Tuesday, March 29, 2016

Turning Point for $15 Minimum Wage

California has a plan for a $15 minimum wage to be phased in over seven years. California is a large state, so despite the long lead time, its move lends more credibility to the $15 target intended to bring the minimum wage in line with where it was in the 1970s. A $15 minimum is also being adopted by some employers. We will surely see more states adopt $15 as a target, so that by next year, states with lower minimum wages will start to feel some pressure to catch up. The federal minimum wage too is overdue for an increase, but realistically, that will never be put up for a vote as long as Republicans have any say in it.

Monday, March 28, 2016

FBI Abandons Case Against Apple

The FBI has broken into a seized phone with the assistance of an unnamed security company. This result renders the FBI suit against Apple moot and vindicates a consensus of security experts who said all along that the FBI’s position that it needed Apple’s assistance was preposterous. The speed with which the FBI broke into the phone — it worked on it for one week — shows that the approach it took was less costly than the custom software it was requesting in its lawsuit against Apple would have been. The phone in question was a work phone, and from it, the FBI has presumably retrieved work schedule information that belonged to the suspect from whom the phone was taken.

The gist of the case against Apple involved the question of the extent to which the government can conscript unrelated third parties to do the work of government. In this case, the FBI decided to undertake its own effort only after it appeared it might lose its case against Apple. The case may set a precedent of sorts, even if there cannot be a legal precedent. In the future, law enforcement agencies are likely to decide it doesn’t make sense to hire lawyers to arrange for work that can more easily be done by engineers.

Wednesday, March 23, 2016

Brazil, Like a Thicket Unraveling

In the early spring I’ve dedicating my gardening time to ripping out the thickets of raspberry and rose bushes that grew up over the last four years while I was distracted by cleanup from a timber project. Taking apart a thicket is an experience I wish everyone could have. When I first approach a thicket, it is effectively impenetrable. Branches crisscross and intertwine while thorns threaten any animal that dares to come close. All I can do is snip away pieces around the edges. I proceed in this fashion for hours and the work seems to have no effect. I can cut away literally half of the plants that make up the thicket without seeming to reduce it in any meaningful way. But this impression that nothing is happening is illusory. If I keep cutting away pieces, eventually there is a tipping point at which I see the first hints that the thicket is getting thinner. After a few more minutes of work the thicket is starting to unravel. When it starts to fall apart, it is amazing how fast it goes. It takes only a few more minutes to cut away the remaining plants one by one, and then it is hard to find any sign that the thicket was ever there.

I am getting some of the same feeling this month as I study the news reports from Brazil. The story there has been described as the largest scale of corruption ever uncovered in a democratic country. The stunning thing about the recent revelations is that they tie in to so many of the biggest debacles in Brazil’s recent history.

The investigation started two years ago looking into irregularities at Petrobras, the effectively bankrupt but too-big-to-fail state-owned oil company. This is not a good time to be in the oil business, but the troubles with oil in Brazil go back well before the latest decline in oil prices, with stories of bribes, phony suppliers, and Swiss bank accounts. The week started with Petrobras reporting the largest quarterly loss in its history of $10 billion. The same day on the other side of the Atlantic Ocean, a bribery suspect in the Petrobras case was taken into custody by Portuguese police.

The troubles at Petrobras are enormous by themselves, but there is much more going on than that. The chairwoman of the board at Petrobras until 2010 is now president of the country. That is a conflict of interest that, on the one hand, shocks the conscience, and on the other hand, is a familiar scenario for anyone who followed U.S. politics a decade ago. The president faces an apparently unrelated impeachment complaint. The complaint on the surface looks petty and politically motivated, yet one has to ask whether, after an executive has presided over such a shocking level of business corruption, it is safe to leave her in the presidency where she appears to be working to impede the investigation of her former employer. Adding to the intrigue, the president just appointed the former president as chief of staff in order to protect him from prosecution, a move that failed when courts struck down the appointment and the constitutional court took charge of the investigation of the former president.

