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Optimist Economy
Optimist Q&A: Evidence for UBI, What to Do About Billionaires, and Where Will the U.S. Economy Be After Trump?
00:52:29
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- [00:01]
A
Hold on, I got to close my window. It's that time of Thursday when the military helicopters fly over, which I. I'm just going to say has predated the Trump administration. So, you know, this is not a new thing.
- [00:24]
B
Hello, and welcome to Optimist Economy. I'm Katherine.
- [00:27]
A
I'm Robin.
- [00:28]
B
On this show, we believe the US Economy can be better. And we talk about how to get one problem and solution at a time. Except for on these episodes where we do Q&As and we actually talk about lots of problems and solution at one time. This is meant to overwhelm you. Drink from the fire hydrant. Let's do it.
- [00:46]
A
Let's do it. Thank you guys for all your questions. We got probably three times more than we're going to be able to use, but we're going to get started here. First, I do want to thank Sarah McGill of Pittsburgh, Pennsylvania, who was a spiritual sponsor for the show this week. Also, for all of you who have sent in ratings, we've got 5, 182 of those as of today. Very, very close to our goal. And we'll also be posting a listener survey so that we can get some feedback specifically about what we should do or not do for season two of the show. And I'll put a link to that in our show notes when this goes live. Okay, Are you ready, Catherine?
- [01:23]
B
Yes. I wanted to very quickly thank the. Getting people to write in reviews and rate us also led to a lot of really delightful reviews. And delightful in the Robin and Catherine censors is that they're just hilarious and a little bit bit. But I need to particularly shout out the person who said, I'm actually bereft about the impending hiatus. I know Catherine's bringing new life into this world and isn't it beautiful? Blah, blah, blah. But what about me? Oh, my God, I see you. And I appreciate this comment so much of like, yeah, yeah, yeah, it's beautiful. We get it. I loved it. That's very much channeling my energy as I'm bringing life into the world. I'm like, yeah, yeah, yeah, third kid. We got it.
- [02:03]
A
I love this review that just came in that said, for years I have actively detested podcasts and have adamantly refused to listen to them. In fact, if you had asked me before I listened to this podcast what my executive order would be, it would be to ban all podcasts. And I was like, well, I don't know that this is an audience growth model for us, but maybe if we can get historical podcast haters to just listen to Optimist economy.
- [02:30]
B
I think what I love about it is that optimists come in a lot of stripes.
- [02:35]
A
Including podcast haters.
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B
Including podcast haters. I think optimism has this connotation of like really naive, earnest people who only believe in good in the world. And like, I'm not that.
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A
No rose colored glasses on Catherine.
- [02:49]
B
Yeah, no, I mean you can tell by the terrible mouth is like one problem. But also this one person said, for what it's worth, my 8 year old is also entirely too upset about the break. And I was like, oh no, I cuss so much on the show. Dope.
- [03:05]
A
So keeping it here in the Q and A.
- [03:08]
B
Keeping it clean. Keeping it clean. Let's go. No, keep. I'm so sorry.
- [03:18]
A
Okay. Our first question is from Al in San Diego. Dr. Edwards had said in the past that just giving money wasn't a good policy tool, but I've seen recent articles in the press suggesting that UBI experiments are doing better than expected. Is this a wow, new data, we have to rethink things Situation. Yeah, it works. But we should make sure all kids are fed for a situation. Jesus, Al, don't believe everything you read on the Internet. Situation.
- [03:43]
B
Okay, well, Al, don't believe everything you read on the Internet. That's part one. That's always the answer. That's just like a advisory. Don't believe the Internet. Yeah. Economics or not, I think the question kind of buried in here is what is the expectation of these UBI studies? And that's the moving target that kind of puts all their reporting in context. So the baby's first year study that we talked about on the show at length, I mean the expectation was we gave them a few hundred dollars and you could still see the marks of childhood poverty. Cash is terrible. But if you go back to like the Simon Dime experiments of the 1970s and a lot of the, the UBI experiments now they're like, hey, if you people cash, they'll never work again. And that's also not true. I think there's such a problem in this space to see just a clear eyed. What is the mechanism and what is the result? The mechanism is you're going to give people who don't have that much money money and you kind of have to take the results as they are. And so much of what gets warped about these experiments, good or bad, is the expectations they either meet or fail to meet. Given our priors. When you think about policy, you have to think clear eyed, like, all right, I'm going to give Cash to a lot of poor people with no strings attached. What happens? Not does this fix the need for child care? Do they get better housing? But truly what happens? And so some of the better than expected that Al's question is driving is really maybe it's okay to help poor people.
- [05:23]
A
Yeah, I was going to say, are these actually UBI studies? This is kind of.
- [05:26]
B
Yeah. I mean, none of them are UBI studies. They're all kind of unconditional cash welfare studies that don't just go to single parents. So the way that I would sum up the results as I've seen them so far is cash helps. It helps people in a lot of small ways because they use the cash differently. For the most part, the three things that tend to like quote, unquote, eat the cash that you give people are for food, shelter and utilities. And the work effects are there, but small work effects being they draw people out of work or reduce work. And the child welfare effects are there, but small, being that they improve the welfare of children in a good way. It's not a cure all, but it's not a poison.
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A
Are you ready for a question, too?
