A blog about business and economics.

Dec. 7 2016 3:22 PM

Why the Feds Protect Some Towns From Flooding and Leave Others Exposed

That a flood is coming for the American coast is obvious.

But to understand which towns and neighborhoods might be spared the cataclysm, look at two recent disputes between inland communities and the Army Corps of Engineers, which builds flood walls, dunes, levees, and other defenses.

Both Manville, New Jersey, and Cedar Rapids, Iowa, have suffered from river flooding in the past decade. Cedar Rapids experienced its two worst flooding events in recorded history in 2008 and 2016; Manville, which lies at the confluence of the Raritan and Millstone rivers in the suburbs of New York City, flooded in 2007, 2010, and 2011. Both places found this year that they did not qualify for federally funded infrastructure under the Army Corps’ cost-benefit analysis.

Why not? Because the houses aren't worth much.

Dec. 7 2016 11:39 AM

A Japanese Billionaire Just Showed How Corporations Are Going to Manipulate Trump

On Tuesday afternoon, Donald Trump emerged triumphantly into the lobby of his midtown office tower and threw his arm behind Masayoshi Son, the billionaire CEO of the Japanese telecommunications and tech giant SoftBank. The two had just finished a private meeting in the president-elect's office, and Son was grinning wildly. “Ladies and gentlemen, this is Masa of SoftBank from Japan, and he has just agreed to invest $50 billion in the United States, and 50,000 jobs,” Trump told the press gaggle, before tacking on a superlative. “And he's one of the great men of industry.” The two shook hands. Of course, the day would not have been complete without a self-congratulatory tweet.

So continued Trump's pre-inauguration deal-making blitz, which began last week when he and Vice President–elect Mike Pence cajoled Carrier into keeping 730 jobs at a plant in Indiana rather than sending them to Mexico. Like that bargain, which Trump had claimed would save some 1,100 jobs, this one quickly turned out to be something less than it initially appeared. And it may have revealed something even more troubling: How CEOs will take advantage of Trump’s desire to be seen making bargains to further their own interests.

First, it seems likely that SoftBank was already planning its big investment in the U.S. before Trump's win. The money, Son explained, was coming from a $100 billion tech fund SoftBank had created with Saudi Arabia back in October. When reporters asked how he would create those 50,000 jobs, Son said he intended to “invest into the new startup companies in the United States.” In other words, he’s apparently planning to plunge more venture capital into Silicon Valley, as people tend to do when they want to bet on the global technology sector. SoftBank and its partners may use much of their money to buy up existing companies, as well. “In addition to startups, Mr. Son also has his sights on acquisitions as large as $30 billion, a person familiar with his thinking” told the Wall Street Journal.

There were other ambiguities. During the press conference, Son held up a piece of paper with the logos of SoftBank and Foxconn, which manufactures Apple's iPhones. It read: “Commit to invest $50bn + $7bn in the US; generate 50k + 50k new jobs in the US; next four years.” This has led some speculate that Foxconn might be planning to open a U.S. plant, though nobody is quite sure. The Financial Times noted that SoftBank and Foxconn have partnered previously, and that Foxconn “confirmed it is in 'preliminary discussions' about a potential investment in the US but gave no other detail.”

For all the question marks, Trump got his headlines about investment and jobs, which were shared thousands upon thousands of times. And what did Son get? A one-on-one with the next president, and the opportunity to lay the groundwork for a merger he's been dreaming of for years. You see, SoftBank is the majority owner of Sprint, which it attempted to combine with T-Mobile back in 2014. It gave up on the deal, however, once it became clear that U.S. antitrust regulators would never approve it. The government had blocked AT&T from gobbling up T-Mobile back in 2011, and by all accounts, the decision had worked out wonderfully for consumers as the smaller company began to compete hard on price and services. With Trump heading to the White House, though, a lot of people think SoftBank and Sprint might give the acquisition another go. Unsurprisingly, the Journal reports that “Mr. Son planned to tell Mr. Trump about what happened with T-Mobile, and how he had wanted to invest in the U.S. but the regulatory climate was too harsh so he invested outside the U.S. instead, the person familiar with the matter said.”

