MONEY Currency

Why You Might Not Want to Cheer for a Strong Dollar

Anatoliy Vorobev—©Paramount/Courtesy Everett Col Don't tell Jack Ryan, but a strong buck is a mixed blessing.

On Wednesday, the euro fell to a near 12-year low against the dollar. That makes foreign vacations cheaper, but selling things to foreigners harder.

The U.S. dollar has strengthened against pretty much every major currency over the past year. That feels like good news—and in some ways it is. It means that investors worldwide are betting that the U.S. economy is strong; it’s also nice if you’ve been planning a get-away to the French countryside.

And intuitively it just feels like a strong U.S. currency is a good thing, and a weak one is bad. Last year, the plot of the action flick Jack Ryan: Shadow Recruit turned on a (mild spoiler alert) Dr. Evil-like plot to tank the greenback’s value.

But at this moment a too-strong dollar may be the bigger worry.

That is the context behind all the headlines you may be seeing these days about so-called “currency wars.” In a currency war, countries don’t try to take down other nations’ currencies. Instead, they cut the value of their own currencies, in order to make their products cheaper and stoke demand. When one currency falls, that means somebody else’s currency has to go up. Lately, the U.S. has been that somebody else.



Why is the dollar going up? Central banks around the world, from Europe to Japan to Mexico, have been doing what our own Federal Reserve did following the financial crisis, buying up bonds and aggressively seeking to hold down their interest rates. They’re not only doing this to lower the relative value of their currencies—nobody has actually declared a currency war—but it has had that side effect. With yields on 10-year German bonds at just 0.3%, U.S. Treasuries that are paying almost 2% look like a better deal.

When investors seek to hold U.S. assets, that pushes up the buck too.

And there’s reason to think the dollar will keep getting stronger for a while, says Wells Fargo Securities senior economist Sam Bullard. The U.S. economy looks pretty good right now compared with the rest of the world. The American gross domestic product, for instance, grew by 4.6%, 5%, and 2.6% over the past three quarters, while the eurozone muddled through with growth rates at 0.3% or lower. Our unemployment rate is down to 5.7%, while in the eurozone it is stubbornly stuck over 11%.

As a result, the Federal Reserve has begun to put out hints that it will raise short-term interest rates sometime in 2015, the first increase since the Great Recession. Again, that should make dollar-denominated assets relatively more attractive. And a strong dollar trend could feed on itself—the more stable the dollar looks, the more people will want to to invest in the U.S. “Investing over here if you’re foreign company committing capital is more attractive since returns will get translated into your home currency at a more favorable rate,” says Bob Landry, a portfolio manager at USAA Investments.

Still, whenever there are winners, there are also losers.

Who’s losing out? For a start, multinational corporations with significant businesses overseas. Procter & Gamble and its shareholders, for instance, endured disappointing earnings last year and announced that the consumer goods behemoth doesn’t expect to enjoy sales growth this year due to the dollar’s strength.

A strong dollar generally makes U.S. exports less attractive—consumers with euros and yen are finding our products more expensive. The ISM manufacturing new export orders index fell in January to its lowest level since the fall of 2012. That’s bad news for anyone who works in manufacturing, or any other business that hopes to sell to global markets.

Overall, Bullard says, a strong dollar should be “a net drag on overall GDP in 2015.” Perhaps Jack Ryan could have saved himself the trouble.

TIME europe

Former Fed Chair Greenspan Predicts Greece Will Leave Euro

Alan Greenspan Addresses Economic Club Of New York
Spencer Platt—Getty Images Former Federal Reserve Chairman Alan Greenspan speaks to The Economic Club of New York on April 28, 2014 in New York City.

'I think it's just a matter of time before everyone recognizes that parting is the best strategy.'

Greece will eventually be forced to leave the eurozone and switch to a new currency, former Federal Reserve chairman Alan Greenspan told the BBC.

“I don’t see that it helps them to be in the Euro and I certainly don’t see that it helps the rest of the eurozone,” he said in a radio interview. “I think it’s just a matter of time before everyone recognizes that parting is the best strategy.”

Read more: Germans Weigh Response to Likely Demands of New Greek PM

The former official added that he doesn’t believe anyone would be willing to lend Greece the money to avoid an exit.

Greece’s newly-elected prime minister, Alexis Tsipras, won his job promising that he would renegotiate the terms of his country’s debt with the powers that be in Brussels, the financial center of the eurozone, and Germany, the eurozone’s largest economy.

For its part, Germany has remained steadfast in its refusal to loosen the terms of a 240 billion Euro bailout given to Greece in 2013.

The impact of a “Grexit” on the global economy is unclear, though many economists believe it would badly rupture the Eurozone.

TIME Economy

5 Plunging Numbers That Explain the World This Week

Greek Prime Minister Alexis Tsipras looks on before swearing in ceremony of the new deputies that were elected in the January 25 national polls, in Athens, Feb. 5,2015.
Yannis Behrakis—EPA Greek Prime Minister Alexis Tsipras in Athens, Feb. 5,2015.

From Greek bond rates to Indonesian approval numbers, these figures tell the story of an unstable world

With spiraling oil prices, crumbling economies, weakened leaders, and intensifying violence in Ukraine and the Middle East, we’re experiencing unusual volatility in markets and geopolitics. Here are five falling numbers that have broad-reaching implications.

1. Down to 1.38%

There’s a huge difference between the current Greek crisis and previous cycles of panic: today bond markets are treating the Greek economy as an isolated patient, swatting away notions of contagion risk to other periphery countries. The numbers tell the story. In the wake of the anti-austerity party Syriza’s victory in Greek elections last month, Spain’s 10-year yield fell to new record-breaking lows, closing at a staggering 1.38% at one point last week. That means Spain can borrow at better rates than the thriving United States. Compare that to Greece’s 10-year yield, which shot above 11% in the days after Syriza took office.

