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Hands-On Bavarian Count Presides Over a Pencil-Making Empire

Count Anton-Wolfgang von Faber-Castell has been known to hurl wooden pencils from the tower of his castle to the stone courtyard below.

It is not a petty fit of pique by a mad Bavarian aristocrat. The 72-year-old count, the eighth in a long line of pencil makers, just wants to prove how durable the pencils that carry his family name are.

The Faber-Castell family has been making wooden pencils by the hundreds of millions here in a storybook setting, bisected by the swift Rednitz River, which was once the main source of power here. A torrent of brightly colored pencils flows from clattering machines in a century-old factory with a tile roof and windows framed in pastel hues.

Faber-Castell is the largest maker of wood-encased pencils in the world and also makes a broad range of pens, crayons and art and drawing supplies as well as accessories like erasers and sharpeners. About half the company’s German production is exported, mostly to other countries in the euro zone. That means that Faber-Castell contributes, at least in a small way, to Germany’s large and controversial trade surplus — which now rivals China’s for the world’s largest.

Faber-Castell illustrates how midsize companies — which account for about 60 percent of the country’s jobs — are able to stay competitive in the global marketplace. It has focused on design and engineering, developed a knack for turning everyday products into luxury goods, and stuck to a conviction that it still makes sense to keep some production in Germany.

“Why do we manufacture in Germany?” the count asked during an interview at the family castle near the factory. “Two reasons: One, to really make the best here in Germany and to keep the know-how in Germany. I don’t like to give the know-how for my best pencils away to China, for example.

“Second, ‘Made in Germany’ still is important.”

Not all its factories are in Germany. But when Faber-Castell, which is privately held and had sales of 590 million euros, or about $800 million, in its last fiscal year, manufactures in places like Indonesia and Brazil, it is at its own factories.

In contrast to many American companies, like Apple, that have outsourced nearly all production to Asia, Faber-Castell and many other German companies make a point of keeping a critical mass of manufacturing in Germany. They see it as central to preserving the link between design, engineering and the factory floor.

Trader Joe Has a Brother. He’s Even Better

Separated in 1960, the two brother set out to create two very different business empires

Chances are that you have never set foot inside the best grocery store in America: Aldi. And even if you are lucky enough to be in one of the 32 states where Aldi is, perhaps you were put-off by the cardboard boxes in lieu of shelves, or the row upon row of suspicious-looking off-brands. What is this place? Why do I have to put down a deposit to check out a cart? What is the weird giant shelf by the exit? And what do you mean, I have to pay for a bag?

Calm your hormones, meine Schatzis: Aldi, which is short for Albrecht Discount, is the American incarnation of a German grocery chain that is so ubiquitous in the Vaterland that almost 90 percent of Germans shop there. (Not all German imports are luxury cars, beer, and super-cool glasses.)

Aldi is part of a charming subset of Teutonic trade: the brother-run company that cleaves in twain. Shoe aficionados already know the story of the Dassler brothers, Adolf and Rudolf, whose bitter feud resulted in the creation of Adidas and Puma. (Germans pronounce Adidas differently—some might say correctly—AH-dee-das, from Adi Dassler.) But outside Germany, few know about grocery-store kingpins Karl and Theo Albrecht (who was kidnapped in 1971!)—even though Karl, with a reported net worth of more than 17 billion euros, is the richest man in Germany (Theo’s descendants are a close second).

The Brüder founded their discount-store empire together. A disagreement in 1960 over selling cigarettes hastened a partition, and an epic game of grocery-store Risk: Theo would rename his business Aldi Nord, and would control territories north of the Rhine, plus a healthy chunk of Europe. Karl would head up Aldi Süd, and get southern Germany, more of Europe, plus the U.K. and Ireland. But both companies operate stores in the United States—Aldi Süd operates as Aldi, and Aldi Nord as the now ubiquitous Trader Joe’s.

But whereas Trader Joe’s employs just one major cost-saving device—private labeling—everything else about it is Americanized. The place is swarming with upbeat employees; cashiers stand at the till and bag your products for you; you just grab a cart willy-nilly and they trust you to put it back. Aldi also private-labels (those $1.99 “Millville” Rice Squares are Chex, you guys!), but what makes it a more exciting venture—and even cheaper than Trader Joe’s—is that it has imported the entire German grocery experience (aside, alas, from employees yelling at you if you do something wrong).

The struggle of people in Russia’s ‘Rust Belt’

Tension rises as the Kremlin tries to force thousands to leave their homes

A tide of discontent is sweeping across Russia’s “rust belt” as the Kremlin tries to convince tens of thousands to relocate from their homes.

Authorities are offering up to $25,000 in state support for people willing to leave 142 struggling so-called “monotowns,” communities depending on a single industry.

Many Russians are unhappy about being asked to leave places that several generations of their families have called home. Critics also allege the level of compensation isn’t enough and say it will create dozens of “ghost towns.”

“I honestly earned pennies, but still income,” he said. “I am struggling to sell my house for $2,000 — nobody wants it. If I move to a big town, I will have to spend at least $60,000 to buy myself a place.”

By Dec. 28, the final 800 mill workers will lose their jobs — another significant blow to the Siberian town of 14,000 people.

