Moneybox
A blog about business and economics.

Sept. 30 2016 5:19 PM

Screwing Up a Medical Bill Is Really, Really Easy. Could This Startup Undo Those Mistakes?

This post originally appeared on Inc.

When Victor Echevarria's son was eight months old, the child had a febrile seizure. A few weeks after hospitalization, the baby was doing well—but the family faced another challenge.

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"Go home, everything's great; couple weeks later, the bills started coming," recalls Echevarria, former vice president of business development at TaskRabbit. What he and his wife owed, which included some stray prenatal bills from her pregnancy: $12,000.

"Now I understand what people feel when they end up with ridiculously high bills," says Echevarria. But the family was fortunate enough to correct errors in the billing, bringing the balance down to zero.

Errors in medical billing are common. One study found errors in 90 percent of hospital bills examined, according to ABC News. Echevarria's startup Remedy Labs, which has been in beta since May and launches nationally this week, aims to bring that percentage down. The company has $1.9 million in seed funding from investors including Marc Benioff with Efficient Capacity, Semil Shah with Haystack, Slow Ventures, and more.

Founded in summer of 2015 with Marija Ringwelski, who comes from a background in health care, Remedy relies on a network of medical billing specialists to identify errors in clients' medical bills. Remedy takes 20 percent of savings, or a maximum of $99 per order. The contracted specialists make a commission on savings from errors they find, in addition to an hourly wage.

If Remedy saves you $100, it takes $20 of those savings as payment. If the company saves you $1,000, it takes $99—and if they save you $12,000, they still take just $99. If they don't find errors, they don't charge you. "We don't want to just transfer their liability," says Echevarria, the company's CEO.

Even with the $99 cap, "We can be profitable on every single bill where we find savings."

It's easy for errors to happen in medical billing, according to the chief executive. He pointed out that, per the tenth edition of medical billing and coding system International Classification of Diseases (ICD-10), the diagnosis code for having been bitten by a cow is w55.21; for cutting yourself with the lid of a can, w54.2.

You can see how a person can make a career out of being able to find the right code for a specific ailment—and how the wrong code can make its way onto a bill.

There are other opportunities for error as well. In the case of the bill for treatment of Echevarria's son, an experience that occurred after the pair started working on the company, a few things happened. In addition to a coding error in the lab bill, there was a last name misspelling and an insurance discount that failed to be included.

Ringwelski, head of product, came up with the idea for Remedy after polling people at San Francisco bus stops about their greatest health care concerns. What she found, says Echevarria, was that "nobody understood why they were being billed what they were being billed."

It's a problem that can lead to greater costs, as some avoid preventative care due to fear of how they will be billed. There's even an ICD-10 code that can be applied to such situations: Z91.120, "Patient's intentional underdosing of medication regimen due to financial hardship."

"Being poor is now diagnosable in our medical system," says Echevarria.

Sept. 29 2016 8:00 AM

The New Penn Station Is Pretty. But It Might Not Be So Convenient.

New Yorkers have the longest commutes in the nation, according to U.S. Census data released this month. That’s true both within New York City, where the average commute is more than 40 minutes, and in the metro area at large, where the average commute is 36 minutes. That’s a big drain on quality of life and economic productivity, not to mention a strain on the region’s infrastructure and environment.

So you’d think that if you were spending $1.6 billion on a new train station for some 260,000 daily passengers, your No. 1 priority would probably be making sure that its location and design helped shorten commutes—or at the very least, didn’t make them any longer.

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Unfortunately, that doesn’t seem to have been a design priority in New York Gov. Andrew Cuomo’s approval of the Moynihan Train Hall, announced on Tuesday at a luncheon in Manhattan. This long-awaited extension of Penn Station, to be built in a converted post office on Manhattan’s West Side, offers a connection to the New York subway that is decidedly inferior to that of its much-maligned neighbor.

Here’s a rule for building multibillion-dollar transit hubs: Make sure they offer more, not fewer, travel connections than their predecessors. And make sure those connections get better, not worse.

It’s a rule that’s being broken in the rebuilding of two of Manhattan’s three busiest commuter facilities: the new Penn Station annex and the Port Authority Bus Terminal.

The Moynihan Train Hall will be almost a quarter-mile from the busier of Penn Station’s two subway stops, on 7th Avenue, and almost a half-mile from the city’s third busiest subway stop at Herald Square, which travelers also use to access the hub. The distance between the proposed annex and the subway has been acknowledged before. Former Amtrak President David Gunn, for example, always had this beef with the location, as he explained to the New York Observer in 2013. “From a transportation point of view, it makes no sense.”

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That does look nice, though!

SOM

When it’s done in 2020, the station will welcome passengers for Amtrak (30,000 a day) and the Long Island Railroad (230,000 a day) to a grand hall beneath skylights in the old post office courtyard, designed (in these renderings, at least) by Skidmore Owings and Merrill. Riders will ascend from platforms into a station with 50 percent more floor space than the current Penn Station, and one that looks to be much more pleasant. If it’s an improved customer experience that the station promises, though, I’m not sure how many travelers will benefit.

For arriving passengers heading toward Midtown on foot or into the subway, the current Penn Station will still be a much more convenient point of access. It may be a rat warren, but as the rats always say: location, location, location.

It seems like nitpicking, I know. After all, the new hall will still be adjacent to one subway line—isn’t that good enough? Well, sure. But two was certainly better.

