Tuzzolino on Value and More

Courtesy of Thunderbird

By: Keith Blincoe, Staff Writer

Last week I sat down with Dr. Frank Tuzzolino, professor of finance. He has taught at Thunderbird for over three decades and has won its Outstanding Teacher award ten times. This is his last year at our school. Our wide-ranging conversation touched on the social role of finance, leading a fulfilling life, tax policy, and his own teaching. He began by pointing out that he would not necessarily answer my questions. (His students will remember his sense of humor.)

Courtesy of Thunderbird

Courtesy of Thunderbird

Das Tor: Do you manage your own money?

Frank Tuzzolino: Oh, yes. It’s not that hard given how trivial the amount is!

DT: If you could push a button and make students understand something, what would it be?

FT: The value of a rigorous disciplined class. And you can manage your own money; it’s emancipating. You don’t have to be a workaday drone. You know, control of your destiny can only come in a couple ways, right?

The bulk of our conversation concerned the social impact of capital markets. Prof. Tuzzolino said that he’s not sure how valuable capital markets are as a whole. He suspects that in addition to their value in money terms they may also represent a force for modernity in the world. He is not sure of the mechanism by which this might happen.

We also discussed rent-seeking in high finance, especially with regard to high-speed trading.

DT: The social returns to speed diminish, but the private returns do not; in theory this encourages wasteful competition. There is a tradeoff between the informational value of added speed and wasteful duplication of effort. What is your take on this?

FT: There is not much better we can do in terms of speed. The next stage would be nanoseconds. Or pico. That’s not going to happen in our lifetime. It gets to the issue of paper shuffling. It’s not like what Apple does.

I think maybe you could tax some of those rents—you would have to be able to define “rent”, and what is “abnormal”—but maybe somehow an approach courtesy of the tax code. You would see an outcry. They do keep a lot of people employed and buy a lot of luxury goods.

This led us to the concept of positional goods (goods whose value derives from the relative status they confer). Luxury goods have a positional element. If Smith buys a larger boat than Jones part of the utility for Smith comes from the increased comfort of a larger yacht, but a substantial portion comes simply from the yacht’s being bigger than Jones’. This portion is zero-sum, because the value Smith gains by having a larger yacht is lost by Jones because of his smaller yacht.

Prof. Tuzzolino said that positional goods were relevant to overall welfare and the tax system. “But I don’t want to talk about politics,” he added.

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