Things have been pretty rough here with The Amateur Financier.  I’ve shared more than a few of my latest troubles, particularly in my Net Worth Updates for July and August.  Lately, it seems like just about every day there’s a new expense, from helping my fiancee to trying to keep my old car running.  It’s been a very hectic, really draining (of mind, body, and wallet) summer, and sadly, it’s not over yet.

At times like this, I tend to get a bit down in the dumps.  It’s understandable, I imagine; there is an entire psychoanalytical profession built on fixing just these sorts of mental issues in people like me.  Still, the last thing I need to do to my bank account is paying for professional help; my improved mental state would only last until I got the bill.

I recognize that look in her eyes; now, let's get it out of yours.

No, what I need to do is find ways to keep myself calm, stress-free, and as best possible, happy.  There are plenty of methods to try to keep yourself reasonably calm, which I’m trying to follow as best as possible while I work through this current set of problems:

1. Stopping to Take a Deep Breath: It’s easy to get overwhelmed in life, and when you get moving too fast, sometimes things just start to pile one on top of another on top of another.  One of the best things I’ve found for such situations is simply to stop, inhale deeply, and try to regain your focus.  You’ll find this suggestion on the top of nearly every list of ways to to stay calm, because it’s one of those tips that helps you down to a physiological level.

2. Pull Yourself Away From the World: I’m not talking about packing up all your things, abandoning humanity, and living like a wild person buried deep in the woods.  Being able to turn off your computer, power down your phone, generally disconnect from the world and do things on your own terms, even for a short while, can be a major mind saver.  I know that everything will still be waiting for you, and if you’re like me, it’s hard to justify not spending your time trying to fix all the problems that are there; but approaching them with a fresh mind can be the difference between completely them successfully and swiftly and going insane staring at them for hours.

3. Get Moving: A little exercise can be all it takes to give your mind a quick restart and cut down on some of your stress.  You don’t need to hit the gym for six hours, but while you are following step 2 and temporarily cutting off your contact with the world, why not try to run a bit, or do some stretches, or simply walk a bit more briskly than normal around the block?  At worst, you’ll have gotten in some of that exercise so many of us seem to neglect; at best, you’ll have helped to calm yourself down and cleared your mind, with the exercise as a pleasant bonus.

These are only the start; the ways you have for cutting down stress could be many, many more, and I’m hoping you’ve managed to find several that work well for you.  These are just a few things that work for me (while we’re at it, writing all these down and sharing them has been pretty cathartic, to boot).

What do you do when stress and worry start to get overwhelming?  I’d definitely like to know.

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I have plenty of bad habits.  I tend to use my credit cards without thinking of how I will pay off the debt before interest starts to be charged, I don’t keep much of an emergency fund, and I don’t shop around enough when making major purchases (or really, most any purchases).  And those are just my bad financial habits; if we get started on all my other bad habits, we’ll be here all day just listing them.

As with any bad habit, it’s hard to break bad financial habits once they get established.  When you already have a substantial amount of credit card debt, it becomes much easier to mentally justify adding even more.  If you haven’t been investing for most of your life, it’s all too easy to just keep on the same path.  Once the habit is established, it takes much more effort to break it than to keep up the habit, even if it is hurting you.

Case In Point...

All of this means that if you want to improve your life, whether that means doing more with your money, cutting down reckless spending, or otherwise getting yourself on a better financial footing, you need to put in some work to get it done.  I know, I know, it’s going to be tough; I feel your pain, particularly because I’m going through the same pain.

Luckily, there are some steps that we can take in order to change our habits, if we’re willing to put in the work.  While there is no single ‘#X-Step Plan to Defeat Your Bad Habits’ that will work for every bad habit, or even for all the bad financial habits, but there are some common steps that should help you to get your financial life back in order:

1. Define your problem: Before you can make any progress, financially or otherwise, you need to define your bad habit, and figure out how you would defeat it.  You also need to make sure that you can tell when you have accomplished your goal, by making it precise and measurable; ‘less stupid spending’ is pretty vague and unmeasurable, but ‘spending less than $100 on frivolous items each month’ is a decent goal (presuming you have a decent definition of ‘frivolous’, of course).

2. Publicize your goal: Now, by ‘publicize’, I don’t mean that you need to buy a billboard to advertise that, for example, you are deep in credit card debt.  (Particularly because doing so will only get you in more debt.)  No, you should try to share it with those close to you, your friends and family.  Assuming any of them have the same problem (and unless your habit is truly unusual, it’s likely that you have at least one or two people in your circle with the same financial problem), you’ll have a ready source of support, encouragement, and possibly even suggestions to help you deal with your problem.  (You could also consider sharing your financial issues on a blog or similar forum, at least if you comfortable doing so and trust those who are likely to read about your bad habits.)

3. Replace your bad habits with good ones: Trying to break a habit without a replacement habit is going to leave you with a feeling of emptiness, which you’ll end up trying to fill with…well, the old comforting bad habit.  To break the bad habit, you need to find something that you can do to help satisfy that urge, while being better for you (and your wallet).  If you spend too much on books (like me), for example, you can replace trips to the book store with trips to the library to get that same feeling of looking through hundreds of books you’d love to read (with the advantage that you won’t have to pay anything to take some of them home).  Trips to a new clothing store could be replaced by trips to the thrift store (preferably with a collection of your own clothes for donation).  It doesn’t take much to build up a new, healthier habit.

4. Don’t let yourself slip…: I know, it’s tough to keep up and avoid slipping up.  The problem is, if you don’t take a hard line approach, if you let yourself slip back into your bad habit ‘just this once’ or ‘only in this situation’, it’ll be that much easier to slide back into doing it more and more often, and before you know, it’s a bad habit again.  Be firm with yourself (and allow anyone helping you accomplish your goal to be even firmer), stick with your goals, and if you do slip…

5. …And figure out what happened if you do slip up: Things happen, and plans, however well intentioned and useful, get thrown awry.  Chances are, you WILL slip at some point in your attempt to defeat your bad financial habits.  When it does, though, rather than berating yourself for your failure (or worse, deciding that you just can’t do it and giving up), try to find out what went wrong.  Did you put yourself in a situation where temptation was all but unavoidable?  Was there an unusual circumstance that you didn’t foresee, and therefore, hadn’t prepared for?  (With financial bad habits, this is particularly relevant; unlike, say, smoking, there are situations where you might NEED to add on more credit card debt in order to, say, get your car fixed or handle a medical bill.)  When you see what went wrong, you’ll be able to adapt your plan to take similar circumstances into account, and avoid making the same mistake again.

There you go, a simple plan for keeping those bad habits under control.  It’ll be tough (believe me, I know how tough it can be), but if you keep up with it, you’ll end up in a much better place financially.  Good luck!

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Argh, kiddies!  Today we’re going to be taking on a particularly contentious issue in modern day society: Piracy!  So, polish up those peg legs, get out your eye patches, and teach your parrot to say ‘Walk the plank, you bilge rat’, because today is all about the costs and ethics of piracy!

Well, actually, the type of ‘piracy’ we’re looking at today has less to do with stealing doubloons from passing galleons and more to do with illegally downloading music, movies and software.  While not quite as romantic (well, at least until Johnny Depp portrays a software copyright infringer in a movie), it is probably more pertinent to the modern reader (those who will be passing by Somalia aside). The ethics of the issue are a bit outside my per view (to paraphrase DeForest Kelley as Dr. McCoy, ‘I’m a money blogger, not an ethicist’), but, since I’m always up for a spirited debate, I figured I’d dive into the money portion of the piracy debate.  Just how much impact does piracy have?  To find out, let’s look at the numbers.

The Economic Impact of Piracy

An odd thing happens if, like me, you start to search for solid, reputable numbers on just how much of an economic loss piracy causes modern society: you find them nearly as hard to pin down as a greased pig.  The most commonly cited numbers of both overall economic loss and the number of jobs lost as a result of intellectual property are $250 million and 750,000 jobs, respectively, which certainly sounds like quite an impressive amount.

