Tag Archives: Wonkblog

What the voters were telling the GOP on health care

/ Leave a Comment

Demonstrators oppose the American Health Care Act bill on Capitol Hill in Washington. (Zach Gibson/Bloomberg)

Health care just became an entitlement.

Not by law — that happened in stages over many decades, beginning with Medicare in the 1960s and continuing to the Affordable Care Act under President Barack Obama.

What happened last week was the American people ratified that they want health care — meaning federally subsidized health care. They expect it and will vote accordingly.

This is a big expansion of the federal role, and the reasons for it are clear. Over the past two-score years, health-care costs have mushroomed while median family income has barely budged. (From 2012-2016, health care rose 15 percent, at double the general rate of inflation.) People who once could afford it now want help — regardless of the party in power.

Yes, President Trump campaigned for repeal, but the voters didn’t mean it. They meant, maybe, to give the finger to Obama and to his signature legislation — but they didn’t mean that anyone should touch their coverage. Sen. Rand Paul (R-Ky.) and the Club for Growth can blather about repeal, but for a majority of voters repeal was a slogan, like “Build a wall” or “Lock her up.”

Some hard truths about health-care policy might now emerge. Social Security, which went through a similar evolution from conservative scourge to political third rail, is instructive.

Ever since the latter’s enactment in 1935, the right thundered that it had to be repealed, lest it sink the Treasury Department under a fiscal swamp. Barry Goldwater said it should be made voluntary — no mandate. He carried six states.

President Ronald Reagan floated a fantasy of privatization. President George W. Bush revisited the idea in 2001, just as the stock market was tanking. People reckoned that putting retirement savings into a tech bubble wouldn’t have been so shrewd.

Since the Reagan era (his rhetoric aside) the parties have agreed to fix Social Security, tweak retirement ages and so forth, as needed, but not challenge its existence.

Health care could use more than tweaks because of its complexity and because America has half a dozen significant programs — Medicare, Medicaid, the Reagan-era Cobra, the Clinton-vintage Children’s Health Insurance Program, the George W. Bush prescription-drug entitlement and the ACA. As that taxonomy suggests, the entitlement mind-set has been taking root for two generations, with Senate Republicans, it seems, finally catching up to the American public.

How to go about rationalizing that cumbersome and suboptimal patchwork?

Obamacare arose to plug a hole between two sets of incomplete programs — Medicare and Medicaid (covering the elderly and, initially, the very poor), and working families covered by private insurance plans.

The window existed by accident, not design. The New Dealers who legislated Social Security wanted to cover health care, too — everyone’s health — but didn’t have the political muscle. President Harry S. Truman proposed national health care and failed.

Corporate America was against it — but corporations, in that era, faced a powerful adversary: Big Labor. After the war, largely due to union pressure, Big Business began to offer health insurance to employees, at increasingly subsidized rates. Over time, this spread more generally into the private sector.

That still left uninsured people younger than 65 at companies not offering plans, as well as the unemployed, the marginally employed and many of the self-employed. That was the window for Obamacare.

But Obamacare is not, in an economic sense, an insurance program. Entitlements and insurance are inconsistent. You buy insurance for things you wouldn’t get otherwise. If you don’t have insurance on your home and it burns, you’re homeless. But you don’t buy insurance in case your family needs public schooling. If you have a kid, you send them free. You’re entitled.

By guaranteeing coverage for preexisting conditions, Obamacare was ensuring not insurance but treatment. The individual mandate — requiring healthy people to purchase coverage — was necessary to prevent the nonpoor from getting their treatment subsidized.

It’s analogous to saying, if you’re wealthy or even middle-class you have to pay school taxes, regardless of whether you have children. Which, in fact, we do.

The Republican plan, as Holman Jenkins wrote in the Wall Street Journal, was worse because it was incoherent with regard to the philosophical distinction between entitlements and insurance. It stipulated coverage of preexisting conditions (the entitlement model) but did not include a mandate (the insurance model). In other words, although it encouraged people to retain their coverage, it would have left them free to go without “insurance” until they developed a symptom.

Going forward, it would help if the health-care discussion acknowledged that health care, up to a certain minimum level, is an entitlement. Americans are going to — and should — get treatment. The only honest policy debate is over the size of the entitlement: Who gets a subsidy, and how much?

