In Defense Of The Chan Zuckerberg Initiative

(Note: This article was originally published on Medium). 

On December 1, Mark Zuckerberg and his wife, Priscilla Chan, announced the birth of their daughter Maxine (known as Max). They also revealed their plans to give away, over the course of their lifetimes, 99% of the Facebook shares they own (which carry a value of $45 billion) to the Chan Zuckerberg Initiative (legally structured as Chan Zuckerberg LLC, referred to henceforth as CZI), centered around two broad themes: Advancing human potential, and promoting equality.

Along these lines, Chan and Zuckerberg noted the importance of reducing poverty and improving access to healthcare, the benefits of inclusive communities, the tremendous utility of personalized learning, as well as the need for strong civil rights protections.

CZI set forward several different strategies for achieving these goals. These included making long-term investments in projects with extended time horizons, developing and improving technology to better solve humanity’s most pressing challenges, and engagement with a variety of matters of public policy.

Not surprisingly, CZI has attracted quite a bit of attention, not all of it flattering. One widespread critique focuses on the tax benefits which Zuckerberg and Chan will enjoy through their contribution. As tax attorney Robert Wood noted in Forbes, by donating appreciated Facebook stock to CZI, Zuckerberg will successfully avoid taxes on billions of dollars in stock appreciation and income. These are monies which will never make their way into the public purse.

Jesse Eisenger of Propublica also wrote about this tax treatment critically, noting that if some of Zuckerberg’s billions were collected in taxes, society, through the elected officials who run various levels of government, would decide how to allocate these funds. On the other hand, with CZI, Zuckerberg alone would control fund allocation.

Additionally, Eisenger argues that charitable organizations often fail to direct their money or efforts towards everyday needs like healthcare or infrastructure (usually addressed by government); what sort of impact might Chan and Zuckerberg’s money have if used to solve problems in these areas, rather than the particular issues which Chan and Zuckerberg have the greatest interest in?

Jason Farbman of Jacobin raised similar concerns about CZI, arguing that placing billions of dollars outside of public control “presents real problems for democracy,” as it “gives even more control to capitalists” and places them in “positions to….shape public life for all of us.” Farbman, like Eisenger, also pondered how CZI funds, if collected in taxes, rather than held privately, could impact vital programs like public education.

Writing for the Washington Post, Jeff Guo quoted the German billionaire Peter Krämer, who argued that tax-exempt giving by the wealthy was really “a bad transfer of power from the state to billionaires.” Guo also observed that public spending on social support in the United States was relatively low, while private expenditures, as a percentage of GDP, were rather high. Like Eisinger and Farbman, Guo wondered how such substantial spending and decision-making power by billionaires might lead to “too much power to the rich, whose decisions may not align with what’s best for society.”

These critiques largely overlook the many potential benefits of CZI’s unique approach. By placing a large amount of money in private hands, combined with a long-term outlook and flexible structure, CZI can focus on important undertakings which might not otherwise enjoy sufficient support from either government or private investors, and make crucial contributions towards a better world for all of us.

Let’s consider renewable and alternate energy. Through it’s Loan Program Office, the US Department of Energy has disbursed more than $30 billion in loans to a variety of clean energy projects. Despite prominent, highly politicized failures like Solyndra, it has proven profitable. Still, this initiative was in large part a brainchild of the Obama administration, and at times fiercely opposed by some Republicans. What happens if an administration with other priorities takes office, and decides to scale back on these programs?

Unreliable federal support isn’t an issue just for clean energy ventures. Since 2003, thanks to budgetary wrangling in Congress and the White House, funding for the National Institute of Health (NIH), has been rather stagnant,leading to a 22% drop in the agency’s purchasing power. This situation has grown so dire that more than a dozen medical school deans recently warned that financial challenges, in particular unpredictable federal funding, poses a major threat to the continued viability of “high-risk, high-reward research” and will lead to a “smaller biomedical research enterprise and slow clinical advances.”

CZI, and other similarly structured funds, can provide an additional, extra-governmental structure, in order to ensure some level of basic funding for impactful scientific and medical research. Since just a few people will make ultimate funding decisions for CZI, this organization can provide cover from the ever-shifting winds of funding battles in Congressional committees, which are a constant feature of today’s political landscape.

