Author Archive

Women and work and housekeeping

I’ve been enjoying Sheryl Sandberg’s columns with Adam Grant in the “Women at Work” columns of the New York Times. See for example this one on discrimination at work.

The most recent one, third in a series of four, talks about how women at work do lots of extra “housekeeping” tasks like training, giving advice, and so on, which is often unrewarded. In fact they point out a double standard in expectations for this stuff:

In a study led by the New York University psychologist Madeline Heilman, participants evaluated the performance of a male or female employee who did or did not stay late to help colleagues prepare for an important meeting. For staying late and helping, a man was rated 14 percent more favorably than a woman. When both declined, a woman was rated 12 percent lower than a man.

So, part of this is absolutely just sexism, which doesn’t surprise me. But I think another part of it is mismanagement.

Let me explain. First of all, this stuff generally resonates with me – I’m absolutely one of those people who tries to make the workplace “more of a community.” So, for example, things like figuring out stuff and building and updating a wiki, which then everyone can use as a resource and saves a bunch of time for everyone. That stuff is not directly rewarded even though it’s actually useful. Because of that weirdness, men (in general) don’t try and don’t care as much about it, so given a men-only group, it simply wouldn’t get done.

But here’s the thing, what should we conclude from such group behaviors like this? Should women stop doing those extra things, or should men start? Should we continue to ignore how much stuff like that actually helps, or should we begin to keep track? You might be able to guess what I think.

Sanderberg and Grant’s column is a rare example of a column which doesn’t fall into the standard trap of telling women to simply conform to the current system of rewards. They explain that this kind of “Having people help both behind the scenes and in public is essential to organizational success. Research shows that teams with greater helping behavior attain greater profits,sales, quality, effectiveness, revenue and customer satisfaction.” and then they go on to state the obvious:

But doing the heavy lifting can take a psychological toll.

The question is, why? Is it because people ignore your efforts? I think it is, at least partly, and the other part is the sexism.

Now, Sandberg and Grant did suggest that we begin to “track acts of helping,” but then they go on to focus on how women should care for themselves before others, and give a load of advice about how to be more efficient when being helpful.

I’m already really efficient, though, so I’d like more advice on that first part, keeping track of acts of helping, and in particular how to build an incentive system that both men and women respond to which rewards stuff that’s actually good for the company. Because obviously just keeping track of stuff won’t help if you don’t actually care about the numbers. Or, even worse, if you just pity the poor fool who helped the most.

So the question is, how do you do that? Getting rid of assholes is already hard, and this is more nuanced than that.

Categories: Uncategorized

Why not bored and brilliant kids?

If you’re like me you’ve been listening on public radio for the last couple of weeks to a “New Tech City” challenge called Bored and Brilliant, focused on getting people to stop checking their phones for email, twitter, and games. The idea is that “your most creative moments happen when you’re bored,” so try to let yourself be bored. The challenge ended yesterday.

I liked the challenge, since I’ve been on record that I’d like to be bored for the last couple of decades (very unsuccessfully!). It’s a constant goal of mine, and I thought it was obvious that boredom creates moments of creativity.

That’s not to say I don’t get addicted to games on my phone – curse you Candy Crush! – but I do delete them with regularity. And I always cherish the couple of days when I’ve lost my phone but before I get my new one. Sweet freedom!

Anyhoo, two points. First, the challenge didn’t have an enormous effect on actual phone usage for the people who signed up for it (other data is here and looks similar):

Screen Shot 2015-02-10 at 6.41.34 AM

That doesn’t surprise me, but even changing people’s mind about whether it’s good to be bored is a worthy secondary goal.

Which brings me to my second point, namely, why don’t we let our kids get bored if we think it’s so great? I mean, I deliberately keep my kids virtually unscheduled outside of their school and homework. To be fair I mean the older kids, who are 12 and 14. The 6-year-old still goes to after school most days, although he comes home with his 12-year-old brother on Thursdays to do absolutely nothing. But that doesn’t seem to be the general practice of most other parents nowadays, including, I’d bet, quite a few of the participants in the “Bored and Brilliant” project. What gives?

