A blog about business and economics.

June 9 2017 3:22 PM

Watch Donald Trump Throw Binders Full of Highway Environmental Reviews on the Floor

In a speech on Friday dedicated to permit reform, President Trump couldn’t resist deploying one of his favorite props: A big stack of paper.

This time, the paper was the 10,000-page environmental report for the Intercounty Connector, an 18-mile highway in Maryland, enclosed in three binders that the president borrowed from a state highway official to demonstrate the waste and folly of federal bureaucracy.

Denouncing the report as “nonsense,” Trump ceremoniously dropped the binders on the floor before kicking them out of the way as he returned to the lectern. “Nobody’s going to read it, except the consultants who get a fortune for this,” the president said. "These binders could be replaced by just a few simple pages, it would be just as good, it would be much better."

June 9 2017 2:00 PM

These Apple Sneakers Are a Normcore Dream, and They Might Sell for $30,000

In the early 1990s, Apple built prototypes for a pair of blocky, white sneakers, exclusively for Apple employees. With their sateen tongues and vintage rainbow logo, they’re either a normcore dream or the ultimate dad shoe, and they quickly disappeared into obscurity. In 2007, one of these rare items emerged on eBay and sold for $79. Now another is on the market—the only other, according to Heritage Auctions—but it won’t go for a pittance. At Heritage’s streetwear-themed sale on Sunday, the shoes are listed at an opening bid of $15,000—and are estimated to fetch at least $30,000.

Why such a large anticipated haul? Because for certain collectors these Apple kicks, which a buyer for the auction house purchased at a garage sale in the San Francisco-Bay Area, are a holy grail—a hot sneaker collectible and a hot Apple nostalgia piece, all in one auction lot.

Apple has long notched huge resale prices for its products, even before its products were considered techie fetish items. By 1999, Apple I, the first desktop computer, was already a collector’s item, selling for $50,000 at auction.

Apple I has continued to prove a reliably desirable product at big auction houses like Sotheby’s and Christie’s. Most notably, in 2014, an Apple I computer—thought to be from the first batch of machines assembled by Steve Wozniak—sold for $905,000. It was auctioned at Bonham’s Auction House to the Henry Ford Foundation for the organization’s museum in Dearborn, Michigan.

More recently iPods, made obsolete by smartphones, have become collector’s items, too. Almost immediately after Apple discontinued the product in September of 2014, their value markedly rose. That year, a factory-sealed 5GB first-generation iPod Classic fetched $20,000 on eBay. The 4,900 percent price increase in 13 years is yet another example of how quickly Apple products become collectible. Limited edition iPods are selling for even higher prices—a special U2 iPod with the members’ engraved autographs went for $90,000 in 2014.

Though Apple’s vintage tech products have clear value, a major auction house taking on these Apple sneakers might represent a new level of collectability for the company’s merchandise.

Apple-branded merch has primarily only sold on eBay, where there are a variety of pens, sweatshirts, and caps for sale. These items have a decent markup, but there are not many big-ticket pieces. Many of the items for resale were likely originally bought at the Apple Company Store, a brick-and-mortar outlet in Cupertino, California, which is open to the public and dates back to the company’s beginnings. However, these items seem to trade more on ’80s and ’90s nostalgia than serious collector’s value.

The most significant merchandise sale to date was a trade sign, manufactured for use at industry shows in the company’s startup years, which sold for $18,000 in 2008. The sign was a one-off, eventually replaced, but saved from the dumpster by an Apple employee who later put it up for auction.

In the last year, however, the market for Apple merchandise seems to have leaped. In 2016, a lot of Steve Jobs’ personal effects were up for auction, with one of his turtlenecks estimated to sell for up to $3,000. In a separate sale, a well-worn and taped-together pair of Jobs’ Birkenstocks went for $2,750.

If Heritage finds the right buyer for these sneakers—someone equal parts tech nerd and kicks enthusiast—it could signify some rare synergy between the nerd and jock market. Give it a decade and maybe an Uber logo-embossed basketball or a Facebook lacrosse stick could go for a similar fortune.

