Taxing Peter to Pay for Paul

Several members of Congress, and individuals aspiring for higher offices, tout higher marginal tax rates on high income earners as an effective tool to address income inequality and fund additional government spending programs. Individuals of this persuasion often point out that marginal tax rates were around 90% during the 1950’s and 1960’s and GDP still grew between 4-5% per year. Joe Nocera’s recent Bloomberg article discusses the often omitted story of the great American past time, tax avoidance. He highlights how high earning entertainers like Frank Sinatra and Bing Crosby used loopholes in the tax code to shield large portions of their income and reduce their effective tax rate to about half of their 90% marginal rate.

My inner-cynic thinks that talk about raising marginal rates on high earners is more about scoring political points with a voting base and a means to usurp power by making/protecting tax loop holes for preferred special interest groups more valuable. If the goal was to actually increase the tax revenue collected from high earners and create a more equitable tax code, the focus would be on closing and/or capping the value of loopholes in the tax code.

I think the optimal tax code would be a single tax rate for all filers with an exemption on the first $X of income (i.e. 1-1.5x the poverty line). This would significantly lower the effective rate for low income earners and high earners’ effective rates will approach the actual tax rate. I would treat all entities as pass though entities so all income is taxed at the individual filer level. This would simplify things and eliminate the need for an additional tax rate for capital gains and dividends. The single tax rate also eliminates the ability to selectively (punitively) raise taxes on specific groups of individuals/corporations.

I am not a tax policy expert, but I agree with Joe Nocera’s parting shot below.

I’m not saying we couldn’t do with more taxes on the rich. But let’s be careful. When Bing Crosby won’t give a concert, it’s safe to say that the marginal tax rate is too high

Please use the comment section to criticize my tax plan or share any interesting articles or opinions on improving tax code.

Sebastian Junger on Econtalk

EconTalk host Russ Roberts wrote a thoughtful blog post in response to the October Pittsburgh synagogue shooting. Rather than taking the opportunity to attribute the act of violence to a de jour of hot button issues like antisemitism or gun control, he chose to offer his own hypothesis for what drives these attacks, loneliness.

Having previously read Sebastian Junger’s book, Tribe, I found myself wondering how Mr. Junger would respond to the article. I was pleasantly surprised to see that Sebastian Junger was the guest on this week’s EconTalk episode.

While I highly recommend reading both the blog post and Tribe, I think the podcast can stand alone and is worth a listen.

Please use the comments section to share your thoughts or any content that you think adds to the discussion.

My Podcast Hit List

a16z: On Marrying Entertainment and Technology Marc Andreessen interviews Meg Whitman and Jeffrey Katzenberg. While I enjoyed learning about their new mobile video platform, Quibi, I found their discussion about the economics of television shows particularly interesting. I had no idea that production costs for a major network television show could approach $100,000/minute. I now understand why historically HBO, and now Amazon and Netflix, with their subscription models always seem to produce better content than the major television networks that rely on ad sales to fund programming.

Broken Record: Nashville Revolution: Bobby Braddock, Don Schiltz, and Don Henry. Malcolm Gladwell interviews three songwriters as they share their stories, talk shop and play some of their songs they’ve written over the last 40+ years in country music. As someone who doesn’t consider themselves a creative, I always find it fascinating when I get a glimpse behind the curtain and see the process of making art.

Please use comments to share any of your favorite podcasts that you’ve recently enjoyed.

Marginal Revolution's Top Non-Fiction books of 2018 List

As an aspiring inforvore, I am always on the lookout for non-fiction book recommendations. After coming across Marginal Revolution’s Top Non-Fiction Book of 2018 List, I have added a couple more to my list. I have read and enjoyed Nassim Taleb’s Skin in the Game. Victor Stebestyen’s Lenin, the Man, the Dictator and the Master of Terror is already on my reading list.

Please use the comment section to share your thoughts on any books on the list or to make recommendations for other non-fiction books.

My thoughts on RealtyShares shutdown

The announcement that RealtyShares was shutting down only 14 months after closing a $28 million Series C round caught me by surprise. While I expect to see many failures as the real estate crowdfunding sector matures, I did not expect RealtyShares to be one of the early losers. A venture backed site (over $60 million raised) with good deal flow seemed to be on the path to long term viability.

I had an open investment on ifunding when that platform failed back in 2017 (Crowdfunding Nightmare). This experience made me acutely aware of platform risk. I think the value proposition of real estate crowdfunding is that it allows investors to make smaller investments so they can build a diverse portfolio to reduce sponsor specific risks. However, crowdfunding sites create platform risk where several investments can stop performing because of a single platform failure.