Secondly, since health care is an entitlement, private health insurance should be allowed to wither. The only economic function for private, multi-payer insurance is for care that falls outside the public subsidy.

Thirdly, there is no particular reason to retain a separate program for people over 65. The employee-plan model was arguably more appropriate in the era when most people spent their careers at long-term 9-to-5 jobs. In the Uber economy, fewer people will be getting benefits at work.

Even worse, employer plans were and are based on an unspoken deception — a giant subsidy. Companies deduct the cost of their plans, but employees do not pay taxes on the benefits, a huge giveaway from Uncle Sam. The U.S. Treasury estimates this subsidy will cost $2.7 trillion over the next decade — three times the cost of the mortgage deduction freebie.

Subsidizing people because they have jobs makes no more sense than subsidizing people who buy homes.

Presumably, health-care subsidies should be based on need, tempered by the goal of fiscal prudence and moderated by incentives that reward sensible behavior.

Recognizing that heath care is — has become — an entitlement focuses the task. It reduces the terrain over which Democrats and Republicans have to argue (only about the money, as they say.)

The intellectual challenge for policymakers is to determine whether a variant of the ACA or a variant of Medicare can best deliver the entitlement. There is no need for both, not to mention for six overlapping plans. The public would be served by one well-crafted plan, not more.

Read more:

On GE and the myth of the CEO superhero

Researchers have a new theory for why companies are sitting on ungodly piles of cash

Hillary, A-Rod, Kate Middleton: The people Trump has knocked for refusing to ‘own it’

http://ift.tt/2ui8hpi Source: http://ift.tt/11PLRFx

Scaramucci took winding path but finally landed a top job with Trump

/ Leave a Comment

Anthony Scaramucci, who served on President-elect Donald Trump’s transition team executive committee, talks with media at Trump Tower in New York on Thursday, Nov. 17, 2016. (Photo by Jabin Botsford/The Washington Post)

President Trump’s decision to bring Anthony Scaramucci into a top White House role represents a remarkable political ascension for the investment veteran, who had bounced around several Republican campaigns before striking gold as a full-throated Trump supporter.

Scaramucci, known as “The Mooch,” is at least the third person offered the White House communications director job since Trump was elected last year. Jason Miller initially accepted the post but opted against it before he ever started. Michael Dubke had the job for a tumultuous stint several weeks ago but left after the White House lurched from one controversy to the next.

Trump has long admired Scaramucci’s unabashed loyalty and willingness to stick up for the president during hostile interviews on cable news. Scaramucci has an upbeat enthusiasm that White House officials believe has been missing from their current communications strategy, several administration officials said.

This would be at least the third Trump administration job that Scaramucci has been offered. He was set to be director of the White House’s Office of Public Engagement and Intergovernmental Affairs, but critics within the White House blocked him from ultimately taking that post.

In June, he started working in a senior role at the U.S. Export-Import Bank, but he will have only been in that job for roughly a month because he will be transitioning into the White House communications job very soon.

Scaramucci didn’t initially jump onto the Trump campaign. In 2015, he worked on Scott Walker’s presidential campaign, serving as national finance chairman, and then he latched on to the Jeb Bush campaign when Walker withdrew. He later signed up to help Trump with his campaign and rose as one of the most well-spoken advocates for Trump’s agenda, particularly the president’s economic goals to grow the economy.

Scaramucci has not always had the kindest words for Trump.  Before he joined Trump’s campaign, he said during a 2015 Fox Business appearance that Trump – as a candidate was “another hack politician.”

“Probably going to make Elizabeth Warren his vice presidential nominee,” he said.

He also once said Trump would probably become president of “The Queens County Bully Association.”

“You are an inherited money dude from Queens County, bring it,” Scaramucci said.

Scaramucci, like Trump, has deep New York roots and he worked at Goldman Sachs before starting SkyBridge Capital, an investment company. He hosted an annual hedge fund conference in Las Vegas that became a well-attended industry gathering, called the SALT conference, which helped him raise his profile.

Numerous appearances on cable news helped even more, and it was Scaramucci, in 2010, who asked President Obama during a CNBC town hall when the White House would stop treating bankers like “a piñata.”

