Friday, October 14, 2011

Podcast: Insider Trading, Job Creation and Fighting Cancer

A federal judge in Manhattan this week imposed the longest insider-trading sentence ever in the United States.

In a conversation on the new Weekend Business podcast, Peter Lattman, who covered the sentencing of the hedge fund manager Raj Rajaratnam in the case, says the government argues that it will have a powerful deterrent effect.

Mr. Lattman said that it contrasts, however, with a comparative lack of prosecutions, convictions and long sentences for executives whose firms may share responsibility for the financial crisis that began in 2007.

In a separate conversation, Robert Shiller, the Yale economics professor, discusses the argument he makes in the Economic View column in Sunday Business that the government should put people to work in large-scale infrastructure projects. The proposal was included in President Obama’s American Jobs Act, which was blocked at least in its full form by the Senate last week.

Natasha Singer talks to David Gillen in the podcast about her Sunday Business cover article on the “pinking of America” — the rise of a marketing powerhouse in the fight against breast cancer.

And Steve Lohr discusses the importance of default choices on the Internet and in other parts of contemporary life. As he says in the Unboxed column in Sunday Business, much of the Internet is wide open, but the design of Web sites and the order of Web searches helps to determine what consumers actually see and select.

In the news portion of the podcast, I discuss the Nobel prize in economics, which has been labeled a “Non-Keynesian Nobel.” In my Strategies column in Sunday Business, Professor Christopher Sims of Princeton, one of the new Nobel laureates, makes it clear that he actually places his research within the Keynesian tradition.

You can find specific segments of the podcast at these junctures: the insider trading case (30:23); news headlines (23:50); fighting breast cancer (21:23); Robert Shiller (11:55); designing for the Web (7:36); the week ahead (1:48).

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

Lean on Me: Trust and Friendship Around the World

Among the many reasons Americans are lucky is that they tend to have people they can depend on.

That is one of the takeaways from a recent report from the Organization for Economic Cooperation and Development, which in part looked at social relationships and trust around the developed world. Here is a chart showing the share of a country’s population that say they have relatives or friends they can count on for help in times of need:

The United States is in the middle of the pack of the countries surveyed, with 92.3 percent of Americans saying they have a support network. Compare this to a country like India, where only 59.3 percent of people say they have a network they can depend on in times of need.

CATHERINE RAMPELL
CATHERINE RAMPELL

Dollars to doughnuts.

Having friends and family you can lean on is particularly important for those who are more likely to need support from time to time — that is, lower-income people.

Dollars to doughnuts.

Unfortunately, the O.E.C.D. found that people with lower incomes and less education were least likely to have a personal social safety net:

Perhaps partly because they generally have good support networks, Americans are slightly more trusting than residents of other countries; 36.6 percent of Americans agreed that “most people can be trusted,” compared with 33 percent across the developed world.

But distrust reigns when it comes to opinions of some of their most prominent institutions.

Just 30.1 percent of Americans have a “high level of trust” in the media, compared to an O.E.C.D. average of 40.4 percent. Even China, where news organizations are state-run, somehow managed to have higher trust in the media (54.6 percent). The same is true in Mexico (52 percent), where journalists reportedly self-censor to avoid angering the drug cartels.

Americans are also slightly less likely than other developed countries to say they have a high level of trust in their national government, yet somewhat more likely to trust in their own country’s judicial system.

Make-Work and the G.D.P.

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Suppose some evening a group of bored and mischievous teenagers slash tires on a number of cars in the parking lot of a shopping center. Distraught car owners call sundry nearby garages to send someone to fix the damage on the spot or tow the cars in for repairs. That work is speedily done, and the cars are ready for use again. The car owners pay the garage owners sizable repair bills.

This fictitious event leads to a number of questions:

1. Did the garages deliver value to the car owners?
2. Was gross domestic product increased or decreased?
3. Were the car owners better off, after paying the repair bill?

Today’s Economist

Perspectives from expert contributors.

