Moneybox
A blog about business and economics.

April 12 2016 8:08 AM

Melissa McCarthy’s The Boss Tries to Spoof Donald Trump and Suze Orman. It Ends Up Endorsing the Gospel of Greed.

The Boss, the new R-rated comedy starring Melissa McCarthy, topped the weekend box office. It is not a particularly good movie. But if you want to deepen your understanding, just a little bit, of why personal-finance soothsayers like Suze Orman, lifestyle purveyors like Martha Stewart, and, yes, wealth-touting demagogues like Donald Trump continue to appeal to broad swaths of the American public, you might consider sacrificing an hour and a half for this insidious and reprehensible film. A supposed spoof of guru culture, The Boss all but offers a paean to the self-help business. In an accidental way, it’s enlightening.

McCarthy plays Michelle Darnell, an orphan no one wanted made good. We first meet her adult self on an arena stage as thousands thrill and cheer to her presence. She’s got an Ormanesque haircut and preaches the get-rich-quick gospel of 1,000 interchangeable self-help experts, including the one currently running for president. “I am the wealthiest woman in America,” she proclaims after descending into the arena on a phoenix as garish as Donald’s Trump’s gold-plated plane (with gold-plated seatbelts). “How wealthy am I? I wanted to come down on a golden phoenix, so I sure as shit did it.”

But soon Darnell is getting hauled into a police car, having been arrested for insider trading, and is sentenced to five months in the slammer. When she emerges, her eponymous business empire is kaput. Darnell ends up crashing with her former assistant, Claire, the only person willing to take her in.

(Could a business empire really fall apart due to a five-month sentence for insider trading? Highly unlikely. That’s how long Martha Stewart spent in jail for her own insider-trading conviction. Similarly, it’s hard to believe no one would express interest in a multimillion-dollar self-help guru after a mere five months in jail. For her part, Stewart ended up starring in The Apprentice: Martha Stewart while still under house arrest.)

Eventually Michelle escorts Claire’s daughter to a meeting of the Dandelions, a stand-in for the Girl Scouts, and here the movie inadvertently reveals a less-than-funny truth about American life. Helen, the mother of another Dandelion, objects to the presence of a parolee recently jailed for insider trading. We’re supposed to think her a humorless tight ass, which I also mean literally, since McCarthy’s character threatens to “shove a box of chocolate clusters up that tight ass of yours.” Spoiler alert: This is the kind of movie where she eventually does it.

Just one thing: Helen’s right. The Dandelions may be selling cookies to raise money for canoe trips, they may be old-fashioned, but they’re also on the side of the angels. Insider trading isn’t just illegal, but ethically dubious. You wouldn’t know that from The Boss. Instead of contemplating Michelle’s subpar moral compass when it comes to making money, it instead positions us to cheer Darnell as she makes her financial comeback on the backs of the Dandelions.

Yes, there is a late-act epiphany, though it doesn’t go very deep. Not only does The Boss fail to meaningfully mock its targets, but it ultimately endorses their me-first message. Michelle and Claire team up to produce their own brownies, staffing their new company—Darnell’s Darlings—with preteen girls Michelle lured away from the Dandelions by promising a cut of the sales. Screw merit badges! At the same time, Michelle cheerfully insults almost everyone, tossing off such Trumpian advice as, “First rule of business: Pretend to negotiate, then take what you want.” None of this lands with the least bit of irony.

Michelle’s damage is that, unwanted orphan that she was, she can’t recognize a family that actually wants her as a member. We’re supposed to view her relationship with Claire and her daughter as heartwarming. And maybe it is. But the message of the movie is clear. Michelle didn’t need to learn that money should be secondary to relationships. She needed to learn to be nicer to people while vacuuming it up.

So why, other than Melissa McCarty’s star wattage, is this film resonating? Well, I make the observation every few months that the United States, contra to our belief that we don’t enjoy a state-sponsored religion, actually has quite a robust one. It’s the Church of Self-Help, and the harder times get, the better it does.

Trump, of course, has been a member of the Church of Self-Help all his life. The minister of his childhood was Norman Vincent Peale, better known as the author of The Power of Positive Thinking. There are no permanent setbacks in Trump’s world. He presents himself as a self-made billionaire, his corporate bankruptcies not as failures but as smart, savvy uses of the law to protect what is his. His charity is forever self-interested—just this week he made his only donation to the 9/11 memorial just as he was attacking Ted Cruz for his comments about “New York values.” “I’m really rich,” he said during the announcement of his presidential run, presenting it as a job qualification. And yet Trump, himself the son of a real estate mogul, is about as self-made as the children of John D. Rockefeller.

