Sunday, December 2, 2012

Industrial Deception - cont...

In my previous post I laid out the imbalances and inconsistencies with the impacts of the Industrialized/Financialized economic system on our personal lives. So? So what should "we" do about it?

In short, nothing. "We" should do nothing. Everything "we" have done is what got "us" here. This is beyond the Gordian knot. The complexity that has evolved is beyond anything that I can envision. It would take so much time that by the time anything was solved we would all be long dead. No, there is no macro solution. There is no going back to the Gold Standard, or 1950's America, or Woodstock America, or the Greatest Generation... Ben Franklin might need revision: The definition of insanity is taking time from your beautiful life to try and impose "solutions" on 7 Billion complete strangers - or believing some puffed-up-blow-hard-stuffed-suit of a politician can solve everyone's problems for them.

I think it was on Stu Staniford's excellent blog that I read that average lifetime earnings for those with a graduate degree is $3.5mm or so. High School grad's average lifetime earnings came in around $1.2mm. (I wonder what the median was, but that is not really important for our discussion here.)

In order to catch the brass ring of $3.5 million in lifetime earnings, an individual would had to have navigated the U.S public educational system, then the expense and time of an under-grad program, and then the Law School/Med School/MBA Grad program.

This analysis does not take into consideration the expense of that education AND all of the foregone interest, dividend, and appreciation potential of the capital required to pay for this education nor the "expense" of the family circumstances that give rise to achievement. I guess "they" assume all things are equal and every student has family resources for the $300k to $600k to pay for all of this (and its only that cheap if every student went to a public high school). If the analysis took into consideration the $500k to $1mm in principal and opportunity cost of the education, the different outcomes do not appear all that different (and granted, there is a big difference for a small percentage of these "professionals". Hedge fund managers, investment bankers, specialty surgeons and trial lawyers regularly have several individual years in their careers where they make more than the life time average of all professionals).

Especially when you take into consideration the necessary expenses "professionals" find required (impaled on?) of them.

Private schools for the kids, expensive McMansions, property taxes, marriages and divorces (high school grads don't seem to bother marrying anymore), country clubs, vacations, etc... and at the end of a career, these professionals (unless they are tenured professionals, government employees, or other recipients of pensions that have enslaved others) find himself/herself at the end of their career in exactly the same position as our average high school graduate - broke.

The entire "Financial Security" pitch is a complete farce.

$3,500,000 in lifetime earnings - educational expenses and interest, $500k; home purchase $400k; Interest on home mortgage $800k; property taxes on the home $200k (at $6k per year. Try paying $6k for property taxes in metro NYC); 8 cars $200k to $500k... we have not paid taxes or fed the kids yet.

So our average professional cannot get by on $3.5mm with a family, so both spouses have to work - or they have to forego having a family.

Having met thousands of duel income professionals in my career on Wall Street, I never met a single couple making $7 million in lifetime earnings that bought a $400k house or paid $6k in property taxes annually. Such couples invariably lived in far more expensive digs, paid much more in property taxes, and spent $500k or more on childcare before the kids were grown, paid taxes in a higher bracket... and wound up just as broke at age 60.

Think about it. Here this couple makes $250k+ per year per year for 30 years... leading to that $7 million in life time earnings and at the end of that 30 years very few of these couples have even $1 million in savings. And if that million is in an IRA or 401K it is really only worth about $650k in after tax money... Out of pocket medical expenses in retirement is about $250k per person...

Now, in order to navigate a path to the "good life", our average professional had to stress through a million academic tests, entrance exams, and applications, then state board and licensing tests, and all of the usual stress and trauma that goes with an "average" professional career. This cannot be over emphasized: How many nights did our "average" professional lay his/her head down on their pillow in the complete absence of stress and anxiety? Not many.

