(NEW YORK) — A jury has convicted former Theranos president Ramesh “Sunny” Balwani of defrauding investors and patients in connection with his multi-billion-dollar blood-testing startup.
Balwani, on Thursday, was found guilty on all 12 counts of fraud, for a scheme prosecutors alleged and have now proved he orchestrated alongside his former romantic partner and Theranos Founder Elizabeth Holmes.
Balwani faced 10 counts of wire fraud and two counts of conspiracy to commit wire fraud.
Holmes, who faced the same charges as Balwani, was convicted on four counts of fraud in January and awaits sentencing in September.
While Holmes was only convicted on counts related to investors, a jury found Balwani also defrauded patients.
The feds originally charged Balwani and Holmes together. But their trials were later severed after Holmes revealed she may testify to abuse at the hands of Balwani.
Prosecutors said Balwani and Holmes, who touted her startup’s technology as capable of accurately and reliably running any blood test, fraudulently raised hundreds of millions of dollars from investors.
Money poured in, but the miniature blood-testing device, dubbed the “Edison,” could never run more than 12 tests, government attorneys said.
Balwani joined the company in 2009, guaranteeing a $10 million loan and quickly rising to the post of president and COO of Theranos. While his attorneys sought to distinguish his position in the company from the CEO, Holmes, prosecutors say he played an equal role in the fraud.
“I am responsible for everything at Theranos. All have been my decisions too,” read a text message from Balwani to Holmes in July 2015, which Assistant U.S. Attorney Jeff Schenk presented to the jury in his final argument.
“Of course [Balwani] had a hand in making the decisions at Theranos,” defense attorney Jeff Coopersmith said during his closing argument.
But, Coopersmith, said in meetings with investors and others, “everyone was listening to Elizabeth Holmes.” The company was her vision, he added, and Balwani had bought in.
“Mr. Balwani is not a victim. He’s a perpetrator of the fraud,” the prosecutor, Schenk, said to wrap up his remarks.
Wayne Kaatz, a juror on the Holmes case, told ABC News in an exclusive interview earlier this year that his group of 12 jurors convicted Holmes, in part, because “everything went through her,” he said. “She had final approval.”
He also revealed his team found Holmes’ testimony largely not credible. Balwani, in his trial, did not take the stand.
Wayne Kaatz, a juror on the Holmes case, told ABC News in an exclusive interview earlier this year that his group of 12 jurors convicted Holmes, in part, because “everything went through her,” he said. “She had final approval.”
He also revealed his team found Holmes’ testimony largely not credible. Balwani, in his trial, did not take the stand.
(NEW YORK) — After a gunman killed seven people and wounded dozens more at an Independence Day parade outside Chicago on Monday, thousands turned to the online platform GoFundMe to donate money to the victims — the latest example of the public gathering online to fundraise after a tragedy.
While websites like GoFundMe have made such philanthropy increasingly easy, there can be risks.
Highland Park, Illinois, Mayor Nancy Rotering warned the community about potential fundraising scams in a Tuesday morning news conference. By then GoFundMe had already established a specialized hub with links to fundraisers it said it had verified.
Donors had raised millions across 11 different pages as of Wednesday, the website showed. Comments poured in offering well-wishes; some hoped for more gun reform. At least one donor said they were sending care from as far away as Australia.
“As a parent trying to enjoy the little things in life with my own kids, I am deeply saddened that this is where we are now in our world, having to fear a street parade. Our thoughts and prayers go out to all of you,” said a comment from a user named Joanna Castello.
One fund will support the family of a couple killed in the shooting. Irina and Kevin McCarthy’s 2-year-old son, Aiden, was found alone in the aftermath. He was later reunited with his grandparents, according to a Highland Park city manager.
As of Thursday morning, the fundraiser for the slain couple had drawn almost $3 million, more than six times its initial goal of $500,000 — with more than 50,000 individual donations.
Many donors directly addressed the couple’s orphaned son in their messages.
One GoFundMe donor identified as Lauren Cohen wrote: “Aiden, I am so sorry for your unimaginable and tragic loss. We are all looking out for you and are heartbroken for you, your family and all of the victims of this tragedy. Sending love.”
The parade shooting “hub” is not the first instance when GoFundMe has been used in the wake of a mass shooting.
Following the Uvalde, Texas, elementary school massacre in May and disasters including West Coast wildfires and the 2021 Surfside Condo collapse in Florida, GoFundMe has continued to establish so-called “crisis hubs,” according to a Medium post the company shared last year.
When news reports of a crisis arise, GoFundMe said it directs a team that monitors related fundraisers, according to the post. The company works with newsrooms, government officials and law enforcement during the verification process.
Some funds are held by the platform until payment information is confirmed — even if the fundraiser is verified, the Medium post shows.
GoFundMe does not always deem unverified fundraisers fraudulent. They can still accumulate donations, according to the post. But organizers cannot withdraw funds from pages that have not been vetted.