It’s New York’s problem, but let it be a lesson to other cities contemplating mass transit improvements: The people in power like to take taxi cabs, and that’s how they see things.

There are two reasons that boosters like the Farley Post Office conversion so much, and neither has to do with what commuters need from a train station. The first is that it offers a glamorous venue for shopping, like Santiago Calatrava’s $4 billion “train station” in Lower Manhattan. Previous plans had fallen apart because the developers didn’t think retail would pencil out. Apparently, they have changed their minds.

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Ooh, natural light!

SOM

The second was alluded to by Cuomo in his slides: to “extend New York’s premier transit hub to 9th Avenue and the door step of the newly developing Far West Side.” (This is the 50-year dream of New York’s rulers—to push Midtown to the west.) That’s great news for Hudson Yards, the west-side megaproject whose lead developer is also in charge of the new train hall. The country's largest private real estate development now sits a little closer to the country's largest train station.*

But back to the original issue: This train station has worse subway access than the old one. That’s not good. And worryingly, it’s a mistake that’s being repeated in the plans for the Port Authority Bus Terminal a few blocks north.

That facility, which carries 230,000 bus passengers a day, is conveniently located on top of a subway station. But it needs to be rebuilt. And the final proposals in the Port Authority design competition have the site moving west, away from the subway.

Which finally brings us back to New York’s long commuting times. They are the longest in the country because New York is the biggest metropolitan area in the country. But they are also long because of mistakes and missed opportunities in transit planning that add a minute here, a minute there, to the region’s transit-dependent workforce.

Every other city builds subway lines to connect to transit hubs. New York is moving transit hubs away from subway lines. The minutes add up.

*Correction, Sept. 29, 2016: Due to a New Yorker's aggrandized sense of his hometown, this post originally categorized Hudson Yards and Penn Station as, respectively, the largest private development and train station in the world. They are the largest in the U.S.

Sept. 28 2016 6:22 PM

Harvard’s Student Paper Is Outraged—Outraged!—by the School’s Paltry Endowment Returns

This past year, Harvard University's endowment lost a bit of money, shrinking by almost $2 billion to a mere $35.7 billion. And let me tell you, the editorialists at the school newspaper are absolutely furious. They even wrote a whole article about it. Here's how it begins.

unacceptable

Screenshot via the Crimson

This is unacceptable, the editor typed, huffily adjusting his top hat and monocle.

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Given that Harvard is still the wealthiest institution of higher learning in the country, with an endowment somewhere around 40 percent larger than second place Yale's, I don't think a year or even several years of bad returns really qualifies as an existential threat. However, there is a finance story here. Harvard's endowment fund has in fact been underperforming its peers in recent years. (Real sentence from the Crimson: "In fiscal year 2015, Harvard ranked penultimate among Ivy League institutions, with Princeton besting Harvard Management Company by nearly seven points." Penultimate!) And that might be leading to a shake-up in strategy at its much vaunted in-house hedge fund—because that's what it really is—Harvard Management Co. You see, where most schools tend to outsource their money matters to a variety of fund managers, Harvard has a 200-person team of well-compensated investment pros and their staff. But at the moment, HMC is looking for its fourth CEO since 2005, and as Bloomberg has reported, the two leading contenders seem to be of the same find-some-other-smart-Wall-Streeter-to-make-your-money-grow philosophy. So Harvard's investment approach might be about to get a little more boring and traditional.

Oddly, the Crimson editors don't mention the new executive search. Instead, they “wish to urge the administration to prioritize endowment performance before Harvard falls further behind peer institutions.” To which I say, tax the brutes.

Sept. 27 2016 3:32 PM

The Netflix Tax Is Coming, and Why Not?

Netflix, like Airbnb and Amazon, has thrived on convenience. Initially, at least, all three companies grew by making it easier to get the same old things. They weren’t the first companies to offer movies, rooms, and books. But they made it so, so simple to get them.

Initially, too, they had another advantage: not paying the same taxes as their competitors. After a long fight, Amazon has in the last five years started paying sales taxes in an effort to bring distribution centers closer to consumers. Airbnb has tried to encourage states to collect hotel taxes on its bookings in order to establish its legal legitimacy.

Netflix, Spotify, and the world of online streaming are next.

In 2015, Chicago became the first major city to enact a 9 percent “cloud tax” on digital entertainment services, which the city said would be worth $12 million a year in tax revenue. The move is considered an adaptation of the city’s existing amusement tax, which covers movie tickets, Cubs games, and the like.

Sept. 27 2016 1:00 PM

The Cost of Pet Health Care Could Be Rising Faster Than the Cost of Human Health Care

Pets certainly know how to sink their teeth into a household budget. In 2015, my poodle’s long-lasting stomach virus set my family back by almost four figures. Later in the year we got an even heftier bill for a canine root canal.

I’m not alone. Spending on animal medical needs has soared over the past two decades. According to an annual survey by the American Pet Products Association, Americans spent $15.4 billion on veterinary care in 2015. Could it be that pets are experiencing a similar uptick in the cost of medical care as their human masters?

