What we are reading this week - May 6th, 2017 - A lot !!!

The biggest story this week was Obama's $400,000 sellout to Wall Street firm Cantor Fitzgerald and A&E Networks.

MSNBC has the basic story

So does NY Post which reported he got $400,000 from A&E networks.

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The Atlantic has a story on the decline of Black Businesses. 

But's really a story about market concentration and large company power squeezing out small businesses: Black, White and poor.

We have long supported limits on market power and concentration which would allow room for small businesses to flourish.

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The National Urban League released it's State of Black America Report.

SOBA 2017

The NUL has created an equity index showing how far behind Blacks are as compared to Whites. This year they fully report on the Black/White and Hispanic/White differences.

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Peter Temin from MIT has a new book on inequality and racism. It's called The Vanishing Middle Class: Prejudice and Power in a Dual Economy.

He argues we have a dual economy but only the rich and powerful have the ability to make changes.

The introduction is all over the internet. Here.

The Atlantic has a write up.

If you are interested in inequality, check out almost anything by Tony Atkinson.

15 Proposals to reduce inequality

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Crain's New York has a list of minority businesses. It has only 19 names. Jokes on us.

Crain's New York

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Jobs are heading to Mexico again on Bloomberg.com

US companies are resuming their outsourcing and offshoring after a brief pause. Absent a real policy or regulation, labor intensive jobs will continue to move to Mexico, China and other low wage countries.

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American Airlines decided give it's workers a pay raise. Wall Street smacked down the stock. Not much we can do but "whine" about shareholder value.

Here is the story by Matthew Yglesais in Vox 

Here is Joe Nocera on Bloomberg View

The Evil Black Economist Blog believes you can never soften or beat Shareholder Value Principal. Instead we should give stakes in the company to Employees and other interest groups and reserve places on corporate boards for the same stakeholders.

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Apple has $250 Billion in cash. Vox reports. $250 billion in cash is about 1/80th of the 18 Billion dollar US economy.

We also have a long piece on the Evil Black Economist called "Apple is an investment bank that makes iPhones"

Forbes also has a story on Apple and their PR effort around job creation.

Apple may be getting scared.  It released a website announcing how many jobs it creates. Apple Job Creation.

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Here is a key study constantly used in economic discussions.  It is a great reference in an argument or when trying to prove a point.

Pew Reseach -- American Middle Class is losing ground

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Research Papers

Andreas Ferrara believes world war II White causalities led to Black worker skill upgrades and improved income, integration and political participation. I would probably include women in there as well. 

http://conference.iza.org/conference_files/SUM_2017/ferrara_a25005.pdf

But when the troops returned home, Blacks and women were told to go back to the service job or the kitchen.  The US really is a zero-sum game.

Why are there so many Subway and Dunkin Donuts franchises everywhere ?

Have you ever wondered why there are so many Subway, 7-11 and Dunkin Donuts franchises ? Where did they all come from so fast ? And why are so many owners from South Asia or the Middle East ?

It turns out 7-11, Subway and Dunkin Donuts believe in a high density store model.  Because there so many food and retail choices, the risk of cannibalizing sales from a different store of the same franchise is low. There can be multiple Subways and 7-11s on the same block in some cities. Second, the corporate strategy has been to sell franchises. All three chains have a limited number of corporate owned stores. They simplified and perfected the franchise model.  Third, they keep start up fees low.  Subway, for example, has a franchise fee of only $15,000. 

In an interesting twist in the US, Subway, Dunkin and 7-11 franchises appeal to members of the growing South Asia and Middle Eastern communities.  These communities face a difficult time finding employment, so many immigrants look to immigrant owned franchise owners who provide employment.  Many are willing to work 60-80 hours per week.

The franchise model also matches perfectly with the economic aspirations of South Asia immigrants who have extra cash to invest. If you are here on a temporary work visas like H1-B, you want make good use of your extra money and time since it may be limited.   So a franchise is a good investment. Franchises are bought and sold within the immigrant networks when the owner returns to his home country.

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Now, it looks like Subway and Dunkin have reached market saturation.  Any new store will take sales from and existing. Many stores are marginally profitable. And occasional a store will close. 

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Entrepreneur magazine says a Subway franchise costs $120,000 in startup costs such as construction and equipment leasing. And you only need about $30,000 in liquid assets plus $80,000 in net worth. The current franchise fee is $15,000

Starting a Dunkin cost $225K plus $125K in liquid asset.  The net worth requirement is $250K. The franchise fee is $40,000.

All very low compared to MacDonalds which requires $1,000,000 in startup costs and $500K in liquid assets.

The founder, Fred Deluca, gave an interview to Inc. magazine where he admitted one of the chains key goals was to have a large number of franchises

Apple is really an investment bank that makes iPhones. Apple has $255 billion in cash

The original idea for this story comes from "Vox Apple has $250 billion in cash." (Hat tip)

$250 billion in cash is about 1/80th of the 18 Billion dollar US economy.

