A blog about business and economics.

Dec. 1 2016 3:02 PM

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

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

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


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

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

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

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

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

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

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

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

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

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

Dec. 1 2016 10:33 AM

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

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

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

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

Nov. 30 2016 4:42 PM

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

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


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


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


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

Nov. 30 2016 9:16 AM

Trump’s Treasury Pick Promises Not to Cut Taxes on the Rich. Ha. Haha. Hahahahaha.

Steven Mnuchin and Wilbur Ross popped by CNBC’s Squawk Box on Wednesday morning to confirm that President-elect Donald Trump had selected them to serve as his secretaries of Treasury and Commerce, respectively, and in the process they managed to make a little bit of news. Apparently, the Trump administration isn’t planning to cut taxes on the rich. Who knew!?

“Any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class,” Mnuchin said.


These comments rather sharply contradict what we know about Donald Trump's actual written tax plan, which according to every outside analysis so far would absolutely lavish large cuts on America's top 1 percent. The center-left Tax Policy Center says says so. The conservative Tax Foundation says so. It’s simply not much of a debate. As it stands, Trump’s plan does not limit deductions nearly enough to make up for his cuts elsewhere in the code. It’s not clear if he even could.


Now, it is safe to say that Mnuchin has read his boss’ tax plan. He even helped shape it. According to Bloomberg, he “took particular interest in tax policy” during the campaign and “argued that Trump’s tax plan should cut the top marginal rate to 33 percent, prevailing over other Trump advisers who had advocated for even lower figures.” So that leaves us with a few possibilities about what's going on here.

  1. Mnuchin could be announcing a new course for the Trump administration’s tax policy. Which seems unlikely.
  2. Mnuchin hasn't bothered reading any of the outside analyses of Trump’s proposal. Which seems unlikely.
  3. Mnuchin has read some of the outside analyses of Trump’s proposal but for some reason doesn't believe them. Which seems unlikely.
  4. Mnuchin is just spouting off an empty promise and, in fact, President Donald J. Trump will eventually sign a large tax reduction for Goldman bankers and real estate developers, like the people populating his administration. Which seems likely.

Nov. 30 2016 8:18 AM

Trump Says He’s “Leaving” His Business. It’ll Still Be a Massive Conflict of Interest.

President-elect Donald Trump announced in series of predawn tweets on Wednesday that he will be “leaving his great business” to focus on the presidency.

The news was delivered with all the strange Trumpian qualifiers we have come to expect: The reminder that his business was “great,” the back-patting caveat that he was “not mandated to do this under the law,” the belief that the president’s job was “running the country.” “Legal documents are being crafted which take me completely out of business operations,” Trump concluded. “The Presidency is a far more important task!”


Trump did not say Wednesday if he still planned to relinquish all ownership stakes and management roles, or if he would leave those stakes and responsibilities to his children, as he had said earlier. A formal announcement would come in a joint press conference on Dec. 15, he said.

In an interview with the New York Times last week, Trump had expressed some reluctance to remove himself from an ownership and management position at the Trump Organization and his other companies, noting rightly that the law was on his side and the president could not legally have a conflict of interest. The Trump Organization announced earlier this month that Donald Trump Jr., Eric Trump, and Ivanka Trump would run the company during their father’s term.

The move Trump hinted, was motivated not by the concern that his investments in foreign countries and legal cases in the United States might influence his conduct as president, but by optics. “I feel it is visually important, as President, to in no way have a conflict of interest with my various businesses,” Trump said.

It’s a visual concession and possibly little else. Leaving his ownership stake to his children will hardly distance the president from his business interests, and would not satisfy the conflict of interest laws that govern the conduct of other elected officials. (Senators, for example, are forbidden from introducing or passing legislation that would further an immediate family member's financial interest.)

Foreign governments will still take heed of the leverage that surrounds any dealings with Trump-brand properties and their co-investors; lobbyists and business leaders will know what credit accrues to playing on a Trump course or staying at a Trump hotel. This will be especially true if the Trump children continue to play their outsize roles in diplomatic meetings.