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Yes, it could—as economics professors Liran Einav and Amy Finkelstein and Ph.D. candidate Atul Gupta point out in a new working paper, “Is American Pet Health Care (Also) Uniquely Inefficient?” It’s actually a useful comparison. Much of the blame for the sharp rise in American medical spending traditionally falls at the door of our ridiculously inefficient medical system. One theory posits that a combination of opaque costs, lack of consumer knowledge, and generous insurance coverage is driving the surge. Put people in managed-care situations and raise their deductibles so that they have more “skin in the game,” as politicians and wonks are wont to say, and watch the spending plummet. But it hasn’t worked out that way. Out-of-pocket medical spending for people with employer-provided health insurance has soared by more than 50 percent since 2010. And the animal world might just give us a clue why.

While vetinary spending has some things in common with medical spending on humans—health care crises tend to arrive unexpectedly for all kinds of creatures—there are many differences, ones that might suggest animal medical bills would increase at a slower rate. Pet health insurance, while an increasingly popular product, is still relatively rare, with less than 1 percent of pet owners purchasing a policy. There is no such thing as Medicare for elderly canines and felines. Moreover, options to sue in the event of veterinary malpractice are quite limited. Animals are traditionally viewed as property by the courts, which means that financial damage is generally defined as the cost of replacing the pet (with maybe a few thousand dollars for loss of companionship, assuming there’s a particularly sympathetic judge or jury). Multimillion-dollar awards, no matter how egregious the misconduct or great the pet’s suffering, are all but unknown.

But as the paper’s authors document, animal medical spending appears to be increasing at a faster rate than the human equivalent. Data from the federal Consumer Expenditure Survey shows that between 1996 and 2012, our own health care spending surged by almost 50 percent while pet medical spending jumped by 60 percent. During the same period, the percentage of physicians increased by 40 percent while the supply of veterinarians all but doubled.

Einav, Finkelstein, and Gupta also look at the cost of end-of-life care. Data from an unnamed California veterinary clinic finds owners of dogs who died from lymphoma experienced a sharp uptick in spending in the last month of their pets’ lives, while Medicare data shows the same occurs for humans at an earlier point—three to four months earlier. (The authors note that clients at the anonymous animal medical center are “likely … significantly richer than the average dog owner.”) Yes, the cost of the pet care is cheaper, but it’s not free.

So why are we spending more on animal health care? First, just like humans, animals are benefiting from medical advances that increase their lifespan—so much so that canine dementia is a growing problem. But, unlike humans, we don’t need to treat ill pets. We choose to do so. A visit to the vet isn’t necessary. As economists would say, it’s a luxury good. Some of our spending is driven by desire.

Let’s go back to my poodle for a minute. The root canals—yes, there ended up being several—were not the only course of treatment I could have chosen for my dog. The vet told me she could also pull the impacted teeth. A root canal would need to be done by a specialist, and add significantly to the bill. I signed off without hesitating. I wanted Katie to continue to enjoy her favorite food and toys—and so she does. Was it emotionally satisfying? Yes. But economically rational? No.

It’s likely the same is true for some percentage of animal and human medical care—although of course there are many, many factors at play with the increases in the cost of the latter. A healthy life is a thing we feel is worth spending money on, and so many of us use our own funds to do it—whether it’s for ourselves or for Fido. The paper’s authors conclude with a call for more study of other industries to deepen our understanding of medical costs. For now, it’s not hard to suspect that, at least when it comes to health care, our pets are a canary in the coal mine.

Sept. 27 2016 1:00 AM

Trump Destroyed Clinton on the Economy. Here’s What She Should Say Next Time.

Monday night’s presidential debate began poorly for Hillary Clinton. Very, very poorly. Subject No. 1 was the economy, and the woman on whose shoulders liberal democracy might presently rest spent much of the opening discussion getting absolutely savaged by Donald Trump on his favorite subject, and one of her weakest: trade. At times it felt like one of those horrifying 15-second knockouts you see sometimes in MMA—where after months of anticipation, one fighter just ethers the other with a kick to the head.

Mercifully, Clinton recovered and even dominated the rest of the evening. But Clinton’s weakness on trade shouldn’t have been a problem, especially considering the incoherence and dishonesty of Trump’s economic proposals. And going forward it doesn’t have to be—if Clinton tweaks her case in a few simple ways.

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Coming into Monday’s event, it seemed patently obvious that Trump would tear into Clinton on trade, considering that her husband signed the much-loathed North American Free Trade Agreement and welcomed China into the World Trade Organization, which helped it decimate American manufacturers. Clinton was also notoriously for the Trans Pacific Partnership before she was against it, calling it the “gold standard” of trade deals back in 2012. None of this plays particularly well in Ohio or Michigan, and for good reason. Although politicians like Trump exaggerate the overall importance of trade, there are lots of factory towns across this country that have seen their industry base decimated by foreign competition. Even mainstream economists, who once might have been described as blind advocates of free trade, are beginning to grapple with that fact.

And yet when the time came, Clinton seemed oddly unprepared for Trump’s onslaught on trade. Given the chance to speak first and set the terms of discussion, she opted instead for a sleepy Cliff’s Notes edition of her website’s policy section (jobs … family leave … profit-sharing something something). When Trump’s turn came, he wasted no time heading straight to his comfort zone on trade. “Thank you, Lester. Our jobs are fleeing the country,” he opened. From there, he doomspoke about Mexico, China, Ford abandoning the U.S. (no, it isn’t), struggling factory towns in Michigan and Ohio, and gutless politicians refusing to stand up to foreign powers. “We have to stop our jobs from being stolen from us,” he added, in case anybody had missed the point.

