Today's Economist: Getting the Fed to Explain Itself Better

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The Race to Build a Better Business Class

Six feet six inches long and almost two feet wide, the V concept is the German carrier’s latest weapon in the fierce competition among global airlines. It is designed to withstand shocks 16 times the force of gravity and comes with a cozy padded footrest. It is a new business-class seat, and if you are traveling round trip from Frankfurt to New York, it can be yours for about $5,000.

“Business class is where competition really is serious,” says Björn Bosler, the airline’s manager for passenger experience design, business and premium, who led Lufthansa’s team of dozens of seat designers and engineers. Bob Lange, senior vice president, head of market and product strategy at Airbus, the European plane maker, agrees: “There’s an arms race going on among carriers.”

Billions are being spent on research and development, architects, industrial designers and even yacht designers to pack seats with engineering innovations and fancy features. Just fabricating a single business-class seat can cost up to $80,000; custom-made first-class models run $250,000 to $500,000.

Those who fly coach may have had a glimpse of these expenditures as they shuffled past the elaborate reclining, angled, semiprivate accommodations in business and first class on their way to the knee-scraping spaces and overstuffed overhead compartments in the main cabin. Travelers in business and first class may represent 10 to 15 percent of long-haul seats globally, but they account for up to half of the revenue of airlines like Lufthansa or British Airways, says Samuel Engel, a vice president at ICF SH&E, an aviation consulting firm. Carriers vying for the attention of these passengers, who have money or corporate accounts that pay for their travel, are counting on good design to escape the grinding commodity nature of their business.

But there is only so much space inside a plane. As the more lucrative seats expand, the coach section often contracts, with more seats jammed into the same cabin space and more discomfort for coach passengers.

“The seat is one of the few elements that an airline can actually make its own,” says Patricia Bastard, an architect and designer who has worked with Air France on its first-class cabin. “There are very few elements like it inside an airplane. There’s customer service, of course. Maybe there’s a bar. But seats are unique to the airline. Seats are critical.”

Lufthansa, Europe’s largest airline and the world’s fourth largest in terms of passengers, is investing $4 billion to improve its cabins, offer satellite-based Internet and upgrade its onboard entertainment system. But the new business-class seat, which first appeared last year on the company’s new Boeing 747-8 planes, is perhaps the boldest attempt to lure the high-value passenger. The seat research, design, manufacture and installation accounts for roughly a third of that $4 billion investment, says Mr. Bosler — more than a billion dollars. Eleven planes are now outfitted with the new seats, and Lufthansa is expected to install about 7,000 of them on 100 wide-body airplanes by 2015.

Lufthansa’s task — like that of all the big airlines — was to create a special environment for those big-spending travelers within the inflexible boundaries of an aircraft fuselage.

“The challenge was finding a solution that provides all customer benefits but also tries to save as much space as possible and get as many passengers on board as possible,” Mr. Bosler says. “There’s only one way for Lufthansa to make money. It’s with passengers on board.”

THE first airplane business-class sections date to the 1970s, when the seats were like oversize, padded armchairs that could recline about 40 degrees. More comfortable seats for frequent business travelers came with the arrival in the 1990s of planes that could fly nonstop almost anywhere in the world. This new generation of ultralong-range airplanes that could fly for 10 to 14 hours — like the Boeing 777 — meant passengers wanted to be able to get real sleep, not just a fitful, head-snapping catnap.

Pogue’s Posts Blog: A Better Google Maps App for Apple and Android Devices

Google Map’s new directory buttons.

Our story so far: Last September, Apple decided to dump the Google Maps app that had been on the iPhone for years. Apple replaced it with its own Maps app — software with so many problems that Apple’s chief executive, Tim Cook, apologized and even recommended that people use other apps until Apple could fix its own one.

In December — incredibly quickly — Google responded by introducing its own Maps app for iPhone. It’s a spectacular app, among the best apps ever written. It’s fast, beautiful and so good at guessing what you mean when you start typing a destination, it’s almost mind reading. You can read the details here.