And, finally, the president himself will never be “blind” to his own interests. After all, they consist mostly of fixed assets stamped with his name.

Nov. 29 2016 8:17 PM

Trump Was Always Going to Be a Gift to Wall Street. His Pick for Treasury Secretary Proves It.

Here is a thing that Donald Trump tweeted back in July, when few of us could imagine that his political ascendence might ruin our Thanksgiving:

The implication was that, unlike his opponent, Herr Trump might actually take on the big banks, since he didn’t owe them anything. This was beyond silly. The candidate had already pledged to dismantle most of President Obama's Wall Street reforms. And by the summer, reports had begun to float around that he was interested in naming his campaign's chief fundraiser, former Goldman Sachs executive and hedge funder Steve Mnuchin—a man the New Republic once referred to as “the anti-populist from hell,” no less—as Treasury secretary.


This week it appears Trump is finally making good on those plans. According to the New York Times, Mnuchin is expected to be named to the cabinet as early as Wednesday, all but ensuring that you'll be seeing his signature on your cash for the next few years.

Who, exactly, is Mnuchin? To start, he's the son of a Goldman banker who became a Goldman banker. He spent 17 years at the firm, eventually heading its mortgage department before becoming its chief information officer. In 2002, he ventured off to work at a series of hedge funds, one of which he started with George Soros, the billionaire investor who Trump featured in a not-so-subtly anti-Semitic ad about the evils of globalist financiers. Later, he teamed with a pair of Goldman buddies to form Dune Capital Management and got into backing Hollywood movies, including some blockbusters. He helped bankroll Avatar and X-Men, for instance, and was an executive producer on Suicide Squad.

Sadly, Mnuchin's taste in superhero franchises is not the most objectionable thing about him. In 2009, he and a group that included Soros and hedge fund billionaire John Paulson bought up the charred remains of IndyMac, the California lender that failed early during the financial crisis. They rechristened it OneWest and reconstructed the bank into a thriving operation that became notorious for its (allegedly) despicable foreclosure practices. As David Dayen explained earlier this year at the New Republic:

Even among the many bad actors in the national foreclosure crisis, OneWest stood out. It routinely jumped to foreclosure rather than pursue options to keep borrowers in their homes; used fabricated and “robo-signed” documents to secure the evictions; and had a particular talent for dispossessing the homes of senior citizens and people of color.

This all culminated in a memorable protest on the lawn of Mnuchin's Bel Air mansion, led by a foreclosed homeowner and activists from Occupy Los Angeles. Nonetheless, he and his partners earned a tidy profit when they sold OneWest to CIT Group for $3.4 billion in 2014. (To top things off, the bank was recently accused of discriminating against minority home buyers.)

Mnuchin seems to have become Trump's finance chair virtually by accident. He had done business with the candidate before, but not always on friendly terms—Trump sued Dune and other lenders that had helped back his tower in Chicago (the case eventually settled). Mnuchin's involvement in the campaign only started after Trump ran into him at his victory party following the New York primary. Trump dragged his old acquaintance on stage to act as a set piece during a speech. The next day, Trump asked him to run his fundraising operation, which at that point was all but nonexistent. Mnuchin took the job when many successful Wall Street types probably would have not.

So you might call Mnuchin an early investor, and if anything, his appointment represents Trump's habit of rewarding loyalty over all else.

Here is something Mnuchin is not, though: an obvious ideologue. Some of the candidates that Trump reportedly passed over had deeply held, well-known convictions about the role of government overseeing finance. Rep. Jeb Hensarling has put together an entire bill to replace Dodd-Frank. Former BB&T Bank CEO John Allison is an Ayn Rand-worshipping gold bug who wants to eliminate the Federal Reserve and would burn pretty much every existing bank regulation in a funeral pyre. In contrast, it's not clear Mnuchin has any fervent beliefs at all. Like Trump, Mnuchin had previously donated to Democrats, and during the campaign, his name wasn't attached to any of the candidate's major policy proposals. When asked about major economic issues, he apparently turns into a sphinx. Take this bit from a recent Businessweek profile:

Mnuchin won’t say whether Goldman’s Hank Paulson was a good Treasury secretary. Asked about the Dodd-Frank financial regulation act, he says there are good and bad things about it, without elaborating. He agrees to tell a story about helping to set up a photograph showing Trump eating McDonald’s food on his jet, but first he huddles with his deputy in another room. “I’m never the main attraction, OK?” he says. “I’m the facilitator.”

