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Updated: 13 min 32 sec ago

Tesla is disrupting more than just the car business

Sat, 2016-02-06 16:01

Tesla Motors is building the world's biggest battery factory just outside of Reno, Nevada. The company is calling it the “gigafactory,” and when it’s up and running in 2016 it’s expected to make Tesla’s electric cars much more affordable. 

“In a single factory we're doubling the worldwide capacity to manufacture lithium-ion batteries,” says J.B. Straubel, Tesla's chief technology officer. 

That's significant enough. But the company also plans to develop batteries for use with solar-power generation – giving Tesla a shot at challenging public utilities as an energy source, Straubel says.

“At the price points that we're expecting to achieve with the gigafactory ... we see a market that is well in excess of the production capability of the factory,” says Straubel.

The market for batteries is an offshoot of the booming business for solar panels, particularly in states such as California, where solar is becoming commonplace.

“We sign up approximately one new customer every minute of the workday," says Will Craven, director of public affairs at California-based SolarCity.

Much of the excess energy harnessed by solar panels is returned to the power grid, Cravens says. This means homeowners and businesses may earn a credit from their power companies, but have no say over when and how that energy is used.

The partnership with SolarCity will use rooftop solar panels fitted with Tesla’s battery packs to allow customers to keep that energy in-house. That means they can use it however, and whenever, they want. The concept puts Tesla in direct competition with utility companies.

“Stationary storage, or backup storage, is really being considered the ‘Holy Grail’ of renewable electricity generation,” says Ben Kallo, an analyst with the Robert W. Baird financial services firm.

Kallo points out that the intermittent nature of renewable energy sources makes them less reliable because the wind doesn’t always blow and the sun doesn’t always shine.  But with the ability to store that energy, renewable energy sources can compete head-to-head with utility companies for customers.

“There are still many utilities out there who kind of have their head stuck in the sand and just hope that this goes away. What we're seeing is really building momentum,” Kallo says.

Forward-minded utilities might look at Tesla’s business model as an opportunity, he says.  Energy-storage technology could be used to build capacity in their existing grids, and also build new infrastructure for battery-powered cars and homes.

 

My First Job: Printing Professional

5 hours 32 min ago

When Shahrouz Varshabi was about 17 years old, he was accepted to a college outside of his hometown in Iran.

This was good news for Varshabi, but it also meant a financial strain for his parents.

“I was feeling so bad about the situation because I was coming from a sort of poor family, and I didn’t want to have pressure on my father’s shoulders,” Varshabi says.

 When Varshabi couldn’t find a job in the city where his new school was located, he decided to get entrepreneurial and make one for himself. Varshabi was studying graphic design, and he noticed a common problem he and his fellow students were encountering: a lack of high-quality printers for their projects.

“The price of the printer is like the same as one month’s rent,” Varshabi says. “I paid my rent to buy a printer actually.”

But his risk paid off and, before long, Varshabi had an abundance of student customers for his printing business. "My parents was like, 'Hey you doing all right, you need money?' And I was like 'I don't really need money. If you want money, I can help you, actually,' " he says.

 As Varshabi will tell you, it was his entrepreneurial success in Iran that gave him the confidence to pursue other career goals.   

 “… I started from zero, and I made so much money that I paid my tuition, my rent and I bought a car, I had some savings,” Varshabi says. “So it just gave me so much confidence to do whatever I want to do for myself. I know that there’s no limits now.” 

A shot of 'America's native spirit'

6 hours 3 min ago

During the course of writing his book, “Bourbon Empire: The Past and Future of American Whiskey,” Reid Mitenbuler learned a lot about “America’s native spirit,” as it’s known.

According to Mitenbuler — contrary to what you might assume from looking at bottle labels — today’s bourbons aren’t all made by bearded men wearing overalls.

“By the year 2000 you have eight companies, 13 plants, and they make about 99 percent of all the whiskey in America,” Mitebuler says.

Today, even with what Mitenbuler calls a craft distillery boom, smaller distillers only make about five percent of the bourbon in America.

But Mitenbuler says bourbon made by a big company isn’t necessarily bad bourbon.

“This is, for me, where the story really began, because those corporations, they actually do a very good job,” says Mitenbuler. “And they’re sort of an outlier in the food world and a lot of the popular conceptions we have about food where small is best.”

