Fewer Southern Californians will travel for Labor Day

About 2.32 million Southern Californians will travel for the Labor Day weekend, a 2.6% drop from last year, according to the latest data from the Auto Club of Southern California.

Vacationers who plan to fly, take a train, a bus, a motor home or a cruise ship will drop the most, while the number of Southern Californians who will drive will increase to 1.89 million compared to1.88 million who traveled by car last year.

Gas prices will be higher this holiday weekend than during any other Labor Day weekend except 2008, when Southland travelers were paying $3.80 to $3.90 a gallon on average. Current gas prices are just a few cents below that record level for Labor Day.

 

 

Nordstrom announces free online shipping and returns

Nordstrom is giving shoppers something to cheer about: Starting Monday, the upscale department store chain will begin offering free shipping and returns for all purchases made online.

Previously, the Seattle company offered free shipping for online purchases of $200 or more, or through promotional offers. The new free shipping policy applies to Nordstrom.com orders shipped within the U.S.

"Free shipping is reflective of how customers increasingly want to shop online and we hope this change makes it easier and more convenient to shop with us," said Jamie Nordstrom, president of Nordstrom Direct.

Like many retailers, Nordstrom has been improving its online experience as more consumers turn to their computers and smartphones to shop. Other improvements the chain has made recently include an enhanced mobile website launched in June; a "search by store" function on Nordstrom.com to allow customers to view available merchandise at nearby Nordstrom stores in real time; and shared inventory between the company's stores and its website.

The cost of shipping is seen by many shoppers and retail analysts as one of the biggest drawbacks of shopping online (along with not being able to see the product in person and having to wait a few days for your purchase to arrive). Just a handful of big-name retailers offer no-strings-attached free shipping, including online shoe website Zappos.com; online giant Amazon.com offers free shipping on orders of $25 or more. 

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-- Andrea Chang

Photo: Nordstrom at Westfield Topanga in Canoga Park. Credit: Associated Press

Consumer Confidential: Spending, Banana Republic, Apple TV

Here's your hey-Mickey Monday roundup of consumer news from around the Web:

--We're shopping. Maybe not a whole lot, but we are shopping. Consumer spending rebounded in July as people bought more cars and other long-lasting items. Spending was up 0.8% over the month, the strongest increase in five months, following a revised 0.1% fall in June, according to the Commerce Department. July's boost was stronger than the 0.5% rise economists had expected. Adjusted for inflation, spending rose 0.5%. Consumption is a critical driver of U.S. economic growth, accounting for about two-thirds of gross domestic product, so July's rebound strikes a positive note for the beleaguered recovery -- that is, if we keep shopping through the second half of the year.

--How do you say "Banana Republic" in French? Gap Inc. plans to open its first Banana Republic store in France in early December. The clothing company, whose other brands include Old Navy and its namesake, says the store will be in Paris on the chic Avenue des Champs Elysees. Gap says the store is part of its international growth strategy. "With loyal customers across Europe, both in our stores and online, we are confident that Banana Republic's proposition of affordable luxury will resonate well with Parisian customers," said Stephen Sunnucks, president of Gap's international division. Last week, Gap also announced that it plans to open stores in Vietnam and Guam. Do they wear khakis in Guam?

--Is there an Apple TV in your future? The website VentureBeat reports that "Apple is almost certainly working on a digital television based on its iOS operating system, according to multiple sources in Silicon Valley." An Apple TV would allow people to do many things with their televisions they can't do now. The most important of these would probably be the ability to run Apple apps. This would permit consumers to download applications from Apple's store, which has hundreds of thousands of products. The Apple TV would allow people to switch from Facebook to Google to their calendars all on one device in the living room. The big question for me: Will you have to touch the screen to change channels?

-- David Lazarus

Photo: Gap Inc. says it will open a Banana Republic store in Paris. Credit: Jae C. Hong / Associated Press

No, Mme Lagarde – forced recapitalisation would be exactly the wrong policy

Christine Lagarde (Photo: Reuters)

IMF chief Christine Lagarde has said that many European banks need “urgent recapitalisation” and a “mandatory substantial recapitalisation” would be the “most efficient solution”. This is wrong.

Banks are subject to regulatory capital requirements. That is to say, they are required to hold a certain amount of capital as a buffer so they can absorb losses if there are bad debts. There are three kinds of reasons for this.