(Source: Eurasia Group, Bloomberg Business: Spain, Greece)

2. -30% Approval

Expectations for Indonesia’s new president Joko Widodo were sky-high when he was elected last summer. (He even graced the cover of this publication in October with the headline “A New Hope.”) But his recent nominee for police chief is a former aide to party powerbroker and ex-president Megawati Sukarnoputri, raising concerns about her influence over the supposedly independent Joko. Just days after the announcement, police chief nominee was named as a suspect in a corruption probe. Joko’s decision to trim fuel subsidies in November was lauded by investors; after all, between 2009 and 2013, Indonesia spent more on such subsidies than it did on social welfare programs and infrastructure put together. But it’s no surprise that a hike in fuel prices didn’t go over as well with the general population. According to an opinion poll by LSI, Joko’s approval rating has dropped 30 points—from 72% in August to just 42% in January.

(Source: Wall Street Journal, The Economist, Financial Times)

3. -$58 per barrel

The price of Venezuelan oil collapsed from $96 in September to $38 last month. That’s not a good thing in a country where oil exports provide more than 95% of foreign exchange. Venezuela needs that hard currency—more than 70% of its consumer goods are imported. Things are getting bleaker. The International Monetary Fund predicts an economic contraction this year of as much as 7% of GDP. Inflation is over 60%. And an economic perk is coming under threat: Venezuelans enjoy the world’s cheapest gasoline, paying the heavily subsidized rate of roughly $0.06 per gallon. This provision costs the government more than $12 billion a year. In a recent speech, President Nicolas Maduro declared, “You can crucify me if you want, but there’s a need for us to go to a balanced price.” Given all the economic woes and the President’s tanking approval ratings, it’s definitely not the easiest time to rake back this subsidy.

(Brookings, New York Times, Wall Street Journal, Bloomberg, International Business Times)

4. -$500,000,000 in military aid

With ISIS rampaging across Iraq and Syria—and Houthi rebels seizing the capital of Yemen and pushing that country into civil war—Saudi Arabia is accelerating its plans to wall itself off from volatile neighbors. In September, the Saudis began construction on a 600-mile wall along the border with Iraq. To the south, they are strengthening fortifications to keep unwanted visitors from breaching the 1,060-mile border with Yemen. Border guards told a CNN correspondent that in just the last three months, they have stopped 42,000 people from crossing a 500-mile section of the border. It’s not just about security—it’s also economic. As of 2013, Saudi citizens represented just 43% of the country’s workers—and only some 15% of the private sector—with the rest consisting of foreign workers. With youth unemployment at around 40% in Yemen, many try to cross in search of work. But even as the spending spree on security continues, the Saudi Kingdom is halting most of its financial aid for Yemen, fearful it could fall into Houthi hands. According to a Yemeni official, the Saudis recently refused to pay $500 million earmarked for military aid.

(Newsweek, Reuters, Bloomberg, CNN, Al Arabiya News, Reuters, Wall Street Journal)

5. -$61,000,000,000 … and -16%

They’re the group of Russians best equipped to weather hard times, but that doesn’t mean they aren’t feeling the burn. In 2014, the 21 wealthiest people in Russia lost a combined $61 billion—a quarter of their net fortune. Those who aren’t losing money are removing it: 2014’s net outflows by companies and banks topped $150 billion. That’s more than double the 2013 figure, and shatters the old record from ’08, amidst the financial crisis. The IMF expects the Russian economy to contract 3.5% in 2015. At least Russians can express their dismay while drinking more affordable liquor: this week, Moscow passed a new measure cutting the minimum price of a bottle of vodka by 16%.

(Reuters, Businessweek, IMF, Washington Post)



Why We Should Be Happy With a Higher Unemployment Rate

woman holding "Hire Me" sign
Catherine Lane—Getty Images

A higher unemployment rate in an improving economy means more people are beginning to look for work again.

For the most part, Friday’s jobs report is clearly reason to cheer. The economy added 257,000, making January the the 12th consecutive month employers hired over 200,000 workers. The Labor Department even revised earlier figures, announcing 147,000 more jobs were created in November and December than previously thought.

But in spite of all this great news, one number seemed to stick out: the unemployment rate actually went up, jumping from 5.6 to 5.7 percent.

That’s not a big change but it doesn’t seem to jibe with everything else happening in the economy. How could the unemployment rate still be increasing when hiring seems to be at a post-recession high?

The answer is the official unemployment rate, at least by itself, doesn’t actually measure the economic recovery very well. This metric, also known as U3, is one of six different ways the Department of Labor measures unemployment, and it only includes people who are unemployed and actively looking for work. That means people who are unemployed but too discouraged to look for a job aren’t included in the unemployed population.

This quirk is what Gallup CEO Jim Clifton was talking about when he called the unemployment rate a “big lie,” but it’s actually telling the truth if you know what to look for. When hiring increases, as it has over the past year, people who previously gave up searching for work will once again start trying to find employment. This is obviously a good thing, but for the moment an influx of new job hunters is pushing up unemployment numbers because those who just began searching for work after a long break are essentially treated as newly unemployed.

“I don’t think [Friday’s unemployment bump] is a big deal,” says Elise Gould, a senior economist at the Economic Policy Institute, a left-leaning think tank. “I think that is mostly due to people coming back into the labor force—some of them finding jobs, some of them not finding jobs.”

In fact, as the economy continues to recover, it’s likely the unemployment rate will likely stay the same or even increase. “If had to project the unemployment rate, I would expect it would hold steady and could move a little up, but I don’t think we’re going to see it going down,” explains Gould. “As the economy gets stronger more people will enter the labor force and that will move the unemployment rate, potentially in the wrong direction.”

All this sounds nice in theory, but do we really know more people are entering the job market? The most accurate metric we have to answer that question is the labor force participation rate, which includes everyone who is working or looking for work. Unfortunately, that number can be misleading since many older Americans are leaving the market at the same time job-seekers are re-entering it, leading to a long-term downward trend.

