S. could probably repeat the trick in order to cut its debt. Dean Baker and Sheva Diagne of the Center for Economic and Policy Research have argued that buybacks could shave as much as $458 billion from America's tab.* “Of course exchanging debt in this manner serves no obvious purpose,” they write. “The interest burden on the Treasury will not change through these transactions.” That's because the U.S. runs a budget deficit, and so in order to retire old debt, the U.S would have to issue new, higher-interest bonds.

If you believe Baker and Diagne, Trump’s bond-market high jinks would, like some tastefully applied gold leaf, make our debt-to-GDP ratio, which Republicans and global technocrats alike tend to fetishize, a bit prettier, without making a substantive difference to America's financial health. So please don't pay too much attention to the trees. Donald Trump is still lost in a forest of nonsense.

1Though, who wants to bet that President Trump would just go ahead and mint the $1 trillion coin?

*Correction, May 9, 2016: This post originally misidentified the Center for Economic and Policy Research as the Center on Budget and Policy Priorities. It also misspelled Sheva Diagne’s first name.

May 6 2016 7:00 PM

Why Uber Needs to Do More to Make Sure Its Drivers Aren’t Dangerously Tired

This post originally appeared on Inc

Not long ago, I had a scary experience in an Uber, and the scariest thing about it, in retrospect, was how ordinary it was. Shortly after picking me up for an early-morning trip to the airport, my driver casually informed me, by way of making conversation, that he'd been on the road for more than 19 hours, with only one 90-minute break around midnight for a meal and a catnap. He was pulling the extra-long shift, he said, in hopes of earning an incentive payment for drivers who complete a certain number of trips in a week. (In the Bay Area, 100 trips in a week yields a bonus of $350; 120 trips is worth $500.) It was his last day to hit the target before the counter reset.

The guy was tired. Yawning repeatedly, he was having trouble following the directions on his phone screen and a couple times had to swerve at the last moment to avoid missing a highway interchange. I made it my goal to keep him talking all the way to the airport. Fortunately, as he dropped me off, he told me he'd decided this would be his last fare, even though he hadn't hit the bonus target yet. He was too exhausted to keep going.

I had known that Uber's payment structure encouraged drivers to strive for quantity—in addition to the incentives for trip totals, the company also guarantees $2,000 in earnings to new drivers who spend at least 60 hours a week on the road—but this was my first time seeing how that translated directly to fatigued people roaming the highways when they should be in bed.

The timing of my encounter was plenty ironic: Just a few days earlier, Uber had announced a campaign, in partnership with the Huffington Post and Toyota, to "end drowsy driving." "[D]on't let your loved ones get behind the wheel when they are tired," Uber CEO Travis Kalanick and Arianna Huffington said in a joint announcement. "Pull out a smartphone and call them a ride." (Huffington, author of a new book on sleep, recently joined Uber's board of directors.)

Uber says it keeps tabs on dangerous driving using GPS and accelerometer data from smartphones and is working on building out its ability to flag unsafe driving in progress rather than merely investigating after the fact. In theory, this kind of system should let the company know if a sleepy driver is making sudden swerves, like mine was. But once a driver is tired enough to detect this way, he's already past the point where he's endangering the lives of his passengers and anyone else on the road.

There's a lower-tech way to prevent this situation: capping the number of consecutive hours drivers can work and mandating rest periods in between shifts. Lyft, Uber's major competitor in the on-demand rides industry, already does this: For every 14 hours a driver spends active in the app, he or she must take a six-hour break. That's the minimum; in some jurisdictions, including Chicago, Washington, D.C., and Seattle, the stricter rules governing taxi drivers' hours apply.

In February, Uber agreed to abide by a regulation in New York City limiting taxi and limousine drivers to 12-hour shifts. Nationally, however, the company enforces no such limit. An Uber spokeswoman says the company prefers a technological solution for two reasons. First, more than half of its drivers drive less than 10 hours a week; shift limits would do nothing to make them safer. Second, many drivers drive for multiple services, and can thus get around the limit by simply closing one app and firing up the other. (Both are valid points, although there's no reason ride-sharing services couldn't pool their data to prevent this behavior.)

But while Uber defends doing less than it could to discourage tired driving, it actively encourages drivers to pull extra-long shifts with its various incentive structures. (Lyft offers some similar incentives.)

Again and again in the past few years, Uber has been hit with lawsuits accusing the company of cheating its drivers by classifying them as independent contractors, denying them the benefits of W-2 employees. Uber's response is always the same: What drivers value above all is the flexibility of being able to set their own schedules.

In practice, however, Uber does what it can to discourage them from taking advantage of that flexibility. Uber needs its supply of drivers to meet or exceed the demand of riders, so it pushes them to spend 60-plus hours on the job every week and pays them extra to drive at peak hours. Ultimately, the drivers who benefit from that "flexibility" are paying for it in the form of much-reduced earnings.

