What I Believe: About Taxation

Taxation is a necessary evil.

The logic is this: Societies cannot exist without law and order. Law and order cannot exist without government. Government cannot exist without income to support its work. Since the government doesn’t create wealth, it must pay for its programs through taxation. In other words, you can’t have civilization without taxation. But for a society to be free and democratic, the rules of taxation must be freely given to the government by its people. And even that is not enough. Taxation must also be sustainable.

Economic history tells us that when tax rates are too high, economic productivity gets lower. To make taxation work over the long term, it must be high enough to support at least the minimum responsibility of the government (maintaining law and order), but not so high that it reduces economic growth.

I was skeptical. Doubly skeptical. I’ve never liked the idea of modernizing Shakespeare. Much less converting one of his plays – a tragedy – into a movie musical. But Leonard Bernstein, Jerome Robbins, Arthur Laurents, and Stephen Sondheim proved me wrong. The original (1961) West Side Story film, which, itself, was an adaptation of the hit 1957 Broadway musical, won me over.

It was perfect for its time. And it was a period piece. So why do it again? It seemed like a crazy idea. This time, the Dream Team was Steven Spielberg and Tony Kushner.

Causes of The Great Depression Reconsidered 

On Mar. 28, I reported that conventional wisdom has it that there were five causes of The Great Depression.

1. Credit-fueled Consumption: Consumers buying things they can’t afford with borrowed money.
2. Financial Speculation: Investors (and especially institutional investors) trading stocks “on margin” (i.e., leveraged with credit).
3. The Smoot-Hawley Act of 1930: Intended to protect the interests of US farmers, it raised import duties by about 20%. When foreign countries retaliated with their own tariffs, trade dropped by 65%. US exports fell from $7 billion in 1929 to $2.5 billion in 1932.
4. The Federal Reserve: In 1929, to counter inflation, the Fed hiked up its lending rate. This made it difficult for many businesses to pay their existing debts and borrow new money, forcing many of them to close their doors.
5. The Gold Standard: Today, when the government wants to stimulate the economy, it lowers the Fed interest rate. When the cost of borrowing money goes down, businesses are incentivized to borrow and invest. In 1929, the government couldn’t do that because – like many other countries at the time – the US was on the gold standard. The gold standard was basically a law that limited the printing of dollars to the amount of real wealth (i.e., gold) that the government owned. Thus, the lending rate hike, mentioned above, was not optional. It was mandated by law.

What I didn’t have time to point out when I touched on this last week was this:

The first two causes are legit. Debt and speculation are and always have been the root causes of every great depression in economic history.

But including the gold standard and the Fed’s rate hike as causes is retroactive academic bullshit, designed to justify the crazy system we have now. Pegging a country’s currency to a limited asset, like gold, is the best and perhaps the only way to prevent the government from printing more money than it can afford to spend. A gold standard is an iron-clad way to prevent inflation and hyperinflation.

The Fed back then had to raise its interest rates. And it should have done so. It contributed to a panic, but the US might never have recovered from The Great Depression without it.

As for the Smoot-Hawley Act: It’s disingenuous to list it as a cause of The Great Depression. It certainly didn’t improve the economy. But it was not an underlying cause.

Trade wars, like all wars, are economically and socially costly. The idea of “protecting” domestic industries from the lower prices of foreign competition through high import duties is a demonstrably bad idea. It is true that if you measure the effect of tariffs narrowly, from the perspective of the protected group, they seem to work. The protected group prospers. But if you measure it holistically – the effect on the entire economy – they are, at best, a breakeven.

The Smoot-Hawley Act didn’t work in 1930, just as Trump’s tariff battle with China didn’t work during his term. The concept is specious and morally corrupt. It’s a political stunt that populist politicians use to pander to their voting bases. And since politics is about power and not sound economics, it will probably be part of American politics forever.

I found this on page 67 of Malcolm Gladwell’s The Bomber Mafia:

“The psychologist Daniel Wagner has this beautiful concept called transactive memory, which is the observation that we don’t just store information in our minds or in specific places. We also store memories and understanding in the minds of the people we love.

“You don’t need to remember your child’s relationship to her teacher because you know your wife will; you don’t have to remember how to work the remote because your daughter will.