Luckily, today’s report shows enough people started looking for work in January to push the labor force participation rate up a tick. It wasn’t much—less than a percentage point—but even a small increase is meaningful when the demographic tide is flowing the other way.

At least for once, a higher unemployment rate isn’t so bad.


Employers Hired 257,000 Workers in January

Datacraft Co Ltd/Getty Images

The economic picture continues to mend, but workers still looking for better wages.

The U.S. economy added 257,000 jobs in January, the 12th consecutive month employers hired more than 200,000 workers. Meanwhile, the unemployment rate rose slightly to 5.7%.

Employers also added more employees in the end of 2014 than originally thought. The Labor Department revised November’s employment change to 423,000, compared to 353,000, and December’s to 329,000, from 252,000.

The positive monthly employment report is another sign of a building economic recovery. The four-week moving average initial jobless claims recently fell by 6,500 to 292,750 The employment cost index, which measures salary and benefits, increased by 2.3% in the last three months of 2014. And the gross domestic product grew by 2.6% in the last quarter of 2014 after climbing by 5%. This good news, along with cheap energy prices, has also pushed up economic confidence.

The economy still is not back to a pre-2008 definition of normal, however. The headline unemployment rate measures only people who are looking for work. Since the post-crisis recession, however, many people dropped out of the work force, and they have been slow to come back in. Today’s report shows the labor-force participation rate at 62.9%, a marginal increase from a month ago, but still in line with a long-term decline. The rate is five points lower than it was at the turn of the century.

Another sign that the job market recovery remains soft: Average hourly wages in January were only up 2.2% compared to a year earlier. (While that’s an improvement over last month, wages grew around 4% per year prior to the Great Recession.) Long-term unemployment is also still at elevated levels.

fredgraph (1)

Modest wage growth helps to explain why inflation has remained low, even after stripping out the effect of falling prices at the gas pump. Core inflation, which strips away volatile energy and food prices, was up 1.6% year-over-year in December. That’s well below the 2% the Federal Reserve says it is targeting in deciding whether or not to raise key interest rates.

The Fed has been holding short-term rates near zero since the crisis, and is widely expected to begin raising rates this year as the economy improves. But they’ll have to weigh the encouraging signs from the new unemployment numbers against continued low inflation and wage growth, as well as the mounting economic troubles in Europe.

Sam Bullard, a senior economist at Wells Fargo Securities, shares the Fed’s belief that the labor market and economy are repairing, and thinks more hiring will push down the unemployment rate in the months to come, which will result in more money in worker’s paychecks. Eventually.

“Overall, we’re looking at an economy that’s improving,” says Bullard. “The one missing piece is a pickup in wage growth.”

TIME Starbucks

Howard Schultz Has a Radical Plan for Starbucks—And America

Photograph by Ian Allen for TIME

The outspoken Starbucks CEO tells TIME about his plans to transform his business

Starbucks CEO Howard Schultz has big plans for the future of his coffee empire. In a new cover story, the 61-year-old executive gives TIME’s Rana Foroohar a preview of the company’s transformation, much of it designed to cope with a rapidly changing American middle class. In a wide-ranging, exclusive interview Schultz describes the firm’s strategy to move up market, delving into the personal history that has shaped his beliefs on issues ranging from the working poor to race relations.

Just as fashion brands have haute ­couture and mass-market lines, Starbucks this year will start opening a series of luxury Reserve stores, where customers can get a more rarefied and expensive assortment of coffee. (Some may experiment with selling wine.) Expect many more specialized formats designed for specific places, like express stores coming to New York City or mobile trucks currently on college campuses. Over the next five years, Schultz will be busy retooling the Starbucks experience, in large part by experimenting with ways to draw in ever-more-fickle ­consumers.

To read the full story, please subscribe to TIME. More from the story:

On whether he will run for President in 2016, Schultz insists to TIME that he’s not interested in running for office at the moment, saying, “I don’t think that is a solution. I don’t think it ends well.” For now, Schultz says he’s content to, “see what Hillary does.”

On Starbucks’ coffee-­sales figures from nearly 12,000 stores nationwide, Schultz says: “We have a lens on almost every community in America…. At 4:30 in the morning, I wake up and see the numbers of basically every store from yesterday.” Over the past few years, says Schultz, they’ve pointed to a “fractured level of trust and confidence” that he attributes in large part to a sense that government is no longer functional and that no one is looking out for the welfare of the middle and working classes.

On how businesses should operate in America: “I think the private sector simply has to take a larger role than they have in the past. Our responsibility goes beyond the P&L and our stock price…. If half the country or at least a third of the country doesn’t have the same opportunities as the rest going forward, then the country won’t survive. That’s not socialism.”

On growing up while struggling with poverty in the housing projects of Canarsie, Brooklyn: “When you say you went to Canarsie High School, you get a whole new level of street cred!”

Grover Norquist talks to TIME about how Starbucks can act as a model for a kind of business federalism in which the private sector does things better and faster than government, saying: “Howard isn’t saying, Hey, I’ll give you a check. He’s saying, I want your skills, [at the same time] that he’s changing the cost of education by revolutionizing education itself. He’s backing into the reform of public education.”

His friend David Geffen says: “I first told Howard he should run back in 2008. We were having a very intense conversation about things that were happening in the country, and Howard had a strong point of view about various things…. We both felt there was a lot of corruption in government and a lack of conviction to put things right.

Read next: Starbucks For America

Listen to the most important stories of the day.

TIME Economy

Starbucks For America

Ian Allen for TIME

Howard Schultz is transforming his company. Changing the country is going to be harder

Howard Schultz isn’t afraid of his feelings. Or anybody else’s, for that matter.

The 61-year-old Starbucks CEO doesn’t mind tears or hugs or displays of emotion of any kind. This is front and center on an icy January afternoon in New York City, where Schultz is leading a forum on race. Shocked by recent police shootings and unrest in Ferguson, Mo., New York City and Oakland, Calif., he decided to hold open meetings in five cities where Starbucks employees from top managers to entry-level baristas could speak frankly about their experiences with racism.

