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PODCAST: Cuba seeks foreign investment

Thu, 2014-01-30 07:50

Investors are pulling out of places like Turkey and South Africa, and putting their money into older markets. How much does the Fed have to do with it?

The president didn’t say much about college affordability in his state of the union address this week, unlike in previous years, but some members of Congress are pushing the issue. U.S. Rep. Suzanne Bonamici (D-Ore.) introduced a bill Wednesday that would waive tuition at public universities. Instead, students would pay a percentage of their incomes after graduation.

Cuba is trying to lure foreign investment with a multi-million dollar shipping port. The $957 million overhaul of the port of Mariel, in west Havana, is being financed by Brazil, and is in the heart of a special economic development zone.

Putting Yankee Stadium on ice

Thu, 2014-01-30 07:29

All this week, Marketplace Tech has been talking about sports and technology for our "Gaming the System" series. Today, we take you to a hockey rink right about the spot that A-Rod usually stands -- that's right, Yankee Stadium. On the eve of a big outdoor hockey game at New York's Yankee Stadium, Marketplace Tech host Ben Johnson finds out how the NHL is converting a baseball field to a hockey arena. Click the audio player above to hear his interview with Kris King, senior vice president of hockey operations for the NHL.

How free is free enterprise?

Thu, 2014-01-30 07:10

Think about what freedom means to you at work. If you've got an old fashioned boss, does it seem like a foreign concept? Or do you want more autonomy, more independence?

The firm LRN has been surveying companies to see how free they are. While freedom may not be a concept you associate with business, LRN CEO Dov Seidman explains it this way: 

“Business, after all, is about free enterprise. And we’ve looked into, in fact, how free is free enterprise and surprisingly, business is still more shackled than free, and successful companies are flattening. People are more free to contribute their character, ideas and free to innovate. And those who can harness that kind of freedom are the ones that are winning. But 50 percent of companies still show very low levels of such freedom.”

To hear Lizzie O'Leary's interview with Dov Seidman, click the audio player above.

 

Cuba makes bid for foreign investment with a multi-million dollar port

Thu, 2014-01-30 06:58

Cuba is trying to lure foreign investment with a multi-million dollar shipping port. The $957 million overhaul of the port of Mariel, in west Havana, is being financed by Brazil, and is in the heart of a special economic development zone. The BBC's Sarah Rainsford in Cuba says the upgrade of the port is the biggest project there for many years. Click the audio player above to hear her story.

Americans who have bought Obamacare are getting a good deal

Thu, 2014-01-30 05:49

Over the past several months, some 3 million Americans have bought health insurance through a state or federal exchanges. According to a new report out this morning from PricewaterhouseCoopers, contrary to many initial concerns, consumers might actually be getting a pretty good deal.

PWC’s Ceci Connolly says the average premium on an exchange is lower than the average premium of an employer-sponsored health plan, and that when the exchanges opened in October, there was concern these new products might be flimsy and expensive.

“That’s one of the misperceptions out there. That somehow they are barebones or you are not really getting adequate medical insurance,” she says.

Connolly says even when you factor in all the out-of-pocket costs, the average top tier gold and platinum plans are similar to employer ones.

And that’s just how insurers want it.

“They see an opportunity to capture new customers. We believe part of the strategy was to be competitive,” she says.

But Matt Eyles with Avalere Health says there is an important difference between employer and exchange plans. “One of the big ways insurers have achieved this is by having a more limited choice or narrower network of providers,” he says.

Restricting doctor choice is a key way insurers keep costs down.

Eyles says if exchanges do well, he can imagine the 156 million people who get insurance at work may one day find themselves shopping on private exchanges a lot like the public ones. 

DONG brings Danish government to the brink of collapse

Thu, 2014-01-30 05:35

Things aren't looking so great for Danish Prime Minister Helle Thorning-Schmidt. Socialists have quit her three-party coalition government, and Danes are protesting a bid by Goldman Sachs to take over state-owned utility, DONG Energy. The parliament approved the deal approved by this morning. The BBC's Marie Keyworth has the latest on the story from Copenhagen. Click the audio player above to listen.

