Friday, May 30, 2014

Selfish Seniors

Ask any senior citizen and he or she will most likely tell you that the most meaningful legacy is to leave the world better for our children and grandchildren.  We want them to have a better standard of living, better quality of life and generally a happier life.  A close look at the behaviors of these same people, and the organizations that claim to represent them, the story is somewhat different.  They seem to want all of those things as long as it causes them no inconvenience.

One example is Social Security.  This CBS article gives a fair explanation of the future of Social Security if nothing is done.  It can pay out at the promised level of benefits until the year 2033 when benefits will drop to 77% of current levels.  (CBS numbers closely agree with government estimates.)  However, fixes are available.  On the payout side, “the long-term deficit could be eliminated without raising taxes … by increasing the retirement age, reducing the amount of monthly benefits, slowing increases in the cost of living adjustment.”  On the income side possibilities are to “raise taxes by increasing the tax rate, increasing the limit on the amount of compensation that's subject to taxes.”

Without a change our children and grandchildren would pay the same in FICA taxes but collect less for retirement.  What about the proposed solutions?  Here’s what AARP has to say about increasing the full retirement age (FRA):  "raising the FRA would be a stealth benefit cut that is unnecessary and unwanted.”  Their stance on slowing the cost of living increases is equally rigid:  they are “fighting hard” in opposition to "President Obama and Congress … trying to balance the budget by cutting the yearly cost-of-living adjustment for Social Security.”  If they oppose these cuts in benefits over the long term, it’s not hard to guess their stance on any immediate cut.

With those options eliminated, we are left with the option of taxing the kids to keep the parents whole, and this certainly doesn’t make our loved ones' lives more prosperous.  Seniors' intransigence on this issue, unwilling to compromise in the least, flies in the face of their noble sentiments.

Another issue is long-term care.  As you age, “the odds of you actually needing some form of long-term care are high,” much higher than your house being struck by lightening.  Yet this NPR posting points out that purchase or long term-care insurance does not reflect this fact.  “Out of more than 313 million Americans, only about 8 million have any such protection.”  Who then assumes the cost?  It looks like it again falls on the next generation or on Medicaid when you run out of assets, which likewise indirectly falls on the next generations as the government continues to spend more than they have (or again on Medicaid if you hire a lawyer to “protect your assets” in ways that are legal, but morally questionable).

Related to the long-term care issue is one that is probably the most egregious, that of elderly parents forcing adult children through guilt and manipulation to promise never to send them to a nursing home.  This is no doubt a reaction to feelings of fear and uncertainty, but these parents must not realize that they are implicitly expecting their children to deal with issues beyond their capabilities.  They often lack the training to take on medical issues, the physical strength to meet the needs of an invalid senior and the psychological strength to be burdened with such responsibility.

If seniors want a better life for their children and grandchildren, they must acknowledge that they own some responsibility to contribute to this hope and, by all means, not to work against it.

Monday, May 26, 2014

What's in a Relationship?

Correlation is a tricky subject.  It is the measure of the mathematical relationship between two measurements.  These could be any measurements, and it becomes tricky when someone tries to attribute a physical relationship to this mathematical relationship, that is, they try to tell you that because two things change at the same time (increase or decrease) that one causes the other.

A common example is carbon dioxide (CO2) in the atmosphere and climate.  Over many thousands of years, when there was more CO2 in the atmosphere, global temperature has been higher.  It’s not possible to deduce immediately from that the one causes the other.  Scientists must find the mechanism by which the change in one leads to a change in the other – the greenhouse effect of reflecting the earth’s heat back toward the ground, for example.  But correlation alone is not good enough.  It only provides a clue, a reason for further investigation.

Unfortunately, we read about correlation, these relationships, frequently but the reporters are not careful to clarify this important point.  A recent example comes from the University of Texas.  “Fathers who worked in engineering were two times as likely to have a child with an autism spectrum disorder (ASD). Those who worked in finance were four times more likely and those who worked in health care occupations were six times more likely to have a child on the autism spectrum.”  This is correlation, a mathematical relationship.  Have they looked for a mechanism to explain their results?  Is it an inheritance issue?  Is it the way the father treats his children?  Is there any real-life relationship at all?  The article says nothing about it. Should someone opt not to become a doctor for fear of increasing his children’s odds of being autistic?  Does one cause the other; do they have a common cause; or are the findings of the study based on an odd coincidence?

Stranger coincidences are really quite common.  This link shows a few examples from “a law student at Harvard who, in his spare time, put together a website that finds very, very high correlations between things that are absolutely not related, like margarine consumption and the divorce rate in Maine.”  My favorite is a 96.97% correlation between deaths by getting tangled in bed sheets and the revenue of ski facilities.  This is extremely close to perfect correlation of 100%, and much better than scientists that present studies for publications usually achieve.

Readers of any scientific or medical reports beware.  A correlation is only the beginning of an investigation, not a conclusion.

Friday, May 23, 2014

Is Food Like Tobacco?

Almost exactly two years ago I warned of the food police, those who have given up on our ability to change behavior and will decide that only heavy-handed governmental interference, interference with our freedoms, will solve the problem.  I stated at that time:  “I guarantee that this will happen (and has happened in the past) each time we don’t take responsibility.  If we don’t fix it ourselves, others will step in with their mandates, programs and artificial incentives, excusing this outside interference as being in the interest of public health…we will have “help" inflicted on us.  One month later, Michael Bloomberg was proposing limits on soft drinks sold in New York City.

Now comes another sign.  According to BBC News two organizations, Consumers International and the World Obesity Federation, propose:  “the food industry should be regulated like the tobacco industry as obesity poses a greater global health risk than cigarettes.”  They call for “pictures on food packaging of damage caused by obesity,” reduced salt, saturated fat and sugar; better food in hospitals and schools; stricter advertising, especially advertising to children; public education programs; elimination of artificial trans-fats; a government review of food prices; new taxes licensing controls; and more government-sponsored research.