A little more than 40% of the company’s baristas are minorities, and the audience of 400 or so at Cooper Union’s auditorium reflects that. Schultz has just come from a meeting with New York City police commissioner William Bratton in which the two discussed ways the company could help ease tensions. Like a candidate holding forth during a televised town hall, Schultz is speaking from a spot on the floor near the crowd. “People have told me we shouldn’t touch this issue, that we might stir things up, upset the shareholders. I don’t agree with that,” he says. “Conversations are being ignored because people are afraid to touch the issue. But if I ignore this and just keep ringing the register, then I become part of the problem. So here we are. Let’s talk.”

Pretty soon, the floodgates are open. The microphone is passed around, and dozens of partners, as Starbucks employees are called, begin sharing their stories. Some are crying, others angry. A young Senegalese immigrant, Tafsir Mbodje, a district manager who runs the Grand Central store among others, points out the slow police-response times in his former neighborhood, East New York. “I feel like we are at a tipping point in this country,” Mbodje says. “And it’s only going to take one more thing, one more event, to make things boil over.” Schultz takes the microphone. “I was born in East New York, and I agree with you. We are at a tipping point. There’s a lack of leadership in Washington, in government, and so it has to come from us.”

The forum is quintessential Schultz. He is at his best with his people, talking about issues that other CEOs would rather not come up in mixed company. In recent years, Schultz has taken on student debt, health care, veterans’ rights, youth unemployment and gun violence. All this do-goodery can be hard to live up to 24/7. A progressive image can sting if it appears hypocritical, as it did in 2014 when a New York Times story chronicled how Starbucks’ staff-scheduling software could wreak havoc on the lives of workers with kids. (Schultz says the problem has since been fixed.) And though investors have cheered Starbucks’ recent performance–on Jan. 22, the Seattle-headquartered company said sales in the most recent quarter had grown by 13% year over year, to $4.8 billion–a CEO’s personal passions can irk investors when times turn tough.

Lately Schultz has been focused on one intractable problem in particular that will take more than a few feel-good forums to tackle: the future of the U.S. economy. The Great Recession and the recovery that followed have warped the economic landscape. What has emerged is an hourglass-shaped comeback with growth at the high and low ends and shrinking in the middle. Wealthy households have made huge strides while middle-income Americans struggle, reshaping businesses from housing and cars to groceries and clothing. Labor Department data show that wages for the vast majority of American workers have stagnated over the past decade. The U.S. is increasingly a nation of latte drinkers and latte makers, with very little room in between. Schultz, of course, depends on both.

His plan to address this, he tells TIME, could change your local Starbucks as you know it. Those changes also reflect the challenges facing the country as a whole. “Whether you’re a Republican or a Democrat,” he recently said, “we can all know and recognize one thing: the country is not going in the right direction.” That’s the kind of talk that had some, including Schultz’s powerful pals, wondering if these are the musings of an outspoken billionaire flirting with the idea of taking a run at the world’s most powerful job.


A few weeks back, when Starbucks released its impressive quarterly numbers, Schultz got up in front of a bunch of Wall Street analysts and gave them the bad news. “There is no company you can point to that is as dependent as we are on human behavior, the human condition and the people that wear the green apron,” he said. And unfortunately that condition is, as he put it, “fragile.” Schultz was referring to consumer sentiment, which, while improving, is still volatile. Spending can collapse at a moment’s notice, just as it did during the Ferguson riots, when coffee sales nationwide suddenly dipped as consumers hunkered down at home rather than going out and spending.

Schultz is acutely aware of this because four times a day, he gets what may be the most up-to-date consumer-confidence indicator in America–Starbucks’ coffee-sales figures. With nearly 12,000 stores nationwide, “we have a lens on almost every community in America,” he says. “At 4:30 in the morning, I wake up and see the numbers of basically every store from yesterday.” Those numbers give a picture that is very different from and much more sensitive than quarterly GDP figures. Over the past few years, says Schultz, they’ve pointed to a “fractured level of trust and confidence” that he attributes in large part to a sense that government is no longer functional and that no one is looking out for the welfare of the middle and working classes.

Sales will rise and fall with the national mood, tanking quickly during events like the New York City police protests–or the 2013 government shutdown, just one of the recent moments when Schultz has worried about the effects of partisan politics on the economy. “I called the White House after the government shutdown and shared with them [figures showing] that leading into the shutdown and for weeks afterward, we saw a significant drop in consumer spending.” He spoke to people “at the very highest level on both sides of the aisle” to stress his feeling that this effect would be “lingering” and would result in a more skittish consumer. “And that’s exactly what’s happened,” he says.

Starbucks–whose baristas, at Schultz’s suggestion, wrote come together on coffee cups in protest over the shutdown–already had a reputation at that point as a progressive company, having been one of the first retailers in the country to offer affordable, comprehensive health care to full-time and eligible part-time employees and their families, as well as a stock-grant program (Bean Stock) for all. And there have also been big pushes in areas like workforce training (the company and the Schultz Family Foundation together have trained nearly 700 disadvantaged young people for jobs in retail or customer service), hiring and training of returning veterans (Starbucks has pledged to employ 10,000), student debt and access to education (the company has promised to help pay for employees to get their bachelor’s degree, an investment that will likely cost Starbucks tens of millions of dollars).

Schultz says he is deeply invested in these ideas not only because making the company a preferred employer helps keep turnover costs lower and service quality higher than the industry average but also because he believes corporations have a duty to help people realize the American Dream. “I think the private sector simply has to take a larger role than they have in the past. Our responsibility goes beyond the P&L and our stock price. We have to take care of people in the communities that we serve. If half the country or at least a third of the country doesn’t have the same opportunities as the rest going forward, then the country won’t survive. That’s not socialism,” says Schultz. To him, it’s practical reality.