The fate of 700 other people still employed at a different part of the mill which provides heat to all of Baikalsk will be decided by the spring.

Russian Prime Minister Dmitry Medvedev last year pledged $1 billion to transform the town on the edge of Lake Baikal into a tourist hotspot. Lake Baikal is a natural treasure that contains more water than all of the Great Lakes combined.

But there has been little sign of investment in the wake of Medvedev’s visit. The town’s central square remains unpaved, hotels and cafes struggle and local newspapers publish pages of advertisements placed by residents looking to sell their apartments in Baikalsk and move closer to Moscow or St. Petersburg.

The lack of action has resulted in angry protests by fired workers in the regional center of Irkutsk.

“The Kremlin simply lied to us; they promised to first create jobs and then close the mill in 2015,” said Yuri Nabokov, the leader of the mill’s professional union. “The mill is closed and hundreds of workers have no chance to live their normal lives in their hometown with their families; authorities tell us to go to far north and work on shifts at oil fields – that makes us even angrier.”

The article also points out the Sochi are costing $50 billion.  How messed up is that?  Vancouver by comparison cost around $1.84 billion and generated about $2.5 billion in GDP.  What is Russia doing?

Unaccountable

Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.

Reuters journalist Scot J. Paltrow investigates how the US military’s bad accounting not only wastes taxpayers money, but helps ruin the life of ordinary soldiers and veterans.

Aiken, then 30 years old, was in his second month of physical and psychological reconstruction at Fort Bliss in El Paso, Texas, after two tours of combat duty had left him shattered. His war-related afflictions included traumatic brain injury, severe post-traumatic stress disorder (PTSD), abnormal eye movements due to nerve damage, chronic pain, and a hip injury.

But the problem that loomed largest that holiday season was different. Aiken had no money. The Defense Department was withholding big chunks of his pay. It had started that October, when he received $2,337.56, instead of his normal monthly take-home pay of about $3,300. He quickly raised the issue with staff. It only got worse. For all of December, his pay came to $117.99.

All Aiken knew was that the Defense Department was taking back money it claimed he owed. Beyond that, “they couldn’t even tell me what the debts were from,” he says.

At the time, Aiken was living off base with his fiancee, Monica, and her toddler daughter, while sharing custody of his two children with his ex-wife. As their money dwindled, the couple began hitting church-run food pantries. Aiken took out an Army Emergency Relief Loan to cover expenses of their December move into a new apartment. At Christmas, Operation Santa Claus provided the family with presents – one for each child, per the charity’s rules.

Eventually, they began pawning their possessions – jewelry, games, an iPhone, and even the medic bag Aiken used when saving lives in Afghanistan. The couple was desperate from “just not knowing where food’s going to come from,” he says. “They just hit one button and they take your whole paycheck away. And then you have to fight to get the money back.”

Aiken’s injuries made that fight more difficult. He limped from office to office to press his case to an unyielding bureaucracy. With short-term and long-term memory loss, he struggled to keep appointments and remember key dates and events. His PTSD symptoms alienated some staff. “He would have an outburst … (and) they would treat him as if he was like a bad soldier,” says Monica. “They weren’t compassionate.”

They were also wrong. The money the military took back from Aiken resulted from accounting and other errors, and it should have been his to keep. Further, even after Aiken complained, the Defense Department didn’t return the bulk of the money to Aiken until after Reuters inquired about his case.

The Pentagon agency that identified the overpayments, clawed them back and resisted Aiken’s pleas for explanation and redress is the Defense Finance and Accounting Service, or DFAS (pronounced “DEE-fass”). This agency, with headquarters in Indianapolis, Indiana, has roughly 12,000 employees and, after cuts under the federal sequester, a $1.36 billion budget. It is responsible for accurately paying America’s 2.7 million active-duty and Reserve soldiers, sailors, airmen and Marines.

It often fails at that task, a Reuters investigation finds.

A review of individuals’ military pay records, government reports and other documents, along with interviews with dozens of current and former soldiers and other military personnel, confirms Aiken’s case is hardly isolated. Pay errors in the military are widespread. And as Aiken and many other soldiers have found, once mistakes are detected, getting them corrected – or just explained – can test even the most persistent soldiers (see related story).

“Too often, a soldier who has a problem with his or her pay can wait days, weeks or even months to get things sorted out,” Democratic Senator Thomas Carper of Delaware, chairman of the Homeland Security and Governmental Affairs Committee, wrote in an email. “This is simply unacceptable.”

It’s a pretty widespread problem

A review of multiple reports from oversight agencies in recent years shows that the Pentagon also has systematically ignored warnings about its accounting practices. “These types of adjustments, made without supporting documentation … can mask much larger problems in the original accounting data,” the Government Accountability Office, the investigative arm of Congress, said in a December 2011 report.

Plugs also are symptomatic of one very large problem: the Pentagon’s chronic failure to keep track of its money – how much it has, how much it pays out and how much is wasted or stolen.

