Tag Archives: David Brooks

Bathtubs for Beginners

By James Kwak

In economics life there’s a basic conceptual distinction between a flow and a stock. A flow is a something that occurs over some period of time, like water pouring from a faucet into a bathtub. A stock is something that exists at a specific moment of time, like the water in that bathtub. You measure a flow over a period of time (e.g., gallons per minute); you measure a stock at a specific moment in time (e.g., gallons). For a business, the income statement (revenues and costs in a year) measures flows, while the balance sheet (assets and liabilities) measures a stock. That’s why the income statement is dated for a year (or a quarter) and the balance sheet is dated for a specific day. Everyone understands this. If you didn’t, you would get confused between your salary and your bank account.

But not David Brooks.

Continue reading

When You Don’t Need To Worry About Facts

By James Kwak

Masquerading behind an invocation to “wisdom” in the title, David Brooks today finds his false equivalence (see here for another example) by comparing the the two parties’ approaches to Medicare: the Democrats, he says, favor “top-down centralized planning” while the Republicans favor the “decentralized discovery process of the market.”

David Brooks swallowing Republican talking points whole is not worthy of note, so I’ll just point out one: he calls the Ryan Plan a “premium support plan,” despite the categorial denial by Henry Aaron, the creator of the premium support idea.* But it’s marginally more interesting to point out Brooks’s finely-honed rhetorical dishonesty.

Continue reading

Richard Parsons’s Portfolio

According to Bloomberg, Richard Parsons – the chair of Citigroup since February – now owns stock in the company worth, at yesterday’s close, about $350,000 (96,298 shares at $3.69).  For such a well-established and highly remunerated corporate executive, we can reasonably refer to such an amount as “chump change.”  In May, Forbes estimated Mr. Parsons’ net worth as a little under $100m.

I have no particular complaint about Mr. Parsons; he is an experienced banker, with the very best political connections.  But I would point out that while Wall Street likes to talk big about people having “skin in the game,” when it comes to putting their personal net worth on the line, many finance executives prefer a different kind of arrangement.  Specifically, they are attracted to compensation structures in which they have a lot of upside but very little downside.

If you had such a deal, how would this affect your relative interest in risk-taking and careful supervision of subordinates? Continue reading