Today, that delightful news gets even better. Not only has Google improved Google Maps for iPhone, it’s also brought that same free app to three machines that never had it: the iPad, Android phones and Android tablets. (The Android versions are available for download today; it requires the Ice Cream Sandwich or Jelly Bean version of Android — recent versions, in other words. The iOS versions will be available shortly.)

For Androidians, the biggest news is the design of the app itself. It’s modeled on the iPhone app, the one that’s simple and fast and elegant. It’s also uncluttered by the morass of menus that have always plagued the existing Maps app for Android.

But for practitioners of all religions — tablet, phone, iOS, Android — the other news is the new features that today’s new version brings. They include:

* Greater speed. All app versions are faster than before.

* Better place information. Half the time, you don’t even need navigation instructions; you just use Google Maps as the world’s smartest Yellow Pages, to find a nearby restaurant, movie theater, drugstore or whatever.

The details for found places now include a one-line description (“Chinese restaurant famous for dim sum”); a five-star rating system (including a decimal — “4.3,” for example — because, let’s face it, almost everything these days winds up with a four-star rating); the ability to upload your own photos of a place; and a more complete integration of the Zagat guides, which Google bought.

* Greater emphasis on exploration. Google Maps has always excelled at getting you to a known destination. But Google now wants the app to help you choose a restaurant, bar, store, recreation center or hotel, at least in major United States and European cities.

If you tap in the Search box without typing anything, new, photographic buttons appear: Eat, Drink, Shop, Play, Sleep. Each opens lists of corresponding facilities, sorted by criteria like Local Favorites, Popular with Tourists and so on. (Google says that these recommendations are never paid placement.)

* Traffic incidents and auto-rerouting. At last: Google Maps shows more than colored lines indicating current traffic speeds on major roads. Now it also displays tiny icons that represent accidents and construction. Tap one to read the details: “Right lane blocked on 680,” for example. (In case you were wondering, the information on traffic incidents doesn’t come from Waze, the traffic-incident app that Google recently bought. That data has yet to be incorporated into Maps.)

Better yet: Maps now looks ahead for traffic jams on your route, and interrupts your drive with a dialog box that offers to route you around it (if the new path would be quicker, of course). On its own.

* Offline maps. This feature is something of an Easter egg. It’s undocumented, a feature inserted by Google engineers simply because they wanted it. You can access it only if you know the secret. But wow, is it worth it.

This feature memorizes the map data for whatever area is displayed on your screen right now (up to a whole city in size). That way, you can use Google Maps even when you’re overseas and don’t want to turn on data roaming (because that’s insanely expensive), or when you’re in an area where there’s no cell reception. It’s very handy.

To capture a map snapshot like this, tap in the Search box. Use the speech-recognition button and say, “OK Maps.” (It’s a riff on the command “OK Glass” that prepares Google Glass, the company’s “smart headband,” for voice commands.)

A message quietly lets you know you’ve successfully stored the displayed area.

*Nice tablet layouts. On a tablet, Maps really shines. The app smartly reformats itself to take best advantage of whatever screen shape you have: two or three columns of place listings, for example, and luxuriously displayed photos and reviews for each business.

This new, improved Maps app works identically on both major flavors of phone and tablet. You know what? I don’t care how much you distrust Google and its motives. This is crazy good software, some the best work Google has ever done.

Economix Blog: Bernanke Says Better Days Lie Ahead

Ben S. Bernanke is, of course, the chairman of the Federal Reserve, but he always seems most comfortable as an educator, a role he slips into for a commencement address on Saturday at Bard College at Simon’s Rock.

If you’re looking for news about monetary policy, read no further. Mr. Bernanke’s speech mentions not a word about his day job. (In 2009, he opened a commencement address by saying, “The business reporters should go get coffee or something, because I am not going to say anything about the markets or monetary policy.” This time, we had to read the whole thing to make sure that no hint of news was buried inside.)

