Global trade wars. Small-time bike thieves. And what happens when the Fed talks big. On today's show, we bring you three short Planet Money stories.
Download the Planet Money iPhone App. Music: Passion Pit's "Take a Walk," Taylor Swift's "We Are Never Ever Getting Back Together," Goyte's "Eyes Wide Open," and Matt & Kim's "Now." Find us: Twitter/ Facebook/ Spotify/Tumblr
ZOE CHACE, HOST:
Hello, and welcome to PLANET MONEY. I'm Zoe Chace.
ALEX BLUMBERG, HOST:
And I'm Alex Blumberg. And today on the program, as we sometimes do, we're bringing you an assortment of stories - a potpourri, a radio anthology of short nonfiction stories, which we are calling Cheating, Stealing And Quantitative Easing.
CHACE: It's a PLANET MONEY special.
(SOUNDBITE OF PASSION PIT SONG, "TAKE A WALK")
BLUMBERG: All right, Zoey, let's start with cheating. Cheating is something that people do all the time in all sorts of different arenas. But countries can cheat as well, and recently, the U.S. has accused the country of China of cheating. The U.S. filed a formal complaint at the global body that settles questions of cheating, the World Trade Organization. And they said, essentially, China is unfairly subsidizing its auto industry, which, Zoey, as you reported, a lot of people feel is a pretty ironic charge for the U.S. to be making.
CHACE: To understand what the U.S. is so mad about, you've got to lose the idea that trade means sharing stuff and a handshake.
RON KIRK: Trade is not that different than any other competition, except for ours is economic.
CHACE: That's U.S. Ambassador Ron Kirk, sports fan and President Obama's point man on international trade.
KIRK: There are a set of rules, and everybody's got to play by those rules if it's going to be a fair competition.
CHACE: The U.S. is saying that China provides cheap loans, and grants and other incentives to their car industry and that these presents, these favors, are for companies who are successful exporters; and that is totally unfair.
KIRK: It is completely contra to the rules that we all agreed on within the WTO.
GARY HUFBAUER: Not to be immodest, but I actually wrote that language back in the '70s.
CHACE: This is Gary Hufbauer. He used to work at Treasury 30 years ago when some of these rules governing global trade were still being written. Today, he's the global trade guy at the Peterson Institute in Washington. And he says a subsidy does not necessarily mean you're a cheater.
HUFBAUER: The U.S. gave a tremendous amount of subsidies during the Great Recession of 2008, 2009, and a good portion of those subsidies went to our auto industry.
CHACE: Right - the bailout. The U.S. government gave U.S. automakers cheap loans and bought shares in the companies. We still own almost 30 percent of General Motors. And, you know, when it comes to subsidies, you'd think the modus operandi is to be sneaky, pull a fast one. But...
(SOUNDBITE OF ARCHIVED RECORDING)
JENNIFER GRANHOLM: He organized a rescue. He made the tough calls. And he saved the American auto industry.
CHACE: It seemed almost every speaker at the Democratic convention was bragging about the auto bailout. That was former Michigan Governor Jennifer Granholm. And given that the U.S. loaned $50 billion to GM, and China is alleged to have given out at least a billion dollars in auto subsidies, well, is it a double standard?
HUFBAUER: The Chinese have been highly successful. They're now the largest auto-producing country in the world.
CHACE: China's No. 1 since our bailout of our auto industry, so they seem fine. Hufbauer also points out that the alleged Chinese subsidies weren't done in a period of distress, like our bailout was. But...
HUFBAUER: You know, for most people, it looks pretty much like a duck, you know? A duck walks, duck quacks - same duck.
CHACE: Let's be very clear. The U.S. auto bailout is not being challenged at the WTO, and that's because, as Ambassador Kirk says...
KIRK: Everyone understands that was a short-term issue. And in this case, the auto industry's paying that money back.
CHACE: Also, our bailout was not tied to export performance, as the U.S. alleges China's subsidies are. It may have looked unfair to China, though, because about a year ago, China slapped a tax on U.S. car imports, claiming that our cars had benefited from subsidies. The U.S. is challenging this tax at the WTO. You might think from this back-and-forth that these two just can't get along. Each thinks the other is gaming the system.
KIRK: I know some people think, oh, boy, the U.S. and China just sue each other all the time. But 90 percent of our trade goes off every day without a hitch.
CHACE: Right. The U.S. and China - sometimes they face off, but usually, they're on the same side. Keep that in mind when keeping score. Zoe Chace, NPR News
(SOUNDBITE OF SONG, "WE ARE NEVER EVER GETTING BACK TOGETHER")
TAYLOR SWIFT: (Singing) You called me up again tonight, but ooh, this time I'm telling you, I'm telling you, we are never, ever, ever getting back together. We are never, ever, ever getting back together. You go talk to your friends, talk to my friends...