We have long believed that Americans over consume.  Over consumption includes buying luxury items or super sizing your meal.  It also includes buying products with features we like but may never use.

Another form of over consumption is buying products with status appeal such as foreign cars, soft leather goods(SLG) and handbags, or Apple iPhones. Thorstein Veblen first noticed that some goods are more valued because they have higher prices. He created the term "Conspicuous Consumption."

Apple

Apple has become the most profitable company on earth by tapping into the market for conspicuous consumption. They are king of the affordable luxury market. Today, we are going to look at how rich Apple actually is. And how Apple resembles an investment bank more than a high-tech company.  

Apple has yearly sales of about $200 Billion of which 67% are sales of iPhones.  Apple also has a huge amount of cash on hand.

Based on the Apple 10-Q from April 2017, Apple has

Cash                                $15 Billion
Short Term Securities     $52 Billion
Long Term Securities     $190 Billion

Or about $255 billion in cash.  Just cash, not assets, CASH!!!

They have net income from sales of about $40 billion a year and spend about $10 billion on R&D.

They continue to earn huge amounts of investment income on the marketable securities ($12 billion mark up) this quarter. And roll over the cash ($99 Billion in securities purchases this quarter) into new marketable securities. The biggest holdings are US Treasury Securities($53B) and Corporate Securities ($157B). The biggest use of the money(about $30 Billion a year) is for share repuchases. 

They also have $84 Billion in debt at ridiculously low interest rates.  Most of the bond rates are between 1.00% and 2.00% along with one special set of long term debt ($24 Billion) at 0.28%.  Yes, that 28 basis points.  Not only is Apple loaded with cash, they are using other peoples money to make even more money.

Apple looks like an investment bank that just happens to make iPhones.

Obama's Disappointing Sellout to Wall Street for $400K

The Evil Black Economist Blog is disappointed that Barak Obama will take $400,000 for making a speech to a Wall Street firm. We all feel hurt and betrayed. Obama, the first Black president, is a role model.  He should have displayed stronger morals and principles. He should have more class.

In the past, Mr. Obama has given speeches during his campaign supporting progressive economic causes.  He has spoken out again against income inequality, wall street greed, and money in politics. He liked to portray himself as a community organizer; a man of the people.

Now, he is trampling on his legacy.  His presidential legacy. The move make him look like a money grubbing suck up. Valarie Jarret would have known better.

The Obama's did not need the money. He and Michelle just signed a $65 million dollar book deal.  He has been hanging out on the private island of Billionaire Richard Branson. He has penty of offers to speak. But it's the speed and size of the sellout that has everyone worried.

He couldn't find a good charity or liberal group to talk to ? It had to be a Wall street firm ? It makes you wonder if his values and beliefs were an act. Does he really stand for anything ?

Lets hope he releases the text of the speech and donates the money.

Cantor Fitzgerald. Cantor is a wall street financial services firm that specializes in financial trading.

v4

Trump tax proposal is a huge give away to the rich - Test your pundit skills here

Bad News

So, Trumps tax proposal, which is a really a one page memo of bullet points, is a good test for any of us want-to-be progressive pundits. It is definitely not a tax plan. It contains no details, costs, analysis or review of effects on the debt.

All of us pundits in training should be able to explain and rip apart Trumps tax proposal in about 30 seconds. Please write your version of why Trumps tax plan is bad for the average US citizen and the country.

Then compare to our list

Here is the proposal memo from CNN.

Here is ou list...

1. Gives huge amounts of money to rich people. Reduces tax rate to $15% for some pass through business like Trump's real estate companies. 

2. May cause an asset / stock market bubble driving up real estate prices.

3. Rewards investment income and rents at the expensive of wages.

4. Increases inequality. Does almost nothing for middle class and truly nothing for the poor.

5. Cuts government revenue for crucial programs including state and local programs. Eliminates state and local tax deductions. 

6. The tax proposal also drops the corporate tax rate to 15%. It is also a huge give away to corporations who have been holding tax money overseas and avoiding and minimizing taxes for years.
7. Eliminate the Alternative Minimum Tax (which trump pays).

8. And scariest of all, it may eliminate the deduction for employer sponsored healthcare, financial wrecking our current healthcare system

And 

It increases the national debt by giving money for consumption rather than investment (ie, yachts and shoes rather than research, colleges and roads). Note: The author believes that below a certain ratio of debt-to-GDP, debt incurred for investments can have an overall positive effect on the economy.

Currently, the tax plan would add $3 Trillion to $7 Trillion to the debt.  It also assumes a growth rate of 3%. The US GDP growth rate is 0.7% in first quarter of 2017.