“That’s transactive memory. Little bits of our memory reside in other people’s minds. Wagner has a heartbreaking riff about what one member of a couple will say after the other member dies – that some part of him or her died along with the partner. That, Wagner says, is literally true. When your partner dies, everything you have stored in that person’s brain is gone.”

This week’s book? 

Aha! It was sitting on my desk – a gift from a reader: Soonish, by Kelly and Zach Weinersmith. The gift card read, “From a top scientist and the creator of the hugely popular webcomic ‘Saturday Morning Breakfast Cereal,’ an illustrated investigation into future technologies.”

It was 368 pages. It had a snappy subtitle: Ten Emerging Technologies That’ll Improve and/or Ruin Everything. And it was illustrated!

 What’s not to like?

Needless to say, I read it immediately…

The market is, for the most part, overvalued. And it’s been fluctuating scarily since Russia invaded Ukraine.

My friend and colleague Alex Green wrote an essay in The Oxford Insight recently, which made a point about investing that I learned from him (and others) 20 years ago. It has been the foundation of my passive wealth building strategy for all those years. And I credit it with two important facts: (1) My portfolio of stocks, bonds, and other financial assets has grown steadily all this time without a single down year. And (2) during uncertain economic times like we are living through today, I don’t worry much about market fluctuations.

Today, I give you my core wealth building philosophy, which is based on my personality. (See “What I Believe,” below.)

And then, I give you a part of Alex’s essay that addresses this point.

The Truth About Stress 

Stress is bad for you. It wears you down. Makes you irritable. Clouds your brain. And over the long run, it shortens your life.

 I knew that.

Until I read a review of The Upside of Stress by Kelly McGonigal.

McGonigal argues that stress, in itself, is not necessarily bad for you. What matters is how you think about it.

In one test cited, researchers asked 30,000 adults how much stress they felt in the past year – and whether or not they thought stress was a negative. Eight years later, the researchers checked in on them. And sure enough, most of the high-stress people had experienced both physical and mental health problems.

But not all of them. Those respondents that reported high levels of stress but did not view their stress as harmful did not suffer. And they had lower rates of death. Even lower than respondents that initially reported experiencing very little stress.

The bottom line, per McGonigal: The effect of stress on health is relative. If you view it as harmful, it will be harmful. If you view it positively, it can improve your health and increase your longevity.

The secret for making stress work for you, McGonigal says, is to understand what stress is biologically, and how to think about it when you have it.

“Stress arises, she says, when something you care about it at stake.” (We don’t stress about things we don’t perceive as important.)

Stress produces definite physical responses, such as a faster heartbeat, hypersensitivity, and the production of adrenaline and cortisol. And they arise unconsciously and instinctively.

You shouldn’t try to stop them, McGonigal says. They are normal. In fact, they are healthy. Studies show that these responses, and particularly the secretion of adrenaline and cortisol, allow for better performance under pressure.

Rather than trying to resist or deny your stress responses, do this:

1. Notice them. Be aware of how they are affecting your body.
2. Accept them for what they are: your body’s intelligent responses to a challenge you are facing concerning something you care about. Ask yourself, “What is at stake here and why do I care about it?”
3. Rather than think of the source of the stress as a threat, try to think of it as something that can make you in some ways better.
4. Consider the resources you have available to deal with that challenge and make a commitment to use them.
5. Put the threat into perspective by recognizing the big picture.

And I would add this (from my own experience): Consider the worst-possible outcome of the challenge you are facing and imagine yourself being “okay” with it.

I’ve put this protocol into practice in preparing for a competition I’ve entered: the Pan American Jiu Jitsu tournament. I’m going to have at least two matches with high-level black belts that will be doing their best to beat the crap out of me – maybe break my arm or choke me into unconsciousness. To make matters worse, it’s a public event, which means that something more precious than my body will be at stake. My self-esteem!

I’ve been nervous about the competition since the day I decided to participate. I’m worried about making weight. I’m worried about getting injured. But most of all, I’m worried about losing and thereby disappointing my training partners and teachers, who are convinced I’m going to do well.

So, every time I feel anxious, I tell myself, “This is normal. It’s good. Your brain parts are helping you get ready.”

I’m getting ready by dieting, sprinting (for stamina), and with brutally tough training sessions with my instructors, who are much younger, stronger, faster, and more technical than I am. And this is helping. I’m getting in better shape and feeling more prepared, if not confident.

