College is Expensive and Your GPA is as Inflated as an Instagram Model

“But you can’t hold a whole fraternity responsible for the behavior of a few, sick twisted individuals.  For if you do, then shouldn’t we blame the whole fraternity system?  And if the whole fraternity system is guilty, then isn’t this an indictment of our educational institutions in general?  I put it to you, Greg – isn’t this an indictment of our entire American society?  Well, you can do whatever you want to us, but we’re not going to sit here and listen to you badmouth the United States of America.  Gentlemen!” – Animal House

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Pugsley climbing a climbing wall.  Not pictured:  college degree he earned.

Last week we reviewed how college may provide (does provide) a lot of poor choices for student degrees – essentially you can get a degree that’s not worth very much to any employer.  But, thankfully, in an era where I can look up the most obscure facts online, I can count on college being cheaper now?

No.  It’s more expensive than ever.

Huh?  You have a service that more people are requesting, one that’s essentially unlimited since Wikipedia® is free, and the prices go up?

Yes.  But Wikipedia™ does not have climbing walls.

At least colleges are paying more for instructors/professors, right?

No.  Colleges are increasingly pushing instruction onto “adjunct” instructors.  These adjunct instructors are generally paid in PEZ® and pity.  If the college feels guilty, it leaves a little extra on the nightstand in the morning.

How much have prices gone up?

Prices have gone up everywhere, but let’s pick Harvard™.  In 1970, Harvard cost about $4,000 a year for tuition.  Not bad?  Well, the median family income was about $10,000 back then, so, not so bad.  If you hustled you could (with a small scholarship and working a pizza delivery job) make it.

Harvard now costs over $43,000 a year.  Median family income is closer to $60,000 a year, so prices (in terms of a family income) are up over 180%.  But Harvard® has literally billions of dollars in a cash horde that the administration rolls in when they can’t get enough sleep.  Other colleges have gone up more.  Much more.  One state school has gone up (since 1980) from $6,000 tuition to $40,000.  This is more than Harvard’s 180%, but I won’t do the math because I’m feeling like I don’t want to.  Oh!  The solution is left to the student!  Yeah, that’s what the books said . . .

So why are prices going up?

One theory, and it’s a good one, is student loans.  Student loans were created as a mechanism to trap young people into debt before they can legally buy whiskey means to allow anyone to go to school as long as they were willing to borrow enough money.

Student loan debt is the very worst kind of debt I know of that doesn’t involve a blood oath with the Mafia.  It is the herpes of debt.

Just like herpes is incurable and makes you (when disclosed) a lot less attractive to the opposite sex (or same sex, or whatever combinations including androids that are possible in California) student loan debt makes you less attractive.  And you can’t declare bankruptcy and get out of student loan debt.  Again, like herpes, it’s forever.  Unlike herpes, you can pay your debt down to zero.

But you should avoid both of them, if you can.  Debt, especially student loan debt, will outlast your mortgage.  I bought and sold four houses, three unicorns and one wife before I paid off my student loan.

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I met him.  Nice guy.  But he never did a song about a unicorn or a Pegasus.

But why would student loans cause the cost of college to increase? 

Simply put, there’s more money available?  The colleges most exposed to student loans increased their tuition the most.  Quite simply – tuition expands to consume as much money as you can feed it.  There’s a pretty comprehensive study that proves it – you can find the info here (LINK).  What, am I supposed to do all of your research?

So where is the money going?

PEZ® for the adjunct professors?  No.  Administrators.  I’ve seen this before in other organizations that aren’t subject to market punishment (like, say, your friendly federal or state government or school district).  One administrator has a job.  It’s not a hard job, but it’s his (or hers).  They are paid, at least partially, on the number of staff that they have.  So, they get approved positions for “essential” work.  Soon enough, a job that was barely important enough for one person is now down by a staff of thirty.  (This tendency will be discussed again in a future post, and was discussed in “Government is a Jobs Program here (LINK).)

Professor Doom is a very good writer.  His blog is “Confessions of a College Professor” and I strongly suggest that you read it, especially if you are certain that colleges are bastions of honor, learning, and goodness.  Recently, the learned Professor had a post where he described that at Evergreen College in Washington State, that there is one administrator for every six students.  I kid you not.  Here’s the link (LINK).

But the education is better, right?

Again, I’ll have to defer to Professor Doom.  He writes again and again how grade inflation has taken off (LINK).  I tried to find his post about how, due to a computer error, bunches of students at a school he was at were signed up for a class AFTER they got their schedules.

When this error was discovered at the end of the semester, fully a third of students (who had never attended class) had an “A” in the class that they had never been to and weren’t aware of.  Yeah, you read that right.

In at least a third of your classes, you never need attend and you’ll pull an “A”.

Wow.  That’s not really education at all, except maybe in the “son or daughter of a President or Senator who gets on a corporate board of directors because they can fog a mirror” way.

Why?

On snowy day a long time ago I decided I wanted to teach.  A new college had come to town – I had never heard of it, “University of Phoenix™.”  They put an ad out looking for faculty, and I sent in my résumé.  Or rësümë if you’re in a 1980’s hair metal band.

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Well, in the 1980’s I had hair . . .

I got an immediate call back.  Pretty soon I was in “New Faculty Training” – which included a batch of people with master’s degrees.  Most of us had teaching experience at the undergraduate level – that was, back in the day, how you paid to go to grad school.

We sat in a circle and discussed how to teach at the University.  We would get stock options if we did well.  The curriculum was set, and it was explained to us that the students were often working.  And had a tough time.  So we shouldn’t treat them exactly as students.

Think of them as customers instead, we were told.

So, what if a student never came to class?

“Well, they’re paying for it, so, it’s not a problem.”

What if a student didn’t turn in an assignment?

“You should give them a chance to turn it in late – they might have had a sick kid.”

One of the prospective faculty got pretty blunt:  “So, we shouldn’t flunk them?”

The leader of the orientation paused.   “Well, not if you can help it.”

So, a course you didn’t have to show up for, you could turn in assignments late, and would almost never flunk?  That sounds like the state of higher education today.

That was my last meeting with the University of Phoenix©.

Was it a smart financial move?  I just checked.  I wouldn’t have been a billionaire if I would have stayed with them.  So, whew.

What happened, John Wilder?

Prior to our current generation, college had been about the reputation of the institution and the graduates.  If you were a Harvard® man or a Vanderbilt™ grad, that meant something.  Not only was the curriculum difficult, but you only had a very small chance of even getting into the place.

The reputation of the school was that it was difficult – only the best should try to get in.  Only the best will succeed.  The often repeated story was of a Dean getting up before the freshman and saying, “look to your left . . . now look to your right.  Only one of you will be here in four years.”

That was something they were proud of.  If you didn’t dig in and study, well, you’re gone.  That enhances the value of the school’s name.

This was important.  The school would rather eat a kitten (an actual, living kitten without condiments like creamy horseradish sauce that go great with kitten) than put a graduate out that wasn’t up to their standards.

Now?  Students are “customers” and the administration wants as many of them as possible so they can spawn a never ending series of administrator clones (college administrators reproduce asexually) to bring into the college administration.  They don’t want to kick a student out, because that would mean that they would lose the precious, precious money that the student brings in.  So they need things to attract more customers.  Like elephant rides.  Free panty hose.  Margarita Tuesday.

Oh, did I mention that our college has climbing walls?

2018 Wealth Predictions: 1st Quarter Update

“Battalions of Orcs are crossing the river.  lt is as the Lord Denethor predicted.” – Lord of the Rings

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Two million dollars?  Some people don’t make that much money in a whole year!

