The Cost of One Percent

The “New Compton” is a phrase that has fallen out of the mouths of Compton politicians for decades now. It promises safety and economic revitalization, it whispers hope into an area marked by blight.

It’s easy to single out the crack epidemic of the ’80s and the gang violence of the ’90s as causes for Compton’s economic woes. But whatever the problems in the past were, the economic trials of Compton’s present are exacerbated by something as simple and mundane as a credit rating.

Or rather, the lack thereof.

Because just as a credit rating has a profound effect on where a person can live — and how well — a city’s credit rating can dictate how a city governs itself and how well it can take care of its citizens.

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Deregulation Dejavu

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There was a lot that was confusing about the November Republican debate, when the economy took center stage as a topic.

Senator Rand Paul said he would like for the U.S. to get ride of the Federal Reserve. A couple candidates trotted out the idea of returning to the gold standard. But equally as puzzling was the consensus among the candidates that what America really needed to spur job growth was deregulation.

The candidates’ parroting the virtues of deregulation was puzzling for at least one major reason: a lack of federal oversight, according to many financial and policy experts, was one of the major causes of The Great Recession.

The deregulation that set up the financial crisis of the late aughts didn’t fall under the purview of any one administration. Under President Bill Clinton’s administration, for instance,  the Glass-Steagall act was repealed — regulations that served to keep the business of main street (that is, things like mortgages) from the business of Wall Street (investment).

But Gramm-Leach-Bliley toppled those walls, allowing companies like JP Morgan and Goldman Sachs to use mortgages as a financial product, able to be packaged into CDO’s, bought, sold and bet against. And as those mortgages got riskier and riskier, because there was no federal regulation, there was no oversight, and thus, no one to pump the brakes.

All of this was pretty clear when the collapse happened. Main Street, right or wrong, pointed its fingers at Wall Street, as did the government. Round after round of congressional testimony berated Wall Street executives. In the wake of the public outcry, Dodd-Frank and the Volcker Rule were passed, which — at least in theory — put an end to investment banks having CDOs, restricted them from making certain kinds of speculative investments and limited the kinds of hedge funds banks are allowed to own.

But that was yesterday.

In today’s presidential race, many prominent candidates, particularly within the GOP, are once again touting the virtues of financial deregulation.

Which raises the question: are you freakin’ serious?

These are the candidates who are quick to say that we are still in financial recovery — a recovery that came about in large part by deregulation. So what gives? How can these candidates tout lack of oversight and call it “job creation” and “economic opportunity” with straight faces?

The answer is frustratingly simple: because there’s a lot of money involved.

The New York Times recently completed an investigation into campaign donation thus far in the presidential race. They found that, so far, 158 families have provided almost half of all the early money to presidential candidates. These families tended to be rich, white, older, and headed by men. They leaned conservative. And of the industries they represented, the largest was finance.

As it turns out, they’re a very specific group of financiers that are backing GOP candidates: hedge fund owners, venture capitalists, and partners in private equity firms.

Of those 158 families, 138 are supporting GOP candidates. And of those 138, nearly half (64) are involved in finance.

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The potential payoff is clear. Democrats have pledged to uphold Dodd-Frank, and have argued for changes that would introduce higher levels of corporate and investment taxation. The GOP, meanwhile, in the name of promoting economic growth and opportunities, has fought these policies, urging instead for broader tax cuts and deregulation of the finance and energy industries.

Adopting those policies makes smart business sense if you’re a Republican presidential candidate: the total amount those 158 families have donated thus far to presidential campaigns is about $176 million dollars.

 

 

 

Buy Goods, Feel Good

It’s easy to bemoan the capitalistic bend of the holidays: before the Thanksgiving turkey has settled in their bellies, many Americans are already stamping their feet in lines outside of Walmart and Target, ready to trample over their fellow man for a discounted plasma screen.

But there is a brand of capitalism designed to satiate the better angels of our nature: social entrepreneurship.

For an example of this, take Macy’s “Shop For A Better World” site, which is about as direct a mission statement — and a plea — as one can hope to find.