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B
Yep.
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A
Okay. This is from Julie Martinez in Ann Arbor, Michigan. Why aren't $ amounts in legislation automatically indexed to inflation? The way that Social Security payments are.
- [06:28]
B
Either a deliberate choice or an unintentional overlook? I. It's really, there's no other way to say it. Like, members of Congress put together pieces of legislation. It's negotiated at the last minute by their staff. You could have staff that don't want an indexed dollar amount because that increases the cost of the legislation over time. Or you would have staff that like, maybe just don't know that they're supposed to do that.
- [06:53]
A
Are they, Are they supposed to do that?
- [06:55]
B
I mean, almost any dollar amount that you put into legislation, you're going to want to have indexed with the appropriate measure, either a price measure, a wage measure, a housing measure, a medical cost measure, like you. You'd want to have them reflect what you actually think is going to happen to keep the policy relevant. You know, imagine a very simple version of a Medicare Part D of like, you get $500 per year for prescription drugs. Well, not only would I want to index that, but I'd want to index it in a way that ref the average change in the price of prescription drugs year to year and not say, the average change in the price of food. But why wouldn't that $500 be indexed? Well, it could be that they just maybe didn't think of could be that they thought that that $500 index would be really expensive. So they keep it at $500 as a way to make a political point that like we helped you with your prescription drug plan, but not actually have to have such an expensive piece of legislation. So they get the political victory with the policy failure built in. There's so many examples of things like this. I say probably the worst is that the Social Security benefit tax, if you're a high income Social Security beneficiary, you have to pay a portion of your benefits, can be subject to the income tax. That level was set in 83 and has never gone up. And that was intentional. They wanted the tax to hit more people over time. They just didn't want to tell people that they wanted the tax to hit more people over time.
- [08:22]
A
But now it's been 41 years and.
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B
It hits more than half now. And but like they built in a revenue raiser for Social Security into legislation through bad indexing practices. So now it's really hard to take it away because, you know, you take away that tax, you reduce Social Security's financial longevity for the trust fund.
- [08:42]
A
Right, Right. Okay. Dustin Edwards in Bowling Green, Kentucky asks, since the BBB is extending an existing tax cut, I don't understand why the national budget needs to be hammered to pay for it. Is that true or just left side rhetoric? Were big cuts like to Medicaid done independently and unnecessarily? Since we currently have both tax cuts and Medicaid now.
- [09:11]
B
All right, how much does something cost the federal government when they propose a new piece of legislation? It's typically scored by the Congressional Budget office over a 10 year window. So the cost of changing anything will be relative to the cost of what we call current law. Well, in order to make the 10 year price tag for something as egregiously expensive as tax cuts lower? The way that the 2017 tax cut was written is that the tax cuts only existed through 2025 and in the last three years of the bill and in 26 and 27 and 28, taxes would go up. And the reason why they did that is because if they didn't pass the tax increase, the bill would have been like three times more expensive because it would have been a permanent reduction in tax revenue as opposed to a seven year reduction in tax revenue that cost very different things. So they were basically gaming the cost of the legislation in order to make it seem cheaper than it was. And their plan executed successfully was to extend the tax cuts before the buffer ran out. Which is what they did. So is that left side rhetoric? It to me, like, this is to the extent that you can cook the CBO books, they are just gaming the CBO scoring system. And they knew exactly what they were doing. So they like cried foul and they're like, we're just extending the law as it is this year. But they knew exactly what they were doing. So it's not just left side rhetoric. It's hard to do long term financial accounting, but frankly, they have written and passed these bills to try and get around the price tag, which is inevitable, which is that these tax cuts in the big beautiful bill cost $4.6 trillion. Okay, so were the big cuts to Medicaid done independently and unnecessarily, which was the second half of that question. They were trying to reduce the overall cost of the bill. And rather than do this like seven year trick again, ooh, the seven year itch of tax legislation, rather than do the seven year trick again and shave a few trillion dollars off the price tag by like building in these tax increases and to do this again in seven years, they instead found the cost savings through cuts to Medicaid and food stamps, which is, I would say the cuts to Medicaid were unnecessary, but from a budgeting perspective, they needed to find a trillion dollars. And they weren't going to do it through another promised set of tax increases that they walked back from. They were going to do it to Medicaid.
- [11:40]
A
Great. David L. Parks of Milwaukee, Wisconsin asks, how would the overall economy be affected if there were no exemptions to the minimum wage?
- [11:51]
B
Ooh, great question. Some of this we have some great evidence and research on, because one of the biggest exemptions to the minimum wage is for workers who have a severe disability. And you can pay. If you employ people who have, say, an intellectual disability, you can pay them, you know, as little as like a dollar an hour. Several states had gone through the process of raising their state minimum above the federal and ending certain exemptions. And so the Office of Civil Rights in the federal government has this maybe 300 page report on what happens to individuals with a disability when they're exempted. Minimum wage went away. And they looked at, like, how employers felt and how the disabled people themselves felt about their pay. And the recommendation they came up with was, you should probably end this. Right? It's not clear cut. There are risk that if you end this minimum wage exemption that these people might have a harder time finding a job. But they didn't want to be part of the exemption anymore. And that is kind of the sum of the 300 page report.