After all, kids aren’t addicted to phones (yet), and they don’t have as many family responsibilities, and they do have plenty of reasons and avenues to be incredibly creative. My best moments of childhood – playing music, forming lifelong friendships, reading Dostoyevsky, and yes, experimenting with things – only happened because I was utterly without other grown-up plans.

Categories: Uncategorized

Where does all that settlement money go?

In the Alternative Banking meeting yesterday we kicked things off with a great visit from Katya Cohen, author of a new book called The American Spellbound, where she describes the fictional account of a women working in a large bank and learning to fit in with the mindset of greed combined with a superhero complex. Good stuff, and it explains at least a little bit to me about what the heck was going on in the one outrageous Robin Hood Foundation awards night dinner I went to at Cipriani way back when.

After that we talked for a bit about the recent S&P settlement with the Justice Department, which was one of those nobody-goes-to-jail deals that cost $1.5 billion.

Now, that’s a lot of money to you and me, but it’s not that much to huge financial institutions; in the case of S&P it’s about two years of profit, depending of course on which two years you’re talking about:


That’s not what we focused on yesterday, though, because it’s really old news. All these massive settlements are relatively manageable for the financial companies that end up paying them. In fact that is implicitly part of the deal, and it’s part of why the system is so contemptible. In the end, the settlements don’t substantially threaten business as usual. Instead, as Gerald mentioned, you should take the word literally: the settlements do nothing but “settle” things back to the way they were.

That brings us to the question we focused on yesterday: where does all this money go? It’s big money after all, and if it goes into state coffers, to be used as Cuomo or whomever sees fit, then the concern is that, as corrupt as this system is, there will be powerful forces at work to keep it just like this. If a given state (New York State, I’m looking at you) gets addicted to this cash flow, there will be no reason to change tactics and, instead of massive fines, simply jail wrong doers and break up or dissolve corrupt institutions.

In fact, if you think about it, there will even be reasons for places like New York State to allow wrongdoing in order to cash in for the settlement a few years later. The more you think about it, the more this “big fines but no jail time” settlement practice we now have in place seems like a way to legalize and tax crime.

Anyhoo, we might be getting ahead of ourselves (although, equally, we might be late to this game) and so we’d like to follow the money. Where does the settlement money go? Do the funds earmarked for “victims” actually go to victims? Is this information available beyond vague statements like “S&P parent McGraw Hill Financial Inc, said it will pay $687.5 million to the U.S. Department of Justice, and $687.5 million to 19 states and the District of Columbia, which had filed similar lawsuits over the ratings“? Can we build an infographic to see who might be compromised in terms of demanding and enacting a more functional white-collar crime system?

Categories: Uncategorized

Aunt Pythia’s advice

Holy shit, guys, it’s already fucking February, and Aunt Pythia isn’t ready for Spring at all. Spring is when things get frighteningly beautiful and distracting and the cycle of nature breaks our hearts and blah blah blah and a certain something is due, and Aunt Pythia would rather it stay mid-January for a while yet, do you dig?

Speaking of being distracted (or not!), someone sent me this link (hat tip name withheld for privacy protection) that’s supposed to be “porn for women”:


All the pictures are like this.

The book’s description:

Prepare to enter a fantasy world. A world where clothes get folded just so, delicious dinners await, and flatulence is just not that funny. Give the fairer sex what they really want beautiful PG photos of hunky men cooking, listening, asking for directions, accompanied by steamy captions: “I love a clean house!” or “As long as I have two legs to walk on, you’ll never take out the trash.” Now this is porn that will leave women begging for more!

Talk about perverted! You’d have to be a real fetish freak to be turned on by stuff like that. Personally, and Aunt Pythia doesn’t know about you, but Aunt Pythia prefers the kind of book that involves penises and vaginas.

And, good news on that front: when scouring the web with the phrase “porn for women,” it turned up this book list entitled 10 Sexy Books That’ll Make You Forget ’50 Shades Of Grey’ (Warning: Don’t read bad erotica. It’s bad for your vagina.)

Let’s start there, shall we? And if we ever find ourselves really falling off the deep end we can try out the above smut with vacuum cleaners, but Aunt Pythia highly doubts it will ever come to that. Plus, let’s face it, flatulence is always funny.