What’s more, since CZI’s structure as an LLC allows it to make equity investments in for-profit firms, it will enjoy the flexibility of using several different methods for backing a venture (either debt or equity investments), something which government and traditional nonprofits can’t really do. This could, in some cases, lead to profits which CZI could reinvest in it’s general funds, growing it’s base, and supporting additional worthwhile endeavors.

Given their stated interests, there is considerable reason to believe that Zuckerberg and Chan will fund the types of initiatives normally backed by the NIH, Department of Energy, and other government agencies. As ever more wealthy people give to philanthropic avenues (in part thanks to the The Giving Pledge), we can reduce the impact of governmental gridlock on technological progress.

CZI also opens up funding for the sort of innovation and discovery which can take decades, and offers at best uncertain payoffs. In recent years, the interval between an initial venture capital investment in a company, to a successful exit (that is, an IPO, or acquisition by another firm), has averaged around 7–8 years. What’s more, a large portion of these investments have been heavily concentrated in areas such as software, media and Internet-specific businesses, which sometimes carry a relatively shorter investment horizon.

Yet, private investment in areas like clean technology, with it’s greater technical uncertainty, and longer timeframe, has often been rather anemic. Venture capital firms, which are judged on the basis of annualized returns to investors, are understandably hesitant to commit large amounts of capital to technically challenging, sometimes decades-long propositions, especially if more conventionally attractive opportunities are at least sometimes available.

What’s more, not every socially valuable undertaking is financially profitable. Can we really expect profit-driven private investors to pump billions of dollars into funding long-term innovations which assist poor farmers, or to back large-scale, decades-long efforts to fight disease in impoverished regions?

As noted earlier, government funds, which are disbursed solely at the discretion of elected officials, are at best a questionable source of stable funding, for long-term initiatives with uncertain final outcomes. Much of today’s US Congress will look askance at directing taxpayer dollars towards such efforts.

This leaves us with organizations like CZI, which has stated it’s intent to support extended-horizon, high-impact investments, which carry some degree of financial risk. Chan and Zuckerberg view such endeavors as a vehicle for solving our greatest challenges. There is much good that could come from backing ambitious, lengthy initiatives in bioengineering, renewable energy, global health and farming.

Eisenger, Farbman and Guo all seem to fear that the creation of a private entity like Chan Zuckerberg LLC could lead to concentration of power; that is, just a few rich people (Zuckerberg and Chan) would decide how to allocate their organization’s billions, as compared to a democratic government, where elected officials collectively decide how to direct public monies. Over time, the theory goes, this would allow CZI and similar organizations to gain more and more clout, often at the expense of elected officials, who were chosen by the American public.

Rob Reich of Stanford University offers a compelling counter to this line of thinking. Reich notes that private, profit-driven firms aren’t very effective in providing public goods (that which any member of society can potentially use and benefit from, whether or not he or she individually paid for it, including parks, public education, national defense and the arts). Government, which marshals considerable financial resources, and facilitates collective action, is often far more effective in this arena.

Yet, Reich argues, production of many public goods tend to reflect the preferences of voters. As an example, if citizens tend to favor funding for police over the arts, then more dollars will flow towards the FBI and local law enforcement, and less towards the National Endowment for the Arts, or smaller creative organizations. Yet, foundations can counter this trend, by providing alternative public goods, which are of particular interest to a fund’s backers.

An individual philanthropist who backs research into a particular disease, or who cares about supporting modern performance artists, or agitates for the expansion of a promising, creative approach to math education, can fund such causes, even if government lacks interest. As a result, an increasingly diverse array of public goods will be produced, which, as Reich puts it, will “decentralize the definition and production of public goods” and help ensure “pluralism” and temper “government orthodoxy.” CZI can play an important part in this process.

We can find examples of this idea in today’s philanthropic landscape. Elon Musk, Sam Altman and several other prominent Silicon Valley investors recently announced the creation of OpenAI, a nonprofit venture which will direct as much as $1 billion in funding towards transparent, open-source artificial intelligence research, with a goal of preventing artificial intelligence from being exploited by those with ill intentions.

