Wealth Podcast Post

Understanding Economics with David Bahnsen

George Grombacher September 15, 2022

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Understanding Economics with David Bahnsen

LifeBlood: We talked about the power of understanding economics, why the government is hiring 87,000 IRS agents, what they hope to accomplish, and what that means for normal people, with David Bahnsen, CIO and Managing Partner of the Bahnsen Group, thought leader, author and podcaster. 

Listen to learn how to learn the basics of economics for free!

You can learn more about David at TheBahnsenGroup.com, Facebook, Twitter, Instagram, YouTube and LinkedIn.

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Our Guests

George Grombacher


David Bahnsen

Episode Transcript

Unknown Speaker 0:00
Come on

Unknown Speaker 0:11
one weapon, this is George G. And the time is right. Welcome. Today’s guest strong and powerful David Bautzen. David, are you ready to do this? I’m ready. excited to have you on David is the chief investment officer and the managing partner of the Bahnson group, their national wealth management firm. He’s consistently named top financial advisor and thought leader, it’s consistently appearing on many popular news outlets that you are well aware of and customer watching. He’s the author of there’s no free lunch to economic truths is a podcast are committed to community member. And we’re excited to have you back on the show. David, tell us a little bit personal last more about your work and why you do what you do.

Unknown Speaker 0:55
Well, the personal life is very boring. I am married for 21 years, three kids, two, one of which is senior in high school, one of which is about to start a freshman year of high school. And then a baby boy who is actually 12 years old and does not like being referred to as a baby boy.

Unknown Speaker 1:13
And I, as far as why I do what I do. This is my life’s calling. I absolutely love financial markets, and most importantly love the human action that undergirds them. And so managing the stewardship of capital is blessing but happens to be very connected to that which animates me which is free enterprise itself. I love it. And I enjoyed our first conversation. And I loved love the book. Like it’s such a good read. Because it’s these 250 different ideas. And for a lot of them, maybe I had a passing idea about them. But you do such a good job of explaining just a little bit more about what they are and what they really mean. So it was very, very thought provoking for me. And in light of the new legislation that passed I wanted to have you on because it’s tough to make heads and tails of things. So when I hear that, or when people hear that we’re hiring, the IRS hired 85,000 or however many new agents. It’s like, well, what’s what’s what’s really going on there from your perspective?

Unknown Speaker 2:20
Yeah, I don’t, I actually don’t think they’re gonna end up getting 87,000 agents. And just to give context as to where that comes from. The Biden administration ran a report that indicated how many they could hire, there was some department, you know, within the bureaucracy of that branch. And they came back and said that within this amount of particular budget, the IRS would be able to hire 87,000 new agents. And my guess is that by the time they hire a whole bunch of non agents with that money, which you could argue might be somewhat less intrusive into the lives of American citizens, but even more wasteful, but this is what government does, they waste money in. And I would imagine, they’ll hire a whole bunch of bureaucrats and admin and probably some diversity officer some things in there. And so when all said, and maybe some ESG, maybe there’ll be a need for some ESG at the IRS to kind of better track their carbon footprint, and then they’ll hire some tax enforcement. And I think it will be largely

Unknown Speaker 3:36
pretty bad. And what I mean by that is not people like me, and people like most of my clients, that are paying their taxes, and are doing so legally, but are certainly utilizing the resources that they have available to minimize taxes legally, within the disaster of a complex tax code that Congress in its infinite wisdom continues to deliver. And where I think the let’s call it 50,000. Up to 87,000 agents, end up being a nuisance, is the only way that they can move the needle, which is good, more people have the same IQ that they generally hire, are not going to do a better job collecting money from hedge funders with Harvard MBAs and 50 accountants and 100 lawyers, and so forth. It’s just it’s not going to happen. What they can do is go find that Uber driver who isn’t reporting all of his tips and other nonsense like that, and so they have to justify their existence so they will end up getting some pound of flesh out of this, but it will be small ball, and I think that’s the best you can hope for but I think it will be intrusive into the lives of