Schultz believes that keeping the economy viable will also require major changes in corporate business models, Starbucks’ included. And that’s where customers will begin to notice some changes. Just as fashion brands have haute couture and mass-market lines, Starbucks this year will open the first of a series of luxury Reserve stores, where customers can get a more rarefied and expensive assortment of coffee. (Some may also experiment with selling wine.) Expect many more specialized formats designed for specific places, like express stores coming to New York City or mobile trucks currently on college campuses. Over the next five years, Schultz will be busy transforming the Starbucks experience, in large part by experimenting with ways to draw in ever-more-fickle consumers.

In part, that will involve taking seriously the crowded space for cheaper coffee, a phenomenon that along with the financial crisis helped lead to a steep downturn in Starbucks’ fortunes in 2008. Starbucks will have to compete more directly not only with McDonald’s and Dunkin’ Donuts but also with budget outfits like 7-Eleven. (When even Taco Bell is advertising its coffee, you know things are getting tough.) You will start to see the mermaid logo near places like your local bowling alley. The firm that built its image on an “emotional” connection to coffee that allowed for personal indulgences like $5 mocha Frappuccinos is going to have to find ways to compete with those that sling bare-bones $1 coffee–and a lot of it. (Starbucks hasn’t decided yet how the menu might change.) The company is approaching this in a characteristically cool way–building outlets from used cargo containers at highway exits, for example–but it’s not going to be easy to make one brand mean two things to different customers.

More important, this change of course puts the company in an awkward position. To continue to grow, it must adapt to the economic landscape, making a play for high-end consumers with disposable income while also tailoring outlets and products to lower-end consumers who have less to spend. But doing this means Schultz is implicitly accepting a truth that he has been rallying against for years. That leaves Starbucks aggressively changing its business model to make the most of a country in which the middle class is shrinking while its outspoken CEO loudly cries out against the forces that shrink it. The future of Starbucks, like the economy itself, has a split personality.


This divide is not unfamiliar to Schultz. he grew up the watchful, working-class child of a depressed, blue collar father. The elder Schultz, a military veteran without health care who was driving a diaper truck in the days before disposables were ubiquitous, fell on the ice when Howard was little and was let go with no benefits or pay. He never recovered, physically or mentally. With Schultz’s dad couchbound and unable to work, the family struggled with poverty in the housing projects of Canarsie, Brooklyn. “I saw my father, who was unfortunately very bitter about his own life, not ever having the self-respect that he thought he deserved, because he was an uneducated blue collar worker,” says Schultz. “Consciously or unconsciously, I think one of the things I was trying to do was build the kind of company my dad never got to work for.”

That focus on the working poor is something that sets Schultz apart from many in the 0.001% of which he is now a part. (Forbes estimates his net worth at some $2.4 billion; famous friends include JPMorgan Chase CEO Jamie Dimon and Oprah.) His wife Sheri, an equally kinetic and emotive blonde who looks a little like actress Ellen Barkin, helps run the family foundation. She remembers humility and appreciation for people as the qualities that initially drew her to Schultz when the two met in a Hamptons house share 36 years ago. “You know how they say you can find out about a person when you’re in a restaurant and you see how they treat someone who helps you? He would be that guy who before he left would go to the boss and say how great the person was that served our dinner,” says Sheri. “That’s Howard.”

One Friday afternoon at the Camp Pendleton Marine base near San Diego, Schultz sits signing copies of For Love of Country, a book he co-wrote with Washington Post senior correspondent Rajiv Chandrasekaran about the struggles of returning veterans. A hundred or so people have lined up for copies, and Schultz is quietly scribbling his signature until a middle-aged man from Sunset Park, Brooklyn, strikes up a conversation. Within seconds the two are backslapping and joking about who came from the tougher neighborhood. “When you say you went to Canarsie High School, you get a whole new level of street cred!” boasts Schultz. He waves over his genteel-looking public-affairs director, Vivek Varma. “Hey, how long do you think Viv would last in the Bayview projects?” Schultz asks his new buddy. “With that watch?” the man fires back. “How fast can you run?” He and Schultz both double over laughing.

Schultz may be of the people, but he’s no saint. He’s more sensitive than most executives to criticism and tough questions. So much so that he has a tell: when he’s on the defensive, his eyes open wider than normal. And like many business leaders from hardscrabble backgrounds, he can be a control freak. Top staffers say multiple 5 a.m. emails from him aren’t unusual. Is that tough? I ask one lieutenant. “Only if you are a normal person who gets started at 8 a.m.,” he responds, a little weary. Schultz also has a tendency to parachute into situations, pre-empting members of his staff who are trying to do their jobs. He says he needs to combat his tendency to “override the people who are responsible. [It’s] not healthy for the organization.” One rare rich-guy move, Schultz’s purchase of the Seattle SuperSonics in 2001, ended with a very unpopular sale that relocated the team to Oklahoma City; Schultz was frustrated by the experience in part because he didn’t get as much control as he would have liked.

Schultz continues to push generous benefit packages for staff, despite protests from the Street. In 2008, when bankers wanted him to cut health care to make his margins, he refused. “We found that 70% of the people working for Starbucks did not have a college education,” Schultz says, “and a large percentage of them had started and stopped.” To solve that, he partnered with Arizona State University, which has an extensive online curriculum, to allow Starbucks employees to go to school on their own time while continuing to work. So far, 1,500 employees have taken up the offer (Starbucks says job applications have jumped too as a result), giving the notion of online education a boost in legitimacy and earning Schultz praise from both liberals and conservatives.

Grover Norquist, the right-wing tax activist, sees Starbucks as a model for a kind of business federalism in which the private sector does things better and faster than government. “Howard isn’t saying, Hey, I’ll give you a check. He’s saying, I want your skills, [at the same time] that he’s changing the cost of education by revolutionizing education itself. He’s backing into the reform of public education,” says Norquist, who also believes Starbucks’ lead on the veteran-hiring issue could displace entire departments of the federal government. “More people live close by a Starbucks than a VA office.”


