Some Short Examples and Comments About the Five Dimensions

Critical thinking: A few weeks ago a furniture company was advertising 20% off or 0% interest until Jan 2024, which was about 40 months away. If you take the delayed payment offer and pay full price, you sacrifice the 20%-off bargain. That is the equivalent of paying over 5% in annual interest – not exactly a no interest deal after all.

 

Responsibility: It seems fine to harass, shame or even arrest people who don’t wear a face covering, yet in the case of a person who has children without the means to support or feed them, there is unlimited sympathy and generous financial support from the government and others.

 

Economic Understanding: Recently Subway lost a court case in Ireland. They tried to avoid paying tax on their bread, but the court ruled that their bread contains too much sugar to qualify for the “staple food” exemption. The media reported mockingly on the unhealthiness of Subway bread. 

 

One newscaster closed with “now it will cost Subway more” – wrong! It is really a hidden tax on the Irish Subway customers as they pay more for their sandwiches. I doubt if it will cost Subway any business as they raise the price a bit. Newscasters and most of the people who listen to them don’t understand economics or business.

 

Note: A recipe on Food.com for homemade white bread uses at least as much sugar as the Subway recipe. 

 

Perspective: Does anyone else find it odd that football players celebrate every time they make a good play? These people are highly paid to play a game. They are expected to throw the ball or catch it or tackle an opponent or keep him from catching the ball. When they do what they are paid to do, they make first down signals, high-five each other, do dances and mug for the camera. Try doing that in your job and see where it gets you!

 

Discipline: Consider those on-line sports betting ads. It’s initially risk-free as they promise to match your losses up to a certain dollar amount. Aren’t they counting on enough people getting hooked, even if it’s only a bet or two a week? As the saying goes, over the long run the house always wins. 

 

Here is some evidence of that. This source “estimates that New Yorkers bet $837 million on sports in New Jersey. When subtracting the payouts for wins using a conservative hold percentage, it’s an estimated $57.1 million in revenue for the operators and $6.2 million in tax revenue lost by New York to New Jersey.” With it not yet legal in New York, total losses to the state in taxes on the profits could be over $203 million.

 

Discipline (alternate): Despite being told for years to build a six-month emergency fund, most Americans were dependent on government enhanced unemployment and stimulus checks immediately after the pandemic struck and complained when they were delayed.

 

Other miscellaneous ideas: 

Three useless words – “go ahead and.” Every time you hear them “go ahead and” replay the sentence in your head with out them. It’s shorter and means exactly the same thing!

 

The only way to be an optimist these days is to have extremely low expectations. 

 

“Some free black people in this country bought and sold other black people, and did so at least since 1654, continuing to do so right through the Civil War.” (Source: Article by Henry Louis Gates, a black historian)

Behavioral Aspects of the War on Drugs

The War on Drugs has been going on for 50 years with little to show for it except on-going criminal/gang activity, the highest prison population in the world and the occasional headline story of a “drug-lord” or “kingpin” captured or convicted – cheered by the police and press as a great victory, and cheered by the next in line in the drug cartel as a long-awaited promotion.  But are we making any progress?

Based on a survey of 67,800 one source found:  “In 2013, an estimated 24.6 million Americans aged 12 or older – 9.4 percent of the population – had used an illicit drug in the past month. This number is up from 8.3 percent in 2002.”  No progress there.  And the CDC puts this number at 10.1% in 2015.  Up again.  US News piles on with a report of a “heroin epidemic” showing a 15-year increase.  So the main purpose has been thwarted, and we get the bonus of unintended consequences.

One major failing is how drug prohibition keeps organized crime in business and funds terrorist activities – Afghanistan being the world’s number one producer of heroin.  The dynamic of illegal activities and violence in America is eerily similar to that of alcohol prohibition in the last century although drug-war proponents refuse to admit it.  Today the government has, in effect, handed control of a multi-billion dollar market to violent criminal networks and gangs overseas, in Mexico and in the streets of our major cities.  With all the money involved the incentive is far too great to persuade them to give up even when faced with threats of arrest or being murdered by rival operators.

A second failure comes with the increased danger of the products.  Drugs are dangerous themselves, but the danger escalates when illegal, often backroom operations are involved in production and distribution.  Buyers can’t be sure of what they are getting, purity or dosage.  The danger is many times greater than unintentional overdoses of prescription drugs with that info available right on the label.

Another danger comes to law-abiding citizens indirectly from higher exposure to the criminal element on city streets and from muggings and property crimes to support the habit (with fewer resources freed up to investigate those other crimes).  Those already addicted who want help have less chance of getting it, afraid of reporting their problem.  And what about kids asleep in the bedroom while their parents cook up meth in the kitchen?

