The Amateur Financier

Welcome back to our week of looking at different financial theories, to see what insight we can gain about the interaction of fiscal policy, political philosophies, and the economy.  Yesterday, we looked at Keynesianism, one of the more interventionist money policies, so it’s only fair that we take a look at the policy that’s considered its biggest rival.  That’s right, today’s economic theory is

Monetarism

Founded By

Milton Friedman is the founder of the Monetarism school of economics, much as Keynes created the Keynesian school several decades earlier (the two men never met, but Friedman noted that he received two correspondences from Keynes, both rejection letters).  In his younger years, Friedman worked for the Federal Government and was an advocate for Keynesian policies.

Another Famous Economist, Another Time Cover

His most important work, A Monetary History of the United States, 1867-1960 (co-written with Anna Schwartz), set forth the principles of monetarism.  During the sixties, his ideas came to prominence, winning him a Nobel prize in 1976 and inspiring numerous financial leaders over the past several decades.

The Theory

Monetarism, as you might guess, is primarily concerned with controlling the money supply.  In contrast to Keynesian theory, where the government was viewed as having an important job stabilizing the economy, Monetarism tasked the government with simply maintaining the money supply, and allowing the rest of the economy to take care of itself.  By controlling prices via the amount of money available, Friedman and other Monetarists maintained that most other aspects of the economy would take care of themselves.

Another major tenant of Monetarism is the need to fight against inflation.  Inflation is viewed as a monetary phenomenon, the result of too much money being added to the economic system (frequently the result of attempts by government to increase the productivity of the system).  The goal under Monetarism should be to keep the amount of money in the system from growing too fast, leading to inflation and causing a great deal of pain for the economy at large.

For Monetarists, the role of government in economic life should be fairly small.  The control of the money supply, the basis for most Monetarist economic influence, should be left to independent central banks (with strict governing their behavior), rather than in government hands.  These banks should pump more money into the system in the event of a downturn, to prevent deflation; in this view, the failure to do so in the 1930s was one reason that the Great Depression lasted so long and was so severe.

Criticism of Monetarism

Obviously, most of the principles of Monetarism are in conflict with Keynesian principles, as already mentioned.  Keynes and others who followed his economic views downplayed the role of money supply in the economy, encouraged the government to take on deficits to spread money in the event of a downturn, and had a high focus on unemployment and economic growth as opposed to the less interventionist Monetarists.  Some Neo-Keynesians have argued that demand for money is intrinsic to the available supply, in contrast to Monetarist principles.

There are also disagreements between Monetarists and followers of the Austrian School regarding several principles.  Austrian School economists stress the individual’s subjective valuation of money, and reject the attempts of Monetarists to create an objective valuation of money.  This disagreement between the ‘quantity of money’ thinking of the Monetarists and the ‘value of money’ views of the Austrian school provide one source of friction between the two groups.

Since the 1990s, there have been several events in the economic world that have called Monetarist principles into question.  The separation of money supply growth from inflation in the 1990s, the economic trouble in Japan during that same period, and the inability of Monetarist policies to revive the economy in the wake of the 2001-2003 all have caused doubt for the once firm believers in Monetarism.  Add in differing explanations from a variety of quarters regarding issues like the cause of the Great Depression, and the theory of Monetarism is far from unassailable.

A Brief History

The publication of Friedman and Schwartz’s book didn’t attract much attention at first, but during the 1970’s, it began to draw more attention.  When Keynesian economics seemed unable to combat the economic stagnation and high inflation rates that dominated the latter half of that decade, Monetarism was embraced by politicians and economists alike.  The message of fighting inflation, not unemployment was widely enacted.

During the Reagan years in the US (and with corresponding action in the UK and Germany), actions were taken to control the impact of inflation, causing inflation levels to drop and leading to other Friedman policies to be passed.  Financial markets were allowed to operate more freely and inflation and money growth were slowed.

In the 1990s, as already mentioned, events started to occur that changed the perception of Monetarism, decreasing its popularity.  Even among its followers, the monetary policies recommended by Monetarism are difficult to time correctly and put into policy.  Add in the recent downturn and the potential link between some Monetarist policies and the downturn, and Monetarism is in considerable decline (as Keynesianism is on the rebound).

Three Sentence Summary

Monetarism suggests that the most important thing for the government (or rather, a central bank) to do to the affect the economy is to control the money supply.  By restricting the growth of available money, the government can keep inflation under control and allow the rest of the economy to fall into place.  Although very popular in the late seventies and eighties, the last two decades have raised some major concerns about Monetarist policies, though they still remain quite influential.

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Welcome to a special week-long series where we take a look at some prominent economic theories.  Don’t worry, it won’t be nearly as horrifyingly dull as it sounds; this is still the Amateur Financier, after all.  Plus, it’s always good to have a little background when you’re reading about things like ‘monetarism’ or ‘Austrian school economics’, or as in this case,

Keynesiansim

Founded By

John Maynard Keynes was a British economist whose most influential book, The General Theory of Employment, Interest, and Money was written as a response to the Great Depression.  He was involved in British politics before and during World War Two, and helped to create the International Monetary Fund and the World Bank before his death in 1946.  He was also married to a Russian ballerina, Lydia Lopokova, a fact I mention just in case you ever need to defend the sexiness of economists.

Just Look at That Sexy Mustache

The Theory

Keynes’ major insight was that the government could have a impact on the economy, working to stabilize it.  The results of private decisions and private enterprise could be inefficient, due in part to slow response of prices and wages to changes in supply and demand.   He also viewed recessions and depressions not as regular parts of the business cycle, but as problems that needed to be solved, most readily via government intervention.

One of the major parts of Keynes’ philosophy is the need for counter-cyclical economic policies, attempts by the government to counteract the excessive lows and the highs in the economic cycle.  During recessions, for example, he advocated government spending to help prop up businesses and give a boost to the economy, while during boom times, the government should rein in market extravagances by increasing interest rates or decreasing government spending.  In this way, the government would be a counterbalance to the business cycle, helping to stabilize it.

Two of the other ideas that Keynes helped to popularize are the multiplier and the paradox of thrift.  The multiplier argument maintained that spending could have a bigger effect than the initial amount spent. If the government provides for $10 million in payments, for example, the benefits to the broader economy can end up being much more than $10 million.  The initial recipients of the money will likely spend or invest it, with companies that will in turn spend or invest it, and so on.  The initial $10 million may lead to many times the economic benefit, as the money works its way through the system.

