Overparenting Parents are Lazy and Selfish

 Let's say you're the parent of a high schooler. They overshot their procrastination and now they have a 5 page paper due tomorrow morning. In a panic, they tell you about it. And although you're furious at your child's complete lack of preparation, you tell them you'll write it for them. You burn the midnight oil and come up with a decent enough essay that gets them a 90+ on the paper.

An article came out in The Atlantic about a teacher's war stories about parents who do stupid things for their kids. But the writer talked about the psychological phenomenon of parents "overparenting". But let's set the record straight: when parents do things for their kids that the kids are supposed to do themselves, it's straight up selfishness and laziness.

 It's lazy and selfish to do the work meant for your kids. Not only does it rob them of valuable life lessons and skills (dealing with hardship, learning to procrastinate effectively, etc), but it also reflects poorly on you as a parent. If you did your job well as a parent, you shouldn't even have to contemplate doing your kid's work for them. But you're caught between a rock and a hard place:

1. You failed in raising your kid properly.
2. You don't want to jeopardize their future prospects.

The second point is why it's so hard for upper middle class parents to resist cheating on behalf of their kids because every parent wants to their kids to succeed in life. But upper middle class parents already have the decoder rings and know all the secret handshakes required for accessing and staying in the upper middle class.

They remember the agony of maintaining a certain GPA, and that means getting a certain number of As and Bs in their classes and also being aware of how a single bad grade on an important test or paper can make it so difficult to claw back into the A range or stay in the B range. And because they were too busy building their career or doing other things rather than staying at home with their kids and helping them the proper way, they decide to take a shortcut.

So what do they do? They take the easiest way out of their current predicament and do their kids work for them. They "know" their kid is good at heart and is intelligent enough to succeed, because their kids are their own flesh and blood, and they were good enough to make it. So they lie to themselves and say "just this once" and then enable their kids' laziness. Except "just this once" is just the start of a relatively slippery slope that ends up with the parents shielding their kids from every bad break and hardship in their life. And that ultimately ruins the child by not letting them grow as human beings.

This is why so many millenials are suffering from a sort of prolonged adolescence. Because their parents never taught them to become adults. Because part of becoming an adult is making mistakes and learning from them. The current generation of parents can't bear to see their kids struggle for an instant, but they never gave them the real tools and confidence they need to see them succeed.

Two years ago, an essay entitled "Why Chinese Mothers Are Superior" ignited a furor across the country. The only reason why it garnered so much attention is because her parenting style was so vastly different from accepted American norms while it also seemed to be getting the exact results that upper middle class parents dream about. Here's an excerpt:

Western parents try to respect their children's individuality, encouraging them to pursue their true passions, supporting their choices, and providing positive reinforcement and a nurturing environment. By contrast, the Chinese believe that the best way to protect their children is by preparing them for the future, letting them see what they're capable of, and arming them with skills, work habits and inner confidence that no one can ever take away.

The writer, Amy Chua, was relentlessly criticized by many in the media. But she got the last laugh. Her older daughter played at Carnegie Hall at the age of 14 and currently goes to Harvard University.

Real Time With Bill Maher: Retrospective and Analysis (1/25/13)

Very good episode last Friday. All of the panel guests were well spoken (although at times, very grating in their toe-the-party-line PC speak) and there was some pretty substantive debate. There's no significant disagreement I've found with Maher on the show, so this is gonna be more of a retrospective and analysis.

1. The Politicians: The show had 2 active politicians on, and 2 inside-ball players and at times it got pretty unbearable when they were talking. I understand that they simply can't say what's actually on their minds and that they are more than aware that any awkward phrasing is going to end up on the news cycle and hurt their political star. But it makes for a boring show at times. Let me give a few examples:

Pelosi on what the Democrats can realistically achieve during President Obama's second term: Create jobs and reduce the role of money in politics. It's such a PC non-answer.

Tester on agricultural subsidies: We need to provide a safety net for farmers (the richest constituency in America, even ahead of bankers) and then root out waste and cut redundant and nonperforming programs. Oh, and cut corporate welfare too. I mean, who can honestly be against that kind of thing?

Pelosi on skewering the Republicans as not believing the government: They're against "clean air, clean water, food safety, public education, public safety, public transportation, public health...". We get it, you're a Democrat and you have to rile the base. But you're not at a political rally. Can we get some real dialogue? Obviously the Republicans believe in government.

2. Howard Dean: I wish more Democrats who went on the show were like this guy. The guy has to parrot some talking points and get his applause lines in, but he could have a reasonable debate and come to an agreement or a respectful disagreement. The dude can definitely be a blowhard, though. He tended to dominate certain parts of the show by engaging in long winding monologues designed to be catnip for the audience. But I'd rather have him on than, say, Rachel Maddow.

3. Karen Soltis: She was on the show one time before and I wish she was a regular. She's a Republican pollster who is intelligent, well spoken, and is obviously one of the Republicans who's frustrated with the state of the party and with many of the idiots and wackos found in it.

When Howard Dean went on a rant on abortion and how it degrades the status of women, she brought up a very good point on how many people view abortion as not solely about the woman. There's also another life to consider as well. Her point about not focusing on polar extremes and trying to come to a consensus in the middle (which, while very PC, was actually apropos given the fact that up until that point, Maher and Dean were talking about extreme cases) was dead on.

Oh, and she's quite easy on the eyes. Yes, it had to be said.

4. David Avella: One word: fake. And he got completely called out by Maher when he couldn't come up with any real instance of name calling by the President, instead lamely insisting that "right wing" is name calling.

5. Contract law and GMO seeds: I really hated Jon Tester on this subject because he simply picked an unpopular target (Monsanto, which is essentially the Third Reich in the eyes of Democrats) and then slung a populist attack at them. What he ignored is that he always has the choice not to do business with Monsanto. That's the real issue at stake here.

Also, the sidebar about labeling GMO products is disingenuous. There is no deleterious effect that GMO crops have in the human diet. Requiring them to label food products as such is nothing more than a panacea to the left wing health nuts. It's very similar to the Republican obsession with voter ID laws.