This is part of what's so deeply worrying about Trump's publicity strategy of cutting deals with individual businesses to keep jobs in the U.S. It's bad enough that companies that refuse to cooperate when the White House comes knocking will face the risk of retribution. But it also creates an opportunity for a favor-seeking CEO to engage in some high-level crony capitalism. After all, in order to keep the good news rolling in, Trump needs a regular parade of corporate chieftains willing to stand by his side while he claims he personally convinced them to keep a factory open or bring their money stateside. Right now, it looks like any executive up for the task can get an audience with the incoming president and pre-emptively earn the good will of his administration.

And as Masa Son just showed, those CEOs might not have to offer anything more than a handshake and smile for the cameras.

Dec. 6 2016 5:29 PM

The Supreme Court Just Made It Much Harder to Get Away With Insider Trading

The Supreme Court just made it a lot harder to get away with insider trading. Good!

You are surely wondering: Wasn’t it already illegal to engage in insider trading? Well, yes. But a 2014 court decision made it a heck of a lot harder to prove.

The case the Supreme Court ruled on Tuesday concerned Bassam Salman, a Chicago-area grocery wholesaler. He received stock-trading tips from his future brother-in-law, Michael Kara. Kara, in turn, learned of the insights from his brother, Maher Kara, then an analyst with Citigroup. The siblings were close and talked frequently. Things get said. You know how that goes. You ask about mom, you talk about your soon-to-be in-law, someone shares a stock insight. Happens to us all!

Salman’s lawyers argued his conviction should be overturned because Maher Kara did not benefit financially from sharing the information. The Supreme Court unanimously disagreed, with Justice Samuel Alito writing that Maher Kara “breached his duty of trust and confidence” to his employer, an obligation Salman also violated when he acted on the tips knowing full well that he was trading on confidential information.

This should have been a no-brainer of a decision. Historically, insider trading prosecutions took the position that an insider tip was an insider tip, and whether the leaker had a monetary motivation was not relevant. But in 2014, a New York appeals court overturned the insider trading convictions of two hedge fund traders, Anthony Chiasson and Todd Newman, ruling that unless the confidential information used to make the trades was shared in return for a gain of some sort, it was not legally actionable. The scheme Chiasson and Newman were initially convicted of involved a cast of tipsters who passed along insights like they were playing telephone. (One blog post actually referred to the two men as “downstream tippees.”)

The Supreme Court subsequently refused to hear an appeal in the case. The prosecutor, U.S. Attorney for the Southern New York District Preet Bharara, predicted bad things to come. “The Newman decision goes some way to creating an obvious roadmap for unscrupulous investors,” Bharara said at the time. “You can think of this as a potential bonanza for friends and family of rich people with access to material non-public information.” He would subsequently go on to drop charges in another high-profile case, this one involving Michael Steinberg, a prominent fund manager at the hedge fund SAC Capital Advisors, who was convicted on insider trading charges in 2013.

No surprise, Bharara considers himself a winner today, even though Newman will not be relitigated. The Supreme Court decision makes it much less likely that the convictions of a number of others Bharara has successfully prosecuted, including former Goldman Sachs partner Rajat Gupta will be overturned. His office quickly released a statement celebrating the decision saying, “The court stood up for common sense and affirmed what we have been arguing from the outset—that the law absolutely prohibits insiders from advantaging their friends and relatives at the expense of the trading public. Today’s decision is a victory for fair markets and those who believe that the system should not be rigged.”

Yes to all that. Insider trading is wrong, and not just because, when unpunished, it allows a few lucky upscale slobs to profit on proprietary information. It’s wrong because it ultimately destroys faith in our system of governance and rules.

The stock market works as an investment tool for many Americans, not just a few connected insiders, in part because of the trust we have in it. We believe it is an honest mechanism for establishing value, and we believe that information about investments is equally available to all of us, should we be willing to do the work of ferreting it out. If our trust in it is breached too many times without consequences, many will likely come to believe the stock market is a scheme to benefit a few privileged insiders and pull out entirely. Not only would that likely be harmful for their financial future, it would also bode ill for American society writ large, which depends on our belief in its fairness for it to function.