Yesterday prosecutors described in detail an automated system for money laundering that was operating under the auspices of the country’s largest engineering firm, a firm tied not just to Petrobras but also to many of the bizarrely defective World Cup construction projects. Brazil’s decision to host the World Cup turned into a tragedy with construction problems killing construction workers and bystanders alike. Fortunately, the badly built stadiums stood up during the games themselves. The World Cup project was met with protests as soon as it was announced and proceeded so badly that the voting public saw it, at least until recently, as a bigger national embarrassment than Petrobras. The connecting link between the World Cup and Petrobras, revealed yesterday, was the secret shadow bank, hidden inside an engineering firm, that delivered bribes for both. As described by prosecutors, the money laundering system would route simultaneous payments through 20 or more separate companies so that bribes could avoid detection. The system seemingly was set up to deliver the engineering company’s own bribes but subsequently came to be used to deliver bribes from a wide range of private sources. This whole story has to be met with a degree of skepticism — to my knowledge, nothing of the kind has previously been documented anywhere in banking. Yet the prosecutors who described it seemed to have an intricate understanding of its operations and capabilities with details that would surely be impossible for investigators to imagine or make up. If the money laundering technology can be corroborated, it is a measure of a thoroughly entrenched system of corruption. I try to imagine a system in which bribes have become so commonplace that they need their own secret automated clearinghouse. Surely this is not what the world has come to.

The story is nowhere near as clean and simple as this quick summary makes it sound. If the president is to be impeached, this will have to be decided by a legislature that has more than its own share of legal troubles. Protestors have been objecting to government waste, corruption, and indifference all along, yet some of the protest groups are quietly funded by foreign fossil-fuel interests. Key decisions will have to go through courts that are not as impartial as their role would seem to require. FIFA, the sponsor of the World Cup, has corruption problems of its own that are every bit as serious, so there is a chance that a corruption probe in Brazil might bump into corrupt practices there. A government that is barely functioning will have to, in the very near future, find a way to cope with the dangerous Zika virus outbreak, then host the Summer Olympics. Did I mention that the Olympics also have a similar culture of corruption going back decades?

Putting it all together, it is shocking and frightening to see how much of the government and corporate economy in Brazil are tied in to a single network of corruption. It is hard to imagine either holding together for much longer, yet also hard to guess the sequence of events by which this whole corrupt system will come apart.

Monday, March 21, 2016

FBI Retreats in Apple Case

The FBI case against Apple is on hold for now. The FBI in a court filing all but admitted that it was incorrect when it said it could not break into a confiscated iPhone without Apple’s help. Security engineers had said all along that there was little factual basis for the FBI’s helpless stance, and perhaps with the outcry the FBI has been shamed into taking responsibility for its own work. Another possibility is that the FBI saw itself losing a potentially precedent-setting case. Whatever the rationale, the FBI has asked the court for time to investigate its options. This is a favorable outcome in economic terms. It is better when the government can do its own work without delegating tasks by force to unrelated, unwilling, and unpaid third parties.

Coal Loses Wall Street Backing

Wall Street is pulling out of the coal business, as the New York Times notes in a front-page story today. Four of the Wall Street banks have announced that they won’t be involved in financing for new coal-burning power plants. Already overextended with bad bets on oil extraction, Wall Street can ill afford to risk extending its losses with coal plants that would surely fail or close before they earned enough to cover construction costs. Even already-operating coal mines are seen as too risky on Wall Street these days.

Friday, March 18, 2016

This Week in Bank Failures

Bank regulators can reduce the risk that a bank will fail, but banks will still fail sometimes, New York Fed President William Dudley said today. Congressional committees in particular have asked if the Fed and other regulators can do more to prevent bank failures. Similar questions have come up in Spain and other places where major banks have gone under with only a few days of warning. In my opinion, the banks themselves, not the regulators, have to take on the primary responsibility for avoiding failure. Most recent large bank failures have been the result of a pattern of high-risk transactions that regulators couldn’t be expected to uncover quickly. Often the high-risk transactions were undertaken in an obscure corner of the bank that kept the nature of the risks they were taking hidden from senior management. In other cases, senior management was in on the coverup, betting the bank’s future on loans to faltering businesses that either the bank or its executives had an interest in. Either way, bank examiners and auditors tend to find out about these practices only after it is too late to save the bank.

If it is considered essential as a matter of policy to reduce the number of large bank failures, that will require new laws to change the incentives at work in banks. Rules that delay the vesting of bonuses were a very crude way of addressing this issue. There is much more that could be done to reduce bank officers’ incentives to take risks and to obscure the risks they have taken.