As long as Uber drivers are human beings—and that probably won't be the case too much longer—some of them will get behind the wheel when they shouldn't. No amount of technology or policy can prevent that. But for Uber to be publicly campaigning against drowsy driving while tacitly promoting it within its fleet is a potentially lethal form of hypocrisy.

May 6 2016 1:29 PM

No, Donald Trump’s Win Does Not Prove That Data Journalism Is “Wrong”

The results of the presidential primary race are in, and the New York Times’ media columnist has declared a loser: journalism. “Wrong, wrong, wrong,” writes Jim Rutenberg. “To the very end, we got it wrong.”

By “it,” Rutenberg means Trump’s rise to the nomination, which few in the political press anticipated as the Republican primary fight intensified, and many downplayed even as he steamrolled to victory in one state after the next.

By “we,” however, it soon becomes clear that Rutenberg does not mean journalists like himself. Despite the veneer of self-flagellation, he reserves the brunt of his criticism for journalists who are different from him. In particular, he means the ones who make predictions based on data, as opposed to his own preferred mode of inquiry: good, old-fashioned “shoe-leather reporting.”

Rutenberg, who succeeded the late, inimitable David Carr as the Times’ media columnist in January, scatters his brickbats far and wide. But his main gripe seems to be with journalists at wonky, numerically literate political websites such as Vox, the New York Times’ own Upshot blog, and, especially, Nate Silver’s FiveThirtyEight.

Silver and his site had won widespread acclaim, bordering on worship, for its largely successful predictions in the past two presidential election cycles, one of which it spent under the aegis of the Times. Shoe-leather reporting—that is, political journalism based on direct observations by journalists on the campaign trail—took quite a beating then, which must have galled an old-schooler such as Rutenberg. Sure, anecdotes and interviews have their place, the data triumphalists crowed smugly, but they’re no match for number-crunching if you want to get things right.

This time, however, Silver and company got some things wrong, pooh-poohing Trump’s chances early on and miscalling individual races as recent as the Indiana Democratic primary. And now it’s their turn to be put in their place by the likes of Rutenberg, who lumps the bad Trump calls with the media’s failure to anticipate then-Republican majority leader Eric Cantor’s 2014 loss of his Virginia congressional seat in a primary election. From his column:

Of course, the data journalism at FiveThirtyEight, The Upshot at the Times and others like them can guide readers by putting races in perspective and establishing valuable new ways to assess politics. But the lesson in Virginia [where Republican incumbent Eric Cantor lost], as the Washington Post reporter Paul Farhi wrote at the time, was that nothing exceeds the value of shoe-leather reporting, given that politics is an essentially human endeavor and therefore can defy prediction and reason.

Turnabout, as they say, is fair play. But to read the Trump phenomenon, and the media’s coverage of it, as a vindication of “shoe-leather reporting” and an indictment of “data journalism” is not only simplistic and self-righteous, but also just plain wrong.

Donald Trump
In the end, the polls didn't lie.

Win McNamee/Getty Images

First of all, “data journalists” were hardly the only ones to underestimate the presidential candidacy of a man whose previous foray into presidential politics was distinguished chiefly by his bizarre conspiracy theories about Barack Obama’s birth certificate. As Rutenberg notes, the Huffington Post was so dismissive of Trump’s campaign that it famously relegated stories about him to the entertainment section. But that had nothing to do with data. In fact, the Huffington Post editors who issued the edict explicitly acknowledged that they were doing so in spite of his high national poll numbers, which would normally have commanded more serious journalistic treatment. What exactly Rutenberg thinks the Huffington Post’s approach to political reporting has in common with that of FiveThirtyEight, he does not say.

In fact, there is a noteworthy commonality between the two, which Rutenberg overlooks. It’s that both of them publicly dismissed polling data that consistently showed Trump with large leads among likely Republican voters. So did many other political pundits across the spectrum. They did so not because they fetishize data, but for precisely the opposite reason: They suspected, for one reason or another, that the raw numbers were overstating Trump’s chances.

This was made clear back in January in an astute essay on Silver by my Slate colleague Leon Neyfakh, which is well worth the time of anyone who'd like to understand where the famous prognosticator went wrong. Neyfakh diagnosed FiveThirtyEight editor’s fundamental mistake thusly: “Silver’s error, in retrospect, was to conflate his doubts about the polls with his doubts about Trump’s viability as a candidate.” In other words, the data didn’t steer Silver wrong; his gut did.

In Rutenberg’s revisionist history, Trump’s success should have been predictable based on Cantor’s surprising collapse in Virginia two years ago, which in retrospect might be interpreted as bellwether of the anti-establishment sentiment helping fuel Trump. Um, OK. Except in Cantor’s case, the journalists who got it wrong were those who put stock in the polling numbers, which showed a Cantor lead that ranged from 13 to 34 points. (It’s worth noting that Silver has long warned that statewide primary polls can be unreliable.) In Trump’s case, pundits got it wrong by ignoring the poll numbers.

