Moneybox
A blog about business and economics.

April 19 2016 5:45 AM

The Justin Trudeau Quantum-Computing Story Is What Happens When Social Media Shapes Reality

Canadian Prime Minister Justin Trudeau conquered the internet last Friday when a video of him answering a reporter’s question about quantum computing went viral. But that victory may have come a little too easily. 

The optics could not have been more perfect for a young head of government* whose intellect is often overshadowed by his head of hair. Holding a press conference after he toured a theoretical physics institute, Trudeau stood in front of a blackboard full of intimidating equations as a reporter jokingly asked him to explain quantum computing—and he proceeded to do just that. “Very simply, normal computers work by … ,” he began, before the crowd’s laughter drowned him out. “No, no, no, don’t interrupt me,” he broke in, with the sort of patient smile one flashes when called at the card table while holding the nut flush. “When you walk out of here, you will know more.”

Trudeau proceeded to deliver a brief yet authoritative-sounding riff on the difference between bits and qubits that seemed plausible enough to draw cheers from the audience and smiles and nods from the scientists flanking him. And it was all captured in a video ready-made for liking and sharing.

The media did not need to be told what to do with this video. The Facebook-optimized headlines practically wrote themselves. And so the Internet of Takes whirred into action, each outlet driven like one of John Herrman’s eerie automaton GIFs to crank out its own variant on the narrative that would inevitably engulf social media and rain viral traffic on all involved:

As is customary when partaking in such social-media feeding frenzies, each blogger added to the story a dash of his or her own speculation, thereby nominally differentiating it from rivals’ offerings, and from the bare facts at hand. The video proved that the handsome PM was “more than a pretty face,” one observed. “Everyone should be able to explain quantum computing like Justin Trudeau,” another opined. The Verge take, ironically, began with the line, “As a journalist, I’ve learned never to assume anything.” (Next lesson: Never say never.) Yes, Slate partook too, and I’ll admit that I may be biased when I say I found my colleague’s post suitably breezy and charming in a way most others were not. (“Passable” is certainly a more accurate assessment of the quality of Trudeau’s explanation than “perfect” or “brilliant,” as Konstantin Kakaes points out at the Washington Post.)

In any case, it wasn’t just the Blogs. CNN, Reuters, CBC News, and others posted their own versions of the video, their headlines all hewing to the prevailing framing.

You can probably guess where this is going. Over the weekend, even as latecomers continued to dine on the story’s rapidly decaying scraps, a somewhat different picture began to emerge. A Canadian blogger pointed out that Trudeau himself had suggested to reporters at the event that they lob him a question about quantum computing so that he could knock it out of the park with the newfound knowledge he had gleaned on his tour. And so Monday brought the countertake parade—smaller and less pompous, if no less righteous—led by Gawker with the headline, “Justin Trudeau’s Quantum Computing Explanation Was Likely Staged for Publicity.”

But few of us in the media today are immune to the forces that incentivize timeliness and catchiness over subtlety, and even Gawker’s valuable corrective ended up meriting a corrective of its own. Author J.K. Trotter soon updated his post with comments from Trudeau’s press secretary, who maintained (rather convincingly, I think) that nothing in the episode was “staged”—at least, not in the sinister way that the word implies. Rather, Trudeau had joked that he was looking forward to someone asking him about quantum computing; a reporter at the press conference jokingly complied, without really expecting a response (he quickly moved on to his real question before Trudeau could answer); Trudeau responded anyway, because he really did want to show off his knowledge.

Trotter deserves credit, regardless, for following up and getting a fuller picture of what transpired. He did what those who initially jumped on the story did not, which was to contact the principals for context and comment.

But my point here is not to criticize any particular writer or publication. The too-tidy Trudeau narrative was not the deliberate work of any bad actor or fabricator. Rather, it was the inevitable product of today’s inexorable social-media machine, in which shareable content fuels the traffic-referral engines that pay online media’s bills.

What’s remarkable is just how readily and unwittingly we bend reality to that machine’s imperatives. The laws of shareable content dictated that the interviewer be “sarcastic,” that the hunky prime minister be tired of not being taken seriously, that his answer be the Perfect Shutdown Response. We in online media have internalized these dictates to such an extent that we no longer even realize we’re applying them. (“As a journalist, I’ve learned never to assume anything.”) The Trudeau story is a perfect, gleaming artifact of a system in which truth is that which gets the most Facebook shares.

Not that journalistic truth has ever been altogether innocent of media economics. For Hearst, it was that which sold the most newspapers; for investigative journalists, it might be that which wins Pulitzers; for the nightly news, it’s what bleeds. False and faulty narratives today just move faster, farther, and with what seems like a little less human agency along the way. 

*Correction, April 19, 2016: This post originally misidentified Trudeau as head of state. In Canada, the head of state is the monarch, Queen Elizabeth II. The prime minister is the head of government.

April 18 2016 7:28 PM

Why Bernie Sanders’ Crazy High Tax Rates Aren’t Really That Crazy

Bernie Sanders wants to raise your taxes. If you're working class, he wants to hike them a little in order to pay for his single-payer health care program. If you're wealthy, or a corporation, or a person who buys and sells a lot of stocks, he wants to hike them a lot in order to finance the rest of his vision for a social democratic America.

Sanders, of course, says there's plenty of precedent for soaking the rich in U.S. history. He points out that marginal rates topped out at greater than 90 percent during the Eisenhower administration and that his would be lower—“I’m not as socialist compared to Eisenhower,” he joked last year. Conservatives, in turn, have argued that the high tax rates we remember from the 1950s and '60s were basically an illusion—that the wealthy paid far less than advertised thanks to generous deductions and low rates on investment income.  

