Category: Economics

Some Entrepreneurs Support Big Government, Except When They Are the Ones Regulated

(p. A11) In October [2015], author Steven Hill will publish a book called “Raw Deal: How the ‘Uber Economy’ and Naked Capitalism Are Screwing American Workers.” At the political conventions next summer, which party’s attendees will be most likely to have read that book?
The ironies run deep. The Uber driver who ferried Jeb Bush around San Francisco said the former Florida governor was a nice chap but added that he still planned to vote for Mrs. Clinton–the candidate who regards the innovations that has led to the creation of his job as a problem that government needs to solve.
But is Uber co-founder Travis Kalanick any different? Even as he struggles with regulators taking aim at his business model, Mr. Kalanick has spoken up in favor of ObamaCare. During a visit to New York last November, he enthused that ObamaCare was “huge” for companies like his, on the grounds that the individual market has democratized benefits such as health care.
That’s true insofar as it means he doesn’t have to provide it for his drivers. But the reality is that ObamaCare is to health what taxi commissions are to transportation. And if Uber’s co-founder can’t see the difference, maybe he deserves the Bill de Blasios and Hillary Clintons coming after him.

For the full commentary, see:
WILLIAM MCGURN. “MAIN STREET; Uber Crashes the Democratic Party; The ride-share app is bringing out the inner Elizabeth Warren.” The New York Times (Tues., July 21, 2015): A11.
(Note: bracketed year added.)
(Note: the online version of the commentary has the date July 20, 2015.)

Sanders’s Economics Agenda: “Magic Flying Puppies with Winning Lotto Tickets Tied to Their Collars”

(p. A9) WASHINGTON — With his expansive plans to increase the size and role of government, Senator Bernie Sanders has provoked a debate not only with his Democratic rival for president, Hillary Clinton, but also with liberal-leaning economists who share his goals but question his numbers and political realism.
. . .
By the reckoning of the left-of-center economists, none of whom are working for Mrs. Clinton, the proposals would add $2 trillion to $3 trillion a year on average to federal spending; by comparison, total federal spending is projected to be above $4 trillion in the next president’s first year. “The numbers don’t remotely add up,” said Austan Goolsbee, formerly chairman of President Obama’s Council of Economic Advisers, now at the University of Chicago.
Alluding to one progressive analyst’s criticism of the Sanders agenda as “puppies and rainbows,” Mr. Goolsbee said that after his and others’ further study, “they’ve evolved into magic flying puppies with winning Lotto tickets tied to their collars.”

For the full story, see:
JACKIE CALMES. “Left-Leaning Economists Question Sanders’s Plans.” The New York Times (Tues., FEB. 16, 2016): A9.
(Note: ellipsis added.)
(Note: the online version of the story has the date FEB. 15, 2016, and has the title “Left-Leaning Economists Question Cost of Bernie Sanders’s Plans.”)

Many Empirical Research Results Are False

(p. B7) Research on 100 studies in psychology found in 2015 that more than 60% couldn’t be replicated. Similar results have been found in medicine and economics. Campbell Harvey, a professor at Duke University and president of the American Finance Association, estimates that at least half of all “discoveries” in investment research, and financial products based on them, are false.
. . .
Brian Nosek, a psychology professor at the University of Virginia and executive director of the Center for Open Science, a nonprofit seeking to improve research practices, has spent much of the last decade analyzing why so many studies don’t stand up over time.
Because researchers have an incentive to come up with results that are “positive and clean and novel,” he says, they often test a plethora of ideas, throwing out those that don’t appear to work and pursuing those that confirm their own hunches.
If the researchers test enough possibilities, they may find positive results by chance alone — and may fool themselves into believing that luck didn’t determine the outcomes.

For the full commentary, see:
JASON ZWEIG. “Chasing Hot Returns in ‘Smart-Beta’ Can Be Dumb.” The Wall Street Journal (Sat., Feb 13, 2016): B1 & B7.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Feb 12, 2016, and has the title “Chasing Hot Returns in ‘Smart-Beta’ Funds Can Be a Dumb Idea.”)