Which brings us to the major self-help goof in The Boss. Michelle Darnell is presented as hiding her orphan background from her fans. A real guru would never do that. Triumphing over privations—the worse the better—is an essential part of the shtick. Orman forever trumpets her upbringing as the daughter of the owner of a failed chicken takeout shack. Dave Ramsey is always talking up his bankruptcy and the lessons he learned from it. That’s why Trump takes pains to make us forget his rarefied origins—that’s not part of the wealth-guru playbook. But that’s also one reasons the criticisms of his multiple bankruptcies never stick. In the self-help gospel, they’re a setback he needed to overcome on his way to fantastical, billion-dollar success.

Watching The Boss, you realize why so many people accept Trump’s fortune as a presidential qualification. Perhaps we, too, just wanna make money, which is what many of us venerate him—and Orman, and Ramsey, and even Stewart—for doing. Money is proof of gurus’ qualifications. If they’re smart, they know how to earn a buck. Ethics—those are for the losers on the other side of the deal.

April 11 2016 8:25 PM

Poor People Live Longer in Rich, Liberal Cities Like San Francisco and New York

If you are a low-income person in the United States, you will probably live a longer life if your home happens to be in a wealthy city that spends heavily on its residents, like New York or San Francisco. If you're stuck in Tulsa, Oklahoma, well, that's bad luck.

That's one of the fascinating takeaways from a groundbreaking new study published in the Journal of the American Medical Association that examines the growing gap in life expectancies between the rich and poor, and how it may be influenced by geography.

The paper's authors, led by Stanford economist Raj Chetty, used Social Security and tax records from millions of men and women to look at the way lifespans vary with income in different parts of the country. In keeping with past research on the subject, they found that when it comes to longevity, the wealthy are extending their lead on other Americans. Between 2001 and 2014, men and women in the top 5 percent of the earnings distribution added about three years to their lives. Among the bottom 5 percent, by comparison, life expectancies stayed essentially unchanged. Some cities proved to be exceptions. In places like Birmingham, Alabama, and Fayetteville, North Carolina, the lifespan gap actually shrank between high- and low-income groups. But nationwide, the wealthy pulled away.

The most fascinating part of the research, however, isn't really about the rich-poor divide per se. Instead, it's this map:

chetty_1

Chetty, et al.

It turns out that the poor survive much longer in some corners of the country than others. Life expectancies for the bottom quarter of earners are longest on the coasts and parts of the West. They're typically shortest in a regional band that stretches diagonally from the Rust Belt, through parts of the South and down to Texas: America's death alley.  

chetty_2

Chetty, et al.

And the specific cities where the poor have the very longest lives? They tend to fit a certain profile: dense and affluent, with liberal local politics. Among the 100 largest metro areas, Americans in the lowest quarter of earners live the most years in New York City. San Francisco, Boston, and Washington, D.C., aren't far behind on the list. Toward the bottom of the rankings are places like Tulsa, Oklahoma City; Las Vegas; and Gary, Indiana.

Why are the poor likely to live longer in New York than Gary?

This is where things get especially interesting. In general, researchers struggle surprisingly hard to answer exactly why the poor die younger. You might expect that issues like health-care access would play a role. If you're too broke to see a doctor, after all, there's a good chance you'll get seriously ill. But low-income Americans also tend to lead less healthy lifestyles than the rich—they smoke more, weigh more, and exercise less, all of which cut years off their lives. And figuring out what's more important—financial resources or lifestyle—can be tricky.

The Chetty paper essentially offers evidence that the poor may live longer in some cities than others because those places help them live healthier lifestyles. Somewhat surprisingly, it finds no statistically significant relationship between the rate of health-insurance coverage and longevity among low-income residents. Ditto for the unemployment rate. However, the poor did tend to live longer in cities with lower smoking and obesity rates, and where people exercised more often. Metro areas with denser populations, with higher home values, where the local government spent more per resident, where there were more college graduates, and where there more immigrants also seemed to be good for the poor.

chetty_3

Chetty, et. al

Chetty and his co-authors don't claim to be offering any definitive conclusions. Their paper is still very much a conversation starter. But add up their findings and you get the following portrait: Wealthy cities that have money to spend on social services, and are willing to do things like pass smoking bans, may really be helping their poor live healthier (and hopefully happier) lives. This isn't to say that we can stop worrying about health insurance (that would be silly), or the rich-poor longevity gap is all about tobacco use. But it at least seems indicative that meddling, liberal nanny-staters may have the right idea about prodding their fellow citizens to make better choices for themselves.

April 8 2016 4:57 PM

China and Restaurant Most Common Words Used in Names of Chinese Restaurants, Study Finds

Intrigued by what they perceived as the homogeneity of Chinese restaurant names, a pair of reporters for the Washington Post’s Wonkblog decided to analyze the names of nearly every Chinese eating establishment in the United States.

You will believe what they found.

Armed with geolocated Yelp data on more than 40,000 Chinese restaurants across the country, the Post’s Roberto A. Ferdman and Christopher Ingraham set out to test their scientific hypothesis that their names all sort of sound the same. Or, in the authors’ words, “we wanted to quantify exactly what the vernacular of American Chinese restaurant names sounds like.” One might think that is not the sort of thing one can quantify. But: data! And so: onward.

