Quote of the Week (Outsourcing edition)

My efforts to slowly work down my backlog of drafts in the queue continues with your Quote of the Week. Yes, this article is a few weeks old, but that doesn't make it any more awesome. Kudos to this guy, slow claps all around.

This week's QUOTE OF THE WEEK

"A security audit of a US critical infrastructure company last year revealed that its star developer had outsourced his own job to a Chinese subcontractor and was spending all his work time playing around on the internet. The firm's telecommunications supplier Verizon was called in after the company set up a basic VPN system with two-factor authentication so staff could work at home. The VPN traffic logs showed a regular series of logins to the company's main server from Shenyang, China, using the credentials of the firm's top programmer, 'Bob'... 

After getting permission to study Bob's computer habits, Verizon investigators found that he had hired a software consultancy in Shenyang to do his programming work for him, and had FedExed them his two-factor authentication token so they could log into his account. He was paying them a fifth of his six-figure salary to do the work and spent the rest of his time on other activities."
                                                          - Iain Thompson, The Register

That is awesome. I can't exactly blame the company for letting Bob go, especially since he exposed the fact that he was apparently being overpaid by a factor of five. But if a company can outsource a job to China, why can't the employee do it himself? That's the kind of creativity this country needs! Bravo, Bob.

 [The Register]

The new music world

If you're sensing a bit of a theme here today, there's a reason for that—the majority of my backlog of posts consisted of updates to previous topics that I hadn't revisited in a while. In this post, I'm going to write an update on the ever-changing music industry, to discuss some recent developments. From the New York Times,

A decade after Apple revolutionized the music world with its iTunes store, the music industry is undergoing another, even more radical, digital transformation as listeners begin to move from CDs and downloads to streaming services like Spotify, Pandora and YouTube. 

As purveyors of legally licensed music, they have been largely welcomed by an industry still buffeted by piracy. But as the companies behind these digital services swell into multibillion-dollar enterprises, the relative trickle of money that has made its way to artists is causing anxiety at every level of the business. 

Late last year, Zoe Keating, an independent musician from Northern California, provided an unusually detailed case in point. In voluminous spreadsheets posted to her Tumblr blog, she revealed the royalties she gets from various services, down to the ten-thousandth of a cent. 

Even for an under-the-radar artist like Ms. Keating, who describes her style as “avant cello,” the numbers painted a stark picture of what it is like to be a working musician these days. After her songs had been played more than 1.5 million times on Pandora over six months, she earned $1,652.74. On Spotify, 131,000 plays last year netted just $547.71, or an average of 0.42 cent a play.

In general, it's a little bit hard to know whether to consider this a good thing or a bad thing, for the artists or the consumers. What's certainly clear is that we're moving toward a model where recorded music is little more than an advertisement for the artists, who will make the majority (if not all) of their money from live performances and touring.

Realistically, this is how the music industry has always effectively worked, with a select few exceptions. Recall this graphic, from my previous blog post about the Dave Matthews Band, which has likely set the model for the future of the music industry:

I certainly sympathize with those artists who are unable to make enough from live performances to support themselves, but I also find it unlikely that those artists would realistically be able to sell enough physical music to support themselves, either, under any economic arrangement or business model.

I generally assume that consumers of music have only a set amount of disposable income available to spend on their music, and that performers should generally want them to spend as much of that money as possible on the thing that nets them the greatest share of the money—that thing, always, has been live performances, and therefore the less money spent by consumers on physical music, the better. Maybe that's the wrong assumption to make, and consumers really will destroy the music industry with their choices, but I have serious trouble decrying the decline of the record label model. It was never a good deal for the artists, regardless of what some of them may think.

[New York Times]
(h/t Marginal Revolution)

Quote of the Week

This week's Quote of the Week is going to be a bit of a cheat, in that it's really a Clip of the Week. I'm not going to do any setup of this quote (short of posting up this blog post, which is particularly apt), except to say that this is actor Craig T. Nelson, it's three years old, and yet I just saw it for the first time and think it's terrific.

I'll be referring back to this Quote in a blog post that I intend to write tomorrow, but for now, enjoy the awesomeness.

This week's QUOTE OF THE WEEK

"We are a capitalistic society. Okay, I go into business, I don't make it, I go bankrupt. They're not gonna bail me out. I've been on food stamps and welfare, did anybody help me out? No." 
                                             - Craig T. Nelson

Simply stunning ignorance. Amazing work.

On review factories and web-based deception

I've written about the dangers of relying on internet reviews here once before—I also wrote a blog post discussing the practice known as "astroturfing"—but the concept of "review factories" was a new one to me. Of course, I can't say that I'm in the least bit surprised...

In the fall of 2010, [Todd] Rutherford started a Web site, GettingBookReviews.com. At first, he advertised that he would review a book for $99. But some clients wanted a chorus proclaiming their excellence. So, for $499, Mr. Rutherford would do 20 online reviews. A few people needed a whole orchestra. For $999, he would do 50.

There were immediate complaints in online forums that the service was violating the sacred arm’s-length relationship between reviewer and author. But there were also orders, a lot of them. Before he knew it, he was taking in $28,000 a month...

Reviews by ordinary people have become an essential mechanism for selling almost anything online; they are used for resorts, dermatologists, neighborhood restaurants, high-fashion boutiques, churches, parks, astrologers and healers — not to mention products like garbage pails, tweezers, spa slippers and cases for tablet computers. In many situations, these reviews are supplanting the marketing department, the press agent, advertisements, word of mouth and the professional critique...