My answer to the first question is yes and to the second yes, as well, unless the garages had to give up other jobs with revenue equal to or greater than what they earn coming to the car owners’ rescue. To the third question, my answer is, it depends.

Perspectives from expert contributors.

If we take as the baseline the position of the car owners after the tires had been slashed, they would be better off, unless for some the repair bill turned out to be so high that, in retrospect, these owners would have preferred to abandon their cars. If we take as the baseline the situation before the tires were slashed, the entire affair left the car owners worse off. It reduced what economists would call social welfare.

Why is this vignette in so serious a blog as Economix? Because it illuminates a phenomenon not always fully appreciated when we talk about value added or G.D.P.

In many instances, Person (or Enterprise) A delivers great value to Person (or Enterprise) B to extract the latter from a situation into which B should not have been put in the first place. We count in G.D.P. the value added by the extrication but do not detract the value destroyed by being driven into a precarious situation.

Quite a few economic transactions included in our G.D.P. parallel this vignette. Think of reconstruction after a natural disaster. We count the money paid for reconstruction in G.D.P. but do not deduct the value destroyed by the disaster.

Suppose a country developed long-range missiles that made our aircraft carriers sitting ducks for attack or developed the ability to paralyze our country with cyberattacks. To extract ourselves from that threat with possibly expensive countermeasures, we would give up enjoyable consumption or investments yielding future enjoyable output in order to increase military spending.

Now think about the almost incomprehensible tax code that Congress has imposed. Think of it as a disaster of human making. To cope with it, individuals and businesses hire legions of lawyers and accountants who have deployed their human capital to understanding this bewildering code. These tax experts work hard and often brilliantly to shield their clients from taxes, usually achieving tax savings that are multiples of what they charge for their services.

For the clients, it is a highly valuable service. Indeed, the more confusing the tax code, the more of these experts we need, the harder they work, the greater the value of their services to their clients and the more income they earn. That income, of course, is part of the G.D.P. But for the most part, their work collectively amounts to one giant zero-sum game, because taxes not paid by one client will have to be paid by other taxpayers now or in the future to bring in the revenue needed to sustain the spending level Congress has set. It does not enhance overall well-being for society as a whole.

We can doubt that these professionals’ work creates a more efficient incidence of taxation, because much of their work is to know and take advantage of complicated and inherently inefficient tax loopholes that Congress should not have established in the first place.

In many ways, our health care system mirrors our tax code — especially in its financing and health insurance facets. These can be made so complex and have been made so complex in the health care system in the United States that many decision makers in health care — patients, physicians, hospitals, employers and so on — need in-house or external consultants to find their way through the maze.

A few months ago, I asked a Canadian hospital executive how many employees he had in his hospital’s compliance department. “Compliance?” he responded. “What do you mean by that?”

Somehow the Canadian provincial government-insurance plans manage to pay Canadian hospitals without requiring them to have the large compliance staff or outside compliance consultants engaged by hospitals in the United States whose task it is to ensure that the hospital does not violate the hugely complex, ever-changing terms of Medicare, Medicaid and other government programs or regulations. An academic health center may have a dozen or two dozen employees devoted to compliance. Such a center may employ several hundred billing clerks to cope with the myriad of private health insurance plans and policies, each with its own coverage, nomenclature and payment rules and requirements for prior authorizations.

Consulting firms help physicians bill private and public insurers or help patients submit claims to insurers after an illness. Legions of insurance brokers help prospective clients through the maze of the nongroup or small-group health insurance market. Large employee-benefit consulting firms, helping large companies, establish what amount, in effect, to analogues of the health-insurance exchanges in the Affordable Care Act, and many more consultants of many stripes are involved.

One does not find legions of expert consultants helping individuals and businesses through the administrative maze of the health care system in, say, Switzerland, Germany or other European countries, or Canada, or Taiwan. It seems to be a uniquely American phenomenon — part of American exceptionalism, I suppose.

All of these consultants perform highly valuable services to their clients, but taken together their work consists for the most part of helping Americans extricate themselves from an administrative nightmare into which they should not have been put in the first place.