Unknown Speaker 5:00
Americans, and then what you really can’t measure is how much the enforcement effort will go into chasing some additional tax revenue. That turns out not to deliver. I mean, some might say, for that poor Uber driver, well, hey, if he owed the taxes, do the taxes, but what about when they go after someone, and there isn’t, in fact, any money owed, the one thing I’ve been audited on consistently throughout my adult life as a good earner and a person of means is all my charitable contributions. And I am I happen to be in a position to and have causes, I believe in substantially where I’ve given a lot, and it’s a high dollar amount and a decent percentage. And they come after it every year, and I respond every year and it’s fine. Every year, there’s no follow up action, there’s no problem. They just want documentation or whatnot. But how much resources goes in to chasing something down and it doesn’t need any additional monies. And so I was thinking about that as a low hanging fruit for these new agents, to just go harass people that are claiming high charitable contributions. And I don’t think very many people chain claim charitable contributions and aren’t really doing it. It’s pretty cut and dry, how you prove it, you have your canceled check or wire transfer, and the charitable entity has their donation letter that they legally have to send, and yet their manpower and the bureaucracy and the time and the effort going after it, checking it all, and so forth. It’s just it’s silly to think about. So I am against the effort. And it’s not because I’m against tax compliance, it’s just that what they don’t understand is the fundamental problem is that the tax code incentivizes high degree of effort at minimizing taxes from people who have the means to do so. And it is very cut and dry on more middle class people. But when they say they know there’s a certain dollar amount out there that’s being uncollected, I don’t believe them. If they knew it, why would they be collecting it? You’re already at 7000 more people to know, you identify that this hedge fund guy in Miami is cheating you if you’ve identified it, go knock on his door, you know, they haven’t identified it. It’s a model driven suspicion that is not met with reality for those of us who actually deal with high net worth people every day.

Unknown Speaker 7:30
Interesting. I always try to I always try to assume that, that people’s interests are are honest and genuine. And they have been they have positive motivations. Whether or not that that’s true or not, I don’t know. But in this example, do you think is it a function of they just think or assume that there’s all this money out there, like you just said, and in order for us to get this fictitious pot of money, we need more people to do it?

Unknown Speaker 8:02
Yeah, I think that there’s two things there was a

Unknown Speaker 8:05
heart before a cart before the horse thing, in that to justify the deficit spending that the mansion Schumer Bill involved, they needed to pro forma both to get mansions vote and to some degree, sell the American people and then also to get a score back from CBO congressional budget office that was going to show something being either revenue neutral or even deficit reduction reducing, so they have to tell the computer that they’re collecting a certain amount of new revenue. And when you don’t have a new tax doing so or a new fee, or a spend expenditure cut, that is actual hard input, you have to make something up and you have in in this case, they’re making up imagined amount of new revenue. So the purpose of this is not to collect new revenue. The purpose of it was to tell their computer they’re going to collect new revenue, politically to pass the spending side. Besides Joe Manchin himself, they don’t actually care about collecting the revenue.

Unknown Speaker 9:10
But they need the money. Well, who’s there? You and I as American citizens to be the podcast, or the elected people of Congress, they don’t need the money. If they needed that, what are they projecting this is going to generate 120 billion or something.

Unknown Speaker 9:29
entity that is run up $31 trillion of debt. And that regularly runs in a good year, a trillion dollar deficit and a bad year 2 trillion deficit. They don’t actually care about collecting the money. There’s no interest in some sort of fiscal balance. But politically, they cared about the optics of this and that’s where that IRS input comes from. So when they say we will not audit, there’ll be no new audits on income earned

Unknown Speaker 10:00
are households of under $400,000 a year? You don’t believe that?