Inevitably, all the talk about a leadership void in Washington has led people to wonder whether Schultz might be privately positioning himself for public office. (He is a Democrat.) There is, after all, a rich tradition of wealthy businesspeople pushing political agendas, from Edward Filene, who started Filene’s Basement before helping develop community credit unions and pass the first workmen’s-comp law, to former eBay CEO Meg Whitman, who unsuccessfully ran for governor of California five years ago. People close to Schultz, like entertainment mogul David Geffen, have suggested he think big. “I first told Howard he should run back in 2008,” Geffen says. “We were having a very intense conversation about things that were happening in the country, and Howard had a strong point of view about various things,” like, for example, the bank bailouts. “We both felt there was a lot of corruption in government and a lack of conviction to put things right.”

Bill Etkin, a financier and lawyer who is a close friend of Schultz’s as well as a consultant for Starbucks, says the CEO did think seriously at one point about entering the political arena. Schultz and his wife hosted a dinner for Michael Bloomberg a few years back when the former New York City mayor was considering a run for President. The two discussed the challenges of moving from the business world to politics. Etkin says Schultz ultimately feels he can do more for the public good from his current perch than he could in Washington. Mellody Hobson, president of the $10 billion asset-management firm Ariel Investments and a Starbucks board member as well as an Obama campaign supporter, says, “Howard is a maverick, and mavericks don’t do well inside big institutional structures.” Norquist puts it more bluntly: “‘You should run for office’ is what people in this country say to you when they mean ‘I like your ideas. I wish people in Washington thought like you did.’ That’s what Ralph Nader’s friends said to him, and when he ran, they screamed at it and said, ‘Hey, you are funneling money away from the mainstream of the party!'”

For his part, Schultz insists he’s not interested in running for office at the moment and has neither the temperament to make the compromises necessary to embark on a Democratic political career nor the desire to be a third-party candidate. “I don’t think that is a solution. I don’t think it ends well.” There is also the baggage that every successful businessman turned politico has to carry in terms of translating his successes–and his failures–in one realm to another. In 2012, for example, Starbucks ran into PR trouble in the U.K. after revelations that it had paid only minimal corporation taxes on many hundreds of millions of dollars in sales. The company, which had been domiciling in the Netherlands, as many large companies do, says it complied with all tax laws. Starbucks has since voluntarily paid more, and it has moved its European headquarters to the U.K. Still, the episode shows how difficult it would be to balance running a multinational company with running a progressive political campaign. For now, Schultz says, he’s content to “see what Hillary does.”

Whatever his future ambitions, Schultz is caffeinated and eager to do bold things both for his business and for the country at large. Wherever he goes, he pops into Starbucks stores, sometimes recognized, often not. “Hey, how is that Pumpkin Spice Latte doing?” he asks the somewhat shocked manager of a store in San Diego, where he has made a surprise visit for his fifth Sumatra of the day between meetings with veterans’ groups. Baristas scramble to fill the order, looking a little awestruck. “Maybe we should move the holiday display cards up a few inches?” Schultz offers.

Schultz is busy mapping Starbucks’ future. The company recently announced the hiring of a new No. 2, 16-year Microsoft veteran Kevin Johnson, to help lead a push into mobile payments. Through its smartphone app, Starbucks already does more of those per week than any other retailer, and Schultz has visions of competing with the likes of Apple Pay. In Seattle, Schultz just opened a flagship Starbucks Reserve Roastery and Tasting Room, a Willy Wonka–esque coffee fantasia where customers can watch every part of the coffeemaking process, from bean roasting to foammaking. A hundred high-end Reserve stores are coming in the next five years to cities including Chicago, Los Angeles, New York, San Francisco and Washington. And Starbucks says customers in some cities will be able to get their caffeine fix delivered to their door by the end of 2015.

There will be challenges along the way. Aside from the bargain-basement competitors, Schultz will have to keep his eye on a raft of high-end bespoke coffee chains trying to re-create Starbucks’ early formula, including Blue Bottle, based in Oakland, Calif. Other enthusiastically unveiled initiatives, like a push into food, have been hit or miss. Schultz’s founder’s passions still burn, but he has a hard road ahead in the split economy, and the future of Starbucks after him is unclear at best.

On the policy front, the company is planning to dramatically ramp up the number of out-of-work young people, veterans and other struggling groups that get workforce training through Starbucks. On Feb. 9 in L.A., Schultz is holding the company’s first open forum on racism with non-Starbucks participants. Meanwhile, the early-morning emails with the next big idea–to staffers, friends, his wife, other CEOs–are unlikely to stop coming anytime soon. “I like to take big swings,” says Schultz, smiling and chugging yet another Sumatra. “Maybe it’s all the coffee.”

This appears in the February 16, 2015 issue of TIME.
TIME Education

Shrinking the Education Gap Would Boost the Economy, Study Says

Students applaud as U.S. President Obama arrives to deliver the commencement address at the Worcester Technical High School graduation ceremony in Worcester
Kevin Lamarque —Reuters Students applaud as U.S. President Barack Obama arrives to deliver the commencement address at the Worcester Technical High School graduation ceremony in Worcester, Massachusetts June 11, 2014

A modest improvement in the lowest test scores could see GDP rise by $2.5 trillion by 2050

Narrowing the education gap between America’s poor and wealthy school children could accelerate the economy and significantly increase government revenues, according to a new study.

An improvement in the educational performance of the average student will result in “stronger, more broadly shared economic growth, which in turn raises national income and increases government revenue, providing the means by which to invest in improving our economic future,” says the Washington Center for Equitable Growth.

The study is based on findings from a 2012 assessment given by the Organization for Economic Cooperation and Development. Data showed the U.S. education system performed poorly when compared against the world’s 34 developed nations, ranking below average in mathematics and just average in reading and science.

