Millennial Madness

From time to time I speak to groups of young people about the importance of financial planning and investing for their futures.

I spend a good deal of time on the power of compound returns in these talks and I include historical background data so that they can fully understand that power.

For example, I point out that $1,000 invested in the S&P 500 in 1980 would have grown to over $84,000 by 2013.  An investment in small cap stocks would be worth around $150,000 by now.

My point to the young is that time is their greatest asset.  However, in order to take advantage of that time advantage they need to be focused on their future.  They need to believe that the future will be bright and present many new opportunities.

However, as I give my talks I am increasingly finding that many young people don't seem to believe it. They seem to think that the best times are behind them.  They don't seem to think that the future holds the same potential for innovation, invention and investment for wealth creation as we have seen in the past.

I explained to them that they could not be further offbase. History has shown that innovation accelerates over time.  The first innovation in a new area is very hard.  For example, look at how long it took for man to figure out to fly.  However, once the Wright Brothers made the essential breakthrough on powered flight, things evolved very quickly.  For example, could Orville and Wilbur have imagined jet flight within a mere 50 years and a man on the moon within 70 years of their invention?

I have absolutely no doubt that human beings that are free to imagine and innovate will continually astound and amaze us.  However, that will only happen if people have the freedom to achieve.  How much innovation is occurring in Venezuela right now?  Or in North Korea?

Thus, the only doubts that the young in this country should have about the future is the extent that government might interfere with the freedom we have traditionally enjoyed in the private sector and the share of the nation's future wealth the public sector may require to meet its future spending requirements.

It is with this perspective that I wrote the blog post, "Will History Be Kind To Millennials" a little over a year ago.  With my experiences in speaking to young people recently I thought I would let you read it again.  The reality is that the policies of the Obama administration are in direct conflict with the self-interest of the Millennial generation.  However, in two consecutive elections this generational cohort voted against their self-interest. This voting behavior is unprecedented as groups never vote against their self-interest.  It looks like Millennial Madness to me.

Since Obamacare was implemented the madness should be even more apparent to Millennials. The reality is that they have done this to themselves.  Obama would not be in office without them.  Will they ever figure it out?  The clock is ticking.  Time will not be on their side much longer.

Will History Be Kind To Millennials? (originally posted 1/31/13)

When the history of the Obama era is written, I think one of the ironies that historians will focus on will be the level of support that younger voters provided for Obama that will clearly be seen as having been against their self-interest when viewed in the fullness of time.

Voters do not typically vote against their self-interests.  That is why the unions and government workers who believe in big government and big spending typically vote for Democrats.  It is also the reason that small business owners and investors who are concerned about high taxes and government regulations vote for Republicans.  It is why young voters in the Vietnam era voted for Eugene McCarthy and George McGovern and why generations of African-Americans voted for Republicans after the Civil War.

Obama carried two-thirds of voters aged 18-29 in 2008.  He carried this demographic with about 60 percent of the vote in 2012.  When you consider the following it is hard to understand why.

We know the obvious.  Over $4 trillion in national debt has been added in the Obama years.  The President's budgets over the next four years looks to be more of the same.  When Obama leaves office it looks as if these young voters will be inheriting at least $20 trillion in federal debt that they will have to pay for from future taxes.

The overall unemployment rate for 18-29 year olds in December, 2012 was 11.5%.  This is far worse than the 7.8% national rate.  The African-American unemployment rate was 22.1%.  12.2% of young Hispanics were unemployed.  These are all worse than four years ago when President Obama took office.

One of the more troubling graphs I have seen in a long time is this beauty that I found on dshort.com.  This chart shows the growth in federal loans to students from 1995 to 3Q, 2012.  Since President Obama has taken office these loans have increased by over 4-fold in four short years.

Please note that this is not the total of all student loans.  These are only the loans that the federal government has made.  Another $600 billion of loans are owed to private financial institutions.  Of course, a big reason that the federal loans to students have grown so rapidly is that in 2010 the federal government took over the guaranteed college loan program.

What I found even more incredible is that student loans are now the largest financial asset on the federal government's balance sheet as this chart from the Federal Reserve's "Flow of Funds" balance sheet shows.

Of course, the federal government does not have much in financial assets--only about $1.4 trillion--compared to its massive $16 trillion in direct balance sheet liabilities as measured by the current debt limit ceiling.

How good are these "assets" that the federal government is holding?  Take a look at these charts via Zero Hedge that show the percentage of 90+Day Delinquent Loans and the New Delinquent Student Loans from 2003 to 3Q2012.  Delinquencies are climbing even faster than the number of loans.

This is understandable considering the unemployment rate for younger people as well as the fact that so many college graduates (with large student loans) are underemployed.  In fact, a recent study by the Center for College Affordability and Productivity, says that out of 41.7 million working college graduates, 48% of them-more than 20 million people, held jobs in 2010 that required less than a bachelor's degree.  37% of the college graduates were actually performing jobs that required no more than a high school diploma!

What kind of jobs are we talking about?

15% of taxi drivers were college graduates.  In 1970, only 1% of cab drivers were college grads.

25% of retail clerks were college graduates,  Less than 5% of clerks were in 1970.

5% of janitors have college degrees as do 18% of firemen.

You begin to see how those student loans can be difficult to repay with large numbers of young people unemployed and underemployed.

