A blog about business and economics.

Oct. 11 2016 2:18 PM

Hillary Clinton Has a New Plan That Would Give Money to Poor Children

If you've been enjoying this election's surreal descent into moral and political anarchy, then by all means go check out the savage Twitter offensive Donald Trump has been busy waging against the Republicans who've distanced themselves from his flaming zeppelin of a candidacy. But if you need a palate-cleanser after our long, weird Columbus Day weekend, Hillary Clinton has you covered. The Democratic nominee just unveiled a new policy plan designed to put money in the pockets of families with children that could also serve as a serious poverty-fighting initiative. Best yet, it feels like something that could conceivably become law in the next four to eight years—which is sort of novel these days.

Here's the news: Clinton is proposing to double the value of the child tax credit for children through the age of 4 to $2,000. At the same time, she would make it possible for low-income families who currently miss out on much of the credit to claim more of it. This sounds a little dry, but it could be an enormous help to some of the country's neediest households.

Today, the child tax credit is a helpful bonus for middle-class families that excludes some of the poorest of the poor. Technically, it's worth up to $1,000 per child. But many low-income households don't earn enough to qualify for the full benefit, or can't claim it at all, because of its refundability rules.

What does "refundability" mean? Basically, a family can claim a refundable tax break even if they don't owe any more money to the IRS. Say your household qualified for a $1,000 tax credit but was only on the hook for $700 in actual taxes. If the credit were fully refundable, you'd get the remaining $300 as a check from the government. This may sound like a bizarrely roundabout way of essentially handing extra cash to struggling families, but refundable tax credits have their upsides. First, they submerge the safety net in the tax code, where it's less likely to draw attention from angry conservatives. Second, they are an effective tool for tying benefits to how much adults work, which is how Americans seem to prefer their welfare state, for better or worse.

Right now, the child tax credit is partially refundable. Families with no tax liability can get back 15 percent of their earnings above $3,000, up to the full value of the credit. But if you make less than $3,000? You get nada. If that sounds perverse, remember that the credit was originally created in 1997 as a $500 break that wasn't refundable at all. Over time, Washington has targeted it more toward the poor. But even now, economists estimate that only about 20 percent of its benefits go to tax filers earning less than $30,000 a year.

Clinton wants two big changes that would make the credit more valuable to the middle class and working poor alike. As I mentioned, she would up the credit's value to $2,000 for kids 4 years old and younger. Second, she's making more of the credit refundable for families with children of all ages by getting rid of that $3,000 threshold. Instead, families with no income-tax burden will be able to claim up to 45 cents of each dollar they earn up to the full value of the credit.

To see how this might work in practice, let's take a hypothetical single mother with children ages 1 and 3 who earns $9,000 a year:

  • Today, she'd be able to claim 15 percent of her income over $3,000—which comes out to $900.
  • If Hillary Clinton got her way, this parent would be able to claim 45 percent of her entire $9,000 income. That's $4,050. Because the credit is only worth $2,000 per child, she'd end up with $4,000 extra.

That is a very big difference for a struggling mother. Meanwhile, a parent who earned just $3,000 per year could qualify for a $1,450 check, whereas before they got nothing. That should give you a sense of why Vox's Dylan Matthews, who spends an impressive amount of his waking hours thinking about anti-poverty policy, thinks this might be “among the most important policies [Clinton's] announced during her entire presidential” campaign, and could help rectify the rise in deep poverty that followed Bill Clinton's welfare reforms.

Moreover, it might be politically viable. Conservatives like Sens. Marco Rubio and Mike Lee have proposed their own sizable child credit expansions. And given that Clinton projects the cost of her proposal would be about $150 billion to $200 billion over a decade, it's just inexpensive enough that you can imagine the White House bargaining it into an annual budget bill—especially if Trump crashes and burns down the Republican majority in the House. Now, back to that Trump tweetstorm ...

Oct. 10 2016 1:00 PM

Half of World War II’s Veterans Started Businesses. Less Than 5 Percent of Today’s Veterans Do.

This post original appeared on Inc.

Entrepreneurship is not an easy path for anyone, but for veterans, it appears to be getting harder. That's troubling for military-veteran business owners, of course, and for the fellow service members they would hire. But it's also a big problem for the entire U.S. economy.