After sifting through the spreadsheets, our intrepid reporters report, “some interesting patterns became clear.” To wit:

The single most frequent word appearing in Yelp’s list of Chinese restaurants is, perhaps unsurprisingly, “Restaurant.” “China” and “Chinese” together appear in the names of roughly 15,000 restaurants in the database, or over one third of all restaurants.

Will wonders never cease?

“Express” is the next-most popular word, showing up in the names of over 3,000 restaurants. But as with “Panda” (2,495 restaurants), the numbers for “Express” are inflated by the Panda Express restaurant chain, which has over 1,500 locations.

No, they will not. Wonders never will cease.

The story would have been delightful enough had Ferdman and Ingraham confined their analysis to prose. That, however, would have violated the first rule of data journalism, which is that you don’t just talk about the data. You must also visualize it. And so, we readers are treated as a bonus to two of my all-time favorite forms of data visualization: the word cloud and the heat map.

wordcloud
A word cloud drawn from an exhaustive study of all the words I think of when I think of word clouds.

wordclouds.com

Both turn out to be shining examples of their respective genres. The word cloud is dominated by the words China, Restaurant, and Chinese, surrounded by a bunch of other words that one might commonly associate with Chinese restaurants. The heat map of Chinese restaurants in the United States, meanwhile, looks an awful lot like … well, I’ll let Ferdman and Ingraham tell you themselves. “Yes, this is essentially a population map,” they acknowledge. “Where there are people, there are Chinese restaurants.” (A second heat map, in which they control for population density, is only slightly more instructive, showing hot spots in New York, the Bay Area, Hawaii, and … the Nevada desert?)

Let’s pause here to give these journalists credit for coming right out and saying what anyone with half a brain who looks at a heat map is thinking. Throughout the piece, they forthrightly acknowledge that the findings of their great Chinese restaurant investigation are, essentially, not that interesting. And now they’re admitting that their data visualization doesn’t really convey a whole lot, either. This is a level of honesty rare enough in data journalism that it almost reads as a send-up of the genre, like #overlyhonestmethods or lolmythesis.

I don’t actually think it was intended in quite that spirit, because Ferdman and Ingraham go out of their way a bit to highlight the few tidbits they uncovered that might not have been utterly obvious in advance. For instance, they find more than 1,500 restaurants with the word “new” in their name, but only 31 with the word “old.” (Not that you’d ever gather this from the word cloud.)

Wait, was that only one tidbit?

Another, admittedly charitable, way to interpret this piece would be to view it in the context of the noble battle against the “file drawer problem,” which stems from the propensity of scientists to publish only those studies that turn up positive results. Less generously, one might imagine that the authors figured that after wasting so much time analyzing the names of Chinese restaurants, it would be a shame not to at least publish something.

“Taken together,” the authors sum up, “these maps do show the surprising ubiquity of Chinese restaurants all across the country.” Unless, of course, you’re in one of those places where they aren’t ubiquitous. But otherwise, they conclude, “you’re never really that far from Chinese cuisine—or from the very specific words that denote that cuisine in the American imagination.”

Like Chinese. And restaurant.

April 8 2016 4:15 PM

This Uber Competitor Wants Female Riders to Feel Safer—so It Only Hires Female Drivers

This post originally appeared on Inc

There was a time when concerned mothers would tell their teen children: Don't walk alone at night. Take a cab. It's safer. A few years ago, parents began substituting "an Uber" for "a cab." The language changed, but the message was the same. 

Now parents and riders concerned about safety have another option: Chariot for Women, a ride-sharing service slated for an April 19 launch throughout the U.S. The company, which is based Charlton, Massachusetts, is not hesitating to take arms against Uber and Lyft, billing itself as a safer option than the market-leading ride-sharing companies for several reasons: First, all its drivers will be women. Second, it will only pick up female riders or males under age 13. 

In addition, Chariot for Women is promising that while its fares will be comparable to those of Uber and Lyft, there will be no surge pricing. But wait, there's more: Founder Michael Pelletz, is an erstwhile Uber driver. And he got the idea for the company after giving a ride to a passenger who made him feel unsafe. According to various reports, Chariot for Women has signed up more than 1,000 drivers so far. 

You could argue Chariot for Women is a timely idea. But the idea raises a straightforward question: Is it legal to hire employees of only one gender—or to deny your service to would-be customers based on gender or age? Recently employment lawyers told the Boston Globe that they doubted Chariot for Women's hiring or the customer-selection practices would hold up against legal challenges. 

But the law, as any entrepreneur knows, is meant to be bent or modified when there's money on the line. As the Globe points out, the Massachusetts state Legislature created an exception in gender discrimination law for fitness facilities in the late 1990s to accommodate the women-only health club Healthworks. If lawmakers could make an exception for health clubs, why couldn't they make one for ride-sharing services?

