Monday, November 30, 2015

Losing the Value of Consequences

That behavior has consequences is a good thing.  It keeps us from burning ourselves over and over on hot stoves.  We can also anticipate consequences without actually experiencing them, keeping us from stepping off the sidewalk into the path of speeding traffic.  Good consequences come from living wisely and prudently, but these outcomes may be years away so their power over our decisions has less force.

I was reminded of this when I read about Bankrate's national poll finding: “More than a third of adults say they have not started saving for retirement yet” and “more than a quarter of the respondents age 50 to 64 have yet to start saving for retirement.”  "Many of those that are saving aren't saving all that much.”

Some reasons given for this include procrastination, living paycheck to paycheck, and lack of a savings plan at work.  But I think there is another reason.  The consequences are not seen as real.  When people, especially retirees, fall on hard times our compassionate society looks, often to the government, for ways to bail them out.  It’s seen as caring (and it is); but what message does it send to those in their pre-retirement years?  They are justified in thinking, that maybe saving is just not quite as important as some other current wants or needs.  This message then cascades to the younger generations who are not learning these saving habits from the example of their parents, nor do they believe they should be the chumps who save now instead of spending that money now on extra items like everyone else.

The article concludes with this advice from experts:  “Even if you think you can't afford saving for retirement now, consider making small lifestyle changes and sacrifices to set some money aside for the future” looking at your own situation instead comparing to others.

A good example of small sacrifices showed up in this USA Today article on the same day as the publication of that savings poll.  “On average, Americans spend about $20 per week getting lunch in restaurants, or $1,043 a year, according to a survey…of 2,033 people by Visa.”  It also notes that students are the highest group at $27.47 per week and even the unemployed spend over $15 per week.  There are many other examples of small sacrifices, but the incentive is low.

While we believe we are doing others favors, showing love and compassion by shielding them from the consequences of their own choices, this behavior has long-term deleterious effects on society.  The concept of tough love, where we force people to accept some level of responsibility, seems to have been lost.  It leads to outrageous situations like the one in Texas about two years ago, where a young man’s excuse for his criminal behavior was “affluenza” or what used to be referred to as “spoiled rotten.”  This was a single rare case but similar attitudes can and do spread through society when so-called “compassion” replaces true caring, and people are shielded not only from the consequence of their actions, but even reminding them that they have in fact made poor choices is seen as hateful or blaming the victim.

Friday, November 27, 2015

Digging Deeper

It’s hard to find good behavioral examples in the news when all the reporters want to talk about is an election more than 11 months from now; but with so many ideas flying around, it makes sense to apply some critical thinking.  Here are some questions to think about, not a critique or evaluation, just some thought-starters.

One idea that intrigues me is free college tuition and fees.  Senator Sanders wants the federal and state governments to share the annual $70 billion cost to make it go away (at public universities).  There are also provisions to “overhaul student loan programs so students and their parents could reduce crushing debt loads.”  “No funding under this program may be used to fund administrator salaries, merit-based financial aid, or the construction of non-academic buildings like stadiums and student centers.”

This raises a number of questions.  It’s not totally free college because there would still be need-based aid and student loads, presumably for room and board and miscellaneous expenses.  Would books be covered?  I guess they are going to get the money to pay for administrator salaries and merit based financial aid from the state funds they now receive, but that adds another level of bookkeeping to keep both those amounts in separate buckets.  Does any tuition or fee money now pay for any of those things?  Does this just add another level of administration instead of simplifying things? 

Public universities already go to the state review boards to obtain funding.  Would there be another board at federal level to keep an eye on this process?  Would there be a kind of federal school committee to set or negotiate rules for teachers’ pay and benefits at all these colleges, as is done at the local level for our public schools?  If not, how does anyone ensure both fairness and that our tax money is spent wisely?  If so, how do universities compete for the best professors or would they all go to the private universities?  And speaking of private universities, would the next program be a voucher program to allow some people to use these public funds for a private education?

Would this program apply only to US citizens?  How would colleges handle students from Asia and India and everywhere else in the world?  Would they be inclined to increase or decrease the number of such admissions (possibly tempted to increase them to pay for administrative salaries)?  Related to that is the question of children of “undocumented workers" who now attend high school for free.

