Comfortable Pants Auction

Summary

Slate Money – "Comfortable Pants Auction" (October 17, 2020)

Episode Overview

In this episode, Felix Salmon (Axios), Emily Peck (HuffPost), and Anna Szymanski (Breakingviews) dissect major business and finance headlines of the week, focusing on:

• The massive tax evasion case involving Vista Equity Partners’ Robert Smith and his mentor/investor, Bob Brockman
• The effectiveness—or futility—of performance reviews during the COVID-19 pandemic
• The Nobel Prize in Economics’ celebration of auction theory and how auctions shape our modern marketplaces
• Plus: Spirited discussion about dynamic pricing, the evolving real estate market, and numbers of the week

With their usual conversational wit and candor, the hosts nimbly connect what seem like esoteric financial stories to everyday life, questioning the normalcy (and morality) of billionaire behavior, workplace rituals, and "market efficiency."

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Segment 1: Private Equity’s Tax Evasion Scandal (02:00-17:18)

Key Discussion Points

• Robert Smith and Bob Brockman’s Tax Crimes

  • Robert Smith, the richest Black person in America and head of Vista Equity Partners, avoided prosecution by cooperating against his mentor/investor, Bob Brockman.
  • Brockman is charged with evading taxes on $2 billion in income. Smith pays a $140 million fine but avoids jail time.

• IRS Inaction and Resource Limits

  • Investigations took over six years.
  • The case highlights both the IRS’s capability (contrary to common belief) and its limited resources in chasing wealthy tax evaders.

• Morality, Charity, and Public Perception

  • Smith’s famous gift to Morehouse College (paying off graduate student debts) may have been partly an attempt to argue IRS leniency.
  • Wealthy individuals employ convoluted rationales (like purported charitable trusts) to avoid taxes, only completing charitable donations when pressured.

• Tax Avoidance as a Billionaire Mindset

  • Billionaires want to maximize compound returns and perceive paying taxes as “losing,” even when already massively wealthy.
  • The industry around tax avoidance is vast; the episode references Leon Black’s $50 million spent on Epstein’s consultancy and the fine line between legal avoidance and criminal evasion.

Notable Quotes & Moments

• On the scale of the crime:
  “Brockman is being charged with evading, like, taxes on like $2 billion of income. This is absolutely huge and crazy. And because it's a very, very high profile private equity billionaire who's at the middle of it all.” – Felix (02:00)

• On IRS resources:
  “If you think about the resources that the IRS has certainly put into just this one case, like you have to wonder, like, how many other cases they could even have the resources to prosecute.” – Felix (05:14)

• Charity as a PR move:
  “It really does look to me as though that entire Morehouse announcement was in large part an attempt to get the IRS off his back.” – Felix (08:42)

• Billionaire mindset:
  “I have to keep myself fully invested because I’m making all of these amazing annual returns… If I pay $1 million of taxes today, it doesn’t just cost me $1 million, it costs me $10 million, because that’s how much that $1 million is going to wind up growing to.” – Felix (12:22)

• Industry norms:
  “There are just enormous industries around reducing the tax bills of very, very wealthy people, which is why this is not surprising at all…” – Anna (10:31)

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Segment 2: The (Im)Possibility of Fair Performance Reviews During a Pandemic (17:19-28:43)

Key Discussion Points

• Performance Reviews: From Corporate Crime to COVID-era Confusion

  • In a darkly funny aside, even criminal conspirators (per the Brockman case) did performance reviews: “He was giving performance bonuses to his, like, co-conspirators.” (Emily, 17:27)
  • The pandemic complicates the already controversial practice of reviewing employees’ performance.

• Effectiveness and Bias

  • Traditional performance reviews are widely disliked and often fail to capture real productivity, especially in crisis conditions.
  • Bias—especially gender and racial—permeates both informal “regular check-ins” and formal review structures.

• Should Reviews Be Suspended This Year?

  • Dan Kois’ Slate article: The humane choice may be to write off 2020 for reviews (24:32).
  • Counterpoint: Maintaining some record is necessary for big changes (promotions/firings), but applying normal standards is unfair.

Notable Quotes & Moments

• Criminals doing reviews:
  “They were doing crimes, but in the most corporate nature—Brockman... was doing performance reviews of the crime-doing.” – Emily (17:30)

• On reviews amid chaos:
  “You have no metric here to compare it to. And I think people are under really stressful circumstances and the humane thing to do would be to write it off.” – Emily (25:19)

• On the futility of objectivity:
  “If you have no metric that's being used for everyone, what can often happen is that the manager will give better rankings to people they like… gender, race… inevitably come into all of these decisions.” – Anna (22:24)

• On rewarding “above and beyond”:
  “You do need to figure out a way to reward the people who went above and beyond during this time, just not to punish the ones who didn’t.” – Emily (26:38)
  “Those people are also just lucky… being able to outperform is just circumstance.” – Felix (26:54)
  “I'm sorry, I don't agree with that… If you have been working above and beyond and then nobody says anything… that is going to foster resentment.” – Anna (27:12)

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Segment 3: Auction Theory, Nobel Prize, and the Art of Modern Price Tinkering (28:43-41:36)

Key Discussion Points

• Nobel Prize to Market Design

  • Winners Paul Milgrom and Robert Wilson: Importantly recognized for applied auction theory, not just abstract mathematics.
  • Modern auctions (e.g., for electromagnetic spectrum, carbon credits) solve complex allocation problems, unlike simple eBay/Sotheby models.
  • These auctions can incorporate constraints to prevent monopolies, maximize fairness, or achieve policy goals.