The best reason is that, under some circumstances intrinsic to the nature of banking, a bank may face temporary liquidity problems and need to borrow money from the central bank (e.g. the ECB) on a “lender-of-last-resort” basis. The central bank will only want to provide such liquidity if the bank is a worthy recipient. Part of being a worthy recipient is that the bank concerned will be able to pay back the money. So the central bank should oversee the banks that it might provide last resort lending to ensure that they hold adequate capital.

The second reason is that individual depositors and shareholders in banks may be small, and not well-placed to monitor and discipline the activities of a large bank. Instead, they have incentives to free-ride on the monitoring of others. To get around this, the regulator acts as a “representative” of the depositors and small shareholders, monitoring the bank on their collective behalf, trying to ensure it has adequate capital (inter alia).

The third, and much weaker, reason for capital requirements is to try to avoid a financial crisis when a bank goes bust, which could lead to spillover effects on other financial institutions and perhaps the wider economy. There is thus perceived as being a social interest in capital being adequate that goes beyond the banks’ own interests – so banks may be required to hold more capital than they would, left to themselves, choose to do.

Let us consider Mme Lagarde’s proposal in the light of these three criteria. First, we should observe that capital requirements are determined at levels that reflect a current state of the market (number of players, size, etc) and aim to avoid a crisis arising. Once we are actually in a crisis they don’t apply in the same way. For example, once we are actually in a crisis the optimal future shape of the sector (number of players, size, etc) is likely to be different. Insisting on capital requirements that reflect the old shape is an exercise in denial. If a number of firms were to go bust, for example, then the share prices of the survivors would rise (as they would face less competition). So firms that would survive do not, themselves, need additional capital – imposing increased capital requirements on them will make them distressed artificially, through regulatory fiat. And firms that should not survive don’t need it either – they need to go bust and be taken over or restructured.

Next we should understand that if banks are value-destroying enterprises (as a number of European banks surely are) their solvency problem is not simply one of past losses. Their problem is a lack of future profitability – their businesses are not viable and need to be restructured or shut down. Recapitalisation in such circumstances is simply a matter of throwing good money after bad and of retarding the process of restructuring.

Third, we should understand the broader macroeconomic impact of demanding additional capital. Banks deliver this in two ways: first, they shrink their existing balance sheets (i.e. they make less loans, less risky loans and call in loans they have made); then, once they have de-risked, they raise extra money. Increasing capital requirements will tend to lead banks to draw in their claws further, shrinking the money stock and worsening the recession. Doing this now would very probably induce a catastrophe.

Banks do not need increased capital requirements. Instead, they need proper resolution mechanisms, whereby they can be allowed to go bust, safely, with losses for lenders instead of taxpayers and the wider macroeconomy.

Debt crisis: Is the Great Reckoning upon us?

Gordon Brown: one of the chief architects (Photo: AFP/Getty)

In response to the crisis of 2008, UK policy-makers did five key things:

1. They bailed out a number of banks that had inadequate capital.

2. They insisted that banks that were not bailed out had to raise additional capital privately.

3. They raised spending, by around £110 billion (mainly by continuing with previously-scheduled large. spending rises even though the situation had changed).

4. They enacted a temporary tax cut (around £12.5 billion).

5. They printed money (around £200 billion).

Of these policies, the first three were serious errors. The last (money-printing) was done well, and was the key reason for the growth from mid-2009 to mid-2010. The temporary tax cut was in principle a good idea, though it would have been better to have cut income tax than VAT. And if we had not done the ill-conceived spending rises, we could have made the temporary tax cut at least three times (perhaps six times) as big. Extensive academic studies have demonstrated that temporary tax cuts provide much more effective stimulus than spending rises (indeed, since spending rises may be believed to be permanent – as they often are – they can make households and businesses believe that the medium-term growth outlook is worse (as it would be if the public spending stayed up) and thus actually damage growth even in the short term.

However, although raising spending was an error, much the worst error was bailing out the banks. As of 2008, the situations in the UK, Spain and Ireland were all fairly similar: each had had a serious housing bubble; each had banking sectors of above 400 per cent of GDP; none of them had particular high government debt; all had government deficits headed towards 10 per cent of GDP. There was no intrinsic way for us to know that Ireland would be very rapidly ruined by its decision to bail out the banks, whilst in Britain it would be more drawn out, and in Spain matters would be somewhere in between. Irish nominal GDP shrank by around 20 per cent in 2008/9. (The worst recession of the past century in Britain was that of the early 1920s, when nominal GDP shrank by around 28 per cent.)

