Axios Capital

A globe and stand made out of dollar bills.
April 29, 2021

Situational awareness: The U.S. economy is roaring ahead. GDP grew at a 6.4% pace in the first quarter, adding to the list of hugely positive data points.

  • In this week's newsletter: Why public health needs probabilistic thinking; passive investing gets a little bit active; German capitalism; tax evaders in the crosshairs; wage disparities; Alphabet's massive earnings; one of the truly great infosec researchers; and much more. All in 1,326 words, a 5-minute read.

1 big thing: The good is better than the perfect

Illustration of a dart on a dartboard that's slightly off center.
Illustration: Aïda Amer/Axios

Whether it's vaccine passports or public health protocols, or even passive investment strategies, perfection is rarely achievable or even desirable. Allowing a bit of fuzziness and error is at the heart of broad-based success.

Why it matters: Silicon Valley has known for decades that the essence of disruption is to do something which is not as perfect as the incumbent, but that is a lot cheaper and easier — and more effective.

Be smart: When it comes to vaccine passports, it's easy to immediately start worrying about whether they provide real proof of vaccination, whether they can be forged, that kind of thing. But most of the time, credentials don't need to be bulletproof.

  • A simple vaccine selfie, or verbal assurance, is usually enough to persuade your friends and family that you've been vaccinated.
  • A filled-out CDC card, plus an affirmation that it's authentic, is all you need to get Hawaii's vaccine passport. That combination should also suffice for many other potential uses, from attending a church or play to studying at an in-person college or working near colleagues.

The big picture: There will be lies and fakes. But even when credentialed people are telling the truth, vaccines aren't 100% effective. The idea here isn't to get risk down to zero, it's just to get it down to an acceptable level, somewhere around the kind of risk we have always faced from the flu.

  • That's why the CDC is now OK with vaccinated people going unmasked outdoors, and even says they don't need to self-quarantine after being exposed to the disease.

The bottom line: Many credentials, even the ubiquitous vaccine selfie, will suffice in most situations where vaccination is required. Not everybody needs to — or even should — regularly require the kind of passport that is going to be used for international travel.

  • Vaccine-passport apps are "invasive and downright creepy," write Albert Fox Cahn and Mahima Arya for Wired.
  • "As a community, we trust people to be honest about their vaccine status. While trust may be eroding, technology is no substitute."

2. Slightly less passive

A magnifying glass and a broken dollar bill
Illustration: Rebecca Zisser/Axios

Passive investing is another area where being overly purist can be self-defeating.

Why it matters: While there's abundant evidence that a hands-0ff approach will nearly always outperform a hands-on approach over the long term, no one really feels safe or in control when their hands are entirely off the wheel.

The big picture: Passive investing can be harder than it looks, especially when you need to reinvest dividends in a way that dynamically rebalances the portfolio. That's why vehicles like target-date funds and robo-advisors were invented.

  • The catch: Passive investment strategies can sometimes sit uncomfortably with a commitment to sustainability or other ESG screens. And selling existing assets in order to invest them passively can trigger capital gains taxes.

Driving the news: One robo-adviser, Wealthfront, is starting to allow its customers to make their own investing decisions. They can buy or transfer over ETFs and can even add crypto to their portfolios.

  • Wealthfront knows that its customers don't have all of their assets on its platform, so this is a way of increasing assets under management — and including them in the Wealthfront robot's risk and asset-allocation calculations — without forcing everything to be invested according to its model portfolios.
  • Wealthfront CEO Andy Rachleff doesn't expect a lot of customers to rush to take advantage of the new options. Rather, he tells Axios, "it's just knowing that you can."

The bottom line: Active investing is having a moment. By allowing investors to experiment a bit and maybe stray a little from passive-investing orthodoxy, Wealthfront ultimately hopes to keep more of them in the broader fold.

3. The coziness of German capitalism

Illustration of a pattern of euro symbols, in the colors of the German flag, fading left to right.
Illustration: Brendan Lynch/Axios

As a proud German (even though I managed to stupidly lose my citizenship), I often point to Germany as a good example of a country that makes successes of things like worker representation on corporate boards and low homeownership rates. But there are problems with the German system too.

What we're reading: Stanford's Adrian Daub has a fantastic essay in TNR explaining how Germany's all-too-cozy corporate sector tends to close ranks around its bad apples, rather than ejecting them.

  • Wirecard is, of course, Exhibit A — the fraudulent payments company that was fiercely defended by, rather than prosecuted by, the country's stock-market regulator.
  • "The German economic system tends to socialize scandals, partly because major companies are incorporated into a broader fabric," writes Daub.
  • "Checks on these companies often come from outside Germany. The big scandals of recent years — which in addition to Wirecard included the Volkswagen emissions scandal and Deutsche Bank's persistent involvement with Russian money laundering — were uncovered by the Financial Times, Californian regulators, and European Union watchdogs, respectively."