I think for the near term, matchmaker crowdfunding sites like RealCrowd that facilitate investors participating directly with sponsors, rather than buying parts of deals and then repackaging them into smaller pieces for investors, are the best way to participate in real estate crowdfunding. Investors will definitely face higher minimums (25k+) but reduce their counterparty risk by investing directly with the sponsor.

I think the killer application for RE crowdfunding would be a service that creates a distributed ledger that significantly reduces administration costs for the sponsor making it economically feasible to accept a larger number of smaller investors.

Please use the comment section to share your thoughts on your real estate crowdfunding experience. I have included some relevant articles below.

  1. Financial Samurai discusses The Sad Demise of RealtyShares

  2. The Real Estate Crowdfunding Review

  3. Ben Lane on Housingwire

Disclosure: While I am member of both platforms, I have not participated in deals on either platform. I enjoy listening to the RealCrowd Podcast.

Krugman, Krugman Everywhere

I had mixed feelings after enjoying Tyler Cowen’s podcast episode with Nobel Laureate Paul Krugman more than I expected. On one hand, I found Krugman’s insights to be very thoughtful and more nuanced than his opinions shared in his frequent New York Times Op-Ed column. From listening to him speak, it was clear he is very intelligent and still has the ability to think like an economist when he desires. I am also further disappointed that he uses his written platform for partisan pandering and increasing his popularity rather than stimulating intellectual discourse. Regardless of how you feel about Krugman, the episode is definitely thought provoking and worth a listen.

Bryan Caplan reacts to some of Paul Krugman’s comments in the above mentioned podcast in his recent article to discuss the idea that we, including Nobel Laureate Paul Krugman, hold markets to a much higher standard than we do our own government. He asserts that we criticize markets for imperfections but allow the government to operate as long as it avoids disaster.

I do not think comparing markets to government is entirely fair. Markets have the advantage of being able to make adjustments to real time information as changes are implemented, while government action requires voting, making decisions based on old information, and a significant time lag before implementation. Further changes require repeating the process all over again. Markets can behave more like an outfielder adjusting his course to chase down a fly ball while government action works more like an artilleryman where he has to wait and see where the projectile lands before being able to make adjustments for the next shot.

Please use the comments section to share links to any interesting podcasts/books you are currently consuming.

Maybe Capitalism ain't all that bad

Donald Boudreaux’s article takes advantage of the 2018 Nobel Prize winning economist William Nordhaus’s recent notoriety to highlight one of the Nobel Laureate’s older works that attempts to measure the economic impact of technological innovation. The most interesting finding from the paper is that from the period 1948-2001 producers only captured 2.2% of the economic benefits while consumers received the lion’s share of 97.8%. Professor Boudreaux asserts that capitalism, rather than the innovator’s benevolence, is responsible for the split.

I’d be willing to bet the next time you read an article that highlights Jeff Bezo’s $147 billion net worth, it will fail to mention the $6.5 trillion of consumer value created.

Lagniappe: For those who want to read more of Donald Boudreaux’s work, check out his blog Cafe Hayek.

David and Goliath walk into a bar

I recently came across Derek Thompson’s article on the economics of the craft beer industry. The fact that so many small companies can thrive despite operating in a de facto duopoly where the industry leaders produce 90% of the world’s beer is quite remarkable. By creating premium products, and charging premium prices, small companies are able to survive despite lacking the economies of scale that benefit the larger firms.

When thinking about other industries that behave similarly, chocolate and coffee come to mind. I am curious to see how small firms will carve out their own niches and compete in other sectors of the economy that are currently dominated by de fact monopolies like Amazon and Google.

Please use the comments section to share your favorite craft breweries and craft beers that I should try.

ECS on Tipping

As my mother's de facto tipping expert, I initially wanted to discuss tipping after listening to an EconTalk podcast with Anthony Gill on the topic last November but was unsure of what I had to contribute on the subject matter. However, after a lively group text about whether I tipped enough for a surprisingly cheap haircut at the VA barbershop, it was clear that we had divergent tipping practices and I felt compelled to share my thoughts.

When used optimally, tipping should be a reward for providing better than expected service. It can also be used by the customer to signal that she is willing to pay more for premium service. A couple of dollars in the tip jar while ordering at a food truck can go a long way towards making sure you get a stacked sandwich or larger than normal sack of fries. I am not sure when it became a social norm to use tipping to subsidize restaurants that underpay their staff. My preference would be to pay higher food prices and not be expected to tip for average service. Because people do not openly discuss their tipping practices, there appears to be significant variation in how individuals tip.