You don’t need me to tell you that faith took a huge hit in the wake of the housing bubble blowup and the Great Recession, when, as it has famously been observed, the bankers got bailed out and received gigantic bonuses even as the majority of us saw our net worths plunge and millions lost homes to foreclosure. It could be argued that the victory of President-elect Donald Trump is in part a direct result of all that. His appeal was based not on his honesty and moral rectitude but on his supposed business acumen, some of which consisted of seemingly taking advantage of others, like the students who paid more than $25,000 to attend Trump University. Now, one argument goes, he’ll put those street smarts to work on the behalf of all of us. It’s the ultimate skeptics play.

May this Supreme Court decision do its part to roll back the miasma of cynicism that’s so corroding to us all.

Dec. 6 2016 4:05 PM

United Airlines Wants to Do to Flying What Republicans Want to Do to Health Care

Starting early next year, United Airlines plans to begin charging fliers for the privilege of stowing carry-on luggage in their plane's overhead bin—thus slapping yet another irritating fee onto a basic amenity that travelers have long taken for granted. There has been outrage, predictably, and it has already reached the halls of Congress. “The overhead bin is one of the last sacred conveniences of air travel and the fact that United Airlines—and potentially others—plan to take that convenience away unless you pay up is really troubling,” New York Sen. Chuck Schumer fumed in a statement.

United's official line is that there is, in fact, no new fee. Rather, the company says it is merely introducing a new, bare-bones fare called “Basic Economy” that won't entitle passengers to any bin space. Those who pick the no-frills option will be restricted to carrying on whatever small satchel or backpack can fit beneath the seat in front of them. People who want to store their luggage overhead as they always have will still be able to buy a regular ticket, or so United's social media team has been tweeting incessantly.

This would sound more convincing and less patronizing if the new “Basic Economy” fares were slated to be significantly cheaper than what we all already pay to get shoved in the back of the plane. However, Reuters reports, “Prices will be comparable to low fares it now charges for the economy cabin, but with more restrictions.”

Airlines have generally defended their love of fees by appealing to the economic ideals of price discrimination—the notion that customers should be able to pay for only the services they need instead of shelling out for one standard fare that covers a wide range of baseline services. In theory, there is merit to this approach. Consider checked bags. Shuttling heavy suitcases through the air makes planes heavier and requires extra fuel, which pushes up the price of airfare for all. By putting a fee on checked suitcases, you may convince travelers to pack light. Those who can't be bothered will pay more, while conscientious travelers will end up paying less, keeping air travel affordable for more customers so long as they're willing to leave a few pairs of pants at home.

One could try to defend United's new bin policy on similar grounds. Sure, most of us prefer to travel with more than a gym bag's worth of belongings. But if United weren't nickle-and-diming some fliers, it might have to raise prices on all fliers in order to keep its shareholders happy. This at least allows them to keep the cost of flying low for some.

But I would argue that United's carry-on charge is a jet bridge too far. First off, piling on fee after fee for essentials like a place to put your bag becomes a way to mask the real cost of a fare. You're not giving customers options so much as duping them.

Second, at some point price discrimination becomes outright discrimination. Consider who United's new low-cost fare would actually appeal to. It's probably a person on a short trip who's young and hale enough to carry all of the belongings they need on their back or shoulder. A couple living out a New York Times “36 Hours” column in Maine comes to mind. Families traveling with children, though? They used to be able to use the bins, but now they'll be paying that checked bag fee. Elderly passengers who need to wheel their luggage around? Them too. United is slapping fliers with a parenthood and age tax.

