Why GDP Growth Does Not Equal Unemployment Decline or Income Increases

Revisions.

Whenever the government releases data like that recently which showed GDP increasing 2.8% it later revises it as more information becomes available. So the problem goes back several years. Turns out - no surprise to any sentient human being - the 2007-2009 financial crisis and recession were much worse than anyone realized - or was willing to admit at the time.

That means that the financial hole the economy is attempting to clamber out of is much deeper which, in turn, means that the rate of growth has to much higher to return to whatever normal might be. Or that it is going to take longer. 2.8% is better than the alternative. And following a 'normal' recession might be really good news. But the problems this economy faces are of a more serious nature. Many of them are systemic, which means big problems have to be fixed - like the root causes of income inequality.

Government stimulation would help, but powerful forces in the US and Europe are pushing austerity. This means reduced government spending at a time when it is most needed. This is unlikely to hurt those who feel this way but it will delay or derail a recovery.

One might argue that the government spending cutters should be careful what they wish for (the leaders of the UK and France along with the US Republican party being particularly prime examples)but until voting results dethrone them this warning is unlikely to change their beliefs or actions. JL

Brad Plumer reports in the Washington Post:

The U.S. economy grew at a 2.8 percent annual rate in the last quarter of 2011, according to Commerce Department data. That’s a little below expectations, but it also signals what most people already knew — the United States ended last year on a modestly upbeat note. (To put this in perspective, GDP grew at a paltry 0.7 percent in the first half of 2011.) On the other hand, it’s not fast enough growth to make a sizeable dent in unemployment.

Who's Your Daddy? Big Banks Slash Fees to Win Facebook IPO Advisory Role

Gotta love the image: the $25 hoodie sweatshirt dictating terms to the $2,000 Brioni suit.

When companies go public the investment banks that advise them have historically charged 7% of the deal value as their fee. Or at least they used to.

The financial crisis and the recession kinda knocked the wind out of that market. Lack of deals and the specter of reduced bonuses made the bankers (quietly) willing to haggle like, well, a bunch of garmentos. LinkedIn, Zynga and Groupon all paid fees for their IPOs in the 3 to 5% range.

Facebook? How about 1% - and even that number is for public consumption. Chances are that whatever fee is ultimately agreed upon will contain some givebacks and additional services that knock the final cost down even further.

The banks will claim that whoever wins the lead advisory role for this deal derives all manner of tangible and intangible benefits that will spark their growth for years to come. But the reality is that whether you're a global bank or a corner store, when business is down your first (if not best) instinct is to cut prices to get business. JL

Lauren LaCapra reports in the Huffington Post:

Facebook's initial public offering is likely to set a new standard for how low investment banks are willing to go on advisory fees to win big business.

The world's largest online social network is expected to tap public markets for $10 billion in an offering that will value the company at up to $100 billion, according to sources familiar with the planned IPO. It will be one of the biggest U.S. market debuts ever, and a prized trophy for the investment bankers seeking to win lead advisory roles. That has set up a fierce competition on Wall Street,

Why the Chinese Worker Abuse Stories May Take the Shine Off Apple's Reputation

The reaction to the revelations about worker abuse at Chinese factories making Apple products elicited a quick and revealing reaction from the company and the rest of the tech world. And apologies were neither first nor foremost.

Apple CEO Tim Cook was indignant: 'This is not who we are,' he said in an email to employees which was released to the media.

The tech blogosphere responded to the abuse complaints with the electronic equivalent of a grade schooler caught not playing nicely with other children at recess: 'they did it first;' 'they all did it, not just me;' and when those clearly werent gaining traction, 'they're actually better off because I did it.'

The embarrassed and pained reaction is reflective of the damage this may do the holier than thou image that tech has enjoyed. It is not considered a mere business like finance or manufacturing. It is a calling. And Apple is the greatest exemplar of that exalted status. That the tech media felt compelled to trot out decades-old stories about garment factories as if that would deflect attention or shift blame seemed pathetic and desperate. And that it claimed this problem is the American consumers's fault for wanting lower prices and therefore a societal problem was similarly toothless - and clueless.

Such arguments fail to address the real point. Worker abuse is as old as work. What advanced societies and companies do is correct it when they find it. Fast. That is why there are child labor, minimum wage, working condition and health laws. And that is why companies chip a little bit off their gross margins to monitor the situation so they workforces will not be abused and the company will not be embarrassed.

When it comes to reputation, the strongest accusations always stick to those companies whose professed values are in direct contrast to their behavior. Apple has worked assiduously to promote the image that it is more than a little bit better: more creatively designed, more innovative, way cooler. It's brand strategy is predicated on providing such features and communicating that which enhances the notion that owning an Apple makes one the envy of friends and acquaintances. Its margins require maintenance of that reputational premium.

But when you choose to live at the top, you have to invest to stay - and you have to behave like you belong. Other companies like Nike and Walmart, who once dominated their markets, were hurt by revelations that they tolerated worker abuse. And it affected their performance. If Apple does not fix this quickly - and with a modicum of uncustomary humility - it risks damage to its core competitive advantage. JL

Ceylan Yenginsu reports in the International Business Times:

Apple celebrated the second birthday of the iPad on Friday, but the tablet's success has been overshadowed by a recent report from the New York Times that exposes labor violations at Apple's supply chain in China.

The poor working conditions at Foxconn have been exposed for some time; even Apple published a report about some of its own labor violations. But Mike Daisy's first person account of Foxconn labor practices in an episode of "This American Life," followed by two New York Times articles, has brought the issues into sharp focus.