So, who's right? Have we ever seen anything along the lines of what Sanders has proposed?

In short, yes—yes, we have.

First, what kind of tax rates are we really talking about? The Tax Policy Center has concluded that, under the Sanders plan, the highest earning 0.1 percent of Americans would fork over about 63.7 percent of their income to the IRS. The top 1 percent would pay a rate of roughly 55.4 percent, while the top 95th to 99th percentiles would owe about 33.8 percent.

sanders_tpc

And, conservative protests to the contrary, those figures aren't far from the actual rates that prevailed during the postwar era, or even later. The tax code might have been shot through with more holes than a mesh cylinder, but Thomas Piketty and Emmanuel Saez have found that when all was said and done, the top 0.1 percent still paid an average rate of about 64 percent in 1970, right in line with what Sanders has called for. The average rate for one-percenters peaked near 48 percent in 1968, a bit below the mark Sanders envisions, but not too far off. The 95th to 99th percentiles, meanwhile, paid around 31 percent through much of the '90s.  

sanders_rates

To be clear, both the Tax Policy Center analysis and the historical figures from Piketty and Saez include more than just personal taxes Americans file each April on income and investments. They also factor in things like the estate tax, which obviously doesn't hit every family every year, as well as the burden of corporate taxes, which more or less falls indirectly on shareholders. It's not necessarily intuitive, but in the end it's a more accurate way of discussing the total tax burden faced by Americans.

There are some big differences between the Sanders plan and the midcentury tax regime. For instance, back in the 1960s, 0.1-percenters got hit hard by the corporate and estate tax. Sanders, it seems, would put more emphasis on direct income taxes, including capital gains—which makes more sense in a world where corporations and the rich have become adept at using tax havens but might create slightly different economic incentives.

The major takeaway, though, is that when it comes to tax rates, Sanders really isn't talking about much we haven't seen before.

April 18 2016 12:09 PM

Hillary Clinton Finally Explains What It Would Take for Her to Support a $15 Minimum Wage

Let it be known: Hillary Clinton now supports a federal $15 minimum wage, but with conditions.

Clinton, who has taken heat from progressive activists for declining to support a simple, $15 pay floor,  tied herself in knots attempting to explain her position on the issue during last week's Democratic debate. First, she told the crowd that if Congress sent her a bill raising the federal minimum to $15 an hour, she would “of course” sign it. But then the candidate suggested she'd prefer a compromise approach, similar to a bill recently passed in New York state. Finally, her campaign blasted out a press release stating that Clinton “supports a $12 federal minimum wage,” but would encourage some states and cities to go higher—her known position going into the evening.

Again, all of this weaving about contrasted rather poorly with Bernie Sanders' easily understood position, which is that the U.S. should have a $15 minimum wage. Period.

This weekend, on ABC's This Week with George Stephanopoulos, Clinton took another shot at clarity. She was more successful:

You know, George, I know everybody wants to make this some kind of big contrast. Well, it isn't. You know, Bernie Sanders came out and said the legislation passed in New York was a model for the nation.
And you know what model is?
That model is a phased in minimum wage increase to get to $15 in the city and surrounding areas, to get to $12, $12.50 upstate, but to be constantly evaluating the economic conditions so that there is no unintended consequence of lost jobs.
That has been my position. And that is exactly what New York just voted for. And for federal legislation, if it has the same kind of understanding about how we have to phase this in, how we have to evaluate it as we go, if the Congress passes that, of course I would sign it.

Let us set aside the question of whether this really has been Clinton's position all along (if so, it'd be news to me). New York's law is a fascinating compromise between labor activists who have pressed for a higher minimum and politicians who worried that poorer and rural regions upstate might not be able to handle the same wage scale as Brooklyn or Manhattan. It guarantees a $15 minimum in the five boroughs and their nearby suburbs. But it would only raise the minimum to $12.50 for non-fast-food workers upstate by 2020. After that, “state officials will analyze the economic effects of the increases before scheduling any more,” as the New York Times has explained it.

In short, New York state's $15 minimum is not a guaranteed statewide $15 minimum. And that's the model Clinton wants to follow.

And it's a smart approach. The United States is big country with vastly different regional labor markets. It's somewhat unclear whether wealthy, coastal cities are prepared to deal with vastly higher wage scales. But it's even less obvious that Louisiana or Arkansas would cope well with an increase to $15. Given that we're talking about a policy change that would affect more than 40 percent of all American workers—meaning it involves both higher potential risks and rewards than your typical, more modest minimum wage hike—some caution seems due.

April 18 2016 11:08 AM

One Reason Tax Returns Are So Complicated? Because H&R Block and Other Preparers Like It That Way.

“Your life is busy, growing,” goes an ad touting H&R Block’s most recent offering, Block Advisors.* “That means tax complexity.” What the commercial doesn’t say? That H&R Block is determined to keep it that way. So are companies like Intuit and Jackson Hewitt.

It’s not the fault of the Internal Revenue Service, it turns out, that the typical tax filer will spend about 13 hours and between $200 and $300 preparing and filing his or her annual returns, which are due Monday at midnight. It’s not the IRS that makes us so miserable that we’re more likely to die in a car accident the day our taxes are due. Tax day has become uncommonly time-consuming and miserable, and we can assign much of the blame to the lobbying muscle of the tax-prep industry, which has used its clout to stymie efforts to simplify our taxes.

