Thursday, May 25, 2017

American Tragedy

Most Americans consider themselves socially liberal and fiscally conservative, but they're really socially judgmental and fiscally ignorant.

How else is America the most conservative developed country on issues like the death penalty and abortion and unable to understand basic issues like debt's impact on inflation?

A country that runs on debt is a country where politicians can pander to every single group's demands--regardless of merit or long-term consequences.  Furthermore, peace based on cheap debt is not peace at all--it is a slumbering giant waiting for collection day.  

Monday, May 22, 2017

OECD Inflation

Here's a worrying chart from Bloomberg, but it's incomplete.  Can you figure out why?


Without knowing how much of the inflation is organic or due to debt, and what kinds of debt (government, small business, consumer, auto, education, etc.), the chart is only useful as a singular snapshot.

So many problems today arise from people being unable to see data in context.  As economic transactions have become globalized and therefore more complex, data gatherers and writers are still too specialized.  There is almost no one who can put data in proper context, and so we stumble along, convinced that resolving x will be the cure when x is only one part of an ecosystem we generally don't understand.  

Wednesday, May 17, 2017

Immigration and the West: a Backlash Fueled by Debt

I've written before about why racism will always exist and its interplay with immigration and economic sentiments. (See HERE.)  Today, we are in a curious situation: the best lack practicality, while the worst lack tolerance.

We have learned that absent de jure discrimination, more homogeneous communities do better in terms of trust while more diverse societies tend to fracture and segregate in the absence of perpetually rising job growth. Every society's majority attempts to carve out protections and privileges for their own ways of life and thinking. When secure, they feel more open to outsiders; when less secure, they feel less open to outsiders and non-conformity. Some societies enforce their rules through exclusion, whether social or economic; others through individual violence (think lynchings); and others through the law using the state's resources for the threat of violence and order (think jails or costly litigation). Every single society, over time, diminishes if it resorts to exclusion or violence because not only do such tactics cost money, they also scare off potential entrants.

All over the world, voters are rejecting the status quo. America elected Trump; France may elect Le Pen; Nazis are rising in Scandinavia, as chronicled by journalist Stieg Larsson; the Dutch have Geert Wilders; and even the bohemian Czech Republic has its own non-politically-correct president, Miloš Zeman.  All of these so-called populist candidates have risen on the tide of anti-illegal-immigration and anti-refugee sentiments, not because of racism per se, but because voters believe 1) Europe is not a nation of immigrants; 2) a generous welfare state cannot support too many outsiders who have not paid into the system; 3) a generous welfare state cannot avoid higher taxes if it imports poor people, and personal taxes are already high; and 4) outsiders will not assimilate to their way of life and seek to impose their values on the majority (whether true, it matters not as long as voters sincerely believe it).  (With respect to #3, people are more concerned about rising prices of essential items like housing than taxes, but feel they cannot personally do much about inflation and so focus on taxes.)

In reality, Western democratic institutions are in denial about why their systems are in decline and like most people in denial, seek to find scapegoats. At the extreme, such scapegoating leads to the Holocaust; at a slow boil, it leads to a "soft revolution" like electing Donald Trump and attempting to close borders. What has really happened to cause so many voters to lose faith in their governments and immigration?

1.  Post 9/11, military and intelligence agencies disregarded the rule of law and used their influence to divert government funding to their interests and friends.  Such tactics range anywhere from government hiring preferences for veterans to increasing jobs in security and security-related agencies (TSA, DHS, etc.).  In the U.S., because debt has been used to sustain the unsustainable, once a job is created within an agency, it is rarely eliminated.  As economist Milton Friedman once remarked, "Nothing is so permanent as a temporary government program."

Reducing accountability and relying on perpetual war or fear to prop up government spending and to set priorities will lead to backlash--but not necessarily against the military, especially if it has become the employer of last resort for men. Yet, when the rule of law weakens, all society suffers because the easiest enforcement method is voluntary compliance, and the fewer people who believe the rule of law is efficient and consistent, the harder it is to have voluntary compliance.

A lack of voluntary compliance usually leads to a greater acceptance of evading the law, whether legally (Panama Papers, applying for disability benefits based on hard-to-measure psychological ailments, etc.) or illegally, which then results in dissatisfaction and increased spending on non-productive jobs, such as compliance and navigating an ever-increasing web of laws designed to combat non-compliance.  As society fractures, governments find it harder to increase the tax base, leading to special interest groups protecting their own jobs through political influence rather than focusing on long term results.

By the way, I single out the military's extended influence worldwide because:

1) increased military spending that could have been avoided increases debt, leads to higher taxes, or forces cuts to other government programs. Such spending drains resources for more productive expenditures such as practical education, more efficient healthcare, and better infrastructure or causes countries to limit their future spending flexibility while pitting their older generations vs. their younger ones--or insiders vs. outsiders; and

2) increased military spending by one country forces more military spending by allies and enemies alike, leading either to more cooperation, best-case (think NATO or sharing military bases in Djibouti by China and America) or less cooperation and more complexity and therefore unpredictability, worst-case (think Russia not being pleased with so many military bases being placed near its country or the current actions in Syria).