A GoFundMe spokesperson told ABC News Wednesday that the platform requires details such as government ID, banking information and addresses when verifying pages. GoFundMe guarantees a full donation refund in cases of fraud, the spokesperson said.
Donors can also directly report pages to GoFundMe for investigation and contact organizers with questions on the site if they want to know more before donating, the spokesperson said.
Kevin Scally, chief relationship officer for the nonprofit evaluator Charity Navigator, told ABC News that fraudulent activity often takes place outside platforms like GoFundMe. Scally said scammers are more likely to target people through look-alike fake webpages and direct, personal appeals.
Scally said GoFundMe has made great strides in fraud protection, citing the policy of validating users before allowing them to withdraw funds. Still, he urged prospective donors to do their research.
“It’s typically best to do some due diligence and make sure that, if you are supporting an organization or you’re supporting a personal fundraiser, you’re doing that through a verified, valid means,” he said.
(NEW YORK) — Stock market woes will persist into the second half of the year but signs of hope will emerge for beleaguered investors, experts told ABC News of their predictions.
The stock market took a historic plunge over the first half of the year, and many of the same economic threats still loom as inflation remains sky-high and the Federal Reserve pursues aggressive moves to tame price hikes by raising borrowing costs. That means volatility will continue to hammer markets in the coming months, experts told ABC News.
But the major indexes will likely end 2022 higher than they stand now, as rock-bottom share prices begin to promise a buy-low opportunity that outweighs the risk of further decline, the experts said. As investors eventually jump off the sidelines, the market will stabilize and begin to recover, they predicted.
Over the first six months of the year, the S&P 500 — a popular index to which many 401(k) accounts are pegged — plummeted 20.6%, marking its worst first-half performance of any year since 1970. The tech-heavy Nasdaq fell even further, dropping more than 28% over the same period; the Dow Jones Industrial average dropped more than 14%.
Persistent threats to the market include inflation, ongoing interest rate hikes, the Russian invasion of Ukraine, and a potential recession. In the short term, these looming dangers will put downward pressure on the stock market, since market performance depends on the financial outlook of companies across the economy, experts said.
Ultimately, investors are deciding whether to buy or sell based on the likelihood that a given business will succeed over the coming months and years, Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, told ABC News.
“It all comes down to earnings,” Silverblatt said. “We’re buying a stock based on how much we think the company is going to make.”
Economic headwinds will make it challenging for companies to show investors a path to success, experts told ABC News.
For instance, in order to tame an inflation rate last seen more than four decades ago, the Federal Reserve has undertaken an aggressive effort to raise borrowing costs, which in theory should slow the economy, slash demand, and reduce prices. But the approach will likely weigh on markets, as investors anticipate poor business performance amid the economic slowdown, Silverblatt said.
“In order to stop inflation, the Fed has got to create pain,” he said. “Nobody likes pain. If I’m taking a splinter out of my finger, I’m still yelling and screaming as I’m doing it.”
At its most recent meeting, last month, the Fed raised its benchmark interest rate 0.75%, its largest rate increase since 1994. The Federal Reserve has said it expects to continue raising interest rates in response to elevated inflation.
Experts also cited the threat posed by a potential recession, which many observers define through the shorthand metric of two consecutive quarters of decline in a nation’s inflation-adjusted gross domestic product, or GDP. A country’s GDP is the total value of goods and services that it produces.
If the U.S. were to enter a recession, it would likely further dampen the hopes of businesses and consumers alike, which could slow economic activity and batter markets, experts said.
“The market is suspect of the prospects for earnings and growth,” Harvey said.
But the market will reach a point at which it has dropped far enough that share prices present investors with a purchase that looks more like a buy-low opportunity than a risk of further losses, the experts said. At that point, the market will stabilize and begin to recover as traders jump back into stocks, they added.
Market analysts expect the stock market to reach this point of bottoming out sometime before 2023. Past recoveries suggest market performance can suddenly flip, said Sam Stovall, the chief market strategist at research firm CFRA.
“To know how frequently these declines occur — but then again, how quickly the market gets back to break even and beyond — it will remind investors they are better off preparing a shopping list,” Stovall said. “Think more about buying than bailing.”
But investors should take into account their level of financial cushion, and thus their ability to withstand losses in the short term, said Silverblatt, the analyst at S&P Dow Jones Indices.
“Even if you think your stock is the best stock in the world — the new Apple or Amazon — in two years,” he said. “If you can’t live through it because you can’t take the loss, you can’t play it.”
(NEW YORK) — Summer has just started but millions around the country have already experienced record-breaking heat waves, forcing people to blast air conditioning and think of ways to protect their homes during an onslaught of high temperatures, all while trying to keep energy costs low.
The U.S. has already seen heat indexes reach dangerous levels this summer. Last month, Shreveport, Mississippi, reached 105 degrees, while temperatures in Houston, Texas, hit 103 degrees.