Clinton eventually tried to return the debate to more favorable ground for herself, pivoting to Trump’s plutocrat-friendly tax proposal, but ruined things with the sort of cringe-inducing catchphrase that’s unfortunately become a kind of trademark of her campaign. “The kind of plan that Donald has put forth would be trickle-down economics all over again. In fact, it would be the most extreme version, the biggest tax cuts for the top percent of the people in this country than we’ve ever had. I call it Trumped-up trickle-down.” Please don’t call it that. Nobody calls it that, or ever will.

And soon enough, Clinton was back in the cage, getting mauled over trade deals. It’s hard to capture the ferocity of the exchange in writing: Trump bullied his way through, at times barely letting her finish a stammering thought, but he also made one point that resonates with what so many distrustful working-class whites in the Midwest know to be true. Clinton has been a politician for a long time. Where was she on trade before this presidential race?

Trump: All you have to do is look at Michigan and look at Ohio and look at all of these places where so many of their jobs and their companies are just leaving, they’re gone. And Hillary, I’ll just ask you this. You’ve been doing this for 30 years. Why are you just thinking about these solutions right now? For 30 years, you’ve been doing it, and now you're just starting to think of solutions—

Clinton: Well, actually—

Trump: Excuse me. I will bring back jobs. You can’t bring back jobs.

Clinton: Well, actually, I have thought about this quite a bit.

Trump: Yeah, for 30 years.

Clinton: And I have—well, not quite that long. I think my husband did a pretty good job in the 1990s. I think a lot about what worked and what can work again—

Trump: Well, he approved NAFTA, which is the single worst straight deal ever approved in this country.

It continued apace a bit later, with Trump on the offensive, and Clinton trying mostly unsuccessfully to slow him down by protesting facts:

Trump: You go to New England, you go to Ohio, Pennsylvania, you go anywhere you want, Secretary Clinton, and you will see devastation where manufacturing is down 30, 40, sometimes 50 percent. NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country. And now you want to approve Trans-Pacific Partnership. You were totally in favor of it. Then you heard what I was saying, how bad it is, and you said, I can’t win that debate. But you know that if you did win, you would approve that and that will be almost as bad as NAFTA. Nothing will ever top NAFTA.

Clinton: Well, that is just not accurate. I was against it once it was finally negotiated and the terms were laid out. I wrote about it—

Trump: You called it gold standard of trade deals. You said it’s the finest deal you've ever seen—

Clinton: No.

Trump: And then you heard what I said about it and all of a sudden you were against it.

Clinton: Donald, I know you live in your own reality, but those are not the facts. The facts are, I said I hoped it would be a good deal, but when it was negotiated, which I was not responsible for, I concluded it wasn’t.

Trump: So is it President Obama’s fault?

Leave aside the fact that much of Trump’s thinking on how to fix our trade deals is utter nonsense. Leave aside that NAFTA probably had far less impact on the Rust Belt than trade with China. He had the emotional edge because, in the end, a good number of Americans have suffered as they’ve watched their jobs flow overseas. And it didn’t help that Clinton tried to fudge her past statements on TPP. It was bad.

And the truth is that as long as Clinton is talking about trade, she’s going to be losing. Her history on the subject is too checkered, her contortions too unbelievable. It’s not a coincidence that she only began to regain her footing once she managed to decisively steer the conversation elsewhere. She got back to taxes and pointed out that Trump had proposed a massive break for pass-through businesses like his own, which she called “the Trump loophole” (a slight improvement over “Trumped-up trickle down,” which she trotted out once more). She pulled Trump onto the subject of his unreleased tax returns and the debts he owes to foreign banks, questioning whether he’s paid any federal taxes, donated to charity, or earned what he claims. At that point, he began sputtering and rambling. She brought up Trump’s habit of refusing to pay the businesses he hires on his construction jobs, which inspired one of his most heartless sounding responses.

Clinton: I have met a lot of the people who were stiffed by you and your businesses, Donald. I’ve met dishwashers, painters, architects, glass installers, marble installers, drapery installers, like my dad was, who you refused to pay when they finished the work that you asked them to do. We have an architect in the audience who designed one of your clubhouses at one of your golf courses. It’s a beautiful facility. It immediately was put to use, and you wouldn’t pay what the man needed to be paid, what he was charging you—

Trump: Maybe he didn’t do a good job and I was unsatisfied with his work. Which our country should do.

Through all this, a theme was developing, which Clinton somehow never managed to tie into a rhetorical bow: Donald Trump only cares about people like Donald Trump. And while I typically don’t like to play debate coach, it seems like the best thing Clinton could do on these issues—the only way to deal with her own weaknesses on trade—might be to turn the subject back to the demagogue himself. It could go like this:

Donald Trump will tell you he wants to help working families. He’ll tell you he wants to fight for better trade deals from China or Mexico. But the truth is, Donald Trump doesn’t care about you. He only cares about people like Donald Trump. He’s proposed big tax cuts for millionaires, like Donald Trump. He’s even proposed a trillion-dollar tax cut specifically for businesses that are structured like the Trump Organization. I call it “the Trump loophole.” He wants to eliminate the estate tax, which will benefit the children of millionaires, just like the Trumps. He talks about his great experience in business. But how can you trust a man who is notorious for stiffing the contractors who helped build his casinos? How can you can trust a man who runs his business that way, by stepping on small businesses? How can you trust a man who won’t even release his own tax returns, so we can figure out if he’s really a billionaire like he claims? How can you trust a man who talks about fighting for American workers, but makes his own ties in China?

