Saturday, December 31, 2016

How Minimum Wage Hikes Hurt Latino Workers

How Minimum Wage Hikes Hurt Latino Workers

Countering calls from leading Latino organizations to raise state and federal minimum wages, the LIBRE Institute, a free market Latino advocacy group, has published a new study that finds minimum wage hikes would adversely impact Latino workers.

Relying on previous scholarly evidence and using the latest job numbers from the Bureau of Labor Statistics (BLS), a non-partisan governmental agency, the LIBRE Institute concludes that employment opportunities for Latino workers are significantly diminished following minimum wage hikes. This is especially the case for Latino workers without a high school diploma.

The findings arrive as the Latino unemployment rate remains higher than the national average. For Latino Americans who are employed, wages have remained stagnant. And although the Latino unemployment rate has gone down in recent years, evidence shows that the official numbers mask a higher unemployment picture because they fail to consider the number of workers that have given up looking for work.

Still, for groups such as the National Council of La Raza, raising the minimum wage is particularly urgent given the 2008 economic downturn that continues to leave many behind amid a sluggish recovery. In a fact-sheet supporting federal legislation to boost the federal minimum wage to $12 an hour by 2020, La Raza says such a move would benefit over 8 million Latinos — many employed in low-wage and tipped-wage industries.

But according to the LIBRE Institute study, such a raise would have the opposite effect for the Latino community.

“It is likely that a deep concern for their welfare motivates those who call for a raise in the minimum wage…but mandated minimum wage controls do not accomplish that goal,” argue Payton Alexander and Carli Dimino. “Wages are not levers that set value, but metrics that reflect value. When we understand this central fact, we begin to realize the ways in which the minimum wage has the potential to hurt exactly those whom it is intended to help.”

As a number of cities and localities have raised their minimum wage laws, there is evidence that these hikes may have contributed to a decline in jobs, or a reduction in hours for some employees. Among the cities that recently raised their minimum wage include Seattle, which raised the hourly rate to $11. But according to a team of economists commissioned by the city to study the wage hike’s impact, there was scant evidence that the measure helped in any significant way.

Meanwhile the American Enterprise Institute found that there was actually a steep decline in employment participation in the city of Seattle shortly after the new wage law took effect. 
Despite this, it’s likely that calls to raise the minimum wage will continue unabated as the National Council of La Raza joins with labor unions and other progressive organizations to pressure the new administration and the new Congress to enact new wage laws.

The LIBRE Institute hardly seems likely to join in these calls. In fact, for Daniel Garza, the organization’s president and board chairman, it’s not a lack of regulations holding back the Latino community — but the opposite.

“Policymakers must remember that a long-term problem in the economy has been a lack of entry-level opportunities, as government regulations and mandates make it costlier and more difficult for small businesses to hire new staff,” Garza said in a recent release “These opportunities are often critical for Latinos.”

‘My Fellow Liberals, I’m Tired Of You’ | The American Conservative

‘My Fellow Liberals, I’m Tired Of You’ | The American Conservative

I’m a secular/agnostic Californian and longtime reader of your blog. I’ve enjoyed your books beginning with Crunchy Cons, and have valued your insights over the years.

Though you don’t know me, I feel like I know you and your family. And I want to share with you, from the liberal bastion of Northern California, that I am officially tired of the type of people who have surrounded me my entire life. In the wake of Trump’s election, I am experiencing “tribe fatigue.” I’m not tired of The Other, Detestable Tribe. I’m tired of my own.

A bit about me: I am a [deleted] with two young children. My parents were non-religious Democrats, and my ex-Catholic mom loathes organized religion to this day.

So I was raised a secular liberal. My college professors were secular liberals. During my journalism phase, my newspaper colleagues were secular liberals. My law school professors and peers were – in the vast majority – secular liberals. Almost everyone at my corporate law firm was a secular liberal. My California neighbors and friends are secular liberals, as are my colleagues. My mother, siblings, and their spouses are all secular liberals.

By all rights, I should be a member in good standing of their tribe, “liking” their Facebook posts and joining their candlelight vigils against the evil Trump Administration. But November 8 and its aftermath revealed to me that I am just so tired of these people. I can’t be like them, and I don’t want my kids turning into them.

I am tired of their undisguised contempt for tens of millions of Americans, with no effort to temper their response to the election with humility or empathy.

I am tired of their unexamined snobbery and condescension.

I am tired of their name-calling and virtue-signaling as signs of supposedly high intelligence.

I am tired of their trendiness, jumping on every left-liberal bandwagon that comes along (transgender activism, anyone?) and then acting like anyone not on board is an idiot/hater.

I am tired of their shallowness. It’s hard to have a deep conversation with people who are obsessed with moving their kids’ pawns across the board (grades, sports, college, grad school, career) and, in their spare time, entertaining themselves and taking great vacations.

I am tired of their acceptance of vulgarity and sarcastic irreverence as the cultural ocean in which their kids swim. I like pop culture as much as the next person, but people who would never raise their kids on junk food seem to think nothing of letting then wallow in cultural junk, exposed to nothing ennobling, aspirational, or even earnest.

I am tired of watching them raise clueless kids (see above) who go off to college and within months are convinced they live in a rapey, racist patriarchy; “Make America Great Again” is hate speech; and Black Lives Matter agitators are their brothers-in-arms against White Privilege. If my kids are like that at nineteen, I’ll feel I’ve seriously failed them as a parent. Yet the general sentiment seems to be these are good, liberal kids who may have gotten a bit carried away.

I am tired of their lack of interest in any form of serious morality or self-betterment. These are decent, responsible people, many compassionate by temperament. Yet they seem two-dimensional, as if they believe that being a nice, well-socialized person who holds the correct political views is all there is, and there is nothing else to talk about. Isn’t there, though?

I am tired of being bored and exasperated by everybody. I feel like I have read this book a thousand times, and there are no surprises in it. Down with Trump! Trans Lives Matter! Climate deniers are destroying the planet! No cake, we’re gluten-free!

These are good people in a lot of ways. But there has got to be a better tribe.

That leads me to . . . drum roll . . . the Christian Right. It is no small feat, switching tribes. It feels stressful and weird to abandon your tribe for the Detested Other Side.

Since November 8, my husband and I have been taking the kids to church. (He is politically conservative with a religious bent, so no argument there.) I have come this close to buying a giant poster of the American flag for the living room. I may do it still.

Right now, I am struggling to accept the basic Christian doctrines (virgin birth, resurrection, second coming) because I feel the Christian tribe may be the right tribe for my family. We just finished watching a BBC miniseries about the birth of Jesus, which was so beautiful and moving compared to secular TV. My nine-year-old really enjoyed it. I want to prepare my kids to live according to some unchanging truth, not subject to every passing trend, and this felt like a start. But I worry that an inability to believe in the supernatural aspects of the faith will limit my ability to be a “real” Christian.

Last Sunday’s sermon mentioned 1 Peter:18-19, “For you know that it was not with perishable things such as silver or gold that you were redeemed from the empty way of life handed down to you from your ancestors.” This may be obvious to you, but secular liberalism does seem empty in some way, despite all the things my educated, middle-class tribe has to be grateful for. If that’s what’s been handed down to me, I want more, especially for my precious kids. I’m trying.

Students’ Constitutional Rights on Campus: Time for Congress to Intervene | National Review

Students’ Constitutional Rights on Campus: Time for Congress to Intervene | National Review

Intent on establishing progressive utopias, universities and federal bureaucrats are together systematically violating the constitutional rights of students and professors. The stories are legion, the legal standards are unconscionable, and it’s past time for other branches of American government to step in and set things right.

Consider what just happened at the University of Oregon. Acting in response to student and faculty outrage after a white law professor dressed up as a black man at an off-campus costume party (she was attempting to protest racism), the university suspended the offending professor and then issued a lengthy report holding that wearing the costume constituted “discriminatory harassment.”

Why? Because the incident was race-based and caused arguments and controversy on campus. Here’s a key statement in the report: “Based on both the reaction and lack of reaction from other faculty and professors, students have also felt a sense of anxiety and mistrust towards professors and faculty beyond just Shurtz, with some students considering and seeking out transfers to other schools.”

Allow me to interpret. Offended students weren’t just angry at the professor, they were also angry that not all students and professors were sufficiently outraged at the offending professor’s actions. In other words, at Oregon if you speak on an issue of race, gender, religion, or sexuality, you are responsible not only for any anger your speech may cause but also for other students’ and professors’ reactions to that anger.

But of course identity politics don’t merely impact free-speech rights. They also lead to systematic anti-male sex discrimination and violations of the most basic due-process rights of students accused of sexual assault.

Then consider this legal complaint, directed at Indiana University. It is simply astounding. The university expelled a male student for sexual misconduct even though the female student allegedly admitted that she invited the male student into her bedroom, asked him to retrieve a sex toy, and asked him to have sex with her. She told the Bloomington police department, “I was, like, telling him, like, to have sex with me.”

The resulting university proceedings were allegedly a due-process horror show, featuring university hearing officers trained by an official “who admits that he starts each case believing the [defendant] is guilty.” The lawsuit points to news reports where this same official admitted to trying to “break” another defendant.

And speaking of due-process horror shows, this case from James Madison University shows how universities engineer the results they want. After an initial finding that the male defendant was “not responsible” on the charge of sexual misconduct, the female student appealed. The appeals panel reversed the finding and sanctioned the male student. The male student sued, and a federal judge ruled in his favor, finding that “no reasonable jury” could find that he was given a “fair process.” The reasons were legion:
In short, Doe [the male student] was given no opportunity to respond to some of the evidence . . . , was hampered by the rules prohibiting contact with witnesses or limited by time constraints in responding to others . . . , and was not permitted to appear before the appeal board. . . . Additionally, because the appeal board made no finding of responsibility by Doe and provided no reasons for its “Increased Sanction” decision, the appeal board decision and its review . . . were unfair to Doe.

I bring up these cases not because they’re unusual but because they’re becoming all too typical on campuses overrun by identity politics and governed by a federal educational bureaucracy that is lawlessly expanding Title IX and other federal statutes well beyond their intended scope. For disturbing chapter and verse on this sad and unconstitutional spectacle, I’d urge you to read Robert Shibley’s excellent Twisting Title IX.

The new regime mandates that universities conduct their own quasi–court proceedings to adjudicate criminal matters best left to real courts, sanctions and encourages “due process” that often denies legal assistance to defendants, and effectively shifts the burden of proof (through bizarre “affirmative consent” standards) to the accused. In a Title IX investigation, the accused is often prevented from adequately reviewing the charges against him and prevented from adequately questioning witnesses. University officials conduct themselves in a manner that would embarrass even corrupt or amateurish judges and prosecutors.

As for free speech, on campus the heckler’s veto is alive and well — with a student’s or professor’s First Amendment rights mainly dependent on the size of the outcry against him or her. Raise enough of a ruckus, and the Constitution fails.

A generation of litigation has inflicted loss upon loss on public universities, yet the campus climate is still rife with censorship and due-process violations. It turns out that administrators fear their own on-campus ideologues and the progressive education bureaucracy far more than they fear the federal courts. Indeed, the financial penalty for angering a bureaucrat — loss of federal funding — is far greater than any damage award imposed by any court. Judges are proving to be a poor check on campus power.

So it’s time to turn the tables. It’s time to readjust the incentives. Congress needs to intervene in two concrete ways. First, it needs to withhold federal funds from any public university that repeatedly violates the constitutional rights of its students or faculty. If a court of final jurisdiction finds that a public university violated the constitutional rights of a student or faculty member more than once in any five-year span, it should lose all federal funding for at least a year. Moreover, there should be a substantial, fixed financial penalty for each constitutional violation, no matter how infrequent.

Second, universities need to get out of the sexual-assault-adjudication business. Universities are educational institutions, not criminal courts, and they are poorly equipped to decide criminal cases or even civil liability. It is easy enough to separate students who are embroiled in pending criminal or civil proceedings, and universities should discipline or expel only students who are found guilty or liable by courts of final jurisdiction.

It’s simply too much to ask the Trump Department of Education to “fix” Title IX or to protect constitutional rights on campus. Any rulemakings or memoranda generated by a new administration can be just as easily undone by the next. It’s time to use sensible congressional majorities to pass sensible laws. Universities have proven they can’t govern themselves. Perhaps Congress can fill the breach.

Friday, December 30, 2016

Time to Reform the Kangaroo Courts on Campus - WSJ

Time to Reform the Kangaroo Courts on Campus - WSJ

The University of Minnesota football team’s dramatic walkout in protest of what they saw as unfair treatment of 10 fellow players in a campus sexual-assault investigation came to an end on Dec. 17. But it made national headlines for imperiling the team’s trip to the Dec. 27 Holiday Bowl and for the players’ demands that their accused teammates receive a “fair hearing” with a “diverse review panel.”

The solidarity shown by the University of Minnesota players and the attention the team’s protest drew could prove a powerful blow to the Education Department’s efforts to regulate sex and speech on campus through the abuse of Title IX, the federal law against sex discrimination in education.

In September, following allegations that Minnesota football players had sexually assaulted another student, Minneapolis law enforcement investigated and declined to charge any player with a crime. Yet the university’s Title IX investigation into the same incident—which lacked full access to some video evidence used by police—resulted in 10 players’ suspensions from the team, angering members and inspiring the walkout.

Such wildly divergent outcomes between campus and police investigations erode confidence in both systems. Yet they have become more common than ever since the Education Department’s Office for Civil Rights (OCR) began to do end-runs around the law five years ago.

In April 2011, the OCR surprised colleges by announcing in a “Dear Colleague” letter that, henceforth, campus tribunals involving sexual misconduct had to use a standard of proof known as “the preponderance of the evidence,” which requires that they be only 50.01% certain when determining whether a student committed an offense. Given that campus courts routinely deny students counsel, the right to face their accusers, access to evidence, and even the presumption of innocence, this mandate banned what was often a student’s only meaningful due-process protection: that fact-finders be more than just barely persuaded of their guilt.

Worse, in May 2013, in a settlement with the University of Montana that it labeled a blueprint for other colleges and universities, the OCR, joined by the Justice Department, determined that all “unwelcome conduct of a sexual nature,” including speech, should be deemed sexual harassment. Even a single, unwelcome, overheard dirty joke is “harassment” under this standard.

The results have been profound. My organization, the Foundation for Individual Rights in Education, which has sponsored lawsuits challenging the OCR’s decisions, has identified more than 130 lawsuits filed by students who claim they were wrongly punished for sexual misconduct since the Dear Colleague letter was issued. Victims and accusers also routinely complain of bad investigations by college administrators who are poorly equipped to handle felony crimes.

The OCR’s debased definition of harassment, meanwhile, has led to absurdities such as a feminist professor being investigated for criticizing Northwestern University’s Title IX efforts in a newspaper column. Confidence in the system is low for very good reason.

