Explaining Southern California's economy

U.S. GDP growth: bad, badder, and worse

The Commerce Department busted down its previous estimate of GDP growth in the second quarter from 1.3 percent to 1.0 percent. 

This is a major problem for California, where the unemployment rate of 12 percent is almost three percentage points higher than the national rate of 9.2 percent. In Southern California, it's even worse. L.A. County is at 12.4 percent. Other counties are even higher 

A lot of economists now think that GDP growth –which, in a "normal" recovery should be running at something like 5 percent – will muddle along for years, slowly improving, but grinding down the rolls of the unemployed more like a guy with sandpaper than a guy with a belt sander. 

In Southern California we have another problem. A significant chunk of the unemployment we're dealing with is related to the housing industry, which may take much longer to recover than the economy as a whole. There are some macro-economic trends, related to household formation, that bode well long-term. But by that, we mean LONG TERM – as in workers not going back to building new houses until the middle of the decade.


The law school money machine, UCLA, and Lowell Milken

We recently did an AirTalk segment about a controversial $10 million gift to the UCLA School of Law from Lowell Milken, brother of disgraced junk-bond king Michael. The Milken boys have both been barred from the securities industry for their sins in the 1980s when they labored for defunct investment bank Drexel Burnham Lambert. 

For his part, Lowell Milken, a UCLA Law grad, was never convicted of any wrongdoing and has been engaged in various philanthropic activities over the time since. At UCLA, his gift would be used to establish an Institute for Business Law and Policy, a move that has riled Lynn Stout, a tenured business law professor at the school. 

Right and wrong and money

This is a pretty good example of the perfect ethical storm that underfunded state law schools can face. UCLA, as the university itself pointed out in the press release announcing the endowment campaign in 2008, is both the youngest top 20 law school in the country – and among the most under-endowed. 


Did Ben Bernanke just guarantee two more years of slow growth?

Well, that was a letdown!

A lot of observers expected Federal Reserve Chairman Ben Bernanke to announce anther round of "quantitative easing" –QE3 – at the Fed's annual Jackson Hole conference. He didn't, and in combination with his previous indication that the Fed would keep interest rates at near-zero levels for the next two years, he passed the ball back to the politicians. 

Economist Jared Bernstein has a very good take:

While I’m not sure more Fed easing would help much right now, I think that if underlying demand were stronger, I could help a lot.  In other words, fiscal and monetary stimuli are partners right, but there’s a sequencing: first, fiscal needs to wake up the demand side of the economy, then easing could help amplify the impact of that demand.

Unfortunately, if the Fed is reluctant to ease now, they’d be even more so if some growth actually showed up on the scene.


Bank of America saved by Warren Buffett – for now

Bank of America’s stock price has dropped by 50 percent since the beginning of year, amid speculation that it was confronting additional write-offs related to subprime mortgages, wanted to unload investment back Merrill Lynch (no takers), might be merging with JP Morgan Chase, and was facing a capital crisis that caused investors to strongly suspect that the bank wasn’t muddling through the economy’s current soft patch but was in fact insolvent. Treasury Secretary Tim Geithner was prepping the bailout! Game over was just days or weeks away!

Three bloggers created a kind of tag-team to parse the meltdown of the country’s second-biggest bank. Yves Smith at Naked Capitalism (who had already started a B of A Death Watch) and Zero Hedge drilled into the numbers, while Henry Blodget at Business Insider summed it all up, was attacked by B of A for talking smack about the true value of the bank’s assets, and then proposed that the government closely monitor B of A’s slide, taking it over once it falls beneath a certain threshold and restructuring it to prevent a Lehman 2 event that would bring down the U.S. and probably world economy:


Maybe Apple won’t be fine after Steve Jobs

First off, it’s definitely sad that Steve Jobs is stepping down as the CEO of Apple. I shed a small tear when I read his resignation letter. So did Reuters' Felix Salmon. Harvard Business Review put up six separate post about Steve’s departure and what it means. This is Topic A right now in the global business conversation.

I’ve never owned anything except Apple computers (no iPhone, so far), but I have used plenty of PCs. No contest, really. Apple builds a nicer machine (I won’t say better, at the risk of discounting the many legitimate complaints John Dvorak has made over the years).