Last century, a stunning 49.7 percent of World War II vets went on to own or operate a business, according to Syracuse University's Institute for Veterans and Military Families. Some 40 percent of Korean War veterans did the same--creating millions of jobs along the way. But this century, while the time span has been shorter, the rate of veteran entrepreneurship has been discouragingly low.

Oct. 10 2016 10:59 AM

Donald Trump’s Answer on Oil and Coal Was Deeply Ahistorical Nonsense

Nearly everything Donald Trump said about energy during the second presidential debate, he got entirely wrong. “Energy is under siege by the Obama administration. Under absolutely siege,” Trump said, responding to a question from an undecided voter (the instantly iconic Kenneth Bone) on energy policy. “The EPA, Environmental Protection Agency, is killing these energy companies. And foreign companies are now coming in buying our—buying so many of our different plants and then rejiggering the plant so that they can take care of their oil. We are killing, absolutely killing our energy business in this country.” Not that Trump’s running mate did any better on the subject during his own debate a few nights earlier.

The notion that the Obama administration—and by association, Hillary Clinton—is waging a war on coal is now a key tenet of the Republican creed. Trump continued this drumbeat. “And you look at our miners. Hillary Clinton wants to put all the miners out of business. There is a thing called clean coal. Coal will last for 1,000 years in this country.” But the Environmental Protection Agency and the government are putting coal mines out of business, he charged. And Trump extended the critique to the energy sector at large, accusing the administration of animus “toward miners and others in the energy business. It’s a disgrace.”

To the extent energy is under siege, the hordes at the walls are actually other participants in the energy sector. Trump is right that lots of energy companies are suffering—especially their stockholders and bondholders. As SNL Energy noted earlier this spring, nearly 44 percent of coal production is being conducted by coal companies in bankruptcy. And there has been lots of corporate carnage in the oil and gas fields of North Dakota, Texas, and Pennsylvania. According to Standard & Poor’s, 53 of this year’s 83 U.S. corporate debt defaults have taken place in the energy and natural resources sector.

But these results can largely be ascribed to what might be called catastrophic success on the part of the private sector—not to government regulation. The energy sector is suffering from too much production of oil and gas, not too little. And that increased production, in turn, is hurting coal.

Coal is undeniably the sick man of the energy industry—the amount mined has fallen for five of the past nine years, and is off by about 20 percent so far this year. Regulations have something to do with this trend. But as I noted last week, utilities’ shift to cheap, abundant, cleaner-burning natural gas—along with state (not federal) mandates to use more renewable energy—are responsible for virtually all of the decline in coal consumption.

On the other hand, in some ways, the U.S. oil and natural gas industries are remarkably healthy—not that that would ever square with Trump’s evocation of oil fields under federal siege. Production of natural gas and oil has soared in the Obama years. For that we can thank the aggressive raising of capital, the refinement and continuous improvement of fracking, and the government either encouraging the trend or largely staying out of the way. Environment regulations have not tamped down drilling for oil and natural gas in any meaningful way. Oil production has risen in each of the first seven years of the Obama administration, and the 2015 production total was nearly twice that of 2005. (Oil production is down a bit so far in 2016, largely due to low prices.) Natural gas production has likewise boomed, rising 40 percent between 2005 and 2015 to a record 32.9 trillion cubic feet.

The oil and natural gas industries are suffering because they are living through the ugly end of a typical American boom-and-bust cycle (the kind with which Trump is intimately familiar). The success of fracking, combined with muted demand for both power and transportation fuel, means the U.S. has vastly increased domestic supplies without a concomitant rise in demand. That has pushed prices down dramatically. So a host of companies that raised debt and capital in anticipation of oil selling for $60 or $70 a barrel have been schnitzeled as oil has lingered in the $40- and $50-per-barrel zone. And all the afflicted companies haven’t simply shut down. Again, in a process Trump knows well, they have shed debts and obligations, fixed their balance sheets, merged and consolidated, and continued to produce energy.

Federal policies that support renewable energy, electric vehicles, and lower emissions certainly contribute a small amount to the tamping down of demand for fossil fuels. But the overwhelming amount of the problems we’ve seen stem from excess production and the fact that it is hard to find external markets for natural gas and oil. Here, too, the Obama administration has actually helped the industry. Last December, Obama signed Republican-backed legislation that would end the longstanding export ban on crude oil. And with the government’s permission, companies are now systematically exporting natural gas and products derived from natural gas.

That’s some siege.