That’s a rough, midnight draft. But I’m pretty it’d be a better way to start a debate than talking about profit-sharing.

Sept. 26 2016 10:25 PM

It Sure Sounds Like Donald Trump Just Admitted He Doesn’t Pay Taxes

Did Donald Trump just admit he hasn’t paid income taxes?

The moment came in Monday night’s presidential debate when Trump was discussing the need for infrastructure improvements.

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“Our country has tremendous problems,” the Republican candidate said. “We're a debtor nation, we're a serious debtor nation, and we have a country that needs new roads, new tunnels, new bridges, new airports, new schools, new hospitals. And we don't have the money, because it's been squandered on so many of your ideas.”

Hillary Clinton interrupted: “And maybe because you haven't paid any federal income tax for a lot of years. And the other thing I think would be important …”

It’s what came next that’s extraordinary. Trump said:

“It would be squandered too, believe me.”

Would be squandered. Had Trump just admitted he doesn’t pay a penny in taxes? It sure sounded that way.

Unfortunately, Hillary Clinton didn’t hear it. She went on to attack him—quite accurately—for his shoddy business practices, including stiffing the people who helped him like “dishwashers, painters, architects, glass installers, marble installers, drapery installers.” All true!

But she missed the bigger point: Trump claims he cannot release his taxes because he is under audit by Internal Revenue Service. This is hooey. Instead, he’s left commentators—and Clinton, who also offered some other theories about Trump's tax return on Monday—to wonder whether the real reason the Donald won’t let the public review his filings is because he doesn’t want us to see how little he’s paying. Perhaps because he’s not paying anything at all.

Trump just gave those critics a lot of ammunition, even if Clinton didn’t seem to realize it on stage.

Update, Sept. 27, 2016, at 12:07 a.m.: Asked on CNN after the debate whether he had meant it when he “admitted that you hadn’t paid federal taxes and that that was smart"—referring to a jarring Trump retort a moment before the "would be squandered" line—Trump replied that he “didn’t say that at all.”

Sept. 26 2016 8:44 PM

The Trump Campaign Tried to Make a Serious Economic Argument. It Is a Very, Very Stupid Rabbit Hole.

On Monday, two of Donald Trump's better-known advisers delivered what may well be the most detailed description and defense of the candidate's economic vision yet. Written by University of California–Irvine economist Peter Navarro and private equity baron Wilbur Ross, it attempts to quantify how the Republican nominee's combination of mass corporate deregulation, tax cuts, and fossil fuels promotion will bring about a renaissance of American growth (while making said tax cuts more affordable). Navarro calls it the “whole chessboard.”

I'd say it's more like checkers, but, I mean, Jesus—not even. Maybe Monopoly Jr.? The document that Navarro and Ross have produced is a dog's breakfast of factual errors, conceptual nonsense, and regurgitated industry flimflam. It's mostly a reminder that while Donald Trump is obviously not a public policy savant, neither are his public policy advisers, which is just one small reason among many why handing this man the presidency will probably end in tears.

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Here's a little background to whet your appetite: Earlier this month, Donald Trump released a tax plan that, even according to the extremely generous model used by the conservative Tax Foundation that assumes lower rates will bring about faster economic growth, would have still blown a multitrillion-dollar hole in the federal budget. Navarro and Ross argue that it's a mistake to look at Trump's tax proposal in isolation, however. Once you consider all the various ways he's hoping to supercharge the economy (and cut some government spending), they become affordable.

The first thing I noticed that's wrong with the report was a simple factual error, which may seem a little nitpicky but gives you a sense of how slapdash the whole effort is and should remind you that even Trump's best and brightest tend to have an understanding of reality that's unmoored from data or evidence. Early on, in a section on how the U.S. has suffered from its imbalanced trade relationship with China since the country joined the World Trade Organization, it states the following:

Justin Pierce of the Federal Reserve Board of Governors staff and Yale School of Management’s Peter Schott attribute most of the decline in US manufacturing jobs from 2001 to 2007 to the China deal.

I've read Pierce and Schott's paper. I've talked to them about it. And it says no such thing. (I even emailed Schott on Monday to make sure I hadn't forgotten something important. I hadn't.) The study does offer strong evidence that China's entry into the WTO eliminated many U.S. manufacturing jobs, but for methodological reasons, it can't quantify the overall impact. This might seem like a small point. Except Navarro is a decently well-regarded economist who has devoted a growing fraction of his time to angry polemics about China and trade, and you'd expect him to know what this paper—which has been around in some form or another for several years—actually says.1 Instead, he (and thus, Trump's brain trust) appears to believe, without any apparent evidence, that China may be responsible for the majority of America's industrial employment decline.

But, you know, whatever. That's just a small error in a literature review. It may or may not speak to a deeper narrative flaw in how Navarro and Ross understand global trade's role in recent economic history. What about Trump's actual plans?

Well, a big part of the candidate's agenda involves freeing up oil, gas, and coal companies to drill and mine all the hydrocarbons they can lay their machinery on without being burdened by environmental protections. Here's Navarro and Ross' take on what that would do for economic growth.