The change of administrations in Washington offers a valuable opportunity to erase these failed policies. First and foremost, the OCR should officially renounce both its “preponderance of evidence” mandate and its wildly overbroad definition of sexual harassment. Because the agency chose to make these changes through fiat rather than the notice and comment procedures required by the Administrative Procedure Act, such a reversal is fairly simple.

The OCR should also change its definition of peer sexual harassment to exactly track the Supreme Court’s language in Davis v. Monroe County Board of Education (1999). Davis defines harassment as behavior that is targeted, discriminatory, and “so severe, pervasive, and objectively offensive that it can be said to deprive the victims of access to the educational opportunities or benefits provided by the school.” This standard fulfills the requirements of the First Amendment while giving schools the ability to combat real harassment. While the OCR has claimed that its standard tracks Davis, few schools treat it that way—and neither does the OCR.

If further rules are necessary, the OCR must work with Congress or go through the official regulatory process as required by law. Since 2011, defenders of the embarrassingly minimal standards of campus courts have argued that they are sufficient because schools find a student “responsible” for rape rather than “guilty” of it. Yet the ultimate determination being made—did the assault happen or not?—is exactly the same.

Campus courts might not be real courts, but sexual assault is equally serious whether it happens on campus or off and deserves to be treated as such. New leadership at the Education Department dedicated to equal justice for every student could do much to help schools like the University of Minnesota fight sex crimes on campus while improving the fairness and accuracy of campus discipline and respecting the Constitution.

Thursday, December 29, 2016

17 Gamemaster Tips the Manuals Won't Tell You - Sean D. Francis

17 Gamemaster Tips the Manuals Won't Tell You - Sean D. Francis

Here are 17 tips you won’t find in any single roleplaying game rulebook.

1. Names are important. Giving your NPCs memorable names will make them more interesting to the Players. Every NPC, no matter how minor, is an opportunity to enrich your world and story. Towns, regions, rivers, and other key terrain feature also deserve rich and fun names. Have a list of five or six extra names for NPCs and places you may need to create on the fly. Keep track of them for later use.

2. Players love familiar faces and places. Reuse previous settings – revisiting the inn or space station from the first adventure in the seventh adventure will create a sense of nostalgia. The NPCs they briefly encountered before are now part of their history and can create a new layer of intrigue to a standard scene. Players love seeing the man they rescued in the dungeon or woods as a merchant, mayor, or skulking thief in the town. Don’t overdo it, because it will make your world feel small. Sprinkle these moments into your campaign and watch the joy.

3. Dice rolling is boring. On the surface, dice rolling is the fun of the game. Success and failure hang in the results of the polyhedrils. When one Player is rolling the dice everyone else is waiting. Waiting, in case you are unaware, is not fun. Keep dice rolling to the minimum. Start encounters quickly and end them quickly. Don’t make the Players chase down every last critter to finish the encounter. Save big combat scenes for achieving plot goals. Dice rolling, in roleplaying games, is the work part, not the fun part.

4. Offer distinct options from which the players can choose. The world is filled with endless possibilities which can lead to a lot of time spent deciding what to do. You need to help define paths the Players can take while making it clear they can come up with their own at any time. Be clear on the type of actions the Players can take and the general consequences of taking those actions.

5. Reward player cleverness, don’t punish it. Too often GMs feel they are playing against the PCs because they are setting up obstacles. This dynamic sometimes translates into the GM being overly loyal to the obstacles and trying to be more clever than the players. If the Players have discovered a loophole in an obstacle, don’t try to fix the obstacle in spite of the Players.

6. Don’t add crazy just for the sake of crazy. Make sure there is a reason for crazy characters and not just an excuse for an NPC or Player to act irrationally. No doubt, crazy has a place in good stories, but not every crazy psychotic character is a River Tam, a Walter Bishop, or a Tom Bombadil. Mostly they are great color, add an interesting encounter, but the minute the Players have to rely on this crazy character you’ve added a component to the game beyond the rules. Add such elements purposefully.

7. Be consistent. Randomness in dice is expected. Randomness in rule interpretations is frustrating. When you make a ruling on the fly, write it down, and unless there is a reason not to, stick with it. If you need to alter it, make a point to explain why it is being altered to the Players. If a dinner knife was able to reflect the laser detection grid one session but not able to reflect a similar laser system in another, there needs to be a reason.

8. Admit mistakes as soon as you can. GMs all do it. We will have an NPC say something or do something sending the Players into a whirlwind of speculation. If it was unintended, if the Players are going down an unproductive path, admit it wasn’t intended to be a clue or anything more than a casual comment or device to move the story to a different point. Unless of course the Player speculation has given you an idea for a plot, then keep quiet. The idea here is to make sure time isn’t wasted going down unintended dead-ends.

9. Plan one significant character moment for every two hours of play. Players are in the game to be entertained and rewarded. Rewards can come from character development or interesting story events and milestones. For their time, Players earn these rewards and if they don’t get them, they will grow frustrated, bored, and become disruptive.

10. Make each character a hero in every adventure. At least give that character a chance to shine. It is up to the Player to seize the opportunity and make it something great but you need to provide the hook for the Player. Make the moment meaningful, make it shorten the path to victory, or make it epic enough that Player will talk about the moment for months, years, decades later. Even if they fail, it will be a memorable moment for them to cling to.

11. Let the mundane events take place ‘off stage’. Unless there is some value to the story by having the Players roleplay buying equipment don’t spend table time doing it. There are all sorts of moments like this in every game where the Players are just trying to assemble the fundamentals (equipment, information, etc.) to get to the fun parts.

12. Take the game as serious as you want the Players to take it. This is a Golden Rule. If the GM goes off on personal tangents, then the Players will go off on personal tangents. GMs set the standard of behavior at the table.

13. Let the Characters’ strengths override the Players’ weaknesses. Not everyone knows how to survive in the wilderness so don’t expect the Players to describe how they will do it if their characters have the knowledge. Feed them the information they need to make their characters look good. We all play these games to escape the drudgery of our normal lives. Even intellectual challenges, like riddles and puzzles should have a mechanism that allows the amazingly smart character to solve it even if the Player can’t get the square block in the round hole. Clues, different configurations, or extra attempts can all be used to let the characters’ strengths compensate for the Players’ weaknesses.

14. Always keep a current copy of the Players’ characters. Inevitably, Players will forget to bring their character sheets and will attempt to ‘recreate’ them with bad results and a lot of lost time. Don’t let the Players know this is why you have a copy of their character sheets because they will stop being responsible for bringing their own copy. When a Player does forget, make a small show of ‘oh, how lucky! I happen to have a copy right here!’.

15. Manage time like it were a precious element. Everyone’s time is valuable and everyone wants to spend their time in different ways. Some people have no problem wasting other people’s time. As GM you are not only the arbiter of the game but also the arbiter of time. You control the flow. When you halt the game to read rules, the Players can devolve into personal conversations which can then impede game play.

16. If you aren’t having fun, no one will have fun. Don’t force yourself to run a game or a style you don’t like. Players will sometimes want to play specific types of characters reflecting their favorite characters from fiction. These characters may end up leading to types of stories you don’t enjoy telling. Yes, you will do a satisfactory job in running the game, but you won’t have fun which means you will start dreading each session instead of looking forward to it. You will spend less time planning, plotting, and developing.

17. You can’t make all the Players happy all the time. Stop trying. Your effort to appease one Player will alienate the other Players. As soon as you accept someone will not be thrilled about what has happened in a session, you will be able to make the game even better for those Players who are enjoying the session. Make it up to the odd Player out the next session. If it is the same Player over and over, a conversation about what the Player needs to have fun is needed. Have fun with that!

why 53% of white women voted Trump

why 53% of white women voted Trump

There has been much bellyaching by liberal white women that 53% of us voted for Donald Trump in November presidential election.

After learning of this statistic, Sa’iyda Shabazz writes a challenge letter to her white friends in The Mary Sue:

So, you voted for Trump. You don’t have to admit it, I know you did. Granted, I think the fact that some of you won’t admit it is telling. Some of you have said that you have stayed silent because you didn’t want to get dragged for voting for him.

If you’re standing by your choice, why won’t you defend it? And to those of you who have been open with your admiration…what exactly do you admire about him?

She concludes: I may still be your friend, but our relationship will never be the same.

My response is below:

Dear Sa’iyda Shabazz,

While I am not your friend (and clearly won’t be anytime soon), I feel obliged to explain.

  • I am the wife of a white husband (who is a kind, hard-working, devoted family man).
  • I am the mother of a white son (who is the perfect mix of smart and sweet).
  • I am the sister of a white brother (who has served this country honorably as a US Marine).
  • I am the aunt of a white nephew (who has also served this country in the US Army).
  • I am the daughter of a white father (who won a Pulitzer prize covering the race riots in Detroit, in an effort to support civil rights).
  • I am the best friend of a white co-blogger (who has served in various hot spots across the globe as a Green Beret).
  • I am the employee of a white, male employer (who is an awesome boss and a substantial taxpayer).

I see how hard all of these men work, how much they give to family and friends, and how much they give to this country. These are my primary relationships. When I vote, the quality of their lives are going to be a significant part of my decision matrix.

While life under Donald Trump may not be perfect for them, I anticipate that their lives will be better because of the policies that Trump plans to enact and the people he intends to put in charge. So will mine. And, so will those of progressives deriding those of us who voted for Trump…including you.

I am not going to vote so you feel “safe”. In fact, you voting your feelings is part of the problem.

After eight years of the Obama administration and its antics (e.g., global warming is more of a threat than terrorism), we will be safer only after January 20, 2017. I suspect there are many other Americans who are looking forward to that date as well.

As an extra bonus for my vote, I sense there is now an appreciation for the “alpha-male” that has been noticeably lacking for at least eight years. Dear Sa’iyda, please allow me to show you what that looks like:

I am so damned tired of the continuous white-man-bashing of social justice warriors. It seems I am not the only one, as the evidence suggests:

  • There has been enormous backlash to MTV’s White Guy Resolution 2017 video, which is off-the -charts in terms of racism and sexism.
  • White male college students are fighting back — and winning — when falsely accused of racism, sexism, and ginned-up crimes.
  • Lucasfilm President Kathleen Kennedy said she doesn’t need to cater to male Star Wars fans, and it appears, and men are assessing the new film based on how much gender justice messaging is depicted.

I admit that Donald Trump is far from perfect. However, I have seen this man grow during the campaign. I anticipate he will learn rapidly, adjust readily to the conditions of the Office of President, and continue to be flexible and adaptable in pursuing the best interests of all the citizens in this nation (just not the special, protected classes like Obama administration has done).

Sa’iyda: I sure hope you’re tolerant and open-minded enough to acknowledge improvements in both Trump and the country that you will see in the next four years (at least).

In conclusion, the one thing I like best about electing Donald Trump: The era of the Beta Male is over.

I hope my explanation helps. Thank you for the opportunity to do so.

Merry Christmas and Happy New Year!

Saturday, December 24, 2016

More Liberalism – More Prosperity? – Being Classically Liberal

More Liberalism – More Prosperity? – Being Classically Liberal

It turns out, Democrats don’t just run good cities or bad cities, they happen to run almost ALL of our cities, good AND bad. Matter of fact, Democrats “currently control city hall in 90 percent of the nation’s largest cities.” [g] That’s why they can turn up anywhere in the statistics, whether they be good statistics or bad ones. And that’s why it’s technically true for them to claim that they run the most successful regions. But let’s examine how this circumstance came to be.

There are two key points to understand: 1. There has been a gradual exodus from cities by conservative voters. 2. Cities are, by nature, almost always more economically successful than their rural neighbors, regardless of the local politics and in spite of which party is running them.

Thursday, December 22, 2016

What I Learned about Climate Change: The Science is not Settled – Medium

What I Learned about Climate Change: The Science is not Settled – David Siegel on Medium

What is your position on the climate-change debate? What would it take to change your mind?

If the answer is It would take a ton of evidence to change my mind, because my understanding is that the science is settled, and we need to get going on this important issue, that’s what I thought, too. This is my story.


Recently, a friend challenged those assumptions. At first, I was annoyed, because I thought the science really was settled. As I started to look at the data and read about climate science, I was surprised, then shocked. As I learned more, I changed my mind. I now think there probably is no climate crisis and that the focus on CO2 takes funding and attention from critical environmental problems. I’ll start by making ten short statements that should challenge your assumptions and then back them up with an essay.

1 Weather is not climate. There are no studies showing a conclusive link between global warming and increased frequency or intensity of storms, droughts, floods, cold or heat waves. The increase in storms is simply a result of improved measurement methods. There has been no real increase.

2Natural variation in weather and climate is tremendous. Most of what people call “global warming” is natural, not man-made. The earth is warming, but not quickly, not much, and not lately.

3There is tremendous uncertainty as to how the climate really works. Climate models are not yet skillful; predictions are unresolved.

4New research shows fluctuations in energy from the sun correlate very strongly with changes in earth’s temperature, better than CO2 levels.

5CO2 has very little to do with it. All the decarbonization we can do isn’t going to change the climate much.

6There is no such thing as “carbon pollution.” Carbon dioxide is coming out of your nose right now; it is not a poisonous gas. CO2 concentrations in previous eras have been many times higher than they are today.

7Sea level will probably continue to rise — not quickly, and not much. Researchers have found no link between CO2 and sea level.

8The Arctic experiences natural variation as well, with some years warmer earlier than others. Polar bear numbers are up, not down. They have more to do with hunting permits than CO2*.

9No one has demonstrated any unnatural damage to reef or marine systems. Additional man-made CO2 will not likely harm oceans, reef systems, or marine life. Fish are mostly threatened by people, who eat them. Reefs are more threatened by sunscreen than by CO2.

10The Intergovernmental Panel on Climate Change and others are pursuing a political agenda and a PR campaign, not scientific inquiry. There’s a tremendous amount of trickery going on under the surface*. Could this possibly be right? Is it heresy, or critical thinking — or both? If I’ve upset or confused you, let me guide you through my journey.


Monday, December 19, 2016

Sunday, December 18, 2016

Articles: Donald Trump is not a fascist

Articles: Donald Trump is not a fascist

For months now, the Democrat-Progressive fever swamps have been using the word “fascist” in connection with Donald Trump and those who voted for him. It took Michael Kinsley to elevate this shoddy claim onto pages of the Washington Post: Trump, he asserts, is a fascist.

Sadly, Kinsley reveals, as so many before him have, that academic degrees are no substitute for intelligence, knowledge, critical analysis, and basic logic. The term “fascist” is a very distinct one and Kinsley can apply it to Trump only by redefining it entirely. His is a deconstructionist effort that leeches all meaning from the word.

Because Kinsley’s essay is currently behind a paywall, let me summarize briefly what his argument is before I demonstrate what a shoddy piece of disinformation it is.

Kinsley opens in a defensive posture, absolving himself of proving Godwin’s Law, which holds that internet discussions always end with Hitler analogies. Instead, Kinsley boasts, “I mean ‘fascist’ in the more clinical sense.”