"Avast, Ye Scurvy Bilge Rat!"

But the truth is that those numbers are, well, fabrications.  A rather detailed report on Ars Technica notes that neither of the organizations most commonly cited as the source of the given numbers (the U.S. Customs and Border Patrol for the job figure, the Federal Bureau of Investigation for the economic loss) have anything to do with creating them.  In fact, the best source for reliable numbers on both counts, a survey done by the International Trade Commission, indicates losses to the economy of (at most) $61 million and 13,774 jobs, and this report dates back to the Reagan era (no more recent reports seem to be available).

Why the wide discrepancy?  Well, given the illicit nature of piracy, it’s awfully hard to come up with accurate numbers, and there are numerous problems with trying to do so.  First, most figures for the loss caused by piracy typically use self-reports from the businesses affected, whom, as you might guess, have an incentive to maintain that those losses are quite substantial.  Second, there’s the assumption made by most companies that every incident of piracy indicates a lost sale; that is, if there was perfect enforcement of copyright laws, everyone now pirating music/movies/games would go out and buy a copy of everything they currently pirate.  This is absurd, if for no other reason than the fact that people who earn $500 a month simply don’t have to the ability to buy the 50 games/movies/CDs per month that they currently illicitly download.  (Of course, the pirate supporters can take this argument too far the other way, claiming that nobody who currently pirates media would buy anything if they could not obtain it through piracy.  The truth is somewhere in the middle; in a no-piracy world, there would likely be more sales, but not nearly up to the number of copies currently pirated.)  Finally, as Ars Technica notes near the end of their report, the money that pirates don’t spend on the music/movies/games they download doesn’t disappear from the broader economy; it gets spent (or saved or invested) elsewhere.  Calculating the actual loss to the total economy, then, is a much more complicated process than figuring out the number of units not sold as a result of piracy, multiplying by the MSRP, and spitting out a number.

In Summary

So, what does all of this mean for the monetary impact of piracy?  Well, it’s kind of hard to tell, frankly, as both sides of the debate have reasons to over- or underestimate the impact to make it seem like their side is more justified.  That said, piracy almost certainly costs software and media companies some income, as the pirates don’t always purchase products they pirate; but the costs in lost sales are probably not as high as the company estimates claim.  (Both because not every pirated copy represents a truly lost sale, and because some pirates do end up purchasing the media they really like, although likely not as many as the pirates who claim that piracy enables a good ‘trial period’ would seem to believe).  For larger, established media firms, this undoubtedly leads to a decrease in revenue (although, smaller firms and bands that are just starting out might see a rise in revenue if piracy helps get the word out).  Which explains the rising number of such firms that attempt to use anti-piracy devices in order to minimize their losses, as well as increased pushes for stricter punishments for pirates.

Which side will eventually triumph is uncertain (although my money is on the pirates, both due to their numbers and due to the fact that international law makes catching some of them all but impossible), but the money aspect of media piracy, while interesting, is certainly quite murky.  Here’s hoping that, if nothing else, this article encourages you to take a closer look the next time you hear a statistic about media piracy (or really, any statistic).

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If you’ve been reading The Amateur Financier for a while, you’re probably aware that one of my guilty pleasures is Cracked.com.  I’ll admit, much of what they publish doesn’t really count deep journalism, and even the articles that are interesting and well cited (yes, Cracked is surprisingly good at citing relevant and interesting sources for their comedy articles) tend to involve more curse words than you might be comfortable reading.

Still, every so often they publish something that really makes me think.  Such an article was published last week, which discussed the ways that language can control your thoughts.  Some of the examples they include Australian Aboriginal tribesmen being better at oriented themselves (because they use cardinal directions such as North and South when orienting themselves, rather than left and right like us English speakers) and how having a name for a particular color enables you to distinguish it from similar colors.  It’s kind of amazing what various psychological studies have shown about the effects language can have on our perception.

Money, Language, and You

Naturally, being a personal finance blogger, my thoughts went to how the words we use regarding money affect our actions about making, spending, and saving it.  If you talk about investing as being ‘risky’, are you going to put more money into your investments?  If putting money into index mutual funds is ‘boring’, how likely is it that you will seek more speculative investments to ‘spice up’ your investments?  If you tell yourself that saving money or paying off your credit bills is ‘impossible’, are you even going to try?  The language you use to describe your money habits can have a large impact on what actions you take with your money, and as a result, what happens with your finances over time.

When you look at this money, do you think 'A good opportunity to boost my savings' or 'Weekend in Vegas, baby!'?

Given these points, the language we use when we talk about money takes on a new importance.  If what you say affects how you think (and it does), and how think affects how you act (also, quite true), then the importance of using proper language regarding your money becomes even more pronounced.  So, how can we ensure that we use the proper language?   Well…

1. Learn the Language of Money: One of the biggest obstacles people face when trying to be more proactive about their money is the wall of jargon that financial types tend to use.  Even if you have a grasp of the basics, telling the difference between ‘large-cap growth stocks’ and ‘zero-coupon bonds’ can get rather tricky.  That’s before we even get into the issue of how much money to put into each type of investment.  If you want to help learn the language used by investors, one good place to start looking is Investopedia’s Dictionary.  It’s one of the most thorough lists of investing terminology out there, and should provide a good grounding in the phrases you’ll encounter while researching your investments.  And of course, you can take advantage of my Investing 101 posts to give you a background in many of the most commonly encountered investments.

2. Use Optimistic Language…: It’s important to have confidence in your ability to determine proper investments.  If you are constantly doubting yourself, you’re likely to invest in vehicles that don’t provide enough returns to reach your goals.  If you are fairly young and pulled your money out of stocks and other growth investments after the market turmoil of 2008, telling yourself that the stock market was ‘too risky’ or not a ‘safe’ place to keep your money, you could find yourself not getting enough of a return to retire at a reasonably young age (or perhaps at all).  Instead, remind yourself that investments go in cycles, and that if you are diversified and don’t let yourself panic, you’ll come out ahead in the investment game.

3. …But Don’t Be Overconfident: It can be tempting, particularly if you have had some luck with your investments in the past, to chalk up your success to your amazing investment skill.  There’s nothing wrong with that; more power to you if you have had success investing.  The trouble is if you start to invest more and more of your money in increasingly speculative (there’s another of those money terms) investments because you tell yourself that ‘I’m too good to lose money’ or ‘It’s stupid to keep some money in savings, earning nearly nothing’.  It’s important to remind yourself that potential reward doesn’t come without risk, that there is not such thing as a ‘sure thing’ when it comes to investing.

There you have it, several ways to keep the language you use from sabotaging your money goals.  Hopefully, you can now tell yourself that ‘Money management isn’t that hard’ and that ‘If I work at it, I’m sure I’ll increase my net worth over time.’

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There was a bit of a shuffle over the comments of Rand Paul (Republican candidate for Senate in Kentucky) and John Stossel (media commentator, now on Fox) regarding the Civil Rights Act.  Rand Paul came out in favor of allowing private businesses to discriminate on the basis of race (only private businesses; he favored continuing to require government to behave in a non-discriminatory manner).  John Stossel then came to Paul’s defense in the this particular case, arguing that ‘The free market, as usual, will address the problem.  It punishes racists.  A business that doesn’t hire blacks will lose customers and good employees.  It will atrophy while its more inclusive competitors thrive.’

Stossel raises an interesting point: could the free market have ended discrimination without government intervention?  Or were the government actions like the Civil Rights Act and its prohibitions on employment discrimination a needed remedy to the segregation era?

