In a post a couple of weeks ago ("How not to negotiate"), I mentioned a potential vendor who had pissed me off. As I noted in a later comment on that post, in retrospect I had handled our interaction poorly. I knew the right negotiating tack (as I've used it successfully before) and took the wrong one instead. The right response when asked by a potential vendor what your budget is is to say, as I have on previous occasions,
I prefer not to specify a budget ahead of time, so as not to prejudice your estimate.
Instead, for some reason I took the bait and made a low ball offer. In a post yesterday on her Atlantic blog ("The Naive Negotiator"), Megan McCardle explained the problem with low ball offers:
There is a zone of possible agreement (known to those who study this sort of thing as the ZOPA). You can't negotiate your way out of that zone no matter where you start. Nor does starting from a more aggressive bargaining point always mean that you will do better in the negotiation. It can often mean you do worse, because you poison the process.
My mother used to sell real estate, and you'd see this a lot with stupid buyers, particularly men using newbie agents: they'd submit an unrealistically low bid on the notion that this would force the buyer to bargain down. What it actually did was convince the buyer that it was a waste of time to negotiate with you, and/or make them angry.
The Atlantic's Ta-Nehisi Coates isn't sure. Neither are most of his commenters. In about an hour of my life I won't get back, I took a slightly different view in the comments there.
Judge Posner, who in addition to being the co-author, with his Nobel Laureate friend, of the Becker-Posner blog is an Atlantic correspondent, has this piece today on the Atlantic's website about the Goldman bonuses. Worth reading the whole thing, but here's an excerpt:
Goldman Sachs, we learned earlier this month, may end up paying more than $20 billion in bonuses to its employees in 2009. The controversial bonuses that American Insurance Group (AIG) had wanted to pay had been intended to reward performance before the company collapsed, and most of the recipients appear to have had no involvement in the decisions that precipitated the collapse.
The Goldman bonuses, in contrast, were intended to reward Goldman's employees for their outstanding performance during the economic crisis. The performance was made possible by the government's having bailed out Goldman in September 2008, when it is believed that, upon Lehman's declaring bankruptcy, Morgan Stanley was 24 hours away from following suit--and Goldman Sachs 72 hours. It was saved by receipt of bailout money and, more important, by being permitted to convert from a broker-dealer to a bank holding company. That entitled it to borrow from the Federal Reserve -- unlike Lehman Brothers, which was denied a Fed loan because it was a non-bank. That was not a sound basis for denying it a loan, but Goldman would have been in the same boat, had it not converted.
So the argument goes: Without government aid then, no $20 billion-plus in bonuses for Goldman Sachs's employees in 2009? Maybe zero in bonuses, maybe indeed, no Goldman Sachs at all. Against that background, the bonuses seem egregious. It seems that the government drove a bad bargain when it bailed out Goldman, that it should have demanded a big chunk of Goldman's future profits.
Posner goes on to note that the majority of the firm's profits in the last year came from proprietary trading, an activity, he argues, that is of limited societal value. Posner posits some negative political and economic consequences of this.
The image above accompanied Posner's Atlantic essay and was credited to Chris Hondros/Getty Images.
There's a spirited discussion on Ta-Nehisi Coates's Atlanticblog about Aaron Renn's essay The White City, and Renn himself stops by to join in the conversation. In his essay, Renn noted that many cities such as Portland and Seattle that are praised for their progressiveness have something in common: few African Americans. One objection Coates raised to Renn's argument was that Renn excluded large cities such as New York that do have significant African American populations and of course also attract young progressives. In response, I noted that many of the soi dissant young progressives in New York end up congregating in trendy neighborhoods that are far less diverse than the city as a whole.
I made a similar comment in the comment thread following Renn's essay and linked to a post of mine from earlier this year that included the photo above, from a New York Times article on the burgeoning culinary entrepreneurship movement in Brooklyn. I noted that the photo gave a sense of the sort of diversity one might find in some of the trendier neighborhoods in New York City.
On his Atlantic blog, former Carter speechwriter James Fallows snarks,
Yes, that Olympic rejection really makes Obama look weak...
Talk about a contemptuous outside world.
Of course, the "outside world" didn't make the decisions in either case, but it's worth considering who did. The Olympic bid was awarded by a diverse group of 106 individuals hailing from many different countries. The Nobel Peace Prize was awarded by these five Norwegians.