Which reminds me, I’m supposed to be farting out some advice to you wonderful and patient people. Let’s start this immediately, with the understand that, at the end of the column, you might just be willing to:

ask Aunt Pythia a question at the bottom of the page!

By the way, if you don’t know what the hell Aunt Pythia is talking about, go here for past advice columns and here for an explanation of the name Pythia.


Dear Aunt Pythia,

I’m a guy and a grad student and I was talking to a fellow grad student, Z, about gender issues in academia. Specifically, I was arguing that gender plays a role in fellowship/scholarship selection and college admissions, and she claimed that no, an applicant’s sex does not have any detectable influence on such decisions. We started talking about affirmative action and before we had time to even discuss the implications of affirmative action, she had to go to class and I thought that was the end of it.

A week or two later, one of my friends, Y, lets me know that Z had told her and several people that I had made some sexist comments. I was shocked and decided to confront her about it the next day. I said, “I heard from a friend that you’ve been telling people I made sexist comments.” When I asked her whether she had told anyone I made sexist comments she said no. I then asked her what she thought about our talk about gender issues several weeks ago, and she said essentially that some people think gender plays a larger role in fellowship selection than it really does. I told her that I agreed with her, some people exaggerate who big a role it plays and that people who obtained these fellowships obviously deserved them, but that gender does play a minor role. I asked her a few more times whether she had said anything to anyone even as an offhand remark (and in the least aggressive way as I could), to which she replied no each time.

I have little doubt that she did tell people about our talk and report to them without context what I had said, but I don’t understand why she wouldn’t just admit it and talk more about it. Of course any statements, even factual ones, in support of the thesis: being female sometimes helps in getting scholarships and in college admissions, is terribly easy to twist into a sexist remark, and I think that’s probably what happened in this case. I don’t think intrinsically this is a sexist stance—it is a statement about the nature of the system, not one about the abilities of women. Am I crazy?

This whole experience has been extremely frustrating for me. Discussion about sensitive issues shouldn’t result in someone being labeled a sexist. How can we understand it if we can’t even talk without people getting defensive? Now I don’t know whether other people in the department who have heard the gossip and don’t know me think I’m a sexist. What should I do?

Gossiped About And Hurt Humongously


Life lesson learned! Or, otherwise put, you play with fire you gonna get burned.

Here’s the mistake you made. You talked to a person you didn’t really know, when you didn’t have enough time to have a proper conversation, about how “people like them” have it less tough than “people like you.” And even though it is not what you meant to say, that’s how it came across, and you’re going to have to live with that. Have you tried to imagine how that came across to her? Not great.

Also, it sounds like you decided to spend your time trying to prevent people from thinking you’re an asshole, but that will only make matters worse, because you haven’t acknowledged any mistake, real or perceived.

In other words, if you want to make things right with the woman you originally talked to, here’s what you don’t do: accuse her of telling lies about you, since that would make her defensive, and moreover, she wasn’t telling lies. She was telling people how she felt after your conversation. In her shoes I probably would have done the same thing, in fact, and if you came up to me afterwards and said, “hey, did you tell people I’m sexist?” I would deny it too, since after all it’s not my problem, it’s yours.

Here’s what you could do that may or may not work, depending on how deep the hole is that you dug already: write a letter to her showing you know how much sexism is in the field of mathematics, with reference to various double blind experiments that show how people assume women don’t understand stuff, how they write weaker letters of recommendation, and so on, and conclude with an acknowledgement that the system has to make up for that in order to be fair. And that, moreover, the result of that system is still probably not sufficient, given how few women there are, but that in any case the women that are in the grad program, on average, are clearly just as strong, and quite possibly stronger, than the men. Finish the letter by apologizing if it came out wrong the first time but now you’ve learned you lesson.

Good luck!

Aunt Pythia

p.s. I’d be happy to publish your apology letter once it’s complete. That way other confused men (and women!) can use it too.

p.p.s. I notice you signed off “gossiped about and hurt humongously.” Hopefully you can understand that you were likely gossiped about because you hurt someone else humongously, and that this is just as much about them than about you. Which is not to say you haven’t been hurt, but if we spend all our time licking our own wounds rather than understanding what went wrong, then no progress will be made. I do actually think this turn out well, but it will require you to think about what you did, and to make amends for that first, before trying to address yourself.