Fairwinds Trading, a social enterprise that funds artisans in developing countries, partners with Macy's to supply consumers with "gifts that give hope."

Fairwinds Trading, a social enterprise that funds artisans in developing countries, partners with Macy’s to supply consumers with “gifts that give hope.”

Browsing the site, you’ll find “Heart of Haiti All-Horn Salad Servers” (for $42), or “Rwanda 10th Anniversary” woven baskets ($50-$60).  This may seem pricey, even for “culturally expressive” gifts, but consider that the artisans (that is, the Rwandans and Haitians making these salad servers and baskets) receive half of the wholesale price and suddenly, that price doesn’t seem so outlandish. In fact, spending that extra $20-$30 could leave you feeling pretty darn good.

And here you have the draw of social entrepreneurship. Because if you or your loved ones are going to be serving salad anyway, why not make sure you’re making the world a better place doing it?

The appeal of social entrepreneurship is that it blends traditional capitalism with solutions to societal problems big and small, like providing water to drought-stricken areas of the world or funding SMEs in Haiti. Through social entrepreneurship, start-ups blend business with creativity and create “shared value” — that is, not just economic value, but value to society.

But as widespread as the practice has become, social entrepreneurship lacks a clear definition. Wikipedia (which itself could be considered a social enterprise) defines it as “the attempt to draw upon business techniques to find solutions to social problems.” So, Kiva, which provides micro-loans to small business owners in developing nations, is a social enterprise, as is Fair Winds Trading, the company that supplies Macy’s with its Rwandan woven baskets, and (according to ashoka.com), Susan B. Anthony is a prime example of a social entrepreneur.

Wait, huh?

If that last example caused you to furrow your brow, you’re not alone. And that may be one of the problems confronting social entrepreneurship: if you can’t really define it, how do you know a good (or poor) example of it? How do you know if it’s working?

One way to look at it is that the consumer isn’t just purchasing a solution, but a story. For example, when you provide a $25 micro-loan with Kiva, not only do you get to personally select your borrower (each borrower is screened by Kiva and has a biography on their site), you get regular updates on how their business is going. It’s not just the appeal of lending money to a needy or deserving, but anonymous, business owner that draws people to Kiva, it’s that you get to ensure Judith from Kenya’s success by helping her buy cereals to sell at the market.

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But not only can a good story convince a consumer to open up her wallet, in the case of Sejin Kaleb Oh, founder of Gravity LA, having what he calls a “higher purpose” can keep a business owner motivated.

Gravity LA is a pretty traditional clothing retailer, selling a handful of tees, pullovers, and tanks that are “reputable” and “sweat-shop free,” according to their site.

But click on their “about us” section of their page and you’ll find the following:

“GRAVITY LA was founded on December 21, 2013 to raise money to support those that are willing to leave their comfortable homes and venture out into the unknown and dangerous to bring hope, life, and love to those that are desperately in need of it.”

How do they do this?

According to Oh, they take a percentage of whatever profit they make and donate it to charity.

That’s pretty much it.

And as close as his charitable donations are to his heart, Oh doesn’t set a percentage, so he doesn’t advertise one, and even he says the purpose of the shop isn’t exclusively to raise funds for charity. But what these donations do give him is a cause to answer to when the going gets tough — as it often does for entrepreneurs.

“It’s the story of why I exist, or it’s the story of why Gravity LA exists,” said Oh.

“If you’re just out there for money,” Oh said, “you’re in the wrong business. Because you don’t really see any return on it for years. It’s really that purpose that keeps you going. And really, I don’t know how companies do exist without a story like that or without kind of purpose driving them. I think it’s vital for the life of any business.”

Gone Shipping: A Visit to the Port of L.A.

It’s hard to look at the Port of L.A. and not think about Legoland on steroids — towers of interchangeable blue, grey, and orange containers climbing up toward the sky, cranes as tall as skyscrapers, and a handful of life-size people who, against this scale, looked like little more than Lego men, keeping the whole thing going.

My own forays with Legos were haphazard. Every project would become a multicolored wall about two blocks deep that an X-Men action figure or a plastic dinosaur would end up running through. A technicolored prop, basically. Of course, that bears absolutely no resemblance to the Port of L.A., whose container ships are the building blocks of international trade here in the United States.

