• Are charity work and corporate directorship incompatible?

    Can one man take a leadership position at these two very different entities?

    Darren Walker, as president Ford Foundation, a charitable organization, has raised money and championed the cause of a more "just and equitable society." Recently, Mr. Walker joined the board of directors of PepsiCo--the maker of sugary soft drinks and manufactured snack foods. This has caused some observers to ask: Is Darren Walker in the middle of an ethical dilemma, regarding the different motivating factors of a charitable group and a profit-making company (that may be producing a nutritionally dubious product)?

    Besides it product like, PepsiCo has also taken actions such as lobbying against legislation to combat the obesity epidemic. They have been accused of using deceptive Doritos advertising when marketing to teens. They have use palm oil from unethical suppliers. How can Mr. Warren reconcile these actions with his other beliefs? His answer: 

    "I will bring my perspective as the leader of a social justice organization. I will bring my perspective as someone who is deeply concerned about the welfare of people in poor and vulnerable communities.”

    We will see over time if Mr. Warren's input makes a difference in PepsiCo's policies.

    Source: "An Activist For the Poor Joins Pepsi's Board--Is That Ethical?" by David Gelles, New York Times, October 28, 2016.

    Follow up:

    • What are the factors used to determine if an action or position is ethical?  Could there be any legal issues in the case discussed in the article? (remember that "legal" issues are different from ethical issues) 
    • What is your opinion about Mr. Warren's decision to join the PepsiCo board? How would you justify it? How would you argue against it?
  • Urban factories are a bright spot for American manufacturing

     Marlin Steel worker and manager, via YouTube

    Probably one of the saddest and most devastating economic trends over the last 20 years has been the loss of American manufacturing jobs to low-wage foreign manufacturing facilities. The loss of over 30% of industry jobs has not only been devastating to the economy, but the decline of the "working class" has made poverty and crime the reality for many who may have become factory workers and enjoyed a middle class standard of living. 

    The article linked below focuses on one individual, James Branch, who now makes $70,000 a year as a skilled machine operator for Marlin Steel, a small factory in Baltimore, Maryland. Before this job came along...he dealt drugs, did time in prison, and worked a minimum-wage job at Popeye's. 

    The National Association of Manufacturers (NAM) reports that only 3,700 of the 252,000 manufacturers in the U.S. is a large, publicly traded or international corporation--the vast majority are small specialty manufacturers--many in urban areas. These hold a small ray of hope for urban economies and urban residents. 

    Source: "Small Factories Emerge As a Weapon Against Poverty," by Nelson D. Schwartz, New York Times, October 28, 2016.

    Follow up

    • What products are manufactured by Marlin Steel? How have they adapted their manufacturing processes to stay competitive?
    • Check out the NAM website. Summarize some of the twenty talking points on the site about American manufacturing.
    • Read the linked NYT article. What are some of the social consequences, especially to African Americans, of the loss of manufacturing jobs over the last two decades? How does this affect the business environment in urban microeconomies? What can be done in terms of public policy to improve these conditions?

  • Amazon plans to hire 120,000 temps this fall

     image from the Daily Mail

    Amazon's plans to hired 120,000 temporary workers for the holiday season 2016. This represents a 20% increase over 2015 hirings. It may be that Amazon anticipates gaining more income than the 3.7% uptick for this holiday season forecast by the U.S. National Retail Federation. Seven to ten percent increases were forecast specifically for online sales.  

    An encouraging side note to this story is that last year, 14,000 temporary jobs at Amazon morphed into permanent jobs--extending the holiday spirit for several workers.

    Ironically, the stock price of Amazon declined the week of the announcement by 5.14%, probably as a result of a less-than-predicted increase in third quarter 2016 earnings.

    Source: "Amazon Plans to Hire 120,000 Temporary Workers This Holiday Season,"  via Reuters, Fortune, October 13, 2016.