6. The percentage of crackpots in each party: This was a crowd favorite, but let's get real. Dean was underselling the amount of embarrassing people that his party contains. Yes, there are tons of really dumb Republicans out there who believe outrageous things, but I would say the proportion is pretty similar over on the Democratic side. But since the most popular media outlets (with the sole exception of talk radio) heavily favor the Democrats, you don't get the same kind of media exposure for morons within their party.

Everybody wants to believe that their ideology is where all the cool kids are. But the reality is every smart person has to rub shoulders with a bunch of morons in order to get elected to political office. That's true regardless of what political party or ideology you are affiliated with.

7. The 23.5%: This is something where I think Republicans and Democrats can eventually come together on. I'm glad Bill Maher raised the subject of people on Social Security disability because it is a serious issue. The growth of the disability rolls has exploded since the Great Recession for obvious reasons: unemployed people who still can't retire on Social Security apply for disability because they never saved enough when they were young, healthy, and gainfully employed.

The worst part is that, despite the massive delta between taxes paid and benefits gained from Medicare and Social Security, it's so hard to convince Americans that they don't "deserve it". When Soltis brought up the point about people seeing their pay stubs and looking at the FICA deduction, she hit yet another nail on the head.

The wagon is getting full and heavy. If a few more people get on it, then we will have become a European style social democracy. Say hello to chronic 8% employment and perennially terrible job markets for young people.

8. Apparently both Maher and Pelosi are morons: It's called "plurality". Look it up. Whites will no longer be a plurality in California sometime this year.

Real Life Intervenes

I planned to have some things written up this weekend, but my real life job had me working 22 hours over the weekend and I'm just completely exhausted. But our project go live is successful and I'll be churning out stuff like clockwork this week.

The Metamorphosis of the Lumpenproletariat

During the years that the Greatest Generation fought in the cities of Europe and the sands of the Pacific, the average American family was living in absolute squalor, comparable to the worst part of the Great Depression. Everything of economic value was rationed. Almost no new houses were built during this time and even fewer cars. Farms sent their food to the GIs overseas. Ford and GM's factories were retooled to build Jeeps and Shermans. And the government encouraged the American people to grow Victory Gardens to help reduce farm output allocations for the home front.

When the boys arrived back home, all of that pent up consumer demand was unleashed. Combine that with the surviving veterans' pay (forced savings on behalf of the war effort) and the deceased veterans' insurance payouts, the majority of America was lifted into middle class comfort over the course of the 50s and 60s. Arguably the biggest beneficiaries of the return to a regular economy, the American auto industry was born anew and entered its golden age.

This period saw Michigan, home of the auto capitol of the world, become the richest state in the union. Teenagers would complete high school (or drop out) and then get a factory job with one of the auto companies based in Detroit and get paid wages that could support the economic needs of an entire family. GM, Ford, and Chrysler were the titans of American industry and the biggest companies in the biggest, most profitable market in the world.

And everybody benefited. But not everybody benefited equally. For Americans with less than a college degree, a factory job was the best job to have. The people who didn't have them were left doing things like tending shops and restaurants, mopping floors, and doing other menial jobs. You know, townie jobs.

But the rest of the world rebuilt from the ashes of WWII. Tariffs were reduced. Prejudices (that prevented Americans from buying German and Japanese cars) softened. And suddenly we were thrust into a brave new world of globalization.

You know how the story ends. Factory jobs become less numerous and paid less. Workers were laid off and gained jobs in other industries that didn't pay as well. And, according to the CPI, median wages for workers have remained stagnant since 1964. And this new round of globalization, combined with high tech robots that can replace manual labor, and software developers (like me) looking to replace jobs that used to require a reasonably intelligent brain with computer algorithms, is scheming to send the rest of society into menial job land.

This is the story that many in academia and journalism love to tell. It also happens to be wrong. Because the majority of American people never had career-track jobs nor menial jobs that paid like career-track jobs. Even in 1950, the heyday of the factory worker, only 1/3 of the non-farm workforce (back during a time when there were still a lot of people who worked on farms) worked in a factory. And a bean canning factory job didn't pay nearly as well as a car manufacturing factory job.

In the 50s and 60s, most of the south was still extraordinarily rural and dirt poor. In the 50s and 60s, most people on the east coast still lived in the city and made their living working in shops and warehouses. And while the high paying factory job is gone, others have taken its place. Government workers are now a bigger percentage of the population than ever, and for the first time ever, their average compensation and benefits now outstrip that of the average private sector worker.

Jobs that didn't even exist in 1950, like software development, have created a new class of high earners (if you need proof, just look at how the purchasing power of software developers have completely upended the San Francisco real estate market) while certain professions in established industries (mostly finance and insurance) experienced tremendous growth in wages due to the changing nature of the economy.

The story of a collapsing middle class is partially true due to the decline of pensions and the gross mismanagement of the retirement vehicles that replaced them (401ks and IRAs). But the rest of it is just overhyped by journalists who are suddenly feeling the very same economic pressures that downsized the American factory worker. Print journalism is collapsing and online journalism doesn't come close to offering the same wage, benefits, and job security that most journalists and reporters were accustomed to in the pre-internet era.

Fundamentally, the lumpenproletariat never really changed. But now a non-STEM college degree is the new high school diploma, student loans aren't dischargeable in bankruptcy, and a large portion of society's opinion-shapers are feeling the squeeze.

Welcome to the suck, journalists.

The Ivy League Analysts

I wonder what it's like to be a journalist or a pundit. You write about stuff, make proclamations, and form strong opinions on things that you barely know about. And once you get to nationally read publications, it seems like every other editor or writer has an undergrad degree in journalism from a various Ivy League or top-20 school.

The end result is a bunch of nonsense spewed out as if it were fact. This article is one particular example I want to showcase:

It's a very provocative and confident proclamation. But here's the rub, it describes a future occurrence that may or may not happen. And it very well could happen, but at this point, it's a way safer bet to assume that this isn't going to happen. But why does Mr. Manjoo think otherwise?