So, as a bourbon expert, what’s Mitenbuler’s advice for bourbon novices?

"It doesn’t have to be expensive to be good. Older isn’t necessarily better. It really kind of finds its sweet spot in the middle somewhere, where it's accessible, affordable and easy to find,” Mitenbuler says.  

To hear Reid Mitenbuler take Marketplace’s Adriene Hill through a bourbon tasting (and to hear a couple of his recommendations) click play on the Soundcloud player below.

Military families turn to food stamps

6 hours 38 min ago

growing number of working people use food stamps to help make ends meet. Often they work in retail, food and service industry jobs, where pay is traditionally low. But there’s another group of working people turning to food stamps that might surprise you: active-duty military personnel and their families.

What do we know about food stamp use in the military?   Every year the Department of Agriculture publishes data about where food stamp benefits (officially known as the Supplemental Nutrition Assistance Program, or SNAP) are being spent. The categories range from grocery stores and super stores to convenience stores and farmers markets. Also on the list, surprisingly, are military commissaries — those stores on military bases that sell groceries just above cost to active duty and retired military personnel and their families, as well as those in the reserves and National Guard.   In 2014 more than $84 million-worth of food stamp benefits were spent at military commissaries. That’s just a fraction of a percent of all the food stamps spent in the U.S. last year. But the number is sobering when you think of who is doing this spending — people who served or are currently serving our country and are still having trouble making ends meet.   Do we know how many active-duty military personnel are on food stamps?   The numbers are hard to come by. Neither the military nor the USDA tally those numbers, but recently the USDA estimated that between 2,000 and 22,000 active-duty military members used food stamps in 2012, the latest data available. (There’s an interesting explanation of how those vastly divergent numbers are arrived at in this PDF, a report from the Military Compensation and Retirement Modernization Commission.) These estimates suggest that between 1 percent and 2 percent of active-duty military members used food stamps in 2012.   What about veterans?   The USDA estimates that in 2012, more than 1.5 million veterans used food stamps, or about 7 percent of all veterans.    How low does your income have to be to qualify for food stamps?   Pretty low — though it depends on how big your household is. A single person has to be grossing less than $15,180 a year. For a family of four, the annual income threshold is $31,008.    So what is military pay these days?   If you are a very junior member of the military on active duty, your annual base pay can be less than $19,000. Add in housing and food allowances and it can go up to the high $30,000s. But if you've got a big family, if your spouse isn't working (which, if you're moving around from base to base or if one parent is overseas can often be the case), that money may not go too far. You might very well qualify for food stamps, or at least find yourself struggling to get by.   What kinds of financial challenges face military families?   Jennifer Daelyn grew up in a military family and now runs the Hand Up Youth Food Pantry near Camp Pendleton, the Marine Corps base north of San Diego. When she tells people that she helps a lot of active-duty military families, “often people are really surprised that it's even needed,” she says. “They're like ‘they don't need that — that doesn’t really happen.' But it does.”   Daelyn says she hears common concerns from the military families she serves. “They might have things set up if everything is going as planned, but if unplanned costs arise — someone needed to get new tires for their car, or had an unexpected pregnancy, it's difficult to handle considering the financial situation that they're in.”   And then there’s the added challenge that military families are moved around a lot. “It can be hard to maintain family and social support networks,” Daelyn says. “People who are in different states than their parents, than the kids’ grandparent that was providing support for them emotionally, financially, just with coping.”   Does it matter if military personnel use food stamps?   You could look at the issue of military personnel on food stamps as academic — it’s all government money after all. Does it matter if lower-paid military members are getting part of their paychecks supplemented through one taxpayer-funded program, SNAP, rather than subsisting on their taxpayer-funded paychecks alone?   Others argue it’s just not right that wages for some of those serving in the military haven't kept up with inflation.

John Nash's 'beautiful' contribution to economics

8 hours 31 min ago

John Nash, who died with his wife, Alicia, in a car crash Saturday at 86, was a mathematician, not an economist. 

But the phenomenon he described — known as Nash's Equilibrium — revolutionized the world of economics and game theory.

Around the end of World War II, game theory was gaining steam in academic circles, says Dale Jorgenson, a professor of economics at Harvard University. "But there really wasn't much evidence that this was having much effect on the way people thought about strategic situations," Jorgenson says. 

