A blog about business and economics.
Posted Thursday, May 23, 2013, at 5:28 PM
BRAINTREE, MA - NOVEMBER 23: Shoppers wait in a check out line at a Kmart store during the Black Friday sales on November 23, 2012 in Braintree, Massachusetts.
Photo by Allison Joyce/Getty Images
Another day, another retailer posts a bad earnings result even as the economy improves. Today's victim is Sears Holdings Corp—i.e. both Sears and K-Mart—which has suffered declining sales for years. This year "sales at stores open at least a year fell 3.6 percent" and even more striking they lost $279 million in the quarter. A year ago Sears turned a $189 million profit.
Each company has its own particular problems, but as I noted even mighty Walmart is feeling the pain. The fact is that operating big stores full of physical objects that customers can buy just isn't the kind of sound business model that it used to be. Retailers are going to have to offer a compelling reason to shop in physical stores. That could be because your goods are perishable (Whole Foods) or because your shop is a kind of advertising platform and service hub (Apple). Or maybe you're a restaurant or a health care clinic. Or maybe there's just something really fun and awesome about your shopping experience that a large swathe of the population is really into. There are lots of options out there, but also lots of companies stuck in a basically dying model.
Posted Thursday, May 23, 2013, at 4:35 PM
The Tesla Model X is introduced at the 2013 North American International Auto Show in Detroit, Michigan, January 15, 2013.
Photo by STAN HONDA/AFP/Getty Images
Peter Eavis' rundown of Tesla paying off its Energy Department loan early and successfully includes the to-be-sure phrase that "Tesla has not fully weaned itself from government support" because electric vehicle purchasers are eligible for some pretty generous tax credits.
This is true, but it's also entirely appropriate for the government to offer subsidies to early adopting EV buyers. As I wrote earlier if you believe in the future success of the Model S it probably makes more sense to buy Tesla stock than to buy a Tesla. That's because there are major network effects here. Gasoline-fueled cars are practical because America is full of gasoline stations and has lots of infrastructure to refine oil and ship it to those stations. If you owned the only gasoline-powered car in North America, the technology would strike everyone else as slightly absurd. The range of the car would be severely limited, and importing the refined petroleum products you need in small volumes from across the ocean would be laughably expensive. It's early-adopting EV buyers who are laying the groundwork for the infrastructure that makes electric vehicles practical technology. If you think that the drastically cleaner air that would result from a large-scale switch away from internal combustion engines is valuable, then subsidies of various kinds are a completely reasonable way of dealing with the network effects issue.
Now it's quite right to say that current policy is not exactly optimal. A $20 per ton carbon tax with the funds used to lower other taxes would be much better nudge than a regressive tax credit initiative. But you rarely get optimal policy, and the course we're taking is a reasonable and practical one.
Posted Thursday, May 23, 2013, at 2:55 PM
LAS VEGAS, NV - MARCH 20: Nick Shepherd, president and CEO of Carlson Restaurants, parent company to T.G.I. Friday's speaks during a keynote address during the 28th annual Nightclub & Bar Convention and Trade Show at the Las Vegas Convention Center on March 20th, 2013 in Las Vegas, Nevada.
Photo by Isaac Brekken/Getty Images for Nightclub & Bar Media Group
If you order a nice scotch from a bar, how do you know that the bartender's serving you the real thing and not some garbage dressed up in a nice bottle? Well in theory if you're prepared to pay a premium for your liquor you ought to be able to taste the difference. But New Jersey investigators' "Operation Swill" revealed today that quite a few Jersey establishments are pulling the wool over their customers' eyes. One unnamed bar mixed rubbing alcohol with food dye and sold it as scotch.
Perhaps most striking is that 13 of the 29 cited establishments are outlets of TGI Fridays, so it's fully possible that similar issues exist at other Fridays' in other states.
Posted Thursday, May 23, 2013, at 2:10 PM
TO GO WITH AFP STORY BY CEDRIC SIMON - Learning, no with computers.
Photo by PATRICK HERTZOG/AFP/Getty Images
I'm always glad to see a null finding reported, so I liked this paper (PDF) by Robert Fairlie and Jonathan Robinson about what happened when they gave computers to randomly selected California schoolkids whose families had no computer at home. The short answer is nothing.