    Follow up:

    • What is the news this week about Amazon's profit or loss? How does it compare with Amazon's performance historically?
    • What, if any, experience do you have with being a temporary worker? What are the plusses and minuses of temp work compared with independent contractor work?
  • Is there nepotism in your workplace?

      image from memim.com

    When relatives are hired by bosses or owners, nepotism exists in the workplace. Employers need to be mindful of several factors in this situation. According to the article linked below, these are the primary factors that need to be considered and addressed:

    • State laws: Laws are different from state to state, and are usually constrain employment in the public sector more than in private companies. 
    • Who exactly is covered by laws or company policies? How much of an extended family is considered a nepotism issue?  Stepchildren? Uncles? Are romantic relationships covered?
    • Standardization of hiring procedures: To protect against lawsuits, the same minimum qualifications and preferred qualifications need to exist for all employees. 
    • Plan B for changes in status: When marriage or other relationship changes occur, procedures need to be in place to deal with them.
    • Procedures need to be developed to resolve conflicts --especially regarding reporting relationships to Human Resources, and particularly when family ties may enhance or impede promotion.
    • Consistency in the application of rules: Individuals must be trained at all levels and standards need to be written, understood, and enforced.
    • Setting a good example: Even when small businesses DO hire family members--make sure that there is transparency regarding the relationship and clearly applied standard-based human resource policies that apply to everyone.

    Technically, hiring friends or fraternity brothers is not nepotism, but it may cause the same types of management and morale problems. An understanding and application of the above guidelines can minimize the problems in those situations as well. 

    Source: "Nepotism Policies: What Employers Need to Know," by HR Solutions Blog Team at AmericanRecruiters.com, August 25, 2016.

    Follow up:

    • When, if ever, is nepotism illegal?  When might it be unethical? What is the difference?
    • How can nepotism affect management and employee motivation?
    • Have you ever worked in a situation where you were related to or in an outside relationship with your employer? Have you been in a working situation where nepotism existed? Describe your experiences.
  • Venezuela in an economic downward spiral

      YouTube video from CNN

    How can an oil-producing country find itself in a situation where basic goods and services--food, supplies, staple consumer goods--are not available to meet the citizens' needs? And where infant mortality, tuberculosis and malaria are on the rise? This is what has happened in Venezuela, which was thriving when oil prices were high. How did things go so wrong?

    One factor was that in Venezuela, the government itself owned the oil companies. But those in charge of the government did not run the oil business as prudent senior managers would. Instead of saving money in good times as a hedge against the future--or making money available for small company investments in goods and service providers--the leader during that time, Hugo Chavez, created a welfare-for-all situation. Since basic goods and services were provided by the government, motivation to start businesses and produce goods within the country was thwarted. Hence, in order to obtain the goods needed, the trade deficit became enormous. 

    When oil prices fell, the government lost the ability to maintain the benefits. Goods, including food, became scarce. Its monetary policy made the problem worse by propping up the currency, among other mistakes. Things just got worse in the Venezuelan economy.

    Getting out of the situation on a permanent basis would require a serious change in public policy, but many in the country are just hoping that oil prices go up again. 

    Source: "How Venezuela Imploded," by Robert Smith and Noel King,  NPR: Planet Money, Episode 731, also transcripts October 21, 2016. 

    Follow up: [Listen to the podcast and/or read the transcript to answer the following]

    • What fairly alarming problem is described at the beginning of the podcast? What are the work-arounds for the problem? Would you find these acceptable? 
    • What is the central reason that things went wrong in Venezuela? Put another way, why was the trade deficit enormous? How could monetary policy and small businesses have made a difference? Why do other oil-producing socialist countries (Norway) not have the problems faced by Venezuela?
    • What would you recommend if you were and economic advisor to the Venezuelan government?

  • Artificial intelligence: Criminals hack into businesses' defenses using new technology

     image from Upstart Business Journal

    Almost all businesses, large and small, have intellectual property and financial records that are stored online. These online assets and resources are vulnerable to being hacked. Artificial intelligence, because it involves feedback from the outside to "learn" and adjust to changing circumstances, is particularly vulnerable to hacking. Some of the advances made in artificial intelligence, ironically, open up avenues for criminal activity, as well. 

    For example, the Alphabet (Google) subsidiary DeepMind has announced a product called Wave Net that “mimics any human voice and which sounds more natural than the best existing text-to-speech systems, reducing the gap with human performance by over 50 percent.”  The problem with that? Criminals could use it to mimic your relative, who might call you requesting personal financial information or a money transfer. Or worse. 

    Other products have been developed by criminal hackers specifically for online crooks. Blackshades, a "criminal franchise in a box," was developed to enable buyers to launch ransomware attacks, among other travesties. One other popular target of criminal hackers is subverting Captcha, the "Completely Automated Public Turing test to tell Computers and Humans Apart".  This is an interactive program designed in 2003 at Carnegie Mellon University to keep internet bots from hacking into online accounts. The problem? Captcha needs to be revised constantly as hackers master each update in order to gain fraudulent access.