In Spain, Bankia is paying out compensation to small investors who bought stock in the state-created bank during its one year in operation before it failed and was taken over by the state. The bank had challenged the requirement in court, but ultimately lost, with courts finding that the bank did not properly disclose to the investors, most of whom were the bank’s accountholders, that the financial instruments they were selling were a form of stock. It is the largest misselling case in Spanish history. The average individual investor is being compensated €5,000. The question of compensating institutional investors is still open, but that would be a much harder case to make. Institutional investors would have to show that the offering documents misled the institutional investors’ lawyers, but that’s possible if the bank provided a false description of the investments in the documents. All these issues have to be resolved before the rescued bank’s planned 2017 stock offering.

Stealth malware installed in the central bank of Bangladesh was probably there undetected for weeks or months before criminals used it to steal $80 million from the bank’s account at the Federal Reserve Bank. Investigators suspect that the theft was carried out using credentials taken from the bank’s internal email system.

The former CEO of the failed Anglo Irish Bank is out on bail, but in Ireland now. A trial on his role in the failure of what was then the largest player in Irish real estate is not expected until next year. Convictions of other bank officers in the failure have been overturned on appeal.

General Mills Adds GMO Labeling

General Mills announced today that it will be the second major food conglomerate to voluntarily label genetically modified organisms (GMO) in its processed food products sold in the United States.

General Mills had previously been supporting an initiative to ban GMO labeling for any food sold in the United States, but for obvious reasons, there wasn’t enough support in Congress for such a measure. Conceding that honest GMO food labeling is the political future of the issue, General Mills has decided to get started now. It plans to be guided by the Vermont labeling guidelines, also provisionally adopted by a few other states, even though those requirements haven’t yet gone into effect.

The recordkeeping and labeling costs will be trivial, since food manufacturers already face laws requiring the labeling of GMOs or, often, banning such ingredients outright for safety reasons in most of the packaged-food world. Most consumers won’t notice the difference, but General Mills is preparing web resources to help consumers understand the changes in labeling. The most important point to understand is that the labeling changes don’t represent a change in the recipe of a product. It is only that the food label is being made more accurate and complete.

Thursday, March 17, 2016

Administrative Hearing Sheds Light on Chipotle Operations

An administrative law case in which Chipotle was found to have violated federal labor laws sheds new light on working conditions and operations at the troubled faux-Mexican restaurant chain. The administrative hearing, as reported by Washington Post, found that Chipotle fired an employee for a tweet that seemed to complain about the company’s wages, barely above minimum wage. Chipotle’s social media policy was found to violate federal laws, so the company was ordered to reinstate the worker with back pay.

What is interesting about the case, though, is the company’s version of the story. It claimed that it fired the worker for circulating a petition among workers to allow breaks. The administrative judge was not convinced that this was the reason for the firing, but consider what the company’s side of the story says about Chipotle’s management practices, working conditions, and operations.

I have noted previously that for Chipotle to make a profit, the food-assembly workers must work at superhuman speeds. If they are merely impressively fast, that is not fast enough, and the restaurant won’t make enough products to pay the rent. Considering that the food-assembly station is the key constraint in Chipotle’s profit potential, you would expect that the restaurant chain would employ high-skill, highly trained food assembly workers and rotate them regularly, almost like a basketball team, giving them a chance to catch their breath so that they can work in a peak performance state. Instead, what we learn here is that the most crucial work in the company is delegated to minimum-wage workers who have virtually no training and aren’t even allowed bathroom breaks. If you are a Chipotle customer, how do you feel about getting food custom-made by a worker with no formal training who may have been standing in the same spot for three hours without a chance to go to the bathroom? Given that setup, what are the chances that the food you are getting is actually clean? And for observers of the company, does anyone still believe that Chipotle management really wants the company to survive?

Wednesday, March 16, 2016

Chaos: Washington Metro and Venezuela

Today when people said “government is stuck in gridlock,” they meant it literally. Washington, DC, the capital of the United States, was more chaotic than usual today with the Metro system shut down for the entire day. The closure happened at midnight and the purpose was to look for loose electrical connections that could cause outages or, worse, fires, like the one that happened on Monday. The scary part is that electricians found 26 places where connections were so bad that they required immediate repairs to prevent a disaster. Those repairs have probably been completed at this hour, allowing time for testing before the planned 5 a.m. reopening. Metro will probably put an all-day closure on its calendar as an annual event, though likely on a Sunday in future years to minimize the disruption.