He’s known as being very comfortable in the rough-and-tumble world of fighting back against negative press. CNN published a story alleging that the Senate Intelligence Committee was looking into whether Scaramucci met with a top executive from a Russian investment fund before the inauguration. Scaramucci denied doing anything wrong, the story was later retracted, and three CNN officials resigned. The moment was seen as a big victory for Trump as his allies, who have complained for months about negative media coverage. Scaramucci accepted CNN’s apology and his stature grew even more within the White House.

Still, Scaramucci is a well-known cable news speaker but has no experience delivering an effective White House narrative or communications strategy. He does, however, speak with a more populist and less political bent than other White House officials. He has said, for example, that more must be done to address income inequality, an issue the Obama administration tried to elevate with mixed success.

“You may not like the president, you might like the president, but we have to fix this problem whether you’re a Democrat or a Republican,” Scaramucci said at the SALT conference in May. “The rich people in this room, the wealthy people, you don’t want to live in a barbed-wire-encased security perimeter in your McMansion like they do in Latin America. So we have to fix this problem.”

[Passed over for White House job, Trump supporter finds his way back among Wall Street elite.]

He has also shown an openness to bringing more bipartisanship into the Trump administration as well, something that separates him from others who have deeper ties with the Republican National Committee.

At Mitt Romney’s annual Deer Valley retreat this June, Scaramucci attended and offered his ideas for how he would remake the White House’s communications team, according to someone who was there who spoke on the condition of anonymity to discuss details of the private event. He said the White House’s message has been muddled and needed to be made more clearly.

He suggested that if he was there he would start a daily “TV” show of sorts each morning, with a desk on the White House lawn. Each day they’d broadcast their own news report on the things they wanted to promote, having guests appear and even inviting Democrats to join and discuss the day’s agenda.

In Scaramucci’s 2016 book, “Hopping Over the Rabbit Hole, How Entrepreneurs Turn Failure into Success,” he told readers about how not to take criticism personally. 

He wrote that he went to the Lupus Foundation annual luncheon after being “ripped apart by bloggers and reporters,” and was seated near Trump. Trump noticed that he was downtrodden and asked what was wrong. 

When Scaramucci mentioned the media criticism, Trump responded: “Look, it comes with the territory. You are gaining a high profile, which means it’s time for people to start shooting at you. Buck up! Big deal you were raked over the coals a little bit. So what? It has been happening to me for over 30 years. I laugh at the hit pieces now. The sooner you build up your resistance, the better.”


http://ift.tt/2uH8zqJ Source: http://ift.tt/11PLRFx

Heat doesn’t just make us cranky. It makes us dumb shoppers

/ Leave a Comment

MLB baseball players get hit by more pitches when it gets hot, and the rest of us struggle mightily as well. (Patrick Semansky/AP)

We’ve all heard of heat stroke, that moment when your hot summer afternoon sweat crosses a line and you find yourself down for the count, seeing spots and fighting a headache.

But beyond heat stroke, we can also get, if you’ll allow me to coin a phrase, “heat foolish.”

A host of research suggests that as it gets hotter, people tend to make worse decisions: Not only do we get more ornery and cranky — we can also make unwise long-term decisions whose effects we’ll feel well after the temperature has dropped.

Even highly trained professionals are susceptible to heat foolishness. Take Major League Baseball players: During hotter games, the sport becomes more dangerous for batters, as cranky pitchers are more likely to throw pitches at them at speeds nearing 100 miles per hour.

Two studies of major league beanballs prove this. In one analysis of 826 professional baseball games, a team of researchers concluded pitchers were more likely to intentionally throw pitches at batters (and therefore more likely to hit them) on hotter days. The researchers found that nearly twice as many batters are hit per game when temperatures are 90 degrees or higher than when they’re below 70 and ruled out wilder pitches due to sweaty hands as the cause.

Another, larger study of 57,293 games suggests this pattern is about heat-motivated retaliation. On days when the temperature was 90 or above, if three or more of a pitcher’s teammates had been hit by an opponent’s pitches earlier in the game, that pitcher was about 15 percent more likely per pitch to hit a batter than when it was 59 or below. However, if zero of a pitcher’s teammates had been hit, the change in temperature didn’t really matter. In other words, the heat makes pitchers way more likely to engage in beanball payback — despite the fact that intentionally hitting a batter can cost players tens of thousands in fines or suspensions.

It’s not just baseball players who are heat foolish. The heat makes us all more easily enraged.

