Over the Rainbow
Crime
Americans are obsessed with crime. They see it everywhere (other than, ironically, where they live) and it gets wielded as a cudgel in many local elections. ‘Tough on crime’ mayors, district attorneys, judges, and police chiefs remain popular despite scant evidence their policies make anyone safer. Two thirds of the country think crime is a serious problem, and three quarters think this year is worse than last. The media helps shape this narrative, influencing public policy by splashing horrific crime stories on its front pages.
There was an increase in violent crime between 2020 and 2022, when social infrastructure designed to reduce violence was ripped from vulnerable communities. The pandemic, social justice protests, the decay of social institutions, all these things contributed to a surge in murders across the country.
So it is welcome news that, on the heels of the alarming Gallup sentiment poll, the actual data shows something quite different - a record decrease in violent crime, and crime more generally:
Murder plummeted in the United States in 2023, likely at one of the fastest rates of decline ever recorded. What’s more, every type of Uniform Crime Report Part I crime with the exception of auto theft is likely down a considerable amount this year relative to last year according to newly reported data through September from the FBI.
Murder is down more than 12% year-to-date, in three quarters of metros sampled. This is good news for cities widely perceived to be struggling with violence:
Detroit is on pace to have the fewest murders since 1966 and Baltimore and St Louis are on pace for the fewest murders in each city in nearly a decade. Other cities that saw huge increases in murder between 2020 and 2022 like Milwaukee, New Orleans, and Houston are seeing sizable declines in 2023.
That said, American cities are still far more dangerous than comparable places in other wealthy nations, and we’ll still lose tens of thousands of people this year to gun violence, but the downward trend is promising.
Murder is blessedly rare compared to all other forms of crime - remember the completely fabricated retail crime wave? Other types of violent crime are down across the board, and so is every type of property crime other than car theft (sorry, Hyundai and Kia owners).
It is hard to put trends into perspective sometimes, since we’ve just experienced through two very violent years, but a decline of this size, if it continues and is confirmed by the FBI’s final data released next year, would be remarkable:
To put some of this in perspective, a 4 percent decline in the nation’s violent crime rate relative to 2022’s reported rate would lead to the lowest violent crime rate nationally since 1969.
[…]
The quarterly data through Q3 points to a 6 percent decline in property crime which — if realized — would lead to the lowest property crime rate since 1961.
Despite the ongoing panic, and what’s sure to be a 2024 election full of false claims about America’s dangerous cities and skyrocketing crime, reality is quite different. We may be entering a period of relative safety and prosperity - though, as usual, much of that will be enjoyed by the well-off in our society. Overdose deaths, gun deaths, and traffic deaths are all set to break grim records (again) in 2023. Mass shootings are a daily problem in a society that has given up on regulating guns. By global standards, America is still a very dangerous place to live, though more and more of that danger comes via the firearm, pharmaceutical, and motor vehicle industries, rather than the imagined violence of a random stranger.
Unicorns
The term unicorn was coined in 2013 to describe tech startups with valuations of a billion dollars or more. Back then, thirty-nine companies met the criteria. Last year, over eleven hundred companies around the world were considered unicorns. A trillion dollars’ worth of startup value does seem like an awful lot, doesn’t it?
There is an important distinction between funds raised, revenues, and valuations as it pertains to tech. Investors use sleight-of-hand to mint new unicorns, investing smaller amounts of money at increased share prices to catapult a company into the ‘billions’. If a company sells ten percent of itself to a VC for $100 million, it’s valued at a billion dollars, even if it hasn’t earned a dime. In fact, many startups that raise large sums don’t make much money at all, which is a problem if the unicorn factory ever seeks to recoup its investments.
The unicorn is symptomatic of a larger problem in venture investing - making lots of bets with piles of money hoping you’ll hit one or two deals that pay off a thousand times over. Which means a lot (like, nearly all) of your bets will probably fail. If you had to guess at how many VC-backed companies (unicorns and otherwise) went out of business this year in the US alone, what would you say? A hundred? Five hundred? The answer is actually a lot higher:
But approximately 3,200 private venture-backed U.S. companies have gone out of business this year, according to data compiled for The New York Times by PitchBook, which tracks start-ups. Those companies had raised $27.2 billion in venture funding.
Impressive! Now, to be fair, eleven billion was WeWork, but that’s still a lot of money wasted on companies that have shut their doors this year in this country. The names of the corpses may sound made-up to anyone outside the bubble: Olive AI, Hopin, Veev, Zeus Living, Plastiq, Dayslice, Pebble. So many dreams of…whatever it is those companies were doing, left unrealized.