Unknown Speaker 10:05
No, first of all, what’s the point of having more enforcement. So if they come across a tax cheat, who’s really stealing, and their new enforcement people uncovered it, they didn’t know it before. But now they got new resources. And they’ve uncovered and there’s a guy making $390,000 a year, and he owes the government 100 grand, he’s not paying it, but they’re not gonna go after it. Well, then I want my money back then, too, because that’s a bad deal. So they’re damned if they do damned if they don’t, if that makes no sense to say, we are going to uncover tax cheats, and we’re not going to go after him. If they make a certain amount of money. Their point is, we are not uncovering everything we can uncover. So at some point, then to justify this, they’re going to have to go after what they find. They’ve already talked about wanting greater scrutiny on Venmo accounts. So I’ll just ask you and anyone else out there who pays their babysitters on Venmo? And tips, their valet drivers on Venmo? And so forth? Do you think the people that you regularly pay with Venmo make over 400,000 a year? I don’t don’t. So what did i the whole entire thing is just comically silly. If it wasn’t so actually, I think dangerous.

Unknown Speaker 11:23
Yeah, that’s, that’s when I tried to read the tea, tea leaves, it makes me really nervous. I remember however long ago it was that they that the government was talking about monitoring everybody’s bank account that had like $500 in it or something like that. And that’s like, there’s I don’t that that seems very, very invasive. I don’t want to be an alarmist or a conspiracy theorist. But it does seem like the future is not looking good.

Unknown Speaker 11:52
In terms of the specifics of of tax compliance, and government overreach, and yeah, wanting to take money from me, yeah, I, you know, I wrote a book, it was the first book I ever wrote, and it came out five years ago called crisis of responsibility. And, and I’m a lifetime movement, conservative, I have a very deep philosophical appreciation for the kind of political philosophy known as conservatism and kind of Berkey in order and in a classically liberal tradition. And yet, I got myself in a little bit of trouble with semi conservative friends, because in the 10th chapter of that book, I suggested that the problem with government government overreach is generally a people, a society, a population that wants government overreach, that tolerates it, that has failed in self government so badly, that they don’t blink at allowing the government greater role into things, whether it be health care, or various economic overreach and, and whatnot. I think the welfare state is largely a byproduct of a failure of self government. And so to the extent that I’m pessimistic as you are about the future government overreach, I basically agree, but I put the root of that problem with the people, not with the government themselves, who I think are merely responding to the really gracious Hall Pass the American people are giving them

Unknown Speaker 13:31
as you look at where the country is today, versus six months ago, two years ago.

Unknown Speaker 13:42
Do you feel as though people are becoming more cognizant, and looking to revoke that Hall Pass that we’ve sort of just tacitly handed the government?

Unknown Speaker 13:54
Yeah, I guess, marginally? I do. I think that that will probably end up being one of the great

Unknown Speaker 14:03
factors out of the COVID moment, is that a certain degree of apathy was kind of slapped around a little bit and that there is some animating force right now, in folks that maybe do want to push back a little on the government overreach a lot of it comes from some of the most effective and and active members of society, which tend to be moms. And they don’t tolerate well. They could be apolitical. They could even be center left and their political orientation. I don’t have a monopoly on being against government overreach just because I’m a conservative, but

Unknown Speaker 14:41
in the COVID moment, and schools being shut down irrationally, for so long, and some of the just arbitrariness about many of the policies and the way that whole thing played out. I think that I think that woke a lot of people up what the stickiness of it is, is TBD

