Friday, August 31, 2012

The Shrinking Middle Class - Part 2

One week ago I addressed the disappearing middle class in terms of people wanting to pass along the blame to avoid acknowledging responsibility.  A failure to take responsibility, to act the victim, is one of the behavioral weaknesses within our society.  On the other hand, the article made some good points about how the gap between the middle class and the rich is expanding.  The 62/29 income split between the middle class and the wealthy in 1970 has morphed into a 45/46 split by 2010.  What can we possibly do about that?  The answer moves the discussion from responsibility to economic understanding and then to a combination of critical thinking and perspective.

I have explained before how money seems to move in a cycle beginning with us as consumers and taxpayers.  We start with a certain amount of money (commonly known as “not enough”).  Then we make decisions, both wise and foolish, about how to spend or save our money.  We should make these decisions based on what we value (perspective) and what will add real value to our lives (critical thinking).  We spend our scarce resources on food, rent, transportation, clothing, education, entertainment, healthcare and a variety of things.  Companies compete for our attention and our business.  Sometimes we make sound choices and sometimes we don’t.  (Examples of how we don’t provides material for this blog.)

When I think about rich people and how they got there, I ask how we contributed to their success.  Some inherited their wealth, but most of them got rich by selling us products, services or ideas.  No one forced us to buy.  They had to be persuasive enough to get their products on our shopping list ahead of their competitors’ products.  That competition for our dollars included similar products, Ford vs. Toyota, but also all the other options for our money:  a new computer vs. college savings, cable TV vs. patio furniture, pay off debts vs. a dental checkup, beer vs. iTunes, designer clothing vs. a tank of gas, the newest smartphone vs. a vacation.  Some of those may seem like odd comparisons, but our resources are limited.  Our money goes either here or there; we can’t have it all.  Meanwhile Wall Street fat cats and bankers invest in companies, trying to make money by correctly predicting our tastes, choices and motivations.

What kinds of choices do we make?  We spend $50 to $150 per ticket, sometimes more, to attend professional football games, slightly less for college games, but rarely is either not sold out.  We pay three or fours dollars for fancy cups of coffee.  (What were once luxuries are considered necessities.) We follow celebrities – actors, singers, and athletes – hanging on their every word and buying what they recommend or endorse.  Nike is about to launch a campaign to sell us Lebron X sneakers for $315.  These are not necessarily bad decisions.  Good or bad decisions are relative to all our possible options and the amount of money available to spend or save. 

What I do know is that Oprah, Bill Gates, Doctor Oz, Alex Rodriguez, the CEO of GM, the Walton family or Lady Gaga did not get rich in a vacuum.  We had to willingly contribute.   At some point between 1970 and today, we stopped supporting each other and started jumping on every bandwagon that came along, moving enthusiastically from one fad to the next, from beanie babies to Crocs to ring tones, from MySpace to Facebook.  With the increased speed at which everything moves, especially information, more money is in play, and people decide faster so as not to miss out on the "next big thing."  Ads for a phone service warn about news being “so 30-seconds-ago.”   Entertainment became far more prevalent and valued in our lives making actors, singers and athletes disproportionately wealthy. We are enamored with celebrity.  We have even made business executives into celebrities, buying their books, attending their lectures, and following them on the news and Twitter.  (Then they cash in on this Super-Star status.)  The terms rich and famous are linked more tightly than ever, because our money follows fame, perhaps in hopes of becoming famous ourselves.  The  media play to this obsession with more and more time devoted to big names and less to hard news. With shorter timeframes and without moderation or perspective the cycle becomes more vicious.

My conclusion is that it’s too bad the rich are getting richer seemingly at our expense, but we are not helpless.  First, when they report such numbers, they like to imply that the “pie” is not getting bigger.  This is clearly wrong.  Merely compare the advances in medicine, electronic gadgets and the safety/reliability of automobiles over the last 40 years.  America as a whole has more wealth.  But how that wealth is distributed is to some extent controlled by our spending decisions and whether those decisions are based on our stated values and sense of moderation (perspective) or on fads, the need to be like our heros or one-up our neighbors and the sale of products with unproven benefits (critical thinking).

Monday, August 27, 2012

Race to the Top - Shame on Us!

(If you are relatively new to this site, I welcome you and invite you to read Review and Refresher from November 28, 2011.  It provides a good summary of the intention and direction of these short essays.)