What is this clinical sense? If you plow through an endless cascade of words, Kinsley accuses Trump of being a crony capitalist, not to enrich himself and his friends, but to claim boasting rights about his skills conferring material benefits on the American people. Kinsley calls this “corporate statism,” which he says is the same as “fascism,” although he considers himself too classy to call Trump a fascist (except when he calls Trump a fascist).

As is the case with so many Leftist arguments grounded in history, Kinsley could not be more wrong. “Corporate statism” is certainly a feature of Hitler’s fascism, but it’s also been a feature of Obama’s administration. Standing alone, corporate statism, while corrupt and unfair, is not fascism. It’s just garden-variety corruption. Actual “fascism” is not just about the state’s relationship to corporations; it’s also about the state’s relationship to the luckless individuals under its control.

The reality is that, no matter the myriad names given to the world’s political systems, there are only two types of governments: Those that vest more power in the state (statist systems) and those that vest less power in the state (individualist or liberty-oriented systems). Every government in the world, no matter the name given, its place in time, or its geographic location, falls along that continuum. Here’s a very basic illustration of that unvarying fact:

Lots of world leaders and regimes have occupied the continuum’s far left, statist side. Western Europe and Obama’s America occupy the area left of center while the area just to the right of center is America shortly before Obama dragged it over the red line.

Off to the far right is the Founders’ vision of a constitutionally limited government, one subordinated to individual citizens’ unalienable rights — that’s the one that is every conservative’s dream. It’s a nation that stops short of anarchy but that allows individuals maximum liberty. Conservatives want a smaller government that, by virtue of its limited size, has limited control over each individual’s ability to make his own choices, to live his life as he sees fit, and to see the government as his servant, rather than bowing to the government as his master.

Given that conservatives Republicans, including the majority of Trump supporters, are on the liberty side of the spectrum, far from the world’s most brutal tyrants, what gave rise to the glaringly false syllogism that “Republicans are right-wing fascists and Hitler was a right-win fascist, so all Republicans are Hitler”? You can blame it on a nasty little historic and linguistic trick American communists pulled, which was to make “fascism” synonymous with the political “right.” Once having done that, they could claim that American conservatives, being “right wing,” are therefore fascist. This is pure disinformation.

The correct analysis properly begins with jettisoning the terms “right wing” and “left wing.” Their antecedents are irrelevant to American politics and, in any event, statists have polluted them irreparably. The terms arose in France, in 1789, when Louis XVI’s supporters in the National Assembly sat on the president’s right and the revolutionaries to his left. We are not in France in 1789. Moreover, that archaic division ignores the fact that the left and the right in France were totalitarian in nature. Both wanted complete control; they just had different visions about the nature of that control.

“Fascism,” another historic term, is one that American statists embraced until Hitler tainted it. It first gained political traction in Italy in the 1920s. Mussolini defined it to mean “All within the state, nothing outside the state, nothing against the state.” In other words, fascism is purely on the statist side of the continuum.

Savvy readers will have noticed that fascism sounds remarkably like communism: It’s all about concentrating all power in the state, leaving the individual entirely subordinate to the state. The primary difference between the two ideologies is that in communism the government nationalizes private property, whereas in fascism the government does not nationalize it but nevertheless completely controls — as is the case, for example, with Obamacare, which saw the government establish the rules for the private insurance market and mandate that Americans buy the product.

What Kinsley missed entirely is that the decision to nationalize private property or to control it while it’s in private hands is not the most important issue when looking at the two systems. The central point is that, under both systems, the government owns and controls the individual citizens.

For ordinary citizens, the difference between communism and fascism can be seen as the difference between wearing ugly stainless steel handcuffs and stainless steel handcuffs garnished with pretty pink fur. Citizens are still wearing the state’s handcuffs, but in the fascist state (at least before the state gets the bit in its teeth) things look nicer.

Communists and fascists hated each other in the 1920s through 1940s not because they were diametrically opposed ideologies, but because they were similar ideologies fighting for the same slice of totalitarian pie. When they weren’t fighting each other for power, they supported each other, as was the case with Hitler and Stalin . . . right until Hitler decided he wanted Stalin’s territory, too. In Spain, there was a bloody civil war because communism and fascism were jealous rivals seeking total control.

Without exception, two bad things happen in totalitarian governments: (1) the government ceases to see it citizens as individuals and views them only as widgets who exist to aggrandize the state; and (2) the people who control statist governments fall prey to grandiose delusions and paranoia. Hitler and Stalin went after their own people. Hitler got the negative headlines only because he explosively sought control over Europe, without anticipating Churchill’s refusal to surrender or America’s ferocity when roused. Had Hitler been more discreet, as Stalin was in the Ukraine or in the gulags (or as Mao was in China), Hitler’s fascist, genocidal state could have lasted for decades more.

After the war, Hitler’s grandiosity ensured that “fascism” was a dirty word. American communists needed to move fast to erase Russia’s pact with Hitler and to disguise that “fascism” and “communism” are variations on a theme. Using America’s media and higher education systems, America’s communists associated the word “fascist” with “right wing.” This allowed them to affix the “fascist” label to those who cherish individual liberty, tying them to Hitler, the ultimate madman. It didn’t matter that the new label was deconstructionist sleight of hand. The only thing that mattered was that it stick, along with all the ugly associations surrounding it.

So, no, fascism is not limited to state control over privately-held industry. In any event, Kinsey’s attempt to shoehorn Trump’s Carrier deal under the corporate statism side of the “fascism” label is also wrong. Outside of communism’s nationalizing industry, all governments engage in some way with wealth owners and wealth producers.

In America, the government’s engagement with businesses takes three primary forms: (1) it taxes corporate profits; (2) it enriches corporations that engage in conduct the government favors; and (3) it uses regulation to take over entirely an economic sector, as was done with Obamacare (an action Mussolini would have recognized). Cronyism or corporate statism, or whatever else you want to call it, happens when a government, to benefit government insiders, favors certain businesses over others and uses taxpayer monies as a sign of that favoritism.

Keep in mind that the government has no money of its own because it generates no wealth. All of the money it possesses it has taken from citizens via taxes and fees that are requested politely, with the understanding that the polite request is enforced with a gun. Any money that the government gives a corporation is taxpayer money. When a government foregoes collecting taxes, it is simply leaving money with its true owner — although this can be abused if the government foregoes tax collection for the benefit of a select few.

Compare what Obama did in 2009 with the American Recovery and Reinvestment Act (“the stimulus”) versus what Trump is doing now: In 2009, the Democrats took taxpayer money, in the form of guaranteed loans, and handed it out to favored corporate constituencies. These corporations were usually staffed with Democratic Party insiders who promised to provide magical green benefits that would eventually create jobs and improve the climate. (Think: Solyndra.) Although the administration touted the stimulus’s success, claiming it “saved or created” over a million jobs (a metric that is almost entirely imaginary), the cold-cash reality is that jobs either weren’t created or did not last, green corporations went under, America’s real infrastructure (e.g., roads and bridges) continues to decline, and taxpayer money vanished into crony bank accounts.

The Carrier deal is different. Trump got Indiana to allow Carrier to keep more of its own profits through a series of tax incentives playing out over the next few years. The real incentive for Carrier and all American businesses is Trump’s overarching promises to (a) lower dramatically the corporate tax rate, which at 35% is now the highest in the Western world; (b) lift burdensome regulations that harm profits; and (c) increase available fossil fuel energy, bringing down costs. These benefits would not be conferred solely on “friends of Donald,” but would extend to all American businesses. This is the opposite of crony capitalism or “corporate statism” or “fascism.”

I’ll start worrying if Trump, like Obama, uses taxpayer money to give benefits to favored corporations that are, in turn, expected to return some portion of that taxpayer money to Trump and his buddies. And I’ll start worrying about a new dawn of fascism in America when Trump, instead of shrinking the regulatory state to lessen government’s hold on American purses and minds, starts to extend the regulatory state into every area of American life, from education, to business, to bathrooms, to forcing Americans to buy products they don’t want from an industry under government control.

One more thing: Obama said that the biggest disappointment of his presidency was his failure to grab more guns from American hands. Statists always grab guns because their regimes are fundamentally hostile to the citizens they control, making it impossible for those citizens to defend themselves against tyrannical government. Trump’s promise to protect the Second Amendment is the antithesis of a statist, especially a “fascist,” regime.

So, Kinsley, if you want to go around calling people “fascists,” start by looking in your own mirror and by saluting the picture of Obama you have hanging over your bed.

Michael Kinsley's Article:

Michael Kinsley is a columnist for Vanity Fair magazine and a contributing columnist for The Post.

Donald Trump is a fascist.

When you call somebody a fascist, you can mean any number of things. Often, it means no more than “somebody I don’t like.” It is an all-purpose epithet, usable by anyone against everyone from university deans to Fox News anchors. For that reason, the label should be used sparingly — saved for special occasions. As with “Nazi” or “Hitler,” it is often said that in any discussion, the first person reduced to using such a word has lost the argument. It’s ridiculous to compare any living person to Hitler or Mussolini.

But I mean “fascist” in the more clinical sense. For close to a year, and especially since his election as president, people have been trying to figure out Trump’s political principles: What does he stand for, how will he act as president? Various theories have been advanced. Some think he won the election by pandering simultaneously to different groups with conflicting agendas, and convincing all of them he was on their side. Was this a calculated exploitation of America’s “gimme gimme gimme” politics? Or was it the politics of a man who had no politics, who wanted to be president because, in our celebrity culture, it was the only job more glamorous than starring in his own reality television show? It has even been suggested, in the sole subject of conversation in Washington for the past month, that Trump might allow himself to be sworn in as president and then resign, having accomplished all he aspired to.

But now that we’ve seen a bit of him in action, it seems that Trump actually does have a recognizable agenda that explains how he simultaneously can pander to big business generally while “strong-arming” (the words of a Post editorial Friday) an air conditioning manufacturer to save a few hundred jobs for a while. Or how he can make nice with the authoritarian Vladimir Putin while making bellicose foreign policy noises in general. Or how he can blithely upset with a phone call the absurdly delicate balance of our relations with China and Taiwan. All this seemingly erratic behavior can be explained — if not justified — by thinking of Trump as a fascist. Not in the sense of an all-purpose bad guy, but in the sense of somebody who sincerely believes that the toxic combination of strong government and strong corporations should run the nation and the world. He spent his previous career negotiating with the government on behalf of corporations; now he has switched teams. But it’s the same game.

The game has several names: “Corporate statism” is one. In Europe, they call it “dirigisme.” Those two other words for it — “Nazism” and “fascism” — are now beyond all respectability. It means, roughly, combining the power of the state with the power of corporations. At its mildest, it is intrusive regulations on business about parental leave and such. At its most toxic, it is concentration camps. In the 1930s, a few Americans (including a few liberals) bought into it. Pearl Harbor ended that argument. Even for Trump, “fascism” itself now is a dirty word, not just a policy choice. Even Trump would not use it — least of all about himself.

But the deal Trump negotiated with Carrier and its parent company, United Technologies, to “save” hundreds of jobs is a prime example of the philosophy. Trump brags about “saving” Midwestern blue-collar jobs through a combination of bribery and arm-twisting. Turns out hundreds more jobs will be lost, and Trump as president can’t possibly negotiate on behalf of millions of workers.

But Trump believes — truly believes, I think — in the title of one of his books: the art of the deal. He thinks he is the world’s greatest negotiator. When he says he won’t reveal his income taxes because he is in the midst of negotiations with the IRS, he may be sincere. He says, believably, that he gets audited every year. That means every year’s tax bill is just the government’s opening move in an annual chess game, and Trump doesn’t want to give away his own opening move. Now he plans to negotiate more “deals” and he thinks — because he can outfox some midlevel IRS auditors — that he can outfox the political and business leaders of the world. “The Art of the Deal” is not “Mein Kampf,” although “not ‘Mein Kampf’ ” isn’t much of an endorsement.

Just to be clear: If I’m correct that Trump actually has a governing philosophy, that’s a bad thing, not a good thing. If he actually has principles to guide him through those famous swamps he plans to drain, that’s alarming, not reassuring. Bad principles are not a good substitute for no principles. Four or eight years of bad principles may make no principles look pretty good.

Friday, December 16, 2016

Originalism and the electoral-college conundrum - The Washington Post

Originalism and the electoral-college conundrum - The Washington Post

This is the problem of the so-called “faithless Elector,” and, as everyone is aware, it is receiving a great deal more attention these days than possibly at any time in the history of our republic. Law professor Lawrence Lessig has famously called on electors to exercise their judgment and to cast their ballots in accordance with the popular-vote majority won by Hillary Clinton.

Putting aside — just for a moment — the question of whether this is a good idea, it does seem to me that the constitutionality of such an action can’t be seriously questioned — at least, not if you’re an originalist. In the original constitutional scheme, electors really were supposed to choose the president, exercising their discretion and judgment to find the best person for the job. Being chosen as an elector was a high public office (though it had only a single function, and the appointment terminated as soon as that one function had been performed), and the vote for electors was one to be taken quite seriously, because you were picking the people who would choose the next president.

If you question any of this, you should read Robert Delahunty’s terrific explication of the history of the electoral “college” (a phrase that, incidentally, was not used in the Constitution, nor in the ratification debates). Delahunty shows — conclusively and quite magisterially, in my view — that the original intent of the Constitution, supported by its text and overall structure, not only permits but also “requires” presidential electors to exercise “discretion and independent judgment” in casting their ballots.


Should the electors actually take this course? And if so, for whom should they vote?

I agree with co-blogger Orin Kerr’s critique of Lessig’s view that the electors should “uphold the fundamental principle of one person, one vote” by voting for Clinton because she won a substantial popular-vote plurality. As Orin puts it, there’s a “considerable clash” between the originalist idea that electors should exercise their independent judgment — that they should be, in Lessig’s nice phrase, “citizens exercising judgment,  not cogs turning a wheel” — and Lessig’s companion idea of “electors following the nationwide [plurality] vote.”

On the other hand, had I been chosen as an elector and were exercising my own independent judgment and discretion in the matter, I certainly would think it eminently reasonable to take into account the fact that a substantial plurality of my fellow citizens appear to view Clinton as qualified to be president. Added to the fact that a number of other candidates are manifestly unqualified, and are, in my judgment, a threat to our constitutional democracy, I’d certainly give faithlessness a long, hard look.

From the comments:

Why bother learning anything about the Constitution and our form of government if you can bury your head in the sand and pretend it's all partisan nonsense?

Electoral College -- Faithless Electors Encouraged | National Review

Electoral College -- Faithless Electors Encouraged | National Review


The hypocrisy is rather astonishing. A major theme of the Democrats and the press during the election was the absolute imperative of accepting the results. This lasted as a bedrock principle of democratic governance all the way until roughly 4 a.m. Wednesday, November 9, when it became clear that Trump had won and angry protests in the streets, pointless, harassing recounts, and calls for an Electoral College coup became the order of the day.


