2012 - %3, April

Book Publishers Caught Conspiring in "Upscale Manhattan Restaurants"

| Wed Apr. 11, 2012 12:15 PM EDT

I've been following the whole e-book pricing controversy for a while, but without a huge amount of interest. Nickel version: in the market for actual, physical books, publishers have long sold their titles at a wholesale price to booksellers, who then resold them for whatever price they wanted. Until recently, things worked the same way in the e-book market, with Amazon taking a loss on many titles because they were promoting a uniform $9.99 price in order to encourage adoption of their Kindle e-reader. Publishers didn't like this much and recently switched to an "agency" model, in which they set the price and simply pay the bookseller a cut.

The question is whether the publishers colluded in this action, and today's lawsuit from the Justice Department sure suggests that they did:

The lawsuit said that for at least one year beginning “no later than September 2008,” the chief executives of the publishing companies met once every several months, “in private dining rooms of upscale Manhattan restaurants” to “discuss confidential business and competitive matters, including Amazon’s e-book retailing practices.”

....“These private meetings,” the suit alleges, “provided the publisher defendants’ C.E.O.’s the opportunity to discuss how they collectively could solve ‘the $9.99 problem.’ ”....In early 2010, Steve Jobs, then Apple’s chief executive, suggested to book publishers that they sell e-books using agency pricing; Apple would serve as the online agent and take a 30 percent commission.

The five publishers made agreements with Apple for selling e-books, and Apple, which was about to introduce its iPad to the market, insisted on what is known as a “most favored nation’’ clause, which prohibited publishers from allowing other retailers to sell e-books for less than Apple’s price.

I wonder who ratted them out? One of their own? In any case, I'll be curious to see how this turns out. The collusion may have been illegal, but it's not clear to me that there's really anything anticompetitive per se about the agency model. Likewise, the "most favored nation" clause is standard practice for large customers in virtually every industry, so that doesn't seem especially problematic. The New York Times piece above makes the same point, suggesting that "investigators were zeroing in on the way agency pricing was adopted, not on the pricing model itself." Presumably this means that although any settlement might be bad news for the publishers, who may have to pay fines and agree to some kind of future conduct arrangement, it probably won't affect the price we all pay for books.

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Wendy's: We're Done With ALEC, Too

| Wed Apr. 11, 2012 11:29 AM EDT

This story has been updated.

McDonald's, it turns out, isn't the only fast-food giant to have cut ties with the American Legislative Exchange Council, the corporate-funded organization that writes up model bills for thousands of state lawmakers nationwide. Wendy's said on its official Twitter feed on Tuesday night that it, too, had left ALEC. "We decided late 2011 and never renewed this year. It didn't fit our business needs," the company tweeted. Wendy's is currently not a member of ALEC, it stressed.

Bob Bertini, a spokesman for Wendy's, confirmed the move. "The tweet is correct. Wendy's is not a member of ALEC. Last year, we made the decision not to renew for 2012," he wrote in an email to Mother Jones.

Karl Rove's Pro-Millionaire Facebook Campaign

| Wed Apr. 11, 2012 10:49 AM EDT

The latest brainstorm from Karl Rove & Co. is on the right: a Facebook petition opposing the "Buffett Rule," which would ensure that millionaires pay a minimum 30% tax rate. "Really," says Greg Sargent, "it continues to amaze that people in positions of real influence could venture something this idiotic with no evident sense of embarrassment."

Lack of gall has never been one of Karl Rove's weaknesses, so his lack of embarrassment probably isn't really all that surprising. But what's this all about? It is kind of dumb, after all. My guess: it's just part of a "mud against the wall" strategy. It's not likely to gain much traction, but it's cheap and it might produce some useful feedback. Do enough of this kind of stuff and eventually you find out which message will stick. It's early days.