“The wheels of online commerce run on positive reviews,” said Bing Liu, a data-mining expert at the University of Illinois, Chicago, whose 2008 research showed that 60 percent of the millions of product reviews on Amazon are five stars and an additional 20 percent are four stars. “But almost no one wants to write five-star reviews, so many of them have to be created.”

"Created," in this case, of course means "bought". In this case, you pay Todd Rutherford a few hundred bucks, he goes onto Craiglist and finds a bunch of people to write reviews for 15 bucks apiece, and then he pockets the remainder. Nice business. Unfortunately for Todd, it didn't take long for his business to be exposed as a scam, and GettingBookReviews.com is no longer operational. But many of its competitors no doubt still exist, and it's nearly impossible to know how many there are and which products they're reviewing.

I hadn't seen the research saying that 80% of Amazon reviews were 4 or 5 star reviews, but it's definitely an eye-opening statistic. The take-home lesson here is pretty simple—if you want to know whether the product you're buying on the internet is any good, do your own research. If you outsource your research to "anonymous" internet reviewers, and trust in their opinion without verification, then you'll get what you pay for (actually, you'll get what the company paid for, but I digress).

But if you do insist on trying to discern which internet reviews are legitimate and which are fake, then Barry Ritholtz has passed along a helpful little guide of what to look out for. I'm sure a lot of these tricks will be familiar to many of you already...

Of course, what I would suggest instead is that you do what I already do—ignore the 4 and 5 star reviews entirely, and just read all of the 1 and 2 star reviews, almost all of which are legitimate. Sure, an enterprising company could be paying people to write negative reviews about its competition, but it's much less likely. So if you're looking for advice from internet reviews, that's the place to go. But of course, there are always better places to go...

[Yahoo Finance]
(h/t Falkenblog and Barry Ritholtz)

My next business venture... who's in?

Things are getting a little tough in the markets these days, and I'm thinking of switching vocations. Anybody got any good ideas for me?

For most people navigating the sidewalks of New York, the corrugated-cardboard bundles that stores put out for recycling are either an obstacle or nothing at all – invisible stitches in the city's zippy visual drapery. 

But for a subset of underground scavengers, they represent a drool-inducing resource, something to be urgently carried away to a recycling plant in exchange for cash money. 

"Cardboard poaching," as it's become known, is a multimillion-dollar cancer growing in the diseased corpus of recycling crime. Though the media have lately zeroed in on scrap-metals theft and restaurant-grease rustling, the stealing of cardboard still hovers below most people's awareness level. That might change soon as the bandits become even more brazen and as recyclers bear down on the papery perps who propagate this unusual black market.

Excellent! Of course, this is all technically illegal (all part of the "diseased corpus of recycling crime", apparently) because there are already companies who have been licensed by the city to do this hauling, so this cardboard is officially stolen goods... but hey who's counting? The only thing I'm gonna be counting is dollar bills, just like Homer and Bart.

The way it's supposed to work is that approximately 150,000 commercial establishments in New York contract with waste-removal companies who are licensed with the Business Integrity Commission, which among other duties is responsible for helping fight corruption in the city's garbage-management trade after the Mafia's intrusion in the 1990s. These authorized haulers schedule pick-up times with the businesses and whisk the waste away in professional-looking trucks. 

The thieves, on the other hand, drive in trucks rented from U-Haul and Penske or even unmarked Econolines. They cruise slowly down the street manhandling bales of cardboard into the vehicles. Or they'll dodge behind a large store like Costco to retrieve spoils left outside by the Dumpsters.

Oh, right. That's why it sounds like such a great racket... it's Mafia business. Makes sense. Still... who's coming with me, huh?

... the city's recyclers estimate that they're losing anywhere from $8 to $10 million a year. They argue that this loss hurts consumers as well, because haulers who can't make as much profit are less likely to grant discounts to business owners. Those businesses might then resort to raising their prices on consumers, and so on.

Sounds like a load of crap to me, honestly. But hey, $8 to $10 million? Sign me up. Beats investing in government bonds, amirite?

[The Atlantic]

Quote of the Week (Facebook edition)

This week's Quote of the Week comes from the world of Facebook, that ever-shrinking titan of social media. Things haven't been going so well for the company ever since they went public, as the increased scrutiny seems to have uncovered a number of pretty serious warts, none more serious than these most recent allegations as reported by PCMag.

A New York-based startup is ditching Facebook after it discovered some questionable activity on the social network's ad platform. 

Limited Run, which develops e-commerce platforms for musicians and labels, claims that 80 percent of the clicks for which Facebook was charging came from bots, not real Facebook users. 

The company said it discovered the problem several months ago in preparation for the launch of the new Limited Run. "We noticed some very strange things. Facebook was charging us for clicks, yet we could only verify about 20 percent of them actually showing up on our site," Limited Run said in a blog post.

I'd recommend reading the whole blog post for the gory details, but the long and short of it is that there are some potentially serious issues with the way that Facebook is reporting and charging for its ad clicks. There may be no ill will intended there—Limited Run, for their part, doesn't think there is—but the issue may be indicative of a serious lack of internal controls at Facebook, and that's a huge problem for a company that relies on advertising revenue to succeed.

But it is a secondary allegation by Limited Run that is the source of this week's Quote. The company claims that Facebook refused to let them change the name on their page (from "Limited Pressing" to "Limited Run") unless the company agreed to dramatically increase their advertising expenditures—not surprisingly, that didn't go over too well with the folks at Limited Run.

