Category: Economic Growth

Cuomo’s Buffalo Billion Fails to Cure Buffalo Blight

(p. A18) BUFFALO — More than six years ago, Gov. Andrew M. Cuomo announced his bold vision for New York’s second largest and perhaps longest-suffering city.
“We believe in Buffalo. Let’s put our money where our mouth is,” Mr. Cuomo said, announcing an economic development package of $1 billion. “That is a big ‘B’ — standing for Buffalo and standing for billion.”
. . .
“I think the Buffalo Billion sounds better than it probably turned out to be,” said Isaac Ehrlich, a SUNY distinguished professor of economics at the University at Buffalo.
Indeed, while construction work blossomed in early years, economists note broader employment growth in the city and region has consistently lagged behind the nation as a whole, as well as behind other Rust Belt cities, despite gains during the nation’s nine-year recovery. Perhaps more troubling, recent reports suggest that the job market essentially slowed to a crawl last year, as activity in manufacturing, retail and business services sectors flagged.
. . .
George Palumbo, an economics professor at Canisius College in Buffalo, said that the gleaming new buildings at the medical campus “take nice pictures,” but said the development was also illusory.
“You don’t have to go very far from that neighborhood to see Buffalo blight,” he said, “not Buffalo billion.”

For the full story, see:
Jesse McKinley. “Six Years Later, Cuomo’s ‘Buffalo Billion’ Project Yields Uneven Results.” The New York Times (Tuesday, July 3, 2018): A18.
(Note: ellipses added.)
(Note: the online version of the story has the date July 2, 2018, and has the title “‘Cuomo’s ‘Buffalo Billion’: Is New York Getting Its Money’s Worth?”)

Growing Percent of Firms in Developed Countries Are Zombies

ZURICH–The number of profit-constrained “zombie” firms has risen sharply since the late 1980s, according to research published Sunday by the Bank for International Settlements, a sign of the lingering effects from ultralow interest rates since the financial crisis.
Zombie firms are generally defined as companies that can’t service their debt from profits during an extended period. These types of companies, which first gained attention in Japan decades ago and have since gained prevalence in Europe, steer resources away from healthier parts of the economy, weighing on productivity and economic growth.
“The prevalence of zombie firms has ratcheted up since the late 1980s,” according to a paper published Sunday by the Switzerland-based BIS, a consortium of central banks, in its quarterly review of financial market developments.
Under a broad definition–the ratio of earnings before interest and taxes to interest paid is less than one for three-straight years in companies more than 10-years old–the percentage of zombie companies rose from 2% in the late 1980s to 12% in 2016. The data used by the authors covered 14 developed economies including the U.S., Japan, Germany and France.
And they seem to stay that way for longer. The authors found that whereas in the late 1980s zombie firms had a 60% chance of staying in that condition the following year, the probability reached 85% in 2016. Low interest rates have helped these firms stay afloat by reducing their financial pressure to reduce debt.
“Lower rates boost aggregate demand and raise employment and investment in the short run. But the higher prevalence of zombies they leave behind misallocate resources and weigh on productivity growth,” the authors wrote.

For the full story, see:

Brian Blackstone. “Rise of the Zombies: Ranks of Non-Viable Firms Up Sharply Since 1980s, Study Says; Low rates have helped these firms stay afloat by reducing their financial pressure to reduce debt.” The Wall Street Journal (Sunday, Sept. 23, 2018 URL: https://www.wsj.com/articles/rise-of-the-zombies-ranks-of-non-viable-firms-up-sharply-since-1980s-study-says-1537718401?mod=searchresults&page=1&pos=2
(Note: at least as of Oct. 1, 2018, this article appears only to have been published online.)

The study published in BIS Quarterly Review, and mentioned above, is:
Banerjee, Ryan Niladri, and Boris Hofmann. “The Rise of Zombie Firms: Causes and Consequences.” BIS Quarterly Review (Sept. 2018): 67-78.

Low Interest Rates Increased Zombie Firms After Economic Crisis of 2008

ZombieFirmsIncreaseGraph2018-10-03.png

Source of graph: online version of the WSJ article quoted and cited below.

(p. A1) Italian clothing maker and retailer Stefanel SpA became famous for its knitted coats and cardigans.