Drought conditions in parts of the country also make it ripe for pasture losses, water shortages and wildfires, which puts people’s homes at risk.
Protecting your homes
Extreme weather is costing Americans billions of dollars. In 2020, extreme weather cost U.S. taxpayers $99 billion, with heat waves and droughts costing taxpayers an average of $6.4 billion a year since 1980, according to the Center for American Progress.
According to the U.S. Department of Homeland Security, some tips homeowners could use to protect their home include adding insulation to keep the heat out, incorporating window reflectors and weather stripping windows and doors.
How to conserve energy during a heat wave
“Windows and doors are critical,” Jim Reinhart, CEO and president of Ygrene, told ABC News. “Today’s windows and doors are way more efficient than those that many homes were constructed in 30 to 40 years ago.”
Reinhart said having a proper roof is also important in protecting your home from extreme heat and can help reduce your energy costs by at least 20%.
Rising temperatures can also increase a house’s humidity if not properly maintained, which can cause mold to grow.
If roofs, windows and doors are not regularly supported, issues, such as water damage, can cause bigger and more expensive problems, Reinhart added.
“A lot of what we ask people to do is not to just fix it, but fix it appropriately,” he said.
Keeping energy costs down
Customers are expected to be hit hard financially because of rising energy costs, especially during the summer.
Utility companies have warned customers that the high costs of natural gas are leading to an increase in electricity prices. The war in Ukraine has forced the U.S. to export a record amount of gas, driving up the price.
Some tips the Department of Energy suggests for keeping costs down include setting your thermostat to a temperature you’re comfortable with and an indoor temperature that isn’t that much different from the outside temperature.
Electric Reliability Council of Texas (ERCOT) suggests setting your thermostat to 78 degrees or higher and using ceiling fans to help circulate the air throughout a room.
Logan Atkinson, executive director at Alliance for Affordable Energy, told ABC News people should look to see what energy efficiency programs their states offer to help reduce costs.
“Most utilities are required around the country are to provide [these programs],” Atkinson said. “If you’re a low-income homeowner, most of those programs are free of charge entirely.”
Rising temperatures will undoubtedly lead to an increased usage of people’s air conditioning systems.
Homeowners with heating, ventilation and air conditioning systems, commonly referred to as HVAC, should have them serviced by a technician to ensure they’re running efficiently.
The cost to replace an HVAC system costs an average of $7,000, with some systems going up to $10,000, according to Home Advisor. It is more economical to maintain it than replace a broken system.
Atkinson said the efficiency programs could cover some costs if you’re keeping the system serviced.
(NEW YORK) — A recent surge of U.S. labor organizing has spotlighted, above all, union campaigns at two high-profile corporations: Amazon and Starbucks.
But a watershed union victory last month at an Apple store in Towson, Maryland, may set off a nationwide labor campaign that combines the massive corporate heft of a company akin to Amazon and the nationwide wave of union victories on display at Starbucks, escalating a monthslong spike in worker organizing even as the economy approaches a possible recession, labor scholars and organizers told ABC News.
A succession of union wins at Apple stores across the U.S. is hardly assured and would likely take an extended period of time, since each Apple store employs far more workers than a typical Starbucks shop, making it more difficult and time-consuming to organize each location, the experts said. They also cautioned that Apple retains wide latitude to oppose unionization, which could hinder union efforts.
Unionized Apple store workers in Maryland “showed it’s possible,” said David DiMaria, an organizer with the International Association of Machinists and Aerospace Workers, or IAMAW, who led the labor campaign at the store. “These workers have inspired lots of other Apple workers around the country.”
Since the victory last month, the IAMAW has garnered interest in unionizing from numerous Apple store employees “in all types of markets all over the country,” added DiMaria, though he declined to say how many total stores were represented by the workers. The company has more than 270 U.S. stores.
Workers at the store in Maryland organized over concerns about wages, professional development, scheduling, and Covid risks, the latter of which have worried workers since the pandemic began more than two years ago, DiMaria said.
The successful union campaign in Maryland, which began about a year ago, coincided with similar efforts at other Apple stores. Workers at a location in Grand Central Terminal, in New York City, have undertaken an ongoing union drive. Meanwhile, at a store in Atlanta, the Communications Workers of America withdrew a request for a union vote in May days before it was set to take place, citing anti-union efforts from Apple and logistical challenges posed by Covid.
In May, Apple raised the entry-level pay of its retail employees from $20 to $22 per hour amid the union activity, as well as sky-high inflation and a tight labor market.
Apple declined a request for comment for this article. CWA did not respond to a request for comment.
The surge of organizing at Apple comes amid an overall uptick in union activity nationwide. Petitions for union elections increased 57% over the first six months of fiscal year 2022, which ended on March 31, compared with the same six-month period a year prior, the National Labor Relations Board, or NLRB, said in April.
Over recent months, national attention has focused on union campaigns at Amazon and Starbucks, which have followed disparate trajectories.