For her part, Hillary Clinton got something wrong when talking about energy.  “You know that we are now for the first time ever energy-independent,” she said in the response to the same question. That’s not quite true. Yes, oil imports are way down, in both volume and total cost. But the U.S. still has a trade deficit in petroleum products—$84 billion in 2015, but only $33 billion through the first eight months of 2016. In 2008, when President Obama was elected, petroleum products accounted for about half of the U.S. trade deficit. Now, they account for less than 15 percent of it. Oil is actually one of the areas of trade where the U.S. is “winning,” as Donald Trump would define it. But we’re not quite independent.

As for Trump’s line about foreign companies “buying so many of our different plants and then rejiggering the plant so that they can take care of their oil,” I have no idea what he’s talking about. Then again, neither does he.

Oct. 9 2016 10:52 PM

Donald Trump Admitted He Didn’t Pay Taxes—and Then Blamed Hillary

Earlier this month, the New York Times published several pages from Donald Trump’s 1995 New York, New Jersey, and Connecticut state income tax returns. They revealed an astonishing $916 million loss, one that—assuming the Internal Revenue Service didn’t challenge it—would have allowed Trump to avoid paying personal income taxes for about 18 years.

Is that what happened? It sure sounded possible! And now we appear to know for sure that Trump used the loss to avoid paying personal federal income taxes, at least for some period of time. How? Because he just said so in the second presidential debate.

When Anderson Cooper asked Trump, “Did you use the loss to avoid paying personal federal income taxes?” Trump responded bluntly: “Of course I do,” he said, adding, “So do all of her donors. I know many of her donors. They take massive write-offs.”

That’s quite possible! But they aren’t running for office, and they weren’t on the debate stage. Trump is. And he blamed Hillary Clinton for the fact he doesn’t pay taxes. Because, you see, “A lot of my write-off was depreciation, and that, Hillary as a senator, allowed. The people that give her all this money want it.” (Clinton, of course, wasn’t a senator in 1995, the year Donald Trump reported the $916 million loss. If you needed reminding!)

Cooper quickly moved in, making sure Trump didn’t misspeak by asking a moment later, “Can you say how many years you have avoided paying personal federal income taxes?”

Trump responded: “No, but I pay tax and pay federal tax, too.”

But at no point did he say he paid federal personal income taxes. Because, as he himself allowed, for some period, he didn’t.

If you are in any doubt about this point, let’s rewind the tape to the last presidential debate. Remember when Hillary Clinton said, “He’s paid nothing in federal taxes,” Donald Trump couldn’t stop himself from pointing out, “That makes me smart,” adding a moment later, “It would be squandered too, believe me.”

Finally, Trump’s own campaign used similar language when responding to the New York Times story, saying in a statement, “”Mr. Trump has paid hundreds of millions of dollars in property taxes, sales and excise taxes, real estate taxes, city taxes, state taxes, employee taxes, and federal taxes.”

So there you have it.

Oct. 7 2016 9:50 PM

Hillary Clinton’s Wall Street Speeches Have Leaked. No Wonder She Didn’t Want Them to Get Out.

Throughout the Democratic presidential primary, Sen. Bernie Sanders challenged Hillary Clinton to release excerpts of the paid, private speeches she delivered to Wall Street audiences following her time as secretary of state. She refused—which occasionally made things pretty awkward, since her resistance suggested the remarks could contain something explosive.

Now excerpts of the speech transcripts appear to be out. On Friday evening, WikiLeaks released a trove of hacked emails belonging to Clinton campaign chairman John Podesta. These include a long missive from the candidate's research director, Tony Carrk, in which he flags portions of Clinton's remarks that could potentially trip up the campaign. “There is a lot of policy positions that we should give an extra scrub with Policy,” Carrk wrote to his colleagues.*

BuzzFeed reporter Ruby Cramer dug up the email, and Clinton's team declined to confirm to her whether the passages are authentic, adding that the Obama administration has “removed any reasonable doubt that the Kremlin has weaponized WikiLeaks to meddle in our election and benefit Donald Trump’s candidacy.” Assuming the excerpts are the real deal, however, it seems fairly obvious why Clinton would not want them to see the light of day in the primary—when she was trying to prove her progressive bona fides and was fighting the perception that she'd be soft on banks—or even the general election. In the excerpts, Clinton presents herself as a finance-friendly moderate who is willing to criticize the industry but who also believes it took an excessive amount of heat for the financial crisis. She also suggests politicians need to hide their true policy positions from the public—not great for a candidate voters already tend to distrust—and that her long-term “dream is a hemispheric common market, with open trade and open borders,” which Donald Trump is sure to pounce on. Breitbart is already screaming about the open borders bit.