DONG brings Danish government to the bring of collapse

Thu, 2014-01-30 05:35

Things aren't looking so great for Danish Prime Minister Helle Thorning-Schmidt. Socialists have quit her three-party coalition government, and Danes are protesting a bid by Goldman Sachs to take over state-owned utility, DONG Energy. The parliament approved the deal approved by this morning. The BBC's Marie Keyworth has the latest on the story from Copenhagen. Click the audio player above to listen.

A different way to pay for college

Thu, 2014-01-30 05:19

The president didn’t say much about college affordability in his state of the union address this week, unlike in previous years, but some members of Congress are pushing the issue. U.S. Rep. Suzanne Bonamici (D-Ore.) introduced a bill Wednesday that would waive tuition at public universities. Instead, students would pay a percentage of their incomes after graduation.

The concept is known as “pay it forward,” because ultimately the money graduates pay into the system would help fund college for those who come after them. Too many students are daunted by high tuition and expensive loans, says Bonamici. The average debt load for the class of 2012 was more than $29,000.

“We’re hoping that this actually encourages more students to enroll and complete college, knowing that they’ll be able to finish and pay back a percentage of their income,” Bonamici says.

Like a version already introduced in the Senate, the House bill is modeled after a pilot program in Oregon. Similar plans have been floated in states like New Jersey, Rhode Island, and Washington.

Critics say forking over a chunk of their paychecks for 20 or 25 years could actually cost students more over their lifetimes.

“Changing what you call the financial obligation doesn’t mean that it’s not a financial obligation,” says Lauren Asher with the Institute for College Access and Success.

The idea is to test out a new way of paying for college, says Bonamici. If it passes the bill would provide federal funding for states that want to try it.

Banks look to exit commodities

Thu, 2014-01-30 05:13

JPMorgan is rumored to be selling its commodity business. The deal could be worth around $2 billion for the bank.

Commodities have been profitable for banks in the past. But now several banks are changing course.

To understand what’s changing, let’s start with how this business actually works.

Banks do more than trade commodities. Their holding companies will actually take possession the physical commodities, like aluminum or oil.

“So it might mean that you own tankers that sit off-shore, filed with oil, waiting for the price to rise. Most people don’t associate that kind of business with a traditional banking business,” says Duke University finance professor Campbell Harvey.

Government regulators aren’t crazy about the idea either.

“Federal agencies have been taking a much closer look at this kind of activity,” says law professor Michael Barr. He now teaches at the University of Michigan. From 2009 through 2010, he worked at the Treasury, helping to reform the rules for Wall Street.

He says the feds are reconsidering whether banks should be in the commodity business. Barr says, “If it’s traded for short-term swings in profit, commodities trading could be one of the activities that would be curtailed by the Volcker rule.”

JPMorgan and other banks have been looking for an exit.

Campbell Harvey says it would be good for the banking industry to move away from commodities.

“I don’t feel that good about bailing out a bank because of some bad bets they made on commodities,” says Harvey.

Inequality: Capitalism's 'squeaky wheel'

Wed, 2014-01-29 16:35

Minimum wage has been in the news, of course, most recently thanks to a hike in the lowest rate for federal workers

But really, it's kind of a proxy for a bigger discussion about rising inequality in this country: the rich getting richer and the poor...not.

So what does that mean for corporate America? Harvard business school historian Nancy Koehn says:

"The average person in that top 1 percent [of the population] makes about $717,000 a year, versus $53,000 for everyone else. So even these very, very rough ballpark numbers: That's a lot of people with a lot less money to buy things, and very little hope, in some sense... of getting more purchasing power... "

That lack of what Koehn calls "hope" can have a multiplier effect on other parts of the country:

 "We know large amounts of social and economic mobility produce more GDP, more social order, more kind of national prosperity and political stability. You can reason inversely that lots and lots of inequality is not a good thing."