More than anything else, the calls for an Electoral College coup expose a standardless will to power of a Left that professes to value democratic procedure. What else to make of opponents of the Electoral College urging the Electoral College to overthrow an election? The University of Texas law professor Sanford Levinson has called the Electoral College a “menace to the American polity.” Yet he is now a signer of a public letter urging members of this menace to re-engineer the November election to his liking.

The electors do have the power to act as a last check on a presidential tyrant. But the norm of electors rubber-stamping the election’s winner is so ingrained in our system that any deviation from it would constitute a revolutionary act. The rationales advanced for a radical departure from the practice as established over a couple of centuries are tinny and unconvincing at best.


Thursday, December 15, 2016

Deserving Trust


How could you earn trust, even as a commentator?

Focus on values. The best path to deserving trust is focusing on values rather than personalities or factions. Values can be principled; factions can't. Which values? That's up to you. What do you care about? It might be due process of law and equality before it, or limited government, or freedom of expression. If you are open about what values are important to you, open to discussing why those values are worthy and how heavily they should weigh in the balance, and open in your analysis of why particular policies promote or weaken those values, you can earn trust and credibility. If you focus instead on teams, and treat the virtues of one team as self-evident, you won't. The goal is not to persuade everyone or to "win." Some righteous values are unpopular and always will be. The goal is to offer the clearest, the best-supported, the most principled defense of the values you care about.

Question essentialism. Part of focusing on values is being skeptical of essentialism. Essentialism is the belief (for instance) that Trump is bad because Trump is bad and therefore things Trump proposes must be bad. Essentialism is the loudest voice in our political culture. The Koch brothers support that, it must be bad! That's a Hillary Clinton proposal, so it's liberal and awful! Essentialism is popular and persuasive with people who already agree with you, but to everyone else it's a signal not to trust you, because your analysis is nothing more than "red team is bad." Essentialism is also seductive, because it carries with it a feeling of belonging.

Asking who proposed a policy — or asking cui bono — can be a good starting point, but it's not an endpoint. The endpoint has to be an analysis of the act or policy, not just the source of it. Essentialism writes off a large segment of America — be it "conservative" or "liberal" — as irredeemable, and therefore abandons any effort to persuade those people that your values are the right ones, or that you are worthy of trust.1

Praise what is right. If you focus on values, you'll support policies that promote those values, even if you don't like the source. A politician you don't like will probably do some things right. Praise them when that happens. It's the right thing to do, it promotes the value you care about, and it earns trust.

Criticize what is wrong. People you support will make wrong choices that are bad for your values. Say so. Ignore party loyalists who complain you are "concern trolling." In fact, this ought to be your first priority. Start with the mote in your own eye. It's essential to trust.

Be skeptical. There's tons of misinformation out there. Much of it will support your views. Be skeptical. When you bite on a bogus story — and we all will — be forthright afterwards in noting that the story was false and you bit on it.

Promote knowledge. You have specialized knowledge of some sort. That knowledge can be relevant to policy debates. Support the debates by sharing the knowledge. Provide primary documentary support for the knowledge — in a world of easy hyperlinks, there's no excuse not to — and try to make the knowledge accessible. In other words, "here's the facts, and here are the sources of the facts, and here's how to read the sources" is preferable to "I'm right because I'm an expert." (Except on Twitter, obviously).

You can do absolutely everything right and some people will still belittle you because of who you are or what values you support. That's fine. Get over it. The goal isn't forcing people to agree. The goal is offering the best possible defense of the values you care about, and — hopefully — in the process earning trust from people who can be persuaded, from people willing to change their minds.

Wednesday, December 14, 2016

Conservatives & Political Correctness – Why Alex Nowrasteh Is Wrong | National Review

In a new piece, Alex Nowrasteh, an immigration-policy analyst at the Cato Institute, contends that, “Conservatives have their own, nationalist version of [political correctness], their own set of rules regulating speech, behavior and acceptable opinions,” a phenomenon he labels “patriotic correctness.” If 

Nowrasteh means that conservatives tend to find conservative opinions more acceptable than liberal ones, well, duh. If he means that conservatives tend to object to liberal viewpoints, well, duh again. It should even be admitted that, like all collections of human beings, conservatives sometimes succumb to groupthink. But Nowrasteh completely blurs the line between a conservative objecting to a heterodox opinion and a conservative attempting to suppress that opinion by punishing anyone who expresses it. He even throws out the t-word — “tyranny” — to describe this allegedly sinister Bizarro PC.

Nowrasteh reaches back 13 years for some of his first examples, “Freedom Fries” and David Frum’s 2003 cover story on “Unpatriotic Conservatives,” suggesting this description of victims of tyranny started out as a “Things that Annoyed Me Over the Past Decade and a Half” listicle. You may have noticed that everyone calls them “French fries” today; far from being oppressive, the “Freedom Fries” effort garnered widespread mockery and derision. Life went on for everybody Frum criticized. Frum said they stunk, and they told Frum that he stunk. This is how public debate works. It may be messy, but it’s the exact opposite of tyrannical. 

Later, he gives a more recent example of a victim of the Forces of Patriotic Correctness: San Francisco 49ers quarterback Colin Kaepernick. Has Kaepernick been silenced this year? Yes, mostly by the defenses he’s faced during his team’s twelve-game losing streak. Now, it’s possible that each of the 25 times Kaepernick has been sacked this year, the opposing defensive linemen have cried, “Your personal form of protest is inappropriate and disrespectful to veterans!” while bringing him to the turf, or opposing defensive backs have intercepted his passes while shouting, “Your public support for Fidel Castro is ignorant and morally grotesque!” Perhaps they are, but if Kaepernick feels opposing defenses are punishing him primarily because of his political views, he can console himself with the $20 million he will earn this season. 

Conservatives can be quite loud in their objection to certain figures they deem unpatriotic or insufficiently patriotic. But in today’s America, they don’t have much ability to actually punish anyone for their views. This is, on balance, a good thing. We can debate the details, but the world in general is better off with the free expression of bad ideas. 

We live in a world where Brendan Eich can get tossed from a company he founded over supporting a marriage initiative, ESPN fired Curt Schilling for a Facebook post about transgender bathrooms, bakers get fined $135,000 for refusing to bake a cake for a gay wedding, and the Department of Justice goes after the Little Sisters of the Poor for claiming an exemption to the Affordable Care Act’s contraceptive mandate. At the core of modern leftist-driven political correctness is the idea that the social transgression of holding an unpopular opinion must be met with economic repercussions or legal prosecution. Conservatives may complain loudly and frequently, but so far, they’ve shown little ability to generate economic repercussions or legal prosecution.

Yet Nowrasteh somehow finds oppressive censoriousness from the right more menacing. “The modern form of political correctness on college campuses and the media is social tyranny with manners, while patriotic correctness is tyranny without the manners.” He concludes that the Patriotically Correct hordes “do not hesitate to use the law to advance their goals” and points to efforts to ban flag-burning — still protected under a pair of decades-old Supreme Court rulings — and a Louisiana law that expands the state’s hate-crime statute to include the targeting of police officers, firefighters, and EMS personnel. Not exactly the dark night of fascism descending upon America, is it? 

Of course, there is something wrong with patriotic correctness, but it doesn’t seem to have occurred to Nowrasteh: When conservatives loudly protest some public figure who offends them, all they’re really doing is playing into the hands of tired leftist performers who hunger for controversy. There is no easier way to get attention — and rekindle a lost reputation for “edginess” and “courage” — than to mock the squares, because any marginal economic punishment they might inflict on you is invariably outweighed by the new fans you’ll make on the left. 

Patriotic correctness, then, actually redounds to the benefit of those whom Nowrasteh claims are its victims.

Virginia Voter-ID Law: Upheld by Judge in Loss for Democratic Party Challengers | National Review

Virginia Voter-ID Law: Upheld by Judge in Loss for Democratic Party Challengers | National Review

In a unanimous decision, a three-judge panel of the Fourth Circuit Court of Appeals on Tuesday upheld Virginia’s voter-ID law. The lawsuit, bankrolled largely by George Soros and filed by the Democratic Party of Virginia, had contended that Virginia’s law violated the Voting Rights Act and the First, 14th, 15th, and 26th Amendments to the Constitution. In the end, all those numbers added up to just one more loss for Marc Elias, Hillary Clinton’s campaign lawyer, who brought the lawsuit.

In Lee v. Virginia State Board of Elections, the court held that not only does the photo-ID law “not impose an undue burden on minority voting, there was no evidence to suggest racially discriminatory intent in the law’s enactment.” Therefore, there was no violation of Section 2 of the Voting Rights Act and no constitutional violation either.

The court’s description of the evidence presented by Elias and the plaintiffs shows just how frivolous this case was. Elias produced 14 “voter-witnesses” to support the Democratic party’s claims, yet as the district court found, “none of the voter witnesses was actually denied his or her right to vote.” In other words, out of the more than 5.6 million registered voters in Virginia, the Democratic party couldn’t find a single one who was unable to vote because of the law. So much for the Left’s constantly repeated theme that voter-ID laws “suppress” votes.

Five of the witnesses “forgot to bring their IDs with them when they went to vote” and were allowed to cast provisional ballots. All of their ballots were counted after they sent copies of their IDs to the registrar. Another witness did not have an ID but subsequently got the free ID issued by Virginia “and then cast his ballot.” So apparently, according to the plaintiffs, having to cast a provisional ballot (that gets counted) instead of a regular ballot because you forgot to bring your ID to a polling place violates the Constitution and the Voting Rights Act!

The remaining witnesses either didn’t vote at all or, after casting provisional ballots, failed to “cure” them by sending in copies of their IDs. One witness chose not to cure his provisional ballot “because his candidate of choice had been declared the winner.”

After one witness told the county registrar that she couldn’t drive herself to the registrar’s office to obtain her free photo ID, “the registrar sent someone to her house, who then photographed her for her new ID, and she received her free photo ID.” Somewhere in there was a constitutional violation, according to Elias.

The evidence that the Virginia legislature passed the ID law with the intent to discriminate was almost equally pathetic. One of the alleged proofs of racial discrimination was that the law had passed almost entirely along party lines (although at least one Democrat and one independent voted for it). Another was that a state senator didn’t want to allow expired IDs to qualify and that several other legislatures controlled by Republicans had enacted voter-ID laws. A third proof was simply the assertion that there was no rational reason to require a voter ID other than to discriminate.

Even discounting the fact that Virginia provides a free ID for anyone who doesn’t have one, the difference in ID possession between blacks and whites in Virginia is only 2.2 percentage points: 94.6 percent of blacks have ID vs. 96.8 percent of whites. But as the court said, minorities in the state have the same opportunity as other Virginians to obtain a free ID, and the plaintiffs failed to prove that minorities “have less of an opportunity than others to participate in the political process.”.

Moreover, the court observed, the ID-law was passed “through the normal legislative process, and that process was unaccompanied by any facts or circumstances suggesting the presence of racially discriminatory intent.” This made the Virginia legislative process “in no way like” the process in North Carolina over its voter-ID law, which a different panel of the Fourth Circuit held as invalid in July in NAACP v. McCrory. Thus, this panel did not have to follow the other Fourth Circuit panel’s decision over the North Carolina law.

The court also pointed out that the public overwhelmingly supports such legislation and the legislature had a valid basis for implementing an ID requirement: “the prevention of voter fraud and the promotion of public confidence in the voting system.” This was recognized by the U.S. Supreme Court as a valid reason when it upheld Indiana’s voter-ID law in 2008. Virginia’s law “imposes a lighter burden than did the Indiana law.” In fact, Virginia “went out of its way to make its impact as burden-free as possible.”

Probably the silliest argument made by Elias in this lawsuit was that an ID requirement violated the 26th Amendment, which lowered the voting age to 18, because it placed an undue burden on “young people.” The court concluded that the Democratic party failed to show that the Virginia law was intended “either in its enactment or implementation, to discriminate against young voters.” This was a particularly odd claim given that Virginia accepts student photo IDs from both public and private universities in the state.

One final note. Those opposed to voter-ID laws consistently claim that huge numbers of American voters have no ID and no ability to get one. Yet when it comes to actually producing evidence to support that claim, opponents always fall short. In fact, in this lawsuit, they couldn’t produce a single Virginian who didn’t have an ID or who couldn’t easily get the free ID provided by the state.

This lawsuit was an enormous waste of time and resources. Fortunately, Virginia attorney general Mark Herring (D) did the right thing in this case. He recused himself from defending the Virginia law because he had voted against it when he was a state legislator. Instead, he hired a private law firm, Arent Fox, to defend the law.

Two of Arent Fox’s lawyers, Thor Hearne and Stephen Davis, did a terrific job championing what the overwhelming majority of Americans — of all colors and political stripes — think is a common-sense reform that helps ensure election integrity: requiring voters to prove that they are who they say they are when they cast their ballots.

Saturday, December 10, 2016

How To Become Wealthy

How To Become Wealthy

Even before I had some minor success with a couple of startups, I had moved from just below the poverty line to reasonable comfort, with a house, a year's expenses in savings, and no debt (other than a house mortgage). I've learned a few things, some in classes, some in the college of hard knocks. I've also had a little help along the way from relatives, some of it purely one-sided, and some of it mutually beneficial. I would like to pass on this information to those of you who are just getting started in life. (Some of this advice will be valuable to those of you who aren't just getting started in life, too.)

The most valuable three hours I think I have ever spent was at a free financial planning class in Irvine in 1985. It was, quite literally, free. Yes, they were trying to sell us on paying for a more comprehensive class, but what I learned in those three hours, in retrospect, was worth $10,000 to me. What I learned there was freely given, and I give it to you freely as well.

Running a Budget Surplus Consistently

“My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." [Charles Dickens, David Copperfield, ch. 12]
To translate it into modern terms: "Take home $40,000 a year, and spend $39,500, result happiness. Take home $40,000 a year, and spend $40,500, result misery." Obviously, the greater the difference--either way--the more rapidly you will see the result.

At one time, I commuted 25 miles each way to work. Because only part of the costs of commuting are visible on a daily or weekly basis, I didn't realize that I was spending more than I was earning. When the invisible part of the commuting costs would show up, in a brake job, tune-up, or tires, it was always a crisis--and of course, charging those bills just led to the next crisis--interest on credit cards (to be discussed later).

You must figure out what you are actually spending. You will not find this out by adding up your bills for a month. There are too many big bills that only come up every few months (tune-up, brake job, paying for that vacation you just took). Proper budgeting means going through your check register for many months. It also means having a realistic picture of what you are buying in cash. My experience is that most people, especially most people without kids, are absolutely shocked by how much they spend in cash eating out each month. Start saving the receipts, even if it's just a Big Mac, fries, and a Coke--add them up at the end of the month.