- [12:57]
A
Yeah. Are there other industries that are exempt from the minimum wage?
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B
Yeah, there's family businesses. There's also still peace rate workers who do work inside the home. They're just, they're really small shares of the population. I actually think the bigger kind of upheavals would be to incarcerated persons who are also not subject to the minimum wage. And in some states, incarcerated persons who are put to task working for an industry that employs prisoners, sometimes they're paid a little bit, sometimes they're not paid anything at all. And I think it would be disruptive to industries who are built exclusively on the model of prison labor.
- [13:38]
A
And I would love, fascinating, love to.
- [13:40]
B
See, to see that happen. I'd love it. I like. Yep. Prison labor. Nope, nope, nope, nope, nope, nope. So that's that type of dependence, a codependence on prison labor. That, that would be highly disruptive if you got rid of that. And then there are kind of distributed minimum wage exempt workers like the tift minimum wage where now you have like a $2.13 an hour minimum wage for people who earn tips. That is still true in a lot of states. And I think this becomes a more like classic wage elasticity labor demand, labor supply question of how many businesses would be hurt if they had to pay higher than the tipped minimum wage, which of those businesses would be hurt and why? And like what would be the overall demand for workers prior and tipped positions if their base pay was so much higher? I think that one's like a pure economic question. And what would happen, it's my best summary of the data is that a lot of marginal businesses would close if the they had to pay their workers more relative to tips. We'd see changes to TIPS culture in the economy and pricing experiments of like we surcharge because we don't tip anymore and things like that. But you'd also see a lot of people not make poverty wages anymore.
- [14:59]
A
Should we do the tipping question? Actually?
- [15:01]
B
Oh, sure. Where's the tipping question? Yeah, tip.
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A
It's Ethan Preston. Ethan Preston in Spokane, Washington.
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B
Oh, Spokane.
- [15:10]
A
I said I didn't know anybody was listening in Spokane. Who I didn't actually know personally, but in fact Ethan and his family is listening. I'm a tipped employee in Washington state. I recently discovered an article detailing the history of tipping. I've noticed that there are numerous discussions on why tipping is more common in businesses and the general distaste for, quote, flipping the iPad to ask for a tip. My questions are, will this evolution of tipping culture lead to a change in how tips are regulated by the government, both state and federal. Is tipping a practice going to continue as it is now, or will the various economic pressures force people to lower the amount they tip at the places they frequent, regardless of the quality of service? I would sum this up as, am I going to make less money as the tipping culture changes?
- [15:56]
B
As the tipping culture changes. So there's a lot in here, but the history that Ethan is referring to is encapsulated by a New York Times column written by an author and its title. I mean, spoiler alert here. The title is Tipping is a Legacy of Slavery. The author goes through her first person journey of slowly coming to the realization that as a black woman, her wage is now dependent on pleasing white men that she's serving, and that her and her fellow servers, including one who's white, are like, you don't go to that table, I'll go to that table. And she starts to become aware of this and then looks up the history that tipping was a way to keep black people in certain fields subservient and reliant on the kind of beneficence of their masters. So tipping definitely comes from slavery in the United States. But I don't know how the evolution of tipping culture would change if the US Got rid of the tipped minimum wage. I don't know if anybody does. What I think is interesting for tipping as a practice is that there was an incredible case came out in the pandemic. He's either in 20 or 21 of just how much Amazon was stealing the tips of its drivers. I mean, one guy had paid back like $60,000. It was wild how much money Amazon took from the workers that were tipping. And they're not the only company that had settlements or accusations of this. And so I wonder how much the flipping the iPad will go away as more court cases are successfully brought for you. Flip the iPad. And I don't get it. I think if we had really good FTC and consumer protection laws and good worker laws.
- [17:41]
A
This sounds like a worker protection law.
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B
Yeah, it might be more like it's consumer manipulation. I think I'm paying for a tip. But you're actually taking the money. So you're taking my money as a consumer, that might be easier to prove than taking the workers money.
- [17:57]
A
Yeah, I'm pretty excited that I get to say Waukesha. Jessica in Waukesha, Wisconsin.
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B
Waukesha, we know how to say it now.
- [18:04]
A
We do. I would love to know Catherine's perspective. On New Mexico's use of its sovereign wealth fund to help pay for universal childcare. This is recent development, a very recent.
- [18:14]
B
Development, and I think it is a perfect illustration of why almost no other state is going to be able to pass universal childcare, because almost no other state has a sovereign wealth fund.
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A
Alaska.
- [18:25]
B
And if they do, it's already used for something else. So childcare is so expensive for families. It's also expensive for state governments. Like, they do not have the funds to pay for this to the degree they want. They have a lot competing for their relatively small budgets, and nobody has the buying power of the federal government. So New Mexico's case is really illustrative of just how hard it is to pay for these things on the state level and why you need federal resources. Yeah, I mean, kudos to New Mexico for having a sovereign wealth fund that they voted to amend their constitution to use the sovereign wealth fund. I mean, they. This is a story that is almost five years old. They first voted for universal childcare. They wrote it into their constitution. They gave it a source of funding, and they did all of that before implementation. You know, I think that they stand in contrast to a place like New York City who had a mayor who really wanted to expand preschool. And then he wasn't the mayor anymore. The next mayor was like, well, we're not gonna do pre three. We'll just do pre four. And these policies get subject to the whims of leaders if they're not really set in stone. And so New Mexico found a way to set it in stone. Almost no state has the same capability.