Now, let’s talk about education and responsibility.  The Federal Government has (yet another) education program called Race to the Top.  The idea was to award (with our tax money) $4 billion in grants to states that undertook ambitious education reforms.  A related program set up grants encouraging some of the poorest school districts to compete for almost $400 million.

In America where about 40% of students and their parents live within 2 miles of their school, we let the Federal Government, hundreds of miles away, set standards for these contests, for teacher reviews, for academic achievement and even for lunch menus.  Aren’t we the customers of those schools?  Aren’t we in a better position to demand results from those schools?  If we didn’t get the products or services we expected from our local store, bank or car dealer, would we sit around for years waiting for the government to try to fix it with one program after another?  I don’t think so.  We would go down and have a talk with them the next day, talk to the manager or write to the company headquarters.  But in this case, we seem to have abdicated our responsibility for our own children’s education, by turning the problem over to an administrative exercise between our state capitol and Washington.   Parental involvement also must not be limited to automatically taking the side of the child against the teacher when there's trouble, rather it must come from a sincere interest in the child's education. 

Isn’t it strange that when the high school football team puts together a string of losing seasons, parents scream for changes, not waiting on a higher authority to recommend standards and reviews.  Yet if some of the same schools graduate children who can’t read, write or add, it’s left to bureaucrats hundreds or thousands of miles away to legislate a fix.  Why do we tolerate this situation?  It's just another example of what I’ve said many times before:  When we don’t exercise our responsibility, the answers are dictated to us, and we give up a little more of our freedom.

Friday, August 24, 2012

The Shrinking Middle Class

A study released this week by Pew Research Center bemoans the state of the middle class.  We have less money, we are forced to spend less, and our expectations for our future and that of our children are less optimistic.  Many find it more difficult to maintain a middle class standard of living.  While 32% believe they are better off and 23% report no change, 42% say “their household's financial situation is worse now than before the recession began.”

The most disappointing finding appears near the end of this article where they asked, who deserves a lot of the blame.  The answers were:  Congress – 62%, banks – 54%, big business – 47%, the Bush administration – 44%, foreign competition – 39%, the Obama administration – 34%, and finally, the middle class itself – 8%.  Once again we portray ourselves as victims of big government or big business.  Only 8% are willing to take any responsibility for the situation!  This is disappointing, because by giving away responsibility, how can we fix it?  We become dependent on others.

Why blame Congress?  We all like our Congressman.  He takes care of problems when we call.  He appears at major events and groundbreakings.  He makes sure money sent to Washington gets back to his district.  Sometimes overlooking the big picture and what’s best for America as a whole, he watches out for us, because that’s what gets him reelected.  It can’t be him.  It must be those other 431 incompetent crooks.  Unfortunately, Congress is our fault.  We can’t blame them for acting as they do.  We set up negative consequences for them to act in any other way, and we reelect nearly all the incumbents until they decide to quit.

How about the banks?  Is it their fault that they talked so many people into buying houses they couldn’t afford?  Is it their fault people were lured in by teaser rates and then surprised when the actual costs kicked in?  No, it’s their job to make loans.  It’s our job to be smart enough not to borrow money based on the hope of ever-increasing market values.  We screwed up but don’t want to admit it.

As for the two administrations, the answer is pretty much the same as Congress with added comments from Monday’s posting (Political Campaigns – August 20, 2012) about how we get the candidates we respond to rather than necessarily the most competent or qualified.

The major problem here is that we are once again looking for convenient scapegoats instead of admitting that the problem starts with us and can be solved by us and only us.  Certainly there is plenty of blame to go around.  But anyone who insists on blaming only banks, business, Congress, or past/current administrations must wait for action and take whatever they get.  Those solutions will be more restrictions on our freedom or more regulations on banks and business, making them even less inclined to risk business expansion or increase hiring.  To not take responsibility is asking for trouble, but we continue to do it.

Monday, August 20, 2012

Political Campaigns

We are deep into the campaign season, and everyone knows what that means – attack ads and name-calling.  We will hear how A is a socialist, B is a radical, C is an extremist, D is a flip-flopper and someone else is a racist.  It will continue until we are sick of it and finally go to the polls, hold our noses to vote for the lesser of two evils; then breathe a sigh of relief when it’s over.  Why does this happen and why does it seem to be getting worse? – Because it works! – and it works because we let it!