It’s difficult to imagine such an undertaking receiving much government support at this time, however beneficial it might turn out to be in the long run. Yet, the presence of nongovernmental sources of funding,, helps make such ventures possible, and creates a range of approaches to understanding and addressing the needs of society.

To be sure, the United States, like every nation, needs a functional, effective and fair government. This demands sufficient tax revenue, allocated equitably amongst the nation’s population. There are clearly aspects of the US tax code which disproportionately benefit the very wealthy, and so ought to be reformed, in order to function more equitably. Inequality is at historically high levels, and while it’s causes are hotly contested, Neo-feudalism is hardly a promising path forward into the future.

Yet, in a world where American corporations hold over $2.1 trillion in offshore tax havens, and Warren Buffett apparently pays a smaller portion of his income in taxes than his secretary, should the tax implications of Mark Zuckerberg’s philanthropic efforts really be the focus of such ire? Large-scale ventures like CZI can have a substantial positive impact on our world, often treading where government and private industry won’t. Viewing CZI and it’s counterparts as simply lost tax revenue is shortsighted. If favorable tax treatment encourages the growth of such ventures, that’s a worthwhile price to pay.

CZI offers a new, important source of backing for many promising initiatives that often don’t enjoy enough support. It compliments, not undermines, the role of a democratic government (and some private, profit-driven firms) in building a more livable world. We should stand behind such endeavors, and be supportive of their growth and success.

Holding Law Schools Accountable

(Note: This article was cross posted on Medium.com).

For anyone who just graduated from law school, the last several months of the year can be an anxious time. These aspiring attorneys find out whether they passed the bar exam, and, if they haven’t already secured a post-graduation job, will scramble to figure out what their next steps are.

In 2015, bar exam passage rates continued to plummet across the nation, including in some of the country’s largest legal markets. In California, the overall bar passage rate fell to a dismal 46.6%, which was the lowest level in nearly three decades. In New York, while the overall bar passage rate was a somewhat stronger 61%, 2015 brought the poorest results recorded in the state in 35 years.

What’s behind this national plunge in bar exam performance?  Erica Moeser, president of the National Conference of Bar Examiners, has argued that a drop in the skill levels of recent law school graduates is to blame. Moeser points to a decline, beginning in 2010, in the 25th percentile of LSAT scores for entering law students, across the vast majority of law schools (median scores have fallen at most schools as well). As students with lower scores (and impliedly lower academic ability) are admitted, the argument goes, bar passage rates have decreased. Some law school deans, most notably Nick Allard of Brooklyn Law School, have vociferously challenged Moeser’s arguments, although there has been little actual refutation of the data and statistics underlying her assertions.

Lower LSAT scores are a product of decreased law school attendance. The 2014 entering class was nearly 30% smaller than in 2010, and was the smallest crop of new law students since 1973. As interest in studying law has fallen, in order to maintain comparable class sizes, many schools have reduced admissions standards.

Driving this exodus from legal education are the rather dismal economics of today’s legal industry. According to the National Association for Law Placement, from 2008 to 2013, the overall employment rate for recent graduates fell every single year. Numbers for 2014 graduates were slightly better, though in part due to a smaller graduating class.

What’s more, many of those who obtained jobs ended up in positions which didn’t even require passage of the bar exam, raising serious concerns about the value of law school. Additionally, some of those who were reported as employed were actually in temporary, unpaid positions, funded by stipends from their law schools.  

Far fewer recent graduates are working in private law firms, which tend to pay higher salaries, compared to their counterparts of decades past. Hiring of temporary contract attorneys has become quite common; most of these positions offer modest compensation and minimal job security. Many of today’s graduates are likely to face subpar employment prospects, while carrying high levels of student debt, for years to come.

These troubles aren’t just confined to those beginning their careers. Since 2008 (when the Great Recession began in earnest), incomes for partners at law firms (across all sizes) have dropped by 9%, adjusted for inflation, while the legal industry contracted by more than 50,000 jobs from 2008 to 2013. Large, storied national law firms have gone bankrupt, while revenue growth at many larger firms has been at best lackluster, despite a rebounding economy.Things were even worse for the quintessential everyman lawyer, the solo practitioner, whose earnings were reduced by more than 30%, adjusted for inflation, between 1988 to 2012.  

