The smartphone kerfuffle

Last week’s “The Economist” was highly focused on the social and economic impact of the smartphone in global society. Saying that by 2020 80% of adults will have a supercomputer in their pocket.  This is not a point to be debated but merely reflected upon, the release of the first iPhone in 2007 opened the flood gates to innovation and instantaneous communication unprecedented in the world. 

 I recently returned to school after several years in the workforce and am floored by the access to information and how ubiquitous the smartphone has become in education.  I’m not the oldest student in my class but I remember the days when if I didn’t understand something I would walk to the library and use the dewey decimal system to find a book, when photocopying was a luxury and email was noisy.  I remember during my undergrad I had a Dell laptop computer that weighed as much as a house brick.  I would pack it up and drag it to the library or student union, which had just been wired with WiFi and it was a real luxury.  My cell phone at the time was voice only but I mainly used my land-line (think of it as a cell phone that stays charging and you can’t go anywhere with it… craziness, I know).  Now my phone vibrates with instantaneous updates for anything from social media to email from any one of my multiple accounts synced to my “app”. 

 Last week’s Economist showed us how the smartphone may be ubiquitous but it must be respected as a potential invasion of privacy.  It knows everything about you, even things you may not know about yourself, and the average person spends two hours a day scrolling through news feeds and YouTube videos without a true grasp of the personal behavioral information that is broadcasted to whomever is savvy enough to intercept it.  It’s easy to take advantage of the luxury of smartphones in a capitalist society that focuses on personal freedoms and standing up for our rights and privacy, but imagine what information a totalitarian society can use against you with a simple algorithm.  It reminds me of George Orwell’s 1984, the boxes on the wall where Big Brother could hear everything you say and use it against you, creating a society based on distrust and fear. This was allegorical and hyperbolic yet alarming in how close to home Mr Orwell seems to have gotten at a time when interfacing was only a theory among academics. 

The illusion of security and privacy is enough for some people to turn a blind eye for the sake of cat videos and being able to Google how to spell “usurpation” in an increasingly fast-paced world.

What will happen when everyone who remembers the days before WiFi and smartphones are dead and gone? My generation is the last generation to remember encyclopedias, hand-written assignments, face-to-face interaction, and bullying that was harmless and not ‘cyber’. We were forced to communicate with each other in a way that humans had done since we invented verbal language.  It could be said that smartphones represent a leap in the human experience, similar to the advent of the the printing press or the radio.  A step in the direction of synchronizing technology with the human mind and reaching a potential unfathomable to my grandmother’s generation. Her generation saw the mass production of the automobile, a world war, a great depression, a dust-bowl, a man on the moon, digital interfacing, and (God willing) a man on Mars. My generation has seen a fraction of that with no sign of slowing down.  What will the next generation witness?

The smartphone, and digital interfacing of any kind, has given individuals access to information and the ability to connect with each other in a way that has started the momentum to change the world completely.  We already see the sharing of ideas, streaming of videos, and blogging that has given way to changes (sometimes destructive) in society; especially our police force and judicial system, international affairs, education system, and security.  It is up to the consumer to demand security and privacy in regards to our mobile devices.  There are already measures being taken to screen what information can be used for specific purposes.  With all new technologies there will be growing pains, then innovation and efficiency will lead to new problems.  

These are man-made problems and it is up to man to ensure that our own innovation doesn’t lead to our demise. 

 Thank you for your time. 


The Economist – Smartphones: Planet of the Phones 

The Economist – Smartphone Security: The Spy in your Pocket


Corporate Inversion… an old debate

Corporate inversion was a debate that saw it’s peak in September of last year then fizzled in the same manner as ebola, mad-cow disease, and MH370. However the pressures of tax reform and corporate transparency are still hot topics on the political agenda.  Corporate inversion hasn’t gone away, even though it isn’t making headlines anymore; but what is the real issue with corporate inversion?

Across the board, economists and policy makers are steadfast on it being a matter of evading US taxes.  Saying that multinational corporations are leaving to avoid the 35% tax rate imposed by the outdated US tax code and that it is as simple as that; to lower their overall tax burden.  I can agree with that statement, but I don’t believe it’s that simple.  Shareholders are seeing lowered dividends and it effects the long-term risk and transparency associated with their stock.  Leaving the US tax system for more favorable taxes elsewhere also makes a company look like it is unstable and unable to compete without absconding (for lack of a better term) to Europe or elsewhere. Systematic risk cannot be avoided entirely but moving overseas adds a lot of unknowns to the diversified portfolios of these corporations.