Unknown Speaker 15:00
But there is a moment we’re in right now where I think there are some that are indeed pushing back. Now, the negative side for me is pessimistically, many on the right, tend right now to be looking for more government overreach. They just want it on their side that they want the government to do all the things that we’ve said we don’t want them to do. But we want them to be doing it on on behalf of causes that are more acceptable into the into the right, right now, particularly as a backlash against a lot of the the excess of woke ism, or ESG, or the canceled culture, these other kinds of atrocities. So I don’t know if philosophically are, ultimately I’ll be more encouraged. And I can answer you. With more brevity. Once I become convinced that we have a strong value being placed on self government, on individual character on virtue, on faith on institutions. I think all those things matter. And I don’t see us really moving in that right direction there yet. So other endeavors along the way against government overreach, I think are likely to be more temper tantrums than they are culture moving moments. Just appreciate that. While you are certainly putting your time and money and efforts where your mouth is, you have recently created, I believe recently created a new economics course that people can have access to. And certainly, I’m always excited when somebody like you, who obviously has intelligence experience, and all this important stuff takes the time to do something like that. And then and then we can access it. So if we are interested in educating ourselves, so we can be more proactive. Tell me a little bit about about the project.

Unknown Speaker 17:00
Well, I

Unknown Speaker 17:02
basically volunteered at the high school that I helped start in Newport Beach, California. So Pacific Crest High School has about 300 Students ninth grade through 12th grade, was something that I was a co founder of beginning out in 2013. We went live with the school in 2015, after two years of planning and preparation. And when I say two years, there was a lot more before that, but two years of really officially with a shovel in the ground, so to speak. And then last year, I taught economics to upper classmen as an elective course at the high school. And out of that endeavor, it forced me to prepare the course it forced me to, to systematize it to develop a syllabus, a curriculum, an outline for how I thought an introduction economics ought to be taught to that age group. And there were things I would have done different and I turned a knob here and turn it off there. But when all was said, and then that dress rehearsal of actually teaching, it led me to go actually memorialize the course in my studio. And so we we recorded 30 lectures and made available the syllabus with all the links and all of the reading materials, all the quizzes, test essay prompts, final exam, the full kind of semester course of introduction, economics in a box that we’ve made available for free@bahnsen.com. And so that was really driven by my belief, that some foundational understanding of economics as needed, even and perhaps especially from those who already have a reasonably affectionate connection to free enterprise, I think a lot of people in the American DNA generally agree with the notions of what we call capitalism. I’m not a big fan of the term. But the idea of a market economy of some form of laissez faire economics. I think that that’s how most of us are wired. But I don’t think it’s um, most of us have been trained and really prepared ourselves to think intellectually, morally, and academically. And so that’s what the course is intended to do, provide a basic foundation for how we think about economics. And I’ve been blown away at the response so far, and I truly believe it has the potential to have an impact on people. I’m excited. Nice.

Unknown Speaker 19:31
Well, I’m excited to dig into it personally, because I know how much I enjoyed your book and your style of communicating and taking difficult to understand ideas and making them easy to understand so so thank you for creating the course. Well, thank you for saying that. I look forward to getting your feedback. And thanks for all your kind words. Love it.

Unknown Speaker 19:51
Well, David, give us give us the website again for how we could find the course and then the other ways. If somebody is interested in becoming a client

Unknown Speaker 20:00
So of yours how all that works.

Unknown Speaker 20:03
So the website is bahnsen.com. And because the name is spelled a little bit less than phonetically, I will spell it out be a HN sen.com. And right when one gets there, they’ll see the economics course, very clear on the on the website and can go in and enroll. And like I said, there’s no cost and it’s all there. And we think it’s pretty turnkey people can work through it at their own pace, and so forth. So other than that, I’m pretty easy to find online social media and video and my weekly investment commentary, bonds dinar coms kind of that homepage for all the things I’m doing and so those who are interested in staying in touch with what we’re about, have the ability to do so. Excellent. Well, if you enjoyed as much as I did, so David, your appreciation and share today’s show with a friend who also appreciates good ideas go to bahnsen.com That’s B ahnsen.com. And take advantage of that free economics course. And you know, subscribe to all David’s musings and the the effort and work that he puts in to again, make difficult stuff easy to understand and just better equip us to be able to make good decisions. Thanksgiving, David, thanks so much for having me really enjoyed it. And until next time, keep fighting the good fight. We’re all in this together.

Transcribed by https://otter.ai

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