• Examples and Applications

  • UK 3G spectrum auction (2000): Expected to raise £1B-£2B, but raised £30B due to well-designed auctions.
  • Comparison to poorly managed real-world “auctions,” e.g., states bidding against each other for ventilators during COVID-19.

• Everyday Auctions and Pricing

  • Dynamic pricing is everywhere: supermarkets, airlines, Broadway shows, and especially online shopping (Amazon’s shifting prices).
  • The underlying logic: continuous auctions and algorithmic pricing are more efficient, but often feel less transparent and consumer-friendly.

Notable Quotes & Moments

• Economics’ "win":
  “This is the one bit of economics which is actually good, that created obvious positive externalities in the world and made the world a better place.” – Felix (29:09)

• On auction complexity:
  “You want an auction that winds up selling that spectrum to the person who's going to be using it and making best and highest use of it... So you go through multiple rounds—some of these auctions … have hundreds of rounds—to really optimize the ultimate allocation…” – Felix (31:44)

• Real-time retail auctions:
  “Every time you visit a web page, there's this thing called real-time bidding… to see who's going to win the auction to show you an ad. Those auctions are unbelievably sophisticated…” – Felix (35:58)

• Dynamic pricing at the store:
  “The little thing that says how much the package of spaghetti costs always used to be on paper and increasingly is now in e-ink… because the supermarket is changing those prices way, way more frequently than they ever used to. And again, that is a form of auction design.” – Felix (38:27)

• Consumer discomfort:
  “I don’t think the price of milk should fluctuate depending on what time I go to the store…” – Emily (39:45)

• On market transparency:
  “What it does… is it makes it much harder to comparison shop. And that is a little bit of a problem because… if prices are changing all the time, no one really knows which store has the better price.” – Felix (40:36)

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Segment 4: Numbers Round & Market Snapshots (41:50-end)

Notable Numbers

• 1963 – The year Tab (Coke’s original diet soda) was introduced. RIP Tab, discontinued in the pandemic. – Emily (41:53)
• $6 billion – Market cap of Korean record label Big Hit (home to BTS), “basically just one act.” – Felix (42:31)
• 70% – Increase in single-family home sales in Greenwich, CT, Q3 2020 vs. Q3 2019, while Manhattan condo/co-op sales plunged ~50%; evidence of the pandemic-driven urban exodus. – Anna (43:36)

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Memorable Moments

• On performance reviews and criminal conspiracies:
  Bizarre corporate habits persist in shadowy places, illustrated in Brockman’s "performance reviews" for his co-conspirators.

• Consensus and friction on pandemic productivity:
  The hosts’ diverging views on rewarding pandemic-era “over performers” leads to a spirited debate.

• Sweatpants and dynamic pricing:
  The episode’s title and Old Navy anecdote connects household-shaking economic theories to the quotidian search for comfortable pants.

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Episode Takeaways

• Billionaires break tax rules—not out of necessity, but competitive drive and perverse incentives of wealth compounding.
• Modern market design, especially in auctions, can make huge social differences—but that design has consumer downsides, like pricing opacity.
• Performance reviews remain a fraught, sometimes harmful process—doubly so in times of widespread upheaval.
• Seemingly arcane economic theories shape our daily shopping, entertainment, and work lives in profound and invisible ways.

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Listen for: dry humor, accessible explainers of complex economic mechanisms, and sharp critiques of wealth and work culture—plus a eulogy for Tab.

Transcript

[A]

Foreign.

[B]

Hello, welcome to the Comfortable Pants Auction edition of Slate Money, your guide to the business and finance news of the week. If you are in the market for sweatpants, and frankly, who isn't these days, would you like a sophisticated auction mechanism to work out how much to pay? The fact is, there probably is one. We are going to talk about that in this week's Slate Money. We are also going to talk about tax evasion at private equity firm Vista Equity Partners, or rather its founder, Robert Smith, not to be confused with the lead singer of the Cure and his first big investor, Robert Brockman. We are going to talk about performance reviews and whether they even make sense during a pandemic. And in the Slate plus, we are going to talk about what it makes sense to wake people up in the middle of the night to tell them so. One other note, the first segment about tax evasion is a little bit subpar in terms of my own personal audio quality. Oh, I should mention that I am Felix Salmon of Axios and I'm here with Emily Peck of HuffPost.

[C]

Hello.

[B]

I'm here with Anna Shymansky of Breaking Views.

[D]

Hello.

[B]

I am not at Seaplane Armada Studios in Brooklyn, so I don't sound as good as I have done for the past few weeks. I am sitting at home in a pandemic addled fog. And because of that, I forgot to turn on my recorder for the first segment. So the first segment, I don't sound so great, but Jessamine rescued me at the end of the first segment. And then for the rest of the show, I should sound great. More like this. All of that is coming up on Slate Money.