It is hardly shocking that so many who once might have considered law are now moving towards alternate career paths (although Steven Harper, author of The Lawyer Bubble, argues that enrollment hasn’t fallen enough relative to job availability). At the same time, law schools face large fixed overhead costs, especially in terms of paying the salaries and benefits of longtime tenured faculty.

Law school administrators thus face two choices. One approach is to maintain admissions standards, slashing class sizes thanks to fewer applicants. The other option is to lower acceptance requirements, and prop up student headcount, preserving overall tuition inflows, while delaying hard choices around downsizing and restructuring.

Many institutions have clearly selected the later approach. To some extent, those considering law school must hold themselves accountable, using the sort of data cited here to thoughtfully assess their bar passage and employment prospects. A competent attorney must be meticulous in his or her research. It’s not unreasonable to demand the same of those who hope to one day be lawyers.

Yet, that isn’t enough. While the concept of students as customers remains a subject of heated debate, it is inescapably true that individuals select law school from an array of viable career and educational paths, and in doing so, face opportunity costs. In terms of both personal impact and monetary costs, attending law school is much like making a major purchase (buying a home comes to mind). Basic consumer protections, ensuring transparency and accountability, ought to apply.

The Truth in Lending Act (TILA) offers a useful case study of the sort of approach which might work here. Initially passed in 1968, and expanded since, TILA requires lenders to offer detailed written disclosures prior to extending customer credit, including credit cards, auto, student, and mortgage loans. This information helps paints a clearer picture of the actual costs and responsibilities faced by borrowers, allowing them to make more wiser decisions in accepting loans.

While law school employment reports have become somewhat more accurate and representative over the past few years, more work is needed. Each institution should be required to provide prospective students with an electronic disclosure statement that lays out, in detail, bar passage rates and employment outcomes for graduates from each of the previous 5 years, encompassing the 12 months following a graduate’s completion of law school.

Included in this employment data should be the firm or agency size where a graduate obtained employment, his or her annual salary, and notations to indicate whether such employment was permanent, or on a contract basis. This information should be displayed in an interactive format, indexed with each graduate’s LSAT scores and law school grade point averages, to better explain how various individuals fared. Of course, disclosures must be implemented in a manner which protects individual privacy, which seems quite feasible.

Those considering law school must also review a snapshot of broader income and employment data for the legal profession as a whole, across geographic regions and practice areas. This paints a fuller picture of the road ahead. Each potential student will then be required to affirm that he or she has reviewed and understood all of this information, prior to committing to a particular school. Engaging in this exercise can help individuals reach more informed decisions as to whether studying law actually makes sense.

Having graduated from law school in 2010, I am quite familiar with the challenges that newer attorneys face in today’s legal landscape. Yet, I’ve also come to believe that there is real value in a legal education. In the right circumstances, the practice of law can be meaningful and fulfilling. Some observers, most notably Paul Campos of the University of Colorado Law School, and Jordan Weissman at Slate, have argued that in at least some cases, law school is still a worthwhile undertaking. I agree.

However, that is ultimately a decision for each individual to make. Since entering the legal profession is such a substantial commitment in terms of time, money, and effort, those who wish to become attorneys must be fully aware of what awaits them, and provided with the data to make a well-reasoned decision as to whether law school is indeed the right path. For a profession whose very existence is based on the deliverance of justice, this is the only fair thing to do.

We Must Teach High School Students About Money

(This piece was originally published on Medium). 

Reading. Writing. ‘Rithmetic. The Three R’s. Sir William Curtis of London coined this phrase back in 1795, and it quickly spread to the United States. The ability of students to read, write, and perform basic mathematical tasks, is at the core of that knowledge which our society believes students ought to possess by the completion of their primary education.