The paradox of thrift, on the other hand, maintains that while saving is good for the individual, if done in aggregate, it can be harmful to the economy as a whole.  Decreased spending leads to decreased demand, decreased demand can lead to lower economic growth and possible downsizing, potentially decreasing the total amount saved due to anemic growth and lower incomes.  The paradox is, while saving is good for the individual, saving too much can be bad for the economy.

Criticism of Keynesianism

One of the major philosophies opposed to Keynesian economics is Monetarism, another school of economic thought (which we’ll cover in more depth tomorrow).  Their major criticism has been that governments are, if anything, even worse at responding to fluctuations in the economy than the private sector.  By the time the government recognizes the problem, formulates a response, and puts the response into practice, the problem may have become greatly exacerbated, or it may have disappeared.  The monetarists lean towards a much less expansive role for government in economic policy, which is counter to the more interventionist Keynesian economic thought.

Keynesian policies also come under attack from Austrian School economists (again, more on them later this week), who denounce the Keynesian focus on the collective group rather than the individual.  They maintain that focusing on broad government action rather than micro-economic factors leads to collectivism and mis-spending of capital.  They also maintain that programs that start as temporary fixes to counterbalance an economic downturn can turn into permanent, expanding government programs that grow to consume larger and larger portions of government spending.

There’s also historical evidence (as noted below) that Keynesian approaches to boosting the economy are far from sure things.  In a deflationary environment, such as during the Great Depression, putting more money into the system (which Keynes recommends), can serve to counteract the forces of deflation and boost the economy.  However, in downturns with high inflation, such as the ‘Stagflation’ of the 1970’s, a further increase of money into the system will only aggravate the problem.

A Brief History

Keynes and his theories rose to prominence in the midst of the Great Depression, where the idea of the government ‘priming the pump’ to boost the economy was one already being taken up by Roosevelt, among others.  The success of government spending (either in the form of New Deal programs or military spending during World War II) at lifting the economy was considered to be proof of Keynes’ concepts, and they were put into practice in America and elsewhere through most of the forties, fifties, and sixties.

As mentioned, though, Keynesianism was unable to cope with the economic stagnation and inflationary climate of the 1970s.  From the Reagan administration (and its contemporaries in other countries) until 2008, Keynesian ideas and methods of dealing with the economy were pushed to the side, superceded by monetarism and supply-side ideals.  Attempts to use government as a cushion against the rises and drops of the economy were curtailed in favor of a philosophy of letting the economy run with as little government intervention as possible.

However, with the economic downturn of 2008, there’s been a resurgence of Keynes and his approach to economics in public life.  The great amount of spending by the US government over the past few years in an attempt to spur on growth is right in line with Keynesian monetary policy.  (We’ll have to see how if Keynes is still in fashion when the recession abates and Keynesian economics dictates that the government should cut spending to slow down the economy.)

Three Sentence Summary

Keynesianism stresses the need for government to serve as a counteracting force to the excesses of private economy.  The main thrust is that the government can counter the economic excesses of the private sector, spurring on growth when it’s slow and restraining over-zealous government expansion.  Recently, such interventionist ideas have become more common, in wake of the economic problems of 2008.

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Ah, the end of March.  Spring is officially here, the snow is (mostly) melted, the birds are coming back, and life is generally coming back all around you.  It’s also the time of year when the National Council on Education for the Ceramic Arts (NCECA) has their annual conference, apparently.  This year, it’s in Philadelphia, which happens to be just a hop, skip, and a jump away from me and my fiancee (well, relatively speaking; we’re on the opposite side of the state, but Pennsylvania is a fairly smallish state, so it’s still reasonably close).

You may ask why I, a biochemist who couldn’t tell one type of ceramic pottery from another, brings all this up.  (I don’t even know enough about ceramics to do a bad joke about how little I know, a la, “I know so little about chemistry, I can’t tell Bohr from Boron.”  It’s not any funnier if you’re a chemist, I promise you.)  Well, my fiancee Sondra is a Ceramics major (yes, before we started dating, I didn’t know there was such a thing), and so, for the past half year or so, we’ve been making plans to go together.  Of course, losing my job put a bit of dark pallor on the trip, but we’d already committed to going, so, off we go!  (At least, off we go come Tuesday.)

All of which is my very long-winded way of saying that my access to the Internet (and thus, this blog) might be a little more hit and miss than normal this coming week, so if you email or comment or otherwise try to get in touch with me and don’t get an immediate response, consider this an advanced apology.  Anyway, onto the posts from this past week:

Contests and Giveaways

One Up on Wall Street-Book Review and Giveaway – A review of the mini-book version of one of the investing classics, complete with the chance to win the book, all courtesy of YoungandThrifty.

Top 20 Biggest Money Wasters (w/Fun Giveaway) – One of the most interesting contests I’ve seen in a while, you have to find a hiding Kraken (no, really) on Money Funk’s website, and follow the instructions to win.  No more help from me; you’ll have to find him on your own

Win $100 Cash at the Ultimate Money Blog – Nothing like a nice, healthy money prize to motivate people to check out your blog.  Just head on over to the Ultimate Money Blog, start commenting, tweeting, and linking back (as I am here, I might note), and you’ll have a chance to win.  Good luck!

Other Great Yakezie Posts

Yakezie News Letter #1 – What better way to kick off the good Yakezie posts than with the official Yakezie Newsletter?  Bytta of 151 Days Off chronicles some of the accomplishments the group has achieved this far, from the number of members who made the top 100 on the Wisebread list to some of the side ventures from other members (that’s right, some members are so gung ho that they are running blogs, working full time, and STILL have time for other ventures.  I’m simply amazed.)  It’s one truly dynamic group we have, indeed.

Announcing Our Very First Love Drop – All too often, we forget that as bad as we may have it, there are always people who have it worse off.  Luckily, there are ways we can do our best to help them, such as passing along whatever money we can; one way to do that is through the Love Drop, as detailed by J. Money.

A Frugal Middle Class Assessment – It seems just about everyone considers themselves middle class (nobody wants to be considered poor, and if you were rich, shouldn’t you have butlers and stuff), but Money Reasons goes through his finances and proves his middle class cred.

You May Be Invited to a ‘Block Party’ – Now, this is disturbing; apparently, some debt collection agencies have taken to calling family members and neighbors of those in debt, in hopes (I’m guessing) of putting pressure on the debtors.  As Stay at Home Mom CFO notes, though, it’s more enraging than effective.

