July 07, 2019

Situational awareness: It's the end of an era on Wall Street, where Deutsche Bank is exiting the equities trading business and scaling back dramatically in bonds. The restructuring will cost 18,000 jobs and $8.3 billion, which is a lot of money for a bank valued at just $16.6 billion at close of trade on Friday.

  • Happy birthday to America, now 243 years old. I hope all my American readers found themselves as happy and relaxed as their Treasury secretary. Axios Edge is 293 days old; please celebrate by asking your friends to sign up here.
  • In this week's 2,019 words: Christine Lagarde, Taylor Swift, the lingering mancession, a threat to Amazon, and more.

1 big thing: The ideal ECB president

Illustration: Sarah Grillo/Axios

Christine Lagarde is moving to Frankfurt to take on the most powerful and important job in Europe — just when the European Union needs her most.

  • As the new head of the European Central Bank, she won't just be in charge of setting monetary policy for 19 wildly disparate European countries; she'll also be charged with protecting the euro itself, the single most visible and controversial element of the European project.
  • The biggest crisis facing the EU is Brexit, which is due to happen on October 31. Lagarde will need more than monetary tools to keep the rest of Europe unified during that seismic event.

Background: Lagarde does not fit any of the stereotypes of a central banker. For one thing, she'll be only the second woman ever to run a major central bank. (The first, of course, was Janet Yellen.)

  • Central bankers tend to be decidedly unglamorous, as well as being male. Think gray economists in gray suits spouting gray jargon in a windowless conference room in Basel. At the highest ranks, you might find a hint of mahogany.
  • Lagarde is not an economist, but she is a politician. She first came to international prominence when she served as the French finance minister from 2007 to 2011.
  • She's also impossibly glamorous, by central bank standards. See, for instance: the 20-page Forbes slideshow dedicated to "the most fashionable woman in finance;" her appearance between Carey Mulligan and Tilda Swinton on Vanity Fair's best dressed list; a U.K. newspaper headline calling her "the world's sexiest woman."

Why she matters: Lagarde is famous and powerful entering the ECB — something that could not be said for any of the men on the shortlist. Some central bankers become famous in the course of doing their jobs, but almost none of them are well-known beforehand. (The closest example would probably be the Bank of England's Mark Carney, who toyed with running to become the leader of Canada's Liberal party, and who might yet do so.)

  • As head of the IMF from 2011 until last Tuesday, Lagarde effectively corralled a highly disparate set of shareholders as she navigated the Greek financial crisis and helped to orchestrate the nation's bailout.
  • Amazingly, given the IMF's reputation as the last bastion of despised neoliberalism, she exits that position even more respected than she entered it.

What they're saying: Lagarde's preexisting clout will be of great utility in her new position. As Bloomberg's John Authers writes: "The euro is a political project above all, born of the anxiety of the last generation of leaders to fight in the Second World War to ensure that the continent should be bound together. And it requires a politician to hold it together."

The bottom line: With inflation below target across the continent, the monetary-policy task facing any incoming ECB president is clear. The ECB's rate-setting committee knows what it has to do. The difficulties come in the political aspect of the ECB presidency. That's where Lagarde is uniquely qualified.

2. The economics of copying

Illustration: Sarah Grillo/Axios

When an item is copied, the original tends to lose value — except when it doesn't.

Driving the news: The biggest fight in the music industry this week is undoubtedly Taylor Swift vs. Scooter Braun, the manager of longtime Swift foe Kanye West. Braun bought Big Machine, Swift's former record label, for what is said to be over $300 million, much to the megastar's displeasure.

  • In the midst of the resulting pop-culture chaos, Alex Boubia, a Bulgarian Taylor Swift fan, put up a change.org petition asking Swift to re-record her first 6 albums; he has almost 200,000 signatures.
  • It's not clear whether Swift is contractually allowed to re-record her early albums, or whether she would want to do so even if she could. But the economic intuition is clear: Given the choice, Swift's fans would prefer to stream new recordings where she owned the masters. By doing so, they would channel the Taylor Swift income stream away from Big Machine and toward Swift herself, enriching Swift at the expense of Braun.
  • Swift might be able to buy her master recordings from Braun, the outcome that would likely make her fans happiest. The negotiations would take place in the context of two implicit threats. First, she might be able to re-record the old albums; second, she could refuse permission to allow music on those albums to be used in movies, commercials and other lucrative contexts.
  • Be smart: If the masters have more value in Swift's hands than in Braun's, that's a more likely outcome than any attempt to devalue them.

Art has always had a strange relationship with copying. The most reproduced artworks tend to also be the most valuable — think Monet's water lilies or Warhol's Marilyns. If the artist makes many such works, that's often good for the per-piece value, even as mechanical reproductions are generally worthless. Broadly, the objects (which can be bought and sold) are worth much more than the copyright (which generally remains with the artist).

  • Copying art objects is generally taboo in the art world, but it tends not to have a negative effect on the value of the originals. Photographer William Eggleston reprinted some of his early photographs in 2012, without any deleterious effect on value of the earlier, smaller versions. And when Wade Guyton started making dozens of copies of one of his paintings going up for auction at Christie's, the original sold for $3.5 million, above its high estimate.
  • Even counterfeit goods don't always harm the owners of intellectual property. Italian fashion house Dolce & Gabbana is famous for refusing to prosecute counterfeiters, because they think counterfeits ultimately increase the desirability of the brand.

Generic drugs are meant to be indistinguishable from the originals, bringing prices down. A new book by Katherine Eban, however, argues that there are important differences between generics and originals; some hospitals actively avoid prescribing certain generics.

The bottom line: One glance at the price of an iPhone should be enough to prove that copies don't always mean that prices come down. In fact, they often serve to ratify the value of the original.