At the same time, President Obama seems to think that the answer to every economic problem we have centers solely around education.  Don't get me wrong, education is critically important.  However, education is an investment.  For that investment to produce a return it has to result in a good paying job.  An underperforming economy will quickly overwhelm a good education.  The last few years have proven that.

President Obama has always seemed to be challenged by economics.  He has spent a lot of time talking about increasing the supply of college students and providing more and more student loans.  However, he has done little in improving our economy and the supply of jobs.  The result is an over supply of college graduates when there is little demand for many of their skills.  This overbalance depresses wages for those that get jobs but it also means that college graduates ultimately take jobs from less-educated workers who then end up on the unemployment line. It is an ugly cycle of underemployment and unemployment.

I don't envy the future of our young people.  They are on the hook for $16 trillion and counting in federal debt.  They are the hook for many more trillions in public sector pension costs for state and local  workers.  They are on the hook for over $1 trillion in student loans that are not dischargeable in bankruptcy.  More than 1 in 10 of them is unemployed and 1 in 2 is underemployed.  The poor economy and low interest rates are keeping millions of Baby Boomers in the workforce and blocking their career advancement.  They almost certainly will pay much more into Social Security and Medicare than they will ever get out of it or they will end up caring for Mom and Dad somewhere down the line.

However, almost 2 out of every 3 of them has no one to blame but themselves.  They had a choice to make for their future but were more enthralled with "cool" than with "competent".

It is something I don't understand.  It is something that I don't think history will understand.  For the sake of their own future, I hope the so-called Millennial Generation will soon understand what is happening to them and demand real change.  It is their only real hope to create their own history. If not, they will just pay for ours.

Presidential Prevarications

It seems that to be a good politician one needs to be a master of prevarication.

It is difficult to become President of the United States without some distortions, equivocations, deceptions, fabrications or outright lies along the way.

A BeeLine reader recently sent me this in an email on Famous Presidential Prevarications which I thought was pretty telling.

Famous Presidential Lies  Written by, To The Point News LBJ:  ·  We were attacked (in the Gulf of Tonkin ) Nixon: ·  I am not a crook GHW Bush: ·  Read my lips - No New Taxes Clinton: ·  I did not have sex with that woman... Miss Lewinski GW Bush: ·  Iraq has weapons of mass destruction Obama: ·  I will have the most transparent administration in history. ·  The stimulus will fund shovel-ready jobs. ·  I am focused like a laser on creating jobs. ·  The IRS is not targeting anyone. ·  It was a spontaneous riot about a movie. ·  If I had a son. ·  I will put an end to the type of politics that "breeds division, conflict and cynicism". ·  You didn't build that! ·  I will restore trust in Government. ·  The Cambridge cops acted stupidly. ·  The public will have 5 days to look at every bill that lands on my desk ·  It's not my red line - it is the world's red line. ·  Whistle blowers will be protected in my administration.  ·  We got back every dime we used to rescue the banks and auto companies, with interest. ·  I am not spying on American citizens. ·  Obama Care will be good for America . ·  You can keep your family doctor. ·  Premiums will be lowered by $2500. ·  If you like it, you can keep your current healthcare plan. ·  It's just like shopping at Amazon. ·  I knew nothing about "Fast and Furious" gunrunning to Mexican drug cartels. ·  I knew nothing about IRS targeting conservative groups. ·  I knew nothing about what happened in Benghazi . ·  I have never known my uncle from Kenya who is in the country illegally and that was arrested and told to leave the country over 20 years ago. ·  And, I have never lived with that uncle.  He finally admitted (12-05-2013) that he DID know his uncle and that he DID live with him. And the biggest one of all: ·  "I, Barrack Hussein Obama, pledge to preserve, protect and defend the Constitution of the United States of America ." I believe we have a winner!

Speaking of the last item on the list, I found it interesting that President Obama recently stated that he will veto the House bill passed today ("Enforce the Law Act") that is designed to push back against President's Obama unilateral acts intended to selectively enforce and circumvent the law.  We have seen this time and again by President Obama on issues such as immigration, marriage, and welfare rules, not to mention his signature legislative "achievement", Obamacare.  That law itself has been ignored, delayed or deferred over 20 times.

I must say that it takes an extraordinary amount of chutzpah for the President of the United States to state that he will veto a bill that merely seeks to get him to do his job.   If the law were to pass the Senate (highly unlikely with Harry Reid in charge right now but who knows comes January, 2015?) and the President actually vetoed the law we may find ourselves face to face with a real life constitutional crisis.

And all of this brought to us by a former "Professor of Constitutional Law" at the University of Chicago?  That is pretty scary indeed.

Another liberal constitutional professor of law, Jonathan Turley of George Washington University, recently related his concerns to the House Judiciary Committee and urged Congress to reign in the power grab from the Executive Branch.  It does seem that there are few liberals left who believe in the Constitution and the rule of law.

“I believe we are now at a constitutional tipping point in our system,” Turley, who teaches law at George Washington University, said. “It’s a dangerous point for our system to be in, and I believe that your response has to begin before this president leaves office. No one in our system goes it alone.”

Turley noted that while he agrees with the president on most of his policies, it still “does not alter the fact that I believe the means he is doing is wrong” and that the continued acceleration of executive power can be “a dangerous change in our system.”

