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Archive for the ‘Business – General’ Category

ETHIOPIAN-AIRLINES

An Ethiopian Air Boeing 737

Following two crashes of Boeing 737 Max 8 commercial jetliners for apparently similar causes — the plane’s autopilot mechanism took over and caused the plane to suddenly go nose-down during take-off — news outlets have reported that similar complaints about the 737 Max 8 have been registered by U.S. pilots over the past several years, although no accidents have occurred.

The important thing, though, is where those pilots registered their complaints.

They registered them in a federal government database.

An anonymous government database.

No names of pilots are given. No names of airlines are given. According to the news reports, this anonymous reporting facility is provided by the U.S. government so that commercial airline pilots can make these reports and complaints without having to worry about “repercussions to their own careers.”

The flying public (i.e., people like you and me) should stop and think about that for just a moment.

You board an airplane at an airport. But the big airlines whose planes you’re getting on, the companies to whom you are entrusting your very life, are so prone to retaliate against a pilot who reports a problem that the United States government has to intervene and provide an anonymous reporting system so that pilots can raise life-and-death issues without worrying about whether they’ll put themselves out of their jobs.

There may also be pilots who have witnessed problems with their aircraft who, despite the existence of this anonymous reporting service, made no complaint because they didn’t trust that system and didn’t believe that their report would remain anonymous.

The next time you hear that fugazy little jingle about flying the friendly skies of Acme Air, think about that anonymous database, about why it’s necessary, and then draw your own conclusions about what those airlines really think about the safety of the flying public.

 

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Bezos

Amazon’s Jeff Bezos – An “Average” Guy

Last week Jeff Bezos, the richest man on Planet Earth with a reported $100 Billion in net worth, decided that Amazon would no longer consider building its Headquarters 2 Project (HQ2) in Long Island City, New York. Amazon had never made any commitment to build in New York, and in fact it’s still looking at locations in other states. But feelings of unrequited love have spurred critics on both the left and the right to complain. The right complains that the left is anti-business. For its part, the left is split: some complain about lost jobs (even though they didn’t exist yet), while others argue that the deal was a huge give-away and unnecessary to boot.

Based on public information, Amazon’s gross annual revenue for 2018 was $233 Billion, a 30.9% increase from 2017’s annual gross of $178 Billion. For our purposes, we’ll forget all about what Amazon may have earned, gross, in any prior year, and what it may have done with that money, whether pay it out in dividends, re-invest in the company, etc. We’ll give Amazon every benefit of the doubt by being conservative on its revenues, as well as conservative on what it was supposed to get from various New York public piggy banks.

Amazon canceled consideration of New York City as a home for its new HQ2 because of friction with various political players in NY who opposed the project. We’re told that opposition was due chiefly to the proposed economic incentives to Amazon that would be provided at public expense. So what was Amazon supposed to get in this deal? Reports over the last few days use a figure of $3.0 Billion, but according to news reports from last November, the real total appears closer to $2.6 Billion. Still a lot of money, but none of the current reports go into same detail as those from November. Based on the November reports, the gist of the deal was this:

  • $1,200,000,000: Amazon was going to receive $1.2 Billion in NY State tax credits through the Excelsior Jobs Program if it created 25,000 net new jobs in New York State with an average salary of $150,000 per job by June 30, 2028. Without reviewing the actual documents, we can’t say whether this 25,000 job/$150,000 average salary requirement was a condition precedent to Amazon’s receipt of the tax credits, or whether those credits had some kind of best efforts fudge factor. Giving Amazon the benefit of the doubt, we’ll assume this requirement is a condition precedent.
  • $505,000,000: New York State would give Amazon a grant of $505 Million to reimburse it for the cost of building its new office space in Long Island City. (Subtotal: $1,705,000,000).
  • $325,000,000, netted to zero (-0-): Another reported cash grant consists of $325 Million from the Empire State Development Program. Again, without having seen authoritative documents, it’s not clear whether this $325 Million is part of, or in addition to, the $505 million grant mentioned above. Giving Amazon the benefit of the doubt, we’ll regard it as part of the $505 million grant, and discount it entirely. (Subtotal: still $1,705,000,000).
  • $900,000,000: New York City, through its Relocation and Employment Assistance Program (REAP) would have added another $900 Million in grants. (Subtotal: $2,605,000,000).
  • – $-0- : New York State and New York City officials had promised to either rehab or build new infrastructure and mass transit facilities that serve the area Amazon would occupy in Long Island City. This would be public money as well, though review of the news reports did not disclose any definite dollar amount or commitment. Because these projects, if completed, would benefit the public at large and not just Amazon and its proposed new HQ2, we’ll give Amazon the benefit of the doubt and disregard any public dollar commitment public transportation and infrastructure improvements.