Info Tech Boomed Because It Was Least Regulated Sector

(p. A9) “The regulatory environment has become so onerous in America that it is now easier to start a business in England than in the U.S.,” Mr. Hill says–and he would know.
. . .
In 1973 and only 27 years old, Mr. Hill founded Commerce Bank with one branch in Marlton, N.J. The fledgling company focused on customer service and called itself “America’s most convenient bank.” By the time Mr. Hill left Commerce Bancorp 34 years later, only months before the company announced it would be bought by TD Bank for $8.5 billion, he had grown the business to some 460 branches, with 14,000 employees and combined deposits of about $40 billion.
Now he’s replicating that model in the United Kingdom with Metro Bank, which he founded in 2010. And Mr. Hill says there’s an ocean of difference between doing business in the overregulated U.S. and in the U.K. “When I went to Britain I thought the regulatory environment would be much worse,” he says. “It’s infinitely better there.”
The problem in the U.S. starts with towering federal regulations, such as the voluminous reporting and compliance rules in Dodd-Frank, the financial reform act that recently celebrated its fifth birthday. “Regulators are making it impossible for the medium and small banks to comply with the rules,” he says. “The burdens get so intense that it is destroying the small and medium-size banks in America.”
The result is that Dodd-Frank, a law intended to take on the systemic risk of “too-big-to-fail” banks, is multiplying the problem. “The big banks that are too big to fail are bigger now than ever, but the regulations have trickled down to the smaller banks that didn’t cause the financial crisis” Mr. Hill says. As a result, community banks are disappearing. “When I started my first bank in the 1970s there were 24,000 banks in America,” he says. “There are now 7,000 banks. It may soon be 500 or even fewer.”
But it’s more than Dodd-Frank that leaves him frustrated. “The feds have taken anti-money-laundering rules to the extreme,” Mr. Hill says. “We have to monitor every deposit account every 24 hours. Somebody’s monitoring your account every day.” That’s invasive and expensive.
He laments that the Community Reinvestment Act, a catalyst of the 2008 subprime mortgage crisis, still hasn’t been repealed. “We are literally required to make loans that we know are going to fail,” he says.
Then there’s the tangle of local regulations that every American small business must cut through. “You don’t need a building permit in Britain. Here [the U.S.] you have to get permits and you have to get inspections,” he says. All that can eat up months and months. “I can build 100 branch banks in Britain before I can get one built in the U.S., thanks to regulators.”
Policy makers and economists in Washington fret about what’s slowing the rate of business startups and entrepreneurial ventures. But Mr. Hill says it’s no wonder, with all this red tape, and it’s no accident that the industry that is really booming, technology, is the one least regulated by government–though the assault against Uber suggests that Silicon Valley might not be immune for long.
. . .
And how much should we be worried about overregulation–or competition from abroad? “Here’s my story in a nutshell and I hope Washington is paying close attention,” Mr. Hill says. “A very successful American business model has been transferred to Britain, where it’s even more successful because it doesn’t have to deal with the same burdens of government.”
He continues: “The politicians keep talking about fairness and helping the little guy. But it’s the little startup businesses that get hurt the most from the heavy hand of excessive government regulation. How is that fair?”

For the full interview, see:
STEPHEN MOORE. “THE WEEKEND INTERVIEW; The Demise of the Small American Bank; The man who put the customer first in retail banking says Dodd-Frank is crushing community banks and Britain is now a better bet.” The Wall Street Journal (Sat., Aug. 1, 2015): A9.
(Note: ellipses added.)
(Note: the online version of the interview has the date July 31, 2015.)

Tesla Model 3 Excites Venturesome Consumers

America’s venturesome consumers are hungry for products exciting enough to justify enthusiasm. They are desperate for evidence that the future can continue to look bright.

(p. B2) DETROIT — Despite a steady stream of new models from a number of automakers, sales this year of electric and hybrid vehicles have failed to keep pace with the growth in the overall American market.
But if the market for electrified cars was slumbering, Tesla Motors woke it up with a jolt Thursday [March 31, 2016] with the unveiling of its coming Model 3 lineup of affordable, zero-emission vehicles.
Given that electric and hybrid vehicles account for only about 2 percent of last year’s record-setting sales in the United States, the extraordinary reaction to Tesla’s first mass-market model was a vivid demonstration of the potential demand in the segment.
“It shows that the future of electric vehicles is not necessarily bleak,” said Alec Gutierrez, an analyst with the research firm Kelley Blue Book. “Maybe we’ve been waiting for the right products that resonate with consumers.”
Tesla said on Friday that it had booked reservations — at $1,000 each — from nearly 200,000 people for the first Model 3 sedans, which will not be available until next year.
With a starting price of $35,000 and a battery range of 215 miles, the new Tesla is a big leap in the company’s expansion beyond expensive luxury models.
“The final step in the master plan is a mass-market, affordable car,” Elon Musk, Tesla’s chief executive, said at the lavish introduction of the Model 3 held at the company’s design studios in Hawthorne, Calif.

For the full story, see:
BILL VLASIC “In Clamor for new Tesla, Signs of an Electric Future.” The New York Times (Sat., APRIL 2, 2016): B2.
(Note: bracketed date added.)
(Note: the online version of the story has the date APRIL 1, 2016, and has the title “Tesla’s New Model 3 Jump-Starts Demand for Electric Cars.”)