Look at what has happened to smokers.  They get no sympathy to their pleas of addiction and plenty of advice from caring friends and relatives about how they must quit for their own health.  They are shunted away from society, smoking out in the cold and rain.  They face higher health insurance premiums.  EEO laws do not protect them, and some companies are open about their bias, stating that they value a healthy workforce.  It’s true that the irritation many non-smokers experience from secondhand smoke did not help their case any, but the model of smoking is eerily similar to that of overeating.  Where will it end?  Trying to get legal protection to keep this from happening is not the right answer.  The answer is behavioral.

This is just another example of a problem created by our own behavior, which if not remedied by behavior, will lead to interference, restrictions, higher costs and general loss of freedom as the government and concerned-citizen groups try to legislate solutions, or take, as the article calls it, “collective action.”

Monday, May 19, 2014

Are We All Evil?

A couple of months ago an Iowa man bought a small painting at a garage sale for $15.  He bought it because he liked it.  Something about the color and composition appealed to him, and he thought it would look good in his dining room.  He found that his wife agreed and he hung it on the wall.  A few weeks later one of his neighbors, a retired college professor, dropped by and the painting caught his eye.  He admired it as well, but told the man that he should have it appraised because it might be worth something.  As it turned out, it was an original, previously unknown painting by American artist Grant Wood.  It’s estimated value was $40,000 to $60,000.  He immediately drove to the house where he bought it and told them the story.  Neither he nor the sellers were aware of its value, but he promised that if he ever sold it, he would split the money with them.  They agreed and will be very happy to share in the windfall.

Notice there is no link to the above story, because I just made it up.  I have never heard of something like that happening.  In fact, the story usually ends up with the buyer gloating over the fact that he picked up a valuable piece of art for a small fraction of its value.  There is never any talk of the poor suckers who let it go for so little.  Even if the buyer, out of a sense of fair play, were inclined to offer to share the windfall with the original owners, it wouldn’t surprise anyone to hear that the original owners hired a lawyer to try to recover the painting instead of graciously accepting the offer.  Our understanding of human nature and the values of our society lead us to accept these versions more readily than the first story.

In fact, it’s more believable to think that the man at the garage sale haggled with the sellers to get the price down or to get another item thrown in for free.  That’s the way almost everyone acts at a garage sale.  That’s the way almost everyone acts at a car dealership or when contracting for home repairs or buying a house.  We are always looking for the bargain.  Phone Aps tell us the best price for gasoline in the area.  If we buy even a small item and it goes on sale the next week, we feel cheated.  With rare exceptions we never want to pay more than we absolutely must.

Now we read editorial comments about how everyone deserves to be paid a living wage.  Fast food workers stage periodic strikes for $10 to $15 per hour wages to support their families.  Everyone assumes that the corporate managers are the bad guys.  They are portrayed as evil and greedy for doing what the rest of us do in our daily lives, trying to pay no more than the value received.

As pleas go out for a “living wage” and “fair pay,” a couple of questions come to mind.  First, were these jobs ever intended for “a single mother with five children ranging in age from 21 months to 18 years old” or a 33-year-old with “a one-year-old daughter and a 12-year-old son” or another who “is the main source of income for his family, which collects food stamps and takes government help to pay the rent”?  I thought these were starter jobs to teach young people about dependability, responsibility and customer service, not career opportunities.  Second, how many of us consider the financial hardships of the family hosting the garage sale or the kinds of mistakes a car salesman or house painter may have made earlier in life before we start haggling about the price?  No, we pay only what we think is fair for us or walk away.

When you think of the problem in terms of our American culture and the habits of everyday people, the behavior of the fast-food corporate management does not seem to be so evil or even so very unusual.

Friday, May 16, 2014

Your House is NOT an Investment

Recent news reported the 100 hardest hit cities where the mortgage crisis lingers.  Homeowners are “stuck in loans for more than their home is worth.” This situation of “negative equity” or being “underwater” ranges from 22% to 56% in these metropolitan areas with Hartford, Connecticut the highest.  It’s not only an East Coast issue, though, the problem is shared by cities like St. Louis, Milwaukee and Seattle.

One problem is that people have been led astray by the realtor’s and financial advisor’s propaganda about the “American dream.”  There is no shame in renting.  In fact where there are commonly two categories on credit applications and other paperwork:  rent or own, there should probably be three:  rent, own, or buying.  This would remind us that anyone paying a mortgage does not yet own the house, as many who went through a foreclosure now understand.  And those who are “underwater” right now are less well off than renters, since they are making monthly payments but can’t easily “break the lease” if a better opportunity arises or call the landlord to take care of maintenance problems.

A house should not be considered an investment.  This only encourages Americans to buy more house than they need and, in some cases, more than they can afford.  Advisors tell us that it is an investment, using the leverage of borrowed money, not our money, to purchase an asset that will appreciate.  We have little at stake, but get to keep all the appreciation in value.

But investments are risky.  Sometimes they don’t appreciate.  Sometimes, though rarely, houses lose value.  This has been the case lately.  “After bouncing back smartly in 2012 and most of 2013 following the 2006-09 real estate crash, the housing market began slowing last fall.” That’s eight years of turmoil, and the investment at risk is the roof over your head (and your family).

In the whole housing-as-an-investment game, some have been lucky and some have been very unlucky.  When we retire, we still need a roof over our heads.  So when it’s time to cash in our investment, we get the often impractical advice to downsize or move to an area of lower housing prices or take out a high-cost reverse mortgage.  Wouldn't it make more sense to live in the right house in the first place with retirement savings in more accessible assets?