Are you increasing your credit card debt every month? That increase in debt--the amount that your balance increases in month--is part of your monthly expenditures. Don't tell yourself, "This was a one-time expense--it won't happen again." There are very, very few such expenses.

Cars: The Monkey On Your Budget Back

For most people, there is one additional expense that is hard to measure, and that's car repairs and maintenance. The cents per mile figure that the federal government allows for tax purposes really doesn't do the job adequately. The major marginal maintenance expenses of operating a car are usually gasoline, tires, brakes, oil changes, and tune-ups. You know (or should know) roughly what sort of gas mileage you get: 20 miles per gallon is 1/20 gallons per mile. Multiply by the price of gas, then multiply by the number of miles a month that you drive. Find your last tire purchase receipt, divide the total price tag by the number of miles you get on that set of tires (e.g., $300 for four tires, they lasted 30,000 miles, that's $.01 per mile). Ditto for brakes, oil changes, and tune-ups. Don't worry if you don't have the exact amount, or the exact number of miles--it will be close enough.

Insurance and registration fees are primarily determined by the number of months that you have the car--not the number of miles you drive. Some auto insurers will determine rates by your daily commute, and for what purpose you use the car--but this usually doesn't make a big difference in the total bill. Treat auto insurance as a monthly expense, and don't try to factor it into your mileage costs.

Depreciation is often the biggest chunk of the expense of driving a car, but unless you buy new cars and then sell them every three or four years, this is not likely to be a significant part of your annual budget--and you do have the advantage that you don't suffer the depreciation until you actually sell the car. This isn't really a regular expense for you. Here's a tip: buy cars that are still under factory warranty, but are 1-2 years old. I recently bought a 2000 Corvette with 23,000 miles on it for $33,500. Brand new, it cost about $48,000. The first buyer thus spent 63 cents a mile JUST ON DEPRECIATION! I would have to drive the car another 60,000 miles to knock another $14,500 off its value.

The one uncertainty is repairs. While piling up debt by buying a new car is usually a mistake, there are circumstances where it can make sense. What do you get with a new car (or, in most cases, a slightly used car)? The remainder of the factory new car warranty. Relatively new cars are also eligible for extended warranties. If your car with 90,000 miles on it has already demanded a transmission rebuild, a valve job, and a new master cylinder--and you have no idea what it will need next--it might make sense to buy a new, cheap, sensible car. You will have a regular monthly car payment, but you can budget around that, in a way that you can't budget around the next repair that your heap needs (or that the mechanic claims that it needs). "Yeah, your Johnson rods are shot, your muffler bearings need to be repacked, and it's time to rotate the air in your tires."

Okay, enough with the car digression. You must find out where you are spending your money, and either reduce spending, or increase income. More about that in the next installment. While you are waiting, however, remember this: an extra dollar earned, because of federal, state, and Social Security taxes, is typically $0.55 to $0.65 more in your pocket. A dollar reduction in spending, however is $1 towards solving your budget problem.

Dealing With the Budget Problem

So, now you know what your budget is. You are either spending more than you make, or spending less than you make. If you are spending more than you make--well, you are pretty typical of a lot of people in America. Been there, done that, got the financial scars to show for it. There are three choices: cut spending, increase income, or borrow the difference. (Well, there is the counterfeiting option, but that has its own set of problems--I would strongly discourage it.) Too many Americans take "borrow the difference" as their solution, increasing their credit card debt every month. Some think that they are being clever by opening an equity line of credit to borrow the money at a lower interest rate. Well, it's more clever than paying 18% on your credit card bill, but that's like calling yourself educated, compared to an illiterate. There are circumstances where borrowing against your home equity can make sense--but not to pay for meals out, an oil change for your car, groceries, or your annual vacation to Hawaii.

As I mentioned previously, it is usually better to cut spending, rather than trying to increase income. Increasing your income means that 1/3 to 1/2 of your gain goes to taxes, as part of the government's campaign to make sure that no new rich people happen; reducing spending doesn't enrich the government. There's a place for both actions, however, and we'll cover both of them.

Cutting Spending

At the financial planning class I attended in Irvine, the instructor told us a very funny story. One of his new clients was on the edge of bankruptcy; he was unable to raise a family in Orange County, California, on $100,000 a year. (Obviously, the cost of living was a lot lower in 1985 than it is today--substitute $180,000 today.) As he went through this guy's monthly bills, he found one bill for $75 a month made out to some sort of doctor.
"What's this for?"

"That's the dog's psychiatrist."

"Why does your dog need a psychiatrist?"

"If we leave him in the house, he pees on the carpet. If we leave him outside, he barks and the neighbors get upset."

"You're about to go into bankruptcy. Get rid of the dog!"

Learn to distinguish "need" from "want." Shelter, food, transportation to work and school are needs. Vacation, pets, fancy cars, entertainment equipment, a health club, and yes, dog psychiatrists, are wants.

In some cases, you will discover that you signed up for low easy payments for the next decade to pay for one of your "wants." It may be the case that getting out of that bill isn't going to save you much money at all. Just stop adding to your woes, however, until you get your finances straightened out.

Even in the category of needs, however, look carefully at what you are buying. Most Americans are carrying too much weight. This suggests that while food is a "need," for most Americans, their eating is a mix of "need" and "want." Most prepared foods are expensive compared to buying staples. Yes, pizza tastes better than a peanut butter and jelly sandwich. But you will soon discover that eating when you are hungry (as opposed to satisfying your desire to enjoy a wonderfully tasty meal) will save you a pile of money each month.

Restaurants: ditto. If it's really necessary to eat out, hit the fast food places until your financial woes are resolved--and then go for the smallest and cheapest item that will fill you up. It's amazing how many adults are still eating like they did as teenagers. My son is 15, and like most teenaged boys, he can go through a truly astonishing quantity of food, and still be thin as a rail. I was like that....long, long ago in a galaxy far, far away. At 15, Supersizing the Big Mac Value Meal may be necessary to keep from eating the upholstery in the car; at 25, it's just wasting money, and contributing to long-term weight and health problems. If you doubt this, let me introduce you to the myocardical infarction (technical term for a heart attack) I had at 57, followed by a stroke after they cleaned the plaque out of the clogged artery.

Housing: if you are renting, ask yourself if you would get any benefit from moving to a less expensive place. You should at least look at this possibility, but most of the time, unless you are childless, or are living in an extravagantly expensive place, this really isn't a big win. Look carefully at what you will spend on renting a truck, paying for pizza for your friends to help you move--it may take a long time to save enough on rent to justify it. At least, when I lived in Irvine, I did the math, and concluded a move would take me 13 months to pay for itself--and we ended up being relocated to San Jose by my employer before that point was reached.

There's one other big category of spending reduction, but that's in the segment on interest and credit, so you'll have to wait on this.

Increasing Income

"Hey, boss, I need a raise. Otherwise Clayton's program for making me wealthy slowly won't work!"
"Why, I would be overjoyed to give you a 10% raise! Anything for my loyal employees!"

Okay, back to reality. The best that you can hope for is that your income will rise faster than your expenses. Yes, maybe working a little harder will impress the boss, but that's not one of the more likely strategies to increasing your income. When I was living in Irvine, and confronting financial reality, I was rather stuck. My wife had just had our first baby, and there was no realistic way for her to make enough money to pay a babysitter, and still come out with any net increase in income. (Not that either of us was keen on that anyway.) I went out and found a moonlighting job taking inventories in stores. This was a job that started at 9:00 PM and ended typically about midnight. After working all day long, this was a grueling experience. The pay wasn't much--$7 an hour--but any increase in income without a corresponding increase in spending is a win. Fortunately, another, better moonlighting opportunity came along a few weeks later, doing software development for $20 an hour. I did this for about five months, and the extra money provided the downpayment we needed for our first house.

Make sure that whatever moonlighting job you get doesn't involve driving an extra 200 miles a week to bring in $50 net taxes. That will be a lot of work for little or no net gain. Also make sure that you don't impair your effectiveness at your day job. It is better to work harder and get a better than average raise.

The Magic Secrets of Personal Finance

There is a magic secret that enables you get in deep financial trouble very quickly--and get out almost as quickly. This is one of those items that is blindingly obvious--and yet most people don't ever think about, until you tell them.

Let's say that you are a typical American. You spend $4000 a month; you bring home $4000 a month; you have a few hundred in savings, and $10,000 in credit card debt. You never get ahead financially, but at least you aren't sinking. Then, one day, you need to replace the engine on your car--and now, to keep your monthly minimums on your credit cards, you now are spending $4100 a month. As Mr. Micawber would tell you, "result misery." You are now getting further behind every month--and in a few months, even if nothing else goes wrong, you are now spending $4150 or $4200 a month. Soon, you are beginning to watch those ads from bankruptcy lawyers.

Magic Secret #1

You must, before this deficit gets out of control, either reduce your spending or increase your income enough to have a budget surplus--even a very small one. Then, once you have created this budget surplus, you must exercise great self-control, and use that surplus for one purpose alone: paying down the highest interest rate debt that you have. Consider the poor guy above. He has a $5000 balance on MasterCard A, and the rest on Credit Card B. He has a $200 a month minimum monthly balance (4% of the outstanding balance)--of which $75 is interest alone (1.5% monthly, or 18% annually). If he increases his payment from $200 a month to $400 a month, instead of paying $125 in principal and $75 in interest, he will be paying $325 a month in principal--and within four months, instead of paying $75 a month in interest, he is paying $55 a month in interest. Keep it up: in another four months, he is paying $36 a month in interest. But you must keep paying more than just the minimum monthly payment, or you are going to find out what the miracles of compound interest can do for your credit card company.
Once you have wiped out MasterCard A, it's time to tackle the next one--and here's the magic trick. Take the $400 a month that were spending on paying down MasterCard A--and now apply it to the other credit card with a $5000 balance. You were already putting out $200 a month on that credit card bill, so it will shrink away a lot faster than MasterCard A.

This requires a lot of self-discipline--to stop spending money on things that you don't truly need--and using the money that you have freed up from debt service to pay down other debts as quickly as possible--instead of celebrating. "Whee! I've got $400 a month freed up--I can trade in my Toyota on a Lexus!"

Magic Secret #2

There I was in Irvine, with a colicy baby, a mountain of credit card debt, and a small increase in income from consulting work. What else could I do to improve my finances? Well, what kind of an interest rate was I paying on that debt? I had bought an IBM PC in 1982, back when PCs were still expensive. You young'uns can laugh, but I spent several thousand dollars for a computer with 64K RAM (that's a K, not an M), and two floppy drives. The credit card on which I purchased it was 18% APR. (I had very good credit--that's why the interest rate was so low.) What could I do to refinance it?
At the time, my sister Susan was getting 9% yield on her money market funds. She was looking for a better return, and I was looking for a lower interest rate. Voila! She loaned me the money at 14.5% APR. She was now getting a better return on her money; my minimum monthly payment dropped. But instead of paying it back to my sister over the same four year repayment term as my credit card, I doubled up the payments, and paid it off in two years. Susan was richer; I was less in debt.

What you need to make this work: a relative, or a close friend, who trusts you enough to loan you money unsecured. You need to offer them an interest rate that is attractive, relative to what they are getting in their incredibly boring and safe money market funds or CDs. However, the gap is still huge. My money market fund is paying me about 1.1% yield right now; my one year CDs are about 2.2%. Interest rates on credit cards are still absurd--12%-18%. Look around--you may find an older relative who has the money to refinance your debt--especially if you can make a strong case to them that this will improve your long-term financial picture, that you are going to aggressively pay down your debts--and that you aren't going to flake on them. (I've lent significant chunks of money to friends and relatives three times; once to pay for an engine repair--almost none of it was paid back; once to my brother-in-law, so he wouldn't lose his mobile home, almost none of it was paid back; once to help some people at church consolidate their debts--most of it was paid back.)

By the way, this strategy really only makes sense for unsecured debt. Car loans are typically financed at rates low enough that this sort of private refinancing isn't going to be a huge win. I think that there may be some liability issues in some states as well on being the lienholder on a car.

It's tempting to use this strategy for putting together the down payment on your first house. The problem is that increasingly, lenders won't allow it--the money has to be a gift, not a loan. My mother was willing to loan us the money for our first house, and did so, but fortunately, by the time we were ready to plunk down the cash, the strategy above had cleaned up our debts to the point where we were able to pay her back, and do the down entirely on our own.

What To Do When You Get Down To Just Rent and Car Payments

Okay, you have cleaned up your finances enough that all you have is your rent and car payments. What now? Should you cut your credit cards up? No. You just need to be careful what you pay for with your credit cards.

I am at a point now where almost everything that I purchase, other than groceries, I put on my Discover Card. It's convenient (much quicker than writing a check), and I get 1% of my total purchases back from Discover. Should you do this? Hmmm. Maybe not--at least until you are sure that you aren't going to return to the bad practices of the past.

What Credit Cards Are Good For

They are a convenient way to not carry a lot of cash and to avoid writing checks. Especially if you live in a place where carrying cash is risky (as Los Angeles was, when I grew up there 1975-1985).
They are a relatively low cost way to amortize larger purchases over a 1-3 month period, especially if writing a check would deplete your savings account. These should be purchases that are necessary, unusual, and that you don't expect to repeat during the time that you are paying for that purchase. Good examples: tires; brake job. Bad examples: groceries; meals out; books. Yes, the interest rate is high, but if you have something that you truly need, use the credit card to finance it over a short period of time. Yes, 18% APR over three months will be about 4.5% that you are paying for that purchase. If you can pay cash or check, all the better. But if paying by cash or check means that you have $28 left in savings, it might be better to pay the interest, and keep your savings account a little healthier to cushion any surprises that come along.

Some people, unfortunately, can't handle a credit card. If you find yourself (or worse, your spouse) charging stuff like groceries, or confusing "want" with "need," it might be best for the credit cards to go into a drawer, and stay there until a legitimate need for them arises. If you really have no self-control, give up the card--but remember that if you have screwed up badly in the past, getting a new credit card might be a lot harder now than it was before.

Building Up A Savings Account

Savings accounts perform three useful functions:
1. They provide a cushion against unexpected financial disasters.

2. They gather interest (pitiful as interest rates are right now, it's better than 0%).

3. They are a staging area to bigger forms of wealth--like houses.

It used to be a widely spouted rule that you should have six months living expenses in savings. There's certainly some merit to this idea, but this rule seems like it was designed for the era before unemployment insurance, and there was only one person in a family bringing home a paycheck. Today, if you get laid off, unemployment insurance will help a bit. If you are a two paycheck family (as is, unfortunately, now the norm), if one of you loses his or her job, the disaster won't be quite as sudden as it traditionally was for the one paycheck family.

I would encourage, however, the idea that you should strive for having at least a couple of months expenses saved up before you start looking at the next step: buying a home.