And speaking of multiplier effects? The wiggle room afforded by a larger paycheck not only increases the top 1 percent's purchasing power, it also allows them to reinvest:

"You want to put money directly in the hands of the bottom 90 percent so it will get spent, so it will generate jobs, and so it will oil the wheel of capitalism." 

Punch Pizza's 'incredible' post-State of the Union boost

Wed, 2014-01-29 15:26

One final note on the State of the Union.

The president mentioned a bunch of companies last night. Most of them are big enough they don't need a presidental shoutout.

But then he said this:

"Nick Chute is here today with his boss, John Serano. John's an owner of Punch Pizza in Minneapolis, and Nick helps make the dough. And now he's making more of it."

We had to call them up, right?

We got ahold of John Puckett. He's a co-owner of Punch Pizza along with John Serrano. I asked him what happened when the White House called:

"We really thought it was a practical joke at first... It's been incredible, [especially] on social media. The nice thing is, it's warming up above -20 today in Minnesota, so we'll probably see it more today than we did last night. I think everyone was still hunkered down, watching the State of the Union.

Turns out, tragically enough, the president didn't even get to taste the pizza:

"You know, it doesn't transport that well from St. Paul to Washington. Ours is wood fired Neopolitan pizza and it's best when you get it right out of the oven."

Why the dollar dominates global currency

Wed, 2014-01-29 13:51

What the Fed does on interest rates matters not just to Americans, but the entire global economy -- and that's because the dollar continues to tighten its grip as the world's reserve currency.Foreign investors holding trillions in securities and dollar assets have an incentive to the keep the currency afloat — even when the value of the dollar declines.

It's what Cornell economics professor Eswar Prasad calls the "Dollar Trap."

"The financial crisis had its origins in the U.S., the federal reserve has been pumping huge amounts of dollars into the global financial system, which ought to cheapen its value." Prasad says. "[But] In times of turmoil, the world wants safety, and the U.S. is still seen as the safest place to invest."

So what happens if the world loses faith in the dollar?

Prasad examined several tipping-point scenarios. He found this could result in turmoil for the U.S. financial market, and in turn, spread to the rest of the world.

"The dollar's value is stronger than it ought to be. That means fewer jobs, less exports, so it's not all together a good thing for the U.S.," he says.

myRA retirement plans, explained

Wed, 2014-01-29 12:37

President Obama unveiled the new "MyRA" plans in his State of the Union speech last night. He stumbled a bit over the name, and there's still some confusion about what they'll be called -- some of the folks we talked to are pronouncing it "Myra," like the name. But the idea behind the accounts is simple, according to Karen Friedman, executive vice president and policy director of the Pension Rights Center. 

"It’s a starter plan," she says. "It at least enables people to save in a secure, government-backed account."

The new accounts are aimed at low-income workers, who have few retirement saving options.

"Roughly half of the workforce right now doesn’t have a pension plan at work," says David Certner, legislative counsel with AARP. "Which is where most people prefer to save -- by having these monies deducted automatically from a paycheck."

And that’s how the new accounts would work. Employers and their workers have to volunteer to participate in the plan. But once they do, money will be deducted automatically, and invested in safe, government bonds. The initial investment could be as little as $25.

"The little amounts are what end up being the big amounts later on," says Stuart Ritter, a senior financial planner at T. Rowe Price. "So we shouldn’t be poo-pooing the smallness of getting people started."

In fact, the Obama administration already has plans for when the accounts get big. Once they hit $15,000, they have to be transferred into a private-sector IRA. 

Can two TV stations share the same airwaves?

Wed, 2014-01-29 12:11

There's a bit of a technical issue in this country: The amount of data being gobbled up by smartphones is increasing ad jnfinitum, but the digital plumbing has limits. Only so many tweets and YouTube videos can flow through it.

The FCC has proposed a solution, one that takes its inspiration from a pre-school lesson: Sharing is Caring. The FCC wants TV stations to share the spectrum with one another other, essentially doubling up on a single channel. And the very first experiment of this digital sharing idea is about to begin.