    The product development work continues...

    Source: "As Artificial Intelligence Evolves, So Does Its Criminal Potential," by John Markoff, New York Times, October 23, 2016.

    Follow up

    • What is ransomware? Give an example of how it might operate? Could you be affected? How would you react? Or what would be your price-point in response to a demand, and why?
    • What is an internet bot? Describe any personal experience you have with them. Also describe when you have run into Captcha protections. 
  • Subaru's turnaround: ahead of the curve on marketing to the LGBTQ community

    Subaru auto sales were in a slump in the 1990's.  To turn things around, Subaru of America decided to focus on "niche" demographic groups--such as outdoor types who loved camping. Then, based on a focus group they held in Northampton, Massachusetts (where Subaru sales were already great), the marketing executives at Subaru were surprised to find that the group that was buying their cars were not only the skiers or hikers they imagined but also the lesbian consumers.  It turns out that a car that was reviewed as "sturdy and drab" made this demographic four times more likely to buy a Subaru than other consumers were. As a result of this research, Subaru took a risk and launched a campaign that was directed at the gay female demographic.

    What was unusual about this decision? For one thing, the business environment was not gay-friendly. This was in the middle of Bill Clinton's presidency--infamous for its "Don't Ask-Don't Tell" policy regarding gay military personnel. Ikea had also had a negative response to a gay friendly ad.

    In addition to the "outdoorsy" niche and the lesbian niche, three other niche groups have been marketing favorites (and sales successes) for Subaru: teachers, health professionals, and IT professionals. But the "lesbian connection" with Subaru has been embedded enough in the culture that it has been parodied in Saturday Night Live skits--in other words, free advertising. This marketing strategy remains successful strategy through 2016. 

    Source: "Episode 729: When Subaru Came Out," by (based on an article in Priceonomics), NPR: Planet Money, October 16, 2016.

    Follow up

    • Check out the Subaru website. Do you find any evidence of this targeted marketing strategy there? What demographic groups are pictured in the Subaru web presence? 
    • What are some of the double-entendre ad headlines that are mentioned in the Priceonomics article? Define the term "playful coding." What are the plusses and minuses of using this technique in marketing communications?
    • Read the Priceonomics article linked above. Describe the 1994 Ikea ad in which a same sex couple is making a purchase decision. What was the public and media reaction at that time? What similar mistake did Subaru make when they first started to advertise to the lesbian market, and how did they adapt?

  • Ten ideas for start-ups from college entrepreneurs

     image from linked article slideshow

    The college environment is primed for the growth of ideas. This might be especially true for business entrepreneurs. USA Today gathered ten ideas from college entrepreneurs that have resulted in start-up companies:

    1. RaptorMaps: crop analytics for agribusinesses
    2. Latitude: audio tours via app for areas around the world.
    3. Focus Foods: "aquaponics" installed on the roofs of urban grocery stores.
    4. Light Laba cannabis-grower measuring tool
    5. Scholly: a matching tool for scholarships
    6. Fever Smart: a patch that checks your body temperature and sends the information to an app on your phone
    7. Wheel Shields:  these are used on skateboards to prevent water from splashing on the rider when streets are wet 
    8. Experiment: a kickstarter website for funding new scientific research
    9. Shape U (Fitmango): a $25 personal training website
    10. Scrumpt Box: an "awesome" delivered box of lunches and snacks for elementary school kids

    Source: "Ten best new business ideas from university entrepreneurs," by Carol Alderman,  USA Today College, April 25, 2016. 

    Follow up

    • Evaluate each of these ideas for uniqueness, possible market penetration and likely success. Which are the least likely to succeed? Rough out a business and marketing plan for the top three ideas. Which products might be useful for you?
    • Brainstorm with others to come up with another entrepreneurial idea--perhaps one that furthers or improves upon one of the ideas suggested. 
  • Marketing fruits and vegetables with Disney's help


    Disney is now partnering with Dole to market fruits and vegetables to children with the help of cartoon and movie characters. Because of Disney's acquisitions over the last few years, there are a range of characters that could be included. According to the CNN article:

    "Disney originated with Mickey Mouse and was already a brand powerhouse when it bought Pixar in 2006 for $7.4 billion. Then it acquired LucasFilm in 2012 for $4 billion and bought Marvel in 2009, also for $4 billion."

    Recently, Disney used the Yoda character from Star Wars to sell green grapes in a separate marketing deal. As Dole now tries to appeal to both parents and kids with this partnership, I wonder what vegetables and fruits will be paired with what characters...