(As an aside, Paul has said that he supports nine of the ten total titles in the Civil Rights Act while opposing one of them.  A perusal of the titles of said act seems to indicate that the one that gives him trouble is Title II, which prohibits ‘discrimination in hotels, motels, restaurants, theaters, and all other public accommodations engaged in interstate commerce’; being the only title in the act that affects privately owned businesses, that would seem to be the part of the bill in question.)

The Free Market Alternative

First, a few words to defend Mssrs. Paul and Stossel: they do raise a decent point.  Assuming all other things being equal, businesses that voluntarily restrict their clientele will find themselves at a disadvantage economically.  In business, the only color that really matters is green (money, that is), and refusing to accept the money of a certain group on the basis of skin color is a poor business decision, putting you at a disadvantage to your competitors.

Let’s have an example.  We have two diners in a particular town, White’s and Gray’s.  White’s only serves Caucasians, while Gray’s serves any race.  Let’s say further that the area where these two competing diners are located has a population that is 90% white and 10% black.  White’s, by voluntarily restricting the type of people they allow to be served there, should receive less money than Gray’s, which will get all of the black diner patrons as well as a sizable portion of the white patrons.  (To say nothing of ALL the white diner patrons who, like Paul and Stossel, personally oppose discrimination and would not support a restaurant that discriminates against other races.)  All other things being equal, Gray’s will get more business, take in more money, and prosper, while White’s will sputter along, and eventually fade away.  The free market has done its job again.

The Reality of the World

In the real world, things aren’t quite that simple; there are many ways that White’s (or any businesses that opt to discriminate) could prove successful, even without black (or other minority) patrons.  For example, let’s suppose that a sizable portion of the population opposes integration (certainly reasonable in some areas of the country, even now; back when the Civil Rights Act was passed, that was rule, not the exception, in large parts of the country).  This group visits White’s exclusively, providing them with a dedicated, committed clientele who help to keep White’s in the black, even without any minority patronage.

There are also other ways to discriminate, of course, besides refusal of service.  A business that served black patrons, but charged them a higher price (or simply forced them to sit in a particular area, much as diners in the Jim Crow era kept black patrons from sitting at the counter) would enable a business such as White’s to have its money and discriminate, too.  Think of Rosa Parks on the bus; while charging her the same amount as the white passengers, the bus driver (and the bus company that set the policy the driver was following) was doing his best to provide her with inferior service.

None of this discussion so far even gets into the fact of employment.  If companies are able to hire only whites for their businesses, or to pay black employees less than white ones (both possible if we take a strictly hands off policy when it comes to any business owned privately), we can end up in a situation where black (and other minority) workers are less well off than whites, have less opportunity to use work as a way of building up wealth for themselves, and less chance to help their children get ahead, helping to perpetuate the cycle for another generation.

The Conclusion

It’d be nice to live in a world where discrimination is a relic of a by-gone era, where everyone looks back on racism as a completely and wholly alien idea, where discussions over repealing civil rights laws are purely academic.  Alas, we’re not there yet (although, I like to think that we’re getting closer); there are segments of the society, in some places powerful and influential segments, who want to use economic and legal means to keep the people they dislike from attaining power, on the basis of race, creed, gender, or some other personal trait.

Listen, Rand Paul and John Stossel, I understand the desire to get government off your back; nobody wants to be looking over their shoulder constantly, worrying that the government will levy huge fines or shut down their business because they missed a hiring quota or were otherwise unfairly judged to be discriminatory.  But the problem is that without that fear of government intervention, there’s a sizable number of businesses, particularly small businesses, that would have no problem discriminating against minorities in hiring and service.

We as a society have decided that laws like the Civil Rights Act should exist, in spite of any infringement on individual rights that might result.  Perhaps Mssrs. Paul and Stossel are correct, and we’ve advanced enough as a society that repealing the Civil Rights Act will have no (or incredibly minor) ill effects on society at large.  But I don’t think we’re ready to take that chance (and given Paul’s backing away from his statement and repeated support for the act as a whole, he apparently feels the same).  For now, I’m happy with civil rights legislation as it stands, and until I see an overwhelming swell of support for its repeal (with a sizable amount of that support coming from traditionally discriminated against groups; getting a majority of white people to support the right to discriminate could just mean they want to discriminate), I’m fine with keeping the status quo.

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Tomorrow, I’m going to be starting a new job.  That’s the good news.  The bad news is that it’s not in my chosen field of biochemistry, or even a related physical science position.  No, I’m going to be working part time at Wal-Mart for the foreseeable future.

Don’t get me wrong, I am glad that I am getting back to work.  Besides getting more money, which is always a good thing, it’ll give me something to do to occupy my time (although, I’m sure I could come up with other things I’d rather be doing).  It’s just sort of bittersweet to end up working a job for little more than minimum wage (I’ll be earning less per hour, I’m sad to say, than I earned at McDonald’s when I worked there during high school) after years of schooling and further years of work experience.

The Philosophy of Work

Of course, it goes a bit deeper than that.  Working at Wal-Mart doesn’t just hurt because of the salary or similar tangible issues, but because it seems like a step backwards in my life in general.  There is a tendency to conflate people with their jobs.  We assume that people in particular professions have particular personalities (the boring accountant, the pompous director, etc.).  When we meet new people, one of our first questions is ‘What do you do?’; how they answer determines much about what we think of them.  Heck, I continue to refer to myself as a biochemist, as a short hand for my education and previous careers.

Is it sad that I envy the guy with the overflowing desk?

In a very real way, it seems that you are what you do.  When you are unemployed, it not only affects your pocket book, it affects how you view yourself and how others view you.  In the same way, your job is you, in a very real and solid way.  This can be a good thing (as when you have a good job that’s well respected and well-paying) or a bad thing (again, when you are unemployed).

All of this gets me to thinking, as you might have guessed.  There are several questions that come to mind when thinking of work and employment.  Here’s hoping I can get a good conversation going.

Question 1: Do you think people’s personalities cause them to gravitate to particular jobs, or that working in a job tends to generate certain personality traits?  Or is there no link between employment and personality?

If you had asked me back in college, I would have said that there was no link, but now that I’m out in the real world, I don’t think that’s the case anymore.  I lean towards the second option; I think that working in the quality control field has helped to boost my attentiveness and made me more meticulous (‘picky’, if you want a more negative word), but perhaps there’s something in my nature that makes such work more attractive to me.  I’d like to hear what other people think on this subject.

Question 2: Why do we put so much emphasis on our jobs, anyway?

Is it a remnant of tribal culture when everyone had a role in ensuring the tribe survives?  Does it date to the middle ages and inherited jobs (leading to such last names as Baker and Chapman (shopkeeper), for instance)? Is it a thoroughly modern invention, coinciding with the rise of the suburbs and the middle class?  I’m curious as to when what you did for a living became, well, your entire life and identity.

Question 3: Is the idea of a career starting to disappear?

With downsizing, mergers, and mid-life crises making the idea of staying with the same company for your entire working life (and that company staying the same, as well) a thing of the past, I have to wonder what the work world of the future will look like.  The number of people who expect to finish their career in the same position where they start (or even at the same company where start their career) is practically non-existent.

Given the massive shifts in the working world in the past several decades, it’s intriguing to imagine what work will look like in the future.  Will the average American’s work schedule in ten or twenty years in the future look like the Four Hour Work Week, short periods of work supplemented by passive income, broken up by frequent mini-retirements?  Or will people be working longer, harder, and more diligently than ever, desperate to generate any sizable amount of income?  It’s kind of fun (and a bit frightening) to think about where the state of work will be in the next few years.

Bonus Question: If you didn’t HAVE to work, would you?