The choicest excerpts fall neatly into three categories: Stuff that would have played badly in the primaries; stuff that plays badly against Trump; and stuff where Hillary comes off looking reasonably well. You can read the emails in their entirety at BuzzFeed.

Remarks That Would Have Played Terribly in the Primary

One of Clinton's big weaknesses as a candidate is that, fairly or not, a good many Americans think of her as a liar. Her Wall Street speeches were controversial because voters suspected she might have told a room full of wealthy bankers one thing while telling voters another. And the transcripts probably wouldn't have helped that impression. During a talk before the National Multi-Housing Council in 2013, she talked about the need to keep political negotiations secret, for instance, citing the example of Abraham Lincoln's wheeling and dealing to get the 13th amendment passed. "I mean, politics is like sausage being made," she said. "It is unsavory, and it always has been that way, but we usually end up where we need to be. But if everybody’s watching, you know, all of the back room discussions and the deals, you know, then people get a little nervous, to say the least. So, you need both a public and a private position."

I'd argue Clinton is probably right here. But the phrase, "you need both a public and a private position" isn't going to soothe anyone's doubts about her trustworthiness.

Clinton also comes off fairly amenable to the financial services industry—which isn't surprising, given banks were paying her good money to come and chat. Take this passage, which Carrk flagged under the heading, "CLINTON TALKS ABOUT HOLDING WALL STREET ACCOUNTABLE ONLY FOR POLITICAL REASONS,” from a 2013 speech at a Goldman Sachs event, in which she appears to suggest American banks were criticized more than they deserved following the financial crisis.

That was one of the reasons that I started traveling in February of ‘09, so people could, you know, literally yell at me for the United States and our banking system causing this everywhere. Now, that’s an oversimplification we know, but it was the conventional wisdom. And I think that there’s a lot that could have been avoided in terms of both misunderstanding and really politicizing what happened with greater transparency, with greater openness on all sides, you know, what happened, how did it happen, how do we prevent it from happening? You guys help us figure it out and let’s make sure that we do it right this time.

Clinton's is actually offering a subtle criticism of the financial services industry here: She's saying that if the banks had been more transparent they would have been treated less harshly. But fundamentally, she's still opining that much of the criticism of Wall Street after 2008 was “politicized” and that the “conventional wisdom” that U.S. banks were to blame for the worldwide meltdown was an inaccurate “oversimplification.” On a substantive level, that should be a little worrisome for financial-regulation advocates. And politically, Sanders would have had a field day. He also likely would have hammered her for remarks Carrk labeled, “CLINTON SUGGESTS WALL STREET INSIDERS ARE WHAT IS NEEDED TO FIX WALL STREET,” which she offered at the same Goldman symposium:

There’s nothing magic about regulations, too much is bad, too little is bad. How do you get to the golden key, how do we figure out what works? And the people that know the industry better than anybody are the people who work in the industry.

Clinton isn't outright saying she would populate the Treasury Department with Goldman and J.P. Morgan alums (though in a separate excerpt, she does suggest politicians have made it too hard for people who have been successful in business to serve in government). But she clearly is saying she's open to their input on how their companies should be regulated.

Then there are the bits that sound OK in context but cringe-worthy in isolation. Take this bit from an event in San Diego:

When I was a Senator from New York, I represented and worked with so many talented principled people who made their living in finance. But even thought I represented them and did all I could to make sure they continued to prosper, I called for closing the carried interest loophole and addressing skyrocketing CEO pay. I also was calling in ‘06, ‘07 for doing something about the mortgage crisis, because I saw every day from Wall Street literally to main streets across New York how a well-functioning financial system is essential. So when I raised early warnings about early warnings about subprime mortgages and called for regulating derivatives and over complex financial products, I didn’t get some big arguments, because people sort of said, no, that makes sense. But boy, have we had fights about it ever since.

The big idea here is that Clinton takes a balanced approach to regulation, making sure the industry could thrive while calling out its dangerous excesses. It's a reasonable position, though there's still plenty to argue with on the merits; one might say Wall Street's profits should be curbed regardless of whether it's presently endangering the entire world economy. But how long do you think it would have taken the line, “I represented them and did all I could to make sure they continued to prosper” to meme its way around Facebook and Twitter?

