Friday, March 30, 2012

Gas-saving Myths

Since I began March with an explanation of critical thinking, I decided to end it with an example on the same subject.

I came across this article on Yahoo! Finance, and if you rarely click onto the links, this is one I definitely recommend taking a look at.  It talks about four myths about saving gas, and with gas prices high and rising, saving gas is something of universal interest.

Beyond the fact that it’s good information, the reason I chose it is that it makes some good points about critical thinking.  In the case of the first myth, it gives a good, logical explanation of why buying gas early in the morning makes little or no difference.  From a critical thinking standpoint, logical explanations are far superior to celebrity endorsements or the testimony of a friend or relative, but are sometimes not good enough.  The other three examples tell of tests or experiments performed to validate or disprove the beliefs.  These provide an even stronger argument.  Furthermore, the tests were done by reputable organizations with no direct stake in the outcomes – Popular Mechanics, Edmunds and Myth Busters.  That makes their conclusions even more reliable.

There is a kind of critical thinking continuum, running from endorsements (little or no credibility) through explanations (better) and experiments (even better), ending with validated experiments, those that have been reviewed and duplicated.  That is not to say endorsements are always wrong.  Sometimes what trusted, experienced people tell you is perfectly true, but it depends on how they got their information.  Sometimes experiments have flaws in design and give wrong information.  In general though, the trustworthiness of information can be judged by the strength of the evidence and its position along this continuum.  We would be wise to follow this rule of thumb when choosing products or lifestyles.

One more thing – don’t forget about the placebo effect.  There are instances of people who have tried the magic magnets under the hood of their car or those expensive fuel additives and reported an increase in fuel mileage, unconscious of the fact that they were so excited about this new discovery that their driving habits changed as well.  Stronger evidence that I’ve seen about such products show they are not a wise investment.

Monday, March 26, 2012

Truly Magic Buttons

Seriously, I want to tell you about magic buttons.  This may come as a shock to faithful readers who know that when faced with any product representing itself as magic, I usually respond with, “Apply some critical thinking!”  But this is different.  The magic buttons I refer to are the ones that turn off or change stations on your radio or television.  The fact that there are such buttons should come as no surprise, but when I see how many people complain about being "offended" by something they heard or saw, I don’t think these buttons are used enough.

What brought this to mind is the latest minor controversy involving the Doonesbury comic strip commenting on Texas abortion sonogram debate (and subsequent letters to the editor).  This is not the first time Doonesbury has tackled controversial subjects, and I know of one newspaper that thought it appropriate to move the strip to the editorial page long ago.  Doonesbury appears in my local newspaper, although I seldom read it.  I don’t have strong feelings about this particular subject, but the humor of Doonesbury just does not appeal to me, and I have better things to do with my time.  There are other columns, as well as television and radio shows that fall into the same category.  There’s no button on the newspaper, but no one is forcing me to read everything, so I pick and choose, making my own decision.  Smart media executives eventually survey readers to find out what is popular and adjust accordingly.  (For example, here's an article mentioning Oprah's use of survey information.)  If I’m in the minority, which I often am, no adjustments will be made and I will just keep managing my own exposure using the off and channel-change buttons.  I’ll choose to be discriminating rather than offended.

I take this course because I feel strongly about the First Amendment.  All are free to express beliefs or state opinions no matter how outrageous.  If people don’t agree they can tune them out or turn them off – or they can make calm, rational counterarguments.  Eventually the worst will lose their support and platform.  I’m patient.  I can wait.  (Impatience is a great enemy of perspective.)

What I can’t understand are those self-righteous types who make a big fuss and demand apologies, boycotts and retribution.  Sometimes I agree with their point of view, sometimes I don’t; but I fail to see what gives them the right to dictate my choices based on their taste or morals.  If something disturbs or offends them, let them use their magic buttons.  If they think certain things are not appropriate for their children, let them get more involved in their children’s lives. 

By the way, another magic button is the mute button on the TV remote.  Used during commercials, it provides some nice quiet time, time to relax or converse with your family, and just ignore all the sales pitches.  I use it frequently and recommend it.