What's more, you can make a case that any startup pushing legal boundaries is a startup worth paying attention to. Thomas Goetz, founder of venture-backed health care tech startup Iodine, made this very point in a column for Inc.'s October issue. "Many successful companies have thrived by crossing into dangerous territory," he writes.

Facebook has time and again pushed the boundaries on privacy, in the interest of building more connections for its users (and more revenue opportunities for itself). And Uber, everybody's favorite example of a no-holds-barred company these days, has willfully flouted local laws and regulations in its haste to conquer new cities and countries.

Those are two prominent examples. There are more. In 2014, a report by New York State Attorney General Eric T. Schneiderman indicated that Airbnb's New York rentals had violated zoning and other laws. Aereo raised $100 million in funding before the Supreme Court hammered nails in its coffin. And not a week goes by, it seems, without someone challenging the legality of fantasy sports sites like DraftKings and FanDuel, both of which boast billion-dollar valuations.

The point is this: As frightening is it can be to feel as if the fate of your business model depends on the scales of justice, that very dependence is also a positive sign. It indicates that you've hit on something pervasive and vital enough to be the province of judges and lawmakers.

"Your new thing can't be merely better than the status quo; it needs to be so great that it is sought out over the old, familiar thing," writes Goetz. "To do that, your new thing must be more than provocative; it must be dangerous." Even if it's all about safety.

April 7 2016 9:27 AM

New Jersey’s Entire State Budget Could Be in Trouble Because One Hedge Funder Is Moving to Florida

David Tepper is a hedge fund legend with an estimated $11.4 billion fortune. He is also moving his official residence to Florida, which lacks an income tax or estate tax, and is therefore a fetching locale for extreme wealth. This is a problem for his erstwhile home state, New Jersey, where officials are now having difficulty figuring out how much money they will be able to collect in taxes, Bloomberg reported earlier this week:

“We may be facing an unusual degree of income-tax forecast risk,” Frank Haines, budget and finance officer with the Office of Legislative Services told a Senate committee Tuesday in Trenton.
New Jersey relies on personal income taxes for about 40 percent of its revenue, and less than 1 percent of taxpayers contribute about a third of those collections, according to the legislative services office. A one percent forecasting error in the income-tax estimate can mean a $140 million gap, Haines said.

This is mostly a convenient anecdote about modern inequality. (No one man should have all that power ... over a state's revenue forecast). I would avoid reading too much into it as a parable about the dangers of progressive taxation on the state level, however, given that there's little evidence that state tax rates have much influence on where Americans typically move.  

That said, if your state budget does happen to specifically rely on taxing geographically mobile hedge fund managers, perhaps it’s worth rethinking things.  

April 6 2016 3:46 PM

Facebook Thinks Live Video Is the Future. What If It Isn’t?

Mark Zuckerberg is on record as being “obsessed” with live video on Facebook. He views it as the next step in the social network’s evolution. On Wednesday, the company backed up his words with a major update that gives live videos prime placement in the Facebook app and adds new ways to find, create, share, and react to them. The move effectively makes live video a central feature of the social network.

On iOS and Android devices, a play-button icon for live video replaces the Facebook Messenger icon on the app’s home screen. Tap on it, and you’ll be taken to a hub that lets you see which of your friends is broadcasting live, view popular live broadcasts from around the world, or tap a button to go live yourself.

On Facebook.com, you can now view a live map of broadcasts taking place around the world. And you can now broadcast live to specific audiences, such as those in a Facebook group or those invited to an event, rather than to the public at large. Those watching a live video can send reaction emojis in real time, rather than just liking the video as a whole. When you watch a replay, you’ll see the reaction emojis pop up on the screen at the same point in the video when people sent them. You can also invite friends to join you in watching a live video and they’ll get a push notification linking to the feed. Live, live, live!

It’s not hard to see what appeals to Zuckerberg and co. about live video. It offers a fresh way to interact on a platform that can feel so familiar that it risks feeling stale. Broadcasting live to your friends, or even just watching a friend’s live broadcast, can feel exciting and even a little dangerous. That’s exactly the type of feeling that Facebook itself once evoked and that upstarts like Snapchat have managed to capture in recent years.

Talking with BuzzFeed’s Mat Honan about the company’s big push into live video, Zuckerberg used the phrase “raw and visceral” in two separate quotes, and threw in a third “raw” for good measure. (Re/code’s Kurt Wagner reported, and BuzzFeed subsequently disclosed, that Facebook is actually paying BuzzFeed and a few other news publishers to produce their own live videos in order to help the platform take off. Mat Honan, the BuzzFeed editor who wrote the piece, told me on Twitter that he did not learn of the arrangement until after his story was published.)

However you describe it, the approach seems to be resonating: On average, Facebook says people are commenting 10 times more on live videos than they do on regular videos.

Facebook video live map
Facebook's website now offers a live map of videos currently streaming.

