November 9, 2021 • 47 mins
Billionaires are often paraded as the "saviors of the economy" with their ability to create jobs. With Capitalism relying on the efficient flow of capital, we examine what that efficient flow means and who is best equipped to supply it. In this episode we investigate the difference between business and government and how applying business principles to politics can be deadly to the State.
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Episode Transcript
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Henri (00:00):
Today I want to take a look at Senator Romney's
opposition to the proposed TaxBill.
More broadly, I want to talkabout how trying to apply the
rules of business to thegovernment on a one-to-one basis
can often lead to well-meaning,but disastrous results.
Let's have a listen.
Mitt Romney, Fox News (00:21):
Well, first of all, it's not a good
idea to tell billionaires, don'tcome to America, don't start
your business here.
To tell the Steve Jobs and theBill Gates and people like that,
this isn't the place to beginyour business go somewhere else.
That's a bad idea.
But number two, you're going totax people not when they sell
something, but just when theyown it and the value goes up.
And what that means is thatpeople, these multibillionaires
can look and say, I don't wantto invest in the stock market
(00:44):
because as that goes up, I'mgoing to get taxed.
So maybe I will instead investin a ranch or in paintings, or
things that don't build jobs andcreate a stronger economy.
Intro (00:53):
Come On, Don't Bullshit Me!
Henri (01:00):
It's not like the Saudi crown prince or a Russian
oligarch, you know, OlegSmichnaev, is going to come here
(01:23):
and build businesses.
Intro (01:24):
Welcome"Come On, Don't Bullshit Me", where we peel away
the messaging of talking headsto get to the crux of today's
issues.
Henri (01:45):
You know how there's this expression that you learn best
from your failures or yourmistakes?
Well, one of the mistakes thatI've made that lives rent-free
in my head is (01:56):
during HSBC-- an AeroSpace Basic Course, which is
a finishing school for the AirForce officers, so during that
course, they have this knowledgeexam.
And one of the questions on theexam was: the Department of
Defense, DoD, wants a jetfighter, a new jet fighter; what
(02:19):
jet fighters should be funded?
And there was a bunch ofchoices.
One of the choices was,whichever one fits the overall
mission of the Department ofDefense, of the DoD, whichever
one fits the current prevailingdoctrine of the day.
Another one was, whicheverfighter is the most
technologically advanced.
Then the third option was,whichever fighter is the most
(02:44):
cost-effective.
And then the fourth option was,whichever one spreads its costs
out the most amongst all thedifferent states of the union.
And then they had differentoptions: A only, A and B, or A
and C.
It's like the classic SAT test.
Being a scientist.
I picked the answer"Whicheverone is most technologically
capable" and"Whichever one fitsthe prevailing doctrine of the
(03:09):
day".
And in my rationale, well,obviously as a scientist,
clearly, I was a dead ringer forthe"Whichever one is
technologically most advanced",because that was my whole
purpose of being in the military-- to make the most
technologically advancedweaponry.
And then my logic was (03:23):
we are in a military school here about
officership, so, obviously, theother answer is going to be
about how the jet fighter fitsinto the doctrine.
Because if your doctrine callsfor more tactical fighters,
rather than bombers, then you'renot going to waste money on a
bomber.
Uh, actually, an interestingstory.
The F-117, which is now retired,is obviously a bomber, but the
(03:47):
reason why it's an"F" wasbecause the prevailing doctrine
of the day was that we were notgoing to spend any more money on
bombers.
So the Air Force with infinitewisdom created a bomber, but
then gave it an"F" designation.
Oh yeah, this is totally afighter, the F-117! And Congress
bought it! And we got it funded.
(04:08):
And of course it was awesome fortwo wars that it was in.
But then, obviously, it outlivedits purpose.
But anyway, that is a side note.
Anyway, so, I was like, okay,clearly, because this is an
officership finishing school, ithas to fit the prevailing
doctrine.
And I'm a sucker for technology,being a scientist, so,
obviously, technologicallyadvanced one was there.
(04:28):
Because I thought, oh, thecost-effective one is a complete
trap because that's the thingthat they're trying to teach us
here (04:34):
that you don't go for the cheapest thing.
You go for the thing that's mosteffective for the money that you
have.
So there's that old joke (04:40):
oh, military equipment sucks,
because it goes to the lowestbidder.
Well that actually is not reallytrue anymore.
It's more about where it cangive you the most benefit for
the lowest cost, not necessarilypurely lowest costs.
So I was like, okay,cost-effective answer.
That's purely bait.
And then I didn't even look atthe"Whichever one spreads the
cost amongst all the states",because that was obviously a
(05:02):
stupid answer.
So I was like, all right, l wasconfident.
And of course, when we got ourtest results back, I got that
answer wrong.
The actual answer was"E (05:08):
all of the above".
I was like, what?
This is ridiculous! I was like,okay, fine, I could get the cost
effective, cause budgetaryrequirements.
But then the spreading the costamongst all the states?
Like, who gives a rat's assabout how the thing is funded?
But then during the post-mortemof the exam question, it was a
(05:29):
bait question, because each ofthose different options was from
the perspective of a differentportion of the stakeholders, if
you will, of the defenseindustry.
The first one,"Whether fitswithin the prevailing doctrine",
was obviously from theperspective of the Office of the
Air Force-- the generals andflying community and whatnot.
(05:52):
And then B-- the mostcost-effective one-- was from
the perspective of theaccountants or CBO about being a
good steward of taxpayer money.
So you want somethingcost-effective.
C was obviously from theperspective of scientists and
engineers of the Defenseindustry: you want most of the
technological advanced jetfighter.
(06:13):
And then D was the perspectiveof the Congressmen and Senators
of the legislative branch.
And that this was the realprofound thing, this is why I
still lives rent-free in my headuntil this day, even though it
was 20 years ago or whatever.
It is that the Department ofDefense doesn't live in
isolation, neither the executivebranch lives in isolation.
(06:33):
You have to consider thestakeholders being the
legislative branch.
And let's say the branchrepresents the people and the
country, and it doesn't live inan isolated manifestation of
itself.
The government is"of the people,by the people, for the people",
blah, blah, blah.
But the point here is that thegovernment represents the
(06:53):
people.
And one of the functions of thegovernment is to provide the
wealth spread evenly across theland.
So all things being equal, youdon't want a jet fighter, that's
being built in one specificarea, because then only the
citizens of that specific area,or that specific state, or that
specific congressional districtget the benefits from the
(07:16):
taxpayers funding.
But if you spread the costs ofthe jet fighter throughout
multiple different congressionaldistricts...
This actually is a kind of amischievous thing to it: the
more congressional districtsthat you spread this around,
obviously the less of a chancethere will be that it's going to
get canceled, because moreCongressmen are going to support
it.
So, I mean, there's that, butthe higher purpose of that is,
(07:38):
of course, more Congressmen aregoing to support it, and there's
going to be less chance of itgetting canceled, because the
point is that the citizens ofthe country, represented by
their representatives, theirCongressmen, they're rightfully
owed taxpayers' money that thegovernment spends, right?
Because whenever the governmentspends goes to the taxpayer,
ultimately.
So you want to spread it out,even at the cost of it being not
(08:01):
cost-effective.
Because, obviously, it'd be muchmore efficient to build a jet
fighter in one factory, butthat's not the point of the
government.
The government is not abusiness.
It's there for the generalwelfare of all, of everyone.
So from the perspective of thelegislative branch, of the
Congressmen, Senators, the bestjet fighter is the jet fighter
(08:22):
for which the costs are spreadamongst the most congressional
districts feasibly possible.
And that was a kind of a wake-upcall for me, because, I mean, we
all kind of know thisinstinctively, when people tell
you this, that, of course, thegovernment works for everyone.
But you don't really internalizeit.
And that question reallyinternalized it, because I
realized that it was not justabout building the best fighter
(08:44):
or the cheapest thing for thetaxpayer.
Because we always think aboutthe taxpayer as like this one
monolithic entity.
But the taxpayer is not just oneperson, it is 300 million or
whatever the population is.
Well, the adult population.
And the officers, the leaders inthe Department of Defense-- this
is something that we have to bemindful of.
That whatever decision we make,particularly in peacetime, we
(09:07):
have to make sure that not onlydoes it advance the agenda of
the Department of Defense, butit also advances the agenda of
the people, represented by thelegislative branch.
So I still remember that to thisday, this question and that
concept, that it's not aboutpure efficiency.
(09:28):
It resonates with me throughoutmy career.
There's a saying in DARPA, thatto optimize the whole, we need
to sub-optimize the parts.
I learned this, obviously,working as a scientist in the
Defense acquisition community orthe R&D wing of the DoD.
(09:50):
And after I left the military,in Business School they gave us
a whole bunch of differentliterature to read, whether it's
case studies or books, or whathave you.
And obviously, Business Schoolis kind of a party time.
So you don't really do most ofthe reading, or you do a cursory
reading of it-- just do enoughto pass the assignment.
(10:12):
So you do like whatever littlereadings possible and get it
back to partying.
So, one of the assignments wasto read about operational
efficiency.
And we were tasked to read thisbook,"The Goal", I think it was.
It was a fictional story of thisplant manager, and his plant is
not working, all the metrics,all the numbers are down.
(10:34):
And then the Headquarters isgoing to shut down factories,
and this factory is targeted,because, obviously, the numbers
are bad and this guy comes in,the new plant manager, and he
has like 90 days to fix thenumbers, otherwise plant is
going to be shut down and thenthe small town is gonna lose all
these jobs.
And then there's this iterativeprocess where they're trying to
(10:55):
deep dive into the problem andtry to figure out why the
numbers are down.
Because everyone seems to beworking their ass off.
And then h e r ealizes, okay,well, I g otta make this g roup
efficient, because their numbersare down.
And then they talk about thelean principles and s ay, oh,
you know, we need to minimizethe floor space and the walking
around the floor space, orminimize the footprint of the
(11:16):
inventory.
So they do all these things, butno matter what they do, they
realize that nothing is working,because the numbers go down for
that specific area, but thenoverall the plant numbers do a
little dip and then they go backup again.