If a day in Washington with no Metro sounds bad, consider what’s happening in Venezuela. The government in that country has ordered a pre-Easter week-long shutdown of almost the entire country because of a shortage of electricity. The problem there is a drought, causing a gap in hydro power, on top of 20 years of neglected infrastructure investment and maintenance while official policy was directed toward expanding other sectors of the economy. Everyone is still trying to find out which businesses must close. If bakeries have to close, for example, there won’t be bread and people could go hungry, but it isn’t clear whether a bakery can legally operate during the emergency holiday. There isn’t much news because the government has suppressed hard news reporting for years, but social media reports hint at a very loose situation that could easily descend into nationwide chaos. However, the emergency vacation already seems to have alleviated the rolling blackouts and periods of low voltage that had shut off running water in some of the taller buildings. Venezuela’s economy is near collapse from low oil prices, and no one is taking for granted that basic services will come back after the week-long vacation.

Both the Washington Metro and the national electric grid in Venezuela are examples of the risky practice of postponing scheduled maintenance during times of financial stress. The past 13 years have been a financial squeeze for most of the world, so it’s a story that I’m sure is repeated in one way or another almost everywhere.

Monday, March 14, 2016

Two Climate Extremes

There are two climate extremes being reported. The Global Monthly Mean Surface Temperature Change in February was more than 1.5 kelvins above pre-industrial temperatures for the first time on record. The 1.5 level is significant because it is the target set just last year by global convention as the endpoint for global warming. That plan is likely not realistic if the world is already flirting with that level of temperature change.

February also saw the lowest Arctic Sea ice for a February by most measures, and now it looks more likely than not that this winter will set new record low maximums for Arctic sea ice. NSIDC Arctic sea ice extent, one of the more reliable and longest-running time series on the subject, peaked early this month at a level slightly below last winter’s record low maximum, then fell off. Extent has been holding steady for a week, and on average, the middle of March is when Arctic ice begins the first phase of its spring decline. A lot could happen in Arctic Ocean weather over the next three weeks, but if nothing too strange happens, the peak set at the beginning of the month will stand as a new record low maximum. Several other Arctic sea ice time series are also showing tentative record low maximums.

Sunday, March 13, 2016

In Pennsylvania, Electronic Filing Makes a Comeback

When I reported my income taxes this year, I found I was able to file online in my state for the first time in years. The Pennsylvania Department of Revenue had been phasing out its online filing options for individual taxpayers, hoping to steer taxpayers toward private tax preparation services that would provide online filing for a fee, generally around $20 to $30. It seems safe to say that this experiment in using government operations as a profit opportunity was a failure and the department was swamped with more filings on paper than it was prepared for. This year brings a dramatic reversal — electronic filing is back and the qualifications for it have been expanded so that most taxpayers now qualify. Previously, for example, freelancers might qualify to file online, but owners of businesses that required equipment were forced to file on paper. Under the new rules, an owner of one business of almost any description qualifies to file online (though the owner of multiple businesses must still file on paper).

Online filing might be seen as a convenience for taxpayers, but it is mainly a way for the government to save money. When Pennsylvania decided to restrict online filing, it was like a retailer that told its customers that they could no longer conduct transactions on the web site. This wouldn’t make any sense in retail because it costs a business almost nothing to receive an order online, but it costs several dollars to process an order received in person or through the mail. The same is true for agencies that collect taxes. With Pennsylvania having trouble writing a budget as it is, it would have been hard for the state to spend the extra $50 million to process tax reports that didn’t really have to be on paper.

Friday, March 11, 2016

This Week in Bank Failures

The Fed has proposed the first specific rules limiting counterparty risk in dealings between banks. The proposed rules apply to banks with $50 billion in assets, and prevent a bank from having credit exposure in an amount exceeding 25 percent of capital to any one other party, including a bank. The idea is that the collapse of one giant bank should not lead directly to the collapse of the next, though the rules are too lax to actually have that effect. The abrupt loss of 25 percent of its capital during a time of financial stress would still leave a bank with few options for carrying on business as usual. The only benefit of the proposed rules will come from forcing Wall Street banks to systematically aggregate and track their counterparty risks, something they currently do only in a hit-or-miss fashion.

