In the last three years, there has been a concerted effort by those in Washington to reduce government spending and reign in the national debt. One reason for the budget cuts? Research by two Harvard economists, Ken Rogoff and Carmen Reinhart. The pair found that when a country owes more than 90 percent of their GDP, it slides into recession.
Except Reinhart and Rogoff made a glaring mistake in the Microsoft Excel spreadsheet they used to calculate their averages. "They left off five countries. And that changed things pretty significantly," says Tim Fernholz, a business reporter with Quartz. Instead of a mild recession, carrying that much debt means a country is probably going to have mild growth -- slow, but growth all the same.
The Reinhart-Rogoff spreadsheet, via qz.com
But why did this one paper have such huge implications on budget policy? When a country is faced with recession, it has two choices -- stimulus, or austerity. Pump more money into your government, grow your debt, and hope that you're creating enough jobs along the way to work your way out of the slump. Or you can start making cuts to slow the amount of money your country will need to borrow. "In the long term, economists think that having less debt is going to be better for the economy. But if you're coming out of a crisis, you have to make a decision then and there."
And this was especially true with Reinhart and Rogoff's paper. The pair met with 40 senators in 2011 and "they told them, you need to act now and that we can't afford to spend more money to stimulate the economy." Also reading research by the two Harvard economists were budget chairs from both parties, then Treasury Secretary Timothy Geithner, the Simpson-Bowles Commission and financial leaders in countries overseas. "When we were talking about the budget deficit and the debt in 2010, 2011 and 2012, everybody had this 90 percent threshold on their minds," says Fernholz.
In their defense, Reinhart and Rogoff point to other studies that show high debt leads to slow growth. But Fernholz says "it's not clear if countries that are growing slowly have high debt or if high debt causes countries to grow slowly." The Reinhart-Rogoff research suggested causation instead of correlation.
"When politicians around the country and in fact around the world were deciding what to do to save the economy after the recession, they were reading this paper and it was scaring them," says Fernholz. "And it was making them think, we need to cut the debt now if we want to save the economy."
This was true, for example in the United Kingdom which quickly implemented austerity measures. The country's economy is in bad shape today. Meanwhile, in the U.S., there was a stimulus and Congress moved slower to make budget cuts. And while the economy here isn't exactly sparkling, both debt and unemployment are going down.
They don't want to offend Hispanic voters, but they don't want to turn off the GOP base either, says Ron Bonjean, a former Republican leadership aide. And competing for Hispanic votes is not a top priority for the sizable number of Republican rank and file who still see the bill as amnesty.
Ricin is a naturally occurring toxin that's found in castor beans. Castor-oil plants, the source of beans, are popular with gardeners. You can get sick by eating beans. But purified ricin can be made pretty easily and used for no-good.
The defeat of the measure by a 54-46 vote — six votes shy of the number needed to clear the Senate — marks a major setback for gun-control advocates
Scientists say the genome of the coelacanth shows that it may not be as closely related as the lungfish to the first creatures to emerge from the sea.
Former South Carolina Gov. Mark Sanford is hoping to put a marital scandal behind him with a return to Congress in a May 7 special election. But just two days later, Sanford must defend himself from an accusation that he was at his ex-wife's house without her permission.
Damascus would normally host a parade on independence day. But the streets are largely empty, aside from jittery government security forces manning checkpoints.
You know the cupcake rage of the past couple of years? A cynic might even call it a bubble. Okay, keep that in your back pocket and think about bitcoins, the cyber currency that's been quite bubble-iscous itself this past month or so.
Roll them together and what do you get? A cup-cakery that takes bitcoins.
Jennifer Longson owns Cups and Cakes in San Francisco. Her husband works in the tech industry and was enthusiastic about bitcoins. In the retail store, she uses an iPad as her cash register, so it didn't take much to become bitcoin friendly.
"We just bring up the BitPay app and we type in how much they owe us. Up pops a QR code, and they scan it with their online wallet with their phone," Longson says. "And in about 30 to 60 seconds, it pops up that it's confirmed."
Initially Longson only had one or two bitcoin customers per month. Now it's up to three to five per week. She's not too worried about the volatility, as she is leaving the bitcoins where they are.
As for whether the cupcake bubble has burst, Longson is similarly optimistic.
"I mean, the first cupcakery opened like 15 years ago. Is that a bubble?" she asks. "My business is as good as usual, if not better."
She points out that unlike large chains like Crumbs that expanded quickly, her shop is small.
"It's just two employees, plus me."
With apologies to Charles Dickens, you could call it a Tale of Two Grocers. It was the worst of times for British retail giant, Tesco. Its annual profit tanked 96 percent, mostly due to a failed foray into the American market. Tesco opened 200 Fresh & Easy stores in the U.S. since 2007, targeting the value shopper. Now Tesco is bailing out. Today, though, was the best of times for another grocer: Fairway. The New York-based grocery chain, known for its ecclectic array of products, went public and its shares rose 33 percent.