Judging by recent test results, American students haven’t come close to achieving mastery in these three areas. The United States ranked below 29 other nations in 10th grade math scores, while a 2012 national assessment found that three quarters of eight and twelfth graders don’t write proficiently. The causes of these dismal results have been debated at length, with commentators and researchers exploring causes ranging from poverty and economic inequality to ineffective teaching.

Yet, English and math aren’t the only topics where improved knowledge is critical for future prosperity and success. It is vital for high schools to teach the basics of financial literacy and money management, so that each graduate can make informed, prudent decisions around managing his or her money, as he or she moves into adulthood.

In 2012, the Financial Industry Regulatory Authority (FINRA), a private regulatory body dedicated to supervision of the American financial sector, conducted a national survey, exploring the financial literacy of the American public, and delving into spending and saving habits, as well as overall monetary health.

This study offered some troubling results. In one part, respondents were asked a series of five basic questions, to test their knowledge of core economic issues and concepts. These questions explored several topics, ranging from interest rates to investment risk to inflation, which will impact every Americans over the course of their lives.

Just 14% of those surveyed were able to answer all five of these questions correctly, and 39% answered 4 of the five questions correctly (the average number of questions answered correctly was a dismal 2.88). Success in this quiz varied considerably among different demographic groups, with males, older individuals, those with college educations, as well as whites and Asian-Americans, performing significantly better than others.

FINRA’s findings were released in the same year as a study from the Organization for Economic Co-Operation and Development (OECD), which examined the financial knowledge of teenagers. Here, researchers measured the financial knowledge of tenth grade students, in 18 nations (or parts of a nation), including the United States, Australia, Russia, France, and the city of Shanghai, China. American teenagers put on a rather average showing, ranking 9th of those nations surveyed, between Latvia and the Russian Federation. Nearly 18% of American teenagers failed to meet a baseline level of financial proficiency, as compared to an average of just over 15% for other nations in the survey.

What is even more problematic about the test results for American students, is the extent to which a youth’s financial literacy is determined by his or her household’s income. Of all the nations surveyed, the US ranked third in terms of how much a student’s knowledge of basic financial matters, is determined by his or her socioeconomic status, and second in the degree to which family wealth affects a teenager’s financial literacy. Only Colombia fared worse in both categories.

American teenagers also face a massive wealth-based gap in access to basic financial services. 70% of teenagers in the top socioeconomic quartile (the wealthiest 25% of households) held bank accounts, compared to just 32% of those in the bottom quartile. This disparity in banking access was the widest in any of the countries which the OECD studied.

These findings suggests a sort of perpetual downwards cycle, where one’s familiarity with matters of finance is in large part determined by birth and family circumstances, while, at the same time, it can rather difficult to build wealth and advance economically, without this sort of knowledge.

Additionally, far too many Americans engage in harmful financial behaviors, which ultimately cost them more money in the long run. According to the FINRA study, less than half of those surveyed pay their monthly credit card bills in full (with over one third paying just the minimum monthly payment), causing them to go deeper in to debt, while incurring additional charges and fees.

Meanwhile, nearly one third of respondents have engaged in some form of non-bank borrowing, such as obtaining payday loans, auto title loans, or making purchases from a “rent to own” store. These financial instruments often carry exorbitantly high interest rates, which greatly elevates overall borrowing costs. Those who are younger, less educated, have lower incomes, and are from minority groups, once again are more likely to engage in these sorts of behaviors.

Americans also exhibit poor savings habits. 44% of households in this nation are either in debt, have no savings at all, or have less than 3 months of savings, if they were to lose their jobs, or face another financial emergency. Of particular concern is the widespread lack of sufficient retirement funds.Nearly one-third of American workers have no retirement savings at all, while the median retirement savings for those aged 55–64 is a meager $14,500. While those in retirement savings plans based through an employer have fared much better (almost half of Americans in these plans saved $50,000 or more), less than one third of workers in small companies, and under 20% of low wage workers, actually work for employers who offer such plans.

Recent policy proposals have focused heavily on ways to improve retirement options for those whose employers don’t provide such assistance. Without such reforms, a very large portion of retirees will be heavily dependent on Social Security to cover their daily living expenses (which often isn’t nearly enough to live comfortably on). Today, Social Security comprises more than half of the yearly income for over 50% of retired married couples, as well as nearly three quarters of single retirees.