For instance, you’ve probably heard that spikes in temperature are linked with increases in violent crime — and it’s true. Studies of cities from Des Moines to Dallas have shown correlations between daily heat and daily violent crime in the summer months, particularly during evening hours. A study of Dallas data from the mid-1990s found that aggravated assaults roughly doubled when the average evening temperature rose from 75 to 95.

Road rage is also more prevalent when it’s hot. In one study, a research assistant sat in a car at a stop light in front of other drivers and failed to move when the light turned green. Motorists were quicker to honk their horns at this annoyance on hotter days, particularly when driving cars without air conditioning. Off the road too, people report being generally grumpier on surveys when they are sitting in a hot room rather than a cool, comfortable one.

But while most of us are probably at least somewhat aware that we’re crankier in the heat, hot weather also affects us in subtler ways. It turns out we’re programmed to “project” whatever we’re experiencing onto the future and make decisions as if the current state of the world were representative, even when it’s not. You probably know the adage that you should never go grocery shopping on an empty stomach, lest you come home with far too much food. (That adage is true, by the way.) It turns out that we make a similar mistake with weather: Just as hungry shoppers subconsciously assume they’ll be similarly hungry when it comes times to turn all those purchases into a meal, we also, when making purchases on hot days, imagine we’ll be similarly hot when using what we buy.

Economists call this general tendency “projection bias.” In one study of the phenomenon, a team of economists analyzed hundreds of thousands of catalogue orders placed by customers for seasonal clothing such as gloves and parkas. The researchers discovered customers ordered more winter clothing than they needed when the temperature was particularly low, which they would later return when their order arrived and the temperature had reverted to “normal.” Indeed, a decline in the order-date temperature of 30 degrees was associated with a 4 percent increase in the return rate for cold weather clothing.

While this study focused on unseasonably cold weather, the same patterns would be expected in the summer. On an extra hot day, I’m betting Amazon sees a spike in sales for sun hats, portable fans, cooling towels and mist spray bottles, and that these goods are also returned (unused) at a higher-than-usual rate than when those orders arrive in on a normal summer day.

Unseasonably hot days not only change our shopping behavior, they can also shift more consequential outcomes like our beliefs about science. On days they identify as unusually warm, people are more likely to believe in climate change and therefore more willing to donate to groups fighting global warming.

Given just how much heat prods us to make poor decisions — and given that this weekend promises to be obnoxiously hot across much of the United States — you may be wondering how to avoid catching a bad case of heat foolish.

There’s no foolproof method, other than perhaps switching sides of the equator in search of cooler temperatures. But for those of us whose private jets are in the shop, the biggest thing you can do to help yourself may be recognizing the potential problem.

Remembering that the heat warps your judgment could help you avoid some of its bigger pitfalls. When you’re shopping, be extra cautious about ordering things that you only really need on the hottest of hot days right when the temperature spikes. And if you’ve got a tough conversation to have with colleagues, friends or family, maybe wait until a cooler day — or at least until everyone involved has had some time in front of the air conditioner.

As for MLB batters, my best advice: Duck — and stay away from Jonathan Papelbon.

http://ift.tt/2tO6mFs Source: http://ift.tt/11PLRFx

Former CBO directors in both parties defend the agency after White House attacks

/ Leave a Comment

Office of Management and budget director Mick Mulvaney listens as President Trump speaks on March 17 at the White House. (Jonathan Ernst/Reuters)

The former directors of the Congressional Budget Office (CBO) — a bipartisan group that includes some of the nation’s most eminent economists — published a letter defending the agency on Friday morning, after weeks of strident criticism from the Trump administration.

President Trump’s deputies have attacked CBO publicly and relentlessly in response to its unforgiving analyses of Republican proposals to repeal parts of the Affordable Care Act, also known as Obamacare. Although the agency’s current director, Keith Hall, was appointed by a Republican Congress, the administration has argued that the methods the agency uses are unsound and that its staff favors the Democratic agenda.

Partisan criticism of CBO is nearly as old as the agency itself, which began operating in 1975. All the same, those criticisms have been particularly intense this year, amid a political environment in which partisan disputes over basic facts and arithmetic have replaced debates over values, principles and visions for the place of American government in society.