How might we have had it instead? As Liz Day pointed out at ProPublica a few years back, countries including Denmark, Sweden, and Spain mail citizens prefilled forms, with salary and bank info that’s been provided to the government by employers and financial-services institutions. That could have been us! Why it’s not is a perfect illustration of how money buys power in Washington, mowing over common-sense reforms, not to mention the actual law itself.   

In 1998, Congress ordered the Internal Revenue Service to implement by 2008 a “return-free” system for people with easy filings, likely something similar to what’s now common in other countries. Even before the legislation passed, the tax-prep industry went on the offensive. If the IRS doesn’t “stay out of our backyard,” a high-ranking H&R Block executive threatened, “we will take it up in Congress,” Accounting Today reported in 1998. He meant it. Since then, H&R Block and its peers have spent millions lobbying Congress—$28 million between 1998 and 2013—in what’s been a very successful effort to keep our taxes tangled. 

Instead of a return-free system, the IRS has signed multiple agreements with tax-prep giants that bar it from putting together such a plan itself. In exchange, the tax-prep companies have provided the muscle for a free online service for low-income filers that only about 3 percent of those eligible use, according to a report issued by Sen. Elizabeth Warren last week.

The tax-prep companies have billions of reasons to fight a simplified tax filing system. Market researcher IBIS World says the consumer tax preparation services are a $10.3 billion market, while tax preparation software is another $2.1 billion market. According to the National Retail Federation Tax Returns Survey, 38.2 percent of tax filers will use some kind of software to prepare their returns this year. 

And what sort of expertise are you getting when you turn to a tax-prep chain? Not as great as you think. In 2014, the Government Accountability Office studied the issue, hiring mystery shoppers to play the role of would-be taxpayers seeking assistance filing a return from one of the big tax-prep chains. Misinformation was rife. More than one preparer informed a “waitress,” for example, that she did not need to declare tips to the federal government. Almost 90 percent of the returns prepared for the GAO’s testers contained mistakes.

One reason why: Many tax preparers aren’t certified accountants. Only four states—New York, California, Oregon, and Maryland—even require tax preparers to pass an exam and take part in continuing education. When the IRS attempted to mandate similar strictures, courts dinged its regulations, saying the agency had exceeded its authority.

Meanwhile, tax-prep companies keep devising new ways for people to fork over money. Take a product called refund anticipation checks offered by most big box tax preparers. Customers—usually the unbanked or the broke, the sort of people eligible for an earned income tax credit who need every last penny—pay a fee of about $30 or $35 to the tax preparer, who opens a temporary bank account for them. In return, the company agrees to take the money for their services out of the refund check. This sum seems small enough. But the customer is paying for the privilege of enjoying a no-questions-asked short-term loan to pay their preparer. After all, the federal government usually gets refunds back to people within a month. The New America Foundation, calculating the numbers based on a $189 tax-prep fee, came to the conclusion that this represented a short-term interest rate of 414 percent. This is lucrative stuff. The Consumer Federation of America and the National Consumer Law Center estimated the tax prep companies earned $630 million in fees from refund anticipation checks in 2014, and another $195 million in fees for such things as “technology” and “transmission.”

All this adds up. According to the Progressive Policy Institute, the average recipient of the earned income tax credit loses about $400 of his or her refunds to the preparers who helped complete and submit his or her taxes. For some, that’s almost 25 percent of what they received back from the federal government.

507814528-turbotax-products-sit-on-display-at-costco-on-january
TurboTax products sit on display at Costco on Jan. 28 in Foster City, California.

Kimberly White/Getty Images for TurboTax

Right now, Warren is stepping up. Last week, the Massachusetts Democrat introduced a bill that would turn the tax world upside down, mandating the government send us returns with our basic information. We could then go online to the IRS’s website and add in itemized deductions like medical expenses and mortgage deductions. Bernie Sanders is among the bill’s co-sponsors, and Hillary Clinton has also signaled her support.

Don’t get too excited. It’s not like others haven’t attempted similar legislation. In the previous session of Congress, for instance, Sen. Jeanne Shaheen and Reps. Bill Foster, Lloyd Doggett, and Mike Quigley all pushed similar plans. You might notice you’re still filling out the same tax return as usual.  

Moreover, much like the battles over improving retirement advice and toughening up regs on payday loans, this isn’t a case of Democrats against Republicans. Over the years, Dems including California Rep. Zoe Lofgren (in partnership with Rep. Eric Cantor) have introduced bills that would have explicitly or implicitly forbidden the IRS to proceed with government-prepared returns. 

Finally, the right-wing anti-tax establishment opposes the simplified, stress-free tax return. Grover Norquist, the founder of Americans for Tax Reform, believes a simple tax return will lead Americans to ultimately be more accepting of their annual tax bill and less likely to support efforts to reduce the tab. “We want people to be aware of what they are paying and how much it costs. The idea that one of the benefits is to reduce the psychic cost of tax filing reminds me of the argument for the guillotine, which was that it was more humane,” he said in 2005.

Actually, Norquist might be on to something. Almost half of us view the IRS unfavorably, according to the Pew Research Center. Crowds thrill to Ted Cruz’s campaign promise to abolish the Internal Revenue Service. We hate paying our tax bill so much that Gallup reports 57 percent of us think our federal taxes are too high—and that’s a fantastic finding, since approximately 45 percent of us pay no federal taxes at all.

In the meantime, the tax-prep industry continues on. According to market researcher Fluent, half of us who use a tax-preparation software like Intuit’s market leader TurboTax do it because it’s “cost-effective.” If only we knew what it was really costing us.

*Correction, April 18, 2016: This post originally misquoted the H&R Block ad for Block Advisors. It begins, “Your life is busy,” not “You life is busy.”  