The total estimate of public dollars to be spent for Amazon’s benefit is thus $2,605,000,000; or just call it $2.6 Billion. The punditocracy would have us believe that Amazon nixed its Long Island City plans because of the difficulty of obtaining from New York (state and city) tax and other incentives that amounted to just a little over one percent (1%) of its gross revenues for each of the years 2018 and 2017.

Unlikely, but we’ll run with it anyway.

Some proponents of the Amazon project argue that this really isn’t public money. That is absurd. Tax abatements, tax credits and deductions, and grants from government agencies are all sourced, whether directly or indirectly, from public money. A state tax credit is public money of the state: it reduces a tax otherwise payable to the state on a dollar-for-dollar basis. Even the most ardent supporters of Amazon’s project have to admit that there’s no such thing as a free lunch.

Let’s do a little quick math. As Mark Twain said, there are lies, damn lies and statistics, so let’s revisit Amazon’s promise to provide an “average salary” of $150,000 for 25,000 net new jobs. The pundits bemoaning New York’s loss of Amazon’s HQ2 take this to mean 25,000 jobs paying $150,000 each. But remember that old joke about the statistician who had his head in an oven and his feet in a freezer. When asked if he was okay he replied, “On average, I’m just fine.”

The federal minimum wage is currently $7.25 per hour. That minimum wage rate hasn’t been increased since 2009. If a minimum wage employee works a full year (52 weeks/year), he or she will gross $15,080 per year.

Bezos will soon marry a woman who will be his second wife. Bezos could hire his new spouse as CEO of the New York City Division of Amazon at a salary of $3,385,000,000 ( net new employees = 1). She could have her paychecks direct deposited to their joint checking account, should she so wish. As a practical matter, that money would be coming back directly to Bezos.

That leaves Bezos with another 24,999 new employees to hire. He could hire every single one of them at the federal minimum wage of $7.25 (earning just $15,080 per year). By doing this, Bezos meets his requirement to create 25,000 net new jobs at an “average” salary of $150,000 per year. In fact, under that employment scenario he’s exceeded that threshhold by about $480 (the average salary would be $150,479.40, to be exact).

Would that happen? Maybe not. Amazon would need some high-level and mid-level management employees and non-management supervisors, etc.

Still, you can put those numbers on your calculator and play with them any way you like for as long as you like, and you can come up with numerous distributions of 25,000 salaries that keeps the vast majority of Amazon’s prospective Long Island City employees at minimum wage while still enabling Bezos to claim $1.2 Billion in NY State tax credits.

Next time we’ll take a look at corporate welfare for Amazon.

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elizabeth_warren

Sen. Elizabeth Warren (D-MA)

Senator Elizabeth Warren (D-Massachusetts) has suggested a wealth tax of 2 percent on assets above $50 million, and 3 percent on assets of more than $1 billion. She estimates that such a tax, which would by its nature be limited to the very rich, could generate $2.75 trillion in revenue over a decade. To paraphrase the late Everett Dirksen, a trillion here, a trillion there, and pretty soon you’re talking real money.

Starbucks billionaire Howard Schultz and former NYC mayor billionaire Michael Bloomberg have, of course, slammed Warren’s proposal as a gateway drug to Venezuela-Maduro style socialism. Continued critiques from Schultz, Bloomberg and the billionaire class will probably do more to garner support for Warren’s proposal than she herself could do with a thousand townhall meetings.

Schultz and Bloomberg apparently have forgotten that while they have ascended to levels of wealth that would make Croesus look like a homeless person, hundreds of millions of Americans (and Britons, and Europeans, etc.) have been undeniably left behind by the Great Prosperity of globalization and financialization of the economy. Wealth taxes have been proposed before, though not in the U.S.

Towards the end of the First World War, Great Britain considered imposing a wealth tax. Throughout the war, Great Britain not only had to equip and supply its own forces, it also had to advance funds to its allies France, Russia and Italy since none of them had enough cash to purchase necessary war matériel. By 1917, the cost of the war, including subsidies to allies, had put unprecedented strain on Britain’s national budget.

During the first three years of the war, taxation rates in Great Britain had increased significantly, and the levels of income to which the tax was applied were lowered. In consequence, many segments of the population that had never before paid income taxes were moved onto the tax rolls. This was accompanied by some erosion of civilian support for the war. In Parliament, Labor members argued that the working classes were bearing a disproportionate share of the war’s cost. Coal miners in South Wales even staged a tax strike in 1917. Labor proposed a tax on capital to ease the deficit, but the Tory constituencies opposed additional taxation generally, and a levy on capital in particular.

Ultimately, the British Treasury rejected any capital levy over concerns that it would cause a slump in asset prices because asset holders would try to raise capital by sales of those assets. That would depress capital markets and, most worrisome of all, possibly reduce the United States’ confidence in the soundness of Britain’s economy.