BLUMBERG: All right, shall we move on to stealing?
CHACE: Yes, stealing. The next story of stealing is maybe the most common story of theft anywhere because everyone has had this thing stolen from them - your bike. My bike was stolen a couple weeks ago. Caitlin Kenney, our producer - her bike was stolen. And Caitlin actually wanted to know, what is it that happens after your bike is stolen? Is there an economic explanation for why bike theft is so, so common?
CAITLIN KENNEY, BYLINE: If you buy a new bike, the market is pretty straightforward. There's the supplier, people who make the bike - Schwinn or Cannondale. There's the seller; that's the bike shop. And there's the customer. That's you. When your bike is stolen, though, it enters a strange, underground economy. There's a market, but all of the players are different. Let's start with the suppliers. Who supplies a stolen bike? A bike thief. And who are these bike thieves?
HAL RUZAL: You have your standard drug addict. A junkie will steal anything because he's a junkie.
KENNEY: Hal Ruzal is bike mechanic in SoHo, who's worked at this bike shop, Bicycle Habitat, more than 30 years. He says drug addicts will also trade bike parts for drugs. But Hal says it's not all drug addicts, of course. Some people are full-time bike thieves.
RUZAL: And then you have your professional thief, who comes around in a van with an angle grinder, and he steals a bike by walking up to the bike wearing a bicycle helmet and a messenger bag, and he actually looks like he owns the bike.
KENNEY: Hal says a professional can steal a bike, even a well-locked bike, in just a couple minutes, which brings us to the next part of the underground market. Once you've stolen the bike, where do you sell it?
HATCHET POPS: That is the best way to get rid of a quick, hot bike is - take it to where the guy's going to give you straight cash for it, and off they go.
KENNEY: I met Hatchet Pops (ph) near 7th and Market in downtown San Francisco. This neighborhood, the Tenderloin, is one of the most dangerous in the city, and it's a major marketplace for stolen bikes. Hatchet Pops says the bikes down here sell for cheap.
So you have a bike that's - you know, maybe retails for, like, a thousand dollars. How much could you get for it on the street?
HATCHET POPS: I would say probably about a hundred bucks.
KENNEY: A hundred bucks, that little?
HATCHET POPS: Yeah, that little. And mainly because the - believe it or not, the competition is pretty heavy.
KENNEY: In other words, there are a lot of stolen bikes out here. The more supply, the cheaper the price. You'll sometimes see the final participant in this underground economy, the customer, here at 7th and Market. But sometimes, in search of customers, the sellers have to go door to door.
JOSE MARMOLEJO: The drug addict users - they do come with little - the lights that you use at night. All they do is knock on the window and show you the lights, be like, sale, $5, $4.
KENNEY: Jose Marmolejo works at Puebla food and coffee shop on First Avenue in Manhattan. He says a lot of people come in hoping he'll buy a bike for the delivery guys. Delivery is huge in New York. Ask a delivery guy where he got his bike, he might say...
VICTOR SANDOVAL: (Speaking Spanish)
KENNEY: "In the street," says Victor Sandoval (ph), who works at a place just down the block. The only qualification to be a delivery guy in this city is to have a bike. That's a built-in demand for cheap bicycles, and you can buy them for pennies on the dollar - 10, 20 bucks for a fully loaded bicycle. Which brings up a question in this underground economy. If the bikes are so cheap, can you actually make a profit? Rohin Dhar is founder of a company called Priceonomics. He recently wrote about stolen bikes.
ROHIN DHAR: You know, is the juice worth the squeeze? Is it, you know, worthwhile - all this effort?
KENNEY: This was his question. Is it worth it to smash a bike lock, to snip it with bolt cutters, to saw through it with an angle grinder just to steal something that could retail for 10 or 20 bucks?
DHAR: And what I think we found with stolen bicycles is, the juice is OK. Like, you can make money stealing bikes. But the squeeze, the effort you need to put in and the risk of getting caught, is zero. And that's probably what explains why bike theft is so prevalent. There's just no risk to the crime.
KENNEY: I talked to a police sergeant here in the Tenderloin in San Francisco about this, Joe McCloskey. He sets up stings to catch bike thieves in the act. Even so, after he arrests them...
JOSEPH MCCLOSKEY: Nobody went to jail. They were on probation, got the probation modified. It's not a high-priority crime.
KENNEY: Sergeant McCloskey doesn't see that changing anytime soon. So for now, the stolen-bike economy will continue to thrive, just out of sight. Caitlin Kenney, NPR News, San Francisco.