If you read the article, he cites a few things. Amazon has plans to spend 1.6 billion dollars on new distribution centers, bought a company that specializes in shipping robots for 775 million dollars, and notices that he very often gets next day delivery on his 2-day delivery purchases. That's it. And that's after he acknowledges that Amazon is going to lose a big pricing advantage (when they roll out distribution centers, they have to collect sales tax in that state).

The end result is that we're all supposed to buy the things we want online at Amazon and have it arrive at our doorstep sometime right before we come back from work. Now maybe he knows he's stirring the pot and that he doesn't really believe what he says. But based on the writing, it's hard to believe that. 

It's very hard to believe that any company could "destroy local retail" with a 2.4 billion dollar investment. Not only that, but it's very hard to believe that Amazon can succeed at beating local retail at its own game, especially giants like Wal-Mart, who spends much more than Amazon does when it comes to improving their own logistical operations.

But all of that pales in comparison to the financial situation that Amazon finds itself in:

See that? Look at the part where it says P/E (price to earnings ratio). The number next to that is 3583.4. What does that mean exactly? It means that if Amazon remained as profitable as it currently is and returned all of its profits back to its shareholders, it would take 3583.4 years to recoup the initial investment if an investor bought its stock today.

The only reason why investors buy companies with high P/E ratios is if they think the company's profitability will grow incredibly fast. But a P/E of 3583.4 is astronomical, and the company has had a P/E over 500 for a couple of years now. Amazon's best year was last year and it made 700 million in profit. By comparison, Microsoft made 16 billion in profit that same year, 23 times as much, and only has a P/E of ~15.

Investors seem to think Amazon will turn into a huge retail monopoly that will be able to charge monopolistic prices to the consumers held captive by its business model. It absolutely baffles me how ridiculous Amazon's stock price is. Everybody is looking at revenue growth and assumes profits will eventually grow at the same rate. I'm highly skeptical that this can happen. But at the same time, billions of dollars a day are traded on that assumption. I have no idea why Wall Street collectively decided that Amazon was going to be the company to pull a feat like this off.

On the back of all this, Mr. Manjoo thinks that higher prices due to sales tax is more than a fair price for a consumer to pay? Would Amazon be such a great deal if all of its goods cost 20% more (roughly the amount that Amazon would cost consumers if investors treated it like a mature company plus the collection of state sales tax)?

Now, things could turn out much differently and maybe both Mr. Manjoo and Wall Street will be right and I'll be wrong. But I'm willing to admit as much. There is almost no doubt in Manjoo's writing, and it's that kind of attitude that you find in the opinion pages of almost every national publication. It bothers me a lot. And I haven't even begun to talk about the breathless arrogance implied by Slate's You're Doing It Wrong segment. But that's for another day.

I have a segment of my own called Predicting the Outcome. I make a simple prediction and then I keep a running tally of how many I got right and wrong. So far I'm 1-1 with the jury still out on 2 others. I just wish the Ivy League analysts at all these journals and newspapers did the same thing.

Real Time With Bill Maher: Counterpoints (1/18/13)

Sorry for the late counterpoints. Usually I like to have them up right after the show or the following morning, but I just couldn't get around to it. Anyways, let's get to it.

1. Defense cuts: In the show, Maher goes on his usual rant against defense spending. And the reason why he can get away with it is because of two unavoidable truths:

1. The US spends more on defense than the next 10 countries combined
2. There is extraordinary waste in the defense budget

Personally, I'm torn on the subject. There is growing evidence that, given the current structure of the budget, there is not enough money to replace/maintain our aging fleet of aircraft and naval vessels. But we are also the most powerful military in the world, and the only country with armed forces capable of deploying overwhelming force anywhere in the world (with the possible exception of the UK).

Force projection is our military's sine qua non. Following that is the exceptional training, readiness, and experience of our combat personnel. All of that costs money to build and maintain. And building from scratch is much more expensive than providing for the current state of affairs. While there is extraordinary waste in the budget, a lot of that comes from the appropriations process that Congress loves to manipulate. Every Congressman has to get their own piece of the defense pie, and that means a bloated procurement process.

And there is also the legitimate quandary that other countries could soon decide to spend more on defense if they perceive the US to retrench from its commitments. History has shown that the periods of greatest conflict occur when the dominant power shows increasing signs of weakness, which emboldens upstart powers to challenge that status.

2. Giving the crazy a voice: In the show, Maher referenced some stupid Glenn Beck idea and an outrageous comment from a now-obscure former Republican official and wanted the panel to condemn the ideas. But instead, the panel called him out on hit, saying that these sorts of people are instigators who want to create controversy in an attempt to draw attention to themselves.

I'm glad that the panel called him out on it because all too often, the right-wing publicity whores (Beck, Limbaugh, Coulter, etc) are trotted out by the Democratic leaning media as examples of the extremism and ridiculousness of the Republican Party. Because the intelligent and well informed Republicans (if you rolled your eyes after those words, you're part of the problem) don't confirm the media's preconceived ideas of stupid Republicans, they are much more obscure and their ideas and statements don't get the same kind of coverage.

 There's a lot less separation between the actions of the Democratic Party and the Republican Party than people think there are. But because we attach so much importance to symbolism and speech, we use that as an excuse to create wedges between various portions of the electorate.

3. Boiling frogs - gun control edition: What Martin Short advocated on the show, incremental gun legislation with the aim for the near-eradication of universal individual firearm ownership, is the goal of many self described progressives and "hardcore" Democrats.

This is modus operandi of every non-democratic politico out there: we know that our end goals are impossible to implement if presented wholesale to the public, but surreptitious and incremental advances can achieve our end goals over the course of time.

If I had to describe progressivism in one sentence, it would be this: the advocacy of ideas which are currently anathema to the majority of people that will eventually become acceptable/desired in the future. In this case, the progressives are the agents of history. And they get to be the "good guys" whereas those that obstruct the march of progress (Strom Thurmond is probably the poster boy for this archetype) are condemned to infamy in the history textbooks.

