Category Archives: Economics

NY Times calls attention to brothels in condos

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Here’s a story from The NY Times that’s very relevant to our situation here in Honolulu (“The New Brothels: How Shady Landlords Play a Key Role in the Sex Trade”).

It describes how prostitution is moving from the streets into apartments and condominiums where it is much harder for law enforcement to shut down the businesses.

In New York, gentrification has pushed prostitution indoors. Street walkers have all but disappeared. Prostitutes now advertise online, sex dates are arranged over the phone and brothels operate inside apartments in residential neighborhoods.

As a result, landlords play an important role in the sex trade….

But landlords are rarely charged with a crime, he said, because the police often don’t have enough evidence to show they are complicit, which results in a never-ending game of whack-a-mole; the police shut down brothels and massage parlors, only to see another open in the same place or nearby.

That’s exactly the situation we faced during the years I spent on the board of a condominium on the edge of Waikiki, including a couple of terms as president.

The apartments where sex was for sale were obvious, as different men were seen coming in and out at all hours, much to the dismay of residents of nearby apartments. The board tried different approaches. We kept open communications with law enforcement agencies, but while they often took action, it took a long time to complete an investigation that would lead to successful busts. In the meantime, the demand for services was just too far ahead of any enforcement efforts.

The board also tried hiring an attorney to go after the owners of units where prostitution arrests were made. Some of these efforts were successful, but others disappeared into the depths of the court system, where legal delays are both inevitable and expensive. Eventually, this strategy couldn’t be sustained.

We found that there was a network of individuals and companies, often involving family members or longtime business associates, who passed ownership of condominium apartments from one to the other, trying to stay ahead of foreclosures and other legal actions. I’m sure that there are other buildings that are facing similar problems.

Just as the case described in the Times story, many landlords find the money too tempting to turn down. And the profits from these enterprises, often cloaked as “massage” or “relaxation” businesses, were increasingly reinvested by buying the apartments. This way, there wouldn’t be any worries about the landlord might say about the activities going on in the condominium.

It’s going to be interesting when someone finally gets around to mapping where prostitution businesses operate and who owns those properties.

Spinning the Supreme Court’s recent anti-union ruling

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Here’s a little insight into the way investors view the Supreme Court’s recent ruling that requiring non-members to pay agency fees to public employee unions is a violation of the First Amendment.

An analysis from the folks at Charles Schwab cites research showing that “unions raise wages of unionized workers by roughly 20%” and “unionized workers receive better pension plans.”

And Schwab then notes: “The ruling could result in lower revenues for unions, and therefore reduce their political clout and negotiating abilities.”

Since wage earners have been left behind by the growing economy that is richly rewarding the already wealthy while wages remain relatively stagnant, this rightly sounds like bad news.

But Schwab tends not to speak of “wages.” They use language to mask the impact of the court’s ruling on people who work by instead using the term “labor costs” when talking about what employee’s earn.

So in Schwab’s simplified view of the world, cutting pay of working people is seen as good news: “Since unions regularly negotiate for higher wages and higher benefits for those they represent, if their negotiating abilities are reduced it (the high court’s ruling) could result in lower labor costs for municipal governments.”

There’s no attempt to delve into whether lower wages also mean a lower level of public services. Or the inability of public employees to decent lifestyles. No interest in taking the analysis in that direction.

The Schwab analysis is accompanied by a chart showing the annual wages of elementary school teachers by state, but once again Schwab refers to “labor costs.”

And, no surprise, wages/labor costs are lowest in anti-union, “right to work” states that have been hostile to labor rights. Of course, I’m betting that, in general, the higher wage states tend to have provide better education, and better lives for their teachers.

But again that doesn’t seem to factor into the Schwab analysis.

The pretty callous disregard for the situation of wage earners seems to call the question…Which side are you on?

“Corruption could be good for investors…”

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Sometimes we forget that where there are losers, there are also winners.

And that’s the case with newspaper closures, it seems.

Several months ago, news stories began reporting on research done by economists at the University of Illinois at Chicago and Notre Dame University.

I first saw it reported back in May, in a City Lab story with the headline, “The Hidden Costs of Losing Your City’s Newspaper.”

From the story:

When local newspapers shut their doors, communities lose out. People and their stories can’t find coverage. Politicos take liberties when it’s nobody’s job to hold them accountable. What the public doesn’t know winds up hurting them. The city feels poorer, politically and culturally.

According to a new working paper, local news deserts lose out financially, too. Cities where newspapers closed up shop saw increases in government costs as a result of the lack of scrutiny over local deals, say researchers who tracked the decline of local news outlets between 1996 and 2015.

Similar stories on the research findings have been bouncing around various media for more than two months.

But the financial magazine, Barron’s, published by the Wall Street Journal, ran its own version of the story this week which focused on the implications of newspaper closures for bond investors. And it reminded us that a few find opportunity in newspaper closings.

The research shows that in communities where newspapers closed, bond interest costs to local governments went up. Bad for taxpayers. But that was good news for investors holding those municipal bonds, who earned more in interest payments.

What does all that mean? Costs go up for cities and their taxpayers, and that money in turn is paid out to investors who own the bonds.

Barron’s adds this interesting observation:

There could be a reward for buying the bonds of local governments unhedged by nosy reporters. Corruption could be good for investors, at least in the short run: Take the extra money and close your eyes.

Active investors “actually might find opportunity from those places where there’s less information,” Gao says.

The article concludes:

Perhaps a barbell strategy is best: Buy the bonds of some municipalities where governance seems crooked but clever. Then, in other areas where there are robust local papers, buy the bonds and subscribe to the paper as a hedge, outsourcing research to reporters, who are on average much cheaper, probably, than you.

It is a different view of the world, isn’t it?

Hawaii tourism at the beginning of 1968

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In preparation for yesterday’s panel discussion, I spent some time looking through newspapers published during 1968.

Here’s one snippet that caught my eye right away (below).

It was January 1, 1968, and the Honolulu Star-Bulletin published several reviews of the past year. One dealt with tourism.

The big news: There were over one million visitors to Hawaii in 1967, a new record.

The other side of that news: Questions were already being raised about whether there needed to be controls or limits on the growth of tourism.

In 2017, we have learned, another record was set with 9.3 million visitor arrivals.

But the questions regarding the limits to this growth seem to be fewer and more muted, although someone really should be sounding red alert.