A blog about business and economics.

April 29 2016 4:51 PM

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

This post originally appeared on Inc

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


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

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

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


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


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

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

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

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

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

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

April 28 2016 5:26 PM

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

April 27 2016 4:23 PM

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

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

That’s a good question.


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

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

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

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

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

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

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

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

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

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

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

April 27 2016 1:51 PM

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

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

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


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

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

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

April 26 2016 5:44 PM

Apple Just Reported Its First Quarterly Sales Decline in 13 Years. 13 Years!

Apple watchers are always looking for signs of decline in Cupertino, and there have already been some contenders for that decisive turning point in the company’s fortunes. But on Tuesday, the company offered a pretty solid one. Reporting its second-quarter earnings for the year, Apple revealed that it fell short of most analyst expectations and saw a decline in year-over-year quarterly revenue for the first time since 2003—from $58 billion a year ago, to $50.6 billion now.

Apple did top estimates of iPhone shipments, moving 51.19 million during the quarter even though analysts only expected 50 million. But this still represented a decline from the 61.17 million shipped in the second quarter of 2015. The company's stock was down more than 7 percent in after-hours trading.


Although Apple CEO Tim Cook told CNBC that the company's executives “feel good” about the Chinese market, revenue for "Greater China"—mainland China, Taiwan, and Hong Kong—was down 26 percent to $12.49 billion compared with $16.82 billion a year ago. Revenue was down everywhere year over year except in Japan. Unit sales also declined for most products, including the iPad and Macs.

Without a star product to succeed the iPhone, it was inevitable that Apple's winning streak would eventually falter. The company has been relying on growth markets like China for the past few quarters to continue setting year-over-year records. But for now at least, the word record is off the table for Apple.

April 25 2016 9:04 PM

Everybody Loves Beyoncé’s New Album. But Can It Single-Handedly Save Her Husband’s Business?

Beyonce’s infidelity-themed new album, Lemonade, may not be doing wonders for her husband’s image, but it sure looks like a coup for his business. Tidal, the streaming platform Jay Z relaunched last year to an embarrassingly indifferent public reception, has rocketed up the iTunes app charts—it’s now in second place overall, and top among music apps.

This has been a major part of Tidal’s plan all along. It promised to win over subscribers by offering exclusive music and videos from some of the world’s biggest stars, many of whom either own equity stakes in the service or are part of Jay Z’s personal circle. Up until now, the strategy hasn't worked particularly well. But Lemonade could tell us if it's at least salvageable.


This is the third time in recent months that interest in Tidal has surged following an exclusive release. Downloads spiked after Rihanna debuted her latest, Anti, on the service in late January, and again following the February release of Kanye West's The Life of Pablo, which was available only through Tidal for about six weeks. The two albums brought a flood of new subscribers to Tidal—by the end of March, the company claimed about 3 million paying users, up about 2.5 million for the year. But that still left it far behind rivals Apple Music, with its 11 million paying users, and industry-leader Spotify, which has about 30 million paying customers around the world. And remember: Spotify, which pays slightly less of its revenue to rights holders than Tidal, still isn’t profitable, so far as anybody knows.

Worse yet, the bursts of attention Tidal enjoyed after Anti and The Life of Pablo quickly faded. After reaching No. 16 on the app charts following its Rihanna exclusive, the app swung back down to No. 553, according to the tracker-tool App Annie. It hit No. 1 during peak Pablo, then tumbled within a couple months to No. 661.

Spotify, in comparison, is consistently one of the top 18 to 25 apps downloaded in the United States. It hasn’t had to rely on conquering the news cycle to grow.