This week's QUOTE OF THE WEEK

"Damn we were so pissed. We still are. This is why we need to delete this page and move away from Facebook. They’re scumbags and we just don’t have the patience for scumbags."
                                  - Limited Run

In the wake of Limited Run's allegations, Facebook scrambled to clarify that it is not company policy to charge to change names, and that they would address the situation. While that's the correct move, this is yet another indication of a general lack of internal controls at the company.

Simply put, Facebook's executive team doesn't seem to be ready for prime time, and they are going to seriously need to get their act together if they are going to remain a public company. This kind of scrutiny is only going to get worse for them, and each "unfortunate" incident like this will continue to have a negative impact on Facebook's stock price.

The spotlight is shining, and so far Facebook has wilted. For a guy like Zuckerberg who hasn't made too many friends along the way, they can't afford too many of these hickups before the whole world simply revolts. The world is watching, and the clock is ticking.

[PCMag]

Communism has been proposed

Sigh... alright, I gave a teaser this morning about a potential rant, and I don't want to disappoint. I won't go on for too long about this, in part because I really hope some of my rant is self-explanatory (and redundant with previous rants on other topics), and also because the bill in question doesn't have a prayer of actually passing. But here goes:

Six House Democrats, led by Rep. Dennis Kucinich (D-Ohio), want to set up a “Reasonable Profits Board” to control gas profits. 

The Democrats, worried about higher gas prices, want to set up a board that would apply a “windfall profit tax” as high as 100 percent on the sale of oil and gas, according to their legislation. 

…The Gas Price Spike Act, H.R. 3784, would apply a windfall tax on the sale of oil and gas that ranges from 50 percent to 100 percent on all surplus earnings exceeding “a reasonable profit.” It would set up a Reasonable Profits Board made up of three presidential nominees that will serve three-year terms.

Reasonable profits? Excessive compensation? Mandatory free bag checking? What the hell is going on? When did our federal government, the most fiscally irresponsible group of politicians ever to have graced this fine nation, suddenly become the arbiters of all that is right and proper in the world of business?

There is nothing more ridiculous or counter-productive than these pseudo-communist government policies whose sole purpose seems to be to mitigate the negative impact of other government policies (believe me, oil and gas companies wouldn't have these kinds of profits--nor would banks and health care companies, for that matter--if it wasn't for persistently inflationary Fed policy that drives up the prices of the things we use the most).

But what bothers me the most is that these policies wouldn't even be effective in the first place. American companies and their executives are incredibly creative and resourceful (normally, this is considered to be a good thing), and it's not exactly difficult for them to show a nominal profit of zero in order to avoid paying a usurious tax. As a matter of fact, they're already doing it in large numbers, and it's costing our government a boatload of money.

Pretending that our gas companies couldn't find a way to avoid paying this tax (say, by paying their top executives ridiculously high salaries) is just indicative of how little our politicians actually understand about business and incentives. Sigh. Whatever. Good work, Rep. Kucinich. You're a true American hero.

[Marginal Revolution]

Way to go, Florida

The internet is clearly asleep this week, probably because nobody is actually at work (or, if they are, they're not actually doing anything, sort of like me). Far be it from me to wake up a sleeping giant, but I thought I'd pass along this fantastic article from Florida, which is seemingly hell-bent on setting a new low for state governments.

Florida school districts will be able to sell the naming rights for public school cafeterias under a bill filed this week.

Irv Slosberg, D-Boca Raton — who has also filed a bill that would allow advertising on the sides of school buses — filed the "Student Nutrition Enhancement Act" on Tuesday.

It would allow school boards to decide the details on naming rights, including where the name is displayed. It says revenue generated shall be used "to enhance the school district's school food service budget and to meet the nutritional needs of students."

In the midst of historically deep budget cuts for Florida schools, "this is a way to get private businesses to partner up with governments," Slosberg said Wednesday.

Oh my dear God. For what it's worth, Slosberg has previously called for Florida to sell the naming rights to just about everything, from state roads to beaches to--in his words--"anything the state of Florida owns that we could possibly sell". Like, you know, children.

Why not just institute a statewide public school dress code policy, and then sell advertising space on the school uniforms? That way we can raise new revenue to help pay for, I don't know, art and music classes, and our kids can all get gussied up like their favorite NASCAR drivers. I should probably shut up, before I give ol' Irv any more bright ideas.

This bill is honestly fairly inevitable, as it follows logically in the theme of moral relativism when state budgets are on the line--first it was drugs, alcohol, and gambling, and now coming soon to a state near you, whoring our kids' futures out to corporate interests.

What worries me most about this particular bill, though, is that there is a direct connection being made between the source of the revenue and the uses of said revenue. In most cases, that's a good connection to have, as taxpayers can better understand what they're paying for, and can therefore make better-informed decisions about whether or not a proposed program is a good idea.

But in this case, because it's corporations that are being considered, I worry that participating companies will make their sponsorships contingent upon certain specific uses--for example, "we, Frito-Lay, will sponsor your cafeteria, but only if you serve at least 35% Frito-Lay products in said cafeteria". In fact, such a setup is basically inevitable once you've opened up this Pandora's box. The potential for kickbacks and unintended consequences is staggering and frankly frightening.

But then, Congress has already told us in very clear terms that our school cafeterias are for sale to large corporate interests, when it openly declared that it considered pizza to be a vegetable. I probably shouldn't be so surprised to see desperate people with unfunded pensions so eager to sell out their own children's future, but I am nevertheless.

Cities, states, and countries have promised more than they can afford, but nobody wants to admit it or pay more in taxes to cover it. That leaves us with little choice but to begin chipping away at many of our once-cherished values, compromising the integrity and well-being of future generations in the process. Sad.