700 Pennies-How to Stay Motivated and Reach Your Goals – An interesting take on the penny jar: Mike, the Personal Finance Ninja, keeps a jar filled with 700 pennies, one for every month until he reaches 80 years old, and uses them as a visible reminder of his own mortality.  It’s a good way to keep motivated, I suppose.  (Although, if your kids or significant other every find themselves short on cash, you might find your ‘mortality jar’ was emptied for candy money.)

Dear Ninja – An interesting question; what would you say if you were to write a letter to yourself in the future?  Punch Debt in the Face proposed that very thing, and this entry was what he came up with.  Not a bad set of suggestions for his future self at all, although the threats if he got fat seemed a bit much.

Personal Time Management – Monevator provides a very substantial post about managing your time and keeping yourself motivated when you don’t have a boss breathing over your shoulder and deadlines.  Good advice, particularly for those of us who aren’t in a typical job situation.

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Ah, Robert Kiyosaki.  You make some excellent points, but also raise more than a few questions in my mind.  Your first book in the Rich Dad(R) series, Rich Dad, Poor Dad, was one of the first personal finance books that I ever encountered, both setting me on the path to understanding my finances and making me think I needed a second opinion.  The second book, Rich Dad’s Cashflow Quadrant, seems to be an improvement, but was still a far cry from the detailed advice in most other personal finance books.

Which brings us to the third book in the series, Rich Dad’s Guide to Investing.  There’s certainly plenty of ground that could be covered in a book that claims to tell you what the Rich invest in.  Does it end the initial trilogy with a bang, or a whimper?  We’ll have to read on to find out.

Summary

The book starts with an introduction that brings up the 90/10 rule of money; 90% of the wealth is controlled by 10% of the people in the world.  He also explains his belief that in order to invest, you need to know about business.  The first phase of the book covers the mental preparation to be an investors.  The first chapter covers a story when Kiyosaki returned home from Vietnam, how he wanted to invest with his ‘Rich Dad’, but was unable because he didn’t meet the financial qualifications to do so.  He noted that he had much work to do to become an investor, starting with mentally preparing himself to be an investor.

The second chapter covers preparing a foundation of wealth.  It sets up the preparation that needs to go into the mental aspect of creating wealth.  The next sixteen chapters cover individual lessons an investor needs to learn.  These lessons are as follows:

1. There are three choices for reasons to invest: to be secure, to be comfortable, or to be rich.
2. You can see a world with too much money, if you shift away from thinking of money as scarce.
3. Investing is confusing to most people because there are many different goals, different products, and different techniques.
4. Investing is a plan, not a particular product; getting attached to a particular investing procedure will only limit your options.
5. You can plan to be rich or poor, and your financial plan will determine where you end up.
6. Getting Rich is Automatic, if you have a good plan and stick to it.
7. Finding the right plan takes some deep thought, careful consideration, and a good financial team.
8. Deciding now what you’ll be when you grow up, and keep expanding the goals for your life.
9. Whether you want to be secure, comfortable, or rich, your plan will have its own costs and expenses.
10. Investing isn’t risky, if you can invest from the inside.
11. Which side of the table you sit on, whether you are a business owner or an employee, will determine your level of success.
12. There are several basic rules of investing.  Knowing the type of income you’re working toward (earned, portfolio, or passive), converting your earned income into passive and portfolio, knowing that you (the investor) are the asset or liability, and having the ability to evaluate risk and reward.
13. You can reduce the risk level of your investments by increasing your financial literacy, such as learning to read income statements.
14. Some basics of financial literacy include focusing on cash flow, know the government rules (and that they can change), and that it takes two financial statements to see the whole picture (one from the payer, one from the payee).
15. Mistakes can lead to good results, if you learn from them.
16. There are many ways to become rich, all of which have a price.

Chapter nineteen again covers the 90/10 riddle, how you can acquire money making assets without spending your own money?  The answer, as expressed in chapter twenty, is to turn great ideas into profits by creating assets.  This is also the first chapter of Phase Two, which asks what type of investor you want to become.

Chapter twenty-one introduces the five categories of investors according to Rich Dad, which are covered in the next several chapters.  The first is the accredited investor, someone who has $200,000 in income ($300,000 for a couple) or a net worth of $1,000,000, and is accredited by the SEC, but may not have any skills or talent at investing.  The next is the qualified investor, who understands fundamental and technical investing, has education, and is generally confident.  Then, there’s the sophisticated investor, who has knowledge of the different laws and knows about the different types of legal entities.  The inside investor is someone who owns at least 10% of the outstanding shares of a company.  Finally, there’s the ultimate investor, someone who starts a company, takes it public, and sells shares in it.

Chapter twenty-seven is about how to get rich quick, by taking advantage of the tax laws in the B quadrant.  Then is the chapter on keeping your day job and becoming rich, by starting a business part time, emphasizing the need for business skills over needing a great product.  Finally in this section, chapter twenty-nine stresses the importance of simply getting started with your business plan.

Phase Three is about building a strong business.  First, there are answers to the question of why you should build a business.  Chapter thirty suggests that three possible reasons are to generate excess cash flow, to sell it, or to take it public.

Chapter thirty-one introduces the B-I Triangle (that’s business and investing triangle, by the way).  The three parts that make up the surrounding area are the mission, team, and leadership, the three elements needed to make functional business.  The next several chapters cover the five elements in the middle of the triangle: cash flow management, communication management, systems management, legal management, and product management.  Each one (save product management) provides a list of the many sub-elements of that aspect of creating a business.

Phase Four asks, who is a sophisticated investor?  Chapter thirty-seven covers how the sophisticated investor thinks, including the ten investor controls.  Some of these controls include controls over yourself, over income/expense and asset/liability ratios, over taxes, and over the entity, timing and characteristics of your company.  Chapter thirty-seven includes information on analyzing investments, including information on financial ratios and performing due diligence on companies in which you invest.

The ultimate investor makes a reappearance in chapter thirty-nine, with Kiyosaki sharing how he took his company public, and passes on a story of his friend Peter taking a company public on the Canadian Stock exchange.  Chapter forty provides some reasons why you would want to take a company public, as well as possible sources of funding before and after going public.  Chapter forty-one ends this section with a discussion of how rich people can go bankrupt, pointing out a few problems they might face, from not knowing how to handle their wealth to not having the experience needed to preserve it.

Phase five is about giving it back, and has only one chapter, entitled ‘Are You Ready to Give Back’?  The whole thing is the story of Kiyosaki’s encounter with a friend who was convinced that rich people cause problems in the world, but was convinced of how generous the wealthy people can be when it comes to giving money back to charity by the design of Kiyosaki’s game.  The book concludes that the world is changing, presenting a great deal more opportunity to those who are prepared.

