The Rebuilding Edition

Summary

Slate Money: The Rebuilding Edition – Summary

September 2, 2017
Host: Felix Salmon
Co-Hosts: Anna Szymanski, Jordan Weissmann

Overview

In this episode, Felix Salmon, Anna Szymanski, and Jordan Weissmann focus on “rebuilding”—in the economic, financial, and literal sense. Covering the fallout from Hurricane Harvey, they explore the US flood insurance system, the economics of post-disaster recovery, and the peculiar stagnation of construction productivity. The show also delves into major potential tax reforms, the nature of corporate tax deductions, and closes with a revealing “numbers round.” The conversation is smart, blunt, and deeply skeptical about both policy efficacy and political will.

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Key Discussion Points & Insights

1. Hurricane Harvey & Flood Insurance (02:10–16:39)

• Opening Context: The hosts address Hurricane Harvey’s immediate humanitarian crisis while examining the financial dimensions (“the major story with Harvey is the humanitarian toll... but this being Slate Money, we want to talk about the financial angle of it,” – Jordan, 02:14).
• Federal Flood Insurance Quirks:
  • There’s essentially no private flood insurance market in the US. Flood insurance is available only from the federal government (NFIP), and at subsidized rates, leading to “moral hazard.” (Felix, 03:19–04:09)
  • Only about 20% of Houston homeowners have flood insurance, and eligibility is governed by outdated flood maps. (Anna, 05:01; Anna & Jordan, 05:33–06:00)
  • The system paradoxically encourages people to live in flood-prone areas and forces FEMA into deficit (“FEMA, which runs the flood insurance program, winds up $30 billion in debt. Whole thing is a political clusterfuck, I believe is a technical term.” – Felix, 04:56)
• Problems with the NFIP:
  • Discounted insurance for certain areas and lack of mandatory coverage leave many vulnerable (“On the one hand, it has these really discounted rates for the people who are required to buy it… At the same time… a lot of people don’t end up with the protection they need.” – Jordan, 07:36–08:24)
• Private Sector Role:
  • Some suggest that advances in data and modeling could allow private insurers to better price flood risks—especially for moderate-risk areas—potentially at lower rates than the government for those not in the worst zones. However, real change depends on full reform.
  • Catastrophe bonds and public-private insurance partnerships are briefly discussed, but these have had limited impact so far. (09:47–11:18)
• Key Quote:
  • “My point of view is… the houses getting destroyed and washed away and written off… generally happen to exactly the kind of people who are not going to buy flood insurance unless they have to.” (Felix, 14:00)

Memorable Moment:

• The hosts agree that the current federal approach both fails to offer real risk-based pricing and cannot nudge people out of vulnerable zones; private sector involvement might improve incentives, but only if paired with mandatory coverage and significant market reform.
• The episode’s title theme, “rebuilding,” comes into play as they ask whether some disaster-hit areas should be rebuilt at all, or abandoned due to recurring risk.

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2. Construction Productivity Paradox (16:39–25:13)

• Productivity Downturn:
  • Despite huge investments, the US construction sector has not become more efficient over the last half-century—in fact, construction productivity has dropped by half since the 1960s, according to McKinsey. (“We are 50% less efficient… at building homes than we were in the 60s.” – Jordan, 18:03)
• Why?
  • The shift from mass-produced “tract” housing to more customized projects and renovations is cited.
  • Rise of numerous small contractors with little incentive or capacity to invest in technology.
  • Fragmentation of the sector makes large-scale innovation, efficiency, and investment near-impossible.
• Comparison: Even banks are cited as having too much “smallness” and inefficiency due to over-fragmentation.
• Memorable Moments:
  • Jordan shares a personal construction anecdote involving "a potentially, I'm pretty sure, alcoholic Irish guy… sending me to get Budweiser in Chinatown at 10:00am” – (21:06)
  • Felix bemoans his own contractor experience: "We would get the contractors in and we'd be like, okay, we're starting, we're going to do demo. And then it would take them a week just to do the floors. And you're like, this is the least efficient thing I've ever seen in my life.” – (22:42)
• Structural Issues:
  • Cost overruns can make contractors more money, incentivizing inefficiencies.
  • Regulation, insurance, and changing demographics (including immigration in low-skill positions) affect industry structure.
• Solution? The hosts suggest the US might need more large-scale construction businesses, comparing the problem to banking sector fragmentation.
• Notable Quote:
  • “There are five banks which are very big, but then there’s another 50,000 which are just pointless.” (Felix, 25:39)

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3. “Vaporware” Policy Segment: Corporate Tax Reform & Interest Deductibility (26:12–40:03)

• Speculative Segment: Felix breaks his “no vaporware” rule to discuss proposals to end the tax deductibility of corporate interest—a key part of Republican tax reform discussions as of late 2017.
• What’s At Stake:
  • Current system incentivizes debt over equity, which amplifies financial fragility in crises (“...there’s this huge incentive for corporates to load up on debt and to not really fund themselves with equity. And what happens… is you get debt crises and… unnecessary bankruptcies…” – Felix, 32:04)
• Host Perspectives:
  • Felix: Strongly in favor; believes ending the deduction could have prevented or mitigated past financial crises and would reduce “tail risk” in the corporate sector.
  • Anna: Warns that the change wouldn’t apply to banks (“banks will probably be exempt… because borrowing and lending is their business.” – 33:38); is wary about linking the repeal to “full expensing,” and doubts the supposed investment boom.
  • Jordan: Explains the mechanics and economic theory: pairing full expensing and ending interest deductibility trends the tax code toward a business consumption tax, a right-wing goal since the 1980s, but may not be as transformative as advertised.
• Debate: Is removing these loopholes and relying on marginal tax rates structurally sound, or will it just disguise rate-cutting for the wealthy with little political will to raise rates again later? Will reform meaningfully shift the economy, or just drain revenues for social spending?
• Memorable Banter:
  • “It’s all Jordan’s fault. We will take him out and shoot him and next week…” (Felix, 40:14)
  • “This entire show has been one long build up to me getting Old Yellered. Felix just been like, finally.” (Jordan, 40:20)