- [19:40]
A
You're not concerned about the source of the. Of the revenue for the sovereign wealth fund. I mean, isn't it oil and gas and minerals and. And minerals?
- [19:49]
B
I mean, but that's. Most sovereign wealth funds come from natural resources.
- [19:53]
A
Yeah.
- [19:54]
B
I've talked to legislators and their staff in probably like a dozen states and have had conversations about how they could pay for child care. And, like, there's tobacco money in Virginia. It's getting smaller. There's money from the Marcellus Shale in Pennsylvania. It's already dedicated to something else. You know, coming up with a new large source of money is just not something that most states can do. So it's awesome that New Mexico is doing this. They are proof positive of why most other states can't.
- [20:22]
A
Robert Smith of Pembroke, Virginia, says, I'm worried that recent policies regarding grant cuts reduced funding sources, steep H1B visa fees and capricious treatment of visa holders are undermining research and Discouraging the people who drive innovation. Since sustained growth depends on the technological progress that is driven by human capital, what policies could a future administration adopt to strengthen research investment and talent development? Long story short, what do we do after the cuts in research that have happened in the last nine months?
- [21:02]
B
Oh, yeah, so we need immigration reform, actual immigration reform, and we need kind of a recommitment to funding science and funding government grants for research and development. I mean, this really does feel like we are taking one of our greatest strengths as a country and actively sabotaging it in real time. And watching that happen is so tough. But y' all keep in mind this is not the first time we've been nasty to immigrants or smart people. That is, that has a deep precedent in the United States with, you know, the immigration acts that were targeted towards Chinese people and Mexican people in the 1920s and 30s, the quota system that we kept in place through World War II. Turning away boatloads of refugees and sending them to their death in the middle of a war. Having a House UN American Activities Committee target personally, people in research. People in arts and culture. Yeah. People in academia who they disagreed with. You can watch that whole movie, Oppenheimer, to see how this manifested, even for one of the kind of, like, smartest thinkers the country has ever produced. This is not the first time that we have been here, and the answer coming out of them has always been to change direction and remember that America is America. So, yeah, it's been a tough nine months. However, we still have the research infrastructure. We still have the industrial infrastructure. You can dismantle and attack the people, but we still have all the pieces in place to be the best in the world. And other people can never do that as quickly. So nothing here is lost forever. However much damage has been done, we can still gain these things back and try again.
- [22:49]
A
Okay, from Ross Haifman, who's a grad student in economics in Wisconsin. In a general sense, do you see an avoidance to discuss or research political economy topics in academia? From my view, it seems political processes have had massive influence on, for example, racial economic outcomes.
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B
Oh, interesting. All right, Ross, if you're a grad student. Economics in Wisconsin, my PhD alma mater.
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A
I think he's at Marquette, actually.
- [23:18]
B
He's at Marquette. Okay, well, states close enough. So, Ross, I mean, I have to put a big caveat on this answer, that I have not really been directly involved in academia since I left the PhD program in 2016. I've gotten research grants, I've given talks, I've gone to conferences. But I'm not, I'm not a professor and I never have been. So I have to copy out myself with that. And saying this is an outsider's perspective. I have never had the view that political processes have massive influence on what people study. Because people, and I'm going to say this with a lot of love, people who have or want PhDs are pretty stubborn, self righteous people about their own intellect and curiosity. Like there might be some people who are just trying to find an interesting question, but a lot of people who go through the really unfun half decade it takes to get a PhD in anything at a minimum are not like, oh, Republicans don't like this, I probably shouldn't study it. I mean like you're talking about very driven people who are in search of a question or who have a question or in search of an answer. And I, I think they're much less sensitive now. They might not talk about it in class as much because professors are getting recorded and fired, but I don't think, I don't think they have. They're the most stubborn people I've ever met in my life. So I just, it's very hard for me to connect like political pressure and what's being studied to like, oh, that girl, she would never change her mind. If there's a hill, she's dying on the top of it.
- [24:53]
A
This is, this is Economics PhD students in particular you're talking about.
- [24:58]
B
Or this is most, I mean social sciences in general. I mean even the hard sciences, when you're doing clinical trials and you want to look at something related to women, There are certainly opportunists in the research community that are just going to go after whatever question has the most funding or the most attention or most return. But I would say most of them are more like detectives. There could be some opportunists who are less interested in racial economic outcomes, but I don't think that they would. If you're an opportunist studying something, you don't really make that much of an impact anyway. So I don't know how big the loss is that there's some like trend hopper who can't figure out what to do research on that decides not to do research on black people. Like they, it's gonna sound really harsh. They probably weren't that good of a researcher to begin with if they're just chasing a trend.
- [25:51]
A
Okay, Steve Shaw. Oh God, here's a Wisconsin name. Hey, Sophie, how do you say this?
- [25:55]
B
Sophie Menominee. Menominee. Menominee. Menominee.