In fairness to Fallows, he did write a more compelling post on the subject later, giving a former speech writer's analysis of the President's remarks this morning on hearing he had won the prize.
Congratulations to the Commander-in-Chief of the U.S. Armed Forces, currently engaged in the eighth year of a (recently escalated) war in Afghanistan, and the seventh year of a war in Iraq, along with a smattering of smaller engagements from the Horn of Africa to the Philippines, on winning the Nobel Peace Prize.
Apparently, the Norwegian committee that awarded the Nobel to President Obama also admired his commitment to dealing with "climate change". I like how the Norwegians are concerned about carbon emissions. Not concerned enough to stop pumping their North Sea oil though. Norway looks as out of place as Saudi Arabia on the climate change on the bandwagon
According to the Atlantic Wire, a number of prominent pundits across the political spectrum are recommending that the President turn down the prize.
Popular Mechanics: Yet health-care costs do keep rising. Is there a point at which we simply can't afford the most advanced treatments?
Kamen: Diabetes alone, if you include all of the long-term, insidious consequences of a lifetime of diabetes, is responsible for about 30 percent of the federal reimbursement for healthcare. Taking care of the diabetic every day is a small piece of it. But what if tomorrow we could wipe out diabetes, suddenly everybody takes a pill and it cures the people that have it, and it inoculates the other people so they'll never have it? Forgetting what a great life that would give people and their families, you take care of 30 percent of what now we project as this insurmountable problem of healthcare, which they project is going to kill us.
Well, it would kill us if we look at the 30-year actuarial data based on our 19th century confidence in technology. But I'm sure in 1920 if you asked actuaries to say what percentage of our GDP are we going to spend taking care of people with polio, they'd say: "They get polio, it goes to their lungs, they sit in iron lung machines, they could live a whole lifetime with three people watching over them. We can't support them all."
But what did it cost to deal with everybody with polio? Oh, $2 apiece. We gave them the Salk vaccine. But in the 1920s Salk wasn't around yet.
I'm with Kamen on the importance of market incentives in spurring innovation in health care, but I don't know if the Polio vaccine was the best example for him to use here: Salk refused to patent it1. Nevertheless, even if he had patented it, the cost of the vaccine could still have been far less than the cost of keeping people alive in iron lungs, so Kamen's point still stands. He could have used a better example though to support his point. Back to the interview:
PM: In other words, R&D spending now may save money later?
Kamen: If you project forward these horrific costs of treating everybody and you want to assume we are not going to respond to that by making the therapies better, simpler and cheaper and in some cases completely wiping out the [diseases], well you know what? We might actually get to that situation—if we stop investing in technology, if we stop believing that the future ought to be better than the past.
If we want to sit here and keep assuming we should be fighting, and that we should be striving to spend less of our intellectual power and our money on great achievements to come in healthcare—that we should be fighting to make it a smaller piece of our economy—I want to know what you want to make a bigger piece of our economy. What do you want to see the future look like?
I think this debate shows a fundamental lack of vision, a lack of confidence, a lack of understanding of what's possible.
Coincidentally, Tim Ferriss blogged about Kamen today, and in the comment thread I mentioned that Kamen was featured on an episode of the Sundance Channel series Iconoclasts (he was paired with Isabella Rossellini). Kamen is a fascinating character, which made this a fascinating episode to watch. Here is a brief clip from that episode.
The photo above of Dean Kamen accompanied the Popular Mechanics article.
1If Salk's research weren't funded by the University of Pittsburgh and National Foundation for Infantile Paralysis -- if, say, he had been the founder of a start-up pharma company -- he would have had to patent the vaccine in order to recoup his and his investors' investment in the drug's development.
Not quite, but close: The Atlantic's James Fallows blogged recently about the Livescribe Pulse Pen pictured above. His description of it reminding me of a futuristic pen described in the science fiction short story Radiant Doors by Michael Swanwick. First, here's Fallows describing the Pulse Pen:
Here's how it works: The somewhat plump looking, cigar-sized item, propped on a pack of special notebooks above and below, is both a ballpoint pen -- and a very sensitive, high-quality, high-capacity tape recorder.
[...]
The pen I have holds up to 2GB worth of recordings -- many many many hours' worth.
But in addition to recording sound, the pen also includes a very small camera at its tip, which many times per second takes pictures of whatever you are writing in the special notebooks.
[...]