Not to get too political with this, but in some ways United's move is reminiscent of what Republicans would like to do with U.S. health care. One of the chief GOP complaints about the Affordable Care Act is that it forces healthier customers to subsidize the cost of coverage for Americans with more extensive health needs by forcing everybody into the same market. One of Obamacare's signature features is that it requires insurers to cover a reasonable bundle of basic services that not every customer will end up needing, like mental health and maternity care, as well as preventive services like birth control. If you're a 29-year-old guy, that means you end up paying more for coverage than you might on a less regulated market, but if you're a 35-year-old woman, chances are you'll end up paying less. Most Republican plans to replace the ACA would do away with those regulations, allowing insurers to sell pared-down plans that appeal to the young and healthy. Older, sicker customers, on the other hand, would likely see their premiums go up, just like some older air travelers will likely have to pay more for the bin space they can't do without.

So you might say United is about to repeal and replace your right to comfortable flight. You have every right to be outraged.

Dec. 6 2016 11:20 AM

Blame the Bay Area’s Housing Crisis for the Ghost Ship Fire

The inferno that killed more than 36 people at a converted Oakland, California, warehouse on Friday night was the worst structure fire in the United States in more than a decade.

How did it happen? The short answer is that the two-story live-work building, which was hosting a concert that night, was zoned only for industrial use but was being used as both an event space and a residence. The cluttered, mazelike interior was ablaze in minutes. A criminal investigation is underway, and the Alameda County district attorney said on Monday afternoon that charges are possible and could range from manslaughter to murder.

It was supposed to be a party, but we shouldn’t let that make us think this was a tragedy of excess. This isn’t a story about a bohemian rave that got out of hand. There were no malfunctioning pyrotechnics here. This was a tragedy of lack: a lack of money, a lack of space. A vacuum of responsibility for keeping things safe. And it seems it would have happened had there been 60 people there or 16.

Most of all, the fire at Ghost Ship, as the live-work space was known, is a jarring indictment of America’s impossibly slow response to the rent crisis. Hundreds of thousands of people live in situations that are like Ghost Ship not because they are dangerous, necessarily, but because they are illegal. In too many cities, for too many people, finding a legal place to live is out of reach. And that means that if something is a hazard, they have few options. They have no leverage with their landlords. They have no recourse to the city.

This isn’t 1960s SoHo, where artists reclaimed vast, unwanted industrial spaces for a pittance. Space like Ghost Ship is cheap because it is illegal, but also because it is small and largely unwanted. Rents in Oakland have doubled in five years, leaving tenants frightened and desperate. In the aftermath of the fire, multiple visitors to Ghost Ship described the place as a “tinderbox.” But reporting an unsafe situation to the city or to the press could have made their friends homeless. That had happened before.

Ghost Ship functioned as an underground community center. Its rooms were lined with art, instruments, antique furniture, and self-made structural additions. Informal, noncommercial meeting spaces form a crucial element in the fabric of any city. Ghost Ship, Oaklanders said, was a haven. About two dozen people, including jewelers, woodworkers, and musicians, called it home.

It was also a known hazard, where problems with heat, electricity, and water had frustrated tenants and alarmed visitors. Complaints had been made to the city about blight, illegal residents, and construction without a permit. But when inspectors arrived to investigate, they couldn’t gain access to the interior.

Nihar Bhatt, a promoter in the local music scene, told the East Bay Express that several people had discussed reporting Ghost Ship for being a fire hazard.* “I think they bit their tongues because we desperately need places to gather,” he said.

And to live. Jose Avalos, a woodworker who lived upstairs, made it clear the building was, to him, a refuge not from rules but from rent.

“I am an artist,” he told the Wall Street Journal, “I was living there because there’s no housing that’s affordable in the East Bay.” His rent was $565 a month. The rent for an average one-bedroom in Oakland, the fourth-most-expensive city in the country, is more than $2,000.

Most illegal dwelling units, from co-ops to overstuffed apartments to garages and industrial spaces, don’t pose deadly safety hazards. But they do leave tenants at the mercy of landlords and master leaseholders. To live outside the law you must be quiet.

In August, I wrote about the co-op movement in Boulder, Colorado. Residents of group houses in that city, northwest of Denver, are violating laws that govern neighborhood culture, not safety. But if a safety issue arises, tenants have nowhere to go.