The moral of the story is, whathe realizes is that he's been
trying to make each of thedifferent departments efficient.
(11:36):
So whenever he sees aninefficient number or a
department, he tries to do allthe efficiency things that he
learned as a manager to getthose numbers down.
But those efficiency numbersdon't help the overall plant to
get its numbers down.
And then I'll, I'll save you thethree hours of reading it, or
(11:56):
whatever, especially if you're abusiness school candidate, you
can just listen to this podcastand ignore the assignment
altogether and get back todrinking.
But the moral of the story is: at the end is that he realizes (12:03):
undefined
that he needs to make thenumbers inefficient for each of
the different departments.
And that is somewhat related toJust in Time, but not really,
but basically he needed to geteach of the departments to work
in tandem with the otherdepartments that feed to it and
it feeds to.
(12:25):
So if it's department B, thedepartment B needs to worry
about how they're getting thework load from department A, and
then also how the department Bgives their workload to the
department C, irrespective ofthe efficiency of B.
Because he didn't want apartmentB to be super efficient and then
waiting around for department Aor overload department C.
(12:48):
And that was the points, it isthat you can be inefficient, you
can have some downtime in yourdepartment, so long as that
workload is continuously movingthrough department through B,
through C.
And then only when they did thatdid the overall plant numbers
starting to drop.
And at the end he saves theplant and he's a hero.
And then the town is saved fromheadquarters decision and they
(13:11):
keep their jobs.
And the whole point, again, isthat when you look at each of
the departments, they weren'tworking as efficiently as
possible, but overall theconcerts of all of the
departments working together intandem-- that overall number
became efficient.
And that's what ultimately drovethe metric of the plant down.
(13:32):
It reminded me of what we kindof just took for granted almost
in the military acquisitionworld, that to optimize the
whole, you need to sub-optimizethe parts.
And I realized that this is notjust, you know, a nice thing
that we used in the cream of thecrop of Defense R&D.
This goes for all complexorganizations, not complicated,
(13:53):
but complex organizations.
And the Government is noexception.
So kind of like...
I just took you to Switzerlandto build the watch, but now
we're back.
And this is what I want toreally address, is that the
Government is, arguably, one ofthe most complex entities out
there.
And you don't want to look intoa specific departments of the
(14:19):
Government or sub- agency,whatever you want to call it,
and try to maximize theefficiency there, because that
may not be necessarily best forthe overall Government.
Again, just like that testanswer to the question on that
exam about the jet fighter, itis not necessarily about making
the most cost effective jet.
It is about spreading the costsout, so that multiple
(14:41):
congressional districts get tobenefit from the program.
Jazz (14:46):
[ Music]
Henri (14:55):
So, what does this have to do with Mitt Romney's answers
to the wealth tax bill?
He was saying, oh, well we wantall these billionaires to come
here.
And if we tax them, then theywon't come to do these jobs.
And then, you know, I'm lookingat this, ok, this guy, I mean,
obviously, everyone knows he isfull of shit, right.
But there's just talking pointsthat the Republicans have, and
(15:17):
then they're just giving themout, because they obviously
don't want the bills to pass.
We're not going to talk hereabout whether the wealth tax in
general is good or bad.
Frankly, I'm not even qualifiedto talk about it, because at
first glance I'm thinking,right, taxing on unrealized
gains is obviously not a goodway of taxing.
So let's say you just bought astock and then the stock just
(15:40):
ballooned in price, right.
And then it dropped in value.
And then, depending on the IRSreporting time, you just got
stuck with a huge tax bill, eventhough your realized gain is
actually a loss, or whatever.
Right?
But I think there's a lot ofstuff in there in the language
of the bill that prevents suchscenario.
So, I think that's just me beingalarmist.
But again, not having read theentire thing myself, I do not
(16:03):
want to comment on that.
But what I do want to comment onis just this constant mantra, if
you will, that people on theRight like to echo.
About how billionaires are thesaviors of the country, and if
we don't appease, thebillionaires, somehow the entire
country is going to collapse.
Never mind the fact that thiscountry wasn't built by
(16:25):
billionaires.
We like to say, oh, you know,we're a rugged individualist,
and America was built byindustrial and entrepreneurial
people.
The middle-class if you will.
Right?
So the general concept about howbillionaires are supposedly the
saviors of America, and withoutthem we can't do shit, it's just
completely ludicrous.
First off, Mitt Romney's talksabout, oh, if we have this bill
(16:49):
then billionaires aren't goingto come to America and create
all these jobs.
This is ridiculous.
Like, what billionaires arecoming to America?
It's not like we havemultibillionaires queuing up at
JFK or LaGuardia, waiting to getinto this country to create jobs
here.
It's not like, uh, the Saudicrown prince, or a Russian
(17:10):
oligarchs, you know, OlegSmichnaev, is going to come here
and build businesses.
This is targeting currentlyexisting Americans.
And the billionaires that we'retalking about are Americans that
actually live here.
So this concept of,"oh, we wantto attract more billionaires to
come to America", is completelyludicrous.
(17:32):
That's the first thing.
And then secondly, it's notabout the taxes.
It's about the opportunity tomake money.
No one gives a shit about taxes.
And this is another thing thatyou learn in Business School is
that you first worry about thebusiness itself: getting the
revenue, gain the Free Cashflow,if you will, because that's
another thing, there's adifference between Revenue and
(17:53):
Cashflow.
Worry about the expenses, theBalance Sheet, and you have your
Income Statement, right?
That's what you worry about.
And then there's even theterminology for it: it is called
EBITDA.
Earnings Before Interest, Taxes,Depreciation.
And that's what people look atwhen you're talking about
investing, when you're trying tocourt investors, public or
(18:14):
private.
Everyone likes to talk aboutEBITDA.
And the entire business world islaser focused on EBITDA.
Or let's just go with EBIT,because the Depreciation and
Amortization aspects of is arerelatively a newer or refined
concept.
So, rather that to minimize thenumber of syllables here, let's
talk about EBIT.
So, Earnings Before Interest andTaxes.
(18:35):
And that's the point of thesesupposedly billionaires or multi
- billionaires, as Romney'ssaying.
They don't give a rat's assabout taxes.
What they care about ismaximizing their EBIT, the
Earnings Before the Taxes.
And only afterwards, then theyhave their army of accountants
and lawyers or whatnot to findthe different loopholes to
minimize their tax burden.
So, taxes are kind of anafterthought.
(18:58):
And if there's an opportunity inAmerica, you bet your ass, these
multi- billionaires are going tocome here and, quote, exploit
us, exploit our country.
And he's a, he's a Bain guy,he's from Bain Capital-- one of
"The Big Three" managementconsultants.
He knows this.
He's not an idiot.
But it's just lip service thathe pays, because it sounds,
remember last week we talkedabout"the useful idiots"?
(19:20):
It sounds good and resonateswith the"useful idiots".
Like, oh yeah, billionaires!They care about taxes.
And if we tax them too much,they won't come here.
It's complete horseshit, becausewhat matters is the earnings
before the taxes, and aftertaxes is always an afterthought.
And now I know that someone hereis going to say, well, EBITDA--
that's completely horseshit,because there's the double
(19:40):
Dutch, the Irish sandwich orwhatever the hell it's called.
And there's all these taxschemes, and going to the Cayman
Islands, Barbados, or whatever: companies moving their (19:45):
undefined
Headquarters outside of theUnited States to avoid taxes.
Well, yeah, yeah, that's true.
And that's something that, weshould worry about and
rightfully so, but the pointhere is that their Headquarters
are moving there.
It's on the books.
It's not like when Apple movesto Ireland or the Netherlands,
(20:07):
it's not like the AppleHeadquarters in Cupertino is
moving there.
No, their actual physicalHeadquarters of where they're
doing their operations, wherepeople are being employed, is
still in Silicon Valley.
It's still in California,because that's where the talent
is.
That's where the people who areworking are.
It's just what is on theaccounting books.
(20:28):
That ethereal entity is what'smoving there.
So, I don't really give too muchcredence to people saying, oh,
well, that's ridiculous becauseyou can always move your
Headquarters to Ireland or someother tax Haven, and that's why
what Mitt Romney is saying istrue, and we need to lower the
taxes for the billionaires.
No, because that has nothing todo with employing people.
(20:50):
Well, maybe a little bit, butfrom the overall grand magnitude
of operations for a company, ithas no bearing at all.
Every Business School will tellyou this, any person without a
political agenda, who was in thebusiness world will tell you,
what matters is your EBITDA,your Earnings Before Interest
and Taxes.
Later on you can do whatever thehell you want to minimize your
taxes, but that's only after theoperations and their earnings
(21:12):
that you've earned.
The third point goes back to thestory that I was talking about:
the optimization of the wholeimplies, the sub-optimization of
the parts.
The thing is, multibillionairesare not healthy for the economy
or for our country.
(21:33):
Going back to that testquestion, it's not about getting
the most cost effective jetfighter, It's about spreading
the wealth to as manycongressional districts as
possible.
That's the point of theGovernment.
A side note (21:46):
this is one of the reasons why you should be very
cautious...
I'm not going to tell you to notvote for, because who am I to
tell you who to vote for, butyou should be very cautious of
candidates whose whole spiel ortheir whole shtick is that, oh,
I'm a businessman and I've runsuccessful businesses, that's
why you should elect me into thegovernment.
(22:07):
Even if it's true, which most ofthe time, it's not: they're
usually failed businessmen,because why the hell would you
quit being a successfulbusinessman going to a, having a
government job, right?
But that's besides the point.
The thing is that businessmendeal with efficiency and
consolidating wealth into theparent's organization.
(22:27):
That's the point of business.
Whereas the Government is theopposite of that.
You don't want the Government tobe efficient, because efficiency
necessitates consolidation.
And the more you consolidatewealth, the more you consolidate
power.
I mean, this is why we foughtthe war of Independence.
It was against the monarchy, itwas against the king.
(22:48):
More generally, we fought waragainst the British parliament,
because the wealth and the powerwas concentrated with the
parliament.
And we as colonists, didn't geta say to the laws and the taxes
that were being enacted.
So the whole founding of ourcountry was about being averse
to the concentration of power.