[T]he pen registers exactly what sound you were hearing at exactly the moment you are writing a certain word, letter, or doodle. Then when you want to hear the recording, you can point the pen to that word and hear what was being said at the time. More on how it works here.
What does this mean in practice? Suppose you're having an hour-long interview, in my case -- or listening to an hour-long lecture as a student, or sitting through an hour-long business meeting. When something comes up that you want to remember, you can write a note at just that point ("Interesting point about Poland") and later go back to get just that part of the conversation. You do so by touching the pen's tip to the relevant phrase in the notebook, or moving your cursor to it on a stored online image of the page. No searching through the whole hour's recording; no need to make sure you write down every detail in real time.
Now here's a brief excerpt from the Swanwick story that features a pen from the future that performs a similar function. The premise of the story is that refugees from the future start appearing through "radiant doors", and governments have set up refugee camps for them. In this excerpt, the speaker/protagonist is interrogating a refugee about future technology:
I sat interviewing a woman whose face was a mask etched with the aftermath of horror. She was absolutely cooperative. They all were.
[...]
"What do you know about midpoint-based engineering? Gnat relays? Sub-local mathematics?"
Down this week's checklist I went, and with each item she shook her head. "Prigogine engines? SVAT trance status? Lepton soliloquies?" Nothing, nothing, nothing. "Phlenaria? The Toledo incident? 'Third Martyr' theory? Science Investigatory Group G?"
"They took my daughter," she said to this last. "They did things to her."
"I didn't ask you that. If you know anything about their organization, their machines, their drugs, their research techniques -- fine. But I don't want to hear about people."
"They did things." Her dead eyes bored into mine. "They --"
"Don't tell me."
"--returned her to us midway through. They said they were understaffed. They sterilized our kitchen and gave us a list of more things to do to her. Terrible things. And a checklist like yours to write down her reactions."
"Please."
"We didn't want to, but they left a device so we'd obey. Her father killed himself. He wanted to kill her too, but the device wouldn't let him. After he died, they changed the settings so I couldn't kill myself too. I tried."
[...] This was something new. I tapped my pen twice, activating its piezochronic function, so that it began recording fifteen seconds earlier.
"Radiant Doors" was one of the stories in Swanwick's Tales of Old Earth collection.
On the Atlantic's Business Channel, Chris Good posts about the return of Bobby Jindal, noting that, given his expertise in health care policy, Jindal has taken advantage of the current debate over President Obama's proposed health care reform to tiptoe back into the national spotlight, now that memories of his awful response to the President's speech have faded. Good also links to Jindal's op/ed about health care policy in today's Wall Street Journal, "How to Make Health-Care Reform Bipartisan". One paragraph from Jindal's op/ed prompted the title of this post:
•Refundable tax credits. Low-income working Americans without health insurance should get help in buying private coverage through a refundable tax credit. This is preferable to building a separate, government-run health-care plan.
What would William Strunk, Jr. have called "refundable tax credits", if such a thing existed in his time? I'm guessing he'd call them what they are: "grants". I'm not sure why Jindal and other conservatives persist in wasting an additional six syllables on the longer euphemism. Perhaps it's so they can characterize government spending on such grants as tax relief instead of government spending, but, if so, this bit of obfuscation just plays into liberals' rhetoric on progressive tax policy. Most liberals are happy to characterize transfer payments to low-income Americans as tax relief, and to characterize tax cuts for the wealthy as a form of government spending. There doesn't seem to be much benefit to conservatives in conceding the rhetorical and policy ground on this, particularly since, as some smart centrists (e.g., Clive Crook) and even at least one smart liberal (Matt Yglesias) acknowledge, we are approaching the point of diminishing returns when it comes to increasing the progressivity of our tax system.
As both men have noted, if American liberals want to expand the welfare state raising taxes on the rich, by itself, won't be enough to pay for it; they'll have to raise taxes (by at least a modest amount) on everyone else. Yglesias has noted that countries such as Sweden, which have social safety nets envied by American liberals, also have much more regressive taxes than we do.
Blogging is, I know, an informal medium, but would it be too much to expect someone with an English degree from an Ivy League university to write better than Megan McCardle does on her Atlantic blog? Here's just one of her offenses today (from this post):
But of course, if Hilzoy [a prominent, pseudonymous liberal blogger] were in the Senate, she wouldn't be Hilzoy; she'd be someone who had just spent some of the best years of their life putting themself into a position to get into the Senate.