This is the second installment in a series in which Reuters delves into the Defense Department’s inability to account for itself. The first article examined how the Pentagon’s record-keeping dysfunction results in widespread pay errors that inflict financial hardship on soldiers and sap morale. This account is based on interviews with scores of current and former Defense Department officials, as well as Reuters analyses of Pentagon logistics practices, bookkeeping methods, court cases and reports by federal agencies.

As the use of plugs indicates, pay errors are only a small part of the sums that annually disappear into the vast bureaucracy that manages more than half of all annual government outlays approved by Congress. The Defense Department’s 2012 budget totaled $565.8 billion, more than the annual defense budgets of the 10 next largest military spenders combined, including Russia and China. How much of that money is spent as intended is impossible to determine.

In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn’t known. And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.

The consequences aren’t only financial; bad bookkeeping can affect the nation’s defense. In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units “may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies,” the Pentagon inspector general said in a September 2012 report.

The American military has about 5,000 different accounting programs in use.  Most of them are incompatible.

In a May 2011 speech, then-Secretary of Defense Robert Gates described the Pentagon’s business operations as “an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results. … My staff and I learned that it was nearly impossible to get accurate information and answers to questions such as ‘How much money did you spend’ and ‘How many people do you have?’ ”

It gets better

The practical impact of the Pentagon’s accounting dysfunction is evident at the Defense Logistics Agency, which buys, stores and ships much of the Defense Department’s supplies – everything from airplane parts to zippers for uniforms.

It has way too much stuff.

“We have about $14 billion of inventory for lots of reasons, and probably half of that is excess to what we need,” Navy Vice Admiral Mark Harnitchek, the director of the DLA, said at an August 7, 2013, meeting with aviation industry executives, as reported on the agency’s web site.

And the DLA keeps buying more of what it already has too much of. A document the Pentagon supplied to Congress shows that as of Sept. 30, 2012, the DLA and the military services had $733 million worth of supplies and equipment on order that was already stocked in excess amounts on warehouse shelves. That figure was up 21% from $609 million a year earlier. The Defense Department defines “excess inventory” as anything more than a three-year supply.

Consider the “vehicular control arm,” part of the front suspension on the military’s ubiquitous High Mobility Multipurpose Vehicles, or Humvees. As of November 2008, the DLA had 15,000 of the parts in stock, equal to a 14-year supply, according to an April 2013 Pentagon inspector general’s report.

And yet, from 2010 through 2012, the agency bought 7,437 more of them – at prices considerably higher than it paid for the thousands sitting on its shelves. The DLA was making the new purchases as demand plunged by nearly half with the winding down of the Iraq and Afghanistan wars. The inspector general’s report said the DLA’s buyers hadn’t checked current inventory when they signed a contract to acquire more. 

Mind boggling stuff.

Seattle tries to figure out what it wants to be when it grows up

A conversation every city needs to have

Does Seattle know how to grow?

You’d think so, with all those construction cranes back and so many mega-projects underway. We’re about to get expanded light rail, a new waterfront, a massive downtown tunnel, a super-sized 520 bridge, and a Mercer Mess that has been tidied up after 50 years of complaining. Growth would seem to be the least of our problems.

But there are some who think these endeavors are not enough. We could do more, do it bigger, do it better and, they believe, we had better get to it because we’re facing big economic challenges. Boeing, for example, has become a constant worry. The company is doing a slow retreat from Puget Sound, and keeping key parts of Boeing’s work here is getting increasingly expensive for taxpayers. Some $9 billion in new tax breaks have been offered to keep 777X work here. Even so, without a major transportation package and with major union concessions just voted down, Boeing is looking for a better deal elsewhere.

Another foundation of our economy is showing signs of change, and age. Microsoft has reached maturity and experienced enough marketplace failures (Vista, Zune, Surface) that a major management shift is underway. We’ve grown accustomed to Redmond being a perennial powerhouse and millionaire-generator in the Gates-Ballmer era, but will that roll continue?

Seattle sees itself as a special incubator of the next big commercial success — and the new Bezos family-funded “Center for Innovation” at the Museum of History and Industry that opened this fall is a shrine to this self-image. We’ve scored with Starbucks, Nordstrom, Costco and Amazon, for example. But in the tech sector there’s some thought that we haven’t reached our silicon potential, that we’re over-due for a new major success a la Google or Facebook.

Sure, we’re a pretty good place for start-ups, but Seattle tech booster Chris DeVore recently wrotethat while Seattle is pretty good at launching companies, “It’s been a long time since a new Seattle-based company produced a huge windfall.” He means a company, like Microsoft or Amazon, that lifted employees and investors by generating lots of wealth. “If I had to put my finger on the one thing we could do to improve our weak ‘startup rate,’ it would be to produce more explosive wins in Seattle…” he wrote. That would benefit start-ups and companies all up and down the food chain and generate money to invest in new ventures. Apparently, the tech sector needs a new blockbuster.

Another voice encouraging Seattle and Washington to take it to the next level is Microsoft executive vice president and general counsel Brad Smith. In October, he addressed the Greater Seattle Chamber of Commerce’s annual Leadership Conference, an appropriate place for business leaders to inspire the team with a growth-oriented Gipper speech. I also had a chance to talk with him afterwards. In his speech, he said “[I]f there is a moment in time when we can come together and focus on raising our ambition, I think that moment is now.” With the state recovering economically, with greater global competition ahead (China, Brazil, South Carolina…), and with so much potential here, we need to get going, and set our sights higher.

