Category Archives: Economics

Beauty and the Bull

Culture, Economics

 

The date is March 8, 2017.  It was International Women’s Day.  And in honor of the celebration and as a reminder Wall Street and corporate America are still largely male-dominated, a new fixture appeared on State Street in the heart of New York’s financial district.  Under the cloak of darkness, sponsors installed a 50 inch, 250 pound statue titled “Fearless Girl” opposite the 11 foot, 7,100 pound “Charging Bull,” which has stood as a symbol of America’s economic strength since 1989.  (NOTE: According to ISS Analytics, only 16 percent of the board seats in Russell 3000 companies are occupied by women.)

Celebration soon turned to controversy.  Last Wednesday, Arturo Di Modica, the sculptor who created “Charging Bull,” held a press conference to attack the new art installation.  Di Modica claimed Fearless Girl “was an insult to his work. ‘She’s there attacking the bull,’ he said.” (Source. New York Times, April 12, 2017)  He also claimed this was a case of copyright infringement although no suit has been filed.  PLEASE! This is equivalent to charging Paolo Veronese with copyright infringement because his painting “The Wedding Feast at Cana” hangs opposite the “Mona Lisa” in the Louvre.

My first reaction was, “You must be kidding.” (Actually, it was a little stronger than that but I’ve promised my wife I’d tone down the language in these posts.)  But I soon realized Di Modica’s reaction should have come as no surprise.  For the last two years Americans have been instructed to fear everyone and everything.  Muslims.  Immigrants. Hollywood. Environmentalists.  Scientists.  The LGBT community. It was only a matter of time before we were told young girls with big dreams were a danger to our way of life.

Perhaps there is a deeper meaning behind the artistic confrontation between “Fearless Girl” and “Charging Bull.” Look closer at “Fearless Girl.”  Her hair is in a pony tail.  She is wearing a simple sleeveless dress.  She is not wearing any jewelry. Her eyes tell us she is in awe of something she is seeing for the first time. Her facial features suggest she is probably Caucasian.  In other words, she is more likely a New York visitor from the Midwest than the offspring of a Manhattan resident.

She is more than a little girl thinking about life’s possibilities.  She embodies the populist dissatisfaction on both the left and right.  And the bull represents the bankers, corporate raiders and hedge fund managers who have benefited most from the current recovery.  During the 2016 presidential campaign, both candidates pledged to reconcile this disparity between those who have flourished and those who feel left behind.  As the current White House occupant, Donald Trump is the one who must deliver on that promise.

How goes it?  Well, that depends on who you ask.  The administration was quick to take credit for the stock market bump since the November election.  Wasn’t that the bull speaking?  Fearless girl is more likely to have a lemonade stand than a stock portfolio. How about consumer confidence?  On December 27, 2016, U.S. News and World Report applauded as consumer confidence rose to a 15-year high.  But measuring consumer confidence is akin to market surveys about consumer products.  It is one thing to say, “I plan to spend money.”  It is quite another to reach into your wallet or purse and hand over your hard-earned cash.

To understand the economic mood of the general population, I prefer to look at the numbers which represent actual behavior, not speculation. Just yesterday, the Commerce Department reported retail sales in March fell for the second straight month.  Likewise, the Consumer Price Index declined by 0.3 percent last month, another sign the demand for goods and services has weakened.

Keep in mind these numbers are just a snapshot in time and may change over the course of the next few months or years.  Today, however, beauty and the bull are no closer to reconciling than they were on November 8.

For what it’s worth.
Dr. ESP

 

SJR 34, Update

Economics, Politics

 

In yesterday’s post, I suggested consumers of internet information should consider copyrighting their search histories to counteract passage of Senate Joint Resolution 34 by the GOP-controlled Congress.  SJR 34 allows internet service providers (ISP) to sell  user personal information, including search history, without the user’s permission.