No doubt the graduating class will be much relieved to have avoided a modern version of Paul Volcker’s commencement address at American University in 1984, dug up by Catherine Hollander of National Journal. One can only imagine the faces in that audience as Mr. Volcker announced, “I’d like to take advantage of your captive presence today, before you scatter into the real world, to reflect a bit on that uniqueness, on the justification for our special role and degree of independence within the government, and on the special responsibilities that independence implies.”

What Mr. Bernanke’s speech delivers, instead, is a brief and engaging sketch of the debate about the state of innovation.

Economic growth depends on innovation, and some see evidence we’re having less of it — or at least that the areas of ongoing innovation, like information technology, are making less difference in our lives. The economist Robert Gordon wrote last year that we’re no longer inventing anything as useful as indoor flushable toilets. The economist Tyler Cowen offered a fluid account of the same basic argument in a brief, important book with a long title: “The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick and Will (Eventually) Feel Better.”

Mr. Bernanke, describing this argument, compares the present moment with life in 1963, when he was 9 years old. “Though my memory may be selective, it doesn’t seem to me that the differences in daily life between then and now are all that large,” he says in the prepared text of the speech. “Heating, air conditioning, cooking, and sanitation in my childhood were not all that different from today. We had a dishwasher, a washing machine and a dryer. My family owned a comfortable car with air-conditioning and a radio, and the experience of commercial flight was much like today but without the long security lines. For entertainment, we did not have the Internet or video games, as I mentioned, but we had plenty of books, radio, musical recordings, and a color TV (although, I must acknowledge, the colors were garish and there were many fewer channels to choose from).”

But the real concern is about the future: What if life continues to resemble 1963? What if the Internet doesn’t change the world?

And on this count, Mr. Bernanke breaks with the bleak traditions of his dismal profession to declare himself a fundamental optimist.

He notes that pessimism also ran rampant in the 1930s; it is human nature to assume (and to predict) that current trends will persist. “It is common to hear people say that the epoch of enormous economic progress which characterized the 19th century is over; that the rapid improvement in the standard of life is now going to slow down,” John Maynard Keynes wrote at the time. Mr. Bernanke adds, “Sound familiar?”

Moreover, he says it is probably too soon to judge the impact of recent innovations.

And he sketches a world in which more people in more countries are pursuing innovations in competition for ever-greater rewards: “In short, both humanity’s capacity to innovate and the incentives to innovate are greater today than at any other time in history.”

So cheer up, graduates! It’s a difficult time to be young but, as this blog notes frequently, you’ve just taken the single most important step to improve your own prospects: You earned a college degree. Now do the rest of us a favor and innovate.

Wealth Matters: Taxes Influence Investment Strategy, and Not Always for the Better

That may not be a good thing for their portfolios.

“Clients are definitely asking, because it’s a real issue in today’s environment,” Michael N. Bapis, a managing director and partner with the Bapis Group at HighTower Advisors, said. “We try to keep them focused on the goals — preserving what they have, capturing some of the upside, limiting the downside. At the end of the day, we can’t change the tax laws.”

When asked about how tax rates would affect an investment, he said his advice was almost always the same. “If it doesn’t make sense for your portfolio, then it doesn’t make sense,” he said, even if there is tax savings. “If it does make sense, regardless of the tax consequences, we’re going to put it in your portfolio.”

Last week, I looked at how the changes to the tax code were affecting how people thought about their estate plan. This week, I’m looking at how tax increases can influence people’s investing behavior.

The tax rates on investments have increased significantly from last year. Depending on a person’s income, taxes on long-term capital gains and dividends are now as high as 23.8 percent, an increase of 59 percent over last year’s rate. Taxes on investments that are held for less than a year that incur short-term capital gains tax or investments subject to income tax rates have increased for top earners by 24 percent, to 43.4 percent (with the Medicare surtax included) from 35 percent.