In April, warehouse workers at a 6,000-worker Amazon facility formed the first-ever U.S. union at the company, though no additional warehouses have unionized since. While at Starbucks, an initial union victory at a store in Buffalo in December set off a wave of union elections, which now total 225 elections, of which the union has won 182, or 81%, the NLRB told ABC News.
“Starbucks shows that victory begets victory,” said Alex Riccio, a Philadelphia-based organizer with the union Workers United who works on Starbucks labor campaigns. “Once people see there’s a path to victory and a path to power, it has a galvanizing effect.”
But a wave of victories at Apple stores would likely prove more difficult and time-consuming because each shop employs more workers than a typical Starbucks, experts said. Ninety-eight workers voted in the union election at the Apple store in Maryland; as opposed to Starbucks union votes, which range in number but typically involve about 30 employees.
“The larger the workplace, the more uncertainty with respect to the organizing environment,” said Michael Duff, a professor at the St. Louis University School of Law and former attorney with the NLRB. “In trying to organize bigger places, it takes time to figure out whether you have support or not.”
An anti-union campaign from Apple may also limit or slow organizing at Apple stores, though opposition from employers can instead fuel the spread of labor campaigns, experts said.
Apple has not taken a public stance on the recent union efforts, but the company hired lawyers from Littler Mendelson, the law firm retained by Starbucks in its effort to fight unionizing workers. Workers at the store in Atlanta filed a complaint with the NLRB over alleged mandatory anti-union meetings, and Vice reported that the company sent anti-union talking points to managers at multiple stores to share with employees.
Meanwhile, managers at the store in Towson, Maryland, told workers false information about dues payments and mischaracterized how the bargaining process would work, said DiMaria, the lead organizer at IAMAW, citing conversations with workers.
“Employers have a lot of leeway in carrying out anti-union campaigns,” said Risa Lieberwitz, a professor of employment law at Cornell University’s School of Industrial and Labor Relations. “It could make it more difficult.”
When asked whether more Apple stores will unionize, DiMaria expressed cautious optimism.
“If I could call that, I’d play the lottery,” he said. “I know the public would love to see these tidal waves, but it’s the workers who are going through this and they need to build it themselves to sustain.”
(NEW YORK) — Melissa Gates, who is physically disabled and uses a cane or scooter to move around, was actively searching and applying for a federal job. It took her 20 years before she finally received a position as a secretary for NASA.
She said she wanted the stability and the health care benefits that were likely to come from a government job. And she did everything she could to get one: applying to positions online, going through state-run disability organizations, even traveling for career fairs.
“I would always travel down, standing on long lines, just to have them tell me to submit my resume on one of their sites, which I could have already done on my own,” Gates said. “That’s how my journey started.”
She moved to Maryland from New Jersey in order to get help from the nonprofit disability employment organization Melwood, which provides employment, job training and skill development services to more than 2,000 disabled people each year.
Though she said she was never outwardly discriminated against because of her disability, she wonders if it may have played a role in her job search.
“All the other avenues that I had tried to utilize to help me get this dream job of a federal career were unsuccessful,” Gates told ABC News. “Within six months, I had three interviews and was able to secure a job where I am now at NASA.”
In 2021, the Bureau of Labor Statistics found the unemployment rate for disabled people was 10.1% – which is about twice as high as the rate for those without a disability.
The National Council on Disability said that people with disabilities also live in poverty at more than twice the rate of people without disabilities, and account for more than half of those living in long-term poverty.
Inaccessibility plagues hiring practices and workplaces across the country, making it harder for disabled people to get interviews, score jobs and find a workplace that meets their needs.
The hiring process has inadvertently made it harder for some disabled people to prove their ability to do the job. Scott Gibson, who is the chief strategy officer at Melwood, said simple steps can be taken to correct seemingly innocent mistakes that lead to the exclusion of disabled candidates.
Accommodations during the hiring process, Gibson said, could be as easy as having a quieter space in a job fair to talk with candidates, or training hiring managers about unconscious bias that could affect their perception of disabled people.
“This old way of doing things isn’t perfect and maybe if we try something new, you’ll find out that great talent is right in front of you,” said Gibson.
And even when people are hired, workplaces may not be the most accommodating to disabled and neurodivergent people. “Neurodivergent” refers to people whose brains may function in a different way than what is considered typical, according to the Cleveland Clinic.
Before COVID-19, many workplaces were not designed with accessibility in mind.
For example, Gibson said noisy, crowded office spaces may be distracting to people with audio hypersensitivities, while a lack of a remote work can exclude or endanger immunocompromised people or people who are physically disabled.
Some office spaces may also be unwelcoming to people with wheelchairs or canes. Some disabilities require other accommodations, such as captioning during video calls or technology to enlarge text on screen.
COVID-19, however, has served as the beginning of a new era for accessibility for employees and employers.
“One of the great things that came out of COVID is it made many employers realize how easy it is to be accessible,” Gibson said.