Perhaps a fairer idea would be free college for everyone: tuition, fees, room and board and books.  That would have several beneficial outcomes.  It would totally eliminate the need for student loans.  It would make working your way through college unnecessary, opening up more entry-level jobs for those who choose not to attend college or for those who complete college and are delayed in finding a job.  (Of course that would happen less because people with a degree who couldn’t find a job might just start working on anther free degree with everything included.)  If they didn’t need to work, students could take heavier course loads and attend all year to reduce the time necessary to get a degree (but would there be any incentive to do so?).  This program would not penalize the conscientious parents who saved for college by making them and their sons and daughters ineligible for need-based programs.  It would leave that much more savings for retirement or consumer spending to boost the economy.  It would not have the perverse side effects we see today where adults delay marriage when the effect of two salaries in the family would make the children of one ineligible for need-based aid.

This is not intended to be a critique.  It is more of demonstration to show how many ideas that politicians toss out on the campaign trail become unexpectedly complex when the details are considered.  The voting public must be critical thinkers to ask and challenge, rather than sit back and nod at what seems like a simple solution.

Monday, November 23, 2015

That Thanksgiving Shopping Thing

Anticipating another fuss about people having to work at Wal-Mart (and other stores) on Thanksgiving, I remind everyone of my comments several weeks ago:  companies don’t create jobs and governments don’t create jobs – although governments can make the environment more favorable for jobs to be created.  No, customers create jobs.

It follows that if someone objects to people having to work at Wal-Mart on Thanksgiving, don’t be customers.  They wouldn’t open a store and pay a lot of workers to stand around at vacant cash registers waiting for the business to happen.  For that matter, if you object to Wal-Mart’s business practices, don’t shop there at all.  Remember, though, there are some people who are very happy to have a job at Wal-Mart and even some people who are willing and able and happy to give up Thanksgiving to make a little extra needed money.

No, if you don’t want to see people working at retail stores on Thanksgiving, stay home and watch the football games.  Don’t be the least concerned about the number of people it takes to participate in and broadcast a game, many of whom are not only working, but working far away from their homes on Thanksgiving.  And if you are lucky enough to attend one of these games and would like to buy a hot dog and a beer, keep in mind that it would be impossible if the people who worked in the concession stand insisted on having Thanksgiving off.  You also may hope that a gas station is open on the way home.  Many people like to be righteous, but only when it fits their lifestyle and convenience.

Face it, many people have to work on Thanksgiving and some of them have jobs that pay little more than working at Wal-Mart.  Wal-Mart seems to be a sort of symbol for this kind of protest – big, evil Wal-Mart.  Personally I wouldn’t care if the Wal-Mart down the street from me just disappeared, but I know there are many people who are glad to work there and many people who are glad to shop there so for their sakes I hope it doesn’t.

Remember the economy is not just a bunch of numbers reported in the news.  The economy is you and I making choices every day, choices that affect many other people.  In turn the choices of others can come back to help us or haunt us.

Friday, November 20, 2015


Last time I warned how life is moving so fast and becoming so much more sophisticated and complex due to technical innovations that trying to survive with the same old habits, assumptions and behaviors of the past would lead to disaster.  It is a premise of these essays that the crises American society faces are mostly the accumulation of the consequences of individual behaviors.  It is important and urgent to understand this and adapt.

You have read here and in many other sources the scientific explanations of modern behavior, how we often base our reactions on primal instincts that served us very well in the ancient past, and that perhaps allowed us to get by with a minimum of inconvenience a few generations ago, but now have become more and more problematic in our modern high tech, high speed world.  Here is yet another example discussing the phenomenon of comparison.

Authors explain in this CNN science article:  “We are hardwired to engage in comparisons…we're doing it to try to make sense of our world. Do I make enough money? Do I need to update my kitchen? Do I need a new car? Are my kids doing well? It's almost impossible to make those assessments objectively. So instead, we turn to comparisons.”  This tendency can work for us or against us.

Comparison makes for competition.  Wondering if I am as good or can be as good as the next person makes me raise my goals and standards.  People tend to work harder at any task when they feel competition with another, for example, “people tended to run faster if their rival was also racing that day.”  Generally this effect benefits everyone.