Those are substantial increases, but focusing on them alone can obscure a fuller analysis of risk. Investors can end up paying no taxes on an investment, but that may be because they lost money on it, or they may pay lots of taxes on a large gain that they might not have achieved otherwise. This is why advisers stress that taxes should not be the first concern when deciding whether to buy — or not buy — an investment.

If there is one investment that has been promoted as great for minimizing taxes and achieving a large gain, it is master limited partnerships. Most are involved in the transportation or storage of oil and natural gas. What makes them appealing, from a tax perspective, is that a large portion of the dividend they pay is treated as a return of principal and is not taxed.

But in the rush for one type of tax savings, investors can end up paying other taxes. Master limited partnerships with pipelines that run through several states can incur state tax bills for investors, though usually only when the income goes above a certain threshold.

The bigger tax concern generally comes when investors sell their partnerships, since the part of the dividend that was not taxed for years reduces the original price of the investment. Greg Reid, a managing director at Salient Partners and chief executive of the firm’s $18 billion master limited partnership business, said an investor who bought a partnership and sold it five to 10 years later could be faced with two types of taxes. The first is income tax, because the original purchase price would have been reduced by the amount of principal returned in the dividends. The second is capital gains tax on the increase in the value of the investment itself.

Another way to look at these partnerships is to consider the solid and increasing dividends they have paid over the last 25 years, often 6 to 7 percent.

“The baby boomers are going to need a lot of income to live,” Mr. Reid said. “M.L.P.’s are particularly great for older people who are retiring. They have a growing income stream.”

As for avoiding high taxes, the solution is to give the partnership to charity or die with it in your estate. Both may be viable options for investors in their 70s and 80s but are probably less attractive to people in their 30s.

Municipal bonds, which have long been attractive to wealthier investors because the interest they pay is not taxed by the federal government, pose a different sort of risk.

Mr. Bapis said he was concerned that investors who were not paying attention to the broader economic news were not aware of the current risks of buying an existing municipal bond. With yields on many municipal bonds extremely low — around 0.75 percent for five-year bonds and 1.74 percent for 10-year bonds, according to Bloomberg — even a small increase in their price, which would cause the yield to go down, would cause a loss of principal.

Unboxed: Big Data, Trying to Build Better Workers

In telephone call centers, for example, where hourly workers handle a steady stream of calls under demanding conditions, the communication skills and personal warmth of an employee’s supervisor are often crucial in determining the employee’s tenure and performance. In fact, recent research shows that the quality of the supervisor may be more important than the experience and individual attributes of the workers themselves.

New research calls into question other beliefs. Employers often avoid hiring candidates with a history of job-hopping or those who have been unemployed for a while. The past is prologue, companies assume. There’s one problem, though: the data show that it isn’t so. An applicant’s work history is not a good predictor of future results.

These are some of the startling findings of an emerging field called work-force science. It adds a large dose of data analysis, a k a Big Data, to the field of human resource management, which has traditionally relied heavily on gut feel and established practice to guide hiring, promotion and career planning.

Work-force science, in short, is what happens when Big Data meets H.R.

The new discipline has its champions. “This is absolutely the way forward,” says Peter Cappelli, director of the Center for Human Resources at the Wharton School of the University of Pennsylvania. “Most companies have been flying completely blind.”

Today, every e-mail, instant message, phone call, line of written code and mouse-click leaves a digital signal. These patterns can now be inexpensively collected and mined for insights into how people work and communicate, potentially opening doors to more efficiency and innovation within companies.

Digital technology also makes it possible to conduct and aggregate personality-based assessments, often using online quizzes or games, in far greater detail and numbers than ever before.

In the past, studies of worker behavior were typically based on observing a few hundred people at most. Today, studies can include thousands or hundreds of thousands of workers, an exponential leap ahead.

