Friday, May 29, 2015

When is a Dollar Not a Dollar?

Last week was the 35th anniversary of the release of the videogame Pac-man.  In terms of computer technology this is practically ancient history, but at the time guiding the little yellow circle with the pie-wedge mouth around the screen eating up the dots while avoiding the four ghosts in pursuit for 25 cents per shot became a big hit.  It even spawned a sequel game, Ms. Pac-man.

At first glance the natural reaction might be:  why should we even care about the anniversary of an archaic videogame except to make those of us who remember it feel even older.  This USA Today article put a spin on the news that should be of interest to everyone and will help to explain why so many times in the past I have emphasized the need for good decision-making.

“Had you dropped 25 cents into a brokerage account on May 22, 1980 – rather than in that oh-so-alluring Pac-Mac coin slot – that quarter would have been worth $1,818.27 (in 2015 dollars) had you bought and held the best stock in the Standard & Poor’s 500 instead.”  Of course, the chance of identifying and investing in exactly the right stock is easy to talk about in retrospect but is extremely small in reality.  Nonetheless, they go on to say that a quarter invested in a fairly broad index of stocks, a mutual fund representing the S&P 500, would be worth $4.88 today.  They also remind us that avid players rarely stopped at one game and, perhaps over the course of the year might easily have dropped $100, one quarter at a time, into the Pac-man slot.  That $100 would have grown to almost $2000 over those 35 years.

This is all very interesting from a hypothetical standpoint, especially if you were not a videogame fan and perhaps weren’t even born when Pac-man debuted.  To me the power of the story has nothing to do with videogames, it has to do with the idea of wise and foolish spending that I have emphasized over and over in these 400+ essays emphasizing how we often create our own money problems by our choices and behaviors.

The common example used by financial planners is the daily or weekly stop for the expensive cup of fancy coffee.  Cut that out or at least cut back, they say, and your financial future will be much brighter.  But that’s only a handy example, an easily identifiable substitute for all the other decisions we make.  I cannot even count the number of times I’ve pointed out that spending money on products, pills and various unproven remedies, cures and so-called healthier options may actually harm your health, but even if they are totally safe, it still is a waste of money.  The list is long, but includes:  dietary supplements, GMO avoidance, organic foods, other food fads and exotic fruits and berries, bottled water instead of tap water, fad diets that promise results without effort, performance bracelets, products marked up in price based on the use of the positive or negative “trigger words” (green, natural, all-natural, antioxidants, ancient wisdom, holistic, sustainable, gluten-free, probiotic, vitamin-rich, chemical-free, low testosterone, mercury, MSG, r-BGH, Omega-3, quantum mechanics, carbon dioxide, etc.) to entice or scare with no science behind the claims.  Furthermore, every time a company redoes it's formula or menu or is forced to reprint labels due to "popular sentiment," the costs of these adjustments will be passed on to us, the consumers.

From the information above, a penny saved is not a penny earned.  A dollar saved and prudently invested over 35 years is almost $20 earned!  Likewise each dollar wasted on unproven products based on vague or even false claims is almost $20 unavailable in retirement.  This is not a one-time waste; it adds up from week to week and year to year.  Remember, the bottled water industry alone is almost $11 billion; supplements were at $32 billion in 2012 and projected to grow to $60 billion by 2021.  Think of how much better off we would all be if those funds were growing in IRAs and 401(k)s instead.

Monday, May 25, 2015

Interesting Comparison

Maybe it’s because I’ve written a few essays about wages this month that information about babysitting caught my attention.  I first heard it as one of those closing thoughts after the radio news and got home to look it up.  Sure enough I found the source ( and the average babysitting rate in the US is about $13.50 per hour, using the latest reported numbers for 2014, and higher in many larger cities.  No only that, it has grown by 28% in the last five years!

Having had some experience in the field many years ago when the pay was considerably less (but probably comparable when adjusted for inflation), I knew that this is pretty good pay to watch someone else’s one, two or three kids in their own house, get them to bed on time and spend the remaining hours watching television and possibly checking out someone else’s refrigerator and pantry for snacks.

This was not the first thing that came to mind, however.  Instead I asked myself, “How does this compare to the pay of childcare workers who usually are expected to have a higher level of experience and are expected to entertain and often educate wide awake children in a less familiar environment while meeting a slew of government regulations?”  I haven’t heard much about the plight of these workers lately and thought perhaps they were doing better.