June 9 2017 1:33 PM

House Republicans’ Vote to Gut Dodd-Frank Is the Wall Street Giveaway That Wall Street Doesn’t Need

On Thursday, the House of Representatives passed the Financial Choice Act, which is aimed at reducing the regulatory burden on banks imposed by the 2010 Dodd-Frank law. As the Wall Street Journal noted, the Financial Choice Act would “subject new financial rules to cost-benefit analysis, boost penalties for financial wrongdoers and repeal the Volcker rule restricting banks from speculative trading.” The general thrust is to free banks from oversight. Some banks would be exempt from the federal stress tests, and the legislation would scale back the ability of the Consumer Financial Protection Bureau to ride herd on abusive bank practices.

Of course, it’s only the House. Similar legislation in the Senate would have to beat a filibuster, and hence require some Democratic votes. So it’s not likely the Choice Act will become law in its current form. Which is a good thing. The idea that banks and the broader financial system need relief from today’s regulatory regime is belied by reality, including their balance sheets. The case for repeal of Dodd-Frank would be more compelling if banks were suffering—failing to make money, failing to attract deposits, failing in general. But they’re not.

Which highlights an important historical truth. Sure, deregulating an industry can supercharge growth for a few years. But it often ends up in a crash. That’s what happened with the savings and loan industry in the 1980s, and with Wall Street in the 2000s. Setting and enforcing standards, on the other hand, is actually quite good for a sector’s long-term health. Wall Street and the banking system only got back on their feet in the 1930s after the passage of sweeping New Deal reforms. Insurers and many areas of the health care economy have thrived under the Affordable Care Act. Just so, the U.S. banking system—which was in shambles in 2009—has thrived since the passage of Dodd-Frank. In fact, it’s hard to recall a point in recent history when banks were as safe and as profitable as they are right now.

The Federal Deposit Insurance Corporation provides a handy reading of the sector’s health with its voluminous Quarterly Banking Profile. Dodd-Frank became law on July 27, 2010. In the quarter before its passage, the banking industry was licking its wounds and getting back on its feet after the financial crash, the housing bust, and the credit crisis. Twenty percent of the nation’s 7,830 banks were losing money, and 45 banks failed that quarter. The nation’s insured banks collectively charged off $49 billion in bad debt—loans they had made but now concluded they had no hope of collecting. Some 829 banks, with total assets of $403 billion, were on the FDIC’s “problem list.” Collectively, the industry eked out a profit of $21 billion.

The successive quarterly reports tell a tale of recovery and profitable growth—with vastly lower rates of failure and significantly higher profits.

Now, Dodd-Frank contained a lot of regulations. And while it did explicitly ban some practices—like using government-insured deposits to engage in proprietary trading—the most important thing it did was to set higher standards. Want to be part of the Federal Deposit Insurance program? Then you’ve got to hold more capital, you have to submit to annual stress tests, and you must operate with the knowledge that the CFPB is going to be watching you to make sure you aren’t abusing your customers.

While banks grumbled and lobbied for changes, they generally complied with Dodd-Frank. As a result, they became more careful and choosy about how they lent. Many smaller institutions that were struggling to survive decided it made more sense to merge or being acquired. Thanks to consolidation and failure, there were 5,856 banks in the first quarter of 2017, 25 percent fewer than in early 2010.

The pace of lending abated from the frenzied tempo of the bubble years. But lending today is far more effective—and profitable—than it was before Dodd-Frank. It helps that the economy and jobs have been expanding consecutively for the last several years. But we haven’t seen the type of reckless lending from banks that tend to take place as expansion lengthen.

Bank failures have fallen virtually every year. Last year, only five small banks failed. The number of banks on the problem list has fallen to 112, and they’re mostly very small. The combined assets of today’s troubled banks is $24 billion—a decline of 94 percent from before the passage of Dodd-Frank. The Federal Deposit Insurance Fund, which was $20 billion in the hole in the spring of 2010, is at a record high of $83 billion. Only 3 percent of the banks in the U.S. reported a less in the most recent quarter. Banks charged off $11.5 billion in bad loans in the quarter—a decline of 75 percent from the second quarter of 2010. After making a combined—and record$170 billion in profits in 2016, banks regulated by the FDIC earned $44 billion in the first quarter of 2017.