I promised a quarterly update on my Wealth predictions for 2018.  So, here it is.  So far, I’m doing okay.  We’ll check back in June to laugh at the how things have gone off the rails.

Bitcoin

Bitcoin is the ugly stepbrother of currencies.  Or it’s Cinderella®.  I categorized the risks previously:

  • It (may) be vulnerable to hacking since it’s based on an NSA product – there may be hidden back doors.
  • Wal-Mart® doesn’t take it.
  • It’s as volatile as a bi-polar ex-wife on meth.

New Risks since December Prediction:

The IRS has categorized each Bitcoin transaction as a taxable event.  Yeouch.  Nobody keeps those kinds of records, and that is an absolute block for people wanting to use it like you’d use a dollar bill.  That moves it from a currency to an investment vehicle.  Use as a currency inherently raises the value of Bitcoin, but this moves it away from that.

My prediction in December:

“I think it might have more to fall before it becomes stabilized, maybe to $10,000.  But I predict it would be higher than $20,000 next December.”

First Quarter Scorecard:

How’s that working so far?  Bitcoin dropped to my $10,000 number and kept right on going until it hit $7,000.  Recently, it’s been bouncing around my $10,000 prediction for the stabilization number.  Is $20,000 still possible?  Sure, but less likely if it’s harder to use as a currency.  I would change this one if I could (note:  The Boy has partial Bitcoins I won’t let him use, due to the taxable thing.  Irony:  He paid a bitcoin for some hosting about 5 years ago.  Yeah.  $10,000 for internet hosting.)

The Stock Market

In December I said:  “The biggest risks are North Korea, Iran, and Saudi Arabia, with anything that created higher oil prices being the biggest risk.  Chances of impeachment this year?  Nearly zero.”

New Risks Since December Prediction

  • Democrats taking the House of Representatives in November – this is a risk because it greatly increases political uncertainty. Again, impeachment this year is nearly zero probability.  In 2019 with a Democratic House?  Low, but non-zero.  That’s a huge risk the market has not priced in.  October will be the most volatile month this year, if the Republicans keep the House.  If they lose the house – November will be a very difficult month in the Market.  But if Pelosi keeps talking – the Republicans have nothing to fear.
  • How much will the Fed increase interest rates (see below)?
  • Is Facebook® in trouble for data? Facebookâ„¢ might be the spark that melts the market down . . . or not.

2018 Prediction on the S&P 500:

“Up.  Not 24%.  But up, say, 10%.  2019?  We’ll see.”

First Quarter Scorecard:

So far, year to date, it’s up 1.01%.  Seems in line with my prediction (so far).

Interest Rates:

We’re recovering from the longest period of low interest rates in history.  All of history.  It really won’t make a difference, but the Federal Reserve simply must increase rates so that we can pretend that the money isn’t all made up.  Eventually if there’s a credible alternative (Bitcoin? Swiss Francs?) the Federal Reserve will have to raise interest rates . . . a lot.

If it’s too much this year, we’ll enter a recession – maybe right away.  I don’t think that’s likely in 2018.  Trump’s Fed chair will want to raise the rates – after this election.  Maybe right after, so the economic pain is over and done with by the 2020 election.

2018 Prediction on the Federal Reserve Rate:

“Up slightly.  Eventually (2019, 2020?) up a lot.”

First Quarter Scorecard:

Zero change in the Fed funds rate.  Mortgage rates have gone up from 3.95% to 4.46%.  Not a lot, and not even a record number for the last decade.  Seems in line with my prediction (so far).

Gold/Silver:

2018 Prediction on the Gold/Silver:

“Meh.  Wanders back and forth.  Probably ends the year +/-10% of where it started.  2019 or 2020 might be different stories, and longer term it will still experience huge upward swings during times of uncertainty.  It appears we’re currently at the “no crisis” pricing, which would probably be a good time to stock up.”

First Quarter Scorecard:

Gold is up 1.8% in the quarter.  Silver is down 3%.  It’s wandering (for now), so it’s in line with predictions.

Please note that when a stock market crisis hits (not if, but when) ALL asset classes will drop in price (except for food and ammo).  That’s generally a great time to buy gold.  If it’s an inflationary spike?  Yeah, you’ll be too late for the party – people will dump dollars to buy commodities like gold.

Disclaimer:  I haven’t started any positions in anything above the last three days and don’t expect to start any in the next three.  So there.  Also, I’m not a financial advisor, and this set of “predictions” is probably as good as a blank Ouija® Board and probably worse than flipping a coin.

Stoics, Fight Club, Wealth, and Virtue

“I had it all.  Even the glass dishes with tiny bubbles and imperfections, proof they were crafted by the honest, simple, hard-working indigenous peoples of . . . wherever.” – Fight Club

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The first rule of Fight Club is . . . be older than six.  And no swords.

Wealth – what is it?

Is it:

  • Something that we sacrifice our lives for?
  • Something we obsess about until it controls us?
  • Something that is never . . . quite enough?
  • Something we have to have more of than our neighbor?
  • Something that defines our feelings about ourselves?

I’ll be honest, but there have been times I’ve viewed wealth in more than one of the categories above and acted as such.  “Wealth consists not in having great possessions, but in having few wants,” is what Epictetus wrote about 100 A.D.  Even more succinctly, Tyler Durden said in Fight Club, “You’re not your job. You’re not how much money you have in the bank. You’re not the car you drive. You’re not the contents of your wallet. You’re not your (gosh darn) khakis.”

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What Epictetus may have looked like.  If he were in a comic strip.

I may have it in for Johnny Depp, but Brad Pitt’s Tyler Durden is my spirit animal (we’ve started a tiny Fight Club in my basement, but I’m not supposed to talk about it – first rule, you know).

I keep coming back to the stoics.  What did Seneca, Marcus Aurelius, Tyler Durden, and Epictetus think about wealth?  The website How To Be A Stoic says (LINK):  “. . . they classed everything that lies outside of virtue as either preferred or dispreferred indifferent. To the first group belong things like wealth, health, education, and high social standing; to the second things like poverty, sickness, ignorance, and low social standing. These things were preferred insofar it is normal for a human being to pursue them because it makes her life more comfortable, and dispreferred insofar it makes her life less comfortable. But they are “indifferent” in the sense that they are irrelevant to our ability to exercise the virtues . . . .”

So, the Stoics were indifferent to wealth, but it was better to have it than not.  You could be virtuous and poor, or you could be virtuous and rich.  If you were rich, perhaps you could share your virtues even further than if you were poor – so it was preferred to have money.  And Marcus Aurelius was emperor – it was hard to be richer than that, even for Jeff Bezos.  Seneca?  He was really wealthy, too.  And since they are some of the thinkers that literally define what Stoicism is, well, wealth and power isn’t off limits, but the goal was to live a virtuous life.

So what does wealth signify?

Mostly, wealth is like stored energy – it’s a potential.  A child may have a wealth of days before it, and an old miser a wealth of cash, cash that he might trade every dime of for just one more taste of youth.  And a six year old would trade the ages of 18-30 for six Cadbury Cream Eggs®, which is another reason that kids can’t vote.

Steve Jobs certainly traded some of his wealth for additional days of life without having to cheat a six year old in a candy deal – he could honestly say he could be at any liver in just a few hours (having a private jet and all) and he could afford to have a staff of people looking for ways to improve Steve’s chance of getting one.  Heck, Apple® has a project to clone Steve from a clump of his cells that they found in his comb – they just keep getting Ben Affleck copies instead.  Thankfully, Ben Affleck is not considered by the state of California to be a “living human.”

