Episode 556: Some Assembly Required : Planet Money Today we build our show from three short Planet Money stories. We look at when a dollar is not worth a dollar; publishing without a publisher; and, of course, Ikea.
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Episode 556: Some Assembly Required

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Episode 556: Some Assembly Required

Episode 556: Some Assembly Required

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DAVID KESTENBAUM, BYLINE: Thanks for listening to PLANET MONEY. NPR's Pop Culture Happy Hour is having a live show in Brooklyn on Tuesday, August 19. It'll be a night of games, quizzes and discussion of all things pop culture. For tickets, go to popculturetickets.org starting Monday, July 28.

JACOB GOLDSTEIN, HOST:

Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.

ROBERT SMITH, HOST:

And I'm Robert Smith. Today on the show, we have three short PLANET MONEY radio stories that have never, until this moment, appeared on the PLANET MONEY podcast.

GOLDSTEIN: Our stories today - when a dollar is not a dollar, publishing without a publisher and, of course, IKEA.

(SOUNDBITE OF MUSIC)

SMITH: So IKEA recently announced that starting next year, it will raise the minimum wage it pays for its workers in its U.S. stores, which, in the midst of all this debate about whether the U.S. government should raise the minimum wage, the fact that a company would do this and do it voluntarily sparked our interest. And David Kestenbaum wondered, well, wait a minute. Where is the money going to come from? Will IKEA cut the number of workers at its stores? Will IKEA accept lower profits or what? Here's his story.

KESTENBAUM: One of the people behind the decision was Rob Olson, title - acting president of IKEA U.S., favorite piece of furniture - its name is EKTORP.

ROB OLSON: Yeah, E-K-T-O-R-P. It's a sofa.

KESTENBAUM: Did you put it together yourself?

OLSON: Yeah, with a sofa, there's not much you have to put together.

KESTENBAUM: IKEA employs about 11,000 people in its U.S. stores, and paying those people is one of IKEA's largest expenses. So why would a company so concerned about keeping costs down that it has customers put together their own furniture - why would IKEA volunteer to pay people more?

Was it a PR move? No, he said. Were the workers unhappy? No, he said. The company does surveys every year, and employees seem pretty happy. Olson told me the company did it because it was the right thing to do. He mentioned the IKEA vision - better everyday life for the many people - but he also made this economic argument.

OLSON: We felt it was the right thing to do, and we also see that it will benefit us in the long run. By taking better care of our co-workers, they will take better care of our customers, which will take better care of IKEA. And, you know, see it as a win-win-win opportunity.

KESTENBAUM: Win-win-win sounds like a free lunch, which economists are fond of pointing out does not exist. If you raise wages, the money has to come from somewhere. And there are only a few places it can come from. Will prices go up at IKEA?

OLSON: No, prices will not go up.

KESTENBAUM: Are you going to cut the number of workers relative to what you would have had?

OLSON: No, we are not.

KESTENBAUM: What about profits? Will the company just make less money?

OLSON: In the short term, there may be a little bit less profit. But in the long term, we see that we'll grow sales at a greater pace, which will be better for IKEA in the long term.

OLSON: Basically, IKEA is betting that if it pays higher salaries, it will sell more EKTORP couches - so many more couches and kitchens and all the other stuff that the pay raise will pay for itself. The new minimum wage at IKEA will vary from store to store, adjusted for cost of living. But on average it's going up 17 percent to 10.76 an hour. David Neumark, an economist at UC Irvine, says this strategy might work. Higher salaries do make it easier to attract better workers. Those workers are also less likely to leave, and they're probably a little happier.

DAVID NEUMARK: Someone said, I'm going to raise your wage 10, 15, 20 percent. Would it make a difference to you? You'd probably say yeah.

KESTENBAUM: I called Neumark because he's one of those economists who is not a fan of minimum wage laws. He thinks there are better ways to help people. I wanted to know if examples like IKEA changed his thinking. Maybe more companies could increase their profits if they raised their lowest wages. He didn't think so.

NEUMARK: If this was good for companies, why don't they do it themselves? Businesses are really good at figuring out what makes them more money.

KESTENBAUM: In a furniture store, a few well-placed suggestions from a happy worker, and you might be heading home with a new sofa. In a fast food restaurant, though, he says, better paid workers may not sell more hamburgers.

(SOUNDBITE OF MUSIC)

SMITH: If you see an ad for an investment, usually they're trying to make that investment sound exciting. There is a huge upside. You will make lots of money. But there is an investment that sells itself as being boring. Money market mutual funds - it even sounds boring. But once in a long while, like recently during the financial crisis, money market funds get a little wonky, get a little crazy. This is a problem that regulators have been trying to solve for years now. And, Jacob, you did a story about it earlier this week. Here it is.