Just as legalizing alcohol did not lead to a spike in drinking, there is no reason to believe that legalizing drugs would lead to a sharp increase in drug use.  Colorado and a few other states have become laboratories to test the validity of this assumption while enjoying added benefits.  Yesterday Fox Business reported that Colorado “made an extra $200 million in tax revenue last year from legalized marijuana sales” and New Jersey expects to raise $300 million a year.  Revenue from marijuana sales no longer goes to street gangs, Mexican smugglers or other shady characters.

Legalizing drugs is not an endorsement of drug abuse any more than legal liquor is an endorsement of alcoholism.  The idea would be to control quality and regulate supply.  No one wants to see fellow citizens struggle with drug addiction; but the current situation is unacceptable, and doing the same thing, or doing the same thing with increased intensity, will not change the outcomes. 

It makes sense to take the same approach to the illicit drug abuse problem as we are taking to the more recent prescription abuse problem.  It should not be treated as a legal problem but a public health and education problem.  On balance, the failed war on drugs has been much more deadly and destructive than the drugs themselves, solely because the drugs are illegal, leading to deadly violence between warring factions, battles between the police and suppliers and harm to innocent bystanders from shootouts, chases and explosions.

But recreational drug use is immoral!  So are gambling and drinking, some say, and smoking and dancing and rock and roll!  Where do you draw the line?

Insurance and Gambling

Earlier I wrote about how most people associate investing in the stock market with gambling and how that is not necessarily an accurate analogy.  Surprisingly, gambling has more in common with insurance, and insurance is something people rarely hesitate to buy.

Consider the lottery as representative of gambling in general.  People spend money on tickets.  The money goes into a pool.  Out of that pool comes money to support the program (administrative), money paid out (prizes) with some left over (used by the states for designated projects).  A lottery always pays out less than it collects.

Insurance is very similar.  People spend money on premiums.  The money goes into a pool.  Out of that pool comes money to support the company operation (administrative), money paid out (claims) with some left over (profits).  Insurance always pays out less than it collects.

Both cases involve a gamble.  If we play the lottery, we gamble about winning against incredibly poor odds.  If we forego insurance, we gamble that we will be safe and will never need to collect.  That’s why most money managers recommend against such things as extended warrantees on appliances and electronics or life insurance for children.  The risk you are insuring against is very low relative to the cost of premiums.

There are, of course, differences.  An insurance payout comes after a loss – a house is flooded, a car crashes, someone is sick or injured, an appliance malfunctions, or someone dies.  The insurance does not and cannot make things completely right in terms of suffering or inconvenience, but it does provide some compensation to soften the monetary loss.  Given the choice, most of us would rather not be in the position to collect on an insurance claim, but would love to win a lottery. 

The important similarity that many overlook is that in both cases the total paid in (by everyone) is more than is paid out.  The very lucky come out ahead playing the lottery.  The very unlucky (or dishonest or reckless) collect more from insurance than they ever pay in premiums.  For most the lottery is a losing proposition and most pay more over time for insurance than they collect.

That’s why the complaint that I paid for insurance all these years and deserve my money back often results in disappointment.  In most cases you are not investing in insurance; you are buying peace of mind against the risk of some mishap.  It’s a gamble you hope never to win.  So don’t expect to make a killing off an insurance company.  It’s not set up that way.

Gambling and the Stock Market

When you talk to some people about investing, they compare buying stocks with a trip to Las Vegas.  This is understandable as huge dips in the stock market always make the news, whereas a gentle rise over time or even a large surge gets less attention.  Looking at investing and gambling over the long run shows one significant difference.

Gambling, on average, is a losing proposition.  Most lotteries are set up to pay out about half their revenue.  Buy a pick-3 ticket for $1 and get a 1 in 1000 chance to win $500.  Those are terrible odds.  You know this when you hear the states boast about how much lottery funds contributed to schools or property tax relief or another chosen cause.  That funding comes from the dollars of the losers who far outnumber winners.

At a casino lay down a dollar on a roulette number and win $35 if you happen to choose the right number out of 37 or 38 possibilities.  Those odds are better than the lottery, but over the long term the house keeps a few cents for every dollar bet.  Those pennies add up quickly and pay for those big, impressive buildings.  Slot machines pay a little to keep you playing and a large jackpot just often enough to keep everyone hoping, but over the long term the casino always wins.  On average gambling is a losing proposition.