Turley flatly rejected the Obama administration’s reason for using more executive powers, which the president claims is a gridlocked Congress. “It is simply untrue that we’re living in very different or unprecedented times. The framers lived in these times,” Turley said, noting that back then Congress used the Alien and Sedition Act to arrest opponents and Thomas Jefferson referred to his opponents as the “reign of witches.”

“This is not a different political time, and it shouldn’t be used as an excuse for extra-constitutional action,” Turley warned.

If you have not looked at the Constitution of the United States in awhile let me remind you of what it says.

Article I, Section 1. (the very first thing mentioned after the preamble)

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives. 

What about the President?  His duties are outlined in Article II (that comes after I) and his dealings with Congress are more specifically referred to in Section 3 of that Article.

Article II, Section 3.

He shall from time to time give to the Congress information of the state of the union, and recommend to their consideration such measures as he shall judge necessary and expedient; he may, on extraordinary occasions, convene both Houses, or either of them, and in case of disagreement between them, with respect to the time of adjournment, he may adjourn them to such time as he shall think proper; he shall receive ambassadors and other public ministers; he shall take care that the laws be faithfully executed, and shall commission all the officers of the United States. (my emphasis)


It is pretty simple.

The President can report information to Congress. He may convene and adjourn the legislative bodies. And he can recommend measures that he judges to be necessary and expedient that should be passed into law. That's it.  He has no authority or discretion to write his own laws or ignore laws on the books.

Once a law is passed he must faithfully execute the laws. That is his duty under the Constitution.

Which brings us to ...

Article II, Section 4.

The President, Vice President and all civil officers of the United States, shall be removed from office on impeachment for, and conviction of, treason, bribery, or other high crimes and misdemeanors.

Is this where we are heading with this President? I certainly hope not. However, who knows when you look at everything else that he has said and done ( or not done) over the last five years.

Ron Clark

I had the privilege of meeting Ron Clark and visiting the school he co-founded in Atlanta, Ron Clark Academy, last week.

Credit: CNN.com

If you are not familiar with Ron Clark you should be.  He is a man that is making a difference.

Ron gained acclaim as the Disney National Teacher of the Year in 2000 for his work in teaching students in Harlem in New York City.  His engaging and innovative approach to classroom teaching resulted in tremendous academic gains for the inner city students who were considered to have limited potential.

Clark's experience in Harlem was the focus of a 2006 made-for-tv movie, The Ron Clark Story, that starred Matthew Perry in the title role.

He co-founded the Ron Clark Academy in 2007 with Kim Bearden, who was also a Disney Teacher of the Year winner, with the goal of creating a school unlike any other in the world focused on the very best learning environment.  He also wanted the school to be a laboratory for other teachers around the world to be able to come to the Ron Clark Academy to learn their methods and techniques and take them back to their own schools. He currently hosts around 3,000 educators a year this way.

Clark's ultimate goal is no less than to transform education and our world. From what I saw he is off to a great start with the 5th to 8th graders who attend the school.

What strikes you immediately upon entering the Ron Clark Academy is a noticeable energy and optimism that pervades everything.  As I was standing just inside the front door waiting for Ron and Kim, one student after another came right up to me, looked me in the eye, introduced themselves and asked what my name was and where I was from.  These were mostly 5th and 6th graders but their demeanor and confidence probably surpassed 99% of any high school student you might meet.

Lest you think that Clark's private school is skimming the cream of the crop from Atlanta, over 75% of the kids are in single-parent homes and a similar percentage come from households that make less than $34,000 per year.

Clark using a competitive admissions policy but he purposely admits about 1/3 of students in the lower half of their class, 1/3 in the middle and 1/3 near the top.  He does this as he wants to demonstrate that his teaching methods work across the board.

What struck me the most on my visit was the fact that I was observing many of the principles first-hand that I recently wrote about in my blog posts, "Most Likely To Succeed" and "Toil, Training and Talent".

In "Most Likely To Succeed" I cited Malcolm Gladwell's research that showed how important good teaching was to the success of students and how critical it was for a teacher to actively engage and relate with students in the classroom.

I had the opportunity to watch Ron teach a math class to his 5th graders.  It was high energy all the way with Ron often jumping on the desks of students to make a point.  A student in the front row had bongo drums and belted out a bongo beat every time a student got the right answer.  Ron had every student on the edge of their seats in rapt attention as he taught Algebra (yes, Algebra!) to 5th graders.  He sang, he did rhymes, and he did whatever was necessary to relate and engage every student in the classroom.

At the conclusion of the class Ron put a problem on the board and told the students to solve it.  He told them if 3/4 of them got it right he would press the "red button".  He jumped on their desks and walked around looking at their papers to see their answers counting out the correct answers.  I couldn't help but hope we got the 16 right answers to see what happened when he hit that button.

Thankfully, the goal was reached, the button was pushed, the room darkened, sparkling lights and rocking music came on.  The students all jumped up dancing and screaming.  Several came over to us giving us high fives.  It was a sight to behold.

Ron told me that it his philosophy to teach to the smartest kid in the room.  It keeps the smart kids engaged and it also brings the poorer students up to levels that they otherwise would not achieve.  He sincerely believes that kids respond when you believe in them and give them the opportunity to excel. And his record of success confirms it.

In "Toil, Training and Talent",  I wrote about Matthew Syed's book, Bounce, and his argument that "talent" is vastly overrated.  What most people call talent is really just hard work.  It is about toiling and training for long hours. Practice, practice, practice. And believing in yourself.  Of course, to believe in yourself it helps immensely for someone else to first believe in you. Ron Clark believes in his kids.