This habit of name-calling and hurling insults is contrary to all the principles of this blog.  Everyone skilled in dealing with a child, a pet, an employee or any relationship, knows to praise or criticize the behavior, not the individual.  This minimizes defensiveness and focuses on what needs to change.  What's needed to really solve America's problems is a behavioral rather than a political approach, but politicians continue to sling mud and make promises.  We react because too few people understand that it's our job, not theirs to fix America.  And politicians are not alone in trying to co-opt our power.

We let politicians tell us the solutions to our so-called crises.  We let advertisers tell us what we need and when to buy it.  We let advocacy groups convince us that we are victims and need their help.  We let the news media tell us what we should worry about.  For this the politicians get re-elected, the advertisers make sales quotas, the advocacy groups get our donations, the media gets an audience, and we accept the situation while America heads in the wrong direction.

Only by improving our own behavior can we take control and get better results.  With a little more critical thinking and perspective we can ignore the hype, buying those items that add value to our lives while avoiding wasteful use of our time and money.  With a little more discipline and responsibility we can improve our physical and financial health without depending on government or other groups, and without blaming fast food, the banks, big business or any other convenient scapegoat.  With a little more economic understanding we can discount their magic-money-tree promises and force people to deal with us honestly.  This is just a brief summary of the many benefits of practicing the behavioral model.  In subsequent postings I will continue to provide examples and ask readers to look for examples in their own experience.

As more people understand and apply this model, we will take back power from those groups, uncovering the flaws in their arguments.  We will demand behavioral explanations and actively discredit personal attacks and the other distractive tactics of politicians and advertising.  We will make better choices, freeing ourselves from the influence and mandates of others.  It’s not easy staying focused on the key dimensions, skeptically questioning poorly-supported assertions, being responsible for our actions, holding ourselves to higher standards and continually challenging the notion that someone else can run our lives better than we can, while using more and more of our money to do it.  Sure, it's difficult, but the rewards are tremendous!

Please help spread the word.  If you agree with the ideas in these posts, send this link to everyone you know –  Help build critical mass behind this movement.

It’s our choice.  Either we continue to react to them, or we force them to respond with honesty and substance rather than insults and accusations.  We can take back the power.  Otherwise, the same behavior will reap the same consequences.

Friday, August 17, 2012

Staying Hydrated

It’s summer, and a very hot one at that, so it’s important to stay hydrated (a classy word that now replaces the simple concept of drinking enough water).  This brings up the question of how much water we should drink.  It’s a simple question and in this busy world it’s always nice to have a simple answer, a rule of thumb.  The problem is that people often take these rules and follow them as if they were strict regulations.  They walk around with their oversized bottle telling you 64 ounces (8 cups) is the rule, but it’s not as cut and dried as that.  When simple questions don’t have simple answers, it’s time for some research and some critical thinking.

We need water to keep our bodies functioning properly.  Dehydration can lead to serious problems, but too much water can also be dangerous (see my March 19, 2012 posting).  According to this Johns Hopkins newsletter, “Contrary to popular belief, no research exists that says exactly how much fluid we should drink. However, many experts suggest that healthy adults should strive for six to eight 8-ounce servings of liquid a day.”

Those who cling to the rule are adamant that only water counts, but that's not necessarily true either.  “Hydration can come from a variety of sources, including fruit or vegetable juice, nonfat milk, low-sodium soup, even coffee or tea. Many fruits and vegetables, such as watermelon, berries, grapes, peaches, tomatoes and lettuce, are almost 100 percent water. Even meat is chock full of water. Water from foods typically accounts for 20 percent of the recommended total fluid intake.” 

You need more water when you exercise, when it’s unusually hot, when you are having digestive or urinary problems or when you are sick.

This short article puts it simply:  “there's no magic to this [64 ounces] number. And the right amount varies according to your activity level and size; just drink enough water so that your urine is clear.”  A slightly more detailed explanation comes from the Mayo Clinic.

It would be nice to have easy-to-follow rules of thumb for all life’s decisions, but that’s usually not the case.  That's why critical thinking is so important.  If we practice on little things like this, it becomes second nature when faced with bigger decisions or when outside influences try to win our dollars or support with simplistic platitudes or slogans.  Developing the habit of challenging this rule-of-thumb approach is one step toward moving America in a positive direction.

Monday, August 13, 2012

Social Security Cuts

A few years ago analysts predicted that the Social Security trust fund would run out in 2039.  Then we entered a recession and the prediction changed to 2037.  Then, instead of facing the problem, Washington instituted a temporary reduction in the payroll tax, the source of funding for Social Security.  This reduction caused an additional $112 billion shortfall in funding, so today’s prediction is that the Social Security surplus will run out in 2033.  (I sincerely expect that instead of addressing it again, Washington will argue about extending the tax cut scheduled to expire in January.)