This is somewhat awkward coming from an incoming Treasury head. Traditionally, the secretary has played a key role shaping the White House's economic policy and selling it to the public. To do that, it helps to have confident opinions about matters like financial regulation that you are comfortable evangelizing for in front of reporters and members of Congress. Frequently, the job is much more frontman than “facilitator.”

Then again, biographies sometimes speak louder than words. Trump has already made clear his intentions to let Wall Street run wild. Picking Mnuchin, a successful journeyman financier loathed by parts of the left, is another assurance that the industry will be treated just fine under the new regime.

Nov. 29 2016 3:31 PM

The Big Problem in Charity That Giving Tuesday Can’t Fix

Charities and nonprofits could hardly contain their enthusiasm leading up to Giving Tuesday. On social media, everything from National Geographic to the Kennedy Center has been promoting it for days. No shame there. Organizers of the day claim the charitable-industrial complex can expect to end the day with a record haul of $250 million.

But beneath the success of Giving Tuesday is an uncomfortable reality. While Americans are giving more money to charity than ever before, a little-noticed report released last month by the left-leaning Institute for Policy Studies finds that the money is coming from fewer and fewer people. And that, the research group says, has troubling implications for our democracy, not to mention our nation’s traditional reliance on charity as a mechanism for smoothing gaps in the social safety net.

These donor dropouts may be yet another manifestation of income and wealth inequality. Americans gave a record-setting $373 billion to charitable endeavors in 2015, according to the Giving USA Foundation’s annual philanthropic survey. When the Institute for Policy Studies crunched the data to discover who exactly was giving what, it discovered that itemized charitable donations from households with earnings of at least $10 million annually increased by 104 percent in the decade between 2003 and 2013. Even those with low-six-figure earnings upped their giving—those in households earning at least $100,000 increased their donation budgets by 40 percent in the same period. But those earning less than $100,000 did the exact opposite: Their contributions declined by 34 percent.

Nov. 29 2016 1:04 PM

Delays in Dakota Pipeline Could Mean Trump—Who Stands to Gain Financially from Construction—Gets to Decide

On Nov. 14, in response to months of protests, the U.S. Army announced it needed more time to assess the potential conditions of the easement that would allow the Dakota Access Pipeline to cross beneath the Missouri River in North Dakota, just north of the Standing Rock Indian Reservation.

For Energy Transfer Partners, the company building the pipeline, the decision prolongs what is essentially a stop work order that the Obama administration issued in September. “The Army has determined that additional discussion and analysis are warranted in light of the history of the Great Sioux Nation’s dispossessions of lands, the importance of Lake Oahe to the Tribe, our government-to-government relationship, and the statute governing easements through government property,” the U.S. Army Corps of Engineers said in a November press release. The final piece of the otherwise nearly completed project, a tunnel beneath Lake Oahe, one of America’s largest reservoirs, can’t go forward without the Army’s approval.

It appeared to be a victory for the Standing Rock Sioux, who have been camped on federal land north of the reservation for months in protest of the construction. (Many Sioux dispute that the federal government actually owns the land, since it was assigned to the Sioux by an 1851 treaty that was later broken.) Protesters have been teargassed and fired on with rubber bullets and water cannons, prompting the Obama administration to ask ETP voluntarily halt construction pending de-escalation at Standing Rock; the company did not agree to that request. But the Army’s announcement to re-assess seemed promising news for the protesters.