With accessible hiring practices, people like Gates can get a fair shot at jobs across industries.
“Give us a chance,” Gates said. “We’ll show you what we can do.”
(NEW YORK) — The CEO of Delta Air Lines apologized to customers who were impacted by widespread delays and cancellations in a letter on Thursday.
“If you’ve encountered delays and cancellations recently, I apologize,” Delta’s CEO Ed Bastian said in the letter.
Delta and other major airlines continue to struggle with the strong demand for air travel, forcing airlines to cancel thousands of flights in the last several weeks. While airlines have blamed weather and air traffic control for the delays, airlines are also severely understaffed.
Bastian announced Thursday that corporate employees will be sent to two especially hard-hit airports — Atlanta Hartsfield-Jackson International Airport and to New York’s John F. Kennedy International Airport — to help check baggage and check in travelers. Bastian said the company is making logistical changes to prevent additional delays and cancellations.
“Crews are being scheduled with more buffer room to help us absorb and adjust when factors like summer thunderstorms disrupt the operation,” Bastian said. “And as always, we’re issuing travel waivers ahead of inclement weather, enabling you to easily rebook travel if needed without worry.”
In the letter, Bastian said that Delta has added more than 15,000 new employees since the start of 2021. American, United and Delta are all hiring roughly 200 pilots per month.
The letter also comes as off-duty Delta pilots are picketing at major Delta hubs across the country during ongoing union contract negotiations.
“The environment we’re navigating today is unlike anything we’ve ever faced, but Delta is no stranger to challenging times, and our commitment to you is as strong as ever,” Bastian said. “We won’t stop until we’ve made things right, and we’ll never stop improving for you.”
Airlines expect the highest number of passengers since the start of the pandemic during the July 4 weekend. Delta is forecasting more than 3 million travelers alone.
Delta preemptively slashed hundreds of flights from its schedule between July 1 to Aug. 7 due to staffing concerns. United Airlines has cut 50 daily flights out of Newark starting on July 1.
Lawmakers, including Sens. Edward J. Markey (D-Mass.) and Richard Blumenthal (D-Conn.), called on airlines to “prioritize their passengers and address flight schedule issues” in a letter sent to major domestic airlines on Wednesday.
“If an airline cancels a flight for any reason, the airline must promptly provide passengers refunds, as required by the law,” they said. “As the July 4th holiday approaches, the reliability of the air travel system should not be up in the air.”
Transportation Secretary Pete Buttigieg met with airline executives last week and pressed them on their ability to reliably operate their July 4 holiday flight schedules, a source familiar with the meeting told ABC News. Buttigieg also asked them to improve customer experience.
ABC News’ Amanda Maile contributed to this report.
(WASHINGTON) — As the leaders of NATO’s 30 member countries convene in Madrid this week, preserving the alliance’s remarkable unity against Russian aggression is at the top of President Joe Biden’s agenda.
But as the war’s economic fallout ripples far beyond Eastern Europe, maintaining Americans’ support for Ukraine amid mounting fallout at home may be the greater challenge.
Before Russia launched its attack, the average price for a gallon of gasoline in the U.S was near $3.50. Now, it hovers near $5. Inflation concerns were already ballooning before the war, and since its onset in February, year-over-year rates continue to surge.
Biden has pledged to do whatever he can to bolster the U.S. economy while promising to take down Russia’s — pledging to make President Vladimir Putin pay a staggering price for inciting the conflict.
So far, though, higher global prices have made it possible for Russia to reap higher revenues from its fuel exports, even while it exports less.
ABC News asked experts about whether the financial penalties levied against Russia are having unintended consequences and what other tools the Biden administration could use to counter Putin’s aggression that don’t hurt American consumers.
Sanctions’ side effects?
When it comes to evaluating the efficacy of the allies’ sanctions and embargo strategy, economists stress it will take time for the measures to show their true bite — on Russia.
In fact, in the near-term, Ginger Faulk, an international lawyer at Eversheds-Sutherland who represents multinational companies in matters involving the U.S. government’s regulation of foreign trade and investment, said there’s evidence the policies have been “counterproductive.”
“The sanctions have not stopped Russia from continuing its war and they’re not even threatening Putin’s hold on power in Russia,” Faulk said. “To date, Russia has been able to increase its spending on the war in spite of these sanctions.”
While Biden might blame “Putin’s price hike” for Americans’ pain at the pump, Faulk said there’s more to the story.
“The rise in gas prices that people are seeing is caused by a lot of factors, but make no mistake — one of the big factors is the shunning of Russian oil in global markets,” she said.
“I think if we had approached the embargoes more strategically at the outset, it wouldn’t have caused this.”
Douglas Rediker, a senior fellow in the Global Economy and Development program at the Brookings Institution, argues that beyond the Biden administration’s policies, the war’s roiling of supply chains and a diminished wiliness to trade with Russia have had a much greater role in rising costs.