Fear of eviction is not an abstract concern. Last year, a West Oakland videographer started publishing videos of unsafe conditions in the live-work warehouse he inhabited with dozens of other artists. It turned out the landlords didn’t have permits for residential use. The complaints got the attention of the city, which did a building inspection. In January, dozens of residents were ordered to move out after the space was deemed unsafe for habitation.

That kind of story serves as a conflicted, cautionary tale for reporting living problems to the city. But those tenants might also have known that the previous February, two live-work buildings in Oakland caught fire and killed a pair of artists, Davis Letona and Daniel “Moe” Thomas, who had lived in one of them.

As part of the recovery effort, organizers are trying to help tenants bring living spaces up to code. That’s supposed to be the responsibility of property owners, of course, but it’s tenants who are worried. The city of Oakland is going to be under more pressure to crack down on illegal living situations. That could work two ways: It could drive low-income residents and their culture out of the city. Or it could further discourage people from making complaints.

But the problem isn’t a party without a permit. The problem is that artists in Oakland have to live in a building where the water is barely potable, a few miles from the country’s newest concentration of billionaires. Sometimes it is hard to see the victims of America’s housing crisis. Not right now.

*Correction, Dec. 6, 2016: This post initially misidentified Bhatt’s first name as Neil. It is Nihar.

Dec. 5 2016 2:49 PM

Charity Can’t Replace the Safety Net. This New Study Is a Reminder Why.

There are lots of reasons why private philanthropy can't replace the government safety net, but one of the most fundamental is that people tend to stop giving to charity right when the poor need it most. Total donations plunged in the U.S. during the Great Recession, for instance, dropping 7 percent in 2008, and 6.2 percent in 2009. When the economy turned south, Americans closed their wallets.

This week, researchers from Texas A&M University are out with a new working paper asking why. Was it just because people's personal finances got worse during the downturn? Or did something else change?

To find out, the team, led by economist Jonathan Meer, looked at data from the federal government's Survey of Income and Program Participation, tracking more than 13,000 people over time. That allowed them to look at individual giving behavior instead of simply tracking aggregate national figures. The authors found that Americans became less likely to donate at all after 2008 and that the decline couldn't be explained entirely by changes to their income or wealth. Among those who continued donating, there was mixed evidence about whether the recession led them to contribute less. But on average, giving dropped, and by more than you'd expect based on families' financial circumstances, “suggesting that broader shifts in attitudes towards giving or increased uncertainty are at work,” Meer & co. write. It's possible that a lot of Americans looked at the economic carnage around them and decided that, even if they still had a job, they'd be better off saving more instead of donating that year. Giving may have just started to seem like too much of a luxury.


Meer, Miller, Wulfsberg*

This isn't exactly a shocking result, but it has at least a couple implications. The first, which Meer and his co-authors point out, is that the Great Recession could end up being a long-term drag for U.S. charities, since many households seem to have broken their habit of giving entirely rather than merely curbing the amount they donate.

The second, which I'm choosing to extrapolate, is that nobody should be under the illusion that private charity will be able to come to the rescue during a severe economic downturn. Human beings are not endlessly altruistic and when the job market gets rough, some households get scared out of giving even when they can still theoretically afford to. Unfortunately, given the cuts congressional Republicans will have a chance to enact on safety-net programs like food stamps, we may soon have no choice but to bet against human nature.

*Correction, Dec. 5, 2016: A photo credit in this post originally misspelled Elisa Wulfsberg’s last name.

Dec. 2 2016 6:02 PM

Did Donald Trump Win the Election Because of Trade? A New Study Suggests It Helped.

Back in January, I published a post titled, “Could This Map Make Donald Trump President?” Here was the map in question.


David Autor, Gordon Hanson, David Dorn

It was from a paper by economists David Autor, Gordon Hanson, and David Dorn, and it showed the extent to which industries in different parts of the country were exposed to competition from Chinese companies through 2007. The darker the region, the more vulnerable local manufacturers were to the onslaught of imports that came out of the People's Republic, particularly after it joined the World Trade Organization. In a series of studies, the authors had shown that trade with China had cost the U.S. far more jobs than previously understood, perhaps as many as 2.4 million, concentrated in factory towns across the country. I figured that if Trump had a path to victory at all—and like most people I was pretty sure he didn't—it might run through the map's brown swatches in the Rust Belt, where his rhetoric on trade would play well.