Friday, March 23, 2012

Water, Water Everywhere...

Last time I pointed out one example of the folly of trying to make everything in our lives totally pure and one-hundred-percent safe.  Ironically, about the same time that California is requiring the removal of minute quantities of a coloring chemical from soft drinks, the rest of the world is striving to find reasonably safe drinking water for a significant number of people.

A recent news story from the BBC gives the details.  Work led by the UN begun in 1990 has greatly reduced the number of people worldwide without access to safe drinking water, meeting their goal 3 years ahead of schedule.  Still even today only 89% of the world population has access to a reliable source of clean water.  Further along in the same article it mentions another major challenge, that less than half the people living in India have access to a toilet!

To me this helps with gratitude and perspective.  How often do we take for granted such things as indoor plumbing?  While some Americans buy bottled water at hundreds of times the cost, there are millions of people in the world who would celebrate the opportunity to drink the water we feel is only fit for washing cars or watering lawns.  These reminders should give us reason to be appreciative and grateful for what we have and not so obsessed with what we wish for. 

Monday, March 19, 2012

Coke and Pepsi Warnings

One day I overheard a news item on the radio about using radiation to kill bacteria on vegetables.  A colleague asked the rhetorical question, “Who would buy that?”  I told her that I had done some reading on the subject recently and the irradiated vegetables were perfectly safe to eat.  In fact those vegetables had been exposed to radiation for at least half of the time they were growing and couldn’t have grown without it.  It’s called sunlight.  But people don’t think of sunlight as radiation.  They don’t consider radio and cellphone signals as radiation.  Radiation is thought to be always bad and dangerous – no distinction is made between harmless and dangerous.  That would take some critical thinking.

People also fear carcinogens.  If it might cause cancer, regardless of the conditions or dosage level, it’s bad.  But so many things have been shown to cause cancer (including good-old sunlight, by the way) that comedians joke about it.  There are even substances that were once considered dangerous but have earned a reprieve.  It seems you can hardly move without bumping into something that at one time or another wasn’t considered deadly.

Now we get a recent news article about a substance in Coke and Pepsi coloring being banned in California because it caused cancer in lab animals.  Later in the article it states that humans would have to drink over one thousand cans per day to reach the dosage level given to the rodents.  Of course, if you tried to drink that much in a day the amount of water would kill you long before you reached the danger point for developing cancer.  (Yes, you can overdose on water!) 

Perspective is about moderation, understanding that you can keep trying to make your food, your drink, your environment purer but you reach a point where an extra dollar of effort yields pennies in benefit, and finally a point where an extra dollar of effort yields no benefit at all.  Yet there are still those with so little perspective and no understanding of science who insist that the water and the air are never clean enough.  Then it’s left to politicians and judges, not scientists, to sort it out.  And where do all these additional dollars come from? – you guessed it!

Friday, March 16, 2012

Bank Overdraft Fees

Again, here is a subject we should be taking care of ourselves instead of expecting the government to fix.  This article tells about an inquiry, not an investigation to uncover wrongdoing, by the Consumer Financial Protection Bureau into banking practices regarding overdraft fees. 

I made the point back in July 2011 and again recently that the bankers are smarter than the government when it comes to business and finance.  They react to new regulations with new policies or fees, forcing the government to come back later with more regulations.  It’s a vicious cycle that adds no value to our lives or to the economy.  In fact it often results only in our receiving another piece of mail with a multipage explanation of how the rules have changed - once again.

The fact is that most of these interventions for consumer protection involve situations that are directly under our control.  If we act responsibly, we don’t need protection.  This case of overdraft fees is a prime example.  The fees become an issue only when someone writes a check or withdraws from an ATM more than is in the account.  It’s addition and subtraction, but it doesn’t affect people because they can’t add or subtract.  It affects them because they don’t keep their records current.