(23:08):
Or in the confines of thispodcast, it is about the
efficiency of power (23:11):
the more concentrated the power is, the
more efficient is.
So if you want a reallyefficient government, forget
about democracy or, you know,liberalism.
And I use"liberalism" likelittle"L".
I'm not trying to be a left-wingor right-wing thing, but
classical liberalism, if youwill.
You forget about all that andjust have a autocratic monarchy.
(23:34):
Kind of like Saudi Arabia, orwhatever.
And then there you go (23:37):
you have a very efficient power
structure, and power isconsolidated in, essentially,
one person, and they dictate,whatever they say goes.
And that for the ruggedindividualistic Americans that
we are, obviously, that's ano-go.
The whole point of theconstitutional convention was
ensuring that we didn't haveanother king, right?
(24:00):
Remember when we elected GeorgeWashington, some of the founding
fathers said we didn't fight awar to replace one king George
with another king George?
And thankfully George Washingtonretired.
He was kind of like Cincinnatus,that famous general from the
Roman Republic.
That was a big thing.
He retired and allowed the nextgroup of leaders to come and
(24:23):
take his place.
So, we avoided that crisis.
And we did all this stuff 200years ago, all of that, not to
be outdone by some Bain Capitalknow-it-all Mitt Romney, who
thinks that the best thing to dois to have consolidated wealth
and to consolidate power in theform of multibillionaires.
(24:44):
I want to make a side note here.
We'll get back to this point,because I always like to
Steel-Man these arguments,right?
So I'd like to take him at Goodfaith.
Let's let's take him at hisword, let's think Mitt Romney is
at his word, and let's assume wedo want multibillionaires, these
really powerful entities,whether it's individual
(25:06):
billionaires or billionaireestates, we want these big
powerful multibillionaires tocome here to create jobs.
Well, why stop there?
Why stop at billionaires ormultibillionaires?
Why don't we go into thetrillionaires and
multi-trillionaires?
Now you're telling me, okay,well, who the hell is a
trillionaire?
No one is a trillionaire.
I mean, Apple is the firsttrillion dollar value company,
(25:28):
but even Tim Cook doesn't ownall the shares, so, obviously,
he's not a trillionaire.
Well, you know, who is atrillionaire, or what is a
trillionaire?
The United States Government.
So, if you want to take MittRomney's logic to the extreme,
to its natural logicalconclusion, well, what's good
for the goose is good for thegander.
If you really care about havingmultibillionaires being the
(25:52):
generator of jobs and wealthincrease in this country, well,
then why stop there?
It goes straight to theGovernment, the Government,
being a multi-trillionaire,essentially, because our budget
is in the trillions, multipletrillions.
The government is a betterpurveyor of wealth and economic
growth, than any billionairecould be.
(26:15):
When you are talking about thedifference between a billion and
a trillion, that's a factor of athousand.
So, if a billionaire can get youa thousand jobs, well, the
Government can get you a millionjobs.
So, why cater to a billionairewhen you can cater to the
Government?
And going back to my originalquestion and HSBC, when you
cater to the Government's aboutcatering to the legislative
(26:36):
branch, it's about spreadingthat wealth out throughout all
the commercial districts.
Because what's good for theGovernment, government being for
the people, so the peoplebenefit.
So, would you rather line thepockets of one billionaire?
Would you rather line, thepockets of one trillionaire, the
trillionaire being theGovernment.
The lining the pockets of thegovernment implies necessarily
(26:58):
line the pockets of itscitizenry.
So, that was the detour I wantedto make on multibillionaires
versus a trillionaire and whythe Government, ultimately, is a
better purveyor of wealth thanany billionaire could be.
By at least a factor of athousand.
Anyway, going back to the point,all business entities have
(27:19):
inefficiencies.
The best way we can visualizethis is through n onprofit
organizations, because all of usat y ear's end, we like to make
sure that we're donating todifferent charities that we
like.
And at least in the FederalGovernment, I don't know how it
is in the civilian world, but inthe Federal Government, there's
(27:40):
this thing called the CombinedFederal Campaign.
And it comes f rom the fact thatthere's a law where you can't
solicit g overnment employeesfor money.
That obviously introduces a lotof corruption charges and
everything like that.
So you can't do that, but thenhow do you advertise charities
and well-intentioned non-profits to government
(28:02):
employees, because the government's e mploys a re lots
of people, right?
Not being able to advertise tothem, these n onprofits and
charities, is not a good thing.
So the way to get around that isthis specific time period during
the year when charities and nonprofits can solicit, if you
will, t o Federal Governmentemployees.
(28:23):
And it's called the CombinedFederal Campaign, the CFC, and
it's a big deal.
Every year it comes, and thenall the colonels want to make
sure that it is a hundredpercent...
I don't want to say"participation rate", because
they can't solicit people formoney, but a hundred percent
attention rate.
Everyone wants to make sure thateveryone knows within their
wing, within their group and thesquadrons, that everyone knows
about all the differentcharities.
(28:44):
And then this is a t that time,that they're going to donate to
n onprofits and charities.
And so you get this whole listof charities and nonprofits.
I don't know how many pages,like almost a hundred pages
long, but it's basically a listof all the different charities
and nonprofits that havepetitioned to the federal
government and say, Hey, we wantmoney from government employees.
(29:06):
And then part of this CFC is aCombined Federal Campaign
booklet.
I really shouldn't call it" abooklet", it is more like a
book, because there's so manydifferent charities.
But anyway, in this booklet partof the listing of the charities
is that they talk about thepercentage of money that goes to
overhead the administration ofthe charity.
(29:26):
And you're just surprised like,oh my God! This charity that I
really want to give money to,80% of it goes to administration
and only 20% of it goes to theactual thing that they're trying
to do! And then another ones islike, oh, this is a 17%
overhead.
And this, this was one metricthat you may or may not want to
use as a government employee togive your money to.
(29:47):
A charity I liked to give to wasalways the baseball hall of
fame, but that's besides thepoint.
Like the Cooperstown is anofficially sanctioned charity in
the CFC.
And so it was great to donate tothem.
Go Yankees! Anyway, why am Isaying this is that every
company...
And I talk about the nonprofits,because it is very easily
(30:09):
apparent there, because theyhave to report this, they have
to report their overhead.
That's required.
Whereas private companies orprofit companies may or may not
be required to present this, ormay obfuscate it in different
Balance Sheets and what haveyou.
So the point here is that everysingle company has overhead.
And what does that overheadmeans?
(30:30):
It means more jobs for theadministrative execution of the
company.
Now, taking the bare bonesexample of one billionaire
employing all of the country,well, that means you're very
optimizing, right?
You know, going back to theinitial test question, the whole
country is very efficient,because there's only one
(30:52):
administration, overhead.
There's only one managemententity, if you will,
administrative entity for thisone company.
And that's that.
Now, instead of having this onegiant mega corporation, you
know, uncle Sam Inc., you havethousands of companies, small
businesses, which is whatpoliticians talk about.
(31:15):
Well, each of these differentsmall businesses has to have
their own overhead.
They have to have their ownadministration, which means more
jobs.
And it's the same thing from anoperational standpoint.
Let's say you're makingSprockets.
So you have a company, you havea main corporation, called
Spacely Sprockets, for all you,uh, 1980s Jetson's fans.
(31:37):
So, you have Spacey Sprockets,and they have their production
line, that's creating all theseSprockets.
And whether they're selling amillion or a billion Sprockets,
the whole point of the businessis that they become efficient,
so they can create theseSprockets more efficiently.
From a purely efficiencystandpoint this is great.
(31:59):
The more Sprockets they make,the more efficient they are, but
the efficiency comes at a"cost".
I use air quotes, a cost ofusing less workers, because
obviously you're gonna use lessworkers as you became more
efficient, which means lesspeople are employed.
But the population of the UnitedStates, that's not a business.
In a business you can firepeople or lay them off, kind of
(32:20):
a gentler term.
So the more efficient you get,the more you can reduce your
workforce, your labor force, andthat's the other people's
concern, it's not your concern.
But in the United States as aGovernment, as an entity, does
not have the Liberty of firingor laying off people.
It's not like, oh, our country'smore efficient, so let's start
exterminating our citizens andreduce the population of
(32:43):
America, because we're moreefficient now.
Of course not.
It's ridiculous.
Which is why, again, going backto my point of politicians who
tout their business skills, it'snot a one-to-one adaptation.
Businessmen, if they are goingto enter in the politics, have
to understand that the businessworld does not apply to the
Government.
You can lay off worker, but youcan't lay off citizens.
(33:06):
Well maybe if you're Stalin, youcan lay off citizens, but that's
besides the point.
Going back to Spacely Sprockets,okay, so they're great, they've
become super efficient, they'revery profitable.
It's all great.
But now, because they laid off awhole bunch of people, there's a
bunch of people who areunemployed.
Well, what are these peoplegoing to do?
Because, again, they'recitizens, you can't just
exterminate them.
(33:27):
They need to earn a living.
Well, that's where you getanother company.
And, you know, you get CogswellCogs.
And then Cogswell Cogs, being aseparate entity, has to have its
own administration and its ownoverhead.
And operationally, it has tohave its own production line.
Now, of course, if you'relooking at this purely from a
business standpoint or from aBain Capital guy, like Mitt
(33:49):
Romney's perspective, they'regoing to say, well, Spacely
Sprockets and Cogswell Cogs--there should be an M& A, there
should be a merger andacquisition to combine those two
together.
You combine their productionlines, which means you can
eliminate half theadministrative staff and also
eliminate a big portion of theoperational workers.
(34:09):
And then you'll maximizeprofits.
And that's what Bain did, right?
Mitt Romney, before he became agovernor, before he entered the
politics, that was his wholething; laying off people, to
hell with what their wellbeingwas, but laying people off and
maximizing the bottom line, theEBITDA of his client companies,
that's how he made his wealth.
(34:29):
So we've just seen how havingCogswell Cogs next to Spacely
Sprockets is actually a goodthing for the country, for the
citizens as a whole, becausemore people are being employed.
Again, the each individualcompany may not be efficient,
but as an overall, the whole ofthe country which inhabits these
(34:50):
, uh, are which these twocompanies inhabit, has become
efficient because you have morepeople being employed.