Pros

-Interesting Perspective: It’s not the normal view of investing, but that’s not necessarily a bad thing.  If you’re interested in creating a business as a way of bringing some other income, it’s certainly an interesting book to get some perspective on what is involved.

-Encouraging: As always, Kiyosaki is nothing if not encouraging to his readers.  If you are interested in starting a business of your own, reading through this book could be a good way to find inspiration and get some generally good (if overly generalized) advice.

Cons

-Second Verse, Same as the First: If you read the first two Rich Dad books, you’ve already got a pretty good idea of what material is in the first phase of this book (which makes up the first third of the book).  The material is still fairly sound, if broadly drawn, but it continues Kiyosaki’s trend of repeating himself in his follow-up books.

-Not Really an Investment Book…But Not Really About Starting a Business, Either: In the minds of most people, starting a business and taking it public (the main ‘investment’ covered in this book) is not actually an investment, at all.  But the book doesn’t really provide instructions on how to start and grow a business, either.   There’s not even much instruction on how to take your company public, arguably the major thrust of the book.

-General Lack of Detail: Continuing on the last point, there’s not much helpful detail in this book, at all.  This is most apparent in the B-I Triangle related chapters; there are lists of things that need to be done to create and build your company, ranging from setting up daily office operations to handling legal issues, but no instruction provided on how to do any of it.  If you need something more than a checklist (and if you’re hoping to start a company you can go public with, you will), you’re going to need another book, or more likely, several.

Overall

If you’re looking for a bit of encouragement to start your own business, with plenty of folksy stories along the way, Rich Dad’s Guide to Investing might be a good book for you.  However, it’s far from the only book you’re going to need, and frankly, you can do without this book, since there’s little in the way of solid information to be found.  Just skip it, unless you’re a huge Kiyosaki fan and have to have all his works.

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If you’re an American and haven’t been hiding in the woods, away from all forms of media for the past few years (which seems like a better idea every day, to tell the truth), you’ve probably heard about this push to pass a health care bill to expand coverage here in the good old USA.  Just in case you were crushed under a rock for the past week or so, here’s the latest updates: a reconciliation bill was passed in the House on Sunday, the Senate passed their reconciliation bill today, and as of this writing, the House needs to pass the Senate bill (with its changed language) before it can be signed into law.  Barring something major happening to derail it, it looks as if the bill will be signed into law before this weekend is out.

Obviously, with such big changes being enacted that will affect health care, the economy, and OUR pocketbooks, lots of people have been throwing out their opinions about the whole situation.  Financial Samurai, for example, is in favor of the bill (or at least, the concept of expanding health care), Darwin of Darwin’s Finance opposes it, Kevin of 20s Money maintains that it will be much more expensive than currently expected, and Evan of My Journey to Millions asks if the bill is even constitutional (more on that below, as well as filling the airwaves over the next few months), just for a few examples.  With so much information flying around, I thought I should give the bill a peek under the hood, as well.

What’s In This Thing

If there’s one thing I think I can say for certain about this bill, it’s that most of the people currently commenting on it (myself included), most of the people who will be affected (that would be just about everyone in America), and even most of the Congresspersons and Senators who voted on this bill, haven’t actually read it.  That’s the problem with trying to discuss a 2,409 page bill; unless you have superhuman reading speed (side note: Worst. Superpower. Ever.), you’re just not going to make it through the whole thing.  Luckily, there are diligent groups with teams of readers to do just this sort of thing.  Here’s a summary from Health Insurance Providers that sums up the major aspects of this bill and when they go into effect:

There’s plenty of other sources out there for further review and consideration of this bill; here’s an article from Consumerism Commentary about how the changes included in this law will affect your pocketbook.  If you want to know a bit more about ten changes that are coming this year, here’s a detailed list from Alternet (a left-leaning website); if you’re wondering why anyone could be so cynical about this bill, Investor’s Business Daily has a list of ‘tough’ new rules that will apply, particularly to physicians and business owners.  (Of course, as is often the case in our sharply divided political world, many of the same points are included on each list; what the Left considers a victory, the Right considers a travesty.)

How Will This Affect ME?

Ah, the big question, how will this affect you?  The truth is, there’s no way to know with absolute certainty what will happen (which is why predicting the future is always such a crap shoot), but we can make some educated guesses.  Here’s a few possibilities:

• A young person who don’t want health insurance: Given the fairly low proposed penalties for not having health insurance (starting at $95 in 2014 and rising to $625 (capped at 2.5% of your Adjusted Gross Income) by 2016), there’s a good chance that many of the youngest, fittest people will choose to continue foregoing insurance and just pay the fines.  In other words, this won’t affect you much at all.  (We’ll see how this can cause trouble in just a moment.)
• A person with ‘pre-existing conditions’: Good news for you; as of 2014, you’ll have to be issued health insurance, regardless of your current state of health.  Bonus: you can’t even be charged more because of your health status, so no* worries that you’ll be bankrupted by hospital bills. (*Asterisk added because you’ll still need to pay the ‘regular’ insurance rates, which brings us to…)
• Someone young and healthy, who wants health insurance ‘Just in Case’: Well, here’s the thing: health insurance companies can no longer lock out those who are bad risks (our ‘pre-existing condition’ friend up there), nor charge him or her higher premiums to reflect the greater risk that they will need medical care in the future.  Add in the people like our first example who decides to skip insurance coverage to save money (at least, until they get really sick and fall into category two, then get insurance since they can no longer be denied), and the level of risk in the insurance pool is going to be much higher, with rates that reflect that.  Bottom Line: higher rates than we see now for the young and healthy, the older and sicker, basically everyone.
• Someone getting insurance through their employer: This is possibly the toughest case.  In theory, little may change; with your employer footing much of the bill and agreements with the insurance company regarding coverage for employees, there may not be much of a noticeable change on your end.  On the other hand, with higher levels of risk from individual insurance policy holders and the need for more income to level things out, health care costs could rise for you and your employer.  Add in fairly mild penalties for not providing coverage to employees, and there’s a good chance that some firms will drop health care coverage to save money.  (Which drops you into the category right above this one.)

Again, I remind you, this is just an educated guess on my part; with human nature being what it is, unforeseen events could make the results much better, or even worse.  Of course, we are getting a bit ahead of ourselves here; the bill still has one or two legislative hurdles to jump (and that’s assuming everything comes together), and even then, there are obstacles to clear…

What’s This About Unconstitutionality?