    Sources: "Daily Serving of Disney," by Abba Bhattarai, Washington Post writer, published in the Los Angeles Times, October 20, 2016. 

    additional source: CNN.

    Follow up

    • How many servings of fruits or vegetables do you eat per day? What, if anything, would influence your choices? How about when you were a kid?
    • Watch the CNN video and read that article. Which characters do you think would appeal most to elementary school aged kids? How about pre-schoolers? How would you adapt your marketing strategies as you paired characters and produce?


  • Pixel: a new entry in the smartphone marketplace

     uncredited image available widely online

    Alphabet Inc. (commonly, but not quite accurately, known as Google) has entered the smartphone market with the new Pixel.  Most reviewers find the phone to be a great phone--but one that does not offer any extraordinary or new features. 

    Here is what the Pixel offers:

    • A "superb" camera--though not quite as sharp in very low light as the iPhone 7
    • A camera feature that allows you to take several pictures in a row and automatically combine them into an automated .gif file, creating a jumpy little movie.
    • "Google Assistant" which is the voice-activated parallel to Siri or Alexa--with a better memory for personalization and an ability to offer up-to-date news and weather. For some reason, however, it is not up to the performance of the already-in-operation "Google Now."
    • A "night light" feature that filters out the blue light that research has shown can thwart sleep rhythms.
    • Easily accessible shortcuts and shortcut education.
    • Upgradable to 128 gigabytes, but comes with free online storage as well. 
    • Can withstand water sprays--but not submersion.
    • Apps (of course) are not compatible with iPhone apps, so switchers must make some big changes (and new purchases) if they are currently iPhone customers.
    • 13+ hours on a battery charge, even when internet-connected

    Reviewers commented on the ease of transferring phones, music and unencrypted video (again, an Apple compatibility problem), but no one commented on how easy (or impossible) it might be to transfer Contacts, which is a prime consideration for many users--particular those switching from Apple. 

    The price-point of the Pixel ranges from $650 to $770--in line with the new iPhone models, but more expensive than many other Android phones. 

    Sources: "Pixel is not a pioneer, but it still stands out," Associated Press via Los Angeles Times, October 20, 2016.
    add'l background: New York Times

    Follow up: 

    • Do some research. What smartphones are the 5 top sellers worldwide? What are Google's plans to help penetrate this market? If you are an iPhone user, what would make you switch?
    • Research and describe the connection between Alphabet and Google. What other connectible devices are part of the Google family? 
  • Why mergers can take a long time to complete

    American Airlines and U.S. Airways merged three years ago. But only last month did they combine their flight operating systems, which was a huge transition. In the intervening time, they had been running three separate systems, a costly administrative expense. It took an additional 800,000 person-hours to manually combine the 15,000 pilots and 1,500 planes. 

    Why did the merger of operations take so much longer than the financing merger? For the same reason that many mergers take time: the newly combined corporation wanted the customers of the existing businesses to experience the merger as smooth and conflict-free. Communication, coordination and a seamless interface with consumers can be difficult to achieve, especially in a complex operational environment like an airline.

    By the way, as a Virgin Airlines regular (with an Elevate membership, over 40,000 frequent flier miles, and an attached Visa credit card), I am a little wary of how the merger with Alaska Airlines  will play out. So far, I've bought a few tickets and I've used some miles without noticing any changes...but we'll see what happens over the next year or so. 

    Source: "The American-U.S. Airways merger drags on," by Amy Scott, Marketplace, American Public Media, September 30, 2016.

    Follow up:

    • In your own words, what is a merger? What are five types of corporate mergers, and how do they differ?  
    • What other airline experienced a customer disruption during a merger? Explain what happened. 

  • Walmart: higher pay correlated with cleaner stores and higher sales

     Garrett Watts, a Walmart employee who now makes $13/hr (hired at $9/hr).
     image: Melissa Lukenbaugh for NYT, cited below

    Walmart management knew it needed to change something in 2015. Sales at established stores had fallen for five consecutive quarters. In addition, customers complained about dirty bathrooms, long waits in checkout lines, and messed up or empty shelves. Walmart had been squeezing as much profit out of their stores as possible, by paying very low wages and keeping staff at a minimum. To "stop the bleeding" and prevent the permanent loss of customers, they undertook a radical (to them) experiment: Give employees the option to make higher wages if they participated in an in-house training program.

