Coke and Pepsi Warnings

One day I overheard a news item on the radio about using radiation to kill bacteria on vegetables.  A colleague asked the rhetorical question, “Who would buy that?”  I told her that I had done some reading on the subject recently and the irradiated vegetables were perfectly safe to eat.  In fact those vegetables had been exposed to radiation for at least half of the time they were growing and couldn’t have grown without it.  It’s called sunlight.  But people don’t think of sunlight as radiation.  They don’t consider radio and cellphone signals as radiation.  Radiation is thought to be always bad and dangerous – no distinction is made between harmless and dangerous.  That would take some critical thinking.

People also fear carcinogens.  If it might cause cancer, regardless of the conditions or dosage level, it’s bad.  But so many things have been shown to cause cancer (including good-old sunlight, by the way) that comedians joke about it.  There are even substances that were once considered dangerous but have earned a reprieve.  It seems you can hardly move without bumping into something that at one time or another wasn’t considered deadly.

Now we get a recent news article about a substance in Coke and Pepsi coloring being banned in California because it caused cancer in lab animals.  Later in the article it states that humans would have to drink over one thousand cans per day to reach the dosage level given to the rodents.  Of course, if you tried to drink that much in a day the amount of water would kill you long before you reached the danger point for developing cancer.  (Yes, you can overdose on water!) 

Perspective is about moderation, understanding that you can keep trying to make your food, your drink, your environment purer but you reach a point where an extra dollar of effort yields pennies in benefit, and finally a point where an extra dollar of effort yields no benefit at all.  Yet there are still those with so little perspective and no understanding of science who insist that the water and the air are never clean enough.  Then it’s left to politicians and judges, not scientists, to sort it out.  And where do all these additional dollars come from? – you guessed it!

Bank Overdraft Fees

Again, here is a subject we should be taking care of ourselves instead of expecting the government to fix.  This article tells about an inquiry, not an investigation to uncover wrongdoing, by the Consumer Financial Protection Bureau into banking practices regarding overdraft fees. 

I made the point back in July 2011 and again recently that the bankers are smarter than the government when it comes to business and finance.  They react to new regulations with new policies or fees, forcing the government to come back later with more regulations.  It’s a vicious cycle that adds no value to our lives or to the economy.  In fact it often results only in our receiving another piece of mail with a multipage explanation of how the rules have changed - once again.

The fact is that most of these interventions for consumer protection involve situations that are directly under our control.  If we act responsibly, we don’t need protection.  This case of overdraft fees is a prime example.  The fees become an issue only when someone writes a check or withdraws from an ATM more than is in the account.  It’s addition and subtraction, but it doesn’t affect people because they can’t add or subtract.  It affects them because they don’t keep their records current.

There are many excuses for slipping, but they are only excuses.  When customers make an error, the banks take advantage.  When this happens, there should be one of only two outcomes.  Either the fees are high enough to cause a person to change behavior and keep better track, or they are not.  A good analogy is running out of gas.  You are stuck by the side of the road, costing you both time and money.  It is the result of not paying attention to the fuel gauge. There is no question as to whose fault it is, and it is easily remedied in the future.  This seldom happens to people a second or third time because they have learned from the experience to pay closer attention to the gauge.

Likewise overdraft fees should be no big deal!  Yet the head of the bureau wonders: “how consumers are affected and how well they are able to anticipate and avoid paying late fees.”  What a surprising statement!  They are affected by having to pay fees that should cause them to change behavior, and they know exactly what behavior needs to change.  To assume that people are incapable of solving this problem on their own seems arrogant and insulting.  Citizens displaying responsible behavior, not government inquiries, effectively solves this problem with no more regulations or "protection" required.

More Americans Saving Tax Refunds

Here is some good news for the future of our society.  Yahoo! Finance reports that more Americans are planning to save at least part of their tax refunds than did so in the past nine years.  Others plan to use their refund to pay down debt.  Less than one-quarter expects to use it on splurge spending or a vacation.  Another survey mentioned in the article found similar results.

People have been known to give one answer to a survey and act differently (see blog from October 7, 2011), but if this one turns out to be true, perhaps fewer people would be living on the edge, paycheck to paycheck, in danger of default.  It’s good news not only for them, but for everyone.