Tax proposal was rushed to meet 100 days deadline

The tax plan is little more than an outline or an opening move in a negotiation. But, it was put together by two of the more competent members of the Presidents staff:  Gary D. Cohn and Steven Mnuchin.

While it initially looked like the administrations was getting it's act together, this grab bag taxes proposal, shows how disorganized they are.

Version 3

What we're reading today April 24th, 2017

We checked in with Dr. Boyce Watkins here on your tube. Dr. Watkins gives a lot of informative talks on YouTube.

Boyce Watkins web page

Dr. Watkins mission is to spread financial literacy among Black people.
His Black Wealth Boot Camp has a full personal finance curriculum.

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Demos.Org has a interesting story on the Black-White wealth gap.  The look a some of the common proposals to close the wealth gap and explain why they won't work.

The asset value of Whiteness

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Bloomberg has a piece on the large number of retail bankruptcies. The Bureau of Labor Statistics reported that about 600,000 retail works have lost their jobs in the past year.

Retailers are going Bankrupt at a record pace.

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The National Association of Black Journalists and National Association of Broadcasters have put together a toolkit for "Reporting on Race"

Reporting on Race Toolkit

It is a little sad that in 2017 local news broadcasters have to be instructed on how to handle reporting stories when race is involved.  You know there a problem when they break out the "Toolkit." Yikes!

National Association of Black Journalist Statement

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Peter Temin from MIT has a new book out called "The Vanishing Middle Class" which also discusses race as well as economics.

Read the intro here.

Corporations used racism to destroy the middle class and turn us into a developing nation.

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More charts on the vanishing middle class from Bill Moyers. You can always use one more chart.

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Black businesses in Philadelphia have launched Buy Black Campaign and card.

The card is called iBuyBlack.

On Philly.com here.

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The Congressional Black Caucus issued a report on things to improve in the US for Black Americans. The report is called "A lot to lose"

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What we're reading today April 4th, 2017

Today we are reading the blistering critique of Donald Trumps presidency in the LA Times: The Problem with Trump.

While the pain of the LA times editorial board maybe real, the opinions have the feel of a publicity stunt.

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WAPO has a story on increasing mortality among whites. The story also covers the narrowing happiness gap between Whites and Blacks. 

If white America is in ‘crisis,’ what have black Americans been living through?

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New CH-53K helicopter will cost $26 billion over the life of the contract.

Defense News has the Story

What we're reading April 3rd, 2017

Going to try something new today, what we are reading.


The New York Times has tough article on Uber using human psychology and behavioral economics to pressure drivers. Here.

The National Science Foundation publish statistics on science and engineering education and employment at the National Center for Science and Engineering Statistics.

They also publish data on Women, Minorities and People with Disabilities in an annual report  called Women, Minorities, and Persons with Disabilities in Science and Engineering.

Neel Kashkari dissented against the recent Federal Reserve interest rate hike.  Hear why at Bloomberg.com

The "Cost of Segregation" in Chicago

The Metropolitan Planning Council of Chicago, a non-profit dedicated to improving the Chicago Metropolitan Area, and the Urban Institute released a report in March 2017, describing the "Cost of Segregation" in Chicagoland.

The summary news release is here.

Here are the links to the report and website.

Highlights from reducing segregation include...

• Black incomes would rise about $3000 dollars or $4.4 Billion. The GDP of the Chicago region would rise by $8.0 Billion.

• The homicide rate would drop by 30%.

• An additional 83,000 people would graduate college adding an additional $90 Billion in lifetime income.

"Lower Ed": an expose' of For-Profit Education which preys on women, minorities and the poor

Author Dr. Tressie McMillian Cottom has written a new book called Lower Ed which details some of the failures of the for-profit education industry.  Ms. Cottom worked in the industry and now studies for-profit education at Virginia Common Wealth University.

For-profit colleges and universities are know for high costs, federal student loan and grant abuse and low graduation rates. Their marketing campaigns target Black, female and poor students through personal relationships and one-to-one marketing. Until they sign up. Then students are loaded down with debt and poor job prospects.

Dr. Cottom gave a detailed talk at the Economic Policy Institute that covers much of the content of her book.

Dr. Cottom was also featured on NPR.

And in The Atlantic, where her piece covers the conditions of economic inequality that led to the rise for-profit industry.

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We have to acknowledge that for-profit schools are filling a gap in our education system and society. Stagnant wages are creating high demand for education just as most states cut back on education funding and private colleges and universities choose to serve the rich. The for-profit schools stepped into this space.

The real issue is that private and state universities have abandoned their role in providing opportunity to low-income students and intelligent students from bad schools. The for-profit industry is just filling a need.

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The Obama administration was aware of these issues. It implemented the "Gainful Employment Rule" requiring reporting of student debt-to-income ratios.  It is expected that the Trump administration will rescind the rules.