Many economists, investors and bankers know Stefanel as something starkly different: a zombie company. It has posted an annual loss for nine of the last 10 years and restructured its bank debt at least six times, including several grace periods when Stefanel only had to pay interest on what it owed.
After booming during Italy’s post-World War II expansion, Stefanel and its lumbering factories were overwhelmed by Spanish fast-fashion giant Zara and then battered by the economic slowdown that hit Italy in 2008.
Stefanel is still alive but staggering. So are hundreds of other chronically unprofitable, highly indebted companies being kept afloat with new infusions from lenders and shareholders, especially in Southern Europe.
Economists and central bankers say zombies undercut prices charged by healthier competitors, create artificial barriers to entry and prevent the flushing out of (p. A10) weak companies and bad loans that typically happens after downturns.
Now that the European economy is in growth mode, those zombies and their related debt problems could become a drag on the entire continent.
“The zombification of the corporate sector and banks [is] a risk for future living standards,” Klaas Knot, a European Central Bank governor and the head of the Dutch central bank, said in an interview.
. . .
In some ways, zombie firms are an unintended side effect of years of easy money from the ECB, which rolled out aggressive stimulus policies, including negative interest rates, to support lending and growth. Those policies have been sharply criticized in some richer eurozone countries for making it easier for banks to keep struggling corporate borrowers alive.

For the full story, see:
Eric Sylvers and Tom Fairless. “Zombie Companies Haunt Europe’s Economic Recovery.” The Wall Street Journal (Thursday, November 16, 2017): A1 & A10.
(Note: ellipsis added.)
(Note: the online version of the article has the date Nov. 15, 2017, and the title “A Specter Is Haunting Europe’s Recovery: Zombie Companies.”)

“Much Less” Poverty in U.S. Now Than 30 Years Ago

(p. A15) Instead of focusing on reported incomes, our work measures poverty based on consumption: what food, housing, transportation and other goods and services people are able to purchase. This approach, which captures the effect of noncash programs and accounts for the known bias in the CPI-U, demonstrates clearly that there is much less material deprivation than there was decades ago.
Other indicators support this finding. According to the American Housing Survey, the poorest 20% of Americans live as the middle class did a generation ago as measured by the square footage of their homes, the number of rooms per person, and the presence of air conditioning, dishwashers and other amenities. In terms of housing problems like peeling paint, leaks and plumbing issues, today’s poor haven’t quite matched the living standards of the 1980s middle class, but they are getting close.

For the full commentary, see:
Bruce D. Meyer and James X. Sullivan. “Hardly Anyone Wants to Admit America Is Beating Poverty; The White House tells the truth, but partisans on both sides are wedded to the idea of failure.” The Wall Street Journal (Tuesday, Aug. 7, 2018): A15.
(Note: the online version of the commentary has the date Aug. 6, 2018.)

A Dinner to Remember

(p. 6) The economist Dambisa Moyo, author most recently of “Edge of Chaos,” loves Agatha Christie’s “detestable, bombastic, tiresome, egocentric little creep” Hercule Poirot.
. . .
You’re organizing a literary dinner party. Which three writers, dead or alive, do you invite?
1) Vikram Seth, the economist turned novelist. His “A Suitable Boy” remains one of my all-time favorite books. 2) Ayn Rand, the philosopher and novelist. I am drawn to her irreverence — a woman ahead of her time. 3) Maya Angelou, the poet who penned “Still I Rise” and “Phenomenal Woman” … enough said.

For the full interview, see:

Dambisa Moyo. “‘BY THE BOOK; Dambisa Moyo.” The New York Times Book Review (Sunday, April 29, 2018): 6.
(Note: ellipsis between sentences added; ellipsis internal to sentence, and bold question, in original.)
(Note: the online version of the interview has the date April 26, 2018. The first sentence and the bold question are by the unnamed writer-interviewer. The answer after the bold question is by Moyo.)

Moyo’s book, mentioned above, is:
Moyo, Dambisa. Edge of Chaos: Why Democracy Is Failing to Deliver Economic Growth, and How to Fix It. New York: Basic Books, 2018.