What I haven’t yet done is follow my own advice: I haven’t imagined myself losing and feeling okay about it afterwards. That, I’ll have to work on.

“The Greatest Film Ever Made”? 

About 30 years ago, I severed an Achilles tendon playing basketball. Post-surgery, I had to spend more than three weeks off my feet. I was very active athletically at the time, so the thought of being supine for 20 to 30 days was unthinkable. To feel better, I vowed to spend a good portion of that downtime doing new and useful things. One of them was to watch at least two dozen of the best movies ever made.

My primary resource was the American Film Institute. But I also looked at a half-dozen other “best movies” lists. In doing that research, one film was consistently at the top: Citizen Kane.

I watched it then and thought it was “good” in many ways, but not “great.” There were too many oddities about the film that left me feeling puzzled.

I watched it again about 10 years ago, and my opinion of it improved, from “good” to “quite good.”

And then I watched it earlier this week, and upgraded my rating once again.

Meeting Ben Carson 

We met in the speaker’s lounge. A good-looking man, about my age. Strong handshake. Gentle smile. Good first impression.

At that time, I knew two things about him. He was a famous neurosurgeon… and he was running for president. Since he was the keynote speaker at Freedom Fest, 2020, I figured he had conservative or libertarian views.

His speech was presidential in the old style. Solid. Serious. Sensible. His demeanor was polished. His performance was practiced. His speech was mostly memorized, but he extemporized several times, including making a little joke about something I had said to him in the lounge, something he apparently disagreed with. But when he said it, he smiled at me. I was flattered. “This guy’s good,” I thought.

Why Do Liberals Hate Ben Carson?

It was only after the symposium that I did some research on him. His life story is impressive and inspiring.

Ben Carson was born into poverty and a broken home, grew up in the streets of Detroit, and spent his formative years at a time when “systemic” racism was a reality in much of the USA.

But thanks to the tough love of his mother, he graduated third in his high school class, got a BS from Yale, and went to the University of Michigan Medical School, where he graduated with honors.

His professional career is a tale of overcoming obstacles, accomplishing ambitious goals, and achieving recognition. Some of his accomplishments:

* At 33, he became the director of pediatric neurosurgery at the Johns Hopkins Children’s Center.

* In 2000, he received the Award for Greatest Public Service Benefiting the Disadvantaged.

* In 2001, he was elected by the Library of Congress as one of the 89 who earned the designation Library of Congress Living Legend.

* In 2005, he received the William E. Simon Prize for Philanthropy.

* In 2008, he was named by US News & World Report as one of “America’s Greatest Leaders.”

* In 2010, he was elected into the National Academy of Sciences Institute of Medicine, considered one of the highest honors in the fields of health and medicine.

* He has 38 honorary doctorate degrees and dozens of national merit citations.

You would think that a Black man that did so much with so little would be a hero to the liberal establishment. And for many years he was – sort of. Then he made the mistake of publicly criticizing President Obama. That got him chastised. But when he decided to run for president on a moderately conservative platform, the gloves came off. From then on, he’s been characterized, along with other accomplished Black conservatives as a “black face of White racism.”

He’s been called a “liar” for minor discrepancies between some of his speeches and his autobiography. He’s been called sexist and transphobic. He’s even been criticized for the revolutionary surgery that made him famous (separating twins joined at the head) because the patients survived with some brain damage.

No, Ben Carson gets no kudos from the NYT, The Washington Post, CNBC, and the others. And my White liberal friends tell me he’s a “sellout to his people.” As if they represent his people. I keep wondering how much more civil society would be if – against all odds – he had become our 45th president.

The parents were immigrants from Korea… 

They barely spoke English. But by the time I knew them, they had a small business. A sandwich shop across the street from Agora’s first headquarters, in a predominantly African American neighborhood in East Baltimore.

The shop was open from 6:00 in the morning to 7:00 in the evening. It was where our employees bought breakfasts, lunches, and sometimes packaged dinners when they were working late. The parents were there every day. Six days a week. From opening to closing. Their kids were there all day on Saturdays and on weekdays. When the eldest child went to college, she worked only Saturdays and her sisters picked up the slack. After she graduated, she worked full-time while the next child went off to college. And when that child graduated, she went on to pursue her career.

All three children went on to become doctors or lawyers. And when they were making the big bucks, they bought their parents a nice house where they could live out their retirement in comfort and happiness, with lots of time for the grandkids.