The Washington Center took America’s test score of 978, and in their most modest scenario boosted the achievement scores of the country’s bottom 75% testers so that the national score reached the worldwide developed nation average of 995 (or roughly equal with France).

This would raise the U.S. GDP by 1.7% by 2050, they found, which, taking inflation into account, would amount to a $2.5 trillion rise or an average of $72 billion extra per year.

The country would also make over $900 billion extra in total federal, local and state revenue.

If the U.S. were able to match Canada’s educational achievement score of 1044, the potential gain would be significantly higher. The study estimates that GDP would grow by 6.7%, equivalent to $10 trillion or about $285 billion per year.

This latter scenario would mean a revenue boost of $3.6 trillion.

The Washington Center said their findings suggest that governmental investments into education would pay for itself in the form of economic growth for many years to come.


Noooo! GDP Slowed in Fourth Quarter. And That’s Not Even the Worst Part

Jan Stromme—Getty Images

While the U.S. recovery continued in the fourth quarter, wages didn't grow as fast as many economists were hoping.

Economists got a fresh read on the U.S. recovery today: The federal government reported fourth-quarter gross domestic product growth slowed to 2.6% from the third-quarter’s 5%.

The good news is few economists expected the economy to outstrip the third-quarter’s robust number. The bad news is slower GDP growth wasn’t the only disappointment. In fact, many experts were looking past that headline number at something else: the Employment Cost Index.

The Labor Department index, a measure of overall employment costs, including wages but also benefits like health care, rose 2.2% year over year for the fourth quarter. It had grown 2.3% in the fourth quarter, and economists had been hoping that it would meet or exceed that mark.

That it failed to do so suggests wage growth—largely seen as the last missing piece of the recovery—still hasn’t picked up as much as we would all like. The upshot is that, while Americans seem to be able to find work, solid middle class jobs are still disturbingly scarce. Sluggish wage growth also means the Federal Reserve, which is feeling pressure to raise interest rates, may have extra breathing room, since rising wages are a key driver of inflation.

Here’s the wage growth trend line, fyi:

TIME 2015 Super Bowl

The Ad That Changed Super Bowl Commercials Forever

How "The Force" has remained the most shared Super Bowl ad of all-time

In 2011, on the Wednesday before the Super Bowl, a new Volkswagen commercial popped up on YouTube. “The Force” featured a kid ambling about his house dressed as Star Wars’ Darth Vader while attempting to use the Dark Side on everything from the family dog to the new Passat sitting in the driveway.

From the early 1980s—when Super Bowl ads became as anticipated as the game itself—until that moment, advertisers generally kept their spots under wraps, careful not to jeopardize the big reveal. But for the 2011 Super Bowl, Volkswagen was in a bind. The company had bought two 30-second spots—one for “The Force,” advertising the new Passat, and another called “Black Beetle,” showing off the new Jetta, both created by the ad agency Deutsch. But everyone involved felt a 60-second version of “The Force” was their best work. It was just too long to play during the game.

VW’s marketing team also knew they were facing big obstacles on game day: the company hadn’t run a Super Bowl ad in over a decade, and the two commercials they planned to run would be competing against multiple spots from larger automakers with more ad dollars. So they decided that one possible way to stand out was to release “The Force” early, even though it defied what was widely accepted as smart advertising strategy around the biggest ad day of the year.

“It’s hard to think about now, but at the time, it was not the conventional wisdom to air or put online a commercial that was meant for the Super Bowl,” says Tim Ellis, who was the head of marketing for Volkswagen North America at the time and is now the chief marketing officer for video game maker Activision. “The wisdom was you hold it, because you would get the most value out of that impression by waiting.”

Ellis says it was a controversial decision to run it early, even among the ad agency and VW’s marketing team. “But I thought if everything goes right, this thing will catch fire and go viral,” he says.

By 8 a.m. Thursday, “The Force” had been viewed 1.8 million times on YouTube and had racked up 17 million views before kickoff, according to figures provided by Deutsch. Today, “The Force” has 61 million views on YouTube and is still the most shared Super Bowl ad of all-time and the second most shared TV commercial ever.

“It paid for itself before it ever ran,” says Mike Sheldon, CEO of Deutsch North America.

MORE 5 Ways This Year’s Super Bowl Ads Will Be Like No Other

The ad’s runaway success changed how advertisers approach Super Bowl Sunday ever since. Instead of standalone spots, Super Bowl ads have become the anchors of extended marketing campaigns with vast social media presences often launched weeks before the game. This year, more than 20 brands have already released their full Super Bowl ads or special teasers for them.

“Super Bowl advertising has changed fundamentally,” says Tim Calkins, a Northwestern University marketing professor. “It’s gone from being a one-time event to a months-long marketing campaign.”

For years, the Super Bowl ad was a fleeting thing. 1984—the Apple ad still widely considered the greatest Super Bowl commercial—aired just twice, once in 10 local outlets on Dec. 31, 1983, and once more during the game the following month.

As the audience for the game grew, brands expanded their Super Bowl marketing budgets (think Budweiser’s talking frogs and Pepsi’s splashy productions with Ray Charles and Cindy Crawford). During the first Super Bowl, the average cost of a 30-second spot was $40,000 ($280,000 when adjusted for inflation). This year, NBC is charging $4.5 million, and at least one NBC executive claims that the exposure brands get during the Super Bowl is closer to $10 million in value. And as our media consumption habits have been transformed by social networks and mobile devices, a Super Bowl ad now needs to resonate on social media to be considered successful. Budweiser, for example, has launched the social media campaign #BestBuds urging people to help a rancher find his lost puppy in its latest spot, and Pepsi and ShopTV will send out tweets during Katy Perry’s halftime performance with links for viewers to buy related merchandise.

“What was just a bunch of 30-, 60-second TV commercials, everybody now has turned this into a full-on social media integrated play,” Deutsch’s Sheldon says. “I don’t look at Super Bowl ads as TV commercials. The Super Bowl is a social media and PR phenomenon that has a number of integrated components in which one is a TV commercial.”