At Yale University I had the privilege of sitting in the classroom of the late James Tobin, an early Nobel laureate in economics and one of our profession’s greats. He distinguished between “enjoyable” and “nonenjoyable” G.D.P., with the latter including military spending or other “value added” from coping with either externally inflicted or self-inflicted damage done to our society. I often think of our revered professor when I contemplate the composition of this country’s G.D.P.

World of Commuters

CATHERINE RAMPELL
CATHERINE RAMPELL

Dollars to doughnuts.

Americans have some of the shortest commuting times in the developed world, according to a new report from the Organization for Economic Cooperation and Development.

Dollars to doughnuts.

According to organization’s time use data, the average commuting time in the United States is about 28 minutes (similar to a separate measure from the United States Census Bureau). That is 10 minutes shorter than the average commuting time for all member countries, of 38 minutes, and longer than the time spent traveling to work in only three rich countries (Israel, Denmark and Sweden).

The O.E.C.D. member country with the longest average commuting time is South Africa, where the typical time spent traveling to work is 56 minutes.

To the extent that public policy is intended to enhance not only economic growth but also total happiness, these figures are important. A study from Alan Krueger, Daniel Kahneman and others found that commuting to work was the daily activity that gave the least enjoyment.

Poll: Americans struggling more than Chinese to keep families fed

China
Nearly 20% of Americans found it difficult to put food on the table over the last year, according to a Gallup poll released this week. In China, however, only 6% of residents are running into the same problem, the study found.

It’s a sharp turnaround from 2008, when 9% of Americans were worried about feeding their families, compared with 16% of Chinese.

But the nominal economic recovery has been difficult in the U.S. with incomes slipping amid high food and gas prices. Meanwhile, the class of uber-wealthy Chinese seems to be growing, even as a huge portion of the country remains poor.

On the housing front, Americans are better equipped to afford a place to live, with 11% of U.S. residents struggling to afford shelter compared with 16% of Chinese.

But that gap may narrow –- the percentage of people grappling with housing prices has shrunk in China since 2008 while growing in the U.S.

The Asian superpower lashed out this month at the U.S. over accusations that its yuan currency is undervalued. Not long after a bill that would impose tariffs on Chinese goods cleared the Senate, China's Foreign Ministry urged the House to reject the legislation.

"This won't solve America's own economic and employment problems," said Ma Zhaoxu, a Foreign Ministry spokesperson, in a statement.

RELATED:

China's trade surplus shrinks on weakened global demand

Chinese inflation remains high amid signs of economic slowdown

Trade deficit with China cost nearly 2.8 million U.S. jobs since 2001

-- Tiffany Hsu

Photo: A vendor waits for customers at a Beijing fruit stall. A recent Gallup pound found 20% of Americans struggled with putting food on the table compared with 6% of Chinese residents. Credit: AFP/Getty Images

Mattel reports solid third-quarter earnings

Mattel reports third-quarter earnings; sales rise 9% thanks to strong Barbie salesMattel Inc. reported a 6.2% rise in profit and a 9% increase in sales for the third quarter thanks to strong demand for Barbie, other doll lines and "Cars 2"-related toys.

For the three months ended Sept. 30, the nation's largest toymaker, based in El Segundo, reported profit of $300.8 million, or 86 cents a share, compared with $283.3 million, or 77 cents, in the year-earlier quarter.

"Not only have we continued to benefit from the strength of our core brands, but this year's big entertainment property, 'Cars 2,' is also fueling momentum," said Robert A. Eckert, Mattel's chief executive.

Heading into the holiday season, the most important time of the year for the toy industry, Eckert said the company was "keenly focused" on delivering growth in its core brands and entertainment properties, expanding its international footprint and building its newest franchise, the Monster High doll line.

Sales for the quarter were $2 billion, up 9% compared with $1.83 billion for the same quarter last year. Sales rose 6% in the U.S. and 13% in international markets, the company said.

Sales were up 17% for Barbie; 23% for Mattel's "other girls brands" such as Disney Princess and Monster High; and 14% for its entertainment business, which includes games, puzzles and "Cars 2" merchandise.

