Explaining Southern California's economy

Debt: It's not as bad as you think

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The National Debt Clock, a billboard-size digital display showing the increasing US debt, is seen on the corner of Sixth Avenue and West 44th Street on August 1, 2011 in New York City.

Paul Krugman does another one of his simple, straightforward Econ 101 columns in which he helpfully ridicules the idea that we're headed down a debt-paved road to ruin. He zeroes in on the tendency of commentators to compare the finances of families to the finances of governments:

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

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Can Hollywood win young men back from video gaming?

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Activision’s video game, "Call of Duty: Modern Warfare 2," shattered sales records and became the biggest release of any entertainment property ever in 2009, earning $310 million in 24 hours and solidifying video games as the entertainment medium of today.

At The Wrap, Sharon Waxman offers a list of remedies for what ails the movie business. One of them jumped out at me:

Find a way to connect the gaming obsession of what used to be the core moviegoing audiences – young males 13-24 – with the movie experience. Learn from that interactivity and use that to drive them to the multiplex. (This is a challenge for marketing geniuses. Hollywood has plenty of those.)

Sounds great, but this isn't a marketing problem — it's a medium problem. Apart from technical innovations in digital filmmaking, special effects, and 3-D, the movies are basically the same as they were 30, 40, 50 years ago. A bunch of people sit in a large darkened room and wait for huge moving image to be projected onto a screen. The seats are more comfortable and the sodas are vastly larger. But the medium is about as 20th century as could be. Mid-20th century.

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Is Bank of America gouging small businesses?

Bank Of America To Cut Tens Of Thousands Of Jobs In Restructuring Effort

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Welcome to 2012, small business owners who have lines of credit with Bank of America! You are about to see what a struggling banking giant will resort to when survival is at stake. This is from the Los Angeles Times:

The...bank is demanding that [small business] customers pay off their credit line balances all at once instead of making monthly payments. If they can't pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

Business owners complain that BofA's credit squeeze is abrupt and could strain their small companies and even put them out of business. The credit cutoff is coming at a time when the California economy can't seem to catch a break, and bucks what the financial industry says is a new trend of easing standards on business loans.

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Dow 13,000? Not this year, but that's OK

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The final day of trading on the stock markets had ended. The Dow closed down about 70 points. But let's take a look back on 2011, a volatile economic year if there ever was one. For the year, the DJIA was up 5.6%, despite all the turmoil. If you had put $1,000 in an index fund that tracks the Dow, you would have made fifty-six bucks! More importantly, you would have stayed ahead of the rate of inflation or about 3.4 percent. So your return would have legitimately increased your wealth.

For comparison, you would have had a tough time getting even 1 percent on a 12-month CD. 

This doesn't factor in dividends — the money you get paid to hold a company's stock — and if historical averages are anything to go by, simple stock price appreciation in the Dow suggests that a percentage slightly below 5 percent is to be expected (although there will be both much better and much worse years). So in the end, 2011 beat the historical return and beat the rate of inflation.

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We can hear them now! Blowback forces Verizon to cancel fee

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What a difference a day makes! Exactly one day after Verizon Wireless said it was going to charge customers a $2 fee for processing credit and debit card bill payments, it backed off on the plan, after customers went ballistic.

I'm going to call myself cynical on this one and suggest that Verizon Wireless has just shot down a trial balloon. Earlier this year, big banks were also compelled to ditch plans to charge customers higher debit-card fees, so Big Red had to know what it was up against. 

But why not make the announcement, as a form of real-world market research? Customers have spoken.

Of course, the fact the the FCC said it was going to investigate the fee might have had something to do with Verizon's decision.

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