Now, this is the outcome if everything goes absolutely perfectly. Throw in a divorce, a serious illness, an onerous lawsuit... and the outcome goes from the best possible arrangement - at the end of the career of our $7 million earning couple is $650k in savings and a fully paid off $400k home (in constant dollars) -  to disaster. This is the outcome for the top 5% of the population (by achievement). For everybody else, the outcome sucks and the trip there sucked, too.

There is an alternative, and the lifestyles are, again, in stark relief.

The lifestyle described above is arranged around maximizing income.

One alternative would be to arrange ones life around minimizing expenses.

Just for fun, let's take all of this and turn it on its head.

What if our professional stopped class room education at 14 and was then put to work being economically productive and using his wits?

Rather than pay for an under grad degree in gender studies or English Literature our subject's parents gave their offspring $50,000 in land and $50,000 in building materials, tools, livestock and other productive assets? And then expected their child to build this only larger and with at least one productive outbuilding.

Don't think little Jimmy could do it? Of course he could, if that was what was expected of him. People do it all them time (18 year old soldiers in a POW camp in Nazi Germany tunneled 100 yards to freedom using a f***ing soup spoon. Trust me, little Jimmy could be himself a house). I respectfully submit that after accomplishing this task that little Jimmy can claim to be a highly educated individual - far more so than some Ivy League slapped ass that knows how and when to use "there", "their", and "they're" consistently.

Let's go a step further. Let's say that little Jimmy was expected to save $50,000 over 5 or 6 years working laborious jobs and learning how to do such practical things to contribute to the project with nothing coming from his parents.

Of course, why would a single young man need a house? He wouldn't. A young couple would, though, and with their combined savings they could do this without any input from their parents. Then the 2 of them could work together, learn to get along and cooperate, suffer the consequences of not doing so, and build a productive home place for themselves and their children. Instead of watching TV with their free time, they could read the great works, think the great thoughts, and learn the proper use of there, their, and they're just like their "educated" counter parts. Only now, they would own a home debt free, and instead of a consumer product POS suburban home they might own a productive property from which they might engage in commerce and family scale food production.

Let's go through the things that they wouldn't need: They wouldn't need to "meet the mortgage". They wouldn't need to pay student loans. They wouldn't need 2 cars to commute with, the gas to power them, or the insurance on that second car. They wouldn't need a nanny or housekeeper (the home would be of a size as to manage themselves, thank you). This means low property taxes. They wouldn't need a closet full of suits and the money to dry clean them. Their income tax bill would be next to nothing. If they lived in the country wood heating would be more than sufficient, and with a small home, the summer cooling season would be very inexpensive (we live in the South and the increase in electric consumption for the 3 month cooling season is a whooping $300! Or about $80 per month, with a little play for heat waves. In last summer's heat wave (some days the temp reached 109F. Not humidity indexed or "feels like" - straight up 109F - the increased bill was $120 for that month). The benefits of a small, energy efficient house are many.

And when this imaginary couple laid their heads down at night on the pillow in their mortgage free home they'd be asleep in minutes and they would sleep like babies. They would be done raising kids before they were at risk of falling and breaking a hip, and they might not only get to meet their grandchildren but be young enough to have an impact on their grandchildren's lives. This is not a common outcome in the lives of our "average" professional.

 Can you imagine what would happen to our political system if people behaved this way? Instead of only the privileged having "financial security" (I define "financial security" as having a home that you own, rather than the bank, and the ability to feed yourselves. You know - food and shelter?) nearly everyone would. The implications for The Powers That Be are rather interesting, if you think about it - but that is another discussion.

Somewhere along the line the model became sending kids to go to college so that they could commute great distances in a dangerous car to work in an office moving bytes around a screen and getting fat and unhealthy by foregoing fresh air, sunshine, and exercise - and winding up broke. To my mind, something in all of that just lacks a certain appeal.

A couple percent of these kids might escape the above mentioned fate and grow up to be Doctors, Lawyers, Investment Bankers, and Indian Chiefs, running triathalons and then returning home to their mansions with the hot tub filled with champagne, jump in and exclaim "Ta Da!". Everybody else is going off to a salt mine somewhere. These folks would be better off in a different model.