The unusual letter reflects that environment, although the text does not mention any specific criticisms or the White House explicitly. It is addressed to the top Democrats and Republicans in the House and Senate: House Speaker Paul D. Ryan (R-Wis.), House Minority Leader Nancy Pelosi (D-Calif.), Senate Majority Leader Mitch McConnell (R-Ky.) and Minority Leader Charles E. Schumer (D-N.Y.).

“Relying on CBO’s estimates in the legislative process has served the Congress — and the American people — very well during the past four decades,” the authors write. The signatories of the letter include Douglas Holtz-Eakin, a conservative supporter of the GOP effort to dismantle Obamacare, as well as Peter Orszag, who served as budget director in the Obama administration.

CBO is tasked with providing lawmakers with impartial information about the federal budget, taxes and the national debt.

According to the latest projections from the agency, issued Wednesday, the Senate’s version of the GOP bill to undo Obamacare would result in some 22 million additional Americans going without insurance after a decade.

The federal government would save money, and premiums would decreased overall in the individual market under the GOP plan, CBO said. But at the same time, some consumers — particularly older adults in the upper middle class — could pay thousands more in premiums, and typical deductibles could increase to as much as $13,000 a year.

The Trump administration has argued that CBO failed to accurately forecast the effects of Obamacare when it was initially passed. The agency overestimated the number of people who would gain insurance under the law. In particular, according to the administration, CBO places too much emphasis on Obamacare’s requirement that every American carry health insurance, which in practice has been weakly enforced and widely ignored.

[How the CBO did at predicting the effects of Obamacare]

“Unfortunately, even nonpartisan and high-quality analysis cannot always generate accurate estimates,” Friday’s letter reads. “Policy changes are often complex, the economy is dynamic and defies precise prediction, and many policies are modified over time.”

Yet while those criticisms may be legitimate, the White House has gone further, with personal attacks on the agency’s motives and credibility, said Craig Garthwaite, a conservative economist at Northwestern University. The publicity campaign has included a video on social media, and Trump’s budget director, Mick Mulvaney, has described CBO’s career analysts as Democratic sympathizers.

The administration’s own claims about the effort to replace Obamacare with a new system have been suspect. Tom Price, Trump’s secretary of health and human services, said last weekend that the GOP plan would cover more people — a claim that few economists find persuasive.

“We should be looking to make good health policy,” Garthwaite said. “We shouldn’t be looking to make ideological health policy and then try to dress it up in fancy numbers.”

Congress established CBO in part because legislators needed an independent source of analysis on the federal budget — apart from what the executive branch was telling lawmakers. That mission has always resulted in tension between CBO and the president.

In 1981, an unfavorable report on President Reagan’s budget from CBO resulted in a failed effort by his allies to oust the agency’s director at the time, Alice Rivlin. Rivlin signed the letter along with the other seven full directors of the agency.

http://ift.tt/2uhEqgQ Source: http://ift.tt/11PLRFx

Trump’s ‘Made in America’ campaign has a big problem

/ Leave a Comment

President Trump and Vice President Pence on Monday touted a fire engine made by Pierce Manufacturing of Wisconsin while promoting “Made in America” week at the White House. (Chip Somodevilla/Getty Images)

President Trump’s “Made in America” week was doomed from the start.

In survey after survey, Americans claim that they care whether their shoes, toasters or cellphones are American made. Their actual spending habits, however, tell a different story.

American shoppers want a good deal. And when they shop, everything other than price tends to be a distant second on the list of priorities.

Reuters-Ipsos poll out this week found 69 percent of people surveyed said price is “very important” when they buy something. Only 32 percent said making sure something is made in the United States is “very important” to them. The poll was done online, but research consulting firms and other polls finds similar results.

Walmart executives understand price is king for most American consumers, and they’ve used that knowledge to build one of the world’s most valuable companies: “Our customers tell us that where products are made is most important second only to price,” a Walmart spokesman said when asked whether Americans care if something is made in the United States, China or elsewhere.

Trump keeps talking up “Buy American, hire American.” It’s part of his plan to create the most jobs of any U.S. president yet. He brought a firetruck to the White House lawn all the way from Wisconsin this week to try to promote U.S. products. He jumped in the driver’s seat, grinning and giving the media a big thumbs up.