To that end, his Gipper — or maybe "Skipper" — speech cited a nautical example. It was inspirational achievement of the University of Washington rowing crew who beat the odds to win a gold medal in 1936. These were local boys who had to raise their own money during the Depression to go to Germany, who had to race under rules that favored Hitler’s rowing team, and who took on the task of making America proud at the Nazi’s infamous Olympic Games. “It’s a reminder of what nine young men from humble background could achieve when they reached beyond themselves and worked as a team,” he said.

Research shows CEOs who live frugally make better leaders

The flashier they are, the more open they are to fraud.

But according to research to be published in the Journal of Financial Economics, bosses who enjoy the finer things in life can be bad for their companies. The researchers hired private investigators to uncover the personal assets of a sample of American chief executives. They then compared those who own trinkets such as a yacht, a $75,000 car or a super-expensive house against a list of companies cited for fraudulent accounting by the Securities and Exchanges Commission. After controlling for things such as its size, the probability that a firm with a flashy CEO will commit fraud, they found, increases by 6% a year for every year that he is at the helm. At firms run by more frugal heads, on the other hand, the likelihood of fraud decreases by 61% every year.

Interestingly, this is not because ostentatious bosses feel pressure to maintain their lifestyles. Indeed, such CEOs are no more likely to be fraudulent than their parsimonious peers. Rather it is underlings who cook the books. This might be because such CEOs tend to hire executives with a similar mindset to their own. The study found, for example, that a chief financial officer is more likely to own a yacht if his boss does. They also tend to socialise more with directors at the firm—at country clubs and the like. Being part of such a pally clique means they are less likely to monitor what the others are up to, thinks Aiyesha Dey of the University of Minnesota, one of the authors.

Bosses with expensive lifestyles are also more likely to introduce equity-based incentive schemes, the report finds. Closely linking remuneration to the share price may encourage staff to caress the figures. Furthermore, says Ms Dey, such CEOs tend to run businesses the way they do their personal lives, prone to showy acquisitions and less regard for the long-term consequences.

A new vision for cities

As the global economies change, so will the roles of civic leaders if we want to stay competitive

In his presentation (and in our Metro North America report), Bruce Katz outlined a three-part playbook for how sub-national leaders are acting to further trade, investment, and economic growth in our three countries:

Set a vision. City and metropolitan leaders are setting bold visions for the future of their economies that can focus public, private, and civic sector actors on shared goals for growth. Mayor Smith outlined his city’s new mantra: Educate, Innovate, Facilitate, Elevate. His economic development agenda is focused around strengthening Mesa’s assets in healthcare, education, aerospace, and tourism (HEAT), and working together with partners in the Maricopa Association of Governments and the Greater Phoenix Economic Council to create and execute a metropolitan business plan . Taking greater advantage of the region’s already strong ties with cities and states in Mexico is an important part of those visions.

Invest in what matters. The factors that drive city and regional growth are innovation, human capital, and infrastructure. The quality of those assets, regardless of the sector in which they are applied, account for long-run economic success. Windsor, Ontario Mayor Eddie Francis described how the downturn in the auto industry in the late 2000s threatened tens of thousands of workers in his city, a major North American auto hub just across the border from Detroit. Recognizing this, the city and region invested in helping auto suppliers transition into the aerospace industry, taking advantage of workers with widely applicable manufacturing skills and excess plant capacity to diversify the economy towards a sector with growing opportunities. Working with the University of Windsor to develop a new aerospace engineering program, the region has succeeded in attracting thousands of new aircraft maintenance, repair, and operations (MRO) jobs. Even the university’s automotive research programAUTO21 has become a key partner in bolstering the region’s emerging aerospace cluster.

Network globally. The capstone of the GCI-Mexico forum was the signing of a new agreement by mayors Miguel Ángel Mancera of Mexico City and Rahm Emanuel of Chicago to partner together on strategies to grow the economies of both cities. While “sister cities” agreements have existed for some time—and Chicago alone has 28 of them, focused mainly on cultural exchange—the new agreement aims to take the cities’ already-strong relationship in an explicitly economic direction, exploring joint opportunities for foreign direct investment, export promotion, and increased tourism. As Mayor Emanuel described during a discussion with Mayor Mancera moderated by JPMorgan Chase Executive Vice President Peter Scher, Chicago is acting boldly because the city cannot be held hostage to the functioning (or dysfunction) of its state and national governments. And Mayor Mancera noted that even given the progress being achieved today at the national level in Mexico, mayors are ultimately co-responsible for generating local and regional growth and prosperity.

Poverty meet Suburbia

Suburbia, this is poverty.

Poverty has often been considered an inner city problem or a small town and rural problem, but the face of poverty is shifting in America. Communities that were once economically solid are now experiencing rising rates of economic distress.

Alan Berube, senior fellow and deputy director of Brooking’s Metropolitan Program and Peter Edelman, faculty director, Center on Poverty, Inequality, and Public Policy, Georgetown Law School, discussed suburban poverty at APA’s recent Federal Policy & Program Briefing.