The two stations taking part in this experiment are KLCS, a PBS station, and KJLA, a commercial Spanish language station, both in Los Angeles. "We decided we would rather be informed than not informed," says Alan Popkin, director of TV engineering at KLCS.

In describing this experiment he uses this analogy, "You don't jump out of an airplane and then invent the parachute on the way down."

The experiment will begin off-air, then move to non-peak hours, and eventually, the entire schedule of both stations will be transmitted from one channel. The results will show whether two channels can be packed into one without compromising the quality of the broadcast, and will look at out how TV's will know which channel to display, when faced with two programs on the same part of the spectrum.

If channel sharing works, it could save stations a lot of money because two stations could share the cost of transmission.

"There would be one tower and one transmitter and that would cut down a lot on the cost of operation," says Lonna Thompson, chief operating officer* and executive vice president of the Association of Public Television Stations. In addition, she says, each station would be able to sell its unused bandwidth to the FCC in an Incentive Auction next year.

"The incentives auction is an effort that the FCC is leading to create incentives to use spectrum as efficiently as possible and to free spectrum for mobile broadband services," says Scott Bergmann, vice president of regulatory affairs with CTIA-The Wireless Association, a trade group.

Companies like T-Mobile, AT&T and Sprint are currently arguing over how much of the spectrum each company should get. Bergmann says mobile carriers could use their share to improve services for customers by providing greater capacity, faster speeds, and less congestion.

"The channel sharing pilot is an effort to make the incentive auction successful," Bergmann says.

The auction is scheduled for mid-2015 and is expected to generate $25 billion.

*CORRECTION: In an earlier version of this story, we misidentified Lonna Thompson’s position at the Association of Public Television Stations. She is the chief operating officer. The text has been corrected.

What tapering in the U.S. has to do with Turkey and South Africa

Wed, 2014-01-29 10:37

WE GOT 99 PROBLEMS, AND CURRENCY’S ONE.

India, South Africa, Turkey, Argentina – they’ve all had currency depreciations.  Brazil has faced inflation concerns.  The MSCI Emerging Markets Index, an average of emerging market stocks, has fallen nearly 7 percent this month, recently reaching a five month low. Emerging market equities have lost more than $995 billion in value since May. 

To explain this, we have to talk about money -- and how money moves. 

THAT GIANT SLOSHING SOUND

"There are trillions of dollars sloshing around global markets looking for high returns," says Gerald Epstein, director of the Political Economy Research Institute at the University of Massachusetts Amherst.  That money belongs to hedge funds, institutional investors, sovereign wealth funds, and regular investors alike. 

With productive investments few and far between, "there’s more money out there, more money looking for more speculative investments."

During the depths of recession, the one place you wouldn’t be getting higher returns was in developed countries like the U.S. On the one hand, their economies weren’t doing well. And on the other, Central Banks were keeping interest rates low. 

"It’s kind of simple," says Andrew Burns, manager of Prospects at the World Bank. "In the past, if you’re an investor, you have options.  You could invest in U.S. Treasuries; they were giving a return of 1.5 percent last April. Or you can invest in Brazil where you’re getting return of 5 or 6 percent, maybe it’s a little bit risky."

So investors put money into developing economies.

EASY COME....

At the same time, commodity prices were high, fueling emerging markets to the point they were leaders in global growth.

"The last four or five years, supported by very strong commodity prices, we’ve had very material capital flows into these countries," says Robert Kahn, senior fellow at the Council on Foreign Relations.   "These are small economies relative to the U.S. or Japan, and their ability to absorb this capital is not as great, and there is a tendency for these markets to go through boom bust cycles."

EASY GO.....

When the Fed first started talking about tapering last May, it became clear to investors that the economy was getting better, and interest rates in the U.S. would start to rise.  And they have.  The return on some treasury bonds has nearly doubled since then.

"In that context you say, ‘You know what? I had $100 over here in Brazil. I’m gonna pull some of it back in the United States,”" says the World Bank’s  Burns.