Is the US Quietly Weaning Itself Off Foreign Oil?

Supply and demand. Working just like classical economic theory says it should.

Higher energy prices made it more economical to drill for oil in more challenging, therefore more expensive places. Those same higher prices led auto companies to improve gas mileage and even offer hybrid or electric cars, resulting in a lessening demand gas.

So we are simultaneously increasing supply and reducing demand, both of which independently cause prices to decline. And since domestic oil is generally cheaper than foreign due to transportation costs (one significant element of which is energy costs), US demand for foreign oil may decline, though not disappear in the future.

That this makes geopolitical sense, given who owns most of the imported oil and where the profits go, is an added bonus. Whether this is an anomaly or becomes a trend remains to be seen. The larger point may be that the US can do this if it wants to, without cataclysmic damage to the economy. JL

Jordan Weissmann reports in The Atlantic:

The United States isn't breaking its reliance on foreign oil any time in the near future, but over the next couple of decades, we will be importing much less oil for two simple reasons. We're drilling more crude, and we're driving more efficient cars.

Hasbro Is No Has-Been: Board Games Surge in the Digital Age

Transitions from tangible to intangible or physical to digital are becoming the hallmark of our age.

The popularity of games and gaming has assured a vast market for those who want to play from the standpoint of business or pure entertainment. But the factors that will differentiate those who succeed in making that transition will require reformulating, reformatting and even reimagining how the physical game can most enjoyably be played in an electronic medium.

To the surprise of many, traditional board game manufacturers have taken up the challenge. Rather than simply trying to replicate the card-table-in-the-living-room experience on a screen, they have reinvented rules, eliminated features and, in some cases, even changed the very nature of winning. The result has led to robust sales and a lesson for others whose yearning for digital success has not matched their performance. JL

Kevin Ohannessian reports in Fast Company:

Risk has come to Facebook. Scrabble is one of the top iPhone apps. And several board games are enjoying a long life on game consoles. In the digital age, you better be ready to Hasbro-down.

A long time ago, in a galaxy far, far away families had a game night--once a week they'd pull out a stack of boxes from a closet and everyone would flex their knowledge of trivia (Trivial Pursuit), vocabulary (Scrabble), or even their real-estate management skills (Monopoly, natch). You can check to remember what a game closet looked like. With the rise of cable TV and video games in the '80s, that tradition waned in the U.S. But in Europe, board games just evolved into complex worlds of strategy and resources. Eventually, such games gained a niche following in the U.S--games like Settlers of Catan, Carcassone, and Ticket to Ride. And now with this plethora of board games appearing on digital platforms, board games are making a comeback.

The Future of Selling

4.5%.

That is the number on the accompanying chart to which you should be paying attention. Why? Because that is the percentage of sales that ecommerce has yet to capture of total retail sales.

It is significant for two reasons. The first is that it means there is tremendous room to grow. The second is that it demonstrates, despite all the money and resources poured into the effort, to say nothing of the hype surrounding it, how far there is to go. And how much additional effort increasing that percentage is going to require.

This is not to suggest that e or mobile commerce efforts to date have failed or been ineffective. Rather, it suggests, that changing the habits of millenia will not be accomplished quickly and easily. But neither will they take another millenia. The implication is that additional investments in technology, yes, but also in rethinking how best to appeal to a consuming public that continues to rank shopping as one of its favorite passtimes. Three Cs - convergence, convenience and cost - will determine how long it takes to move that percentage above the number 5. JL

Greg Satel comments in Digital Tonto:

What’s the next big thing in digital? Mobile? Social? Online video? Those are things moving fast but the trend with the most potential for significant economic impact is, in fact, retail.

The sleepy, boring business of selling things to consumers is pepping up and becoming a hotbed of innovation. Technology and consumer trends are combining to create a shopping experience entirely different from anything we’ve seen before.

Measuring Religious and Racial Bias at the Ballot Box: Is the Post-Differences Society a Myth?

It will probably not come as a surprise to anyone that evidence we live in a society in which bias has been eliminated and tolerance is rampant are exaggerated.

But what researchers are beginning to understand with a far greater degree of specificity and accuracy is just to what degree that is true - and why.

President Obama's race and Republican Presidential candidate Mitt Romney's Mormon relgion have thrown into high relief the extent to which those factors continue to cleave our civilization.

Measurement and interpretation matter because our economy is increasingly dependent on sales and profits derived from outside the US - or whatever country of origin in which you reside. Beyond tolerance, the need for understanding frames societal norms and may influence standards of living. If the measure of resistance to these precepts can be captured, a better understanding of the underlying biases may be obtained and analysis of its potential economic and social impact evaluated.

Particularly for those in the US, foreign cultures pay far more attention to us than we do to them. Our understanding of race exceeds our understanding of religion, but with many of our future customers following Islam, Buddhism and Hindu faiths, we are being forced to learn that beliefs have consequences. JL

Gary Stix reports in Scientific American:

The color of a candidate’s skin failed to sway voters to depress the lever for either Obama or McCain in the 2008 election, immediate analyses of that contest seemed to suggest. Some pundits hailed it as the first postracial election.

But a closer look after the election has revealed a much more nuanced picture of that historic faceoff. In the 2012 election, reearchers want to use the same method to examine, not only race, but this year’s added hot-button issue of Mitt Romney’s religion.