Bailing out the banks meant that the governments of Britain, Ireland, Spain and elsewhere took onto the public balance sheet the liabilities of the banking sector. (I occasionally read articles suggesting that this is true in a metaphorical sense, because of the large deficits run. No. It is true in a literal sense. According to National Statistics, the liabilities of RBS and Lloyds are UK government liabilities.) This overstretch in the government balance sheet is a key reason the government needs to cut the deficit as quickly as it does – without the commitments to the banks, we would have been able to run larger deficits for longer (especially if those deficits were the result of temporary tax cuts).

I would have opposed bailing out the banks even if I had been certain it would “work” in its own terms. It is immoral to tax poor people to keep rich people rich, despite their bad investment choices, and it destroys the functioning of capitalism. But there was always the danger that – as in Ireland – they wouldn’t work in any sense, but would simply bankrupt the governments involved. The crisis of 2008/9 was not simply a liquidity crisis. It was not the result of market irrationality. It was not even simply a matter of insolvency arising from past losses. In a number of cases the business models of financial institutions were no longer going concerns – they were value-destroying enterprises, not value-creating ones. This was not simply a matter of gambles with fancy financial derivatives. Even before the bonds market madness of 2005-7, around 30 per cent of the gross income of European retail banking came from mortgages. But mortgage volumes remain way down on their mid-2000s levels, and even when they come back the value of transactions will be much lower. The only way a number of these business could continue without significant restructuring of the sort that would occur under administration is for governments to provide an ongoing stream of subsidies.

Recent developments in financial markets suggest that we may soon face a Great Reckoning for the policy errors of 2008/9. Some bank shares are now worth less than before nationalisation; the cost of insuring the debts of some banks has recently been higher than the 2008 peaks. Governments have been arrogant in assuming themselves capable of bailing out some of these monster banks, when they had made such bad losses. They have been deluded in assuming that significant structural change was not required in the banking sector. There is now a significant risk that, around Europe in particular, many state-owned banks will go bust, despite government backing. If it happens, this is likely to bring down governments – indeed, may even lead to constitutional overthrows in two or three countries. The consequence could be another recession as bad to twice as bad as that of 2008/9.

In countries such as Britain and Ireland and Spain, that ought to have been OK. Public debt – setting aside banking sector liabilities – is not at critical levels even now. We ought to be able to cut taxes temporarily, increase deficits, and see ourselves through in the normal way. Unfortunately, because of government over-commitments in the banking sector, we will struggle to maintain solvency even by cutting spending as aggressively as is politically deliverable.

A further phase of recession (indeed, even simply tepid growth) will necessitate further spending cuts. The UK political debate is still stuck in an absurd situation in which a supposedly-serious political party, egged on by quite a section of the press, still wants to pretend that the alternative to the Coalition’s programme would be to cut spending less and cut slower. The truth is that we are likely to have to cut spending more and faster. Indeed, there is a chance that we shall yet be forced to cut spending much faster – including on sacred cows like health – because a further phase of recession could well lead financial markets to lose confidence in our government’s bonds, as they have lost confidence in the bonds of other governments.

Much of this was avoidable. We did not need to bail out the banks, bankrupting multiple governments in the process. There were alternatives, such as imposing debt-equity swaps. We did not need to whack up spending, undermining long-term growth rates. We could have kept spending under control and instead cut taxes.

Four years after the financial crisis began, in the summer of 2007, we still send tens of billions more, every few months, to bail out the banks – though these days we have rebranded our banking sector bailouts “sovereign debt bailouts”. The patience of taxpayers with such nonsense is an affront to democracy – No. More than that: democracy has failed, and in a number of European states political upheaval may (justly) be part of a Great Reckoning.

Perhaps we shall muddle through, for a little while yet, with policy errors simply leading to hidden damage and injustice – as usual. But if, despite the trillions poured into them, large government-backed banks now go bust, dragging down their states’ solvency in the process, the bailouts of 2008/9 will go down as the greatest economic folly in history. And I shall be bitter and ungracious enough to say: I told you so.