How hard would it have been to substitute her and herself for "their" and "themself" (which isn't even a word)?
Sloppy writing often correlates with sloppy thinking.
There are undoubtedly people who want to liberalize the Iranian regime. They are to be found among the professional classes in Tehran, as well as among students. Many speak English, making them accessible to the touring journalists, diplomats and intelligence people who pass through. They are the ones who can speak to Westerners, and they are the ones willing to speak to Westerners. And these people give Westerners a wildly distorted view of Iran. They can create the impression that a fantastic liberalization is at hand — but not when you realize that iPod-owning Anglophones are not exactly the majority in Iran.
[...]
Some still charge that Ahmadinejad cheated. That is certainly a possibility, but it is difficult to see how he could have stolen the election by such a large margin. Doing so would have required the involvement of an incredible number of people, and would have risked creating numbers that quite plainly did not jibe with sentiment in each precinct. Widespread fraud would mean that Ahmadinejad manufactured numbers in Tehran without any regard for the vote. But he has many powerful enemies who would quickly have spotted this and would have called him on it. Mousavi still insists he was robbed, and we must remain open to the possibility that he was, although it is hard to see the mechanics of this.
It also misses a crucial point: Ahmadinejad enjoys widespread popularity. He doesn’t speak to the issues that matter to the urban professionals, namely, the economy and liberalization. But Ahmadinejad speaks to three fundamental issues that accord with the rest of the country [piety, corruption, and an assertive national security posture as a salve for Iranians still bitter over their country's pyrrhic draw in the Iran-Iraq War -- Friedman elaborates on each of these issues in his column].
[...]
Perhaps the greatest factor in Ahmadinejad’s favor is that Mousavi spoke for the better districts of Tehran — something akin to running a U.S. presidential election as a spokesman for Georgetown and the Lower East Side. Such a base will get you hammered, and Mousavi got hammered. Fraud or not, Ahmadinejad won and he won significantly. That he won is not the mystery; the mystery is why others thought he wouldn’t win.
The image above, of a post-election protest, comes from Andrew Sullivan's Atlantic blog, where he is posting the tweets of some of those tech-savvy Anglophones who Friedman notes are not exactly representative of the broader Iranian society.
I'm not a frequent viewer of The Daily Show, but I have to give a little credit where credit is due. By suggesting that if certain liberal policies are enacted we'll be in danger of "turning into Sweden", some conservative commentators floated a big softball over the plate. The Daily Show took a swing at that softball with the video below. This is pretty funny, so let it play first. I'll leave a few more comments below the video.
The conservative pundits warning about Sweden missed two obvious points. The first is that, as the video above shows, Sweden seems like a pretty nice place. Better to invoke the specter of a not-so-nice place when warning of the potential consequences of enacting liberal policies. The second point is that even if our tax burden and our government spending as a share of our economy were as high as Sweden's, that wouldn't make us like Sweden. Sweden is known for (among other things) honest, effective government. As Wolfgang Münchau of the Financial Times has noted, Italians have a tax burden similar to that of the Swedes, but get far less effective government from it. Similarly, invidious comparisons between us and Sweden (e.g., the international education comparisons brought up by The Atlantic when they posted on this Daily Show video) are specious because of the homogeneity of Sweden's population. There is a non-trivial number of Americans of Swedish ancestry; I'd bet they'd do fine in any objective comparison with their cousins in Sweden, if anyone wants to compare apples to apples.
Instead of ominously warning that we're in danger of turning into a pleasant European country if certain liberal policies are enacted, conservatives would be smarter to point out that, regardless of what policies are enacted here, we'll still be Americans, and this will still be America. We need to keep our differences in mind when considering policies: e.g., as we suggested in a recent post, the sort of energy policy that works for a small country that juts out into the North Sea might not work for another country that spans a continent.
Another thought: the bit at the end of the video with the Swedish pop star was a cleverly chosen example of Swedish egalitarianism, but it's worth noting that Sweden has produced its share of extreme wealth as well. For example, the Swede Ingvar Kamprad, the founder of Ikea, is listed as the fifth-richest man on this year's Forbes list of billionaires (Kamprad moved to Switzerland though, presumably at least partly for tax purposes). One nice touch in that video was the inclusion of the ominous theme from Dune. You can hear more of that theme at about 40 seconds into the trailer below:
A Wall Street Journal column last week by the Democratic Political consultant Mark Penn, "America's Newest Profession: Bloggers for Hire", alleged that 452,000 Americans made their living by blogging. One professional blogger, Megan McCardle, explained on her Atlantic blog why this estimate was "addled" ("Blogging for Big Bucks"):
The estimates of professional bloggers seem wildly inflated--if you help update the company blog once a week as part of your marketing internship, you are not a paid professional blogger. And the numbers they themselves link to tell a much different tale from the article: most blogs bring in pitiful amounts of money for their owners.