The European Central Bank pulled out all the stops with a new round of monetary stimulus. This included cutting some rates that were already negative and increasing the rate of asset purchases. It is a high-risk move that should boost spending in some places but will also destabilize the euro zone economy, eating into bank profits, boosting the chances of local recessions, causing deposit flight and capital flight, and speeding the failures of some of the least stable banks.

Regulators in Wisconsin closed North Milwaukee State Bank, transferring the deposits and selling the assets to North Carolina-based First-Citizens Bank & Trust Company. First-Citizens has acquired several small failed banks in recent years. The failed bank had $61 million in deposits. It had been reporting losses every year since 2011. Bank failures have become few and far between. It took until the 71st day of the year to log the first bank failure of the year.

Suit Stores to Close

It’s hard to make a living selling men’s suits these days. Tailored Brands is losing money and has decided to close 250 stores:

  • 14 percent of Jos. A Bank locations
  • 67 percent of MW Tux stores
  • all Jos. A Bank outlet stores
  • all Men’s Wearhouse outlet stores

Tailored Brands recently shut down Jos. A Bank’s separate quality-control operation. Both Men’s Wearhouse and Jos. A Bank have long been plagued by quality problems, so a shakeup in that department was overdue. The combined cost savings from these cuts, however, are not nearly enough by themselves to keep the company going. The cutbacks are intended to produce an annual savings equal to just one tenth of the size of the company’s latest quarterly loss.

Tailored Brands spent $1.8 billion for Jos. A Bank a year ago. The plan was to boost profit margins by eliminating the chain’s well-known promotions. That strategy bombed, with sales declining by 31 percent while profit evaporated across the combined company. Investors now see that acquisition as a colossal mistake. According to the stock market, the combined company is now worth $861 million, less than half of the price paid to acquire Jos. A Bank. Tailored Brands optimistically expects the Jos. A Bank store closings to lead to an increase in sales at the Men’s Wearhouse stores, allowing a return to profitability later this year. Realistically, that won’t happen — the no-style offerings at Men’s Wearhouse would repel Jos. A Bank shoppers — and both chains will probably continue to operate at a loss for years to come. The continuing troubles in the suit business show that it is not just teen apparel that is having trouble connecting with shoppers. Tailored Brands is positioned at the far end of the apparel spectrum but seems to face many of the same difficulties.

Thursday, March 10, 2016

Record Debt: Good or Bad?

Consumer debt is near record highs in the United States and setting new records in Canada, and no one is quite sure what it means. The increase in debt indicates that more people are working and therefore able to borrow, and that is a positive economic sign. The steep increase since last year, though, may indicate that people’s incomes are not keeping up with their expectations, and that could be an advance indication of reduced spending in the coming months. Consumer debt went up the most in Texas and Alberta, two areas involved in oil, so declining oil revenues may be part of the explanation. There isn’t enough data to say so with confidence.

While an increase in debt could be a sign of a confident consumer and a healthy economy, it is generally not a good thing for the consumers who fall into a cycle of debt, whether from overconfident shopping or unexpected decline in income. Other statistics suggest problems. Consumers are being tricked into borrowing for cars they can’t quite afford, while only a small fraction of households can boast that they have no net debt. An economy built on consumers’ misfortunes and bad decisions cannot be a healthy economy. Looking at the details, it’s easy to see that people are still recovering from the aftereffects of the economic malaise of a decade ago. “Back to normal” is the wrong idea when coming out a depression (even if called a recession), but for those who are waiting for the feeling of a normal economy, that may take a few more years. Obviously, when we arrive there, it won’t much resemble the last “normal” economy from circa 1997.

Monday, March 7, 2016

Buffets in Bankruptcy

The largest buffet restaurant group in the United States is in bankruptcy and will be “closing certain weaker restaurants,” apparently more than half of locations, including the Old Country Buffet location in my town.