[Tampa Bay Times]

Fake Apple stores? Fake Apple stores.

Many months ago, I wrote a post (and a series of follow-up posts) about the "unintended consequences of globalization", focusing at times on the budding trade war/currency war with China over "unfair" trade practices. While the harsh political rhetoric toward China that dominated the headlines last fall may have subsided (to be replaced by harsh rhetoric surrounding debt ceilings--how quickly we move on), the underlying issues most certainly have not.

One of the issues with globalization that I did not write much about--but that is no less important--is the issue of counterfeiting. CNBC recently aired a long piece on the issue of counterfeit goods, estimating that nearly 7% of all global trade was comprised of counterfeit products. Simply put, when companies outsource their production overseas, they lose a certain amount of oversight and take a significant risk of losing their intellectual property rights--IP may be well protected here in the US, but it's the Wild West over in China.

For evidence of the Wild West, look no further than Kunming, China:

The Western news media is replete with pithy descriptions of the rapid changes taking place in China: China has the world’s fastest growing economy. China is undergoing remarkable and rapid change. This represents a unique moment for a society changing as quickly as China.

You probably read such things in the paper every day – but if you have never been to China, I’m not sure you know quite what this means on a mundane level. As I’ve mentioned elsewhere on this blog, in the 2+ years that RP and I have been in our apartment, much of the area around us has been torn down, rebuilt, or gutted and renovated – in some cases, several times over...

So when we strolled down a street a few blocks from our house a couple weeks ago, I was only sort of surprised to see this new place, one that any American of my generation can probably recognize instantaneously:

It’s an Apple store!

Or is it?

RP and I went inside and poked around. They looked like Apple products. It looked like an Apple store. It had the classic Apple store winding staircase and weird upstairs sitting area. The employees were even wearing those blue t-shirts with the chunky Apple name tags around their necks.

We proceeded to place a bet on whether or not this was a genuine Apple store or just the best ripoff we had ever seen – and to be sporting, I bet that it was real...

You have already guessed the punchline, of course: this was a total Apple store ripoff. A beautiful ripoff – a brilliant one – the best ripoff store we had ever seen (and we see them every day). But some things were just not right: the stairs were poorly made. The walls hadn’t been painted properly.

Apple never writes “Apple Store” on it’s signs – it just puts up the glowing, iconic fruit.

The name tags around the necks of the friendly salespeople didn’t actually have names on them – just an Apple logo and the anonymous designation “Staff”. And of course, Apple’s own website will tell you that they only have a few stores in Beijing and Shanghai, opened only recently; Apple famously opens new stores painstakingly, presumably to assure impeccable standards and lots of customer demand.

Is this store a copy of one of those in Beijing? A copy of a copy in another Chinese city? A copy of a copy of a copy?! While you’re pondering that, bear in mind: this is a near-perfect ripoff of a store selling products that were almost unknown when we first came to China. My white MacBook was likely to draw only blank stares or furrowed brows as I sat gnashing my teeth trying in vain to get a piece of Chinese software to run on it.

Wow. I've heard plenty about counterfeit goods (and, if we're being honest, even purchased some of them on street corners in Manhattan), but this is the first I've heard of an entire counterfeit store. That takes a whole new level of dedication, of research, and most importantly, of boldness. Check out some more of these pictures from the blog:

Crazy stuff.

Of course, like counterfeit goods, some counterfeit stores are better than others. The authors of the piece found several fake Apple Stores in their neighborhood, including this one with a careless typo:

It's hard to imagine that this is what Apple had in mind when it started shipping its production overseas, but this is one of the unseen costs of offshoring jobs (and, of course, yet another unintended consequence of globalization).

No word yet on whether the industrious (and morally relativist) Chinese have begun work on a ripoff of Manhattan's famous 59th Street Apple Store. Stay tuned...

[BirdAbroad]

Taibbi on point again

I've written about America's corporations and their aggressive avoidance of paying U.S. taxes before, and I've certainly excerpted the work of Rolling Stone's Matt Taibbi plenty of times as well. Today, those two items came together in a beautiful way, as Taibbi tore apart a potentially overlooked consequence of the so-called "Gang of Six" debt-reduction plan that's been bandied about this week.

At issue is a proposed "corporate tax holiday", a temporary repeal of a tax on repatriated cash from multinational corporations' overseas operations. Under current rules, multinational corporations are exempt from paying U.S. tax on cash that is held by overseas subsidiaries, but they must pay that tax if they attempt to bring the cash back stateside.

Lobbying efforts, however, have insisted that the corporations' inability to bring that cash home has hampered their ability to begin hiring American workers. Similar reasoning led to Congressional passage of a "one-time" tax holiday back in 2004--reasoning that, as Taibbi points out, turned out to be utter bullshit.

For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.

Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it...

Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.

Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. [Note: many of them also used the cash to increase dividends, simply returning the tax-free cash to shareholders.] Some of those companies promising waves of new hires have already committed to massive layoffs.

It was bad enough when lobbyists managed to pull this trick off once, in 2004. But in one of the worst-kept secrets in Washington, companies immediately started to systematically “offshore” their profits right after the 2004 holiday with the expectation that somewhere down the road, and probably sooner rather than later, they would get another holiday...

I’m shocked there isn’t more of an uproar about this. Could you imagine what the Tea Party would be saying right now if there was a law on the books that allowed immigrants to indefinitely avoid taxes on income sent back to family members in the old country, in Mexico and Venezuela and India?...

As it is, leading members of the Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance.  Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue.