For modeling purposes, it is difficult to forecast the effect that increased supply will have on prices. However, the Institute for Energy Research (IER) has estimated that America’s GDP will increase by $127 billion annually for the first seven years and by $450 billion annually for the subsequent 30 years as a result of the expansion of our energy sector

[Record screeches to a halt]

The Institute for Energy Research is a think tank dedicated to fighting climate change “alarmism” that has been funded by both ExxonMobil and a Koch brothers–affiliated foundation. Last year, an oil industry lobbyist joined it as a “distinguished senior fellow.” When Thomas Kinnaman, a Bucknell University professor who researches the economics of natural gas drilling, reviewed the group's report for CNBC, he said the research “would never see the light of day in an academic journal” and that its methods were “rarely employed any more by economists.” The “study” also based its assumption on a world of $101-per-barrel oil, more than double the current price (maybe we'll get there, but opening up vast new supplies certainly won't help the industry do it). More sober minds might think twice about taking the IER's math at face value. Navarro and Ross' entire energy policy analysis hinges on it.

Laughable as that may be, however, their section on regulation may be even worse. Early on, the report states that the “Heritage Foundation and National Association of Manufacturers (NAM) have estimated regulatory costs to be in the range of $2 trillion annually—about 10% of our GDP.” Every part of this is misleading, starting with the citations. Heritage doesn't seem to have done any actual estimating; instead, the conservative think tank references research by Mark and Nicole Crain, who also happened to write that report for the lobbyists at NAM. Their work has been utterly discredited on this subject. The Congressional Research Service has panned it. So has the labor-affiliated Economic Policy Institute, whose findings Trump and his handlers (including Navarro and Ross) love to cite. What did they botch so terribly? The Crains looked at the relationship between economic growth in developed countries and an “index of regulatory quality” created by the World Bank. But one of the index's architects later explained that duo had badly misunderstood and misused the World Bank's data, which, among other things, show that Denmark and Sweden—not exactly paragons of laissez-faire economics—have better regulatory environments than the United States. The CRS also reran the pair's regressions, and found that tiny methodological changes made the relationship between regulation and growth disappear, suggesting their findings were probably not super sturdy.

That's the report's flimsy starting point. From there, Ross and Navarro proceed:

Donald Trump’s strategy will trim a minimum of $200 billion from America’s annual regulatory burden. This is roughly onetenth of the $2 trillion consensus estimate of that burden.
This reduction in regulatory drag would add $200 billion of pre-tax profit to businesses annually. Taxing that additional profit at Trump's 15% rate would yield $30 billion more in annual taxes. This would leave businesses with an additional $170 billion of post-tax earnings.

In short, Donald Trump will in some way or another trim 10 percent of an imaginary figure, ushering in a flood of prosperity and tax revenue. We are diving deep down a very, very stupid rabbit hole.

And that brings us to trade, the core economic rationale of the puffy, persimmon demagogue's campaign. The thing about Trump is that he usually rants about America's rotten trade deals without explaining what, exactly, is so wrong with them. This report tries to correct for that, largely by spending about two pages arguing that the World Trade Organization's treatment of value added taxes “is a poster child of poorly negotiated U.S. trade deals.” A value added tax, or VAT, is a national consumption tax that, unlike a regular old consumption tax, is collected at different steps along the industrial supply chain. They often range between 15 percent and 25 percent, and last I checked, 160 countries have one. The U.S. is basically the only major nation that doesn't.

Navarro and Ross are upset about an issue called “border adjustability.” Here's how it works: When a company in Germany makes goods to sell at home, it has to pay the VAT. But if it makes them to sell in the United States, it doesn't—the tax gets waived at the border (since, again, it's only supposed to be a domestic consumption). Meanwhile, if an American company makes widgets to sell in Germany, it does have to pay the VAT.

In short, everybody has to pay Germany's VAT when they're selling goods in Germany. Nobody has to pay Germany's VAT when they're selling goods outside of Germany. Makes sense, right?

It's all perfectly legal under WTO rules. However, Navarro and Ross say border adjustability turns the VAT into an “implicit export subsidy” for foreign companies and an “implicit tariff” on U.S. exporters. “The practical effect of the WTO’s unequal treatment of America’s income tax system is to give our major trading partners a 15% to 25% unfair tax advantage in international transactions.”

This is just ... wrong. Dead wrong. It's true that American car companies, to take just one example, have to pay a German VAT when they sell sedans to Berlin or Düsseldorf. But you know who also has to pay that tax? BMW and Volkswagen. Border adjustability just puts everybody on equal footing. Waiving the VAT on exports does the same thing. If German companies had to pay the VAT on cars they were sending to the U.S., they'd be at a huge disadvantage compared to their American rivals, who wouldn't face a domestic VAT. Germany would essentially be suppressing its own exports.

Insofar as Ross and Navarro have a point here, it's that the United States suffers because, under WTO rules, it isn't allowed to waive its corporate income tax rate on exports. (Why not? I've been told allowing it would be a logistical nightmare.) And, on paper at least, the U.S. corporate income tax is extremely high. So, theoretically at least, that might drive up the cost of U.S. goods abroad, if companies were forced to pass on the cost of the tax to consumers. (They don't make that argument directly, mind you, but it sort of seems like they might be hinting at it.) The problem with that line of argument is threefold. (At least!) First, nobody actually thinks that companies pass on the corporate tax to shoppers. Instead, shareholders and workers eat it in the form of lower pay and wages. Second, because our tax code is shot through with holes and companies are good at stashing money abroad, corporations don't typically pay the full statutory rate on their profits. Finally, Trump wants to slash the U.S. rate so low anyway that none of this would really matter. It wouldn't actually be a trade issue.