GOLDSTEIN: Joe McGee (ph) has had a money market fund since the '90s. He keeps thousands of dollars in it, writes checks from it. So I asked him, that money you have in a money market fund - do you know where it is?

JOE MCGEE: No, I have no idea. It's not under my mattress. I know that much (laughter).

GOLDSTEIN: Money market funds are easy to ignore. They don't seem like stocks or bonds, which rise and fall in value every day. When you put a dollar into a money market fund, it holds its value at exactly one dollar, day after day, just like money in the bank.

RICARDO DELFIN: Right now, I think people are used to having a product that's constantly one dollar in, one dollar out. They don't have to think about it.

GOLDSTEIN: Ricardo Delfin is the executive director of the Systemic Risk Council, a nonprofit funded partly by the Pew Charitable Trusts. He says people should have to think about their money market funds because they are not just like bank accounts. When you invest in a money market fund, the fund turns around and lends that money out. On very rare occasions, those loans go bad, and investors suddenly find that the dollar they put into the fund is suddenly not worth a dollar. When this happened in 2008, people freaked out.

(SOUNDBITE OF CNBC NEWS SHOW)

UNIDENTIFIED REPORTER: Bruce Bent's reserve fund, one of the earliest money market funds, has dropped under a buck. Net asset value is under a dollar.

GOLDSTEIN: That's CNBC. This news triggered a panic. Investors rushed to pull their money out of lots of money market funds, and the government rushed in and issued a last minute guarantee to try to stop the panic. Money market funds already come with a warning that investors could lose money. But since the crisis, regulators have struggled to figure out how to prevent the government from having to step in again.

One idea regulators are kicking around - make it clear to investors that a dollar in a money market fund is not always worth a dollar. Let the value of money market funds fluctuate like other investments. If you put, say, a thousand dollars in a money market account, it might be worth $998 the next day, $999 the day after that.

I talked to Eric Rosengren, the president of the Federal Reserve Bank of Boston, on Monday. He says even small fluctuations in the value would send an important signal.

ERIC ROSENGREN: Well, if you know the price varies, that highlights to people that have invested in the fund that there is some risk in the fund and that it is not a perfect substitute for holding money in a bank.

GOLDSTEIN: Getting away from that fixed world where a dollar is always worth a dollar, the argument goes, means it's less likely that the government will have to step in again. Many of the companies that run money market funds do not like this idea. The Investment Company Institute, which represents fund companies, declined to be interviewed for this story, but the group has written that getting rid of the stable $1 value would create tax and accounting headaches for investors. New rules could also push investors to move their money to other places that have fewer rules and create more risk for the economy. Joe McGee, the guy I talked to who writes checks from a money market fund, says the rule would change the way he looks at his money.

MCGEE: When things are moving up and down, whether it's drastically or just minimally, I start to feel like it's a little less real and that it might not be there tomorrow if I needed it to, you know, go buy - go buy lunch.

GOLDSTEIN: McGee said if he saw that happening, he might keep more of his money in a regular checking account.

(SOUNDBITE OF MUSIC)

SMITH: So, Jacob, that story aired on Tuesday, and the very next day, the SEC actually voted to create some new rules for money market funds. And...

GOLDSTEIN: And so there are two new rules that they approved on Wednesday. And one of them is a version of the rule that I talked about in the story, so some money market funds will now have to let the value fluctuate day to day. But - this is a big but - this only applies to money market funds that are sold to big institutional investors, like corporations. So Joe McGee, the guy in the story, regular people like you and me - we will not see this change in our funds.

SMITH: And you said there was a second thing they did. What's the second one?

GOLDSTEIN: Yeah, so the second one is kind of less fun, in a way, but may be an even bigger deal. The second rule says money market funds can now, during a crisis or an emergency, temporarily refuse to give investors their money. And this applies not just to the ones holding funds for institutions, but all of them, basically. So this means in the middle of a crisis, you go to your money market fund, say, hey, give me my money. I want my money back. And they can say not now. They say, we're going to hold on to it until things settle down, then you can have it.

SMITH: Well, I take it there's rules about this. They can't just lock the doors any time and say go away.

GOLDSTEIN: They can't. The rules are about, you know, liquidity and what assets they hold and whatever. But, really, this is a big deal because money market funds are supposed to feel like cash, right? And one of the basic definitions of cash is you can have it whenever you want it. If I got a $20 bill in my wallet, I can spend it whenever I want it. And this is changing that a little bit. Joe McGee, the guy I talked to in the story - I actually asked him about this rule. And he said this would be an even bigger deal to him than the floating value thing. He said, if they pass this rule, I might just take a lot of my money out of the money market fund now and put it in checking.