We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all , but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a shit. What the hell is wrong with people? Have we all lost our minds?

I don't usually excerpt at such great length, but Taibbi is almost always worth it. Indeed, he's dead right. There's any number of reasons behind our current budgetary crisis--a couple of long and expensive wars, unwarranted tax cuts to high-net-worth individuals, Medicare Plan D, demographical shifts that have left us with fewer taxpayers and more tax recipients, and the list goes on--but one of the most overlooked items is the ever-declining share of tax revenue paid by our corporations.

Along those lines, Barry Ritholtz passes along a couple of incredibly insightful charts showing the steady decline in corporate taxes paid over the last several decades:

 

The argument, of course, is that lower corporate tax rates help stimulate the overall economy, fueling job growth at home as our largest corporations open up their hiring doors. But with unemployment remaining stubbornly high and large-firm CEO pay soaring to record highs, I think it should be fairly clear where, exactly, this lost tax revenue is ultimately ending up. If you don't tax the corporations, it's just giving another tax cut to the richest Americans, plain and simple.

Trickle-down economics is a scam. Continuing to make cuts to middle-class benefits (like Social Security and Medicare) without addressing such a significant core revenue problem as this is fraudulent. If a corporate tax holiday is indeed passed this summer, shame on the "Gang of Six"--they'd be nothing more than common thieves.

[Rolling Stone]
[The Big Picture]

Dis-honest-tea in America

I love this little promotion being run by the folks over at Honest Tea right now, aiming to find the "Most Honest City in America". In short, the promo people set up unmanned Honest Tea coolers in several American cities, with bottles for sale for $1 each under the honor system. Of course, they set up hidden cameras nearby, so that they could track how many people actually paid the dollar for the teas they took. Then they summarized the results.



As of this morning, the site indicates that the overall rate of honesty is a staggering 94%, with Chicago leading the way at 99% (followed closely behind by Boston, Seattle, and Dallas at 97%) and Los Angeles and New York bringing up the rear at 88% and 86%, respectively (I'm shocked... absolutely shocked to see those two cities bringing up the rear).

The study appears to be ongoing, but in general I'm honestly pleasantly surprised by how honest people have been. Maybe it's because they assume they're being watched (watching some of these people's reactions is priceless), and maybe it's just a happy miracle of the particular street corners (and cities) where they happened to set up their coolers.

Either way, I think that this Honest Tea promotion is a clever bit of marketing, a fascinating social experiment, and just plain fun to watch, even if somewhat limited from a scientific perspective (it's not exactly a perfectly controlled study on human honesty). Good work, Honest Tea.

[Honest Tea]  
(h/t Freakonomics)

Changing living patterns in America

On his Freakonomics blog, Stephen Dubner cited an interesting and thought-provoking statistic (well, more a projection than a statistic, but so be it) about the housing market from this CNN.com article.

The National Association of Homebuilders predicts that by 2015, 60% of new homes will be designed with "dual master bedrooms."

The CNN article brings up the statistic--and Dubner analyzes it--in the context of "mediocre marriages", indicating that the predicted growth in dual master setups is a response to increasingly loveless marriages and couples who don't want to share a bed. I think that may have something to do with it, but there certainly aren't enough mediocre marriages out there to justify that many new dual master homes (are there?).

More likely, the NAHB projection is reflective of a changing mindset and economic reality among those in the upcoming generations. For one, the housing crash that precipitated the financial crisis of 2007-2008 has eroded a long-standing belief that housing is a stable investment and that home ownership is a laudable goal for all Americans. An increasing number of younger people (including well-regarded journalist and hedge fund manager James Altucher) have begun to question the wisdom of owning real estate at all, and have turned to renting instead. A dual master setup would seem to lend itself particularly well to a renting situation, where two people could share the rent on a house without having to share a bathroom or a primary living space.

Furthermore, economic realities affecting two important groups of people may force a trend toward co-habitation over the coming years. The first of these groups is the elderly--while they likely don't have to worry about suspensions of Social Security payments any time soon, it is clear that the Federal Reserve's low-interest rate policy has made life very difficult for "savers", those who rely on interest payments to generate income. Many of the elderly are of course in this category, and without a steady stream of income, they may be forced to move in with their children, as was commonplace in previous generations.

The second such group is on the other end of the spectrum, but no less impacted by the economic recession. With an ever-increasing number of college graduates unable to find adequate employment upon graduation--and many others accepting much lower-paying jobs out of necessity--young professionals may be forced to move back in with their parents on a semi-permanent basis as they try to whittle away at their mountains of student loan debt. This dynamic has of course already begun, and homebuilders may just be trying to get ahead of the curve.

Ultimately, I think that the housing-led recession of the early 2000s will have a long-lasting effect on the way that Americans view housing and homeownership. I've already written here before about how I think the culture of homeownership is limiting economic flexibility, and this dynamic seems bound to reverse itself.

After the Great Depression, a generation of workers shunned banks, unwilling to place their deposits with them or take loans out from them. I think it's possible--if not likely--that the next generation will have a similar response with respect to homeownership, shunning the traditional American dream in favor of a more mobile (renter's) lifestyle. This, combined with the economic factors that I discussed above, will have a dramatic impact on how homebuilders and real estate agents approach their jobs.

If not, then there's gonna have to be a lot more mediocre marriages to fill all those second master bedrooms...

[Freakonomics]

A snapshot of America

Before I launch into this post, a disclaimer: much like in this post on racial profiling, the study I am going to cite here suffers from self-selection bias--that is to say, it's not necessarily reflective of the population at large, and it should therefore be taken with a large grain of salt. But it's still a little troubling.