First, though, to Tesco. The company did its homework before launching Fresh & Easy: the CEO moved his family to the U.S., secret test stores were set up and British executives lived with American families to gain insight into how we eat and shop. The result: An emphasis on low prices, an efficient shopping experience and lots of prepared food. Also, a complete misread of the American shopper, says Phil Lempert, industry analyst and editor of Supermarketguru.com.
"Those execs heard what they wanted to hear," he says. "They didn’t really hear what was in the heart and soul of the consumer."
What is in the heart and soul of the American grocery shopper? Feeling important, Lempert says. Yet Fresh & Easy offered only self-checkout, a big no-no for Americans.
"The checkout experience is probably the most important experience we have in store," Lempert says. "We’re giving them anywhere between $50-$150 for our weekly groceries and we want to have a smiling face, we want to have a bagger, we want to have some respect. Because of that, the whole self-checkout experience just wasn't happening."
Tesco also missed the importance of a hands-on experience for American shoppers.
"In America, we like to feel the apples, we like to feel the oranges, we like to squeeze things," says Kevin Coupe, consultant and author of MorningNewsBeat. "Fresh & Easy would have things pre-wrapped so you couldn’t do that."
Coupe says there were other problems, including some poorly chosen locations and unappealing prepared foods. He points out other European chains like Carrefour have had trouble adapting to the U.S. market as well.
"Americans shop differently than Europeans, it’s an entirely different experience. Fresh & Easy had enough hubris to believe they could change people’s shopping habits," he says.
Years of research, efficiency and shrink-wrapped fruit couldn’t be farther from the Fairway model.
"Fairway is more art than science," says Bob Goldin, senior vice president at food research firm Technomic. "You walk into some of their stores, they're old, they're cluttered, and people love them."
Fairway is known for its wildly loyal customer base as well as its mind-boggling array of products, mixed in with familiar brands. That coupled with low prices is a winning combination, says Lempert. He's not surprised investors are snapping up shares.
"There’s a lot of excitement, a lot of foods and also a lot of major brands," says Lempert. "You can buy your Bounty paper towels as well as some exotic coffee and really have an adventure. That combination of value and adventure is absolutely dead-on for the millennial generation."
Lempert says many millennials are foodies on tight budgets. Fairway’s betting on that. It plans to expand from 12 stores to 300.
It's not clear what caused American's problems with its computer system.
“American’s not telling anyone exactly one happened,” said Brett Snyder, who runs the blog crankyflier.com. He says all we know is that the link between American Airlines and its reservation system, known as Sabre*, went down. “And so American was unable to do a lot of things that are required of daily business."
Among them: call up its passenger list, print boarding passes, track bags and even help calculate the weight of the plane. When an airline loses touch with its computers, it’s as if it were brain dead. American Airlines CEO Tom Horton went on YouTube yesterday to apologize and explained that it did have “redundancies” -- computer speak for back-ups -- but those failed too.
But that has some airline watchers saying the aging computer system itself is the problem, said Joe Brancatelli, the publisher of Joesentme.com, a website for business travelers.
“The Sabre system that American Airlines uses dates back to the 1950s,” Brancatelli said.
Back then, fewer people flew and most tasks were done by hand. Brancatelli says to grow, the airlines started to computerize. But since then, the number of fliers has exploded, airlines have merged and the business has become incredibly complex.
“Rather than stop and start again, they’re always upgrading, updating changing stuff that was built in the 1950s,” Brancatelli said.
And computer systems really start to show their age when airlines merge. A little more than a year ago, United and Continental teamed up, they merged their computer systems, there was chaos for months. Brancetelli says given what happened yesterday, if the American and US Air merger goes through, we could be in for a replay.
*Correction: An earlier version of this story incorrectly misspelled the name of American Airline's reservation system as Saber, instead of Sabre.
In New York, a man was recently charged with stealing toner cartridges and selling them for a hefty discount.
Though "the black market" generally describe everything from the selling of human organs to counterfeit Louis Vuitton bags, recently, we've been hearing about some surprisingly common items being sold illicitly.
The detergent Tide is another example. It turns out many of the items you buy on a regular basis may actually have made their way on to the shelf through the black market.
Sea cucumbers, cell phones and moon dust
Sea cucumbers are big on the black market. The endangered species is a delicacy in Asia.
Old cell phones are another big seller in underground circles.
Black market moon dust from Apollo 11 found its way to an auction house in Missouri.
The big one: Cigarettes
One of the most common items in the black market is cigarettes.
David Merriman is a professor at the University of Illinois. He did a really creative study (PDF) on cigarette smuggling in Chicago. He had his undergrads walk randomly selected neighborhoods and collect the discarded cigarette packs they found on the ground.
"On the cigarette pack is a tax stamp that indicates where it was purchased," Merriman says.
Maps from Merriman's study, courtesy of the University of Illinois. Click to enlarge.
The students found that 75 percent of the packs did not have Illinois stamps on them. Most had stamps from neighboring Indiana, which has a cigarette tax that's about $3 less than Illinois.
