Slate Money: The Preserving Optionality Edition (September 3, 2016)

Host: Felix Salmon, with Cathy O'Neil and Jordan Weissmann
Main Theme:
A sharp, often irreverent exploration of current business and finance stories, this week focusing on “preserving optionality”—the investment banking tendency to advise doing nothing, big stories in corporate taxation (Apple, Ireland, and EU tax havens), the EpiPen controversy, the underrepresentation of women in computer science, and the changing fate of mall retailing in America.

1. "Preserving Optionality”—A Financial In-Joke ([00:08])

• Explanation of Episode Title
  • Investment bankers often advise companies to "preserve optionality," a term that means "do nothing" after receiving hefty consulting fees.
  • Felix Salmon (host): "If you want to get paid lots of money for advising people to do absolutely nothing, you have to learn this phrase, 'preserve optionality.'" ([00:49])

2. Apple, Ireland, and the EU: The Tax Haven Showdown ([03:13])

Context and Story ([03:13])

• EU Ruling: The European Commission ordered Apple to pay €13 billion in back taxes to Ireland, arguing that special deals constituted illegal state aid.
  • Jordan Weissmann: "The weird thing about this story is that Ireland isn't particularly happy about this. They don't really want those 13 billion euros in back taxes." ([03:16])
  • The Irish government is divided: some politicians welcome the windfall, others worry about damaging Ireland’s business-friendly reputation by "eating the seed potatoes." ([04:22])

How Apple’s Tax Avoidance Works ([05:36])

• Two Levels of Tax Avoidance:
  • Standard: Corporations book profits in low-tax countries (Ireland's 12.5% corporate rate).
  • Apple’s Extra Step: Profits are assigned to a “head office” that exists only on paper—located nowhere—so it's not taxed at the Irish rate or anywhere else.
    • Jordan Weissmann: "Our head office doesn't actually exist anywhere. It's not in a country. It's just sort of an on-paper office. It's an office in our imagination." ([06:31])

The U.S., Apple, and the Hypocrisy of Tax Politics ([08:07])

• After years criticizing Apple for not repatriating profits (thus avoiding U.S. taxes), U.S. politicians object when Europe tries to tax those profits.
  • Felix Salmon: "What you just want to scream at all of them was, well, yes, it probably should be paid in the U.S., but you haven't been paying it in the U.S., and you haven't repatriated it to pay it in the U.S., and it’s a bit late now to change your mind." ([08:07])

Does the EU Have the Right? ([09:31])

• The EU uses antitrust, not tax law, arguing special tax deals are illegal subsidies that unfairly favor multinationals.
• The team discusses how this move targets extreme versions of tax avoidance, not routine low-tax booking.

Financial Impact and Leverage ([12:07], [12:49])

• Apple’s Balance Sheet: The ruling doesn’t increase Apple’s global tax liability, as U.S.-Ireland treaties credit taxes paid to one against the other; Apple just loses leverage in U.S. tax negotiations.
  • Felix Salmon: "It raises Apple's total tax liability by zero. Because there's a dual taxation treaty between the U.S. and Ireland... It does not affect Apple's balance sheet at all." ([12:07])

Multinationals Cherry-Picking National Advantages ([15:10])

• The conversation draws an analogy to Mylan (EpiPen), noting how multinationals benefit from legal protections in one country and tax rates in another.
  • Cathy O’Neil: "It's like if I wanted the maternity leave in Scandinavia, but I wanted to be an entrepreneur in New York City. I can't do that as an individual, but these multinationals get the best of each world." ([15:39])

Memorable Quotes:

• Felix Salmon: "Preserve optionality. It comes in surprisingly handy in many different contexts." ([00:49])
• Felix Salmon on U.S. tactics: "I think this is the real reason why Tim Cook is angry...he was making noises he was gonna start repatriating, and if Ireland goes and snaffles all that money, then he loses that carrot in negotiations with the U.S." ([12:58])

3. The EpiPen Pricing Mess—Why Does it Cost $600? ([15:47])

Device vs. Drug ([16:16])

• EpiPen’s drug (epinephrine) is off-patent and cheap; the expense is in the delivery device, and only Mylan’s device is FDA-approved.
  • Felix Salmon: "What you are paying for is not the drug. What you are paying for is the device." ([16:17])

Regulatory Monopoly and Delay ([17:20])

• Attempts at generic competition stymied by FDA, often on technical grounds, keeping monopolies intact and prices high.

Hope for Change ([19:23])

• Jordan: "All the commotion about what happened with the EpiPen will probably make them a little bit more likely to approve the next generic that comes out." ([19:23])
• Cathy O'Neil expresses skepticism the FDA will improve overnight.

4. Increasing Women in Computer Science—Harvey Mudd's Success ([19:49])

The Gender Gap Problem ([19:52])

• Nationally, only 16–18% of CS undergraduates are women. The panel explores why.

Teaching Methods Matter ([20:22])

• Hypothesis: Poor teaching and intimidating “weed-out” courses drive women away.
  • Cathy O’Neil: "The universities are teaching [computer science] poorly." ([20:34])
  • Reports of professors saying on day one, “half of y’all won’t make it,” discourage newcomers, especially those with less prior experience ([24:10]).