I have included some of my tipping practices below. Please comment to share your tipping habits or resources that have influenced your behavior.

  1. Takeout/fast casual: 10% or $1/entree
  2. Dine-In: 15% for bad service or 20% for everything else (% of total bill tax included)
  3. Haircut: $5 (haircut for me under 20 bucks)
  4. Alcohol: $1/beer or unmixed drink, 15-20% cocktail
  5. Coffee: $1 (I drink black coffee)
  6. Crowded Bar: tip upfront for anticipated number of drinks
  7. Bell Boy: $1-2/bag when I drop off my bags off
  8. Street Musicians: $1-2 if I stop to listen
  9. Extraordinary service- my discretion 

1000+ Pageviews

The Ever Curious Skeptic crossed the 1000 pageview milestone earlier this week.  I wanted to take this opportunity to thank everybody who has taken the time to read and comment on ECS. I started this blog to create a repository for content that I was previously sharing with friends via email and continue to be surprised by how many people have visited the blog. So far, we've had readers from 33 states and 12 countries visit the site. I've also had one of my articles reblogged on KevinMD

My Favorite Posts

  1. Friday Lunch at Galatoire's
  2. REK

Most Viewed Posts

  1. Irrational Medicine
  2. Friday Lunch at Galatoire's

Next, I hope to improve reader engagement and increase the number of comments in response to my posts. My ultimate goal is for the content in the comment section to be as informative as the posts themselves.  

Please comment to share your favorite posts and why or make suggestions how to encourage reader engagement.

Thanks Again,

ECS

Pension Facts of the Day

  1. Sarah Krouse discusses the $4 Trillion Pension Hole in her recent WSJ article.
  2. Ted Dabrowski & John Klingner highlight Chicago's $125,000/household pension debt

I think these articles demonstrate the magnitude  of the public pension funding gap at both the macro and household levels. Even those of us without public employee pensions will most likely be affected whether through future tax increases or decreases in public services as municipalities and states struggle to meet their pension obligations.

While I think it is easy to identify the problem, solving the issue will definitely be a challenge. Personally, I think the long term solution is to reduce future pension obligations by transitioning from a defined benefits to a defined contributions plan. I think both the employer (taxpayer) and the employee would be better off with a 401k style account with a large annual employer contribution. This will prevent politicians from making future pension promises to buy current votes and will eliminate the compounding effect of under-funding pension funds and overly optimistic investment returns currently plaguing pension funds. It will also protect the employee from future benefit cuts as states and municipalities are unable to meet current pension obligations.

While it may appear that this proposed solution will transfer investment risk from the employer to the employee, I would argue that the employee has always been on the hook for lower than expected investment returns. I'd also expect that through tools at discount broker's such as Charles Schwab, Vanguard, Wealthfront and Betterment that employees could get similar returns for lower fees than employer managed pension funds.

Please use comment sections to push back at my proposed solution and share other interesting articles that pertain to this topic.  

True Impact of "Securing the Border"

I wanted to share some interesting content I've come across in the past week. I do not have much expertise on the topic, but think these perspectives are provocative and are worth sharing. 

  1. Malcolm Gladwell's recent podcast episode suggests that US attempts to secure its borders are not having their intended effect  (Hint: works a lot more like a prison and a lot less like a castle)
  2. Bryan Caplan's recent Economist article discusses the cost of closed border policy on the World economy. (Hint: $78 Trillion)

Please use the comment sections to share your thoughts or other interesting articles on the subject.

 

How should we evaluate Social Media Influencers?

Taylor Lorenz writes an interesting article about how hotels are struggling to identify the right social media influencers to better market their properties. My biggest surprise from reading the article is that it does not appear that hotels have a systematic approach to evaluating influencers. It seems like they have taken more of a spray and pray approach. 

As a blogger trying to grow my audience, I've become interested in finding the best places to share my content. Thus far, I have shared posts on Facebook, LinkedIn, KevinMD, Instagram and Twitter.  In my limited experience, my Facebook network brings the most eyes to my blog, despite reaching a much smaller audience than other avenues such as KevinMD which gets approximately 3 million page views per month. I suspect the outsized response is due to the fact that my Facebook Friends feel more connected to me and are more willing to engage with my content.  Other than through trial by error, I'm not sure how to assess the level of engagement with users on other platforms. It is nice to see that I am not the only one struggling with this issue.

Please use the comments sections to share your thoughts regarding how you've evaluated/identified opportunities to grow your audience.