On Friday, the other shoe dropped: The Army Corps announced that Oceti Sakowin Camp, the protest site closest to the pipeline tunnel, must be disbanded on Monday, Dec. 5. In a separate decision this Monday, North Dakota Gov. Jack Dalrymple ordered an emergency evacuation of the site and said he would refuse emergency assistance and other services to those who remained at the camp. Dalrymple has previously asked the feds to approve the current pipeline route.

It’s not clear if the Corps’ decision to reassess the final piece of the pipeline will be enough to convince the protesters to give up their ground. Some have said they will not abandon the land in favor of a “free speech zone” south of the Cannonball River. Tribal leaders have asked Army leadership to reconsider.

Standing Rock protesters are right to be wary: In essence, the Army Corps is asking the tribe to trust that they will engage in a good-faith discussion of alternate routes before allowing construction to proceed.

Nov. 29 2016 12:44 PM

Trump Will Reportedly Pick Elaine Chao, Who Is Qualified, for Transportation Secretary

Donald Trump will nominate Elaine Chao as head of the Department of Transportation, Politico reported Tuesday. It’s a straightforward and conventional appointment in a staffing process that has thus far been characterized by chaos, outrage, and public fighting. As ProPublica’s Alec MacGillis put it on Twitter, the new education secretary is against public schools, the new attorney general is against the Voting Rights Act, and the new (probable) HUD secretary is against the Fair Housing Act. Breathe a measured sigh of relief: The next transportation secretary is not, as far as we know, against transportation.

Chao served as secretary of labor during all eight years of the George W. Bush administration, and had high-level federal transportation jobs for a few years in the late 1980s. (She is also married to Senate Majority Leader Mitch McConnell, which could make things interesting down the road.)

All told, she has had a classic Washington career, moving between government positions, banks, and think tanks. She immigrated to the U.S. from Taiwan when she was 8, grew up on Long Island, and worked for a time as an investment banker in California.

As far as transportation goes, Chao has had a fairly open mind. She acknowledged decades ago that the major era of highway construction was over, and should give way to one focused on solving traffic congestion. In George H.W. Bush’s Department of Transportation, she helped fund an early iteration of GPS in Los Angeles. And as secretary of labor under George W. Bush, she praised the potential of public transit. “Coordinated transportation is one of the most important, and perhaps least appreciated, components of a transition from a life of unemployment and dependency for Americans to one of employment and productivity,” she said at a luncheon in 2004.

Nov. 29 2016 12:16 PM

Donald Trump Is Going to Coast on Obama’s Economic Success

The day Barack Obama was inaugurated as president, the United States was deep into the worst economic downturn since the Great Depression. The country lost 791,000 jobs in January of 2009, and the worst was still to come. It was as if the new White House staff had been helicoptered into the middle of a California wildfire and told to go put it out.

Today, of course, things look quite a bit different. Though there are still far too many workers sitting out of the labor force, unemployment is down below 5 percent. Pay is rising; in fact, middle-class incomes shot up at their fastest pace on record in 2015. And after a little weakness earlier this year, economic growth seems to be healthy. The Commerce Department reports that gross domestic product expanded at a 3.2 percent annual rate in the third quarter, the fastest pace in two years. Corporate profits also had their strongest quarter of growth since 2012. “The U.S. economy is in good shape in the second half of 2016,” explains one economist quoted by the Wall Street Journal. “After some softness in late 2015 and early 2016, tied to an inventory correction and a downturn in energy production, growth has picked back up.”


In short, Obama is bequeathing his successor the sort of economy he could have only dreamed of when he was elected eight years ago. Politico's Ben White sums it up:

Presumably, our fact-agnostic president-elect will one day try to take credit for all this. Trump, after all, “is the definition of a man who was born on third and thinks he hit a triple,” as Harry Reid has put it. Assuming the U.S. is still sailing smoothly a few months from now, there's no reason to assume we won't be hearing about the glories of the Trump economy. Maybe his supporters will try to claim that the mere possibility of the man's election restored confidence to consumers and businesses this autumn. Or maybe they'll claim was really wreck until Trump took the reins. Who knows. Either way, I think former Obama speech writer John Favreau puts it well:

Don't forget who really put out the fire.