But don't listen to me--President Eisenhower said it better:

"Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people."

So did James "Jamie" Dimon, CEO of JP Morgan Chase (2016 Annual Report): "Over the last 16 years, we have spent trillions of dollars on wars when we could have been investing that money productively. (I’m not saying that money didn’t need to be spent; but every dollar spent on battle is a dollar that can’t be put to use elsewhere.)"

2.  The largest single factor in voter dissatisfaction is a failure to understand that public institutions aren't doing their jobs and may in fact be working against their own people's long term interests.  In Europe, it's no secret countries are having difficulties assimilating recent immigrants.  Few people realize it's not recent immigrants who are causing problems, but their native-born children, who have been fed a lifetime of "liberté, égalité, fraternité," only to realize they were victims of well-intentioned propaganda.  

Indeed, most of Europe is experiencing widespread job discrimination and a lack of social mobility. In response, European voters can believe their public institutions are not working well, in which case they must admit their own culture and ways of life--into which they are demanding assimilation--are not ideal for everyone or are unable to integrate newcomers sufficiently; or, they can blame everything that isn't like them, such as different religions, different beliefs, and different work ethics.  One doesn't need a psychology degree to understand denial and a lack of self-awareness can apply both to individuals as well as entire societies.

In short, it's easy not to blame one's own institutions if one truly believes one is hard-working or useful, and far more difficult to believe that one's own failure to sacrifice or be open in substantive rather than abstract ways is the cause of decline.  Such phenomena is not unique to Europe, of course.  An older American law school professor part of a private institution whose job is protected by an MOU--making it almost impossible to fire her--is not likely to believe problems arise from her own failure to make sacrifices in pay, to step aside once her practical experience becomes more attenuated, to effectively protest constant tuition increases, and to prevent higher debt loads for students.

Yet, an outsider like myself once part of the same school can easily see the college now exists primarily as a conduit for privileged children from K-12 private schools to gain access to an affluent job network and political influence (almost everyone on the local political councils went to private Catholic schools and the last two mayoral candidates attended the same Catholic high school), with the occasional immigrant or outsider thrown in or promoted to a visible position to give the appearance the entity is doing something other than ensconcing a caste system based on the ability to access certain schools at a young age. (I almost balked at attending the school when tuition was around 21K annually--I and most people in the middle class wouldn't even look at a law school charging 55K a year in tuition when we know our parents are unable to assist financially.)  At the end of the day, as tuition increases, colleges with expensive tuition may continue to attract a small percentage of outsiders, but such persons will gain the privileges accorded to everyone else only if they are spectacular in their skills or if government jobs are left over after being given to the insiders.

Ironically, by promoting certain people based on personal traits such as race or background to give the appearance of inclusion, governments and other entities are reducing morale within their own ranks as well as fueling voters' beliefs that elites care more about newcomers/immigrants and arbitrary personal traits rather than merit and accountability.  This belief occurs despite the fact that most employees within any government agency tend to reflect connections built over decades and therefore unavailable to immigrants and newcomers.  Remember: reducing accountability will lead to backlash, even against deserving persons within an agency or entity.

3.  A society filled with hypocrisy cannot survive--at least not without miserable or angry people.  As fewer elites admitted to themselves that their positions and benefits were unsustainable if applied to the entire population or without cheap debt, they became disconnected from the most important sustainability project of all--economic sustainability. Within a country where physical segregation has been the norm, the combination of growing inequality, higher living costs, and D.C. disconnectedness with non-elites has led to political combustion.  When the elites responded with scorn and name-calling rather than an acceptance they were party to laws and legal agreements favoring them under separate or unequal employment and compensation systems, the powder keg was lit.

4.  A country with a "middle class" soaked in debt has a middle class in name only.  Debt makes people expect certain returns and increases expectations.  Someone who buys a taxi medallion--a license that allows him or her to be part of an established cab fleet--isn't going to support Uber, even if Uber increases economic diversity as well as convenience for the disabled and able-bodied.  That same person who takes out a loan to buy the medallion/license won't limit defiance to protesting Uber--s/he will do whatever it takes to demonize Uber, regardless of the facts.

Countries and people in debt must prioritize debt payments first, and customer service and the public good second.  Debt causes people not to empathize and therefore not to understand differing points of view to the extent such views are held by persons interfering with plans to pay off their debt and/or expectations of return.

How do so many so-called "poor" nations still manage to have social cohesion despite high levels of wealth inequality?  It's simple--they don't force their poor people to go in debt for the basics, and they don't have as much physical segregation, usually because they have cheaper or better public transportation.

Also, because loans in developing nations aren't available except for the rich, automatic inflation everywhere doesn't occur. and it's possible to live in areas--like Jakarta--where an upscale Starbucks is across the street from delicious street food costing one dollar a plate. In short, segregation exists everywhere, but in most non-American and non-European cities, it's not the kind that makes you despise your neighbor.

In Thailand, I once ate at a sit-down restaurant and saw laborers and suits in the same place. A picture of the award-winning chef hung on the wall of the otherwise unassuming restaurant, located next to a convenience store. How many local award-winning chefs can afford to open their restaurant in a major city in America without a loan?