April 15 2016 4:55 PM

How I Got the Democratic Primary Very, Very Wrong

Back in October, I wrote an article about the election titled “Why Republican Economic Ideas Matter This Election—and Democratic Ideas Don't.” The thesis didn't seem particularly controversial at the time. Even if Hillary Clinton or Bernie Sanders ultimately won the presidency in November, I argued, they would in all likelihood still face a House of Representatives controlled by antagonistic Republicans, who would gleefully smother any remotely progressive legislation in the crib. An electoral climate conducive to a Republican victory, on the other hand, would probably let the GOP keep its hold on both houses of Congress, giving them the power to pass massive tax and spending cuts through the power of budget reconciliation.

“Sanders and Clinton are basically running for the privilege of defending the surprisingly fragile progress Democrats have made building the welfare state,” I concluded. “Their thoughts on how to enhance it further aren't of much consequence.”

This was wrong. And in the interest of pundit transparency, I wanted to take an opportunity to admit as much. 

It's not that I think Democrats are suddenly poised to win back control of Capitol Hill. Barring a Trump-triggered electoral landslide that buries them back in the minority, Republicans will probably still walk away from November with control of the House. That will make it all but impossible to pass any significant liberal legislation.  

But while that may be, the race between Bernie Sanders and Hillary Clinton has given rise to an epoch-defining policy debate. It has forced Democrats to argue over fundamental questions about their approach to financial regulation, health care, economic equality, and more—to weigh the merits of Clintonian incrementalism against Sanders' calls for revolution. Do we avert the next financial crisis by cutting big banks down to size, ending Wall Street as we know it? Or do we use other, subtler tools to limit risk across the financial sector? Should Democrats try to expand insurance coverage by building on the Affordable Care Act? Or should Democrats follow their hearts and push for a national single-payer program? Is it time for a $15 federal minimum wage? Or should we push it to $12, and let richer cities and states go higher?

Meanwhile, the reality that either candidate could well face an unfriendly Republican Congress has forced them to sharpen some of their arguments, and think carefully about executive and regulatory power. We have watched Democrats spend time during nationally televised debates discussing which specific sections of Dodd-Frank could theoretically be used to break up banks, and when that might be appropriate. A time traveler from 2011 would find that unreal.

Democrats aren't done struggling with these questions. But whatever the final answers are, they will surely be further to the ideological left than anybody might have imagined even one or two years ago. As my colleague Isaac Chotiner wrote early Friday morning, Clinton may win the nomination, but Sanders has managed to define the terms of debate and push his opponent in a more progressive direction. And by capturing the hearts of young voters, he may be building a future Democratic party in his own, Democratic-Socialist mold.

And that has consequences for the present. Every single ambitious Democratic politician eyeing a presidential run in four to eight years is undoubtedly watching the current race and thinking about how he or she can tap into the energy Sanders has unleashed, or at least keep from getting vanquished by it. That will affect how states are governed—New York's Andrew Cuomo has practically spun on his heels trying to make a fast left turn of late—and presumably Congress, where I imagine Elizabeth Warren (and perhaps Bernie, too) is set to become an even more enormous power broker.  

So, again, I was wrong. And the reason why is fairly straightforward: Like a lot of writers, I never expected Sanders to attract the kind of support he has. I expected him and Clinton to debate. I didn't expect them to debate for the soul of the party. But they have.

April 15 2016 4:08 PM

Yes, Dan Lyons’ Disrupted Is a Juicy Startup Memoir. It’s Also Something More Poignant.

This post originally appeared on Inc

It's been hardly a week since since the publication of his book Disrupted: My Misadventure in the Start-Up Bubble, but Dan Lyons sounds tired. Mostly, he's tired of explaining that the book is more than just a salacious takedown of HubSpot, the Boston-area startup he joined at age 52 after being laid off from Newsweek. As he sees it, the book is more like his memoir, as a midlife professional trying to earn a living after a vocational derailment. 

"I think it's a book about a 50-year-old guy trying to reinvent himself and create a new career," he says. "That's the part of the book that's resonated for people. I've been amazed by my inbox. I have all of these letters [from readers] saying they've gone through the same thing." 

Indeed, anyone who has ever lost a longtime job can relate to the circumstances that led Lyons—a career business journalist—to apply for a position at HubSpot, a maker of marketing software with a market cap exceeding $1 billion.

When Lyons joined the company in 2013, HubSpot was a high-flying startup ramping up for its IPO. On the surface, you might wonder: What would entice a fiftysomething journalist to join a sales machine full of twentysomethings? As it turns out, there were several circumstances. For one, HubSpot was in the Boston area, where Lyons and his family lived. For another, he disliked his first post-Newsweek job, at a technology website in San Francisco called ReadWrite. The twice-weekly cross-country commutes were, to put it mildly, a drawback.

But spending time in the Bay Area whetted Lyons' curiosity about joining a high-potential startup for the sake of cashing in. A few of his journalist colleagues had already done so, for Evernote and Flipboard. HubSpot gave Lyons the chance to do the same—and remain closer to his family. He met with HubSpot co-founders Brian Halligan and Dharmesh Shah, and liked them a lot. He met with then-HubSpot CMO Mike Volpe—referred to throughout the book under the pseudonym "Cranium"—and liked him, too. So he joined the company for a "pile of options" and a salary he does not disclose. (With the exception of Halligan and Shah, Lyons uses pseudonyms in the place of actual names for all HubSpot employees, though he does name additional names in the epilogue.)