Ovation Brands operates the chains Old Country Buffet, Country Buffet, Ryan’s, HomeTown Buffet, and Fire Mountain. The various brands are not so different from each other as the names suggest. Indeed, all have the same web site with only slight variations in content and formatting. (The bankruptcy also covers the smaller Tahoe Joe’s steakhouse chain, though it appears that is just an accident of ownership, with all 10 Tahoe Joe’s locations expected to remain open.) At least a dozen buffet locations had closed without warning in recent days, supposedly “for inventory,” but probably having simply run out of food in a company that had run out of money. News reports describe workers loading restaurant equipment onto moving vans.

The troubles at Ovation Brands have been apparent for years, but never more so than on a visit I made to the Downingtown Old Country Buffet about 18 months ago. The buffet stations were half empty and the restaurant appeared to be rationing food, delivering it to the buffet according to the clock without any concern for the more than 100 hungry patrons. A nearly empty buffet station is one of the saddest sights in the hospitality sector, but that is what a buffet has to do when it is broke and there is not quite enough food in the pantry to get through the evening. On that visit, my fellow patrons were openly speculating about whether the restaurant would open again the next morning. In fact, things got better over time, but the damage had been done and I never again saw the dining room half full. Now it really is closed. The web site has removed the Downingtown location from its map, which shows only six locations remaining in Pennsylvania: Ryan’s locations in Hanover and Johnstown in the southwestern quarter of the state, and Old Country Buffet locations in Harrisburg, York, Whitehall, and northeast Philadelphia in the southeastern quarter of the state. I vaguely recall the map showing more than 20 locations a few years ago.

It’s no mystery what happened. How do you get the family excited about going to a buffet that might run out of food? And it is more than that. The buffets served bland, predictable American fare with no apparent concern for ingredients, hardly a formula for success in the increasingly product-conscious food sector. Attempts to raise prices met resistance. A company statement said sales were 22 percent lower than before. It is unclear what historical period was being used for comparison, but I can easily believe that this year’s sales were down 22 percent from the year before, perhaps the simple result of small price increases combined with the operational difficulties that had plagued the restaurants for years. Looking at the map, it doesn’t seem that the best-performing locations were retained, but instead, the smallest locations and the ones with the lowest rent. The company may be planning for a continuing decline.

It’s never a good sign when a business reports revenue down 22 percent and adds parenthetically that they have no idea what happened. Had the management of six troubled restaurant chains been turned into a part-time job? It is hard to imagine a corner of corporate America having become quite that lax, but how else do you explain a company having no idea what its customer experience or industry trends are? Or perhaps the bankruptcy was planned all along when the company changed ownership last year. Whatever the explanation, there is not much left of these five restaurant names, and now a bankruptcy court will have to decide whether they can continue at all.

Update, Wednesday 2016-03-09

I visited the Downingtown location to verify that it was closed. There is no “closed” sign, but the empty midday parking lot will be indication enough for most customers. For those who proceed to the entrance, the locked door and padlock key safe on the door handle are further hints that the restaurant is gone.

Sunday, March 6, 2016

The Republican Party’s Last Days

It has become almost a consensus among Republicans and political observers: the Republican Party is in its death throes, and one of the party’s presidential candidates is to blame. Consider these headlines, and also consider how mainstream the sources and channels are:

It is an exaggeration to talk about the imminent end of the Republican party, but there are scenarios in which that could happen next year. The scenario that the greatest number of analysts are talking about is if Trump wins the Republican nomination for president. Trump is the most unpopular presidential candidate in a century and would be hard pressed to draw more than 20 percent of the vote in the general election. Along the way his candidacy could help Republicans lose control of the Senate and the House. It could drive more than 10 million registered Republicans out of the party. Looking at this scenario, which does not seem easy for Republicans to avoid, some analysts are already saying that Trump killed the Republican party.

That would be the wrong way of looking at it. The Republican party is already dying of old age. Most Republicans are more than 50 years old. That also means that hardly any children are born into Republican households, since most children are born to parents under 50 years old. Republicans lose almost 2 percent of their share of voters every four years just from this one demographic trend alone. There is a reason there were so many Republican candidates this time around. Anyone looking at the trends could reasonably conclude that this is the last chance for the Republicans to elect a president. If you’re a Republican, you can run in 2016 or never. Some of the Republican party’s biggest financial supporters of the last 20 years have realized this too and no longer support the Republicans as a party, though they are supporting Trump and until recently were supporting Jeb Bush. It is the already weakened condition of the party that gives a candidate like Trump, or Bush for that matter, an opening to operate in.

