Category Archives: economics

Ordinary business expense

From today’s NYT:

But even if Hyundai is eventually forced to pay the full amount of the damages, the punishment could be substantially reduced through a tax loophole that permits the company to save millions of dollars by deducting any court-ordered punitive damages as an ordinary business expense. The result, critics say, is that taxpayers are in effect subsidizing corporate misconduct.

What’s terrible about this isn’t that companies are allowed to claim the fines they pay for malfeasance are an ordinary business expense.  What’s terrible is that it’s true.

Update:  I misspoke, as a commenter points out.  A “fine” — that is, a penalty you pay to the government — is not deductible.  What may be deductible are punitive damages, paid to people you injured or whose river you despoiled.  Prepare your return accordingly!

Bad lesson

From the New York Times, “Why You Should Tell Your Children How Much You Make”:

When Scott Parker wanted his six offspring to know more about the value of money, he decided to do something that many parents would consider radical: show them exactly what he earned.

One day, he stopped by his local Wells Fargo branch in Encinitas, Calif., and asked to withdraw his entire monthly salary in cash. In singles. It took 24 hours for the tellers to round up that many bills, so he returned the next day and took away the $100 stacks in a canvas bag.

His oldest son, Daniel, who was 15 at the time, remembers the moment his father walked into the house and dumped the $10,000 or so on a table. “It looked like he had robbed a bank,” he said.

Parker was trying to teach his kids a lesson about the value of money.  But the lesson I would learn from this is “If somebody, like a bank teller, works in a service job, and makes a lot less money than I do, I can make them spend a full day of their life carrying out an incredibly tedious task without thinking about whether this is a reasonable way for them to spend their time.”

 

 

 

 

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Death to the 529 / long live the 529

Obama flip-flops faster than I can blog!  Prezzo has already walked back his proposal to change the 529 college-saving tax break, but I have a post about it queued up, and by gum I’m gonna publish it.

Here’s the plan that just got shelved.  From now on, capital gains on contributions you stow in a 529 plan won’t be tax free anymore — they’ll just be tax-deferred, as with a retirement plan.  In essence, it takes away a tax break whose benefit flows predominantly to high-income families (some 529 money is held by middle-income parents, but under Obama’s plan the $500 or so they’d lose on their 529 was more than offset by an AOTC expansion.)

OK, this Congress is as likely to roll back a tax break for high earners as they are to rename Reagan National Airport after Pete Seeger, so this isn’t actually happening, but I’m just saying, that’s the plan.

People are mad, and feel like they’ve been bait-and-switched. My FB feed, populated by dutiful savers like me, is full of ire. Mark Kantrowitz, in the New York Times:

He went as far as saying that the proposal could be characterized as a broken promise. “People saved money in 529 plans because of the expectation that the favorable tax treatment would continue,” he said.

But why does the New York Times let Mark Kantrowitz say this when it’s plainly not true? I saved money in a 529 plan. And the favorable tax treatment for that money will continue. When I take it out, I won’t pay a dime on any capital gains.

For money I put in later, it’s another story. But so what? If something’s on sale today, nobody’s breaking a promise to me when it’s not on sale tomorrow. I guess it’s strictly true that the proposal “could be characterized as a broken promise.” But it would be better to say it “could be characterized as a broken promise by people who don’t mind characterizing things as different things.”

A broken promise would look more like a state government defaulting on money it owes the thousands of middle-class taxpayers whose pensions it mismanaged.

 

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1. Produce defective cars 2. ? 3. Double profit!

“Profit Doubles at G.M., as It Strives to Move Past Its Litany of Recalls”:

General Motors’ quarterly earnings report on Thursday was noteworthy mostly for what it lacked: another big financial charge for safety recalls.

After running up special charges of nearly $3 billion in the first half of the year for safety problems, G.M., the nation’s biggest automaker, avoided additional charges for recalls in the third quarter.

While G.M. did incur $700 million in costs for fixing recalled vehicles during the quarter, the company had already booked those charges in previous periods….