Facebook

Facebook is not alone in viewing live video as the hot new trend in social media. The current revival of the old webcam trend can be traced roughly to the initial viral success of an Israeli live-streaming startup called Meerkat, which took the South by Southwest Interactive conference by storm in March 2015. It was soon eclipsed by Periscope, a similar service that Twitter had quietly acquired a few months earlier, and which it loudly launched just as Meerkat was gaining steam. Another new service, called Blab, puts the Periscope concept in a group-chat setting. And Twitter just this week struck a deal with the NFL to stream Thursday-night football games. Sources told me Twitter beat out Facebook, among others, for those rights.

“We’re entering this new golden age of video,” Zuckerberg told BuzzFeed. “I wouldn’t be surprised if you fast-forward five years and most of the content that people see on Facebook and are sharing on a day-to-day basis is video.”

Well, I would.

As a strategic move, investing in live video makes sense for Facebook and its rivals. If it proves to be a mainstream hit, they will have gotten in on the ground floor. And if the craze peters out, they’ll still have their core service to fall back on.

But just because big tech companies are throwing millions of dollars and hundreds of engineers at a trend doesn’t necessarily mean it will catch on with the masses. (Never forget Woo Woo.) Social live video seems like a particularly strong candidate to be viewed in retrospect as a fad—or, more likely, a niche medium that appeals to some public figures and publishers and their audiences without ever revolutionizing how ordinary individuals communicate with one another.

Services like Skype, FaceTime, Google Hangouts, Livestream, and Ustream have offered live video for years, and they certainly have their place—particularly when it comes to connecting with distant friends and family members. But that place is not at the top of a Facebook feed, which lends itself more to casual browsing than face-to-face interaction.

Zuckerberg told BuzzFeed’s Honan that the rawness of live video, paradoxically, lowers the social barriers to producing it. (No doubt he has in the back of his mind the comfort that Snapchat users have developed with snapping and sharing their own videos and selfies.) “Because it’s live, there is no way it can be curated,” he said. “And because of that it frees people up to be themselves.”

He may be underestimating the extent to which Snapchat’s success depended on its not being Facebook—that is, if you’re a young person, it’s a place where your parents, teachers, and bosses are unlikely to find you. At the same time, I think Zuckerberg is overestimating the proportion of the public that wants to share live video with more than a few close friends at a time. (I’d guess it’s a subset of the 20 percent or so who feel comfortable tweeting on Twitter.) Going live on Facebook, even with the ability to target members of a specific group or event, still feels like broadcasting; Snapchatting is more like narrowcasting.

That said, Facebook has a lot of power in the social media marketplace, and we should all expect to see and hear a lot about live video in the coming months. If nothing else, celebrities, publishers, and others who depend on publicity—Slate and myself included—are likely to give it a try in hopes of tapping into the vast audience that Facebook seems able to summon at will with a few tweaks of its mighty algorithm.

Previously in Slate:

April 6 2016 2:27 PM

The Obama Administration Is Finally Making Retirement-Savings Advisers Put Clients First

Saving for retirement might just get a bit easier for millions of Americans in the coming years, and for once, we don’t need to do a thing. This time, it’s our financial advisers who are being held to account.

On Wednesday, the Obama administration released the final version of new rules for professionals giving financial advice. It’s the culmination of a multiyear battle with the financial services industry, which argued that a higher standard of care would prove so costly it could be forced to dump lower- and middle-income savers en masse.

Under the new regs, financial advisers giving recommendations on retirement investments will have to offer advice that’s strictly in the best interests of their clients, something known as the fiduciary rule. Remarkably, as I’ve written many times, this is not the current standard. Instead, many financial advisers currently need to adhere to something called the suitability standard. That allows them to make suggestions for retirement investments that take into account how clients’ investments buttress their own bottom line. The advice just couldn’t be out-and-out malfeasant.

The Obama administration determined that this sort of advice was costing retirement savers up to $17 billion annually and decided to do something about it. The effort appeared to be languishing until early last year, when Sen. Elizabeth Warren took an interest in the subject. She ramped up the pressure by publicizing how, for instance, financial advisers in the insurance industry were rewarded with vacations at four-star Caribbean resorts in return for selling investors on particular annuities and other insurance offerings.

Under the current regulations, professionals giving retirement advice and working to the suitability standard don’t need to disclose these sorts of conflicts of interest to the savers they’re counseling. That’s going to change—and the financial services industry isn’t wrong when it says it will need to do more to ensure it’s meeting the enhanced standards. There will, for instance, be more paperwork. If the method of payment seems to suggest there could be a potential conflict of interest (like, say, a commission) between the adviser and the consumer, the adviser will need to sign a contract promising to put the consumer’s needs ahead of his or her own.

But doing more isn’t impossible. It seems highly unlikely that the changes put forth by the Department of Labor will force financial advisers to drop many of their customers, though it’s indeed quite possible they won’t earn as much money off of them. It’s almost certainly going to push advisers to recommend that retirement savers put their money in low-fee investments like index funds and make it harder for them to suggest complicated higher-cost options like variable annuities that just happen to be more lucrative for the advice-giver. That benefits the individual investor.