Buying a Home

Not everyone should buy a home. If you think it likely that your job is going to evaporate, and you might need to move, buying a home may not be the best maneuver. At times, homes, especially condos and townhomes, can be highly illiquid. There are also situations where the housing market simply doesn't justify buying, because there is such a huge oversupply of rentals that you will be paying a lot more to buy than to rent. If you have a very low income, and therefore you are in a very low income tax bracket, and you have the good fortune to live somewhere where houses are so cheap that you can afford to buy a house in spite of your low income, it may still not make sense to buy a home, for reasons that we are about to explore.
But if you are likely to live in the same area for the next several years, and especially if your household income exceeds $60,000 a year, it almost certainly does make sense to buy a house. The reasons are:

1. Equity.

2. Appreciation.

3. Lowered income taxes.

Equity is obvious. If you pay $900 a month in rent, that's all money that is down the tubes. If you pay $1100 a month for a mortgage, most of that is interest, but some of it is payment on the loan principal. You will, after a few years, own some equity in your home.

More importantly than the equity you gain from paying down the loan, however, is that real estate usually appreciates. It doesn't always appreciate--a friend of mine likes to tell of how his family managed to lose money because they bought a house in Malibu, California, and sold it a few years later. People who buy houses during California's periodic panic buying frenzies can find themselves regretting it two or three years later.

In some areas of the country, appreciation is quite slow--or even negative. A figure that is often quoted for the Boise, Idaho area where I live is 1%-3% a year. Where I lived in California, however, it was often a bit higher than that. We bought a house in San Jose in 1985 for $115,950, and sold it in 1987 for $125,000 (3.9% per year). We bought a house in Rohnert Park for $116,000 in 1987, and sold it for $160,000 in 1995 (4.7% per year). We bought a house for $244,000 in 1995, and sold it for $429,000 in 2002 (10.8% per year). None of these are spectacular results for California real estate, but they are all a giant improvement over renting.

The biggest reason for buying a house, however, and why it may not make a lot of sense for those in low tax brackets, is the tax advantage. The government, paying careful attention to the lobbying efforts of the National Association of Realtors, and various homebuilding groups (both corporate and labor), has structured our tax code to encourage you to buy a house. All the interest that you pay on the mortgage (which is typically 95% or more of the monthly payment in the first several years) is tax-deductible. So is the entire property tax bill. The "points" (prepaid mortgage interest) you pay on the mortgage when you purchase (not refinance) a house are deductible.

What does "deductible" mean? It means that if you make $75,000 a year, you get to reduce your income by the amount of mortgage interest and property taxes before you compute the federal and state income tax that you owe. For most renters, that kind of household income will mean that they pay a marginal federal income tax rate of about 21%. (What does marginal mean? It means that for every additional $1 you make, the federal government will demand $0.21 in federal income tax.) Marginal state income tax rates vary wildly, from 0% (for those states with no state income tax) to 9.3% for California. (I think it may even be higher in other states.) Let's assume that you are in a pretty typical state; your combined federal and state marginal income tax rate will be about 25% to 28%.

For every $1 in mortgage interest and property taxes that you get to deduct from your income, you reduce your federal and state income taxes by $0.25 to $0.28. This means that even though your mortgage payment might be 10% higher than rent--you still come out ahead--because your income tax drops when you start making house payments. (But be careful--if you get enough of a reduction in your taxable income, your marginal tax rate will drop--and the reduction in your income taxes drops accordingly.)

One other advantage of buying over renting--you have a pretty good idea what the mortgage is going to be. If you get a fixed mortgage, you know exactly what your payment will be for the next 30 years. Even with most adjustable mortgages, you know the maximum payment for the next several years. This cannot always be said for rent!

I'm not going to try and go into all the nuances of buying houses--there's far more than I can ever tell you, and I won't claim to any great expertise in this area--but I will tell you these items that I have learned over the years:

1. Adjustable mortgages are really, really scary. Why, if interest rates went up 5 points, your house payment could be $1400 a month! However--if interest rates went up that high--and stayed up that high for very long--the whole economy would collapse. Lunatics sometimes get in charge of the asylum in Washington, but they don't hold it indefinitely. In addition, most people refinance their house, or sell, within five years. Calculate what a fixed mortgage will cost you over the next five years--and then what an adjustable will cost your over the next five years, even if interest rates went up so fast that you were paying the maximum possible payment. You'll often find that the fixed mortgage isn't going to be dramatically cheaper. The more realistic scenario--interest rates go up, but not radically--and the adjustable will usually be a bit cheaper. (Be careful, however, about the difference between the "teaser" rate that is in effect for the first six months, and the actual rate you will pay for the following year, three years, or five years.)

2. Don't buy a house primarily for the appreciation. There are too many people who spent too much time watching programs about how to become rich in real estate who ended up in bankruptcy. Buy a house because you need a place to live, and you want to pay yourself part of that monthly payment, not a landlord, and reduce your income taxes.

3. Don't buy the biggest house you can afford. At best, you may find yourself living on beans and peanut butter for the next several years. At worst, you may find yourself out of the house, with a foreclosure black mark on your credit history. You will discover unexpected surprises when you move in. Remember: you are responsible for the repairs--there's no landlord to call up and have fix the clogged toilet, or the leaky faucet. Buy the smallest house that you can afford that meets your needs--even if it is only for a few years. Our first house was 887 square feet, 3 bedroom, 1 bath. It was cramped, but it was brand new, and it was adequate for my wife and our rambunctious toddler.

4. Condos and townhouses may be an adequate substitute for a real house in crowded big cities. They are generally harder to sell than real houses. With condos and townhouses, there are usually homeowners association fees that you have to pay as well--and these can be surprisingly steep. Generally, they are not deductible on your taxes. That's just money down the drain.

5. In spite of the hype from people selling timeshare condos, this is not a substitute for a house. Buy the house first. If you want a timeshare condo on the Kona coast (I visited a nice one there when we were vacationing there last year--but we didn't buy), wait until you have bought the house first.

6. If you want a snazzy car--buy the house first. Four or five years after you buy your house, your income will have risen so much faster than your house payment that you will be able to buy the snazzy car without pain. Trust me on this. I spent too much money on new cars when I started working at 18, and not enough saving for the house.

Dealing With Money Conflict In Marriage

When I first started mulling this series over, I didn't even think about this topic: financial struggles with your spouse. I received enough emails suggesting that I deal with it--because they were dealing with it.

I'm going to keep this short and simple, because this is only partly a financial planning problem; it is mostly a problem of your relationship with your spouse. Almost any advice I can give about how to handle financial disputes with your spouse is going to be wrong for some of you.

The Spendthrift Spouse

I can tell you that I have seen a lot of serious financial insanity that results from one person being a spendthrift. One marriage that I watched break up (and being from California, I have seen a lot of that) involved a spendthrift husband. He operated on the theory that if there was any money, he was going to go and spend it, on what he wanted to spend it on. It also meant that they were in continual financial difficulties, and so the little luxuries of life (like regular dental checkups for the kids, and health insurance) were beyond them. The wife worked very, very hard to try and correct for this. This wasn't the fundamental cause of the divorce, but it certainly contributed to it.
There are a lot of causes of this tendency. In the case of this particular guy, the problem was probably two factors combined: he came out of a physically abusive home with an alcoholic father; he had been sexually abused by a Scoutmaster as a child. Children growing up in alcoholic homes often have trouble with the notion of causality--that action A results in result B--and that this is likely to be a repeatable phenomenon. Why? Because in homes where alcohol is a major influence on people's behavior, there is no causality. The mother or father who is sweet and concerned one evening may be a violent, raging monster the next. You can't predict the future because the past makes no sense. You've got an extra $200 this month? Quick, spend it! It may disappear over night! The sexual abuse had also left some very serious scars on this guy. In some respects, he had never grown up. Again, this is no surprise. I know several dozen child sexual abuse survivors (remember, I'm from California), and all of them, to one degree or another, are still exhibiting signs of that damage. Difficulties with emotional maturity seem to be common.

Of course, not every spendthrift has deep and dark secrets driving them. Some people just don't like to exercise the self-discipline that says, "I don't really need this." Others become convinced that they are never going to have anything anyway, so why bother to save? (I speak from experience on both counts.) Persuading a spendthrift spouse to rein in their unnecessary spending is a very, very hard thing to do. If there are some deep dark secrets driving this behavior, professional counselling may be in order--but I wouldn't make that assumption, especially in a society that encourages spending and materialism as a way to achieve happiness. It almost never does provide happiness; at most, your latest purchase is a short-term distraction--and then you feel the need to spend again. A friend of mine calls it "retail therapy."

Retaliatory Purchasing

More common than the spendthrift spouse, especially where we lived in California, is retaliatory purchasing. In my experience, this is more common in homes where both partners bring in adequate paychecks. The husband decides to take flying lessons; the wife retaliates with a new car. "If he's going to spend money on something stupid for him, I can buy something that I want!"
In the especially brutal form, this is done surreptiously. If you have good credit, this can escalate to a point where a financial crisis makes bankruptcy look like a good idea. Most of the time, it's a bit more restrained than that, and just leads to increasing resentment. Sometimes, neither party sees their complicity in this. "Everything I buy is reasonable and necessary; she's the spendthrift!"

Sometimes, this spending frenzy is the result of an agreement: "I want new furniture for the living room; you can go buy that milling machine you want." This is an improvement over the retaliatory purchasing approach, but something you need to think about when you get to a point of negotiating extravagant purchases with your spouse: would I rather have new living room furniture this year, or would I rather be wealthy in five or ten years? The choice is yours.

Divorce: A Really Effective Way to Prevent Wealth

If you think a spendthrift spouse is a financial problem, wait until you get yourself involved in a divorce! My wife and I have been married for 23 years ("The last trees in a forest full of stumps"), and this is at least part of our healthy finances. A divorce means that the two of you are now paying for two separate residences. You are probably eating out more (especially the non-custodial parent). If the divorce turns messy, or custody issues turn messy, both of you will probably end up paying lawyers to represent your side.
The only longitudinal studies that I have seen about the effects of divorce on the kids suggest that you are going to be putting out money to help them through their feeling of abandonment and responsibility for the divorce. I've also personally seen a lot of these damaged kids. Divorce: it's a luxury that you can really only afford when you get really, really rich.

I've watched (from a painfully close distance) dozens of marriages break up. I've only seen a couple where the divorce was really necessary (spousal or child abuse; repeated infidelity). Quite a number of these divorces can be laid at the feet of a materialism that says, "We gotta have all those toys that everyone else has!" The result: husband and wife both working their tails off, coming home exhausted, then Mom cooks dinner, helps the kids with their homework, and does the laundry. By the time Dad and Mom crawl into bed, he's ready; she's just ready to go to sleep. Eventually, Dad meets a woman who isn't too tired for sex, or Mom meets some guy who listens to her complaints sympathetically. Shortly thereafter, Mom tells Dad to move out.

Here's the hardest question I am going to ask in this entire series: how important are those toys you want to buy? Is it worth you and your spouse being so exhausted that you have to make a weekend getaway to make love? You are both working too hard. As our kids were growing up, my wife stayed home and raised our kids. She was there doing the housework, dealing with plumbers, taking the kids to doctors and dentists, sitting on hold with insurance companies. I was able to devote my full energies to my job. Are you surprised that our marriage held together, and most others did not?

A lot of people misunderstand how much extra they are gaining from having both parents working full-time. Remember the marginal tax rate issue we discussed earlier in the series? If Mom is working full-time, grossing $3,000 extra per month, on top of Dad's $3,500 a month, how much extra do they actually get to keep? Perhaps $2,000 extra a month, assuming that you have a house mortgage. Out of this, you have the commuting costs, day care costs (if the kids are still small), extra money on clothes (if Mom has to get dressed up for her work), the cost of lunches out--and then, because both of you are exhausted at the end of the day, a lot more dinners out, or pizzas delivered. Yes, there is actually a net gain from Mom working--but once you figure in those other costs, you may be astonished at how little it turns out to be.

Your personal equation is going to be dependent on what you do for a living. If your paycheck is $5,000 per month, even after paying those bills, the job will contribute significantly to your wealth--but there are a lot of Moms out there whose gross income is more like $1,500 a month, probably netting, after taxes, commuting, and day care expenses, closer to $600 a month. You should consider whether you can cut expenses instead. Can you operate with one car instead of two, if one of you isn't working? For a number of years, my wife and I had one car. I walked or took the bus to work most days; sometimes she would drop me at work and pick me up. (Obviously, this only works if your job is close to home.)

Now, it's true that a stay-at-home Mom (or Dad--your choice) isn't a guarantee of a successful marriage, and there is certainly a price to pay in reduced income. But from what I have seen, the model of two full-time working parents while the kids are small leads to divorce far more often.

Retirement Plans

I am reluctant to get too specific about the sequence to follow on this, because everyone has slightly different situations. If you are single, or you and your spouse aren't planning to have kids anytime soon, buying a house may not make sense immediately. If you have a low income--and are therefore in a low marginal tax bracket--it may not make sense to buy a house either. What I intend to do is show you the sequence that my wife and I followed, as modified by what I have since learned.

401(k) Plans

Especially if you are in a high marginal tax rate bracket, and especially the younger that you are, you want to put as much money into your employer's 401(k) plan as you can, as early as you can. The money that goes into a 401(k) plan is not subject to income tax. If you contribute $100 from every paycheck into a 401(k) plan, and you are in a 40% marginal tax bracket, your paycheck only drops by $60. However, you have put $100 into your 401(k) plan--and all the interest it earns in that plan until you withdraw (sometime after 59 1/2), is untaxed. Through the miracles of compound interest, if your 401(k) plan averages an 8% return over the next 38 years, that $100 will be worth $1862.
Of course, you don't just put in $100 once; you put $100 in every month. If you start early enough at this, it turns into a huge pile of money. Start at age 22. Put $100 a month into your 401(k). If your 401(k) averages 8% return (which is not a terribly high return, when you consider the last 60 years), it will have $299,470 and some change when you retire at age 60. I cannot emphasize too strongly how important it is to get started early. This is one of the few cases where time is on your side. Instead of starting at 22, what happens if you start contributing at age 32? When you retire at age 60, instead of $299,470, you have $126,621--or less than half the amount.

But in what sort of mutual funds should you invest your 401(k) money? The traditional model says that a young person should invest in the most aggressive stock growth mutual funds (which exchange high risk for high yield). As you reach your 40s, you start to move the money into more conservative stock funds. As you approach retirement, say, in your 50s, you move most of the money into bond funds (which have disappointing returns, and lower risk), and then, when you are ready to retire, any additional money going into your 401(k) should be in money market funds (almost no return, but no real risk).

There's a lot to be said for this model--and I kick myself that when I first start contributing to a 401(k) in the mid-1980s, I put everything into bond funds. I was so scared that the money might evaporate away. Even into the early 1990s, I was still far too heavily weighted towards bond funds and conservative stock funds. If I had followed the traditional advice on this, I would have benefited from the most amazing stock market boom in history--the 1990s bubble--and I would probably have another $40K-$80K in my 401(k) account than I have now.