“The Fed’s decision to taper was a trigger for these outflows,” says Kahn, “but at the end of the day, it’s not the primary reason for it.”  Rather, it was the simple realization that there are safer -- and possibly better --  investments reappearing elsewhere in the developed world.  

SOPHIE’S CHOICE

And indeed, money moved out.  Local currencies continue to fall. As a result, it becomes more expensive for people in affected emerging markets to buy food and energy from abroad.  Inflation sets in.  Politicians in these countries then have to make a “Sophie’s choice”, says Professor Epstein.  In order to fight that inflation, and in order to incentivize investors to keep their money in the country, governments have raised interest rates.  That creates a drag on the economy.

"Turkey doubled the interest rate, interest rates have gone up in South Africa, Argentina," says Epstein. "And not only does this slow down their economy -- which if they already have a high unemployment rate is a big problem -- but it might also backfire." Backfire as in "push some companies into bankruptcy, further scaring off international investment."

Epstein argues there are few good options for lower income countries other than to control capital flows, a tool which has its own risks.

COMPLACENCY VS. PREPAREDNESS

On the one hand, many emerging markets came out of the global financial crisis in fairly good shape.  But it doesn’t mean they’re not vulnerable – as has become evident.

"Policy makers got complacent in these countries," says Kahn, "because they had access to very cheap money... We’ve seen before when things reverse – when commodity prices fall and capital flows turn around – it can be pretty hard. We’re at the beginning of that cycle."

WE’RE NOT DONE YET

"It’s not going to be smooth," says Kahn, "and there’s still more turbulence to be seen."

The process of global capital reallocation is not over.  Throw in the fact that developing countries aren’t making as much from commodities, China is buying less from them, and a spate of political scandals, and it may be a very rough ride for lower income countries, indeed.

How cash is like Bitcoin. And how Bitcoin is like Kim Kardashian.

Wed, 2014-01-29 10:14

Bitcoin is a digital currency, controlled only by software, that somehow, some people have collectively decided is worth something. This can be a bit of a brain-bender.

But, it turns out, we do the same every day with cash.

“Money is a form of shared reality,” says Adam Waytz, a professor at Northwestern University’s Kellogg School of Management. It’s a shared illusion: “In order for it to have value, that means that everyone has to agree that this is something we’re going to treat as valuable.” 

With cash, we take paper, with numbers printed on it, and imbue it with value greater than the sum of paper and ink. Bitcoin works the same way.

“It’s sort of the Kim Kardashian of money,” says Waytz. “Kim Kardashian is famous for being famous. Bitcoin is valuable because a lot of people have agreed to value it.” 

One reason people value Bitcoin is that it is hard to trace back to a person. It’s a feature that can make law enforcement a little nervous. There’s no bank keeping tabs. No paper trail. People buy illegal stuff with Bitcoin. But, again, cash is the same.

“If you and I meet at a park, and I give you $100, and you give me something in return, and we part our separate ways, that’s a completely anonymous transaction,” says Jerry Brito, a research fellow at the Mercatus Center at George Mason University. There’s no record of the time, the park we met at, what we traded.

Cash can be better at keeping secrets than Bitcoin. With Bitcoin, Brito says, “you have to keep a record of the transaction, and the amount, and the Bitcoin addresses that were involved. So it’s less anonymous than cash. It's pseudonymous, is one way to put it.”

Bitcoin leaves a digital trail. That’s how Bitcoin works. It’s a trail that cash is very good at erasing.

But cash isn’t entirely invisible. It’s got a physical presence. You have to get it. Move it. And, its physical nature has costs.

“I have to spend time going to the ATM, and take money out, and that could be time that’s taken away from other productive activities,” says Bhaskar Chakravorti with the Fletcher School at Tufts University. It may not sound like a lot, but it adds up, says Chakravorti, to tens of billions of dollars. Time that you wouldn’t have to waste in a Bitcoin world.