Steve’s wealth did buy him time – a few years, perhaps.  And Apple will soon sell the Affleck clones as iBens©.

Choices.  Wealth buys choices.  And one of the choices is always . . . not choosing right now.  The wonderful thing about being rich, is you don’t take any offers you don’t want.  If have to sell my car – I need the money for a new kidney for my Yosemite Sam© PEZ® dispenser, well, I have to have that money now.  I can’t wait.  I have to take the offer I get now.

If I have wealth and can afford to buy new, black market PEZ® kidneys for cash?  Well, I don’t have to sell my car.  In fact, if I have cash, I can look for people who have to sell kidney cars for PEZ© kidney cash to get a bargain.

I am willing to bet a large amount of PEZ™ that this is the first time the last sentence has been written in any language.

Anyhow.  Wealth buys choices, and wealth creates the conditions for more wealth.

But what creates wealth?  Well, in reality – the same virtues the stoics upheld (from the Internet Encyclopedia of Philosophy – LINK):

“The Stoics elaborated a detailed taxonomy of virtue, dividing virtue into four main types: wisdom, justice, courage, and moderation.

  • “Wisdom is subdivided into good sense, good calculation, quick-wittedness, discretion, and resourcefulness.
  • “Justice is subdivided into piety, honesty, equity, and fair dealing.
  • “Courage is subdivided into endurance, confidence, high-mindedness, cheerfulness, and industriousness.
  • “Moderation is subdivided into good discipline, seemliness, modesty, and self-control.”

If you will look – many (but not all!) of these virtues, if followed well and long enough, will lead to . . .  wealth.

But perhaps Epictetus was right:  “Wealth consists not in having great possessions, but in having few wants.”

And then there was Tyler Durden:  “It’s a blanket. Just a blanket. Now why do guys like you and me know what a duvet or a comforter is?  Is this essential to our survival, in the hunter-gatherer sense of the word?  No.  What are we then?  We are consumers.  We’re the byproducts of a lifestyle obsession.”

So, be virtuous.  Get wealthy.  But don’t make the wealth the focus . . . it’s not the money, after all – it’s all the stuff.

Your Business Passion Sucks.

“I can’t afford to sell a west side home for that!  But what a fantastical year for pizza by the slice!” – The Simpsons

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It’s always a good idea to start a business to take money from people who say, “milady” because they often cannot defend themselves in hand-to-hand combat.  Take their money and buy yourself something nice.

The Mrs. and I have had a bunch of business ideas – our Internet pizza by the slice company (we don’t deliver, you have to come pick it up) wasn’t exactly a great hit, but we sold it for $50,000,000 in Alta Vista™ stock that we couldn’t sell for three years.  Easy come, easy go.

I kid.  This didn’t happen to me, but it did happen to a friend of mine.  Don’t worry – he’s been the CEO of multiple companies and has vacation houses in three states.

But one time The Mrs. and I actually came up with a real business plan.  We’d read an article on a website back in the day (I actually don’t remember which one – it was a site I used to go to back when Google® was new) about a PC Bang in San Francisco.  The concept was that the business rented computers by the hour and sold snacks to gamers who were all connected by LAN (local area networks) to play against each other or as an organized team against other gamers.  The name may sound dirty, but it really was a South Korean name that just never wore off.  (South Koreans are big gamers.)

The Mrs. liked to play games, and she and I reckoned that a great way to make money would be to take it from chain-smoking gamers – we had e-mailed the author of the article and he told us the concept worked well in San Francisco, but the gamers were amazing at smoking – even teenagers.  Since even back then smoking was a thing only demons without souls did inside, the smokers would take a break from killing virtual people to smoke outside.

Thinking this would be a good idea (the PC stuff, not the smoking), The Mrs. and I priced local strip mall rents.  We had a place in mind that we wouldn’t even need to retrofit.  We put together a business plan.  We got quotes on computers, counters, and computer furniture.  We got pricing on cash registers and contacted candy, snack and frozen foods retailers.  We put together a business plan.  Front to back, thirty pages.  Included demographics.  Everything.  The place in the strip mall was awesome – it was right next to a movie theater.  Catch the nerds after the Star Wars, right?

I had to work the day of our appointment, but The Mrs. took our business plan and went to her bank (Bank of America) and asked for a small business loan.  Hey, the government guarantees that stuff, right?  They give them to everybody, right?

No.

They didn’t throw her out because she was a lady.  They threw her out because our idea was stupid.

She fumed when she got home.

“I’m going to close my checking account there.”

I’m sure they were upset, because she had exactly $17.43 in her account, plus a box of lint.  They even paid extra lint each month on her lint deposit.  “Oh, Mrs. Wilder, we would have to shut our doors if you took your $17.43 elsewhere.  And here’s your lint.”

I mean, we had cash reserves of $5,000 at that time.  Why wouldn’t they loan us a measly $55,000 for an unproven idea?

Well, when I put it that way . . . it sounds stupid.  And it was stupid.

See, our problem was that we talked about businesses we thought we would like (I’m not a gamer, but I like candy).

Occasionally, we see some fool with passion and money start a business we had talked about.  And then the business would close within about six months.

After careful observation, every business we could be passionate about closed.  The successful businesses were ones we wondered “how is that place still in business”?

I decided to observe businesses.  Which ones were successful?  Which ones lasted five years or more?

The biggest place to occupy was the middle.  Stuff everyone needed.  Milk.  Eggs.  Bacon.  Quality footwear.  Panty hose.  PEZ®.

But the competition has scale here.  Wal-Mart®, Target©, and the large regional/national grocery stores occupy this niche.  And competing against them on price will destroy you.  Everyone needs what they sell, but they have relentlessly focused on cost reduction for decades, optimizing supply chains.  The result?  Cheese has never been cheaper.  I can get sushi at midnight in any small Midwestern town.  Not great sushi, but Wal-Mart® sushi.  And it doesn’t cost all that much.  And I can get decent wild salmon anytime of the year.

What about the rest?  I know that people sell all sorts of niche products – how do they manage to do that?

Mainly by not making much money.  Do people make millions on their YouTube© channel?  Yes.  If their name is Pewdepie.  But if you are in the top 3% of YouTube® channels?  You make less than $16,000 a year.  Again, not bad posting goofy videos to the Internet, but it shows that the vast majority of people make no money on YouTube™.

And it’s the same thing with the people that sold me a T-Shirt that vaguely references a movie from 1983.  (No, you shouldn’t send your kids to Camp Crystal Lake.)  They would never make money off of just that one t-shirt.  They have to find lots of different shirts like that to sell.

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I have no idea where this came from – I found it floating on the Internet.  This is a t-shirt I need.

Another example was a local business near where we live.  They sold bicycle stuff from 9am to 5pm to the locals (I bought three bikes from them), but their real business for the last 20 years was selling stuff online.  They would import cases of, say, bicycling jackets manufactured in China.  Then they’d sell them online.  Ironically?  I talked to the owner and they sold lots of products back to China – the stuff they sent to the United States apparently was only available in the United States, and they had to have it shipped back to them.

But now the bigger bike shops on the Internet have taken most of the market share – the local bike shop is closed.  The long thin part of the market they operated on disappeared.

So where do you aim?

With a business you need a broad base of consumers.

  • You need a lot of people interested in your product. Our PC Bang obviously didn’t meet that.
  • The product should be a low cost product. Ours would have been low cost, but still would have needed hundreds of dollars in business a night.
  • The market (ideally) should be an unserved need or a cheap fun thing.

Good examples of this?  Fidget spinners.  Somebody made a zillion dollars off of those.