The slightly longer answer is that the kids reported an almost 50 percent increase in time spent using a computer, with the time divided between doing homework, playing games, and social network. But there was no improvement in academic achievement or attendance or anything else. There wasn't even an improvement in computer skills. At the same time, there was no negative impact either. The access to extra computer games didn't reduce total time spent on homework or lead to any declines in anything. They broke it down by a few demographic subgroups and didn't find anything there either. It's just a huge nada. Nothing happening.
I think this is an important finding because it helps shed some light on the socioeconomic disparities in educational outcomes. We know that kids from higher-income households do much better in school than poor kids. But that of course raises the question of why that is exactly or what one might do about it. For example, would cash transfers to low-income parents make their kids do better in school? If access to home computers was associated with improved school performance, that would be strong evidence that simply fighting poverty with money could be highly effective education policy. The null finding tends to suggest otherwise, that the ways in which high-income families help their kids in school don't relate to durable goods purchases and may be things like social capital or direct parental involvement in the instructional process that—unlike computers—can't be purchased on the open market.
Posted Thursday, May 23, 2013, at 12:23 PM
Media discussions of "college" or "college costs" tend to get very confused because media people overwhelmingly attended (and expect their children to attend) highly selective institutions of higher education. The big gap is between people who went to very selective private schools (Yale! Princeton!) and those who went to very selective public schools (Michigan! UVA!) while the large majority of Americans who go to much less selective institutions tends to get ignored. In particular, we hear very little about community colleges even though these are the schools that tend to serve the marginal student and where higher education as a ladder of opportunity for low-income people will either succeed or fail.
But here's a striking fact. If you've been paying any attention at all over the past decade, you've heard a lot about states cutting back on their funding of higher education. What you hear less about is that high-end public institutions of higher learning—the "public research universities" in the chart above—have responded to these funding cuts by drastically increasing per student spending in failed effort to keep up with the prestigious private universities who've been ramping up spending in an even more dramatic way. Consequently, tuition hikes have compensated for over 100 percent of of the funding cutbacks. The schools that have truly faced sharp resource constraints are the community colleges that you don't hear about. Their aggregate spending is essentially flat, meaning that due to the magic of Baumol's Cost Disease they've had to respond to funding cutbacks by reducing service levels even while raising tuition. What makes it especially egregious is that these institutions started off spending less to begin with. Community college students have the greatest level of need, but they receive the least resources and they're increasingly pressed but tend to get overlooked in media accounts of funding arguments that instead focus on exclusive schools with a much more affluent client base.
At any rate, I'm inspired to mention this by an excellent new report The Century Foundation put out today (PDF) that takes a look at the divergent fortunes between community colleges and selective schools over the decades. I knew about the funding disparities, and it's obvious that community colleges serve poorer students and more minorities but I didn't know that the socioeconomic gap in student bases has grown over the past 25 years.
Posted Thursday, May 23, 2013, at 11:25 AM
New Census Bureau numbers are out today and they show that three of the five fastest-growing cities and eight of the fifteen fastest-growing cities in America are located in the state of Texas.
It's notable, though, that New York City also added an awful lot of people. Of course working from NYC's enormous population base it's not a huge percentwagewise increase. But New York is already very dense and is also very heavily regulated in terms of new housing units, so it's relatively difficult to add population. But big picture Texas dominates in terms of population growth. There's something of a chicken-and-egg issue here where many people (especially policymakers in Texas) say the population is growing fast because the economy is relatively strong. There's something to that (and certainly that's the case in the Midland-Odessa are) but I think it's primarily the other way around. Texas' combination of relatively stringent mortgage regulation, relatively lax house-building regulation, and relatively warm weather have made it a place with abundant and growing supply of affordable housing. That in-migration of people makes Texas a good place to invest in building houses and restaurants and hospitals and shopping malls and all the rest.
Posted Thursday, May 23, 2013, at 10:12 AM
"Million Dollar Properties, $1 Deals" was the headline on Patrick Madden's great WAMU report on apparent sweetheart deals that DC property developers sometimes get when they want to build on city owned land. Julie Patel's followup was a little less snappy, but "Empty Promises: Developers Often Don't Deliver" also delivers the goods. These deals often offer sweet discounts on land to property developers in exchange for developers making specific commitments to achieve municipal goals, but real estate development is a highly risky and uncertain industry and often the promises aren't met in a timely manner.