Does this really look like an industry that is struggling mightily in the face of zealous regulation?

June 8 2017 6:35 PM

Air Traffic Control Is Trump’s Problem in a Nutshell: Privatization Harms the GOP Base

It’s a cliché to observe that the objectives of the Republican Party do not often align with the interests of its constituents—that an unholy alliance of megacapitalists and forgotten men is bound to have its fissures.

And one of those fissures runs right through the administration’s infrastructure plan, which returned (again, and briefly) to the headlines with a proposal to privatize the air traffic control system.

The Trump proposal is based on a law sponsored by Rep. Bill Shuster, a Republican from Western Pennsylvania. But it's Wall Street tycoon, lifelong Democrat, and consummate New Yorker Gary Cohn, Trump’s chief economic adviser, who is the plan’s biggest backer in the White House, and who called ATC privatization “the single most exciting thing we can do.”

Conventional wisdom was always that Republican legislators would break from Trump on his trillion-dollar infrastructure plan and that he’d need the support of public spending-minded Democrats to get it passed. The president appears to cling to that hope even now. He spent a portion of his meandering Ohio River speech on Wednesday lambasting Democrats as “obstructionists,” in what seemed to be an angry ad lib from a message urging unity.

But it’s a second and more fundamental rift in American politics that is grounding the air traffic control project: Rural representatives don't like privatization, because rural infrastructure isn’t profitable. When it comes to rural airports, Republicans are suddenly wary of how the invisible hand might squeeze precious public assets.

June 7 2017 1:21 PM

Kansas Just Reversed Its Disastrous Tax Cuts. Donald Trump Wants to Repeat Them.

Thanks to the state of Kansas, we now get to find out whether Republicans are capable of learning from their failures.

On Tuesday, lawmakers in Topeka finally ended their costly misadventure in supply-side economics, when the GOP-dominated Legislature voted by wide margins to override a veto by Gov. Sam Brownback and reverse the massive tax cuts he championed in 2012. Kansas has faced chronic budget deficits and struggled with disappointing job growth during the half-decade since Brownback signed the reductions into law—a grinding fiscal disaster that turned the state into a poster child for conservative policy thinking gone awry and gradually stirred a rebellion among members of the governor's own party. They were finally spurred to act by a $900 million, two-year shortfall, as well as a Kansas Supreme Court ruling that ordered the state to revamp the spending formula for its underfunded public schools.

Brownback's tax cuts were sold as a way to generate jobs and new business while transforming Kansas into a national showcase for conservative policymaking. They were dreamed up with the help of Art Laffer, the supply-side maven famous for the Laffer curve, and Stephen Moore, the Club for Growth founder who in recent years has evolved into a media-friendly pied piper of obviously misguided conservative economic dogma. On their advice, Brownback slashed the state's personal income tax with the goal of gradually reducing it to zero. But more fatefully, he entirely exempted from taxes profits earned by certain businesses, known as “pass-through” entites—a move that turned into a quick and obvious debacle.

Pass-throughs are sometimes misleadingly described as “small businesses.” In reality, they account for more than 90 percent of all U.S. businesses—including everything from your corner gas station to massive hedge funds, Koch Industries' various tentacles, and the Trump Organization. What they all have in common is that, instead of paying taxes on the corporate level like Walmart or Apple, pass-throughs simply distribute their profits to their owners, who then pay taxes on them as normal income. There was no particular reason to give them a special break, particularly since it would create many opportunities for wealthy Kansans to game the system, either by restructuring their businesses to avoid taxes, or by claiming that their salaries were actually tax-free business “profits.”

Which is pretty much exactly what unfolded. Last year, a group of researchers from Indiana University, the University of South Carolina, and the U.S. Treasury examined Brownback’s tax cuts and concluded there was scant evidence they had led to any additional economic growth. Instead, the “primary effect of the policy” was to cost the state tax revenue by encouraging business owners to relabel their earnings as business profits. The budget fallout was so bad that economists from the conservative Tax Foundation warned Kansas legislators that their ill-considered experiment was hurting the cause of “tax reform”—i.e. tax cuts—nationwide.