Chinese Communists Plan to Dominate Memory Chips by Stealing Micron Innovations

(p. B1) JINJIANG, China — With a dragnet closing in, engineers at a Taiwanese chip maker holding American secrets did their best to conceal a daring case of corporate espionage.
As the police raided their offices, human resources workers gave the engineers a warning to scramble and get rid of the evidence. USB drives, laptops and documents were handed to a lower-level employee, who hid them in her locker. Then she walked one engineer’s phone out the front door.
What those devices contained was more valuable than gold or jewels: designs from an American company, Micron Technology, for microchips that have helped power the global digital revolution. According to the Taiwanese authorities, the designs were bound for China, where they would help a new, $5.7 billion microchip factory the size of several airplane hangars rumble into production.
China has ambitious plans to overhaul its economy and compete head to head with the United States and other nations in the technology of tomorrow. The heist of the designs two years ago and the raids last year, which were described by Micron in court filings and the police in Taiwan, represent the dark side of that effort — and explain in part why the United States is starting a trade war with China.
A plan known as Made in China 2025 calls for the country to become a global competitor in an ar-(p. B2)ray of industries, including semiconductors, robotics and electric vehicles. China is spending heavily to both innovate and buy up technology from abroad.
Politicians in Washington and American companies accuse China of veering into intimidation and outright theft to get there. And they see Micron, an Idaho company whose memory chips give phones and computers the critical ability to store and quickly retrieve information, as a prime example of that aggression.

For the full story, see:

Paul Mozur. “Darker Side Of Tech Bid By China.” The New York Times (Saturday, June 23, 2018): B1-B2.
(Note: the online version of the story has the date June 22, 2018, and has the title “Inside a Heist of American Chip Designs, as China Bids for Tech Power.”)

China Fears It Can Only Walk Forward by Using Keynes

(p. B1) HONG KONG — Wang Shidong and his two partners were still finishing graduate school two years ago when they raised $45 million in less than two months to start a venture capital fund. His wife, an elementary-school teacher in their home village, was “terrified” that he got to manage so much money, Mr. Wang said.
Things are different this year. After three months and visits with more than 90 potential investors all over China, Mr. Wang and his partners raised only $3 million for a second fund. In June, they shut down the firm.
Their fund, East Zhang Hangzhou Investment Management Ltd., was one of nearly 10,000 founded over the past three years amid a technology gold rush powered in part by China’s government-guided economic growth engine. Now they have become the latest sign (p. B2) that China’s engine is slowing down.
“All industries, institutions and individuals are running short of cash,” said Zhang Kaixing, founder and chief executive of an online asset management company in Shenzhen called Jinfuzi, which means “golden ax.” Jinfuzi, which manages over $4.5 billion in assets, is the type of investor that technology funds court.
“Many investors in private equity and venture capital funds want to take their money back,” Mr. Zhang said.
. . .
“In China we believe in Keynesian economics,” said Mr. Zhang, the Jinfuzi chief executive, referring to the economic theory that favors a bigger role for government. “If what’s going on in China were happening in the U.S., it would have been called a recession. But in China, the government will step in to interfere in significant ways.”
Under President Xi, even economics has become a delicate topic. Many people in China are not willing to speak publicly because even economists aren’t allowed to make downward forecasts.
Yet in private conversations, investors, entrepreneurs and economists admit that with the high debt level and a trade war with the United States, the room for government maneuvering is shrinking. The degrees of pessimism vary, but many of them are bracing for a tough ride ahead.
. . .
Venture funds like East Zhang came into existence in part because, starting in 2014, Beijing made innovation and entrepreneurship top priorities. Leaders hoped that start-ups would help elevate China from a manufacturing power to a technology power. Corporations, banks and wealthy individuals fought to give money to venture funds to invest in start-ups.
“We ended up with a lot of dumb money, managed by inexperienced investors,” said Ran Wang, chief executive of the investment bank CEC Capital Group in Beijing.

For the full story, see:
Li Yuan. “Latest Sign of China’s Slowdown: A Technology Cash Crunch.” The New York Times (Tuesday, July 17, 2018): B1 & B2.
(Note: ellipses added.)
(Note: the online version of the story has the date July 16, 2018.)

“Plumbing Industry Is Throwing the Kitchen Sink at Job Candidates”

(p. A1) FORT COLLINS, Colo.–The fast-growing business offers all the perks a pampered Silicon Valley tech worker might expect: An on-site tap flows with craft beer and the kitchen is stocked with locally roasted espresso beans. There is a putting green and a smoker for brisket lunches. Next up: a yoga studio.
Welcome to the gushing job market…for plumbers.
Colorado’s Neuworks Mechanical Inc. employs 75 plumbers but needs 15 to 20 more. To keep them happy, it offers “a lot of Zen,” says business-development manager Jackie Sindelar. That includes a sharing exercise that “brings out your raw emotions and makes you vulnerable,” she says.
Drained from a labor shortage, the plumbing industry is throwing the kitchen sink at job candidates.
Bonfe’s Plumbing, Heating & Air Service Inc. of South St. Paul, Minn., boasts an array of arcade games and a “quiet room”–a plush hangout space with insulated walls painted a calming sky blue. It has a lockable door, a comfy couch, a recliner and a sound machine that babbles with the soothing audio of ocean waves.
. . .
U.S. job openings hit a record 6.6 million in March, with the construction industry–where plumbers are heavily employed–seeing one of the largest jumps.
Building, needed repairs and retirements are fueling demand for plumbers at the same time the U.S. jobless rate in April fell below 4% for the first time since late 2000.
The annual median pay for plumbers, pipefitters and steamfitters was nearly $53,000 a year in 2017, according to federal data, but it isn’t uncommon to see jobs advertised for far higher wages, from $70,000 up to six figures.