It's the fantasy of just about every serious Democratic politico out there. Bill Clinton, who knows how to rile up a crowd, famously said in 2008:

It didn’t work in 1992, because we were on the right side of history. And it won’t work in 2008, because Barack Obama is on the right side of history.

It is this obsession with being on the right side of history that keeps the progressives going. And the numerous reality checks they get in the present don't deter them, because they know, in their hearts, that this too shall pass. And their goals will be realized in time, and then it's on to the next cause.

That is the kind of self satisfaction is what drives certain Republicans (and me, although I am NOT a Republican) crazy. Because it is true, the endgame for Republicans and Democrats are different. For Republicans, it's the continued dominance, now and forever, of the United States. For Democrats, it's about an egalitarian society in which everybody is entitled to a "comfortable" standard of living and has near-unlimited individual freedoms in the social sphere.

There is obvious friction between those two ideologies. And Democrats are mad that most Americans subscribe to the former (hence their endless, obviously frustrated, proclamations that "the US is still a center-right country"). But, according to their ideology, that too, shall pass.

4. Rula Jebreal is crazy attractive, and crazy annoying: In my mind, Rula Jebreal is the prototypical progressive. She is forthrightly self-righteous and loves to champion the cause of the underdogs. Progressive climate change policy and Palestine are the two perennial losers of the political world, and thus the most endearing to progressives. But it's the way she carries herself about these issues that makes her grating.

When Bill Maher moved on to the Manti Te'o controversy, she interjected something to the effect of "why are using your show, an incredible political platform, to talk about trivial bullshit?" And that was when I realized that, although it is the politically correct stance to acknowledge that the controversy is trivial in the Grand Scheme of Things™, she's being a self righteous prick. It behooves me to quote Adam Smith:

Be assured, my young friend, that there is a great deal of ruin in a nation. 

Change that to "the world" and you get my meaning. This is a planet of 7 billion people. There will always be a ton of tragedies, unfortunate circumstances, and general unpleasantness. It's simply unavoidable. And now it's time to quote House: 

If we were to care about every person suffering on this planet, life would shut down.

Sorry, but sometimes having an endless parade of bad things brought to our attention puts us in a bad mood. Why are you, Rula Jebreal, wearing makeup when you could have used that money to donate to starving kids in Africa? Why are you, Rula Jebreal, wearing expensive looking clothes when you could have used that money to give antibiotics to poor people in Indochina?

So fuck you, Rula Jebreal, in your self righteous asshole. You may be able to get away with it because you're ridiculously hot, but trust me, if you weren't, you'd be ostracized until you finally figured out that we simply don't have the capacity to use our undivided attention to care about every single bad thing that goes on in the world.

5. Michelle Caruso-Cabrera got cheated on: You can just tell in the way that she said "he's lying. He's lying. He's lying" as if she felt compelled to say it three times in a row.

A Journalist Who Thinks He's So Smart

James Fallows, a writer for The Atlantic, wants to believe that the news side of the Wall Street Journal is going increasingly conservative, likely under the direction of Rupert Murdoch. This is his latest proof.

Because the Journal doesn't editorialize in its headline, it is somehow less objective and more partisan than the New York Times and the Washington Post? Gimme a break, man. Oh, and if you bothered to read the first friggin' paragraph, it says this:

House Republican leaders Friday proposed extending the federal debt limit by three months, marking a significant shift in GOP strategy that could reduce the market-rattling risk of the U.S. running out of cash to pay its bills.

 Sorry, dude. But sometimes it's to get to the most important part in the headline (that the Republicans wanted to raise the debt ceiling) and then leave the analysis within the article itself. Your smugness is overwhelming, James Fallows. But if that weren't the case, you wouldn't write for The Atlantic (which, in all fairness, is my favorite daily outside the WSJ).

The Wall Street Journal is simply letting their readers know the most important part. The "reversal" doesn't matter. The fact that the debt ceiling will be raised is the important part. That's what investors and executives, the readership of the Journal, care about. You can argue about politics on your free time. But when you're on the clock, it's all about who, what, when, where. The why is for chumps.

That's what news is about. The fact that he sees this as a failure on the Journal's part reveals more about his own prejudice than the integrity of the Journal.

The Tragedy of Living in the Present

A family living in the 50s, 60s, and 70s built their wealth primarily through real estate, ie the home that they lived in. When the man of the household retired, he'd be presented with a gold watch from the one company he worked for his entire adult life, he would finally own the deed to the house that he lived in (or would be really close to it), and he would have a generous pension and Social Security to pay for his retirement. Life was good.

That kind of institutional stability is now gone. The defined benefit pension was eliminated in favor of the defined contribution retirement account. Congress spent the huge surpluses that Social Security generated and replaced them with IOUs that future Congresses can ignore. And the American family started living beyond their means, using debt backed by the value of their homes to have the latest and greatest of everything.

The two bedrocks of American middle class wealth, the pension and home equity, are now relics of a bygone era. That's why wealth collapsed in 08. That's why families are now more worried than ever about their financial prospects. The game changed and nobody told them that it did. Salesmen and finance types marketed immediate gratification, long term liabilities be damned. And because the average American was so financially illiterate, they bought the pitch with ease.

The few people who realized that it now took decades of fiscal restraint and smart investing (in index funds that had a prudent mix of both bonds and stocks) did very well. So did the people who went into finance right as the stock market went on one of the biggest runs in the history of the American economy. Everybody else was left in the dust, happy to buy the big screen TV on credit and renovating their kitchen with granite countertops and stainless steel appliances.

But the American economy grew. The insatiable appetite of the American consumer, backed by finance companies who were all too willing to extend them credit, encouraged manufacturers and service providers to provide more and more stuff. But while American households were all too happy to live paycheck to paycheck, the shareholders and bondholders made out like bandits, because they were the only people who were willing to invest money to build the factories, office buildings, retail malls, and roads to get all this stuff to the average American consumer.