I am not a lawyer, nor do I play one on television.  So I asked a friend who is a respected intellectual property lawyer if this concept had any validity under the law.  He pointed me to a 1991 Supreme Court decision in the case of Feist Publications, Inc. v. Rural Telephone Service Co.  Feist had included data from Rural’s local telephone directory in its regional white pages.

Prior to Feist v. Rural, courts had used what was referred to as “sweat of the brow” or “industrious collection” doctrine as sufficient justification for claiming copyright protection.  In other words, an individual or organization was given credit merely for the time and effort required to collect information.  In this decision, Justice Sandra Day O’Connor, writing for the Court, made a distinction between the collection of facts and the way they are presented.

Many compilations consist of nothing but raw data — i.e. wholly factual information not accompanied by any original expression. On what basis may one claim a copyright upon such work? Common sense tells us that 100 uncopyrightable facts do not magically change their status when gathered together in one place. … The key to resolving the tension lies in understanding why facts are not copyrightable: The sine qua non of copyright is originality.

Justice O’Connor further argued the originality standard for copyright protection should be extremely low.  A work must “possess a spark or minimal degree of creativity to be protected by copyright.” This distinction, particularly as I believe it applies to one’s internet search history, becomes even clearer when Justice O’Connor concludes:

Notwithstanding a valid copyright, a subsequent compiler remains free to use the facts contained in another’s publication to aid in preparing a competing work, so long as the competing work does not feature the same selection and arrangement.

Under this legal standard, the fact that individuals surfing the internet choose the information and order in which they view web pages meets the “selection and arrangement” test outlined in Feist v. Rural.  If I had written a paper titled, “Best Internet Sites to Understand Intellectual Property,” listing the URLs and order in  which I compiled the information, such paper would be clearly protected under copyright law.  The “selection and arrangement” are original.  One can therefore argue a search history stored on one’s computer or in the cloud is merely a digital representation of that paper.

If you believe your search information is being sold to a third party by your ISP, the first step is to issue a “cease and desist” letter documenting the infringement.  If the ISP fails to act on the letter, you have the option of taking them to court.  The ISP may be liable for the actual dollar amount of damages and profits, ranging from $200 to $150,000 for each work infringed.  The infringer also pays all attorney fees and court costs. (Source: Purdue University Law Library)

So, if like Howard Beale in the movie Network, you’re mad as hell and you’re not going to take it anymore, there is a course of action.  If, and when, there is a legal challenge of SJR 34, I will update this information.  Stay tuned.

For what it’s worth.
Dr. ESP

 

eBamacare

Economics

 

No, this post is not about digital health care.  The “e” in “eBamacare” stands for entrepreneurship.  Here’s why?  Since it’s passage, Congressional opponents of the Patient Protection and Affordable Care Act (ACA) have argued the legislation has been a job killer.  Let’s look at the facts (what a concept).

According to a 2015 report published by the Ewing Marion Kauffman Foundation (EMKF) titled, “The Importance of Young Firms for Economic Growth,” the age of a firm matters more than size in terms of its ability to generate new employment.  The report found:

  • New businesses account for nearly all net new job creation and almost 20 percent of gross job creation, whereas small businesses do not have a significant impact on job growth when age is accounted for.
  • Companies less than one year old have created an average of 1.5 million jobs per year over the past three decades.
  • Many young firms exhibit an “up or out” dynamic, in which innovative and successful firms grow rapidly and become a wellspring of job and economic growth, or quickly fail and exit the market, allowing capital to be put to more productive uses.
  • Young firms were hit hard during the Great Recession. Even still, from 2006 to 2009, young and small firms (fewer than five years old and twenty employees) remained a positive source of net employment growth (8.6 percent), whereas older and larger firms shed more jobs than they created.

For those unfamiliar with EMKF, the foundation is the largest funder of entrepreneurship research and education in the world.  I was fortunate to be an associate there from 1997 to 2003.  During those years, we conducted a series of research projects to better understand the life cycle of new business formation from an individual’s desire to be his/her own boss to disposition of successful firms.  Two findings from those efforts are extremely relevant to this discussion.