Many have pointed out that Trump’s words don’t match his actions. He promotes American-made at the same time that he and his daughter Ivanka Trump manufacture their own products overseas, in countries such as Bangladesh, Indonesia and China (as a Washington Post investigation detailed). This very week, Trump’s Mar-a-Lago Club applied to hire 70 foreign workers.

The problem is a lot of Americans do what the Trumps do: They say they want to buy stuff made in the U.S.A., but when asked if they would be willing to pay more for it, they reconsider.

An Associated Press-GFK poll last year found nearly 75 percent of Americans prefer to purchase American-made goods, but only 30 percent were willing to pay more for them.

The Boston Consulting Group has studied these trends for years and concluded that companies can only charge about 5 percent more for products made in the United States. The Reuters-Ipsos poll out this week found that Republicans are the most likely to say they would be willing to pay more, although they also balk at paying more than a 5 to 10 percent premium.

Casey Bradford of Oklahoma knows that it is going to take a lot more than Trump’s firetruck show to change years of American shopping habits. He runs HomeGrown Manufacturing in Bixby, Okla. It’s exactly what Trump wants more of: a 100 percent American-made clothing company.

“I’m not doing this to become a multibillionaire. I’m doing this to bring back manufacturing,” says Bradford. A T-shirt made in China costs $1 or less wholesale, he says. His company can do it for about $3.50. Shipping costs are lower from Oklahoma than China, but it’s still a hefty premium.

Still, Bradford said the prices are close enough, especially on more custom-made items, that he has started to get inquiries from big brands like L.L. Bean. They love the idea of American-made, but their first question is always: What’s the price?

Jake Swaringim, left, and Casey Bradford, right, own HomeGrown Manufacturing in Bixby, Okla. (Courtesy of HomeGrown Manufacturing)

The motto at HomeGrown Manufacturing is “We make it like they used to.”

“Americans have become accustomed to just going to Walmart to buy a new one when something breaks,” says Bradford, a U.S. Army veteran. “We want to produce a product that you can have for years.”

Bradford stresses quality. It’s a good strategy. Eighty-five percent of U.S. consumers think American-made products are better quality than those made overseas, consulting firm BCG found. It’s part of the reason some consumers are willing to consider paying more.

As a 26-year-old, Bradford has also found a growing trend where his millennial peers want to buy custom-made and local products. One of the companies HomeGrown works with, for example, is Mike’s ProLids, a specialty helmet brand that started a few years ago.

“Consumers are shifting toward values not value,” consulting firm A.T. Kearney wrote in a recent report. Gen Xers, millennials and Gen Z are more likely than baby boomers are to “look for brands and retailers that do good for the world.”

It’s a trend that began before Trump but appears to be picking up momentum, A.T. Kearney found. “Buy local” is part of that movement and fits the president’s “Buy American” push.

Walmart has noticed it too. The company in 2016 pledged to source $250 billion more in American-made products through 2030.

That works out to around $20 billion annually, a small fraction of the nearly half a trillion in sales the company did last year alone. But, the retailer says, “not only does manufacturing products domestically create jobs — in many cases, it’s more efficient.”

“Americans are eager to support American-made products,” says Labor Secretary Alexander Acosta on a call with reporters this week.

Bradford only started his company last year, but it already has 38 employees.

He wishes Trump would follow through on his promises to put extra taxes on imports. A tariff could make his prices look even more competitive and help his bottom line, especially as his company is looking to expand.

“We’ve been waiting,” he says. “We need some kind of action on their part.”

The Trump administration has stalled on trade. The Trump administration launched two separate investigations in April into whether imports of steel and aluminum compromise U.S. national security, for example. They were supposed to issue their findings but June, but that hasn’t yet happened.

While small domestic manufacturers like Bradford want tariffs to help their businesses, economists say costs would go up for many products, a risky proposition when customers care more about price than country of origin.

http://ift.tt/2tmOsKN Source: http://ift.tt/11PLRFx

Researchers have a new theory for why companies are sitting on ungodly piles of cash

/ Leave a Comment

In recent years, U.S. corporations have been paying out more cash to shareholders rather than investing. (Xaume Olleros/Bloomberg)

It’s is one of the most important yet least understood sources of ordinary Americans’ economic frustration: U.S. companies aren’t investing as much as they used to.

When corporations don’t invest or invest less, they put fewer people to work building factories, making equipment and conducting research. But investment has slumped in recent years, and researchers say there isn’t any obvious or consensus reason for the investment slowdown.