Consequently, when the music stopped and the punch bowl ran dry, the only people who recovered were the people who had significant savings. The stock market is now back to roughly where it was before the recession. The bond market is roaring. And the people who saved and invested came out largely unscathed. That's what gave rise to the plutonomy. And that's why the recovery has been so dependent on the rich and upper middle class. They're the only ones left with any money to spend. Everybody else already shot their load.

The new mantra of academia is to inflate our way out of the crisis. And since the debtors outnumber the creditors, there's a very good chance that this is exactly what's going to happen. Because the people who spent and spent and spent did so on borrowed money. If they could just default on it or pay it back with less purchasing power than they originally borrowed, it would repair the average balance sheet fast enough so that the average American could feel comfortable spending themselves into oblivion again.

Although if it does happen, and we decide that the creditors are going to have to take a big haircut, you won't see the widespread availability of credit anymore. Consumer access to credit dropped to just about zero during the recession and it remains anemic still, as businesses wait and see whether the Federal government wants to make all of their savings and investments (to them, a consumer debt is a credit on their side of the ledger) significantly less valuable.

In short, if that does happen, this is the new normal. Because the investors aren't going to invest nearly as much anymore. They're chasing yield now, but if the bond bubble pops, investors will be much less likely to provide the capital for our credit markets to function as they did when times were good. That means a European growth trajectory. And it means an entrenched but dwindling elite, as more and more people become dependent on government policy and regulation to supply their daily bread.

One of the readers of my blog asked why I don't believe in demand driven recessions. I do believe in them. I just don't believe we should mitigate the consequences of it. If it goes deflationary, I wouldn't mind it at all. Short term, the consequences would be pretty severe. But, as with all things, this too shall pass. And when it does, the country will be stronger for it.

An Article on my General Economic Views

Will be forthcoming before Bill Maher counterpoints, as per Charger Carl's comments on my post soliciting for writing topics. I just ran into an issue today.

The Folly of Federal Firearms Regulation

On December 14th, 2012, a 20 year old male walked into an elementary school and murdered 20 students and 6 adult staff. It was an unspeakable act void of any decency or sanity. Nothing else needs to be said about that tragic incident.

17 days later, President Obama announced a new set of gun control initiatives. Part legislative, part executive directives, it is a bad attempt at addressing the issue of mental illness. The measures will do nothing but create a false sense of security for a certain portion of the public. Let's go through the big issues.

1. Limiting magazine capacity to 10 rounds

There are many journalists, pundits, and politicos who express disbelief that civilians are allowed to own magazines with capacities up to 33 rounds in a handgun. But this misses the larger point:

This is a Glock 19. It's designed for concealed carry. Its standard magazine capacity is 15 rounds, plus one in the chamber. There are millions of these Glocks already in circulation with its standard magazine.

That video shows how fast you can load a pistol. Even a little bit of training can have a person completely inexperienced with firearms load a pistol in 3 seconds or less. As soon as the chamber is empty, you can load it with a fresh magazine and the pistol will cock itself, making it immediately available for use. Limiting magazine capacity is no obstacle for a trained user.

What about the untrained users you might say? First, let's not forget that there are already millions of high capacity magazines already in circulation. It would still be easy to acquire them. Second, let's not forget that all a magazine is is a metal box with a spring. It's not hard to create your own high capacity magazine. Considering the fact that mass shooters usually plan these things out way in advance, this wouldn't pose any obstacle to a person determined to kill as many people as possible.

2.  Requiring background checks on private party sales of firearms.

This simply isn't feasible. And it's unenforceable because there's no national registry for firearms. It's impossible to know if a person sells a gun to another person in a simple cash for gun deal. You can mandate a background check all you want, but it won't do squat to the person who just simply ignores the mandate. Proving it in court is going to be tough unless you have a police officer follow everybody who owns a firearm.

And trying to set up a national registry for firearms is ridiculous. It would require too much manpower and be too prone to manipulation and error. What happens if the person reports their weapons as stolen? Or if the person they sell it to doesn't bother to properly change ownership? Or if they file the serial number of the weapon off? Regulation upon regulation has to be created and enforced for what is, at best, a marginal problem.

3. Renewing an assault weapons ban.

The difference between a compliant weapon and an "assault weapon" is mainly cosmetic. No foldable/extendable stocks, barrel shrouds, bayonets, or pistol grip. There's the 10 round magazine, but that's it. And I've already addressed it in the first point.

Every year, the United States suffers about 12 thousand gun homicides. And there's a way to reduce that number in half almost overnight: ending the Controlled Substances Act. Half of all gun homicides in the US is gang/drug related. If you legalized drugs, their revenue would dry up overnight as Big Pharma scrambles to put the gangs and cartels out of business by offering higher quality drugs at a lower price.

Of course, we can sit here and argue all day on whether legalizing marijuana, cocaine, methamphetamine, and LSD is worth eliminating about 6k gun homicides per year, but it's undeniable that it would drastically reduce the amount of gun homicides in this country.

As for the mass murderers, the two most gruesome instances of domestic mass murder were caused by bombs: the Oklahoma City bombing and the Bath School disaster. You know what I bet would be an easy way to kill people? Getting a big ass truck, hauling it over to some crowded event, and then running over a bunch of people. Does that mean we need to ban big ass truck ownership for the rest of society? Because of one obviously insane person? Or what about molotov cocktails? They're insanely easy to make. Are we going to ban lighters and glass bottles?

These people are mentally ill and they want to kill to indiscriminately kill a bunch of people. The sad reality is that the government can't guarantee the protection of every one of its citizens. If someone really wants to kill you and doesn't care about the consequences, it'll happen regardless of whether you die via gunshot, stab wound, getting run over, burned to death, choked, or drowned.

People on the left are clamoring for a "serious conversation", but what they really want is false security. Here's a serious conversation. Here's another. Any serious conversation we have on the issue of guns has to acknowledge three facts:

1. There are already over 270 million firearms currently in circulation within the US, enough to arm 9 out of 10 people in the country.
2. Half of all gun homicides are gang and drug related, involving parties that already don't care about following the law.
3. Guns are really fun. Like, ridiculously fun. 