Most rational people, who understand basic third-grade arithmetic (critical thinking) and know that there's no magic money tree to satisfy all our needs (economic understanding), agree that something must be done to sustain Social Security and avoid disaster.  It could be raising (not cutting) the payroll tax, extending the retirement age, reducing the rate of increase in benefits, eliminating the salary cap on payroll taxes, even reducing benefits, or some combination of these.  Recommendations along these lines have been made and ignored for the past 30 years.  We have seen the problem coming for a long time.  When the trust fund runs out, in only 20 years or sooner, current taxes will support only about 75% of the need and, unless another scheme is proposed, every recipient will take an immediate 25% cut!  That would be stunning.  Look at the turmoil in Greece that resulted from letting these problems go until the last minute.

Unfortunately, organizations like National Committee to Preserve Social Security and Medicare and AARP, who apparently don’t understand third-grade arithmetic and believe in that magic money tree, use scare tactics, sentiment and a sense of indignation to rally seniors against any change.  They tell them that Social Security is a solemn promise, their right, and the return on their contributions.  Although I have never heard a proposal that would cut current benefits, opponents of change imply that possibility, and seniors are urged not to give up anything.  “Give them an inch, and who knows what will follow.”  But worded another way, “Grandparents, stick to your guns.  Don’t worry that your grandchildren and great grandchildren, whom you claim to love so much, will someday be called on to pay the piper and may never be able to have a decent retirement of their own because you have been so selfish and intractable.”  No one would ever say such a thing.  It’s too harsh – and honest!

Friday, August 10, 2012

Down with Home Equity Loans

Driving past a local bank recently, I was surprised (perhaps even mildly shocked) to see a sign reading: “Put your home equity to work for you.”  What could they be thinking?  Well, the banks are thinking that they can make a loan and collect fees and interest.  The customers are likely not thinking very clearly.

There are still so many people with zero or even negative home equity, owing more than the value of the house, “upside down” or “under water” from the Great Recession.  They believed the line the banks (and realtors) fed them about putting almost nothing down and counting on the market to push the prices up steadily.  When the bubble burst they were left holding the bag.  Some walked away and some were evicted but many lost their houses.

Now, before the economy has fully recovered, banks are at it again.  The advice you get from bankers, realtors and financial advisors serves their purposes,  not yours.  It produces interest, fees and commissions.  A house is not a good investment.  It’s usually hard to sell, so you can’t get your money out right away for emergencies.  It doesn’t always appreciate.  The tax deduction is less of a benefit than most people understand (see The Myth of Home Equity, March 5, 2012).  The government only helps you pay a portion of your interest and you still pay more than you borrow.  Finally, when you do sell it, you still need some place to live!  That means you have to buy another house that has been going through the same market changes.  Unless you are a speculator, timing the market, or willing to put a lot of time and energy into a fixer-upper, you have to be very lucky to come out ahead.

Those advisors continue to call it an investment, buy a house bigger than you need (paying interest and sales commissions) and count it as retirement savings or keep cashing in your home equity to invest in the stock market (paying more sales fees) where it will grow more quickly or, worst of all, take the money out and reward yourself with a nice vacation – “You owe it to yourself; you’ve worked so hard, etc.”

Well call me old fashioned, but my advice is build up that equity and don’t even think of it as equity or an investment.  Think of it as having a roof over your head that no one can take away from you.  When the market goes up, good.  When it goes down, too bad, but at least you don’t have a bank or collection agency knocking on the door.  You’ll never be able to afford your neighbors' luxuries or exotic vacations, but you won’t have their headaches either.  This behavior is not possible for everyone.  I understand there are exceptions and personal situations.  But when you drive by the sign tempting you to “Tap your home equity,” I think you will be a lot happier in the long run if you just keep driving.

Monday, August 6, 2012

Educations vs Entertainment

Which do we value more, entertainment or education?  Most people would say the answer is simple; according to our stated position, we value education more.  Most people would be wrong.