Can Cheap Smartphone Apps Ever be Big Moneymakers?

| Wed Apr. 11, 2012 10:27 AM EDT

Matt Yglesias comments on the smartphone market:

Jenna Wortham writes that the Instapaper acquisition and the stunning growth of Draw Something maker OMGPop signals a new era for business strategy in which developing a compelling mobile ap comes first, and developing a Web interface aimed at full-feature PCs coomes second. What she doesn't really do is make clear why this happening—the smartphone market will almost certainly be bigger than the PC market very soon.

That's certainly true from a unit sales point of view, but the part I still don't understand is where the revenue will come from. The problem for the app market is that smartphone (and tablet) apps are so cheap that there's no way their makers will ever make substantial amounts of money. A few days ago I bought my most expensive app ever: $9.99 for Photoshop Touch. That's a lot! But Photoshop for a PC or a Mac will set you back about $400. Adobe would have to sell a helluva lot of copies of Touch for it to ever be a serious money spinner for them.

What's worse, as we all know from news consumption on the internet, once these kinds of low price points get established and people get used to them, it's all but impossible to raise them. With Apple's iPhoto priced at only $4.99, it's not as if Adobe has a lot of room to increase its price.

Obviously there will be plenty of winners in the app market, and some of those winners will get snapped up by established companies at eye-watering prices. Even free apps can occasionally become big profit centers, after all. Still, I wonder how big the smartphone software market will ever be? Even if there are, eventually, twice as many smartphones and tablets as home computers, low app prices will keep the overall market size pretty small. Or am I missing something here?

Super Rich Still Have Little To Fear From IRS

| Wed Apr. 11, 2012 10:10 AM EDT

In 2009, IRS commissioner Doug Shulman said in a speech that the IRS had formed a new group of auditors who were going to be directing their attention at a special group of taxpayers: the super rich. Dubbing them "global high wealth individuals," Shulman promised that his agency would be taking a hard look at people who had tens of millions of dollars worth of assets and income tied up in complicated financial dealings that often involved overseas banking and aggressive tax avoidance strategies. The IRS, he said, wanted to make sure that hard-working, tax-paying Americans could be sure that everyone is paying her own fair share. It's certainly a ripe area for the government to turn up more revenue. In fiscal 2011, audits of people making more than $1 million identified $5 billion in underreported income tax, and that's just for the roughly 15 percent of millionaires the IRS audited.

Two-and-a-half years later, though, the effort to target the super rich has proven underwhelming. According to a new study by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, the IRS has completed a mere 36 audits from the over-$10 million set since launching the global high wealth group. TRAC researchers estimate that this means the IRS audited only between 12 and 18 people, because the audits were counted by annual returns, not by individuals, who may have had more than one year of returns examined. That's not even one percent of the more than 8,000 annual returns that the IRS has said include gross income of $10 million or more. (By comparison, working poor people with children who claim the Earned Income Tax Credit get audited at twice the rate of any other taxpayer.)

As part of its global high wealth group effort, the IRS has also promised to focus more on "flow through" entities—the partnerships and S corporations that super rich people use to avoid paying taxes. The group didn't have the most ambitious goals to begin with, according to TRAC. But it failed to even meet those. The IRS hoped to audit 122 of these sorts of corporate entities in fiscal 2011, but completed only 40. 

The IRS hasn't come up totally empty handed by looking at the portfolios and tax returns of the super rich. They found $47 million in additional taxes owed. But if you consider how much the IRS turns up just in simple audits of ordinary millionaires, that's pretty small potatoes. TRAC can't say whether the disappointing results from the IRS are due to a lack of resources for the agency or the fact that the super rich might just have incredibly complicated financial affairs that aren't quickly and easily tackled by the average IRS auditor. Either way, more resources for the IRS ought to be a priority for anyone who really cares about the budget deficit. The government is clearly leaving money on the table that it could surely use right now.

MoJo and the Magnum Foundation Join Forces to Showcase Documentary Photography

| Wed Apr. 11, 2012 6:05 AM EDT

It's with exceptional excitement that I can finally squawk about the Mother Jones/Magnum Foundation partnership. This is a big step towards building out the awesome photojournalism and documentary photography for which Mother Jones has become known, to our website.