For the full story, see:
Levitz, Jennifer. “Plumbing Firms, Drained by Labor Shortage, Tap Perks.” The Wall Street Journal (Thursday, May 24, 2018): A1 & A10.
(Note: ellipsis internal to sentence, in original; ellipsis between paragraphs, added.)
(Note: the online version of the story has the date May 23, 2018, and has the title “Perks for Plumbers: Hawaiian Vacations, Craft Beer and ‘a Lot of Zen’.” The last sentence quoted above appeared in the online, but not in the print, version of the article.)

“Entrepreneurial Capitalism Takes More People Out of Poverty Than Aid”

(p. A15) Some 44% of millennials believe they do more to support social causes than the rest of their family, according to the 2017 Millennial Impact report. If you’re volunteering at shelters or working for most nonprofits, that’s all very nice, but it’s one-off. You’re one of the privileged few who have the education to create lasting change. It may feel good to ladle soup to the hungry, but you’re wasting valuable brain waves that could be spent ushering in a future in which no one is hungry to begin with.
There’s a word that was probably never mentioned by your professors: Scale. No, not the stuff on the bottom of your bong or bathtub. It’s the concept of taking a small idea and finding ways to implement it for thousands, or millions, or even billions. Without scale, ideas are no more than hot air. Stop doing the one-off two-step. It’s time to scale up.
. . .
If you don’t think I’m credible, you too can listen to Bono. As he told Georgetown students a few years ago, “Entrepreneurial capitalism takes more people out of poverty than aid.” Of course it does. Want to change the world? Stop doing one-off volunteering and scale up.

For the full commentary, see:
Andy Kessler. “Advice to New Grads: Scale or Bail.” The Wall Street Journal (Monday, May 21, 2018): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date May 20, 2018.)

Wages Rise as Fast-Food Jobs Go Unfilled

(p. A10) . . . in an industry where cheap labor is an essential component in providing inexpensive food, a shortage of workers is changing the equation upon which fast-food places have long relied. This can be seen in rising wages, in a growth of incentives, and in the sometimes odd situations that business owners find themselves in.
This is why Jeffrey Kaplow, for example, spends a lot of time working behind the counter in his Subway restaurant in Lower Manhattan. It’s not what he pictured himself doing, but he simply doesn’t have enough employees.
Mr. Kaplow has tried everything he can think of to find workers, placing Craigslist ads, asking other franchisees for referrals, seeking to hire people from Subways that have closed.

For the full story, see:
Rachel Abrams and Robert Gebeloff. “A Fast-Food Problem: Where Have All The Teenagers Gone?” The New York Times (Friday, May 4, 2018): B1 & B5.
(Note: ellipsis added.)
(Note: the online version of the story has the date May 3, 2018.)

Lack of “Air-Conditioning Can Be Deadly”

(p. A10) The number of air-conditioners worldwide is predicted to soar from 1.6 billion units today to 5.6 billion units by midcentury, according to a report issued Tuesday by the International Energy Agency.
. . .
While 90 percent of American households have air-conditioning, “When we look in fact at the hot countries in the world, in Africa, Asia, Latin America and the Middle East, where about 2.8 billion people live, only about 8 percent of the population owns an air-conditioner,” said Fatih Birol, executive director of the energy agency.
As incomes in those countries rise, however, more people are installing air-conditioners in their homes. The energy agency predicts much of the growth in air-conditioning will occur in India, China and Indonesia.
Some of the spread is simply being driven by a desire for comfort in parts of the world that have always been hot.
. . .
And when it gets hot, forgoing air-conditioning can be deadly. The heat wave that plagued Chicago in 1995 killed more than 700 people, while the 2003 European heat wave and 2010 Russian heat wave killed tens of thousands each.

For the full story, see:
Kendra Pierre-Louis. “World Tries to Stay Cool, but It Could Warm Earth.” The New York Times (Friday, May 18, 2018): A10.
(Note: ellipses added.)
(Note: the online version of the story has the date May 15, 2018, and has the title “The World Wants Air-Conditioning. That Could Warm the World.”)