The next battlefield, assuming that all the needed votes are in favor and the bill is signed by Obama (which, if you remember the old School House Rock song, will make our sad little bill friend into a law), then there is the almost certainly going to be someone who takes the case to court on Constitutional grounds.  The main argument, as illustrated in this Cato Institute piece, is that punishing someone for something they did NOT do (in this case, those people who do not buy health insurance) is unprecedented in American history, and may be stretching Congressional law making power too far.

I’ll be completely honest with you: I’m no legal scholar, and while the argument made above sounds reasonable, I have no idea if it will pass the constitutionality test.  If it comes to that, and I think it will, we’ll just need to wait for the court’s decision, and go from there. (Of course, if the court rules that fining someone for not having health insurance is unconstitutional, and this bill is still passed with only those parts excised, the problems illustrated in the examples could end up being far worse.)

My Opinion

Now, finally, it’s time to share my opinion on this bill.  After much thought, I have to say, I’m not in favor.  Don’t get me wrong, I agree with FS on the importance of helping expand coverage so more people are protected.  I just see too many ways that this bill could have the opposite effect, causing insurance rates to shoot up drastically, leading employers to drop coverage, and causing the young and health, the ones most needed to stay in the system to keep it solvent, to leave and fend for themselves, continuing the cycle of rising rates and coverage being dropped.  (I don’t see this as plot to drive insurance companies out of business and leave the government to institute truly socialized medicine, as some have claimed; but it does seem to be a pretty serious flaw in the system.)

All of that being said, though, I’m going to try to hope for the best.  The advantage of being a pessimist is that you’re always either right, or pleasantly surprised; here’s hoping I get pleasantly surprised in this case.  To end on a lighter, more upbeat note, here’s a story about people celebrating the passage of the health care bill like it was Christmas; with any luck, we might all look back and celebrate one day.

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In Previous Wacky Wednesday Tales: You traveled to the future as part of a (horribly failed) get-rich scheme, got stuck due to a flawed rental policy (and issues with money disappearing if you withdraw it in the future to prevent yourself from investing it in the past), and finally had to settle on a job grooming talking animals.  Can you finally make it home?

You’ll be the first one to admit it: you hate grooming talking animals.  It would be bad enough having to deal with dozens of cats, dogs, and hamsters everyday even if they never said a word.  Add in the ability to talk, though, and you have all the trouble of dealing with animals AND the joy of having to listen to a constant stream of gossip for the whole day.

It’s not just pets either, as you soon find out.  Animal rights groups, along with those people who promote giving ‘human’ rights to anything with sufficiently sophisticated brainpower, had long since gotten Congress to give full rights to any ’sufficiently intelligent entity’, be they animal, vegetable, mineral, robot, or sentient ball of light.

Fun thing is, it seemed to be working; while the future was far from a Utopian vision of true and perfect happiness in all things, it seemed to be running pretty well.  In spite of having most of the representatives in Congress being cats and dogs, most issues were settled through calm and rational discussion, rather than screaming, name-calling, and well, fighting like cats and dogs.  You honestly aren’t sure whether to be happy about this seemingly great future, or upset that it took genetically altered house pets to restore civility to government.

Poker Night, circa 2205

Of course, perhaps all is not as it seems; you do hear stories about an insidious ‘Master Computer‘ that’s in charge of everything and secretly runs the entire world (nay, the Multiverse) from its ultra-secret location.  You’re not sure you believe any of these stories, though, because (a) the only ones you hear talking about this type of thing are hamsters (paranoid hamsters, no less), (b) if it were true, wouldn’t the Master Computer try to prevent knowledge of its existence from coming to light (or conversely, just announce its existence to the world and be done with it), and (c) the hamsters claim that the Master Computer was made by Microsoft, so you figure if there WAS a Master Computer, it’s only a matter of time before it crashes.  (Rimshot!)

None of this frivolity or the tedium of styling hamster hair distracts you from your main goal, though: getting enough money to rent a time machine and return home.  (With a possible side trip or two to gather up information to make all your future bets pay off.)  Luckily, although you can’t use the money from your investment scheme to travel back in time, the universe seems to have no problem with you spending that money to survive while accumulating ‘new’ money with which to travel back in time.  You try not to think about this too much, because it makes your head start to hurt when you do.

Still, your hard work pays off.  Thanks to the healthy supply of money you had available from your time travel exploits, your hard work, and the relatively low expense of renting a time machine in the early twenty-third century, you are soon able to save up enough to rent one and put your plans into motion.  (Not a moment too soon; if you had to trim Freddy the Ferret’s nails one more time while listening to his high-pitched insults of your mother, the stabbing would begin.)

You return to the Time Travel Rental Company, busily making your plans to become fabulously wealthy.  Drop a few results of future sporting events in the lap of a younger you along with any money you can spare, travel elsewhere in time (elsewhen?  You never got around to purchasing that time travel grammar book you wanted) and draw away the Time Cops’ attention (by trying to kill Hilter).  Such a great plan, you’re glad you thought of it first.

You open the door to your newly rented time machine when a flash of light appears and WHAM!  A group of time cops are standing there, along with two other versions of you, from the future.  (Or the past?  Really, you’ve completely lost track of the flow of time now.)  They pull out the file they created for your attempt on Hitler’s life (’Attempted Hitler Assassin #306,751′, it reads), then detail how they found out about your scheme from the future version of you they picked up in the past.

You are about to ask how they caught you before you did anything, before realizing that, ‘Hey, Time Cops’ pretty much sums it up.  Since you didn’t actually do anything seriously wrong (attempting to assassinate Hitler was ruled a misdemeanor a few years after time travel became commonplace), the time police told you that they’d simply release you a few days after you first tried to time travel…

“And that’s why I’m so late getting here.”  You finish telling your story to your fiancee, hoping that this will get you out of trouble for being so late.  After pleading (from you), throwing things (from them), crying (from both), and screaming like a little child (that’d be you again), you realize that maybe telling your beloved about a plan to permanently travel into the future wouldn’t cause less trouble than simply saying you lose your phone.

To Quote Porky Pig, ‘T-T-T-That’s All, Folks!’; hope you had a good time with my somewhat wacky look at the future (here’s hoping I’m wrong about everything!)

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Well, it’s good news, bad news time again.  The good news is that my blog is steadily growing, my health is still good, and my fiancee still loves me.  (At least, the diabolical laughter as she tries to tickle me silly seems to indicate love…)  In short, life isn’t half bad for ol’ Roger.