We all know what happened next. And while we're not going to be done arguing any time soon about how much of Trump's victory was driven by economic misery versus pure racial backlash by working class whites, Autor, Hanson, and Dorn are now out with a short study suggesting that job losses to China really did play a role. They compare the share of votes won by George W. Bush in 2000 and Donald Trump in 2016 across 2,971 counties, and find that the GOP gained more ground between those two elections in places where local industry had faced a greater increase in competition from Chinese goods. They then set up a counterfactual simulation, and find that Michigan, Wisconsin, Pennsylvania, and North Carolina would have gone blue this cycle had Chinese import penetration been half as large. (Think of that less as a cold, hard fact than as a gestural illustration about the size the effect they find.)


The point here isn't that people in Michigan or Wisconsin cast their ballots for Trump specifically because of his trade stance. It's that he outperformed his predecessor in places that were more likely to have been ravaged by the effects of globalization. Autor told the Washington Post that he believed that voters weren't just reacting to  “trade policy, per se,” but that disappearing jobs fed into a ”sense of nationalism, the sense that the American way of life is potentially threatened, and that a certain type of employment and a structure that went with that is going extinct.” You could also say that people simply reacted to the growing misery around them—another recent paper found that communities exposed to Chinese competition saw suicide and drug overdose rates rise, particularly among whites. And Trump captured their frustration.

I do have mixed feelings about some of the methodological choices in the study, which is still only a draft. (It's technically an appendix to a previous paper that found voters became more politically polarized because of trade with China.) Instead of looking at the overall percentage of votes Trump and Bush won, for instance, the authors calculate their “two-party vote share,” which is the number of Republican votes divided by the sum total of Republican and Democratic votes. That means third-party ballots are excluded. And part of me wonders whether cutting Ralph Nader, Jill Stein, and Gary Johnson from the math makes sense, given the role they played in both the 2000 and 2016 cycles. Part of me would also like to see what happens when you compare the 2012 and 2016 maps, since the question on so many people's minds right now is why Clinton couldn't carry the same states as Obama. (In a brief email, Autor told me that analysis would be tricky, but he'd update me if his team ever got around to it. One can dream.)

Still, this is some of the first rigorous work that tries to examine the link between trade and Trump's victory, which makes it useful. A previous paper, released during the campaign, found that Trump support wasn't related at all with China's effects on local industry. But that work was based on Gallup data, and polls didn't exactly do a hot job calling the Midwest this cycle.

In general, I don't like monocausal explanations of Trump's win. Race obviously played a role. So did a sense of declining prospects. A lot of Americans were obviously angry about vanishing factory jobs, but in reality that has as much or more to do with automation as offshoring. But at the very least, this new study is a reminder not to discount the role of economics in fueling Trump's support. Maybe if we hadn't taken such a laissez faire approach to trade and let such large swaths of the country decay, voters would have been a little less susceptible to demagoguery.

Dec. 1 2016 3:02 PM

Trump’s Commerce Pick Has Offshored U.S. Jobs and Thinks a Couple Earning $50,000 Can Afford a Nanny

Nobody cares about the secretary of commerce—at least usually. The job is something a figurehead position, loosely tasked with promoting American industry, which typically involves a schedule packed with overseas photo ops.

Wilbur Ross will not be your usual commerce secretary. The billionaire private equity investor, who advised the Trump campaign and whom Donald Trump has picked to run what is usually an executive-branch backwater, may well end up being one of the most influential economic voices within the incoming administration. This a bit disheartening, and not just because Ross is yet another gaudily wealthy Wall Streeter in the president-elect’s inner orbit. Ross also showed, over the course of the presidential campaign, that he is chock full of half-brained economic ideas.