There are many excuses for slipping, but they are only excuses.  When customers make an error, the banks take advantage.  When this happens, there should be one of only two outcomes.  Either the fees are high enough to cause a person to change behavior and keep better track, or they are not.  A good analogy is running out of gas.  You are stuck by the side of the road, costing you both time and money.  It is the result of not paying attention to the fuel gauge. There is no question as to whose fault it is, and it is easily remedied in the future.  This seldom happens to people a second or third time because they have learned from the experience to pay closer attention to the gauge.

Likewise overdraft fees should be no big deal!  Yet the head of the bureau wonders: “how consumers are affected and how well they are able to anticipate and avoid paying late fees.”  What a surprising statement!  They are affected by having to pay fees that should cause them to change behavior, and they know exactly what behavior needs to change.  To assume that people are incapable of solving this problem on their own seems arrogant and insulting.  Citizens displaying responsible behavior, not government inquiries, effectively solves this problem with no more regulations or "protection" required.

Monday, March 12, 2012

More Americans Saving Tax Refunds

Here is some good news for the future of our society.  Yahoo! Finance reports that more Americans are planning to save at least part of their tax refunds than did so in the past nine years.  Others plan to use their refund to pay down debt.  Less than one-quarter expects to use it on splurge spending or a vacation.  Another survey mentioned in the article found similar results.

People have been known to give one answer to a survey and act differently (see blog from October 7, 2011), but if this one turns out to be true, perhaps fewer people would be living on the edge, paycheck to paycheck, in danger of default.  It’s good news not only for them, but for everyone.

Economic understanding about the flow of money tells us that when people are unable (or unwilling) to pay their legitimate debts - credit cards, auto loans, mortgages, or whatever - the rest of us must take up the slack.  Banks adjust interest rates, penalties, fees and their willingness to approve loans to make up for the added risk posed by these deadbeats.  The same reasoning applies to tax evaders who settle for “pennies on the dollar” or, for that matter, to shoplifters.  Those losses don’t go away or come out of some mysterious pot of money or some magic insurance policy with no premiums.  They are made up for out of your pocket and mine in the form of higher prices, premiums, taxes and fees.

So this expected increase in responsible behavior from some is good news for all.  (This example shows how more positive behavior by individuals in any of the five key dimensions moves America as a whole in the right direction.)

Friday, March 9, 2012

Don't Listen To Me!

As I walked through the mall a few weeks ago, it occurred to me that if everyone listened to me we would be in big trouble!  If we all suddenly developed perspective, began living out our values that people are more important than things and suddenly stopped reacting to advertising hype and peer pressure, half the retail establishments would go out of business - and with them the jobs.  The stock market would tank and with it our retirement investments – so many IRAs, 401(k)s and union pension funds.

What if we all started buying things because we needed them, not because someone else told us that we needed them?  What if we stopped trying so hard to impress our friends and neighbors?  How many shoe stores would one mall need?  Would people rush to buy the latest electronic gadget the day it came out or fight over the latest athletic shoes or pay outrageously for fashions with a designer label or logo?  Would we continue to buy four-dollar cups of fancy coffee?   Instead would we have a nice bowl of cereal packed with fiber and vitamins in the morning and make ourselves a sandwich for lunch a few days a week, saving money and feeling healthier instead of living on a fast-food diet?  Would we be willing to pay those high prices to watch millionaire athletes, actors or singers perform, camping outside the door for hours; or would we wait until the prices seemed more reasonable, more in perspective, forcing those entertainers and promoters to meet (rather than set) our expectations?

Think about it –how many of the 1% that the occupiers rail against were able to join the top1%  because we met their price or kept their companies in business by buying stuff that we could have easily lived without?  Whose spending drove the housing bubble, the Internet bubble and all the other bubbles that made someone else rich?  How many people have basements and garages full of things they once “needed” but now rarely look at – and storage containers rented to accommodate the overflow?

But let’s not all get perspective at once!  There are common folks out there whose jobs depend on Americans buying new cars every few years, stopping in for fast food and a cup of coffee, making a meal with our family a special event instead of a regular practice, preferring designer labels on everything they buy, putting appearance ahead of substance, and planning their lives around what others think of them.  It’s OK if a few try this perspective thing, but let's not get carried away.  If it spreads too far too fast, we are all doomed!