Dear Aunt Pythia,

I take my six-year old daughter to school on subway every day. Recently, ads appeared on our line, which sometimes happen to be right in front of us, for the Museum of Sex, or “MoSex” (incidentally, located around the corner from MoMath). They include the quote “Like a Willy Wonka sex dream!”

My daughter hasn’t asked anything yet, and probably hasn’t paid any attention. I still think it’s inappropriate. Sex may be great fun and entertainment to some, but shouldn’t be advertised as such to children. Am I a prude?

Anyway, I was bothered enough to write a complaint on the MTA website. I got a response:

“As you may know, the MTA’s Board had enacted an advertising guideline that prohibited ads that are demeaning to people on account of their race, sex, religion or national origin, but that guideline was recently struck down by a federal court as inconsistent with the First Amendment. As a result, the MTA is prohibited from applying that standard to restrict ads and must post the ad in question. As we have sought to make clear by requiring prominent disclaimers, the MTA does not endorse or support this or any other paid advertisement that appears in the MTA system. The MTA displays advertisements in the system to generate much-needed revenue to support the MTA’s vital transportation function.”

The response makes me angrier.

Is there anything else I can do? Or should do? Or should I relax and be grateful there is no outright pornography in the subway? Or should I be sad about it? It could also generate much-needed revenue…

Not a fan of MoSex

Dear Not a fan,

It’s New York. And your kid hasn’t actually complained. Personally I find the constant barrage of sexualized advertisements with perfect plastic people more demeaning than straight up sex museum advertising, but I don’t know who to complain to about that.

Luckily, you do have lots of power in this situation, since it’s your kid. Namely, you can talk to her about how ads manipulate people and make her aware of stuff before they reach puberty but after she start actually reading the ads.

Those are some of the best parent-to-kid conversations I’ve ever had, and they basically sparked an ongoing game, whereby my two teenagers compete to explain what the “underlying message” of any advertisement or TV show is (but my 6-year-old doesn’t understand what we’re talking about and that’s fine). It’s fun! It’s life!

Good luck,

Aunt Pythia


Dear Aunt Pythia,

I am a man, not exactly young (I have grand-daughters in high school and college now, and I retired one year ago). My quandary is the following: I have been diagnosed with prostatic cancer and the prognosis if I don’t have surgery is bleak: between one and two years. But the prognosis if I have surgery is bleak as well: even if the hospital I go to has very good reputation, the risk of relapse combined to the pain of post-op, the damage to urinary and most importantly for me to sexual function would probably make me miserable for say five or ten years I would possibly gain with this procedure. I feel very much like choosing to spend the next two years having all the great sex we want with my lovely wife, put my scientific papers in order and damn the cancer anyway.

What is your opinion?

Shadow Or/And Prey

Dear SOAP,

It’s your life! And if you have the option to have more sex with your hot wife, I say go for it. People overemphasize length of life over quality of life.

Aunt P


Hi Aunt Pythia,

I have a higher libido then my boyfriend, who I love very much. How can I satisfy both our needs? I find it would be awkward to “help” myself if he is there, we live together. I think I would be up for doing it everyday, for about 2/3 of the month, he, far less so… On a related note, is there good erotica you would recommend?

On a completely unrelated note, what was your advisor student relationship dynamic like back in your math phd years? I have had both a young advisor and a relatively old one (current) and find that the two operate very differently. With the younger one, we talked a lot, whereas with my current one, I am left with a question and it’s harder to talk to him about intuitions for the problem…etc. We also meet weekly, but I feel like it is harder to speak about a problem with him. How can I improve this to a working relationship that is more similar to the one I had before (in case you are wondering why the previous one is over, it was for an undergraduate research project).



Masturbate! Masturbate until you’re raw, if that works! If your fingers get tired, consider getting an electric vibrator, they are easily available.

And if you find masturbating awkward, keep in mind that the alternatives are often way more so. And hopefully the above-mentioned erotica will help. Please send me reviews of each and every book on that motherfucking list.