While Disrupted is largely Lyons' memoir of a career transition, his accounts of day-to-day life at HubSpot are far from flattering. One critic with close ties to HubSpot—MIT Sloan professor Michael Cusumano, who taught Halligan and Shah when they were students there—believes Lyons "had every intention of writing a negative 'inside story' type of book, and abused the access and trust he was given." 

Lyons was reluctant to get into a back and forth with Cusumano or anyone else critical of his book or approach. "But I promise you I didn't do what he says," Lyons says. "I did go in there to start a new career."

In many ways, the publicity about the "tell-all" book—not to mention last summer's scandal in which former HubSpot executives allegedly attempted to obtain a predraft copy—has usurped the tale told in the book itself, of Lyons' career reinvention. Though federal investigators dropped the case without pressing any charges, the incident caused HubSpot to fire Volpe, who'd worked as Lyons' boss. The incident also led to the resignation of vice president Joe Chernov and a pay cut for Halligan, "who knew about Volpe's actions but failed to bring the ethical violation to the board's attention in a timely fashion," reports the Boston Globe.

This past week, HubSpot's co-founders responded on LinkedIn to some of Lyons' unflattering accounts, mostly taking the high road. "Life is too short to hold grudges," they wrote. But the co-founders ignored some of Lyons' more serious complaints and the scandal itself. "It had the tone of being heavily edited and perhaps even partially or significantly written by the PR professionals and the legal staff," observes Cusumano, their former professor. "It would have been better to address the issue of Lyons' manuscript directly but I am sure they have good reasons not to have done so." 

Ask Lyons about HubSpot's response on LinkedIn, and he curtly says: "They did a good job." Ask him if anyone from HubSpot has apologized to him for trying to purloin a predraft copy of the manuscript, and he simply says: "No." Ask him if he feels vindicated regarding all of the points that HubSpot did not respond to, and he says: "I really don't think of the book as a victory. I don't think of it as being me in an argument with HubSpot."

Reading Disrupted strictly as a memoir of career transition—rather than as some sort of exposé of life at HubSpot or life "in the startup bubble," as the title provocatively puts it—will open your eyes to many of the book's finer points. For example, there's a scene in the book's fifth chapter in which Lyons discusses an article Shah has written on LinkedIn about the wisdom of bringing a teddy bear named Molly to meetings as a stand-in for the customer, so that staff will always remember to keep the customer top of mind. Lyons writes:

Here are grown men and women, who I presume are fully sentient adult human beings, and they are sitting in meetings,talking to a teddy bear. And I am working with these people. No: Worse! I am working for them. At Newsweek I worked for Jon Meacham, who won a Pulitzer Prize for his biography of Andrew Jackson. Here I work for a guy who brings a teddy bear to work and considers it a management innovation. 

Lyons wonders why no one at HubSpot makes fun of this. In a nutshell, the reason is because HubSpot's culture—full of young, team-oriented employees who put their faith in its ways and means—is not like the cultures you'll find at magazines, where employees are quick to question and ridicule and play devil's advocate. 

Perhaps most telling is that Lyons had reservations about joining HubSpot in the first place. He details these reservations throughout the early chapters of the book. But he ignored them, for the sake of a paycheck and a job that would keep him close to his family. If there's a lesson here, for both employers and employees, it's a simple reminder not to overlook the importance of evaluating the cultural fit. Ask Lyons if he underestimated how difficult it would be to acclimate to a younger, nonjournalistic culture, and he says: "I definitely underestimated it."

April 14 2016 11:16 PM

Hillary Clinton Gave a Very Confusing Answer About the Minimum Wage During Thursday’s Debate

So I've watched the tape a few times now. I've read and reread the transcript. For a moment during Thursday’s Democratic presidential debate, it really sounded to me like Hillary Clinton promised for the first time that she would sign a bill raising the federal minimum wage to $15 an hour.

That is apparently not her position.

A little background: Clinton has previously come out in favor of a $12 national minimum wage. This, obviously, has not satisfied those on the left who are pushing for a $15 wage floor. However, Clinton has voiced support for the workers and activists of the Fight for $15 movement and backed state- and local-level legislation for a $15 minimum.

This is a somewhat nuanced but coherent and, I'd argue, smart position. It's completely reasonable to suggest that wealthy cities and states should have higher minimum than poorer regions of the country.

On Thursday, however, Clinton was asked flat-out whether she would sign a bill raising the national minimum to $15. She seemed to say yes, though she would prefer a tiered approach:

Moderator: You stood on the stage with Gov. Cuomo in support of new legislation to raise New York's minimum wage to $15 an hour, but you do not support raising the federal minimum wage to $15 an hour. As president, if a Democratic Congress put a $15 minimum wage bill on your desk, would you sign it?
Clinton: Of course I would. I have supported the Fight for $15. I'm proud to have the endorsement of most of the unions that have led the Fight for $15. I was proud to stand on the stage with Gov. Cuomo, with SEIU and others who have been leading this battle, and I will work as hard as I can to raise the minimum wage. I always have. I supported that when I was in the Senate. But what I have also said is we've got to be smart about it. Just the way Gov. Cuomo was here in New York. If you look at it, we moved more quickly to $15 in New York City, more deliberately toward $12, $12.50, upstate, then to $15. That is exactly my position. It's a model for the nation. That's what I will do as president. Go as quickly as possible to get to 15. [Italics mine.]

OK. So, she would sign a $15 minimum wage bill. But she thinks a tiered approach, like New York's, should be the national model. Got it. Right?