In partnering with the Magnum Foundation's Emergency Fund, Mother Jones will be showcasing 10 photo essays through the year, giving a platform to projects documenting underreported stories from around the world. It's a partnership that makes sense: the Magnum Foundation Emergency Fund helps photographers complete documentary work that may otherwise not see completion. And upon completion, Mother Jones helps give an audience to the work.

Karen Mirzoyan shot our first project, The Unrecognized Islands of Caucasus, an appropriately complex project that examines the tangle of unrecognized lands in the Caucasus region. Mirzoyan's work goes beyond straight, expected documentary photography, which he smartly realized wouldn't do justice to such a complicated region, to a story with so many contours. The photography varies in tone and style to match the chapter of the story being told. Mirzoyan incorporates pieces of his notebooks he kept while working on the project. It's a very intimate look at the people of the Caucasus, their relationship to their homeland -- and to each other. Really, it's an amazing body of work. It's exciting to get to run it on MotherJones.com.

We will be bringing a new photo essay from the Magnum Foundation partnership to MotherJones.com each month. And we will be running at least one Emergency Fund project in print. My heart still lies with the printed page, so for me, that's an important component of this partnership. Thanks for taking a look. This is just one step to help expand our commitment to documentary photography. We hope you enjoy it.

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"Girls": What the Hell Was HBO Thinking?

| Wed Apr. 11, 2012 6:00 AM EDT

When watching HBO's new, hotly hyped Girls, one thing is clear from the get-go: Hipsters are really going to like this show. Which is to say that it is as profoundly bland as it is unstoppably irritating.

The central character is an unsympathetic victim of First World Problems who mumbles her way through a Brooklynite's perdition of unpaid internships and missed orgasms. In its first three episodes, the comedy series establishes a new low for the premium cable network, even surpassing John From Cincinnati in its level of sheer unwatchability.

Girls, which premieres Sunday, April 15 at 10:30 p.m. EST, focuses on the twentysomething Hannah (played by series creator Lena Dunham): an aspiring essayist who's barely written anything, a college graduate who hasn't accomplished anything, and an English major who hasn't earned anything. Accompanying her on her road-to-nowhere is Marnie (Allison Williams), the classically beautiful roommate who somehow has nothing but patience for Hannah. Rounding out the cast of poorly dressed stereotypes are Jessa (Jemima Kirke), a promiscuous, free-spirited Brit who thinks conventional dating is "for lesbians," and Shoshanna (Zosia Mamet), a Sex and the City-worshipping virgin.

And with this, the creative team behind Girls throws everything at the wall (passionless sex, STIs, casual abortions, boring boyfriends, gay boyfriends, drugs, money woes, body image), in an effort to see what sticks. But due to tired tropes and failed attempts at dry humor, nothing does.

Classy Hardwood Floors Tied To Sex Abuse in the Amazon

| Wed Apr. 11, 2012 6:00 AM EDT
Sawmills line the banks of the river to receive raw lumber from the forest. Here it is processed to rough planks before conditioning and further export.

Cedar and mahogany are woods known for their ability to class up a living room. Both woods are common in high-end furniture; cedar is often used in flooring, and mahogany makes for some fine moldings. But it doesn't come cheap: The wood from one mahogany tree costs about $11,000 on the lumber market; a cedar tree runs about $9,000. The Peruvian Amazon is a major source of these woods for the American market, and a new report from the Environmental Investigation Agency found that between 2008 and 2010, 35 percent of inspected shipments from Peru contained wood from illegal logging operations; the researchers say that the overall figure (including non-inspected shipments) is estimated to be as high as 88 percent. 