Together with coauthor Elizabeth Kneebone, Berube has examined the phenomenon in Confronting Suburban Poverty in America (Brookings Press, 2013).

Peter Edelman has worked in anti-poverty programs and researched this subject for many years. According to Edelman, suburban poverty has been growing gradually, but has accelerated in the early 21st century: “People who once did all right are not doing all right now.”

What makes poverty in the suburbs especially challenging? The concentration of poverty exacerbates the problem and the trend is toward more concentration.

Overall, Edelman said, 15 percent of Americans live in poverty but the in counties south of Washington, D.C., the rate is as much as 28 percent. In addition, the options for commuting to jobs are fewer in many suburbs than in urban areas. Further, the social services to assist people in need may not be well established in suburban communities.

The problem is becoming more complex, therefore the solution has to be to think in terms of a regional economy.

Part of the complexity is that “we have become a nation of low-wage economy” said Edelman. The median income for Americans has been stuck at around $34,000 for 40 years. Many, many Americans are not moving up the ladder and obtaining better pay. And, it is becoming increasingly difficult to sustain a family on this income.

Single mothers with children — the most vulnerable — make up 42 percent of the poor.

Argentina’s Central Bank is in Trouble

It’s losing more than $1 billion a month

There are a couple reasons Argentina hasn’t been able to keep its central bank account in check.

For one, an artificially strong currency has made foreign goods more attractive, and led the country to become more reliant on imports. While Argentina still enjoys a trade surplus, it has been shrinking because of growing energy imports. Argentina has had trouble borrowing money from abroad since defaulting on its debt in 2001, so it has to finance the bulk of its growing imports with its reserves.

Then there’s Argentina’s high inflation, which has coerced Argentines into holding on to US dollars rather than spending them, and using any pesos they have on hand to buy more US dollars. Those dollars, however, aren’t making their way to the central bank. Argentines are using their foreign cash to buy goods abroad or keeping it as collateral in case the country’s monetary system collapses again.

Argentina plans to spend another $8 billion of its reserves to pay off debts through the end of this year, which will leave very little wiggle room for its central bank to finance the country’s fiscal affairs. Soon the country could find itself incapable of paying its creditors and financing its imports—a recipe for another economic crisis.

Short interviews with small magazine publishers

Magazine publishing is a dark art. But the world of niche publishing—people who create magazines for necrophiliacs or donkey hobbyists, or for those of us who like to ride really small trains—features its own requirements.

Miniature Railway is hardly nostalgic. Henshaw is in the midst of creating a comprehensive map of all the miniature railways in the United Kingdom. “We estimate there are 1000 in total, but many are private, known only to a small group of friends. I have agreed to only show 400.” Henshaw admits that “quite a few” of those 400 are private. In August, The Telegraph wrote a feature on the “irresistible” romantic allure of a garden steam train. Apparently a popular activity among enthusiasts is cooking bacon and eggs in a shovel over the burning coals of a miniature train’s engine.

“There are many miniature railway enthusiasts in Australia, Canada, the U.S., and Germany, and a few in India too,” Henshaw says. “Most other nationalities find the whole subject perplexing.”

Miniature Railway’s ads are what you might expect: miniature railway destination spots, model train expos, and a locomotive plates maker in Droitwich (“NOT the cheapest, PERHAPS the most expensive, PROBABLY the best.”) The articles are also what you might expect—fascinating to the miniature railway enthusiast, slightly Greek to the rest of us. In the magazine’s pictures, Caledonian blue–polished trains snake through tall-treed woods and people convivially gather near cobbled tracks.

I wouldn’t imagine the cozy ethos of this digest-sized publication would translate well into digital modes, and David Henshaw more or less agrees. “I suspect that most small publications will go digital within a few years, but Miniature Railway is one of the few that will not.” One of the merchandise items featured on the back cover includes a heavy-duty binder with gold embossed letters intended to hold print copies. “Our readership is older, more traditionally minded.” Henshaw does express concern that soon there will not be enough printers around to print at a reasonable price—the print run per issue, which comes out tri-annually, is 800 and costs $1,800 (yearly subscriptions are $12 a year domestically).

Henshaw calls the economics of paper dubious. “These are interesting days!”

How Calgary’s Oil Boom is Threatening to Destroy It’s Middle Class

From the Globe and Mail

When Necole Hines moved to Calgary from Toronto nine years ago, she was offered teller positions at four different banks. When she got laid off from a recent job at a stock photography company, she easily found another in sales and administration at a magazine.

Ms. Hines – who spent a year in university but has no degree – has always made lower-end but respectable wages, most recently around $50,000 a year.

But that salary doesn’t go very far in what has become one of Canada’s most expensive cities, where an oil boom has created reams of new money and driven up the cost of everything from housing to groceries.

The signs of wealth are everywhere – from the frenzy to build the new tallest skyscrapers, skyrocketing sales at the four-year-old Bentley dealership, and plans for high-end malls and neighbourhoods at every turn.

In the country’s energy capital, where business people, lawyers, engineers and geologists earn some of the highest salaries in Canada, households making less than a six-figure income – who many would classify as middle class – face a tough slog.