Before Nash came along, game theory was about zero-sum games: one party wins, one party loses. Nash provided a mathematical way of understanding games that more closely resemble the real world, where we don't necessarily have clear winners and losers. 

"When [people] look back at the Nash Equilibrium they think, 'Oh my God, this is so simple, it's amazing that it was so groundbreaking because it seems so obvious,' " says Alex Bellos, author of "Alex’s Adventures in Numberland." "And it seems so obvious because it's just become part of culture."

Today, game theory is used to describe myriad social phenomena, including those in business and politics. Bellos says every time someone says "zero-sum game," they owe a little credit to Nash. 

When Roger Myerson, a professor of economics at the University of Chicago, was starting his academic career in the 1970s, Nash’s work was maturing. Even so, Nash had withdrawn from public life as he battled paranoid schizophrenia. 

"At that time I knew he was alive, but there was no hope we could ever meet him," Myerson says. 

Myerson says while Nash was out of the public eye, his work revolutionized the field of economics. 

"It’s moved economics from a focus on resource allocation to a focus on understanding how behavior responds to incentives," Myerson says.

After Nash reentered public life in the 1980s, he was famous. In 1994, he won a Nobel Prize, and in 2001, his life story was fictionalized for the film "A Beautiful Mind."

Takata, Toyota, GM: How do companies survive recalls?

8 hours 34 min ago

Takata’s recall of defective airbags in 34 million vehicles – equivalent to two years of sales in the entire U.S. auto market – is a juggernaut.  It isn’t the largest, however.  That title belongs to the 2004 recall of 150 million pieces of Chinese-made toy jewelry that had a high risk of containing lead. 

 

Nor is it the only major recall this year – Toyota just recalled 110,000 vehicles for faulty software. 

 

The fact is, recalls happen all the time. Just last week there were 11, including a stove that turns on by itself and a weight-training bench that can break. 

 

Major recalls can be costly, running into the billions of dollars, especially if lawsuits or fines are involved. And yet, “it’s extremely seldom that a recall leads to the ruin of a company,” says Jonathan Bernstein, president of Bernstein Crisis Management.

 

Take GM in 2014. It recalled 30 million vehicles. That does not mean, however, that it replaced 30 million vehicles. 

 

“Almost always in the case of a recall it’s just a part getting fixed,” says David Whiston, an equity analyst with Morningstar. “Honestly, the people who make the biggest deal out of them are usually reporters.”

 

For GM, the cost so far is $2.5 billion. This shaved profits in North America from 8.9 percent to 6.5 percent in 2014, according to Whiston. Costly for sure, but not company ending. GM also had significant cash from its bailout, Whiston says.  

 

Between law suits and repairs, recalls also take a while (Takata’s is expected to take years). So does paying for them.

 

“The financial damage gets spread out over time, it’s not all at once,” Whiston says. Some firms even have recall insurance. 

 

Takata also has its size and importance going for it.

 

“The company’s essential to the auto industry,” says David Sullivan, an analyst with AutoPacific. It’s one of the few firms that provide critical safety equipment, including safety belts, to many manufacturers. “They have to survive – they’re too big to fail,” Sullivan says.

 

Reputational damage can be worse and more enduring than financial damage. 

 

“Arthur Andersen put themselves out of business because of their reputation,” says Bernstein, referring to the Enron accounting scandal. He counsels companies to be quick and thorough in their announcement of problems, acknowledge the feelings of their customers and then move on as quickly as possible. Stringing things along or having small details or negative news leak out intermittently over time withers a brand and consumers relationship to it. 

 

Takata didn’t have to worry about brand recognition, at least not until now, because it’s not a consumer-facing company; it sells to auto manufacturers. 

 

“For a company that’s primarily a business to business, one of their worst nightmares is their name becoming known to consumers in a negative way, because normally their name isn’t known to consumers at all,” Bernstein says. The company may now have to deal with a loss of trust from both consumers and the manufacturers it supplies. Analysts say Takata's recall is survivable, but even given its importance in the automotive industry, it won't be easy. 

Funeral home fraud rose in 2014, FTC probe finds

12 hours 28 min ago

Every year, the Federal Trade Commission conducts an undercover investigation to make sure funeral homes are following the FTC’s funeral rule to give customers a price list immediately and to not sell unnecessary, unwanted services.