Those lawmakers finally seem to have listened. Their new tax hike, which is expected to raise $1.2 billion over two years, undoes the pass-through exemption.

The question is whether national Republicans will take notice. Even though Kansas has been a readily apparent disaster for years now, that has not dampened Republicans' enthusiasm for cutting rates on pass-throughs. Trump, who was advised during his campaign by Moore, has proposed a 15 percent rate on pass-throughs, which would be a bit like the Kansas policy on meth. Less widely known, but perhaps more importantly, House Republicans including Speaker Paul Ryan have proposed a 25 percent rate for pass-throughs. Either would be immensely expensive, which could make it difficult to slip into a final tax reform package. But the idea is very much out there and alive.

Kansas has admitted its mistake—and Washington may try to repeat it anyway.

June 7 2017 12:56 PM

In Miami, David Beckham Has Wrought America’s Best Stadium Deal

All this time, all we needed to change America’s exploitative model of pro sports stadium construction was an Englishman to show us the way.

Enter David Beckham, the impeccably coiffed midfielder-turned-mogul whose four-year quest to bring a new Major League Soccer franchise to Miami cleared a major milestone on Tuesday evening when the Miami-Dade Commission approved a deal to sell his group three acres of land, completing a 9-acre stadium plot.

Beckham’s proposed 25,000-seat stadium would be blocks from Miami Metrorail and the Miami River, and a half-mile from the new All Aboard Florida station. It would be privately owned, privately funded, and built on private land—no municipal bonds, no tax breaks. The most revolutionary part of all? No parking garages. The stadium group is counting on fans to come by transit, by shuttle from nearby garages, by taxi, and on foot. It has also proposed chartering fan ferries to pilot up the Miami River.

It’s a model deal for a city that sees itself as a newly urbanized, mixed-use metropolis. Downtown Miami’s population has more than doubled since 2000, from 40,000 to 89,000. The skyline bristles with new residential towers. America’s first private passenger rail service in a half-century will open there in September, offering service north to Fort Lauderdale and Palm Beach.

But in some ways, Miami-Dade wasn’t an obvious place to rewrite the rules of the stadium deal. The county owns and subsidizes American Airlines Arena, home of the worst fans in basketball, and recently agreed to pay the owners of the Miami Dolphins to host major events—including a $4 million bonus for a Super Bowl. The shimmering swindle in Little Havana known as Marlins Park has been called “the worst public works project in Miami history,” and will cost Miami residents for decades to come.

June 6 2017 5:49 PM

Remember the Hysteria Over Obamacare’s Deductibles? New Data Shows It Was Way Overblown.

You've heard all about Obamacare's deductibles. They're too damn high, supposedly. Families are forced to pay for health plans that leave them on the hook for thousands of dollars in medical bills before their care is covered, leading them to skip doctors' visits and meds even though they're theoretically insured. The New York Times has written about the issue. Donald Trump has ranted about it (even though his own plan would send deductibles even higher). It's a bipartisan frustration.

And there's certainly some data to back up the griping. The health industry consultants at Avalere, for instance, find that the average silver plan deductible offered on Obamacare's insurance exchanges rose to $3,703 this year. You might feel nauseous, too, if you were paying top dollar for that kind of health plan.

But judging from a new report by the Centers for Disease Control and Prevention, it seems that the hysteria over Obamacare's deductibles has been a bit overblown. It turns out that among those who buy their insurance directly on the individual market, the share of Americans enrolled in a high-deductible health plan has been pretty much flat since 2011, before Obamacare's major elements kicked in. At the same time, there has been a major shift toward high-deductible plans among workers who get insurance through their employers—Americans who are far less impacted by the health care law.


The CDC, which based its findings on data from the National Health Interview Survey, considers deductibles "high" if they cost $1,300 for an individual or $2,600 for a family—far below the sorts of dollar figures that have turned the issue into a political talking point. Average deductibles may still be up, and high-deductible plans may be even less generous than before. Some individuals who had a low deductible before may have a higher one now. But there hasn't been a wholesale shift toward the kind of ”useless” insurance that journalists and politicians have focused on.