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4. Numbers Round (41:18–46:24)

A rapid-fire close with each host sharing a telling or surprising statistic:

• Felix:
  • 60 trillion — the number of minutes iPhones are used globally per year. “That’s how big the iPhone is... even a tiny change just makes an enormous difference.” (41:57)
• Anna:
  • 38,000 — in dollars, the maximum penalty for making, selling, or importing a plastic bag in Kenya, where plastic bags are now strictly banned: "This seems a little extreme...” (43:00)
• Jordan:
  • 90% — the cut to the Obamacare outreach budget under Trump, likely to be disastrous for consumer knowledge and marketplace participation. (44:55)
  • “That’s gonna fuck up the health insurance system a lot. People really, really need to see advertising and have people actually walk them through the steps of signing up online...” (44:59)

Felix and Anna discuss philanthropic interventions that could replace the outreach budget. (“If the Ford foundation or someone decided... it would actually make up all of it and would have an enormous difference on millions of people.” – Felix, 45:18)

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Notable Quotes & Memorable Moments

• On Federal Flood Insurance:
  "The whole thing is a political clusterfuck, I believe is a technical term." – Felix Salmon, 04:56

• On Construction Inefficiency:
  "There are all sorts of reasons why contractors want to be bad at their jobs..." – Jordan Weissmann, 23:05

• On Corporate Tax reform:
  "We can make life a hell of a lot easier and better for everyone if we move away from debt financing towards equity financing. And you do that by abolishing the deductible interest." – Felix Salmon, 32:55

• On the Numbers Round:
  "60 trillion is one of those numbers which is so enormous that it’s kind of impossible to conceptualize how big it is. And 60 trillion is the number of minutes that iPhones are used every year." – Felix Salmon, 41:54

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Timestamps for Important Segments

• Hurricane Harvey & Flood Insurance: 02:10 – 16:39
• Construction Productivity Decline: 16:39 – 25:13
• Corporate Tax, Interest Deductibility “Vaporware”: 26:12 – 40:03
• Numbers Round: 41:18 – 46:24

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Tone & Style

• Conversational, witty, and wonky with moments of sharp skepticism and dark humor.
• The hosts are forthright about ideological divides, and unafraid of policy nuance or occasional vulgarity.
• Audience is expected to have a working knowledge of business news and macroeconomic concepts.

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Closing Thought

This episode of Slate Money is particularly rich in timely, practical skepticism about American resilience—fiscal, institutional, and literal. It’s less about rebuilding after disaster, and more about whether the scaffolds of US policy and commerce are fit to keep us out of future harm’s way.

Transcript

[A]

The following podcast contains explicit language.

[B]

Hello, and welcome to the Rebuilding edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Ham in the Fusion and I'm joined as ever, by Anna Shymansky and Jordan Weissman.

[C]

Hello.

[A]

Hey, everyone.

[B]

Hello, people. And, well, obviously the big news this week is Hurricane Harvey. We're gonna have a Slate Money esque angle on that. There's another bit of news this week. I have a rule on Slate Money that I try very much not to talk about Vaporware. If there's a whole bunch of speculation about policy proposals, I just say, listen, we can talk hit that if and when they actually happen, because that's the actual news. Speculation is not news. So I'm going to break that rule this week because there's speculation about a policy proposal, specifically this policy proposal of abolishing the tax deductibility of corporate interest, which is kind of my favorite thing in the world. And the fact that this government, or any government is taking it remotely seriously is kind of so amazing that I think we're going to talk about that a bit. We are going to so going to talk a little bit about tax reform and whether it could actually conceivably be a good thing. Ooh, there's a good sleep pitch for you.

[A]

Yeah, I'm just frowning so hard right now, glaring at you.

[B]

Jordan's on an all frown diet these days. So we're going to talk about one of my favorite productivity stats. This is, I guess it's a kind of number which has been upgraded to an entire segment because it's fascinating. That will come just as soon as we've talked about extreme weather events in South Texas. Yeah, Jordan, what's the latest?

[A]

I mean, it's a fucking disaster. I mean, Harvey, you know, it's a humanitarian disaster. It's a disaster for the city. I will say the only bright spot, if you can call it that, is that typically these sorts of events aren't that bad for the economy. Large. What happens typically is that you get like a brief hit. Maybe GDP falls a little bit for a quarter, but then the recovery efforts kick in and act as sort of a stimulus and things eventually sort of go back to trend. I know that's one thing some people are concerned about. What is this going to do to, like, the US for, you know, this year? Not a ton, but, you know, it's obvious. Like, I just want to kind of put at the forefront of all this. Like, the major story with Harvey is the humanitarian toll it takes of course. And what it takes on Houston. But this being slight money, we want to talk about the financial angle of it. And there's been a lot of discussion about the role flood insurance has or has not played in maybe helping to encourage this disaster or failing or. And somehow at the same time, also failing to be there as a backstop for the people who are being affected by it.

[B]

So, yeah, this is one of the weirdest corners of the insurance world that I've ever encountered. And I spent a bunch of time in various different corners of the insurance world. To a first approximation, there is no such thing as flood insurance. If you want to buy flood insurance, you can't. You call up your insurer and say, can I have flood insurance, please? And they say, no, that's not something we offer to. So what that means is that there's exactly one flood insurer in America and that's the federal government. And what's really, really weird is the federal government will sell you federal flood insurance at way, way, way cheap rates. Like ridiculously cheap rates.

[C]

Not actuarially sound.

[B]

Yes, but only if you live in a floodplain, essentially.