Mattel's Fisher-Price Brands unit had softer sales, rising 1% to $748.9 million.

Shares of Mattel were down less than 1% to $27.51 at 10:45 a.m. Pacific time.

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-- Andrea Chang

Photo: A Barbie ad in New York. Credit: Bloomberg

Consumer Confidential: Sales up, Chris Tucker in trouble

Tuckpic
Here's your not-fade-away Friday roundup of consumer news from around the Web:

--Nothing like a little retail therapy to make the economic blues go away. Consumers stepped up their spending on a variety of retail goods in September, according to the Commerce Department. They spent more on autos, clothing and furniture last month to boost retail sales 1.1% -- the largest gain in seven months. Auto sales rose 3.6% to drive the overall September increase. Still, excluding that category, sales increased a solid 0.6%. The government also revised the August figures up to show a 0.3% increase after initially reporting no gain. Not a great showing, but not so bad either.

--You're not the only one feeling a pinch. Court records show comedian Chris Tucker is facing foreclosure on his multimillion-dollar mansion in central Florida. Records show SunTrust Banks filed papers against the California resident with Lake County courts earlier this week. According to documents, Tucker bought the 10,000-square-foot lakefront home for $6 million in 2007 -- before the housing market crashed. The bank claims he still owes more than $4.4 million, but the county property appraiser has the home currently assessed at $1.6 million. Tucker is best known for starring alongside Jackie Chan in three "Rush Hour" films.

-- David Lazarus

Photo: Court records say "Rush Hour" star Chris Tucker, right, with Jackie Chan, faces foreclosure on his Florida home. Credit: Glen Wilson / New Line Cinema

 

Bay Area home sales pick up as prices fall

As prices fell, Bay Area home sales picked up in September from the same month a year prior.
As prices fell, Bay Area home sales picked up in September from the same month a year prior.

Sales were up 6.6% from the same month a year ago. As is typical, sales fell from August to September, down 10.2%, to total 6,749 homes sold last month, according to real estate research firm DataQuick of San Diego.

The median price for the region fell 7.6% from the same month a year prior and was down 1.4% from August, hitting $365,000.The median is the point at which half the homes in the region sold for more and half for less.

Foreclosures and other so-called distressed properties remain a big part of the market. Foreclosures accounted for 25.6% of the resale market last month, down from a revised 25.7% in August and 27.5% in September 2010.

Short sales -– when the home is sold for less than the outstanding debt on the property -– made up 20.1% of the Bay Area market last month. That was up from 18.2% of August and 15.4% in September 2010.

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-- Alejandro Lazo
Twitter.com/alejandrolazo

Photo: A San Francisco neighborhood. Credit: Getty Images

Occupy Wall Street: City officials across U.S. grow impatient

Occupy Wall Street set up an encampment in DenverOccupy Wall Street may continue its encampment in New York -- for now -- officials said, and protesters at Zuccotti Park cheered and breathed a sigh of relief. But across the U.S., there's evidence that authorities'  patience with the anti-corporate-greed protests is wearing thin.

Times reporter Tina Susman, on the scene in New York, documented the protesters' elation early Friday morning. But even with the reprieve, officials in New York are on standby: "Our position has been consistent throughout: The city's role is to protect public health and safety, to enforce the law, and guarantee the rights of all New Yorkers," Deputy Mayor Cas Holloway said in a statement.

Meanwhile in Denver, hundreds of protesters were told Thursday to clear out of their encampment near the state Capitol or risk being arrested. Police in riot gear moved on protesters Friday morning, arresting about two dozen and tearing down their tents. Protesters in Trenton, N.J., have been ordered to remove tents they erected near a war memorial.

In San Diego on Friday morning, police began to arrest protesters who refused to remove their tents and other property from the plaza behind City Hall.

Protests in Los Angeles, however, have been relatively peaceful, not approaching the scale of civil disobedience seen in New York. Mayor Antonio Villaraigosa went so far as to hand out rain ponchos to protesters.