“The heart of science is measurement,” says Erik Brynjolfsson, director of the Center for Digital Business at the Sloan School of Management at M.I.T. “We’re seeing a revolution in measurement, and it will revolutionize organizational economics and personnel economics.”

The data-gathering technology, to be sure, raises questions about the limits of worker surveillance. “The larger problem here is that all these workplace metrics are being collected when you as a worker are essentially behind a one-way mirror,” says Marc Rotenberg, executive director of the Electronic Privacy Information Center, an advocacy group. “You don’t know what data is being collected and how it is used.”

Companies view work-force data mainly as a valuable asset. Last December, for example, I.B.M. completed its $1.3 billion acquisition of Kenexa, a recruiting, hiring and training company. Kenexa’s corps of more than 100 industrial organizational psychologists and researchers was one attraction, but so was its data: Kenexa surveys and assesses 40 million job applicants, workers and managers a year.

Big companies like I.B.M., Oracle and SAP are pursuing the business opportunity. So is eHarmony, the online matchmaking service. It announced in January that it would retool its algorithm for romance so it could examine employee-employer relationships, and enter the talent search business later this year.

THE penchant for digital measurement and monitoring seems most suited to hourly employment, where jobs often involve routine tasks. But will this technology also be useful in identifying and nurturing successful workers in less-regimented jobs? Many companies think so, and can point to some encouraging evidence.

Tim Geisert, chief marketing officer for I.B.M.’s Kenexa unit, observed that an outgoing personality has traditionally been assumed to be the defining trait of successful sales people. But its research, based on millions of worker surveys and tests, as well as manager assessments, has found that the most important characteristic for sales success is a kind of emotional courage, a persistence to keep going even after initially being told no.

The team of behavioral and data scientists at Knack, a Silicon Valley start-up firm, uses computer games and constant measurement to test emotional intelligence, cognitive skills, working memory and propensity for risk-taking. Early pilot testers include the NYU Langone Medical Center, Bain & Company and a unit of Shell, says Guy Halfteck, Knack’s C.E.O.

Family Law: We Can Do Better: Staying Professional as a Family Lawyer

All lawyers have tough, demanding jobs, but no lawyer can really say that their job is tough until they take on a family law case.

Fair Game: Four Paths Toward a Better 2013 in Business

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DealBook: Despite Its Problems, Dodd-Frank Is Better Than the Alternatives

Harry Campbell

Repeal Dodd-Frank? It sounds so simple. But repealing the Dodd-Frank Act won’t end “too big to fail” banks, and it may even make things worse.

Mitt Romney raised the issue at the first presidential debate, contending that Dodd-Frank should be repealed and replaced because “it designates a number of banks as too big to fail, and they’re effectively guaranteed by the federal government. This is the biggest kiss that’s been given to — to New York banks I’ve ever seen.”

It’s a seductive idea. Dodd-Frank contains provisions that go much further than regulating banks in order to prevent another financial crisis.

In Section 1,502, to take one example, is a provision requiring public companies to disclose whether they use conflict minerals. What this has to do with the financial crisis is beyond me. So, some parts of Dodd-Frank may already need renovation or even repeal.

But the core of the law dealing with the big banks is another story. Simply repealing Dodd-Frank wholesale will turn back the financial clock to 2006 for these banks. That doesn’t seem very smart given what happened, something that Mr. Romney recognizes when he talks of replacing the act rather than repealing it.

The problem is that possible replacements are unlikely to work or to be politically feasible.

The fundamental issue is that a few banks have grown to be enormous over the last two decades. According to SNL Financial, four banks each had more than a trillion dollars in assets at the beginning of the year. JPMorgan Chase was the largest with $2.3 trillion in assets, while Bank of America had about $2.2 trillion in assets and Citigroup, $1.9 trillion. Goldman Sachs is fourth with about $950 billion in assets.

That’s a lot of money, but not only are the banks big, their share of the market has grown. In the 1980s, the 10 largest banks had less than 30 percent of bank depositary assets. By 2012, this amount had almost doubled to 54 percent.