[A]

Okay, so the big news of this week is tax crime. We have $140 million of fines going to Robert Smith, who's this big private equity honcho who founded Vista Equity Partners and whose first big investor was this guy Bob Brockman Software, a guy who made all of his money making software for car dealerships, which is one of the classic ways that Americans become billionaires. And the thing which I love about this is that Robert Smith is the richest black person in America. He's this huge success story, and he's the small fry in this story. Like, he's the guy who isn't going to jail because he's cooperating in the case against Brockman, who's a really big fish. And I'm like, wow, this is huge. So Brockman is being charged with evading, like, taxes on like $2 billion of income. This is absolutely huge and crazy. And because it's A very, very high profile private equity billionaire who's at the middle of it all. We have to talk about this. Anna, what's your. What's your take?

[D]

I mean, I actually think in an odd way, it's a good thing, by which I mean the fact that they have been discovered, that they are being forced to pay fines, that some are being prosecuted. I think we often talk about the inability of the IRS to go after anyone with wealth, and I think this shows that actually they can.

[A]

Although the amount of time it took to do this is astonishing. If you read the statement of facts, there was this kind of amnesty that the IRS put forward in 2014 for people with Swiss bank accounts, where they said, look, we know that there's a bunch of Americans with Swiss bank accounts and they've been putting foreign income into their Swiss bank accounts and not declaring it. And obviously, even if it's foreign income, you still need to pay tax on it if you're an American.

[B]

So.

[A]

We'Re about to do this deal with the Swiss banks, where the Swiss banks are going to tell us about everyone who has all of the Americans who has this bank accounts. And if you want to just come up to us voluntarily and admit that you've been doing this, we will maybe be a little bit more lenient. Unless we've already started investigating you and we already know that you're a tax criminal, in which case, sorry, no days. Robert Smith, who had a Swiss bank account and was doing exactly that, went along to the IRS in 2014 and tried to turn himself in voluntarily. And the IRS said, nope, sorry, you're already under investigation. So no dice. This was 2014. So this settlement that was just announced this week has been in the, you know, under investigation for six years at least. It's amazing how long these things take. Yeah.

[D]

But if you think about the amount of money that they will now get in fines, I would say that that still is definitely worth it.

[A]

Oh, it's totally worth it. And it should happen, and it should happen more often. But it does give you an idea, like when everyone's talking about how much the IRS budget has been cut and how little they audit the rich. If you think about the resources that the IRS has certainly put into just this one case, like, you have to wonder, like, how many other cases they could even have the resources to prosecute.

[C]

Yeah. And I was struck by how long this has been going on because Brockman recruited smith in the 90s to run this private equity fund, vista of which Brockman was the only client. If I'm getting this right. And then for the next 20 years, if you read the indictment, they just did all these schemes that, I mean, maybe there could be a movie if someone could really make it more fun. But like everyone had code names, you know, Bonefish, Snapper. The IRS was called the house at one point. They bought encryption software literally called Evidence Eliminator.

[A]

My favorite one was that Brockman had a, like a whole sort of filing system basically of computer printer paper that he had bought in certain years so that if he ever needed to create a fake document back dated to a certain time, he would print it on age appropriate paper so that if anyone like examined the paper to see whether it was correct, it would be correct.

[D]

He was clearly a voice that is thinking ahead.

[C]

And then I don't. I guess my question, maybe one of you could answer is, did Vista make seems to have made money legitimately and then Brockman and Smith just didn't want to pay their taxes? It just seems so gross to me. Like, it's like, you guys are doing fine, just pay your taxes. Or am I missing anything?

[A]

Exactly.

[B]

No, you're not missing anything.

[A]

That's exactly right. Vista is genuinely an extremely successful private equity company. And while it's true that Brockman was the only investor in the first fund, Nowadays Vista raises $15 billion funds and has sovereign wealth funds and big endowments and is a huge successful business. And Brockman is a small investor in Vista overall right now. But Brockman was the guy who got it all started. And one of his conditions for getting it all started was, look, you need to have it all offshore, or at least my fund offshore for basically tax evasion reasons. And Smith was like, oh, okay. And then even though Smith could have done that and just said, okay, if you want an offshore vehicle to invest in, I will create an offshore vehicle for you to invest in, but then I will pay taxes on my income because I am an American and I am lower abiding. But he didn't do that. He used to, Brockman's accountant, basically to avoid paying taxes on all of the income that he got, at least from Brockman.

[C]

It's just so immoral. And meanwhile, this guy Smith, we talked about him last year because he showed up at Morehouse Historically Black College and gave a commencement speech and spontaneously, or maybe it was planned, announced that he would pay off the student loans of all the graduates. Remember that?

[A]

And so that was 100% part of the plan, right? Is that his whole argument when the IRS came after him was I didn't need to pay any income on this money because it was all in a charitable trust. And you don't need to pay money on money which isn't your own because it belonged to the charitable trust and it had to go to charity. It wasn't really my money. Now the IRS has Chapter Invest explaining why it wasn't really a charitable trust and he had complete discretion over it and he could use that money to buy a house in Switzerland or whatever else he did with it. But what's pretty clear is that as the investigation was getting to the crunch point and hardcore negotiations, what Smith did was he just gave all the money to charity, genuinely. And he announced this big like, I'm paying off all the student debt for everyone at Morehouse thing in order to say to the irs, look, honestly, it was all for charity, but like, you can't just ex post give it to charity. You have to sort of make sure that it has to go to charity ex ante. And he totally did not do that. And it really does look to me as though that entire Morehouse announcement was in large part an attempt to get the IRS off his back. Wow.

[C]

And also what's interesting is to compare this kind of blatant tax evasion to the Donald Trump story we talked about last week. Cuz I feel like they're of a different ilk, right? Like Donald Trump is trying to avoid paying taxes he owes, just like these guys are. But I can't believe I'm saying this, but I, I think he's doing it in a more upfront way.