The $64,000 question (or probably twenty times that amount, if you want enough to retire and generate a reasonable income); if you had enough money to never need to work another day in your life, would you anyway?  Would you do the same thing you’re doing now, quit your day job and start your dream career, or stop work entirely and have fun with your life for the rest of your days?  I’m leaning toward the second option, but then, it takes different strokes for different folks, after all; perhaps there are other people out there who love their jobs (after all, there are plenty of senior citizens who continue to work, even though they don’t need the money), and still others who are ready for a lifetime of lounging around the pool with drinks that have umbrellas in them (some of whom reach that point before they even graduate high school).  Where do most of my readers end up going?

So there are some of the things that have been dancing around in my head with my new job currently upcoming.  Thanks for indulging me, and please let me know what you think about jobs and work and people in general; hopefully, it will help me stay sane through hours of training…

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There is a growing consensus here in the United States that we need to get our budget in order, and soon.  The deficit is rising higher and higher, the national debt is steadily building, and there’s not much agreement on what to do.  Rather, there’s not much political will to do what most people readily agree should be done: some combination of cutting public spending and raising taxes that will be painful in the short term (to say nothing of harmful to some politicians’ careers) but ultimately in the best interest of the country as a whole.

But what if there were a tax that, if put into place, would be gladly paid by those being taxed, could conceivably generate large profits, and would decrease government spending?  Impossible, you say?  The ravings of a deranged madman intent on world domination, you claim?

Part of my plan to dominate the world using giant hamsters

Perhaps.  But those are some of the claims being made about legalizing marijuana for recreational use.  The argument goes like this: in spite of the US government’s best efforts, marijuana use has been fairly widely used, even back to when it was first outlawed in the 1930′s.  Much like Prohibition of alcohol during the 1920′s (which, interestingly enough, was repealed at about the time marijuana was outlawed), the laws against marijuana use have only criminalized a personal act that harms nobody but the user, made criminals out of otherwise law-abiding citizens, and allowed the criminal element to make use of marijuana sales as a source of illicit funds.  By legalizing marijuana, we can not only eliminate these issues but also generate a rather sizable new source of income for the government, to boot.

So, the question, as posed in an oddly phrased way in the inspiration for this blog entry, becomes ‘Is it worth legalizing and taxing marijuana as a method of reducing the debt?’

The Economics of Legalization

If we focus on the economics of legalization as opposed to other issues like morals, ethics, and possible addictions, it seems like it should be pretty easy to figure out how much income the government could derive from legalization.  Alas, the illicit nature of marijuana currently makes it difficult to get accurate numbers; the Justice Department itself notes that it’s nigh impossible to get accurate estimates of how much marijuana is sold in the US due to the clandestine nature of the business.

There are various ways to make reasonable guesses at the total amount of marijuana both grown and imported; if we extrapolate from amount of marijuana seized yearly (around 1100 metric tons) and assume that represents about 10% of the marijuana in the US, we can estimate about 11,000 metric tons of marijuana imported or produced domestically in the US each year.  (That’s 11.0 billion grams of marijuana, a figure that we’ll need in just a minute.)

That’s all well and good (and a sign of just how popular marijuana use has become), but the real question is how much revenue could be derived.  This is another tricky one; we can’t tell for certain how much the use of marijuana will change if legalized.  We might see a huge increase, the levels could stay steady, or use might even decrease (perhaps it won’t be ‘cool’ anymore).  A 2005 report by Jeffrey Miron of the Harvard School of Economics suggests that the government could generate tax revenue between $2.4 billion (if marijuana was taxed at rates comparable to most normal goods) to $6.7 billion (if taxed at similar rates to alcohol and tobacco).

A much more optimistic estimate suggests using the entire premium currently commanded by drug dealers (the amount above the actual cost of production and distribution) as the tax rate, a nearly 400% rate of return for the government.  This tax rate would be around $7 per half gram of marijuana, yielding a potential total tax revenue of $154 billion on the 11 billion grams of marijuana we estimated being sold in the US.  (Assuming that (a) our assumptions about the amount of marijuana sold in the US currently are accurate, (b) that there is negligible effects on the amount of marijuana sold after legalization and taxation, and (c) that we can impose and collect taxes at that high of a level.)

But wait, that’s not all; there are also costs associated with keeping nonviolent marijuana users incarcerated and spending money for police and other services to capture them in the first place.  Again, it’s hard to say for certain how much these costs would change if marijuana was legalized (would these resources no longer be needed at all, or simply end up shifted to other uses, fighting different drugs, for instance), but our friend Miron claims that we could save $7.7 billion on enforcement costs ($2.4 billion at the national level, $5.3 billion at the state and local levels).

As To Balancing the Budget…

We now know how much we can expect to generate by legalizing and taxing marijuana , around $13 billion total (from Miron’s highest figures; about $5 billion if we use his low figures and just look at the federal government income) or as much as $154 billion (with a much more aggressive tax); is that enough to cover the budget deficit?  Not even close.  The US budget deficit for 2010 was 1.17 trillion (that’s Trillion with a T-R); even if the $154 billion figure is accurate (and it seems quite high from where I sit, especially compared with our other estimate), it won’t even be enough to get the deficit under $1 trillion, let alone provide a silver bullet to balance the budget without spending cuts or other taxes.

This doesn’t mean that we shouldn’t consider legalizing marijuana; a potential boost to federal, state and local pocketbooks to the tune of $5-13 billion dollars (perhaps much, much more) is certainly a help.  There’s also plenty of non-income related reasons to seriously consider legalization (as several states have or might in the future); from providing more freedom from government intrusion in our private lives to decreasing street crime, the advantages of legalizing marijuana seem to pretty handily outweigh the disadvantages.

Disclaimer: As you can probably guess, I’m pretty steadfastly in favor of legalizing marijuana (and most drugs, for that matter), for reasons of economics, personal freedom, and minimizing government where possible.  I do not partake in any illegal drugs (or much of legal intoxicants like alcohol, for that matter), so this column is based entirely on my thoughts and feelings rather than potential personal gain if legalization becomes law.  If you are looking for a good rebuttal to the arguments for legalization, including the ones I’ve presented here, this article is a good place to start.

Should the US legalize and tax marijuana, even if it’s unlikely to be a major factor in balancing the federal budget?  Are the benefits worth the problems that could arise?  Should the potential economics of legalization be a major consideration when discussing legalization, or should money issues be trumped by health, safety and moral concerns?

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I’ve been doing a great deal of thinking lately about the minimum wage.  This might be in part because I’ve been looking into part time, minimum wage level work until I’m able to get something more permanent.  (It’s probably a bad sign when even Wal-Mart is not hiring; I’m not sure if there is a ‘Wal-Mart Hiring’ economic indicator, but it’s not looking too hot at the moment.)

I’ve been trying to think about what would happen to the economy if the minimum wage were to change.  As with any effect on the economy, there will be ripples that stretch out to affect other people and groups besides the minimum wage earners; no man is an island, especially not in the current economic climate.  So, what would be some consequences of doubling the minimum wage?

• Higher Unemployment: If it costs more to hire people, companies are going to try to trim back employment as much as they can.  Depending on how much the companies react to the change in labor costs (the elasticity of the labor supply),there probably won’t the amount of decreased employment needed to keep labor costs constant (that is, doubling the minimum wage won’t lead to half of minimum wage workers being fired; unless companies are employing a vast excess of workers (not very likely, at least currently), they need to keep the bulk of their workers to keep the business running).
• Higher Wages: For the workers who maintain their employment, there’s likely to be higher wages.  Not only will those earning minimum wage (or between minimum wage and twice minimum wage) have their income bumped up to twice the previous minimum wage, but it will have a ripple effect through the economy.  If you were earning a premium above the minimum wage due to experience or education, you’d expect to continue earning such a premium, even if the minimum wage increases.  A study of the doubling of the minimum wage in Indonesia shows just that sort of increase.  (Along with the aforementioned decline in employment and decrease in investment.)
• Higher Prices: At least some of the cost of the higher minimum wage will be passed along to the consumer.  Ultimately, it is the end consumer who will pay for any increase in labor or other production costs; how much of an increase, and how persuasive it ends up being, will depend on any number of factors, including the percentage of the final cost of the product that is attributable labor costs.  (Here’s one perspective on how labor costs affect the final price paid, although you likely find others that will argue such a change will have a much greater effect on the final prices.)
• Lower Benefits: If the minimum wage rises, there is high likelihood that other benefits will decline as a result.  Companies will endeavor to keep their business costs constant (if not reduce them when possible); if labor costs rise due to higher wages, there will be a backlash to attempt to lower them by eliminating benefits or other non-wage costs of keeping employees.