When the Japanese first sent cars to the United States?  They didn’t send Acuras®.  They sent cheap sheet metal things that had great gas mileage because the engines were nearly wind up.  And they sold like fidget spinners.

What ideas suck?

I was in a business dinner with a really rich guy – it was our company and his.  We were at the nicest restaurant I’ve ever been to – before or since.  It makes sense, because the contract we were signing was $270 million.  And that was $270 million American dollars, not that wrapping paper they use in Canada.  The owner of the firm talked about how the food was wonderful in Houston – and he had tried to create a world-class restaurant in the (smaller) Midwestern city where he lived.  He said he had lost a million dollars trying to create an awesome restaurant.  So, super high quality is probably not the best way to go when starting out.  Think cheap hamburgers.  But for a million dollars he had great food for a year!

Who can get away with ludicrously high prices?  Apple™.  Celebrities.

Think:

  • Beats® headphones. $45 worth of components for $34,500 a pair (I couldn’t tell you – I buy $12 ear buds).
  • Whatever stupid crap the Kardashians are selling this week.

So if I were opening a business?  I’ve learned a lot.  I’d avoid borrowing money early on.  I’d avoid everything that I love –passion clouds judgement.  I’d look for good deals.  My passion would be focused on creating great values for other people – and I’d maybe figure out that Internet pizza by the slice . . . .  Maybe I just need an app for that?  People buy anything off their cellphones, right?

Employee Retention

“A job’s come up and I thought about you, Clarice.  Not a job, really.  More of an interesting errand.   Sit down.” – Silence of the Lambs

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The Boy and friend enjoy cocoa in the break room before heading back to conduct a PowerPoint® presentation on marketing to five year olds.  Sadly, The Boy would soon be let go due to age discrimination.

After you’ve been at a job for a while, you begin to count people in the room.  Not just on who you could push out of the way to get to the door for a quick escape if you needed to, or who to blame when you took the last cup of coffee in the breakroom without making more.  No, after a while, you begin to feel like a survivor, mainly because the faces around you keep changing.

How many people in the room were there five years ago?  How many were there 10 years ago?  I mean, not that they’ve been in the room the whole time, but that worked for the same company?  (I’m assuming your company is like mine, and they have kinda strict rules about not wanting you to living in the conference rooms – it’s horrible when you find that out the hard way.)

I looked at my emails from February 19 five years ago and counted the number of people who emailed me.  Then I counted those that were still with the company.  There were 10 out of 25 still with the company.  I did the math, and that calculated to a greater than 20% attrition, each year.  A better survival rate than a doughnut in Oprah’s dining room?  Sure.  But still pretty grim.

So, five years go by?  The company’s changed out most of the employees in my random-ish sample.  But what did the attrition look like for mid-level managers?  When I did the math, it was greater than 45%.  I was surprised – it was a huge number.  These were the people who were responsible for company results – and, generally, the employees had been pretty good, and the company had been really profitable during that time period.  Almost half of them would leave yearly.

But that 45% attrition wasn’t the highest number I have run into – I looked at another company that I used to work at.  Over a five year period, they’d had an 80% attrition rate.  80%!  There was only one guy out of sixteen left.  It probably won’t surprise you when I tell you that company closed down two years after I visited.

And some positions are even worse.  One particularly key leadership position that I’ve observed (since I have worked closely with this position on and off) has seen seven people in ten years.  If I add in interim leaders?  That number goes up to NINE people in TEN years.  For one job.  One key job.

I did some research online – what’s a decent attrition rate?  Some HR personnel said that less than 15% was a good, healthy number.  But the smarter HR people said . . . hey, 15% is high.  We want zero attrition in our high performers.

But can you keep the good ones, like the key leeader revolving door listed above?

No.

The world is changing at a pretty rapid pace:

Professor Richard Foster (which sounds like a made-up name) from some so-called college called “Yale” was reported by BBC to have done a study that looked at company lifespans.  Turns out the average life of a company on the S&P 500 in the 1920’s was 67 years.  In 2011-ish when he did his study?  15 years.

Companies don’t last as long now – your career may last longer than the life span of many S&P 500 companies.  High performers?  Those that want to make a large contribution will be quitting and going to those companies that are growing – that’s where the opportunity is.  You can’t stop them from doing this, unless you have incriminating photos, or are paying them more than you really should.  The second isn’t something that a company that’s not growing can (generally) do, so, they leave.

For good or bad, the Bureau of Labor Statistics estimates that workers under forty today will hold 12 to 15 jobs in their lifetime.  In a forty five year career?  That’s a new job every three years.

So, low retention rates, short lifespan companies, and a job market that is driven by high employee turnover – it doesn’t really sound fun.

Good news!  There is a way to stay longer at a company you love:  I hear one way to stay at a company longer is to hide in the air ducts and only come out after the security guard makes the 10pm walk through.  Might even be some leftover doughnuts in the breakroom.

Nope.  Oprah was here.  Sigh.  Guess it’s ketchup and mustard packets for dinner again . . . .

Facebook, Why People Quit, and Why You’re Not Important

BRETT: What’s the matter?

LAMBERT: I can’t see a goddamn thing.

KANE: Quit griping.

LAMBERT: I Iike griping.

Alien

DSC04457

The Cub Scouts had a lousy record of shooting down incoming enemy plains, even though they designed their jobs.

This month on Google news, I saw a link for an article called, “Why People Really Quit Their Jobs,” at the Harvard® Business Review™ (HBR).  I clicked on it.  I don’t suggest that you do, but if you want to it’s here (LINK).  Since it was before I had enough coffee to engage the higher reasoning centers of my brain, I nodded, zombie-like, as I read it.  I probably drooled a bit, too.  I wrote down on a sticky note that this might be a good topic to blog about.  See, I think about you, dear reader, all of the time-even in my sub-human decaffeinated state.

Now, I’ve visited this topic before (LINK) in a definitive post about one of the most definitive books on the subject ever written – First Break All the Rules.  I heartily recommend this book, and get no money if you buy it at this link (as of this writing).  Read my post first – it’s the Wilder’s® Notes (Cliff’s Notes™ was taken, and neither of us wanted to be sued by Cliff Bars®).

If you don’t read the HBR article (again, I don’t recommend it, it rambles and is as poorly edited for flow as a copier fixed by a Chihuahua – and that comes from a one-man-show blogger who does these posts start to finish in three to six hours, admittedly in a flash/flourish of brilliance) the TL;DR version is:

  • OMG, I totally cannot believe that people quit Facebook®!!!
  • OMG, why???
  • Stock options are awesome!!
  • OMG here’s why:
    • “They left when their job wasn’t enjoyable,”
    • “their strengths weren’t being used,”
    • “and they weren’t growing in their careers.”
  • OMG, fix that by:
    • Designing meaningful jobs (for stars) that people enjoy. Let them design their own!
    • Use their strengths, silly!
    • Allow people flexibility when they don’t like travel or want to make babies.
    • Babies? So 1990.  So toxic!

Yeah.  It’s that shallow.  Here’s an example sentence embedded in the squalid mess of pretentiousness if you don’t believe me:

At Facebook, our head of diversity is a former lawyer, journalist, and talk show host; one of our communications leaders used to sing in a rock band; and one of our product managers is a former teacher.

Yeah.  I’m pretty sure that they have no idea how stupid that sounds.  And I’m also pretty sure that the head of diversity . . . does absolutely nothing of value for Facebook®.  Nothing.  A communications leader?  Not sure what that is, but I’d bet they’re just another leach on the profits the company produces.  And a product manager sounds good.  At least it involves capitalism in some fashion, maybe?