[D]

Yeah, I mean, this is ultimately the real problem is that the line between tax avoidance and tax evasion can be very blurry. And this is in no way to justify anyone crossing it. But there are just enormous industries around reducing the tax bills of very, very wealthy people, which is why this is not surprising at all and obviously not the only instance where this is happening. And Felix, as you said, if you look at the amount of resources that had to go into prosecuting this one person, there obviously are going to be many, many, many, many who are not being prosecuted.

[A]

Well, I mean, the other thing that came out in the news this week was that Leon Black, who is another big private equity billionaire, was revealed to have spent somewhere between 50 and 75 million dollars on quote unquote, tax avoidance or consultancy services from one Jeffrey Epstein. And that's like Leon's story and he's sticking to it. There's no evidence whatsoever that Jeffrey Epstein was particularly good at helping people avoid taxes. But the Fact that Leon Black can even say that with a straight face kind of implies that, yeah, like, billionaires spend $50 million, right? $50 million checks to individuals just to help them pay less tax. And that's normal.

[C]

I just. I guess I'm naive. But if you have $2 billion, what is the worst tax bill you could possibly have? You're still going to be left with so much money. I just. Yeah, but I don't understand why you need to avoid the tax, like, just pay the taxes, like.

[D]

You're absolutely right, but that's not how people think. Because.

[B]

I'll tell you why, Emily.

[A]

It's because of this whole thing about compounded returns. I've talked to a couple of rich philanthropists who try to explain to me why they make pledges to give a lot of money in the future or give money in annual installments rather than just writing the check that they've said that they're going to give.

[B]

And they're like, because I have to.

[A]

Keep myself fully invested because I'm making all of these amazing annual returns. And so if I spend money now, I'm not just losing that money, I'm losing all of the money that it will grow to become in the future. And I'm quite sure that's a large part of how Smith was thinking. He was like, If I pay $1 million of taxes today, it doesn't just cost me a million dollars, it cost me $10 million, because that's how much that 1 million do is going to wind up going to. No, this is not an entirely coherent or sensible way of thinking. But I'm sure that that was part of how he was thinking.

[D]

I'm sure that's part of it. And there is some logic to that. Not in terms of avoiding taxes, but just in the terms of that. Obviously, you do want to remain invested. But I also think partly it's because a lot of these men, and they're almost always men who get to these positions, they think about everything in terms of winning and losing and paying taxes and having to pay more taxes than you want can often be conceived of as losing. So even if you end up giving this money to other areas, that's something you're doing yourself. You're not being forced to do that. So I really do think it's also just you have some of these men who fundamentally don't think they should have to pay this amount. They think that that is something that's being done to them.

[C]

And again, this man, Brockman, his company, which is software for auto dealerships, which is so boring. That makes money. This is a legitimate company that's now tainted by what this guy has done. I mean, he's facing possibly prison time for this, right?

[A]

He is going to wind up going to prison. I suspect that he might well have made more money from investing in Vista funds than he did from software for car dealerships. But the more interesting one to me is what happens to Vista, right? Because if you look at the statement of fact, the guy who founded the CEO and founder of Vista Equity Partners is a criminal and engaged in criminal activity for many, many years. And do you really want the guy who's in charge of running your money if you're like a big endowment or foundation or just normal person or sovereign wealth fund or whoever to be a criminal like that? It looks like maybe his investors are okay with it, although he seems to have downplayed it. And one of the things that seems to be happening is that his co founder, Brian Sheth, this has been like the last draw for him and he's leaving. So this could be genuinely damaging for Vista, but it's kind of bad enough that it's not obviously damaging for Pfister, just like the relationship between Leon Black and Jeffrey Epstein isn't obviously damaging for Apollo.

[C]

Well, it's like the difference between Madoff and what's his name? Steve. Steve Cohen. If you're a criminal running an investment firm and the crimes are like, I evaded taxes, like, like I feel like you're gonna get forgiven for that. Rather than if you're like a criminal running an investment firm and the crime is like, I was running a massive Ponzi scheme and ripping all you off. Like, he wasn't like per se ripping anyone off.

[A]

The Madoff thing is a very good point because he was making these impossible returns for many, many years. And Wall street was investing in him largely because Wall street thought he was a criminal who was front running. And they thought he had some clever little front running algorithm which was making lots of money. And they were like, as long as it makes money, we're fine with it. If they'd known it was a Ponzi, they wouldn't have invested. But if they thought it was just like a different type of crime, apparently it seems they would have been fine with it.

[C]

Yeah, there's some crime that's fine in the investing world and expected and if it makes money, everyone's okay. And if, you know, if it's the crime that doesn't make money, then that's bad.

[A]

Or like Jeffrey Epstein went to jail.

[B]

For a year, and everyone was like.

[A]

Yeah, it wasn't that bad of a crime. So we'll keep on hanging out with you.

[D]

One thing, to be fair, Stevie Cohen was never actually convicted of any crime. True.

[C]

He was a lot of crime.

[A]

And neither will Robert Smith be convicted of a crime because he's managed to do this settlement where he turns in. Brockman basically pays $140 million, which I believe is probably quite a lot of money. Even if you're Robert Smith, that's a lot of money. And manages to avoid jail time. So good for him, I guess.