(SOUNDBITE OF SONG, "EYES WIDE OPEN")
GOTYE: (Singing) We walk the plank with our eyes wide open. We walk the plank with our eyes wide open.
CHACE: Cheating, stealing - now for the real drama.
BLUMBERG: Quantitative easing.
BLUMBERG: This is the technical name for something that the Federal Reserve has been doing for a while now - essentially, flooding the financial system with new money, money that the Federal Reserve creates out of thin air. That is that one power that it has, and it's using it a lot lately. And just a couple weeks ago, the Fed promised it was going to do a lot more of this money creation. But Robert Smith - our very own Robert Smith says this announcement was different. Even though the Fed was doing actions that it had done before, what they said about what they were doing changed dramatically.
CHACE: Well, dramatically when you're talking about the Fed.
ROBERT SMITH, BYLINE: You got to wonder. How does a guy who talks like this...
BEN BERNANKE: Our tools, while they are nonstandard, still can create more accommodative financial conditions.
SMITH: Ben Bernanke. How does he inspire stock markets with that voice? Well, remember that speech that Bernanke gave in Jackson Hole? It wasn't recorded, but here, I'll read you a key sentence. The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economy. Sounds unremarkable until someone explains the code. Joe Gagnon was an economist at the Fed. Now he works for the Peterson Institute. And Gagnon noticed that Bernanke didn't say he wanted to promote a strong recovery. Instead, Bernanke said stronger.
JOE GAGNON: To promote a stronger economic recovery, making it clear that the recovery we've had to date is not strong enough, in their view. That's a strong indication that they feel the need to do more.
SMITH: And doing more has a technical name at the Fed - quantitative easing, QE - a way of getting more money moving and lowering interest rates. The financial news channels - Fox, Bloomberg, CNBC - they understood the code.
(SOUNDBITE OF NEWS BROADCAST)
UNIDENTIFIED REPORTER #1: He definitely appears to tee it up yet again with a lot of concerns...
(SOUNDBITE OF NEWS BROADCAST)
UNIDENTIFIED REPORTER #2: Ira Jersey from Credit Suisse says expect QE3 and...
(SOUNDBITE OF NEWS BROADCAST)
UNIDENTIFIED REPORTER #3: Look, we know the market is wired for quantitative easing. The question is how wired...
SMITH: Believe it or not, Bernanke's cryptic communications are actually the most direct the Fed has been in its history. If you go back even 20 years ago, the Fed was almost silent. If it wanted to influence the economy, it would just - moved money around. It didn't tell people. Now Ben Bernanke gives speeches and press conferences. It may be in code, but it still has a real advantage over the old way. Instead of moving all that money around, Bernanke can just tell people he's going to do it. For instance, last year, rather than just holding interest rates down, the Fed said it expected to keep rates low for years to come. Randall Kroszner, an economist at the University of Chicago, says essentially, by saying it out loud, it came true.
RANDALL KROSZNER: That was actually a very powerful impact on the markets. And if you looked at the futures markets for the short-term interest rate, they actually moved quite a bit.
SMITH: Kroszner was on the Federal Reserve Board a few years ago. And he says that he learned that this trick only works if people believe that the Fed is ready to back up its talk with action. You can't just promise anything and then not do it.
KROSZNER: That's one of the reasons why sometimes things aren't as crystal clear as they could be because circumstances can change. It has to be a little bit more nuanced.
SMITH: There are, though, economists who argue that this is not the time for nuance, that the Fed should be even more open than it is. Rather than hint, the Fed should essentially make specific promises. Bernanke could say, in order to promote a stronger economy, we will do whatever it takes to get the unemployment rate under, say, 6 percent. Or he could say, I won't stop until the economy is really booming at this rate. Few expect the Fed to go that far. It may be opening up, communicating more, but Fed habits change slowly. Robert Smith, NPR News.
(SOUNDBITE OF SONG, "NOW")
MATT AND KIM: (Singing) I know that things aren't perfect. Drum set worn on the surface. Some things are better with age. Some things no longer remain. And I know that things aren't perfect - sick and a little nervous.
BLUMBERG: OK, that's our show for today. As always, we welcome your thoughts, your questions, your comments. You can send them to us at firstname.lastname@example.org.
CHACE: We have a blog - npr.org/money. You can find us on Facebook, Twitter, Tumblr. And also, we have that app. It's awesome. Download it for all the PLANET MONEY that you'll ever need. I'm Zoe Chace.
BLUMBERG: I'm Alex Blumberg. Thanks for listening.
(SOUNDBITE OF SONG, "NOW")
MATT AND KIM: (Chanting) Now, now, now, now, now, now, now, now, now, now, now, now. Transcript provided by NPR, Copyright NPR.