On the other hand, the final version of the new rules includes some changes from previous versions of the proposal—for example, it makes clear that commissions are still a permissible form of payment to advisers, something the industry was actively concerned about, and that retirement education in the workplace is not considered a covered activity. In addition, the fans of finance gurus on radio and TV can rest easy. The new rules make it clear that Dave Ramsey, Jim Cramer, Suze Orman, and other providers of financial infotainment aren’t in a one-to-one relationship with their fans, and can continue to offer up their opinions without fear of the feds knocking on their door.

The revised regulations won’t fully go into effect until 2018. While both Hillary Clinton and Bernie Sanders have said in the past that they support the Labor Department’s current initiative, the same is unlikely to be true of the eventual Republican nominee for president—last week, for example, House Speaker Paul Ryan tweeted out his opposition to the changes, calling them “Obamacare for financial planning.”  It seems almost certain there will be some sort of legal challenge to the new regulations, as well.

Moreover, these changes only impact retirement savings. Money that investors hold in regular investment accounts fall under the purview of the Securities and Exchange Commission. As I wrote last week, they aren’t doing much on this front at all.

One other thing: The enhanced standard can’t fix our overarching retirement savings problem. We’re still not saving enough money for our post-work lives. The retirement crisis continues. The median working-age family continues to hold only $5,000 in its retirement accounts. Better advice won’t fix that problem. We need a better safety net, beginning with enhanced Social Security benefits, and a stronger economy, so people can save more, to accomplish that.

April 6 2016 11:20 AM

The Real Reason It’s Hard to Take Bernie Sanders Seriously on Wall Street Reform

After his widely panned sit-down interview with New York Daily News editorial board, a few writers have concluded that even though it may be one of his signature campaign issues, Bernie Sanders has no real clue how he would go about breaking up Wall Street's biggest banks. “Sanders appeared to reveal a damning lack of understanding of the exact regulatory statutes, laws, and powers he and a cooperative Congress could use to break up 'too big to fail' banks during the first year of his administration, an oft-repeated promise in his stump speeches,” Tina Nguyen wrote at Vanity Fair on Tuesday. Talking Points Memo reported that Sanders “struggled to detail how he would break-up the big banks and move toward a ‘moral economy.’ ”

Indeed, Sanders' answers on financial reform were a bit vague and may have sounded outright incomprehensible to someone who hasn't been following the issue closely. Take this exchange, on busting up America's financial giants:

Daily News: How do you go about doing it?
Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.
Daily News: But do you think that the Fed, now, has that authority?
Sanders: Well, I don't know if the Fed has it. But I think the administration can have it.
Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, "Now you must do X, Y and Z?"
Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.
Daily News: You do, just by Federal Reserve fiat, you do?
Sanders: Yeah. Well, I believe you do.

Sanders isn’t exactly relaying his thoughts in pointillist detail here. But it's unfair to conclude that the man simply doesn't know what he's talking about. His response, while a bit clipped, was basically coherent, and is entirely in keeping with what he laid out in a policy speech in January. Sanders wants to pass legislation that breaks up financial institutions he considers too big to fail—preferrably a modernized version of the late Glass-Steagall Act, which separated commercial and investment banking. Given the challenges he may face in Congress, however, the senator from Vermont has also outlined a plan to cut the banks down to size through administrative fiat. It involves using Section 121 of the Dodd-Frank Act, which gives a board of regulators including the head of the Federal Reserve and the treasury secretary the power to order large financial institutions to shrink if they pose a “grave threat to the financial stability of the United States.” Suffice to say, it's not clear that his plan would survive a court challenge. And given the time it would take to appoint enough amenable regulators, he almost certainly couldn't pull it off within a year, as he's promised. But it's certainly a concrete plan.

In fact, the problem with Sanders' approach to Wall Street regulation is that he’s too focused on breaking up the banks—so much so that he's pinning his hopes on regulatory schemes of dubious legality, to the exclusion of equally important issues. The Clinton campaign often criticizes Sanders for failing to address the shadow banking sector—the vast network of financial firms that, while not technically banks, act a lot like them, and which played a central role in the 2008 crisis. But even on the issue of the banks themselves, Sanders is oddly myopic.

As Federal Reserve Bank of Minneapolis President Neel Kashkari recently outlined, there are (at least) three broad ways you can try to deal with the issue of “too big to fail.” First, you can deal with the “big” part and just break them up, either through an approach like Glass-Steagall's, or perhaps by simply capping their total assets. (The latter would probably be more effective, since pure investment banks can get plenty large. Remember Lehman Brothers?) There are advantages to this approach. The failure of a small- or medium-size bank is probably less likely to pose an existential risk to the global economy, and as a side benefit, you might create some extra competition in the market for financial services while reducing the political power of individual institutions (though probably not the financial sector as a whole).