Economic understanding about the flow of money tells us that when people are unable (or unwilling) to pay their legitimate debts - credit cards, auto loans, mortgages, or whatever - the rest of us must take up the slack.  Banks adjust interest rates, penalties, fees and their willingness to approve loans to make up for the added risk posed by these deadbeats.  The same reasoning applies to tax evaders who settle for “pennies on the dollar” or, for that matter, to shoplifters.  Those losses don’t go away or come out of some mysterious pot of money or some magic insurance policy with no premiums.  They are made up for out of your pocket and mine in the form of higher prices, premiums, taxes and fees.

So this expected increase in responsible behavior from some is good news for all.  (This example shows how more positive behavior by individuals in any of the five key dimensions moves America as a whole in the right direction.)

Don't Listen To Me!

As I walked through the mall a few weeks ago, it occurred to me that if everyone listened to me we would be in big trouble!  If we all suddenly developed perspective, began living out our values that people are more important than things and suddenly stopped reacting to advertising hype and peer pressure, half the retail establishments would go out of business - and with them the jobs.  The stock market would tank and with it our retirement investments – so many IRAs, 401(k)s and union pension funds.

What if we all started buying things because we needed them, not because someone else told us that we needed them?  What if we stopped trying so hard to impress our friends and neighbors?  How many shoe stores would one mall need?  Would people rush to buy the latest electronic gadget the day it came out or fight over the latest athletic shoes or pay outrageously for fashions with a designer label or logo?  Would we continue to buy four-dollar cups of fancy coffee?   Instead would we have a nice bowl of cereal packed with fiber and vitamins in the morning and make ourselves a sandwich for lunch a few days a week, saving money and feeling healthier instead of living on a fast-food diet?  Would we be willing to pay those high prices to watch millionaire athletes, actors or singers perform, camping outside the door for hours; or would we wait until the prices seemed more reasonable, more in perspective, forcing those entertainers and promoters to meet (rather than set) our expectations?

Think about it –how many of the 1% that the occupiers rail against were able to join the top1%  because we met their price or kept their companies in business by buying stuff that we could have easily lived without?  Whose spending drove the housing bubble, the Internet bubble and all the other bubbles that made someone else rich?  How many people have basements and garages full of things they once “needed” but now rarely look at – and storage containers rented to accommodate the overflow?

But let’s not all get perspective at once!  There are common folks out there whose jobs depend on Americans buying new cars every few years, stopping in for fast food and a cup of coffee, making a meal with our family a special event instead of a regular practice, preferring designer labels on everything they buy, putting appearance ahead of substance, and planning their lives around what others think of them.  It’s OK if a few try this perspective thing, but let's not get carried away.  If it spreads too far too fast, we are all doomed!

The Myth of Home Equity

Back in the 1980s all the interest you paid was deductible from your income taxes:  car loans, credit cards, mortgages, etc.  In 1986 Congress passed the Tax-reform Act, ending deductibility for all interest except home loans.  What happened next?  The banks began heavily marketing home equity loans.  Buy your car but use your house as collateral and still deduct the interest.  (I always say that when it comes to finances, bankers are a lot smarter than politicians.  See blog for July 1, 2011.)

Formerly, if you took a second mortgage on your house, you were in dire financial straights, but now you were encouraged to be smart, tap your equity and be rewarded with a deduction.  What they didn’t tell you was that the equity from appreciation really wasn’t profit.  As the price of your house rose, so did the price of all the others.  Cash-in your house and you still need a roof over your head, but now they all cost more.  Equity growth through appreciation was just a way of keeping up.  Good equity comes from paying down the balance, which doesn’t happen if you keep borrowing against it.  The "American dream" is to own a house, not to live in a piece of collateral.

What else they didn’t tell you was that a house with no equity is the same as a rental with no landlord.  You are responsible for repairs and maintenance.  You have all the work of a landlord but someone else (your bank) collects the “rent” payments.

Third, they didn’t tell you that for the average person the tax deduction is at best, modest.  About 2/3 of taxpayers take the standard deduction; it does them no good at all.  If you itemize you could always have gotten the standard deduction, so you only really benefit from the amount greater than what you would have gotten anyway.  If your total deductions, including mortgage interest, are greater than $11,600 this year (joint return), your advantage over renting is only the excess, not the entire amount.  You need substantial other deductions to get the full effect, and most of us don’t.

Of course they didn’t tell you that housing prices might fall.  It was unimaginable! – until now.  Then you find yourself underwater.  The irony is that many people who got into this situation treated buying a house as an investment rather than a long-term purchase.  What else do you buy expecting it to increase in price?  Do you think about a new car depreciating as soon as you drive it off the lot?  Do you then park it on the side of the road and walk away because you owe more than it’s worth?  Have you tried to sell your refrigerator or big screen TV lately?  People who wouldn’t dream of risking money in the stock market treated a house as an investment and got burned.