Times Square and Rockefeller Center often top the must-see list for New York City-bound tourists, but the Lourve-inspired [sic] Apple store on Fifth Avenue is surprisingly the number one most photographed attraction in Manhattan.

Researcher Eric Fischer mapped and analyzed millions of photos on Flickr that were taken throughout the city and looked at their geo-tagged information -- such as time and date they were shot --to determine patterns of interest.

Although the sleek glass exterior of the Fifth Avenue Apple store gets the most pictures, Rockefeller Center (no. 2), Columbus Circle (no. 3) and Times Square (no. 4) were also on the list.

Oh, dear God, people... really? Okay, look, I get that the Apple Store is right at the base of Central Park, and therefore it's a heavy traffic area, and so it's very recognizable and hard to miss, and... and... really!??! You go to New York City for a weekend to see the sights, and you take a picture of... THE APPLE STORE?!??! That's like going around the country taking a picture of all the great Wal-Marts throughout the nation. Hey, look! There's the Wal-Mart in Las Vegas! And there's the Wal-Mart by the Golden Gate Bridge!

I guess I shouldn't be surprised, since recent research suggests that love for Apple lights up the same part of the brain as religion--in that case, the Apple Store on 5th Avenue is for Apple lovers what St. Peter's is for a Catholic. Pardon me while I throw up a little bit.

Yup, this is America.

[LiveScience]
(h/t Barry Ritholtz)

Hidden victims of the auto bailout

Didn't hate the auto bailout yet? Still weren't sure if it was a net positive or negative for our country at large? Maybe this article will help you make up your mind.

Vicki Denton died several years ago after the airbag in her 1998 Dodge Caravan minivan failed to deploy during a head-on collision in the Georgia mountains. In 2009, a jury found Chrysler responsible for her death because of a manufacturing defect, awarding her surviving son and other relatives $2.2 million.

The family was near collecting those damages on the eve of Chrysler's government-brokered bankruptcy. Now, two years removed from a $12.5 billion bailout, Chrysler Group LLC still hasn't paid the damages, and doesn't have to.

The reason: The company's restructuring allowed it to wash away legal responsibility for car-accident victims who had won damages or had pending lawsuits before its bankruptcy filing. The same holds true for General Motors Co., which discarded the liabilities as part of its own $50 billion bailout and restructuring.

In rescuing the car makers, the U.S. government prevented a potential meltdown of the auto industry and further shocks to the economy. But in the process, it created a wide universe of relative winners and losers. The U.S. Treasury received large ownerships stakes in the restructured auto makers, as did union retiree trusts. Chrysler's banks got some, not all, of their loans repaid in cash, and GM's lenders were fully repaid. On the other side, thousands of dealers, asbestos victims and other creditors received little to no recompense.

Among the creditors who suffered most, car-accident victims represent a distinct mold. Unlike banks and bondholders, this group didn't choose to extend credit to the auto makers. As consumers, they became creditors only after suffering injuries in vehicles they purchased.

Wow. This is pretty disgusting, and the judges who allowed these debts to be erased (both of whom are named and quoted in the article, which deserves to be read in its entirety) should be ashamed of themselves.

Of all the terrible precedents set during the financial and auto bailouts (and there are tons of them, some of which--like this one--we're just now finding out about), this might be the worst I've come across so far. It makes me sick to my stomach that a company can be excused of responsibility for its negligence...simply by becoming even more negligent to the point of bankruptcy. The fact that something like this was explicitly allowed (and in fact endorsed) by our federal government only makes it that much worse.

I was anti-bailout from the get-go, and this sends me over the top. Buy American? No thanks.

UPDATE: A commenter correctly pointed out that Ford did not accept bailout funds, and therefore should not be included in my snarky "don't buy American" conclusion. Fair point. I have much respect for Ford for fixing their own problems. GM & Chrysler? Not so much. Buy Ford.

[Wall Street Journal]

Another interesting TED talk

I get a kick out of Morgan Spurlock. He's a funny guy, not afraid to do unconventional things for the benefit of learning and teaching, and he frequently takes on interesting topics for his documentaries. So I'm interested to see his latest movie, "The Greatest Movie Ever Sold", even more so after watching this TED talk from earlier this year.



One line in particular from Spurlock stayed with me: "If you train your team to be risk-averse, they will end up being reward-challenged". I think you could change "your team" and "they" to "yourself" and "you" and have some pretty fair words to live by.

Studying movie sequels

Courtesy of BoxOfficeQuant comes this awesome infographic studying whether or not Hollywood sequels lived up to the quality of the original--a pertinent study with The Hangover Part II and Pirates of the Caribbean: On Stranger Tides (#4 in the series) set to dominate the box office this summer. The results shouldn't really surprise any of us (below the line means the sequel was worse than the original), but it's interesting nonetheless.

That clustering on the far right side of the graph indicates that the best original movies have a little better chance of producing better sequels--that's where we see movies like Godfather II, Toy Story 2, and The Dark Knight, all of which were fantastic originals with equally entertaining sequels.

Things are a little tougher for mediocre (terrible?) movies like Big Momma's House, Deuce Bigalow: Male Gigolo, and Agent Cody Banks, where the sequels were just stale remakes of material that was already fairly weak, a point that is reflected in the data.

Incidentally, this is some data I'd love to have in front of me to play around with, because I'm kinda bored and this is exactly the type of idle data-crunching that I enjoy (wait a second, there was a sequel to Teen Wolf?). But for now, I'll just enjoy this graphic and then end up ignoring it anyway when I go to the movies this summer.