- [26:09]
A
Excellent. Steve Shaw of Menominee, Wisconsin. I'm mostly interested to hear about examples of economic policy successes that are transferable to a local context in hopes of replicating them or at least advocating for them. Within my community, there have been plenty of great examples of state and federal policy, but many of them aren't, or at least I don't perceive they are relevant to what a small town or. Or municipality can achieve.
- [26:34]
B
Steve. Steve.
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A
You know Steve, you know who this is?
- [26:39]
B
Oh, yes, Steve. Yes, Steve. Steve. Okay.
- [26:43]
A
This is Steve.
- [26:43]
B
This is Steve. Steve of Wisconsin. Wisconsin. Hey, Steve. So I think that the New Mexico childcare example is like a great kind of, like, focal point to think of of. So much of the capability for governments to do things come from the amount of money they have. I mean, the local governments are just going to have incredibly small budgets relative to the scope of the problem, that that's why you need Uncle Sam to write a check. And that makes it really tough to translate things like childcare. Now, that said, I don't know many small towns or cities who don't try. And some of the biggest movements we've seen about childcare, for example, over the last 20 years, it's all come from cities where you see cities who are really aggressive with ballot initiatives and they want more childcare, they want preschool, they want after school, and they want to use local property taxes to pay for it or local sales taxes to pay for it. So there. There are localities that are really aggressive about these issues that should be the purview of the federal government that aren't. The thing that the federal government lacks is proximity.
- [27:52]
A
Yeah.
- [27:53]
B
And so local governments have, like, little money, but also all the relationships in proximity. You know, the federal government has all the money, but really few local relationships in proximity. And so I think the answer of what you can do on a local level is you can be there and be seen and go for policies that aren't preempted by the state government, but could help people, like a paid sick leave law, like an expansion to childcare or preschool. Something I brought up in the school lunch episode was, yeah, if you're hungry, you don't do well on the sat. So, yeah, there's some federal things that need to be, like, picked up there.
- [28:29]
A
Sure.
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B
And we sent that episode to Congress with, like, dear sir, it is time. But, like, yeah, I mean, I remember playing high school soccer and we had a pasta night before every game that was put on by parents. Like, there's no reason why community groups can't Put on an SAT breakfast or an ACT breakfast or it's map testing at the school. And so this is where we take donations from local businesses to like provide snacks for all the students so every student gets fed right before map testing or ACT or SAT or AP exams. Like you can do small things really effectively on the local level. And so I, I would say see what your town wants to do. Yeah, the food thing seems probably like the biggest because like what restaurant wouldn't want to be part of a. Like we help kids with the sat.
- [29:20]
A
Yeah, yeah. You know, I was just having drinks the other night with a friend who works for the city government in la and she was talking about how small city budgets are in the United States compared to other countries. Like the, the way that we build our government and the layers in our government just means that our cities, which have some of the biggest, most expensive things to deal with, actually have almost no revenue sources. And the revenue sources they have are pretty regressive. Like sales taxes.
- [29:46]
B
Yeah, I mean this is why almost every like federal policy I've proposed is like the federal government is going to pay your city to do something.
- [29:53]
A
Right.
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B
That's another thing that you could probably do on the local level is that you could set up like after school summer camps. Even if it's like a one day visit or like a one day thing. Local workforce pipelines are something that everybody wants and nobody but localities can do. But yeah, everybody. Booster club for SAT breakfast restaurants. If you're listening, you need to call your local school, your local high school and say, when's the sat? I'm going to donate a bunch of breakfast tacos or like whatever you, whatever you communists eat for breakfast. That's not a breakfast taco.
- [30:31]
A
Okay, Ben Acevedo from Los Angeles, California. I have questions about what Dr. Edwards said about how in 2009 Social Security cut taxes for a small period of time on people during the worst recession since the Great Depression and the poverty rate for the elderly fell, what does it mean that it cut taxes? Was the 6.2% reduced? How did it reduce poverty?
- [30:55]
B
Sure. So in the Great Recession, which it technically starts the Last month of December 2007, 2008, the US is in the middle of a low, slow boil recession that explodes in the fall into the financial crisis. And then we basically kind of like almost enter a second and worst recession through 2009. Right. As Obama takes office. Now there's lots of legislation that gets passed in 08 and in 09 and 10 and 11, all trying to do something for the economy. Some of it good, some of it bad. So one of the tax credits passed, I believe in 09 was called the making work pay tax credit. I have so many feelings on this. I'm not gonna, I don't think I should get too animated. It could upset the baby. But, but in 2011, the Bush tax cuts of 01 were going to expire because as we've talked about earlier, we put in a 10 year timer to a lot of legislation in order to make the cost artificially lower relative to what we're actually risking. So in 2011 there was like this basically like day of execution for the Bush tax cuts. And in that legislation they ended the making work pay tax credit and replaced it with a small reduction in the employee side of Social Security. Employees only paid 4.2% as opposed to 6.2. And if you were self employed, you went from 12.4 to 10.4. So everybody who was paying into Social Security on the worker side saw a two point tax decrease for 2010 and 2011. If you were working, you had this tax decrease. It definitely hit Social Security's finances at the same time because the economy was in shambles and the labor market was terrible. Lots of people claimed Social Security retirement. And when I say the poverty rate fell, it wasn't like the tax went down and poverty fell. It was that even as Social Security was reducing its revenue via a tax cut because of the amount of claiming and the stability of Social Security income, poverty fell amongst the elderly. So they happened at the same time, but not for one reason. Or rather the reason is because Social Security is such a baller program that it could pass a tax cut to its revenue and still maintain benefits to such a degree that like, like not only did everybody on Social Security make it through this great recession with stability, it even posted some strong numbers on the poverty side. So that's, that is they happened right at the same time, but they weren't necessarily causally related outside of Social Security's design. Now why did we pass a two point tax cut that I'm sure a lot of people are like, wait, I was working in 2010.