Go deeper: Almost everything in the digital economy is a copy. MIT professors Seth Benzell and Erik Brynjolfsson examine some of the implications in their paper "Digital Abundance and Scarce Genius: Implications for Wages, Interest Rates, and Growth."

3. The lingering mancession

Data: Bureau of Labor Statistics; Chart: Harry Stevens/Axios

In 2008–09 we heard a lot about the mancession, the way that the recession was hitting men a lot harder than women.

  • Consider the difference between the male and female employment-to-population ratios for Americans aged 25–34. That's a key demographic, since employment success in early adulthood is a key predictor of future economic well-being. Before the recession, in March 2007, the male participation rate was 18.2 percentage points higher than for women. Just 2 years later, in May 2009, that figure had plunged to 11.2 percentage points.
  • Male employment has recovered somewhat since the recession, but to nowhere near its pre-recession highs. Meanwhile, female employment is well above its 2007 levels.
  • The difference between the two has now narrowed to its tightest level ever — just 10.7 percentage points.

(h/t Jeanna Smialek)

Bonus: Why the long slow recovery is good for people of color

Illustration: Rebecca Zisser/Axios

Americans of color could be about to catch a rare break, thanks to the Federal Reserve, reports Axios' Courtenay Brown.

Background: In a normal economic cycle, the Fed starts putting on the brakes before employment in marginalized communities can really take off. This time, however, the Fed seems likely to cut rates — and it's listening to community leaders who say their residents were hit hardest by the recession.

Go deeper: A more inclusive jobs rebound

4. A new threat for online marketplaces

Illustration: Rebecca Zisser/Axios

A malfunctioning dog leash could end up creating billions of dollars of potential liabilities for online marketplaces, writes Axios' Erica Pandey. Amazon is front and center.

Background: A dog leash sold and shipped by The Furry Gang, one of the millions of small sellers that operate on Amazon’s marketplace, snapped, permanently blinding the buyer in her left eye.

  • Amazon is responsible for the injury, according to a 2-1 decision from Philadelphia’s Third Circuit Court of Appeals.
  • Amazon’s involvement in transactions extends beyond a mere editorial function; it plays a large role in the actual sales process,” the opinion states.

Our thought bubble: This ruling challenges the company’s longtime practice of effectively outsourcing quality control to its customers and their reviews. Amazon could now be held liable for all the random things that get sold on its site.

What to watch: This isn’t just bad news for Amazon. The whole e-commerce sector — including companies like Walmart, eBay and Shopify — could come under fire.

5. Libra's gale-force headwinds

Illustration: Sarah Grillo/Axios

When Facebook unveiled Libra, its new cryptocurrency, it surely expected pushback. But it might not have expected a letter like this one, from the chairs of five different congressional committees, all of whom might have an interest in the new coin:

Dear Mr. Zuckerberg, Ms. Sandberg, and Mr. Marcus:
We write to request that Facebook and its partners immediately agree to a moratorium on any movement forward on Libra ... raises serious privacy, trading, national security, and monetary policy concerns ... for investors, consumers, and the broader global economy.
The scant information provided about the intent, roles, potential use, and security of the Libra and Calibra exposes the massive scale of the risks. ... If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger U.S. and global financial stability.
— Committee Democrats call on Facebook to halt cryptocurrency plans

Facebook's own partners in the project are already harboring doubts about it, and Facebook's users don't seem remotely inclined to sign up.

The bottom line: Facebook faces a tough choice. Option A is to contumaciously barge ahead with Libra development, bringing upon its CEO and other senior executives the ire of their home country's lawmakers. Option B, pausing Libra development now, is hardly more attractive, since it would cause the already slim chances of Libra ever taking off to dwindle even further.

6. The week ahead: 2 days of Fed testimony

Illustration: Rebecca Zisser/Axios

Fed chairman Jerome Powell is heading to Capitol Hill this week to testify before the House on Wednesday and the Senate on Thursday, writes Courtenay.

  • Expect questions from lawmakers about Fed independence and perhaps about President Trump's new nominations to the Fed board.
  • Wall Street will be listening closely for hints about what the Fed will do later this month at its policy meeting — particularly since the report Powell will present to Congress (released to the public on Friday) doesn't take June's strong jobs report into account.

The candidates vying to be the UK’s next prime minister — Jeremy Hunt and Boris Johnson — will have their first one-on-one debate on Tuesday. The race is Johnson's to lose, but he has snatched defeat from the jaws of victory in the past.

7. Building of the week: Beijing Daxing Airport

Photo: VCG via Getty Images

Construction is now officially completed on the largest airport terminal in the world, Beijing Daxing International Airport. Sporting 4 runways, 6 piers and 7.5 million square feet of internal space, the structure, designed by Zaha Hadid, will comfortably serve 42 million passengers per year when it opens in September. That number is expected rise to 72 million by 2025. Nevertheless, it's designed to allow passengers to make 30-minute connections with ease.

Elsewhere: Greg Ip dismantles Judy Shelton, Trump's latest Fed nominee. The fireworks over share buybacks are duds. Alipay will add beautifying filters to its facial-recognition payment systems. France approves a 3% revenue tax on Big Tech. Wall Street's grudging respect for Elizabeth Warren. There's now more than $1 trillion in bond ETFs. The ankle monitoring debt trap. Big booze fires cannabis CEO. Boeing and the politics of monopoly. Bitcoin uses as much energy as Switzerland. Sandwich franchise conflicts of interest.

Editor's note: The piece on Taylor Swift was corrected to reflect that the estimated price Braun bought Big Machine for is over $300 million (not a definitive $300 million).