This seems to follow the model of Mark Penn's book: find some bizarre number and mindlessly extrapolate it to an absurd conclusion. Yet I still don't understand why common sense did not keep him from publishing this article. Anecdotal evidence would suggest that almost all of us know many more computer programmers than professional bloggers--this is true of me even though I am a professional blogger, as are half my friends. Or he might have called some professional bloggers, who would have (sorrowfully) told him that no one is making $75K a year off of 100,000 pageviews a month, that being about how much traffic I pulled when I was starting up in 2002. Or, hell, he might have noticed that in the very BLS survey so nicely transformed into a table for his article, there is not entry for "blogger"--but that if you add up every writer, reporter, editor, PR person, technical writer, or "media and communications worker, other", there are only 499,890. Since Penn says that there are 452,000 paid bloggers, this implies that 9 out of every 10 communications workers are professional bloggers.
There may be one guy with some incredible niche--or moronic employer--making a ton of money with a modestely well-trafficked blog. But the plural of "anecdote" is not data.
Believe me, I'd love to think that blogging is a surefire path to riches and job security--but I'm afraid all most people get out of their blogs is the satisfaction of a job well done.
Coincidentally, a few days after reading Megan's post, I discovered the newest blog by Daniel Wahl, The Nearby Pen ("helps you live a happier and more productive life by sharing good art, reviewing good books, and explaining good thoughts") which included a post ("AdSense Pennies Make Dollars") that unintentionally supported Megan's point about the paucity of bloggers who make significant money from their blogs. In his post, Daniel mentioned the revenues he had generated from his three blogs over the last few months:
Not only will I not be making loads of money with Adsense, but at this stage of the game I should not expect to.
So why use Adsense? Quite simply, because--as the title suggests--pennies make dollars. Or to put it differently, a little bit of money adds up, even if little by little. And who knows, perhaps those pennies will grow faster with traffic at each site. In my view, it pays (at least a little) to learn more about how advertising on one's blog works while the blog is growing. I also think it is interesting. Here's the data for my first three months:
This is no knock on Daniel -- I'm sure if I were using Google AdSense my ad revenues would be as low or lower (which is one reason why I never signed up for them) -- but it underlines Megan's point about why Mark Penn's estimates seem dubious. As for Daniel's point that pennies make dollars: sure, but time equals money, and, for most of us, there are much more remunerative uses of our time than blogging. So why do it? I mentioned one reason in my first post: to attract a few commenters I could get feedback from and bounce ideas off of. Another reason is the same reason most callers call talk radio stations, or letter writers write letters to the editor of newspapers: to express opinions. I have gotten a couple of ideas from writing this blog (or, more accurately, from observing the responses to a handful of posts), and one or two of those ideas could lead to a business opportunity down the road, so, in that sense, this blogging might end up being profitable as a form of brainstorming, but that remains to be seen.
That was the headline of Megan McCardle's post on her Atlantic blog in response to Paul Krugman's New York Times column today about Ireland, "Erin Go Broke". In his column, Dr. Krugman suggested that Ireland got into trouble (it's economy is projected to contract by as much as 10% this year) because it was too free market oriented, noting that Ireland was ranked #3, behind only Hong Kong and Singapore, on the Heritage Foundation's Index of Economic Freedom. What Krugman didn't mention is that Australia, which was ranked #4 on that Index last year (and is ranked #3, switching places with Ireland, on the 2009 Index of Economic Freedom) is weathering the economic storm much better than Ireland or the United States. Australia is in a recession now, but its economy is projected to contract by less than 1% this year. So perhaps having a free market economy wasn't the proximate cause of Ireland's economic troubles.
Megan's post in response to Krugman's column isn't worth quoting here -- the best part of it was the headline, in response to which I wrote,
Hey, is that an allusion to Auden in the headline (from his poem "In Memory of W.B. Yeats"*)? If so, nice: the sign of a tasteful and expensive education (to borrow Neal Stephenson's phrase).