So if you care about thewellbeing of your citizens, you
don't want to attract, quote,"multibillionaires" as Mitt
Romney says.
What you wants to do is whatRepublicans, before they went
(35:10):
completely off the deep end, isto attract middle-class citizens
and encourage them to createsmall businesses.
Because each of these smallbusinesses in itself may be
inefficient, but that's whatemploys the citizens.
Which means you have all thesethings that the right wing loves
, right (35:28):
less money on social programs, less crime, because
people are working, and overallmore orderly society.
If you are a self- identifiedconservative, though I don't
really like labels ofidentification of political
spectrum, which we can talkabout in a later podcast,
because that leads to a wholebunch of different problems.
But for now, let's just talkabout if you are a
(35:49):
self-described conservative,then you don't want all the
power and wealth consolidated ina, quote,"multi-billionaire",
because again, it's superefficient for a
multi-billionaire to employ theminimum amount of workers,
because their operations is sobig, that marginal costs, if you
will, and thus the marginalbenefits of the company are
(36:10):
minimized.
Which means that, to borrow aphrase from William Shakespeare,
a rose by many different names,whether it's the law of
diminishing returns, the Paretoprinciple, or the 80/20 rule,
that 20% of your work results in80% of results and that the more
effort you put into it, the lessresults happen, because you
(36:33):
eventually reach some sort ofefficiency or a steady state, so
that any more effort or inputsthat you put into the system,
doesn't yield a like kindincrease in results.
So the more money that you giveto a multi-billionaire, at a
certain point, again, the law ofdiminishing returns, it doesn't
provide any benefit to thecountry.
(36:54):
And this is the mistake that, Idon't want to say it's a
deliberate mistake, but, I mean,it kind of is, but up to a
certain point, sure, providingadditional money or capital to a
accompany or to a, quote,"multi-billionaire", sure is going to
create jobs and increaseproductivity.
But there's a certain pointwhere a company gets really big
(37:17):
and the assets of thebillionaire become so large that
the company achieves efficiency.
B ecause if it doesn't achieveefficiency, the ruthless
invisible hand of the freemarket is going to smack it
down.
So the company, the enterpriseof this billionaire, is going to
achieve optimal efficiency.
(37:38):
So any more money that you giveto it is not going to provide
more jobs to the citizenry.
It's kind of like a...
for all the gearheads here, it'skind of like the fuel-air
mixture with internal combustionengines.
Nowadays is cars are way toosophisticated and you have
computers that monitoreverything, so there is not much
(38:00):
opportunity to work on it, likeyour dad and your grandpa did
back in the sixties, in theirgarage.
But it still exists in theairplane community.
And the way that, especiallywhen you're flying single
engines, like Cessna 172 orPiper Warrior, you always have
to deal with the fuel-airmixture, because if your mixture
(38:20):
is too fuel rich, then thefuel's not going to burn as
efficiently and you get suet andall the carbon residue, and it's
kind of like dunk up yourengine, and, obviously, that's
bad for your aircraft.
Which could lead to a whole hostof problems, if you don't do
regular maintenance, becauseunlike a car where if you get
into trouble, you can pull offthe side of the road, for an
(38:41):
airplane, it's not like you canjust pull off Wile E.
Coyote style in the middle ofyour flight and take a look at
your engine.
So there's that.
And of course the opposite ofthat is when your fuel is too
lean and there's too much airfor the fuel and the causes
engine sputtering knocking, whathave you.
So there's always a big emphasison the fuel-air mixture when
(39:03):
you're getting your privatepilot's license.
And it's a similar thing withthe government's when you're
trying to create a jobs programor an omnibus economics package.
You need to balance the needs ofthe economy with the needs of
the citizens, in the sense thatcitizens need to be employed.
You don't want the economy to besuper efficient.
(39:26):
You don't want it to be AynRand-paradise, because then only
one company controls thegovernments, and then what do
you have?
Humanity, we tried that withthings like the Dutch East India
Company, and look how that cameout.
That wasn't really the best oftimes for the people.
We had the VOC, which is theDutch name for the East India
(39:50):
Company.
It became too efficient, itbecame too centralized and
incredibly concentrated in Asia,which meant that Dutch as a
whole were not focused on theother sectors of their economy
or their wellbeing.
Which led, of course, to theAnglo-Dutch wars, and we all
know how that happened.
And as we know from The Might BeGiants,"Even old, New York was
(40:14):
once New Amsterdam.
Why they changed it, I can'tsay, people just liked it better
that way".
Well, actually I can say whythey changed it.
It is because the Dutch gottheir asses handed to them by a
well-diversified economy of theBritish, as opposed to the
highly efficient, multi-billionaire economy, as Mitt
Romney would like to say, of theDutch Empire.
(40:37):
Anyway, that's a little minorhistory detour.
Jazz (40:40):
[ Music].
Henri (40:50):
So, going back to the point of this bill, it's not
about concentrating the wealthwith the multibillionaires, it's
making sure that there'sopportunities for middle-class
citizens to create the smallbusinesses, because that's what
actually employs the most amountof people.
Many different companies will,because of their own
(41:11):
inefficiencies, will necessarilyemploy more people, will put
more people to work, than onesingle conglomerate, one single
company.
And that's, what's more healthyfor the country.
The individual sub-components,the individual, small businesses
are themselves inefficient, butas a whole, the country becomes
(41:32):
efficient, it becomes moreoptimized, because that's what
produces more jobs and more workopportunities.
So when we see it from a macrostandpoint of what is good for
the country, it becomes readilyapparent, the bullshittery, if
you will, of what Mitt Romney issaying.
And the fourth point I want tomention here is that Romney
(41:56):
says, oh, well, you know, if, ifyou tax them, then they're not
going to put all their money inthe Stock Market, and they're
going to go put all their moneyinto, uh, what was that
ridiculous thing that he wassaying?
Paintings and art, and land, andall those other stupid things.
It doesn't matter what he wassaying, it was completely
stupid.
But the point here is that,first off, the wealth tax, if
(42:18):
it's going to be applied, itdoesn't matter if your wealth is
in the form of stockcertificates or art, it's still
wealth.
So that's the reason why they'reso against it is because it's
all encompassing of their networth.
So, this whole argument fallsflat when he is talking about,
oh, they're not gonna invest inthe Stock Market and instead are
going to invest in art andwhatnot.
(42:39):
And also just bringing it back in, even if that was the case,
again, we like to alwayssteel-man these arguments, even
if that was the case, the StockMarket is the secondary market.
So the money that a company hasraised, they've already raised.
Whatever money it was when theinitial offering of the stock in
(42:59):
the first place.
So whatever is going on in thestock market, yes, that may be
beneficial for the individualshareholders, but it has no
bearing on the operational goingon of the company in question.
So again, this is what happenswhen you have some Bain Capital
managerial consultant inpolitics, because he has, well,
actually I shouldn't say he hasno idea what he's talking about.
(43:21):
He knows exactly what he'stalking about, to borrow a
phrase from Marco Rubio.
It's just that he's justcouching in a way that again,
"useful idiots" would buy on itand then oppose this bill.
And gives his party cover,because he's supposedly some
sort of an intellectual.
The stock market doesn't createjobs.
Well, it does in the sense ofWall Street and whatnot, but the
(43:43):
jobs that we care about, whatwe're talking about here, what's
relevant, it doesn't do that.
The Stock Market is a secondarymarket.
Whatever happens with StockMarket has little to bear with
what's going on with theday-to-day operations of a
company.
Again, little to bear.
Obviously there are some effectswhich we can go into, if we're
going to have an advancedbusiness economics podcast, but
(44:04):
in the confines of what we'retalking about here-- for
government financing of itscitizens-- it has little to do
with it.
Henri (44:13):
And the final thing about this is that right now we have a
bastardized version of whatCapitalism is.
I mean, quite frankly, it's aFeudalist framework from a
rentier economy.
These billionaires, they are notlike the monopoly men of 18
hundreds industrialists, wherethey have all this money and all
(44:34):
these factories, and they haveto employ all these people, and
the more money we give them, themore people are being put to
work.
The problem that we have todayis that these billionaires are
not gathering their wealth undera Capitalist framework.
They're getting their wealthfrom their assets, whether as
(44:54):
like Mitt Romney so eloquentlyput, into real estate or art, or
even the stock market.
They're not actually doinganything with their wealth by
employing people to create morewealth.
Ultimately, as Americans, ascapitalists, what we're against
is this rentier economy-- theability to gain wealth without
(45:16):
actually doing anything.
I mean, one of the rallyingcries of the Republican party is
these"welfare Queens" o r peoplewho just live off of their
unemployment benefits and don'tdo work.
Well, if that's the case, that'sequally true for the lower class
as it is for the upper class,the 1%.
The wealth that they'regenerating i s not actually from
(45:40):
doing anything, it is fromacquiring all of these real
estate and art and whatever elseMitt Romney likes to talk about.
Caviar futures, frozen orangejuice, concentrate futures?
And making money off of that.
That's how he made his money,right?
That was the whole big thingduring his presidential campaign
-- capital gains a nd thecarried interest that he made
(46:03):
while working at Bain.
It's money that didn't come fromfrom labor, it came from holding
onto a specific asset, lettingit appreciate in value,
presumably from a speculativemarket, and then selling it
afterwards.
No actual work, no actual labor,no actual productivity for the
country came about from there.
And this is what we, asAmericans, as the g overnment,
need to target (46:27):
the people who make their wealth from a rentier
perspective, who don't actuallycontribute anything to the labor
force and improving theproductive capacity of the
country as a h ole, but areincreasing their wealth in
speculative markets, realizingtheir wealth from there.
That's ultimately what thesebills are all about.
(46:48):
And it's precisely the type ofpeople like Mitt Romney and his
constituents being these"multibillionaires", as he likes
to say, that's what they'reworried about because, God
forbid, they would have toactually work for their money.
Closure (47:08):
If you would like to comment on this podcast or on
the topics covered within it, oryou'd like us to raise a new
topic in our next episode,please feel free to leave us a
message or a voicemail onwww.codbsm.com.