[BoxOfficeQuant]
(h/t Barry Ritholtz)

World's most marketable athletes

This post sort of falls in line with my previous post about the world's highest paid athletes (by country), only this time we're looking not at salary but general marketability. According to SportsPro, Jamaican sprinter Usain Bolt--world record holder in both the 100m (9.58s) and 200m (19.19s) distances--is the most marketable athlete in the world.

World and Olympic 100 and 200 metre champion Usain Bolt has replaced NBA star LeBron James as the most marketable sportsman on the planet...

Athletes have been ranked according to their marketing potential over a three-year period. James drops to second in the list, with Real Madrid’s Cristiano Ronaldo ranked third.

The list comprises the 50 athletes deemed by SportsPro to offer value for marketing money if signed today to a long-term global endorsement deal.

This year’s list features 16 new entries but only five women. There are 19 Americans on the list, six Britons and, in all, representatives from 19 countries. 18 sports are represented, including seven racing drivers and seven basketball players. Six soccer players make the list.

The complete Top 10 is listed below, courtesy of Paul Kedrosky.

It's remarkable, though probably not surprising, that so many of the top 10 are from international (Olympic) sports--especially when you consider soccer to be an international sport, which it no doubt is. It's hard to maintain marketing clout when the majority of people in the world are only paying attention to your sport once every four years, but there we see that 2 of the top 10 (Bolt and Phelps) are Olympic athletes. Include British track star Jessica Ennis (#12) and American snowboarder Shaun White (#14), and you've got 4 of the top 15.

That's pretty impressive, and it definitely speaks to the power and reach of the Olympics. We as spectators may not care about the sports in and of themselves, but we definitely care about the dedication, patriotism, and drama that comes along with training for the Olympics, laying it all on the line for just one event.

As a side note, am I the only one surprised by how frequently these Formula 1 guys show up on these lists? I must be massively underestimating the popularity and global reach of those funny little cars... Also note that Mahendra Singh Dhoni, the Indian cricketer who figured prominently in my highest-paid athletes post, also finds his way into the top 10. Once again, take that, A-Rod (not in the top 50, though Joe Mauer and Brian Wilson are).

[SportsPro]
[Bloomberg]

Quote of the Week

This week's quote definitely leans toward the jargon-y side of things, and it's admittedly a little heavy compared to what I usually showcase here. But the line caught my eye, and I think it dovetails nicely with my mini-rant on auto bailouts from the last segment of this morning's link dump.

I'm often writing here about the perils of bad science, and bad statistics, and how people try to draw conclusions from data that is inherently biased (or at least not properly controlled). In complex systems (and almost everything in human interaction is a complex system), it is almost impossible to reliably isolate and determine the impact of just one variable--but that never stops people from trying.

The response to the financial crisis is, of course, fertile ground for such statistically-challenged efforts. Without further ado, courtesy of The Daily Reckoning blog, here goes nothing... 

This week's QUOTE OF THE WEEK

"The change that is happening in the financial markets is a chaotic mess. I believe the simultaneous execution of radical monetary policy, fiscal policy, and financial regulatory reform is introducing rather than reducing systemic risk in the global financial system by ignoring the simplest lesson of the scientific method. Rather than change one variable in a complex system and test the outcome, regulators and policymakers are changing virtually all of them at the same time."
                                    - Michael A.J. Farrell; CEO, Annaly Capital Management

Farrell goes on to enumerate a laundry list of major economic changes, all of which are going on at the same time: QRM [quantitative risk management], risk retention, the Volcker Rule, Basel III capital rules, derivatives clearing and related margin requirements. GSE reform. FAS 166 and 167. Zero-bound fed funds policy and QE2. Deficit financing, structural budgetary imbalances, and debt limit debate.

Yeah, that's a lot. And in any system with that many moving parts, it's absolutely impossible to know which one of them is having a positive impact, negative impact, or no impact on the overall outcomes. Remember that next time you see a politician trying to take credit for the supposed successes of "his" policy (or, in the case of Ben Bernanke, simultaneously taking credit and blame-shifting)--there's simply no way of knowing what's helping and what's hurting when we can't isolate just one variable.

Too much good stuff

You all know by now how much I hate the concept of a link dump, but every once in a while I must admit it's a useful tool. With the couple of days off that I had to take last week, there's a ton of stuff that I would have posted about that fell through the cracks. Since I'll never really catch up if I don't write about this stuff now, it's time for another pseudo-link dump.

As with the last time I did this, I'll post the links to the relevant articles, give a quick blurb with my thoughts on the link (or links), and you can choose whether or not you're interested enough to read the whole piece. I enjoyed all of them thoroughly.

It's harder to get a job at Walmart than it is to be admitted to an Ivy League school
Jerry Shenk; American Thinker

Jerry Shenk notes that while acceptance rates are extremely low at Ivy League schools--6.9% at Harvard, 8.2% at Princeton, 11.5% at Dartmouth--these rates are nothing compared to hiring rates at many midwestern Walmarts. One Cleveland-area store reported a hiring rate of only 5% (6,000 applicants for only 300 jobs), whereas the sheer number of applications was staggering at a pair of Chicago-area stores--15,000 and 20,000 total applications, for reportedly similar numbers of jobs to the Cleveland store.