Ron Clark also believes in hard work, deliberate effort and purposeful practice which are also the cornerstones of Syed's prescription for talent.

I thought it was interesting that the first three core principles and values of the Ron Clark Academy were the following:

1. Teach children to believe in themselves and don't destroy the dream

2. Not every child deserves a cookie (Clark uses incentives to get results. He also does not hand out cookies, grades or rewards unless they are earned.  He is not concerned about short-term hurt feelings but long-term results.

3. Define your expectations and then raise the bar: the more you expect, the better the result will be.

We need more teachers like Ron Clark.

Four Things I Learned This Week

I have not written a "things I learned this week" post in quite a while.

I continue to see and read interesting things each week. This was a particularly good week for interesting information and insights.

1. Over 30% of evening internet traffic is the sole result of people watching Netflix. YouTube gobbles up another 19% of downstream traffic according to Sandvine.  Facebook only uses up about 1% of internet bandwidth.  This certainly provides a new perspective on what all those "couch potatoes" are now doing with their time.

Top 10 peak period applications, North America, fixed access. Courtesy Sandvine via TheGuardian.com

2. Pages of tax rules and regulations to interpret and implement the Federal Internal Revenue Code

• 1913-400
• 1954-14,000
• 1995-40,500
• 2014-74,608

This is called progress?  

3. Facebook is paying $19 billion for a company with an app, WhatsApp, that I never heard of until this week. However, 450 million people around the world  use WhatsApp and 75% of them use it every day. They are also reportedly adding 1 million new users a day.

How does that $19 billion compare to other tech acquisitions?  Facebook paid $1 billion for Instagram, Google paid $1.65 billion for YouTube and $12.5 billion for Motorola and Yahoo paid $1.1 billion for Tumblr.

At a $19 billion market cap, WhatsApp is considered more valuable than Gap ($18.9b), Campbell Soup ($13.6b) ConAgra Foods ($12.3b) and Best Buy ($8.7b)

It is estimated that WhatsApp, which allows its users to text each other without going through traditional phone carriers like AT&T and Verizon, cost these providers $33 billion in lost text message revenue last year. This is projected to grow to $54 billion by 2016.

It is a world that is changing very, very fast with potential disruption to traditional revenue models coming from everywhere you look.  By the way, WhatsApp has a grand total of only 55 (soon to be very, very rich) employees.  It was founded in 2009.

4. At its inception in 1966, Medicaid covered 4 million people and cost $800 million per year in inflation adjusted terms. In 2012, Medicaid spent $251 billion on 55.6 million people. Medicare spent $471 billion in 2012. The comparable number (inflation adjusted) in 1967 was $2.8 billion.

That is a 31,212.5% increase in real spending on Medicaid and a 16,750% increase in Medicare spending.

You can see a full report on the growth in the costs of government health care programs in this report prepared by Senator Tom Coburn.

And we are now well on the road to handing even more control of health care spending to the federal government?  We all should be more than a little concerned based on this history of government involvement in health care.

Seen and Unseen

I came across this insightful observation last week in John Mauldin's Thoughts from the Frontline blogger quoting an essay written by Frederic Bastiat in 1850, "That Which Is Seen and That Which Is Unseen".

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

I think this observation also applies in explaining the differences between Democrats and Republicans.

I have always believed that a fundamental difference between a Democrat and Republican is how they view the world. Democrats see the world in much more theoretical and idealistic terms. Republicans tend to be more practical and pragmatic in their outlook.

Democrats want policy solutions based on how they think the world should work in theory. Republicans favor policies based on how the world really works in practice.

Bastiat's essay has given me one more perspective on the difference in thinking between Republicans and Democrats.

Democrats generally confine themselves solely to visible effects.  They seem to consider only first-level effects and ignore everything else that might flow from that.  All of their focus is on what they see in front on them.  They ignore the unseen issues. Republicans, on the other hand, are considering both the immediate effects and second-level effects. The seen and the unseen.  Especially the unseen effects which should be foreseen.

Let's look at a few issues that show you what I am talking about.

Deficit spending- Democrats focus almost solely on spending more on today's needs that they see. Continuing to borrow and spend money we don't have is totally justified over what that debt will do to unseen generations in the future.

Healthcare reform- Obamacare was justified in Democrat minds in order to solve the immediate problem of uninsured Americans.  They totally ignored the fact that the solution would completely undermine the health care system for unseen millions of Americans who already were satisfied with their coverage.

Minimum wage- Democrats want to raise the minimum wage because they believe it will alleviate the poverty problem they see.  However, they totally ignore the unseen after-effects in that the minimum wage increase will undoubtedly result in long-term job losses. For example, the CBO estimates that raising the minimum wage to $10 per hour could result in the loss of 500,000 jobs by 2016.

Immigration- Democrats want to legalize millions of immigrants who have entered the United States illegally and who we see everyday around us.  However, when calling for this they totally ignore the unseen potential immigrant who has been waiting patiently in line for years to come to this country illegally.  They also don't consider the effects that amnesty will have on encouraging even greater illegal immigration in the future.