Ultimately, it boils down to this: do we let a handful of mentally disturbed people change the lives of millions of people or not? I'm in favor of not letting the exceptions write the rules.

The Weed Patrol

Ask and ye shall receive. You guys brought up some good topics so I plan on writing on them in the order received. This is the first, and it's about marijuana and its legality.

For those keeping score at home, under the Obama Administration, the Justice Department has maintained its stance against marijuana despite growing support for its decriminalization or legalization in various parts of the country. And the DEA, under new direction from Justice, has stepped up raids of marijuana dispensaries during his Presidency.

To be honest, this was a surprise to me. I had heard Bill Maher rant (before election season) about how unhappy he was with President Obama and his continued (some would say enthusiastic) litigation of the Drug War, especially when it comes to marijuana. But there's overwhelming evidence that this is the truth, and it's interesting because it is anathema to large swaths of his own Party and supporter base. To be honest, I have no idea why Obama hasn't directed Justice to either stop or weaken the enforcement of the Controlled Substances Act.

To those who say that the President is constrained by Congress and the letter of the law, it's patently absurd. The executive has extreme discretion over the enforcement of the myriad laws and regulations of the US Code and Federal Register. Deportation of undocumented (illegal) immigrants have accelerated under the Obama Administration despite a plummeting rate in illegal immigration, and that's entirely under the discretion of the President and Attorney General Eric Holder.

Perhaps it's due to the Electoral College. Voters in Florida, Ohio, Iowa, etc control the Presidency. And because voters in battleground states tend to be tougher on drugs, the President has to impose the will of swing state voters on the rest of the nation. If enforcement of the Controlled Substances Act declines precipitously in Obama's second term, then we'll have a better idea whether this is true or not.

I suspect that as older people start dying off and a new generation of middle class voters factors into electoral politics, that we will eventually see the full legalization of marijuana. But in the interregnum of unenlightened drug policy, the states are choosing to be progressive while the Federal government continues its enforcement of Jim Crow. What gives?

Democrats and progressives usually roll their eyes at the mention of states' rights, but this is probably one area where they will agree with their political counterparts. Certain states, particularly those on the West Coast, have decided that it's in the public's best interest to decriminalize/legalize marijuana. But the Federal government continues prosecuting the Drug War despite the dismay and protests of local and state officials.

I believe in states' rights (and individual rights, while we're at it) and the closer the government is to the people, the better. I don't think it's right for the Federal government to enforce a national law when a local law says otherwise and (this is the important part) doesn't hurt anybody. It's a victimless crime. And the Federal government shouldn't be in the business of moralizing from its perch on Capitol Hill.

I Need You Guys to Stomp On My Mind Grapes

Lately I haven't had much inspiration on what to write about. So help me out. Leave a comment below on what you think I should cover.

Sigh...season 2 of the Newsroom can't get here fast enough. At least Real Time returns this Friday.

Easy Money

Imagine a corporation that had 8.8 billion dollars worth of expenses and made a profit of 88.9 billion dollars in 2012. The previous year, it had made a profit of 79.3 billion dollars. If it were publicly traded, the market would price it at around 1-1.2 trillion dollars, making it the most valuable non-state owned entity in the world.

Well stop imagining. It's called the Federal Reserve. And last year, it made a profit of 89 billion dollars, all of which it sent to the US Treasury. The money it earned was primarily from its vast investment portfolio of 2.9 trillion dollars, made up of its Treasury holdings and mortgage backed securities that it bought from the banks during the financial crisis.

It represents approximately 2.1 trillion dollars of money conjured out of thin air to support the Fed's open market operations and quantitative easing and roughly tripled the country's monetary base.

These are all impressive figures. And in normal times, you would see inflation spiking as people realize that the money created doesn't have a commensurate increase in the size of the real economy. Various economists have predicted that a massive bout of inflation would occur, but it hasn't happened yet. People are a lot more fearful now, and a vast amount of money remains on the sidelines, not being used for anything.

The ball has been placed in the Federal government's court. Despite the Fed's stated reasons for its unlimited QE, it also has the secondary effect of making the cost of financing debt extremely cheap for the Federal government. The massive portfolio it has acquired in the intervening years has also boosted the Fed's profits, which by law must be handed over to the Treasury every year.

With one hand, we're enabling the Federal government's spending addiction. On the other hand, we're giving them more money to buy more stuff. I'm eager for the government to OD and we can finally sort through the aftermath. Because I'm tired of this permanent fiscal and monetary crisis that we find ourselves in. And it's time we finally unfroze the natural state of affairs and just deal with whatever we have to deal with. For the past 3 years, we've been stalling. And that's incredibly boring.

The Death of Male Privilege

Taylor, Kelly, Lindsay, Leslie, Ashley, Jamie. What do these names have in common? They used to be guy's names. If you go to the Baby Names website operated by the Social Security Administration, you can see the relative popularity of all these names, for both genders, for over 100 years. And those former guy names used to be more popular, but their popularity declined after a subsequent surge in popularity where parents would appropriate these "guy names" for their female offspring.

If enough people start naming their daughters with traditionally guy names, it'll eventually prompt other people to stop naming their sons with those names. The reason is obvious: there is no male counterpart to a tomboy. Because every major society has males at the top of the social structure, it has been advantageous for females to mimic and adopt male traits, activities, and even names. The same cannot be said for males who want to be more feminine. Society shuns and mocks them. That type of behavior is actively discouraged.

That means that traditionally male pursuits have more and more female participants. A major portion of the growth in NFL viewership has come from women. And there's still room for more growth. Which is why the league has recently forced its players to wear pink shoes and gloves during October. The league wants to be seen as more women friendly to grow its viewership even more.

What separates football from other male activities is that it is considered at or near the pinnacle of masculinity. You would be laughed out of any room if you suggested women have a place alongside men on the gridiron or if they should play by the same rules with the same equipment. But other activities, once they become co-opted by the fairer sex, lose their "masculinity". For example, in the US, soccer isn't considered masculine. Decades of soccer moms and female soccer players (not to mention the perennial powerhouse that is the US women's soccer team) have turned soccer into a near punchline in American adult culture.