By accounting for the bulk of its recall costs in the first half of the year, G.M. has turned a corner — at least financially — in its struggle to move beyond the worst safety crisis in its history.

So let me make sure I understand this:  GM is still blowing trainloads of cash fixing its mistakes, but they decided to declare that the money they’re spending now was actually spent earlier in the year, so that their official profit in the first half is below the real figure, and their official profit for the third quarter is above the real figure, and then they get a sunny headline in the New York Times saying they “doubled their profit?”

My grandfather the CPA would not approve.

 

 

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August linkdump

  • The company that makes OldReader, the RSS reader I fled to after the sad demise of Google Reader, is from Madison!  OK, Middleton.  Still part of Silicon Isthmus.
  • I never new that Mark Alan Stamaty, one of my favorite cartoonists, did the cover of the first They Might Be Giants album.
  • Hey I keep saying this and now Allison Schrager has written an article about it for Bloomberg.  Tenure is a form of compensation.  If you think tenure is a bad way to pay teachers, and that compensation is best in the form of dollars, that’s fine; but if California pretends that the elimination of tenure isn’t a massive pay cut for teachers, they’re making a basic economic mistake.
  • New “hot hand” paper by Brett Green and Jeffrey Zweibel, about the hot hand for batters in baseball.  They say it’s there!  And they echo a point I make in the book (which I learned from Bob Wardrop) — some of the “no such thing as the hot hand” studies are way too low-power to detect a hot hand of any realistic size.
  • Matt Baker goes outside the circle of number theory and blogs about real numbers, axioms, and games.  Daring!  Matt also has a very cool new paper with Yao Wang about spanning trees as torsors for the sandpile group; but I want that to have its own blog entry once I’ve actually read it!
  • Lyndon Hardy wrote a fantasy series I adored as a kid, Master of the Five Magics.  I didn’t know that, as an undergrad, he was the mastermind of the Great Caltech Rose Bowl Hoax.  Now that is a life well spent.
  • Do you know how many players with at least 20 hits in a season have had more than half their hits be home runs?  Just two:  Mark McGwire in 2001 and Frank Thomas in 2005.
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Where are people buying How Not To Be Wrong?

Amazon Author Central shows you Bookscan sales for your books broken down by metropolitan statistical area.  (BookScan tracks most hardcover sales, but not e-book sales.)  This allows me to see which MSAs are buying the most and fewest copies, per capita, of How Not To Be Wrong.  Unsurprisingly, Madison has by far the highest number of copies of HNTBW per person.  But Burlington, VT is not far behind!  Then there’s a big drop, until you get down to DC, SF, Boston, and Seattle, each of which still bought more than twice as many copies per person as the median MSA.

Where do people not want the book?  Lowest sales per capita are in Miami.  They also have little use for me in Los Angeles, Atlanta, and Houston.  Note that for reasons of time I only looked at the 30 MSAs that sold the most copies of the book; going farther down that list, there are more pretty big cities where the book is unpopular, like Tampa, Charlotte, San Antonio, and Orlando.

It would be interesting to compare the sales figures, not to population, but to overall hardcover book sales.  But I couldn’t find this information broken down by city.

 

Sympathy for Scott Walker

The Milwaukee Journal-Sentinel suggests that the slow pace of job creation in Wisconsin, not recall campaign shenanigans, may be Scott Walker’s real enemy in his upcoming re-election campaign:

In each of Walker’s first three years, Wisconsin has added private-sector jobs more slowly than the nation as whole, and the gap is sizable. Wisconsin has averaged 1.3% in annual private-sector job growth since 2010; the national average has been 2.1%. Wisconsin’s ranking in private-sector job growth was 35 among the 50 states in 2011, 36 in 2012 and 37 in 2013.

Combining the first three years of Walker’s term, the state ranks behind all its closest and most comparable Midwest neighbors: Michigan (6 of 50), Indiana (15), Minnesota (20), Ohio (25), Iowa (28) and Illinois (33).