Calgary families earning up to $68,175 still qualify for a three-bedroom social housing unit, proof that even amid Calgary’s wealth, middle-class households are being increasingly squeezed. The tight labour market created by the expansion of the energy industry has not eliminated the issue of income inequality. Far from it – the rise in the cost of living is adding to the pressure.

Ms. Hines will attest that if you’re not working for an oil and gas company, or one of the other corporate towers that make up the landscape of the downtown, it’s an expensive place to be.

“If you don’t get into that right industry, you’re still having to pay for the same things as somebody else making that amount of money,” Ms. Hines said.

She found she needed a car because public transit isn’t reliable, and food basics such as produce and cereal are more expensive. (The Consumer Price Index was higher in Calgary in 2012 than any other city in Canada, except for Edmonton.) In a city where home ownership is prized, the average single-family home costs more than $516,000, so the single mother of three rents the main floor of a house. Although she is the main breadwinner for her family, Ms. Hines has never felt as if she’s been able to get ahead. “In this city, it’s not that easy.”

Alberta’s bountiful oil and gas resources have given many people steady work, and have made others rich. Calgary is home to more than one in 10 of Canada’s wealthiest tax filers, those with an annual income of at least $201,400. Between 1989 and 2010, its share of the national total more than doubled, to 11 per cent from 5 per cent.

But the influx of money and 20,000 newcomers to the city each year – whether it’s for views of the Rocky Mountains or the low unemployment rate – means the demand for every service, from housing to hairdressers, has gone up.

“It’s not all sunshine and rainbows in Calgary,” Calgary Mayor Naheed Nenshi said in an interview. “There are a lot of people who are vulnerable. There are a lot of people who are living on the margins.”

While Calgary has become home to one of the country’s highest family median annual incomes – now at $93,410 – increasing wealth has not affected everyone equally. In an analysis of Statistics Canada income-tax data, the University of Alberta’s Parkland Institute says Calgary is Canada’s most unequal city, as the bottom 90 per cent of income earners saw an average increase in pay (adjusted for inflation) of only $2,000 between 1982 and 2010.

Alberta has the highest average hourly wages in the country, but certain sectors routinely benefit more than others. For instance, while people in business, finance or sales saw large average increases in hourly rates over the past 12 months, wages in art, culture and recreation occupations dropped.

A quick look at the Canadian housing bubble

We aren’t alone in having an inflated housing market.  Here is what it looks like in Canada

With real home price appreciation near 20%, Canada’s home price growth has been raising eyebrows. Bank of Canada governor Stephen Poloz doesn’t see a bubble, but others aren’t so sure. Climbing alongside housing prices have been levels of household debt, which surmounted 165% of income in the second quarter of 2013. (That’s not too far from where they were in the US before it suffered its housing crisis.) And the Bank of Canada itself has even warned about risks posed by frothy condo sectors in big cities like Toronto. A few hedge funds, such as San Francisco-based Hyphen Partners, have even made high-profile bets on a Canadian housing bust. They haven’t paid off, yet.

Jobs losses at Casino Moose Jaw and Regina

This is interesting

A restructuring at Casino’s Moose Jaw and Regina will see 55 out-of-scope jobs lost, in the management and administration areas. Terminations are effective immediately.

SaskGaming made the announcement Wednesday, pointing to a decrease in revenues over the past year. In-scope jobs are not being affected.

Compensation packages as well as career counselling is being offered by both Casino’s.

50 jobs are being terminated in Regina, while Moose Jaw will see 5 jobs terminated.

 If I remember correctly, neither Casino Moose Jaw or Regina make as much money as the government had hoped do the fact that if you are a high roller, you don’t want to gamble locally and instead you travel to gamble.  It is interesting to see that despite the boom, revenues are down at Sask Gaming.  

Any suggestions as to what the cause is;

  • People realize that Casinos win more than they do?
  • If you can escape Regina or Moose Jaw you will?
  • Competition with SIGA?
  • Rent increases and a tight rental market eating up disposable income in Regina and Moose Jaw?
  • Maybe they do have the “loosest slots” in the province?

How the profitable sports league in the world fleeces taxpayers

Here is how the NFL takes advantages of taxpayers across the United States and doesn’t pay any taxes.

Last year was a busy one for public giveaways to the National Football League. In Virginia, Republican Governor Bob McDonnell, who styles himself as a budget-slashing conservative crusader, took $4 million from taxpayers’ pockets and handed the money to the Washington Redskins, for the team to upgrade a workout facility. Hoping to avoid scrutiny, McDonnell approved the gift while the state legislature was out of session. The Redskins’ owner, Dan Snyder, has a net worth estimated by Forbes at $1 billion. But even billionaires like to receive expensive gifts.

Taxpayers in Hamilton County, Ohio, which includes Cincinnati, were hit with a bill for $26 million in debt service for the stadiums where the NFL’s Bengals and Major League Baseball’s Reds play, plus another $7 million to cover the direct operating costs for the Bengals’ field. Pro-sports subsidies exceeded the $23.6 million that the county cut from health-and-human-services spending in the current two-year budget (and represent a sizable chunk of the $119 million cut from Hamilton County schools). Press materials distributed by the Bengals declare that the team gives back about $1 million annually to Ohio community groups. Sound generous? That’s about 4 percent of the public subsidy the Bengals receive annually from Ohio taxpayers.