Could Tidal’s Bey-fueled boomlet be different? Possibly. For one, Beyoncé is a bigger commercial force than either Kanye or Rihanna these days, so Lemonade may be a bigger audience draw. Meanwhile, one problem for Tidal, so far, is that its biggest exclusives haven’t really been that exclusive. Anti migrated to Spotify and Apple Music a week after its release. And while Kanye notoriously vowed that The Life of Pablo would “never, never be on Apple” or go on sale, neither turned out to be true. If you weren't an obsessive fan anxious to hear either album the second it dropped, Tidal wasn’t offering anything you couldn’t get without a little patience.

Lemonade might be different. While the album was already on sale through iTunes by this morning, Beyoncé’s camp has said it will stream exclusively through Tidal “in perpetuity.” If that’s true, it might prove to music fans that there are at least a few albums that you can only stream through Jay Z’s platform.

In reality, though, there probably aren’t going to be a lot of albums like Lemonade. Along with the likes of Taylor Swift and Adele, Beyoncé is one of a few artists with so devoted a fan base that keeping her music off of the most popular streaming services might drive up her album sales. But most performers who withheld their music from Spotify and Apple Music would probably end up leaving huge stacks of money on the table. Despite its reputation for paying a pittance to artists, the 100 most-streamed acts on Spotify are still on pace to earn millions this year. And while some performers might feel personally comfortable giving up that revenue because they have an equity stake in Tidal, the labels who own their recording aren’t likely to share those sentiments. Even Jay Z, who does control his masters, hasn’t been willing to pull all of his albums from rival services—just a few of the best ones (Reasonable Doubt and the Blueprint trilogy, for the record). If Shawn Carter himself can’t bring himself to resist Apple and Spotify’s money, how many others will?

So there's a lot riding on Lemonade. If Beyoncé can’t get her husband’s enterprise to escape velocity at this point, it’s hard to imagine who could.

April 22 2016 5:37 PM

Yes, Bernie’s Plan to Make College Free Would Be a Gift to Rich Kids. That Doesn’t Make It a Bad Idea.

Nobody would ever accuse Bernie Sanders of trying to coddle the rich. But some certainly think his plan to abolish tuition at public colleges would end up wasting a whole lot of money on them. Hillary Clinton, for her part, likes to say she’s “not in favor of making college free for Donald Trump's kids.”1 This week, meanwhile, a new report from Brookings confirms that getting rid of tuition entirely at state schools would disproportionately benefit upper-income students.

Does that really mean abolishing tuition at State U. is a terrible idea? Not necessarily. The fact that free college would benefit everyone from Trump to the people who clean his towers might actually be an argument in its favor.


While the Sanders campaign has questioned its findings, there really shouldn’t be anything surprising or controversial about the new Brookings report, which was written by Urban Institute Senior Fellow Matthew Chingos. In general, wealthier students go to somewhat more expensive schools—say, University of Michigan instead of Wayne State or Lansing Community College—and are less likely to get generous financial aid. By default, any policy that eliminated tuition entirely would probably save more money for your typical upper-middle-class freshman than a striving poor kid who might have gotten a free ride anyway. Chingos ultimately finds that dependent students from the wealthiest quarter of American families would reap 18 percent of the total savings from nixing tuition, even though they make up just 11 percent of public college undergrads. Independent students—who aren’t officially supported by their parents, and who by all indications seem to skew poorer than traditional undergrads—would get just a third of the benefits, even though they make up about half of public collegegoers.


What’s so wrong with giving rich kids a break if school is free for everybody? Some progressives will argue that every dollar spent subsidizing tuition for all the frat boys parking BMWs at the University of Alabama could instead be spent on grants to cover living expenses for lower-income students. That’s a big trade-off, since things like rent, food, and books are often the most important drivers of debt for working-class undergrads, who, once again, frequently get generous discounts on tuition. Chingos notes that, even without having to pay for course credits, students from the bottom quarter of families would collectively still face billions in nontuition expenses.