[A]

Yeah.

[B]

So roughly what we're talking about In Houston, roughly 20% of Houston is actually eligible for flood insurance. And we know that obviously a lot more than 20% of Houston will end up getting flooded. If you want flood insurance and you're in a place which has low risk of being flooded, you can't actually get flood insurance. But so this actually weirdly gives people an incentive to buy and live in houses on the floodplain because that's where the flood insurance is available. And then also because the flood insurance is so cheap, everyone, you know, pushes a whole bunch of moral hazard onto the government. And then FEMA, which runs the flood insurance program, winds up $30 billion in debt. Whole thing is a political clusterfuck, I believe is a technical term.

[A]

Can I time out for quick? I just wanna fact check something there because I know that the report was that roughly 20% of Houston has flood insurance.

[B]

So wait, Jordan, you think it's the 20% of Houston has flood insurance rather than isn't eligible for it?

[A]

Yeah, there was an APA report. It's about. About 20% of Houston actually has it. I think you're.

[B]

But it's definitely a minority as even eligible.

[C]

Well, and I think it's also important to remember here that who is or is not eligible is also based on outdated maps.

[A]

Yeah.

[C]

So that. That is one major issue. And I think when we talk about moral hazard, with flood insurance, I think it's important to remember that a lot of people in America live in or near a floodplain, and that's not going to change anytime soon.

[A]

I think the issue is, from my understanding, it's not so much eligibility that's the problem here.

[B]

Why is that not a problem? So let's do that. Let's just cover that one first before we move on to the next one. Because I think eligible.

[A]

Yeah. So a lot of. I have to go back and look at the exact eligibility numbers. But the rule is that as long as you participate in the NFIP program, you're like, as long as your community participates in it, you can get flood insurance. So I don't know exactly how that broke down in Houston, but if, and that requires basically taking certain steps to make, you know, for flood mitigation. So it's up to your local government essentially whether or not you're eligible for flood insurance. The problem is that only if you, the only time you are required to buy flood insurance is if you live in these high, these high risk flood zones. And the way they require you to buy it is sort of indirect. Essentially, if you have a, if you want to get a mortgage, it's backed by Fannie Mae, you have to get flood insurance from this federal program. So it is effectively required. So the problem is that a lot of people who don't live in these super high risk zones aren't required to. And so they just say, screw it, I'm not going to buy flood insurance. And now those super high risk zones are based on those very outdated maps. And even if you weren't living, even if you're not in, you know, an area that's, you know, really prone to flood damage, as we've seen from, you know, the fact that Houston is continuously being flooded year in, year out, this is not the first time there's been a kind of disaster there. Even if you're in a moderate risk zone, you kind of need, you need some protection. So there's this. The thing about flood insurance that a lot of people have or the federal program that a lot of people have had a hard time wrapping their head around is it kind of fails on these two fronts. On the one hand, it has these really discounted rates for the people who are required to buy it. And so what that does is essentially it makes it cheaper than it should be to live in these high risk floodplains. It says, okay, yeah, go build your waterfront, your expensive waterfront house, you know, on the coast that is Almost certainly going to get swept away the next time there's a big Harvey or Sandy esque hurricane and we'll give you a discount on your insurance. At the same time, it isn't. It's not really. Or because so few people are actually required to buy it. A lot of people don't end up with the protection that they need. You know, when there are these disasters and there's no way that the money that Congress is going to appropriate is going to help them out because in the end you get, you know, not nearly enough to usually to rebuild a whole house out of that. Yeah.

[C]

And again, you have a significant adverse selection issue.

[A]

Yes, that too.

[C]

Right. Where again, the only people who are going to buy it are either those who are required to buy it or again, those who are in very risky areas. And because the government cannot appropriately price that risk or the premiums would simply be completely unaffordable, we're in the situation we are in now.

[B]

So. Yeah, I mean, that's the reason that flood insurance isn't available is precisely because if you do a back of the envelope calculation of how much you'd have to charge in order to not lose all of your money, it would be so expensive that the only people who would buy it are the people who are almost certainly going to need it. And then you'd lose money anyway.

[A]

Well, so that's sort of interesting to me because right now there are actually a lot of private sector groups are saying we could do this. And so. And you know, I don't know how much stock to put in that. Like I.

[B]

But there, I would say.

[C]

Yeah, I would say it depends on what we're talking about, if we're talking about private sector groups. Because I think there's an argument to be made that a public private partnership could actually work well here, similar to crop insurance, where the private insurer rights up to a certain level and then the government kicks in with catastrophic coverage. And then you can also purchase reinsurance for kind of excess loss.

[A]

Yeah.

[C]

And you're spreading risk which can then help you keep premiums slightly lower.

[A]

That, that makes, that makes a lot of sense.

[B]

I mean, and the other thing which does exist is these bizarre creatures which people get really, really excited about and have done for the past 15 years and have never really taken off, called catastrophe bonds. And I'm going to be really interested to see what happens in terms of catastrophe bonds in Harvey, because if they don't pay out significantly in Harvey, they're just a complete waste of time as far as I can make out.

[A]

Can you talk a little bit more about what they are?

[B]

Okay, so let's say I'm an insurer.

[A]

Yeah.

[B]

And what I do is I insure a whole bunch of Texas homes against flooding.

[A]

Yeah.

[B]

And I'm worried that if there's a flood, I'm going to need a huge amount of money, and I don't know where that money is going to come from. So what I do is I issue a catastrophe bond. And what that means is I go out and borrow a billion dollars so that I can pay back. I can pay for all of the flood damage if there's flooding. And I take that from bondholders, and I'm like, I'll pay you interest, and so long as there's no flood, I'll continue paying you interest and then eventually I'll give you your money back and all's fine. But if there is an insurable event, as defined by a whole bunch of parameters, then you get nothing.

[A]

Right.