Now, two economists at New York University, Germán Gutiérrez and Thomas Philippon, think they might have at least a partial explanation. In a paper published this week by the National Bureau of Economic Research, they argue that increasing concentration of economic power in the hands of relatively few behemoth corporations — in some cases to the point where companies enjoy a near monopoly — could explain the pattern: The big firms, unconcerned about their competitors, simply have no need to invest in staying ahead.

"It explains a big chunk of why investment is low in the U.S. today," Philippon said.

In separate research, the two economists found that market power has not become more concentrated in Europe. As a result, European markets are now more competitive than those in the United States — a remarkable shift in a country where free markets have long been not just a point of pride, but also a priority for national economic policy. "It’s a complete reversal," Philippon said. "The U.S. has always been the more pro-competition place, but it’s not true any more."

Whether other experts will agree that the lack of competition accounts for the lethargic pace of investment remains to be seen. Some economists feel there might be other reasons that investment has been so slow. For instance, new technologies might allow companies to earn impressive profits without putting in much money.

"The data’s not completely dispositive at this point," said Janice Eberly, an economist at Northwestern University. "I don’t think they’ve entirely ruled out other explanations, but it’s very intriguing."

Corporations raise the overall level of economic activity when they spend money. Corporate investment is also an important source of technological progress, as firms learn how to produce more kinds of products more efficiently. That makes everyone better off.

Mysteriously, though, investment has slowed. The shortfall amounts to roughly a tenth of the total amount of private capital invested in the economy, Gutiérrez and Philippon write.

Instead of investing, corporations have been paying more money out to Wall Street by issuing dividends and repurchasing shares.

For decades, U.S. corporations typically paid out no more than 4 percent of their total assets, Gutiérrez and Philippon have found. These days, 6 percent is typical, and in 2007, corporations paid out 7 percent.

More troubling, economists are not sure why corporations are not investing. One possibility is that there simply are not many opportunities to make money. In an aging population, fewer young people are spending money on cars, houses, televisions and other goods, so corporations do not have the same expanding market they did in the past.

While the 20th century was a period of rapid technological progress, some economists warn that progress may be running its course, and fewer important new inventions and discoveries remain. Perhaps corporations are not investing because they do not have as many chances to develop and market new things.

Gutiérrez and Philippon are skeptical of these arguments, however. They point out that according to a common indicator of future corporate profitability based on stock prices, investors are very optimistic about the future for U.S. firms.

Instead, they argue that “a significant part” of the shortfall in corporate investment is due to the fact that fewer and fewer corporations control more and more of the American market.

For instance, one commonly used measure of concentration roughly doubled between 1985 and 2015, Gutiérrez and Philippon estimate. Meanwhile, the number of firms that open or close their doors in any given year has steadily declined.

During the Reagan administration, around 11 percent of existing establishments would close up shop in a typical year. More recently, the figure has been between 8 percent and 9 percent. Those figures suggest that the competition in American capitalism is not as fierce as it used to be.

If a firm has many rivals, investments in better quality or cheaper production could pay major dividends by allowing the business to undercut its rivals. When consumers have fewer choices, firms do not have to improve their prices or their products to win customers, and investing is less attractive financially.

Economists have long theorized that declining competition and more consolidation could explain some of what’s wrong with corporate investment and the U.S. economy.

“This kind of divergence — in which high profits don’t signal high returns to investment — is what you’d expect if a lot of those profits reflect monopoly power,” liberal economist Paul Krugman wrote in the New York Times in 2014.

Gutiérrez and Philippon are the first to present hard evidence supporting this theory, although their case is not necessarily conclusive.

They found that firms in more competitive industries also tend to invest more. On the other hand, it could simply be that there is more competition and more investment in those sectors because there are better opportunities for turning a profit — not because the competition is forcing them to invest.

To rule out that possibility, Gutiérrez and Philippon looked back to the Clinton administration, an exuberant time when entrepreneurs were starting up new firms all over the country and intensifying competition.

In Silicon Valley, venture capitalists were throwing around cash — $100 billion in 2000, for instance — but the enthusiasm was not limited to technology. Gutiérrez and Philippon cite research showing that to some degree, bubbles affected seven out of 10 sectors in the Standard & Poor’s 500-stock index during that time.

