Thursday, December 20, 2012

Feds cut losses, to sell GM stock

No surprise, now that the election is over.  This piece on the US News website (link courtesy of Real Clear Markets) lays out the math.  GM initially received $50b and paid back $23b when in "went public" in 2010.  Shares are now trading at $25 and they would have to reach $52 for taxpayers to be made whole.  Most likely, taxpayers will not see the last $10-12b.

The article reminded me about GM's global operations.  Even though GM now makes money on the cars it manufactures in the US, its European operations are still running in the red.  So US taxpayers ended up subsidizing jobs overseas as well as here; not sure we will hear much about this from the pols who supported the bailout. 

Wednesday, December 19, 2012

Google off the antitrust hook?

Monday's WSJ reports that Google and the Federal Trade Commission are close to signing an agreement under which Google agrees to change some business practices and the Feds walk away from the litigation option.  Google controls about two-thirds of the search business in the US.  That might be enough to statistically qualify as a monopoly, but as a former FTC employee put it: "We don't want to punish monopolists just for being monopolists."  Lacking evidence of harm to consumers, the FTC apparently concluded it had no case.

The European Union will continue to pursue its case against Google.  The outcome could very well end up being different on the other side of the pond, where harm to competitors (e.g., Microsoft) is grounds for antitrust action. 

Monday, December 17, 2012

University presidents' salaries on the upswing

Income inequality has been increasing in the US since the 1970s.  Today's NYT has a blog post by Steven Rattner looking at the pay gap between university presidents and faculty over the last decade.  Data compiled by the Chronicle of Higher Education show that at the 50 wealthiest universities faculty salaries increased by 14 percent between 2000 and 2010 while salaries of presidents increased by 75 percent. 

What have the presidents done to receive such large pay increases? Most universities still hire their presidents from a pool of academics, a pool that is the same size today as it was in 2000.  Rattner notes the possibility that the jobs of university presidents have become more demanding (which is just what CEOs of private corporations say) but (a) this is an argument that cannot be tested against data and (b) it is obviously a self-serving argument.  University presidents in the 1960s and 1970s had to deal with demonstrations and riots on campus; seems to me their jobs were much more stressful than those of their current counterparts. 

Saturday, December 15, 2012

Michigan passes right to work

Michigan became the 24th state to pass a right to work law this week.   Right to work laws give employees at unionized workplaces the right to be employed at those establishments without having to join the union or pay union dues.  Proponents say these laws protect employee rights at the workplace.  Unions say that employees have a choice between unionized and open shop opportunities and that right to work laws allow nonmembers to be freeloaders. 

Economic research indicates that right-to-work laws have an impact on employer location decisions.  As for wages, my NC State colleague Walt Wessels was quoted in WSJ as saying "you can't find any effect of right-to-work laws on wages."

My take: the main effect of right to work laws is that it reduces union dues revenue.  This reduces the payoff to unions from making attempts to organize workplaces in right-to-work states.  It also cuts back on union's ability to influence the political process.  It will be interesting to see if other states in the Great Lakes region such as Minnesota, Ohio and Wisconsin adopt right-to-work laws in the months ahead.  And it will be really interesting to see if the law ends up creating desperately needed employment opportunities in Michigan. 

Tuesday, December 11, 2012

Can Pandora ever make money?

WSJ reported last week that Pandora is a classic case of the old adage: "We lose money on every transaction but we make it up on volume."  Pandora must pay record companies and artists $0.0011 every time a listener hears a song.  With 59.2m users these costs rose to $65.7m in the third quarter of this year.  Pandora depends on ad revenue to make its business model work, but there are fewer advertising opportunities on mobile devices than laptops and desktops.  Hence, as more Pandora customers shift their listening to iPhones and iPads, Pandora gets squeezed.  Its stock dropped 18% in one day last week. 

Pandora's response: one would think it might raise its ad rates or start charging users on mobile devices.  But no!  Instead we have them (along with other internet music operations) trying to push the Internet Radio Fairness Act (IRFA) through Congress before it adjourns.  Currently the rates paid by Pandora and other internet-based music providers are set by the Copyright Royalty Board.  The board has set higher rates for Pandora than for satellite or cable radio.  Pandora screams foul, but in actuality the rates seem to reflect historical circumstance more than anything else.  Cable radio and Sirius have been around longer and they received a better deal when they entered the market.  To make things even more confusing, traditional over-the-airwaves radio pays zero royalties. 

IRFA would lower rates paid to artists and recording companies, making Pandora potentially profitable.  Another bill would force all players up to the Pandora rates.  My question: would we be better served if all broadcast entities had to contract with the music owners rather than cut deals in Congress?  Spotify, which lets you pick the songs you want to hear, is partially owned by the major recording labels.  Maybe this is the business model Pandora, Sirius and broadcast radio should be adopting. 

Saturday, December 8, 2012

NC hog farms lure server farms

As all long-time NC residents know, we are the second largest hog producing state in the country, which means we also have an abundance of what I will politely call hog waste.  This has been a blight on our water supply and landscape for some time.

But this story I saw cited on Real Clear Markets says that there is a silver lining to the black ponds of hog waste: an alternate source of energy that is attracting the likes of Apple and Google to the state.  Apple is looking at using hog waste to claim renewable energy credits to power its new facility in Maiden NC.  Google is partnering with Duke Energy and researchers at Duke University to determine how much power can be extracted hog waste. 

I find it quite ironic that as much as we pride ourselves in all of the high tech activity in the RTP energy, it might be the byproducts of a traditional industry that help draw even more high tech activity to the state.  In economic terms, we can say that hog farms and server farms are complements in production. 

Thursday, December 6, 2012

Exporting natural gas good for economy

Lead story in today's WSJ is about a soon-to-be-released US Department of Energy study that shows free trade in natural gas is good for the economy.  As any student who has completed the first two weeks of MBA 505 would say: "Do you really need to do a big government study to show this?"  Well, apparently yes because some law requires that such studies be performed for energy exports to any country that does not have a free trade agreement with the US.  (And most do not, but that is a subject for another rant for another day.)  The study had to be done before an export permit can be issued.