That's Charlie, Oscar, Delta,Bravo, Sierra, Mike dot com.
Thank you for listening and seeyou at the party, Richter!
Jazz (47:28):
[ Music].
Today I want to take a look at Senator Romney's
opposition to the proposed TaxBill.
More broadly, I want to talkabout how trying to apply the
rules of business to thegovernment on a one-to-one basis
can often lead to well-meaning,but disastrous results.
Let's have a listen.
Mitt Romney, Fox News (00:21):
Well, first of all, it's not a good
idea to tell billionaires, don'tcome to America, don't start
your business here.
To tell the Steve Jobs and theBill Gates and people like that,
this isn't the place to beginyour business go somewhere else.
That's a bad idea.
But number two, you're going totax people not when they sell
something, but just when theyown it and the value goes up.
And what that means is thatpeople, these multibillionaires
can look and say, I don't wantto invest in the stock market
(00:44):
because as that goes up, I'mgoing to get taxed.
So maybe I will instead investin a ranch or in paintings, or
things that don't build jobs andcreate a stronger economy.
Intro (00:53):
Come On, Don't Bullshit Me!
Henri (01:00):
It's not like the Saudi crown prince or a Russian
oligarch, you know, OlegSmichnaev, is going to come here
(01:23):
and build businesses.
Intro (01:24):
Welcome"Come On, Don't Bullshit Me", where we peel away
the messaging of talking headsto get to the crux of today's
issues.
Henri (01:45):
You know how there's this expression that you learn best
from your failures or yourmistakes?
Well, one of the mistakes thatI've made that lives rent-free
in my head is (01:56):
during HSBC-- an AeroSpace Basic Course, which is
a finishing school for the AirForce officers, so during that
course, they have this knowledgeexam.
And one of the questions on theexam was: the Department of
Defense, DoD, wants a jetfighter, a new jet fighter; what
(02:19):
jet fighters should be funded?
And there was a bunch ofchoices.
One of the choices was,whichever one fits the overall
mission of the Department ofDefense, of the DoD, whichever
one fits the current prevailingdoctrine of the day.
Another one was, whicheverfighter is the most
technologically advanced.
Then the third option was,whichever fighter is the most
(02:44):
cost-effective.
And then the fourth option was,whichever one spreads its costs
out the most amongst all thedifferent states of the union.
And then they had differentoptions: A only, A and B, or A
and C.
It's like the classic SAT test.
Being a scientist.
I picked the answer"Whicheverone is most technologically
capable" and"Whichever one fitsthe prevailing doctrine of the
(03:09):
day".
And in my rationale, well,obviously as a scientist,
clearly, I was a dead ringer forthe"Whichever one is
technologically most advanced",because that was my whole
purpose of being in the military-- to make the most
technologically advancedweaponry.
And then my logic was (03:23):
we are in a military school here about
officership, so, obviously, theother answer is going to be
about how the jet fighter fitsinto the doctrine.
Because if your doctrine callsfor more tactical fighters,
rather than bombers, then you'renot going to waste money on a
bomber.
Uh, actually, an interestingstory.
The F-117, which is now retired,is obviously a bomber, but the
(03:47):
reason why it's an"F" wasbecause the prevailing doctrine
of the day was that we were notgoing to spend any more money on
bombers.
So the Air Force with infinitewisdom created a bomber, but
then gave it an"F" designation.
Oh yeah, this is totally afighter, the F-117! And Congress
bought it! And we got it funded.
(04:08):
And of course it was awesome fortwo wars that it was in.
But then, obviously, it outlivedits purpose.
But anyway, that is a side note.
Anyway, so, I was like, okay,clearly, because this is an
officership finishing school, ithas to fit the prevailing
doctrine.
And I'm a sucker for technology,being a scientist, so,
obviously, technologicallyadvanced one was there.
(04:28):
Because I thought, oh, thecost-effective one is a complete
trap because that's the thingthat they're trying to teach us
here (04:34):
that you don't go for the cheapest thing.
You go for the thing that's mosteffective for the money that you
have.
So there's that old joke (04:40):
oh, military equipment sucks,
because it goes to the lowestbidder.
Well that actually is not reallytrue anymore.
It's more about where it cangive you the most benefit for
the lowest cost, not necessarilypurely lowest costs.
So I was like, okay,cost-effective answer.
That's purely bait.
And then I didn't even look atthe"Whichever one spreads the
cost amongst all the states",because that was obviously a
(05:02):
stupid answer.
So I was like, all right, l wasconfident.
And of course, when we got ourtest results back, I got that
answer wrong.
The actual answer was"E (05:08):
all of the above".
I was like, what?
This is ridiculous! I was like,okay, fine, I could get the cost
effective, cause budgetaryrequirements.
But then the spreading the costamongst all the states?
Like, who gives a rat's assabout how the thing is funded?
But then during the post-mortemof the exam question, it was a
(05:29):
bait question, because each ofthose different options was from
the perspective of a differentportion of the stakeholders, if
you will, of the defenseindustry.
The first one,"Whether fitswithin the prevailing doctrine",
was obviously from theperspective of the Office of the
Air Force-- the generals andflying community and whatnot.
(05:52):
And then B-- the mostcost-effective one-- was from
the perspective of theaccountants or CBO about being a
good steward of taxpayer money.
So you want somethingcost-effective.
C was obviously from theperspective of scientists and
engineers of the Defenseindustry: you want most of the
technological advanced jetfighter.
(06:13):
And then D was the perspectiveof the Congressmen and Senators
of the legislative branch.
And that this was the realprofound thing, this is why I
still lives rent-free in my headuntil this day, even though it
was 20 years ago or whatever.
It is that the Department ofDefense doesn't live in
isolation, neither the executivebranch lives in isolation.
(06:33):
You have to consider thestakeholders being the
legislative branch.
And let's say the branchrepresents the people and the
country, and it doesn't live inan isolated manifestation of
itself.
The government is"of the people,by the people, for the people",
blah, blah, blah.
But the point here is that thegovernment represents the
(06:53):
people.
And one of the functions of thegovernment is to provide the
wealth spread evenly across theland.
So all things being equal, youdon't want a jet fighter, that's
being built in one specificarea, because then only the
citizens of that specific area,or that specific state, or that
specific congressional districtget the benefits from the
(07:16):
taxpayers funding.
But if you spread the costs ofthe jet fighter throughout
multiple different congressionaldistricts...
This actually is a kind of amischievous thing to it: the
more congressional districtsthat you spread this around,
obviously the less of a chancethere will be that it's going to
get canceled, because moreCongressmen are going to support
it.
So, I mean, there's that, butthe higher purpose of that is,
(07:38):
of course, more Congressmen aregoing to support it, and there's
going to be less chance of itgetting canceled, because the
point is that the citizens ofthe country, represented by
their representatives, theirCongressmen, they're rightfully
owed taxpayers' money that thegovernment spends, right?
Because whenever the governmentspends goes to the taxpayer,
ultimately.
So you want to spread it out,even at the cost of it being not
(08:01):
cost-effective.
Because, obviously, it'd be muchmore efficient to build a jet
fighter in one factory, butthat's not the point of the
government.
The government is not abusiness.
It's there for the generalwelfare of all, of everyone.
So from the perspective of thelegislative branch, of the
Congressmen, Senators, the bestjet fighter is the jet fighter
(08:22):
for which the costs are spreadamongst the most congressional
districts feasibly possible.
And that was a kind of a wake-upcall for me, because, I mean, we
all kind of know thisinstinctively, when people tell
you this, that, of course, thegovernment works for everyone.
But you don't really internalizeit.
And that question reallyinternalized it, because I
realized that it was not justabout building the best fighter
(08:44):
or the cheapest thing for thetaxpayer.
Because we always think aboutthe taxpayer as like this one
monolithic entity.
But the taxpayer is not just oneperson, it is 300 million or
whatever the population is.
Well, the adult population.
And the officers, the leaders inthe Department of Defense-- this
is something that we have to bemindful of.
That whatever decision we make,particularly in peacetime, we
(09:07):
have to make sure that not onlydoes it advance the agenda of
the Department of Defense, butit also advances the agenda of
the people, represented by thelegislative branch.
So I still remember that to thisday, this question and that
concept, that it's not aboutpure efficiency.
(09:28):
It resonates with me throughoutmy career.
There's a saying in DARPA, thatto optimize the whole, we need
to sub-optimize the parts.
I learned this, obviously,working as a scientist in the
Defense acquisition community orthe R&D wing of the DoD.
(09:50):
And after I left the military,in Business School they gave us
a whole bunch of differentliterature to read, whether it's
case studies or books, or whathave you.
And obviously, Business Schoolis kind of a party time.
So you don't really do most ofthe reading, or you do a cursory
reading of it-- just do enoughto pass the assignment.
(10:12):
So you do like whatever littlereadings possible and get it
back to partying.
So, one of the assignments wasto read about operational
efficiency.
And we were tasked to read thisbook,"The Goal", I think it was.
It was a fictional story of thisplant manager, and his plant is
not working, all the metrics,all the numbers are down.
(10:34):
And then the Headquarters isgoing to shut down factories,
and this factory is targeted,because, obviously, the numbers
are bad and this guy comes in,the new plant manager, and he
has like 90 days to fix thenumbers, otherwise plant is
going to be shut down and thenthe small town is gonna lose all
these jobs.
And then there's this iterativeprocess where they're trying to
(10:55):
deep dive into the problem andtry to figure out why the
numbers are down.
Because everyone seems to beworking their ass off.
And then h e r ealizes, okay,well, I g otta make this g roup
efficient, because their numbersare down.
And then they talk about thelean principles and s ay, oh,
you know, we need to minimizethe floor space and the walking
around the floor space, orminimize the footprint of the
(11:16):
inventory.
So they do all these things, butno matter what they do, they
realize that nothing is working,because the numbers go down for
that specific area, but thenoverall the plant numbers do a
little dip and then they go backup again.
The moral of the story is, whathe realizes is that he's been
trying to make each of thedifferent departments efficient.
(11:36):
So whenever he sees aninefficient number or a
department, he tries to do allthe efficiency things that he
learned as a manager to getthose numbers down.
