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Mark Cuban Probably Spouts Nonsense

Summary:
“The biggest issue for entrepreneurs, for capitalists, for those of us who are successful is, if someone is only going to be paid by the hour…they’re always going to fall behind,” Cuban told Recode Decode with Kara Swisher at the 2019 SALT Conference in Las Vegas. “And income distribution is … [the] disparity is going to get wider and wider.” So, said Cuban, “We as entrepreneurs have got to make a point to give stock to everybody that works for us. Period. End of story. No exceptions, because that’s the only way people are going to get any type of equity appreciation.” This is from Catherine Clifford, “Mark Cuban: Workers paid by the hour are ‘always going to fall behind,’ making wealth inequality worse,” CNBC.com, June 3, 2019. Let’s think through that. Start

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Mark Cuban Probably Spouts Nonsense

“The biggest issue for entrepreneurs, for capitalists, for those of us who are successful is, if someone is only going to be paid by the hour…they’re always going to fall behind,” Cuban told Recode Decode with Kara Swisher at the 2019 SALT Conference in Las Vegas. “And income distribution is … [the] disparity is going to get wider and wider.”

So, said Cuban, “We as entrepreneurs have got to make a point to give stock to everybody that works for us. Period. End of story. No exceptions, because that’s the only way people are going to get any type of equity appreciation.”

This is from Catherine Clifford, “Mark Cuban: Workers paid by the hour are ‘always going to fall behind,’ making wealth inequality worse,” CNBC.com, June 3, 2019.

Let’s think through that. Start with Cuban’s first sentence. If you get paid by the hour and never save and invest, then, sure, the odds are high that you’ll fall behind others who do invest. But the answer is to invest. I’ve never had any employer who gave me stock. But I own lots of stock. I bought it. I saved 12 to 17 percent of my gross income per year from about 1987 to about 2017. And I put a huge precent of it in stock index funds. I didn’t fall behind, to put it mildly.

Now to his next paragraph. He wants entrepreneurs to give stock to all employees. What’s left unsaid is that, presumably, he wants entrepreneurs to pay their employees less in wages and salaries. But how does he know what they would prefer? Maybe they’re building a family and would like the higher wage or salary to buy a house. Giving them stock doesn’t help them much unless they sell the stock. But then why give them stock in the first place? And notice another problem. I’m guessing that Cuban wants entrepreneurs to give employees stock in the company they work for. So for employees who don’t sell that stock, they would be even less diversified financially. Now both their wages/salaries and their financial portfolio would depend on the company doing well.

You might argue that Cuban simply wants entrepreneurs to keep wages and salaries constant and pay workers more. I doubt that because I see Cuban on TV every Sunday night on Shark Tank showing that he understands tradeoffs. And even if he doesn’t understand, the entrepreneurs he’s advising probably do. But if he wants them to pay more, then why not suggest paying higher wages and salaries so that they can choose whether or how to invest in stocks?

One caveat: It’s possible that what Cuban has in mind is really a way for employers and employees to get around some of the payroll tax, Social Security and Medicare, which, together, and including the employer portion, sum to a marginal tax rate of 15.3 percent for well over 80 percent of employees. I don’t know enough to know how those two tax regimes hit compensation in the form of stock. If it is a way around those payroll taxes, then it could make sense. Thus the “probably” rather than “certainly” in the title.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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