How I am protecting my human capital

If the economy collapses at least I'll have my award points

Photo by JESHOOTS.COM on Unsplash

Hello,
Welcome to Known Unknowns, a newsletter that is actively hedging its shadow currency.

We are all paying more taxes

I’ve spent a fair amount of time thinking about taxes. Designing tax policy is not simply a matter of identifying some money and saying, “let’s tax it!” You need to consider how people respond to incentives, how the tax impacts capital accumulation and work, and ultimately economic growth. Or so I thought.

I wrote for Bloomberg about Mamdani’s threat to increase property taxes in New York City if he does not get the “millionaire” tax hike he wants. He also wants to raid the pension and health care funds to pay for his new budget. There is so much to criticize here. Like why we need to increase the budget 9% at all. But I am starting to root for the nuclear option. Why? New Yorkers (my neighbors) decided that we needed a much bigger welfare state, and if they want that—we should all pay for it.

We’ve gotten into this rut of politicians promising more services that someone else will pay for, usually rich people. But this is absurd. First, how you structure a tax matters; the Mamdani flat tax plan is especially stupid. But I just can’t get over this newfound love of wealth taxes from people who only started thinking about tax policy five minutes ago.

People keep asking why there is no political appetite to care about the debt. I’ll tell you why: everyone has been told someone else will pay for all this spending and all the new stuff they want too. I am a small-government kind of person. But, hey, those are my values. You can justify a bigger welfare state if you put a higher weight on security over growth, on the collective over individual excellence. Reasonable people can disagree. But to strike the right balance, everyone needs to understand and feel the trade-offs.

Besides, rich people don’t have enough money to pay for all this stuff. So higher taxes are coming—not only to pay for the European welfare state people seem to think is free; we need more revenue just to pay for what we’ve already got. Europeans pay much higher taxes and have lower growth, and they can’t afford what they’ve got either.

Human capital is what we should be hedging

Last week we had yet another AI freakout. It just shows how little anyone knows. Once someone sketches out a story that sounds vaguely plausible about AI not being the second coming, everything falls apart. It doesn’t matter that the story did not make much economic sense. It is remarkable that we see AI playing out three ways: our economic savior, the end of the economy, or maybe it will just be as big as electricity—or 2% sustained growth for the next few decades. ‘Just like electricity’ is the “meh” scenario—this is what economists expect. True, we aren’t experts in this technology, but we are experts in how technology impacts the economy.

The leaders of AI companies expect one of the two extreme scenarios. They also keep telling us that soon they will be the only ones whose labor is worth anything. I suppose that’s possible. But while they know the technology better than I do, I am not sure why we should listen to them about anything else. No one knows what a job entails and what it takes to be successful at it unless they’ve done it. And if you work in AI, you really don’t know a lot about what a financial analyst or a corporate lawyer does. You might observe their work product, but you don’t know what it took to produce it or the other less tangible aspects of the job. If you look at my output in a week—usually economics commentary—it may seem AI could produce it too, but the actual writing was a small part of the week.

I don’t know what the financial hedge is for all this uncertainty. But it is not just financial capital we need to think about. It does seem the biggest risk is a change in human capital that will undergo some sort of shock in the transition phase. It seems we can do a lot to hedge that; for electricity we improved our education. We should probably work on that, or make the labor market more fluid. Yet we do the opposite. That is what worries me: we choose human capital erosion; it is not the technology that’s the problem.

Points are my passion

I have a confession to make; I am a points fanatic. The hours I’ve spent reading points blogs and viewing videos mean it qualifies as a very involved hobby. I love the game. I love the taste of prosecco in business class after a hard-won upgrade. Casual travelers will never understand. Others play pickleball; I collect points.

I am not alone. The points economy is worth billions of dollars, and most Americans have a rewards credit card. I wrote for Bloomberg about whether this is starting to be a drag on the economy. There is surely lots of lost productivity spent chasing points. It can’t be good to have a shadow currency subject to large, frequent, and unpredictable devaluations. But I love it. No swipe-fee legislation will ever take that away from me.

Until next time, Pension Geeks!
Allison