This is the first mover disadvantage that men find themselves in. With the growing feminization of the workplace, many men feel escalating threats to their masculinity. Because they can't co-opt a female thing, they're left with two options: football or outlandish and in your face things that reek of insecurity. Hence the rise of the bacon craze, the man cave, the extreme and growing popularity of the NFL and college football despite the controversy around chronic traumatic encephalopathy.

The recession was the final blow to the traditional American male. There is a seemingly irreparable gulf between the men at the top and everybody else. And in between that gulf is a swelling rank of women. If you look at the gender gap in graduation, employment, average starting salaries, everything is starting to move in a much more feminine direction. A majority of all management positions are now occupied by women. 3 out of 5 college degrees awarded are to women. This is the foundation of a new, more female oriented power structure.

The world's changing. And male privilege is dying a relatively quick death. Instead of trying to play on an even field, most men would rather watch football in their man cave eating a BLT.

The Troubles of the Peasantry

Megan McArdle, my favorite writer, had a conversation with a law school professor about the economic viability of a law degree. The exchange has a decent bit of wit in it and some instances of impressive wordsmithing. But what I find most fascinating about the conversation is what the conversation is: a publicly available transcript between two elites speaking in earnest with no filter.

On why the law school crisis was only just recently being discussed:

Megan: So let's start with the contraction of the market for lawyers: do we know what's causing it? And why did it take people so long to notice?

Paul: It's being caused by technology and outsourcing. Machines can now do many things that lawyers did formerly, such as e-discovery. In addition, corporations have found that much work which used to be performed by lawyers can be performed quite adequately by much cheaper sources of labor -- paralegals, compliance officers, and even people in India.

As for why it took so long to notice, law is a very hierarchical profession, and there's a great deal of stigma that attaches to failure. So as long as the contraction wasn't evident to people in the highest reaches of the profession, such as law professors at prestigious schools and partners at top firms, it remained largely invisible at the level of public discourse.

Megan: There's a bit divide between the graduates of Harvard, and the graduates of, say, Thomas Cooley

Paul: Yes indeed, but the waterline has now risen so high that large portions of the classes at top ten law schools are struggling, so now there's a "crisis."

The main thing to take away from that is the last bit. When the elites are suffering, that's when it starts appearing in the pages of the Wall Street Journal and the New York Times. And that's when the rest of the upper middle class takes notice. Any time before that, and you've got no shot at getting the public's attention.

On why law schools get away with doing what they're doing:

Paul: Yes, and because the cost is borne by graduates (who are prone to cognitive errors, ie optimism and confirmation bias) and by taxpayers, who are a diffuse group. The benefits, on the other hand, are reaped by a very discrete group -- law schools in particular and universities in general. It's Poli Sci and Econ 101 respectively really.

On the hopeless market that JDs find themselves in:

Megan: There's always been some of that, of course--John Grisham has dramatized it quite vividly.  But now you're saying that we're basically putting the ambulance chasers out of business?

Paul: Well there's always going to be room for some personal injury lawyers, but the reality is that we're graduating 45,000 people per year for 20,000 jobs, and two thirds of those jobs don't pay enough to justify the cost of law school, so that's some pretty dire math. Of course people go to law school because they can't do math, hence here we are.

 What is he really saying? The graduates are idiots and the taxpayers don't care.

And, finally, the kicker:

Megan: I take it you've gotten some flak from your fellow law professors for pointing all this out?

Paul: Oh yes of course. Basically legal academia right now is France in 1780, and my lord doesn't care to hear about the supposed troubles of the peasantry.

The dude is absolutely correct in his assessment, but what's astounding to me is that this conversation is doing something very similar. They're both part of the upper middle class talking very candidly about real problems and yet the vast majority of the US does not understand what is happening in the legal market or law school. The extended metaphor is that Megan and and Paul are also part of the Second Estate discussing affairs of state while the peasantry (about 90% of the US population) toil in the fields complaining about the growing scarcity of bread.

The key difference between Pre-Revolutionary France and today is that the Second Estate (aka the upper middle class) is not a heritable title or privilege in the United States. The right education is all that's necessary for access. Anybody with internet access has the ability to see the strings that control the system. And anybody with the right credentials can start pulling on those strings. But most Americans, for whatever reason, don't leverage their incredible advantage into valuable, actionable information.

I've referenced Game of Thrones in the past and there's a very appropriate quote for this phenomenon: "The common people pray for rain, health, and a summer that never ends. They don't care what games the high lords play." In the US, the common people are essentially everybody who doesn't care about government, which is probably over 95% of the country.

Hang on, you might say. Over a hundred million people voted last election. You can't tell me that they don't care about government. To that, I reply that voting in elections doesn't mean you care about government. The people who care about government follow government during the "off season". They read about Supreme Court rulings, Presidential appointee battles, regulatory decisions, and the latest economic trends. And then they talk about them constantly to anyone who will listen.

Because the game that the American nobility plays is public policy. And while the peasants go about their day and their mundane little lives, the nobility will be fiddling with the levers of power. And that affects all of us whether we know it or not.

There are plenty of idiots who say something along the lines of "you can't complain if you don't vote". Let me offer something else. If you don't follow what happens between elections and then you start complaining about the blunders of government, you're a modern day peasant.

The New College Failure

Much has been written about the precipitously declining value of a Juris Doctor. As some people have put it, law school is the last resort for college undergrads who desperately want to be rich but also desperately bad at math and science.

Well now the college graduates who want to be rich and are good at math don't seem to be shaking out so well either. A pair of articles from the Wall Street Journal cast doubt on the utility of MBAs. You can read them here and here. The basic premise is that, increasingly, business schools are basing their admission decisions on the applicant's employability and that newly minted MBAs are finding that their offer sheets are not nearly as generous as they were in previous years.