Ross—age 79, net worth $2.5 billion—is the sort of man who regularly has words like “tycoon” or “baron” appended to his name. He’s a smart, sophisticated operator who also habitually comes off as a cartoon plutocrat. After spending a quarter-century in the bankruptcy practice at the investment bank Rothschild—he apparently met Trump in the 1990s while representing bondholders who’d backed the mogul’s busted casino—he founded WL Ross & Co., where he made his name buying up failed industrial companies and rejiggering them to sell at a tidy profit. He's been the leader of an honest-to-God secret Wall Street fraternity, is married to a socialite third wife, and owns a $100 million-plus art collection stuffed full of Magrittes. Back in 2014, he moaned that “the 1 percent is being picked on for political reasons.”

Ross’ business record includes some unsavory chapters, but it also earned him a reputation as someone willing to bet on and invest in dying heavy industries where most finance types wouldn’t dare to tread, which my Slate colleague Daniel Gross explored in an indispensible 2004 profile. After George W. Bush was elected to the White House, Ross guessed (correctly) that the new president would impose tariffs on foreign steel to bolster struggling mills across the Rust Belt. Ross proceeded to purchase a series of bankrupt plants that he wrapped together into the International Steel Group. He got the companies up and running again—the tariffs helped—but in the restructuring process ended medical benefits for some 150,000 retirees while cutting jobs and jettisoning billions in unfunded pensions onto a federal insurance fund. He later sold ISG to Mittal Steel for more than $4 billion.

Today, steel workers seem to regard Ross as an imperfect savior. “Some of these bottom feeders milk whatever value is left there. To Wilbur’s credit, he created a viable company,” Leo Gerard, president of the United Steelworkers, told the Wall Street Journal. “It wasn’t all peaches and cream, but in the end, we have got facilities that otherwise wouldn’t be alive today.”

Ross repeated this act with the coal business, but with more tragic results. In 2006, a methane explosion trapped and killed a dozen workers in a West Virginia mine owned by his International Coal Group. The site had racked up numerous severe safety violations, and its roof had caved in 20 times the year before. But Ross insisted during an interview with ABC that he had believed the mine was safe. The billionaire’s company also set up a $2 million fund for the victims, which as ABC’s Brian Ross put it, seemed “sort of cheap.”

Ross has been criticized for some nonlethal ventures as well. After purchasing the struggling North Carolina textile makers Cone Mills and Burlington Industries, he proceeded to lay off some American workers while opening plants in China and Mexico. But in fairness, the U.S. sites might not have survived at all had it not been for Ross’ efforts. Less defensible were his adventures in the mortgage industry, which as David Dayen chronicled at The Nation helped fuel the U.S. foreclosure crisis. In short, Ross purchased the second biggest servicer of subprime loans in the country out of bankruptcy in 2007, contracted out some of its key operations to a company that engaged in mass fraud, then sold it to another corporation that was eventually fined $2.1 billion by the Consumer Financial Protection Bureau for its mistreatment of homeowners while Ross still sat on the board.

During this year’s presidential campaign, Ross emerged with University of California-Irvine professor Peter Navarro as Donald Trump’s two chief economic surrogates. The pair was tasked with fleshing out and defending the unusual combination of gonzo tax cuts, mass industry deregulation, and trade protectionism that makes up Trumponomics. Their work was, shall we say, lacking—I once described their analysis of the candidate’s plan as a “dog’s breakfast of factual errors, conceptual nonsense, and regurgitated industry flimflam.” It repeated amply discredited, lobbyist-generated statistics about the economic effects of regulations and increased oil and gas development. It fundamentally misunderstood basic international tax issues. The wonky list of sins was long. Later, Navarro and Ross unveiled Trump’s much-derided infrastructure plan, which amounted to a poorly sketched out idea to give private developers tax breaks for building roads and bridges.