Yes, I went there.

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While the pun may be obvious, it applies in a number of ways. Sure, the port is the foremost container port in the U.S. (and, depending on whether you count neighboring Long Beach, either in the top 10 or top 20 worldwide). It’s also a living, ever-expanding testimony to the mechanics of modern trade, which is now the most streamlined and efficient it’s ever been. You’ll find thousands of containers packed neatly on ships and on the shores, you’ll ships of all sizes and purposes, you’ll even find sea lions. But absent from the shores of San Pedro are about 15,000 longshore workers.

Years ago, it would take that amount of man-power to offload these ships, which typically carry between 5,000 and 8,000 containers. Now, a few automated cranes can handle that load between two and five days, depending on the size of the ship. These efforts have been largely rewarded as the Port remains ever busy, thanks in part to a rebounding economy and new, expansive trade deals. One official noted that even a “bad year for cargo” typically sees growth of 4%.

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Expedience is key in shipping, as the goods from these containers need to be transported throughout the United States, traversing America’s highways and railways before they land in your local Ralph’s, Target, Forever 21, Meineke, or Best Buy.

The number one good found in these containers now is furniture — and has been for the last twenty years. In second comes autoparts, which have seen an increase in import rates. These parts are shipped here from Asian, then assembled in autoplants throughout Mexico and North America (namely, Texas; Memphis, Tennesee and Detroit, Michigan). Next comes clothing and shoes, followed by electronic goods. Rounding out the U.S.’s top five imports are toys and sporting goods — the latter of which is already causing an uptick of activity at the port as the holidays approach.

And what are we sending back to Asia?

Air, for the most part. Since U.S. imports far outpace U.S. exports, many of our containers will go back to Asia empty. And what we do send back to countries like China aren’t ready-made goods, like the ones we receive, but commodities.

More specifically, trash.

The top export out of the Port of L.A. is waste paper — material you directly contribute to when you accidentally print out 10 copies of that out-dated resume. Next is metal scrap, which is shredded before being put on the ships, followed by plastic scraps, which will be recycled and repurposed in China before making their way back to the United States as eco-friendly dog bowls. Through the Port of L.A., we also send animal feeds and autoparts. Since the port also processes these materials, you don’t have to go too far to smell the burning metal, dust and rust of the scrap factory as it mixes in with the sea air.

Eli Goodstein, who refused to be intimidated even though his camera wasn't the largest on the yacht.

Eli Goodstein, who refused to be intimidated even though his camera wasn’t the largest on the yacht.

In fact, along the shores of the Port is an entire ecosystem that features industries from the past and present. Nissans and Infinities fill one side of the dock, as 150,000 of these cars are brought in to the Port per year before being distributed throughout the U.S.

You’ll also find a cement processor — previously out of commission, but scheduled to rev up again in 2016 — and a borax factory. Not to be confused with the Kazakh reporter, borax is an earth mineral commonly used as a household cleaner that can only be found in South Africa, Turkey, and Southern California. Experts estimate that, as it stands, there are only 30-40 years of borax left on earth.

And that’s among the things most interesting about the port — how you can see remnants of old mechanisms, old industries, old ways of doing trade, even as management charges the port’s systems and technologies forward.

Nerd Rising

David Arnold is afraid the bubble is about to burst.

It happened in the ‘70s and again in the ‘90s. The market got hot and everybody wanted in. To keep up with rising demand, companies beefed up their supply, to the detriment of their products’ quality. Because the quality of the product declined, so did the demand, eventually creating deflation.

Not even the “Death of Superman” could save the comic book industry.

But now comic books — thanks in large part to a series of high-grossing superhero films — are booming again, and Arnold, a lifelong lover of comic books and now, an online retailer, can’t help but feel a little anxious about its surge. Especially because, as a reader, the overload of movies and reboots has become overwhelming.

“There’s a lot of dead weight in the marketplace right now,” says Arnold. “There’s a lot of books that don’t need to be there, and I think a culling is good.”