I didn’t wonder for long.  The US Bureau of Labor Statistics came to the rescue.  “The median hourly wage for childcare workers in the US was $9.38 per hour in May 2012. The median wage is the wage at which half the workers in an occupation earned more than that amount and half earned less. The lowest 10 percent earned less than $7.85 per hour, and the top 10 percent earned more than $14.19.”  Comparing that to the average babysitter number in 2012, $12.02 per hour, it looks like they are somewhat behind.

How comparable is the workload?  A couple of sources gave a rough idea of state requirements.  In North Carolina the limit is a ratio of 1:5 caregivers for infants and 1:10 for 2 year olds.  In Colorado the ratio is 1:5 for children up to 3 years of age.  So in some states they can be responsible for up to 10 children hopping around (possibly having to simultaneously put up with irritating bosses or coworkers) and still get paid less on average than the babysitter sitting on the couch on Saturday night texting another babysitter on another couch while both keep one ear open for kids.  Where’s the justice in that?

This is just an observation.  Perhaps no conclusion can fairly be drawn except that relative pay does not always reflect relative contribution to society.  People love to point out that teachers earn less than professional athletes, and that doesn’t seem right.  What is right?  In many cases nobody really knows.

Friday, May 22, 2015

Parental Responsibility

Here is an interesting philosophical piece courtesy of Australian public radio.  It talks about social fairness and what role parental responsibility can play in either leveling the playing field or increasing the inequality.  Their contention, perhaps tongue-in-cheek, is that parents who read bedtime stories to their children give them an unfair advantage in life and such activities should be restricted.

“So many disputes in our liberal democratic society hinge on the tension between inequality and fairness: between groups, between sexes, between individuals, and increasingly between families.”  This basic observation led a couple of philosophers to research specifically the role of families, the structure and support, in the issues of inequality.  Is it “fair” that some people are raised in loving families where parents spend quality time talking to children and reading to them whereas others are ignored or abandoned to the care of a single over-committed parent?

Their research showed them that family activities like “reading together, attending religious services, playing board games, and kicking a ball in the local park, not to mention enjoying roast dinner on Sunday” gave a child more of an advantage than attending a private school.

What they are questioning is a real, measured difference in skills between children from higher vs. lower socioeconomic backgrounds.  According to a Stanford study from a couple of years ago, this difference can amount to as much as two years of academic readiness by the time children reach kindergarten.  But they admit in this study that the destiny of children need not be locked in by the parents earning ability.  “One critical factor is that parents [from different socio-economic strata generally] differ in the amount of language stimulation they provide to their infants. Several studies show that parents who talk more with their children in an engaging and supportive way have kids who are more likely to develop their full intellectual potential than kids who hear very little child-directed speech.” 

Apparently when raising children, the old saying that talk is cheap turns out to be a benefit.  Children of poor families can enjoy the advantage of being raised by involved parents as economically and easily as children from well-to-do families while the economically better off children can be handicapped by parents overly involved with their jobs and with trying to make the right social and political connections.

This inexpensive, self-help solution should be great news to all families as the government continues to spent over seven and a half billion dollars annually on a Head Start program that even the government itself found “did not show a clear pattern of favorable or unfavorable impacts for children.”  Once again we find the answer closer to home than Washington.

Monday, May 18, 2015

Why You Should Know the Meaning of “Fungible”

Here is a word that is fairly rare, heard mostly about economic issues.  Fungible means “being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.”  A close synonym is interchangeable.

This word came to my mind when I heard a radio ad for a company called  They were advertising that you could use their services to hire temporary, project-oriented help for your business, especially for such things as computer programming and web design.  They gave sample hourly prices to show how competitive they are.  Whether these services would originate in the US or somewhere else was not clear.  What I do know is that they could be easily delivered from almost anywhere and apparently low bidders have been signed up.

I am not in the market for such services, so there was no reason for me to pay attention to the details, but it struck me that this word, fungible, which usually refers to commodities – this ounce of gold being just as valuable and interchangeable as another ounce of gold somewhere else – can also apply to skills.  When you think about it that way, some major economic issues become clearer.