But those efficiency numbersdon't help the overall plant to
get its numbers down.
And then I'll, I'll save you thethree hours of reading it, or
(11:56):
whatever, especially if you're abusiness school candidate, you
can just listen to this podcastand ignore the assignment
altogether and get back todrinking.
But the moral of the story is: at the end is that he realizes (12:03):
undefined
that he needs to make thenumbers inefficient for each of
the different departments.
And that is somewhat related toJust in Time, but not really,
but basically he needed to geteach of the departments to work
in tandem with the otherdepartments that feed to it and
it feeds to.
(12:25):
So if it's department B, thedepartment B needs to worry
about how they're getting thework load from department A, and
then also how the department Bgives their workload to the
department C, irrespective ofthe efficiency of B.
Because he didn't want apartmentB to be super efficient and then
waiting around for department Aor overload department C.
(12:48):
And that was the points, it isthat you can be inefficient, you
can have some downtime in yourdepartment, so long as that
workload is continuously movingthrough department through B,
through C.
And then only when they did thatdid the overall plant numbers
starting to drop.
And at the end he saves theplant and he's a hero.
And then the town is saved fromheadquarters decision and they
(13:11):
keep their jobs.
And the whole point, again, isthat when you look at each of
the departments, they weren'tworking as efficiently as
possible, but overall theconcerts of all of the
departments working together intandem-- that overall number
became efficient.
And that's what ultimately drovethe metric of the plant down.
(13:32):
It reminded me of what we kindof just took for granted almost
in the military acquisitionworld, that to optimize the
whole, you need to sub-optimizethe parts.
And I realized that this is notjust, you know, a nice thing
that we used in the cream of thecrop of Defense R&D.
This goes for all complexorganizations, not complicated,
(13:53):
but complex organizations.
And the Government is noexception.
So kind of like...
I just took you to Switzerlandto build the watch, but now
we're back.
And this is what I want toreally address, is that the
Government is, arguably, one ofthe most complex entities out
there.
And you don't want to look intoa specific departments of the
(14:19):
Government or sub- agency,whatever you want to call it,
and try to maximize theefficiency there, because that
may not be necessarily best forthe overall Government.
Again, just like that testanswer to the question on that
exam about the jet fighter, itis not necessarily about making
the most cost effective jet.
It is about spreading the costsout, so that multiple
(14:41):
congressional districts get tobenefit from the program.
Jazz (14:46):
[ Music]
Henri (14:55):
So, what does this have to do with Mitt Romney's answers
to the wealth tax bill?
He was saying, oh, well we wantall these billionaires to come
here.
And if we tax them, then theywon't come to do these jobs.
And then, you know, I'm lookingat this, ok, this guy, I mean,
obviously, everyone knows he isfull of shit, right.
But there's just talking pointsthat the Republicans have, and
(15:17):
then they're just giving themout, because they obviously
don't want the bills to pass.
We're not going to talk hereabout whether the wealth tax in
general is good or bad.
Frankly, I'm not even qualifiedto talk about it, because at
first glance I'm thinking,right, taxing on unrealized
gains is obviously not a goodway of taxing.
So let's say you just bought astock and then the stock just
(15:40):
ballooned in price, right.
And then it dropped in value.
And then, depending on the IRSreporting time, you just got
stuck with a huge tax bill, eventhough your realized gain is
actually a loss, or whatever.
Right?
But I think there's a lot ofstuff in there in the language
of the bill that prevents suchscenario.
So, I think that's just me beingalarmist.
But again, not having read theentire thing myself, I do not
(16:03):
want to comment on that.
But what I do want to comment onis just this constant mantra, if
you will, that people on theRight like to echo.
About how billionaires are thesaviors of the country, and if
we don't appease, thebillionaires, somehow the entire
country is going to collapse.
Never mind the fact that thiscountry wasn't built by
(16:25):
billionaires.
We like to say, oh, you know,we're a rugged individualist,
and America was built byindustrial and entrepreneurial
people.
The middle-class if you will.
Right?
So the general concept about howbillionaires are supposedly the
saviors of America, and withoutthem we can't do shit, it's just
completely ludicrous.
First off, Mitt Romney's talksabout, oh, if we have this bill
(16:49):
then billionaires aren't goingto come to America and create
all these jobs.
This is ridiculous.
Like, what billionaires arecoming to America?
It's not like we havemultibillionaires queuing up at
JFK or LaGuardia, waiting to getinto this country to create jobs
here.
It's not like, uh, the Saudicrown prince, or a Russian
(17:10):
oligarchs, you know, OlegSmichnaev, is going to come here
and build businesses.
This is targeting currentlyexisting Americans.
And the billionaires that we'retalking about are Americans that
actually live here.
So this concept of,"oh, we wantto attract more billionaires to
come to America", is completelyludicrous.
(17:32):
That's the first thing.
And then secondly, it's notabout the taxes.
It's about the opportunity tomake money.
No one gives a shit about taxes.
And this is another thing thatyou learn in Business School is
that you first worry about thebusiness itself: getting the
revenue, gain the Free Cashflow,if you will, because that's
another thing, there's adifference between Revenue and
(17:53):
Cashflow.
Worry about the expenses, theBalance Sheet, and you have your
Income Statement, right?
That's what you worry about.
And then there's even theterminology for it: it is called
EBITDA.
Earnings Before Interest, Taxes,Depreciation.
And that's what people look atwhen you're talking about
investing, when you're trying tocourt investors, public or
(18:14):
private.
Everyone likes to talk aboutEBITDA.
And the entire business world islaser focused on EBITDA.
Or let's just go with EBIT,because the Depreciation and
Amortization aspects of is arerelatively a newer or refined
concept.
So, rather that to minimize thenumber of syllables here, let's
talk about EBIT.
So, Earnings Before Interest andTaxes.
(18:35):
And that's the point of thesesupposedly billionaires or multi
- billionaires, as Romney'ssaying.
They don't give a rat's assabout taxes.
What they care about ismaximizing their EBIT, the
Earnings Before the Taxes.
And only afterwards, then theyhave their army of accountants
and lawyers or whatnot to findthe different loopholes to
minimize their tax burden.
So, taxes are kind of anafterthought.
(18:58):
And if there's an opportunity inAmerica, you bet your ass, these
multi- billionaires are going tocome here and, quote, exploit
us, exploit our country.
And he's a, he's a Bain guy,he's from Bain Capital-- one of
"The Big Three" managementconsultants.
He knows this.
He's not an idiot.
But it's just lip service thathe pays, because it sounds,
remember last week we talkedabout"the useful idiots"?
(19:20):
It sounds good and resonateswith the"useful idiots".
Like, oh yeah, billionaires!They care about taxes.
And if we tax them too much,they won't come here.
It's complete horseshit, becausewhat matters is the earnings
before the taxes, and aftertaxes is always an afterthought.
And now I know that someone hereis going to say, well, EBITDA--
that's completely horseshit,because there's the double
(19:40):
Dutch, the Irish sandwich orwhatever the hell it's called.
And there's all these taxschemes, and going to the Cayman
Islands, Barbados, or whatever: companies moving their (19:45):
undefined
Headquarters outside of theUnited States to avoid taxes.
Well, yeah, yeah, that's true.
And that's something that, weshould worry about and
rightfully so, but the pointhere is that their Headquarters
are moving there.
It's on the books.
It's not like when Apple movesto Ireland or the Netherlands,
(20:07):
it's not like the AppleHeadquarters in Cupertino is
moving there.
No, their actual physicalHeadquarters of where they're
doing their operations, wherepeople are being employed, is
still in Silicon Valley.
It's still in California,because that's where the talent
is.
That's where the people who areworking are.
It's just what is on theaccounting books.
(20:28):
That ethereal entity is what'smoving there.
So, I don't really give too muchcredence to people saying, oh,
well, that's ridiculous becauseyou can always move your
Headquarters to Ireland or someother tax Haven, and that's why
what Mitt Romney is saying istrue, and we need to lower the
taxes for the billionaires.
No, because that has nothing todo with employing people.
(20:50):
Well, maybe a little bit, butfrom the overall grand magnitude
of operations for a company, ithas no bearing at all.
Every Business School will tellyou this, any person without a
political agenda, who was in thebusiness world will tell you,
what matters is your EBITDA,your Earnings Before Interest
and Taxes.
Later on you can do whatever thehell you want to minimize your
taxes, but that's only after theoperations and their earnings
(21:12):
that you've earned.
The third point goes back to thestory that I was talking about:
the optimization of the wholeimplies, the sub-optimization of
the parts.
The thing is, multibillionairesare not healthy for the economy
or for our country.
(21:33):
Going back to that testquestion, it's not about getting
the most cost effective jetfighter, It's about spreading
the wealth to as manycongressional districts as
possible.
That's the point of theGovernment.
A side note (21:46):
this is one of the reasons why you should be very
cautious...
I'm not going to tell you to notvote for, because who am I to
tell you who to vote for, butyou should be very cautious of
candidates whose whole spiel ortheir whole shtick is that, oh,
I'm a businessman and I've runsuccessful businesses, that's
why you should elect me into thegovernment.
(22:07):
Even if it's true, which most ofthe time, it's not: they're
usually failed businessmen,because why the hell would you
quit being a successfulbusinessman going to a, having a
government job, right?
But that's besides the point.
The thing is that businessmendeal with efficiency and
consolidating wealth into theparent's organization.
(22:27):
That's the point of business.
Whereas the Government is theopposite of that.
You don't want the Government tobe efficient, because efficiency
necessitates consolidation.
And the more you consolidatewealth, the more you consolidate
power.
I mean, this is why we foughtthe war of Independence.
It was against the monarchy, itwas against the king.
(22:48):
More generally, we fought waragainst the British parliament,
because the wealth and the powerwas concentrated with the
parliament.
And we as colonists, didn't geta say to the laws and the taxes
that were being enacted.
So the whole founding of ourcountry was about being averse
to the concentration of power.
(23:08):
Or in the confines of thispodcast, it is about the
efficiency of power (23:11):
the more concentrated the power is, the
more efficient is.
So if you want a reallyefficient government, forget
about democracy or, you know,liberalism.