Poor and rich Filipinos admire President Duterte, a lawyer, while left-leaning American media outlets castigate him whenever possible--even though their own lawyer-politician, Hillary Clinton, is disliked by most Americans. A world soaked in debt becomes hypocritical and epithet-seeking almost by default.  I weep for the future of developed countries. A world where debtors accept their financial slavery and rely even partly on prescription drugs for happiness or health is poor, regardless of GDP.


Debt leads to inflation, and unrestrained debt leads to a political class that can forestall accountability by refusing to make hard choices on behalf of its citizenry. To sum up,

1.  Reducing accountability will lead to backlash.
2.  Reducing accountability for some workers but not others while paying the less accountable workers more benefits will lead to more segregation as residents attempt to create or find more accountable entities or loopholes for themselves to avoid being ensnared in the general public's inability to avoid reduced accountability.
3.  Reducing accountability while increasing debt and segregation will lead to lower trust among all groups, which will seek to justify their segregation from the goods and services available to the public.
4.  Reducing accountability and trust while increasing debt will fracture society by making it less empathetic, leading to the search for scapegoats, which tend to be immigrants or minorities.

The future of the political class depends on which systems will provide cost-effective and streamlined healthcare, public safety, and public education for all. If an authoritarian government is able to best deliver results, it will gain more popularity than a democratic government unable to reverse debt-fueled inflation in essential items running higher than wage or job growth. And so it goes. 

Wednesday, May 10, 2017

"What is your motto here?"

From University of Maryland research.
From Bloomberg. 
About half of American voters have realized their political system isn't working and are willing to do whatever it takes to be heard.  While many Americans, including myself, mention police unions as part of the problem, the entire system has become so convoluted, little accountability or efficiency exists in politics--not in public education, not in public policing, and not in public transportation. (Fun fact: our local "bullet" train was built by Japan in 1986 and takes about an hour and a half on its normal route to go 50 miles. I live in one of the largest, most affluent cities in California.)

Ideological adherence, regardless of results, has destroyed America's ability to think logically or attain an agreed-upon national character.  Lee Kuan Yew once remarked, "The [Singaporean] system works regardless of your race, language or religion because otherwise we'd have divisions. We are pragmatists. We don't stick to any ideology. Does it work? Let's try it and if it does work, fine, let's continue it. If it doesn't work, toss it out, try another one. We are not enamored with any ideology."  In short, Singapore's ideology is not having one. Singaporeans pledge allegiance to practicality: does it work?  Is it sustainable?  Will it improve lives for the majority of our citizens?  Such an approach requires government to be citizenry-facing and pro-efficiency, admittedly much easier to do in smaller countries with only one border, but even with such advantages, "The bigger they are, the more corrupt they must be," shouldn't be an automatic motto.

America's tried-and-true formula has broken down.  With its vast natural resources, mighty Navy, low population density, two oceans protecting it from invasion, and advanced technology, the stage was set for perpetual success--as long as existing residents didn't get too greedy or selfish. Historically, America's expanding economy has relied on immigrants and treating their children--not the immigrants themselves--fairly so they assimilate and sustain not only productivity growth but retirement programs.  I wrote about this phenomenon earlier:

To summarize, the natural progression of modern successful societies is as follows: industrialization; women receive equal rights; birthrates decline; unions are eventually formed; taxes are increased to support government union jobs; native-born citizens refuse to do certain work, requiring the importation of poor people; the new immigrants create cultural tensions; and either society adapts and is able to welcome the new immigrants like the United States has done, or it fails to assimilate the new immigrants and begins a slow, steady decline.  

I should have added that an inefficient or outdated education system also requires the importation of skilled immigrants, not just poor ones. Being a bit naive, I never expected so many American voters to conflate giving more money to K-12 schools--no strings attached--with better education ipso facto.  Setting aside voter gullibility, why is a good, practical, and cost-effective education so important these days?

First, a bachelor's degree is required to get on track to get a decent-paying job, even if the skills taught in school confer no practical value.  Yet, in most service-based or knowledge-based careers, people learn on the job--just like they did decades ago, although back then, an apprenticeship might have been just as good as a college degree.  (It's not just K-12 that has issues--I graduated law school not knowing where the courthouse clerk's office was or how to file a complaint in either state or federal court.)

Second, most college-educated people marry other college-educated people.  In fact, the most relevant factors in whether a marriage will last are age (the older, the better, but not after 32) and a bachelor's degree.  What percentage of Americans over the age of 25 do not have bachelor's degrees?  About 68%.

Now check out the second picture at the beginning of this post.  That's $1.2 trillion--yes, trillion with a "t"--in outstanding student loans.  So let's say you're in the lucky 32% with a bachelor's degree.  If you're ambitious and lucky and find a spouse in college and graduate, you could have non-dischargeable debt--debt you can't clear in bankruptcy court--of about $50,000 at the age of 30 and no assets other than a used car.  And still, college degrees are so in demand, my law school now charges $55,000 tuition for a single year.  Whom exactly does this educational set-up help?

