Monday, August 22, 2011

Quotes of the day

Over the years, I have paid a significant portion of my income to the various federal, state and local jurisdictions in which I have lived, and I deeply resent that President Obama has decided that I don't need all the money I've not paid in taxes over the years, or that I should leave less for my children and grandchildren and give more to him to spend as he thinks fit. I also resent that Warren Buffett and others who have created massive wealth for themselves think I'm "coddled" because they believe they should pay more in taxes. I certainly don't feel "coddled" because these various governments have not imposed a higher income tax. After all, I did earn it. Now that I'm 72 years old, I can look forward to paying a significant portion of my accumulated wealth in estate taxes to the federal government and, depending on the state I live in at the time, to that state government as well. Of my current income this year, I expect to pay 80%-90% in federal income taxes, state income taxes, Social Security and Medicare taxes, and federal and state estate taxes. Isn't that enough? Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes. What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts. Today, top earners—the 250,000 people who earn $1 million or more—pay 20% of all income taxes, and the 3% who earn more than $200,000 pay almost half. Almost half of all filers pay no income taxes at all. Clearly they earn less and should pay less. But they should pay something and have a stake in our government spending their money too. ... Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all? Here's my message: Before you "ask" for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money.--Harvey Golub

The great majority of people in different cultures do not object to someone who has made lots of money when they have superior abilities and talents, and they work hard at producing what are considered useful goods or services. Actors like Tom Hanks or Jennifer Aniston earn millions of dollars per film, yet they are admired as stars rather than condemned for being millionaires because films are a popular form of entertainment. Bill Gates, Steve Jobs, and others who became billionaires by creating innovative companies that provide highly valuable goods and services to millions of individuals are widely admired as the business equivalents of rock stars rather than attacked for their great wealth. Leading transplant and other doctors who become successful and very wealthy through extensive education and superior skills are recognized for their valuable contributions to extending the lives of very sick individuals, and few object to their high earnings. On the other hand, when hedge fund managers become rich by using arbitrage activities to narrow the spreads in interest rates and other prices between different regions (most hedge funds do not only engage in arbitrage) they produce useful services, but the value of what they do is not so apparent as the businessmen who make successful products. It is still harder for many to understand the usefulness of “speculators” who do well financially by successfully shorting shares of companies or commodities, such as oil, because they believe correctly that their prices will fall in the future. Their activities add value by smoothing out the prices of these shares and commodities over time, but few people like individuals who bring bad news, or who profit from anticipating bad news. Other forms of behavior are objectionable because they both add to inequality and lower economic efficiency. These are the most dangerous sources of inequality, and they create negative attitudes toward the wealthy, and even at times social unrest. One illustration is the arbitrary use of government power to give or take away wealth. Some individuals become very wealthy because of the political favors they receive, while others lose much of their wealth because of unjust governmental treatment. Examples include Carlos Slim and the Russian oligarchs who gained big economic advantages by receiving monopoly positions in industries like telecommunications when they were privatized, and the officials of Fannie Mae and Freddie Mac who became wealthy by using their political connections to acquire a dominant position in the US residential mortgage market. A highly publicized recent example is the Indian businessmen who obtained special privileges in telecommunications and other industries because of corrupt government officials. ... I agree with the argument by Warren Buffet in a recent New York Times op-ed piece that it is neither fair nor efficient for highly wealthy individuals like himself to be paying a smaller fraction of their incomes in taxes than middle income and many lower income persons. However, the way that inequity is corrected can make an enormous difference to economic efficiency as well as to the degree of inequality. The best way to reduce these inequities is to substitute for the present tax mess an inclusive equal percentage tax on all incomes, where the income base would be greatly widened by eliminating deductions on mortgage interest payments, restraining the tax-deductibility of charitable contributions, and eliminating special subsidies, such as the generous ones to ethanol producers. With a flat broad equal percent tax on all incomes, capital gains and other sources of income that currently have special tax treatment should then be taxed at the same flat rate as earnings and other incomes.--Gary Becker

The revelation that the Securities and Exchange Commission had a history of destroying documents has once again raised questions about how well the agency has exercised its enforcement authority. Although Matt Taibbi in Rolling Stone described the policy as “Orwellian,” the practice looks more like corner cutting to avoid cumbersome federal regulations on document disposal — the very type of conduct that the S.E.C. often criticizes companies for when it pursues an enforcement action. ... The S.E.C. is responsible for enforcing the internal controls rules for corporations, which require that their “books, records and accounts are kept in reasonable detail to accurately and fairly reflect transactions and dispositions of assets.” How does it look when a federal agency may have violated the law by destroying records related to one of its most important public functions? No one can be sure whether the S.E.C. policy on disposing of records from closed MUIs had any concrete impact on other investigations because any missed leads will never be known. What is clear, however, is a policy that may have violated federal law raises the specter that the S.E.C. was more concerned with making its life easier by getting rid of documents rather than complying with burdensome regulations. That is an often-repeated complaint about the S.E.C.’s own rules, a claim that might now gain greater resonance.--Peter Henning

... when it comes to education, good outcomes are not the same as great teaching. The most reliable way to amass impressive alumni is to screen for impressive freshman. But at the policy level it’s more important to identify institutions that are unusually good at helping people learn, not institutions that are unusually good at screening.--Matt Yglesias

In short, software is eating the world.--Marc Andreesen

Perhaps the single most dramatic example of this phenomenon of software eating a traditional business is the suicide of Borders and corresponding rise of Amazon. In 2001, Borders agreed to hand over its online business to Amazon under the theory that online book sales were non-strategic and unimportant. Oops.  ... Cisco talk about 50 billion devices but you can't see it in their revenue line.  Instead in the middle of the biggest imaginable boom they had that dreadful conference call where they talked about government spending being weak. Hey isn't this a private sector routing boom? Well it is but the private sector is appifying really fast. The government sector are all paranoid about Chinese government hacking and terrorist vulnerabilities and so are wanting the tried-and-proven hardware-software integrated device (which they think is harder to hack). Government paranoia is stopping the software eating the hardware and them guys at the Department of Homeland Security are sitting there safely in their (antiquated Cisco) box...  But whilst the government holds back the tide of history the lesson holds true: if you make hardware-software integrated devices your risk is you are going to get appified and unless you do the appification someone will do it for you.--John Hempton


  1. Anonymous8:27 PM

    Golub made most of his money the new-fashioned way: Sacrificing long-term sustainability for short-term gains to drive huge stock options payouts. To meet the margins and growth that he promised to the Street, American Express upped its risk profile instead of being prudent. Others (including shareholders) were left holding the bag when he left.

  2. I agree, executives are incentivized for the short term. I'm not sure what the answer is to this; boards are pretty weak on holding their CEOs accountable and designing long term incentives.