As for the advisee situation, experiment on more structure in your meetings with him, until you find a format that leads to better and more fluent conversations. For example, tell him to come each week prepared with three specific questions. And think about it from his perspective, he’s so lost he probably doesn’t even know how to describe how lost he is, and giving him a task to complete, even if it’s just “write a list of three questions for me,” might help him a lot.

UPDATE: some eagle-eyed readers noticed I likely misinterpreted your question. I thought you were the advisor, not the student. Now that I’ve been set straight, though, I wouldn’t change my advise too much. Set yourself the goal of asking three specific questions, and see how that goes. Tell your advisor you’d like to improve the fluency of your conversations and you’re trying different things towards that end. Tell your advisor it’s important to you to have an easy conversational relationship with them.

Good luck!

Aunt Pythia


Well, you’ve wasted yet another Saturday morning with Aunt Pythia! I hope you’re satisfied! If you could, please ask me a question. And don’t forget to make an amazing sign-off, they make me very very happy.

Click here for a form or just do it now:

Categories: Uncategorized

I Love you Mathbabe, but 529 Plans are Awesome.

This is a guest post by FogOfWar, who disagrees with me about 529 plans and my plan to make paying for college harder.

I’m catching up on the 529 kerfuffle. First observation: this made a massively outsized splash in public perception compared to what one would expect from a technical tax provision, which (more on this later) has a budgetary impact within a 5% confidence interval of $0.

Second observation: my good friend Cathy, who has kids mind you, is arguing against the 529 plan. Huh? When did we enter the Twilight Zone? Beating up on 529 plans is like stealing oatmeal from orphans—they’re too small to defend themselves, you don’t really get much if you win and everyone loves the soot- smudged little munchkins.

So here is what may be patient zero: this GAO Report released in 2012. The headlines read right into the talking points people are quoting. If you’re going to read it, try an interesting thought experiment: mentally substitute “401(k)” for “529” and “saving for retirement” for “saving for college” everywhere you see it. That’s not a completely fair analogy, but neither is it completely unfair…

Also, right at the beginning of the report, there’s an interesting omission. It’s in the “who did we talk with to figure out what was going on here?” section. Not that the report did a bad job, but why didn’t they talk to the AICPA (the national organization of CPAs)? These are the people who are most commonly on the ground talking to clients (rich and poor alike) about whether a 529 plan makes sense for them. I think you’d get a slightly different focus in the report with this on the ground perspective.

529 Plans Work Really Well for Everyone but the Very Rich and the Actually Poor

You can define ‘rich and poor’ in a hundred different ways, so let’s pick 4 examples in a semi-arbitrary manner. All couples are two parents and 1 kid who is 3, and all live in NYC. Couple 1 (“poor”) earned $20,000 last year; Couple 2 (“middle class”) earned $75,000 last year; Couple 3 (“mass affluent”, or “the bottom 1% of the top 1%”) earned $250,000 last year and Couple 4 (“rich”) earned $3-5m last year. Each couple has $100.00 of extra funds and is deciding what to do with it.

Important note: that’s not “$100x” as code for $100,000.00, that’s really $100.00.

Everything we’re talking about here is downwardly scalable and transaction costs are minimal (the cost of a stamp or time to set up direct deposit/withdrawal). All the couples have student loans, which are charging them 5%. Assume a stable long term low-risk portfolio also returns 5% (this is a side debate, but for those wanting to make it higher, I’d say you should consider your returns on a risk-adjusted basis).

Each couple has 3 rough choices, A: contribute the $100.00 to a 529 for kids, B: invest the $100.00 outside the 529 plan for kids, C: pay down $100.00 of student loans.

Poor Couple: Well, these guys get no state tax advantage from making the initial 529 contribution, and given their tax rate, the compounding on the 529 earnings has a negligible tax impact. Plus they’re giving up liquidity, which has more value in their hands than it does in the higher income cohort. Not only that, but I believe (chime in if you know this for sure) that moving the $100.00 from parent’s account to 529 account moves the asset from “parent asset” to “child’s asset” on many (but not all) needs-based financial aid forms. In short, the 529 plan is a terrible idea for this couple.