[...]
*I'm thinking of the great line "Mad Ireland hurt you into poetry", which I think of whenever I flip the channels and see Celtic Woman on a local PBS station. I wonder if "Mad Ireland" hurt them into doing their 50-piece Enya covers.
The photo above, of what apparently are the stars of Celtic Woman, is from the Celtic Woman website. Note that the neither the photo nor the name "Celtic Woman" gives a sense of the scope of the enterprise that is Celtic Woman. It appears to be comprised of dozens of Celtic women, along with dozens of Celtic men.
Add the FT's John Gapper to Megan McCardle's crazy contingent1 for questioning the political influence Goldman Sachs wields via its alumni in government. In his column today ("Don’t set Goldman Sachs free, Mr Geithner") Gapper writes:
Goldman wants to escape the burdens of political control while retaining the benefits of public backing. That does not seem like a good deal for the taxpayer.
There are obvious political risks in letting Goldman roam free while other banks remain bound by the troubled asset relief programme (Tarp). It would exacerbate suspicions that Goldman, with its long history of producing Treasury secretaries, gets special treatment. These were not soothed by the decision to pay off all Goldman’s credit default swaps with American International Group, now controlled by the state.
The bigger danger is the long-term precedent it would set. Goldman wants to bolt before Congress or Mr Geithner, who still operates as a one-man band while the nomination process for his senior staff meanders along, has the chance to change fundamentally how it operates.
So far, it has faced mildly irritating limits on how much it can pay staff but nothing on the scale of the 1933 Glass-Steagall Act, which imposed structural reforms on Wall Street after the excesses of the Jazz Age. It would never acknowledge it, but its political campaign is going just fine.
[...]
[Goldman CEO Lloyd] Blankfein criticised Wall Street’s past pay practices as “self-serving and greedy” but Goldman is still putting aside 50 per cent of revenues – $4.7bn in the first quarter – for the bonus pool. Inside, it may feel “humbled”, as Mr Blankfein said, but it looks like the same old bank.
The same, that is, except for one thing – Goldman is now backed by the US government. That is why Mr Blankfein wants to repay the Tarp money. Once it has repaid the $10bn, Goldman hopes to go back to paying employees what it wants, buying and selling more or less what it fancies and operating as before.
He is peddling an illusion. Even if Goldman repays the equity, the world has changed irrevocably because it is a government-backed enterprise.
The illustration above accompanied Gapper's column in the FT.
The Atlantic's Jeffrey Goldberg takes a break from the Israel beat to write an article on investing, "Why I Fired My Broker". Nothing earth-shattering here, but Goldberg takes advantage of the great perk of an established journalist and meets with George Soros's son Robert, Bill Ackman, Seth Klarman, and the survivalist Cody Lundin in the process of writing that article. Goldberg ends up being most impressed with Klarman and Lundin. Of Lundin, Goldberg writes,
Lundin himself eats mice and rats he traps at his off-the-grid passive-solar house in the wilderness, because “why waste free protein?”
Lundin is a freak [...] But in the event that the economy crumbles, and civilization with it, I would appoint him my financial adviser. He is my favorite survivalist, the author of a book on getting by in the wilderness and another on urban preparedness, and a teacher of primitive-living skills.
Goldberg writes that Lundin doesn't wish for disaster:
He says he enjoys electricity and indoor plumbing. He tends to think, though, that civilization is a thin film, and that in times of economic distress, it’s smart to be prepared for the day when Safeway runs out of milk. “This isn’t something I hope for. But what if the illusion does really crumble, and we have to move as a society to something else?”
Goldberg goes from interviewing Lundin in Prescott, Arizona, to having lunch with Seth Klarman in Boston:
When I told Seth Klarman, one of the country’s leading value investors, about my visit with Cody Lundin, he said, “It’s always smart to prepare for disaster. In investing, that means holding disaster insurance. In your personal life, it makes sense to have inexpensive disaster protection, so come what may, you’re ready for any eventuality. I like to store some extra bottled water in the basement, but my wife thinks it’s too much clutter. I told her I’d share my water with her anyway.”
Klarman goes on to advise against the use of leverage, argue that the average investor stands little chance competing with professionals such as himself, note that the average investor really can't trust anyone with his money, and offer a familiar test of temperament to decide if one is an investor. An entertaining read, if nothing else.