And, of course, there might also be more important places to spend the government’s resources outside of higher education. Would you rather the federal government help kids from D.C.’s tony suburbs go the University of Virginia, free of charge? Or would you rather that cash go to, say, Section 8 housing assistance? Sure, Sanders wants to fund his free college plan with a tax on Wall Street trading, which would largely hit upper-income households. But does that mean giving money back to them is a wise use of those funds?

Again, the Sanders campaign has tried to write all this off. According to the Wall Street Journal, it called the Brookings analysis “deeply flawed, saying that under its own analysis, 70% of the benefits would go to those making less than $100,000 a year.” This is a fairly weak retort, since Chingos’ report says almost exactly the same thing. Sanders’ policy director, Warren Gunnels, also told the Journal that under the candidate’s plan, students would be able to use federal aid, such as Pell grants, in order to cover their living expenses, since tuition would no longer be a concern. But last I checked, Sanders’ team had completely botched the budget math needed to make that idea work. Of course, arithmetic can be fixed, but it would add to the program’s cost.

So quibbling over statistics isn’t very convincing here. Instead, it might be better for Sanders to simply own the fact that his proposal would help the rich, and frame it as a concession to political necessity. It’s a lot easier to get affluent Americans to support big new public spending efforts if they stand to benefit from it, as well. Likewise, upper-middle-class voters are ferocious about protecting their favorite government programs from cuts. The typical examples of this you hear are Social Security and Medicare. But recall last year when President Obama suggested scaling back 529 college savings plans: The uproar was so bad that White House almost immediately had to walk back the idea. The lesson: parents who earn low to mid-six figures aren't a bad voting bloc to have on your team.

If you’re a progressive, it might be nice to have that kind of public buy-in on free college, too. Therefore, you could argue that the best way to win support for refunding our public universities, and then keep them funded, is to spread the benefits to students who don’t strictly need the help. That may or may not be the right policy move if it means there won’t be enough money left over to help poorer students cover their rent while studying. But, on a purely theoretical level, giving rich kids a free education isn’t necessarily a horrible or wasteful idea.

1 Which is a little off-key, since they've all gone to the University of Pennsylvania (for Wharton, in particular) and Georgetown. But, you know, it's rhetorically effective enough.

April 22 2016 5:01 PM

Uber Settled With the Drivers Suing It. Is the Fight Over Their Employment Status Over?

This post originally appeared on Inc

Uber for some time has been locked in battle in multiple states and on multiple fronts over the classification of its drivers. Should they be full-on employees, with benefits—or independent contractors, free to make their own hours, but sans stability or the whole host of perks that comes with being a full-time employee?


We've seen similar battles take down other startups in the on-demand ecosystem, much of which is built on inexpensive contract labor. Remember Homejoy? It shuttered after an employee-classification lawsuit in California. (Homejoy claimed that making all those independent contractors real employees was simply too costly.)

Late Thursday evening, Uber reached a settlement in two of the lawsuits over how to categorize its drivers. The class-action lawsuits were those from California and Massachusetts, and ended with a settlement filed in the U.S. District Court in the Northern District of California. In it, Uber is allowed to continue to classify its drivers as independent contractors—and the company agreed to pay as much as $100 million to the roughly 385,000 drivers represented in the cases. (That's about $250 per driver—not a huge win on anyone's part.)

Uber was valued at $62.5 billion during its last funding round late last year. That means it's the most valuable private tech company in the world.

Included in the settlement were a few necessary changes Uber agreed to make in its business practices. They include being more transparent about how and why drivers are barred from using the Uber platform.

In a blog post Thursday, Uber's co-founder and chief executive, Travis Kalanick, wrote:

That said, as Uber has grown—over 450,000 drivers use the app each month here in the U.S.—we haven't always done a good job working with drivers. For example, we don't have a policy explaining when and how we bar drivers from using the app, or a process to appeal these decisions. At our size that's not good enough. It's time to change.

Uber also agreed to create driver associations in both Massachusetts and California. Also, in the blog post, Kalanick noted that there's one area in which riders may notice a quality difference: Uber has agreed not to cut off drivers who decline trips. 