[B]

Okay, so, Emily, you picked up on something amazing in the Brockman indictment, which was that he was giving performance bonuses to his, like, co conspirators.

[C]

Yeah, yeah, they were doing crimes, but it's of the most corporate nature that Brockman. Yes. Was doing performance reviews of the crime. Doing. He was like, are you doing the encryption really well? Is Evidence Eliminator the best software program we could have gotten? Are you productive? It just was such a great example. Actually, I don't know what it was a great example of, but performance reviews are rather the bane of corporate life. And even when corporate life involves crimes, you still cling to the processes you're used to in corporate life.

[B]

It did remind me of that. Of that wonderful scene in the Wire where Stringer Bell goes up to a guy and says, like, are you taking minutes of a criminal conspiracy?

[C]

Yeah. And, I mean, it goes to show, I guess, how ethically neutral the performance review is. And then I just went down a rabbit hole of just thinking about performance reviews. And apparently there are a lot of people thinking about them right now because everyone's working from home and trying to figure out, can we judge you right now the same way we judged you before? Now that we're working in a pandemic from home with our children around us all the time, and you can't possibly be as productive as you were. So how can we adjust the performance review to these circumstances is a question that people are asking.

[B]

Or can you adjust it? I mean, there's been a long literature for many years that performance reviews, general, are terrible things that add no value. And especially right now in a situation where you just basically have no idea what kind of chaos people are trying to live with at home or how their mental health is given the pandemic, and so on and so forth, it seems that if it was even close before, whether you should or should not be, like, running your company on the basis of performance reviews for this Year, at least you shouldn't. And yet companies around the country are still doing him and they're still like doing performance reviews and saying, you're doing bad and you're getting promoted and you're getting a pay rise and you're getting a pay cut and all the rest of it. And it's happening.

[D]

Yeah. I mean, look, everybody hates performance reviews. But two things. One, as a company, you need to be able to cover why you are promoting or firing someone. You need to have a record of that so you. That is part of it. And then there has to be some metric to measure people's performance. The problem, I would say, is not with the idea of a performance review, it's that the way performance reviews are currently done is not particularly helpful.

[C]

Yeah. And I mean, there's been innovation in the performance review space. As we all know. Microsoft used to do performance reviews so badly that they wound up pitting coworkers against each other because they would only.

[B]

Get out of limit the stack ranking. Yeah, that was terrible.

[C]

So only like a few people could be rated excellent. So what wound up happening was people were like, backstabbing each other and like undermining each other's work. So they had to revamp that. So there has been innovation in the space, we could say, because I think you're right, people have to be. You have to know where you start, stand in, how you're doing. Right. From your boss. We can agree on that, right?

[D]

Yeah. You can't improve if you have no idea how you're doing.

[B]

I think the best way to do performance reviews always, and this is, I think, relatively accepted, is for bosses to have regular conversations with their direct reports and to just talk on a regular basis, whether it's, you know, every week or two weeks or month or however often it is and just say, like, you know, this was great. You know, that wasn't so great. You're doing this is you're knocking out of the park. Wait, hang on a sec. What's up with you right now? Like, I'm seeing problems and to catch everything and stay on top of everything in real time and then like, all of that goes into. If you need to like, roll it all up into a kind of like, are you getting a pay rise at the end of the year? You can do that, but that, like, final. Are you getting a pay rise at the end of the year? Should be like much more of a formality and much less of this nightmarish performance review thing. Of course, the number of managers who actually do that is tiny and they are too busy doing their actual jobs to get around to it. And so then what happens is, at least the way I see it, performance reviews are basically what happens when you procrastinate on all of that. And then at the end of the year you're like, shit, I need to give performance reviews to all my stuff. And then you go back and say, wait, you should have been doing this all along and you weren't and I never told you, so now you're being demoted or something. And they're like, what? And it's terrible.

[D]

The problem with that though is that it can also lead to more discrimination because if you have no metric that's being used for everyone, what can often happen is that the manager will give better rankings to people they like. If all they're doing is having conversations with people and they have nothing that they have to essentially fill out, then the people they like, the people who are similar to them often in gender, race, many other things, are going to probably be the people they are going to promote. And while I'm not saying but that's.

[B]

That'S, that's always the case. I mean, unless you're like in, you know, a business where you're producing revenue every week, like, you know, we're journalists, you know, it's very hard to sort of say, to quantify the performance of a breaking view column and say like, oh, this one was, is like 10% better than that one, you know, so like there's always a huge amount of subjectivity in these things, of course.

[D]

But if you at least have some set standard that you use for every person that you have to hopefully not just be doing once a year, but actually be doing somewhat consistently throughout the year, then that can hopefully counter some of the just personal bias that does inevitably come into all of these decisions.

[C]

But I think there's a good amount of research that showed even the formal process driven performance reviews are biased against women and minorities. You know, people are rated differently. Like someone a woman might be called aggressive, where a man might be called like confident and ambitious. You know, the same behavior and characteristics are viewed positively and negatively depending on who you are. And I think there's now like consulting firms that'll come in and like rate your performance review system for biases and stuff like that. It gets really, really crazy.

[D]

One thing I have a relative who recently a female relative who was told in a performance review that she was too competent by more than one person was told she was too competent. She's like, I have no idea what to do with that.

[C]

What are you supposed to. Yeah, there's, I mean there's no system that you can have bias free in a review process. Or maybe I don't, I don't know.