Clinton: I have taken my cue from the Democrats in the Senate, led by Sen. Patty Murray and others like my good friend Kirsten Gillibrand, who has said we will set a national level of $12, and then urge any place that can go above it to go above it. Going from $7.25 to $12 is a huge difference. One in 4 working mothers will get a raise. I want to get something done. I think setting the goal to get to $12 is the way to go, encouraging others to get to $15, but if we have a Democratic Congress, we will go to $15. [Italics mine]

Maybe this is one of those pragmatism things? Perhaps she thinks a $12 minimum is a compromise Republicans can live with—seems unlikely, but whatever—and $15 is a goal she can achieve with a Democratic Congress?

Apparently not. Later, her press team blasted out a clarification: “Hillary Clinton supports a $12 federal minimum wage—but believes that the federal minimum is just that, and encourages states, cities, and workers through bargaining to go even higher, including a $15 minimum wage in places where it makes sense.”

So after a small journey, Clinton ended the night where she started.

April 14 2016 4:30 PM

What If We Just Gave Poor People a Basic Income for Life? That’s What We’re About to Test.

Over the past decade, interest has grown in an ostensibly unorthodox approach for helping people who don’t have much money: just give them more of it, no strings attached.  

In the old days of policymaking by aphorism—give a man a fish, feed him for a day!—simply handing money to the poor was considered an obviously bad idea. How naïve—you can’t just give people money. They’ll stop trying! They’ll just get drunk! The underlying assumption was that the poor weren’t good at making decisions for themselves: Experts had to make the decisions for them.

As it turns out, that assumption was wrong. Across many contexts and continents, experimental tests show that the poor don’t stop trying when they are given money, and they don’t get drunk. Instead, they make productive use of the funds, feeding their families, sending their children to school, and investing in businesses and their own futures. Even a short-term infusion of capital has been shown to significantly improve long-term living standards, improve psychological well-being, and even add one year of life.

On the other hand, well-intentioned social programs have often fallen short. A recent World Bank study concludes that “skills training and microfinance have shown little impact on poverty or stability, especially relative to program cost.” Moreover, this paternalistic approach is often for naught: Jesse Cunha, for example, finds no differences in health and nutritional outcomes between providing basic foods and providing an equally sized cash program. Most importantly, though, the poor prefer the freedom, dignity, and flexibility of cash transfers—more than 80 percent of the poor in a study in Bihar, India, were willing to sell their food vouchers for cash, many at a 25 to 75 percent discount.  

As a result of this evidence, the winds are shifting in the world of development policy: The European Commission recently suggested that policymakers “always ask the question, ‘Why not cash?’ ” U.N. Secretary-General Ban Ki-moon has argued that “cash-based programming should be the preferred and default method of support.” In other words, the hard evidence behind cash has provoked a healthy debate about how to reform the infrastructure of anti-poverty programming and foreign aid.

So where do we go from there? The organization that we founded, GiveDirectly, has decided to try to permanently end extreme poverty across dozens of villages and thousands of people in Kenya by guaranteeing them an ongoing income high enough to meet their basic needs—a universal basic income, or basic income guarantee. We’ve spent much of the past decade delivering cash transfers to the extremely poor through GiveDirectly, but have never structured the transfers exactly this way: universal, long-term, and sufficient to meet basic needs. And that’s the point—nobody has and we think now is the time to try.

This idea of a basic income guarantee is being debated around the globe, with pilots being considered by Finland’s center-right government and Canada’s liberal party, and support from across the political landscape, including libertarians from the Cato Institute and liberals from the Brookings Institution. The Swiss will vote in a referendum on June 5 on whether to make a basic income the law of their land. The stakes in these debates are enormous, with trillions of dollars of social spending under review. Should we move from a patchwork system of overlapping poverty-reduction programs, administered separately to address different issues (nutrition, housing, employment) to simply guaranteeing a basic income? What would happen if we did?

The advocates will tell you that a basic income is the most efficient form of social assistance: It neither introduces perverse incentives discouraging work nor does it mandate work to receive benefits; the system’s simplicity likely reduces the bureaucratic overhead of managing complicated social programs; and, better yet, it avoids the paternalism of many social programs. Others, including many members of the tech community, believe that such an overhaul of the social safety net will be required to deal with the increasing automation of work and the potential unemployment that may result. Still others, including Judith Shulevitz, see basic income as a means of “edging us to a more gender neutral world.” Skeptics, on the other hand, raise many of the typical concerns surrounding cash handouts: Most commonly, they argue that the poor can’t be trusted not to waste the money. More sophisticated critics will raise questions about the affordability of a basic income, or ask whether it wouldn’t be more efficient to simply provide all the capital upfront to the beneficiaries. But fundamentally, the question should be an empirical one: What are the impacts of a universal basic income? And how do they compare with other forms of assistance?

We’re planning to find out. To do so, we’re planning to provide at least 6,000 Kenyans with a basic income for 10 to 15 years. These recipients are some of the most vulnerable people in the world, living on the U.S. equivalent of less than a dollar. And we’re going to work with leading academic researchers, including Abhijit Banerjee of MIT, to rigorously test the impacts.

By “rigorous” we mean a few things. First, the test must be experimental, so that we generate unbiased and transparent estimates of impact. Second, the guarantee must be a long-term commitment. We already know quite a bit about the beneficial effects of giving people money for a few years; the key question is how the knowledge that your livelihood is secured for more than a decade affects your behavior now. Do you take more risk? Get more schooling? Look for a better job? Third, the guarantee needs to be universal within well-defined communities, since the goal is as much to understand social dynamics as individual behaviors. While various other basic income pilots have been conducted in the past, none so far have met all three of these criteria.