It helps the federal government--which receives interest on student loans it issues directly, even ones targeted to lower income students like Perkins Loans; debt collection agencies and lawyers; consumer lawyers to assist against debt collection agencies; banks, which offer private student loans; universities, which are non-profits; and university employees.  It does not help an ambitious child from a hard-working immigrant family who has not had the benefit of asset appreciation during a time when prices for essential items were much lower, and the gap between wages and such prices much narrower.

Cost matters.  For example, a college education costing $5,000 a year with median entry wages at $5/hr is a much different hurdle to jump than one costing $55,000 a year with median entry wages at $15/hr.  At some point, the number of years required to be in debt delays important economic activity, especially the ability to save, which in turn delays the ability to rely on compound interest to build assets and disposable income.

If prices for essential items are increasing faster than wages, and the ticket to getting a higher wage requires $30,000 or more in debt, then without parental, grandparental, and/or scholarship assistance, the virtuous cycle of debt, sacrifice, hard work, and success is no longer available to a broad spectrum of people.  Even for the most well-meaning participants, the process changes from providing valuable solutions or services to getting along with the people in power so you can get into their club--or at least get a scholarship.

When reaching the middle class requires $30,000 to $50,000 in debt--not including opportunity costs--most people will try to find loopholes and exemptions because "gaming the system" appears moral when the default is financial slavery.  Naturally, people will lobby politicians to help, but because the system is so profitable for almost everyone, no politician will try to implement fundamental changes.  Over time, the same problems multiply, such as tuition increases, and eventually the only people doing well are the ones who've convinced the government to give them a loophole, or the ones who've benefited from generational asset inflation and transfers, allowing them to keep up.  Moreover, absent predictable paths to success, cities become hubs of short-term thinking, unable to tame nomads, removing yet another potential check and balance on consolidation of power. In short, the Establishment wins every time, and immigrants and outsiders aren't able to shake up the joint in meaningful ways without being connected to the government's pre-existing objectives.

Welcome to America in 2017: "Here's Charlie facing the fire and there's George hiding in Big Daddy's pocket. And what are you [politicians and vested interests] doing? You're gonna reward [connected, listless] George and destroy [hardworking, middle class] Charlie... Now I have come to the crossroads in my life. I always knew what the right path was. Without exception, I knew. But I never took it. You know why? It was too damn hard."  

Wednesday, May 3, 2017

Aga Khan Museum in Toronto

Below are a few pictures from the lovely Aga Khan museum in Toronto, Canada.


French frame over Middle Eastern art. 

That's real gold on those pages.

Thursday, April 27, 2017

Policing and Walking a Beat

Policing in the old days involved a cop walking a beat.  Why walking?  So he could get to know his community and operate as part of a village raising its children to be law-abiding adults.  On his own, the cop was useless and vulnerable; as part of the community, he was one of its respected pillars.

As cities became larger and cars more popular, police adapted and got behind the wheel, too, obviously losing the personal touch.  Without the comfort of knowing who is familiar and unfamiliar, cities with exploding populations--especially L.A.--not only experienced "white flight" but also more aggressive policing methods. (See the documentary, O.J.: Made in America (2016), for details.)  One may argue the 2nd Amendment necessitates harsher methods, but if that was the case, why wasn't the "cop on the beat" decades ago as harsh as the cops in body armor today? 

Crime has always been with us, and policing methods have adapted to changing demographics. If you don't know your own neighborhood, you may decide to treat everyone as a potential threat or as a potential ally.  Police in America today have decided to go with the former to ensure their own safety.  Such an approach is sure to fail, because treating others with prejudiced suspicion always breeds contempt. Once contempt is created, dialogue becomes more difficult, and eventually things fall apart.  

When schools teach Jim Crow and segregation, they always mention fire hoses and police dogs, but not demographics and policing methods.  What are police--who must generally follow orders--supposed to do when mayors or city councils order them to disperse a crowd, even a peaceful one?  If the mayor is getting his or her ear chewed off by small and large business owners who are losing sales because streets are blocked off or consumers are hesitant to come inside and shop, what is the mayor supposed to do? These days, American protests don't accomplish much because they're too staged and shut down no real activity.  The pop stars giving speeches never go to jail, so there's no sense of danger.  It's like a sporting event--everyone gets to blow off some steam and go home.  

Meanwhile, the real action is done horse-trading political favors behind the scenes, with each government agency trying to get as much money as possible while placating voters. The politician today stands for nothing save the following question: "How much can I give this agency for their collective votes, and how much can I raise taxes or borrow to pay for it before my voters get so frustrated, they vote me out?" 

Students who study Jim Crow and other policing methods in the South should also study the liberal, open, and lovely college town of UC Davis. In 2011, a police officer used pepper spray on undeniably peaceful student protestors.  In the aftermath of worldwide outrage, UC Davis--a public university--used taxpayer dollars to pay consultants at least $175,000 to help its image online.  

As for the cop using the pepper spray?  He applied for worker's compensation and won more than $38,055 for suffering he experienced after the incident. Did anything really change after 2011 in California with respect to police power and its use against residents and voters?  Not at all.  Did police officers become more open to accepting the consequences of following clearly unjust orders? Nope.  If anything, police--and other government entities, such as teachers--became more powerful and cloistered as their unions continued to lobby for greater legal protections.