The real question is whether they should pay down the student loans or invest the $100.00 outside. That question is more subtle, but the availability of the student-loan interest deduction (lower after-tax return on debt paydown) and liquidity considerations makes $100.00 outside investment the likely best option.

Basically the tax code (this portion) combined with student aid gives no incentive for this couple to save and maybe a disincentive (or maybe an incentive to buy physical silver and not declare it on fin aid forms).

Middle Class Couple: At $75,000 the couple is still getting the tax shield for their student loans. So, at a combined Federal/State rate approaching 25% (NYC is a very high-tax place to live), their ROI (Return On Investment) from paying down student loan debt will be only 3.75%, compounding. So cash in pocket of $3.75 in year 1, $3.89 in year 2, etc. Their return on outside investment is sorta the same, with a big caveat. It’s all in the taxes. If middle class couple is invested in mutual funds or bonds, then yes, it’s $3.75 in year 1, $3.89 in year 2, etc. If Middle Class Couple is tax smart, they’ll invest only in low-dividend/high-growth stocks that will compound over the next 15 years before being cashed out to pay for kid’s college. In this case, the taxes are much, much lower—not zero, but much closer.

Doing some quick math: if the $5 in appreciation is going to be taxed at 20% capital gains 15 years from today, that makes the current tax cost = ($5.00*20%)/(1+0.05)^15 or $0.48. So year 1 the stock investment gains $4.52 compared to $3.75 from paying down student loans.

That’s not the full analysis, however, as (i) that difference compounds over the next 15 years, and (ii) the compounding is on $5.00, not $3.75, so it’s even more powerful. Run a quick spreadsheet and the student loan deduction compounds to $173.70 over 15 years and the stock investment runs to $186.31 after cash-out capial gains. Note that I’m assuming that student debt “savings” are reinvested in additional paydowns of student debt (somewhat for simplicity).

There’s a more subtle point as well: income is dynamic, not static, and thus tax brackets and availability of tax benefits is not locked in. If their income increases over time (as is very likely to happen statistically), they may knock themselves out of the deductibility of the student loan interest, which would cut back to paying down debt. OTOH, liquidity concerns (which are hard to reduce to a single dollar value but are extremely important) push towards the stock investment. Complicated analysis and everything above should be the starting point not the ending point if you’re looking at this choice in real life.

Now let’s add 529 Plans to the mix. Because the couple is NYC resident, they get an immediate tax advantage of $10 cash-in pocket state tax advantage (this assumes no itemizing, which is just over the cusp of reasonable given the numbers). The compounding is 100% tax free, either now or on distribution, so right away the earnings are $5.00 in year 1, compared to $4.52 and $3.75 for the other two options.

But that’s not all: the $10 in pocket is also invested—let’s assume in 5% stock investments, as above, so there’s an additional $0.45 return on that, making the 529 earnings in year one a Patriots four-time superbowl championship winner at $5.45. Not only that, but the benefit compounds over time, so the 15-year return is $226.52, all in. 30% higher than paying off student debt on an after-tax basis.

Liquidity is still a concern, although 529 plans have more liquidity than paying off student debt (b/c of ‘wrong way risk’ but that’s another discussion)—you can at least get at the money, but you have to pay a 10% penalty. Also, all of these numbers get much more dramatic if you assume investment in the stock market at a 10% rate of return over time, rather than the more conservative 5% rate of return I’ve worked with. Also, if you factor in dynamic tax rates the 529 becomes even more attractive, as the tax cut from investment income gets higher in the out years.

Takeaway? The 529 plan is an extremely powerful tool for the true working class.

Second Takeaway: running some quick numbers, about 46% of the benefit over the ‘buy and hold stocks’ strategy here is from the state tax advantage and 70% is from the federal compounding and exemption on distribution of profits. If this couple has the misfortune to move to a state that doesn’t seem to care about the middle class saving for college, like, let’s say…Massachusetts or California (neither of which give a state tax advantage for 529 contributions), the 15 year return drops down from $226.52 to $207.89. Still not bad, but the state incentives are a huge part of the practical analysis. Note also, that anyone living in a state without an income tax (Texas, Florida) gets no state income tax advantage because there ain’t any state income tax to take the deduction against!