[C]

You lose your principal entirely.

[A]

So how is that different from reinsurance? Out of curiosity?

[B]

It's a bond, which you can trade on the bond market.

[A]

I see. And so rather than.

[C]

Exactly. And you're pay. So and the other issue to remember with catastrophe bonds is that these are very risky instruments. So they're going to pay a much higher coupon.

[B]

Well, they.

[A]

Not.

[B]

I mean, I've been looking at the coupons on catastrophe bonds. They're not crazy high, and also they're not crazy risky. If you look at the catastrophe bonds which have been issued, almost none of them have been triggered because there are all of these weird parametric things, and they're all very closely defined by geographic.

[A]

What is. What have these things been issued for most? Like, what kind of catastrophes have they been linked to?

[B]

Earthquakes. Earthquakes. Earthquakes. And basically natural disasters. It's basically anything which is completely sort of random and unpredictable.

[A]

Yeah. I guess. Like. But. So this actually kind of brings back. Comes back to this question of can the private sector actually step in and play a role here and maybe kind of rationalize this market in a way? The re. You know, the reason there is a federal flood insurance program is that in the 1960s, there was no private lead insurance. Like, they're, they're just. By that point, insurers had just decided they were going to get out of the game.

[C]

Wasn't profitable.

[A]

It wasn't profitable. They. They did not have the. The capability to do, you know, to estimate where flood damage would strike. It just. It wasn't going to work. There have been a lot of advances in finance and insurance and, you know, mapping and data analysis since the 1960s. And it just, it seems to me like there should be some room for the private sector to come in. And the reason I'm, you know, I don't think I'm typically someone on the show who's like, you know, the privatizer. But like, in this case, it seems to me like something where it could really be beneficial because right now, again, the government has this incentive to subsidize people to live in dangerous places, essentially.

[B]

Hang on a sec, let's just rewind a bit because a few minutes ago you were saying that even this ultra cheap federal flood insurance, you still have a huge number of people who are eligible to buy it and don't buy it. They're like, fuck. I just, I'm going to take my.

[A]

So what I've seen in the, what I've seen, at least in the consultant analyses, right. That have come out and again, take with a grain of salt because they're always kind of motivated, but is that they would probably end up having to charge more in the extreme, extremely dangerous areas, but they could actually provide lower prices in the outlying areas. In the, in the moderate risk areas that most people would have cheaper options for flood insurance, but it would essentially, it would just be priced closer to the actual risk, which is, would be good. Sort of even on a humanitarian level, it might prevent some people from making bad decisions about where to live.

[B]

My point of view is that the humanitarian disasters in terms of the houses getting destroyed and washed away and written off and that kind of stuff generally happen to exactly the kind of people who are not going to buy flood insurance unless they have to.

[A]

Yeah.

[B]

And moving from the public sector to the private sector not only doesn't solve that problem, it makes that problem worse because you're not going to have Fannie Mae forcing people to take private insurance in the way that they do with public.

[A]

Well, you could. Yeah, you could.

[B]

It's still only going to be the people with certain mortgages in certain areas.

[C]

Right. But I do think that if on the government side you essentially said within certain regions you are required to buy flood insurance, but then you also had the private market come and work with the government to make premiums in some of the risky, but not super risky areas more affordable. That could potentially.

[B]

I don't really buy this idea that federal flood insurance premiums are too high. Oh, they're certainly not even in moderate areas. And also like the other question which is important here is what is the End game here in Sandy. There was a general consensus after Sandy that there were large chunks of the Jersey Shore and the Rockaways which just shouldn't have buildings on them. You know, it's just not smart to build there. And that's certainly true of a lot of Miami. And, you know, it's obviously true, and it has been obviously true for 75 years of huge swathes of Houston. And so while you can start tinkering around the edges with public private partnerships on flood insurance, like the big question which, the, you know, public policy question, which we have to answer is, should we have people living in these places?

[C]

Yeah, and I think that's a reasonable question. But I do think we have to separate the idea of the riskiest places, the places where in 18 years, the buildings are flood flooded 16 times. I mean, those types of areas from areas that are simply near water, which, again, is where a lot of the population of the United States lives.

[A]

Yeah, I mean, I guess my. My final word on this is just, I don't think the federal government, acting on its own, will ever price an insurance product in a way that nudges people away from those areas. And so, insofar as insurance can play a role in getting people to live in outside of these danger zones, you know, I just, I don't have faith in Washington to do it.

[B]

Okay, so let's talk about productivity, which is actually Harvey related. Yeah, this is. This is one of my favorite facts, is that if you look over the past 50 years or so, what's happened to productivity in the construction sector? What's going to happen in the aftermath of Harvey is that there's going to be tens of thousands of homes which are going to have to get rebuilt or, you know, have massive work done on them. And you're going to have a whole bunch of people in the construction industry coming into Houston and making a good living from rebuilding these homes, which is probably as it should be, just as it would have been if we'd had the flood 50 years ago. The question is, how much better are we at rebuilding homes than we were 50 years ago? How much more efficient are we? How much has our productivity increased over the past 50 years in terms of being able to come in here and use modern technology to be much more efficient and productive? And the answer is, according to McKinsey.

[A]

This is one of those stats where I have a hard time believing it. But according to McKinsey, McKinsey says it.

[B]

So I believe it.

[A]

They say that American product construction productivity has plunged by half since the 1960s.

[B]

And it's the only sector I can think of where productivity has got worse.

[A]

To be clear, Oftentimes when people talk about productivity falling or slowing down, they're speaking imprecisely. And what they really mean is productivity growth isn't happening as fast as it used to. What they are actually saying in this report is that we are worse at this, we are crappier at building things. That is what this report is like. We are 50% less efficient, more than at building homes than we were in the 60s.