Welfare-  Democrats can't do enough to help people in need that they see.  Food stamps, housing assistance, Medicaid, long-term unemployment assistance.  It is natural to want to help people who need the help.  However, what about the unseen problem that in all of this we may also be creating a cycle of dependency?  In the end our compassion may feed the problem rather than solve it.

Abortion- A woman who is pregnant is seen and known.  An unborn baby is unseen and unknown for most Democrats. We see the life affected today with that pregnancy.  The life of that baby's future is unseen.

Gun control-  A person with a gun who uses it in a horrific crime is seen.  Democrats see that.  However, unseen are the millions of guns in the hands of law-abiding Americans as well as the thousands of crimes that may have been deterred by that fact.

My point is that it is easy to see visible effects.  They are right in front of you.  However, as Bastiat observed over a century and a half ago, we rarely see single effects, but a series of effects.  Good government policy should dictate that we should not be focusing on the seen, but on the unseen.  This is particularly the case with the unseen effects that should be foreseen.

Unfortunately, Democrats consistently seem to be only interested in what they see right in front of them.  They seem to believe we live in a simple, superficial, single dimension universe.  The fact is that our world is getting more complex everyday and that type of thinking is a sure road to ruin.

As we look at government policy we need to not only consider what we see right in front of us but what is also down the road and around the curve.  It takes deep thinking.  On issue after issue it is hard to detect that Democrats see it.

This observation might have been unseen to you before.  I hope that you see it now.

Of Fish and Ponds

Is it better to be a big fish in a small pond or a small fish in a big pond?

This is a question that I have pondered over the years.  Thinking about myself as well as for my children.

There are obvious advantages to being the big fish in the small pond. Competition is not as stiff in the small pond and this can be an advantage in building confidence.  It is simply easier to compete by getting a chance to practice and hone your skills without feeling inferior along the way.

However, in the long run we all have to compete in the big pond.  And the pond has gotten even bigger over the years with increased mobilization and globalization.  At some point you have to test yourself against the best.  After all, it is only by going up against the best that you can have a chance to be the best. But which is the best path to travel to get there along the way?  The small or big pond?

Malcolm Gladwell in his new book, David and Goliath, seems to come down pretty firmly on the side of the big fish in a small pond.

A big part of the reason deals with the belief you have in yourself. And that also has a lot to deal with whether you will continue to put the work in that is necessary to succeed over the long term.

The small fish in the big pond is much more likely to get discouraged and quit because they think they are not good enough.  The big fish in the small pond does not feel that way.  Each success reinforces their belief in themselves.  They continue to practice and work and, as a result, they also get better and better.  At some point they may move to the big pond and they can be very successful.  Starting in the big pond right from the start they very likely would never would have made it.  They would have quit in discouragement thinking that they could not measure up.

This occurs because we form our impressions of ourselves by looking locally, not globally.  We don't compare ourselves to the broadest group but to those immediately around us.  That is our frame of reference.

Gladwell makes the point by asking which countries have the highest suicide rates?  Countries such as Switzerland, Denmark or Iceland whose citizens say they are very happy.  Or Greece, Italy or Portugal where people consistently say in surveys they are unhappy?  The reality is that suicide rates are much higher in the "happy" countries. After all, it must be much harder to hold it together if you are depressed in the midst of a sea of smiling faces.  On the other side, misery does indeed seem to love company.  If everyone is unhappy in the same boat it doesn't seem quite as bad after all.

According to Gladwell, all of this should cause some concern when considering the real value of affirmative action programs which are designed to assist disadvantaged minorities.  These programs are clearly well-intentioned. However, looking at the big picture, is it really helping these groups?

Gladwell cites data which indicates that black students are routinely offered positions in law schools one tier higher than they would otherwise be able to attend.  However, 51.6% of black students in U.S. law schools are in the bottom ten percent of their class and 75% fall in the bottom twenty percent.

Why is this important?

Research by law professors Richard Sander and Stuart Taylor indicates that getting great grades at a good school is better than getting good grades at a great school when entering the legal job market.  For example, a top fifth class rank at Fordham had jobs and better compensation than a middle class rank at much more prestigious Columbia Law School.

How does Gladwell sum it up?

Parents still tell their children to go to the best schools they possibly can, on the grounds that the best schools will allow them to do whatever they wish. We take it for granted that the Big Pond expands opportunities, just as we take it for granted that a smaller class is always a better class.  We have a definition in our heads of what an advantage is-and the definition isn't right. And what happens as a result? It means that we make mistakes. It means that we misread battles between underdogs and giants. It means that we underestimate how much freedom there can be in what looks like a disadvantage. It's the Little Pond that maximizes your chances to do whatever you want.

I came across this graphic from Boom Football that also makes the point quite well by comparing the Super Bowl rosters of Seattle and Denver based on how highly recruited the players were coming out of high school.  The number of stars indicate how highly the athletes were ranked by college football recruiters.

Note that on both the Seahawks and the Broncos rosters the number of 2-Star and Unranked players is higher than the 5-Star and 4-Star players.  The reality is that the elite BCS (big pond) programs (Alabama, Notre Dame, Ohio State, Texas, USC etc) rarely even recruit an athlete that is 2-Stars or below.  These kids end up at smaller schools (little ponds) where they have a much greater opportunity to play and develop their skills.  On the other hand, many 4-star and 3-star recruits at the bigger schools may get little playing time and never progress.

Who ends up in the NFL?

Don't underestimate the small pond.

Inconsistent, Incongruous or Insane?