[B]

I think you're right. I think it's. I mean there are ways you can try to minimize it, but you always have to be aware that the bias almost certainly exists somewhere. But I want to come back to this question of like, given how flawed performance reviews are in general, what the hell are you meant to do in a pandemic? There was a Dan Kois article in Slate basically saying you know what, companies should just basically write off this whole year and just try and get through to the end of the year and then they can go back to what they were doing before, which I totally understand that as a principle. Is that what they should be doing? Should companies still be trying to cobble together performance reviews in the midst of a pandemic? Or is it best to just write 2020 off altogether and do what Facebook did, which is just say you all did great.

[C]

Absolutely, write it off. I mean you have no metric here to compare it to. And I think people are under really stressful circumstances and the humane thing to do would be to write it off. And I don't understand what the value. Maybe Anna will explain it to me, but what the value to the business is of doing performance reviews in the middle of a pandemic when everything is topsy turvy. Why would you need to do that as a business? Just hold on like Dan said and get to the finish line or get to the end of the year at least. But why add that stress to your employees lives would seem to be a productivity dampener anyway.

[D]

Yeah, I mostly agree, I think with you both at this year it does seem like they probably are going to add very little value. I think that obviously you may still have really egregious examples of where people are massively underperforming or massively overperforming or something that you will want to take into account. But yeah, I think overall it probably does make sense to let this year mostly go. I'm sure companies will still want to have some record again so that moving forward they can justify their decisions one way or the other. But I do agree with you that probably makes more sense to just write it off.

[C]

I think you do need to figure out a way to reward the people who went above and beyond during this time, just not to punish the ones who didn't. You know what I mean? Because the people working harder than everyone else to not acknowledge that in some way is probably not a great idea for morale.

[D]

Right.

[B]

Although those people are also just lucky. You know, they're the ones who don't have small children at home. They're the ones who didn't get Covid, you know, like, a lot of that, like, being able to outperform is just circumstance. And I'm not sure that that's really worth the right thing to be rewarding, really.

[D]

I'm sorry, I don't agree with that. I'm sorry.

[C]

That seems. Yeah, I think you should reward it. Of course, it's partly luck, but still, I think it would foster resentment if you didn't acknowledge some people.

[D]

Everything's partly luck. And if you have been working above and beyond and then nobody says anything or it acknowledges it, that is going to. It doesn't mean that you fire someone else or it just means that you let that person know that you appreciate what they've done because they didn't have to do it, even if they were a single person sitting at home.

[C]

But don't do. I spoke to one man a couple of weeks ago because I've been hearing from women who are mothers who feel like, a lot of pressure at work to just keep going the same way they always have. And if they're not, then they're failing, which is kind of a crazy thing to ask. Women with kids at home doing virtual school, and a lot of them aren't being asked. There are companies being very patient, like Facebook or I guess is being patient. We don't really know. But then I heard from some men with children at home who are facing the same expectations as before and aren't getting any slack because everyone assumes they have a wife that's actually doing all the work. And one guy I spoke to said, you know, he had a performance review and was told, like, you're just not as productive as you need to be. And as you were before. Are you okay? What's wrong? And he's like, pandemic. And it wasn't an acceptable excuse. So, yeah, employers need to do a lot better at this stuff.

[B]

Let's talk about auctions. The Nobel Prize or Nobel ish Prize in economics came out, went to auction design for not the first time. William Vickry won it in 96. Vernon Smith won it a few years ago. So auctions have been in the Nobel sphere for a while. But this year kind of feels to me to be the one where, like, the whole modern auction, the newfangled auction really got its due, which is, never mind the theory of how auctions work, but, you know, the old, you know, Sotheby's auctions or something like that, or the kind of auctions that we are familiar with on ebay. Let's see if we can really just redesign the entire structure of auctions so as to maximize societally important things like the allocation of electromagnetic spectrum or carbon emission permits or landing slots at airports or that kind of stuff. And I came out in my newsletter this week and said, this is the one bit of economics which is actually good, that created obvious positive externalities in the world and made the world a better place. And it's rare you can say that about anything in economics. And so I was like, let's give credit where it's due for once.

[D]

Yeah, I agree with that. I think it's been interesting. Looking at recent winners, it does seem like the Nobel committee is focusing a little bit more on practical application as opposed to pure theory. And that was even something they noted that these two men didn't just advance the theory of auctions, but did, as you said, actually improve the real world.

[B]

I remember back in, I think it was 2000 when the UK government did its 3G auction using the Paul Milgrom designed multiple simultaneous round auction. It was expected that these 3G licenses would go for like maybe a billion pounds or two. And it wound up going for like 30. It raised so much more money than people thought, to the point at which people were worried, oh, my God, all of these telecommunications companies have spent so much money on their 3G licenses, they're not going to have any money left over to build out the 3G network, which of course turned out to be. Of course they had enough money left.

[D]

Over, right, or they wouldn't have bid that.

[B]

But it's just like, you know, the government got a fair price for a valuable piece of spectrum, which is like, awesome that they managed to work out how to do that.

[C]

My question was how exactly? So when you say auction, like you mentioned before, Felix, I picture people with the paddles sitting in at Sotheby's bidding on stuff or ebay, but what exactly is the difference in what Milgram and Wilson came up with? Like, how does it work? Is it because they were able to use computers or algorithms or something? Or what is the theory behind the restructuring that enabled them to sell the.