I go through this mental exercise in my own mind reasonably often because I am a concerned parent and I would hate to see my kids sentenced to the life of a Corporate Lemming. Corporations are very, very good to a very few people. Everybody else gets kicked out in their 40's with a watch, 2 kids in college, a mortgage, and $400k in severance and 401k - and they are flat broke by 50.

This outcome has happened to most corporate people. Our typical professional had a better outcome, but it was hardly ideal.

There are better models.

12 comments:

guy11976 said...

another good provocative analysis.

PioneerPreppy said...

How many counties would still allow Jimmy to build his own house? Not a trained electrician? Sorry can't run your own wire. Not a trained and certified plumber? Sorry no go on the code. How long before the carbon tax or Al Gore's campaign against fireplaces forces them away from heating with wood?

Yep now they need to pay the furnace installation company with the certified employees.

Individual and property rights are what allow mortgage free living and those rights are stripped away day after day.

These things are not important to the masses and they are the ones voting on the rules.

Rural Red States are forced to adopt abstract "Liberal" big government regulations to get their money back from the Federal Government. In some places the State will take your children if you don't have certified electrical installation and something beyond wood heat.

The lifestyle you are recommending is under constant attack. Once it could be done but I am not sure it can be today unless we fight for our individual and property rights once again.

Publius said...

Greg,
I haven't commented in a while. I've been super busy with a new job since the spring.
The new job pays a lot more than the old job, with better benefits. And the company is going somewhere, at least unless/until peak oil-induced economic contraction affects or destroys the software industry.

#1: I read about your stomach issues with concern. I've been meaning to suggest something. You are totally on the right track with the massive pro-biotics ingestion. Modern medicine is an art, not a science, but its pretense to be scientific makes it averse to things that are proven to work, such as the need for "good bacteria."

I read story a couple of years ago about a doctor up in Duluth who saved a young patient whose intestinal issues were life-threatening. I believe it had to do with taking antibiotics, which killed the good bacterial gut fauna.
The doctor inoculating the patient with a bit of feces from a donor. To put it more crudely, the doctor had the patient eat shit. A tiny amount, but still... yuck. But it worked. The patient recovered quickly. It's been replicated. I believe that the same thing is true of our skin's bacterial ecosystem, and that antibacterial soap is a very bad thing to use. Anyway, I wanted to suggest you try traditional Chinese medicine (acupuncture and herbs the main things they use). I was skeptical, but have been helped quite a bit by a Chinese doctor who at one time actually ran the program in Beijing. She also pretty much saved my mom-in-law, and other people she knows. Her treatments have helped me despite my skepticism, so I don't think it's the placebo effect.

Regarding your recent essays on finance/industrialism and the effects on the life choices people make, I am completely on board with you.

However, for my own life, it's pretty much too late to do it "right." I went to grad school a couple of times in different fields. The first time, it was paid for (hard sciences). The second time, the tuition was paid for, but I took out loans to live. I thought I was on my way to a cushy life as an elite (and elitist?) professor. Well, that didn't work out so hot. I have a trifling MA that is pretty much useless unless I want to teach at some mediocre community college (if I am lucky - the glut of academics who can't get a tenured position means that the most obscure college in the middle of nowhere has desperate PhD's applying).

I also, for much of my life, have had to deal with depression and other mental health issues. I honestly feel that I have finally turned the corner and started to become the master of my own destiny Part of that entailed totally giving up on the idea that I needed a prestigious academic job to be considered smart and a worthwhile human being.

An even bigger part of it was having a child, even though I wasn't really ready. I would never have been really emotionally ready, but luckily, neither of us believed in abortion. How someone could abort their own offspring, even while a fetus, is beyond me. How emotionally dead, self-centered, and brainwashed by modern notions of individualism one must be to pull that trigger!

