Category: Business Center

Taxes in the Bible

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The Bible has much to say about, and many examples of, taxes. God’s plan for taxation in ancient Israel was compassionate, effective, and limited. Modern thinkers, policy makers, and voters would do well to move American, Western, and world tax and government policies closer to what our ancestors would recognize.

By Mark D. Harris

Governments, like people, have always tried to procure as many resources as possible from everywhere they could. Resources ranged from beautiful things (seashells, beads, precious metals, precious stones) to products (grain, wine, cotton) to labor (forced labor, slavery). Taxation is, by definition, involuntary. Freewill offerings, such as what the Hebrews gave to build the tabernacle (Exodus 35:20-35), are not included in this discussion.

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Recent Studies in Behavioral Finance

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Most people in the field of finance assume that people act rationally. But research and life experience suggest otherwise, at least some of the time. What are some recent research findings on how our hearts cloud our heads? How can we minimize the irrational parts of our decision making in finance?

By Mark D. Harris

Introduction

The Efficient Markets Hypothesis (EMH) suggests that all the available information about a publicly traded company that is pertinent to investing in that company is contained in the stock price at any point in time (Vasileiou, 2020). Insofar as this is true, investors are rational actors who make investment decisions solely on rational grounds. However, company stock prices sometimes are higher or lower than one would expect based on purely objective valuations. This fact suggests that something besides rationality is present in company stock prices.

To explain market behavior beyond the purely rational, researchers turn to behavioral finance. Growing out of Adam Smith’s Theory of Moral Sentiments, one of behavioral finances’ primary observations is that “investors (and people in general) make decisions on imprecise impressions and beliefs rather than rational analysis.” Further, “the way a question or problem is framed to an investor will influence the decision he/she ultimately makes.” The article concludes, “These two observations largely explain market inefficiencies; that is, behavior finance holds that markets are sometimes inefficient because people are not mathematical equations” (Behavioral finance, 2019).

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Earnings Management

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The easy money days of the 2010s are over. Bonuses and threats of job loss push managers to match expectations. Earnings management techniques are not always “cooking the books” to reach short term targets. Rather, they can involve making valid operational decisions that benefit shareholders.  

By Mark D. Harris

Earnings Management Techniques

Managers are under intense pressure to make quarterly and annual earnings conform to expectations of analysts in the greater market. In a given quarter, if the prevailing expectation is that Company A will have earnings of $10/share (EPS), management at Company A wants to report EPS of $10, or perhaps $10.03. They don’t want to report EPS of $11.50 because that might raise eyebrows, encourage a much higher expectation of EPS in the future, and suggest a volatile earnings pattern. Investors and lenders like smooth growth in EPS, sustainable and predictable, over the long haul.

Even worse than exceeding expectations by too much is falling short. If Company A falls short of earnings targets, reporting perhaps EPS of $9.80, Company A’s stock price is likely to drop, their cost of capital from lenders will increase, and others interested in Company A might liquidate holdings out of fear for the company’s future. Finally, managers’ bonuses, salaries, and even job security are often tied to meeting earnings targets. Woe to the manager who misses his mark.

To avoid such unpleasant circumstances, managers have an array of accounting techniques that they can use to smooth earnings, and to make them appear sustainable and predictable in the near and long term.

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Economic Data, Business Needs, Privacy, and Freedom

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Economic data is vital to running a business, organization, or nation. Governments and businesses gather a lot of it, and analyze it extensively, to provide better services to stakeholders. However, these same entities use this same data to delve into personal lives and influence personal behavior. Ordinary people need to understand all of these uses, know the benefits, and yet guard themselves and others.

By Mark D. Harris

The world is awash in data. The government obtains data, typically by querying governmental institutions, requiring reports from private industry and organizations, and surveying groups of stakeholders. No other organization could gather information of such depth and scope. Even if some other organization attempted to gather such a volume of data, they would not provide it free to inquirers. After collection, the government checks, analyzes, categorizes, and interprets the data. Finally, the government acts on and distributes the data, hopefully for the benefit of all its citizens. Governments may use information derived from data to position resources, cut crime, minimize poverty, prevent disease, aid business, and otherwise do good.

There are many dangers when anyone has too much information. Governments have so much data that they can violate privacy and manipulate people. Big tech and large companies, from Amazon to Zhejiang, can do the same. The literature is flooded with studies trying to discover the proper use of data and information in the modern world.

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Saving for Retirement

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People are living longer while dark economic and political clouds approach from the horizon. What can individuals and families do to help protect their financial future? How can we best care for ourselves and those we love?  

By Mark D. Harris

America and the world are aging. In almost every land, the number of workers is falling relative to the number of retirees. Fewer workers result in less revenue from profits and taxes. Corporate and government pension systems (such as Social Security in the United States) try to maintain payments to retirees, so governments incur more debt and private pension funds become underfunded. As fewer men and women marry, and fewer couples have babies, the workforce continues to shrink, and economies begin to fail. The entire financial system becomes less stable.

Meanwhile, inflation is over 7% and interest rates make your eyes water. Experts predict financial gloom, and no one seems to know how to dodge or divert the coming storm. For many governments, cost cutting is politically impossible, and their main solution is to print (create) more money. Furthermore, politicians shift more costs to retirees themselves. For example, Medicare is charging the aged more and more for health insurance, at just the time that the elderly need it the most.

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