I think this is slightly unfair to Walker!  Part of the reason Michigan is doing so well in job growth since 2010 is that Michigan was hammered so very, very hard by the recession.  It had more room to grow.  Indiana’s unemployment rate was roughly similar to Wisconsin’s in the years leading up to the crash, but shot up to 10.8% as the economy bottomed out (WI never went over 9.2%.)  Now Indiana and Wisconsin are about even again.

But I do mean slightly unfair.  After all, Walker ran on a change platform, arguing that Jim Doyle’s administration had tanked the state’s economy.  In fact, Wisconsin weathered the recession much better than a lot of our neighbor states did.  (The last years Wisconsin was above the median for private-sector job growth?  2008 and 2010, both under Doyle.)   There’s some karmic fairness at play, should that fact come back to make Walker look like a weak job creator compared to his fellow governors.

 

 

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Quarreling with Cato

Last week Salon printed an excerpt from How Not To Be Wrong, in which I tweak Daniel J. Mitchell of the Cato Institute for asking the rhetorical question “Why is America trying to become more like Sweden when Swedes are Trying to be Less Like Sweden?”  I describe the vision of economics implied by the headline as “linear” (or, more generally, “monotone”)  In particular, the headline seems to take the view that smaller government is either a good thing or  a bad thing, independent of context.  If it’s good for Swedes, it’s good for us too.

 

Mitchell didn’t like what I had to say very much, accusing me of calling him a “buffoon”.  He complains that he doesn’t hold any such simplistic linear view.

 

And that’s right!  He doesn’t.  Nobody does, if they sit down to think consciously about what their views are.  But when you sit down to write a zingy headline, sometimes you just reach for something that expresses your vague rules of thumb instead of your carefully articulated beliefs.  (And yes, as a fellow blogger, I get that sometimes you stretch your point a little bit when you reach for that headline; take it from the guy who just published a piece about Berkson’s fallacy called “Why Are Handsome Men Such Jerks?”)

 

The headline makes it sound like there’s something incongruous about Sweden shrinking its government while we grow ours.  But there’s nothing strange about that at all – unless you have in mind something like the linear model that Mitchell correctly disavows.

So what is Mitchell’s actual view about the relation between Swedishness and prosperity?  He says it’s governed by something called the Rahn curve.  According to that curve, or at least Mitchell’s take on it, prosperity peaks when government spending is about 20 percent of GDP, and declines roughly linear thereafter.  As of 2012, there was only one country in the developed world, sorta-free Singapore, whose government spending was that low.  Which means that in the range occupied by countries from the United States to Sweden, from Australia to Korea, the relation between Swedishness and prosperity is more or less exactly the one I drew in the picture Mitchell objects to.  It may well be that the US government should spend less on its citizens.  But contra Mitchell’s headline, Sweden’s best course gives no guidance concerning ours.

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Guilt pangs

Not even going to link to this article but this is so magnificently dumb I had to share it with someone.

As everyone knows by now, GM’s entry into the electric car market–the Chevy Volt–costs $41,000 before tax breaks. After the tax breaks, you can happily drive one off the lot for $33,000 … if you can ignore those guilt pangs knowing your fellow Americans have chipped in $8,000 to your new ride.

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The trouble with billionaires

Cathy blogs today about the enthusiasm for billionaires displayed at the AMS public face of math panel, and her misgivings about it.  Cathy points out that, while gifts from big donors obviously accomplish real, useful, worthwhile goals for mathematics, they have a way of crowding out the public support we might otherwise have gotten, and sapping our will to fight for that support.

I think there’s an even deeper problem.  When we’re talking about putting up buildings or paying people’s salaries, we’re talking about things that require many millions of dollars, and asking:  who’s going to pay for them?  It’s not crazy that the answer “a rich person” is one of the things that comes to mind.

But when we talk about improving the public image of mathematics, we are not talking about something that automatically costs lots of money.  We’re talking about something that we can do on social media, something we can do in the newspaper, something we can — and frankly, should — do in the classroom.  Cathy describes the conversation as centering on “How can we get someone to hire a high-priced PR agent for mathematics?”  That means that the billionaire solution isn’t just crowding out other sources of money, it’s crowding out the very idea that there are ways to solve problems besides spending money.


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