 

The Intelligent Economist: Top Econ blogs list

The Intelligent Investor's Prateek Agarwal compiles his list of top 100 Economics Blogs on his recent blog post.  There are several interesting blogs that I am looking forward to exploring their content. I have included my top 4 below. Please use the comments section to share your thoughts on other blogs on the list or to recommend any omissions.

  1. Marginal Revolution
  2. Cafe Hayek
  3. Grumpy Economist
  4. Conversable Economist

Lagniappe: Grumpy Economist post on California Solar Panel Mandate

Taxi Reform by Uber

To commemorate the 7 year anniversary of Uber's launch in New York City, Barry Ritholtz pens an op-ed claiming that the NYC Taxi and Limousine Commission created the market opportunity for Uber to enter and thrive in NYC. By using its regulatory moat, the TLC was able to restrict the number of drivers through its medallion system. 

I wonder if Uber would have had the same success if the TLC had been more focused on meeting the needs of their riders rather than its medallion holders.

I have included an excerpt from the article that shows how the entrance of Uber impacted the price of taxi medallions. 

All of these failings would be much less likely to take place in a competitive market. We know this is an artificial monopoly because of the price behavior of medallions after market competition began: prices for medallions peaked shortly after Uber came to town, but before it had much of an impact. Bloomberg Businessweek reported that medallion prices, which peaked at $1.3 million in 2013, were already sliding, falling below $900,000 in 2013. Just two years later 2015, prices had fallen another 40 percent.

And it got worse: By 2016, the lowest reported price was $250,000. Last year, medallions sold for as little as $241,000. They are still falling. Axios noted a recent transaction that went for just 8 percent of the peak value, or about $100,000. Other cities, such as Chicago, have seen similar declines in medallion prices.

 

Tesla Facts of the Day

Dana Hull and Hannah Recht write a critical review of Tesla's cash burn rate and potential liquidity challenges in their recent Bloomberg article.  While I greatly admire Elon Musk as an inventor and innovator, I am also flummoxed by his apparent deficits as an operator as Tesla continues to miss its production targets. However, my interest in the article has nothing to do with whether or not I think Tesla is viable as a long term company. I have included my favorite facts below. Please share yours or links to other articles in the comments section.

  1. The current cash burn rate is $6500/minute. It took me $52,000 to read the article.
  2. Tesla has approximately $875 million dollars in deposits for future cars and prepayment for features that Tesla has not successfully developed yet.
  3. Telsa has received $1.3B or $3,500/car sold from selling Zero Emissions credits.
  4. The company currently has 40,000 employees and majority of its manufacturing process is currently being done by hand and not through automation.

Disclosure: I probably own shares of Tesla as part of Broad US market index funds held in both my brokerage and retirement accounts.

EconTalk on Suicide of the West

While I have been doing more writing on this blog as of late, I also want to use this blog to share other original content that I find particularly interesting.  

Russ Roberts and his guest Johan Goldberg discuss how tribalism, nationalism and populism are hurting the "American Exceptionalism" that they are supposed to protect.  Despite having different political ideologies, I found their discussion thoughtful and mostly partisan free.  If you enjoy this episode, Jonah's book is available for sale on Amazon

Please use the comment section to share your thoughts on the episode. Also, if you've read the book, let me know if it is worth a read.

REK

I came across this great Jeff Gage article about Texas Singer-Songwriter Robert Earl Keen and felt compelled to share it.  I remember listening to REK on Red Dirt Radio Hour as a teenage boy growing up in Tulsa, Oklahoma and continue to enjoy his music to this day.  As a fan of Red Dirt and Texas Country music, I cannot count the number of shows I've been to where the headliner, after covering one of his songs, would then tell their own Robert Earl Keen story about how they met him and what an honor it was to play on the same stages.  I have always thought of him as the musical equivalent to a Comic's Comic and think this article does a great job of expounding on this idea.

The first time I saw Robert Earl Keen in concert was at Cain's Ballroom in Tulsa, Oklahoma back in August 2005. It was the Monday before I was heading off to college and decided to go with my remaining friends as a last hurrah before we departed. Because it was a midweek show, the crowd was small and they had set tables up on the historic dance floor in front of the stage.  While I was initially disappointed about the tables and the small turnout, I would not have had the fortunate experience of buying him a beer and chatting between sets without it being a more intimate show. I still enjoying sharing that story every chance I get.  

I soon became one of those Texas fraternity boys mentioned in the article. Whether we were cooking hamburgers at the house, out at somebody's ranch for the weekend, hanging out at an apartment complex pool, or enjoying a hot summer day on the Green Belt or Hamilton Pool, Corpus Christi Bay and Gringo Honeymoon always found their way onto our playlists.  We even made the pilgrimage to Texas Country Mecca to see Robert Earl Keen play at Gruene Hall. 