The idea is for consumers “to be able to take a deep breath and look at a document that says, 'This is what I’m going to pay,' " says Lois Greisman, who heads the FTC’s funeral enforcement. " 'Can I really afford this?' ”

Greisman says in 2014, about a quarter of the funeral homes the FTC investigated broke the rule. 

“It’s certainly higher than we would like to see it,” says T. Scott Gilligan, general counsel for the National Funeral Directors Association. “It’s a complicated rule. It’s very easy to slip up. And the problem is, you’re only as good as your worst staff member.”

Funeral homes face fines of up to $16,000 per rule violation, but they can avoid fines by enrolling in a training program run by the funeral directors association.

PODCAST: Show me the money, airlines

12 hours 28 min ago

Asian stocks spring while most of the world's stock takes a breather. More on that. Plus, lower fuel prices have translated into huge savings for airline companies. Very little of those savings are being passed along to customers. So, what are the airlines doing with all of that money? And on a quest to invent a smart smoker, a Harvard engineering class is partnering with Williams Sonoma. We check in on their results.

Your funeral home may be ripping you off

12 hours 28 min ago

Every year, the Federal Trade Commission, or FTC, does an undercover investigation, to make sure funeral homes are following the FTC’s funeral rule. 

They're supposed to give customers a price list immediately, and they're not supposed to sell unnecessary services.

The idea is for consumers, “to be able to take a deep breath and look at a document that says, 'This is what I’m going to pay,'" says Lois Greisman, who heads the FTC’s funeral enforcement. "'Can I really afford this?'”

Greisman says in 2014, about a quarter of the funeral homes the FTC investigated broke the rule. 

“It’s certainly higher than we would like to see it,” says T. Scott Gilligan, general counsel for the National Funeral Directors Association. “It’s a complicated rule. It’s very easy to slip up.  And the problem is, you’re only as good as your worst staff member.”

Funeral homes face fines of up to $16,000 per rule violation. 

They can avoid fines by enrolling in a training program run by the funeral directors association.

Cheaper fuel, cheaper flights. But not for you.

13 hours 27 min ago

A gallon of jet fuel will cost you around $1.66 a gallon these days. That’s down 40 percent from what it was this time last year.

For airlines, which bought more than 16 billion gallons of fuel in 2014, we're talking about a savings of possibly around $22 billion, says Samuel Engel, who manages the aviation practice at ICF International. In 2012, fuel represented 31 percent of global airline costs, and this year it’s around 25 percent. Fuel isn’t the airlines’ only cost, but it’s their largest.

If you were hoping to see some of that savings in the form of cheaper tickets, get in line. Your group isn’t boarding yet.

“There are some complicating factors to consider,” says Sanjay Nanda, senior vice president at Sabre Airline Solutions. “Many airlines hedge on fuel.”

That is, they buy it in advance at locked-in prices. It saves them from rapid spikes in fuel, but also keeps them from taking full advantage of price declines. About 25 percent of airline fuel was hedged this way, according IFC International. “So I’d say most airlines have benefitted but some more than others,” says Nanda.

Still, they’re clearly saving billions. Where is it going?

“They’re putting that money back into the business in the form of new planes, new services – larger bins, new wifi,” says Jean Medina with Airlines for America, an airline industry group. “Our members will be taking effectively one new airline delivery every day.” U.S. airlines also have $60 billion in debt that needs servicing as well, says Medina.

Another priority group for fuel savings, at least for some airlines, is labor. “Delta, a couple months ago, made the largest profit-sharing payout in history to their workers,” says IFC International’s Samuel Engel. Any labor union with a contract to renegotiate will also likely take a keen interest in fuel cost savings if they’re sustained.

So what about those fare prices?

“As fuel prices come down, it starts to allow airlines to operate more routes, and it allows them to compete against each other and offer discounts,” says Engel. “But it’s not immediate. It doesn’t happen until the competitive dynamic plays out.”

And oil prices come and go, says Sabre’s Nanda. So for airlines, “prices are more tied to supply and demand,” he says.

Supply has increased, according to the Airlines Reporting Corp. “There’s been a 6 percent rise in available seats,” says Chuck Thackston, a managing director at ARC. Airlines are managing to fit more people on each plane, whether by increasing the number of seats or purchasing larger capacity models. “Airlines are competing to fill those additional seats,” he says.