“To some degree, Putin’s invasion of Ukraine is what caused the price hikes, rather than the U.S. and E.U.’s reaction to it,” Rediker said.
“Gasoline prices have gone up. But they have not gone up primarily because of the sanctions that we’ve imposed on Russia. They’ve gone up because of the overall impact on supply chains, on trade, and diminish willingness to transact with Russia,” he added, noting that penalties on Moscow’s national banking system have also played a part.
Capping the cash flow
Fewer customers willing to do business with the Kremlin has resulted in other countries like China scooping up Russian oil at discounted rates. But instead of trying to hinder countries going against the U.S. and its allies from benefiting, experts say imposing a price cap on how much an importer can pay for Russian oil might be a better strategy.
“Sanctions lawmakers have to get smarter,” Faulk said. “That’s why you see the Treasury Department and the White House talking about reducing the price that Russia receives for the oil itself without actually taking those barrels off of the world market.”
Indeed, it’s a proposal that was on the table at this week’s meeting of G-7 nations, where a U.S. official said the leaders of the world’s most advanced economies were able to come “very close” to an agreement on a mechanism that would set a global price cap on Russian oil by imposing shipping restrictions on any product purchased above a certain threshold.
In theory, the restrictions would be enforceable because a London-based company insures the vast majority of the world’s oil tankers, so only countries in compliance would be allowed to use the company’s services.
“The goal here is to starve Russia, starve Putin of his main source of cash, and force down the price of Russian oil to help blunt the impact of Putin’s war at the pump,” a senior administration official said.
In addition to being able to charge less for its product, Faulk says Moscow will have to be content with the added expense of sending oil to faraway customers.
“It’s much more complex and expensive to send oil to China or to India rather than to Europe,” she said. “Those increased logistics costs and the sanctions discount will eat into Russian revenues.”
But whether importers would follow suit with price limits or establish workarounds is still unclear.
And there’s also the possibility that the Kremlin could respond to the measure by abruptly cutting off oil exports to the E.U. before its gradual embargo comes into full effect, or halting its supply of natural gas — which Europe relies on to heat nearly half of its homes.
“Russia is responding in a kind of economic tit-for-tat by cutting gas flows into Europe. And that doesn’t bode well for this winter,” Faulk said.
No easy fixes
The key to bringing down prices at home lies in a simple economic model: supply and demand. But experts say those variables are exceedingly difficult to manipulate.
To ramp up supply, Rediker says, the Biden administration has shown a willingness to work towards expanding the amount of fuel available to the global market, even if it means courting unsavory trade partners.
“There are steps to do deals with — if not the devil — certainly do deals with countries we have demonized for human rights and political behavior,” Rediker said, referencing authoritarian governments like Saudi Arabia and Venezuela.
Trying to limit demand may be even less politically palatable.
“The Biden administration is very reluctant to see comparisons to the Carter administration,” Rediker said, recalling a speech the former president gave advising Americans to turn down their thermostats amid rampant inflation and the energy crisis of the 1970s. “I think they have that deeply penetrated in their political thinking and they want to avoid being seen as asking Americans to reduce the demand for fossil fuels.”
As for the White House proposal to temporarily lift the federal gas tax, Rediker says most economists would describe it a “political theater,” and that if it were to be enacted, it could actually result in increased inflation by prompting more federal borrowing.
With no straightforward solution, he says support for the war could wane.
“As the war has continued on, the American public may still be supportive of Ukraine. But the question is, are they willing to make an overt sacrifice that’s being reflected in higher prices at the pump?” Rediker said. “I think that’s an open question.”
(NEW YORK) — While sky-high inflation has crunched budgets for essentials like gas and groceries, many large corporations have reported record profits, eliciting anger from some everyday people and public officials over price-gouging.
Such frustration recently rose to the fore over eye-popping gas prices. Earlier this month, President Joe Biden sent a letter to major oil refinery companies accusing them of taking advantage of the market environment to reap profits while Americans struggle to afford gas.
The problem extends well binfeyond gas, according to progressives like Sen. Elizabeth Warren, D-Mass., and Sen. Jeff Merkley, D-Ore., who backed a bill last month that would empower a federal agency and state attorneys general to enforce a ban on excessive price hikes.
But economists disagree over the role that elevated corporate profits have played in driving inflation, as some say they account for more than half of the increase in prices while others say they have caused little or none of the hikes.
Some who do blame corporate price-gouging for a portion of the price increases said it arises from market concentration that allows a handful of dominant companies in a given sector to raise prices without fear of competitors undercutting them with lower-priced alternatives. But others doubt that explanation, noting the unlikelihood that a major shift in corporate concentration took place over just a couple years amid the pandemic.
The divide among economists also owes in part to mixed assessments over whether corporate profits have driven inflation or merely responded to it, since a global market rocked by pandemic-induced supply-demand shocks has created a favorable environment for many companies to hike prices.