In Minnesota, the Vikings wanted a new stadium, and were vaguely threatening to decamp to another state if they didn’t get it. The Minnesota legislature, facing a $1.1 billion budget deficit, extracted $506 million from taxpayers as a gift to the team, covering roughly half the cost of the new facility. Some legislators argued that the Vikings should reveal their finances: privately held, the team is not required to disclose operating data, despite the public subsidies it receives. In the end, the Minnesota legislature folded, giving away public money without the Vikings’ disclosing information in return. The team’s principal owner, Zygmunt Wilf, had a 2011 net worth estimated at $322 million; with the new stadium deal, the Vikings’ value rose about $200 million, by Forbes’s estimate, further enriching Wilf and his family. They will make a token annual payment of $13 million to use the stadium, keeping the lion’s share of all NFL ticket, concession, parking, and, most important, television revenues.

After approving the $506 million handout, Minnesota Governor Mark Dayton said, “I’m not one to defend the economics of professional sports … Any deal you make in that world doesn’t make sense from the way the rest of us look at it.” Even by the standards of political pandering, Dayton’s irresponsibility was breathtaking.

In California, the City of Santa Clara broke ground on a $1.3 billion stadium for the 49ers. Officially, the deal includes $116 million in public funding, with private capital making up the rest. At least, that’s the way the deal was announced. A new government entity, the Santa Clara Stadium Authority, is borrowing $950 million, largely from a consortium led by Goldman Sachs, to provide the majority of the “private” financing. Who are the board members of the Santa Clara Stadium Authority? The members of the Santa Clara City Council. In effect, the city of Santa Clara is providing most of the “private” funding. Should something go wrong, taxpayers will likely take the hit.

The 49ers will pay Santa Clara $24.5 million annually in rent for four decades, which makes the deal, from the team’s standpoint, a 40-year loan amortized at less than 1 percent interest. At the time of the agreement, 30-year Treasury bonds were selling for 3 percent, meaning the Santa Clara contract values the NFL as a better risk than the United States government.

Although most of the capital for the new stadium is being underwritten by the public, most football revenue generated within the facility will be pocketed by Denise DeBartolo York, whose net worth is estimated at $1.1 billion, and members of her family. York took control of the team in 2000 from her brother, Edward DeBartolo Jr., after he pleaded guilty to concealing an extortion plot by a former governor of Louisiana. Brother and sister inherited their money from their father, Edward DeBartolo Sr., a shopping-mall developer who became one of the nation’s richest men before his death in 1994. A generation ago, the DeBartolos made their money the old-fashioned way, by hard work in the free market. Today, the family’s wealth rests on political influence and California tax subsidies. Nearly all NFL franchises are family-owned, converting public subsidies and tax favors into high living for a modern-day feudal elite.

Pro-football coaches talk about accountability and self-reliance, yet pro-football owners routinely binge on giveaways and handouts. A year after Hurricane Katrina hit New Orleans, the Saints resumed hosting NFL games: justifiably, a national feel-good story. The finances were another matter. Taxpayers have, in stages, provided about $1 billion to build and later renovate what is now known as the Mercedes-Benz Superdome. (All monetary figures in this article have been converted to 2013 dollars.) The Saints’ owner, Tom Benson, whose net worth Forbes estimates at $1.2 billion, keeps nearly all revenue from ticket sales, concessions, parking, and broadcast rights. Taxpayers even footed the bill for the addition of leather stadium seats with cup holders to cradle the drinks they are charged for at concession stands. And corporate welfare for the Saints doesn’t stop at stadium construction and renovation costs. Though Louisiana Governor Bobby Jindal claims to be an anti-spending conservative, each year the state of Louisiana forcibly extracts up to $6 million from its residents’ pockets and gives the cash to Benson as an “inducement payment”—the actual term used—to keep Benson from developing a wandering eye.

In NFL city after NFL city, this pattern is repeated. CenturyLink Field, where the Seattle Seahawks play, opened in 2002, with Washington State taxpayers providing $390 million of the $560 million construction cost. The Seahawks, owned by Paul Allen, one of the richest people in the world, pay the state about $1 million annually in rent in return for most of the revenue from ticket sales, concessions, parking, and broadcasting (all told, perhaps $200 million a year). Average people are taxed to fund Allen’s private-jet lifestyle.

The Pittsburgh Steelers, winners of six Super Bowls, the most of any franchise, play at Heinz Field, a glorious stadium that opens to a view of the serenely flowing Ohio and Allegheny Rivers. Pennsylvania taxpayers contributed about $260 million to help build Heinz Field—and to retire debt from the Steelers’ previous stadium. Most game-day revenues (including television fees) go to the Rooney family, the majority owner of the team. The team’s owners also kept the $75 million that Heinz paid to name the facility.