In New York, the AP reported Friday, there were reports of a handful of arrests. In one case, a police scooter hit a protester, who fell to the ground and screamed before kicking the scooter over to free his foot; he was then arrested.

What's ahead for the protesters? As Times business columnist Michael Hiltzik wrote:

Moving from protest to policy is the hardest leap that grass-roots organizations face, akin to turning a promising patent into a billion-dollar business. Occupy Wall Street is just now entering that very difficult, and very interesting, phase.

ALSO:

Retail sales are up

Stocks, gold rise on retail numbers

California plans $2-billion bond sale amid rising yields

-- Amy Hubbard

Photo: Colorado Gov. John Hickenlooper said Thursday that anti-Wall Street protesters near the state Capitol must tear down their tent camp. Credit: Ed Andrieski / Associated Press

BMW shows off new generation 3 Series sports sedan

2012 BMW 328

BMW will introduce a new version of its popular 3 Series sports sedan i that will weigh less but have bigger dimensions, giving rear-seat passengers more space.

The new model, which appears at dealerships in February, is critically important to BMW’s strategy in the United States and for its global sales, said Tim Urquhart, an analyst with IHS Automotive.

“The BMW 3 Series is in many ways the company's keynote model,” Urquhart said. “It is the bestselling premium passenger car model in the world and has long set the agenda as being symbolic of BMW's wider corporate strategy at any given point.” Bmw2

BMW has sold more than 60,000 of the current model in the U.S. this year, far outpacing other small luxury sedans, including its second most popular rival, the Mercedes-Benz “C” class, 39,000, as well as offerings from Audi, Infiniti and Lexus.

The automaker, which unveiled the car at an event in Germany, did not provide information about fuel economy or U.S. pricing. The current model starts around $35,000.

The new generation 3 Series will have many of the same styling cues as the current model and one version will come with a version of the sedan with a four-cylinder engine.  And for the first time, BMW also plans to sell a hybrid model of the car.

BMW stopped selling four-cylinder engines in the U.S. more than a decade ago, thinking they didn't fit the profile of its luxury buyers.  But more automakers are shrinking their engines as a way to meet more stringent fuel economy standards.  

Four-cylinder engines now account for about 65% of all cars built in the U.S., Canada and Mexico, up from 48% five years ago. Six-cylinder vehicle production slipped to 25% from nearly 40%.

BMW, however, doesn’t expect to be giving up any performance in the new car.

The new powerplant will come in the less expensive 328i version of the sedan. It will be a turbocharged four banger that produces up to 240 horsepower. That’s slightly more powerful than the six-cylinder engine in the current 328i. BMW claims the new 328i will accelerate from 0 to 60 mph in just 5.7 seconds.

The more expensive 335i model will come with BMW’s 6-cylinder engine.

BMW also is going to an 8-speed automatic transmission in the new 3 Series, another move that is expected to improve fuel economy. The car also sheds 88 pounds, which should help improve mileage.

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-- Jerry Hirsch
Twitter.com/LATimesJerry

Photos: 2012 BMW 3 Series sedan. Credit: Edmunds.com 

My goodness are these economists such ideologues


It's not just Labour politicians who have been laying into David Cameron's conference speech that "the only way out of a debt crisis is to deal with your debts", or his claim that the Government's austerity programme has given the country record low interest rates. Labour has got plenty of heavy weight support from the economics profession for its point of view. Take this piece from the FT's Martin Wolf (£), or in the US this from Paul Krugman, and again from Brad DeLong.


OK, so these are all the usual suspects, but as I've argued before, they've got a point in suggesting that record low interest rates in fact have not a lot to do with getting to grips with the nation's debts and absolutely everything to do with the fact that the economy is going down the pan. I wouldn't have put it quite so colourfully, but here's what Brad DeLong has been telling his students at Berkeley.


Right now record-low interest rates are not a tool for improving the economy. They are a consequence of the fact that the British economy is 100% scr—d and about to become 150% scr—d. The risk that other investments in Britain will go south as the double-dip hits is sufficiently large that investors are terrified and willing to buy British Treasury debt at absurd and outlandish prices.