- [33:53]
A
I know, I remember that.
- [33:55]
B
You remember it. So the.
- [33:56]
A
I do because I was, I was self employed. Oh, right at the time. But also that there was a lot of debate about whether people would even notice because it was just basically an incremental increase in your paycheck and that it was sort of like a big tax cut that was supposed to spur spending. But would people even notice that they had more money coming in.
- [34:13]
B
Yeah. And in terms of trendiness and economics, this is when the theory of nudge was really popular. And so the thought was, you're not giving people a check for them to go out and spend money, which if you gave them a lump sum, they'll do what a lot of people do when they get a big lump sum during a recession, which is that they pay down their debt, which doesn't stimulate the economy to the same degree as going out and buying a refrigerator. So the idea was that if instead of giving people a thousand dollar check or a $2,000 check, if you just gave them a 2% earnings bump in every paycheck, they'd end up with slightly more money. And so they'd be inclined to spend it on small dollar purchases like, oh, we've got 50 extra bucks, let's go out to eat, or maybe I'll buy this shirt. And so it was thought to be a way to trigger consumption and stimulate consumption without having to pay an upfront cost to the people who don't want to spend a stimulus check on consumption, but rather to save it or pay down debt.
- [35:17]
A
Yeah. Okay. We got a lot of questions sort of about basically what do we do about the ultra wealthy billionaires particularly related to making sure they pay taxes. So we at least four questions on this front. And rather than ask them all, I have sort of combined them. Okay. And this is what I came up with. Okay. Extremely wealthy individuals often pay lower effective tax rates. They might get compensated in stock. They hold wealth in unrealized capital gains from stock or property. They can borrow against these assets to fund their lifestyles without triggering taxable events. The current estate tax thresholds which we've talked about, also allow massive intergenerational wealth transfer with minimal taxation. So what combination of policy reforms would most effectively reduce this tax disparity and wealth concentration while maintaining economic incentives for productive activity?
- [36:12]
B
Okay, this is a great question. I won't be able to answer all.
- [36:18]
A
Of it, but it's a big question.
- [36:20]
B
There are some things we know we need to do that have good evidence behind them. So thing we need to do one is actually collect the taxes that people owe. Beyond redesigning the tax system, we should just collect what they owe. And so having things like IRS audits is really, really important. We don't have as much auditing power as we used to, but this is like such a boost to both our finances and to tax compliance to have IRS audits. What have I talked about on the show? The IR audit effect?
- [36:53]
A
No But I'm very curious because this is. I was just reading about the redesign of the technology program at the IRS and it made my head spin.
- [37:03]
B
Well, audits are expensive because they take a lot of manpower and.
- [37:08]
A
But not if you use AI for everything, which is apparently what people want to do.
- [37:12]
B
Yeah, pass. So audits take a lot of manpower. You have to go through a lot of documents. The IRS is going to pay more for an audit as opposed to a non audited return. The most expensive audits are for the most complicated returns, most source of income, you know, all kinds of borrowing and capital gains. So is there a point to which the audit gets too expensive relative to what they can get back? And the answer is no, girl, no. You need to audit. The more complicated the estate or the return, the more remunerative the audit is to the federal government. And they came up with like a dollar per dollar ratio, which I'm not going to pretend to remember off the top of my head. It's just, it is pretty wild.
- [37:51]
A
It's like for every dollar you spend on auditors, you get $5 back in taxes that should have been paid.
- [37:56]
B
Yeah, but I don't know if it's five. It's something positive. But it's like, wow, that's actually quite large. And then when the other thing they found is that after you get audited, you also like, you're better at your taxes for the next 10 years. So audits don't just have a one year return, they tend to have a 10 year return. So we need to do more auditing. So that's one. Okay, then two, we need like a pretty drastic change to our tax laws for wealth. And countries who have experimented with this have found that very wealthy people are very good at getting out of taxes.
- [38:28]
A
No surprise, no surprise.
- [38:30]
B
Very good at moving money around, like finding tax shelters. So what the tax law can do is either think about finding the money or reducing the incentive to move it. So, you know, if capital gains are taxed at a certain rate, but capital holdings are not taxed at all, and then they're also not taxed at all if I die and give them to my kid, but they're taxed at a much higher rate if I decide to give them to my kid while I'm alive versus selling them, you have an asset that faces three different tax scenarios that are really different based on what you do with it. So figuring out how to tax that money is not just finding that asset and valuing it, which is where it can be really tricky. But Changing the incentives for what you do with it. So I think I said this in the estate tax episode that, like, if you put in, like an agricultural farming exemption to property handed down, all of these really wealthy people will like, buy a vineyard.
- [39:32]
A
They suddenly have real estate.