    According to the article:

    "That is how Walmart decided to build 200 training centers to offer a clearer path for hourly employees who want to get on the higher-paying management track. And it said it would raise its hourly pay to a minimum of $10 for workers who complete a training course and raise department manager pay to $15 an hour, from $12. It said it would offer more flexible and predictable schedules to hourly workers."

    As it turns out, this experiment actually aligned with some established economic thought. Moreover, sales improved as a result. 

    Source: How Did Walmart get cleaner stores and higher sales? It paid its people more," by Neil Irwin, New York Times: the Upshot, October 15, 2016.

    Follow up:

    • What are "efficiency wages," according to the article? Who supports them, and why?
    • What, according to the article, were Adam Smith's thoughts on the rate of employee pay?  By the way, who was Adam Smith?
  • Management skills quiz

      image from website

    Do you want to test your management skills to see if you need to focus on any particular areas? Skills can include:

    • Delegation skills
    • Leadership in guiding desired behaviors, and encouraging teamwork
    • Working independently: problem solving first, before asking for help
    • Communication skills
    • Up-to-date skill set for the tasks at hand, or an ability to understand what skills are needed to complete a project.

    Here is a good quiz to try (20 questions):
    How are your management skills?  


    Follow up

    • Discuss your results with an employment counselor or trusted mentor, or with your peers.
    • Identify sources of support and make a plan for improvement. 
  • Speaking up in the face of offensive speech

     Billy Bush (who was then employed by Access Hollywood) with Donald Trump in 2015.
      Photo by Rob Kim for Getty Images

    Recently, a video (featuring the individuals pictured above) has gone viral. It is an example of what individuals of all political persuasions have identified as inappropriate speech...or worse. But rather than spinning the situation as a political talking point, the authors of the NYT article linked below have used it as a "teaching moment." They cite experts to define what constitutes inappropriate speech, how one might interpret it, and how one might respond. According to research, it seems as though almost any contrarian response might help:

    "Researchers have detailed the difficulty of confronting prejudice, but they have also found that even the politest of objections — or subtle corrections to loaded words — can almost instantly curb a speaker’s behavior. With a clearer understanding of the dynamics of such confrontation, psychologists say, people can develop tactics that can shut down the unsavory talk without ruining relationships, even when the offender has more status or power: a fraternity president, say, or a team captain or employer."

    The problem with not speaking up? Complicity. According to psychologist Sharyn J. Potter, co-director of the Prevention Innovations Research Center, at the University of New Hampshire:

    “When we hear this egregious, uncomfortable talk and we don’t speak up, what’s actually happening is that the person speaking is getting a green light. It encourages them.”

    On the other hand, it is important to avoid holier-than-thou, over-the-top confrontations, which can damage relationships. And, according to the article, any intervention can change what might be seen by some as a "bonding" mood. Nevertheless, an intervention can be subtle but effective. Some possibilities:

    • if in an actual locker room, one can (literally) throw water
    • turn up the music, if in a party situation
    • pretend that the offender is joking, or being satirical
    • if brave enough to make an "I" statement, say, "Whoa! I can't go there--my Human Resource manager would have me fired!"

    One certainly would not want to be caught on tape urging on such a conversation. Ask Billy Bush, who was removed from his current position hosting the third hour of NBC's Today show once the Access Hollywood tape surfaced.

    Primary Source: "Lessons in the delicate art of confronting offensive speech," by Benedict Carey and Jan Hoffman, New York Times, October 12, 2016.

    Secondary sources: "For many women, Trump's 'locker room talk' brings memories of abuse," by Jonathan Mahler, New York Times, October 10, 2016.
    viewer discretion advised: excerpts from the Access Hollywood tape that started the discussion 
    reader discretion advised (printed excerpts from the Access Hollywood tape) "Language: a feminist guide," quoted in the NYT article by Deborah Cameron, professor of language and communication at the University of Oxford.

    Follow up:

    • Describe a situation in which you or someone you are with has spoken about someone (or some group) in what might be viewed as a harassing, hate-inspired, or otherwise inappropriate way. Where did this occur? Who was there? How did it play out?
    • Read the linked article. Leaving politics out of it, assess your emotional reaction to responses to this speech. Has your internal reaction to inappropriate speech changed over time? If so, describe how and why it has changed. What would you do differently?
    • Discuss your responses to the questions above with a group of individuals similar to the group in which your example of inappropriate speech arose. Describe what discussion ensues.
    • Discuss your responses with a diverse group, which includes individual or members of the group that was targeted in your example. What points are raised in this discussion?
    • Assume that you are a Human Resource professional or middle manager in a large business. Describe how you might advise your trainees or subordinates to handle a similar situation.
  • Workplace: Facebook for Business

      from slideshow, page 11

    Many employees already use the regular Facebook during working hours--posting pictures and forwarding humor, philosophy, over-the-top cuteness, or political positions. Facebook now has fine-tuned its social network for business and has released Workplace. Its tagline is "Get more done." Most employers can't argue with that. 