The modern American political system is rigged in favor of large, coordinated groups against the individual--regardless of merit or principle.  That's how democratic institutions typically work, except it's much harder to root out corruption when it's economic and when debt and paper stock market gains do better cover-up jobs than any "special investigations unit." 

In Brian De Palma's 1987 thriller, The Untouchables, Sean Connery plays a beat cop, Jim Malone, and asks Kevin Costner’s character, Eliot Ness, what he’s prepared to do to nab a notorious mobster--insinuating it’s going to take more than aboveboard policing methods to take down Al Capone, who will do anything to ensure he's the most feared and powerful man in Chicago.  What do Americans do now, when the most feared and powerful entities are not the criminals, but the police and other government employees, who are backed by judges they helped elect or appoint? What happened to government employees as pillars of their communities rather than the least accountable persons in them?  

Monday, April 24, 2017

The Fugees: Inaction Killing America's Leadership Potential


This map represents the West's cowardice and lack of humanitarian leadership. Bombing Syria, destabilizing the Middle East, and doing nothing to assist refugees other than paying the U.N. is morally wrong.

I'm sure many Americans made the same cultura
l assimilation arguments against accepting Jews during WWII--during a time when people weren't 100% sure what was happening. Today, we have satellites. We have no excuse. We know what is happening and do nothing. (Well, except telling Turkey that America is willing to accept their educated refugees only, especially PhDs.)

History will not forget. The Syrians and Iranians have accepted many refugees in their history. America, when given a chance to try to rebuild communities, failed. 


A reader responded: "Perhaps a more kind way of saying the same thing is that the U.S. doesn't know what culture it has anymore. No one is really giving a voice or identity to this generation, and we haven't adopted the good ideals of the founding fathers of making the U.S. a haven for the poor and downtrodden. I find it so interesting that people want to "make America great again" by doing the exact opposite of what made it great in the first place: granting poor people property and a chance at a normal life, regardless of their background."

Bonus: Amazon's Jeff Bezos was raised by a Cuban refugee.  Andre Agassi's father was an Armenian refugee raised in Iran.  He represented Iran as a boxer in the 1948 and 1952 Olympics. 

Tuesday, April 18, 2017

Questions about Eastern Europe

If anyone has information--even if only anecdotal--about the following questions, please message me or leave a comment.  I refer to the Czech Republic specifically, but I'm also interested in other non-eurozone in the EU, especially Hungary.  

1.  What is the government of the Czech Republic’s and Hungary's approach to interacting with foreign and domestic businesses? What policies have worked?  What has not worked?  

2.  What is the legal framework of the Czech Republic compared to the United States?  

3. How has the Czech Republic carved out a niche while also complying with uniform EU laws? 

4.  Have any measures been taken to address economic inequality?  

5.  What specific laws, if any, have helped balance business, employee, and consumer rights?

6.  What would be the feasibility and impact of adopting the euro, and what would be the appropriate timeline in doing so?  Would it be better to wait until other Eastern European nations have adopted it, or should Czech Republic take the lead?  


7.  How has the Czech Republic dealt with inflation and currency stabilization?

Wednesday, April 12, 2017

Fight Club Edition: Choose Jetblue and Virgin America over United Airlines

Fly Jetblue and Virgin America, and avoid United.

Jetblue and Virgin appear to have more consumer-friendly policies: https://lnkd.in/gZ6AsrR

I don't understand why United didn't keep increasing the value of the replacement voucher above 800 USD until someone accepted. Whatever the amount, it would certainly be cheaper than the cost to its reputation. Also, why are the security forces complying without questioning their role or doing a quick investigation and making their own (nonviolent) recommendations?

Americans are so jaded, they're saying they'll still fly United and they're looking forward to the discounts due to the PR fallout.  I keep trying to warn people: a nation drowning in debt is not truly free, because "free" choices necessitate placing the financial self-interest principle above all else, even morality.

Update on April 28, 2017: United announced changes to its passenger removal process and bumped compensation guidelines.  

Tuesday, April 11, 2017

Just Sayin'

People intuitively understand segregation is immoral and counterproductive.

Then they drive to their private schools, past the security gate with a guard who can reject anyone for any reason, onto a campus charging 40K+ annually for tuition, and say hello to a professor with legal protections under an MOU unavailable to 85% of the general public.

My former law school, Santa Clara University, is asking for donations. I don't see anywhere that SCU plans to forgive the student loans of graduates who are unemployed; who make under a certain income after five years; or who don't have affluent parents who can help pay off the loans.  Must be an oversight.

I wonder what all the pro-regulation professors would think about a law mandating colleges, as 3rd party beneficiaries, to absorb some percentage of a grad's student loan after 5 years if the student makes less than x dollars (with x dollars tied to tuition cost). This paradigm might cause different tuition rates for different majors, but funding discrimination against liberal arts departments is occurring anyway with students bearing all the risks.