When I look at federal policy across the spectrum of issues it is hard to not scratch my head quite often. Inconsistent? Absolutely? Incongruous? It seems so. Insane? Perhaps.

Let's see what I am talking about.

We have 92 million Americans of working age who are not working.  The unemployment rate is stubbornly high almost six years after the economic downturn of 2008.

However, many employers say that we need to reform our immigration rules to allow more workers into the country because they can't fill the jobs that they have.  This clearly points to an educational   system at the high end of the job market where we are not producing the right number of graduates (tech, engineering, science).  At the same time, the low end jobs can't be filled because we have established a welfare system that makes it more attractive to stay on the dole than work.

So the answer is to let millions of more people into the country when so many Americans are not working?

We are also hearing calls to raise the minimum wage.  Minimum wage workers tend to be young. Although workers under the age of 25 only represent 20% of all workers, they make up about 50% of all minimum age workers according to BLS data. 

Those under age 25 also have an unemployment rate that is more than double the overall rate according to the most recent BLS report..  For example, the unemployment rate for those 16-19 is 22.0% and it is 11.9% for those 20-24. This compares to a 5.4% unemployment rate for those 25 years and older.  Bear in mind, the unemployment rate only considers those that are actively seeking workers.  This does not include any young people in school.

Therefore, what exactly will an increase in the minimum wage accomplish?  It certainly will not result in assisting any of these young people to get a job.  In fact, basic economics suggests that it will result in an increase in unemployment.

An increase in the minimum wage will almost assuredly result in greater incentives for business to further automate to eliminate low wage jobs.  Why do you need a person to take your order at McDonald's?  Just put your order in on a touch screen. No need for a human being to do that.  The machine also never shows up late for work.  Or complains about their workload. And there is no FICA taxes or health insurance coverage to be paid.

McDonald's is already in the midst of adding touchscreens in 7,000 of its restaurants in Europe.  Is it any coincidence that this effort has gone into Europe first with its onerous work rules and sky high labor costs due to big government rules?  By the way, Europe also has an overall unemployment rate of 12.0%.

We also have health care reform which was supposed to address the needs of some 47 million Americans without health insurance coverage.

Of course, almost half of the uninsured in the United States is "healthy and young". Asked the question as to why they have not purchased health care coverage previously most of them say that cost is the main reason.

So how was healthcare reform structured to handle this problem?  Obamacare established a slew of mandated benefits that drove up the costs of health insurance across the board. It also required that the old could not be required to pay more than three times the cost of the young for health coverage.  The problem is that actuaries will tell you that the old actually have about six times the health costs of the young.  This means that under Obamacare the cost of health insurance coverage is actually much, much higher than it before for the young.

Predictably, the young and healthy uninsured are not buying Obamacare policies. The health insurer Humana stated last week that only 20% of its Obamacare enrollees are under age 30.  42% are 50-64.  Humana said that they expect to tap into three risk adjustment mechanisms funds under the law of between $250 and $450 million for reimbursement of these losses by the federal government.  These numbers indicate that the policies they sold were underpriced by about 25%.

Therefore, the solution to the problem was exactly the opposite of what was required if the objective was to lower the number of insureds. The net result appears to be that many more people were forced off of individual plans they liked than those who purchased health insurance in the Obamacare exchange.  In fact, it appears that only about 20% of those enrolling in the Obamacare exchange were previously uninsured. People have just been churned from one plan to another.

Do you see why I scratch my head often when I see what is going on in Washington?

Inconsistent? Incongruous? Insane?

You decide.

Steps to Success

One of the first posts that I wrote when I started writing BeeLine three years ago was about Amy Chua who wrote an essay in the Wall Street Journal on "Why Chinese Mothers are Superior."  She also wrote a book on the subject, Battle Hymn of the Tiger Mom.

Chua's essay received a lot of attention and, not surprisingly, a great deal of criticism with her straightforward citation of three main differences between Asian and Western parenting styles as she made the case as to why Asian mothers were raising higher achieving children.

• Western parents are too concerned about their children's self esteem.  Chinese are not. Asians  assume strength in their children, not fragility.  Therefore, they push hard on them and hold them accountable for results.

• Chinese parents believe their children owe them something.  Many Americans seem to believe that since they were responsible for bringing the child into the world that they owe the child in some way.

• Asians believe they know what is best for their children and override their children's own preferences and desires. Chinese parent s understand that nothing is fun until you're good at it. To get good at anything you have to work, and children on their own never want to work, which is why it is crucial to override their preferences.

Having three children who competed in the classroom and in music with Asian children in high school  and speaking with their parents, I understood where Chua was coming from.  These parents generally held their children to higher expectations and strongly believed in the ethic and value of hard work.  To a much, much higher degree than other parents I knew.  And my wife and I for the most part.

Of course, it is always dangerous to generalize.  Not every Asian parent brings their children up the same way. There are Asian kids who are slackers, C students and can't play a C-flat.  However, stereotypes are a fact of life and anyone who denies they don't do it either is not telling the truth or does not understand how the human mind works.

The fact is that we all stereotype because all of our brains use shortcuts to make decisions. It is the way the brain is wired. These shortcut pathways make decision making easier. Our brain is a wondrous thing. Most of the calories we burn in a day go to fuel this enormous power plant. Therefore, the brain always tries to make decisions that use the least amount of effort and energy it can. These shortcuts are called heuristics.