Comparison also makes for disappointment and waste.  It can make a person miserable.  Trying to keep up materially with the “Jones” or constantly comparing ourselves or our children to others in every aspect of life is frustrating.  When two people compare salaries or possessions there is always a winner and a loser.  So it is with almost any such comparison.  Since everyone has individual strengths and can’t be good at everything, comparison is bound to eventually result in disappointment.  Some research cited in the article shows how even monkeys can be driven to frustration and disappointment due to their hardwired tendency to compare themselves to their peers.

The lesson here is the same.  We can no longer afford to go through life on automatic pilot.  The tendencies of our ancestors are lurking in our brains ready to derail our ability to cope with the modern world by activating defenses and reactions that served us well in the past, but keep us from taking the time to make considered and well-informed decisions about our fast-paced life.  This is not going to go away; it’s only getting worse, in terms of speed and technology.  Critical thinking, to slow us down, and a healthy sense of perspective, to lead us away from disadvantageous comparisons, is more critical now than ever.

Monday, November 16, 2015

Why is This So Urgent and Important?

Recently I ran across a book defending the financial system, Smart Money, by Andrew Palmer.  The author says that since the recent financial crisis and bailouts, the system as a whole has been demonized to an extent that people no longer appreciate its benefits to society.  There was mismanagement and criminal activity, but that is no reason to give up on new innovations or demand regulations that turn the clock back to simpler times.

One particular example is high-frequency trading that took off in the mid-2000s.  This use of high-speed computing to execute trades in the market has led to a number of bad practices, where those traders are able to take advantage of price swings and manipulate the market in various ways.  He asserts that the publicity received by instances of manipulation exaggerate the real size of the problems (understandable when I consider similar reporting of rare airline crashes).  He claims that the advantage of speed merely replaces the former advantage of monopolistic privileges of having a place on the trading floor, where similar manipulation was known to have happened.  HFT leads to more efficiency and lower transaction costs, and the “HFT era part because of concerns about how the old system worked.”

So what’s the big deal and what does this have to do with behavior?  The biggest problem with HFT is “that the unchecked logic of competition has increased the risk and potential severity of sudden market crashes.”  [Emphasis added.]  A company can go out of business in a matter of minutes.  The economy, the one we depend on for our livelihood and the goods and services we need, could receive a major shock in a matter of hours!  The speed of these automatic transactions, faster than the ability of humans to intervene when things go out of control, is very dangerous.  It calls for regulation and responsibility.

Now see the parallel with behavior.  The types of innovations that drive the financial industry are not unlike those that affect our daily lives.  Many people have smart phones; most have cell phones.  The Internet is a common platform for personal financial transactions and simple shopping. A billion people on Facebook, and how do they make their money? – Advertising and selling consumer information gleaned from the massive amounts of stored data.

We go on line to see news, which now at 24 hours is filled with fluff and repetition.  We gather information on fashions, hobbies and view the latest postings of cute babies or clever animals.  (On average teens spend more time on their devices than sleeping.)  While we do, we are exposed to hundreds of times the advertising compared to a generation ago and hundreds of times the misinformation, some of it harmless enough, but much of it full of bad health advice, unproven nutritional advice, advocacy of feel-good but illogical policies featuring skewed economic understanding, along with the usual divisive political partisanship depending on accusations and name-calling (rather than facts or logic) to promote positions.  Social media is filled with opinions:  those we agree with we take as fact; those we disagree with are seen as insults.  Among all this chatter, we must deal with threats like identity theft and phishing that were unheard of a generation ago.

Here we sit, with the same critical thinking (some would argue worse based on America’s educational decline), the same economic understanding, perspective, sense of responsibility (some would argue worse based on the current trends in narcissism and victimhood), and discipline (some would argue much worse based on the obesity epidemic and personal savings crisis).  Here we sit, expecting to get by and strive in the high-tech, high-speed twenty-first century clinging to the belief that the behavior and skill levels of the past will see us through.  Instead of getting more demanding, we have in fact become more tolerant of lax behaviors in many of these areas, defending weaknesses instead of motivating for change, defending failed government programs that make people more dependent, squandering our money on luxuries and expecting someone else to bail us out at retirement.

The potential dangers of high-speeds in finance offer an important lesson about the real potential dangers of the high-speed society we live in.  The regulation to avoid disaster in the first instance comes from government and everyone will cry out for it.  Regulation to avoid disaster in the second can only come internally and there is nary a peep.