As part of this settlement, Uber has agreed not to deactivate drivers who regularly decline trips when they are logged into the app. If too many drivers decline the rides we send their way, it undermines the reliability of the service for riders. But we understand that drivers need breaks, and sometimes things come up—maybe a kid has gotten sick at school. When drivers aren't available, we'd just ask they turn off the app. And where drivers do have low acceptance rates—perhaps because they are multitasking at home we will alert them to the issue. If things don't pick up, we may log them out of the app for a limited period of time.

And here's where Uber's decisions get really interesting. It is certainly making a small concession to drivers by saying Uber will be more flexible about how many cancellations a driver can have in a period of time. But saying that drivers can be temporarily or permanently taken off the Uber platform for having high cancellation rates suggests control—i.e., the power a company may have over employees, not independent contractors, who by nature value freedom.  

"Ultimately, this is a deterrent to drivers actually refusing to accept trips," Rachel Bien, an employment lawyer at Outten & Golden who has litigated similar cases, told the New York Times. "If it's the kind of business that needs a driver to be at a certain place at a certain time regularly, it's not a business that's suitable for independent contractors, who should have the freedom to choose which jobs they want to do and when they want to do them."

The attorney representing the drivers in the lawsuit, Shannon Liss-Riordan, noted in a statement that the case is "settled—not decided." The significant payment of money by Uber should "stand as a stern warning to companies who play fast and loose with classifying their work force as independent contractors," she said. The settlement does nothing to prevent a court from, in the future, deeming Uber drivers as employees, Liss-Riordan said.

The agreement is still subject to final approval by Judge Edward M. Chen. The next step, if approved, is for Uber to pay $84 million to the plaintiffs in the case. (Uber has also agreed to pay an additional $16 million should the company go public and have its valuation increase by one-and-a-half times.) Uber still is facing lawsuits over this same issue in Arizona, Florida, and Pennsylvania. 

April 21 2016 1:59 PM

Facebook’s Latest Algorithm Tweak Could Be Good News for Serious Journalism

Ever hear anyone complain that their Facebook feed is too cluttered with in-depth, nuanced stories that take time to read and digest?

Neither has Facebook, apparently.


On Thursday, the company announced a tweak to its news feed algorithm that could give serious journalism and other compelling content a more prominent place on the world’s most influential news platform. Specifically, the algorithm will now predict how long you’re likely to spend reading a given article once you’ve clicked on it, and take that into account in its rankings. The move is part of a long-term push by Facebook to prioritize what it deems “quality content” over catchy headlines and cheap clickbait.

Facebook announced the change in a blog post titled, “More Articles You Want to Spend Time Viewing.” From the post:

We’re learning that the time people choose to spend reading or watching content they clicked on from News Feed is an important signal that the story was interesting to them. We are adding another factor to News Feed ranking so that we will now predict how long you spend looking at an article in the Facebook mobile browser or an Instant Article after you have clicked through from News Feed. This update to ranking will take into account how likely you are to click on an article and then spend time reading it.

Importantly, Facebook says it will measure time spent “within a threshold,” so that it doesn’t “accidentally treat longer articles preferentially.” In other words, the goal here isn’t to fill people’s feeds with stories that take 30 minutes to read. Rather, it’s to prioritize stories that the average reader looks at for at least a minute or two over those that many people quickly skim and then close.

This is a point that’s likely to get lost in the initial media coverage of the change, which will almost certainly feature lots of people either claiming a big victory for longform journalism or mounting righteous defenses of the virtues of brevity. As anyone who has spent time looking at publishing analytics could tell you, the operative constraint on the time the average reader spends on a story is not the story’s length; it’s how many people quit reading partway through. (Congratulations to those who have made it even this far—and thank you!)