First, EMKF-funded surveys conducted by the Gallup organization consistently found seven out of ten Americans expressed interest in, one day, starting their own venture.  But as individuals progressed from this general aspiration to development of a specific concept, the percentage declined.  The next phase of the start-up life cycle, concept to some discreet action, resulted in an even greater fall-off of entrepreneurial participation.  Which led to the question, “Why would Americans not pursue their own aspirations?”

Next, to answer this question, EMKF funded research to better understand what was keeping more Americans from “taking the entrepreneurial leap.”  In many cases, the respondents faced the choice of leaving a salaried job for the riskier, though potentially more rewarding, outcome associated with business ownership.  Yet, loss of a regular paycheck was not, for most respondents, the major concern.  They were more apprehensive about losing their employer provided health coverage.  The typical response went something like this.

We can handle the day to day expenses until the company becomes profitable.  What we cannot handle is a catastrophic illness or major accident.  All I can afford is major medical insurance but deductibles are high and coverage is limited.

Some respondents mentioned pre-existing conditions.  Or fear they would be dropped if they actually used their coverage.  In 2002, the foundation suggested universal health care could become a major catalyst for new business formation and should be pursued as national policy.

In summary, the Affordable Care Act may be the single largest and most effective public incentive for creating new businesses, the economic force responsible for creating all of the net new jobs in America since the 2008-09 recession.  So, instead of tax breaks to major corporations which are only now starting to contribute their fair share of job creation to the recovery, it’s time Congress put its (our?) money where it can actually make a difference.  New ventures have been carrying the ball for eight years.  Yes, ACA is not perfect and needs tweaking.  However, repealing ACA is punishing, not rewarding, those who have contributed most to the nation’s prosperity since the financial meltdown in 2008.  Congress should think twice before taking action.

For what it’s worth.
Dr. ESP

 

WHITE Friday

Economics, Media

 

Today, we are being exposed to just one more example of how the pro-Trumpsters are making every effort to give Agent Orange (my favorite euphemism for Donald Trump) credit before it is earned.  In this case, they are hailing Trump for the stock market bump since election day.  Conservative economists who have always warned against making long-term predictions on short-term market activity are shedding their own advice.

Consider the following example.  Steve Nicklas, a certified financial adviser who writes a weekly column for our local newspaper, included the following in today’s edition.

Despite a politically divided country, the U.S. stock market continues to reach new highs.  The markets obviously like the new administration’s prescription of lower taxes, less regulation and a stronger economy.  Even though outside businessman Donald Trump is far from your polished politician.

He references the $2.7 trillion in wealth created in the U.S. stock market since the November election.

Which brings me to the reason why I called this post, “WHITE Friday.”  Because Mr. Nicklas and other conservatives are giving the WHITE guy credit after 30 days with little acknowledgement the current bull market might just be a continuation of the momentum created by the BLACK guy’s policies and stewardship of the national economy.

To make my point, let’s look at what would have been Mr. Nicklas’ prediction if he had used similar methodology after the first 30 days of President Obama’s tenure in office.  On November 4, 2008, the day Obama was elected president, the Dow Jones industrial average (DJIA) closed at 9,625.28.  On February 30, 2009, 30 days after the inauguration, the benchmark index stood at 7,365.76.  According to Mr. Nicklas’ logic, the markets were responding negatively to the Obama program.

There are just two problems with that analysis.  One, the DJIA on February 20 was a snapshot in time of a trend which had begun on September 3, 2008 when the DJIA closed at a high of 11,532.88.  If I remember correctly, George W. Bush occupied the White House when the trend began.  Second, and equally important, the stimulus package designed to kickstart a tanking economy had not yet been implemented. So anyone making a prediction about the stock market based on the same time frame Mr. Niklas is using today would NEVER have imagined the DIJA would close at 19,804.72 on January 19, 2017, Obama’s last full day in office.