[B]

And I just, I believe this. I think there are a couple of things behind this. And while you can. I'm not going to go into detail, deep into their methodology and sort of say, well, it's actually 40 or 50 or 60, conceptually, I can see why this happened because in the mid 20th century, what you had was people building brand new homes in kind of tract houses where they were all the same. And you had large companies building many houses in the post war boom time, the Levittown approach.

[A]

Yeah.

[B]

And. Yeah, just across middle America, you know, and. And it was almost a production line.

[A]

Yeah.

[B]

And what we've seen more and more as the decades have gone on is that houses become much more customized now, or it's much more common, that new construction is like, I want this, I want that. You get an architect. And a huge amount of the construction industry is now doing things to existing houses rather than just building new ones from scratch on brownfield or greenfield sites. And that is more complicated. And then you add on to that the fracturing of the industry, that it's not a handful of huge home builders anymore. It is hundreds of thousands of tiny little construction shops who often have three or four or five employees and have no real economies of scale whatsoever. And then you add onto that the fact that especially during the boom of the 2000s, an enormous amount of construction work was done by not unskilled immigrants, but not super skilled immigrants. There was a huge amount of immigration into the US of people not earning a huge amount of money and putting up walls and things without enormous skills.

[C]

And I think those last two issues are very much connected. When you have a fractured market, your margins aren't very high. It's very competitive. You're not going to want to invest in capital. You're going to want to keep your fixed costs low and just have your variable costs of employees. So then if construction declines because the housing market declines, you could just fire people.

[A]

Yeah.

[C]

Which is actually more cost effective than using more expensive machines.

[A]

Yeah. And that's sort of. So this is like the curse of small business, right? Like small businesses don't want to lay out lots and lots of money for a big backhoe or whatever that they're not going to use during a recession if they can help it. They want to make, they want to be as flexible as possible. A big company can afford to do that and then weather a downturn, a small contract or small subcontractor. That could be the difference between them staying in business and not staying in business. So yeah, I mean, there's one of the things that this productivity slump suggests is that we really need more big business in construction. We need like the ideal of, you know, small contractors, you know, working self employment and whatnot is actually holding the country back. And like, I buy that only because I spent one summer of my life working in construction. My dad actually helped run a contractor briefly and I laughed when I looked at the McKinsey report. This is based on. Because they said that drywall was the thing where over like the last 10 years, productivity has like slumped the most. And let me tell you, I have helped put up drywall and you are not productive. I was not particularly good at it. I was standing there working with like, you know, a potentially, I'm pretty sure, alcoholic Irish guy who is like hanging ceilings and sending me to get Budweiser in Chinatown at 10:00am like, this is how construction works in New York.

[B]

It certainly is. And I've been through this. I just did a big renovation project myself. And yeah, I'm almost certain that even after accounting for inflation, if you look at the amount of money it cost to build my apartment in the first place, like my apartment's share of the entire building. Yeah, that was lower than the amount of money I spent to just like renovate it.

[A]

That's probably.

[B]

Yeah, I mean, and, and you know, we would, we would get the contractors in and we'd be like, okay, we're starting, we're going to do demo. And then it would take them a week just to do the floors. And you're like, this is the least efficient thing I've ever seen in my life.

[A]

Oh yeah.

[C]

There's just, there is no incentive currently to make it more efficient. So many people are making money off of the inefficiencies of this system.

[A]

Cost overruns actually make your business more profitable, often because you get a percentage of your materials. I mean, there are all sorts of, there are all sorts of, kind of, there are all sorts of reasons why contractors want to be bad at their Jobs. I will say though, the reason I'm a little skeptical of the 50% or just like in my heart of hearts feel skeptical about this 50% figure is there is a lot of construction in America still done by major companies on greenfield sites. I mean, that's what suburban sprawl is. It's companies like, it's not, you know, custom Craftsman homes.

[B]

It's like I'm pushing back on that.

[A]

It's like pulte homes putting up subdivisions.

[B]

I don't think that's. We have had suburban sprawl for the past 15 years. I think suburban sprawl has more or less ended that. Now what, you know, if you look at where is. There's this hollowing out of the suburb of the suburbs and the huge number of suburban homes which are now being like renovated for the millennials who are moving out there. But I don't see a lot of.

[A]

No, there's been, there's been, there's been further population growth in the exurbs. That's that, that is in the last few years. That's where we've been going. The whole urbanization thing is over. And I mean I will buy that.

[B]

In Dallas, but I certainly. Anyway we can.

[C]

Well, and I also think it's important to remember when we're talking about construction, we're not just talking about houses that people live in. We're also talking about large infrastructure projects. And when you think about mid century Robert Moses 50s and 60s, the amount of infrastructure building there is versus now.

[A]

Yeah.

[C]

That's another thing to think about.

[B]

Yeah. If you look at the cost of the second Avenue subway versus the cost of any other subway in New York, it's pretty obvious that our productivity has fallen much more than 50%.

[A]

This is true. Yes. And so some of this. But some of this is regulations, Some of this is government inefficiency. But when McKinsey's talking about this and what the economist was saying is that it really boils down to the fact that our construction businesses are too small and not willing to make technological upgrades because they're guys from Bensonhurst with the truck.

[B]

It's, it's the same as banks. America has too many banks and too many construction industries.

[A]

We have too many banks. You think at this we don't.

[C]

Yes. If you compare the US banking sector to other countries.

[A]

Yeah.

[C]

We are a very fractured US has.

[B]

Tens of thousands of banks. Like there's no reason why the way any country should have thousands of banks.

[C]

Yeah. Banks are too small.

[A]

Oh man. We're going to. We're going to have to have like an antitrust and banks episode at some point. One, there are.

[B]

There are five banks which are very big, but then there's another 50,000 which are just pointless.

[A]

Yeah, that's.

[C]

And often undercapitalized.

[A]

We're going to get like one really angry letter from a community banker because, you know, we have at least one.