So, let’s see: The fact that the polls were wrong in a 2014 Virginia congressional race should have warned us all that they might turn out to be right in a 2016 presidential race. That’s some pretty acute hindsight!

Perhaps Rutenberg himself, given the opportunity, would have covered Trump far differently this cycle than did the political journalists whose work he condemns. But if so, it would have marked a significant change from how he viewed the same man back in 2011, when he wrote for the Times about Trump’s announcement that he wouldn’t seek the presidency at that time. In that column, Rutenberg was every bit as dismissive of Trump as the pundits he’s now criticizing. He described Trump’s exit from the scene as “a development less important for the Republican field or his national political future—if he ever had one—than for what it said about a media culture that increasingly seems to give the spotlight to the loudest, most outrageous voices.” From his 2011 column:

Republican strategists like Karl Rove called Mr. Trump “a joke candidate.” A speech last month before women’s groups in Nevada at which he repeatedly cursed cast new doubts. But he continued to win attention nonetheless, helped along by early polls that showed him toward—or at—the head of the field of possible Republican candidates.
Polling at this stage of a campaign has proven to be an unreliable barometer of actual primary and caucus results months later. But a slew of politics-focused Web sites and increased interest in politics on cable news have tended to give such early polling greater exposure and weight, especially this year, when the Republican contest has otherwise been slow to engage.

So, back then, the political press—mainly “Web sites” and “cable news,” naturally—were wrong and naïve, or perhaps even disingenuous, to cover Trump as if he might be a real candidate, according to Rutenberg. Sure, the polls may have suggested he was for real, but anyone with good sense knew otherwise.

This time, it was the exact opposite, as Rutenberg no doubt suspected all along (except when he was busy playing up Rand Paul’s chances). But leave it to those feckless “Web sites” to get things wrong again. Not just wrong, but “wrong, wrong, wrong.” Wrong not just about Trump’s overall chances, but also wrong that he might win the Iowa caucus, and wrong again that Hillary Clinton might beat Bernie Sanders in Indiana. Never mind that these wrong predictions have very little to do with one another, other than turning out to be wrong. And never mind that, as Silver pointed out, FiveThirtyEight’s models have called 50 out of 56 primary races correctly so far even in this topsy-turvy election cycle. The nice thing about being anti-data journalism is that it apparently entitles you to cherry-pick your anecdotes to suit your thesis.

“Dishonest” might be a little unfair. I think Rutenberg believes what he’s writing, based on his long and distinguished experience as a reporter. (He’s done fine work on campaign finance and voting rights, among other important issues.) It’s just that, in dismissing the role of data in political journalism, he’s depriving himself of an important tool he could use to guard against his own confirmation bias. But maybe “confirmation bias” is one of those newfangled, wonky ideas that just get in the way of real journalism, like a fly in the shoe leather. “Hindsight bias” might be another.

Logically inconsistent and curmudgeonly as it is, Rutenberg's critique is not bereft of insight. He's right that on-the-ground reporting can illuminate crucial nuances and narratives that the polls obscure. He cites a few worthy examples of the form, including the work of Politico’s Jake Sherman during the Cantor campaign and the Times’ own Trip Gabriel on the Trump trail in Iowa. They wrote stories that picked up on local undercurrents that turned out to play a significant role in important statewide races, and of course we need more like them and less of the cheap clickbait, lazy conventional wisdom, and facile "horse race" coverage that dominate the media today, not to mention all the partisan hackery. (It was ever thus.)

But Rutenberg is wrong to use their exemplary work as a stick with which to beat back the equally welcome rise of thoughtful data analysis in political journalism. For one thing, covering a primary race in a single Virginia congressional district, or a single caucus in Iowa, is a much different proposition from trying to forecast the outcome of a national presidential race, a distinction that Rutenberg elides.

More generally, it should be obvious to everyone by now that, in analyzing a complex system such as politics—or baseball, or business administration, or even Facebook’s news feed—neither numbers nor anecdotes nor theories nor intuition alone are sufficient unto themselves. The wisest predictions incorporate all of the above, and to preach shoe leather over data analysis as the one true path to understanding is as misguided as the reverse. And it's worth remembering: Even the wisest predictions can turn out to be wrong.

But then, a veteran journalist such as Rutenberg surely knows that. Perhaps it’s why he saves all his best Trump insights for after the outcome has been settled.

May 5 2016 9:10 AM

Trump Says He Would Get Rid of Janet Yellen Because She’s Not a Republican

During an interview on CNBC's Squawk Box this morning, Donald Trump said that if elected president, he would likely replace Federal Reserve Chair Janet Yellen once her term expired. How come? Well, he likes her approach to monetary policy, but she isn't a Republican. To wit:

I have nothing against Janet Yellen whatsoever. I think she’s been doing her job, and I have absolutely nothing against her. I don’t know her. She’s a very capable person. People that I know have a very high regard for her.
But she’s not a Republican. She's not a person—when her time is up, I would most likely replace her because of the fact that I think it would be appropriate. She’s a low interest-rate person, she’s always been a low interest-rate person. And I must be honest, I’m a low interest rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems.