ARC says it’s this supply increase that is affecting fares. “Travel within the United States is largely flat year over year,” says Thackston. “The past several years have seen airfares increasing, and we now see those fares leveling off and going down very slightly for summer travel.”

Summer airfare to Europe has declined by about 3 percent, with some destinations seeing particularly stark drops. Fares to Kona, Hawaii, fell 12.7 percent. Trips to Belgrade, Serbia, are 24.3 percent lower on average. 

Airfare to New York as a domestic destination increased 9.3 percent, and international fares to Berlin increased 10.2 percent.  

So, no, lower fuel prices won't mean a big dip in airfare just yet.  

At Harvard, even the meat smoker is smart

13 hours 27 min ago

On a quest to invent a smart smoker, a Harvard engineering class is partnering with Williams-Sonoma. Over the last few months, junior-year engineering students have smoked more than 200 pounds of brisket. The result? Well, as a self-admitted meat lover, I figured the only way to really know was to take a bite.

It wasn't hard to find the class. The mesquite aroma led me right to teaching assistant Peyton Nesmith. The Alabama native is tending a 300 pound, black, hour glass shaped ceramic smoker. The contraption is covered with wires, gadgets and gizmos.

An up-close look at the brisket Nesmith is cooking. (Eliza Grinnell/Harvard SEAS) 

Nesmith gave me the low down, “This brisket’s been cooking since 3 a.m. We probably have a few hours left on it. This is our typical routine. Our cadence of our battle rhythm as our adviser would say.”

That adviser is Professor Kevin Kit Parker. He’s not just an academic—he’s a towering Army Lt. Colonel in the reserves. With, he says, a Southerner's passion for barbecue.

“I was walking around the parking lot of the Memphis Liberty Bowl looking at all these contraptions that people were smoking barbecue in. And I'm thinking none of these things looks the same. And that means we haven't reduced our knowledge of barbecue down to a fundamental set of laws about how to do barbecue right.”

Parker proudly displays the Harvard smoker. (Eliza Grinnell/Harvard SEAS)

Parker says he vetted his ideas with culinary experts,“I talked to some classically trained chefs. They said no one’s done this. No one’s ever taken a scientific approach to barbecue, to smoking."

Parker teaches bioengineering and applied physics at Harvard. So he decided to give his students a real-world assignment. First he introduced them to a client, the high-end consumer retailer Williams-Sonoma. The job: come up with the perfect smoker. After five long, snowy months the data is in. It’s game day.

Students present the design and physics of the Harvard smoker to class-client Williams-Sonoma. (Eliza Grinnell/Harvard SEAS)

The students work up to the last minute to showcase the final product. A parade of guests checks it out in a fancy auditorium in one of Harvard’s engineering buildings. Professors, chefs and top brass from Williams-Sonoma pack the room. 

The students rock. 

All 16 play a part in explaining the smoker’s intricacies using Parker’s mantra—design, build and test. From the unusual shape of the smoker to a smartphone app that keeps you up to date on what temperature the meat is at and if you need to make any adjustments. As he chews, Williams-Sonoma’s Pat Connolly rates the Harvard smoker against other smokers out there.

“If you look at the color you get a much more consistent color here. If you look at the moisture the moisture is fantastic compared to the competition.”

Connolly says the trademarked, patent pending, app wielding, BBIQ smart smoker just might have the right stuff. And make the leap from the classroom to a future Memorial Day celebration.

Members of the Harvard community, representatives from Williams-Sonoma and local celebrity chefs enjoy brisket prepared in the Harvard smoker by students of the class "Engineering Problem Solving and Design Project." (Eliza Grinnell/Harvard SEAS)

Late springs warms up housing

13 hours 27 min ago

Spring and summer are often a hopeful time for anyone involved in the housing economy. Houses show well; potential buyers go looking; homebuilders are building.

Bad winter weather in early 2015 made for a poor start to the year for housing. But figures for April suggest the housing economy might finally be on the rebound. “Improvement in housing really has been a missing piece to this recovery,” says Michael Baele, managing director of U.S. Bank’s wealth management division. “And we are encouraged to see some better numbers.”