- [39:33]
B
They'll be like, this is my ranch and it's actually my whole property. I'm a financier for 25 years, but now I just.
- [39:41]
A
But I have sheep.
- [39:41]
B
Run a ranch and have sheep. Okay, so ignore rich people for a second and just look at farms. If you looked at the value of farms that we know exist, that would be kind of close enough to the estate tax. It's like 80. It's just really not that many. And so again, rather than trying to, like, come up with this, like, way to tax wealth that, you know, doesn't end up adversely affecting people like farmers is to think about how to think of enforcement and collection that is just more curated. Because the thing about people who earn billions and billions of dollars or are worth billions of billions of dollars is there's not that many of them. So a robust IRS that has like a billionaires department whose job it is to say like, okay, reasonably, is Elon Musk a sheepherder? No, he's not.
- [40:33]
A
He doesn't get that exemption.
- [40:34]
B
He doesn't get that exemption. Like, they just, they. What I have taken from the audit findings is that they need more attention. You can make the incentives work better, take some of the incentives away, and then just pay a ton of attention. Like, I think, God, I was just reading about this. Maybe it's Bezos, maybe it's someone else, somebody's dad. Their job is to run the tax business, whose entire business is paying the taxes of like, the one wealthy guy. And like, isn't this just Jeff Bezos's dad? This might just be Jeff Bezos's dad. I don't remember who it was. But, like, they have so much wealth and so much on the line for tax purposes that there will be entire tax companies who will only have one client.
- [41:24]
A
Yeah, I feel like.
- [41:24]
B
And it's like, these are the 20 people who work for Bezos to pay his taxes.
- [41:29]
A
And it's just to pay his taxes.
- [41:30]
B
And to make sure he pays your taxes and to make sure he pays as little as possible. So, like, those would be my kind of two first thoughts on. On wealth taxes. And then, yeah, the capital gains and all that stuff.
- [41:41]
A
Like, one of the specific questions asked, if we had all these policies, would we still have billionaires? And, I mean, the Billionaires are bad sign.
- [41:50]
B
Or a billionaire is a bad sign. Well, they're also a sign of inflation because like a billion dollars isn't what it used to be, Right? Yeah, it used to be a huge thing to be a millionaire, and now it's a, like, it's, we do have changes of like regular prices over time that even get into the billions. So are billionaires bad? I mean, I think it depends on where they come from and if they reveal a weakness in our economy or strength. You know, I tend to be pretty dismissive of Bezos, a guy whose business was built on avoiding sales tax and who still has gross worker violations and runs some of those dangerous warehouses in America. And I'm like, I'm less impressed with your billions because you've exploited weaknesses in our labor law and our financing. And if there were a world in which we didn't have such loopholes related to tax collection, where Amazon isn't stealing the tips of Whole Foods Delivery drivers during the pandemic, where we have, we have good wage and hour enforcement, we have the ability to bargain and unionize. You know, where you can't spend more money on anti unionization efforts than like, you pay the people who are trying to unionize. Like, I think I'm more concerned about the process and less with the results. Like, the billionaire factor is like, okay, whatever, someone became a billionaire. Like, like, whatever. Like that doesn't matter to me. Like, the idea of a billionaire is less offensive than like the idea that a billionaire's company would be involved in so many workplace accidents, stealing tips, terrible working conditions, you know, like that. I guess I don't have a problem with people coming up with a good product and making lots of money. I think I have a problem with that being a result of exploiting weaknesses and unfairnesses in our economy or like skirting the law as opposed to following it. I also think it's just kind of nice that we live in a country where so many people are convinced that they could be a billionaire. I think that that's an intangible, maybe delusion, but also magic about the U.S. economy that people are convinced that they can become wealthy here.
- [43:58]
A
Yeah. All right, last question. This is from Sam Hsu in Fremont, California. What will the US labor economy look like once Trump is done? Will we all be screwing screws into iph?
- [44:13]
B
Unlikely. Unlikely. Okay, so I'm going to take this question on a couple levels. If the question is, are we going to build back manufacturing in the United States? The answer is, even if we did and were able to do it in a short amount of time, we would not be relying on this kind of labor. The U.S. i think, could be a manufacturing powerhouse and have a larger manufacturing sector than it's ever had, and it'll use a twentieth of the employment. So I think, like, will we all be screwing screws into iPhones? I think more likely we will be writing emails at a company that designed the robot that screws screws into iPhones at the manufacturing center down the street. And less likely that we would be actually doing it because even with high person manufacturing employment in the U.S. there is a lot, lot of evidence that there are a lot of undocumented workers there making less than fair wages. There's a big expose, I think it was in the New York Times about how all these Made in America textile brands are like, yeah, so that's a lot of undocumented immigrants that are working in those Made in America factories. Which is why if you want to buy apparel that you know is made in America, buy people who were not imported specifically to make it just on our side of the border, you have to buy union made. Yeah, but. So I don't, I don't think.
- [45:36]
A
And this is why our merch is going to cost.
- [45:38]
B
So yeah, y', all, when we make a shirt, save up now. Gotta get that union shirt. I don't think that we're gonna have like a return to production focus in our labor market. But I think the question of, like, where does the US Economy go from here?
- [45:56]
A
Yeah.
- [45:57]
B
After all this destruction.