Generally speaking, there's nothing wrong with presidential candidates suggesting that they would like to install their own nominees in important government positions. And, so far as the economy is concerned, there's no position more important than Federal Reserve chair. If Trump had simply said, “I like Janet Yellen, but I think we can do better,” it would be newsworthy, though not necessarily objectionable.  

What's interesting here, and a little irksome, is the purely partisan reasoning behind Trump's comments. In recent decades, party affiliation has not been a particularly major consideration for presidents when it comes to selecting a Fed chair. Bill Clinton was happy to reappoint Alan Greenspan, a libertarian Ayn Rand devotee first selected under Ronald Reagan. Prior to picking Yellen, Barack Obama (wisely) kept on Ben Bernanke, who was at least nominally a Republican (after watching the GOP drift further and further to the fringe, he now considers himself a “moderate independent”). But for Trump, Yellen's being a Democrat outweighs the fact that, as far as his comments let on, he thinks she's doing a fine job. It's a reminder that while Trump may not be an especially ideological person, he is instinctively tribal.  

On the bright side, Trump's comments about the virtues of low interest rates here are coherent and, for a Republican, refreshing. (High rates pushing up the dollar would be a problem! Market monetarists, rejoice!). So, you know, at least there's that.

May 2 2016 5:53 PM

Update: The United States Has Stockpiled a Glorious Surplus of American Cheese

Update, May 3, 2016: Glorious news. It turns out that under the USDA's definition, "natural American cheese" is an umbrella category that includes cheddar, colby, Monterey, and Jack, while Kraft singles and the like fall under the separate domain of processed cheese, which would not be included in the monthly cold storage report. Credit to Lucas Fuess, an eagle-eyed dairy analyst at Glanbia Foods, who spotted my taxonomical blunder. This makes our growing national cheese surplus much more pleasant news—the prospect of slightly cheaper cheddar and Jack isn't exactly a downer if you're, say, a national restaurant chain like Chili's that likes to smother your food in the stuff—but I've left the original article intact below, for posterity. 

The words “cheese surplus” should be inherently joyful—sort of like “birthday cake” or “birth of your first child.” And yet I am having trouble mustering much glee over the news that U.S. cheese inventories have reached a 30-year high of 1.2 billion pounds, because for the past year it seems we're mostly stockpiling a whole bunch of American.

U.S. dairies have been losing sales to competition from Europe, where an oversupply of milk has driven down the price of cheese and butter and a falling euro has made exports more competitive. (Imagine what Donald Trump would have done with this news before the Wisconsin primary.) As a result, more American product is piling up in warehouses—about 122 million additional pounds found their way into cold storage last year, according to the USDA. As Bloomberg recently put it, we're “sitting on a mountain of cheese.”  

Unfortunately, most of that increase last year—91 million pounds of it!—was American cheese, our national supplies of which increased by about 14 percent. Our stocks of Swiss barely budged, while supplies of all other cheeses in storage jumped by about 7 percent, or 31 million pounds. This is dispiriting. While Kraft Singles certainly have their place—namely, melted on top of a burger, or in a grilled cheese sandwich—American cheese is already quite cheap, and we probably don't need much more of it in our diets. An overabundance of the stuff won’t do us many financial or culinary favors.

May 2 2016 4:07 PM

Classic First-World-Problem Lawsuit: Woman Accuses Starbucks of Putting Too Much Ice in Iced Coffee  

We live in a world of misaligned consumer expectations—one in which Caesar salad is mostly iceberg lettuce, “fancy mixed nuts” means peanuts with a sprinkling of cashews, and a paid Netflix subscription comes with those pesky in-house ads. We live in a world, in other words, in which iced coffee comes with more ice than might be strictly necessary to cool your beverage.

Most of us adjust quickly to these admittedly not-very-burdensome indignities. When faced with the litany of disappointments inherent to modern capitalism, we might feel briefly betrayed, perhaps complain using the avenues that are presented to us or vow never to submit ourselves to that experience ever again, and then move on to the next purchase. But not all: In what might be the ultimate first-world-problem lawsuit, an Illinois woman is suing Starbucks for chronically underfilling its iced drinks.

For the past 10 years, the plaintiff has purchased cold drinks from Starbucks and found herself repeatedly chagrined by the copious levels of ice, according to the suit. So rather than stop purchasing drinks at Starbucks, she decided to take legal action. Her class-action lawsuit accuses the coffee giant of false advertising, fraud, and unjust enrichment, calling Starbucks’ cold drinks “defective.” It calls for $5 million in damages on behalf of herself and the millions of Americans who have purchased a Starbucks iced coffee over the past 10 years.

“In essence, Starbucks is advertising the size of its Cold Drink cups on its menu rather than the amount of fluid a customer will receive when they purchase a Cold Drink and deceiving its customers in the process,” the suit alleges. A customer who orders a Venti-size iced coffee, which is advertised as 24 fluid ounces, will typically receive about 14 ounces of coffee and a heaping shovelful of ice, it adds. (This isn’t the first time Starbucks has faced such accusations: A different suit last month claimed the chain’s lattes were 25 percent smaller than the menu implied.)