But maybe I'm losing the forest for the trees here. The VAT stuff is bad, but kind of small-bore. Later on, the two authors try to calculate what closing America's trade deficit would do to the economy without taking into account what collapsing imports might do to consumer prices. They also vaguely imply that we can somehow bribe South Korea and China into better trade deals by offering them oil and gas, even though the United States does not in fact have a national oil or gas company. It gets wacky.

This is all to say that even when it comes to his signature issue, Trump's wonks seemingly have no idea what they're complaining about. Nobody on this campaign has any idea what they are talking about. And there is a roughly even-money chance they'll soon be running the country. Anybody want a drink?

1It's possible Navarro was confusing Pierce and Schott's work with another well-known study that suggested trade with China eliminated roughly 1 million manufacturing jobs between 1999 and 2011. But even that number—which is awful enough—would be far less than half the total losses.

Sept. 26 2016 5:20 PM

Who Should Buy Twitter? No One.

Twitter has serious problems. It is rife with harassment. Its management has been in a protracted state of upheaval. For a large and still relatively young tech company with plenty of cash, its core product has evolved surprisingly little, and in mostly superficial ways. No wonder it has struggled over the past two years to grow much beyond a core audience of roughly 300 million users worldwide, much to the chagrin of deluded investors who for some reason keep expecting Twitter to rival Facebook. And now its revenue is flattening, too.

For all of these reasons, it’s understandable that investors are antsy for a change. Recent weeks have brought renewed speculation that the company will be acquired, thanks in part to co-founder and board member Ev Williams’ Aug. 30 comment to Bloomberg that the company would “consider the right options.” On Sept. 14, the tech site Recode dutifully evaluated a broad cast of potential buyers. A Sept. 23 CNBC report named Google and Salesforce as possible suitors. And on Monday, Bloomberg reported that Disney is eyeing a Twitter bid as well.

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Rumors of a Disney/Twitter tie-up prompted the predictable jokes and memes, along with some earnest attempts to explain why such deal would make sense, most of which involve the use of the word live as a noun.

Disney, it has been pointed out, owns ESPN and recently acquired a stake in BAMTech, the streaming video platform that spun off last year from MLB Advanced Media. When Twitter began streaming some NFL games earlier this year, it called on BAMTech to make sure things went smoothly.

All of which adds up to a persuasive case that Disney and Twitter have … some things in common. Less clear is how that justifies Disney spending more than $20 billion on a company that produces infinite PR headaches and—at the moment—zero profit. It takes a lot of hand-waving to get from “They both live-stream sports!” to “Disney should own Twitter.” A Yahoo Finance columnist took a stab at explaining the potential synergy last week, and this was the best he could do:

Disney needs to take greater steps to get younger audiences hooked on ESPN. It’s obvious that traditional television won’t be the best avenue for that. Instead, social, shareable content is key. ESPN highlight clips and short videos are all over Twitter already, but so are clips from the pro leagues’ official accounts, and from other sports news sites. If Disney owned Twitter, it could flood the stream with ESPN media.
Disney wants ESPN to be the de facto place where people experience sports (but it has lost that mantle somewhat in recent years, due to cord-cutting) and Twitter wants to be the same thing; together, both are stronger.

If I’ve got this right, the argument is that it would be worth $20 billion to Disney to turn Twitter into a giant promotional vehicle for ESPN. Oh, and Twitter would be better off in this capacity than in its current role as a de facto global town square. Yeah: no.

Arguments that Salesforce should buy Twitter aren’t much more persuasive. Wired noted that Twitter is a place where people sometimes interact with brands, and also that it has data that could be mined for “AI-driven applications.” True, no doubt. But it would take a lot more A.I. expertise than Salesforce’s to turn Twitter’s data into $20 billion in value.

The straw-grasping for synergies highlights a fundamental problem with the notion that the solution to Twitter’s problems is new ownership. For Twitter to be worth anything resembling its present market value, it has to evolve into something with broader global appeal than it holds today. And it has to become a profit engine in its own right, not just a cross-promotional tool for some other corporate division that makes money.

Google and Facebook are the only potential buyers that make much financial sense, because they’re the only ones big enough to buy Twitter that know how to make money via online advertising. (They also might be the only ones equipped to harness the company’s personal data.) But both have very different cultures and philosophies than Twitter, and both deals would raise big antitrust flags. They’d also be buying the very kind of troll problem that they’ve both been trying desperately to avoid.

With all the people who use and love Twitter every day, you’d think there must be a way to squeeze some more revenue from it. Surely there is, and it’s fair to criticize Twitter for not having found it yet. But a big part of the reason Twitter has moved slowly is that the company has a genuine commitment to its original vision for a real-time social feed that can connect anyone to anyone around the world, without pre-emptive mediation by editors or algorithms. Jack Dorsey returned to the permanent CEO role less than a year ago. It’s fantasy to suggest that a new owner could come in and solve the platform’s problems faster than that without sacrificing what people like about it.

Besides, the moment a new owner tries to “leverage” Twitter to promote its existing business, to the exclusion of products or information from its corporate rivals will be the moment Twitter as we know it truly dies. The same goes for a new owner who tries to broaden its appeal by sanitizing the site of controversial content, as one fears a company such as Disney might do. It’s essential that Twitter find ways to rein in personal abuse on its platform, but does anyone think a giant old-media company is going to be the one to solve that problem in a creative and nuanced way, while preserving the freewheeling spirit that gives the service its appeal? Where Twitter tries (albeit inconsistently) to stand up for activists, dissidents, and truth-tellers in countries bent on censorship, would a disinterested corporate owner find a more profitable and less permissive path?