That said, length matters too, and the extent to which this change boosts longer articles over shorter ones will depend on just where Facebook sets those thresholds. That will likely depend in part on Facebook’s own internal surveys of how the change is working, both in terms of its effect on objective engagement metrics and users’ qualitative responses to the company’s surveys.

For a few years now, I’ve been closely covering Facebook’s attempts to build a better news feed by taking into account ever more varieties of data. The latest tweak builds on one that I wrote about two years ago, in which Facebook began tracking and downgrading stories that people closed almost immediately after opening them. (Facebook interpreted this as a sign that the story blatantly failed to deliver what its clicky headline had promised.) Now it’s addressing the flip side of that coin, which is to upgrade stories that people seem to be really enjoying once they’ve clicked.

It’s all part of Facebook’s never-ending battle with the inevitable loopholes in its own algorithm—which, as I’ve explained, will never be perfect, but at best can inch gradually closer to reflecting what the company thinks its users really want to see.

April 20 2016 5:38 PM

Why Conservatives Have Learned Nothing From Kansas’ Disastrous Tax Cuts

In 2012, Kansas Gov. Sam Brownback attempted to turn his state into a showcase for hardcore conservative policy thinking by passing a package of tax cuts so berserk that, even at the time, some of his fellow Republicans worried it was a tad ill-advised. And so it was. As many expected, the reductions have been a calamity for the state's fiscal health. Kansas has found itself chronically short of funds, forcing legislators to slash spending on things like education and help for the poor. The state's credit rating has been downgraded, and for all the trouble, its job growth has been absolutely anemic.

Brownback conveniently blames all this on the harsh winds of the global economy, which have battered local industries like aircraft manufacturing and agriculture. But with yet another budget crisis looming, many of his conservative allies are in open revolt. The vast majority of people not named Sam Brownback seem to agree that this was all a harebrained idea.


Just don't expect Republicans to draw many lessons from the misadventure.

The problem isn't merely that modern conservatism has proved physiologically impervious to data or fact, though that's certainly part of it. Anti-tax avenger Grover Norquist loved Brownback's tax cuts when they passed, and his ardor for them doesn't appear to have abated with time. As befits a man of faith, supply-side mullah Art Laffer, who advised Brownback, is still convinced that the cuts will one day bring new prosperity to Kansas.

But even the conservative movement's more critical minds have found reasons to dismiss Kansas' troubles as a freak error rather than to accept them as a fundamental indictment of an economic ideology that insists that lowering tax rates is the one true route to growth. This is because, even by the standards of steroidal tax-slashing plans, Brownback's was really poorly designed. In particular, it contained an unprecedented break that exempted profits from pass-through businesses from income taxes, a basically unjustifiable measure that has significantly contributed to the gutting of Kansas’ budget.  

A brief explanation: Companies organized as pass-through entities, such as partnerships, LLCs, or S-corporations, don't pay corporate taxes. Instead, their profits get handed over to their owners, who then pay personal income taxes on the earnings. Brownback exempted those profits from state taxes under the theory that it would help spur more small-business growth. 

The problem is that many large and successful businesses are also organized as pass-through entities. And, as the right-leaning Tax Foundation gently warned in 2012, there was nothing to stop other big companies from restructuring themselves to avoid taxes. That seems to have happened in a big way: About 70 percent more businesses have taken advantage of the loophole than expected, which has helped cripple the state's budget projections.

In the years since 2012, the Tax Foundation has become more savage in its assessment of the pass-through carve-out, as they call it, referring to it as a failed gimmick. During recent testimony before Kansas state legislators, one of the think tank's economists argued that the whole debacle was “doing damage to the state tax reform conversation nationally”—which is to say, the Sunflower State's problems were scaring people off from tax cuts.

So, if you ask a conservative what's the matter with Kansas, you'll get one of two answers. Some, of course, will say nothing's the matter. More sophisticated Republicans will tell you Brownback simply picked the wrong tax to slash. Don’t expect much soul-searching.