The suit then suggests an amazing fix: that the coffee chain increase the size of its cups, this despite the fact that a Trenta-size coffee is already larger than the human stomach.

The naïveté is almost charming. A person unfamiliar with American business practices might be forgiven for expecting that a drink advertised as 24 oz. will actually be 24 oz., or that a Big Mac actually looks like this glorious image, or that a footlong Subway sandwich should actually be 12 inches long. But reality will quickly dispel such idealistic notions. Like most everyone else, Starbucks has already dismissed the suit as having no merit. “Our customers understand and expect that ice is an essential component of an ‘iced’ beverage,” the company said in a statement.

But maybe that’s the wrong way to look at this. Perhaps we should applaud this brave soul for doing what we could not: taking a bold and refreshing stance on behalf of those of us who have become so conditioned to a consumerist existence that consistently underdelivers on our expectations that we can't even see that our standards have been tragically diluted. So thank you, lady suing Starbucks, for forcing us to confront our choices. It’s about time we all expected more coffee and less ice.

April 29 2016 4:51 PM

When Is It OK to Call a Salad Chain a Tech Company?

This post originally appeared on Inc

Walk past a Sweetgreen during lunchtime, and you're bound to find a line of famished office workers snaking out the front door for a shredded-kale caesar salad or quinoa bowl. But when the Los Angeles-based farm-to-table salad chain launched a new appin January, it curiously referred to itself as a business that had developers—not produce or salad dressing—at its core. "We've always acted more like a tech companythan a food one," read its press release.

In recent years, Sweetgreen has grown an in-house tech team and created an algorithm to make ordering more efficient. It's raised $95 million in venture capital. But does all of this make a salad retailer a tech company, particularly when all of its revenue still comes from selling roughage?

These days, businesses across every sector—from fashion to finance—are claiming the tech label. The recasting is seductive: It's simply a lot cooler to be about the internet of things than to be about just things.

But whether or not you declare yourself a tech business is more than just semantic—it's an existential choice. Before you identify too closely with Silicon Valley, consider the potential dangers and rewards.


  1. Appeal to talent: Advertising, consumer goods, and media companies are losing the talent wars when they face off with tech companies. "I can say I'm a water-bottle company, or that I'm a tech-focused, direct-to-consumer water-bottle company," says Bettinelli. "One has much greater perceived growth andcoolness." Talent from Google and Facebook might even give you a second look.
  2. Attract funding: With $60 billion in VC money at play in 2015, it's no surprise that every company is looking to cash in. Take a startup like The Melt, which managed to raise $10 million from Sequoia Capital in 2011 despite being a grilled-cheese chain (with a fancy mobile ordering system). "In general, tech companies are seen as faster growing, so their marketability and perceived value are greater," says Bettinelli.
  3. Access tax incentives and subsidies: According to the Council for Community and Economic Research, 42 states offer incentives for nonmanufac­turing tech startups. New Jersey, for example, entices companies with its Angel Investor Tax Credit Program, offering more than $50,000 to those in the tech sector.
  4. Avoid, or at least delay, regulations and taxes: By positioning itself as a tech platform instead of a hospitality company, Airbnb initially avoided regulations that would have handicapped its ability to compete with industry stalwarts. By the time local legislation caught up, it was already a serious player that could influence public policy.


  1. Invest in the wrong brainpower: Founders often feel pressure to structure themselves as a tech company to appeal to VCs. As a result, you could staff up incorrectly. "Companies might hire expensive engineers early on to suit the expectations of their investors," says Payne. "Only later might they realize that it would have been better to just use off-the-shelf software."
  2. Possibly inflate a bubble: Last year was the second-best for VC investment since 1995, but it ended with massive write-downs of self-identified "tech companies" that couldn't hit their marks. "I think there will be significant implosions of highly visible startups by year-end," says Payne. "In five years, when someone starts a clothing app, they won't call themselves a tech company."
  3. Struggle with growth expectations: Staffing startup Zirtual cast itself as a tech platform for freelancers, until labor lawsuits forced the company to convert its then-sizable work force to traditional employees. Its burn rate skyrocketed, and investors who had been funding the lean tech firm became disinterested in what was actually a fat HR company.
  4. Become vulnerable to write-downs: With early backing from Peter Thiel and Sean Parker, e-cig startup Njoy considered itself a tech company, but the brand struggled in an exploding, unregulated market. Earlier this year, Fidelity Investments owned up to its unrealistic growth expectations and wrote down $10 million of its common stock to just $12.
  5. Raise money for the wrong business: In 2011, launched as an e-commerce site selling products, but then decided to also manufacture its own products. VCs who largely had no experience with capital-intensive manufacturing injected $330 million into the startup. Fab quickly burned through its funding, and was sold for a paltry $15 million.