Mass Affluent Couple: Whew, that was a lot of ink on the middle class couple, and if you’re in the Mass Affluent income cohort and reading this for practical advice, go back and read the numerical analysis of the middle class closely, because with a few modifications it’s going to apply to you as well.

Before that, though, let me say that there’s been a lot of progressive spite (not sure what adjective to use here) thrown at this couple. Cries of “they really don’t need any help—we should take this away” are there either explicitly or just below the surface. Some of my best friends are mass affluent couples in NYC, and I will tell you that the cost of college is something that gives them grey hairs. It’s enough money to be able to pay for college, yes, but not as easily as it might look from the outside.

Plus, and maybe most importantly, earnings now are not a guarantee of earnings for the next 15 years. You’re free to say “cry me a river”, but these are people, and all they want is the best for their children and to villainise them for such doesn’t sit well with me. Also, as we said before, the state tax benefit is close to ½ of the total 529 benefit, and that benefit is capped out in NY at $5,000 per parent per year, so this isn’t reducing anyone’s state tax bill to $0.

OK, here are the numbers: paying off student debt is actually more attractive for this couple because they earn too much money to get the income tax deduction, which, by the way, now stands at 43% combined state & federal (I’m assuming, not unreasonably, that this couple are AMT taxpayers). So $100.00 paying down student debt compounds at the full $5.00 ending up at a full $207.89 at the end of year 15. Not too bad, and liquidity is sacrificed, which is still important, but probably less important for this couple than the others.

Investing on the side, even if done in a tax efficient manner yields only $186.31 after 15 years (I upped the capital gains rate to 25% to reflect higher taxes—this gets a little more messy in real life but it’s a decent approximation). Hmmm…

Takeaway: Mass Affluent couple is better off paying away their student debts than investing in the stock market, given our mathematical assumptions (and, critically, on a risk-adjusted basis).

What about 529 plans? Well, the 529 plan still yields $226.52. Definitely better than paying off student debt (and that investment opportunity doesn’t even exist after all debt is paid off).

Interestingly 100% of the benefit in that comparison is now state level. Let me say that again: for well off taxpayers who still have student loans, the federal tax advantage is in some ways $0 and the advantage is all at the state level.

Interesting observation, given that many of the cries were for Obama to remove this great federal incentive in 529 plans (neither Obama nor the US Congress has any input on what states decide to do with 529 tax treatment).

Takeaway: The well-off/upper middle class/mass affluent/merely wealthy/whatever you want to label them get some advantage from 529 plans, but mostly from the state level & that really has nothing to do with Obama one way or another.

The Rich Couple: Nothing we’ve talked about matters at all. For reasons I won’t get into, anyone earning this level of income who is contributing to 529 plans should chew out their tax planner and/or financial advisor. There are a few situations where they make sense, but usually 529s are an unbelievably sub-optimal use of your annual gift tax exclusion.

Takeaway: 529 plans aren’t relevant to the rich at all. They’re glad you’re spending your time thinking about 529 taxation rather than something that matters, like carried interest or the step up in basis at death…

OK, that’s great, but what about Cathy’s point?

Oh, right. Well, yes—when you subsidize an asset the price generally increases to at least some degree (there’s all sorts of complicated analysis on relative elasticity here), and in theory that impact of the 529 is hosing the poor at the expense of the middle class and upper middle class (and the rich, sortof/maybe). Still, I feel like there are a lot of much bigger moving pieces in the overall calculus of costs of college that 529 plan tax advantages aren’t really the primary driver moving the needle.

So, for example, the total budgetary impact from 529 plans & prepaid plans is scored at around $1bn/year (page 39 here). If you’ve never worked with OMB numbers that sounds like a lot, but there’s a special phrase for a number like $1bn/year in the beltway: it’s called “a rounding error”. This is less than peanuts in the overall scope of the budget.

Which leads me full circle to an interesting question: what’s really going on here? I mean, the Obama administration is, depending upon the color of your pin, either Reed Richards or Lex Luthor—you may hear that he’s evil or a Marxist, but not usually that he’s a moron. Yet, this was an unbelievably dumb thing to propose, and honestly, it was entirely predictable that it would be not only a hideous failure, but a very public hideous failure. Again, any on-the-ground CPA could have told anyone in the administration willing to listen that these plans are one of the only reeds the government gives to parents grasping at straws to find the money to cover college and pulling it away would be…well, like stealing porridge from an orphan.