Feds’ Regulatory Delay Supports High-Fare Trans-Atlantic Airline Oligopoly

(p. B1) In the past three years, Norwegian, one of Europe’s biggest low-cost airlines, has quietly established a beachhead in the trans-Atlantic market by offering low-fare, no-frills service on long-haul flights.
Thanks to a small but expanding fleet of fuel-efficient planes combined with deeply discounted ticket prices, Norwegian Air Shuttle has attracted a growing number of leisure travelers looking for cheap flights.
It is all part of the vision of Norwegian’s outspoken chief executive, Bjorn Kjos, who is determined to force the same kind of low-fare competition on international routes that has been so successful in domestic markets for airlines like Southwest and Spirit, and Ryanair in Europe.
. . .
But Norwegian’s expansion has been stymied by vigorous opposition. Legacy airlines on both sides of the Atlantic see a low-cost competitor on their cash-cow routes as a major threat to their long-term profitability. Labor unions object to Norwegian’s plans to hire flight crew from Thailand, a practice they have repeatedly described as “labor dumping.”
The airline has also faced lengthy delays in receiving regulatory approvals in the United States.
. . .
(p. B4) A spokeswoman for the Transportation Department did not give any reasons for the delays that have left Norwegian in bureaucratic limbo in the United States. The airline’s first request was filed more than two years ago. . . .
The long delay in approving the application “does not reflect well on the political independence of the Department of Transportation with respect to the free trade principles behind the E.U.-U.S. open skies agreement,” according to a report by analysts at the CAPA Center for Aviation. “The calculated inaction only serves to restrict competition and to deny consumer choice.”
. . .
“There is still a lot to do,” Mr. Kjos said. “We have to think about how to fly more people more cheaply. There are hundreds of millions of people that don’t have access to cheap flights.”

For the full story, see:
JAD MOUAWAD. “Norwegian Air Flies in the Face of the Trans-Atlantic Establishment.” The New York Times (Tues., FEB. 23, 2016): B1 & B4.
(Note: ellipses added.)
(Note: the online version of the story has the date FEB. 22, 2016.)

Tech Replaces Labor When Government Raises Labor Costs

(p. A11) In late 2013, Chili’s and Applebee’s announced that they were installing more than 100,000 tableside tablets at their restaurants across the country, allowing customers to order and pay their bill without ever talking to a waiter. The companies were soon followed by Buffalo Wild Wings, Panera Bread, Olive Garden and dozens of others. This means fewer servers covering more tables. Quick-service restaurant chains are also testing touch-screen ordering.
. . .
So why the increased use of technology? The major reason is consumer preference. Research shows that many appreciate the speed, order accuracy, and convenience of touch screens. This is particularly so among millennials who already do so much on smartphones and tablets. I’ve watched people–young and old–waiting in line to use the touch screens while employees stand idle at the counter.
The other reason is costs. While the technology is becoming much cheaper, government mandates have been making labor much more expensive.
In 2015, 14 cities and states approved $15 minimum wages–double the current federal minimum. Additionally, four states, 20 cities and one county now have mandatory paid-sick-leave laws generally requiring a paid week of time off each year per covered employee. And then there’s the Affordable Care Act, which further raises employer costs.

For the full commentary, see:
ANDY PUZDER. “Why Restaurant Automation Is on the Menu; Forget about robot waiters, but technology helps cut government-imposed costs. And consumers like it.” The Wall Street Journal (Fri., March 25, 2016): A11.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date March 24, 2016.)

Robert J. Gordon, Purveyor of Doom and Gloom

Those who support the policies that have brought us economic stagnation, endorse Robert J. Gordon who believes that doom and gloom are inevitable. With Gordon to rely on, they do not have to face responsibility for the effects of their policies, or go through the cognitive stress of changing their views.
Contra Gordon, if we adopt policies friendly to innovative entrepreneurship, opportunity and growth will return.

(p. B1) The idea that America’s best days are behind us sits in sharp tension with the high-tech optimism radiating from the offices of the technology start-ups and venture capital firms of Silicon Valley. But it lies at the heart of the current political unrest. And it is about to elbow its way forcefully into the national conversation.

Robert J. Gordon, a professor of economics at Northwestern University who has patiently developed the proposition in a series of research papers over the (p. B9) last few years, has bundled his arguments into an ambitious new book, “The Rise and Fall of American Growth” (Princeton University Press).
The hefty tome, minutely detailed yet dauntingly broad in scope, offers a lively portrayal of the evolution of American living standards since the Civil War. It also adds up to a dispiriting forecast for American prosperity in the decades to come. “This book,” he writes in the introduction, “ends by doubting that the standard of living of today’s youths will double that of their parents, unlike the standard of living of each previous generation of Americans back to the late 19th century.”
. . .
Skepticism is warranted, to be sure. Since the time of Thomas Malthus, eras of depressed expectations like our own have inspired predictions of doom and gloom that were proved wrong once economies turned up a few years down the road.
“For reasons I have never understood, people like to hear that the world is going to hell,” the economic historian Deirdre N. McCloskey of the University of Illinois, Chicago, wrote in an essay about “Capital in the Twenty-First Century,” the blockbuster about income inequality by the French economist Thomas Piketty. “Yet pessimism has consistently been a poor guide to the modern economic world.”
Optimism, though, is also subject to cognitive biases. It’s not just that the income of our optimistic techno-entrepreneurs is growing faster than gross domestic product. A lot of new innovation — the rockets to vacations in orbit, the Apple Watch and Google Glass — also seems custom-designed for them.
“If you are sitting in Silicon Valley, rich and at the frontier of technology,” said Lawrence F. Katz of Harvard, “it is probably true that things are getting better.”
The same can’t always be said for the rest of us.