[B]

A little bit of theory here. Let's say that you are bidder on electromagnetic spectrum. And the way that these spectrums work is that by its nature it has to be regional. Certainly in the United States it's regional. And let's say that you had an old fashioned English style, it's called Sotheby style auction, with bidders putting up paddles and it just goes to the highest bidder. That would be an incredibly inefficient way of auctioning off Spectrum because you want contiguous parcels. So what you want is to build together a network. And having like one little bit of spectrum in the middle of North Dakota is kind of worthless to you, except for you can sell it to someone who has Spectrum next door and it's valuable to them. That's the only thing you can really do with it. So what you want to do is create an auction that winds up selling that spectrum to the person who's going to be using it and making best and highest use of it, which is probably going to be someone who's also buying a bunch of other parcels next to it. And the way you do that is by going through multiple rounds. And some of these auctions, Spectrum have like literally hundreds of rounds, like three or 400 rounds of bidding that people are putting in new bids hundreds and hundreds of times to, you know, and the way they do that and the way they recalibrate their bids over and over again over hundreds of different rounds is all a way of trying to really optimize the ultimate allocation within constraints that can be set by the government. The government isn't just trying to maximize the amount of revenue it's getting. It's also trying to make sure there aren't any monopolies. And it has various other things that it wants to try and get at the same time. And you can build all of that into the auction design. So you can build things like no one bidder can bid on more than X percent of the network because that would be a monopoly. You can build that into the auction design rather than having to impose it ex post after there's an English style auction and someone winds up with all of the parcels and you're like, wait, hang on a sec, you can't do that now, we need to break you up.

[C]

And someone mentioned that the efficiency of something like that, where you were just describing something worth comparing to, was in the early stages of the pandemic when states were bidding against each other for ventilators. And that was like the opposite of how a good auction design would work, because they were bidding up the prices for things that everyone needed that had to be allocated based on like needs and not just, you know, how much you could Spend on. On ventilators and you wanted them to go to where they were needed the most. And then I was thinking, for all those people who argue that free markets are a thing, something like this, where you have to is so complex to find the right price, but not just the right price, but like to allocate it to the people who, who need it most to make the most efficient market. Like the idea that, that there's just a free market is kind of nuts, Right. Because you have to design the market itself, Right?

[B]

Exactly. Market design is the same as auction design. Market design is basically a subset of auction design because all markets auctions in some way or another. And. Yeah. And you. And the way that you design that auction is a really important part of how the market works and how free the market is. And if you look at the stock market with, as we know, is like rife with high frequency traders and algorithms and bots and that kind of thing. And that is a function of the way that it's designed. And it's definitely. There are other ways you could design it to make that much less of an issue. You could have a stock market where instead of having continuous trading, you had a series of auctions which settled once every second, say. And if you did that, a huge amount of the high frequency trading would just go away and the high frequency traders dominate the stock market and they would lose money if that happened. And so that isn't happening. But that kind of discontinuous trading actually I think makes a lot more sense in terms of market design than what we have right now.

[C]

Wow. I never considered that you could redesign the stock market, but of course you could. And we could have more efficient markets or ones that actually made more sense.

[B]

Discontinuous trading is super interesting and most auctions are discontinuous. And the most common form of auction in the world is basically every time you visit a web page, there's this thing called real time bidding. You visit the web page and that triggers an auction after you've already visited the webpage to see who's going to win the auction to show you an ad. Those auctions are unbelievably sophisticated. And you know, they're like second price auctions, first price auctions. It gets very. I went down the whole rabbit hole with this. It was fascinating. But like the way the way those auctions are designed and especially the way those auctions are designed to balance the interests of what's known as the programmatic advertisers versus the brand advertisers is actually not that different from the way that the auctions in the stock market are designed to balance the interests of the high frequency traders versus the long term investors.

[C]

Why don't. When I go to Old Navy to buy my comfortable pants, why can't there be an auction to figure out the price of the comfortable pants?

[B]

Oh, there is. I mean, wait, don't, don't kid yourself that there isn't. This is why when you visit Amazon to buy a widget, whatever it is you're buying on Amazon, that price changes every time you visit it. And it changes according to a bunch of variables that you have no idea what they are. It's not that Amazon has a price for each of the goods that it sells. That has a highly variable price. And that algorithm is itself a kind of form of auction design.

[D]

Yeah, that's why the movement from bricks and mortar, which is, Emily, which I think you're kind of describing, if you walked into the Old Navy store versus if you're going to Old Navy online, it's going to be very different. And obviously as more and more commerce, more and more activity is solely done in the digital realm. Auction design is going to become more and more and more and more important. So that's why this prize was again, not just something theoretical but very practical.

[B]

And so, Emily, I don't know how your supermarkets are set up where you are in Westchester, but it is very, very common. Now for the little things, I don't know what they're called on the shelves which show what the price is of each. Good to be like. No, the things we're saying, you know, this package of spaghetti costs, you know, $4.50 spaghetti should ever cost that much money. Yeah.

[C]

How much is it now?

[B]

I shop at very expensive stores. Okay, sorry. But, but the little thing that says this, how much the package of spaghetti costs always used to be on paper and increasingly it is now in like EE Ink or LCD or something like that because it's changing the supermarkets. Like the central office in the supermarkets is changing those prices way, way more frequently than they ever used to. And again, that is a form of auction design.