Arnold started his business, DNA Comics and Grading, two years ago. Overworked and unhappy with teaching, at the age of 36, Arnold looked at the stack of comic books and toys he had acquired over the years, items he jokingly referred to as his “retirement fund,” and decided to cash in.

“Little did i know how much stress running your own business is,” Arnold muses. “I think I traded in six in one, for half a dozen in the other sometimes.”

And as plush as it may seem to stay at home, throw a bunch of comic books online and watch the money rain in, as Arnold found out, it’s really not that simple.

Unlike a regular storefront, where business-owners can refuse customers service per their discretion, eBay has built in a lot of protections for the buyer that Arnold feels punishes the seller.

For example, if a package is delivered but a customer claims he did not receive it, Arnold is obligated to refund the cost back to the customer — even if the tracking says the package was delivered.

And if he doesn’t? His seller’s rating is at stake.

This is one of the biggest differences between selling online and selling through a brick-and-mortar storefront. When shopping online, customers don’t only search for the best prices but for the best seller ratings. As a customer, Arnold acknowledges that if he sees a seller rating of 90% or less, he typically will not order from them.

And unlike a traditional storefront, online storefronts are all the same distance — just a few click — away from the customer.

“It’s frustrating being a seller sometimes because you feel like the whole system is set up for the buyer, and as a buyer you feel really comfortable,” says Arnold. “You feel good because you know if you’ve got any problems, you can complain and the seller basically has to bend over backwards to do what you want in order to get positive feedback.”

This is called “feedback extortion” by those in the eBay community, and there’s not much a seller can do about it.

Another challenge in selling online is keeping on top of inventory. Because most of his items don’t command a huge ticket price, Arnold has to be very careful to dedicate time each day to update his listings so he can continue to push out his inventory and make a profit.

When it comes to selecting inventory, comic book retailers also have to be great speculators.

One interesting thing about comic books is that they can sell when the rest of the economy is doing poorly. During hard times, Arnold typically sees a spike in collectibles sales — that is, old comics with great historic or sentimental value, like the first appearance of a popular character, or even more notable — a death.

It may be that hard times cause people to reminisce on the good ol’ days, which they try to reclaim through memorabilia. Or it could be a touch of escapism — the same thing that typically drives audiences to the cinema during economic downturns.

But the profit margin on these old books can be tremendous. Considering that a new comic book retails at three dollars — and used ones can be rummaged for at no more than a buck — a $50 resell is a tremendous profit margin.

But now that the economy is in recovery, the comic book industry is sill riding high on a wave of comic book-inspired movies.

This means that many sellers forecast which books to stock based on which movies will be coming out in theaters.

“It’s become much more of a widespread phenomenon for people to hunt for old issues because it’s a character from a movie or something like that,” notes Arnold.

“The first Rocket Raccoon was a five dollar book ten years ago … but (right) before the movie came out it was a $5,000 book. And now it’s cooled back down to $300-500 for a nice copy.”

Arnold hopes to open his own storefront soon. Not only is a storefront helpful in pushing out inventory, but as an online seller, Arnold, an “old guard nerd,” can’t take advantage of what so many comic book fans really go shopping for: community.

“Inevitably, the other thing about comics is that you always get one person that comes in and [is like] ‘I haven’t read comics in five years, what’s cool, what should I get into?’ and you don’t go into best buy and go ‘I haven’t watched a move in five years, what movie should I buy?’” says Arnold.

With decades of avid reading under his belt, Arnold has the clear advantage over some pubescent part-timer behind the counter.

“It’s a different marketplace, and the customers are weird because they wanna hang out, they don’t wanna just buy things and leave. They want to socialize. Nerds are very passionate about their nerdliness.”

The Garbage Index: What A Load Of Rubbish Can Tell Us About The Economy

Our trash can tell us a lot about ourselves: What magazines we read, how much we love Trader Joe’s frozen pizza, or whether we’ve finally decided to get rid of your parents’ couch from the ‘70s. But, as it turns out, the sum total of our trash, and our neighbors trash, can also tell us a lot about the health of a country’s economy.

This is called the Garbage Index, which looks at the total amount of waste a country produces to measure the health and growth of its GDP.

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