However: there is something to be said for being cautious, especially when you are living in "interesting times." (There is supposedly an old Chinese curse, "May you live in interesting times.") A lot of people saw their 401(k) funds drop quite impressively in value since May of 2000, as the stock market bubble deflated with all the charm and grace of a tire running over a nailstrip. I think it is likely that over the next two to three years, all of this will be a painful memory (for most Americans). Those who cashed out their 401(k), or who had to retire, or moved 401(k) money from stock funds to bond funds--they are never going to forget this experience--and not in a positive way. DO NOT PANIC IN A BEAR MARKET! This not only wipes out the advantages of the bull market that you just enjoyed, but you, along with millions of other nervous nellies, cause the market to sink even faster, because you are trying to sell when others are doing likewise. The time to buy is when others are losing their heads in panic; the time to sell is when others insist that the market can only go up. (Thanks, Abby Cohen, the stock analyst who was talking about Dow 20,000 a couple of years ago, and persuaded me to stay in the stock market. Yes, that "thanks" is sarcasm.)

I am about 15 years away from the magic age where I expect to start using some of that 401(k) money, so I have been allocating my new contributions to medium-term bond funds--funds that invest in corporate and governmental bonds that will come due roughly when I will start to draw down on that money--and very conservative stock growth funds (the kind that emphasize stocks that pay a regular dividend). I generally leave money that is already in existing funds in place, hoping that the managers of those funds are smart enough to make sensible decisions with the money.

I still think that people in their 20s should be investing primarily in stock growth funds--but I would emphasize growth funds that buy stocks in blue chip companies--the kind that pay dividends; not the funds that invest in companies that have never made any money, but that everyone knows are going to be worth a lot one of these days. Yeah, those days of high tech companies losing piles of money while their stock rises 800% a year will come again--but it seems like a pretty risky thing to put much money into. This isn't play money; you are going to need this to pay for your health insurance in 30 years.

I emphasized "hoping that the managers of those funds know what they are doing" a couple of paragraphs ago. This is one of the reasons why I think it is best to have the money in your 401(k) plan distributed among several different plans. I don't think it is likely that any of these mutual funds is going to make the headlines when the fund manager cashes out everyone's money and moves to Brazil. Mutual funds tend to have lots of checks and balances to prevent that sort of thing. But it is not unknown for mutual fund managers to make very, very poor decisions--and it would be nice if only 10% of your 401(k) money ended up disappointing you, instead of 100% of it.

You may not have access to a 401(k) fund at your employer. There are Individual Retirement Accounts available to you. I don't know enough about them to tell you much, however. (Well I could, but I might well mislead you, and I would rather not do that.)

Indecent Behavior With Your 401(k)

Vitally important: way too many people put piles of money into a 401(k) fund, then, when they leave their current employer, instead of leaving the money there, or rolling it over into their next employer's 401(k) fund--they take a distribution of the money. They thus get taxed on all that money as taxable income, plus pay a 10% penalty for doing so. Remember: high marginal tax bracket means that if you pull $30,000 out of a 401(k) fund, that will be added to your income for the year, and suddenly, you may find yourself being taxed at a 45% marginal tax rate, plus the 10% penalty. Your $30,000 windfall, after the IRS gets done with you, is now about $14,000. Hmmm. Maybe it would have been best to leave it there.
Some people get especially screwed on this because they take the money out when their job evaporates, live on it for a few months, and forget about the tax problem. Come the following April, they are scurrying around looking for $10,000 to pay to IRS and their state income tax agency.

Another really amazing behavior that I will mention, because I've heard of people doing this: a guy leaves a job he has held for 15 years to go to work for a startup. He takes a huge wad of money out of his 401(k) plan because he is convinced the startup is going to make him rich. He buys himself a very fancy car (so he doesn't have to wait for the startup to be successful). The startup makes him a very disappointing amount of money (if it doesn't just go down the tubes, like my last startup did). Whoops! There went $65,000 on a fancy car--and it's not going to be available for his retirement in another 20 years. Dumb, dumb, dumb.

Understanding Bonds

Bonds, stocks, mutual funds, money market accounts--what are all those things? Today we will start to cover bonds.

Until you have $20K-$40K sitting around with nothing to do, I would not encourage you to buy bonds of any sort. But: you need to understand bonds in order to understand bond mutual funds. We'll get to mutual funds in a later segment; you need to understand bonds and stocks first, because most mutual funds are built on top of bonds and stocks. Bonds are enough of a struggle to get through that I'll take two segments to get through them, followed by stocks, then by mutual funds.

A bond is a loan to a government or corporation for a certain period of time at a certain interest rate. As an example, I have some 30 year Treasury bonds that are due November 15, 2016. When the U.S. government first sold these bonds in 1986, they sold for $1000 each. (That's also known as the par value or face value.) The U.S. government promises (cross their heart and hope to die) to pay 7.5% (or the coupon rate) of the par value as a dividend every year. This dividend is actually paid in two halves--one half on the anniversary date, November 15, and the other half on May 15 (six months later). When the bonds are due, on November 15, 2016, they will make the final dividend payment, and the par value of the bond.

Now, this isn't like a marriage; you can sell a bond before maturity. (Okay, maybe it is like a marriage.) At any given time, there are people trying to sell bonds, because they want the capital out of them; there are other people who are buying bonds. As it happens, I was one of those people that was looking to buy bonds back about ten years ago. My first, very nervous foray into long-term investing, was to buy those Treasury bonds from someone who had bought them when they were first issued.

If bonds were a straightforward loan, this would be simple to understand. But there's a little complexity here. It turns out that interest rates rise and fall--but the dividend that the government promised when they issued that bond doesn't change. If you think about this for a minute or two, you'll realize that a bond that pays 7.5% interest--and has the full faith and credit of the United States government behind it--is really, really good today. If you tried to buy new government bonds today, you would be lucky to get 4.5% interest. So, these older bonds, that pay much higher interest rates, are in high demand. What happens to the price of a bond that everyone would like to buy? The price of the bond goes up. You must pay above par in order to buy that bond. The dividend each year will still be 7.5% of the par value of the bond--but you now have to pay $1300 to buy that $1000 bond. You'll get $75 a year in interest for the next 13 years, but in 2016, when that bond is redeemed, you will have lost $300. This goes the other way, too. If interest rates rise, a bond issued today that pays 4.5% dividend is going to be unattractive to bond buyers. Its price will fall.

This leads us to the concept of "yield to maturity" (YTM). If you buy that $1000 par value bond for $1300, but it pays 7.5% of the par value each year, how much will you make on this bond, including both dividend payments, and the change in value of the bond from now to when it is redeemed? This is the annualized YTM--the yield divided by the numbers of years left. (Watch carefully--you will sometimes see YTM listed for a bond that has less than a year left. This may not be the annualized yield to maturity.)

So, if you want to make money on bonds, you buy when interest rates are high, and sell when interest rates are low, right? Well, you can do that. If you hold a bond for more than one year, the difference between the purchase and sale price is taxed as a long-term capital gain. Long-term capital gains are subject to a maximum 15% federal income tax rate--for most well-paid people (the only sort who are going to be buying and selling bonds), this is a big improvement over the 28% or 31% federal income tax rate. (The states, however, don't necessarily follow the federal rules on this. Idaho, for example, taxes capital gains as ordinary income.) If you have a really good crystal ball, the strategy could be: buy bonds when interest rates are high, and earn high dividends; sell the bonds when the economy is in recession and interest rates are low; put that money into savings; wait for interest rates to go up again, and take the money you earned from the dividends and the capital gain on the bonds, and buy more bonds.

The problem, of course, is that good crystal balls are in short supply. Had I realized that interest rates were going to be this low, instead of buying 50 of those Treasury bonds, I would have bought 200 of them. I had the cash available at the time, but I didn't have the guts to do it. Right now, I am looking at those 50 Treasury bonds, and it is tempting to sell them while interest rates remain low. I paid about $47K for them; I could sell them today for about $65K. Of course, that would mean paying about $4900 in capital gains taxes to the federal and Idaho governments, and giving up that lovely $3750 a year in dividend income.... When I run the spreadsheet, it tells me that I would have to reinvest the money in a 6.6% YTM bond next year to break even with this strategy--and I do not expect to see Treasury bonds with yields that good over the next few years.

Generally, the reason to buy bonds is for the dividends. There are people that make a living buying and selling bonds. My own calculations suggest that unless you are doing this on a pretty large scale (millions of dollars in bonds), and have somewhere interesting to park the cash when interest rates are low, you are better off buying bonds and holding them to maturity. There are a couple of interesting exceptions, however, which I will now discuss.

Bond Maturity and Volatility

Rising interesting rates make the prices of existing bonds fall. Dropping interest rates make the prices of existing bonds rise. What happens to the price of a bond that is just about to mature when interest rates change? You own a bond that matures three weeks from now. Its price is going to be very nearly identical to its par value. No surprise in that, is there? You expect the bond to be repaid, with the final interest payment. So what happens if interest rates suddenly doubled? There's only three weeks left to maturity! The difference between what your bond will pay you, and what you could get by selling that bond and buying another is almost insignificant. Here's an important rule: the less time there is to maturity, the less sensitive bond prices are to interest rates. A bond due in 30 years can gyrate pretty impressively as interest rates change; a bond due tomorrow is going to be effectively untouched; a bond due in two years will be only slightly affected by interest rate changes.
Last year, having watched the stock market sit in the doldrums, I decided to sell off some of my worst performing mutual funds, and move some of my spare cash, into bonds. But interest rates were low. Buying bonds with long maturities would have meant low interest rates, and the danger of the prices falling when interest rates start to rise again (as I expect that they will in 2004 or 2005). On the other hand, letting this money sit in a money market fund at 1.1% interest just wasn't attractive. So I bought bonds with relatively short maturities; some AT&T bonds due in 2007; some Capital One Bank bonds due in 2005; some Ford Motor Company bonds due in 2007; some Verizon bonds due in 2005. These are all short enough maturities that if rising interest rates sneak up on me, I can sell them and buy long-term bonds without much danger that my short-term bonds will fall dramatically in price from what I paid for them last year. If worst comes to worst, I can just sit on these bonds until they come due. The Ford bonds and the AT&T bonds, for example, have an annualized yield to maturity exceeding 7%. I can live with that!

Bond Creditworthiness, Risk, and Volatility

There's another component to bond prices--and that's risk. Bonds are rated by either Moody's or S&P for risk. At the very top are U.S. Government securities (broken into Treasury Bills, Treasury Notes, and Treasury Bonds--we'll get into the details if I have enough energy in a later segment). These are backed, to use the common lingo, "by the full faith and credit of the United States Government." If the U.S. government ceases operation, a rifle and a few thousand rounds of ammunition are more likely to matter than your portfolio. (Interesting quirk: Treasury bond dividends are exempt from state income taxes--but not federal income taxes. This means that, along with being very, very safe, they give you a slightly better yield after taxes than the equivalent corporate bond.)
Down from this are U.S. Government agencies, such as the Government National Mortgage Association, Federal National Mortgage Association, Student Loan Marketing Association, and a bunch of others that I can't even begin to keep track of. These are commonly referred to by "cute" abbreviations: Ginniemae, Fanniemae, Salliemae. (Hurricanes used to all be female; now that seems to be reserved for government credit agencies.) These don't have "full faith and credit" behind them, but I get the impression that very, very few bond professionals believe that the U. S. Government would let any of these agencies go down the tubes. Just to make this confusing: the minimum denomination on these bonds is $10,000.

There are also what are commonly called municipal bonds. These are, as the name implies, usually issued by cities, but also counties, states, school districts, and all the uncountable government agencies that you don’t even realize exist until you start reading through these lists of bonds. Most of these “municipal” bonds are backed by some government agency. Some are incredibly tiny operations that startle you to discover even exist; others are used by states like California and New York to finance airports and other major projects.

Municipal bonds aren’t like U.S. government bonds in a couple of very interesting ways:

1. They can default—meaning that you don’t get your money out. We’ll discuss defaults, insurance, and ratings below.

2. The income from these bonds is (usually) exempt from federal income taxation, and from state income taxation for that state. This means that if you live in California, and you buy San Francisco Airport bonds, the interest is exempt from federal and California state income taxes. If you buy Oregon bonds, and you live in California, you are only exempt from federal income taxes on the interest. That’s still a pretty good deal—but as a consequence, the interest rates are much lower than a U.S. government bond, or a corporate bond. If you are making $100,000 a year, the lower interest rate is probably a reasonable trade-off for the tax exemption; if you are making $40,000 a year, you are better off buying U.S. government or corporate bonds, and paying the income taxes.

Let’s talk about that matter of bond defaults. Corporations and government agencies issue gobs of bonds. If corporations and local governments, like the U.S. government, never went bankrupt…well, there would be a lot of winged pigs overhead as well. When a corporation or local government goes under, bondholders get paid (usually) before stockholders, but after IRS, and employees asking for their back wages.

Fortunately, it’s not a crap shoot—well, not entirely. It turns out that there are two private firms that examine the creditworthiness of both local governments and corporations: Standard & Poor’s, and Moody’s. They have different ways of rating bonds, and of course, incompatible ways to describing those credit ratings. I don't know enough to give you a clear picture of why you should trust one over the other, but essentially, consider these pretty good ways to know whether your bonds are likely to be repaid, and remember that neither firm employs mind readers.

Defaulting Bonds

So what happens if a corporation or government defaults on its bond? It doesn't always mean that you are sunk without a trace. From what I have read, it is quite common for a defaulted bond to eventually pay most of its face value--though it might take a few years for all the lawyers to finish their feeding frenzy. You may not be so lucky on the interest payments, and if you decide to sell a bond after it has defaulted, you may do even worse than just holding on for a while. (There's a sad story of corruption in the First Congress, with some insiders buying up Revolutionary War bonds for 10% of their face value, shortly before passing a bill that made the new government responsible for paying off those bonds.)
As a general rule: highly rated (S&P A and above) corporations do not default, and even those corporations that start out A don't work their way down to the lower ratings very quickly. It can take years for an S&P A-rated corporation to sink to the point where you have to worry about it.

Another rule: S&P Baa rating is considered the bottom of "investment grade" bonds. Everything below that rating is considered a "junk bond." That means that you are earning a lot higher interest rate in exchange for a lot more risk. Junk bonds have some of the same risk potential of playing the stock market, but seldom the opportunity to get rich.

So, what happens when you buy bonds? Keep your eyes wide open. If you buy corporate bonds that have a long maturity, there is the real possibility that the corporation could get to the point, five years hence, where you might find your bonds are keeping you up at a night, whispering, "Default risk." The smartest thing to do, however, is to buy a diversified portfolio of bonds: not all in the same industry, and certainly not all in the same corporation. This means that if one of your bonds is defaulted, you aren't completely wiped out.