In the 2010s, low interest rates and a few high profile VC-backed hits (Google, Facebook) changed venture capital from a niche industry populated by a few big players into a global financial phenomenon everyone wanted in on:
From 2012 to 2022, investment in private U.S. start-ups ballooned eightfold to $344 billion.
One problem the startups who came in later in the game faced was that Silicon Valley’s ‘growth at all costs’ strategy meant the first mover tech behemoths absorbed so many of their peers it became difficult to get traction with new or innovative ideas. There couldn’t be any new Facebooks or Googles because Facebook or Google bought or forced them out of business. Still, VCs could play musical chairs for years, buying and selling stakes in their friends’ investments to pump valuations to the point a videoconferencing company you’ve never heard of (Hopin) was worth $8 billion dollars.
Sadly, the music has ended for many of these funds. No one is shedding tears for the fleece-vested VCs with vague titles like ‘partner’ or ‘principal’, but it’s worth sparing a thought for where else this year’s $27 billion in losses could have been spent, as our country’s school systems, day cares, and public health services veer closer to insolvency and collapse.
Is it the responsibility of private finance to make up for our government’s refusal to properly fund services? Of course not, though it might help if the wealthiest people in finance paid their taxes. Our government cannot force investors to put their money towards projects that benefit society instead of apps to streamline business payments. But it is remarkable that an industry can burn tens of billions’ on risky bets, vaporize thousands of jobs and upend entire industries for no reason, and it gets written up in the tech press as a footnote, rather than proof of a giant wealth transfer system that produces nothing of real value.
Xponential
If you don’t want to go the VC route, another way to make money in business is to get your customers to pay you for the right to help you run your business. I’m talking, of course, about the franchise model, in which franchisees buy into a brand and become sort-of entrepreneurs within it.
Franchises are more regulated than MLMs, but the oversight only goes so far. Generally, a franchise cannot trick people into signing up, make promises about success or profitability, or lock them into onerous financial arrangements once they sign on. Practically speaking, it is easy for people to get in over their heads starting a business, even when they aren’t expected to pay startup premiums and fees to a company.
If you haven’t heard of Xponential Fitness, you may have heard of one of its brands: Pure Barre, AKT, Rumble Boxing, or YogaSix, among others. The company boasts three thousand locations, making it the biggest boutique workout company in the world. Despite the ubiquity and the diversity of offerings, many franchisees are now saying that the company’s exponential growth has come at the expense of its location owners, many of whom are tricked into taking on huge debts and trapped by the company’s onerous contracts:
Today many of the company’s franchisees—some of them once the brands’ biggest enthusiasts—have either declared bankruptcy or lost their retirement savings. Others have suffered nervous breakdowns or are under psychiatric care, attributing partial blame to Xponential.
Some brands that have seen success in a franchise model do so by charging a modest fee to get going - Subway’s initial fee is $15,000. Other franchises like McDonald’s put strict limits on the number and location of stores, protecting franchisees from market saturation. Xponential’s model - small fitness boutiques with upscale brand names - was to target a wealthier set of franchisee, while expecting them to shoulder massive startup costs:
To expand Xponential’s franchise business, Geisler targeted what he calls “corporate refugees,” people who were tired of working the traditional 9-to-5 or wanted to invest their 401(k) savings in something more lucrative.
[…]
For example, Xponential told potential CycleBar franchisees that the build-out—real estate leases, equipment and merchandise—cost $400,000 to $500,000 on average.
Many of the people interviewed by Bloomberg had lost over a million dollars running their Xponential business. Contracts and non-disclosures - as well as strong-arm tactics from the company’s founder - kept failed locations under wraps, with Xponential buying out franchisees who risked insolvency. The company went public in 2021, and despite the pandemic its stock remained strong until midway through this year, when a short seller report called its rosy figures into question.
Now, Xponential is facing multiple lawsuits from franchisees, investors, and others. Many of the complaints allege the brand made unrealistic promises during its recruitment process, then abandoned franchisees after they launched, leading to slow membership growth, high churn, and spiraling losses for new locations.