The stock market does have some wild swings and looks like a gamble, but the difference between traders and investors is important.  Traders play the market trying to anticipate these swings.  Investors pick a stock or, less risky, a diversified fund and stick with it.  Investors are not as exposed to wild swings, because they are patient and ride out the peaks and valleys.  A good example (not a recommendation) would be the Vanguard Life Strategy Fund, which is very diversified – in fact it’s a fund made up of other funds.  Anyone investing $1000 in January 2003 would have around $1700 by now.  That includes all the scary economic problems over the last 10 years.  Over its 19-year history, it has yielded over 7% per year on average.  That’s so much better than money in a savings account or CD.  Of course, during that time anyone who tried to time the market, acting like a trader by buying and selling, could have gotten burned as badly as a Las Vegas gambler, but the history of positive gains is similar for almost any diversified fund from a reputable company.  They are easy to look up on line.

Now past performance does not guarantee future results, as they always say, but unlike gambling, investing – real investing and not trading and timing – has not been on average a losing proposition.  There is still risk, and emergency funds do not belong in stocks or any other volatile investment, but over the long term the stock market differs in this important way from gambling.  If the comparison to gambling has worried you in the past, it might be interesting to do some research or talk to a trusted advisor.

A Different Look at Discipline

Discipline is the dimension associated with doing the right thing, even though it may take a little extra time or effort rather than taking short cuts, the path of least resistance or the easy way out.

Many things in life are simple to understand but hard to do.  They require discipline to avoid problems like obesity, smoking, insufficient savings for college and retirement, gambling, alcohol or drug abuse or “addictions” to videogames and smartphones.  Everyone knows that as a society we should be eating less and exercising more and, in general taking better care of ourselves physically, emotionally and financially.  The consequences of obesity, smoking and the rest are well understood and well publicized.  Nevertheless, problems persist and in some cases are worsening.  This is most often the consequences of a failure in discipline.

These are not the only symptoms of an America weak in discipline.  Here is a picture that was sent to me a couple of weeks ago of a car parked near a strip mall.  There were at least 7 empty and legal parking spaces near the car.  Instead the driver chose to park illegally on the striped lines, perhaps 10 feet closer to the store (but he was only going in for a minute – or some other excuse).  Behavior like this has no immediate or long-term consequences; it just shows a general disregard for rules that were set up to keep our society running smoothly.  It was a little too much trouble to park legally and walk the extra short distance, but I’d be willing to bet that the driver could have benefited from the exercise.

How about those people who abandon their shopping carts in the parking lot less than 15 or 20 steps from the collection area, blocking a space for someone arriving later?  This is another example of behavior with no direct consequences, but showing a weakness in discipline that likely carries over to other situations and contributes to our belief that America is heading in the wrong direction.  How do we solve the big problems if we can't even behave properly in small areas?

Should it surprise us then that a survey of 23,000 high school students shows that more than half admit to cheating on a test and lying to a teacher about something significant?  Where would they get the idea that taking the easy way out was acceptable?  Ironically the authors of the survey saw it as a good sign that the percentage dropped for the first time in a decade and cite it as the possible positive trend – a trend of one data point?  Come on.  Over half cheated, and it’s been that way for at least 10 years.  There’s not much good in that news.  Rather it’s more evidence of America's poor discipline trickling down to the next generation.

Words Revisited

Recall how on October 3, 2011 I wrote about how advertisers try to get us to change our vocabulary.  I’m not talking about political correctness.  Rather, this is an attempt to change the way we think, to make certain products or activities seem more attractive.  Examples included realtors, seemingly successful in changing the word houses to homes, which sounds much warmer, friendlier and more personal; and car dealers, somewhat less successful in rebranding used cars as previously owned.  Here are a few more examples that I noticed over the past six months.

One example is the use of expressions gaming and gambling.  Basically, gaming is legal, gambling is not, but they are really the same activity, risking money to win more.  When it happens at a casino or takes the form of a lottery run by the state, it’s called gaming and it’s OK.  If it’s an office football pool, it’s gambling and not OK.

Ironically, in the 10x10 matrix used in the office pool, you pay $1 for a 1 in 100 chance to win $100.  In a pick-3 type state lottery, you pay $1 for a 1 in 1000 chance to win $500.  The office pool is a smarter bet by a factor of two, in fact the probability of winning is superior to any legalized game!

Another advertising ploy is to label products as “chemical-free,” supposedly meaning safe or pure.  The concept of chemical-free is an impossibility, since all matter from stars to mother’s milk is made from either a single chemical element or chemical compound or some mixture of both.  Yet many cleaning items, for example, make ample use of this expression.

Critical thinkers know that when you go back to the dictionary definitions, we all live in houses, use chemicals for good and bad purposes, and gamble whenever we place a bet to win money.  They are not influenced by advertisers’ clever use of euphemistic or manipulative wording.

As long as we’re talking about words, also note that, in this campaign season, when you hear a politician mention healthcare in most cases he is really talking about only insurance, not healthcare or the rising cost of healthcare.  There is a big difference.