Monday, April 10, 2017

Skyscanner App: Groucho Marx Edition



Skyscanner is an app and website that helps you find cheap airfare. Here's one link to search for flights under 600 USD: Flights Under 600 USD (posted April 5, 2017)

I just joined their rewards and blogging program as an experiment. The advice they give travel bloggers is in-depth and technical, and I'll probably do the least amount of compliance necessary to stay in the program and lurk. So far, it looks like I just have to post two links in each blog post, and I plan on making them as unobtrusive as possible.  [Update: Kelsey from Skyscanner tells me, "you actually don't have to do anything. It’s completely up to you how much or how little you want to talk about Skyscanner."  I may end up liking these people.] 

Groucho Marx once wrote, "I don’t want to belong to any club that would have me as a member." I like being an individual; though there's no "i" in team, there is one in "integrity." Life is all about finding your own voice and making the journey from unfunny happy dippy weatherman to subversive truth-teller. 

Besides, I refuse to do the fake smiles and posed photos (damn the duckface) that have become the norm.  I'm rarely in my own travel pictures. I will admit to using filters (blame Instagram for compromising my originality, but its "rise" filter is perfect for too-dark photos). 

Mind you, I have nothing against people who try to become internet superstars--I just want to contribute something more useful than another picture on the beach. When I travel, I try to talk to as many people as I can and observe the local economy. People may delude themselves about what they enjoy and like, but how people treat others and spend their money and time never lies. 

I'll never forget seeing a beautiful, model-like Cambodian woman walking down a main street. I asked her for directions because Google Maps wasn't getting a sufficient signal, and she repeated my question to a much older, darker-skinned, blue-collar tuk-tuk driver in Khmer. He flashed her a look of scorn as if to say, "You may speak better English than me and wear nicer clothes, but I can still refuse to talk to someone I consider overly flashy and a sell-out." I never got my answer. 

I look for as many "real" moments as I can handle. In the aggregate, they give me clues, "Finding Dory-style," that help me on my journey.   

I'm going to the Dominican Republic, Panama, Costa Rica, and the land of Fidel (now Raul) Castro. On my last trip, I visited 18 countries in 5 months and didn't blog until the very end, where I promptly spat out all my thoughts in one article: https://goo.gl/2yHs3m. We'll see what happens this time. 

https://goo.gl/ml6Dq6

Sunday, April 9, 2017

Rafat's Law: Inflation Elasticity

I've realized laws designed to control externalities and systemic shocks--such as banning secondhand smoke, anti-pollution regulations, or requiring certain levels of retrofitting in earthquake-prone areas--are necessary, while most other laws merely impose social values from elites onto the rest of society, transferring power to lawyers and politicians rather than individuals.

Laws favoring transparency in government are also necessary, though we've learned in America that transparency tends to come from whistleblowers rather than voluntary compliance (See Daniel Ellsberg, Edward Snowden, etc.).

Economic "laws" are the most important, but are usually backwards-looking and therefore inadequate for future reference, especially in a globalized economy with many moving parts.  Yet, as long as the data economists rely upon is relevant, recent, and relatively constant within a specific time period, economic "laws" may help establish the groundwork for further discussion.

I've tried for years to articulate an economic "law" I understand intuitively but cannot explain well.  It deals with the social response to an increasing gap between expected wages, debt loads, and essential services/products such as housing, healthcare, food, and transportation. Economic "experts" don't seem to separate essential vs. non-essential items when evaluating the inflation trajectory of wages and costs.

For example, getting an education costing 5K may not seem like a great deal if minimum wage is $3.50/hr, but it's still within reach. (Tara VanDerveer can still afford to go to college even she's not from an affluent family and eventually land a prestigious coaching job.)  If that same education, with new and fancier departments at the same college, costs 10K when the minimum wage is $7/hr, it's not as good a deal even though we've doubled both the cost and the wages.  In other words, the doubling of wages and costs should produce the same or similar results, but we're seeing that it does not. (Law: manipulating general wages by fiat in order to provide more equal opportunity does not solve the price inflation problem because the cost of essential items in modern society is often so much higher than wages that any rise in wages typically causes additional price inflation, which increases at unsustainable rates due to the high starting price point, low starting wage point, and the compound inflation problem.)

Worst of all, some higher costs, such as education, divert disposable and other income from tangible goods--especially tangible goods that may be transferred at lower values to other buyers if the initial purchase doesn't work out as expected. (You can transfer a paper book to someone else or sell it at a lower price to a used bookstore, but a Kindle selection is worth something only to you.)

Sorry, Warren Buffett--we live in interesting times. 
As the economy moves from tangible goods to services (e.g., data retention, secure networks, Wi-Fi reliability, etc.)--which cannot necessarily be transferred to new owners without modification--it encourages monopolies.  Competitors tend to use the same dominant platforms in the intangible economy and enter as "add ons" rather than something new or within a new ecosystem. No economic theory has explored this new paradigm.

Additionally, inflation in one area that is uneven has effects on more elastic wages and costs, especially as more and more economic activities depend on each other's growth.  Inelastic inflation means some prices such as tuition always increase, even if wage and job growth is uneven or elastic. Yet, one major reason for inflation elasticity is that higher costs in some areas, like tuition, tend to reduce well-paying jobs in that profession relative to unsubsidized tuition costs while solidifying power in the existing legacy group--at least in a democratic political system. Such a phenomenon typically leads to a greater reliance on debt or non-organic sources to spur job growth, adding an unpredictable new factor to an already complex inflation situation.