A separate study of black market cigarettes in New York state had similar results. "We've estimated that 60 percent of the total market is illicit," says Michael LaFaive, a director of fiscal policy at the Mackinac Center for Public Policy.
Newer to the game: Baby formula
LaFaive also found examples of other goods that were being sold to shoppers who had no idea they were stolen.
"We have seen a very popular item, Similac, it's a formula for babies," LaFaive says.
It's now common practice for wholesalers and retailers to lock up their supply of expensive baby formula because it's so frequently stolen and sold on the black market.
Coming on the heels of all the violence of late, the motion picture association has announced it’s changing its rating system. Films like "The Lion King" will still be rated G, and "Evil Dead" will still get slapped with an R. So what’s changing? For parents worried about their kids seeing too much violence or S-E-X at the movies, the Motion Picture Association of America says it wants to make things easier.
This being the movie industry, there's even a new trailer to let theater audiences know about the changes, with an announcer saying, "At the MPAA, we’re dedicated to making sure every film finds its proper rating."
Brent Lang, a writer with the Hollywood website theWrap.com, says the changes are not a dramatic overhaul to the ratings system. Instead, they’re only cosmetic -- a larger font, and more detail about what’s in the movie. But when the new system does kicks in, movies won’t just say “R” for violence.
“It might say something like R for thematic science fiction elements,or a scene of gory war violence, or something along those lines,” Lang says.
He notes that it’s likely the MPAA is treading carefully so that it doesn’t scare away crucial audience members -- or their parents. “PG-13 is the sweet spot for studios. Out of the 20 highest grossing films last year, only two of those films were rated R.”
Tom Adams, an industry analyst with IHS says that’s why PG-13 is so important: “It’s teenagers,” he says.
Adams notes that while PG-13 films brought in over half of the revenue from last year’s box office, PG-13 titles are only 14 percent of the market.
The MPAA says the changes to movie ratings will take affect, at a theater near you, on May 1.
Correction: The orinigal article misspelled the name of Brent Lang. The text has been corrected.
In a ruling Wednesday, the court limited the reach of a 224-year-old federal law that in recent decades has been used to hold foreign corporations and individuals accountable in U.S. courts for human-rights abuses abroad. The decision is seen as a loss for human-rights advocates.
The days of made-to-order ice cream are far from over in San Francisco. A small shop that operates out of an old shipping container uses liquid nitrogen to freeze ingredients together in about a minute for an ultra-fresh, ultra-smooth treat.
A new strain of bird flu has sickened 82 people and killed 18 in China. But many people who have caught the H7N9 flu say they hadn't been near poultry or other birds. So what's fueling the outbreak of the virus?
Protests over a razor-thin victory by Hugo Chávez's hand-picked successor left seven dead on Tuesday.
Say I wanted to buy a Smith & Wesson M&P. That, according to Patrick Shearer, is "a small 9mm pistol. It's a low-capacity, seven-round magazine."
Shearer has one for sale. He lives in Northern Virginia, his wife is expecting a baby, and Shearer says he needs the extra cash.
Shearer could go to a gun show or a dealer, but he is using ARMSLIST, a site, he says, that's like Craigslist -- full of classified ads, but for guns. It's one of the biggest online marketplaces for firearms.
And like Craigslist, the people behind ARMSLIST are hands-off. They don't get involved in transactions, and they didn't respond to our request for an interview.
According to Roy Huntington, who edits American Handgunner Magazine, sites like ARMSLIST took off after eBay banned gun sales more than a decade ago.
"I don't have any numbers on it, but it's a huge presence in the marketplace," he says.
Innovators and entrepreneurs, Huntington says, go where the market is. There are sites for selling guns and trading guns. And there are online auction sites just for guns. It seems the convenience of the web is not just for books and clothes.
"I think in some limited sense online sales could make gun shows obsolete," Garen Wintemute says. He directs the Violence Prevention Research Program at U.C. Davis. He says that, at any given time, sites like ARMSLIST have tens of thousands of guns for sale.
"Online, I don't need to wander around the building looking for what I want," Wintemute says. "I can search for it specifically without leaving my chair."
And when Patrick Shearer finds someone who's interested in that Smith & Wesson pistol, that transaction will take place in private.
"Just like I would if I was going to sell something on Craigslist, we meet in a neutral spot that's convenient for both of us," he says.
Shearer says he does more than what Virginia law requires. He asks for two forms of ID, and he makes the buyer fill out a bill of sale. But, as with all online sales, no background check is required.
Find out how many background checks were adminstered in your state last year, and explore gun crime stats in our interactive map. View the map.
Antares is designed to ferry cargo to the International Space Station. The two-stage rocket, a milestone for commercial space flight, is scheduled to lift off from NASA's Wallops Flight Facility in Virginia on Wednesday.
Pressure cooker bombs have long been used in places such as Afghanistan and Pakistan because they are cheap, easy to build and inconspicuous. They rely on basic principles of physics to amplify their explosive power.
The bombing of Boston's storied marathon struck at more than a crowded city street — it attacked a living reservoir of American heritage, culture and intellectualism.