Whenever you think of a position and its value – ask yourself this:  does the NFL® have that position?

No.  There is no VP of Football Diversity at New England.  Belichick would give birth to living kittens if they hired one, and I would pay $1,000,000 for the rights to broadcast that on YouTube®, and an extra $1500 per Belichick-cat hybrid.   Football teams have a mission – winning (except you, Cleveland).  And a business should have a mission – creating mutual value for customers, but also creating profit for shareholders.  You know, because they own the place.

What they’re missing is that it’s not just these jobs that don’t produce value, it’s that most of the things they do at Facebook® produce little to no value.  Price’s Law (discussed in my Jordan Peterson post here (LINK)) shows that of the 20,000 employees at Facebook™, 141 (the square root of 20,000) produce half of the value.  It is a certainty that the “head of diversity” is not one of those 141.  Nor anyone in HR.  Or probably anyone who wrote this article.

I assure you, those 141 people are enjoying work, using their strengths, and get whatever they want from the boss if there’s an issue.  They’re probably getting paid a king’s ransom, too, if the culture allows it.  And they deserve it.  Those 141 people account for $20 billion in revenue.

I had a chance to manage an amazing performer – Willie.  I’ve mentioned him before (LINK).  Although the company wouldn’t allow me to pay him more even though he’d routinely save them a million a year, in a bad year, and would have saved them from a billion dollar investment based on bad physics (really) if they would have listened to him.  But what’s physics when you’re trying to do a business deal, right?  Oh, yeah.

A billion dollars (and I’m not making this number up).

Me?  I have Willie the maximum amount of flexibility that I could.  I couldn’t give him a raise, but I could let him buy almost unlimited computer goodies.  It seemed like he had a new laptop every month.  Plus the cutting edge in peripherals.  As his boss, I generally got the best of his cast-off equipment.

Another employee (not a high revenue employee, but still nice and pleasant) decided to order a new computer.

John Wilder:  “Send it back.”

Other Employee:  “But you let Willie have one.”

John Wilder:  “You’re not Willie.”  And they knew that, too.  I didn’t treat everyone in the group the same, but I did try to treat them fairly.  I think they knew that, too.  At least they all nodded when I asked them that during employee review time.

The 141 are the most important people at Facebook™.  Honestly, most of the remaining 19,850 or so people at Facebook® are interchangeable and simply lucky to be working at Facebook© rather than being a barista or hauling garbage or working at a cement kiln.  And that’s not bad.  You need people who just go to work, put in their time, get their job done, enjoy it, and go home.  Not every part in the engine is a spark plug.  I’ve been a spark plug, and I’ve been a broken wiper switch, sometimes at the same company (though rarely in the same year).  The company needs both.

And that’s not to say that you don’t have the ability to make everyone feel awesome, too.  I’m willing to bet that Facebook® probably has baristas and jesters and blacksmiths working for them.  You can allow and encourage everyone to have fun – there’s no reason not to.  And I firmly believe that managers should support their employees – and not be dictators.

I’ve always viewed the position of manager as having a moral dimension – it was important that every employee that ever reported to me was touched positively by the experience – they may not have liked me, but they were a better employee, more productive, more moral person because of the experience.  I figured if I could do that, the company had to win, too, even if the employee wasn’t a spark plug.

Remember, those 19850 remaining employees still produce half the revenue – though the formula is recursive – 140 of those 19850 make $10 billion for the company.  Oops.  But, really, if everyone designed their own job, nobody would do the dishes and the toilet would never be clean.  And that would describe my basement . . . sigh.

Warning Signs, The Economy, Didier Sornette, and You

“We have no Great War.  No Great Depression.  Our Great War is a spiritual war.  Our Great Depression is our lives.  We’ve all been raised on television to believe that one day we’d all be millionaires . . .”

– Fight Club

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This is the corpse of FDR, brought back to life every 75 years to fight Robot Hitler.  Notice we added a laser eye for this year.

I’ve talked about both the causes (LINK) and effects (LINK) of economic bubbles and economic depressions in two articles that won the Coveted 2017 Wilder Prize for Excellence in Journalism Related to Things John Writes About®.  You should read these articles.  They’re fun and may save your life, if you require expensive medicine from fresh squeezed bats each day and need the cash to pay for bat juice.

But what happens before everything goes straight to hell?  What are the precursor signs before a recession or depression takes hold?  Where are the danger signs that say . . . beware of dragons beyond this point?

mother of dragons

Game of Thrones would not be as popular if this was the casting choice for Daenerys.

Let’s start with definitions.  A recession (and a depression is just a bigger recession) is when the economy starts to contract, and the definition is that this contraction lasts at least two financial quarters.  A depression is the same thing, but there are great dust storms and everyone moves to California and no one bathes for a decade.

Why does the business contract?

Let’s take the last recession.  Everyone wanted houses.  Lots of houses.  In 2007 people were buying houses on speculation that they’d go up in price.  Because houses always went up in price.  And for a few years?  Yeah.  But when houses stopped going up in price?

People stopped building houses, six was enough for the average family.  But if you have no new houses to roof, and you’re a roofing company?  You fire your roofing crew and stop buying shingles.  The people you fire stop making truck payments.  The shingle company stops making shingles, and lays off the factory workers at the shingle factory.

Prices collapse.  Everywhere.  And in 2008-2009 this cascaded throughout the economy.  And the first thing that happened is that EVERYTHING got cheaper.

Perhaps the first sign that things will be going south is that . . . things are going well.  Too well.  It’s like the frat party at midnight before the heaving begins – laughter and joy everywhere.  And everyone believes that this party is different – they’ll escape the hangover gods in the morning.

So what is a gauge of the measure of market intoxication?

The VIX.

VIX stands for . . . Volatility IndeX.  VIX.  Like PEZ®, only with money instead of those small bricks of candy that build a wall of love around my heart (my doctor calls that arteriosclerosis), the VIX was created in 1990 and attempts to predict the market volatility for the next 30 days.  Here’s the graph of the VIX for the last 27+ years, thanks to Yahoo Finance©:

^VIX_YahooFinanceChart

If you look closely, you can see that when the VIX spikes, people are running and screaming in the streets because the economy is collapsing.  But what happens before the spikes?  Everyone is calm.

And, historically that’s been the case.  Everybody is an expert when the stock market keeps going up.

“Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.” – Bernard Baruch, famous dead trader dude (from Fortune Magazine, April, 1996)

And that’s what that low VIX number tells you.  Everything is great!  Sunny sky and the wind is in your sales.  Not a cloud in the sky.

So, one big signal is that everything is going great.  Not sure how useful that is, but the current VIX is very near an all-time low.  This is why in my (very brave) 2018 prediction (LINK) I said it wasn’t going to blow up in 2018.  Obviously I could be wrong, but as low as the VIX is, I’d expect some upturn prior to things falling apart.  In 2007 the VIX turned up before everything blew up.  So?

My expectation of an economic recession/depression/crack-up number one?  The VIX will turn up prior to the fall, probably at least six months in advance.  So here’s one indicator of future economic downturn, and it’s been shown to work.  Perfect?  Certainly not.  Sudden dislocations (think 9/11) could throw it right out of the window.

Currency and Trade

What else might indicate a coming crack up?  One that was pretty popular was high interest rates.  Back before the FED so tightly controlled the currency and interest rates by buying all of the United States’ debt that’s unsold (yes, this is somehow legal), this was a sign that the party was going to end.  Failing businesses led to banks only lending to the best projects – the ones that could afford high interest rates.  Interest rates were (kinda) set by the market.