Harvey Mudd’s Transformation ([21:12])

• From <10% to 55% women among CS graduates by:
  • Making intro CS courses required for all
  • Using Python as a gentle entry language
  • Providing beginner tracks that don't presuppose coding experience
  • Hiring more women faculty, including a woman president

The Broader Issue: Curriculum Design and Resources ([25:05], [26:03])

• Effective, inclusive teaching costs more and is more resource-intensive.
  • Cathy O'Neil: "The bad news about this new design is that it’s expensive, it takes more resources..." ([25:05])
• The irony that universities "weed out" students from their most in-demand (and lucrative) major, instead of expanding capacity.

Key Quotes:

• Cathy O’Neil: "It’s like if the academic world responded like a business responded—oh my God, we have all this demand, we should create more computer science graduates!" ([27:22])
• Felix Salmon: "Stop dissuading people and especially women from studying computer science and don't weed people out. And the more computer science graduates that America has, the better." ([28:15])

5. Mall Retail’s Slow Demise—and Aeropostale's Rescue ([29:08])

The Mall Meltdown ([29:08])

• Malls are fading as a staple of American youth culture and retail, hurting chains like Wet Seal, Pacific Sunwear, and Aeropostale—all bankrupt.
  • Felix Salmon (tongue in cheek): "Do shopping malls still exist?" ([29:06])

Aeropostale's Bankruptcy Auction ([30:44])

• Aeropostale bought out of bankruptcy not by a retailer, but by its own landlords—Simon Property Group and General Growth.
  • Their motive: Keep anchor tenants open to preserve mall traffic— buying time (“foam on the runway”) until a new tenant can be found.
  • Panel equates the move to softening a slow-motion train crash, referencing Argentina’s sovereign debt collapse as an analogy ([32:35]-[34:20]).
  • Felix Salmon: "What they're doing is they're saying we can keep these stores open until we find a better tenant...rather than just having an empty store." ([34:40])

Retail Contagion ([35:22])

• Speculation that shuttered stores create negative feedback for neighboring stores, possibly spurring a domino effect (the "Cinnabon index": when the Cinnabon goes, so does the mall) ([35:56]).

6. Numbers Round ([36:28])

• Jordan’s Number: 68 ([36:35])
  • 68% of Americans will at some point pay no federal income taxes during their lives, countering the "47% takers" political narrative.
• Felix’s Number: 515 Billion ([38:28])
  • Vanguard, the passive investment giant, is estimated to have saved Americans $515 billion in fees and trading costs since its founding 40 years ago.
• Cathy’s Number: 61 ([40:01])
  • 61% – The decline in U.S. teenage birth rate over 25 years, mainly due to better contraception.
• Bonus: Elimination of Tampon Taxes ([40:39])
  • 10: Zero—the amount of state tax now levied on tampons and maxi pads in New York, thanks in part to Cathy’s activism.

Notable Quotes & Moments

• Felix Salmon: "If you want to get paid lots of money for advising people to do absolutely nothing, you have to learn this phrase, 'preserve optionality.'” ([00:49])
• Cathy O’Neil on CS instruction: "The most important aspect: there’s a track that doesn't require any prior computer science—and you can be a CS major even if you start there." ([22:32])
• Felix Salmon: "Foam on the Runway." (Explanation of why mall owners buy out failing stores to cushion the broader blow, [34:38])
• Cathy O’Neil ("Cinnabon Index"): "Cinnabon is the nexus, man. People get addicted...that’s why they go to the mall." ([36:00])
• Felix Salmon on Apple taxes: "It raises Apple’s total tax liability by zero...It is completely neutral to Apple’s balance sheet." ([12:07])

Key Takeaways

• Corporate tax avoidance: Apple’s complex scheme drew ire from both Europe and America, but the real stakes are about global leverage, not bottom-line costs.
• Systemic inertia in education: Changing how computer science is taught (less "weeding out," more inclusivity) can radically shift gender representation, but requires resources—demonstrated by Harvey Mudd’s successes.
• Retail transformation and “Preserving Optionality”: Malls and their tenants’ fortunes are tightly linked; landlords buying failing stores can slow decline, but the underlying trend is inexorable without deeper change.
• Societal shifts reflected in numbers: Birth rates and financial costs highlight broader health and economic trends.

Episode Tone: Witty, skeptical, and probing—balancing humor with pointed analysis.

Timestamps Referenced

• [00:08] Episode opening and "preserving optionality" explained
• [03:13] Start of Apple-Ireland-EU story
• [12:07] Apple’s tax position detail
• [16:16] EpiPen pricing driven by device, not drug
• [19:49] Beginning of segment on women in computer science
• [29:08] The mall and Aeropostale discussion
• [36:28] Numbers round

For listeners new to these topics, this episode offers essential context, clear analogies, and plenty of irreverent banter—especially about the contradictions at the heart of modern business, policy, and tech.