The report's authors point out that because of lack of oversight, illegal logging is widespread in Peru—despite the fact that it received $150 million yearly in international support for its forest conservation programs. Although timber operations cash in on the dodgy practices, the overall effect is detrimental not only to the environment, but also to the economy and local people. Researchers in Loreto, where much of the activities take place, estimate that illegal logging losses (due to "tax evasion, non-payment of required fees, and devaluation of standing timber") cost Peru $250 million annually, 1.5 times more than the country earns from all its timber exports combined. The humanitarian cost of logging is also considerable. Consider this moving testimony from one former logger:

Maria, a single mother nearing 50 years of age, had no job. thus, when a neighbor told her about temporary work available as a cook in a logging camp, she thought she had been presented with a good opportunity. The pay seemed good to her: 300 soles per month (approximately US $110), above the average pay for a cook in the city of Iquitos. She would have to leave her children and move to the camp, but it would only be for three months. Unfortunately, things did not turn out as planned. Six months later, she ended up fleeing.

In order to convince her to move to the jungle and leave her children, the habilitadores gave her 250 soles (approximately US $90) as an advance payment. She left Iquitos and traveled one day by river to join up with other people who knew how to get to the camp. From there, days to the middle of the jungle.

Getting there was not the most difficult part. Maria was the only woman in the camp and was surrounded by approximately 25 men, most of whom were between the ages of 20 and 30, and all of whom were strong enough to fell trees measuring more than one meter in diameter. Maria's nightmare began when she realized that the men expected her to not only cook them breakfast, lunch, and dinner, but also provide them with sexual favors.

Maria remembers each night as being a nightmare. "I was there for six months. I barely slept from my fear, always worried that something was going to happen. when I knew they wanted to attack me, I couldn't sleep. thinking they were coming, I would wake up. so that they would think I was awake, I would move, I would get up, I would light my lantern, that is the way I was there, I would sleep on my side. And suddenly it was time to wake up."

Eurozone Troubles Heating Up

| Wed Apr. 11, 2012 1:27 AM EDT

The latest from across the Atlantic:

Europe's sovereign debt crisis exploded back into life on Tuesday, with markets across the continent rocked by a wave of panic selling amid renewed fears about the impact of savage austerity measures in Spain and Italy.

....Italy and Spain, the eurozone's third and fourth biggest economies, were at the centre of the market turmoil, with investors demanding an increasingly high premium for holding their bonds.

Hopefully the Guardian's reporters are just being a little hyperbolic. But stock markets in the U.S. and Asia were pretty brutalized today too. Phase 4 of the Great Euro Crisis appears to be well and truly imminent.

Chart of the Day: Consumption Inequality and Income Inequality Have Both Skyrocketed

| Wed Apr. 11, 2012 12:50 AM EDT

One of the evergreen arguments in the debate over rising income inequality is that what really matters isn't income, it's consumption. And consumption inequality hasn't been rising all that fast. If you measure what people are actually buying, it turns out that the middle class is doing OK.

To the extent that this was true, it was partly thanks to the fact that the middle class was borrowing ever greater amounts in order to support its consumption habits. But that couldn't last forever. In 2008 all that borrowing came crashing to the ground — taking consumption along with it — and we learned once again that income matters after all. But yesterday Matt Yglesias pointed to a recent paper that adds a whole new dimension to this dispute: the authors (Orazio Attanasio, Erik Hurst, and Luigi Pistaferri) contend that when you correct for well-known problems in the consumption data, consumption inequality has been rising about as fast as income inequality. All the old arguments were just based on faulty data.

The charts below tell the story. They rely on survey data from the Panel Study of Income Dynamics, and for each year from 1980 through 2010 they measure the standard deviation of log income and log consumption. (Why use logs? Beats me, but apparently it's standard practice for this kind of thing.) Standard deviation, of course, is just a measure of dispersion. The bigger the number, the farther apart the highs and lows are from the mean.

The top chart shows the growth of income inequality: it's gone up from about .75 to .95, an increase of .2 units. The bottom chart shows the growth of various corrected measures of consumption inequality. The broadest measures are the two top ones, which have gone up from about .8 to 1.05, an increase of .25 units. Or, as the authors put it, "Taken together, the results from the PSID data [] is that consumption inequality and income inequality tracked each other nearly identically during this time period."

If this is all true, it means that consumption tracks income pretty well, and both have become steadily more unequal over the past three decades. Surprised?