Seems like something of a push; depending on your perspective, the benefits of raising the minimum wage may outweigh the disadvantages, or they may not.  If you’re unemployed, likely to be unemployed if your company is squeezed, or earning substantially more than minimum wage (and thus, unlikely to see too much of a boost from a higher minimum wage’s lifting effect), a higher minimum wage is likely to hurt you more than help; jobs will be scarcer, and prices will be higher, neither situation helping you much.  If you’re employed at or near minimum wage and you can dodge getting ‘downsized’, increasing minimum wages will put more money in your pocket (and if you aren’t getting any benefits besides a wage, there won’t be anything to lose to offset the higher wage).

Let’s consider a different tactic; what if the minimum wage is abolished?  What if employers could offer any wage they want?  We’d expect to see much of the opposite situation as we did above; unemployment would likely decrease (few companies would say no to more employees if they could get them cheaply enough), wages would likely decline (new workers could be hired for less, and current workers would either accept lower wages or get fired) and prices would decrease with the lower costs of input.  (The benefits are a bit hit or miss; it’s unlikely that companies will suddenly pay for full benefits for minimum wage workers just because the minimum wage drops.)  Several other effects of losing the minimum wage are discussed here, along with a few arguments against dropping the minimum wage.

Conclusions

I don’t claim to know exactly what we should do about the minimum wage; that’s a question a bit above my authority.  Lowered unemployment and prices vs. higher wages and more equitable distribution of corporate income; these are arguments that should be decided in a democracy by the people after debate and due consideration.  My goal is simply to raise the argument (and give myself an excuse to research into some of these issues).

What do you think?  Would the benefits of doubling the minimum wage outweigh the downside?  Should the minimum wage be abolished, so every person gets paid what they are willing to accept?  Do you think your opinion depends on how much you’re currently earning (that is, those earning minimum wage are more eager to boost their own income, while those earning much more are thinking more about higher prices at the supermarket)?

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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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It’s one of the most commonly cited axioms in the English language (and I’m willing to bet the equivalent is quoted in most other languages, as well): ‘Life isn’t fair’.  A complete list of the examples of unfairness in life would fill an entire blog.  (Not a blog entry, or even a week’s worth of blog entries, but an entire blog run for years with the sole purpose of documenting the unfairness of life.)  From the fact that your quality of life is largely determined where you are born (as well as your race and gender at birth) to the fact that Death can reach out his icy hand and drag you into the great beyond at any time, life in its entirety is pretty unfair.  (Don’t get too depressed; this post’ll get more upbeat by the end.)

This is the point made by Investor Junkie in his well-titled post ‘Life Isn’t Fair.  Now Get Over It.‘  It’s a decent summation of ways in which life isn’t fair, as well as the suggested method of handling that unfairness: getting over it and moving on with your life.  He makes some very good points about how the world currently exists, and does so with a nice reference to Dr. Seuss.  (I do love me some Seuss).

Just look at those stuck up birds

But that brings up the inevitable question: should we try to make life fair?  After all, the desire for fairness is deeply ingrained in most of us from a young age.  From the time we go to elementary school, teachers, parents, and we ourselves try to make everything from games to tests fair to everyone.  Tests are administered simultaneously, cheating is prevented, and assuming the teacher is any good, ample opportunity exists to study and get further assistance, if needed.  Board games start with everyone having equal standing; nobody begins Monopoly with hotels on Boardwalk and Park Place and half the money in the game.  Even when you get your friends together to play kickball, you try to make the teams ‘even’; the captains take turns choosing team members so that not all the huge, athletic kids end up on one team against the nerds.

Already we’ve run into a problem, though; not everyone is created equal, in spite of what the Declaration of Independence states.  Some people are more intelligent, more athletic, or better at making money than others, simply by virtue of their genes and upbringing.  Attempting to make everyone equal in all aspects of life will mean going against the natural order of things, and most attempts have the tendency to bring everyone down to the lowest common denominator (at it’s easier to make the strong (or otherwise gifted) hold back than it is to make the weak stronger).

That, in a nutshell,is the same argument that arises whenever issues of federal programs, taxes, and ‘fairness’ arise in the government.  On the Left, you have progressives and liberals who maintain that the government should take a greater hand in redistributing wealth for the benefit of society as a whole, with the communists on the far left arguing that everyone should have exactly the same amount of money and other possessions (colloquially, the same amount of ‘stuff’).  On the Right, you hear the conservatives arguing that high taxes and generous government handouts will discourage people from working, with the most extreme libertarians arguing that we’d be better off without government, period.

As is the case with most the intractable political debates, there’s truth to both arguments, at least, the less extreme arguments; this makes sense, as even the most die-hard partisans would hopefully come to an agreement if all the evidence was against them.  Not that this always happens…  Societies with a more equal distribution of money and other property tend to be healthier and happier, at all levels of society, which is a key to the Left’s argument.  On the other hand, high and rising taxes can (and unfortunately do) discourage labor, savings, and other industry, as the Right claims.

Finding a balance

How do we thread the needle, then, between creating an economically equal society that promotes a good society overall (with crippling high taxes) and a society that rewards those who take risks, build empires, and further spur the advance of mankind (while generating a greater gap between the haves and have-nots)?

I’ll be honest, I don’t know the answer.  From my perspective, the key seems to be establishing a floor (or safety net) to keep those who are earning little from falling into the depth of poverty, as well as a tax rate low enough to minimize disincentives to working but high enough to level the field a bit (to say nothing of providing for the needs of the government, for better or for worse).  That’s what we’re currently attempting to do, with the myriad of social programs in existence, although it creates the unfortunate side effect of causing those being helped to spend all their time being administered to rather than working on something that could better society.  A simpler plan, like Milton Friedman’s negative income tax plan, might be workable, although getting the needed number of politicians together to so radically change the tax system would be a monumental undertaking.

That said, I don’t believe the American system is either as unfair or as discouraging to economic growth as critics on both sides occasionally attempt to contend.  Taxes are far from punitive on most people, with a max marginal rate of roughly 40% (and as mentioned before, marginal rates are far from the actual rate of taxes paid)  as of this writing and most wage earners getting nowhere near that amount.  Similarly, there are already plenty of social programs designed to keep people from starving in the streets (not to say that people don’t still fall through the cracks).  Is it perfect, no; but we’ve still done a decent job of protecting the worst off while allowing the best to profit from their skills.  (See, I told you I would end on a high note.)

Do you think society should work to be more fair, even at the cost of demotivating the best economic performers?  Is there a way to both motivate the capable and keep society fair?  Does thinking about this make you start wondering about your beliefs, or is it just me?

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Occasionally, I see something that just makes me think.  This article is one of those things.  In case you don’t feel like clicking through, here’s the executive summary: Karl Rabeder, who started poor and built up a fantastic fortune (3 million British pounds, about $4.6 million), has now decided to give all the money away: he gave (or is in the process of giving) all 3 million pounds he had accumulated to charities he had set up in Central and South America, although he’s not going to be drawing any sort of salary or compensation from those organizations.  His stated goal is to “Have nothing left.”