Those at the younger end of the age spectrum face another major challenge:student loan debt. 71% of today’s college graduates borrowed money to pay for their education (compared with under 50% of graduates two decades ago), with the average debt load for those who completed school in 2015 hitting a record $35,000 (making them the most indebted college graduating class of all time). A spike in borrowing by graduate students, and the extensive use of post-graduate government loan forgiveness programs, is also a source of recent concern.

As with so many other social issues, education is a vital part of altering many of these trends. High school is the ideal place to begin this process. During and immediately after those four years, students will face important choices around obtaining student loans to pay for college, entering the workforce, and thus having some income to spend, save, or invest, opening a bank account, and, upon reaching the age of 18, signing up for a credit card with the help of a cosigner.

These decisions are relevant both in terms of their actual financial impact (as seen with college debt) as well as the habits one forms (patterns of spending and saving of earnings). What high school students learn about money will be carried with them throughout their lives.

What should a complete high school financial education look like? It ought to provide students with a practical understanding of the most important “money questions” which they will face soon after turning 18, and just as crucially, offer a core framework for making these decisions throughout one’s life.

This curriculum should also offer a practical look at the basics of debt and borrowing, both for consumer credit instruments like credit cards, as well as loans to pay for one’s education. In particular, the math behind repayment of students loans ought to be explained in more detail, since it is simple to sign a paper promising to make a monthly payment to Sallie Mae, but somewhat harder to envision the long-term impact of such borrowing, particularly in the increasingly uncertain economic climate of this era.

Students must also learn the basics of budgeting, saving and investing their money (including how tools like savings accounts, 401(k) plans, index funds and other investment vehicles work), and gain an understanding of how setting aside and investing money impacts one’s long term financial future.

As a part of this coursework, it is useful to provide a brief snapshot of the way in which macroeconomic trends, such as inflation and interest rates, can affect one’s finances. All of this knowledge plays an important role in building a strong reserve of savings for retirement, or that inevitable rainy day.

Some might argue that this curriculum is too complex for high school students to effectively digest. Yet, as noted earlier, for much of the American public, matters of money and finance are seemingly challenging to grasp, often with detrimental consequences. Thus, it is crucial to break this cycle, and provide people with a head start, familiarizing them with these issues as early as possible.

If it is reasonable to expect high school students to graduate with working knowledge of core concepts in math, reading and writing, all of which are important for a student’s future, there is no reason to shy away from similarly rigorous expectations in a subject which carries lifelong implications for virtually everyone.

It is important to remember that not all poor financial behavior is caused by a lack of knowledge, or an irresponsible, spendthrift attitude. For many Americans, financial insecurity is a fact of life, a product of earnings that are sometimes insufficient to meet basic living expenses, let alone to withstand an unexpected event like illness, or the loss of a job. Real wage growth (that is, earnings increases after taking inflation into account) for the middle class and working poor has been weak to nonexistent for the past several decades, while housing costs remain as high as ever.

Given this situation, it isn’t surprising that outstanding credit card debt remains at near-record levels , or that many Americans make use of payday loans to meet basic expenses, borrow tens of thousands of dollars to meet ever-rising college and graduate school tuition costs, and save little to nothing for retirement or other contingencies. When meeting the costs of everyday living becomes tougher, use of debt grows more common, and long-term financial planning appears to be a distant, unlikely undertaking.

Until we see sustained middle-class income growth, an improvement in retirement savings options, and creative solutions to reduce educational costs and thus student debt, this situation is unlikely to fully change. Real policy reforms are required.

Yet, teaching responsible financial behavior early on, will allow more people to at least partially avoid the dire consequences of inadequate fiscal discipline, and poor money management skills. We can help the many Americans who face a range of economic challenges, make their situation somewhat more manageable. This isn’t a complete solution, but it is certainly a part of any real steps towards greater economic empowerment, and a better overall standard of living.

Reading, Writing, and ‘Rithmetic? All are important skills to have. But, it’s also far past time to add financial literacy to that list. Such knowledge is undeniably crucial for a productive and stable existence.