MORE Watch Victoria’s Angels Play Football (in Actual Football Attire)

Courtesy of DeutschThis photo of a kid dressed as Darth Vader inside a Burger King inspired the creative team at Deutsch as they were making “The Force” ad.

More than any other ad agency, Deutsch appears to have been the first to recognize that new paradigm. Back in 2010, when the agency won a bid to develop the TV campaign for Volkswagen’s Jetta and Passat lines, employees in Deutsch’s Los Angeles offices had placed funny photos above their four-color copy machine, one of which was a kid in a Darth Vader costume sulking inside a Burger King. That inspired the company’s creative team to come up with a spot featuring a similar kid dressed as the Star Wars villain who keeps failing in his attempts to use the Force around his home until he succeeds in turning on his dad’s new Volkswagen (the assist from his dad, who actually turned on the car, was a clever way to tout the Passat’s new remote starter). It was a perfect combination: the enduring popularity of Star Wars, childhood nostalgia, touching moments between a father and son, a narrative arc that went tidily from conflict to resolution, and plenty of humor thanks to a 6-year-old dressed as a notorious movie villain.

“If you don’t have all of these ingredients, the spot really doesn’t work,” says Tom Else, Deutsch’s VW account director.

Deutsch executives say it was a rare spot where there were essentially no changes or edits coming from inside creative or from the client.

“Very early on we knew it was extraordinary, but you can never predict what the world thinks is fantastic,” Else says.

Soon after it launched, “The Force” became the most shared TV spot of all-time, according to Unruly, which tracks and analyzes viral videos. The ad held the top spot for three years, until July 2014, when it was knocked off by a music video sponsored by yogurt brand Activia and featuring the singer Shakira. But “The Force” is still considered the most shared Super Bowl ad of all time.

“Every decade or so, there’s lightning in a bottle,” says Matt Jarvis, chief strategy officer of ad agency 72andSunny, which produced a popular Super Bowl ad for Samsung in 2013 and created a spot for Carl’s Jr. this year. “And I think this is one of those cases.”

Jarvis says “The Force” successfully used a combination of both earned media—YouTube hits, for example—along with paid media, such as a 15-second teaser spot that aired on “Saturday Night Live” the night before the game, to create momentum that continued through the Super Bowl.

“It was about building that wave and then riding that wave,” Ellis says.

It helped that the ad contained all the components of a viral hit. Unruly recently group-tested “The Force” and found that it still resonated with viewers, discovering that it hit five of 10 “social motivators” that Unruly’s execs say trigger people to share something. They found that viewers sent the ad to others in part because it reflected a shared passion with someone else (love for Star Wars, for instance) and that sharers believed it could be useful (their friend might be looking for a new car). But Unruly also found that it resonated on a more gut level, eliciting feelings of joy and surprise when the kid “turns on” the car, which researchers says is a key component in motivating us to share.

MORE Budweiser’s Super Bowl Ad About a Lost Puppy is an Emotional Roller Coaster

“It’s a great example of emotion,” says Jonah Berger, a marketing professor at the University of Pennsylvania and author of Contagious: Why Things Catch On, adding that the peaks and valleys of the kid failing and finally succeeding, as well as the nostalgia it can elicit, are the main triggers for why it went viral.

After “The Force’s” success, Deutsch sensed that other advertisers would start releasing their ads early as well. So in 2012, the agency released the first full-length ad for an ad when it launched The Bark Side, which included dogs bark-singing Star Wars’ Imperial March. For the game, it released The Dog Strikes Back as its official Super Bowl ad, which again included the Darth Vader Kid from the previous year’s commercial. Both ads have remained in Unruly’s top 20 viral Super Bowl ads of all-time.

Since “The Force,” advertisers have increasingly created teaser ads, alternate versions of their Super Bowl commercials, or have released the ad in its entirety early. Among this year’s efforts to gin up early buzz are a T-Mobile spot featuring Kim Kardashian, a teaser for a Nationwide ad with actress Mindy Kaling, and a Bud Light spot that debuted on “The Tonight Show With Jimmy Fallon.” Dove, meanwhile, posted a version of its ad almost two weeks before the game, while Lexus released its full ad more than two weeks before Super Bowl Sunday.

MORE Watch a Dude Run Through a Life-Size Pac-Man Game in Bud Light’s Super Bowl Ad

There are now essentially three groups of brands competing during the Super Bowl: those who release their ads early, those who tease their ads, and those who keep the ads a surprise. Northwestern’s Calkins says that for most advertisers, getting out early is often the best strategy.

“The Super Bowl builds over a matter of weeks, so if you’re a marketer, you have an opportunity to engage with customers for seven, 14, 21 days,” Calkins says. “You can really get some mileage from your creative.”

The challenge for Super Bowl advertisers, Calkins says, is twofold: breaking through the noise and saying something important about the product. “The hard thing is doing both of those things at the same time,” he says. “Ideally, you come up with an ad as charming as ‘The Force’ that also delivers a product benefit. But that is incredibly difficult to do.”

This year, Deutsch is working on two ads: one for mobile battery company mophie, and the other for Sprint. The company released the mophie spot on Thursday:

It’s designed to be understood even if you can’t hear the TV over loud and rowdy friends. “If you’re relying on some sort of audio or voice gag, it can get missed,” Sheldon says. “You can run that spot with no audio and you get the joke.”

But Deutsch is going in a different direction with its Sprint ad. While the agency has created a teaser, the actual ad won’t be released before the Super Bowl. The hope is that it can distinguish itself by swimming against the tide the agency helped create.

“When everybody else is screaming, the one whispering stands out,” Sheldon says. “It has a different volume than others. We’re breaking our own rules a little bit. It’s the kind of spot that you wouldn’t want to release early.”

Read next: 49 Super Bowl Facts You Should Know Before Super Bowl XLIX

Listen to the most important stories of the day.

Your browser is out of date. Please update your browser at