Here are some key recent housing indicators:

• Housing starts rose 20 percent in April. (U.S. Census)
• Permits were up 10 percent in April. (U.S. Census)
• New home sales have increased from 434,000 units (annualized) in Q3 2014, to 513,000 units in Q1 2015. (U.S. Census)
• Existing home sales fell 3.3 percent in April. (National Association of Realtors)
• The one-month supply of homes rose by 0.7 to 5.3 months in April. (National Association of Realtors)
• The median price of a single-family home rise 10 percent from April 2014 to April 2015. (National Association of Realtors)
• Construction payrolls were up by 45,000 in April. Year-over-year, construction employment has increased by 280,000. (Bureau of Labor Statistics)

The oil economy, as measured in hot dogs and U-Hauls

13 hours 30 min ago

You can learn a lot about the economy in Williston, North Dakota, based on Mitch Petrasek’s recent hot dog consumption. 

When I met him in March outside the U-Haul where he was working in Williston, the capital of the state’s oil patch, he had eight dogs lined up on a grill.

“I'll eat two now, two for dinner and two for breakfast,” he says. The remaining two, he says, would be offered to his boss.

Petrasek’s diet includes a few other things, like power bars and granola bars — the kind of stuff that didn't need to be warmed up or refrigerated.

“That's the worst thing off living in a car is the eating situation," he explains.

Petrasek was living out of his car even though he was making nearly $18 an hour at U-Haul. That’s not entirely surprising for a place like Williston. The oil boom pushed wages sky high. Ditto for rents.

“I could pay $1,000 to stay in a crappy apartment with someone or I could save a $1,000 in my bank account,” Petrasek says.

But the economic forces pushing him to sleep in what he called his “house-car” were shifting right under his nose. Petrasek's boss at the Williston U-Haul, Brian Way, says it was getting hard to maintain a decent inventory of moving trucks. A slowdown in the oil patch meant people were renting trucks to leave town.

“The issue now that I see it is that we just don't have many people moving in,” says Way. “We used to have two or three a day, where now we have two or three a week.”

That was at the end of March. Since then, the picture hasn't brightened much for the oil industry. The number of drilling rigs in North Dakota has dropped further to about 80 today.

When I called the U-Haul for an update, I learned neither Petrasek nor Way worked there anymore. Both had transferred to another facility in Fargo, North Dakota, on the other side of the state. Petrasek just moved a couple weeks ago. He says the situation in Williston hadn’t changed much since we last spoke.

“Oh yeah, there [are] still way more people going out than coming in,” he says.

He says he’s making a lower hourly wage now in Fargo, but he can afford housing. He and Brian Way are now roommates, and Petrasek says he's expanded his diet far beyond hot dogs.

The oil economy, as measured in hotdogs and U-Hauls

13 hours 30 min ago

You can learn a lot about the economy in Williston, N.D., based on Mitch Petrasek’s recent hotdog consumption. 

When I met him in March outside the U-Haul where he was working in Williston, the capital of the state’s oil patch, he had eight dogs lined up on a grill.

“I'll eat two now, two for dinner and two for breakfast,” he says. The remaining two, he says, would be offered to his boss.

Petrasek’s diet did include a few other things, like power bars and granola bars — the kind of stuff that didn't need to be warmed up or refrigerated.

“That's the worst thing off living in a car is the eating situation," he explains.

Petrasek was living out of his car even though he was making nearly $18 an hour at U-Haul. That’s not entirely surprising for a place like Williston. The oil boom pushed wages sky high. Ditto for rents.

“I could pay $1,000 to stay in a crappy apartment with someone or I could save a $1,000 in my bank account,” Petrasek says.

But the economic forces pushing him to sleep in what he called his “house-car” were shifting right under his nose. Petrasek's boss at the Williston U-Haul, Brian Way, says it was getting hard to maintain a decent inventory of moving trucks. A slowdown in the oil patch meant people were renting trucks to leave town.

“The issue now that I see it is that we just don't have many people moving in,” says Way. “We used to have two or three a day, where now we have two or three a week.”

That was at the end of March. Since then, the picture hasn't brightened much for the oil industry. The number of drilling rigs in North Dakota has dropped further, to about 80 today.