It’s not the sort of thing you see every day; in the modern world, there’s a great deal of emphasis on accumulating a greater and greater amount of wealth, rather than giving it all away.  Usually, if someone has such charitable leanings, they give only a portion of their wealth away, or wait until after they have died (and can’t use the money anymore, anyway).  To see someone voluntarily turn themselves into a pauper comes across as just plain strange; this isn’t helped when he says things about hearing words telling him to ‘start his real life.’

Actually, giving away worldly possessions to find your true self isn’t a completely new concept, though; asceticism, the practice of depriving yourself physically in order to grow spiritually and in your religious beliefs, is a concept that has existed for much of human history.  Eastern religions, such as Buddhism and Jainism, have made the denial of worldly pleasures into major tenants of their faiths, and monks, nuns, and priests in most Christian sects practice varying degrees of abstinence (sexual and otherwise) to strengthen their faith.

Eastern Monks

But the ascetics differ from Mr. Rabeder in at least one important respect: they believe that money is a distraction from your spiritual goals because it can bring happiness.  Removing money and other possessions allows them to focus on the attainment of spiritual goals without the worry about possessions so many people seem to have.  In contrast, Mr. Rabeder has said, “Money is counterproductive – it prevents happiness to come.”  He clearly seems to think that, rather than bringing (earthly) pleasure as the ascetics (and so many other people) seem to believe, money instead blocks it.  Mr. Rabeder’s words caused me to start thinking: does money actually prevent people from achieving happiness and fulfillment in life?

My Thoughts

Money is many things.  I’ve given some of the reasons for people to want money before (and to want more of it than they currently have), and all are still valid.  In fact, that’s the primary reason to have money; it gives you options.  There’s many, many things you could do with $4.6 million dollars: fabulous spending sprees, great investment opportunities, and yes, giving it away to charity.

Money does have another side, of course; it also brings responsibilities and obligations.  Particularly if you are trying to ensure that your net worth keeps rising, then the time and effort needed to manage, maintain, and grow your money can be quite extensive.  It’s likely that sort of feeling that helped to motivate Mr. Rabeder’s choice in this matter.

That said, I can’t claim to understand Mr. Rabeder’s rationale completely; not being in his shoes, never having built a small fortune after I started from a poor background, I doubt I could ever fully understand him.  But, it’s his money, and if he feels that this move will increase his happiness more than spending or investing it, well, I hope that he is right.  Good luck in giving your fortune away to charity, Karl Rebeder, and here’s hoping that what you are seeking is easier to find once you no longer have so much money!  (Here’s also hoping that I don’t read about you being arrested for tax evasion or something similar; it would be a shame if such an interesting, oddly uplifting story turned out to be a ruse to avoid paying your share of taxes.)

What do you think of Karl Rebeder’s plan?  If you discovered, after working to build a fortune, that you weren’t any happier, would you consider (or even think of) donating it all to charity?  What sort of charity would you create to be funded by your millions?  Does anyone else want to give those monks a noogie?

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As you’re probably well aware, I’m a sci-fi buff.  I love concepts like space flight, cloning, and artificial intelligence.  But, being a child of the eighties, there’s one that’s held my interest just about as long as I can remember: time travel.  Yes, one of the iconic images from my youth was a flying, time-traveling DeLorean, souped up to the ultimate machine for jumping through the fourth dimension in style.  So, when I came across Lazy Man’s list of things he would tell his high school self (using a modified DeLorean, no less), I knew I would have to do the same.  The idea of being able to undo mistakes, make different (hopefully better) decisions, and generally get a ‘do over’ on much of my life sounds pretty darn good to me.

Before we get to the list itself, though, there are a few caveats I’ve set myself, to narrow down a huge list and make it more manageable, as well as staying true to the spirit of the list, how I would improve MY life.  First, no warning myself about natural or human caused disasters (or other events) that are still pending for my high school self (everything from September 11th to the recent Haitian earthquake happened well after I started college, let alone high school); besides being a list of far longer than fifteen points, it would also affect a lot of more people than just me, something I doubt will be allowed by the Time Police.  (We could get into a whole discussion about paradoxes and whether preventing, say, the election of George W. Bush would cause time travel to not exist (since we wouldn’t be in the current time line, which leads, somehow, to time travel), thus preventing me from preventing said election, thus allowing time travel to exist, thus… and so on, but this article is going to be geeky enough already, so we’ll ignore that.)  Second, no sharing direct knowledge of how particular markets or investments will fare; I can point myself in the right direction, suggesting that I learn about investing and maybe a bit about home improvement, but providing a detailed time line of how the markets will move for next thirteen years seems a bit like cheating (again, I’ll assume the Time Police will get involved if I do something that could affect so many people beyond myself).

With those points in mind, here’s what I would tell my younger self (in the summer of 1997, before I entered the ninth grade, for anyone who wants to know exactly when this is set):

15. Study More. I know you’ve been able to make it through eight years of public school without having to really stretch your mental muscles too much, but high school will be harder (well…at least when you get to your AP courses), and college will be harder still.  Getting into good study habits now will make your life much easier in the future.

14. Stop Watching So Much TV. It was so easy when you were in junior high, to come home after school, turn on the tube, and leisurely work on your homework.  But it’s a bad habit, one that makes studying take longer and decreases how much you actually remember.  Either turn off the TV or go somewhere that you won’t be tempted to watch it, and do your homework and other work there; trust me, you’ll save yourself a lot of future grief if you can cut down now.

13. Stop Playing the Trumpet. You’re not really a fan of playing the trumpet, and sullenly practicing just enough to be mildly competent is going to cut into the time you could be using for something more productive.  It’d be better to just quit the band now, before you devote even more time and energy to something you won’t keep up in the near future.  You can redirect that extra energy towards other things, such as:

12. Exercising More. You’ve managed to keep pretty fit, but as you get older, it’s only going to get tougher and tougher.  Rather than spending your time watching television, get out and go for a walk, or ask for a small weight set and start to build up your muscles.  Better yet, join something like track or cross country; you’ll get more exercise, have better social opportunities, and have something nonacademic to add to your resume.

11. Learn About Computers and Programming. Computers aren’t going away any time soon, and the more you learn about how they work, the better off you will be in the future.  At the minimum, try to get a working knowledge of what they call ‘Hyper Text Markup Language’ or HTML; it’s what makes the World Wide Web go round, and you should know it.  The internet is only going to get bigger and bigger, and having the skills to interact with computers and generate content that people like and want will be an excellent skill to have in the future.

10. Learn About Investing. It might seem boring or pointless now, but it’ll be vital in the future.  Gain a basic understanding of how various investments work, the potential profits that can be generated, as well as the risks.  Don’t feel the need to jump into something until you understand it, and remember that anything that shoots up will eventually come crashing back down.  You can wait until your graduate from college if you don’t feel comfortable investing earlier, but try not to delay once you reach that point.

9. Learn German. Not just enough to pass the piddling tests you’ll get, either; build up your skills so you can actually hold deep, fairly meaningful conversations in German.  It’s always good to have some skills in a foreign language, and if you’re planning to go with the German Club to Germany itself, you should be able to talk the talk.  (P.S., once you have German down, consider trying to teach yourself some other languages, like Spanish, Japanese, and Arabic; all would be wonderful skills for you to have in the future.)

8. Go on the First Trip to Germany; Skip the Second. You’ll have two opportunities to go to Germany in the course of your high school career.  The first time will be after your sophomore year, when you’ll go with your best friend and some upperclassmen, and have a great time filled with memories you’ll laugh about more than a decade later; don’t miss it for the world.  The second time, at the end of your senior year, will be filled with drama, tears, and people you don’t really care about (who will refuse to drink any beer, while in Germany); it’ll cost a sizable chunk of money you could use for college, you’ll miss your graduation, and the number of good memories from the trip could be counted on one hand.  Save yourself the time and aggravation, and just skip it.