Even by the standards of a septuagenarian billionaire, Ross also managed to reveal a stunning lack of awareness about the economic realities faced by American households. During an event to discuss Trump’s tax plan, an audience member mentioned that, as written, the proposal would raise taxes on many people with  children, especially single parents. Au contraire, insisted Ross, who explained that, “For a married couple, with two children, and a nanny earning $50,000 a year, there’s around a 36 percent decrease in their total taxes.” Where Ross got the idea that couples earning $50,000 per year regularly hire nannies, I don’t know. Why he thought that answered a question about single parents is likewise beyond my understanding.

At the Commerce Department, Ross will have direct influence over U.S. trade policy. Though negotiations with foreign countries fall to the U.S. Trade Representative, who is also a cabinet-level pick, Commerce itself plays a major roll in setting defensive tariffs. So in a sense, some might view Ross as a comforting pick. He has defended Trump’s rhetoric about our trade deals, and has personally benefited from steel tariffs in the past, suggesting that he’s willing to entertain protectionist measures. But given that he’s offshored jobs in the process of righting a struggling American business, he doesn’t come off as a man who’d be apt to start a trade war on a whim.

Ross’ public comments give a similar impression. “There sensible trade and there’s dumb trade. We’ve been doing a lot of dumb trade. And that’s going to get fixed,” he said on CNBC’s Squawk Box this week. But asked about imposing tariffs, he was more nuanced, “Everybody talks about tariffs as the first thing. Tariffs are the last thing. Tariffs are part of the negotiation. The real trick is going to be increase American exports. Get rid of some of the tariff and nontariff barriers to American exports.” In other words, Ross wants to try getting China to buy more products made in America before he tries to stop Americans from buying products made in China.

The real concern about Ross is that, while he is a shrewd businessman with a deep understanding of issues like corporate structure and debt, he just isn’t a particularly good economic thinker, and is apparently too far removed from any semblance of normal life to realize that, even with a tax break, your typical lower-middle-class family can’t afford a nanny. Yet this Wall Street icon already has Trump’s ear, and will almost certainly have his hands on the economic tiller. I think we can all guess who will benefit from that. Hint: It won’t be your typical coal miner.

Dec. 1 2016 10:33 AM

How Did Amazon Conquer American Retail? $760 Million in Public Money Didn’t Hurt.

It’s hard to remember holiday shopping before Amazon, which has put a Santa’s workshop’s worth of goods within 48 hours of tens of millions of Americans, and devastated tens of thousands of local businesses who once sold things in person.

The company couldn’t have done it without us. We’ve embraced the convenience and prices of e-commerce, of course. But we’ve also supported the tax breaks that have made the company so competitive with local bookstores, toy stores, and their peers.

Like most companies of a certain size, Amazon plays aggressively with states and localities to get tax breaks, pitting politicians from neighboring municipalities against each other in a prisoner’s dilemma. A new analysis from the Institute for Local Self-Reliance, a nonprofit that advocates for local business, tries to put a number on just how much Amazon has saved from taxpayer largesse in the United States: $760 million between 2005 and 2014. It’s a figure, according to ISLR’s exhaustive new report, that’s equal to 17 percent of the company’s global profits during that time. And it’s likely an underestimate.

Nov. 30 2016 4:42 PM

Trump Saved Jobs at Carrier by Making the Same Deal American Politicians Always Make

President-elect Donald Trump has scored a major PR coup with the news that, after a bit of his cajoling, air conditioner company Carrier now plans to keep nearly 1,000 jobs in Indianapolis instead of moving them to Mexico.


How did Trump do it? Part of the answer is simple: With Indiana tax dollars. His running mate, vice-president elect Mike Pence, is still the governor of the state, which reportedly offered incentives as part of the deal.


But that’s not the way you’d have read about the story in most headlines, or even in the New York Times, which lauded Trump as “a different kind of Republican, willing to take on big business.” “And just as only a confirmed anti-Communist like Richard Nixon,” the reporter continued, “could go to China, so only a businessman like Mr. Trump could take on corporate America without being called a Bernie Sanders-style socialist.” The paper makes it sound as if, liberated by his entrepreneurial reputation, Trump was able to stick it to the fatcats at Carrier.


The truth is that instead of busting up a system that encourages companies to threaten relocation in exchange for big public subsidies, Trump has reinforced it.