The bad news, I’m still unemployed.  I heard back last week that I didn’t get the job I interviewed for a few weeks ago (which I thought was fairly certain, but apparently misread).  I’m trying to stay optimistic and to keep looking for something even better, but it is a bit disheartening.

Luckily, I still have many sources of joy in my private life, not the least of which is reading through great personal finance blog entries.  Speaking of which, here are some of the ones I likes from this past week:

Good Yakezie Posts

Couple Money Netbook Giveaway – I have a bad habit of not sharing these contests before it’s too late (and sometimes, not entering them myself) so let’s get this out of the way first: Couple Money is giving away a net book to celebrate six months of blogging.  Comment, tweet, and post links by Friday for a chance to win one of the best prizes I’ve seen for these types of giveaways.

TurboTax Promotion and Giveaway for 2009 Taxes – Crikey, another one, this time from Evan of My Journey to Millions (which, if I haven’t mentioned it already, is a pretty cool blog name), who’s giving away some tax preparation software.  If you’ve been slacking a bit on your taxes, consider this your opportunity to make up some time.

Capitalism: A Love Story DVD Review and Giveaway – Yes, one more giveaway that’s still going strong; this time Financial Samurai is giving away some copies of Michael Moore’s latest movie.  An interesting sounding movie, if more likely to enrage than enlighten most of you reading this.

Garbage City – Now That’s Entrepreneurism – Showing that one man’s trash is indeed another man’s treasure, the Garbage City in Cairo sounds simply amazing (as do the people working hard to make a life in its midst).

Why It’s Frugal to Live in Arkansas – Part of a series highlighting some of the hidden frugality to be found in each state of the union.  Arkansas looks like a surprisingly attractive place to retire, with no taxes on Social Security benefits.

Spend & Save: Where Do You Use Your Money? – As always, it’s nice to see where others prioritize their spending, saving, and other money uses.  Personally, I’ve been trying to put a higher priority on savings, but with no job at the moment and household expenses not holding still, that’s a bit tough right now.

The Dark Side of Frugality-Losing Your Integrity – It’s sometimes a fine line between thrifty practices and outright theft; buying clothing, wearing it for a month and then returning them falls in the latter category (not to mention it being a very disturbing habit).

Is Traveling Worth Your Money? – An interesting question; many personal finance bloggers seem to rail against buying material goods while giving travel expenses a free pass.  Is the (hopefully unique) experience really worth our time and money?

Cash And Your Portfolio – A nice reminder that cash, while frequently a ‘holding place’ for money you’re going to invest (or money you have socked away in an emergency fund), does actually have a very important and salient purpose in your portfolio.

7 Stupidest Tax Mistakes to Avoid – Nobody finds a visit from the IRS relaxing (well, maybe a masochist…), so making sure to avoid these mistakes is a good start to getting your taxes done correctly.

Yakezie Carnival Round-Up

It occurred to me this weekend that I haven’t been listing any of the great Yakezie Carnivals in my lists of where my blog has been featured.  To make up for that oversight, here’s the first four Yakezie Carnivals (all of which include one article from yours truly):

Yakezie Carnival 1, from Jeff of Deliver Away Debt

Yakezie Carnival 2, from CJ Bowker

Yakezie Carnival 3, from Daniel of Sweating the Big Stuff

And most recently, Yakezie Carnival 4, hosted by Greg (The Lean Life Coach) on Eliminate the Muda

Thanks to all those who have hosted, and good luck to all my fellow Yakezie Members!

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I am a science fiction geek, I am the first to admit this.  I’ve been this way all my life; some of my favorite books and shows as a child were all sci fi or fantasy based.  Since I’m a nerd as well as a geek, I was usually reading a bit above my age level, as well.  One of the authors I particularly liked was Isaac Asimov.

I was recently re-reading Earth is Room Enough, a collection of his stories that, as you might guess, all took place on Earth.  The book was published in 1957, and most of the stories are set in early to mid twenty-first century America.  (Hey, that’d be us)  Of course, it’s a twenty-first century that doesn’t look much like ours; computers run nearly everything, with most people working to service them or feed in information, robots are starting to be integrated into the home, and mammoth corporations have merged with the government to completely dominate most people’s lives (alright, this one isn’t that far off).

Reading through all these stories, you get a fair idea of what the future was expected to look like, at least through Asimov’s eyes.  Looking at what he got wrong can give us an idea of how to avoid making false predictions as we look to the future.  Here are a few things to avoid when you try to think about life fifty years or so in the future:

1) Assume that society will be the same, and only the technology will change – Reading through Asimov’s work, you’d think that the fifties never ended, even though technology has gotten much more advanced.  The women in the stories are housewives or secretaries, the children are all raised by loving parents (and teaching robots) and the technology to record dreams existed for decades before anyone thought to record a pornographic one.  (No, really: that’s a major plot point in one story.)  I’d go into details about the apparent lack of inflation over the past half century, but you get the point.

Now, of course, it would have been hard to predict things like the feminist movement and the rise of divorce (to say nothing of the spread of porn) back in the fifties, when these stories were written.  In the same way, trying to predict today what society will look like by the 2060s is nigh impossible.  About the only thing we can say for certain is that things will (probably) be much different than they are right now; in what way, even the best science fiction writer couldn’t guess.

2) Technology development will continue as it has in the past – Ladies and Gentlemen, meet the Multivac.  A massive (10 sq. miles, according to one story) computer buried underground that is the linchpin of the entire future society, doing everything from finding out the true source of all the jokes in the world (hint: it’s an alien experiment) to extrapolating the voting pattern of a nation from the reactions of one man in 2008.  (Always a man; there’s that old fashioned attitude again.)  A perfectly reasonable prediction based on the state of computer science in the 1950s (at least, the giant, insanely powerful computer bit; the joke and voting thing was just story-telling tomfoolery).

Obviously, that’s not how it happened.  The development of the Internet has spread out computing power, cell phones (which I doubt Asimov ever imagined) have more memory than thousands of fifties era computers that filled entire rooms, and elections still require all of us (or as many as possible) to go to the polling place.  (Heck, we barely seem to be able to make a computer that counts the votes right, let alone extrapolates votes from one person to everyone else in the country.)  The point being: assuming that current traits will continue unabated is wrong.