Twitter has big problems, it’s true. But any company that buys it will find itself with those same problems on its hands, and any lucrative solution is likely to come with significant trade-offs. Ultimately, the company best positioned to fix Twitter is the one that fully understands those trade-offs, yet remains committed to making the platform more popular and profitable in its own right. The only owner that makes sense for Twitter, flawed as it may be, is Twitter itself.

Sept. 26 2016 3:48 PM

The Obama Administration Is Finally Targeting the NIMBY Nonsense That’s Made Cities Unaffordable

It literally says, “yes, in our backyard.”

In a white paper released Monday, the Obama administration pins a whole bunch of America’s problems—including income inequality, plodding economic growth, gentrification, long commutes, the strained safety net, homelessness, and racial segregation—on the restrictive land-use policies of American cities, counties, and suburbs (and by extension, the NIMBYs who promote them).

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It’s nothing you won’t already know if you’ve tried to buy a house or rent an apartment in a number of American cities lately (or if you read Slate!). The 23-page Housing Development Toolkit reiterates arguments that housing writers like Emily Badger and Matt Yglesias have been making for the past five years, as America’s housing problem morphed from foreclosures to sky-high rents and home prices.

Still, it’s nice to see it coming from the very top.

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The rent is too damn ... oh, you know.

The White House

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If you don't build it ...

The White House

The problem is worst in certain high-cost, high-wage cities, but the White House isn’t intervening on their behalf. Instead, the report does a good job illustrating how what began with cranky homeowners in the San Fernando Valley, anti-gentrification activists on the Upper West Side, or at quality-of-life meetings in Palo Alto, California, and Winnetka, Illinois, has helped to reverse what for a 100 years was the defining feature of American life: economic mobility.

Between 1880 and 1980, poor people moved to rich places: Okies to California, southern blacks to Chicago and New York, rural whites to cities across the Midwest and later, the South. That happens less now than it used to, in part because the poor can’t afford to live near the rich. As a result, the rate of income convergence across states has declined over the past 30 years, after a century of gains spurred by economic mobility. The wonkiest argument in favor of housing-supply restrictions in high-wage cities like San Francisco might be Conor Sen’s belief that “job convergence between metros ‘spreads the wealth’ ”—that San Francisco’s loss is Phoenix’s gain, and that’s good for America.

Not really: Per capita income in Connecticut and Mississippi moved toward evening out between 1940 and 1980, and then stopped. That poor people stay in Mississippi or move there because they can’t afford the New York suburbs is not cause for either state to pat itself on the back.

For this we can blame both well-intentioned environmental protections and permitting processes, but also, in the White House’s words, “laws plainly designed to exclude multifamily or affordable housing.” There can be no ambiguity about the anti-rental housing sentiment in places like Boulder, Colorado, or Westchester County, New York: It is pure, territorial NIMBYism. The report reserves a special section for Los Angeles, which both has, by some measures, the highest rents in the country and is also home to a celebrity-funded anti-growth initiative masquerading as an environmental movement. (As the situation in the Bay Area demonstrates, restrictions on infill housing either force teachers to commute two hours to their jobs—inhumane and not environmentally friendly—or force police officers to live in trailers in city parking lots—hey, that’s one way to fulfill a residency requirement!)

"The growing severity of undersupplied housing markets,” the report concludes, "is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers’ access to high-wage labor markets, and stifling GDP growth by driving labor migration away from the most productive regions.”

Like, 10 percent of GDP growth.

The administration has already used what power it has through the Department of Housing and Urban Development to try to desegregate the suburbs. So what’s in the Obama toolkit of policy prescriptions for local and state housing?

  • Establish as-of-right development (in other words, a project is a go once you’ve met the zoning requirements, and doesn’t need to go through other types of review). This was one of the goals of Jerry Brown’s now-dead affordable housing proposal for California.
  • Tax vacant land, or acquire it and put it into use, through land banking or otherwise.
  • Shorten permitting. San Diego’s “Expedite Program” allows affordable, in-fill, or sustainable projects to be reviewed in just five days. Austin’s S.M.A.R.T. Housing Program has helped speed the creation of 4,900 units of affordable housing since 2000.
  • End off-street parking requirements that subsidize driving and pass car costs onto renters and buyers, whether they like it or not.
  • Enact high-density and multifamily zoning; include bonuses for density; adopt inclusionary zoning.
  • Tax incentives and abatements for affordable or transit-oriented development.

The problem with this report, unfortunately, is that it does little to confront the large, diverse, and effective coalition that is arrayed against these changes: the wealthy suburbanites who don’t want rental housing in their neighborhoods; the urban white ethnics for whom more than half of household wealth sits in home values; the labor unions reluctant to support initiatives that lead to nonunion construction; the environmental groups and preservationist groups fearing a slippery-slope erosion of hard-fought gains; the Agenda 21–fearing conservatives; the municipal politicians who view extensive land-use reviews as an essential component of their power; the poor tenants who fear the catalytic, rent-spiking effect that new construction can sometimes produce at a local level and resent bearing the burdens of new development; the car-dependent commuters who feel that an on-street parking spot is a God-given right.

Will those people be convinced by suggestions for housing development emanating from the Oval Office? Somehow I doubt it.

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