The consensus among the technorati and among observers of Apple’s business is that Jobs has done as much as he can to ready Tim Cook to take over. Plus, Apple has a good bench of senior leaders, and the company hasn’t even come close to extracting as much value as possible from the current product lineup (this is Henry Blodget’s take at Business Insider). So... no worries. In the midst of his justifiably misty recollections, Felix makes the Apple Forever case:

Does Apple still have an outsize personality who can slice away extraneous features on hardware, say no to the demands of the marketplace, and give us not what we think we want but what we never knew we wanted? I think it does: Jony Ive fits the bill quite nicely. And Apple’s amazing relations with its suppliers — the way that it can get chips and hardware into its devices that the rest of the world can’t get its hands on for any amount of money — is now baked in to the organization, rather than being reliant on a single man.

The formula, then, is clear. And with or without Jobs, Apple is, for the foreseeable future, going to coin simply astonishing amounts of money. It made $7.3 billion of profit just in the last quarter, on revenues of an almost unimaginable $28.6 billion. That makes Apple one of the most profitable companies the world has ever seen — and makes its stock look almost cheap, even at a market cap of $350 billion. 

No argument on the financials, but I don’t entirely buy that Apple’s future growth is guaranteed because the company re-Steved itself after the near-death experience of the late 1990s. Also, as much as I share Felix's admiration for Ive, being a great designer isn't the same as being a great American idea man. Apple’s lifeblood is innovation, and as we march toward iPhone 5 and iPad 3 -- and see the steady decline of the iPod -- it's clear that Apple needs to remake the user experience of an another business. So far, Apple TV has been disappointing. iAd hasn’t really transformed mobile advertising -- in any event it hasn't been able to command the premium that Apple wanted. Remember, this is the company that created desktop publishing, revolutionizing an industry that hadn’t really seen much meaningful change since Gutenberg.

Apple saved the music business. Apple made cell phones super-cool. Apple made tablets a reality, rather than something that had previously been seen only on Star Trek. Some tech pundits think gaming is next (with its Xbox, this is just about the only place where Microsoft has long-term leverage over Apple), although earlier this year Forbes argued that Apple already has a gaming platform, of an ad-hoc nature. Weirdly, for closed-down Apple, gaming has been a triumph of free-form open development. 

I wouldn’t put it past Apple. Angry Birds certainly has game-box makers and developers freaked out.

Still, something important has changed in Apple’s DNA since the iPhone and iPad became the key products, edging aside laptops and desktops. Apple has devoted itself to building devices that are dedicated to consumption rather than creation. Plus, you don’t really think different by buying an iPhone -- you think like 100 million other people who use iPhones worldwide.

True innovation in business is exceptionally rare. Jobs picked his spots: Apple didn’t invent the PC, it made it better; Apple didn’t invent the mobile phone, it made it better. His genius was to look at things that were deemed important to the future and make them accessible, effortless, easy. Jobs didn’t just do this in tech -- at Pixar, he took animated movies and made them broadly relevant again, a move that shook up Disney so much that it bought the company.

But jobs hasn’t preserved anything. He’s always looking to disrupt, albeit with an esthetic differentiator (which is itself a type of disruption -- BlackBerrys and ThinkPads were effective, but hardly beautiful). That’s why new CEO Tim Cook’s first message to Apple isn’t necessarily reassuring. This is from the email he sent out today:

I want you to be confident that Apple is not going to change. I cherish and celebrate Apple's unique principles and values. Steve built a company and culture that is unlike any other in the world and we are going to stay true to that—it is in our DNA. We are going to continue to make the best products in the world that delight our customers and make our employees incredibly proud of what they do.

But Apple needs to change. In fact, as the Jobs Era ends, it needs to change more than ever. Nobody wants to see the now most-valuable tech company -- and almost most valuable company company -- in the world replay its previous decline, when merciless price competition and a disorganized product lineup nearly bankrupted it. The temptation for Cook will the preserve, preserve. And that would be a big mistake. Apple needs to spend its money on the next big thing, not on staying Apple.

Photo: Apple