The bottom line: Germany doesn't produce aggressive, world-beating companies like Uber or Amazon, writes Daub, precisely because its companies are so comfortably coddled within the regulatory apparatus of the state. The state might not have much in the way of teeth, but it tends to smother the animal spirits of capitalism all the same.

4. Biden declares war on tax evaders

Illustration of Joe Biden holding a giant dollar sign.
Illustration: Aïda Amer/Axios

President Biden wants $80 billion over 10 years for the IRS to be able to close the gap between taxes owed and taxes paid — a gap that IRS commissioner Charles Rettig estimates could be as much as $1 trillion per year.

  • What they're saying: "We do get out-gunned," Rettig told the Senate Finance Committee earlier this month.

By the numbers: The number of IRS enforcement employees has fallen by 17,436 since 2010, even as opportunities for tax evasion have multiplied, especially in the world of cryptocurrency.

  • A major paper by Gabriel Zucman and others at NBER finds that more than 20% of the income of the top 1% goes unreported — and that a lot of tax evasion goes undetected even when an audit takes place.

What they found: Researchers studied 513 taxpayers who voluntarily revealed the existence of offshore accounts to the IRS during an amnesty period between 2009 and 2015, and who had also previously been audited by the IRS.

  • Only 7% of the audits had managed to uncover any offshore wealth.

The bottom line: Biden hopes that the $80 billion investment will reap some $700 billion in extra owed taxes over 10 years. Even if it does, that's likely only a small fraction of the total amount that the top 1% are evading.

5. Wages hit record highs — for white Americans

Data: LISEP; Chart: Sara Wise/Axios

The gap between white Americans' wages and everybody else's grew even larger in the first quarter of this year, according to new data from LISEP, the Ludwig Institute for Shared Economic Prosperity.

  • How it works: LISEP's calculation of true weekly wages includes not only full-time workers but everybody who is employed or seeking employment.
  • The LISEP number goes down when Americans move from full-time to part-time work, or if they become unemployed — even as official wage data would remain flat or even rise.

By the numbers: White Americans now have true median earnings, in 2021 dollars, of $914 per week — an all-time high significantly above pre-pandemic levels.

  • That amount is 42% higher than the median weekly earnings of Black Americans, and 45% higher than Hispanic Americans earn.

6. Unstoppable Google

Data: FactSet; Chart: Axios Visuals

Alphabet — aka Google — took in $615 million of revenue every day in the first quarter of this year, of which $200 million was pure profit.

By the numbers: Alphabet's quarterly earnings during holiday-season Q4 broke all records. But the Q1 profits of $17.9 billion were $2.7 billion larger still, reaching more than $130,000 per employee. Just in three months.

7. Dan Kaminsky, 1979-2021

Dan Kaminsky
Kaminsky in 2008, after revealing the DNS flaw he discovered and helped to fix. Photo: Glenn Chapman/AFP via Getty Images

Dan Kaminsky saved the internet in 2008.

  • He discovered a vulnerability in DNS, a part of internet architecture crucial to making it usable. (Without it, you'd have to type in something like 104.18.10.184 instead of just going to axios.com.)

The big picture: NYT's Nicole Perlroth tells the story well in her lovely obituary of a lovely man, and does a great job of capturing Kaminsky's enormous generosity of spirit.

Between the lines: It takes a very smart person to find the kind of flaw that Kaminsky found in 2008. It takes an even smarter person to be able to definitively declare that a system doesn't have a flaw.

  • In 2011, when I first started writing about bitcoin, Kaminsky told me he'd looked into it in depth and had determined that it was unhackable. To this day, I can't think of any other person I'd trust to make that judgment.
  • It goes without saying that he was right.

8. Coming up: Berkshire's annual meeting

Charlie Munger and Warren Buffett
Munger and Buffet in Beijing in 2010. Photo: Visual China Group via Getty Images

Don't go to Omaha — Berkshire Hathaway's annual meeting will take place in Los Angeles this year.

  • Warren Buffett, 90, and Charlie Munger, 97, will answer questions on Saturday for 3½ hours, alongside lieutenants Greg Abel and Ajit Jain.

9. Building of the week: Solimene factory, Italy

Solimene factory in  Vietri sul Mare, Italy
Photo: Ivan Romano/Getty Images

The Solimene ceramics factory in Vietri sul Mare, Italy, was built by Paolo Soleri, a student of Frank Lloyd Wright, in 1954.

  • Not just a factory, the building also houses residences and a showroom — and itself is a monument to the company's work.