Here is a list of the salaries of the Big Ten head football coaches 

(2012 guaranteed comp. unless noted): 
 Meyer, Ohio State $4,400,000;
 Ferentz, Iowa $3,785,000;
 Hoke, Michigan
$3,254,000 (‘11); Pelini, Nebraska $2,875,000; Bielema, Wisconsin

$2,598,000 (‘11); O’Brien, Penn State $2,300,000; Dantonio, Michigan State $1,918,000; Fitzgerald, NWU $1,800,000; Kill, Minnesota $1,700,000 (‘11); Beckman, Illinois $1,600,000; Wilson, Indiana $1,260,000 (‘11); Hope, Purdue

  College football for everyone, except the staff and the players who receive scholarships, is entertainment.  There are no two ways about it.  Average pay to lead the program is around $2.4 million.

Let’s compare that to the salaries of the presidents from the same universities, the presidents being the ones in charge of education (among other things including research and athletics).  I found one source listing the 14 highest earning public college presidents.  Three of the above schools made the list:  Ohio State ($1,818,911), Penn State ($800,592) and Michigan ($783,850).  The rest are presumably below the $707,000 that was at the bottom of the list.  These presidents are paid a fraction, between one quarter and one half, of what the head coaches are paid at the same institution and as a group.

This next article shows a graphic of the Big Ten president’s salaries and, like several others I checked, features complaints about the level of the president’s pay.  (I didn’t see any similar complaints about the head coaches’ salaries.)

I don’t think these are isolated cases in the Midwest.  This is very good evidence, by direct comparison, that our society actually values entertainment (college football) more than education.  We can complain all we want about the situation, but we control it by what we are willing to pay for tickets compared to our reaction to higher taxes for education.  I am not arguing that university presidents are not paid enough.  They, like chief executives in business, take advantage of the superstar status that goes with these positions and tends to push salaries higher, but it’s nothing compared to coaches, star athletes and performers.  Our values are out of whack.  Our society has lost perspective.  We say we value some things: family, faith, education, etc., but we act contrary to those noble ideals. 

We have no right to ask why our kids are falling behind the rest of the world in math, science, etc.  The answer is obvious!

*Source: Lafayette (IN) Journal & Courier – a subscription only site.

Friday, August 3, 2012

Dental Care for Kids

Sticking with the subject of public outcry from last time (Fluoride in Drinking Water - 7/30) and how these situations call for strong behavior in the dimension of critical thinking, a number of years ago a group began to warn against the use of amalgam dental fillings, especially for children.  These fillings contain mercury, which is known to slowly leach into the mouth.  Mercury in sufficient doses can lead to serious health problems.  The anti-amalgam movement, taking the common, but often erroneous stance that any amount more than zero must be dangerous, began a campaign against this practice.  You can look up one of the main promoters of this view in a YouTube video telling us “amalgam fillings in your mouth are poisoning you.”

While the FDA, American Dental Association and others assured us that amalgam fillings were safe and have been standard practice for over 150 years, some dentists, based on these scary warnings, began recommending removal and replacement of all fillings with a newer type.  (Of course, they didn't do this for free.)  Statements such as those seen in this article fueled the controversy: "When you plant a neurotoxin two inches from the brain, can you say no one is ever harmed from that?" and "His group advocates that dentists be required to disclose the mercury content of amalgam fillings to patients. Four states and several cities mandate such disclosure…”

Now comes the irony.  The latest findings recently reported on CNN are that the alternative material for dental fillings contains bisphenol A (BPA), the same material used in the linings of metal cans that is under investigation for suspected links with problems related to “the brain, behavior, and prostate gland in fetuses, infants, and children.”  As a result the industry voluntarily stopped using BPA in the linings of baby bottles and tippy cups because of the bad publicity, although they continue to argue that it is safe.  BPA is still used in the newer dental fillings.

Taken at face value this news could leave us in a quandary.  We are told that both choices are dangerous, but so far neither the FDA nor any credible authority has declared either type of filling material unsafe.  Both are better than leaving children’s teeth untreated.

This dental story is a good reminder that we only have enough time and energy to be worried or scared about a few important things.  We can’t get upset and join the protest against every product, insisting that they be 100% pure, and boycotting all products that are not.  That unrealistic attitude would kill us for lack of anything to eat or drink.  Despite that, we can always count on the hype from advocates and the crisis-prone media, both of whom have their own vested interests - funding and audience.  

Our only defense against an unhealthy, knee-jerk reaction when it comes to our safety and that of our children is to exercise good perspective, remembering moderation and the importance of staying calm. Then use good critical thinking, separating fact from opinion and overblown claims, and acting accordingly.