This is coming on top of the mounting consensus that, in many cases, even undergraduate education isn't worth it. Tales of students with anywhere from 80-200k in student loan debt struggling to acquire gainful employment that's "commensurate" with their status as undergraduate degree holders are legion and their numbers are increasing. It seems that a growing portion of the intelligentsia are saying college isn't worth it.

I happen to agree with them. Most colleges have devolved into something barely more than an extended stay hotel that bestows a credential of dubious value after you've proved that you can occasionally show up to class and exhibit various bouts of sentience. I have a lot of friends who are either graduates or current students of Georgia State University. And based on what I've learned from them, GSU is trying to shed its identity of a "commuter school" and turn into a full fledged university offering the traditional "college experience".

So what is that exactly? Well, look at what the university is trying to do. It recently added a football program. It's acquiring more on-campus housing and trying to form a contiguous campus. The intent is obvious. It has nothing to do with improving the education their students receive (unless some administrator wants to spin an argument that a more integrated campus fosters "creative spirit" and "innovation"). It's about getting young students together and letting them drink, party, have sex, and occasionally show up to class hungover.

This problem is exacerbated by the truism pounded into the non-college educated populace that college is important and will guarantee you a bright future. Throw in the fact that the Federal government will bankroll just about any student with loans with below market interest rates, and you have a market that is remarkably insulated from cost control or quality control.

You don't need to plagiarize an essay about the regressive feminism of Pride and Prejudice in order to become a junior copywriter. Or a Starbucks barista for that matter. Increasingly, our workplace is rapidly reducing to a single question: can you produce? A college degree used to signal to employers that, for this particular applicant, the answer is "yes". That's not the case anymore.

We've shed millions of jobs during the Great Recession. And our labor utilization rate is still well below what it was in 2007. Despite that, real GDP has grown. And there is a staggering implication to be realized from that: we've essentially ejected millions of people from the workforce and suffered no productivity loss from it.

It'll still take a few more years (or even a decade) for people to realize that most colleges should be considered part of the hospitality industry. But until then, you gotta be smart. Go to a college, major in a field that "makes things", go to class, get good grades, fight like hell to get internships, and then graduate with a job offer in hand.

The Future of Beating the Market

A few years ago, I got into a spirited debate with a fellow college student about efficient market theory. This particular student was a finance major and wanted to become a hedge fund manager. Needless to say, he didn't believe in EMT. Our conversation ended with something like this:

Me: Ultimately, if you want to be a hedge fund manager, then you have to believe that markets aren't efficient. It's either that, or you want to scam rich people for a living.

Him: Pretty much, yeah.

Efficient market theory states that all relevant information has already been considered and priced accordingly by the market. If this is true, then any individual investor can't consistently outperform the market because rational investors cannot come to a conclusion that is radically different from what market has concluded (because two rational actors can't look at the same information and behave differently) and irrational investors by definition can't consistently outperform anything.

This theory is anathema to just about everybody in the wealth management industry. Because if everybody believed in it, the lucrative fees and commissions that the finance industry generates would be eliminated. But that won't happen. There will always be smart people in sharp suits trying to tell other people that they have the intelligence, pluck, and savvy to make more money than the other guy.  And there will always be people with money who are all to eager to believe them.

But it seems like the tide is slowly turning. More and more investors are pulling money out of actively managed funds and putting them in passive funds. This is mainly driven by the low fees that index funds are known for. Because following an index requires no human thought (and therefore very little human labor), the fund manager's role is minimal and therefore cheap.

But perhaps investors still don't believe in EMH. Because index funds can track any kind of index, investors could be purchasing index funds that track more exotic indices rather than vanilla indexes like the S&P 500. So if the goal is to consistently outperform the broader market (with the S&P 500 index as an approximation), investors might be pouring money into funds that only tracks a particular segment of the market and then shifting preferences as market conditions change.

It's conceivable that the future of actively managed funds would be nothing more than fund managers trying to buy and sell the right ETFs to capture outperforming market sectors at the best possible time, instead of picking individual companies. Although everybody always advises other people that "you can never time the market consistently", it seems like that rule doesn't apply for themselves.

Benjamin Graham is now taken for granted, and everybody else is searching for the extra edge on top of fundamental analysis. Because knowing the fundamentals won't deliver outsized returns anymore since everybody else already knows the fundamentals. It could be that everybody builds on top of fundamental investing, long the bedrock of modern investment theory, and incorporates macroeconomic principles and game theory into investment strategy.

Or maybe that's already happened and academia hasn't incorporated it into a named theory yet. One thing's for sure. As long as people don't believe in efficient markets, it makes markets more efficient.

I Will Never Understand Markets

End of business today:

 To be honest, I think this is an example of (temporary) market irrationality. Just about everybody (who counts) understood that Congress was going to resolve the fiscal cliff before it did any actual damage. A jump of 2.54% is very large for one day of trading and it is entirely attributable to the deal that Congress struck.

Now, in an alternate reality in which both the Democrats and Republicans dug in and jumped off the fiscal cliff together without changing anything for at least a year (a black swan event in and of itself, there is an extremely low probability of it occurring), it's conceivable that the broader market would plunge maybe 20-30% over the course of a few months. So perhaps investors were pricing something like an 8% chance that Congress wouldn't resolve the fiscal cliff before Treasury would be completely unable to forestall its effects.

I think the "correct" price should have been closer to 1%. Time and again we've seen Congress threaten to do something stupid. Like the Democratic House threatening to cut off funding for the Iraq war or for the Republican House and their "refusal" to extend the debt ceiling unless the Democrats agreed to politically impossible spending cuts. It's always a bluff. And it always gets resolved at the last possible moment before things start to go south.

As I've said before. The Republicans and the Democrats essentially agree on 98-99% of current Federal policy. These bitter political clashes are purely entertainment fodder for the masses. The politicians will posture as much as possible until they actually have to do the simple things needed to keep the government operational.

I guess most investors skew risk averse, but in a more perfect market, the continuing resolution and the tax hikes that Congress agreed to would have been greeted with a yawn from Wall Street.