We think the rigorous evaluation will cost roughly $30 million, of which around 90 percent of the funds will go directly to extremely poor households with the rest spent delivering that money to them (e.g., staff, office, payment fees). Running the project in an emerging market, where meeting basic needs is far cheaper, will make it affordable to enroll enough people to generate statistically robust evidence (a similar sized project in the U.S. would cost closer to $1 billion). At the same time it will let us directly inform policy debates in those emerging markets. The effort will thus complement the plans for experiments by the Finnish and Canadian governments, as well as those by startup incubator Y Combinator.

To get started, we’re putting in $10 million of our own funds to match the first $10 million donated by others. At worst that money will shift the life trajectories of thousands of low-income households. At best, it will change how the world thinks about ending poverty.

April 14 2016 2:33 PM

Time Magazine’s New Cover Story Is Every Bad Conservative Argument About the National Debt Wrapped Into One

Time is out with its new cover story by Jim Grant, a bow-tie-wearing fellow who runs a publication titled Grant's Interest Rate Observer.

I am not a fan.

I am not alone.

Why do so many people think this cover and the article that follows it are painfully, unforgivably inane—a limp collection of poorly formed conservative tropes about the dangers of debt? Let us count the reasons.

First, that number—$42,998.12. It's sort of scary up against that doomy red background. It's addressed to you. You, dear Publix shopper, idly staring at the checkout lane magazine rack! You, frequent business flyer, killing time in the Hudson News at LaGuardia! It is also a fairly meaningless way to measure the national debt. If we were Botswana, $42,998.12 per man, woman, and child might be a lot of money. But we are not Botswana. We are the United States, a rich, advanced nation with an $18 trillion economy and ample ability to pay the interest that we currently owe our creditors. Stating debt per American tells us nothing whatsoever about whether we have borrowed too much. It is intellectually empty information, a Dorito in stat form.

You might argue that Time is simply trying to personalize what is otherwise an abstract, painfully dry issue.

This brings us to issue No. 2, the subhed: “That's what every man, woman, and child would need to pay to erase the $13.9 trillion U.S. debt.”

This implies that paying off our national debt might be a necessary or desireable goal. It is neither. We do not need to “erase” the debt. And it would be a horrible idea if we did.1

As a rule, it does not matter how much money a country owes if it can easily meet its interest payments. So long as that is the case, bond investors are typically happy to continue lending money, and everything goes smoothly. It's the same way you or I can carry a mortgage or credit card balance without triggering personal financial catastrophe, and without scaring away our bank. The United States, for its part, has managed to shoulder at least some debt continuously without major incident ever since 1835. And while this may frustrate men like Rand Paul, more rational people should take it as a sign that government borrowing, in and of itself, is not that scary. Currently, interest on the debt only takes up about 6 percent of the federal budget. As a percentage of GDP, it is lower than any time since the 1970s. In the future, we will only have to pay down enough debt to make sure our interest payments remain sustainable, as they are today. We will never have to eliminate the whole balance.

Doing so would be stunningly foolish anyway. For one, markets would go crazy. The entire financial world runs on Treasury bonds—they are the gold standard of safe assets, and are essentially treated as the next closest thing to cash. Paying them all off would suck the blood out of the world's financial circulatory system.

Erasing the whole debt, or even a significant chunk of what the U.S. now owes, would also be a waste of resources, especially at a moment when the economy is underperforming its potential.2 Every dollar we spend paying down our obligations could, theoretically, be used on something more productive that would grow the economy long term, like fixing our infrastructure, or making sure we have a functioning health care system. Faster growth would, of course, shrink our debt as a share of the economy. Cutting spending to pay off debt, on the other hand, could slow growth, and leave us right back where we started.

To be sure, sovereign debt can become a problem if investors suddenly decide it looks like a nation might default. This is a grave concern for a country like Greece, which does not control its own currency. Thankfully, in addition to the power to tax, the United States has the near magical ability to print dollars. There is no danger that we will run short of them. Rather, the only potential problem is that one day, we will print so much of our currency that it will create excessive inflation, our debts will become worthless, and the bond markets will strike.

This is basically what Grant seems to think will happen. He does not actually appear to think we need to pay down the whole debt. But he does think we are currently on the road to financial perdition:

We owe more than we can easily repay. We spend too much and borrow too much. Worse, we promise too much. We conjure dollar bills by the trillions–pull them right out of thin air. I won’t insist that this can’t go on, because it has. I only say that it will eventually stop.
I don’t know the date, but I believe that I know the reason. It will stop when the world loses confidence in the dollars we owe. Come that moment of truth, the nation will resemble Chicago, a once prosperous polity now trying to persuade its once trusting creditors that it is actually solvent.

The nice thing about qualifying your sweeping prediction with “I don't know the date” is that your statement is completely unfalsifiable. (It is also not really a prediction.) In the meantime, very few people with money on the line seem to agree with Jim Grant. The U.S. can currently borrow money for 20 years at historically low rates. Grant cautions that, one day, rates may rise, and the U.S. will have to refinance its debts at higher rates. (“At 4.8%, the rate prevailing as recently as 2007, the government would pay more in interest expense–$654 billion–than it does for national defense,” he notes.) This is a possibility, sure, though right now the world appears to be indefinitely stuck in a low-interest rate trap. Rising health care costs could also potentially force us to borrow a slightly uncomfortable amount in 30 years, though projecting trends that far out is always a guessing game. In the meantime, shooting ourselves in the foot now to address those far-off concerns does not seem like an optimal strategy. Grant's preferred policy course, a barely coherent combination of a flat tax and massive spending cuts, is especially dubious, and gives one the impression that maybe his debt fearmongering is just pretext for his archconservative preferences about government.

