Tag Archives: justin bieber

Overseas Cash and Justin Bieber

As tax reform is discussed in preparation for our upcoming leap off the fiscal cliff, among the topics has been corporate tax reform, in particular how American companies are taxed on their overseas income. As the system currently works, as long as US companies keep their cash offshore, they don’t have to pay US taxes. Once they bring that money back, it’s a flat 35% tax rate. So, not surprisingly, US companies with multinational operations have a lot of cash stashed overseas. Read all about it here, here, here and here.

The thing is, some of these companies have so much cash overseas, and so little here in the US, that they’re borrowing money to fund their operations here, or to fund dividends and stock buybacks. But they (the companies and the reporters covering this topic) are making it seem like the companies CAN’T bring the money back to America. Let’s be very clear: they CAN bring the money back, it will just cost them 35%.

For example, here is how the WSJ described it:

Each of these companies is grappling with a growing problem that comes from keeping Uncle Sam away from their foreign income: How to round up enough cash in the U.S. to cover items like dividends, share repurchases, debt repayments and pension contributions.

And here is how a CFO described it in the WSJ:

“You end up with the really peculiar result where you are borrowing money in the U.S. while you show cash on the balance sheet that is trapped overseas,” said Bruce Nolop, former chief financial officer of Pitney Bowes and E-Trade Financial and now a director at Marsh & McLennan. “It is a totally inefficient capital structure.”

Now I understand why companies are keeping their cash overseas: it’s their job to minimize taxes. And I can certainly see why they would rather borrow at historically low interest rates (like 5%) than pay a 35%. No complaints from me on either front. But for the companies to act like it’s just impossible for them to bring the cash home annoys me. They choose not to bring the cash home, for good reasons, but if they really wanted to they could. It’s like saying that you can’t get Justin Bieber to play at your daughter’s bat mitzvah. You can, but it’s going to cost you a boatload.

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Are Successful Religions Just Lucky?

Religion scholars have long said that what separates a religion from a sect is success. In other words, religions all start as small sects; if they stay that way, we never hear about them, but if they grow, then over time they become a religion. But these scholars haven’t really discussed what makes one sect succeed and one not, or if they have, it’s in the context of ex post facto justification of the success. History is written by the victors and all that.

Adherents of most faiths say that their religions have grown because they are right. The religion is the word of god, and so naturally it gains more and more followers. Non-believers, and even some adherents who see a religion as metaphor rather than the literal word of god, would say that their church has grown and lasted because it provides wisdom and values and spiritual succor.

But what if they are all wrong, and the successful religions were simply in the right place and the right time. What if religions succeed purely based on random luck?

This hypothesis of religious randomness is based on the work of Duncan Watts, a sociologist who I’ve mentioned before, in the context of showing that Malcolm Gladwell’s tipping point theory of “influencers” is fatally flawed.

Watts studies cultural phenomena and social networks, especially how trends and memes spread across a culture. He is perhaps best known for his work on “hit” music, in which the popularity of a song in an experimental population is self-propelling. People like a song because they see that other people like it. So once a song gains some initial popularity, in Watts’ experiments that song was almost certainly going to become a hit, because its early popularity propagated itself across the culture.

More importantly, what Watts discovered was that the initial burst of popularity, which destined the song for hit status, was not due to the musical quality of the song or the votes of initial “influential” listeners or any other objective measure. It was random. Watts ran his experiment over and over and over, and which songs became hits was a random walk. Here is the money quote from an NY Times article:

The reason is that when people tend to like what other people like, differences in popularity are subject to what is called “cumulative advantage,” or the “rich get richer” effect. This means that if one object happens to be slightly more popular than another at just the right point, it will tend to become more popular still. As a result, even tiny, random fluctuations can blow up, generating potentially enormous long-run differences among even indistinguishable competitors.

So let me break it down for you: purely at random, a song gets an initial burst of popularity. Not because it has a great melody, or words that speak universal truths, but because for whatever reason a bunch of people chose that song one day. Based on that initial popularity, other people start to like the song (“it’s popular, so it must be good”), and soon enough, the song is a hit. To wit: Lady Gaga or Justin Bieber.

The application to religion is pretty straightforward. Any religion – Christianity, Islam, Mormonism, whatever – has to get an initial burst of popularity. A few people start following the leader. Other people notice the following and start to tag along (“old Mr. Dalrymple is following, and he hates everything. It must be good”) and next thing you know, the small sect with a single leader becomes an established religion.

But why do people start following that one leader? Our traditional reaction is that it’s because he had something great to say. But if we follow Watts’ work, maybe it’s just random. Maybe Jesus gave an early sermon next to a lemonade stand on a hot day. Maybe Joseph Smith’s talk about his golden tablets attracted the prettiest woman in town, who then attracted a bunch of men.

Certainly there were plenty of other preachers right around Joseph Smith. His part of New York was called the “burned over district” because it was so frequently swept by religious fervor. So why did Smith’s story stick, and lead to a worldwide faith, when other preachers fell by the wayside? Maybe it’s because Smith’s story of the angel Moroni was the direct word of God. But the experimental data suggest that it was probably just random.

Are there examples of religions that didn’t have the lucky jump to popularity? I’m sure there are, but we don’t know about them. If a preacher only gets to 10 followers, then he is unlikely to make it into the history books. Religions that we know have disappeared – the Greco/Roman pantheon, for example, or Shakers – were reasonably successful in their day; they just suffered from conquering and celibacy problems. But go to Speakers’ Corner in Hyde Park, or listen to the speakers on sidewalks in America, and you might see a preacher who has great ideas but just hasn’t caught the lucky break that will turn him into the next Joseph Smith.

Street preacher

Readers have undoubtedly noticed that for established religions there are two concepts at play here: success and longevity. Not only are the established religions successful, but they have been around for many, many (sometimes MANY!) years. A religion could be successful in terms of popularity, but then not have what it takes to last. The success that I’m talking about in this post is the growth from tens of followers to thousands. This is the equivalent of going from an average song to a hit song and thus is, as Watts demonstrated, random. However, the extension from a popular sect to a long-lasting religion is more than just popularity; it’s like the difference between being Fountains of Wayne with Stacey’s Mom and being U2. Longevity demands continued provision of a quality experience, whether that is through great songwriting or spiritual relief.