Most recently, my wife and I got to see him in concert with Lyle Lovett in Albuquerque, New Mexico in February 2018.  We were not sure what to expect seeing him at a performing arts center rather than a beer joint/dance hall. The banter between the two of them and the stories of their musical careers between songs was every bit as entertaining as the music they played.  They told stories about touring with artists they admired like Guy Clark and the late Townes Van Zandt. It was very similar to the way Randy Rogers, Cory Marrow and Pat Green talked about Robert Earl Keen when I used to see them in concert.

My top 5 Robert Earl Keen songs (in no particular order). Please use the comments section to share REK stories, as well as, your favorite songs that didn't make my top 5.

  1. Gringo Honeymoon
  2. Corpus Christi Bay
  3. Feeling Good Again
  4. Think It Over One Time
  5. I'll Go On Downtown

My Perspective on the Facebook and Cambridge Analytica Story

Since the New York Times/London Observer story regarding the Trump campaign's use of Cambridge Analytica tools to target potential voters broke on March 17th, we have been inundated with news reports, articles, and blog posts about how a Facebook "Data Breach" helped Trump with the 2016 U.S. Presidential election. This story seems to piggyback the recent stories about Russia using Facebook to help Trump win the 2016 election.  My first thoughts were if Facebook can be so easily manipulated to sway elections, why couldn't the Bernie Sanders or Hillary Clinton campaigns, with their more technologically engaged base,  take advantage of the platform. With the amount of media coverage, and no actual data breach, I figured there must be more to the story.

As I read further into the story, it appears that the Trump campaign engaged Cambridge Analytica to help target potential voters with ads on Facebook. Aggregating user data and selling it to advertisers is a regular business practice for Facebook.  In fact, using my google browser and typing the search terms "does Facebook sell your data" I can find many articles dating as far back as 2014 that acknowledge the practice. Also, Facebook is not the only company that sells user data.  Major news networks like CBSNewsweek and ProPublica have been publishing articles about harvesting user data since 2012.  My internal cynic thinks that most of the media coverage and outrage either has to do with the fact that political campaigns are using big data to get votes or that unpopular President Trump benefited from this round.  Contrary to the recent sentiment, consumers often benefit from sharing data with advertisers. We seem to appreciate our data being analyzed when Amazon recommends a book based on previous purchases and when Netflix suggests what TV shows we may enjoy.  

While Cambridge Analytica did not hack into Facebook to obtain user data, their actions were deceptive. Cambridge Analytica was able to obtain data from an individual who went through the appropriate Facebook channels to access the data. While Facebook did not directly give Cambridge Analytica access, it does not seem that Facebook made much of an effort to prevent Cambridge Analytica from using it. Furthermore, Facebook's request to have Cambridge Analytica cease using data and delete it in 2015 shows that Facebook had been aware of how the data was being used and did not take action until the NYT article was about to be released.

My Takeaways

  1. Cambridge Analytica used deceptive tactics to obtain Facebook user data and lied  about their intended use of the data. 
  2. Facebook probably failed to live up to its obligation to protect user data . (I confess that I have not read though Facebook user agreement)
  3. I need to be more consciousness about what apps I allow to view my data.

Interesting Articles on the topic

  1. Cass Sunstein's op-ed implores us not overreact to this news story.
  2. Tyler Cowen's article  discusses how this story fits the larger narrative that "tech fears" are driven by the fear of loss of control.
  3. Leonid Bershidsky's op-ed argues that Facebook's business practices, and not Cambridge Analytica, are the bigger issue.
  4. The Daily Podcast episode walks through psychographic messaging and the mechanics  Cambridge Analytica used to acquire Facebook user data. (for sensationalized, partisan fueled hot takes, take a look at the "Background Reading" below the podcast episode)
  5. Josh Constine's article highlights the impact of Facebook Ad spending during the 2016 Presidential election

As per Metcalfe's Law, the value of networks grow as the size of the networks increases.  The impact of social media will continue to grow as more people become connected. The combination of larger networks and more powerful analytical tools, will enable advertisers to better target their potential users.  When used for good, it will facilitate cooperation to solve problems that stumped previous generations. However, it also enables bad actors to target susceptible victims.  It will be interesting to see how users protect themselves without completely disengaging from social networks.

Please use comments to share other thoughtful analysis of the story or ideas of how we can protect ourselves from being manipulated from similar events in the future.