- [45:58]
A
Yeah.
- [46:00]
B
After all these bad policies and after this, just yet again, another era in administration that seems committed to not helping people at the bottom. Genuinely. Well, I mean, I don't want to tip my hand here with the name of the show, but I am very optimistic in.
- [46:25]
A
In spite of. Or I mean.
- [46:29]
B
So I'm going to throw a metaphor out. And I know that I struggle with this. I know that I do.
- [46:36]
A
Getting better every day.
- [46:37]
B
I don't think so. I actually don't. I don't know if these are getting better. My dad was a trial judge, and it just so happened that one of the biggest cases he ever had, even in East Texas, was a, like, global financing leveraged buyout of a company that fell apart in the financial crisis. The company happened to be headquartered in East Texas, but these are like international banks. Names that you've heard of end up in his court. So this trial starts and it's going to be months long. We're like making plans of, like, when are the kids Coming home. And we're like, well, Dad's got this trial and so on, and in the middle of, I think, the second week, it settles. And I was like, dad, what the hell happened? I've been following the trial. What happened? And he was like, well, they settled in New York. They didn't settle here. They have a trial team here in Texas, and their job is to fight, but they have a settlement team back in New York, and their job is to settle. And they just. Once they got to the second week of the trial, they reached a settlement. And these teams, they have different purposes. And that has always struck with me of the idea that you have a trial team and you have a settlement.
- [47:54]
A
Team, and they're not the same team.
- [47:56]
B
They're not the same team because we read the news, we're all on the trial team right now, and we are suffering. We're watching opposing counsel give the judge cash. And we're like, good God, the jury is wearing shirts with the opposing counsel's name on it. Like. Like, we are not doing well. But, like, where I see myself and where I see the country going is the settlement team, the people who are like, closing themselves off to the noise or at least trying not to be affected on it and focusing on what actually has to happen. Not the fight, but the future. And the fight doesn't look good because the future looks so amazing. Like, I have never been more convinced that, you know, immigrants are the future of the US Economy. I'm not saying it won't have consequences, but I think so much of what is happening is this is why you don't want the trial lawyer to be president, because they don't know how to build anything.
- [48:55]
A
We, you know, or the litigious client.
- [48:57]
B
The litigious client. Like, you don't. That's not. I mean, they're just not going to build anything. They don't have a settlement team. Like, you're talking, like, I think of this administration. I'm like, they have no settlement team. Team. The needs of the future just become more and more crystallized with every shitty thing that this administration does. Of, like, oh, you're attacking science and research in 2025. That's really interesting. I can't wait for how big that budget's going to be in five years. Like, you're like, oh, you don't like the Bureau of Labor Statistics? Man, are you doing more to have one big, beautiful statistics agency than any president has done in the past century? Like, I. You have to.
- [49:34]
A
You have to see. See through this.
- [49:36]
B
I Have to see through the trial. People have a way of showing their hand. And in some ways, Trump's economic activities are showing his hand. So you just have to be able to read it, internalize it, put it into the settlement and go forward. I'm not, like, hopeful that January 2029 is going to be a halcyon utopian time in the United States, but I know that 2040 will be better and 2050 will be, too.
- [50:01]
A
That's our show.
- [50:02]
B
That's our show.
- [50:03]
A
That's an optimistic note to end on.
- [50:05]
B
Should we do spiritual sponsors? I have a good one this week.
- [50:07]
A
Oh, yeah, yeah, yeah. What's your spiritual sponsor?
- [50:09]
B
My spiritual sponsor are people who volunteer for the pto, pta, whatever you call it in your school district. But the parents that volunteer at schools for stuff so I don't have to. I think they're beautiful people. They're dedicated. They're so important to our communities. I would like to write a check and move on. And I don't want to volunteer, but they do. And so I'm so grateful for them that every time there's an email that's like, hey, we need people to do this, I'm just, like, buoyed by the people who are like, oh, I'll go pass out apples to kindergartners, or, you know, I'll go to, like, the school's unkept garden and weed for five. Like, I mean, just the people who show up. And I just. I really respect that they're there and that they get me off the hook for having to do something I don't want to do. I care a lot. I don't like showing up to stuff. So my sponsors are the people whose version of caring is showing up.
- [51:07]
A
Nice. My spiritual sponsor this week is this documentary movie that I was just telling folks about, which is called Listers. You can watch it for free. I believe on YouTube it's called Listers A Glimpse into Extreme Bird Watching. And it's amazing. That's all I can tell you. It's the adventures of chew brothers who decide to do a big year where they try to see as many different species of birds as they can, and they document the whole year and also the entire culture of this kind of competitive bird watching. And it was just an unexpected joy. Thank you, everybody, for sending questions. You can always reach us@optimist.eacreymmail.com we're also on social media, on Instagram, LinkedIn, TikTok.
- [51:57]
B
Yeah, YouTube.
- [51:58]
A
Oh, yes, and of course YouTube.
- [51:59]
B
Yes, and of course YouTube. And keep sending questions as you have them, they'll influence what we do in the second season, and they help us know what we got wrong or right in an episode of what you still have questions about. We need to snap out Andy and Sophie.
- [52:17]
A
Thanks, guys.
- [52:18]
B
Thank you guys so much.