Some of Clinton's other attempts to position herself as a centrist might trouble progressive Democrats as well. At one point, she tells a crowd at Xerox that America needs “two sensible, moderate, pragmatic parties,” which in these sorts of settings comes off as code for “pro-corporate.” And at a Morgan Stanley get-together, she says the framework and big elements of the Simpson-Bowles deficit reduction plan, loathed by many progressives because of its cuts to the welfare state, “were right.”

Is the Hillary Clinton of 2016 still secretly a debt hawk who thinks Wall Street needs generous input on the laws governing it? Who knows. But up against an anti-bank crusader like Sanders, who wanted to radically expand the social welfare state, these remarks would have left her with a lot of explaining to do.

Remarks That Could Play Terribly Now

Clinton's speeches are also going to hand Donald Trump some easy fodder—his own Friday evening problems notwithstanding. First, there are long disquisitions on the State Department's security protocols and the cyber threats posed by foreign governments—which again raise the question of why she thought it was kosher to use a private email server. The worst bit in this vein might be this part, from a talk at the University of Connecticut:

At the State Department we were attacked every hour, more than once an hour by incoming efforts to penetrate everything we had. And that was true across the U.S. government. And we knew it was going on when I would go to China, or I would go to Russia, we would leave all of our electronic equipment on the plane, with the batteries out, because this is a new frontier.


Then there's the bit on globalization. Trump and surrogates like Rudy Giuliani have said Clinton is in favor of open borders, full stop. Clinton has said this is false. But in a 2013 appearance at Banco Itau, she apparently said, “My dream is a hemispheric common market, with open trade and open borders, some time in the future with energy that is as green and sustainable as we can get it, powering growth and opportunity for every person in the hemisphere.” This may thrill the editors at Vox, but presumably not white working-class voters in Ohio. Point Trump.

Remarks That Come Off Well for Clinton

There are also sections of the transcripts where I'd argue Clinton comes off in a fairly positive light, even though her campaign seemed concerned about them. At one point she admits she's a bit “out of touch” with the struggles of middle-class families—but, if anything, that suggests encouraging self-awareness. She says that the mere perception that “the game is rigged” in favor of the wealthy is harmful for the country, and that those guilty of wrongdoing need to be “held accountable.” She talks about how the Supreme Court has turned campaign finance into the “wild west,” which suggests she's a sincere critic of Citizens United. Even a seemingly incriminating bit about how Wall Street donors should exercise their power, shared at Goldman Sachs, turns out to be pretty benign on closer inspection:

Secondly, running for office in our country takes a lot of money, and candidates have to go out and raise it. New York is probably the leading site for contributions for fundraising for candidates on both sides of the aisle, and it’s also our economic center. And there are a lot of people here who should ask some tough questions before handing over campaign contributions to people who were really playing chicken with our whole economy.

The key part here is “playing chicken with our whole economy.” This event took place in 2013, so it's pretty clear she was referring to the Republican Party's repeated showdowns over the debt ceiling.

So the transcripts, if they're authentic, aren't all bad. It's conceivable that had Clinton released them of her own accord earlier in the campaign, the progressive heresies eventually would have blown over, and she'd have avoided raising people's suspicions about her secrecy. But would they have been a headache for the campaign? Obviously. And now that they're out, I'm guessing they'll cause trouble all the way until Election Day.

*Correction, Oct. 7, 2016: This article incorrectly identified Tony Carrk as Tony Clark.

Oct. 7 2016 5:43 PM

These Florida Congressmen Must Be Regretting Their 2013 Votes Against Sandy Relief

Watching Hurricane Matthew chew up Florida’s Atlantic coastline, it’s hard not to think of Superstorm Sandy, which devastated parts of New York and New Jersey in October 2012. The videos showing the ocean pushing into Jacksonville neighborhoods resemble nothing in recent memory so much as those of the Northeast during Sandy. The value of the comparison has not been lost on emergency management personnel in Nassau County, north of Jacksonville, who measured the storm’s severity in Sandy terms—and reminded residents that Sandy’s storm surge had killed those who didn’t heed evacuation orders.