You'll only know for sure that the economy is on the mend once interest rates begin to rise again, as investors switch out of gilts into growth orientated assets such as equities.


But where these neo-Keynsians go wrong is in failure to recognise the extreme dangers for Britain of financial market and sovereign debt contagion. They don't seem to realise what a perilous, knife edge, position the UK is in. Aggretating all debt together – sovereign, household, private sector and banking – the UK is far and away the most indebted country on the planet.


In the circumstances, it is a miracle that we've got the low interest rates we have. Other nations are being punished by markets for far less. The UK has managed to avoid similar treatment only because it has retained market confidence and thereby its triple A credit rating. This in turn has been secured by taking pre-emptive action on the deficit.


Had the UK stuck to the much milder consolidation plans of the last government, it's highly likely that the triple A would now be lost. To reflect the supposed credit risk, we would in such circumstances now have long term interest rates similar to those of Spain and Italy. The US, which this summer lost its triple A, is not a valid comparison here, because it's still the world's reserve currency and in unstable times will therefore suck money in from all over the world. It's fantasy to think that a UK economy running 10pc budget deficits into the indefinite future would enjoy the same privilege.


Now admittedly, Spain and Italy are in an even more precarious position. Membership of the euro precludes the monetary activism that has been applied in the UK, where long term rates have been manipulating down through quantitative easing. Even so, it's hard to believe markets would have continued giving Britain the benefit of the doubt without a credible deficit reduction strategy. Long term rates would have been several percentage points higher than they are.


Nevermind what that would have done to the over indebted household sector, rates at this level would by now also have invoked another banking crisis. As we have seen in the eurozone, once the sovereign becomes impaired, so does the banking system. The triple A is a kind of banking gold standard – it is the asset class that gives depositors confidence in the safety of their money. (For further reading on the linkages between the eurozone's sovereign debt and banking crises, see my column for Friday's edition of The Daily Telegraph).


So there is a sense in which they are both right – Cameron and Brad DeLong. Personally, I'm very suspicious of any entrenched ideological position. The first rule of public policy is that it has to remain adaptable. Unfortunately, the debate over the deficit has become extraordinarily ideological and very polarised. These economists are just as guilty of it as the politicians. That's a very bad development.



Retail sales up in September

Retail-sales-blog

Here's some good news for the economy: Consumers spent more in September.

The Commerce Department said retail sales increased 1.1% last month.

A big part of the increase was auto sales, which rose 3.6%. Excluding autos, retail sales still gained 0.6%.

And retail sales were better than first thought in August. The Commerce Department revised last month's numbers up to 0.3%, after first reporting no increase.

This is all good news because it counteracts concerns that the economy is falling into a recession. Retail sales are a big part of the economy, accounting for 70% of economic activity. 

The report helped push stocks up. After the bell, the Dow rose 109 points, or 1%, to 11,587.

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Milken Conference: Where are the game-changing (political) ideas?

-- Pat Benson

Photo credit: Bloomberg News

Wall Street: Stocks and gold rise on good retail numbers

Wall Street: Stocks and gold up again
Gold: Trading now at $1,681 an ounce, up 0.8% from Thursday. Dow Jones industrial average: Trading now at 11,595.90, up 1.1% from Thursday.

Going shopping. Investors are snapping up stocks after learning that consumers have been doing more shopping than expected in the last month.

Not going anywhere. It had appeared that the owners of the plaza that protesters were occupying near Wall Street had found a way to kick them out -- but that plan was put on hold early Friday morning.

Cutting the perks. Royal Bank of Scotland is the latest Wall Street firm to cut back on the extravagances that its employees have enjoyed, including office parties. 

Raj's road. Yesterday Raj Rajaratnam got his 11-year prison sentence -- here's what his path ahead looks like

-- Nathaniel Popper in New York
Twitter.com/nathanielpopper

Photo credit: Stan Honda / Getty Images

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