It has become clear both from the news and from the accents we encounter when calling for a customer helpline that skills like programming and telephone customer service are fungible skills.  A few websites offer basic legal services, because the filling out of the proper forms can be automated to a large extent – lawyers become valuable for their knowledge and negotiating skills rather than for their ability to follow the steps to draw up a simple will.  Some unions’ workers too have found their skills to be fungible.  Jobs move to Mexico or to new hires at a lower pay scale and with fewer benefits as the seasoned workers retire.  In fact worldwide, not just in America, the wages of the working class have been increasing only modestly due to this concept, the fungible nature of those skills and the ability of companies to find and quickly train a competent workforce elsewhere.  Unions who defend their members against management abuse are doing their job; those who try to protect their members against the reality that their skills are interchangeable in many parts of the globe are fighting a losing battle and, in the long term, harming their members and the companies that pay them.

This should be a warning to every high school student and to all parents who want to see their children succeed.  Common skills are no longer good enough, and as we move into a future with ever-increasing speed and bandwidth of communications, the need to develop more specialized and less easily duplicated skills is essential.  It’s no longer realistic to leave high school and go to work for 30 years in the same factory or mine that daddy and grandpa did.

We can’t let our children grow up with only “commodity” skills.  It should be an obvious conclusion by anyone familiar with the ideas behind supply and demand that the more successful students can be at differentiating themselves from the rest of the population, the greater their earning power will be.  Not everyone can be a star athlete or rap artist.  Education is essential.  Otherwise they will be left with fungible skills, skills that can be duplicated many other places with little effort by people willing to work for less.  The only other option would be total economic isolationism, which every economist knows is a terrible idea.

Friday, May 15, 2015

America Self-medicating

As the Internet and social media become more widespread and influential, the problem of self-medicating seems to be growing.  The situation can range anywhere from a harmless habit to a waste of money to a dangerous health practice.

As we read scary stories about cancer and look for ways to minimize the risk, many Americans turn to over-the-counter vitamin and mineral supplements, but a new study points out the dangers of believing what we read from uninformed sources or those with a financial incentive.  A meta-analysis done by the University of Colorado reviewed “two decades worth of research -- 12 trials that involved more than 300,000 people -- and found a number of supplements actually made a person much more likely to develop certain types of cancer.” These are not rare and unusual supplements but common ones like high doses of beta carotene, selenium, vitamin E and folic acid.

In addition WebMD warns, “many supplements may interfere with your cancer treatment, so never take anything without discussing it with your cancer doctor and treatment team.”  They go on to recommend antioxidants including “vitamins A, C, and E, and selenium!  A 2010 article from ConsumerReports lists 12 dangerous supplements and also contains a table of possible side effects of some of the more common ones.  You also may be getting more than you expected from these supplements.  “In the past two years, according to the Food and Drug Administration, manufacturers have voluntarily recalled more than 80 bodybuilding supplements that contained synthetic steroids or steroid-like substances, 50 sexual-enhancement products that contained sildenafil (Viagra) or other erectile-dysfunction drugs, and 40 weight-loss supplements containing sibutramine (Meridia) and other drugs.”

As we try to rationally absorb all of this information about the dangers, articles like this one from Britain appear, telling us that a “groundbreaking two-year study discovered a combination of B vitamins and omega-3 found in oily fish prevented brain shrinkage, a hallmark of the devastating condition that develops in 550 people a day in the UK.”  Then this other website tells about five super vitamins to help fight dementia.  This list includes vitamin E and folic acid (see above).

What do people end up doing?  It appears from the fact that almost half the population takes at least one of over 65,000 supplements on the market, that they self-diagnose and self-medicate.  Encouraged by people likeDr. Oz, they constantly look forward to the next miracle product and volunteer to become their own laboratory mouse or guinea pig.  As one woman told me, “I don’t care what they say, I think my gluten-free diet makes me feel better.”  How much of this is placebo or wishful thinking?  No one knows.

This love affair with supplements and other alternative treatments is science rejected in the name of a new religion – isn't religion the belief in the absence of proof? – while deniers are ignored or reviled and sometimes treated like heretics.  Such faith-based, rather than fact-based, decision making can only be interpreted as a religion.

This would not be a problem if it were not for two things.  First, behavior has consequences - some to this stuff is just a waste of money, but some is really dangerous.  Second, the fanaticism of this new faith tends to drive out, or at least overshadow real medical science with the promise of real cures.