    Facebook has allowed businesses to create Facebook pages for years. Facebook then charges for ads that can permeate the newsfeeds of Facebook users, encouraging "likes" for the Facebook business page, and subsequent click-through opportunities. These are a separate feature from the ads that appear in the right column of a Facebook page. 

     from Bryan Nagy blog

    Here is how Workplace is different:

    • It can be accessed only from within a company's internal structure
    • Companies are charged $3 per user per month; no ads; free to non-profits and educational institutions.
    • Extra security features are present.
    • Opportunities for live chats and intra-company video communications can help network, educate and brainstorm.
    • There is a "Workplace Partner Program" that will help train company users and integrate the new features into each company's cultural infrastructure.

    The product has been beta-tested with success for the last 18 months, world-wide, including companies like Starbucks and Booking.com.  

    Source: "Facebook Enters Business Communications Marketplace," by Brian Deagon, Investor's Business Daily, October 10, 2016.

    Follow up

    • Do you use the regular Facebook at work, during regular business hours? What do you use it for? What is your company's policy regarding Facebook use?
    • What advantages do you see for users or businesses. Compare this platform to other communications platforms--for example, email. 
  • Renting your U.S. apartment from a foreign landlord

      image from doctorhousingbubble.com

    Renting has its challenges, no matter what the situation. It is sometimes tough to live, for example, in a guesthouse, when your landlord lives in the main house and is privy to most of what you are doing. On the other hand, if something breaks, he or she is right there to take care of it. 

    If your landlord is a foreign real estate speculator--in the rental business for the cash-flow bonus, having invested in the property for its possible long-term return--getting repairs fixed can really be a problem.  The situation is exacerbated in a city like Detroit, where the selling prices of houses are low enough for major investors to pay cash. Although there are a few owner-occupied dwellings, many houses are bought at bargain prices, then flipped at a profit to overseas investors. 

    The article linked below tells the story of renter Taneka Sanders, who rents a leaky, moldy house in Detroit for $750 a month from a Taiwanese investor. The house does not meet the standards of normal habitability. The purchase price to the investor was $35,000, so the mortgage payment (if the buyer did not pay cash) is probably $150 or less at today's rates. But Sanders had to withhold rent to get the landlord's attention. 

    Nevertheless, the foreign landlord may not be the only one to blame for the situation. According to the article: 

    "It’s also not clear that the Taiwanese owners know about all the problems, or what their cut is of the rent payments. In some cases in Detroit, local intermediaries have been caught scamming overseas buyers, who saw pictures that didn't represent the homes accurately." (Lewis Wallace for Marketplace)

    Source: "When Your Landlord Is On the Other Side of the World," by Lewis Wallace, Marketplace: American Public Media, October 5, 2016.

    Follow up

    • What is the "payback period" of this investment to the Taiwanese landlord, assuming a cash purchase price and rental income of $750 per month (with no maintenance expenditures)? Reminder: calculate the payback period by taking the investment price and dividing it by the annual  cash flow (not monthly). What might be a more typical payback period for the purchase of a single-family house that you might consider? (For example, buying a $400,000 with $80,000 as a downpayment and a 30 year loan at 3.6%) What are all of the factors in determining the net cash flow to be considered in a decision like this?  
    • Who are all of the stakeholders in this financial transaction? What does each stand to gain or lose? Assess each party's options from an ethical perspective. 

  • Escaping your big bank

      image from the organicprepper.com

    In the aftermath of the latest Wells Fargo fraudulent account scandal, some Americans are asking themselves:

    "Should I finally remove multibillion-dollar, profit-making corporations from my day-to-day financial life once and for all?" (NYT)

    But what are the alternatives to a Big Bank? (Examples: Wells Fargo, Bank of America, Citibank, Chase, et. al.). Big banks have a greater marketing presence--snail-mailing potential customers relentlessly with offers that seem difficult to refuse. (This type of big marketing budget is part of most profit-making institutions.) But their primary customer base is comprised of multi-national corporations involved in merger/acquisitions and complicated derivative investments.