Unless there really is a brilliant “I’m thinking 3 moves ahead of you” long-game/long-con (again, depending on the color of your pin) strategy. If so, could it be this:

The left wants to win the next election. Statisticians working hard have studied the impact of the Tea Party on electoral results for the right and have determined that the optimal game-theory path is to alienate and marginalize the Elizabeth Warren/Bernie Sanders progressive wing. To do so, Obama created a straw man (the proposal to cut back 529 Plans) that pretty much most of America would hate but die-hard progressives would love. This lays the foundation for important discussions of party planks between centrists and progressives, for the centrists to say “look at what your wingnut policies cost us on that 529 debacle”, thus isolating progressives from the central discussion in formulating policy and, you know, trying to make radical change or something crazy like that…

Paranoid? Or not paranoid enough….


Cathy’s short response: nobody except the affluent middle class (and the rich) has $100 extra to begin with.

Categories: Uncategorized

S&P and the Puffery Defense

Yesterday the ratings agency S&P settled a lawsuit with the Department of Justice for awarding ridiculously high ratings for mortgage-backed securities way back when. For their massive contribution to the world-wide financial crisis, they got fined $1.5 billion, nobody went to jail, and they didn’t even have to admit what they’d done is wrong.

But here’s something they did admit: their use of the word “objective” when describing their models was mere “marketing puffery,” not to be taken seriously. This is called the “puffery defense” by Bloomberg.

To be fair, this wasn’t just about the usage of the word objective. From Bloomberg’s piece:

S&P said in its request to dismiss the case that the government can’t base its fraud claims on S&P’s assertions that its ratings were independent, objective and free of conflicts of interest because U.S. courts have found that such vague and generalized statements are the kind of “puffery” that a reasonable investor wouldn’t rely on.

Now, as some of you know, I’m writing a book about destructive mathematical models. And pretty much all of the models make claims of being objective. It’s part of the marketing for those models, a requirement to lure people into using complex, mathematical black boxes instead of their own brains, and crucially, in place of their own sense of fairness and accountability.

Example: Value-added models for teachers are showered with claims of objectivity (see page 4 of this marketing brochure for example), even though those claims are questionable at best.

So, it makes me wonder, is the Puffery Defense going to be widespread? Is it a technical and legalistic approach? Are we going to have a redefinition of that word so that companies are officially allowed to claim objectivity while actually meaning nothing like objectivity?

Categories: Uncategorized

Let’s make paying for college harder

I was disappointed with Obama’s retraction of the tax benefit for college savings, referred to as the “529 plan.”

And, although some would claim that the 529 tax shelter was used by more than rich or very well-off people, it’s still a very lopsided regressive tax, because the majority of Americans can barely scrape by on their income, never mind saving for their kids’ college funds. But that’s not exactly the point I’m trying to make, although it’s a very important point.

The larger point is this: whenever we make college more affordable by helping people pay for college, it just makes college more expensive. Tuition rises to meet our new-found ability to pay. And although I can’t prove causality for every tuition hike, the data kind of speaks for itself:

versus here’s the federal aid growth:

The result of our federal loan programs, which were started with good intentions, is that whereas before college was out of reach for lots of people, now it’s still out of reach, they go anyway, and then emerge loaded with debt. It’s not actually a huge improvement for the vast majority of the middle class, but it’s become a requirement to get a reasonable job so people are forced to go through it, kind of like a hazing ritual.

There’s another related reason why college tuition goes up, namely because we have stopped funding state schools, so their tuition is higher, and the other colleges also rise to meet them. But part of the reasoning behind that is because we have all these federal loans available, so why would we need to fund the state schools.

We need to put into place ways for tuition to go down. First, we make paying for college harder, and that includes for upper middle class folks. The reasoning is this: if you’re the only person having trouble paying for something, that’s bad. But if everyone has trouble paying for something, the price goes down.

Second, we make state schools much cheaper, or even free, by funding them.

Categories: Uncategorized

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