And I use"liberalism" likelittle"L".
I'm not trying to be a left-wingor right-wing thing, but
classical liberalism, if youwill.
You forget about all that andjust have a autocratic monarchy.
(23:34):
Kind of like Saudi Arabia, orwhatever.
And then there you go (23:37):
you have a very efficient power
structure, and power isconsolidated in, essentially,
one person, and they dictate,whatever they say goes.
And that for the ruggedindividualistic Americans that
we are, obviously, that's ano-go.
The whole point of theconstitutional convention was
ensuring that we didn't haveanother king, right?
(24:00):
Remember when we elected GeorgeWashington, some of the founding
fathers said we didn't fight awar to replace one king George
with another king George?
And thankfully George Washingtonretired.
He was kind of like Cincinnatus,that famous general from the
Roman Republic.
That was a big thing.
He retired and allowed the nextgroup of leaders to come and
(24:23):
take his place.
So, we avoided that crisis.
And we did all this stuff 200years ago, all of that, not to
be outdone by some Bain Capitalknow-it-all Mitt Romney, who
thinks that the best thing to dois to have consolidated wealth
and to consolidate power in theform of multibillionaires.
(24:44):
I want to make a side note here.
We'll get back to this point,because I always like to
Steel-Man these arguments,right?
So I'd like to take him at Goodfaith.
Let's let's take him at hisword, let's think Mitt Romney is
at his word, and let's assume wedo want multibillionaires, these
really powerful entities,whether it's individual
(25:06):
billionaires or billionaireestates, we want these big
powerful multibillionaires tocome here to create jobs.
Well, why stop there?
Why stop at billionaires ormultibillionaires?
Why don't we go into thetrillionaires and
multi-trillionaires?
Now you're telling me, okay,well, who the hell is a
trillionaire?
No one is a trillionaire.
I mean, Apple is the firsttrillion dollar value company,
(25:28):
but even Tim Cook doesn't ownall the shares, so, obviously,
he's not a trillionaire.
Well, you know, who is atrillionaire, or what is a
trillionaire?
The United States Government.
So, if you want to take MittRomney's logic to the extreme,
to its natural logicalconclusion, well, what's good
for the goose is good for thegander.
If you really care about havingmultibillionaires being the
(25:52):
generator of jobs and wealthincrease in this country, well,
then why stop there?
It goes straight to theGovernment, the Government,
being a multi-trillionaire,essentially, because our budget
is in the trillions, multipletrillions.
The government is a betterpurveyor of wealth and economic
growth, than any billionairecould be.
(26:15):
When you are talking about thedifference between a billion and
a trillion, that's a factor of athousand.
So, if a billionaire can get youa thousand jobs, well, the
Government can get you a millionjobs.
So, why cater to a billionairewhen you can cater to the
Government?
And going back to my originalquestion and HSBC, when you
cater to the Government's aboutcatering to the legislative
(26:36):
branch, it's about spreadingthat wealth out throughout all
the commercial districts.
Because what's good for theGovernment, government being for
the people, so the peoplebenefit.
So, would you rather line thepockets of one billionaire?
Would you rather line, thepockets of one trillionaire, the
trillionaire being theGovernment.
The lining the pockets of thegovernment implies necessarily
(26:58):
line the pockets of itscitizenry.
So, that was the detour I wantedto make on multibillionaires
versus a trillionaire and whythe Government, ultimately, is a
better purveyor of wealth thanany billionaire could be.
By at least a factor of athousand.
Anyway, going back to the point,all business entities have
(27:19):
inefficiencies.
The best way we can visualizethis is through n onprofit
organizations, because all of usat y ear's end, we like to make
sure that we're donating todifferent charities that we
like.
And at least in the FederalGovernment, I don't know how it
is in the civilian world, but inthe Federal Government, there's
(27:40):
this thing called the CombinedFederal Campaign.
And it comes f rom the fact thatthere's a law where you can't
solicit g overnment employeesfor money.
That obviously introduces a lotof corruption charges and
everything like that.
So you can't do that, but thenhow do you advertise charities
and well-intentioned non-profits to government
(28:02):
employees, because the government's e mploys a re lots
of people, right?
Not being able to advertise tothem, these n onprofits and
charities, is not a good thing.
So the way to get around that isthis specific time period during
the year when charities and nonprofits can solicit, if you
will, t o Federal Governmentemployees.
(28:23):
And it's called the CombinedFederal Campaign, the CFC, and
it's a big deal.
Every year it comes, and thenall the colonels want to make
sure that it is a hundredpercent...
I don't want to say"participation rate", because
they can't solicit people formoney, but a hundred percent
attention rate.
Everyone wants to make sure thateveryone knows within their
wing, within their group and thesquadrons, that everyone knows
about all the differentcharities.
(28:44):
And then this is a t that time,that they're going to donate to
n onprofits and charities.
And so you get this whole listof charities and nonprofits.
I don't know how many pages,like almost a hundred pages
long, but it's basically a listof all the different charities
and nonprofits that havepetitioned to the federal
government and say, Hey, we wantmoney from government employees.
(29:06):
And then part of this CFC is aCombined Federal Campaign
booklet.
I really shouldn't call it" abooklet", it is more like a
book, because there's so manydifferent charities.
But anyway, in this booklet partof the listing of the charities
is that they talk about thepercentage of money that goes to
overhead the administration ofthe charity.
(29:26):
And you're just surprised like,oh my God! This charity that I
really want to give money to,80% of it goes to administration
and only 20% of it goes to theactual thing that they're trying
to do! And then another ones islike, oh, this is a 17%
overhead.
And this, this was one metricthat you may or may not want to
use as a government employee togive your money to.
(29:47):
A charity I liked to give to wasalways the baseball hall of
fame, but that's besides thepoint.
Like the Cooperstown is anofficially sanctioned charity in
the CFC.
And so it was great to donate tothem.
Go Yankees! Anyway, why am Isaying this is that every
company...
And I talk about the nonprofits,because it is very easily
(30:09):
apparent there, because theyhave to report this, they have
to report their overhead.
That's required.
Whereas private companies orprofit companies may or may not
be required to present this, ormay obfuscate it in different
Balance Sheets and what haveyou.
So the point here is that everysingle company has overhead.
And what does that overheadmeans?
(30:30):
It means more jobs for theadministrative execution of the
company.
Now, taking the bare bonesexample of one billionaire
employing all of the country,well, that means you're very
optimizing, right?
You know, going back to theinitial test question, the whole
country is very efficient,because there's only one
(30:52):
administration, overhead.
There's only one managemententity, if you will,
administrative entity for thisone company.
And that's that.
Now, instead of having this onegiant mega corporation, you
know, uncle Sam Inc., you havethousands of companies, small
businesses, which is whatpoliticians talk about.
(31:15):
Well, each of these differentsmall businesses has to have
their own overhead.
They have to have their ownadministration, which means more
jobs.
And it's the same thing from anoperational standpoint.
Let's say you're makingSprockets.
So you have a company, you havea main corporation, called
Spacely Sprockets, for all you,uh, 1980s Jetson's fans.
(31:37):
So, you have Spacey Sprockets,and they have their production
line, that's creating all theseSprockets.
And whether they're selling amillion or a billion Sprockets,
the whole point of the businessis that they become efficient,
so they can create theseSprockets more efficiently.
From a purely efficiencystandpoint this is great.
(31:59):
The more Sprockets they make,the more efficient they are, but
the efficiency comes at a"cost".
I use air quotes, a cost ofusing less workers, because
obviously you're gonna use lessworkers as you became more
efficient, which means lesspeople are employed.
But the population of the UnitedStates, that's not a business.
In a business you can firepeople or lay them off, kind of
(32:20):
a gentler term.
So the more efficient you get,the more you can reduce your
workforce, your labor force, andthat's the other people's
concern, it's not your concern.
But in the United States as aGovernment, as an entity, does
not have the Liberty of firingor laying off people.
It's not like, oh, our country'smore efficient, so let's start
exterminating our citizens andreduce the population of
(32:43):
America, because we're moreefficient now.
Of course not.
It's ridiculous.
Which is why, again, going backto my point of politicians who
tout their business skills, it'snot a one-to-one adaptation.
Businessmen, if they are goingto enter in the politics, have
to understand that the businessworld does not apply to the
Government.
You can lay off worker, but youcan't lay off citizens.
(33:06):
Well maybe if you're Stalin, youcan lay off citizens, but that's
besides the point.
Going back to Spacely Sprockets,okay, so they're great, they've
become super efficient, they'revery profitable.
It's all great.
But now, because they laid off awhole bunch of people, there's a
bunch of people who areunemployed.
Well, what are these peoplegoing to do?
Because, again, they'recitizens, you can't just
exterminate them.
(33:27):
They need to earn a living.
Well, that's where you getanother company.
And, you know, you get CogswellCogs.
And then Cogswell Cogs, being aseparate entity, has to have its
own administration and its ownoverhead.
And operationally, it has tohave its own production line.
Now, of course, if you'relooking at this purely from a
business standpoint or from aBain Capital guy, like Mitt
(33:49):
Romney's perspective, they'regoing to say, well, Spacely
Sprockets and Cogswell Cogs--there should be an M& A, there
should be a merger andacquisition to combine those two
together.
You combine their productionlines, which means you can
eliminate half theadministrative staff and also
eliminate a big portion of theoperational workers.
(34:09):
And then you'll maximizeprofits.
And that's what Bain did, right?
Mitt Romney, before he became agovernor, before he entered the
politics, that was his wholething; laying off people, to
hell with what their wellbeingwas, but laying people off and
maximizing the bottom line, theEBITDA of his client companies,
that's how he made his wealth.
(34:29):
So we've just seen how havingCogswell Cogs next to Spacely
Sprockets is actually a goodthing for the country, for the
citizens as a whole, becausemore people are being employed.
Again, the each individualcompany may not be efficient,
but as an overall, the whole ofthe country which inhabits these
(34:50):
, uh, are which these twocompanies inhabit, has become
efficient because you have morepeople being employed.
So if you care about thewellbeing of your citizens, you
don't want to attract, quote,"multibillionaires" as Mitt
Romney says.