I’m pretty sure this one is long gone . . . and not sure that there’s a replacement.  The economy of the United States is such that, if we experience difficulty, other countries experience collapse.  Think the riots in Egypt, Syria, and Libya were spontaneous – no – they were the result of economic trouble in the US.

Another major indicator would be if another currency became as well accepted in the world as the dollar – and imports rose significantly in price.  Sadly, if this happens, the entire economic system is near collapse.  As I’ve pointed out before – the only thing that keeps our currency going is belief.  I can trade two pieces of paper with $100 printed on them to a liquor store owner and have a nice bottle of Johnny Walker Blue© handed to me.  Oh.  It has to be the government that prints the $100.  Not me.

Why?  People (silly people!) believe in the government more than me.  They believe the government won’t print too many.  Just like Bitcoin () is limited in the total number that will ever exist.  Except governments everywhere print money whenever they can.  Except the Swiss.  I blame it on the cocoa.

Energy

Other signs of big trouble?  Oil above $100.  Oil above $140 is screaming collapse.

Modern economies run on energy.  What would we do without it?

This is from Kentucky Fried Movie.  Good times.

Oil is consumed by every product you buy, generally in the production, packaging and transport.  Because of that, it acts as a general tax on the economy when prices go up.  And because oil extraction infrastructure takes years to get going – high oil prices can distort the economy for years.

Cash Ban

Horrible sign.  Venezuela will look awesome in comparison if this happens.

Math

I’ve mentioned Dr. Didier Sornette before.  He’s a French geophysicist that applied advance math previously used to predict earthquakes to predict whether or not a bubble exists in stocks, and, if so (at least in prior work) how long the bubble had until it popped.  He pegged that we were going to enter a singularity around 2045 or so where all bets are off, based solely on the math.  Don’t know if he still stands by that, but he produces a monthly report at the Economic Crisis Observatory (LINK).

In the latest report, of the sixty stocks in the US he studied, 35% were in a bubble.  That’s up from the previous month.  From this, we’d deduce the bubble is (potentially) inflating.

And Dr. Sornette absolutely called the big Bitcoin bubble a month before it topped.  Pretty amazing.

I’d keep an eye on this work.  It shows that there’s plenty of bubble a brewing in the record setting stock markets around the world.

And be careful.  There may be dragons here . . . .

NOTE:  I AM AN INTERNET HUMOR-DUDE, NOT A FINANCIAL PROFESSIONAL.  Consult someone sane prior to making investment decisions.  Like your Mom.  Or a lawyer.  Or a carnie.

Scams, Your Momma, and Cheap Speakers

“You were right about that computer scam.  That was a bad idea.  I’m going to take the blame for it, I decided.” – Office Space

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I’d like to report this sign for false advertising.  The town was not made of Cuervo® nor did they make Cuervo™ there.

Back a few decades ago . . . .

I was in a college classroom, after class.  A bunch of us were sitting around talking and Joe jumped in.

“So, guys, the most incredible thing happened to me,” said Joe.  “I was at a Burger King® and I had just finished eating.  I was walking back out to my car, and this guy in a van stopped me.”

I think I jumped in with something to the effect that very few good things happen when a guy from a van approaches you in a Burger King™ parking lot.

Joe ignored me and continued, “He had these speakers in the back of his van.  He had dropped them off at a rental, and he had mistakenly signed two extra out.  If he took them back to the shop, they would have fired him for checking the extras out.  These are $1000 speakers! Each!

“I got them for $300 for the pair!  They sound totally awesome with my stereo!  I had to run to the bank to get the cash, but I got them!”

I smiled.

I had just read in the local newspaper that there was a scammer group operating around the metropolitan area of Moderatelylargecity, East Westeria near where we lived.  They were selling speakers worth about $50 a pair out of the back of trucks at fast food restaurants.  Cash only.

I thought to myself – “Hey, Joe likes the speakers.  He really likes them.  And if you tell him it was all a scam, he’ll hate the speakers and feel stupid.  Is it hurting anyone to let him think he got a deal?”

Joe was a nice guy, and I successfully held back my inner jerk (on that far distant morning).  I’m betting Joe has no idea to this day.   Maybe I should call him and tell him?

And of the bunch of us talking, Joe was by far the nicest guy.  Probably the most moral.  If you read this blog you KNOW it’s not me.  (Yes, I know John Wilder’s halo is firmly askew – but it’s in a roguish Captain Mal Reynolds way.)

The world is full of scammers.  Many of the scams are legal, just like the one your mom pulled on your dad.

And how do I know so much?  Yeah.  I got scammed.  More than once.  The first big scam occurred when I signed a contract when I was pretty young (20??) that wasn’t a good one (for me) but it only cost me $1000.  For a membership in a buying club.  To buy things at factory cost.  When I had no money to buy things at factory cost.

Thankfully, it was financed with monthly payments of like $50, which was a lot back then.  But looking in the rear view mirror?  That $1000 was cheap, and the payments made it better.  I got to feel stupid not one time, but EVERY SINGLE MONTH when I wrote out that check.  Now?  I try to look through my lens of past stupidity to evaluate every single deal.

Recently I responded to an email from a “group” that appeared to be tied to a professional association that I am a part of.  Mistake.  Set up an appointment and it turned out I could join this “group” for only $200 per month.  This would be awesome!  This would help me advance some professional goals that I was interested in.  Well, $200 per month plus a $250 startup fee.  I was discussing the opportunity with them on the phone:

Me:  “Well, how often does this actually work?”  (I was expecting 95% or something.)

Jim Q. Salesdude:  “You can understand that we don’t keep statistics on our success rate.  But most members are active for more than a year . . . .”

And I’m sure he’s telling the truth.

The average person that would be wanting this kind of opportunity could afford $200 a month.  And the process would likely take months.  So, yeah, I’m sure he’s telling the truth, because he has people who can afford it buying . . . hope.  I looked up the company online, and saw very few positive reviews – most indicated it provided them no help whatsoever.  Heck, I can just go the bank and get $200 in ones and at least be able to make a fire out of it.  Why should I give them $2650?

But what are the signs of a scam?

  1. Hard sell/won’t leave you alone. – This is often the number one sign. The salesman has money on the line – you money.  If you sign up?  They get money, and it’s likely that they’re morally flexible in the first place.  With this opportunity listed above, the salesguy is getting sort of clingy.  He’s very insistent – like a psycho ex-girlfriend level insistent.  As long as he doesn’t come to my house in the middle of the night and shave my dog completely bald and then take a magic marker to him, I think I’m okay – nobody wants that to happen to them twice.  He called me today even after I told him I wasn’t interested.  Even sent me an email to reschedule on my calendar after I ditched his call.  When in full hard sell mode, they make high school sophomore girls who just got dumped in public look stable.
  2. Implication that this is special, or maybe kinda illegal. – In my case, this was supposed to be a backdoor link for “special access.” I was approved after describing my experience in a single sentence, and then told how special I was.  Alarm bells!  This is also an incentive for you to be quiet after the scam is over – not everyone gets special access!  I’ll give you a heads up:  there is no Secret Nigerian Prince and no one has picked you to get a special offer because of what you’ve done.  You’re not that special.  And your kindergarten teacher doesn’t even remember your name.  Mine does.  But that’s because of the knives.
  3. Payment for things that aren’t usual. – Back (farther) in the past The Mrs. and I attempted to get an agent for a book we’d written. We found one who loved us and loved our book!  This agent also wanted to . . . charge us.  We believed in our book.  A bit too much.  Thankfully, we were only out several hundred dollars on that one.  There’s no way you should pay an agent, and no way that you should pay people for “super special professional opportunities.”
  4. Too good to be true (threats and promises). – One salesmen talked about how people who bought “Brand X” (his competitor) often got fired. I liked the guy, but made sure that I’d never buy that particular product.  I respond poorly to threats.  I respond much better to treats, which is nearly spelled the same way.  Treats are better:  Like sausage.    Wine.  Beer.  Some mixture of wine, bacon, sausage and beer.  In a smoothie?
  5. Quick response required. – If you don’t act today, you can’t get this deal! If someone tells me that?  I walk.  No deal is that good.  Have to act tonight?  Hmmm, I’ll pass.  If it’s a good deal where both parties will benefit, it will be available tomorrow, like your mom.