All the excitement resulted in new firms and increased competition (as well as corporate investment) for years to come in those sectors. They were not, however, any more profitable over the long term. That fact suggests that competition on its own — and not just the hope of profits — can force companies to invest more.

http://ift.tt/2uPCH3M Source: http://ift.tt/11PLRFx

Why champagne sorbet might be illegal

/ Leave a Comment

Under European law, “champagne” can only come from a specific region of France and be made using traditional techniques. (Pete Seaward/Getty Images)

The powerful trade association that represents champagne makers has sued bloggers, water bottlers and haute couture fashion brands. They warned Apple against calling the gold iPhone “champagne” and spent three years making sure that no one but French producers could snag champagne-related wine URLs.

But on Thursday the Comité Interprofessionnel du vin de Champagne scored an even more significant victory, when Europe’s highest court suggested in a nonbinding ruling that even products containing the French sparkling wine may not be able to use the name “champagne.”

The opinion from the European Court of Justice — on a product sold by the discount grocer Aldi as “Champagne sorbet” — reinforces and expands the reach of European Union laws that dictate that only Portuguese dessert wine can be called “port,” and that only the British-made blue cheese can be called “Stilton.”

While the opinion is not final, experts say it furthers the Champagne region’s effort to protect its brand.

“Champagne is fighting this battle in Europe, and they seem to be winning,” said Bernard O’Connor, a managing partner at the European law firm Nctm who specializes in trade and agriculture law. “It seems logical that they’ll next take the fight to global markets.”

The case in question involved “Champagne sorbet,” which Aldi sold at a number of its German stores in 2012. The dessert contained 12 percent champagne — the real kind, from France — but the Comité Champagne claimed the use of the protected name on a non-wine product risked cheapening it.

Under long-standing European law, hundreds of traditional foods, wines and spirits that are closely linked to a specific region enjoy special protections: They’re granted exclusive use of the regional product name, and legally guarded against a range of infringements.

Stilton cheese must be produced in the counties of Derbyshire, Leicestershire or Nottinghamshire in Britain, using pasteurized local milk. (It cannot, ironically, be made in the nearby town of Stilton.) Port specifically describes a fortified wine produced in Portugal’s Douro Valley. Feta, Manchego, Roquefort and Asiago must come from Greece, Spain, France and Italy, respectively.

Even indirect or passing uses of protected names are illegal, in many instances. Food producers cannot “misuse, evoke or imitate” a protected name, which has been interpreted in several national and EU-level cases to mean that they can’t use it to label, advertise or draw a comparison to other products.

In other words, Miller High Life — the “champagne of beers” — would not fly in Europe.

A champagne vineyard in Bethon, France, a village of 300 people. (Esha Chhabra for The Washington Post)

In this case, however, the product contained the ingredient: It was 12 percent champagne. Aldi — which has long since stopped selling the dessert in question — has argued that its product couldn’t possibly be said to exploit the champagne brand or mislead consumers.

“Aldi and Galana invoked the right to use a correct and non-misleading trade denomination,” a lawyer for Galana, the sorbet manufacturer, said in a 2014 statement. “According to the defendants, the use of ‘Champagne’ for a sorbet containing Champagne was justified.”

But the opinion released Thursday by Advocate General Manuel Campos Sanchez-Bordona took a broad interpretation of name protections, ruling that food manufacturers may only use the name of a protected ingredient if the final product also captures its “essential characteristics.” They may also not market the product on the basis of its protected ingredient.

“The producer and distributor [of the champagne sorbet] hope to evoke in the mind of their consumers the quality and prestige associated with this designation of origin, and extend it to the sorbet,” he wrote of Aldi’s product.

The Advocate General’s opinion is not the end of the matter: A final judgment will be issued by the European Court of Justice within a few months, and is expected to mirror Bordona’s position. The case will then return to a German court, where it began, though the Court of Justice precedent will stand throughout Europe.

Even at this stage, however, the judgment is a win for protected products and sets an important precedent, experts said.

“If the European Court of Justice adopts the opinion of the Advocate General then protected products, even when used as ingredients, will continue to enjoy a high level of protection,” said Katie Vickery, who heads the food and drink practice at European law firm Osborne Clarke.

That sort of protection is gaining traction, even outside the EU.













http://ift.tt/2tmfhid Source: http://ift.tt/11PLRFx