Even with the published 35% tax bracket, many companies in the gambit of industries are receiving tax breaks that ultimately enable them to pay (reportedly) 17% of tax on their current domestic and international revenue streams.  The tax brackets for the incoming countries that they are emigrating to are either on par with the US or cannot beat the 17% tax bracket. In addition to shareholders losing confidence and losing face with international investors seeing them as unstable; why trade the devil you know for the devil you don’t know especially when the cost of doing business is fractions of percentages and the risk of investors losing faith?

Repatriation of revenues is also said to be a reason for inversions.  Many US based multinational corporations have revenue from foreign investments that are subject to US taxes, inversion creates a tax wall that enables them to not pay US taxes on those dividends.  It is in the United States best interest to get this money back into the economy for domestic investment instead of having the existing barrier where companies are unwilling to pay the 33% repatriation tax on foreign money. There was talk of a tax holiday, shown in the article below from the Economic Policy Institute, where companies could repatriate funds at a pittance or no taxes at all.  The goal would be to get this currency and investment back into the American economy.  This is, naturally, caught up in the political tug-of-war that most good ideas see once they get to capitol hill.  Why are companies voting with their feet and expatriating overseas? Why the inability to reach common ground to keep the money and corporations within the United States?

Maybe they’re unhappy with the current anti-business climate of the United States.  Maybe they find it is easier and healthier for their bottom-line to relocate elsewhere. Or maybe it’s something entirely different that economists aren’t seeing.  The idea that this phenomenon is occurring because companies simply do not want to pay taxes is a simple answer and would require a simple solution.  The fact that this has been a trend over the past few decades and there are several companies in talks to invert in the coming years shows that this is not going away and not as simple as avoid tax liabilities.

The US has offered more than generous tax breaks to certain industries, the lobbying industry is healthier than ever, and companies will historically listen to the demands of their shareholders; yet still companies are inverting.  This shows a social and political issue bigger than simply lowering tax liabilities.  I believe more research needs to be done in order to understand what is really going on. Maybe we aren’t asking the right questions…

Some helpful articles and sources:

Economic Policy Institute – Policy Responses to Corporate Inversion

Center for American Progress – Corporate Inversion

The call for tax reform: VAT?

Tax reform is a huge issue in today’s political discussion.  The current structure of progressive taxation (increasing the percentage paid in taxes as income increases) and safety-net programs are showing a tremendous strain to sustain entitlement programs such as Social Security and Medicare. It is actually said that current taxes must be doubled simply to keep up with the expected fiscal pressures Social Security and Medicare will experience in the coming years, this is simply unrealistic (Bruce Bartlet, The American Economy, 2009).  

With globalization, the doubling of the national deficit during the recession years due to expanding fiscal policy and corporate bailouts, as well as the current issue with wealth distribution, taxing incomes is becoming increasingly difficult and ends up with tax revenues much smaller (28%) than our economic counterparts who achieve upwards of 38% through consumption based taxation; consumption based taxation, or a Value Added Tax (VAT), is the focus of this blog entry.

The reason that the United States doesn’t have a VAT is because conservatives view it as a money machine and liberals see it as a tax on the poor.  We will have a VAT, when liberals figure out that it is a money machine and conservatives figure out that it is a tax on the poor (Larry Summer, 1988).

Value Added Tax is seen as political suicide; as shown in parts of Europe, Australia, and Canada. VATs have increased tax revenues while providing a flat-rate tax structure on a percentage of GDP and individuals spending.  Additionally, regressive taxation (where tax percentages go down as a person’s income increases) is equally seen as political suicide in the current pressures on redistribution of wealth.  America taxes certain items more than others like gasoline, cigarettes, and alcohol which can be argued as a form of VAT. So how does the United States keep up with funding entitlement programs as well as the increasing cost of healthcare?  Doubling taxes within the current tax structure is absurd and will ultimately lead to lower marginal tax revenues as well as less incentive on production, less discretionary income to fuel consumption a market failure in supply-side economics. No politician who values their office will pitch VAT or regressive taxation in today’s political environment…

Additionally, ‘starving-the-beast’ as its called when we decrease taxes in hopes that the government as a whole will decrease spending, is a complete failure.  