7. Be More Social, and Date More. You’re a bit of a wall flower, and it will hurt your experience of being a high school student.  Break out of your shell, be friendly, and try to talk to people, especially girls.  Speaking of girls, try asking them out.  Yes, I know, the girls you get crushes on tend to be popular and unattainable, either dating other guys or simply not being interested in you; rather than spending your time lusting after them, try asking some of the nerd girls in your circle of friends out.  Besides being very cute (as you’ll come to realize in hindsight), they are funny, smart and interesting; what more do you really want?

6. Keep Track of Your Friends. It’s easy enough to lose track of people over time; I handicapped myself from the start by not really gathering their contact information before school ended.  Don’t make my mistake; find out how to contact your friends (at least the few who are closest to you), and keep in touch with them as you go on to college.  And speaking of going on to college…

5. Do Well on Your SATs. I almost didn’t include this one; I (and by extension you, in the future) managed a 1450 the first time around without any serious problems.  If you can repeat that performance, good, it’s time to go to the next step; if not, keep trying until you get it, 1450 is a magic number for what you should do after high school.

4. Go to Wilkes University for Pharmacy, and Stay In the Pharmacy Program.  As you search through schools in your area, you’ll discover Wilkes University, which will let you attend tuition-free for your first four years, provided you got a 1450 on your SAT (see why it’s important?) and maintain a high enough GPA (not too hard, if you remember that studying comment from earlier).  This is a darn good deal, and you should go there and join the pre-pharmacy program.  However, do not, I repeat, DO NOT give into the urge to switch to biochemistry during your sophomore year.  I don’t know for certain what will happen if you stay in the pharmacy program, but if you switch, you will come to consider that decision one of the worst you ever made.  Save yourself the grief, and stay in the pharmacy program.

3. Try to Become an RA as well as a TA. You’ll be able to cut back significantly on your student loans (and thus, the biggest debt you’ll have when leaving school) if you don’t have to shell out money for a dorm/apartment for (if you followed the last tip) six years.  After your freshman year, try to get a position as an RA, as well as possibly a TA in the chemistry department (the first one I didn’t do, but the second one I did).  Combined with the tuition-free schooling you should be getting, thanks to tip 5, the rent-free living and money you’re making from these positions should leave you in very good shape financially when you finally graduate.

2. Start a Website. Assuming that you aren’t already overwhelmed with school work, being a TA, and being an RA, consider starting a website in your (hopefully still existent) free time.  Besides being a great way to express yourself, it’s a potential source of money above and beyond what little you are getting in stipends working for the university.  Try to pick a subject that will hold your interest for a long period of time as you build up content; if you’ve developed the same interests I did, you could try anime, videogames, drawing, or even organic chemistry as possible topics.  The important thing is, just try to put yourself out there.

*In An Envelope Labeled, ‘Do Not Open Until January 1st, 2007′ (Or a second visit, since I’m not to be trusted to not open something for a decade)* 1. Find Your Beloved. Well, look at you now; a decade of following my advice (I hope) has made you a much different man than I was back then, a better educated, more well-rounded, and dare I say, richer man than I was.  I know how this will sound to you, but I hope that you haven’t found anyone special yet; in my version of reality, I’ve met a sweet, wonderful girl named Sondra who frankly, just completes me.  You’ll find information on how to contact and woo her included in this letter; if you are still single and looking, please use it to contact her and start courting her.  Good luck, my alternative self, in all you choose to do in the future.

Now, this is of course just scratching the surface of everything I would like to tell my past self; I probably could have generated fifteen points just on how to get the most out of that trip to Germany.  (Germany Tip Trip #14: Don’t drink too much; you’ll have to wrangle a crowd of drunkards around Berlin at least one night, and need to be at least semi-sober.)  Still, not a bad list of ways I could have improved my life, if I had the foresight.

What sort of things would you do differently if you had the opportunity?  Is there any one thing you consider your single biggest mistake?  How many of you would break my rule and give your past self a guide to successful investing/gambling so that by now you’d be filthy rich?  (Be honest; if I really had access to a time machine, I doubt I would resist the urge.)

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Merry Christmas to you all!  I hope that you all had a wonderful holiday, and spent it with your family.  I thought that I would take a break from the personal finance information today, and instead tell you a little bit about one of my favorite Christmas rituals: my church’s Christmas Eve candlelight service.

Every Christmas Eve, there is a special service (actually two, one earlier in the night for those who have young children and another one later in the night).  The services are pretty similar to normal Sunday services, although given the time of year and the joy of the season, it’s generally a more festive atmosphere.  All of the hymns are more commonlC hristmas carols (From ‘Oh Come All Ye Faithful’ to open the service, to ‘Joy to the World’ as the recessional hymn; which I’m sure is not meant to a be a reflection of what people think as they are able to leave church).  The gospel passages are all part of the Christmas story.

The centerpiece of it all is  the candlelight service.  Everyone in the church has their own candle, and near the end of the service, the pastor lights candles for two ushers who move down the center aisle of the church.  Each person in the center of the aisle lights their candle, and then allows the person next to them to light their candle, until every candle is lit.  The lights are turned off, and then, we all sing ‘Silent Night’ in a darkened church, reading our hymns by candlelight.  At the last verse of the song, when the song talks of ‘radiance streaming, love’s true light’, everyone in the congregation takes their candles, lifting them above their heads, still singing, a hundred pin pricks of light burning through the darkness.

When that happens, I always, always look up, staring out over the congregation, seeing all lights shining out in the otherwise dark church.  This year as I did so, my mind started to wax philosophic, thinking of how all the lights came from the same initial flame, and that, no matter how many candles were lit from the initial one, the lights were not diminished.  Metaphorical thoughts of sharing knowledge flashed through my mind, and I ended up getting a little teary as I tend to do.  If I had to pick one single moment that I felt most clearly represented everything I love about Christmas, that moment would be it.

What’s your favorite part of the season, everyone?  I’m eager to learn what appeals to everyone about this side of the holidays.

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The Rich are productive, intelligent, and knowledgeable.  They are the driving force behind the economy.  They have secret methods to build and maintain their fortunes, little known to the middle and lower classes.  They should be taxed less, as they are the source of our country’s fortune.

The Rich are lazy, greedy, and unproductive.  They take more than they deserve, and don’t contribute a fair share of taxes.  They benefit from government programs without contributing their fair share to the public good.  They should be taxed more, as they’ve only gotten where they are due to help from favorable government programs, created by their rich pals in government.

If you spend much time reading financial literature, from blogs like this and money-related websites to books and magazines, you’ve probably come across statements like this at one point or another.  The first paragraph is the sort of thing you hear from Republicans or personal finance advisers like Robert Kiyosaki, who want you to believe that the rich are special (and that he knows how to pass on that knowledge); the second is the sort of thing you hear from liberals during campaign season.  But the fact of the matter is, neither is correct.

The Truth

The problem with talking about ‘The Rich’ is that wealthy people are not a single, homogeneous group that shares goals, methods and techniques.  There are numerous people that qualify as rich, who have many different traits.  Just as with any group, there are a variety of people who qualify as rich.  The only thing they all have in common is that they have a high level of wealth.

The Only Thing Connecting All Rich People: Lots of This

There are rich people who reached their current level of wealth due to hard work, personal effort, and years of struggle and preparation.  By the same token, there are rich people who did nothing to earn their riches other than being born into the right family (which, although I can’t remember my own birth pretty well, is something that’s usually out of your control).  Some rich people build up wealth slowly over a lifetime, skimping and saving to generate riches for themselves while others have one good idea or invention and are catapulted to a high net worth overnight.  Some start with little, if anything, in terms of money and create their wealth through hard work, and still others start out with everything and gradually lose it all.