For the full commentary, see:
Eduardo Porter. “ECONOMIC SCENE; America’s Best Days May Be Behind It.” The New York Times (Weds., JAN. 20, 2016): B1 & B9.
(Note: the online version of the commentary has the date JAN. 19, 2016.)

The Gordon book discussed in the commentary, is:
Gordon, Robert J. The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War, The Princeton Economic History of the Western World. Princeton, NJ: Princeton University Press, 2016.

“China Has Blindly Constructed So Many Homes and Wasted So Much Resources”

(p. C6) In November [2015], President Xi Jinping told a meeting of officials that China must resolve the housing inventory situation and ensure the health of the property sector.
Since then, Meishan, a city of 3.5 million people, has become a showcase for efforts to lure rural dwellers to cities to buy homes as part of so-called destocking efforts to reduce the glut.
. . .
. . ., some analysts and local government officials warn the rural strategy isn’t a cure-all. Banks typically hesitate to extend mortgages to rural migrants, whose homestead land doesn’t typically qualify as collateral.
“Now with bad loans growing in China, banks are reluctant to lend to farmers. Farmers don’t have assets and lending to them is risky,” said Wang Fei, an official at Hubei Province’s department of housing and urban-rural development.
. . .
Housing inventory in the city rose to 22.5 months last April, an alarmingly high level compared with a healthier rate of 12 months or lower. There were also cases where cash-strapped property firms defaulted on their loans, leaving behind unfinished apartments.
Buyers of Purple Cloud Golden World housing project are now stranded after Yang Jinhao, who controlled Sichuan Xinrui Property Development, got involved in a dispute with a shadow lender early last year.
“China has blindly constructed so many homes and wasted so much resources. I can’t stand it!” said Yu Jianmin, a 70-year-old caretaker of the stalled project who said the construction firm he works for is still awaiting payment from Mr. Yang. Mr. Yang couldn’t be reached.

For the full story, see:
ESTHER FUNG. “Discounts Help China Ease Home Glut.” The Wall Street Journal (Weds., March 2, 2016): C6.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the story has the date March 1, 2016, and has the title “China Sweetens Home-Ownership Deals for Rural Dwellers.”)

A&P, Once Dominant Grocery Chain, Files for Bankruptcy Again

(p. B1) A&P, a former titan of the grocery industry, has filed for bankruptcy protection for the second time in five years and is trying to sell more than 100 of its stores.
The company, which owns Pathmark, Food Emporium and other food retailers clustered primarily in New York, New Jersey and Pennsylvania, said on Sunday that a restructuring in 2010 had failed to put it on secure enough financial footing to keep up with a shifting grocery landscape.
A&P, less commonly referred to as the Great Atlantic & Pacific Tea Company, has lost market share to competing stores like ShopRite and Stop & Shop Supermarket Company, as well Walmart and Target, retail giants that have spent the last few years expanding their offerings in the grocery aisles. A&P has debts of about $2.3 billion, court filings show, and assets of $1.6 billion.
. . .
Founded in 1859 as a mail-order tea business, A&P evolved into a discount food retailer that operated 16,000 stores by the mid-1930s and remained a dominant player in America’s grocery landscape into the second half of the century.
“It was truly a powerhouse,” said Marc Levinson, an independent historian and the author of “The Great A&P and the Struggle for Small Business in America.” “In those days, independent grocers were every bit as afraid of A&P as mom-and-pop retailers are today of Walmart.”
In 1912, A&P opened its first discount store in Jersey City. The idea of a retailer focused on low-cost groceries was novel at the time, and a reputation for rock-bottom prices helped the company flourish.
“They were opening stores literally more than one a day during World War I,” Mr. Levinson said.

For the full story, see:
RACHEL ABRAMS. “A&P Files for Bankruptcy and Aims to Sell 120 Stores.” The New York Times (Tues., JULY 21, 2015): B3.
(Note: ellipsis added.)
(Note: the online version of the story has the date JULY 20, 2015.)

Levinson’s excellent book on the economic history of A&P, mentioned above, is:
Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.