[B]

As a listener and I, a vegan community banker, I used to be on the board of a credit union which had $20 million in assets. Yeah. I mean, like, much as I love credit unions and I would support everyone moving their money through a credit union, there's no way you can run a bank efficiently when it has $20 million of assets. It just can't be be done.

[A]

All right, all right, fine.

[B]

Okay. We're going to have a rare and special vaporware segment.

[A]

I'm really happy about this.

[C]

All speculation.

[B]

Okay. So I'm going to. I'm going to kick off with the slate pitch.

[A]

Okay, the slate pitch.

[B]

This is the slate pitch. Right. And I'm not 100% sure that I believe it, but I kind of.

[C]

Is that the case with most slate pitches?

[B]

Like it as a slate pitch?

[A]

Yeah.

[B]

The slate pitch is if you look at the pay fors in all of the various ways that the White House and the Republican Congress are talking about how they might pay for their tax cut. Yeah, there are some amazing pay fors, like really, really good ones. One of them is the. Is ending the tax deductibility of corporate interest.

[A]

So.

[B]

But this is like basically that alone that arguably could have prevented a financial crisis. Another one is getting rid of the state and local tax deduction. Another one is capping the mortgage interest deduction. Another one, which probably isn't going to happen, but would be amazing is getting rid of the charitable tax deduction. Basically, there are these big, big loopholes which are hundreds of billions of dollars and these massive tax expenditures which have been stuck in the tax code and growing and growing for decades and have become this sort of cancer on our fiscal system. And for the first time that I can remember, people are seriously talking about getting rid of them. And the way you get rid of them is by using them to offset some crappy tax cut which we can all agree is bad and gives all the money to the rich. But what happens is that income tax rates go up and down. And if we cut income tax rates today, we can raise them tomorrow if you get rid of these big ugly loopholes which no one would ever introduce, like ex nihilo. There's no way they come back. And so the way you get to a good, the way you get to a good tax system is by getting rid of the crappy loopholes. Now with a tax cut, raising your taxes back up to a normal level and then keeping the crappy loopholes, you know, out of existence.

[A]

Yeah, I don't know where you get this idea that tax rates go back up significantly once they've been cut. Like, hard to raise. Like the only, the biggest tax raise in 40, maybe more years, it was bigger than the Clinton hikes was the Obama tax hikes, which were applied, you know, basically got the top, the top marginal rate back up to 39% where it was before Bush and only applied to a very small sliver of households, you know, top two. What? Top 2%, I think. So the idea that we'll just raise taxes down the line and make up for this massive shortfall in revenue which is going to add to our debt service, it's going to add to the deficit, add to the debt, add to our debt service over line, and then be an excuse for cutting essential programs that, you know, feed the poor, give people health insurance. I don't see that as like a really good.

[C]

That's also important if you're talking about. Because if you're talking about trying to cut taxes to stimulate the economy and then to offset that, you're going to cut federal spending, you're going to offset.

[B]

No one, no one's really talking about stimulus right now.

[C]

No, but it's just that if part of cutting taxes in theory is expansionary fiscal policy, it's not supposed to.

[A]

Right now. That's not what they're doing.

[C]

Yeah, no, I know.

[A]

That's a different question.

[B]

The question is like, what knobs and buttons should we have in the tax system? And I kind of like the idea that the knobs and buttons should be marginal income tax rates rather than being hobbled by a system which has all of these ridiculous massive loopholes in it.

[A]

I don't think that's really what's hobbling us. Like, I mean, the state and local tax deduction, you can argue about it benefits wealthier people in blue states who have to pay a lot of state taxes. On the other hand, it helps subsidize blue states and their generous social spending. So, you know, well, you know, you can kind of weigh the equities there. The mortgage interest deduction, we've fought tooth and nail about that and we'll continue to until literally an asteroid strikes the studio. I mean, the individual, frankly, the individual side taxes are not the big story with what's going on in Washington. This is primarily a fight about the corporate tax and how corporations are going to be treated in this country.

[B]

Okay, so let's start nerding out about corporate taxes.

[A]

So like you have to like. So there is a large contingent of conservatives in Washington who really think that the best possible thing you can do for the economy is cutting the corporate tax or making it easier for corporations to write off their investments with immediate expensing. And the idea is that if you do that, there's going to be this investment boom in the country and then workers are going to be more productive and they're going to have more factories and more hiring and etcetera, etc, etcetera. So you know, there's a very serious talk about cutting the corporate rate down to like 20, 25%. That loses a fuck ton of money and they have to figure out how to pay for it. And so that's why you're starting to get some of these things like Felix is really excited to hear about, which would be getting rid of the deduction for corporate interest for interest.

[B]

So, okay, so the way it works, just to explain what this is, because it's a very wonky thing. When you file your tax returns, you pay income tax on your income and then, you know, you use your after tax income, whatever you have left to pay off your credit card bill and your auto loans and your student loans and everything else. Yeah, so all we're suggesting here, and when I say we, I mean me and Paul Volcker and a bunch of crazy lefties and then suddenly now a bunch of Republicans which I never really expected to have.

[A]

They're not suggesting what you think, but we're going to get into that is.

[B]

Getting rid of the tax deductibility of corporate interest on the corporate level as well, which is basically the same. They're saying you pay tax on your income and then you use your post tax income to pay your debt interest. This is a great idea because right now corporate equity has a very high effective tax rate partly because of high corporate taxes. And corporate debt has if anything a negative effective tax rate. And so there's this huge incentive for corporates to load up on debt and to not really fund themselves with equity. And what happens when corporations load up in debt and not funded themselves with equity is you get debt crises and you get a whole bunch of unnecessary bankruptcies and a bunch of really stupid financial engineering and we can make life a hell of a Lot easier and better for everyone if we move away from debt financing towards equity financing. And you do that by abolishing the deductible interest. I agree with interest.