Shenk notes that 2% fewer college graduates received jobs in 2010 than 2009, which no doubt means that the Class of 2011 will be fighting with a few long-term unemployed graduates when they leave their campuses after graduation this month. That's not good for them, and it's certainly not good for our nation's colleges (Ivy League schools included). Who would bother going through the arduous application process, spending four years at college, and taking on over $100,000 in debt if there's no jobs available on the back end? Why not just throw your hat in the ring at the local Walmart and get a head start on the game?

The People vs. Goldman Sachs
Matt Taibbi; Rolling Stone
Goldman Viewed Unfavorably by 54% as Poll Shows No Damage
Christine Harper; Bloomberg
As Wall Street Firms Grow, Their Reputations are Dying
Steven M. Davidoff; New York Times

These stories are all closely related, and frankly they deserve their own post (especially the Taibbi piece, but that's true about almost every Taibbi piece). But I could honestly write for days about this issue, and I've been consistently too lazy or too busy to give this one the time it deserves. So rather than let it go entirely unaddressed, I'll address it here. Ultimately, the point is that there is an extreme divergence at present between the profitability of the banks (particularly Goldman Sachs) and their general reputation. Almost everyone hates the banks, but they just keep on printing money.

Several reasons are given for this divergence, especially in Davidoff's NY Times article. But I think the explanations all basically miss the point. The point is, this is what happens in bailed-out industries. Companies who don't need to worry about failing also don't really need to worry about customer service. What's happened with airlines in the last 20+ years is now happening with banks. With unconditional federal support, there is no longer any incentive to do things properly or in a way that keeps your customers happy. That's why we all hate airlines, and it's why we're all beginning to hate banks, and it won't change until our federal government decides that it's going to stop bailing out failed companies and failed industries.

As for Goldman, they'll just keep on stealing until somebody decides that they've stolen too much. I'm not holding my breath.

Library of Congress Revives Thousands of Vintage Recordings
Caroline Cooper; WQXR.org

The National Jukebox, a project launched last week by the Library of Congress, has compiled more than 10,000 rare and previously unavailable recordings of music, speeches, and comedy acts (all of it recorded between 1901 and 1925) into a free streaming database. Also known as: Ken Burns' wet dream.

I think it's a pretty cool use of the internet (along the lines of yesterday's super-nerdy interactive solar system post). Some of the stuff is actually really fun to mess around with, even if there is enough old-timey ragtime music on there to make me feel like I'm walking around inside an early Mickey Mouse cartoon. Good work, Library of Congress.

Opinion: The Auto Industry Bailout - Still Debated But Worth Every Penny
David Kiley; AOL Autos
GM's Profits are Still a Huge Net Loss For Taxpayers
Megan McArdle; The Atlantic

Another pair of related articles, this time with drastically opposing viewpoints. From my discussion above about Goldman, you already know where I come down on bailouts of all kinds, but that's hardly the point.

The point here is that the true costs and true benefits of any of these bailouts will only be known with the benefit of several decades of hindsight. Any attempt to write a post-mortem on these bailouts now is early at best, ignorant at worst. Note that the financial crisis of 2007-2008 had many of its roots in the fiscal and monetary response to 9/11, but we only fully appreciated those links nearly a decade later (and some of us still don't fully appreciate that dynamic). Therefore, to pretend that we can properly assess the long-term impacts of our bailout strategies at this point is foolhardy.

Of course, my greatest criticisms of the bailouts is that they sacrifice the long-term at the benefit of short-term stability, so maybe I'm just letting my own viewpoints here bias my reading of the articles in question. But I really do believe that we will only fully appreciate the impacts of these bailouts long after any of us has stopped thinking about them. That's what scares me.

Quote of the Week

There has been a fair amount of reaction this week to Harvard economist Greg Mankiw's most recent monthly column in the New York Times, in which he essentially admitted that he didn't know what to make of the U.S. economy at present. It's rare to see any academic (or professional in any field) concede defeat, but Mankiw (whom I had as a professor as an undergraduate, and whose work I have featured here once before) did so in a humble, eloquent manner that I salute.

This week's QUOTE OF THE WEEK

"After more than a quarter-century as a professional economist, I have a confession to make: There is a lot I don’t know about the economy. Indeed, the area of economics where I have devoted most of my energy and attention — the ups and downs of the business cycle — is where I find myself most often confronting important questions without obvious answers."
              - Greg Mankiw, Harvard economics professor

Mankiw goes on to issue a fairly stern (and level-headed) criticism of the culture of punditry in America, one that continues to be fed by our 24-hour news cycle that requires and spews out "analysis" at all times, regardless of its basis in fact. He writes:

By its nature, punditry craves attention, which is easier to attract with certainties than with equivocation. But that certitude reflects bravado more often than true knowledge.

Well said. Plus bonus points for using big words.
 
I, for one, work in an industry that craves analysis, opinion, and prediction. Everyone wants to know where the market is heading next, even though nobody really knows. The best any of us can do is give a range of probabilities and outcomes, and position ourselves favorably for all potential outcomes. But that type of approach doesn't sell many books (or attract many investors). Neither does earning a slow, steady 6-7% per year into perpetuity.

No, the managers and economists who grab the headlines are the ones who make huge bets, put all their eggs in one basket, and are eventually lucky enough to see it pay off. They certainly are fairly quiet about revisiting their predictions when they fail (and they most often do), but they receive huge accolades when they happen to be right. John Paulson, who predicted and profited from the bursting of the housing bubble, knows this dynamic well. But he was wrong for a long time before he finally became right. Insert "stopped clock is right twice a day" wisecrack here.

Either way, I think it's refreshing to see a pundit take a step back and admit weakness and confusion. Every once in a while, we'd all benefit from some humility.

[New York Times]