This all brings us to the third issue, the cover's tag line, and Grant's “credo,” as he calls it—”Make America Solvent Again.” A company, or a person, is technically insolvent when debts outstrip assets. More colloquially, you'll hear someone is insolvent when his or her debts are so onerous they can't possibly be paid. The federal government is not insolvent. Not now. Not any time soon. Saying otherwise is, again, inane.

1Let us pretend, for just a moment, that the United States did decide, on a lark, to pay off its debt. We rely on progressive taxation in this country. The rich pay more. The middle class pays less. You, personally, will not be paying $42,998.12. Nor will your toddler. This is a small point, but worth noting.

2 This might be a different story if anybody was worried about government crowd-out—where rising public debt forces up interest rates and slows down both borrowing and the economy. It has been a long, long time since anybody was concerned about that.

April 12 2016 11:17 AM

Hillary Clinton Is Better Than Bernie Sanders at Explaining Wall Street Regulation

If there was one subject you knew Hillary Clinton was going to be overprepared for going into her interview with the New York Daily News editorial board, it was financial regulation. She's been needling Bernie Sanders for failing to do “his homework” on the subject ever since he sat down with the paper and delivered a vague, hard-to-parse explanation of how he would deliver on his signature promise to break up Wall Street's big banks. (Personally, I thought some of the criticism was unfair, but such is life.) So the topic was obviously bound to come up, giving Clinton a chance to shine in juxtaposition. 

Sure enough, the tabloid's editors teed up a question about how the U.S. should deal with too-big-to-fail financial institutions, and Clinton hit back with a smooth, detailed, thoughtful, and probably well-rehearsed answer.

For comparison purposes, let's start with Sanders' exchange on busting up banks, which was pretty much only comprehensible to people who were already following this issue closely.

Daily News: How do you go about doing it?
Sanders: How you go about doing it is having legislation passed, or giving the authority to the secretary of treasury to determine, under Dodd-Frank, that these banks are a danger to the economy over the problem of too-big-to-fail.
Daily News: But do you think that the Fed, now, has that authority?
Sanders: Well, I don't know if the Fed has it. But I think the administration can have it.
Daily News: How? How does a President turn to JPMorgan Chase, or have the Treasury turn to any of those banks and say, "Now you must do X, Y and Z?"
Sanders: Well, you do have authority under the Dodd-Frank legislation to do that, make that determination.
Daily News: You do, just by Federal Reserve fiat, you do?
Sanders: Yeah. Well, I believe you do.

And here's Clinton.

Daily News: How do you stop too big to fail? What needs to happen?
Clinton: Well, I have been a strong supporter of Dodd-Frank because it is the most consequential financial reforms since the Great Depression. And I have said many times in debates and in other settings, there is authority in Dodd-Frank to break up banks that pose a grave threat to financial stability.
There are two approaches. There's Section 121, Section 165, and both of them can be used by regulators to either require a bank to sell off businesses, lines of businesses or assets, because of the finding that is made by two-thirds of the financial regulators that the institution poses a grave threat, or if the Fed and the FDIC conclude that the institutions' living will resolution is inadequate and is not going to get any better, there can also be requirements that they do so.
So we've got that structure. Now a lot of people have argued that there need to be some tweaks to it that I would be certainly open to. But my point from the very beginning of this campaign, and it's something that I've said repeatedly: big banks did not cause the Great Recession primarily. They were complicit, but hedge funds; Lehman Brothers, an investment bank; a big insurance company, AIG; mortgage companies like Countrywide, Fannie and Freddie — there were lots of culprits who were contributing to the circumstances that led to the very dangerous financial crisis.

You wouldn't necessarily know it from a cold read, but Sanders and Clinton are actually covering some similar ground here. (Sanders, for instance, has said previously that he wants to break up banks through a somewhat expansive reading of Section 121.) But Clinton simply sounds light-years more fluent. Later on, she dives into the question of whether federal prosecutors needed stricter laws or more resources in order to pursue criminal cases against banks, expresses her frustrations about a recent court case involving MetLife that could undermine parts of Dodd-Frank, and even talks a bit about how a run on money market funds that held too much of Lehman Brothers' debt helped precipitate the financial crisis. All of this stuff is tailor-made to make a wonk's heart sing and inspires some confidence that Clinton knows of what she speaks.  

But pleasing policy writers with thoughtful disquisitions about shadow banking isn't really a president's primary job. So does Clinton's ability to explain this stuff in detail actually matter? Yes and no.

On the one hand, her familiarity with the subject is pretty clearly reflected in her nuanced but tough Wall Street reform plan (or, perhaps more likely, her advisers crafted a nuanced reform plan, and she spent time getting familiar with its justifications). Having a curious, intellectually engaged president is also useful if you don't want the administration to be hijacked by aides (see: the Bush years).

On the other hand, voters are still fundamentally picking between a candidate, in Clinton, who wants to do a better job fire-proofing Wall Street and another, in Sanders, who wants to tear down its whole edifice and rebuild. In her Daily News interview, Clinton says she would pick regulators capable of making the "hard calls" on whether banks need to be broken up under Dodd-Frank's rules but doesn't make any hard promises. Sanders says he'll find a way to cut the big banks down to size within his first year as president (and yes, in that sense, he's actually vowing to be less dependent on the judgment of his political appointees). Clinton is promising thoughtfulness, Sanders is promising dramatic action. Whether or not he has a clear sense of how to deliver it, nobody doubts that he'll try.

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