[A]

I want to hear what private equity has to say about this.

[C]

Yeah. I mean private equity, which is often funded by debt that has higher than normal interest rates are going to have lots of things to say about this. But one of the things I think is also important to remember if we where the cost of debt is right now, which is very low.

[A]

Yeah.

[C]

If we get rid of the corporate interest deduction, which I support, I don't think it's going to have quite the impact that we think it's going to just because of how cheap the cost of debt.

[B]

Also that that's also the reason why now is a great time to do it.

[C]

It's true. I mean, I agree with that. Yeah.

[A]

So a few things to say about this. Felix, you mentioned that this early on that this could have helped prevent the financial crisis, possibly because banks wouldn't have had so much incentive to finance themselves with debt as opposed to equity. I just want to say banks will probably be exempt. I was about to say this change will not apply to banks and almost certainly won't. And the reason for that is because borrowing and lending is their business. So just to make that clear. One thing to say about this that makes me a little bit nervous. I actually don't know exactly where I fall is that you can't just think about this policy on its own. You have to think about what it's being paired with. The reason they would get rid of the deduction on corporate interest is more or less so they could do what's called immediate expensing, full expensing. And expensing is just, you know, it's. The idea is that when you buy a big, you know, machine, if you run a factory and you build bill buy a die cutter, you get to write down the cost of that investment. But currently, and you have to do that over like 30 years, the whole lifetime, that's, that's depreciation. What Republicans want to do is they want to let you write that down immediately. They want you to, they want to essentially just say, okay, you can write off the full cost that investment in the year you buy it. The thinking is that this is going to spur more investment. And there is a healthy debate about that. But if you do that, you essentially have to also at the same time, for reasons that have to do with a lot of loopholes and the real estate industry, among others, you have to get rid of debt deductibility. Otherwise you can do all sorts of funny financial engineering where if you can expense something immediately, you can essentially lose money, but then make money off the, off the debt deduction. If you pair those two things together, you are essentially doing, as far as economists are concerned, is moving the transforming the corporate tax from a corporate income tax, edging it towards more of what we think of as a consumption tax. You're kind of pushing it that way and it takes on more of the characteristics of the kind of tax that eventually is going to have to be with a few more tweaks passed on to consumers, which actually is the right wing's long term plan. They would like the corporate.

[B]

Now I feel like I was kind of following you up until you said consumption tax. And I'm like, if I buy a dai, that's a massive consumption and that.

[A]

Actually reduces my consumption without having to. I don't want to have to take a long time.

[B]

What is corporate consumption?

[A]

Corporate consumption doesn't count. Investment doesn't count as consumption. When you're talking in economics.

[C]

So you're saying you're passing it on consumers.

[B]

No, but when you like I understand what I have when I consume something, I buy a pizza and then I have consumed it. But if I'm a corporation, what is consumption?

[A]

Consumption is essentially. Some listeners probably could ding me on a detail here, so if I get something wrong, please get me but, or please email me. But a corporate consumption tax is essentially a tax on what you pay your workers and what you pay your shareholders. It's the profits and your, it's profits and labor and that's what's considered consumption. Again, this is like the economic term for it.

[B]

I don't still tax deductible. Right?

[A]

Yes, you're pushing it, you're pushing it in that direction. It's, it's, it's kind of a step along the path to eventually getting to what's a glorified vat, which is what was essentially what Ted Cruz wanted to do back during the election.

[B]

I just feel like we've now at this point gone so far away from the original thing, which is the tax deductibility of corporate interest. I feel like you're like, well, I don't know, I think that would be good.

[A]

But yeah, well the other.

[B]

And then the other would be a step along the way so that, the third thing. And then if you.

[A]

Yeah, well, this is the way you think. This is how you think about politics. It's right, it's A long but the.

[B]

First, the first order effect is good.

[A]

If you do it well. Yeah, I mean maybe I actually second.

[B]

Order effect is probably good and then you're, now you're worried about the fourth order effect and I'm like okay, now.

[C]

I, I looking at each administration and the policies they're putting in for their long term goals, well then if a number of years, years later the other party comes in and has their own take on it. I just don't know if the slippery slope argument entirely. I don't entirely disagree with you but I don't think it's a fait accompli that if you get rid of the corporate interest deduction we will then have leading towards a vat.

[A]

I mean I, I guess I'm on guard against a slippery slope here but I also, I just don't know how much I really am excited about full expensing which is what this is all about.

[B]

Even that is the second order of it.

[A]

Well no, that's, that's what they're really trying to do the corporate, the deduction of interest. I mean that is, that is a pay for and I don't know like Anna said, I don't think it's going to massively transform the economy at this point given how.

[B]

No, because reason that no one's talking about massively transforming the economy. We are Republicans are. We are talking about getting rid of a lot of tail risk and moving the economy away from being debt financed and towards being equity financed and deleveraging the economy which has too much debt. And all of that is good.

[A]

Yeah, I mean that part of it is, I mean yes, that is the upside. On the downside again when you're talking about full expensing your essential. Well no, they go together. They go together. You can't talk about one without the other here. And so basically you're handing a tax break to like utility companies that have to upgrade their plants under contract every year and so end up paying no tax. Are going to pay no taxes. And so the only thing I will say about full expensing is that it's actually also not that huge a change because a lot of companies have close to full expensing thanks to other things have been written to the tax code. I guess what I'm saying here is that all this stuff, stuff theoretically to me makes me very frightened but in reality probably won't make that huge difference except it's going to end up losing us a lot of money. All things when it's all summed up. And that's what bugs me because that's going to force cuts to social services.

[B]

In the end.

[A]

That's. That's where I am on it.

[B]

Yeah, I don't, I don't buy it. I especially don't buy it because there's really not been that much connection between tax revenues and government expenditures.