However, the CDC report hints at one reason why the deductibles issue has been so politically resonant: It disproportionately seems to affect middle- and upper-middle-class families—aka likely voters. Almost half of those who directly purchased a high-deductible health plan on the individual market earned more than 400 percent of the poverty line—about $97,000 for a family of four. Those households only purchased about 30 percent of traditional, lower-deductible plans. This is a bit counterintuitive: If anything, you'd expect higher-earning families to make up a greater share of the market for more generous coverage.


Why are wealthier Americans buying worse insurance? It's hard to say for sure; the CDC report doesn't trace this particular trend over time, so it's impossible to tell whether it changed with Obamacare's implementation. But my guess is that you can boil it down to one word: subsidies. Low-income Americans receive generous tax credits that reduce their coverage premiums, while the government also pays insurers to lower their out-of-pocket costs, including deductibles. However, the premium tax credits phase out entirely for families starting at 400 percent of the poverty mark. Without any financial help, people are resorting to cheaper, less generous plans that leave them covering many of their own costs. The anger over high deductibles is one more reflection of how, even though the health-reform law did a great deal for the near-poor, Obamacare failed to do enough for an important and vocal slice of the middle class.

June 6 2017 2:12 PM

A Major Insurer Just Pulled Out of Obamacare in Ohio—and It Basically Blamed Trump

Anthem, one of the nation's largest insurers, has announced it will pull out of Ohio's Affordable Care Act market in 2018, a move that will leave residents in up to 20 counties without any options for buying coverage on the state's exchange next year.

The company's decision is yet another sign of how the Trump administration has managed to destabilize large chunks of the individual insurance landscape without taking direct steps to dismantle Obamacare. According to the Wall Street Journal, Anthem called the market "volatile," and said it was having trouble pricing its plans, which is now “increasingly difficult due to the shrinking individual market as well as continual changes in federal operations, rules and guidance.” It singled out the uncertainty over whether the government would continue paying crucial subsidies, known as cost-sharing reduction payments, that reimburse insurers for limiting out-of-pocket expenses for lower-income customers.

President Trump has threatened to cut off the funding on multiple occasions, and in May his administration asked for an additional three months to decide whether it would continue appealing a lawsuit brought by House Republicans aimed at stopping the payments, which are expected to be worth $7 billion this year. While the government delivered last month's payment, the administration won't commit to continuing them. The indecision has led panicked insurers to request large premium hikes and warn that they might have to leave the market entirely next year if the subsidies dry up. America's Health Insurance Plans, the major industry trade group, has called it "the single most destabilizing factor in the individual market."

As the Kaiser Family Foundation's Cynthia Cox notes on Twitter, the 20 counties where Anthem is currently the only company offering exchange coverage make up a relatively small part of Ohio's insurance market. But with its footprint across 14 states (or 13, after Tuesday), Anthem theoretically could leave hundreds of thousands without insurance options if it were to leave the exchanges nationwide. Here's how Cox sums up the situation.

June 5 2017 6:26 PM

Trump Thinks Privatizing Air Traffic Control Is a No-Brainer. Hardly.

The Trump administration kicked off “Infrastructure Week” on Monday with a proposal to privatize air traffic control, transferring control over American airspace from the Federal Aviation Administration to a private, nonprofit board. In a largely scripted speech from the White House, which was followed by a faux signing ceremony of airspace “principles” to transmit to Congress, Trump predicted an “air travel revolution.” Handing over control to a private board, Trump said, would save the government money, reduce the cost of flying, and make air travel more efficient.

Trump has long been obsessed with the nation’s airports, and has in the past cited his personal pilot as an authority on all things air. But the project’s most enthusiastic champion in the White House is chief economic advisor Gary Cohn, the former president of Goldman Sachs. “Air traffic control is probably the single most exciting thing we can do,” Cohn said in April. With the newfound efficiency of GPS navigation, he figured, “we will save over 25 percent of the jet fuel in this country.”