Even among those who built up wealth from modest means, there’s an incredible number of ways for them to achieve wealth.  Some start businesses, others invest in real estate, some simply work and invest over the course of a lifetime.  A few find work in professions like Hollywood actors or mainstream singers that provide them compensation high enough to boost themselves up to riches in a short period of time.  Once they achieve wealth, they can use their riches in a number of ways, from providing for a charity, to providing for their own future, or even blowing it all on wild parties and ending up as a joke before they reach forty.

These same points can apply to ‘The Middle Class’ and ‘The Poor’, as well.  No social economic group is homogeneous; just as you may have a similar net worth to your friends and neighbors when you have completely different salaries, saving habits, and types of investments, so are other groups a collection of individuals, all of whom are well, individual.

The Point

Why go to the trouble of writing out a whole blog entry to state what (hopefully) is already obvious?  Well, there is an unfortunate tendency for people to demagogue by appealing to class distinctions.  The rich are idolized and scapegoated, treated as sources of inspiration and as those holding you down.  Neither is entirely wrong; there are rich people who should be well-regarded and respected, because of how they got their money or what they choose to do with it (Warren Buffett and William Gates both come to mind).  There are also rich people who, well, we would be better off as a society ignoring.  *cough*Paris Hilton*cough*

But that’s the point; assuming all ‘The Rich’ people are the same and equally deserving of any particular reaction is wrong.  They are just people, people we group into a particular clump due to the amount of money they have.  Building policies or perceptions based on how we view them is not the right way to do things.  We should set tax policy based on government needs and economic realities, not whether we think that ‘The Rich’ deserve their money or not.  We should follow investment advice based on whether it will meet our needs, not whether rich people do the same thing.  Finally, we should remember that there are many different ways to become rich, and that these differences should affect how we view the rich, whether we treat them as role models, sources of entertainment, or examples of what NOT to do.

Alright, that’s enough preaching from me; remember that ‘The Rich’ are people too, and any claims about them as single, uniform group should be taken with a huge grain of salt.

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When you get right down to it, there are only three real reasons to have money: to spend it, to give it away, and to own it.  The spending one, I would hope, should be pretty obvious; if you want to buy things, more money makes it easier to do so.  This holds whether you hope to spend your money on food, clothing and other necessities or splurge on huge indulgences.  Money may not buy happiness, but it can get you a large number of goods and services.

Giving it away should also be pretty clear.  Many of us have charities we want to support, churches or other houses of worship at which we want to tithe, or deserving organizations in the community we feel could use an extra boost.  Even barring that, most people will have children, and many of those people in turn want to pass money on to their children, either before or after they die.

Owning it might sound the most odd, but as with anything tangible, there’s a pride of ownership associated with money.  Having a high net worth, earning more money than the guy in the cubicle next to you, increasing the amount you have in your emergency fund; all these are ways in which simply owning money can serve a source of pleasure in your life.

It's all about the Benjamins

Of course, there are combinations of the above motivations that also drive our monetary habits. You can spend money on gifts that you end up giving away.  Investing your money is when you spend your money (on an investment vehicle) that you own, with the hopes it increase in value and give you more money in the future.  So it goes; everything you can do with money (with the possible exceptions of losing it or setting it aflame, two things most people try to avoid) can be summed up as one or more of these three things.

Why do I say all this?  First, it’s kind of neat to think about money, not as a tangible item, but more as a philosophical concept, to consider the underlying reasons why we put so much of our blood, sweat, and tears into obtaining these slips of colored paper and small metal disks (and increasingly, strings of numbers on a computer somewhere).  It’s something interesting to consider as you head off to work to earn your daily bread.

Second, it’s good to remind yourself of just why you’re attempting to gain more money.  Do you want to spend it, either now or in the future?  Do you want to give it away?  If so, to whom; your children, your church, your favorite charity?  Do you want to own it, to increase your net worth out of a sense of pride or as an aid to your future goals?  Knowing your goals is the first step to determining how to reach them.

Third, different goals will have different paths to reach them, as well as different tools to help you along the way.  If you’re hoping to give your money away to charity for example, you’ll likely choose a different investment vehicle (like a donor advised fund) than someone who is hoping to spend their money after retirement (who would likely use a 401(k) or IRA).  Choosing the best option for your goals depends on first figuring out what those goals will be.

So there it is, a few philosophical thoughts on the nature and purpose of money that occurred to me while writing the various posts on this blog.  Hopefully, it was mildly amusing, and perhaps even a bit thought-provoking.

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Recently, Frank Curmudgeon of Bad Money Advice posted (or rather, reposted) an article in which he discussed hyperopia, or excessive far-sightedness.  The basics of this condition involve regretting excessive caution taken in the present to avoid a hypothetical negative outcome at some point in the future.  The study he cited included, as an illustrative example, students who increasingly regretted the decision to study rather than party during their college years.  Over time, more and more students came to regret having too much self-control, versus not enough.  (I feel their pain; I wish I had done a bit more socializing and a bit less studying during my college days.)

When it comes to your finances, hyperopia can hurt you, just as can myopia (excessive short-sightedness).  You might find, years or decades down the road, that you feel you’ve gone through life without having any fun, instead saving and scrimping during your best years.  At best, this point of view can taint the otherwise grand event of saving enough to retire, or even retire early.  At worst, in an attempt to make up for lost time in the wild and crazy department, you might end up spending a great deal of money when you’re older (and have less time to make it back) than you would have during your younger days.  (Think of the guys who go through a mid-life crisis and buy a car with a six-figure price tag.)

How Do I Avoid Financial Hyperopia?

There’s no certain way to avoid being too farsighted and frugal with your money.  Each person is different, and what I might consider an excessive amount of saving, you may feel is just right.  If you do too much spending in an attempt to capture all the joys that life has to offer (and to live with no regrets), you will likely end up with not enough in savings when it comes time to retire, and end up with a heap of regrets anyway.

If there’s no way for me to tell you how much to save and how much to spend to make you happy, what advice CAN I provide?  In a nutshell, know yourself, and adjust your spending to meet your own needs and desires, now and in the future.  For a bit more advice on avoiding hyperopia, consider the following tips:

1) Splurge on Events, Not Things – Probably my strongest belief related to financial hyperopia: events are more memorable than physical objects, and you shouldn’t skimp on them if you hope to live a life relatively regret free.  Just about all the really good memories I have are from things I did, usually with friends or family, rather than things I bought.  If you want to avoid feeling like you missed out when you retire, be sure to do plenty of new and interesting things with your loved ones throughout your life.

2) Don’t Make Spending a Routine – No matter how interesting and memorable something is the first time you experience it, if you do it repeatedly, it’ll become boring and routine.  Even the most exciting and interesting vacations will become boring and start to blend together in your mind if you take the same ones every single year.  Make sure to vary your spending, in order to capture different experiences throughout your life and avoid feeling like you’ve seen it all.

3) Don’t Try to Make Big Changes All At Once – If you feel like your frugality has caused you to miss out on some great experiences in life, you might be tempted to make up for lost time by becoming very loose with your money.  In a word, don’t; going on a spending spree is unlikely to make you feel more satisfied with your spending decisions in life, and is likely to leave you significantly poorer in a short period of time.  Instead, plan out some events (or things, if you prefer) that you feel will make your saver’s regret decrease, and slowly start to integrate them into your spending plans.

4) Try to Start Young When Saving – You might wonder why a tip saying to save is included in a list of solutions to excessive saving.  The answer is simple: thanks to the power of compound interest, each dollar you save and invest while you are young has time to grow into much, much more money in several decades time.  As a result, saving a little bit (more) while you are young will enable you to spend more as you get older, without having to worry that you won’t have enough money to retire.

That’s all I have on financial hyperopia and how to avoid it.  As money problems go, it’s hard to think of a better one to have; still, if you are preventing yourself from having interesting and memorable experiences in order to save more money, you may feel as if your life has passed you by when you finally get to enjoy your spoils, and that’s something we want to avoid.  Make sure you accrue good memories as well as money during your life, and you should end up fine.

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