What's the definition of a tech company? It's complicated.:

"You are a technology company if you are in the business of selling technology--if you make money by selling applied scientific knowledge that solves a concrete problem."— Alex Payne, Co-Founder, Simple

"It's generally a company whose primary business is selling tech or tech services. A more nuanced definition is a company with tech or tech services as a key part of its business. It's a hard question."— Todd Berkowitz, VP of Research, Gartner

"A tech company uses technology to create an unfair advantage in terms of product uniqueness or scale or improved margins. Ask the question: Could this company exist without technology? If the answer is no, it has to be a tech company."— Greg Bettinelli, Partner, Upfront Ventures

"I think there's a false dichotomy in the idea that a company either is or is not a tech company. I think it's possible for a company to be a hybrid if tech is giving it an edge over incumbents."— Hayley Barna, Venture Partner, First Round Capital

April 28 2016 5:26 PM

Pundits Will Pretend Donald Trump Has Serious Ideas. Please Don’t Believe Them.

Once in a while, like a lucky drunk driver careening madly down the road until he swerves safely into his own garage, Donald Trump stumbles into some vaguely cogent-sounding comments about public policy.

For pundits, these momentary flashes of near-clarity can be seductive. Journalists and academics have lots of dry pet policy preferences that are hard to turn into catchy headlines. So when Trump offers up a sound bite that seems somewhat supportive of, say, your preferred approach to macroeconomic management or trade, it's really, really tempting to spin out a punchy story explaining “Why Donald Trump Is Right About X.” After all, how often is an aggressively ignorant demagogue right on something? It's man bites dog. It's clicky. It's a show of intellectual fairness, to boot—the man is poised to become the presidential nominee of a major American political party, so it behooves writers to acknowledge his strong points. And as we get closer to the general election and Trump gives more formal policy addresses, these types of articles will probably become more common.

Reader, allow me to plead for a moment: Approach these pieces with deep, deep skepticism.

Take, for example, this Bloomberg View riff Thursday by University of Rochester economist Narayana Kocherlakota, who until recently served as president of the Federal Reserve Bank of Minnesota. Kocherlakota is a smart and forceful advocate for stimulating the U.S. economy through unconventional monetary policies, like negative interest rates, as well as large doses of government spending. And in Trump, he seems to think he has maybe found a useful kindred spirit. The headline of his article, which was presumably chosen by his editors but still fairly reflects the piece, is “Donald Trump Starts Making Economic Sense.”

"Donald Trump has offered up a number of questionable ideas on how to manage the U.S. economy,” it begins. “Some of his latest proposals, though, might make a lot of sense.”

The word might is doing an inhumane amount of labor in that sentence. A more accurate passage would read: "Donald Trump may be haphazardly circling closer to coherence regarding a single subject, but it's hard to tell.”

Kocherlakota is particularly encouraged by some recent comments Trump made in a Q&A with Fortune: “We have to rebuild the infrastructure of our country,” the candidate said. “We have to rebuild our military, which is being decimated by bad decisions. We have to do a lot of things. We have to reduce our debt, and the best thing we have going now is that interest rates are so low that lots of good things can be done that aren’t being done, amazingly.”

The professor sees this and launches off on a flight of exegesis:

I read this as calling for two forms of fiscal stimulus. One is more spending, especially on the military and on infrastructure such as roads and bridges. The second is maintaining low taxes despite high levels of government debt (in other remarks, Trump has favored tax reduction). Both could have a beneficial effect on the U.S. and global economy, creating the demand for goods and services needed to get inflation and employment back up to healthier levels.

This would align Trump neatly with Kocherlakota's own views. It's also a bit of a stretch, especially since the candidate himself never uses the word stimulus. Let's look at Trump's comments in a little more context (italics mine):

Fortune: You’ve said you plan to pay off the country’s debt in 10 years. How’s that possible?
Trump: No, I didn’t say 10 years. [Nope. He said eight years in an interview earlier this month with the Washington Post.] First of all, with low interest rates, you can think in terms of refinancings, and get it down. I believe you can do certain things to pay off the debt more quickly. The most important thing is to make sure the economy stays strong. You can do it in smaller chunks. You can do it in larger chunks. And you can do it in refinancings.
How much of the debt could you pay off in 10 years?
You could pay off a percentage of it.
What percentage?
It depends on how aggressive you want to be. I’d rather not be so aggressive. Don’t forget: We have to rebuild the infrastructure of our country. We have to rebuild our military, which is being decimated by bad decisions. We have to do a lot of things. We have to reduce our debt, and the best thing we have going now is that interest rates are so low that lots of good things can be done that aren’t being done, amazingly.

There are certainly some flashes of clarity in this exchange. Trump is obviously softening his stance on the national debt. That's interesting. He is absolutely right that strong economic growth will make the debt more manageable, that infrastructure should be a priority, and that low interest rates give the U.S. some flexibility.