When I called the U-Haul for an update, I learned neither Petrasek nor Way worked there anymore. Both had gotten transferred to another facility in Fargo, N.D., on the other side of the state. Petrasek just moved a couple weeks ago. He says the situation in Williston hadn’t changed much since we last spoke.

“Oh yeah there's still way more people going out than coming in,” he says.

He says he’s making a lower hourly wage now in Fargo. But he can afford housing. He and Brian Way are now roommates. And Petrasek says he's expanded his diet far beyond hot dogs.

Why the CPI doesn't figure in the Fed's calculations

Fri, 2015-05-22 13:00

The Consumer Price Index rose by 0.1 percent last month, according to figures out Friday. You could think of it as one more piece of evidence in the "no inflation" pile.

The CPI is used for a variety of things, particularly in adjusting rent and wages, as well as "in private contracts to escalate values of money ... by the government ... to adjust social security, and so forth," says Steve Reed, an economist at the Labor Department's Bureau of Labor Statistics who works on the CPI.

But the CPI isn't what the Federal Reserve looks to when it tries to figure out whether the economy as a whole is experiencing inflation. The Fed prefers the Personal Consumption Expenditures index, or PCE.

Jeremy Siegel, a finance professor at the Wharton School at the University of Pennsylvania, says both of the measures' "headline" numbers are inaccurate, "and the reason for that is when the price of one good goes up, we substitute it with other goods." For instance, if beef gets expensive, you'll probably just buy some chicken, and your quality of life will not suffer much (if at all).

That's why the Fed looks not at the headline PCE, but the core PCE, which is the PCE with the volatile prices of food and energy stripped out. Ben Friedman, an economics professor at Harvard, says the Fed is just trying to influence the economy where it can.

"They're letting the economy respond to movements up or down in oil prices rather than having monetary policy do that," he says.

The PCE and its core number — will be released on June 1.

States take back some economic incentives

Fri, 2015-05-22 13:00

The state of Missouri recently suspended its incentives program for IBM after the company reported layoffs at a new center it had opened in Columbia. The state said IBM didn't make good on its promise to maintain at least 500 jobs there. Other states are also taking a hard look at economic incentives they granted to businesses to relocate or open new facilities.

The U.S. is facing an egg-tastrophe

Fri, 2015-05-22 13:00

You may not know it, but we have an egg-tastrophe on our hands. Thanks to bird flu, an estimated 31 million chickens have been killed — that’s 10 percent of the country’s egg-producing poultry.

Randy Pesciotta, vice president of the egg department at Urner Barry, a commodity market news reporting service, says prices for wholesale eggs have almost doubled, and it's the wholesale market that's going to feel the pinch of higher prices first.

Phil Lempert, a food industry analyst for companies like McDonald's, which relies heavily on eggs, notes that the shortage may be difficult.

“About 25 percent of McDonald’s sales rest in breakfast," he says.

And it’s not clear where companies like McDonald's can turn for cheaper eggs. Certainly not from neighbors such as Canada and Mexico — those countries were already buying eggs from the U.S. While there is talk of getting egg-sports from the EU, Pesciotta says there’s a problem. In the U.S., producers wash and refrigerate eggs to protect against salmonella. But the EU vaccinates its chickens and says washing can damage shells, making eggs more vulnerable to bacteria.

Pesciotta says that unless the U.S. and the EU can agree on egg-zactly what makes eggs safe, we may have an egg-pocolypse.

“They produce to their set of rules. We produce to our set of rules," he said, "they’re different.”

Egg-tastrophe

Fri, 2015-05-22 13:00

You may not know it, but we have an egg-tastrophe on our hands. Thanks to bird flu, an estimated 31 million chickens have been killed — that’s 10 percent of the country’s egg-producing poultry.

Randy Pesciotta, vice president of the egg department at Urner Barry, a commodity market news reporting service, says prices for wholesale eggs have almost doubled, and it's the wholesale market that's going to feel the pinch of higher prices first.

Phil Lempert, a food industry analyst for companies like McDonald's, which relies heavily on eggs, notes that the shortage may be difficult.

“About 25 percent of McDonald’s sales rest in breakfast," he says.

And it’s not clear where companies like McDonald's can turn for cheaper eggs. Certainly not from neighbors such as Canada and Mexico — those countries were already buying eggs from the U.S. While there is talk of getting egg-sports from the EU, Pesciotta says there’s a problem. In the U.S., producers wash and refrigerate eggs to protect against salmonella. But the EU vaccinates its chickens and says washing can damage shells, making eggs more vulnerable to bacteria.