3) People will fundamentally change: Before you think I’m beating up on Asimov for not knowing what the future would really be like (I’m not; I’m a huge fan, hence this post), let me assure you that he knew people.  The first story in this book, The Dead Past, shows some of his understanding in action.  The nutshell version of this story is that a group of academics, after being stonewalled by a government bureaucracy preventing access to a chronoscope (a device for looking into the past), end up discovering an alternative method to build one, one that can be easily replicated for home use.  (Still taking up nearly a whole room; Asimov was big on, well, big computers.)

In a disturbing (or oddly hilarious, if you have an odd sense of humor) twist, it turns out that the government wasn’t just arbitrarily suppressing this technology for nefarious purposes; they knew that if the technology got out, people wouldn’t use it for research into the long gone past (in this case, the range was limited to 125 years; given that the story was set around 2050, this puts the furthest into the past it can see at the mid-1920s), instead, people would use it to spy on their friends, relatively and neighbors.  It ends with the government agent in charge of suppressing this technology saying “Happy goldfish bowl to you, to me, to everyone, and may each of you fry in hell forever. Arrest rescinded.”

There is an unfortunate tendency for humans to use technology to satisfy their basest desires, indulging their greed, lust, and yes, nosiness when possible.  Almost every prediction Asimov made for how the chronoscope was being used, to spy on spouses, track celebrities, even viewing people at night, has been brought to life through one technology or another.

The Ultimate Lesson

Does all of this mean that it’s pointless to read through old science fiction, or any science fiction at all?  If almost every prediction that’s made turns out be false (and even ones that are mostly correct, like the increasing control of government and corporations over our lives, are subverted in fiction), why both reading them?

Simply this: science fiction and other ‘What If?’ stories help to expand our minds to the possibilities around us.  If we speculate on what might happen as we become more reliant on technology, we can see some of the pitfalls and (hopefully) avoid them.  If we take the trends of today and exaggerate them or follow them to their (il)logical end points, we can see if that’s truly the path we wish to follow.  In this way, looking at the future, or even what writers of the past thought would be here in the present, can give us more insight into who we are, and perhaps we wish to go as a society.

All of that, plus they are pretty amusing to read, even today.

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I’ve already written a bit about Adam Baker and recently released e-book, Unautomate Your Finances.  But, if I know my readers, you’re not going to be satisfied until I go into deeper detail and dive headfirst into the e-book myself.  Given my fondness for automating my finances, I suppose that this could provide me with a completely different approach.  Let’s get started, then!

Summary

The book starts with a foreword by Leo Babauta, who makes the main point of the book crystal clear: the goal of unautomation is to make you stop and think more about how you spend and otherwise use money.  Having to pause before spending, by ensuring that your money isn’t on automatic pilot, increases the amount of thought you have to devote to the spending and helps you control your money.  Baker picks up this theme in the introduction proper, noting that while he doesn’t oppose automation in principle all it does is make our habits, either good or bad, more amplified.  He shares the story of how he and his wife found themselves cruising along financially, until the birth of their daughter caused them to look closer at their financial situation.

The remainder of the book is divided into three different sections.  The first section covers The Unautomation Theory, prioritizing your finances in order to simplify them.  The first chapter stresses one of the major points of the entire book: the importance of simplifying your expenses in order to get a better handle on your financial situation.  Getting a grip on your finances is the best way to improve your financial life.

The second chapter of this section focuses on creating sustainable finances.  It emphasizes spending less than you earn (or earning more than you spend, if you prefer to look at it in that way).  It ends with a list of tangible steps for preventing lifestyle inflation, from creating a list of everything you own to selling off half the items on that list.

The third chapter covers the power of focus, the importance of not trying to do everything at once, and ends with another list of steps, to concentrate your personal finance efforts.  Baker uses the metaphor of starting a fire; if you build it up slowly, you’ll have much more success than if you toss a match under a log.

Chapter four is all about building up your financial consciousness, and includes several lists of action steps on self-intervention in your spending, opening your eyes to your financial situation, and getting into the personal finance zone.  Chapter five raises the issue of bad financial automation.  If you allow bad personal finance habits to be automated, it pushes them out of your head and makes them more ingrained in your life.

Which brings us to the second section of the book, about how to unautomate your life and take control of your finances back into your own hands.  Chapter one of this section (Baker takes the unorthodox approach of starting over the chapter numbering for each section) starts with a brainstorming session to determine what you want out of life, focusing on what you can do today.  He then asks you to imagine what you’d do with half your current income, to see how you would cut back on your lifestyle to adapt, and then finding the next step for each of these goals, the thing you can do immediately to work towards your goals.

Chapter two of this section has a great title: ‘Drop a Bomb on Your Finances!’  It’s a short little one page chapter, advising you to look through your list for quick little next steps that you can take care of in a matter of no more than 15 minutes, in order to build momentum.  Chapter three shows how to keep the motivation going once these low hanging fruits have been picked, leading us into the third part of the book…

The third part of the book is all about putting the ‘unautomation’ plan you created into effect.  The first chapter covers tracking your expenses, ideally at the time of sale, with a pen(cil) and paper.  The goal is to spend at least thirty days writing down every purchase you make right when you make it.

Chapter two is all about creating a budget.  The chapter is filled with advice on the budgeting process, from using the level of income you had last month in your budget making procedure (and not worrying too much about the fluctuations in salary many of us experience) to rounding income figures down and expense figures up.  There’s also a major emphasis on not just budgeting for the regular monthly expenses, but also for ‘Budget Busters’, large, irregular expenses like Christmas spending or car repairs that can derail your budget if not included somehow.  The chapter ends with a reminder that budgets are only good if you stick to them, and recommending an ‘envelope budgeting’ system as one way to ensure that you do so.

Chapter three of this section focuses on the three buffers you’ll have in your budget: an E-fund (the emergency fund, only for use in a real emergency), a 1-month cushion (the money for you regular expenses for the next month, so you don’t need to worry about paying the bills) and an I-fund (the irregular expense fund, to cover those once a year or otherwise ‘irregular’ bills that come up).  The first step to getting any of these funds started is building up a cushion of money equal to at least a month’s worth of regular expenses, either by diverting an expected windfall to that purpose (the ‘knock-out’ punch method) or by directing a portion of your monthly spending to building up such a fund (’inch-by-inch’ method).

Chapter four covers paying off debt with the ‘debt tsunami’.  Rather than paying off the lowest balance debt or the debt with the highest interest, you allow your emotions to guide you and pay off the most annoying debt first.  Chapter five is all about credit cards, with a decided push to closing out credit card accounts and eliminating credit card usage.  After going through a fairly typical list of the pros and cons of using credit cards, there’s another list of the pros and cons of eliminating credit cards altogether, followed by instructions on how to cancel your credit cards and put a freeze on your credit reports.