And yet he is still saying we should gradually cut the debt, which is quite the opposite of fiscal stimulus. It's unclear whether he wants to do that entirely through refinancing—which is a slightly offbeat, not necessarily advisable idea that wouldn't actually pay off the debt as he suggests so much as slow its growth—or if he has something else in mind. It is also not obvious whether he thinks that low interest rates make this a good time to borrow and fix our roads and bridges, or whether he thinks we need to invest in infrastructure and simultaneously cut the debt. As usual with Trump, it's mostly garbled.

Kocherlakota is similarly overgenerous to Trump about monetary policy. He suggests that the candidate seems to favor a dovish Fed, while admitting that we can't know for sure until Trump tells us more about his feelings regarding inflation. But he credits Trump for “beginning to answer” these “important economic questions.” Even that is a bit of an interpretive leap. At best, Trump sounds torn. “I always like low interest rates, certainly as a developer,” he told Fortune. “The problem with low interest rates is it’s unfair that people who’ve led the American way of life” because they get lower returns on their savings. The exchange goes on:

Should the Fed be raising interest rates? Has the Fed and Janet Yellen done a good job?
People think the Fed should be raising rates. What’s a scary prospect is if you start raising rates and you have to borrow money as a country, and if the rates, instead of where they are now, the rates are substantially higher, where the rates are 3% and 4%, or whatever it may end up being. That is a very scary prospect for this country. When you start adding that kind of number to an already reasonably crippled economy, certainly in terms of what we produce, that number is a very scary number for a lot of people to be looking at. And if you notice they don’t look at it. Because they want to keep interest rates down. A frightening scenario is that interest rates go up and we have to refinance the debt at higher rates, as apposed to paying very little like we are now.

I have no idea what Trump is trying to communicate here. I don't know what “people” he's referring to, or if he agrees with them at all. He does seem to suggest higher rates would be a problem for the economy because it would become more expensive for the U.S. government to borrow, which would be an unusual take (most people worry that higher rates would slow down the private economy by making it more expensive for businesses to borrow). And as for our current Fed chair:

Do you think Janet Yellen is doing a good job?
I think she’s doing a serviceable job. But you never know if they’re doing a good job until about five years after they leave office.

In short, Trump has said that we need to reduce the national debt slowly, somehow, maybe through refinancing what we already owe, maybe through other means, while also spending on infrastructure, and that people think we should raise interest rates, but that could be a problem because of the U.S. debt, and Janet Yellen may or may not be doing a decent job. These are the meandering thoughts of a guy who still doesn't really know what he's talking about, not someone articulating an incipient economic philosophy.

I don't mean to pick on Kocherlakota. But reading too deeply into Trump's rambling and acting as if his stray, often contradictory comments truly offer hints of a real outlook on policy does the disservice of normalizing a candidate who does not deserve to be normalized. Even when he makes a valid discrete point—infrastructure spending is important! We shouldn't be aggressive about paying down the debt!—it doesn't make sense to highlight that without noting that it's embeded in the shallow, incoherent bog of Donald Trump's thought process. When writing about a broken clock, it's sort of silly to emphasize how it's right twice a day.

In short, we shouldn't pretend that Trump has started to make sense unless he actually starts making sense.

April 27 2016 4:23 PM

Why the Settling of Prince’s Estate Could Get Very, Very Messy  

Who will inherit Prince’s fortune and take charge of his legacy—including the treasure trove of music the late pop icon is rumored to have recorded, but never released?

That’s a good question.

On Tuesday, Prince’s sister, Tyka Nelson, filed a request with a Minnesota court, claiming the renowned singer died without a will in place and asking that initial oversight of the estate go to a bank which, she said, her brother worked with during his lifetime. Forgive me for thinking this won’t solve the estate’s long-term problems, even if the motion is approved. If no will surfaces, this is very likely going to turn into one giant mess.

According to Minnesota law, if a person dies intestate (that’s lawyer-speak for without a will) and doesn’t have a surviving spouse, children, parents, or grandchildren, the next in line to inherit would be his or her siblings. And, no, Minnesota law makes no legal distinction between full and half brothers and sisters. 

Prince was divorced twice. His one child died shortly after birth. His parents are dead, too. This leaves not just his full sister, Nelson, but also seven half siblings as his equal inheritors.* But not all of those siblings are still alive, so their rights transfer to their children. None of their personal relationships with their late brother or uncle is considered relevant.

Moreover, as the Wall Street Journal reports, it’s likely other parties enjoy rights to the unreleased music. While Prince famously warred with his first recording company, Warner Bros., and left the label in the 1990s, his relationship with it will continue after his death. From the Journal, which interviewed Ken Abdo, an entertainment lawyer whose firm worked with Prince for several decades:

The matter of who controls rights to which recordings is one thing: Warner Music Group co-owns rights to unreleased music in Prince’s vault recorded between 1978 and 1996; any release requires permission from both Warner and the singer’s estate. But there is also the complicated task of sorting out matters related to any collaborators who wrote or recorded with Prince in the studio, Mr. Abdo said.