I tell you, your child raises you as much as you raise him or her! Having a child forced me to grow, grow up, and grow abilities and strengths. Thank you fate.

I was in my mid to late 30's when I became a father. Thankfully, the mother is significantly younger.

Personally, I feel younger and healthier than I did before I had a child.

Sure, if I could do it over again, I would have done it sooner. I would not have gone to graduate school once, let alone twice.

Publius said...

Part II:
Everyone's path is unique, and I cannot change the past. I guess my main point is that any of us who are relatively healthy and able to work should feel grateful. We shouldn't feel that the universe owes us anything.

In fact, I think we owe the Universe or God or the Supreme Being or whatever you believe in some gratitude for our existence. And it's a crime or sin to destroy your body with crappy food, mindless entertainment, and lack of exercise.

I am also very grateful that I was, by pure chance, given a chance by a software startup with venture capital, despite my lack of formal training. Now I am some kind of "engineer," and taking online software courses for free online.

Check out: http://www.udacity.com/

Absolutely free, top-level, Ivy League level courses on computer science and other sciences. Screw the degree. Just learn.

Anyway, Greg, I know this is long-winded. I wanted to end by asking you a question:

Despite my somewhat advanced age, I would kind of like a second child. My wife is pretty much against it. I suspect she might change her mind if our income/wealth increases a bit in the next year or two.

If she becomes amenable, do you think it's a good idea or a bad idea? I love children, but two would definitely be enough. One is enough in the sense that I am grateful for what I have.

My age is a point against the idea, of course. My dad lived to be 87 despite his bad habits, and my grandparents in general lived long healthy live (my grandmother on my mom's side died at 98 and never went to the doctor). However, reality is reality.

Another option is to adopt a child from our own country who needs a family and home.

Many things to ponder. Mainly, though, I'm just busy learning new skills. Also getting a house for the first time (not going through the banks, thankfully), and will soon by doing a lot of city gardening, raising chickens, etc.

Thanks for your thoughtful blog, which I have enjoyed over the years, and which has given me some ideas and inspiration.

Anonymous said...

They don't have you eat crap. They give you a fecal enema.

Greg T. Jeffers said...

Pioneer:

Unfortunately, you are quite right. I was doing a mental exercise.

The system wants us in debt, enslaved, broke, and consuming healthcare services (18% of GDP).

The system does not want to what you and I think and do.

Greg T. Jeffers said...

Publius!

I am thrilled to hear from you! Mazel Tov on the new baby!

Publius said...
This comment has been removed by the author.
tweell said...

I'm amazed that I'm allowed to repair my car these days without being a certified mechanic. I have found a way around the other requirements, though. Contacts in low places - the trades. I help them, they help me. When I wired my garage for 208v, my electrician friend showed up, looked at what I'd done, and signed off on it. An old Navy buddy that does heating and A/C let me use his name to get a replacement gas furnace and checked it out after I had installed it. I also got a set of A/C gauges and a bottle of R-22 through him. My mechanic neighbor trades favors with me.

Friends in low places. I find them in the VFW and American Legion; just vets like me trying to get by. Church, Rotary and Lion's clubs, a bit of volunteering can get your foot in the door with a lot of folks.

Greg T. Jeffers said...

Tweel:

Good points. As the economy continues to choke people will engage in this "behavior" irrespective of the government control folks.

In the end, people will do what they need to do.

PioneerPreppy said...

Those are some good points and I have resorted to them myself with a few electricians and such. Luckily I live in a very Conservative county with minimal code laws to worry about. Yet the fact that people will have to resort to such things is the problem and a problem that is going to have to be addressed soon or forced slavery through debt will be the only option left.

Dennis The Menace said...

Industrial Deception. The united states is a high consumption economy. The inability to sustain excessive comsumption is the basis of many of the nations problems. If we had less materialism. We would not have all of the hugh problems we have today.