The franchise model can work, under certain circumstances, as the fast food industry has shown - though its success is enjoyed by owners, not the underpaid, poorly treated workers. US franchise laws are supposed to prevent companies like Xponential from hoodwinking franchisees, but even in cases where companies are caught red-handed, the penalties are civil and monetary, and don’t often make up for the immediate financial hardship the victims experience. If the lawsuits against Xponential are successful those people might be made whole years from now, long after they’ve been forced into bankruptcy or financial ruin.
The problem with the franchise business is that most brands are not suited to endless, exponential growth. The world did not need three thousand new spin and barre and yoga studios, but the company’s continued success relied upon opening three thousand, and another three, and another, forever. Like many business models we talk about in these pages, boutique fitness was not an e(X)ponential growth market, despite what Xponential told its franchisees, and now those trusting souls have evaporated their retirement accounts chasing a business that never quite added up.
We talked recently about the many lawsuits taking Google to task for its various unchecked monopolies. Somehow, I forgot to include the suit brought against the search giant by Epic Games, the maker of Fortnite, claiming Google operates an illegal app store monopoly. The Google trial concluded this week and, well:
After just a few hours of deliberation, the jury unanimously answered yes to every question put before them — that Google has monopoly power in the Android app distribution markets and in-app billing services markets, that Google did anticompetitive things in those markets, and that Epic was injured by that behavior. They decided Google has an illegal tie between its Google Play app store and its Google Play Billing payment services, too, and that its distribution agreement, Project Hug deals with game developers, and deals with OEMs were all anticompetitive.
Nice. I have said before in these pages that I don’t buy arguments made by some legal analysts and pundits that tech monopoly cases are too complex for a jury to understand. This viewpoint is pervasive in tech law, and lawyers are paid quite a lot of money to argue complex minutiae of software development and intellectual property, but this case was so straightforward a jury said ‘hell yes’ in a few hours.
For years, antitrust cases were decided under the flawed rubric that monopolies were only bad if they made things more expensive for consumers. But, perhaps fortunately for those of us living within this capitalist hellscape, modern tech companies have been so openly, blatantly, egregiously monopolistic that judges and juries can no longer be consistently persuaded they’re acting in the public good.
Google cut multibillion-dollar sweetheart deals with its rivals, talked about its monopoly in internal documents, and schemed to run competitors and troublemakers out of business. For decades. The fact it’s taken this long for it to face any consequences is an indictment of how corrupted our systems have become.
What happens now? Epic - itself a rich tech company - has not sought monetary damages, but is instead asking the judge to force Google to grant app developers freedom within its Play Store, so they can offer their own payment options and billing systems. This could prove a double-edged sword, since Google and Apple are ostensibly using their app restrictions to prevent bad actors from installing malware and crypto miners on our phones, but neither company does a good job policing its apps, so who knows.
More worrying for Google is that this comes while it’s still defending itself against the government’s antitrust case, which won’t wrap up until next year. The company has become so huge, so ingrained in our daily lives it’s difficult to imagine an orderly way to break it up, but for so many reasons we need to figure out how, and soon. The more ways it loses its grip on dominance, the more dangerous it becomes.
Short Cons
The Verge - “…the FCC writes that Starlink wasn’t able to “demonstrate that it could deliver the promised service” and that giving the subsidy to it wouldn’t be “the best use of limited Universal Service Fund dollars.””
Adam Tooze - “The two richest German families own more wealth than the bottom half of the German population.”
NYT - “On Friday, SmileDirectClub said on its website that it was shutting down its global operations immediately. It apologized to customers for the inconvenience, and urged them to consult a doctor or dentist about future treatment.”
Jalponik - “Unfortunately for the Tesla employee involved, the truck couldn’t make it back up the hill to the trail, and needed to be rescued by a passing Ford F-series.”
NYT - “Mr. Ackman, who posts frequently on social media to nearly one million followers, stands virtually alone among high-profile donors to Harvard in making himself a public adversary of the school.”
Inquirer - “The deep-pocketed donor who started the successful effort to oust University of Pennsylvania president Liz Magill and board chair Scott L Bok is now attempting to set the agenda for the university, some faculty said, as he is questioning its instruction, faculty hiring and political orientation.”
The Daily Beast - “Are you dreaming of a white Christmas? What about building a white country through the mass deportation of non-white immigrants?”
ARS Technica - “Despite Tesla's free speech claim, the US and state governments can enforce laws banning deceptive practices that harm consumers.”
AP - “Tesla is recalling nearly all vehicles sold in the U.S., more than 2 million, to update software and fix a defective system that’s supposed to ensure drivers are paying attention when using Autopilot.”
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