Matthew has killed more than 800 people in Haiti. Here, whatever else happens, it seems certain that the storm will have caused substantial damage to coastal Florida. The region will almost certainly ask for federal aid.


Again, the comparison with Sandy is instructive. When Congress finally got around to passing the Sandy aid package, two-and-a-half months after the storm, 180 representatives voted against it.


Among them? Republican Bill Posey, who represents Florida’s 8th Congressional District, which stretches from Vero Beach to Titusville and includes the Kennedy Space Center. And Republican Ron DeSantis

Oct. 7 2016 2:57 PM

Report: Only 1 in 5 Millennials Have Ever Tried a Big Mac

McDonald's hamburgers are not excellent. You know it. I know it. And, as the Wall Street Journal reports, McDonald's knows it. The company and its operators are acutely aware of how they've struggled in the face of competition from higher-end chains like Five Guys, Steak ’n Shake, and Shake Shack that have peeled off younger consumers by offering, well, better burgers. The Journal quotes a memo from a “top McDonald's franchisee” stating that only 1 in 5 millennials have even tried a Big Mac in their lives; we are apparently a generation immune to the charms of the special sauce. “The number of hamburgers sold at McDonald’s U.S. restaurants has been flat for the past few years,” the paper adds, “and was growing only at a 1% to 2% annual rate before that, according to former high-ranking McDonald’s executives.”

The trouble McDonald's is having with the youngs isn't so different from what other aging, iconic brands are experiencing. In 2014, for instance, the Journal reported that 44 percent of adults between 21 and 27 had never sipped a Budweiser (aka Bud Heavy, aka not Bud Light). The parallels between the two stories are somewhat obvious—both are somewhat bland flagship products aimed at a mass market that's been fragmented by a new variety of tastier (or, in some cases, cheaper) options popular among young consumers. American food and drink are getting better and more regionalized, which makes it tough to keep people interested in boring Big Macs and Buds.

But McDonald's, which racks up about 20 percent of its sales from burgers, is facing an especially tough structural problem when it comes to fixing its product. As the Journal notes, its restaurants are built around drive-through business, which is responsible for about 70 percent of the company's U.S. sales. And the trick with drive-through is that everything has to be optimized for speed. “Burgers are usually made in advance and held in warming cabinets so they are ready when customers pull up,” the paper explains. “McDonald’s said its goal for delivery time, from when the order is placed to when it is delivered to the customer, is a mere 90 seconds.” Unfortunately, the sorts of tweaks that would improve McDonalds' burgers—like cooking fresh meat off the grill—increase wait times, which makes it hard to adopt them across the chain. Just think about the last time you went to a Five Guys; you probably had to wait five or 10 minutes for your food. That doesn't seem so awful while sitting in a restaurant with a little plate of salted peanuts, but it’s unacceptable in the drive-through.

Apparently McDonald's is experimenting with innovations like fresh beef in select franchises. But while the company may be able to make changes around the edges to improve quality, it seems like crap burgers might be a piece of the McDonald's business model for as long as it caters primarily to drivers, which is to say, indefinitely. There is a silver lining in that. The qualities that make Five Guys and Shake Shack burgers so tasty will probably make it tough, if not impossible, for those companies to ever take on McDonald's for drive-through window supremacy. But others could try. I mean, In-N-Out does drive-through, and people actually like their burgers.

Oct. 7 2016 10:39 AM

The British Pound Crashed Because of Robot Traders

The British pound has been losing value lately thanks to anxiety over Brexit. But things took a turn for the bizarre during early morning trading in Asia on Friday, when the currency suddenly plunged 6.1 percent in about two minutes before recovering some of its losses. It was like the pound sterling had decided to go bungee jumping while most of the U.K. was slumbering.


The culprit behind the flash crash? Well, nobody’s quite sure what started the selling. It may have had something to do with French President François Hollande's comments that Europe would have to take a firm, unforgiving stand while negotiating Brexit terms, which strongly implies Britain's banks are going to get roughed up in the deal. Others suggest the drop may have started with a “fat finger error”—which is Wall Street–ese for an accidental trade. (Oops! Butterfingers! Sorry about your currency!) Another hypothesis is that it may have involved a “barrier option,” a kind of derivative trade that triggers when an underlying asset hits a certain price.