The always-upbeat David Alpert is correct to respond that things aren't necessarily all that bad. For example, when the developers of the project at the former Hines School received $44 million worth of land for the low price of $22 million, they also agreed to offer 20 percent of the new housing units at subsidized rates and to build a new plaza on C Street. The city accepted less money for more amenities.
And good for them. But really all this does is highlight the great virtue of simply selling things to the highest bidder.
After all, accepting less money for more amenities could be a good idea. But it also could be a boondoggle. As a citizen, it's extremely hard for me to tell. What's more, all citizens can agree that $100,000 is worth $100,000 while our estimates of the value of a plaza or a new library may vary. The right way to handle these things would be to sell the land for the highest possible price, and then have the city directly spend on programs elected officials think are valuable. That's a much more transparent process in which it would be obvious whether someone was giving a donor a sweetheart deal or not, and in which the value of a new plaza can be easily compared to other uses of funds.
Posted Thursday, May 23, 2013, at 8:40 AM
Every year the Intel Science and Engineering Awards features some extremely impressive young people, but this year's winner—Romanian 19 year-old Ionut Budisteanu—may make an unusually big difference.
His contribution was to take one of the most expensive elements of existing autonomous vehicle technology, the high-resolution 3D radar that Google uses to help cars see objects in the road, and use artificial intelligence to get by with a cheaper radar. Using about $4,000 worth of equipment he got results that are about as good as Google's $75,000 rigs. For his trouble he gets a $75,000 scholarship prize. Eesha Khare, an 18 year-old from California, also did something with some major potential commercial applications and "developed a tiny device that fits inside cell phone batteries, allowing them to fully charge within 20-30 seconds." We're told that "Eesha’s invention also has potential applications for car batteries."
Needless to say, the dual technologies of car electrification and car automation are probably the leading candidates to transform everyday life in a really useful way so this is extremely encouraging news.
Posted Thursday, May 23, 2013, at 8:22 AM
People walk past a digital board flashing the Nikkei key index of the Tokyo Stock Exchange (TSE) in front of a securities company in Tokyo on April 1, 2013.
Photo by TORU YAMANAKA/AFP/Getty Images
The steady day-by-day upward tick of the Nikkei stock index has been the most visible impact of Abenomics in Japan, but overnight things took a scary turn for investors who'd rushed into Japanese shares over the past month or so as the Nikkei plunged over seven percent. It's a sign of how strong the Abe rally has been that this essentially leaves the market where it was ten days ago and wildly higher than it was when Abe took office around Christmastime. Still, any plunge of that size is going to get attention.
The broader context is that some weak preliminary data on Chinese industrial production have Asian markets broadly down, after a day of Ben Bernanke hinting that "tapering" of QE3 was possible not offset by any hint that accelerating it might happen also drove western markets a bit down. Meanwhile survey data out of Europe indicated that France and even Germany are likely in an economic contraction phase.
All things considered, Japan probably had a better news day in terms of the fundamentals than other large markets. But the big upward rise of the Nikkei over the previous six months and the controversial nature of Abenomics seems to have meant that when things took a bearish turn it hit those markets especially severely.
Posted Wednesday, May 22, 2013, at 6:05 PM
NEW YORK, NY - MARCH 11: Jeff Immelt, chairman and CEO of General Electric, speaks at a news conference March 11, 2013 New York City.
Photo by Allison Joyce/Getty Images
Public policy over the past five years has been a lot kinder to the lords of finance than populist opinion would like, but I think most folks continue to underestimate the degree to which finance is shrinking already under new market and regulatory pressures. A good concrete sign of that is the idea, floated at a conference today by CEO Jeffrey Immelt, that GE might spin off its consumer finance arm.
Once upon a time, General Electric was an industrial conglomerate. When you sell expensive stuff, it's natural to get involved in financing to some extent and thus GE Capital was born. But as the overall U.S. economy financialized, GE Capital turned into a bigger and bigger part of the overall enterprise. Since the financial crisis, however, Immelt has been trying to shrink it relative to the company's core industrial competencies. The idea of the spinoff would be to take that one step forward, by taking financial stuff that's unrelated to industrial work—things like GE's credit card business perhaps—and sell them via IPO. The funds raised by the IPO could then be used for a share buyback. So you'd have a smaller company with fewer shares outstanding, a tighter focus on manufacturing, and less volatility.