    One hesitation to switching that haunts some consumers is a fear they will be stuck paying ATM fees at other banks because a smaller bank has fewer branches or a smaller geographic area. 

    Credit unions are an alternative: they are a member-owned financial co-operatives. They are nonprofit. This means their fees can be lower, and they often band together with other credit unions to create a fee-free experience in their ATM network. In addition, smaller banks that are more consumer-oriented are almost always "commercial banks." Commercial banks make money by loaning to small businesses in their communities. The larger banks are "investment banks" that specialize in very large and complicated financial transactions as an fee-making intermediary. They also tend to charge very high interest rates and fees to their smaller customers. (Wells Fargo and Bank of America are now investment banks).

    According to John Hodges, the director of Business for Social Responsibility, his younger colleagues are open to start-up financial solutions that are "better than Apple or PayPal." One of these is Zero Financial, which plans to issue an account-linked Visa card that may put up to 3% cash-back in the pockets of card users for all transactions. 

    So, there are alternatives to big banks. Where is your money, and who is it serving?

    Source: "A Guide to Getting Rid of Your Big-Bank Checking Account," by Ron Lieber, New York Times: Your Money, October 7, 2016.

    Follow up

    • What bank is your main bank for checking? Why?
    • What banks are associated with your credit cards? How large are these banks?
    • What do you pay in fees in each case. Use the internet to compare your rates to those elsewhere.
  • Understanding the jobs report

     from the U.S. Bureau of Labor Statistics; FRED.stlouisfed.org 

    The "jobs report" is issued by the U.S. Bureau of Labor Statistics at least quarterly. Statistics on the percentage of people in the labor market who are unemployed is often a headline in business news. In addition, the number of new jobs added to the economy are reported. Sometimes, it is possible to use the statistics to draw either positive or negative conclusions about the trends. In order to really understand what the reports mean, it is useful to know how to cut through the "spin." 

    Sometimes, the unemployment rate goes down--not because more jobs have been added and more people have been employed. Sometimes it goes down because discouraged wanna-be workers have dropped out of the labor market. They are no longer seeking jobs so they are not considered to be part of the unemployed statistics. This is not a positive trend. 

    On the other hand, if jobs are added (156,000 jobs were added last month) and the number of unemployed people in the TOTAL workforce decreases, this is a positive trend. So, even though the unemployment rate has moved from 4.9% to 5.0%--this is because that rate is based on the number of job-seekers who are not yet employed. The growth in jobs has enticed many of those who had given up back into the job market.

    The latest statistics reflect a positive reality, even though the upward tick in the "unemployment rate" can be spun as a negative.   

    Source: "U.S. Economy, Showing Resilience, Added 156,000 Jobs Last Month," by Nelson D. Schwartz, New York Times, October 7, 2016.

    Follow up:

    • Read the article. What happened to labor rates?  
    • What is the longer-term outlook for jobs?
  • Detroit financing: the near-impossibility of getting a mortgage

     image by Lewis Wallace for Marketplace

    There are some beautiful, family-sized homes within the city limits of Detroit--four-bedroom houses with yards. But for various reasons, many of these homes are selling for less than $50,000. Of the 7,700 home sales in Detroit last year, over 93% were cash sales (no mortgage), compared to cash sales amounting to about 22% of all sales in many markets, such as Irvine, CA. There are some markets (particularly in Florida) where cash sales are approximately half of all home sales, but in most markets, less than a quarter of all home sales are in cash. The Urban Institute has studied other markets smaller than Detroit--also with homes selling for much lower prices than their previous values--and has found that, "there appears to be virtually no lending going on."

    The low prices of the homes are a factor in these statistics, but a major factor is the unwillingness of banks and other lenders to issue mortgages in Detroit and other economically depressed urban areas. In some cases, it is because potential buyers' credit profiles have suffered since the 2008 recession. Loan denials are up. In addition, it is tough for first time home-buyers to compete for properties against institutional investors, who can pay cash, and who plan to hold the properties for investment purposes rather than occupying the homes. Unoccupied properties in the neighborhood also decrease the likelihood that loans for other properties will be approved, as this is a factor in approximating a home's assessed value. It can be a vicious circle. 

    The Community Re-Investment Act has been partially successful in supporting changes in banks' lending practices, but changes are being implemented slowly. Meanwhile, individual families and the communities can't make economic progress.  