So, to be fair, let’s wait and see where the market stands on Donald Trump’s last full day in office regardless of whether we are talking about eight years, four years or something even less.  He has proposed another round of supply-side economics which has historically proven to yield long-term negative returns at both the national and state levels.  Like Bush 43 who turned low employment and a budget surplus into the worst recession since the Great Depression, Trump has the same opportunity to undermine a 4.7 percent unemployment rate and 75 consecutive months of job growth.  Need we remind Mr. Niklas lower taxes and deregulation were exactly what precipitated the great recession?

So let’s hold the praise until (1) Trump actually does something and (2) we see what impact it actually has.

For what it’s worth.
Dr. ESP

 

Looking for Love in All the Wrong Places

Economics, Politics

 

One of the reasons I started this blog was to force myself to think about things I did not understand.  At the top of my current list is the question, “Why would the working, middle class expect an alleged billionaire (remember net worth is equal to assets MINUS liabilities) who has stiffed workers and small businesses to represent their best interests?”  Then I realized I should have also been asking a similar question about the previous administration.  “Why would the working, middle class look to a Harvard educated, community organizer who never spent a day on a shop floor to protect their salaries, job security and retirement pensions?”

Samuel Gompers cph.3a02952.jpgThe above is not meant to disparage the career choices of either Barack Obama or Donald Trump.  But as past president and current occupant of the White House, these individuals have to constantly balance multiple interests.  If I want someone to represent my economic future, I want my own hired gun.  I want someone like Samuel Gompers (1850-1924), founder of the American  Federation of Labor (AFL), who when asked during contract negotiations what his workers wanted, he simply answered, “More!”

Keeping in mind correlation does not equal causation, it is hard not to believe there is not some linkage between the decline in union membership and dissatisfaction among middle class Americans they are being left behind in an otherwise growing economy.  In 1954, 34.8 percent of wage and salary workers belonged to unions (Current Population Survey).  By 2010, the last available census numbers, the percent of union membership dropped to 11.3 percent.

While both major political parties continually promise to improve the lot of the middle class, neither has done the one thing that would have really made a difference, protecting the institution which truly represents much of middle-class America.  Instead, for the past 40 years, Republicans have demonized unions as a scapegoat for the failure of trickle down economics. But let’s be brutally honest.  The Democrats stood by and watched. Instead of protecting the true representatives of the working class, Democratic candidates were more interested in promoting government policies which they hoped would translate into votes.

The graphic below, created by NPR, shows the percentage of current union membership by state.  One can’t help but notice many of the states which tipped the electoral college in Trump’s favor have the lowest level of union representation.

union-membership

And Republican governor and legislators in several mid-western states continue to do all they can to erode the power of both private and public sector unions.

Just imagine if any political party had been equally aggressive about protecting union representation as the Democrats have been on protecting voting rights.  Or if law suits had been filed as often to challenge threats to workers organizing as the Republicans have to undercut the Affordable Care Act.  Strong unions, not government nor corporations, should be leading the charge on economic issues important to the middle class.  Government’s role and corporate America’s moral obligation should only be to ensure they have a meaningful seat at the table.

I still believe James Carville was right when he reminded then presidential candidate Bill Clinton, “It’s the economy, stupid.”  Perhaps the opportunity for bringing Americans together again is not identity politics, but economy politics.  A movement where factory workers who are told their jobs will disappear without major concessions while executive salaries skyrocket, women who demand equal pay for equal work, hamburger flippers who deserve a living wage and undocumented workers who, in fear of deportation, accept sub-minimum wage compensation come together and support each other.  Just as Samuel Gompers founded the AFL to promote harmony among various craft unions to minimize jurisdictional conflicts, leadership by the workers, of the workers and for the workers is sorely needed.

Too bad the slogan “Workers Unite” is already taken.

For what it’s worth.
Dr. ESP