Time, Money and Unemployment

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

What do people do after they lose their jobs, other than look for a new one? The unemployed put more time into unpaid household work, including child care, according to an important new study by Mark Aguiar, Erik Hurst and Loukas Karabarbounis. Their findings dramatize the limitations of conventional measures of economic well-being based entirely on market income.

Today’s Economist

Perspectives from expert contributors.

When Benjamin Franklin advised us that “time is money,” he was living a world in which many individuals were self-employed and could at least grow their own food. In our world, it’s hard to convert time into money if you can’t find a paying job.

Perspectives from expert contributors.

Still, Americans 15 or older (including students and retirees) devote, on average, almost as much time to unpaid work as they do to paid work (about 23 hours a week on household activities, purchasing goods and services, caring for and helping others, and volunteering, compared with about 25 hours a week on paid work and related activities, according to data from the 2010 American Time Use Survey).

Time applied to unpaid work can provide a partial substitute for consumer expenditures. Individuals can cut down on restaurant spending by preparing their own meals, care for family members rather paying for day care or elder care, clean the house instead of hiring a maid or fix their own roof instead of hiring a roofer.

Shopping may be fun sometimes, but it’s also foraging work in which increased time and effort can save money. In previous research, Professors Aguiar and Hurst have shown that households that shop twice as frequently as others pay prices that are 7 to 10 percent lower.

Retired people seem particularly adept at stretching their budgets. In addition to shopping more carefully, they typically reduce spending on food – a pattern that once led many economists to assume that they had not saved enough for retirement. But Professors Aguiar and Hurst have shown that retirees’ actual food consumption does not decline. Rather, they increase the time devoted to food preparation, cooking more (and presumably better) meals for themselves.

Previous studies of the impact of unemployment on time allocation showed little effect, generating at least one news article about the unemployed “frittering their time away.” Professors Aguiar, Hurst and Karabarbounis provide a very different picture in their recently released paper for the National Bureau of Economic Research, “Time Use During Recessions.”

In a sophisticated econometric analysis of data from the American Time Use Survey, they controlled for underlying trends and also compare differences in time-use across states with differing levels of unemployment. (See this blog post for more details).

They found that about 30 percent of the forgone market work hours during the recession were reallocated to housework and about 5 percent to child care. An additional 10 percent were reallocated to education, health care and civic activities. Time devoted to job searches increased, but remained relatively small, perhaps because there’s not that much people can do when jobs aren’t available.

Most of the remaining time went to increased sleep time and leisure, including more television viewing. Not surprisingly, women were more likely than men to reallocate time to housework. They were also more likely to increase their sleep time.

The overall increase in non-market work implies that household consumption among the unemployed fell less than market income, but it’s hard to put a dollar value on the unpaid work. When people make a voluntary decision to substitute time for money, we can infer something about the relative value they place on it.

But most unemployment is involuntary, and some unpaid work probably represents an effort to stay busy more than a significant contribution to household living standards.

The authors emphasize the relatively large impact of unemployment on unpaid work, in part because this is a new finding, and in part because it counters the wrong impression that, as Professor Hurst put it, the Great Recession was a Great Vacation.

But it is also important to note that most of the unemployed can’t allocate more of the free time they gain to productive uses, even if they want to. They lack the capital, land, tools and skills needed to flexibly shift from wage employment to production for their own use. Even when they can make a partial shift, their productivity is likely to be lower in unpaid work than paid work.

That’s why involuntary unemployment represents such a waste of human capabilities and loss of productive output for the economy as a whole.

And that’s why Benjamin Franklin, were he alive today, would be wagging his finger at policy makers who don’t consider unemployment our most urgent economic problem.

Join us for a chat about electric vehicles

The market for electric vehicles is finally getting amped. More than a dozen all-electric cars and plug-in hybrid vehicles will roll into showrooms over the next year. Major automakers are unveiling models, as are start-up companies including Tesla, Fisker and Coda. Times staff writers Jerry Hirsch and Tiffany Hsu compiled a consumer guide to electric cars that you can find here.

Join Jerry Hirsch for a live chat about the electric vehicles coming on the market and the factors you should consider before purchasing one. The chat is on Tuesday at noon. Sign up here.

  

Photo: Henrik Fisker, CEO of Irvine carmaker Fisker Automotive, shows off the production version of the Karma plug-in hybrid. Credit: Allen J. Schaben / Los Angeles Times