But there is more to the decline of the Republican party than the declining number of voters. The popularity of the Republican party is in tatters. Even the average Republican now hates the national Republican party — see, for example, the Bruce Bartlett essay and the BBC News story above. If you tell Republican voters that their vote for Trump could be the end of the Republican party, as Mitt Romney prominently did a few days ago, that won’t give them a reason to reconsider.

The startlingly low quality of the Republican candidates is a puzzler, but gives voters another reason to be skeptical. People complain about Trump, but it is not as if any of the other Republican candidates rise above the problems that Trump is mired in. Christie, as a candidate, was more of a bully than Trump. Kasich has been put forward as a potential “moderate” candidate, but if you listen to Kasich’s interviews, his economic views are more extreme and more heartless than those of any of the other remaining candidates. Cruz has put himself forward as the obvious alternative to Trump, but Cruz has the same lack of respect for personal liberty that mars Trump’s campaign. You can continue through the list and not find a single candidate to rally behind. The Republican field is so weak and its debates such an embarrassment that voters who watch Democratic debates regularly wonder in social media why the Republican party exists.

In truth, any political party that has become such a destructive force that it has a hard time explaining the merits of its positions to anyone young enough to be on the Internet has earned its eventual fate. The actual mechanics of the disintegration of a political party are far simpler than most people realize. State party organizations with a simple vote can withdraw their recognition of the national party. It takes only two pages of paperwork for an elected official to change parties, and for a voter, only one page. After the Republicans have lost five states and hundreds of officeholders, we might be able to look ahead far enough to see the end of the party. At this point, it is more sensible to retreat to the familiar disclaimer of a democracy: the voters haven’t had their say yet.

Saturday, March 5, 2016

Big-Box Cutbacks

U.S. retail has been overextended for decades, and there are signs that big box stores in particular are facing more difficulty this year.

  • A bankruptcy court has given Sports Authority the go-ahead to close 140 stores with final clearance sales expected to start today in the first locations. The fate of other Sports Authority locations will be decided later, but it seems more likely than not that more locations will close this year and it is far from assured that the chain can emerge from bankruptcy as planned.
  • Staples announced plans to close 50 more stores. The office supply giant was unable to hold off on store closings while its bid to purchase Office Depot awaits regulatory approval. It seems a likely guess that most Office Depot locations will be closing in the next three years whether the Staples acquisition is ultimately approved or rejected.
  • Toy giant Toys “R” Us is struggling to refinance its bonds due in 2017 and 2018. It hopes to replace the junk bonds that provide the largest part of its financing with investment-grade bonds at interest rates at least 1 or 2 percent lower, but investors are skeptical.
  • Sears is in the middle of closing about 50 stores, moving faster than previously planned because of an unusually weak winter apparel season.
  • More quietly, Best Buy is closing stores as revenue declines about 3 percent per year, with 30 stores closing last year and a similar number expected this year.
  • Walmart, with the highest revenue of any U.S. retailer, is closing 154 stores. Meanwhile surveys indicate it is one of the most disliked retailers in the country, with even its most loyal customers giving it poor marks.

My impression is that shopping fatigue is hitting the large open-plan stores the hardest, with shoppers looking for a way to postpone and avoid visits to big-box retailers seemingly just as a matter of peace of mind. One sign of this is that consumers seem to be saving nearly all of the windfall they have been getting from lower fuel prices in the last two years. Even given the high debt load that consumers face, that is a reaction that hasn’t been seen when U.S. consumers faced falling energy prices in the past.

Friday, March 4, 2016

This Week in Bank Failures

The FIFA investigation is slowly getting around to the banks involved in processing the bribery transactions. Credit Suisse is known to have been questioned, and now Citibank has been subpoenaed by U.S. officials investigating FIFA corruption. At least half a dozen other U.S.-based banks would have to have been involved in money movements. The existence of a subpoena should not be taken as an indication that a bank is a target of an investigation. Confidentiality laws in banking mean that a subpoena is required for a bank to disclose customer transactions. Investigators would need banking records to prove that illicit payments took place. The bank itself would be culpable only if it participated in covering up or disguising transactions. Of course, recent history has its share of stories of bank officials advising criminals on how to disguise their activities, so it would not be a shock if that happened in connection with FIFA too.