Of course today, despite nearly two decades of continuous foreign wars, the U.S. is not in the position Great Britain occupied in 1917.

 

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phonebooth

Traditional technology, superhuman application.

I was on the road yesterday and realized how we’ve come full circle on payphones, that ancient technology (before the era of the cellphone) that enabled everybody to stay in touch, more or less. It even gave rise to new idioms that are still in use, even though the machinery that gave rise to them is long gone. In the 21st Century, you can’t “drop the dime” on somebody (i.e., call the authorities to report somebody for a crime) because there’s nowhere to drop the dime. Payphones used to cost a dime, but where is there a payphone around now? The county jail?

In the old-style payphone, like the ones Superman used to avail himself of, you’d go into a phone booth and close the folding glass door to shut out a bit of the street noise. In other words, you’d rent the phone for a dime, and the booth was free. (Why did Clark Kent think that changing in a phone booth, with clear glass panes, would help maintain his secret identity? It’s one of the Great Mysteries of the 20th Century.)

phonebooth_2

Some people really liked phone booths. 

Then the booths went away and were replaced with phone kiosks: a payphone surrounded by a big metal hood that might give you a little protection from the rain, but not much.

Then came the era of the cellphone, and payphones gradually went the way of the crossbow, the walled city and the eight-track tape.

Now, we’re in the era of the road warrior, but even a warrior needs a quiet space for an important call every now and then. Enter the rent-a-quiet-booth business. In coffee shops and malls and airports you may see these brightly colored booths with plush seating, outlets for your charger and USB ports. They put the old-style phone booth to shame. You rent them by the hour, and they claim to be soundproof (or close to it).

And thus we’ve come full circle. In the old days the booth was free and you rent the phone. Now you rent the booth and bring your own phone. And it costs a lot more than a dime.

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Zuckerberg

In response to the Cambridge Analytica/data-scraping crisis, Facebook’s CEO Mark Zuckerberg has said he’s open to “the right regulation.”

You should be very afraid.

Companies as big as Facebook don’t recoil from regulation. They seek it. Regulation brings inestimable advantages, chief among which is the opportunity to capture the regulator. One need not look far to find prior examples.

In the run-up to the Great Recession of 2008, the Federal Reserve under Alan Greenspan treated the largest banks and mortgage lenders not as entities they regulated but as clients they had to help.

The Nuclear Regulatory Commission would be better known as the Nuclear Plant Approval and Preservation Commission.

Nuclear regulators in Japan looked forward to employment with Tokyo Electric Power Company, which had predictable effects on their reviews of plants like Fukushima. These are just a few examples, and we haven’t even touched Big Pharma.

Creation of some new commission to regulate privacy matters on social media would provide a juicy target for cooptation by Facebook’s immense wealth. No federal agency (and presumably it would be a federal, rather than a state, agency) can compete with Facebook’s immense resources, and Zuckerberg’s friends in Congress could control its funding levels year by year. As with Fukushima, regulators would view their time at the agency as a rung on the ladder to a higher-paying job with Facebook. A new statute granting this commission jurisdiction over privacy issues in social media could insulate Facebook from class actions if such matters were reserved to the new agency’s expertise.

When Facebook talks about “the right regulation,” he has in mind a well-trained regulatory spaniel that will run and fetch the frisbee no matter how far Zuckerberg flings it.

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Tax Reform

The GOP-passed tax reform law, a/k/a the Tax Cuts and Jobs Act of 2017, lowered the corporate federal income tax from a maximum of 35% to a flat rate of 21%.

Numerous transmission utilities file tariffs with the Federal Energy Regulatory Commission that are based on a cost of service revenue requirement. The expense of federal corporate income tax is one of those costs of service. When a corporation’s tax rate goes down from a maximum of 35% to a flat 21%, its income tax expense goes down, and thus its cost of service revenue requirement goes down. So, one would think that when transmission utilities’ tax rates go down, as they have, that benefit might flow through (or is that trickle down) to ratepayers.

Nope.

No transmission utility filed any amendments to its tariffs to reflect the new, lowered tax rate. Maybe they thought nobody would notice it, and they could pocket that 14% difference. (“Oh boy!!!).

So on March 15, 2018, FERC opened a series of new proceedings requiring that these transmission utilities either lower their rates to reflect the tax cut, or show cause why they should not be required to do so.

Your tax dollars at work.

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invasion+of+privacy

Facebook’s cavalier attitude towards its users’ privacy interests, and its oceanically broad view of what constitutes a user’s “consent” will come back to bite Zuckerberg in the tuchus.

Meanwhile, the lesson for all users of free services on the net, whether Facebook, Twitter, Snapchat or whatever, is fairly simple:

If the service is free, then YOU are the product being sold.

 

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