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."

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)

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)

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)

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)

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.

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.

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