Nigerians and internet scammers look for stupid people.  Why?  You can keep them going forever.  That’s why the emails from the “Nigerian Prince” have spelling and factual errors.  If the person reading the email has enough brain cells momentarily clear the fog and do a Google® search for “Nigerian Prince” – well, that’s way too bright for the scammer.  They want them stupid (certainly) and rich (would be nice).  Since most things in the third world can be bought for about six dollars and handfuls of the wrapping paper the locals call money (sometimes including the local parliament) – you are rich if you live in America.  Even if you make minimum wage.

Scammers sell empty hope, which makes them equivalent with your state’s lottery board.  Last night I dreamed I was talking with my brother.  And mentioning how Steve Martin (yes, that Steve Martin) and I were friends.  Heck, I even had Steve’s phone number in my phone.

And I woke up, and was briefly sad that I really wasn’t friends with Steve Martin.  See how sad that was?  I bet you’re crying and sobbing that I was so disappointed.  That’s what selling empty hope is.  That and assuming that your parents really loved you.

I’ll leave you with this:  You can’t scam an honest man.  If you stick to honest reward for honest work and honest value?  You’ll never be CEO.

But you’ll never be scammed, either, if you also remember never to trust a five year old or a dude selling speakers out of the back of a van at Burger King®.

Obamacare, Health Insurance, Ear Hair, and Looking at Breast Implants

“No, Steve, the guard, accidentally looked at Medusa’s head.  Turned to stone.  Who covers that? Is that health insurance or Workman’s Comp?” – The Librarian: Return to King Solomon’s Mines

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A picture of Fairbanks Memorial the day Pugsley was hatched born.  I had good insurance then.  Too bad it’s gotta go . . .

Almost everything in the world (almost!) has gotten better since I was a kid.  Well, the music isn’t as good.  And the movies are gloomier.  And my hair has migrated from my scalp to . . . everywhere else.  For heaven’s sake, why did it have to go INTO the ears???

As I look to things that have gotten much worse in my lifetime, the number one is . . . health care costs, which is even worse than ear hair.  Obamacare (or the Affordable Care Act for those of my readers that regularly appear on CNN®) was supposed to fix that.  In my case, my premiums nearly doubled while my deductible went up by a factor of eight.  If my math is right, that means my health insurance is worth, on a dollar basis, one sixteenth what it was before Obamacare.

When Pugsley attempted to self-amputate a finger on a camping trip, The Mrs. took him to the emergency room.  He came back with two stitches.  My bill?  Over $1000.  And I had to pay it, in cash.  Did he really need all of his fingers?  Nine is a good number, right?

I’d love to blame Obamacare – but it’s really just part of the system that’s vaulted health care costs upwards.  We’ve all experienced it – we’re paying unconscionable rates for care that’s not (in some cases) as good as it was in the past.  I know we have fancy equipment and machines that go “ping,” but the idea of a family doctor that knew you family from your birth until his death is over.

Now doctors have to see as many patients as possible to pay for their rent, BMW® and the loans they took out for college, their divorces, their small airplanes, and their portion of the partnership.  And they practice defensive medicine.  They run tests that you have to pay for to protect their medical license.  And if your insurance doesn’t pay for the test because it’s unnecessary?  You pay for the test.

I love capitalism.  It’s awesome.  But our health care system doesn’t even remotely resemble capitalism.

Let’s start with theft.

Our current health care system was changed in the 1980’s.  If you showed up to an emergency room in 1979 and had no ability to pay for care . . . they had no obligation to provide care.  None.  As a matter of principle they’d stabilize you, but a life changing surgery involving 20 heroic doctors?  Not so much.

I heard a story about a woman who lost her health insurance.  And then got cancer.  She couldn’t afford the $80,000 or so in costs for chemotherapy and treatment.

She died rather than bankrupt her family.

And, sadly, that’s the right outcome.

The economist Thomas Sowell said (more or less), “If an economist was designing a car, instead of an airbag in the steering wheel, there would be a knife pointed at the driver.  Good economists believe in in consequences for actions.”

There needs to be an incentive for people to pony up and get insurance.  And in the 1980’s they removed that.  Now, regardless of my ability to pay, if I show up at the hospital, they have to treat me.  Can’t turn me away.

Now I’m all for compassion.  But in this system, the person who is compassionate (the politician) forces the provider (doctor/hospital) to treat someone for “free” – but in reality passes on the costs to the responsible idiot with insurance and money (me and you).

Why does a Tylenol® cost $11 each in a hospital?

Yeah.  You’re paying for the freeloaders.  For the lawsuits.  For the administration costs.

One hospital (Duke) had 900 beds.  It had 1500 billing administrators.  Why?  They have to navigate through Medicare rules, as well as rules and correspondence from hundreds of different insurance companies.  You spend a night in the hospital?  You have 1.7 people there with you just counting the costs.

Yikes!

Of the things that determine a capitalist system, it’s all missing.

  • You don’t see those until weeks or months after the event.  How can you make a decision?
  • They don’t have the choice to refuse to serve you.
  • You don’t have one if you’re bleeding out.  You go where the ambulance is taking you.  You don’t haggle when you’re unconscious.
  • The system is so regulated that the American Medical Association determines the number of doctors in the country.  Think that they’ll increase competition?  Hospital regulations (mainly Federal) are extensive.
  • Lipitor®, which treats something or other, was making Pfizer $5billion a year.  After it went generic?  Less than a $1million a year.  Protections for drugs are routinely extended and live longer than the original patent period.  Apparently Viagraâ„¢ also keeps the patent system going for a long time, too.
  • LOL, whut?

What does a free market look like for medicine?

We actually have great examples.  Laser eye surgery costs have plummeted over time.  And, it’s never been cheaper for ladies to become . . . ahem . . . enhanced.

Why?

People have choices.  They don’t need the surgery.  They want it.  So they shop around, and will only get it if the price meets expectations.  $10,000 to not need $200 glasses?  Not on this planet.  And even the girl who wants bigger boobs is budget conscious, even though her boyfriend now has had laser eye surgery and can see them.

Recently several doctors have cut the cord.  No insurance.  None.  Come see the doc?  Cash.  But the prices . . . are much lower.  Much.  Many are less than the copay for your insurance.  Here’s a link (LINK).

The Mrs. and I were discussing this problem last year.  I outlined the issues.  The Mrs. leaned back and contemplated.  She swirled the Johnny Walker Blue Label™ in her glass and said . . .

“Make it illegal.”

John Wilder:  “Make what illegal.”

The Mrs.:  “Insurance.”

When she said that, I immediately pushed back in my mind.  The costs were so high . . . how could anyone ever consider that?

But then I realized that she was right.

Health insurance as a concept really took off during World War II.  The government had frozen the wages of the workers so we didn’t have runaway inflation as the tank factory tried to steal workers from the bomber factory.  But . . . you could add benefits.  Life insurance.  Pensions.  And?  Health insurance.