Numerous economists (Summers, Hayek, and the Romers) all agree that decreased taxation does not lead to decreased spending. This was made shockingly clear when Standard and Poor revoked America’s coveted AAA credit rating in 2012, which was the lesser of two evils considering that the United States had to decide on how to pay their debts without defaulting.  Granted, entitlement programs and safety nets, that were nonexistant in the 1920s, are seen as a contributing factor to why the United States economy didn’t plummet into another depression in 2008; but lightning doesn’t strike twice.

VAT has an excellent track record but is seen as political suicide.  America clearly needs reform in both their outdated tax codes and how they spend our tax dollars.  In a lame-duck congress and the loss of faith in supply-side economics, where do we go from here? Macroprudential approaches are becoming increasingly popular as well as the writings of Irving Fisher; economists are aware of the threat of asset-bubbles like the housing market and the dot-com implosions and are finally thinking outside the box.  The fact that we have seen gradual recovery after the recession is a sign that this growth is sustainable and investors are being careful shaping the new economy. 

 The balanced budget days of our forefathers gave way to Keynesian economics after WWII until stagflation of the 1970’s lead to supply-side economics.  Progressive taxes don’t raise enough tax revenue, consumption-based taxation and regressive tax brackets are political suicide, and there is a huge push for healthcare spending and the redistribution of wealth; to hit the tip of the iceberg.

Tax reform needs to happen; who will be the first mover?

Unemployment rate- The reality

I am enrolled in a Macroeconomics class and found a discussion about the reality of the unemployment rate very interesting. There are several categories individuals fall into within the labor force and all of them sound wordy and complicated, these are quantified by the Bureau of Labor Statistics and reported quarterly to the public in the form of 6 different reports (U1 – U6). The official unemployment rate, the one that everyone focuses on, is the U3 – which simply shows the amount of people working compared to the amount of people in the labor force.  As of January 2015 it showed 5.7%, which is a sexy number compared to the 7% a year earlier or the 10% that haunted the recession years.  So the economy must be improving??  Not necessarily.  I took the liberty of showing how the participation rate (people participating in the labor force) has dwindled since the recent economic downturn.  The chart is from the Federal Reserve Economic Data (FRED) out of St. Louis and the grey bars show economic downturns. As the chart shows, there are fewer and fewer people in the labor force, so naturally the U3 report will show the math attributed to the people leaving the labor force for whatever reason.


The way my Professor explained it is that if there are 100 people in the labor force and 10 are unemployed and looking for work, the unemployment rate (U3) is 10% (10/100). But if three people stop looking because they get discouraged; so there now 97 people in the labor force and 7 unemployed (7/97), the rate becomes 7.2%.  A better number to report, but by no means a healthier labor force.  This is what the current U3 reports.

By all accounts, according to the definition of the unemployment rate, this is an entirely accurate figure to report.  But in order to fully understand the overall health we need to look at the big picture.  Which, the closest thing we can get to the big picture, is the U6 report which includes U3 numbers as well as people who are marginally attached or employed part time for economic reasons, which is a meatier figure to go with.  This figure, as of January was 11.3% and showed a steady rate around that for the past year.

I’m not here to call anyone a liar or discredit these reports, they are the best and most accurate snapshots with the information we have available. Im simply saying that as citizens, consumers, employers, and news-watchers we need to look at the world and economy for what it is, not what they want us to see.

Fee-based associations in addition to medical insurance

I recently made a doctor’s appointment through United Healthcare and discovered an alarming road-block in today’s healthcare. In addition to mandated healthcare by all of America’s taxpayers, many physicians are now electing to be members of fee-based associations.  These associations require that not only do the patients have appropriate healthcare coverage but that they must pay an additional membership fee to be a member of the practice.

Doctor’s have the right to charge based on the market and deserve to be compensated for their education and liability associated with being a physician in the increasingly unforgiving world of medicine.  However, the economy hasn’t yet adjusted to the Affordable Care Act (ACA).  To charge additional fees, excluding otherwise eligible patients from a practice is a clear example of unforeseen consequences to the ACA and a market failure.  The ACA was created to give average American’s access to healthcare and so businesses would re-evaluate their business models for the sake of the welfare of the employee.  Creating exclusionary boundaries is something that needs to be addressed.

I understand private practices have the rights to run their business as they see fit, but when did you need an MBA to also be a Doctor?

Below is a link to an example of one such association as well as an interesting article from the Center for American Progress on the healthcare spending slow-down.

Association of American Physicians

The Great Cost Shift

The new economy has changed everything, one man's attempt to make sense of it all