Pesciotta says that unless the U.S. and the EU can agree on egg-zactly what makes eggs safe, we may have an egg-pocolypse.

“They produce to their set of rules. We produce to our set of rules," he said, "they’re different.”

 

Why do companies offer free stuff at the same cost?

Fri, 2015-05-22 13:00

One of the questions we received from listeners as part of our "I’ve Always Wondered" series is about why companies give you extra for free.

Eileen Lee wrote us to ask: "Why is it that, every once in a while, my favorite brand of shampoo, food or drink gives me an extra 20 percent free?  Why would a company do this?”

Lee is a statistician and demographer who is finishing up and publishing her master’s thesis. She’s a very careful shopper, dissecting special offers and deals. And she’s very particular. For example, her chicken nuggets have to be dinosaur shaped. Why?

“I like biting the heads off,” she says.

Eileen and I are on a virtual shopping date. I’m at my favorite store in Wheaton, Maryland, just outside Washington. She’s at a store near Los Angeles, where she’s from. We head to the shampoo aisle. Eileen spots a get-more-free deal right away.

“Yeah, Organix – they have some oil of Morocco shampoo and it’s 50 percent more free,” she says.

So will she buy it?

“No, I’ve used their stuff before," she says. "I don’t like it. It makes my hair feel weird.”

Eileen’s got a brand of shampoo she likes, and sticks with. Ditto for toilet paper and detergent. We go down aisle after aisle, looking for a get-more-for-less deal she likes. We don’t find any. Hence her question.

“What made me ask the question was that I never fall for that," she says. "If I see an extra 20 percent, and if it’s not the same brand I’ve been using or the same particular series of brands, then I wouldn’t even think of  choosing it.”

So Eileen never goes for those deals. But, turns out, lots of other people do. That’s part of the answer to Eileen’s question.  

“It gives you an effective discount that’s very tangible and enables you to differentiate your product from the others on the shelf," says Ira Kalb, assistant professor of clinical marketing at the Marshall School of Business at the University of Southern Calfornia. "And it sways people to your brand.”

You want consumers to try it and get hooked on it. Pepsi was among the first companies to experiment with get-more-for-free in the 1930s.

“But they hit upon this idea that they would have a package twice the size but they’d sell it for the same price as the Coke, which was a nickel," says Robert Schindler, a professor of marketing at Rutgers University. 

Pepsi promoted the deal with this radio jingle:

 

Back in the grocery store, Eileen says I’ve answered her question. But she’s still not interested in the get-more-for-less deals. Now, manufacturer’s coupons? That’s different.

“Because then I can actually calculate if it’s actually cheaper," she says. "Whereas with the 20 percent free, I have to calculate, OK, what was the normal price and am I getting more product?”     

But that's an I’ve Always Wondered question for another day.

Cannes Film Festival disappoints critics

Fri, 2015-05-22 13:00

Grantland writer Wesley Morris is at the Cannes Film Festival and fills us in on what’s going on.

On the vibe at Cannes:

The vibe is, “What happened to the movies?” We saw "Mad Max" on the first day, and we’ve been trying to see "Mad Max" ever since. It is amazing. It is the best movie, and very little that we’ve seen since then has been as great, especially in the main competition.

On the artistic direction of the movies being shown:

The financing for these movies has really compromised some of the artistic choices that a filmmaker can make ... You have money coming from all over the world, and it dictates certain things. Like, if you’re a Greek director and you’re getting Irish money, then you have to take Colin Farrell with the money you get, which happened. It happened at a movie this year!

On making movies in different languages:

There are a number of other directors, maybe like six other directors, making movies for the first time or maybe the second time, not in their native language. And the results are kind of mediocre. You wonder if that has something to do with it.

On people getting turned away for not wearing the right thing:

It’s not the scandal that people are making it out to be. It’s not happening every night, but everybody’s got a story about how it happened to them or someone in their party …where you were denied entry because you were not appropriately dressed. It has caused a great deal of consternation and a greater deal of comedy. It is one of the pleasures of coming to this festival. You need some ridiculous thing to happen if you can’t get a great movie.

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