SMITH: Before a crisis.

GOLDSTEIN: Sure. Right. Before they locked the door.

(SOUNDBITE OF MUSIC)

GOLDSTEIN: Our last story today is about money and publishing and technology, and also, in a way, it's about status. It's from Steve Henn.

STEVE HENN, BYLINE: Five years ago, most romance writers shied away from self-publishing their work. Self-publishing - printing your own book - was stigmatized. It was widely seen as a mark of failure.

DANA BETH WEINBERG: But now the self-published authors walk into the room, and they say, oh, well, I made a quarter-million dollars last year.

HENN: Dana Beth Weinberg studies publishing at Queens College.

WEINBERG: And so now nobody really knows - you know, how do we measure success in this market?

HENN: She says Amazon doesn't release sales figures for e-books.

WEINBERG: What do we look at? Because it's not enough to think about prestige anymore. We're really talking about the money.

HENN: But it is really hard to know how much self-published authors really make. Mostly what we hear are anecdotal stories of big successes, like Hugh Howey. He's the author of the sci-fi series "Wool." His books have sold more than a million copies, but...

HUGH HOWEY: Every conference I go to, I meet someone who I've never heard of who's making a full-time living as a writer.

HENN: Howey wanted to figure out how this was possible, so he tried to crack Amazon's code. He took Amazon's public sales rankings for books, and then asked authors to send in their actual sales data. He created a database that allowed him to estimate how much money each author was likely making on any given day. This week, he released a report arguing that independent authors like him are actually earning more money from e-books than colleagues with traditional publishing deals. The reason - self-published authors may not sell as many books, but they take a larger cut of the proceeds - 70 percent of their total sales.

Needless to say, people in the publishing industry went nuts. They pointed out that his figures don't include cash paid to authors as book advances. They say he's underestimating the money earned from old-fashioned print sales. Still a lot of authors are looking at the big cut they'll get from self-publishing e-books, and they're deciding to go out on their own.

MICHAEL BUNKER: My name is Michael bunker, and I am a accidental Amish sci-fi writer (laughter).

HENN: And even though you've probably never heard of Michael Bunker or the genre of Amish sci-fi, his book "Pennsylvania Omnibus" hit number 19 earlier this month on Amazon's best-seller list. His first book about living off the grid was an instant online success.

BUNKER: It went to number 29 on all of Amazon.com on the first day, and I got messages from publishers and from agents (laughter). And I didn't know what I was doing. I had no clue what I was doing. And the first agent that contacted me said, you know, I can get you a $5,000 advance and a guaranteed publishing deal. And I said, well, I made more than that yesterday.

HENN: Self-publishing just made sense, and here's the interesting part. Michael Bunker is actually really Amish. His home and farm are off the grid. He uses solar power to get online from an office. He has a blog and a Twitter feed. And the elders in Bunker's community are OK with this new career.

BUNKER: Because a lot of what we're looking at now is - it goes back to Gutenberg. And a lot of our people were set free by the ability to produce and to distribute printed materials without going through the powers that be.

HENN: Bunker makes a living writing. He has not struck it rich. But Dana Beth Weinberg, the sociologist, says success stories like Bunker's and Howey's may give authors false hope. Howey only looked at the top 120,000 books on Amazon for his study, but there are many books way down that list where self-published authors make no money at all, like Weinberg's own books. When she's not studying publishing, she writes novels about Russian gangsters in Brooklyn. The ranking for "Kings Of Brighton Beach" - 368,000. Her profit so far - zero.

(SOUNDBITE OF SONG, "WATER FOUNTAIN")

TUNE-YARDS: (Singing) No water in the water fountain.

GOLDSTEIN: Email us - planetmoney@npr.org.

SMITH: Or follow us on Twitter - @PlanetMoney - or - you know what? You should follow Jacob, too. He's @JacobGoldstein.

GOLDSTEIN: Robert, you are @RadioSmith. You are truly a smith of the radio.

SMITH: If you're looking for another show to listen to, you should check out Pop Culture Happy Hour. They're having a live show on August 19 in Brooklyn. You can find all of NPR's shows on iTunes under Podcasts. You should subscribe.

GOLDSTEIN: Our show today was produced by Phia Bennin. I'm Jacob Goldstein.

SMITH: And I'm Robert Smith. Thanks for listening.

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