In short, prices and costs in some areas, such as U.S. tuition and tenured professor wages, are inelastic in the sense they do not experience deflation (though reduced enrollment may occur) because of political and legal support; in contrast, prices and costs in other areas are generally elastic even if an upward trend exists in the long term.

If elasticity in Sector X increases dramatically while inelasticity applies to Sector Y, backlash and social cohesion will occur.  If debt is used to mitigate the gap's effect between the elastic and inelastic sector, further distortions will occur, which are unpredictable to the extent the debt's gains don't flow equally or equitably (see election of Trump).

I don't know the solution to the above problem, but I don't want to have to explain it before we can start a discussion.  I call it "inflation elasticity" for now, but perhaps someone else can explain it better.

Bonus: Another common problem should have a shorthand name. When organizations are small, it is easy to hire likeminded people who interpret regulations and rules similarly. Predictability is almost assured, which leads to better compliance and mutual respect.

As organizations and the output they examine increase in number and complexity, enforcement is handled differently based on different fact scenarios, leading to different results based on arbitrary factors (e.g., which judge or case officer is randomly assigned, etc.).  Dissatisfaction is sure to increase.  As outcomes diverge, the system itself leads to distrust--the exact opposite outcome it was designed to create.

At that point, a leader has to decide how to manage his or her "troops."  If s/he orders them to comply with a singular or non-discretionary interpretation, s/he will fail because no method exists that covers all possible fact scenarios and permutations; at the same time, doing nothing will lead to sustained divergent outcomes, causing more distrust.  If the costs related to such a system continue to increase, regardless of reform or increased consistency, dissatisfaction and distrust will become contempt.

For this reason, almost everyone who grows older begins to appreciate the value of "small" while lamenting "small's" inability to expose its inhabitants to full knowledge and diversity of experience. Yet, I have seen nothing that teaches me how to solve the problem of trust and "big" without resorting to mindless enforcement that doesn't consider relevant differences.  

Tuesday, April 4, 2017

Credit and Credibility in America

America Has the Most Complex System of Government Worldwide

I'm keenly interested in how other countries manage to promote stability and confidence in government services.  For example, compare London, England (about 8 million residents) to the Bay Area in California (about 7 million residents).  The Bay Area contains several different FBI offices, Sheriff's offices, and city police departments. Except for the FBI, all the offices have different elected or appointed leaders. Meanwhile, London is served by one Metropolitan Police Department, which employs about 50,000 people.  It's true London is subject to jurisdiction by the National Crime Agency, but overlapping jurisdiction is rarer, and we're still discussing two law enforcement agencies rather than more than ten in the Bay Area (S.F., Cupertino, Campbell, Sunnyvale, Palo Alto, Oakland, Alameda County, San Mateo County, Santa Clara County, Marin County, etc.)  Having one police agency reduces administrative overhead as well as the need for different procedures, but it also seems to provide greater trust through greater simplicity.

America, in contrast, has at least three different levels of governance and taxation: federal, state, and local (city and county).  In a typical day, an American parent might pay gas taxes to the state and the city; educational fees to a state and a local school board--which may have independent taxing authority; and then sales taxes at different rates to yet two other cities.  The fragmentation makes it difficult to determine who is held accountable if anything goes wrong, but worse, it makes it harder to improve any services even if nothing is wrong because of the need to understand different and overlapping procedures and jurisdiction. (And we haven't even mentioned property taxes or special assessments.)

As one might expect, such complexity means the potential for corruption increases exponentially, especially when the goal is to increase funding received each year under a system forcing governmental entities to compete against each other for the many of the same dollars. In one instance, a county and city in the same territory sued each other over a dispute about which entity was entitled to millions of dollars of tax revenue already received.

In other countries, the federal government might act as a tax collector and then distribute funding to states or territories, thereby creating greater fiscal accountability through separation.  When the entity using the money isn't the same entity collecting it, the chances of corruption are reduced. Think of it this way: if you apply for a passport at one office but have to pay the fee in another office and bring back a receipt allowing you to pick up your passport, the chances for bribery are almost nil.

On paper, the idea behind America's governmental diversity is to increase checks and balances and to provide opportunities for each city and state to create their own cultures, which might appeal to different persons and therefore be more inclusive.  Don't like too much government?  Go to New Hampshire.  Want lots of government?  Go to Northern California.  Is your local police force not handling your complaints properly or arresting one racial group more than others for no reason?  The federal government can step in on your behalf and sue to fix the problem.

In practice, this attempt at governmental diversity and accountability has failed, causing an almost total mistrust of government generally.  Rather than provide true checks and balances, America's political system of local, state, and federal power has led to more "gaming" on each level, creating complexities difficult to unwind.  The original system was created by people familiar with only 13 colonies/states with a population of about 2 million residents in 1775 and about 4 to 5 million in 1800 (not including natives).  We can't even remark, "I don't think we're in Kansas anymore," because Kansas didn't exist at the time.