And size has paid off for these select banking giants. They enjoy a subsidy of reduced borrowing costs because investors believe the government will bail them out if things go awry. The size of the subsidy is debated heatedly by economists, but one recent study estimates that before the financial crisis, the banking behemoths obtained a subsidy that made their financing cheaper by 45 basis points, 0.45 percent. And at least one study has found that banks overpaid in the years leading up to the financial crisis to acquire competitors in order to get bigger and gain this advantage.

So, Dodd-Frank didn’t create “too big to fail” institutions. The banks themselves did because it made them money.

The financial reform law takes two tacks in dealing with these institutions. First, Dodd-Frank tries to figure out who they are and charge them for being too big. This is done by raising their regulatory costs through more oversight and supervision.

It means more governmental red tape for these banks, but also ostensibly fewer problems because of it. Regardless, one purpose of this increased regulation is to impose a regulatory tax on big banks to push them to be smaller.

Second, Dodd-Frank addresses the “Lehman” problem — that bankruptcy may not work for a huge financial failure. Instead, a new regime is created to put big institutions into what is hoped to be an orderly receivership that avoids a general financial panic, something that unfortunately happened when Lehman Brothers filed for bankruptcy in September 2008.

Repealing Dodd-Frank will not make these banks go poof and disappear. Instead the banks, which have only grown larger and more concentrated since the financial crisis, will continue to enjoy a subsidy. After all, when push comes to shove, no president will simply let a $2 trillion institution go down. It would destroy the economy.

The real question then is whether there are any alternatives to Dodd-Frank other than repealing it.

The two options that are most often discussed are to break up the banks or impose a capital charge.

A breakup is the favorite choice of many and has even been mooted by Sanford I. Weill in July, a number of years after he left Citigroup, the behemoth he created. Daniel K. Tarullo, a Federal Reserve governor, recently proposed a simple suggestion: capping the size of a bank’s balance sheet. But in a large financial system, you need large banks as lenders.

Even if you can function without large banks, the political feasibility of a bank breakup in a Democratic administration, let alone Republican one, is unlikely.

Luigi Zingales writes in his provocative book “A Capitalism for the People” (Basic Books) that the Glass-Steagall Act, the Depression-era law that separated investment banking from commercial banking, was good because it led to competition among banks rather than allowing them to bond together to fight for their bigness.

In other words, the big banks would now resist such a solution to the death. (Mr. Zingales, by the way, is a member of the University of Chicago faculty and has been a co-author with Glenn Hubbard, a central Romney economic adviser.) Like it or not, we are probably stuck with large banks. And there will always be smaller institutions that are simply too interconnected to be allowed to fail.

This leaves the second option and probably the one that Mr. Romney is likely to favor: higher capital requirements or leverage limitations for the biggest banks. This may work but essentially does the same thing that Dodd-Frank claims to do — make it more costly to be a “too big to fail” bank.

This solution has the virtue of being easier to administer and certainly requires less regulatory power. But the solution would leave a future administration gasping if one of these banks went down.

And the capital charges would have to be agreed on internationally in order to keep American banks from being outgunned by foreign competitors. This is what the Basel III accords are supposed to do, but raising the capital or leverage limits would require a whole new international bargain.

This is unlikely to happen anytime soon because the European banks lack the wherewithal right now to raise their capital even if they wanted to. Even more problematic is that raising capital and leverage requirements may reduce lending more than the current regulatory provisions do because banks would be forced to keep more money on their books rather than lend it.

The bottom line is that there are real problems with Dodd-Frank. It contains tons of extraneous stuff, and even the provisions dealing with the large banks are sometimes too convoluted and intricate. The mess that the regulatory agencies are in as they try to sort out the Volcker Rule is a good example.

But while it is nice to talk of repealing or watering down Dodd-Frank, the alternatives may not be much better as long as we have big banks. And those don’t seem to be going away any time soon.