The NCUA liquidated one credit union tonight. Education Associations Federal Credit Union had 600 members in and around Washington, DC. The NCUA will send letters to members.

Thursday, March 3, 2016

Computer Programming Is a Form of Writing

The case of the FBI vs. Apple has generated a lot of useful discussion. It was the FBI who decided to take the case into the court of public opinion. It thought it had a good case: one of the most notorious mass murderers of this winter had been an iPhone user. Surely, the FBI thought, the public would conclude that Apple, the maker of the phone carried on the errand on which so many innocent people were killed, was guilty by association. But the attempt may have backfired. While there are a wide range of points of view on the FBI’s case, the gist of the public reaction seems to be the question, “Why is the FBI using its authority to investigate crime as an excuse to try to take down an unrelated commercial enterprise?”

In the discussion of the FBI’s case against Apple, many people have expressed surprise that computer programming would be considered a form of writing. As a computer programmer myself, I can assure everyone that the idea of writing a computer program should not surprise anyone. I use the same computer keyboard to write a computer program that I am using to write this blog post. I use the same characters — upper- and lowercase letters and a handful of symbols to go with them. I use the same software — the everyday kind of text-editing software that is included with every computer.

It is not just the process and the enabling technology that make writing a computer program almost the same as writing an essay. The skills involved are also mostly the same. A writer chooses a language, follows the rules of the language, writes toward a specific objective, checks the result for accuracy and readability. These are the same things a computer programmer must do. The best evidence for the similarity is how easy it is to teach computer programming to those who have professional writing training. With a few hours to learn the first rules of the language they are now working in, a writer is writing useful computer code. It is a good deal harder to teach computer programming to, for example, a physician or an accountant. They are trained in standards but have to learn some of the finer points of language before they can approach a computer language.

I’ll draw a few more strands of connection for those who may never have thought to blur the lines between writing and computing. Computer coders create a wide range of documents. There is no clear bright line that separates a computer document that merely displays information or an opinion, a “web page,” from one that takes an action on behalf of a user, an “application.” When I write a blog post, I am actually coding — not merely writing the words that you see, but also the computer instructions, in a form of XML, that break the blog post into paragraphs and may add text formatting, colors, and images. There are rarely any actions in my blog posts, but there could be. Surveys, live embedded data, and other simple actions are at my fingertips as a blogger. Now consider this: if you use a web-based email application, it is coded in the same way, using XML or something similar. As computer applications go, mail doesn’t require a wide set of actions, but the essential actions of email are right there in the same XML that defines what you see when you go to the email page. You have to know computer code rather well to separate the document from the actions. This is a relatively recent development of the last 20 years, but it is an unavoidable reality of the way computers are used today. Computers contain data, documents, programs, and more, all mixed up within the same set of files, and it is not the easiest thing to tell where one stops and another starts. It is like looking at an oil painting and trying to separate the picture from the brush strokes. If you are an art expert, you can do this, but only up to a point. Ultimately, the painting does not exist without the brush strokes, and it does not exist without the picture either.

The question of whether writing a computer program is a form of writing comes up because it is related to an important legal question. In the U.S. Constitution, the First Amendment assures “freedom of speech.” Courts have uniformly held that writing is s form of “speech,” so can the law force you to write something you don’t agree with? Courts have allowed such a thing only in very specialized circumstances. So can the law force a computer company to write a computer program to tear down the exact security mechanisms it has fought so hard to construct?

There are other issues at hand, and the freedom of speech issues may end up being a sideshow alongside a more fundamental freedom at stake, being free from forced labor. If a court can, without so much as a hearing, order a phone maker to do some 50,000 worker-days of computer coding just because a law enforcement officer thinks it might shed some light on an investigation, then what unpaid work might a court order you to do someday just because you can? It is really the American way to force innocent bystanders to work endless hours without pay, or is that something else that the Constitution expressly discourages? A basic sense of fairness says that if the FBI decides it needs a computer program to do a certain thing for the public good, it should do the work of creating the program itself, and not look around, predator-style, for a victim who might be pressed into service to do the work for it. I know I would feel safer if we had an FBI that saw itself as an agent to protect the world from this kind of predatory thinking, rather than an organization that feels entitled to practice this kind of predatory behavior itself.