Even further complicating the matters: It’s almost certain the Internal Revenue Service is going to take an interest in Prince’s wealth, as well. The IRS and the estate of Michael Jackson have battled for the better part of a decade. According to the Los Angeles Times, Jackson’s executors claimed it had a $7 million net worth when he died in 2009. The IRS begged to differ, claiming it was worth more than $1.1 billion. Among the matters under dispute: the value of Michael Jackson’s image itself. The estate claimed a little more than $2,000, citing its tarnishing following years of accusations of child sexual abuse. The IRS disagreed—by a mere $434 million.

There are lots of reasons for this sort of divergence, but one is almost certainly how, exactly, one should value the estate. How do you account for the fact that, in the cases of celebrities like Michael Jackson and Prince, their death in and of itself increases the worth of their work, which will continue to earn money for its owners? Do you stop the clock at the moment of death? Or do you factor that in somehow? After all, sales of Prince’s music soared in the aftermath of his death. As I type, four of the top five digital album downloads at Amazon are Prince recordings (Beyoncé’s Lemonade is No. 1), and Nielsen is reporting millions of combined album and song sales since his death on Thursday.

In fact, a majority of us lack wills—a survey conducted in 2014 by Rocket Lawyer, an online legal advice website, put the number at 64 percent. Even a substantial minority of people most of us would objectively consider wealthy fall into that category: Last year a CNBC poll discovered only 69 percent of respondents with assets between $1 million and $5 million had consulted with what they called a “financial expert” to put together an estate plan, meaning close to a third had not. A survey released by and Harris Interactive from about a decade ago also found that while a bare majority of whites could claim a will, only 32 percent of blacks and 26 percent of Latino respondents said the same.

It’s certainly not unheard of for a celebrity to die without a will. Amy Winehouse didn’t have one. Neither did Sonny Bono. Moreover, wills and estate plans in and of themselves don’t prevent disputes from breaking out. Multiple trusts and a prenuptial agreement did not stop Robin Williams’ children from battling with their stepmother over the comedian’s personal possessions. The Simpsons’ late co-creator Sam Simon’s estate has been embroiled in fights over everything from the care of his dog to what is exactly due to people like his ex-wife and girlfriend.

But Prince was notorious for the control he exercised over his work—that’s likely why there are so many unreleased recordings. And now a committee of heirs with possibly competing wants, needs, and interests will sort through it? Good luck with that. 

*Correction, April 27, 2016: This post originally misstated that Prince had five half siblings. There are five surviving half siblings, and two deceased ones.

April 27 2016 1:51 PM

Venezuela’s Government Just Instituted a Two-Day Workweek, Because It Needs to Save Electricity

Venezuela's yearslong economic disintegration hit a sad new milestone on Tuesday, when President Nicolás Maduro announced that government employees would work only on Mondays and Tuesdays for at least the next two weeks to save scarce electricity. Previously, Maduro had given the public sector Fridays off in a bid to conserve power. The country's severe energy shortage stems from a massive drought that has decimated the water levels at El Guri, the hydro-electric dam that provides a staggering 65 percent of the nation's electricity. The government in Caracas has also started scheduling rolling, four-hour blackouts around the country.

Venezuela's drought is but one result of the extreme El Niño phase that's led to a rise in global temperatures this year and last, leaving almost 100 million people around the world short on food and water. (Maduro, characteristically, has pointed to sabotage by his political foes as the reason for Venezuela's shortages.) But the collapse of the country's power grid also seems to be the result of garden variety corruption and mismanagement. As the Wall Street Journal notes, since 2008 the government has spent many billions on new energy infrastructure, including a hydropower plant that still isn't running. “A former high-ranking official who worked on electric projects said the government routinely overpaid for equipment and for poor-quality thermoelectric plants that are unable to offset the decrease in hydroelectric power,” the paper reported.

The drought has done more than just shut off Venezuela's lights. Reservoirs are running dry and many in the country have found their homes waterless for weeks. Again, botched infrastructure projects, such as a $180 million deal with Iran to build a water pipeline that was never laid, seem to be part of the problem.

These are just the latest of many man-made miseries that have befallen Venezuela. When President Hugo Chávez passed away in 2013, he left behind a stunted national economy almost wholly dependent on oil production. As a result, the collapse of crude prices has been disastrous. All the while, an ill-advised system of currency and price controls, partly meant to curb inflation, have led to shortages of basic goods and a thriving black-market economy. And about Venezuela's inflation rate: It's currently the worst in the world, spurred on, it seems, by desperate money printing from a revenue-strapped government. This year, inflation is expected to hit 500 percent. The situation is so bad that the government appears unable to pay for the new bills it has ordered from foreign currency makers (because, like almost all things, Venezuela has to import its money). As Bloomberg put it in a headline Wednesday, “Venezuela Doesn't Have Enough Money to Pay for Its Money.”

Somehow, it seems unlikely any workers there will be enjoying their days off.