I haven't done the best possible diversification. (Learn from my mistakes.) When I first started buying corporate bonds last year, I was so taken by the yield (exceeding 7% annualized yield to maturity) on some Ford bonds due in 2007, that I bought $150K worth of them. Subsequent purchases of corporate bonds have been in smaller chunks--$30K or $50K per bond. But because I have so much tied up in an automobile industry bond, I am reluctant to buy any GM bonds (which are usually somewhat lower yields). Ford and GM aren't likely to both go belly up, but let's say that someone perfects the teleportation disks in Larry Niven's novels....

Municipal Bonds

There are some peculiarities that you have to watch for. Municipal bonds often (but not always) carry insurance. This is to say, the agency has paid for insurance that guarantees that if they default, an insurance company will guarantee payment of principal and interest. Not surprisingly, such bonds have lower yields than equvalent uninsured bonds. Just to make you really paranoid, imagine what would happen if a meteor about 60 meters across hit the East Coast, and thousands of local and state governments defaulted (several milliseconds after vaporizing). Insurance companies are supposed to be reinsured so that the whole industry doesn't collapse, but still....
Another problem is that some municipal bonds are actually financing private ventures that some government agency has talked themselves into believing are good for the public. These private venture municipal bonds have some quirks concerning the tax-free nature of the interest that I am not sufficiently knowledgeable about to discuss--but I know that they can surprise you at tax time, especially if the dreaded phrase "Alternative Minimum Tax" is part of your tax return. (Been there, almost done that, avoided it by careful exercising of stock options partly in one year, and partly in the next.)


What Are Stocks?

Stock is partial ownership of a corporation. If you buy stock in a company, you are either buying it directly from the company, or from someone who bought it from the company, or someone who bought it from someone who bought the company. Regardless of how many steps you are removed from the initial sale of the stock by the company, the net effect is the same: buying stock provides capital that allows the company to build factories, purchase materials to turn into a product, hire engineers to design a product, or one of the thousands of other necessary and sometimes unnecessary things on which companies spend money.

What do you get when you buy stock? There are only three rational reasons to buy stocks: dividends, capital appreciation, or control. You may find that the stock you purchased only gives you one of these three items. (If it doesn't give you any of the three, you probably shouldn't be buying it.)


Dividends are usually paid quarterly, and are a share of the profits of the company. Generally, profitable companies that have been around for a while pay a dividend. GM, for example, closed on June 13, 2003, at $36.20 per share. The last quarterly dividend that GM paid was $0.50 per share. Annualized, that would be a 5.52% return on your investment. Compared to stocks, and even to most short-term bonds, that's a pretty decent return. Of course, that's the last quarterly dividend. There's no guarantee that the next dividend will be $0.50 per share. It could be $0.75 per share--or it could be a big flat nothing, if GM didn't make a good profit, or the board of directors decided to put all the profits into new factories. Of course, if they did that, the price of the stock would almost certainly drop, as investors looked for places to get a better return on their money.
Capital Appreciation

One of the defining characteristics of the 1990s stock bubble was the large number of high-tech companies that were:
1. not profitable;

2. had never made a profit;

3. didn't see a profit coming anytime soon;

4. so everyone and his brother bought the stocks, and drove them to truly insane levels.

What's going on with that? If you think a company that sells for $20 per share will be selling for $40 per share in six months, why do you care that they aren't making any money? After all, you'll double your money in six months! Okay, but why will the company's stock double in value in six months? Because everyone is buying it with that expectation. And what happens if, one beautiful morning, enough people get nervous that this can't go on forever, and start selling? Hmmm. No dividends because no profits. The stock stops rising in value. I guess I better sell. So why will anyone buy the stock that you are trying to sell? I guess they won't, will they? And you know why the great bubble of high-tech collapsed in April of 2000.

Capital Appreciation & Dividends Dance Together

It turns out even stocks that pay a dividend often have a capital appreciation component to them. If the only reason you bought GM stock on Friday afternoon was the 1.52% yield, you would be a bit foolish. That's an okay return compared to CDs at a bank (in 2015-16), but you can buy any number of corporate bonds that have a better return than that--and with a bit more certainty that you will get the same bond interest payment twice a year. After all, GM's board of directors might reduce the dividend next quarter; they can't really do that with a bond. (The corporation could default on a bond, but that's not very likely; it's a promise, and once a corporation starts to break promises to bondholders, it is in deep trouble trying to borrow money.)
You buy a stock like GM for the combination of dividends and capital appreciation. The two, of course, are related. If GM's profits go up next year, and they raise the dividend, it makes the stock more attractive. This encourages people to buy GM stock, and drives up the price. If GM's profits fall, and they lower the dividend, some stockholders will say, "Why am I holding a stock with a poor dividend--and a falling stock price?"


With most stocks, you get some voting rights for members of the board of directors. If you are the average investor, your 1000 shares of GM are, to be polite, not going to significantly change the membership of the board. If you have 5% of GM shares, it's a whole different affair. I'm going to assume that few of you reading this are in danger of owning 5% of any major corporation. For the vast majority of investors, control is irrelevant as a reason to own stock.
Common vs. Preferred Shares

Common shares have the same relationship to preferred shares that peasants do to nobles--distinctly second class. Preferred shares often pay a better dividend, have preferred status for distribution of assets if the corporation goes into bankruptcy, and in some cases, have voting rights that the common shares do not. Some years ago, I worked for a company named Diamond Lane Communications. The employees owned common shares (or, more commonly, options to purchase common shares), which had no voting rights. The preferred shares, which were worth 10x as much as the common shares, had voting rights--and these were owned by the venture capitalists that provided most of the funding.
Preferred shares have one other great advantage over common stock (something I have learned since I first wrote this): they often have a very high yield, and relatively stable stock price. The stable stock price is because the high yield doesn't change much, so they have many of the advantages of a corporate bond. Preferred stocks are callable like bonds at a specified price and earliest call date.

If you buy a preferred stock above the call price, you might lose money. Just make sure the earliest call date allows enough dividends to cover the potential drop between purchase price and call price. I generally buy preferred stocks if they are below call price, with the hope that if called, I will get the dividends in the meantime and a profit on the stock price. As an example, I recently bought GENERAL ELEC CAP CORP NT 53 GEH:NYSE, a preferred stock with a 4.88% annualized yield. Not a spectacular yield but I was trading trading yield for long-term security; I can't picture General Electric going under. I bought at $24.96 on 11/25/2016, below its call price of $25 per share. The next possible call is 01/29/18, so I can be sure of getting some okay dividends over the next year plus two months. As a high-yield example, I also bought BCS/PRD:NYSEADR, preferred stock of Barclays Bank below the $25 call price. It has been paying over 8% annually ever since.

Buying Stocks: How To Make Stockbrokers Rich

There's a great story (perhaps apocryphal) from the late 19th century, about how one of the founders of a rather prominent stock brokerage firm (and still prominent today) was at the yacht harbor in New York. He was pointing to all the yachts anchored there, and mentioning which of them belonged to the brokers that worked for his firm. The person hearing this tale said, "Where are the yachts that belong to their customers?"
Stock brokers make their money on the transaction charge involved in buying and selling stocks. If you buy a stock at $20 a share, and resell it at $21 a share, there are two possibilities:

1. You are selling such a huge number of shares that the broker's commission is noise.

2. You are selling such a small number of shares that the broker's commission is as big as your net profit.

Either way, this is a sobering reminder that if you plan to make money "day-trading" (as the rapid in and out of stock trading is called) you need at least one of the following:

1. A discount broker with very low commissions.

2. Enormously good skill in identifying stocks that are undervalued.

3. The ability to forsee the future.

4. Enormous guts.

My very first stock trading exercise was when I was 16 years old. I had become enamored of Interdata Corporation for the reason that only a teenaged computer nerd would: I loved the instruction set of their minicomputers. So I bought 15 shares at $9 a share. (In my family, this pegged me as an aspiring Alex Keaton--for those of you who remember the series Family Ties.) A few months later, Perkin-Elmer Corporation bought Interdata. During the run-up in Interdata's stock price, I sold those 15 shares for $18.75 per share. The broker's commissions were more than my net profit. I made about $60 profit from my incredible foresight (actually, just dumb luck).

In 1993, I was a pretty active day-trader. I spent a lot of time plotting the price and volume of DSC stock, day to day. DSC had acquired my employer, Optilink Corporation, and my Optilink stock options had become DSC stock options, so this was more than an academic exercise. In addition to my stock options, I was also buying and selling pretty gutsily (or stupidly) large blocks of stock: 500 and 1000 share trades, when the stock was in the range $40-$65 a share.

Because there were large traders that had computers placing buy and sell trades based on arcane theories of price movement, DSC stock was often engaged in something that looked like a drunken sine wave, with a period of 1.5 to 2.5 days. I was trying to buy at the bottoms, and sell at the tops, and on average, it worked pretty well. I was making $1000-$1200 per trade (when it worked) and losing $500-800 per trade (when I guessed wrong). It was, however, very rough on my stomach--these were huge amounts of money for me back then, and even today, this level of day-trading for someone at my wealth level back then was, in retrospect, insane.

To top it all off, because all of these capital gains were short-term (measured in hours and days), 40% of the profit was going to taxes. Why bother?

Well, along with the stomach-wrenching moments watching the stock rise and fall (distracting not only myself, but lots of other engineers from what we were supposed to be doing during the day), there was an adrenalin rush to it. If you have read Tom Wolfe's The Bonfire of the Vanities (a splendid novel about New York City), you may recall the expression that the bond trader describes himself with: "He-Man Master of the Universe." (I've since read that this is actually a very cleaned up version of what real Wall Street sorts call themselves--but I'm too polite to use the expression that they use.) I was at least a "He-Man Master of My Neighborhood." It was a heady feeling, and if I was not such a risk-averse person, might have been led into the sort of nonsense that sinks day-traders with more guts than sense.

Should You Buy Stocks?

If you buy stocks directly, rather than buying a mutual fund that buys stocks, remember:

1. Any individual stock involves significant risk. (although preferred stocks involve much less) Even if the average of the stock market rises, the individual stocks that you buy could plummet very unexpectedly because of dishonesty in accounting that has just been discovered. The company may make mistakes (the infamous exploding Pinto gas tanks problem of Ford). They could get stuck with the bill for something that they didn't do, but the courts found them a convenient deep pocket. Sometimes, stocks fall for no apparent reason, other than a lot of investors simultaneously decide something else is sexier.

2. If you are buying stocks based on rumors about a new product, the chances are excellent that what you are hearing are the result of a "pump and dump" specialist--someone who buys a stock, circulates rumors about how well the company is doing, or is about to do, waits for you and the other suckers to drive up the price--then they dump the stock at the higher price. Once you (and the rest of the market) find out that the rumors were false, the stock has fallen back down again. I get at least four to five rumor emails a week that are obviously "pump and dump" conmen, trying to provoke a buying panic in some low-priced stock.

3. You can get around the problem of large stock commissions by buying really large blocks of stock--but usually, this means that you need to buy a low-priced stock. A stock that sells for $3 a stock means that you can a thousand shares very cheaply. If the stock goes up a dollar in value, you can sell it, and even after paying the brokerage commission, you can make more than $900. The problem is that a lot of low-priced stocks are low-priced for a reason.

Our next segment will discuss why it is generally a better idea to buy stocks through mutual funds--and explain what mutual funds are.

Should You Pay Cash For a Car?

One of the prouder moments of my life was when I was able to buy a brand new car, a 1994 Mitsubishi Galant LS, and write a check for it. And it didn't even stress me any. But in retrospect, that was a mistake. That $20,000 check I wrote could have been invested--and at the time, we were just entering the largest bull market in history. Car payments would have been a big win.
But even if you don't have the courage (or is it insanity?) to invest in the stock market--you may be better off borrowing for a car, and keeping the money in savings. I recently (late December of 2008) bought a 2005 Jaguar X-type--and got a spectacular price on it (less than $16,000, plus title and sales tax). I could have paid cash--but in November of 2008, I had put money into some five year Certificates of Deposit with a 4.30% annual yield. I ended up with an interest rate of 5.24% on a five year used car loan. So even though the interest rate on the car loan is higher than the interest rate on the CD--I came out ahead taking a loan.

The interest on the CD is taxable, of course, but assuming a 33% marginal federal and state income rate, over five years I will still earn a net $2943.55 in interest income. The total interest paid over 60 months on the car loan is $2458.23. (Remember that the interest you pay on a car loan is on the declining principal balance--while the interest earned on the CD is on the accruing balance of principal and interest.)

Okay, that's a net gain. If I had paid cash for the Jaguar, by taking money out of the CD, I would have paid no interest on the car loan--and I would have put $335.97 per month into savings, and gathered interest on that rising balance. What interest would the $335.97 per month payment accrue over those 60 months?

Remember that the 4.30% APY CD was because I locked that interest in during November--and I would not get that interest rate today--and the way things are going, not likely again for another year or more. Also, that rate required me to lock it in for five years. While some of the early car payments could be locked in for five years, and get a roughly similar situation, the vast majority of those payments would be in the second, third, fourth, and fifth years. Unless I was locking up that money for five years (which is not a comparable situation), I would never get 4.30% APY--not even close. Furthermore, my credit union has a minimum $500 balance to get CD rates that high, so at least every other month I would just have the money sitting in a demand deposit account, at a much lower rate.

If I managed to earn 3% a year on the money that would otherwise be going to car payments (which seems extremely unlikely, with current interest rates), I would only have a net interest income of $1029.11 over five years--and I would be forgoing the $2943.55 net interest income that the $17,700 would have earned in the CD.

So, if I keep the money in a CD, and make payments: $2943.55 CD income - $2458.23 car loan interest = $485.32 net income. If I had paid cash, and broken a couple of CDs: $1029.11 net interest income (and that is making the optimistic assumption of 3% yield) - $2943.55 lost CD income, for a net loss of $1914.44. Even with a completely unrealistic 6% yield as I put those "car payments" into savings, this still comes to a net loss of $815.99 over five years.

So, what about the supposed rule that you should never make payments, if you can afford to pay cash? If there is a big difference in interest rates between CDs and loans, this might be true. Under some economic conditions, this might be true. If you don't have a spectacular credit score (my FICO number is 819), you may get stuck with such a high interest rate that you would be better off paying cash. But my guess is that many people that can afford to pay cash for a car probably also have a pretty decent credit score. (Okay, drug dealers might be the exception.)

More recently, I bought a Jaguar XF and because I was able to get a 2.3% interest rate on the car loan ( by then my FICO score was 850); I took it. Interest rates on CDs were dismal when I bought it but when I later considered liquidating the CDs and paying off the loan, I discovered it made more sense to break the CDs one at a time, put the money in savings, and arrange automatic transfer of the car payments from savings. Paying off the loan was about $2000 more expensive than breaking CDs as needed and making payments.

I am adding the spreadsheet for modeling the X-type loan here. This should apply to any loan where the interest is not tax deductible. Houses and student loans require different treatment--I may work on that as I feel more energetic.