[A]

No, it's actually the reverse relationship. There's a whole theory that when we don't pay for anything with taxes, people just feel like they can spend more because they don't have to pay for it. But, you know, and maybe we can just keep on doing that forever. I'm not exactly a deficit hawk, so.

[B]

Okay, so I, I fear that we disappeared a little bit into the dark hole. Crazy shorthand wonkery there. For which I apologize. But it's all Jordan's fault.

[A]

Sorry.

[B]

We will take him out and shoot him and next week.

[A]

That's literally this entire show has been one long build up to me getting old yellowed Felix just been like, finally.

[B]

If you have any suggestions for like, someone who can, like, you know, just be a little bit more grounded, you know, just send them in to slatemoneylate.com and Jordan can go back to talking about health insurance. No. But we will have a less wonky discussion next week. But even now we get to have a fun little numbers round, which I'm going to kick off with I think the biggest number we have ever had on the numbers round, which is 60 trillion. That's pretty big. I don't think we've ever had a number which is bigger than 60 trillion. 60 trillion is one of those numbers which is so enormous that it's kind of impossible to conceptualize how big it is. And 60 trillion is the number of minutes that iPhones are used every year. That's how big the iPhone is. It's just an insane thing, insanely huge project in terms of just how much it's used. And I'm saying this in the run up to the launch of the new iPhone in a week and a half or so, and, and people are going to inevitably kvetch about how it's evolutionary and not revolutionary and Apple can't innovate anymore and everyone's written their hot takes already. But the fact is these things are used so much and they are embedded in the global economy to an almost unimaginable degree that even a tiny change just makes an enormous difference.

[A]

This is very true.

[C]

So My number is 38,000. That is the maximum penalty for making, selling, or importing a plastic Bag in Kenya.

[B]

Kenya.

[C]

So Kenya also has bigger problems today. But yeah, this was a law that was 30.

[B]

That's in Kenyan shillings.

[C]

That, that the equivalent of dollars is $38,000.

[B]

It's $38,000. It's not 38,000 Kenyan shillings.

[C]

No, this fine, it's also four, four years in prison or 19 to $38,000 fine again for essentially making plastic bags, which I am, I hate plastic bags. I'm all for trying to get rid of plastic bags. This seems a little extreme.

[B]

Going to prison for four years for giving someone a plastic bag does seem a bit excessive. Kenya is I think the 20th country to ban plastic bags and it's pretty much the first to try and do so on threat of.

[C]

Although in Rwanda when you try to go in through the airport, they will search you for plastic bags.

[B]

But we will see how it works. I think we free marketeers would prefer to do it in a slightly less heavy handed way. Jordan, what's your number?

[A]

Just kind of reminds me of the Parks and Rec episode where the Venezuelan delegation comes and they talk about like, you overcook fish, you go to jail. You undercook chicken, you go to jail. Anyway, sorry, parks. Anyway, I'm vacillating on my number here because I just saw another really tempting one. But I'm gonna go with 90% which is how much the Trump administration is cutting the Obamacare outreach budget. Just like, man, that's gonna fuck up the health insurance system a lot. Like, people really, really need to see advertising and have people actually walk them through the steps of signing up online because shopping people forget to shop for insurance. They don't know what's available to them. Buying insurance is extremely confusing. And aside from the fact that this is just going to probably do damage to the, the individual market and lead to fewer people being insured, it will probably also lead to people who do try to buy insurance paying more for it than they probably should. There is a huge problem currently with people who are eligible for Obamacare subsidies buying off the exchanges where they are not eligible for them. And it is unclear why they are doing it other than possibly they just don't know any better. And so Donald Trump is basically just taking money out of people's pockets by not properly funding this.

[B]

And how much money are we talking about here? I'm wondering whether this isn't a classic example of an opportunity for sort of opportunistic philanthropic money to step in.

[A]

I actually, I had that thought. It's not a lot of money. It's like $100 million was the total budget before. I think they're down to 10 million. So, like, I mean, like this, this is the kind of thing.

[B]

So if the Ford foundation or someone decided to say we're going to spend $100 million on a nationwide advertising campaign to get people to sign up for the health insurance, which they still are eligible for, that would actually make up all of it and would have an enormous difference on millions of people.

[A]

Yeah, absolutely. I think part of the issue is it's not just the advertising campaign, it's also the, the, again, these helpers, the navigators who.

[B]

That would all be included.

[A]

Well, yeah, I mean, the navigators. The issue is that you have to kind of plan that months in advance and we're creeping up on open enrollment already and a lot of these companies just did not have their contracts renewed or not having their contracts renewed. That said. Yeah, if some, if a film philanthropist stepped in here, it would create terrible incentives for the Trump administration. But I mean, the Trump administration has effectively killed already, so who the hell cares, right?

[B]

Okay, so thank you to all of you Slate Money listeners out there who have $100 million to spare and they're going to use it to save the American health insurance system.

[A]

We've had a billionaire on the show. Maybe she's listening right now.

[C]

I know a few.

[B]

Let's call up your billionaire friends and tell them that this is a nice little urgent thing and it's much better than keeping that 95% of their funds in the stock market waiting for a better opportunity to come along. It's a good urgent opportunity. In any case, that's it for us this week. Thank you for listening to Slate Money. Do listen also to the XXGabFest which [e-mail] XX you know, it is a safe for work URL. I promise you that is Hannah Rosen, Noreen Malone, June Thomas every other week on Thursday mornings where you will learn everything you need to know about feminism, gender, sexuality, health, politics, Beyonce and basically everything of interest to women and people who are friends of women or who like women who hang out with women, which is everyone. So check that out, slate.com xx and with that, it just forced me, I think, to thank Dan Schrader for producing this wonkiest of rebuilding episodes. And we will talk to you next week on SLEEPD Money.