Monday, March 5, 2012

The Myth of Home Equity

Back in the 1980s all the interest you paid was deductible from your income taxes:  car loans, credit cards, mortgages, etc.  In 1986 Congress passed the Tax-reform Act, ending deductibility for all interest except home loans.  What happened next?  The banks began heavily marketing home equity loans.  Buy your car but use your house as collateral and still deduct the interest.  (I always say that when it comes to finances, bankers are a lot smarter than politicians.  See blog for July 1, 2011.)

Formerly, if you took a second mortgage on your house, you were in dire financial straights, but now you were encouraged to be smart, tap your equity and be rewarded with a deduction.  What they didn’t tell you was that the equity from appreciation really wasn’t profit.  As the price of your house rose, so did the price of all the others.  Cash-in your house and you still need a roof over your head, but now they all cost more.  Equity growth through appreciation was just a way of keeping up.  Good equity comes from paying down the balance, which doesn’t happen if you keep borrowing against it.  The "American dream" is to own a house, not to live in a piece of collateral.

What else they didn’t tell you was that a house with no equity is the same as a rental with no landlord.  You are responsible for repairs and maintenance.  You have all the work of a landlord but someone else (your bank) collects the “rent” payments.

Third, they didn’t tell you that for the average person the tax deduction is at best, modest.  About 2/3 of taxpayers take the standard deduction; it does them no good at all.  If you itemize you could always have gotten the standard deduction, so you only really benefit from the amount greater than what you would have gotten anyway.  If your total deductions, including mortgage interest, are greater than $11,600 this year (joint return), your advantage over renting is only the excess, not the entire amount.  You need substantial other deductions to get the full effect, and most of us don’t.

Of course they didn’t tell you that housing prices might fall.  It was unimaginable! – until now.  Then you find yourself underwater.  The irony is that many people who got into this situation treated buying a house as an investment rather than a long-term purchase.  What else do you buy expecting it to increase in price?  Do you think about a new car depreciating as soon as you drive it off the lot?  Do you then park it on the side of the road and walk away because you owe more than it’s worth?  Have you tried to sell your refrigerator or big screen TV lately?  People who wouldn’t dream of risking money in the stock market treated a house as an investment and got burned.

Finally, they don’t tell you that if you don’t eventually pay off your mortgage, you will go on paying for the rest of your life.  It’s not good to be planning your retirement and realize that you have 25 years of mortgage payments to look forward to.  (Financial advisors will tell you never to make an extra house payment, because it's smarter to invest that money - with them, of course - who get the commission.)

This is a critical thinking issue – believing a rosy marketing picture about tax deductions and the American dream, without thinking it all the way through.

It’s also a discipline issue – looking for ways to satisfy today’s itch with tomorrow’s money.

When many behave this way, it results in serious societal consequences.

Friday, March 2, 2012

Free Trials Aren't Always Free

During my recent research on false advertising I found this particular reference.  This FTC site gives some good advice on how to deal with mail order or Internet companies to make sure you are not being cheated.  This is all about critical thinking, looking before you leap, reading the fine print and setting yourself up for success; and I'm glad to see the government encouraging it.

Here is an example of such tactics taken from a critique of a weight-loss product sold over the Internet.  It appears customers are often charged twice before they are able to stop the billing.

One thing not noted by the FTC is that if you are billed by a company that practices one of the sleazy tactics referred to on their site, you are in a better position to stop or dispute charges if you use a credit card than a debit card.  Some people are dead set against credit cards, but their arguments are based on a lack of discipline by the cardholder, not on any fault of the credit card itself.  Credit cards are excellent financial tools when used responsibly, but they can also lead to disaster when inadequate discipline is applied.  So we see that discipline not only applies to health issues (Feb 3 and Feb 6 blog), but also to finances -- and to getting our work done on time, and to controlling urges like gambling, etc.  Better behavior in this one dimension leads to better consequences throughout our lives.