There’s also the cost to businesses of using cash. You’ve got to hire services to protect it, and get it to and from the bank. Businesses, say Chakravorti, “incur costs because cash gets stolen from a retail outlet, or because there are robberies.” In a world where everyone uses Bitcoin, instead, there’s nothing in the cash register for robbers to steal.

There’s another big cost of cash to our society. The tax gap. All the money that we don’t send the government in taxes, when we pay for things off the books. Chakravorti estimates that cash costs the U.S. government  more than $100 billion a year.

Bitcoin is enough like cash that that cost wouldn’t disappear.  

PODCAST: State of the Union as heard from Europe

Wed, 2014-01-29 09:05

Last night's State of the Union speech was all about the American perspective. President Obama focused on income inequality, wages, jobs, and the U.S. middle class. Marketplace looks at how the speech is being received in the rest of the world.

Nintendo announces third quarter earnings today and things aren’t looking good. The game maker already slashed its full year outlook -- instead of profit it now expects a net loss. You could say Nintendo’s facing an identity crisis. For thirty years, it’s made games you can only play on Nintendo hardware. But does it have to change to survive?

It now costs 49 cents to send a letter. The price of stamps went up another 3 cents on Sunday, meaning that if you've been hoarding Forever stamps since forever ago, you've made a pretty good return

State of the Union: Tackling income inequality

Wed, 2014-01-29 08:37

Last night in his State of the Union address, President Obama touched on several economic themes, including jobs, the middle class, health care, and something he has been talking quite a bit about recently -- income inequality. Sheldon Danziger, president of the Russell Sage Foundation, a progressive think tank, spoke to Marketplace's Lizzie O'Leary about the president's goals and the wide income disparity between the rich and the poor in the United States.

On raising the minimum wage, Danziger said this:

“The minimum wage is lower than it was in the late 1960s, if one adjusts for inflation. I also like that he referred to an employer in Minnesota who raised the wages of his workers. And it would be great if a large corporation like Wal-Mart voluntarily raised their minimum wage.”

On whether the government has a role in correcting income inequality:

“We actually have pretty good evidence that if government does not do much, inequality increases. The best example of that is since the recession ended, the stock market is back to close to all-time highs, yet wages have not budged for the median worker. So we have strong evidence that  economic growth is not trickling down to the poor or even the middle class.” 

To hear the interview, click the audio player above.

 

 

Dispatch from a woman stuck in her car in Atlanta

Wed, 2014-01-29 08:26

The city of Atlanta is in the middle of a giant two-day snow and ice storm that has left kids stranded at school, people in makeshift shelters, and commuters trying to get to or from work stuck on the roads in miles-long gridlock. 

LaTeefa Dancey-Gray, a cardiac monitor technician, was among those who were trying to get to work yesterday evening while on her way to work the 7pm to 7am graveyard shift. She pulled out of her driveway at 5pm to get to work, and between 8-9pm her car came to complete standstill. Traffic didn’t move again until 5:30 this morning. Dancey-Gray joined Marketplace's Lizzie O'Leary from her car to talk about the situation. Click the audio player above to hear the interview

Using your brain to control an exoskeleton

Wed, 2014-01-29 08:12

This month, a neuroscientist and his team announced that the ceremonial first kick at this year's World Cup opening in Brazil would be completed by a paralyzed teenager using an exoskeleton attached to her brain. Prosthetic robotic devices connected to the human brain are becoming more common. You may remember video a few years ago of a woman at the University of Pittsburgh feeding herself chocolate with a robot limb. For today's installment of Marketplace Tech's sports and tech series, "Gaming the System," we'll hear from a guy working in this field.

Video of One Giant Bite: Woman with Quadriplegia Feeds Herself Chocolate Using Mind-Controlled Robot Arm

Dr. Michael Boninger, from the Department of Physical Medicine & Rehabilitation at the University of Pittsburgh Medical Center, tells Marketplace Tech host Ben Johnson about bioengineering and using brain signals to control exoskeletons and prosthetics.

 

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