Judith Grant Long, a Harvard University professor of urban planning, calculates that league-wide, 70 percent of the capital cost of NFL stadiums has been provided by taxpayers, not NFL owners. Many cities, counties, and states also pay the stadiums’ ongoing costs, by providing power, sewer services, other infrastructure, and stadium improvements. When ongoing costs are added, Long’s research finds, the Buffalo Bills, Cincinnati Bengals, Cleveland Browns, Houston Texans, Indianapolis Colts, Jacksonville Jaguars, Kansas City Chiefs, New Orleans Saints, San Diego Chargers, St. Louis Rams, Tampa Bay Buccaneers, and Tennessee Titans have turned a profit on stadium subsidies alone—receiving more money from the public than they needed to build their facilities. Long’s estimates show that just three NFL franchises—the New England Patriots, New York Giants, and New York Jets—have paid three-quarters or more of their stadium capital costs.

Many NFL teams have also cut sweetheart deals to avoid taxes. The futuristic new field where the Dallas Cowboys play, with its 80,000 seats, go-go dancers on upper decks, and built-in nightclubs, has been appraised at nearly $1 billion. At the basic property-tax rate of Arlington, Texas, where the stadium is located, Cowboys owner Jerry Jones would owe at least $6 million a year in property taxes. Instead he receives no property-tax bill, so Tarrant County taxes the property of average people more than it otherwise would.

In his office at 345 Park Avenue in Manhattan, NFL Commissioner Roger Goodell must smile when Texas exempts the Cowboys’ stadium from taxes, or the governor of Minnesota bows low to kiss the feet of the NFL. The National Football League is about two things: producing high-quality sports entertainment, which it does very well, and exploiting taxpayers, which it also does very well. Goodell should know—his pay, about $30 million in 2011, flows from an organization that does not pay corporate taxes.

That’s right—extremely profitable and one of the most subsidized organizations in American history, the NFL also enjoys tax-exempt status. On paper, it is the Nonprofit Football League.

This situation came into being in the 1960s, when Congress granted antitrust waivers to what were then the National Football League and the American Football League, allowing them to merge, conduct a common draft, and jointly auction television rights. The merger was good for the sport, stabilizing pro football while ensuring quality of competition. But Congress gave away the store to the NFL while getting almost nothing for the public in return.

The 1961 Sports Broadcasting Act was the first piece of gift-wrapped legislation, granting the leagues legal permission to conduct television-broadcast negotiations in a way that otherwise would have been price collusion. Then, in 1966, Congress enacted Public Law 89‑800, which broadened the limited antitrust exemptions of the 1961 law. Essentially, the 1966 statute said that if the two pro-football leagues of that era merged—they would complete such a merger four years later, forming the current NFL—the new entity could act as a monopoly regarding television rights. Apple or ExxonMobil can only dream of legal permission to function as a monopoly: the 1966 law was effectively a license for NFL owners to print money. Yet this sweetheart deal was offered to the NFL in exchange only for its promise not to schedule games on Friday nights or Saturdays in autumn, when many high schools and colleges play football.

Public Law 89-800 had no name—unlike, say, the catchy USA Patriot Act or the Patient Protection and Affordable Care Act. Congress presumably wanted the bill to be low-profile, given that its effect was to increase NFL owners’ wealth at the expense of average people.

While Public Law 89-800 was being negotiated with congressional leaders, NFL lobbyists tossed in the sort of obscure provision that is the essence of the lobbyist’s art. The phrase or professional football leagues was added to Section 501(c)6 of 26 U.S.C., the Internal Revenue Code. Previously, a sentence in Section 501(c)6 had granted not-for-profit status to “business leagues, chambers of commerce, real-estate boards, or boards of trade.” Since 1966, the code has read: “business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues.”

The insertion of professional football leagues into the definition of not-for-profit organizations was a transparent sellout of public interest. This decision has saved the NFL uncounted millions in tax obligations, which means that ordinary people must pay higher taxes, public spending must decline, or the national debt must increase to make up for the shortfall. Nonprofit status applies to the NFL’s headquarters, which administers the league and its all-important television contracts. Individual teams are for-profit and presumably pay income taxes—though because all except the Green Bay Packers are privately held and do not disclose their finances, it’s impossible to be sure.

Another day, another botched procurement for the Canadian government

Interest article in CBC that highlights the problems the Canadian Forces has with procurement and that is we don’t build enough naval vessels (or buy enough military hardware) to have the needed expertise to do it well (which even countries like the United States find complicated enough)

IMC’s report was overseen by its president, Tom Ward, a veteran of the industry who was in charge of building the Canadian Coast Guard icebreaker Henry Larsen. Ward declined to comment on his report or to say why it had so little impact. But shipbuilding experts say that the moribund state of the industry in Canada means that government officials know little about shipbuilding — so expert, third-party reviews of such massive contracts are essential.

“There’s no expertise in government,” said business professor Michael Whalen of Mount Saint Vincent University in Halifax.

“Who’s going to look at those issues and the proposals from the Irvings and their subcontractors? We don’t have anybody, because they haven’t worked in that area for 30 or 35 years. So we’re going to go out to third-party consultants who do have that kind of expertise and can advise us. Are we getting value for money? Are we getting the right ship for the money?”