If you are human you use heuristics, bias and stereotypes every day. If you don't know better you are going to start with a default position as you assess things. For example, if you are looking at a product you are not familiar with and you have two items to choose from, you are going to assume the expensive option is better. If you move to a new city and need to open a bank account, you are going to assume that the bank with 50 branches and the skyscraper downtown is better than the bank with one office. After all, if they got that big they must have done something right.

However, as I pointed out in my post earlier this year, Toil, Training and Talent, the success of those Asian students has little to do with innate "talent". It is largely a function of the expectations of the family and just plain old hard work, practice and study.  That is the secret.

Malcolm Gladwell in his book, Outliers attributes it to a "rice paddy" attitude. Simply stated, tending to a rice paddy is a 360 day, 3,000 hour per year activity. It is exacting, hard work where effort and dedication make a huge difference in results. The peasants that tended these rice paddies may be long gone but the culture carries on in their progeny. Gladwell makes the point that there is nothing that indicates that Asians are naturally any better at math, science or music but each requires hard work, persistence and doggedness. It is more attitude than aptitude.

Chua is out with a new book tomorrow (co-authored with her husband, fellow Yale University professor Jeb Rubenfeld), The Triple Package:Why Groups Rise and Fall in America,  which is sure to raise some more hackles and controversy.  In the Triple Package Chua and Rubenfeld explain their belief as to why some religions and races have been more successful in America than others. 

You have to admit that Chua is not afraid of taking on some tough issues for thought and discussion.

First, religion.  Chua states that those of the Jewish and Mormon faith have has outsized success in American compared to their Protestant, Catholic, Buddhist, Muslim, and atheist counterparts.

Second, race or culture.  Indians, Chinese, Iranians, Lebanese, Nigerians and Cubans have achieved a relatively higher level of success in America compared to their counterparts according to the authors.

Or course, some critics of Chua and Rubenfeld see an internal bias in their conclusions since Chua is from from a Chinese culture (her parents) and Rubenfeld is Jewish.  However, my own experiences over my lifetime confirm what they are saying about these groups.  They fit into my own stereotype that would be my default position I had to guess, successful or not?

So what do these groups have going for them? The authors cite a "cultural edge" that allows them to better take advantage of the opportunities that America offers.  They see a "Triple Package" of elements that provides these cultures that edge that has given them disproportionate success compared to their numbers in American society.

What are they?

A superiority complex. Insecurity. Impulse control.

What do each of these mean?

Each of these groups has a basic belief that they are exceptional.  That they are a cut above in contrast to the way most Americans are taught to believe that everyone is equal.  These groups don't believe that. They believe in themselves first and foremost.  

You might ask that if that is the way they feel how could insecurity come into play in "The Triple Package"?  This seems contradictory.  However, I see it as the difference in how they believe others view them.  In their heart they believe in themselves but in their head they know others don't, As a result, they believe they have something to prove, to themselves and others. This drives these groups to outsized success.

Finally, self-control.  This is the ability to delay self-gratification and exhibit self-discipline.  It is also the ability to not give into temptation and quit when the going gets tough.

Of course, none of these attributes is the domain of any group.  Each of these could be readily embraced by anyone in America. Those are the stereotypes coming into play again.

I have not read "Triple Package", only a couple of summaries and reviews.  I am not sure that I buy into everything that I think Chua and Rubenfeld are saying.  However, the basic elements of success that they are writing about here are not much different for anyone in my book.

It starts with your attitude. No one is going to achieve success without believing that they can do it and the patience to carry it through the steps necessary.

John Wooden, the former UCLA basketball coach, called it the Pyramid of Success.  You see many of  the same elements over and over when someone is writing about the secrets of success whether it is Chua, Gladwell or Syed (who I profiled in Toil,Training and Talent). 

Hard Work. Practice. Belief. Faith. Passion. Self -Control. Initiative. Skill. Poise. Confidence.  

There is no secret to success.  It is much like the Super Bowl last night.

It is preparing better. It is blocking and tackling better.  It is covering the field better.  It is taking better advantage of opportunities that you are given.

And in the United States of America, everyone is given opportunity unlike any other place in the history of mankind.  

My wish is that more people believed it and achieved it.  It is there for everyone.

“Whether you think you can, or you think you can't--you're right.”

                                                                                            -Henry Ford

You Don't Build Up The Poor By Pulling Down The Rich

"No person was ever honored for what he received. 

Honor has been the reward for what he gave."

                                                                                                     -Calvin Coolidge


I was reminded of this quote by Calvin Coolidge as President Obama has attempted to make something of income equality.  Of course, I don't hear anything said about effort inequality, work inequality or capability inequality.

The fact is that different people put different effort and work into different things.  People also have diverse capabilities and talents.  I can barely hammer a nail in straight.  My father-in-law can build anything.  He builds and fixes things at our house and I do his taxes.  We both end up in a better position than we would on our own.

Thomas Sowell wrote about "The Inequality Bogeyman" in his column recently.

If we all had the same capabilities and the same limitations, one individual's limitations would be the same as the limitations of the entire human species.

We are lucky that we are so different, so that the capabilities of many other people can cover our limitations.

Sowell points out that the obsession of the liberal intelligentsia is on the money people receive and almost no attention is paid as to what causes other people to give them that money.  In other words, let's focus more on what people give to society than what they receive. As Coolidge suggested, this is what really matters.