[C]

Okay, well, I don't like that. That strikes me as why not?

[D]

You get better prices individuals, or maybe.

[B]

You get worse prices, I don't know.

[D]

Or maybe you get worse prices, but it's probably more efficient.

[C]

It seems less transparent, which I think is not good when it comes to consumers buying things, it's definitely less transparent.

[B]

And we're seeing this not just in groceries, but obviously with airline Seats. The idea that there's a price for an airline seat has not been the case for years. We're seeing it with. Remember when we used to have Broadway shows that was like my favorite part of the world was Broadway shows. But Broadway shows, like everyone in that Broadway theater was paying a different amount of money for their ticket. Like the face value of the ticket was something that only like 5% of the audience actually paid. And this kind of variable pricing of trying to charge different prices according to when you buy it and how you buy it is everywhere now.

[C]

Yeah, I don't think the price of milk should fluctuate depending on what time I go to the store to buy the milk. Like some things.

[D]

Why not? Because.

[B]

Why not?

[D]

That could ultimately make the market more efficient. So more people will be able to actually access milk at a better price. And I disagree. Look, I'm not like a absolutist here, but I don't think there's necessarily anything horribly wrong with that really.

[C]

I mean, I think people should know how much. Especially when you're talking about staples like food, you should have a general sense of how much things cost and you shouldn't be surprised if they're more than you think they're going to be.

[D]

There isn't how much things cost, it is always changing. It's just that our traditional ways of pricing things didn't acknowledge that change, but it was always changing. It did in fact cost a different amount based on where, how you're buying it. What does it actually reflect that?

[B]

What it does, Anna, is it makes it much harder to comparison shop. And that is a little bit of a problem because one of the driving forces in pricing goods is the idea that if you lower your price, people will come to your store rather than the rival store because you have a better price. And that's a good form of consumer friendly competition. But if the prices are changing all the time, no one really knows which store has the better price.

[D]

I feel like we all know that you go to certain grocery stores and they can have the exact same goods, but certain grocery stores will charge slightly more than this other grocery store charges. You're not looking at each individual good. It's just overall you can be like, eh, you know, my final amount tends to be higher at this one versus this one. And I don't necessarily think that would probably be that different because I don't think most people are literally going, well, I'm going to look at six different stores to figure out where I'm going to buy my milk.

[C]

That's true. I don't know. Maybe it's just an illogical part of me that says you should have more stable prices for groceries and also for my soft pants.

[B]

So let's have a numbers round. Emily, what's your number?

[C]

My number is 1963, which is the year Coke unveiled Tab. It's diet Soda, which today news reports say that Coke will no longer be selling Tab. It's diet soda. So RIP to Tab, which is a terrible tasting diet soda, but had a cult following. There are people who really, really, really, really loved it. But I guess the pandemic has forced a lot of companies to narrow the amount of and variety of products that they sell. So Tab had to go. They don't sell a lot of Tab anymore. It's mostly Diet Coke now and something called Coke Zero. So Tab is out.

[B]

RIP Tab. My number is $6 billion, which is the market cap last time I checked, which is about 10 seconds ago. I'm sure it's changed by now. Of Big Hit, which is a Korean record label. And the interesting thing about Big Hit, the Korean record label is it basically only has one act, which is of course, BTS. And 90% of Big Hit's revenues come from BTS. And BTS are very popular, but they're getting a little bit long in the tooth. I don't know how long boy bands ever last for. And a lot of the BTS members are going to have to start doing their compulsory military service some point. And yet in the face of all of that, Big hit is worth $6 billion for basically one band.

[D]

Yeah, I was almost going to say we should talk about that. That starts one of our segments today. And then I was like, no, there's probably not quite enough to talk about, but the share price did like double the first day.

[B]

So, Anna, what's your number?

[D]

My number is 70%. So that's the amount that single family home sales in Greenwich increased in the third quarter versus the previous year. Unsurprisingly, in the same quarter, co op and condo sales in Manhattan declined by about 50%. So it's probably a fairly obvious thing, but it is just interesting that you are in fact actually seeing this flight back to the suburbs. And I also thought it was slightly funny because I remember a year ago having a conversation with someone where they were like, no one will ever be able to sell a home in Greenwich again. Nobody wants to live in Greenwich.

[B]

Yeah, it took a pandemic, which just shows how difficult it is. The only time you ever sell homes in Greenwich is during a pandemic. If you buy right now, just been just, you know, know in your heart of hearts that you're not going to be able to sell that thing unless and until there's another pandemic.

[C]

Wow.

[D]

Yeah.

[C]

You're already seeing in the Times reports that are like, the suburb buying frenzy is over. People are now moving back to the city. That was like last weekend's headlines in the real estate section.

[B]

It's like, that was quick.

[D]

It would almost be fitting if it was, because I feel like everything in this crisis has been just bizarrely quick.

[C]

Except how we're all still home. Or I am anyway.

[B]

Except that accept that I am still home. Which again, is why I apologize for having bad sound in the first segment, because things go bad when they're done at home. I'm blaming the pandemic. If you give me a performance review, be forgiving for that. But otherwise, thanks for listening. Thanks for rating us on the App Store on Apple Podcasts, and thanks for writing in on slatemoneyleep.com thank you very much to Jessamyn Molly, who wasn't there to make sure that she was recording everything at her studios in Brooklyn. But other than that, we will talk to you next week on Slate Money.