But the biggest problem with just breaking up JPMorgan and Bank of America and calling it a day is that downsized banks are still perfectly capable of taking stupid risks and failing. And if enough of them go bust at once, it can create systemic problems. For instance, the 1980s savings and loan crisis, which involved the failure of more than 1,000 small thrifts, ended up costing U.S. taxpayers some $124 billion and likely damaged the economy. That's why many financial reform advocates—most notably Anat Admati and Martin Hellwig—have argued that instead of shrinking banks, we should make them fail-proof by keeping them from borrowing too much. The most direct way to do that is through dramatically higher capital requirements, which force banks to fund more of their business through things like cash from retained profits and selling stock, rather than debt. (The less your bank is fueled by borrowing, the less likely it is to go bust if your loans and other investments go sour.) Dodd-Frank already raised capital requirements for the largest financial firms, but many think the government should go much further.

Finally, you can also try to reduce risk in the financial markets by simply taxing it, since making it expensive to borrow an obscene amount and leverage up your bets should encourage banks to do less of it. This is basically Clinton's preferred method, and while it might be the lightest-touch approach of the three, the way that financial institutions have slimmed down to avoid Dodd-Frank's regulatory requirements suggests it could be very effective. Plus, it has the advantage of directly addressing risk instead of size. Too-big-to-fail isn't quite such a problem if you don't have to worry about the fail part.

Now, personally, I suspect that Sanders would love the idea of higher capital requirements. Ditto for taxing leverage. There'd certainly be nothing stopping him from pairing them with the new Glass-Steagall bill he so desires. (Why pick just one flavor of financial regulation when you can have two or more?) But I've never seen him mention either idea, much less engage meaningfully with them. Instead, he focuses monomaniacally on outright breaking up the banks, which contributes to the sense that his understanding of these issues, on the specific policy level, doesn't go very deep beyond campaign sloganeering. That honestly might not be a problem for him in the White House—Sanders clearly has a powerful moral position about the need to rein in Wall Street, and if he has good advisers, I'm sure he'll listen when they lay out the various options for doing it. But for now, the candidate's tunnel vision makes it a little hard to take him seriously on the issue.

April 5 2016 6:46 PM

Bernie Sanders’ Bizarre Idea of Fair Trade

Bernie Sanders, it is often noted, has never met a free trade deal that he liked. But in his recent interview with the New York Daily News's editorial board, the senator from Vermont outlined the trade terms he might find acceptable. His statement should be absolutely chilling to the developing world.

Daily News: Another one of your potential opponents has a very similar sounding answer to, or solution to, the trade situation—and that's Donald Trump. He also says that, although he speaks with much more blunt language and says, and with few specifics, "Bad deals. Terrible deals. I'll make them good deals."
So in that sense I hear whispers of that same sentiment. How is your take on that issue different than his?
Sanders: Well, if he thinks they're bad trade deals, I agree with him. They are bad trade deals. But we have some specificity and it isn’t just us going around denouncing bad trade. In other words, I do believe in trade. But it has to be based on principles that are fair. So if you are in Vietnam, where the minimum wage is 65¢ an hour, or you're in Malaysia, where many of the workers are indentured servants because their passports are taken away when they come into this country and are working in slave-like conditions, no, I'm not going to have American workers "competing" against you under those conditions. So you have to have standards. And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States. [Italics added]

With those last few words, Sanders has effectively written off trade with any country that is not already rich and prosperous—which is simply inhumane.

It is one thing to argue that we should not do business with nations that actively manage or manipulate their currencies, as Sanders sometimes does, since exchange rates are supposed to be the market's main mechanism for balancing trade. It's also entirely reasonable to support workers' rights to unionize abroad or push for stricter environmental protections. Indentured servitude and slavery, which are more widespread than many realize, need to be wiped off the face of the earth. Those are all issues that trade pacts should absolutely address.

But a blanket rule against trade with low-wage nations is different. The entire point of trade is that countries have to play to their strengths, which makes the entire global economy more efficient. If you happen to have a highly educated population, thriving capital markets, and lots of high-tech expertise—like the United States or Germany—you're going to export high-end services like banking and advanced manufactured goods like cars and airlines to the rest of the world. On the other hand, if your only advantage is an abundant pool of relatively unskilled labor willing to work 65 cents an hour, then you can probably carve out a niche in textiles and electronics assembly, then gradually build know-how and work up to something more lucrative. But if the United States comes along and says, "Sorry, Vietnam, we're not going to buy another T-shirt unless your people start earning $5 or $7 an hour," factory workers in Hanoi aren't suddenly going to get a raise. Factories are going to close, and businesses will move their operations to a country where employees are productive enough to justify developed-world wages—which typically means the developed world. The U.S. will have just undercut Vietnam's only relative strength.