When the intelligentsia discuss such things as the historic fortunes of people like John D. Rockefeller, they usually pay little — if any — attention to what it was that caused so many millions of people to voluntarily turn their individually modest sums of money over to Rockefeller, adding up to his vast fortune.

What Rockefeller did first to earn their money was find ways to bring down the cost of producing and distributing kerosene to a fraction of what it had been before his innovations. This profoundly changed the lives of millions of working people.

Too many discussions of large fortunes attribute them to "greed" — as if wanting a lot of money is enough to cause other people to hand it over to you. It is a childish idea, when you stop and think about it — but who stops and thinks these days?

The transfer of money was a zero-sum process. What increased the wealth of society was Rockefeller's cheap kerosene that added hundreds of hours of light to people's lives annually. 

Edison, Ford, the Wright brothers , and innumerable others also created unprecedented expansions of the lives of ordinary people. The individual fortunes represented a fraction of the wealth created.

Is it any different today?  Are we supposed to begrudge Steve Jobs or Bill Gates and say that they were greedy when they founded Apple and Microsoft? What about Jeff Bezos and Amazon? 

The reality is that each of these men has given much, much more to all of us through their effort and innovation than they ever received. 

No one is forced to buy an iPhone or use PowerPoint or buy a book on Amazon.  The only thing you are forced to buy right now is an Obamacare healthcare policy :).  Therefore, Obama might have a point with regard to the CEO of Anthem or Aetna.

The money and wealth that is in the hands of the rich came from you and me and many others because we saw value in the trade for our own benefit.  

The money itself is not wealth. Otherwise the government could make us all rich just by printing more of it. From the standpoint of a society as a whole, money is just an artificial device to give us incentives to produce real things — goods and services.

Those goods and services are the real "wealth of nations," as Adam Smith titled his treatise on economics in the 18th century.

Even those of us who create goods and services in more mundane ways receive income that may be very important to us, but it is what we create for others, with our widely varying capabilities, that is the real wealth of nations.

This is an important principle to remember as President Obama takes to the airways to try to create division and dissension among us.

It also seems appropriate to close with another quote from Calvin Coolidge that is worth remembering.

"Don't expect to build up the weak by pulling down the strong."

That has been the undoing of many, many economies over the years.

I know it hard to for many young people to believe but we once had an even cooler President than Barack Obama!

The State of the Union is Simply and Utterly Depressing

I am not watching President Obama's State of the Union speech tonight.

According to Barack Obama all is well but it could be a whole lot better if 1) Congress would just leave all the decisions to him, 2) have the rich give all their money to him so he can redistribute it and 3) people just need to get with the program and just love Obamacare even if they lost the plan they liked and the doctor they loved.

I thought I would invest the time saved in not watching that fairy tale and present a more realistic (and factual) view of the State of the Union in January, 2014.

• The labor participation rate is the lowest it has been in 35 years at 62.8%.  

• There are currently 92 million Americans of working age who are not working.  To put this in perspective, there are just 145 million Americans working in the civilian labor force.

• Despite the fact that the population of working age Americans has increased by 15 million since 2007, 2 million fewer people are working today than 6 years ago.

• The unemployment rate for those age 16-24 (of those not in school) is over 16%. 

• The unemployment rate for black teenagers 16-19 (who are not in school) is 36%.

• The unemployment rate for black Americans (11.9%) is more than double the white unemployment rate (5.9%) and it is almost triple the Asian rate (4.1%). 

• Over 3 million students dropped out of high school last year. 

• An average of only 59% of students in the 50 largest U.S. cities graduate from high school.  

• There are more than 47 million people on food stamps.  There were 27 million on food stamps in 2008.

• The hospital and doctor bills of almost 50% of all babies born in the United States last year were paid for by Medicaid.

• 41% of all babies born in the United States are born out of wedlock.  73% of black children are born out of wedlock.

• Obamacare was enacted based on the statement that there were 47 million people living in the United States with no health insurance coverage.  The best estimate today is that less than 1/3 of the 2 million (as of 12/31/13) who have enrolled for health coverage on the public exchanges were previously uninsured.  In the meantime, almost 5 million people lost previous private coverage they had in the individual market.  

• The current U.S federal debt is $17.3 trillion.  This equals over $54,000 for every man, woman and child in the United States.  It is about $120,000 for every working man and woman in the country.

• Federal debt as a percent of GDP has grown from around 60% of GDP when President Obama took office to 100% of GDP today.

• A great deal of the debt that has been taken on has been through actions of the Federal Reserve where it has essentially "printed the money".  The Federal Reserve now over $2 trillion of federal debt.  To put this in perspective, all U.S. Savings Bonds only amount to less than $200 billion. Private pension plans hold less than $500 billion.  All mutual funds hold less than $1 trillion.

• The United States is more unpopular in the Muslim world today than under President Bush according to numerous polls.  For example, 54% of Pakistanis disapproved of U.S. leadership in 2008.  Today that number is 92%.

• Only 14% of Americans approve of the job Congress is doing.

• 53% of Americans say that the Obama administration is not competent running the government.

How can I not end my State of the Union blog without a laugh?

This is one of my favorites from Gary Larson's The Far Side.

Any resemblance to events occurring last night is purely coincidental.

Credit: Gary Larson, The Far Side