Debt Restricts True Freedom of Choice

Despite such a convoluted system, if people were able to move easily, they could take advantage of different cultures and activities nationwide.  On paper, if one city or state was corrupt or close-minded, a family could move and start over in another less corrupt place.  In practice, it doesn't work that way.  A person attending college without parental support would probably graduate with about 20,000 USD in student loans.  If the person was particularly ambitious, s/he might advance to graduate school, which would necessitate more student loans (though many science/engineering degrees provide grants and stipends).  In either case, most of the college grad's networking opportunities would be local or at least in the same state, limiting employment mobility.  Thus, despite having the technical ability to move 2,800 miles away, freedom of choice is limited by systemic forces, especially college and networking connections, which tend to be local.

In addition to the general need for alumni connections to garner employment, the need to go in debt to receive not only a college degree but a home and perhaps a new car restrict one's freedom of movement. If one buys a new car--a requirement in most cities, which lack efficient public transportation--the value of the car immediately depreciates, making it inadvisable to sell it quickly.  (A auto lease is possible but typically a terrible deal because of the lack of ownership and mileage restrictions.) Basically, more debt restricts flexibility, especially when much of the debt creates local advantages rather than cross-border advantages.

What about buying a home, the most "local" purchase one can make? Under the federal tax code, it would be foolish to buy a home and sell it in less than five years due to numerous costs associated with its sale and the tax benefits of waiting at least 2 years--and that's before considering a possible penalty for paying off the mortgage early.  Furthermore, most college grads don't buy homes after graduation.  They tend not to have practical skills, because most professors lack recent relevant work experience, meaning even after years of paying tuition, graduates still rely on business investment and willingness to train to be productive and profitable.  In the meantime, since saving for a down payment can take years, renting is the most feasible option.

In short, a successful American reaching the age of 24 might have 22,000 USD in student loans, a car loan of 12,000 USD, and no ownership of anything other than a piece of paper--and usually dependent on local connections to maximize employment and debt-repayment options.

People in Debt are Beholden to their Elders and Therefore the Establishment

A person with 34,000 USD in debt isn't likely to rock any boat.  In fact, because of the convoluted system we discussed earlier, such a person is better off brown-nosing as many people as possible to increase his or her chances of receiving employment, even exaggerating his or her expertise to compete with other applicants.  As you might predict, in such a dynamic, integrity is often the first value to dissipate, as everyone is focused on paying off debt rather than working together to advance long-term goals.  A good reputation is a fine virtue, but not one you can eat.

Establishment-Oriented Societies Do Not Favor Dissent

In San Jose, California--one of the largest cities in America--both recent mayoral candidates graduated from the same private Catholic high school.  This was not an accident.  Why would anyone pay 7,000 to 12,000 USD for their children to attend a private school in an age when MIT puts its content online and an above average high school is available for free?

What if the American Establishment is so ensconced in power, you have to buy your way in?  Think of it this way: it doesn't matter how intelligent or honest your daughter is--if she wants to be mayor one day, what really counts is whether her parents put her in the right private high school. (Note: as of April 2017, Santa Clara County's Board of Supervisors is majority Catholic. Dave Cortese attended Bellarmine (Catholic) high school. Cindy Chavez graduated from Moreau Catholic High School in Hayward. Mike Wasserman attended Bellarmine (Catholic) high school from 1972 to 1976. Who's the top local cop? Eddie Garcia, who attended St. Francis High School. As of 2017, Bellarmine high school charges over $20,000 annually in tuition.)

It's true all alumni tend to look out for each other, but if you need to start in high school to build those connections, your children will get the jobs left over after the elites assign the ones they want to themselves--regardless of integrity.  In such a system, loyalty to your own fiefdom matters more than loyalty to country or the public trust.  Some entities, such as the military, may convince themselves that looking out for each other is the same as being patriotic, but even General Colin Powell was made to look foolish by intelligence agencies with false information when he testified at their bequest in favor of invading Iraq.  In an age soaked with debt and paid-for connections formed as early as high school, integrity doesn't matter as much as maintaining institutional image.

When Donald Trump said during the presidential debates that mitigating taxes was "smart," he was right--the tax code allows him to take a deduction, so why shouldn't he? What obligation does he have to anyone else, especially when he can donate the money he saved in taxes to the entities of his choice--just like Warren Buffett, who will evade the estate tax by donating almost all of his billions to a fellow billionaire?

What happens to dissent in such a system, when the elites look out for themselves, their friends, and their particular institution's image more than any long term view about what is best for the public?

How can the younger generation--which used to raise hell about unjust wars such as Vietnam--muster any sustained dissent when they are in debt as early as 19 years old or dependent on parental funding?

If government spending drives so many well-paying jobs--now with better benefits than the private sector in many states--and maintaining institutional image is more important than integrity, why would any rational college student or graduate speak out against any entity connected with the government, such as the police, teachers, or firefighters?  (One side is backed by billions of dollars each year, and the other owes thousands of dollars to the same aforementioned people.)

What happens to a society when the only people capable of bucking the Establishment are themselves part of it?

What happens to a society when the incentive for being honest is non-existent while the incentive for supporting the status quo is the greater likelihood to pay off debt one was forced to go into to achieve the possibility of a middle class lifestyle?

I'm interested in knowing whether the problems I've mentioned above are the same everywhere, or especially so in the U.S.  Stay tuned...