    Source: "Why there's almost no mortgage lending in Detroit," by Lewis Wallace, Marketplace: American Public Media, October 5, 2016.

    Follow up

    • Read the article and its embedded links. Compare the housing market and mortgage lending for the U.S. in general to the situation in Detroit. 
    • What long-term problems underlie the mortgage crisis in Detroit? (Look up the term "redlining.") What additional problems might this cause or perpetuate in the future? How can they be addressed?
    • Do you own a home, or do you wish to own a home some day? What would you do to obtain help if you were denied a mortgage? Are these options available to everyone?  
    • UPDATE: October 7, 2017: Read about "predatory loans." What term is used formally to describe them? Describe them in your own words, and delineate the negatives for potential buyers. 

  • Product innovation: shoes made from 3-D printers

     "tech cobbler" company Feetz; photo by Tara Pixley for NYT

    The start-up company, Feetz, makes custom footwear the 21st century way: by using 3-D printers. Here are various facts about Feetz and its products and processes:

    • Feetz owns and operates 100 3-D printers, each of which cost about $5,000.
    • They have the ability to make custom footwear cheaply, even though it currently takes about 12 hours to make one pair of shoes. 
    • The company names each of its printers with a cartoon character name (e.g. "Wonder Woman").
    • They have been in business about 2 years.
    • Shoes retail online for $199 a pair, and are sized using a downloadable app.
    • Because shipping costs (especially from overseas manufacturers) are less, Feetz' profit margin is 50%.
    • Innovation is occurring at a rapid pace, and owners anticipate that the time to make a pair of shoes will decrease to about one hour in the near future. 

    Naysayers say this is a "passing fad," but millennials often choose purchase options that allow customization. In addition, the price point for a custom pair of shoes from Feetz is comparable to a high-end comfort shoe...which may appeal to other demographics. Fit is an extremely important factor in shoe comfort. 

    Source: "Your Next Pair of Shoes Could Come from a 3-D Printer," by Constance Guske, New York Times, September 14, 2016.

    Follow up

    • What is your experience with 3-D printers? Have you actually handled items produced in this way? Comment on quality.
    • What are the plusses and minuses of this customized product? Would you use the word "disruption" (as used in the article) to describe this process and this product? Discuss how customized apparel other than shoes has fared in the marketplace (according to the article).
    • View the video on the Feetz website linked above. Describe the manufacturing process in your own words. 
  • How carrybacks and carryforwards of losses can lower your taxes

    The use of net operating loss carrybacks and carryforwards are in the news today, because an anonymous person or entity leaked Donald Trump's 1995 tax return to the New York Times. Mr. Trump had a loss in that year of $915,729,293.

    U.S. tax law allows taxpayers to carry back a loss for 3 years, and to carry a loss forward for 15 years.  This loss would then offset any income. So in a future year a "taxpayer" could earn money and still not pay any taxes. For example, let's use an example with smaller, round numbers.  To make things easier, we can assume that in the three previous years to "Year 0" there was no income and no income tax, so we don't have to look at any carrybacks.  In Year 0 there is a loss of $200,000, and there is income in the following years, as shown below: 

    Year 0 Year 1 Year 2 Year 3
    income (200,000) 50,000 75,000 100,000
    carryforward 200,000 (50,000) (75,000) (75,000)
    taxable income 0


    Federal taxes owed* 0 0 0 3,647
    Federal taxes avoided * n/a 11, 303 17,672 17,672

    *Note: this is estimated based on a single person living in Chicago and paying 2016 tax rates in each of the years.

    The difference in taxes paid, due to this legal tax benefit, is $43,000 (11,303 + 17,672 + 17,672 - 3,647).
    By the way, this benefit is available to all of us--or at least all of us who run our own sole proprietorships or partnerships that sustain losses. 

    Source: "Donald Trump Tax Records Show He Could Have Avoided Taxes for Nearly Two Decades, The Times Found," by David Barstow, Susanne Craig, Russ Buettoner and Megan Twohey, New York Times, October 1, 2016. 

    Follow up

    • Read the article. How much income could Trump have offset based on the loss on his 1996 tax return, as stated in the article.
    • Research the tax rates on the income if there had not been a loss carry forward. How much in taxes could have been avoided in one year? How much in the whole 18 year period of carrybacks and carry forwards?
    • What benefits--provided by the revenue earned by tax collection--do businesses rely on to function and earn money? (example: roads) List at least five.