This began an 80 year distortion of the health market.  The person taking the action (you) was not paying the bills (insurance company) or writing the prescriptions (doctor).  How could costs NOT explode under such a twisted system?

So, The Mrs. is right.  We have to burn this village to save it.  And we will – because otherwise it will torch the whole country as I’ve previously predicted (LINK).

Until then?  We can stare with perfect vision at augmented . . . attributes.

If only there was a cure for ear hair.

The Iron Triangle of Retirement . . .

“Well, it’s not really fine, but it’s not why I’m here.  Hell, man, you know me.  Money’s not my issue.  I could’ve retired straight out of MIT, off to some island, let the business run itself.  Nobody told me to try and save the planet.  I wanted to.” – Kingsman, The Secret Service

DSC03557

Downtown Houston, reflected off a building at dawn.  No, I wasn’t there at dawn to catch the picture – I was working as hard as Jean-Claude Van Damme at a splits contest.

At some point, I’m going to retire.

No, not change the low-tread tires on the Wildermobile – I generally like to wait until the tires are completely showing steel before I change them out.

Silly, I’m talking about working all the time.  For money.  So this blog is safe.

Some people suck at retiring.  I work with one guy who retired six years ago, Ted.  About six months after Ted retired, he came back and asked, “Hey, have need for me to consult?”

Although Ted decided he wanted to retire (and got the cake, party, and everything), Ted wasn’t really ready.  He keeps coming in to work even now after six years.  Thankfully Ted has a unique perspective and awesome experience on technical systems that can help train some younger workers, so it’s a win-win.  But he’s not ready to retire.  That switch that says, “hey, I’m done,” or “hey, if I have to go to hell it’s worth it to never see you people again,” or, “I never, ever, ever want to live in this soul-sucking environment again,” never flipped for him.  And I don’t think it ever will.

Work for him is still a big part of who Ted is, the definition of himself when he gets up in the morning.

For a long time I was with Ted.  I could no more see retiring than I could see Kim Jong Un and President Trump forming a “Guys Only” fort in the Oval Office and sending the secretaries out for chocolate milk while they watched Loony Tunes® cartoons on a Saturday morning before Mom picked them up to take them to the skating rink and the movies after.

But recently?  Yeah.  I’ve started to think that I’ll retire one day, and that’s what this is about.  (The decision to decide to retire is a different post.)

I’ve discussed retirement before in the best and most comprehensive article ever written on early retirement strategies (LINK).  But that article was focused on people who retire young.  Which would be less than 1%.

Let’s see when people really retire, based on 2015 Census data, as analyzed by LIMRA SRI and as I found on Financial Samurai (LINK).

retirement ages

This excludes people like Abraham Lincoln who exit the labor force for other reasons, of course.

Most (68%) of people retire at age 65 or earlier.  This makes sense, but first I’ll have to introduce a self-serving concept and graphic.

Let’s talk about John Wilder’s Iron Triangle of Retirement Fate (JWITORF).

IRON TRIANGLE

I made this graphic at great expense, after paying Freddy’s Advertising, Kites, Etc. $2,300 and waiting six weeks for delivery as it came on a container from Shanghai.  Oh, wait, I threw it together in 5 minutes.

Regardless of the cheese factor of the graphic, John Wilder’s Iron Triangle of Retirement Fate does explain pretty neatly how retirement works, and why people wait so long to do it.  So, why 65?  Statistically speaking, you’re at or near your maximum wealth as you near age 65.  Additionally, you have a reasonably long life ahead of you (statistically speaking) but not an unreasonably long life.  Presumably, you’ve also reached the age of wisdom where you’re smart enough not to blow through your retirement cash on cruises, vacations, PEZ®, pantyhose, and chocolates.

But let’s look closer at the Quantum Entangled Boxes at the Vertices of John Wilder’s Iron Triangle of Retirement Fate (QEBATVOJWITORF).  Or, just the boxes with words.

The first one we’ll tackle is:

  1. Lifestyle

You can upsize lifestyle to spend virtually any amount of money including a fortune the size of Johnny Depp’s $650,000,000.  The world entrusted $650,000,000 to Johnny Depp over the course of 31 years.  .  He’s kinda broke now, since he buys mansions at the drop of a hat, and his personal expenses run to about $2,000,000 a month.  His security alone costs $300,000/ a month.  And hair gel?  Thankfully he saves on soap and shampoo.

My needs are a bit more modest.  Most planners say you should expect to spend between 70% to 80% of your take home pay when you retire.  But others say you only need to plan for 50%.  Or 100%.  Or . . . more!

Part of the problem is that their guidelines assume you spend everything you make.  If you have the ability to save (like in the earlier retirement article LINK) a very large proportion of what you earn, these metrics don’t make sense – you might only need to replace much less than half of your present income, since you’ve radically reduced your lifestyle and eliminated many items . . . like security for $300,000 a month.

Lifestyle is a retirement variable that you mainly control.  Get a budget and live by it.

Biggest risk?  Healthcare.  Who knows what that’s going to cost – might be $60,000 per aspirin by 2019.  You don’t want to guess what calf implants will cost . . . .

  1. Longevity

If you’re dying tomorrow, like Abe Lincoln, you already saved too much for retirement.  If you’re going to live another 80 years, you don’t have nearly enough.

When I first started looking at retirement with a spreadsheet and projected assets and lifespans, one fact popped out at me:  the earlier you retire, the less you earn, so your retirement savings will be less.  And you will pull money out sooner since you don’t have a salary anymore.  Sure, it sounds like a “duh” conclusion, but once I put my numbers in and played with it, it began to make perfect sense.

So, if you retire early, it helps if you die early, too.  And don’t forget your spouse!  If they’re much younger than you, you might want to try to convince them to pick up smoking, skydiving, BASE jumping, and prison boxing so they don’t outlive you by too much.  You’ll thank me for it later.

Outside of shortening life, you don’t control tons about your longevity, either.  Biggest risk?  You outlive your money and so does your spouse and you get a never ending stream of “I told you so” when you’re 90 but she just uses a crutch and can beat you and your walker.  Thankfully you can be a burden to the state and your children at that age.

  1. Amount of Money You Have

This is (mostly/kinda) in your control, too.  Bill Gates has billions of dollars saved for his retirement, and I know some people who work a whole year and don’t make a billion dollars.  Okay, I kid.  But I am certain that you could save more money than you are saving right now.  Part of the value is adding additional money to your savings, but the other value is in reducing your lifestyle and knowing what you really need.

A second portion of your money will come from your 401K.  Most of these are a really good deal, since you company will give you free money to add to your savings.  They do this to encourage you to contribute, since a portion of their bonus is based on how much you contribute.

Pensions are awesome if you’re part of the 0.0001% of private sector jobs that still have them.  If you’re working for the government?  Yeah, I guess you can count on* that.

Social Security is a real thing – and one that you probably can count on*.

*Bigger risks?

  • Inflation (here’s a LINK to my commentary on how that’s inevitable in our current monetary system).
  • Budget deficits (here’s a LINK to my commentary on what the likely impact of our deficits is).
  • Economic dislocation (here’s a to a discussion on Bitcoin and how it can disrupt economic systems).

Best idea now?  Max out your 401K and savings.  Understand what lifestyle is really necessary and what you have to do to pay for it, both in dollars today, and in years of your life in the future.

John Wilder’s Iron Triangle of Retirement Fate© . . . ignore it at your own risk.  Assuming you’re not going to be like Ted (and 10% of Americans) and work past 75 . . . heck, I might have new tires on my car by then . . . .

John Wilder is not a professional financial dude.  Consult your attorney, financial planner, or shamen for real advice. Â