Cohn’s enthusiasm should indicate the curious political niche occupied by air traffic control privatization. The current plan is similar to the one proposed last year by Rep. Bill Shuster, the Republican from Western Pennsylvania who chairs the House Transportation Committee. (It must be said that his romantic partner at the time was a top lobbyist from Airlines for America, a group representing the nation’s top commercial carriers that has pushed for corporatizing air traffic control.) Shuster's proposal was opposed by several key GOP senators, and never made it to a vote in the House. This March, a bipartisan group of four senators wrote an open letter opposing privatization. Oh, and the original champion of air traffic control privatization was Al Gore.

Which is all to say that Trump has picked a rather thorny subject on which to wage his first infrastructure battle.

June 5 2017 11:44 AM

How Absurd Are Trump’s Lies About Coal? The Entire Industry Is Hiring Less Than Tesla.

In the wake of the decision to leave the Paris Agreement on climate change, the Trump administration has been touting the salutary impact of its policies and general attitude on the beleaguered coal sector. Environmental Protection Agency Administrator Scott Pruitt said on Meet the Press on Sunday that “in fact since the fourth quarter of last year to most recently added almost 50,000 jobs in the coal sector. In the month of May alone, almost 7,000 jobs.” Aside from being ungrammatical, that’s wrong. And it represents a willful misreading of the data from one of the reportedly central voices behind Trump’s decision to withdraw from the climate pact. (Needless to say, Chuck Todd didn’t correct him.) As the government’s own numbers show, there were only 51,000 coal-mining jobs in the entire U.S. in May. Last month, 400 coal jobs were added—not 7,000. It was the overall mining sector, which includes oil, gas, and metals mining in addition to coal, that added 7,000 jobs in the month and 50,000 since last 2016.

Regardless of the facts, the Trump administration seems committed to puffing up high-emissions, high-carbon businesses like coal as massive job producers. The administration is touting the planned opening this week of the Acosta coal mine in Pennsylvania. It will create between 70 and 100 jobs.

The numbers, and the eagerness of coal partisans to inflate the importance of coal employment, only serve to highlight how irrelevant coal is becoming—as an economic force, to be sure, but also as an employment force. And if Trump & co. are really eager to boost the employment prospects of people who live in Appalachian communities that used to subsist on coal wages, he might suggest they look for jobs in nearby new-economy hubs like Pittsburgh or Louisville, Kentucky, which has 30,000 job openings. The few jobs that could theoretically come back one day from a revival of East Coast coal are significantly dwarfed by the actual number of open positions in noncoal industries in the region right now.

Here’s the reality. Regardless of the attitudes of those in the executive branch, and in spite of efforts to roll back environmental protection, the low- and no-emissions economy has an immense amount of momentum behind it and is growing as an economic force. At the same time, the high-emissions economy is in a long-term secular decline. Culture and policy have something to do with it. But powerful underlying trends—the cost advantage of natural gas and, increasingly, renewables—are really driving the train. The day after Trump announced the withdrawal from the Paris accord, Kansas City Power & Light announced it will shut down several generating units that burn coal.

The same trend can be seen when we look at jobs—and the wages, livelihoods, dignity, and purpose that go along with them. The coal mining industry added 400 jobs in May—a significant achievement. Meanwhile, back in the real world, low- and no-emissions companies are hiring like crazy. I spent a few minutes at the career site of Tesla, which not only makes electric cars but also solar roof shingles, solar panels, and batteries. I adjusted the filter so it would show North American jobs, and then I excised any Canadian jobs from the list.

By my count, Tesla—which is just one company—has 1,861 job openings in the U.S. And the company isn’t just looking for coders. These positions are blue-collar, white-collar, skilled, unskilled. And while they are generally concentrated in Tesla’s home state of California, there are openings all over. Sales positions in Texas; global supply managers and human resources staffers in Palo Alto, California; a customer experience specialist in Pittsburgh; a material handler at a factory in Buffalo, New York; mobile service technicians in Tennessee, Florida, and Illinois; engineering technicians in Fremont, California; a supercharger installation program manager in Seattle; a pre-owned sales adviser in Decatur, Georgia; a service detailer in Richmond, Virginia. And on and on and on.

Tesla isn’t a Silicon Valley employment paradise. It’s a high-pressure manufacturing environment, and conditions in the factory can be challenging. But conditions there compare favorably with a coal mine. And, unlike coal mines, Tesla is actually hiring in significant numbers.