“It’s a very intense time for people and their pocketbooks — I understand why these debates are very heated,” Michael Konczal, the director of macroeconomic analysis at the Roosevelt Institute, told ABC News. “A lot of people are on team demand, team supply, team transitory, team corporate gouging.”
“I think there’s reflection that there are a lot of causes,” he added. “Even as those causes are evolving.”
Economists agree that inflation owes at least in part to a supply-demand crunch amid the pandemic in which federal stimulus helped consumers purchase goods at the exact time that they got stuck in a production and distribution bottleneck, experts told ABC News.
But economists disagree over how much that supply disruption has contributed to inflation, as opposed to the market environment that it has created, in which companies could raise prices knowing that their competitors faced similar supply shortages that prevented any of them from flooding the market with cheaper alternatives.
“In the case of sector-wide supply chain issues, as during the pandemic, firms know that their competitors face the same bottlenecks as themselves,” Isabella Weber, a professor of economics at the University of Massachusetts Amherst, told ABC News. “The public, too, is aware of the supply issues. Taken together, this presents a pretext to increase prices.”
Josh Bivens, the director of research at the left-leaning Economic Policy Institute, published a study in April that found corporate profits accounted for more than half of the price growth between 2020 and 2021 in the non-finance corporate sector, which makes up about 75% of the private sector.
But the surge in profits stems from a confluence of factors that is likely unique to the pandemic-era economy, Bivens said.
“I view the big fattening of profit margins that boosted prices as another shock, like the pandemic, like the oil price shock,” he said.
A separate report from the Roosevelt Institute, a liberal think tank, found that companies that imposed higher-than-typical markups before the pandemic were likely to be the same companies that hiked prices during the pandemic, suggesting that certain firms exploited their market position to raise prices during the pandemic. In other words, if a company could mark up prices before the pandemic without fear of competitors, it could do so during it.
“This makes us think there’s a small but real role for corporate power to be involved with the increase in inflation,” said Konczal, the economist at the Roosevelt Institute, who co-authored the study.
But other experts contested the explanation that market power or greed has driven companies to exploit market conditions during the pandemic, arguing that high prices reflect forces of supply and demand rather than any misdeed on the part of a company.
Michael Faulkender, a professor of finance at the University of Maryland’s Robert H. Smith School of Business, compared companies charging high prices to an individual who puts his or her home on the market at a favorable time.
“Let’s say I bought a house five years ago, and I’m looking to sell it for whatever reason. Do I price it at what the market will bear or what I bought it for plus a politically correct predetermined markup?” he said. “I’m going to price it at what the market can bear.”
The high prices at the grocery store or the pump are the expected outcome of a market in which individuals have ample money to spend but few products to buy, Faulkender said.
“The limited supply available goes to those with the highest value,” he said. “The profits then generated are a consequence but not the cause.”
Treasury Secretary Janet Yellen appears to share a view that minimizes the role of corporate profits as a cause of inflation. Earlier this month, at a Senate Finance Committee hearing, Yellen refused an opportunity to blame price hikes on company greed, citing supply and demand as the primary explanation.
Bivens, the economist at the Economic Policy Institute, criticized the value of recent price hikes as market signals, which typically tell market actors where to invest resources. The pandemic-induced shift to goods like Pelotons and lumber and away from face-to-face services is unlikely to persist for a prolonged period, he said.
“The line between price gouging versus useful market signals is always a pretty tough one,” he said. “I don’t think these are useful signals.”
Where economists come down on corporate profits informs what, if anything, they think should be done about it. Bivens said he supports a tax on windfall corporate profits, a version of which was proposed by Sen. Bernie Sanders, I-Vt.., in March. Meanwhile, Faulkender said the government should promote greater supply, especially in the energy sector, as a key way to address high prices.
Personal finances nationwide will depend on the outcome for corporate profits, Konczal said.
“Whether they’re naturally competed away on their own, whether policy intervention is going to help nudge the process along, it does have important consequences for inflation and everyday people’s pocket books,” he said.
Citizen of the Planet/UCG/Universal Images Group via Getty Images
(NEW YORK) — The industry that overwhelmingly uses the most water resources in the West does so for good reason: to provide sustenance for the rest of the country.
Globally, the agriculture sector uses 70% of all freshwater withdrawals. In California, that number is ever higher — at 80% of the state’s public water supply — and farmers are being forced to transform the way they cultivate crops as megadrought that has been plaguing the region for decades intensifies.
California is the nation’s fruit and vegetable basket and grows hundreds of commodities. But about a third of that water is used to grow just three crops: almonds, pistachios and walnuts — industries that amounted to about $9.5 billion in exports in 2020 — nearly half of the state’s total, according to the California Department of Food and Agriculture. Almonds, which use about 1.1 gallons of water to grow just one nut, according to Pennsylvania State University, and account for about 10% of the state’s water use alone, Arohi Sharma, deputy director of regenerative agriculture for the National Resource Defense Council, a nonprofit, told ABC News.