What you wants to do is whatRepublicans, before they went
(35:10):
completely off the deep end, isto attract middle-class citizens
and encourage them to createsmall businesses.
Because each of these smallbusinesses in itself may be
inefficient, but that's whatemploys the citizens.
Which means you have all thesethings that the right wing loves
, right (35:28):
less money on social programs, less crime, because
people are working, and overallmore orderly society.
If you are a self- identifiedconservative, though I don't
really like labels ofidentification of political
spectrum, which we can talkabout in a later podcast,
because that leads to a wholebunch of different problems.
But for now, let's just talkabout if you are a
(35:49):
self-described conservative,then you don't want all the
power and wealth consolidated ina, quote,"multi-billionaire",
because again, it's superefficient for a
multi-billionaire to employ theminimum amount of workers,
because their operations is sobig, that marginal costs, if you
will, and thus the marginalbenefits of the company are
(36:10):
minimized.
Which means that, to borrow aphrase from William Shakespeare,
a rose by many different names,whether it's the law of
diminishing returns, the Paretoprinciple, or the 80/20 rule,
that 20% of your work results in80% of results and that the more
effort you put into it, the lessresults happen, because you
(36:33):
eventually reach some sort ofefficiency or a steady state, so
that any more effort or inputsthat you put into the system,
doesn't yield a like kindincrease in results.
So the more money that you giveto a multi-billionaire, at a
certain point, again, the law ofdiminishing returns, it doesn't
provide any benefit to thecountry.
(36:54):
And this is the mistake that, Idon't want to say it's a
deliberate mistake, but, I mean,it kind of is, but up to a
certain point, sure, providingadditional money or capital to a
accompany or to a, quote,"multi-billionaire", sure is going to
create jobs and increaseproductivity.
But there's a certain pointwhere a company gets really big
(37:17):
and the assets of thebillionaire become so large that
the company achieves efficiency.
B ecause if it doesn't achieveefficiency, the ruthless
invisible hand of the freemarket is going to smack it
down.
So the company, the enterpriseof this billionaire, is going to
achieve optimal efficiency.
(37:38):
So any more money that you giveto it is not going to provide
more jobs to the citizenry.
It's kind of like a...
for all the gearheads here, it'skind of like the fuel-air
mixture with internal combustionengines.
Nowadays is cars are way toosophisticated and you have
computers that monitoreverything, so there is not much
(38:00):
opportunity to work on it, likeyour dad and your grandpa did
back in the sixties, in theirgarage.
But it still exists in theairplane community.
And the way that, especiallywhen you're flying single
engines, like Cessna 172 orPiper Warrior, you always have
to deal with the fuel-airmixture, because if your mixture
(38:20):
is too fuel rich, then thefuel's not going to burn as
efficiently and you get suet andall the carbon residue, and it's
kind of like dunk up yourengine, and, obviously, that's
bad for your aircraft.
Which could lead to a whole hostof problems, if you don't do
regular maintenance, becauseunlike a car where if you get
into trouble, you can pull offthe side of the road, for an
(38:41):
airplane, it's not like you canjust pull off Wile E.
Coyote style in the middle ofyour flight and take a look at
your engine.
So there's that.
And of course the opposite ofthat is when your fuel is too
lean and there's too much airfor the fuel and the causes
engine sputtering knocking, whathave you.
So there's always a big emphasison the fuel-air mixture when
(39:03):
you're getting your privatepilot's license.
And it's a similar thing withthe government's when you're
trying to create a jobs programor an omnibus economics package.
You need to balance the needs ofthe economy with the needs of
the citizens, in the sense thatcitizens need to be employed.
You don't want the economy to besuper efficient.
(39:26):
You don't want it to be AynRand-paradise, because then only
one company controls thegovernments, and then what do
you have?
Humanity, we tried that withthings like the Dutch East India
Company, and look how that cameout.
That wasn't really the best oftimes for the people.
We had the VOC, which is theDutch name for the East India
(39:50):
Company.
It became too efficient, itbecame too centralized and
incredibly concentrated in Asia,which meant that Dutch as a
whole were not focused on theother sectors of their economy
or their wellbeing.
Which led, of course, to theAnglo-Dutch wars, and we all
know how that happened.
And as we know from The Might BeGiants,"Even old, New York was
(40:14):
once New Amsterdam.
Why they changed it, I can'tsay, people just liked it better
that way".
Well, actually I can say whythey changed it.
It is because the Dutch gottheir asses handed to them by a
well-diversified economy of theBritish, as opposed to the
highly efficient, multi-billionaire economy, as Mitt
Romney would like to say, of theDutch Empire.
(40:37):
Anyway, that's a little minorhistory detour.
Jazz (40:40):
[ Music].
Henri (40:50):
So, going back to the point of this bill, it's not
about concentrating the wealthwith the multibillionaires, it's
making sure that there'sopportunities for middle-class
citizens to create the smallbusinesses, because that's what
actually employs the most amountof people.
Many different companies will,because of their own
(41:11):
inefficiencies, will necessarilyemploy more people, will put
more people to work, than onesingle conglomerate, one single
company.
And that's, what's more healthyfor the country.
The individual sub-components,the individual, small businesses
are themselves inefficient, butas a whole, the country becomes
(41:32):
efficient, it becomes moreoptimized, because that's what
produces more jobs and more workopportunities.
So when we see it from a macrostandpoint of what is good for
the country, it becomes readilyapparent, the bullshittery, if
you will, of what Mitt Romney issaying.
And the fourth point I want tomention here is that Romney
(41:56):
says, oh, well, you know, if, ifyou tax them, then they're not
going to put all their money inthe Stock Market, and they're
going to go put all their moneyinto, uh, what was that
ridiculous thing that he wassaying?
Paintings and art, and land, andall those other stupid things.
It doesn't matter what he wassaying, it was completely
stupid.
But the point here is that,first off, the wealth tax, if
(42:18):
it's going to be applied, itdoesn't matter if your wealth is
in the form of stockcertificates or art, it's still
wealth.
So that's the reason why they'reso against it is because it's
all encompassing of their networth.
So, this whole argument fallsflat when he is talking about,
oh, they're not gonna invest inthe Stock Market and instead are
going to invest in art andwhatnot.
(42:39):
And also just bringing it back in, even if that was the case,
again, we like to alwayssteel-man these arguments, even
if that was the case, the StockMarket is the secondary market.
So the money that a company hasraised, they've already raised.
Whatever money it was when theinitial offering of the stock in
(42:59):
the first place.
So whatever is going on in thestock market, yes, that may be
beneficial for the individualshareholders, but it has no
bearing on the operational goingon of the company in question.
So again, this is what happenswhen you have some Bain Capital
managerial consultant inpolitics, because he has, well,
actually I shouldn't say he hasno idea what he's talking about.
(43:21):
He knows exactly what he'stalking about, to borrow a
phrase from Marco Rubio.
It's just that he's justcouching in a way that again,
"useful idiots" would buy on itand then oppose this bill.
And gives his party cover,because he's supposedly some
sort of an intellectual.
The stock market doesn't createjobs.
Well, it does in the sense ofWall Street and whatnot, but the
(43:43):
jobs that we care about, whatwe're talking about here, what's
relevant, it doesn't do that.
The Stock Market is a secondarymarket.
Whatever happens with StockMarket has little to bear with
what's going on with theday-to-day operations of a
company.
Again, little to bear.
Obviously there are some effectswhich we can go into, if we're
going to have an advancedbusiness economics podcast, but
(44:04):
in the confines of what we'retalking about here-- for
government financing of itscitizens-- it has little to do
with it.
Henri (44:13):
And the final thing about this is that right now we have a
bastardized version of whatCapitalism is.
I mean, quite frankly, it's aFeudalist framework from a
rentier economy.
These billionaires, they are notlike the monopoly men of 18
hundreds industrialists, wherethey have all this money and all
(44:34):
these factories, and they haveto employ all these people, and
the more money we give them, themore people are being put to
work.
The problem that we have todayis that these billionaires are
not gathering their wealth undera Capitalist framework.
They're getting their wealthfrom their assets, whether as
(44:54):
like Mitt Romney so eloquentlyput, into real estate or art, or
even the stock market.
They're not actually doinganything with their wealth by
employing people to create morewealth.
Ultimately, as Americans, ascapitalists, what we're against
is this rentier economy-- theability to gain wealth without
(45:16):
actually doing anything.
I mean, one of the rallyingcries of the Republican party is
these"welfare Queens" o r peoplewho just live off of their
unemployment benefits and don'tdo work.
Well, if that's the case, that'sequally true for the lower class
as it is for the upper class,the 1%.
The wealth that they'regenerating i s not actually from
(45:40):
doing anything, it is fromacquiring all of these real
estate and art and whatever elseMitt Romney likes to talk about.
Caviar futures, frozen orangejuice, concentrate futures?
And making money off of that.
That's how he made his money,right?
That was the whole big thingduring his presidential campaign
-- capital gains a nd thecarried interest that he made
(46:03):
while working at Bain.
It's money that didn't come fromfrom labor, it came from holding
onto a specific asset, lettingit appreciate in value,
presumably from a speculativemarket, and then selling it
afterwards.
No actual work, no actual labor,no actual productivity for the
country came about from there.
And this is what we, asAmericans, as the g overnment,
need to target (46:27):
the people who make their wealth from a rentier
perspective, who don't actuallycontribute anything to the labor
force and improving theproductive capacity of the
country as a h ole, but areincreasing their wealth in
speculative markets, realizingtheir wealth from there.
That's ultimately what thesebills are all about.
(46:48):
And it's precisely the type ofpeople like Mitt Romney and his
constituents being these"multibillionaires", as he likes
to say, that's what they'reworried about because, God
forbid, they would have toactually work for their money.
Closure (47:08):
If you would like to comment on this podcast or on
the topics covered within it, oryou'd like us to raise a new
topic in our next episode,please feel free to leave us a
message or a voicemail onwww.codbsm.com.
That's Charlie, Oscar, Delta,Bravo, Sierra, Mike dot com.
Thank you for listening and seeyou at the party, Richter!
Jazz (47:28):
[ Music].
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