The image above, of Cody Lundin, comes from yowusa.com
In the Forbes column we quoted in the previous post ("Undertaxed America"), Bruce Bartlett referred to OECD data in making his case. Clive Crook referred to OECD data as well in a post on taxes in his Atlantic blog earlier this week ("America's widening fiscal gap"):
Mr Obama intends to squeeze the rich, but the scope for this may be more limited than US liberals would wish. Few Americans seem aware that the US income tax code, as a recent Organisation for Economic Co-operation and Development study showed, is already one of the most progressive.* Even before the rise in top marginal rates promised by Mr Obama, the US income tax collects 45 per cent of its revenues from the highest-income decile. Compare that with Britain at 39 per cent, Canada at 36 per cent, France at 28 per cent, Sweden at 27 per cent and an OECD average of 32 per cent.
This difference is only partly explained by the less-equal US income distribution. The fact that the US has no broadly based national sales tax - value added taxes make Europe's overall tax codes less progressive still - only underlines the point. The US tax system raises comparatively little revenue; what little it raises already comes disproportionately, by international standards, from the rich.
I have previously argued that the US will need a VAT [value added tax]. Even before Mr Obama unveiled his ambitions for healthcare reform, wage subsidies to help the working poor, better education and the rest, the US middle class was seriously undertaxed. The government's promises, on present plans, will be unaffordable. If they are honoured regardless, the only question is which comes first: broadly based tax increases or fiscal collapse.
I have wondered if there might be a simpler way to tax Americans' consumption than to implement a value added tax. Since income taxes in the U.S. are highly progressive, and IRAs and 401(k)s don't offer deductions for payroll taxes, there is little incentive for Americans in lower income quintiles to save instead of consume. For example, according to CBO data, effective income tax rates for Americans in the bottom two income quintiles were negative in 2005 (i.e., these Americans received more in transfer payments than they paid in income taxes). So why not just increase the payroll tax by some amount and then allow workers to deduct up to that entire additional amount if they make an equivalent contribution to an IRA or 401(k)? Those who contribute less than that additional payroll tax amount to their retirement accounts will be paying a de facto consumption tax.
The image above accompanied the Financial Times column from which Clive Crook quoted himself in his Atlantic post.
Somehow I doubt we'll see a post with that headline on Megan McCardle's Atlantic blog in response to Weidner's MarketWatch column today, which questions the influence Goldman Sachs has exerted on the government's response to the financial crisis ("Government Sachs is in control"1). Last month Megan used a similar headline when a Member of Congress raised similar questions about Goldman Sachs ("Maxine Waters brings the crazy"). In that post, Megan embedded the video below, of Rep. Waters questioning Treasury Secretary Geithner, and opined that,
She seems to get all of her questions off of the fringier conspiracy sites.
Some commenters dismissed Waters because of her previous comments, or because she flubbed some basic terminology in this video (e.g., referring to Geithner's deputy -- a Goldman Sachs alumnus -- as his "CEO"), but as I wrote in the comment thread of Megan's post at the time,
Maxine Waters is neither crazy nor stupid, as some here seem to think. She and her family members seem to have done quite well in business dealings trading off of her position2: she has to have some savvy to have been able to do that and not get in trouble with the law (at least so far). Since her family's success in business seems to have been from rent-seeking, she probably assumes that's how big business works too, which may explain her apparent contempt for corporate CEOs. In the case of Goldman Sachs, she may not be entirely off base. It's certainly not unreasonable to ask questions about the ubiquity of Goldman Sachs alumni in influential positions, and how that may have influenced government policies that, so far, have been very good for Goldman Sachs.
1In his column, Weidner wrote,
Since the fall of Bear Stearns Cos. a little more than a year ago, Goldman has taken more than $20 billion in taxpayer cash through loans, payments and backstops.
[...]
In the last year, Goldman has benefited from Paulson's selective bailouts, a fortuitously timed ban on short selling, a liberal interpretation of bank holding company rules and soon, an easily gamed auction of distressed securities run by the government.
A conspiracy theorist might think this run of fortune has something to do with the former Goldman executives having influential roles in the Treasury Department.
Just a man with a man's courage.
Older comments are moderated so I am made aware of them.
Please note also that none of what I write here should be construed as investment advice. Please do your own due diligence and use your own common sense before making any investment decisions.
Posts