The last few chapters are pretty short, and cover some of the other aspects of your financial life.  Chapter six is about simplifying your ride, spending less on your car(s), or even eliminating cars in your life altogether.  Chapter seven covers the issue of where to live, and provides a few suggestions for fighting back against mortgages and other costs of homeownership.  Chapter eight covers investing and retiring in two pages (because Baker doesn’t invest and isn’t planning on retiring), and ends with the fisherman’s parable.  The whole thing ends with a thank you page, and the advice to keep what works, and chuck the rest.

Pros

-Very Easy to Follow: There is plenty of advice on how to do everything suggested in this book, with step by step instructions provided for many of the stages for unautomating your finances.  You’ll have an easy time following everything that’s being presented, usually without any extra effort needed on your part.

-Great Approach to Personal Finance: Baker succeeds where many personal finance writers fail; he creates a complete personal finance plan that seems both easy to follow and highly useful.  Just reading through it made me feel motivated to remake my personal finance life.

-One Word: Hi-Larious: This book has one advantage that few other personal finance books offer: unending hilarity.  Besides Baker’s own entertaining and creative writing, there are plenty of quotations sprinkled throughout that add to the hilarity.  Any personal finance (e-)book that quotes Homer Simpson gets a big thumbs-up from me.

Cons

-Dies Out Near the End: While the e-book has great momentum through most of the material, by the last few chapters, there’s not a lot of useful information being provided.  There’s just not a lot of information provided on saving money on automobiles and housing, and even less on investing or retirement, which make the inclusion of the last few chapters a bit confusing.

-Questionable Advice at Times: As with almost any comprehensive guide to personal finance, there’s going to be some areas where you disagree with the advice given.  I’m a bit skeptical of several issues including the debt tsunami and the teetotaler approach to credit cards (although, for the latter, at least, I’m starting to come around).  Taking the epilogue suggestion to apply what works and chuck the rest is definitely a good one.  (Not just with this book.)

Overall

I really, really like Unautomate Your Finances.  I’ve gotten a bit jaded with personal finance reading with all the reading I have to do for this blog, but this book actually got me excited about changing my personal finance habits.  Perhaps the best endorsement I can give is this: this is the first personal finance book I’m going to be sharing with my fiancee, as I try to get both of us to follow (most of) its principles.

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I’ve been following Financial Samurai’s review of Capitalism: A Love Story, the newest documentary from Michael Moore.  The post itself is pretty impressive (although I haven’t seen the film yet, I’ve heard quite a bit about it through the grapevine), but even more fascinating is the discussion that has ensued following it.  FS had the foresight to not only ask about the movie itself (which, to judge from the comments, he might be the only person in the blog-o-verse to have seen), but about the relative value of capitalism, itself.

As you might expect from a crowd consisting mostly of personal finance bloggers (or at least, those who willing read and comment on personal finance blogs), the responses were primarily in favor of capitalism, and opposed to Mr. Moore’s conclusion that capitalism was horribly flawed.  But the conversation about the film, capitalism, and biggest alternative, socialism, got me thinking: is socialism even workable as an economic system?

Before we start looking closer at socialism and socialist societies, we should probably define the term.  Nowadays, it seems that it gets tossed around quite a bit, usually as an pejorative to describe the possible health care reforms.  But that’s hardly an objective definition.  Instead, let’s check the online reference of choice for word definitions, Dictionary.com:

Socialism: a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.

So, rather than private or corporate ownership of companies, utilities, and other services, the community as a whole (usually in the form of the government) owns everything.   It’s generally viewed as a more moderate form of communism, not completely eliminating private property and private ownership, but nationalizing most of the corporations and other large businesses.  A complete list of the (British) Socialist Party’s goals should shed more more light on what the socialists seek to accomplish.

Going through their goals, there seems to be a lot to like; maximum 35-hour workweek, free education from preschool to university, ensuring full employment: what’s not good about this?  It almost makes me want to run out to the nearest Socialist party meeting and sign right up; it sounds like a working class paradise.

The Problem with Socialism

If you start to read through the list of goals (actually, according to their own words, ‘Our Demands’), though, some things start to stand out as being troublesome, if not impossible to actually implement:

• No transfers of jobs or production without the agreement of the workers. – I don’t know about you, but if I had a decent, well-paying job (and I’m open to any offers, by the way ), there’s no way in heck I’m going to let it go.  If this sort of law was on the books in 1920’s USA, there would still have been workers making Model T’s into the sixties.
• All factories and plant threatened with closure to be brought into public ownership and used for socially-useful production, with compensation only on the basis of proven need. With one simple rule, you’ve ensured that no private corporation would ever close a plant again (unless the ‘proven need’ part is much easier to do than I would think).  If I were a business owner, I’d never even think of closing a plant again, regardless of how much money it was hemorrhaging.
• Take into public ownership the top 150 companies, banks and building societies that dominate the economy, under democratic working-class control and management. Compensation to be paid on the basis of proven need. There’s that ‘proven need’ bit again; I’m going to go out on a limb and assume that none of the owners of the top 150 companies are getting any compensation, period.  Also, as anyone who’s watched government in action could tell you, democracy is great in principle, but slow at getting anything actually done.

There’s also any number of services that would be rendered, including free education for life, decent housing (with affordable rents) and a public transit system, all of which must be paid for in one way or another (taxes being the most obvious, although if the government owns the 150 biggest companies, I suppose their could just redirect the profits, although that’s just taxation by another name).

That’s not the only problem with socialism; as noted on the WikiAnswers page for socialism, socialist societies tend to have few incentives to participate, to work in order to become better at your job.  If you can easily get a job that provides you a living wage, more than enough to fund the essentials in life (especially if they are kept well below what you’re making) without having to work to advance your skills or efforts, why would you try to improve yourself?  The result is a society that promotes stagnation.

My Thoughts

Socialism is a nice theory, one that’s very attractive, particularly to those who aren’t exactly winning the capitalist game.  But it depends on people behaving in a way that is totally opposed to the natural tendencies most of us have; that is, to be greedy, selfish bastards.  Without the profit incentive, there needs to be something to encourage people to work harder and build society, and honestly, I’m not sure that anyone’s really stumbled across that something yet; even the countries we call socialist still have some private enterprise and the ability of people to advance their monetary situation.  Until human nature changes, I don’t think we’re going to see many successful truly socialist countries.

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