Whatever started the crash, though, everyone seems to agree it quickly snowballed thanks to computerized trades that automatically piled on. It was also exacerbated by the fact that trading in the pound is pretty light during the Asian morning hours—the crash occurred around midnight London time, which one analyst called a “twilight zone” for the foreign exchange market—meaning that just a few sellers can make a major difference in prices. As one analyst summed up the odd event to Bloomberg: “It would seem that it caught the market wrong-footed and triggered a lot of algorithmic selling.”

So, is there any broader significance to this, aside from the obvious implication that Brexit has made a formerly stable currency go loopy? Why, yes there is. As Bloomberg notes, flash currency crashes have become more common lately. One struck South Africa's rand in January and another hit New Zealand's dollar in August. A major reason seems to be that the markets have become less liquid and more volatile thanks to “regulatory changes that have seen global investment banks pull back from dealing, leaving fewer parties to take the other side of trade.” That, combined with the rise of robot traders, has set the stage for more of the kind of chaos that just sent the pound swinging.

And maybe someone saw that as an opportunity. As the Wall Street Journal notes, there's speculation that “opportunistic investors such as hedge funds could have aimed to capitalize on thin trading to sell the pound aggressively.” Or, in other words, someone may have tried to crash the pound intentionally, however briefly. Aren't markets a blast?

Oct. 7 2016 9:41 AM

Actually, Facebook’s New Craigslist Competitor Should Be a Little Debauched

Facebook began rolling out Marketplace this week, a prominently placed new section that’s designed to help users buy and sell their stuff. It’s a photo-heavy, mobile-friendly product that seems to be aimed squarely at supplanting Craigslist. Given Facebook’s global audience of 1.7 billion, Marketplace represents a cleaned-up, Type A threat to the aging but delightfully scrappy online market.

But so far, Marketplace’s rollout has had all the weirdness of a medieval bazaar—and some of the illicitness of Silk Road. Just hours after the ribbon-cutting, a company product manager apologized for the number of posts that had violated Facebook’s commerce policies. Those included offers of drugs, guns, sex, animals, and babies. (Human babies. As a joke, I think.)

It was an unsavory debut, another misstep following a handful involving Facebook’s regulation of speech. Last month, the company removed a famous war photograph, which features a naked 9-year-old girl, that had been posted by the Norwegian prime minister. The photo was restored after a public outcry, the latest skirmish over Facebook’s nudity policies. The company has also struggled with its “trending” news feature, which has been lambasted after promoting fake stories and hiding real ones. There are thousands of stories about Facebook algorithms wrongly deleting pages, posts, or photos.

So far, Marketplace has gotten weird in the opposite way. But expect that to change; Facebook has promised it will. And in that sense, Marketplace’s risqué beginning is more than a slip at the starting dock. It’s a test. The more Facebook polices Marketplace, the more it risks cutting out products at the margins of what’s allowed, frustrating sellers and reducing the site’s viability as a Craigslist competitor. The problem is analogous to the network’s speech issues—except that Facebook already has a successful rival for selling stuff.

You can see why buyers might prefer a marketplace with identity verification, as Facebook’s effectively has. But for sellers, what are the advantages in a tightly regulated Facebook marketplace that might censor at the margins, mistaking a Beanie Baby for a baby, a motorcycle for a hog, or a Supersoaker for a gun?

The alternative, of course, is Craigslist, the great souk of the web. It’s hard to overstate the site’s size or impact in the U.S. It was among the country’s 15 most-visited websites last year, according to Alexa. One fifth of the country visits every month. In the rental apartment market, where Craigslist is dominant, researchers have shown that the site so improved on the old, printed classified listings that it caused the average metropolitan rental vacancy rate to plummet by 10 percent.

At 21 years old, though, it is an internet dinosaur—older than Google, older even than Slate! It acts like it, too. When Padmapper tried to overlay Craigslist rental listings on Google Maps—a simple innovation that would make looking for an apartment much easier—Craigslist sued. After three years, Padmapper and 3Taps, which also aggregated Craigslist real estate data, agreed to stop using data from the site. Craigslist operates in 70 countries, but not in Arabic, Chinese, Hindi, Russian, Swahili, or Japanese. It’s the rare successful tech company that has shown little interest in constant optimization.

All this is to say that the giant and slow-moving site, which looks virtually the same now as it did in 2005, could use a kick in the pants. No wonder that VCs have lustily eyed OfferUp and VarageSale, a pair of wannabe competitors. It’s not the first time, either, that Facebook has tried to convert its social network into a commercial exchange. In 2007, when it had 22 million users, Facebook unveiled its first Craigslist competitor. But the company let it go in 2009, and it was fully shut down in 2014.