Finally, they don’t tell you that if you don’t eventually pay off your mortgage, you will go on paying for the rest of your life.  It’s not good to be planning your retirement and realize that you have 25 years of mortgage payments to look forward to.  (Financial advisors will tell you never to make an extra house payment, because it's smarter to invest that money - with them, of course - who get the commission.)

This is a critical thinking issue – believing a rosy marketing picture about tax deductions and the American dream, without thinking it all the way through.

It’s also a discipline issue – looking for ways to satisfy today’s itch with tomorrow’s money.


When many behave this way, it results in serious societal consequences.

Free Trials Aren't Always Free

During my recent research on false advertising I found this particular reference.  This FTC site gives some good advice on how to deal with mail order or Internet companies to make sure you are not being cheated.  This is all about critical thinking, looking before you leap, reading the fine print and setting yourself up for success; and I'm glad to see the government encouraging it.

Here is an example of such tactics taken from a critique of a weight-loss product sold over the Internet.  It appears customers are often charged twice before they are able to stop the billing.

One thing not noted by the FTC is that if you are billed by a company that practices one of the sleazy tactics referred to on their site, you are in a better position to stop or dispute charges if you use a credit card than a debit card.  Some people are dead set against credit cards, but their arguments are based on a lack of discipline by the cardholder, not on any fault of the credit card itself.  Credit cards are excellent financial tools when used responsibly, but they can also lead to disaster when inadequate discipline is applied.  So we see that discipline not only applies to health issues (Feb 3 and Feb 6 blog), but also to finances -- and to getting our work done on time, and to controlling urges like gambling, etc.  Better behavior in this one dimension leads to better consequences throughout our lives.

Critical Thinking

Around the time of the Civil War, John Stuart Mill wrote essays in opposition to slavery and in favor of women’s rights.  In both cases he recognized the difficulty of persuading people to change their minds when their conviction was based on feelings rather than logic – thinking with their hearts instead of their brains.  Near the beginning of “The Subjection of Women” he writes:  “So long as opinion is strongly rooted in the feelings, it gains rather than loses instability by having a preponderating weight of argument against it. For if it were accepted as a result of argument, the refutation of the argument might shake the solidity of the conviction; but when it rests solely on feeling, … the more persuaded adherents are that their feeling must have some deeper ground, … always throwing up fresh entrenchments of argument to repair any breach made in the old.”  In other words, it’s tough to get people to change their mind when their opinion is not based on logic.  The more you talk, the deeper they dig in to protect long-held beliefs. 

We see this behavior almost daily.  We are warned to avoid subjects of religion and politics in social conversations.  They lead to no resolution, instead causing others to dig in to protect their turf.

This is why many of my critical thinking arguments will fall on deaf ears.  Considering, though, the waste, misdirection and sometimes danger that result from individual and societal forays down these blind alleys of feeling-based decisions, I will continue.

There are two categories of critical thinking.  The first involves paying closer attention, for example, recognizing the popular advertising pitch of “save up to 50% or more” as virtually meaningless.  Literally interpreted, it means:  maybe saving some undefined amount.  Likewise, how can all car insurance companies save you (up to) $300 when you switch?  They all say so.  One even claims that  80% of those who switched saved money - but doesn't mention the 20% dumb enough to switch anyway.  These examples, and there are many of them, just take some basic questioning.

The second category of critical thinking hits on subjects treated almost as religious beliefs.  When I warn of the dangers of dietary supplements, the ineffectiveness of performance bracelets, or that all-natural does not necessarily mean healthier, I know there are a certain number of readers who will dig in, ignoring examples, evidence and explanations, knowing in their hearts that they are doing the right thing, resisting rather than even considering an alternative point of view.  For some the ideas of green and sustainable are nearly sacred.  They will not bat an eye when told that a particular windmill, for example, saves enough coal-powered energy to pay for itself in 150 years, but has a life expectancy of only 50 years!  “But, but, but it’s green!  It must be good.  It’s the direction we need to be moving!”  Logic is lost in feelings and further argument leads only to increased resistance.

Nevertheless, I will continue to cite examples and drive the message of critical thinking.  Making good decisions most of the time is essential for our success, both as individuals and as a society.