What I can't tell is whether Sanders simply doesn't understand this, or doesn't care. Maybe he thinks the only reason seamstresses in Vietnam don't earn more is that they don't have enough bargaining power, which while wrong would be empathetic. Or maybe he's just more concerned about the well-being of a relatively small number of American workers than he is about the global poor. 

But if that's the case, he should wrestle with the moral implications of that stance, which Vox's Zach Beauchamp has explored in wonderful detail. Global trade has certainly hurt many American workers. But it's also been the driving force behind historic declines in poverty. Chinese imports may have cost the U.S. as many as 2.4 million jobs from 1999 to 2011. But during roughly that same period of time, the World Bank notes that China lifted 290 million people out of extreme poverty.

Balancing those human interests against each other isn't simple, and so far the U.S. has done a fairly miserable job supporting communities that lost their livelihoods because of trade. But simply writing off hundreds of millions of workers the world over doesn't seem like the right response.

April 5 2016 3:45 PM

Tesla’s New Car Might Be Too Popular for Its Own Good

On Thursday night, Tesla unveiled a prototype of its newest car, the $35,000 Model 3, and made it available for preorder online.

Within 90 minutes, some 115,000 people had paid $1,000 apiece to reserve one when it comes out in late 2017. And within two days, that number had hit 276,000, according to CEO Elon Musk.

No updated stats were available on Tuesday, but it’s relatively safe to assume the number of reservations has climbed to more than 300,000. Musk said he’ll release the final numbers for the week on Wednesday.

From the beginning, the Model 3 has been Tesla’s raison d’être: the vehicle that Musk hoped would bring electric cars to the masses. The company’s latest all-new model, the Model S, quickly broke sales records for an all-electric vehicle. But if the early demand for the Model 3 is any indication, it has a chance to set some records that even conventional cars can’t touch.

First, an important caveat that bears repeating: Reservations are not sales. The people paying $1,000 to preorder a Model 3 now could easily change their minds by the time the car is ready, given that Tesla has made it clear that the deposits are refundable. Technically, then, Tesla has not sold any Model 3s yet.

Tesla Model 3
The Model 3 will cost $27,500 after a federal tax credit. But not everyone will get that rebate.

That said, it’s fair to assume most people don’t just hand out $1,000 deposits unless they have at least some intention of making a purchase. And the numbers are pretty staggering. For comparison’s sake, here is the number of cars the leading automakers sold in March 2016, according to Automotive News. Note that these figures include all the cars they sold in that month, not just one model:

  • Ford: 253,064
  • General Motors: 252,128
  • Toyota: 219,842
  • Chrysler: 213,187

In other words, no automaker sold as many cars in the United States in the month of March as Tesla took orders for in two days.

This is, rather obviously, fantastic news for Tesla. And it should put to rest the notion that GM somehow stole the company’s thunder by releasing an electric car with a similar range and price tag a year earlier. (The $37,500 Chevy Bolt will go on sale by the end of 2016.)

And yet the success of the Model 3 is not a fait accompli. As this Statista chart shows, Tesla has been steadily ramping up production of its Model S since it debuted in 2012, nearly doubling its output each year. But the pace of Model 3 reservations suggests Tesla may have to exceed even this exponential growth curve if it is to keep up with demand.

Infographic: Tesla's Model 3 Pre-Orders in Perspective | Statista
You will find more statistics at Statista

To produce the Model 3 at a rate that dwarfs that of the ultra-pricey Model S has always been Tesla’s goal. It’s why the company is building the world’s largest lithium-ion battery factory in the Nevada desert. On the other hand, no company can sustain exponential production growth without running into some problems. And Tesla’s production target of 500,000 cars a year from its Fremont, California, assembly line was always going to pose a challenge.

Tesla, for its part, already has a track record of delays. In fact, it has yet to ship a new model on time. Its latest model, the Model X SUV, is finally beginning to hit streets this year, more than two years after it was originally scheduled to launch. On Tuesday, the company explained that production had been hamstrung by “severe Model X supplier parts shortages” that “lasted much longer than initially expected.” In a press release, spokeswoman Alexis Georgeson went on to attribute the snafu to, among other issues, “Tesla’s hubris in adding far too much new technology to the Model X in version 1.”

The self-awareness is refreshing, if not entirely reassuring: The Model 3, after all, is new from the ground up, unlike the Model X, which was based largely on the Model S. (Muskian flourishes like the “falcon wing” doors made the Model X more complicated than was strictly necessary.)

For those buying the Model 3, there’s one other reason to worry about its skyrocketing preorder figures: The $7,500 tax credit for buying an electric car starts to phase out once a company has sold 200,000 qualifying electric vehicles. So a lot of these Model 3s are going to end up costing the full $35,000 sticker price, rather than the effective post-rebate price of $27,500.

As I’ve written many times, it’s never wise to bet against Elon Musk when it comes to the success or failure of his products. Betting on him to be late, however, seems like a pretty safe wager.

Previously in Slate:

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