Now Facebook is a behemoth. Each month, more than a quarter of its users visit buy-and-sell groups, where Facebook enabled a “For Sale” post option last year. Facebook may find particular success in this area in the developing world, where no dominant internet marketplace exists and its high user numbers offer an enticing network effect.

Here, though, building the premier peer-to-peer marketplace will require some nice incentives to sellers. If Facebook approaches postings like it approaches breastfeeding photos—i.e. censor first and answer questions later—an easier, looser, and more libertine forum of exchange will challenge it for their loyalty. In the U.S., Craigslist already exists. Hopefully, the competition will force it to become more responsive to the needs of its users.

Craigslist of course has its own code of conduct that bans weapons, drugs, counterfeits, food stamps, pets, prostitution, and recalled items. But the site takes an evidently more laid-back approach to policing its submissions. To take an innocuous example, it took me all of five seconds to find a Samsung Galaxy Note 7, the recalled exploding phone, for sale.

Facebook, in short, makes a strong case for buyers. But for sellers? Craigslist could work better, but it has been working well enough.

Oct. 6 2016 5:49 PM

How Paul Ryan Will Rule in a Trump Presidency

Lately, Donald Trump has been cranking the grandiosity at his rallies up to 11 by promising the crowds that electing him “will make every dream you ever dreamed for your country come true.” This is obviously absurd, at least insofar as the man is talking to downscale whites pining for a return to the 1970s. Trump is not going to deport every undocumented immigrant, and even if he did, America would still become more diverse over time. No amount of tariffs will bring back all factory jobs that have gone to China. We're not turning back time.

But for a certain kind of conservative, Trump really could promise to make dreams come true—namely, the GOP's donor class, which can count on a raft of tax cuts should the nominee overcome his current odds and win the White House next month.

How can we be so sure? Because in any environment where Trump wins, there's a pretty strong chance the Republicans will hold onto both the House and Senate. And with just 51 votes in the upper chamber, they will be able to use the budget reconciliation process to push through all sorts of priorities the right has longed for. As Politico reported earlier Thursday, House Speaker Paul Ryan is already promising to do just that.

About a year ago, I wrote about the history of reconciliation and how a Republican-controlled government could use it to immolate both the tax code and the social safety net if it felt so inclined. The process prevents filibusters on tax and spending bills, allowing the Senate to pass them with a bare majority vote. It's an astonishingly flexible tool that can be used to tinker with any mandatory spending program except for Social Security—think food stamps, Medicare, unemployment benefits, and Medicaid—and cut or raise taxes. Democrats famously used it to push Obamacare over the legislative finish line after they lost their 60-vote majority due to Sen. Ted Kennedy's death. Republicans recently used it to pass an Obamacare repeal bill that the president promptly vetoed. President George W. Bush used it to force through his tax cuts.

And if Trump somehow demagogues his way into the Oval Office, it's a sure bet Ryan will place a massive tax-cut bill on his desk to sign. Whatever differences there are between the two men, they see eye to eye on the need to eliminate the estate tax, lower the top income tax rates, and drastically lower the corporate rate. They may have some substantial disagreements—Paul Ryan wants to stop companies from deducting the interest they pay on debt, while Trump apparently does not, for instance. But given that Trump lacks even a modicum of policy expertise and has generally relied on advice from generic supply-siders like Stephen Moore and Larry Kudlow who'd big-league love to see Ryan's ideas signed into law, it seems unlikely Trump would veto anything the speaker sent him.

This is obviously one of the major reasons why Paul Ryan has swallowed his pride and supported Donald Trump, despite acknowledging Trump’s penchant for wildly racist outbursts. It's essentially the same argument Grover Norquist made for Mitt Romney years ago:

We are not auditioning for fearless leader. We don't need a president to tell us in what direction to go. We know what direction to go. We want the Ryan budget. ... We just need a president to sign this stuff. We don't need someone to think it up or design it. The leadership now for the modern conservative movement for the next 20 years will be coming out of the House and the Senate.

So it's probably more accurate to say that if Donald Trump is elected, Paul Ryan will be able to finally make wealthy conservatives' dreams come true—a tax cut in which 99 percent of the benefits go to the top 1 percent.