As a warming planet threatens to worsen drought and heat conditions in the West, farmers may be called to grow the crops that will be most resilient in the changing climate, Sharma said. That could include lessening the amount of land and water dedicated to “thirsty nut orchards,” she said.
Planting nut trees at the height of the drought
Tree nuts are an extremely valuable crop, with growers making a “pretty penny” by selling them, Sharma said. Out of California’s $20.8 billion in in agriculture exports in 2020, three of the five most common exports were almonds, pistachios and walnuts, data from the California Department of Food and Agriculture shows.
In addition, the almonds are shelf-stable for about two years, Richard Waycott, president and CEO of the Almond Board of California, told ABC News in an email.
Using figures from the U.S. Department of Agriculture, Sharma calculated that during the height of the last drought, between 2012 and 2017, farmers planted more than half a million acres of new nut trees. Sharma believes the additional plantings were a result in the rise in value of the commodity, combined with the lack of legislation in California that bars farmers from planting drought-intolerant food crops.
“And without limits or caps on water use, growers will take whatever water they save to simply plant new nut orchards,” Sharma said, adding that it will ultimately be government oversight and the implementation of new policies to force the agriculture industry to conserve water.
Those almonds, pistachios and walnut groves have now grown to more than 2 million acres of land in California — out of the state’s 43 million acres used for farming — creating a “disconnect” between the availability of water and the number of acres that are being planted with “these water thirsty, drought intolerant crops,” she said. California almonds had two record shipments in 2020 and 2021, with “steady, significant growth in the years before,” Waycott said.
California, with its Mediterranean climate, is one of the five places on Earth where almonds “can grow at any scale,” Waycott said. The almond industry has been working for decades on making the industry as sustainable as possible, he added, including the development of micro-irrigation now used on 85% of almond orchards in the state, compared to pre-1982 practices that involved flooding the fields or using large sprinklers.
Almond farmers in California have since reduced the amount of water needed to grow each almond by 33% and is committed to another 20% reduction by 2025, Waycott said.
“While almond farmers have made strides on irrigation efficiency, further improvements are underway,” Waycott said.
Reducing water while sustaining crop output
The challenge will be to reduce some of the agricultural land devoted to these crops and make the farms sustainable so they may continue providing jobs and food for the rest of the country, Pablo Ortiz, climate and waters scientist at the Union of Concerned Scientists, told ABC News. In California’s Central Valley, the low-flow drip irrigation technology that was implemented by farmers there did not save water in the end because they instead used the conserved water to cultivate more crops, Ortiz said.
“So, this deployment of technologies needs to be contained by some other policies that would allow you to actually reduce water usage,” he said, instead of using conserved water for other purposes.
The agriculture industry is one of the many sectors in California that are suffering from an antiquated water sector, experts say.
The infrastructure and business models, many implemented in the 1900s, were not created with the forecast of climate change or water shortages. The system of water rights, or legal rights to extract and use a quantity of water from a natural source based on where the property is located, as well as policies such as the California State Water Project and the Central Valley Water Project, which collect water from rivers and redistribute it to cities through a network of aqueducts provide an advantage to some, Sharma said.
“And now we’re facing the repercussions of these very old inequitable water rights systems and water infrastructure,” Sharma said.
The upshot is that farmers, especially longtime landholders are prioritized over other water customers, according to the Natural Resources Defense Council.
Decentralizing water a potential solution
Robert Bartrop, head of global business development for SOURCE Water, a company that builds custom solutions for water needs, told ABC News he envisions a future in which the water industry decentralizes, in a way similar to the telecommunications and energy industries. In that case, investments would be made to redesign the grids to more efficiently distribute water.
In order to prepare for a future with less water, California, and the West as a whole, will also need to transform its water usage in a way that invests and supports its agriculture industry, Sharma said.
Part of this entails ending the practice of massive single crop farming, which depletes the soil of nutrients, Sharma added.
Instead of growing one or two crops over thousands of acres, farmers are starting to grow a variety in 20-acre tracts to protect the health of the soil and prevent erosion, which will make it so farmers, including those who are reliant on the cultivation of tree nuts, are less reliant on one income stream as well, she added.
Farmers will also need to adapt new regenerative solutions, such as building soil health as a drought resiliency tool so that it can hold onto more water despite being watered less, Sharma said, describing regenerative agriculture as a “holistic approach to land management.”
“We need to start diversifying what’s grown on the property as a way to regenerate ecosystems, as a way to fight drought and pest pressures that are coming as a result of climate change,” she said.
The source of the water is important too, Bartrop said. Farmers will need to be more efficient with using recycled wastewater, or gray water, for their irrigation needs, as there is currently too many resources wasted on making water used to irrigate crops and feed livestock potable, he added.
Groundwater, which the agricultural industry in California has been depleting over the past century, is not the solution, Ortiz said.
“With water scarcity and climate change, it’s important to know this isn’t an emergency event,” Bartrop said of current drought conditions and the threat of water scarcity.
