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Commentary on The Capital Markets- Category [Education]
2017-09-15 07:00 by Karl Denninger
in Education , 418 references
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Recently pointed out to me is what the so-called authoritative search engine of record has to say about history.

It has long been known that so-called "Wikipedia" is not an encyclopedia at all, as they intentionally bury information their "editors" do not want you to see, and will blackball people who try to fix it.  I went through this with them on my biographical entry and it took the threat of a lawsuit to stop it.  How does a dead person (that is, a historical figure) sue?  They don't, which means there's no lawful means to push back against intentionally biased "editing".

Over the last two decades schoolkids have been "using" Internet resources for various types of research.  It was revving up when I was running MCSNet; one of our larger contracts was to provide access to a large public library consortium all over the North Suburban area, along with Chicago's Harold Washington "main" downtown building. We wired dozens of facilities back when text-based access was the norm -- but of course libraries, historically, were usually about text.  Our first satellite dial-in location in Naperville was co-located in an independent bookstore.

The protocol of the day was known as Gopher, which was the predecessor to the web; it was light-weight by comparison and text-based, augmented with WAIS.

There has been a fair bit of digital ink spilled on utility providers (such as domain registrars and pipe sellers) pulling accounts and effectively blackballing people they don't like.  They justify this on a "Terms of Service" claim, but there's a large and essential difference between speech claimed to be "X" (insert whatever) and speech found to be "X" under due process protections.

The distinction doesn't matter when we're talking about discretionary business, but when it comes to utility services it's a different matter entirely.  There I believe a very clean argument exists that barring someone without judicial process (that is, due process of law) is illegal discrimination.  With the argument increasingly being made that the Internet is an "essential" service the utility argument gains sway.

Further, there are blatantly unlawful acts that some organizations, such as AirBNB and Uber, appear to have taken with regard to people they think are "Nazis" or "White Nationalists."  I remind you that public accommodation law bars discriminatory conduct of the sort these firms have engaged in -- repeatedly and publicly -- and that both public transportation and rental housing, whether short or long-term, fall under those laws.  The number of indictments against said firms?  Zero.

But the more-urgent call to action, and the reason for this post, is actually something far more-insidious and outrageous: The deliberate and outright re-writing of history to exclude not just points of view but people who were architects and major figures in various historical contexts all over the Internet -- including acts taken by major search engines such as Google.  This same paradigm is what is driving the desire to "rid the nation of Confederate statutes" and similar nonsense.

Folks, history is the study of facts.  And facts are often not pretty at all; they frequently involve extraordinarily bad actions and actors, never mind the many times more that are controversial in hindsight, whether they were controversial at the time or not.

It is utterly essential that we never lose sight of that, and that our children's education include a robust examination of history based on, and inclusive of, all of those facts.

As such it is utterly necessary that if you have children now or ever intend to have them that you demand and enforce, at the point of expulsion from office and replacement if necessary (and as many times as necessary), along with the firing of teachers who oppose same, an absolute ban on the use of The Internet for so-called historical research.

This explicitly includes Wikipedia, Google, any web-based media including the online publications of so-called "reputable news organizations", eBooks and similar.  Yes, that includes my blog.


Google "historical Europeans + white" and then click "images."  Have a look.  You'd never know who actually led the Continent -- and Britain -- for thousands of years.

The problem is that Internet-based "resources" can be and are routinely altered in undetectable ways and thus it is trivially easy to present lies by either omission or commission.  It is much harder to do the same with printed media; once printed, it's done unless someone burns or shreds it, both of which are visible to others and the changed copyright date makes clear that alterations have taken place.

Simply put you must do this, and you must do it now.

But you won't.

Because you won't -- you won't pack every single school board meeting from now until these changes are made -- we're going to lose our collective sense of history.  We're going to lose both the good and the bad from that; the context in which we evolved, the poor decisions and the good ones, and the literal erasure of the majority of those people and acts in their original historical context will be entirely lost in the body politic within the next set of students entering and in elementary school now.

Unless you're over the age of 60 you'll live to see it, but I assure you of this: You're not going to like it.

It is in fact exactly this paradigm and intentional obfuscation that has led to the rise of groups which hold that violence is an acceptable means to their ends.  The very lessons of history that teach us over the previous several thousand years that this is never acceptable have been literally scrubbed, along with the necessary context for people to understand how it happened, what the warning signs are, and why it must be stopped.

This is no accident folks.  It's an intentional act, it's being undertaken on a systematic basis, and we will lose western civilization if we do not stop and reverse it, at least in the educational system, right here and now.

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2017-09-10 13:00 by Karl Denninger
in Education , 189 references
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Ever wonder about property taxes, how they're set, and what they cover?

Specifically, the largest component of most property-tax assessments are for schools.

Virtually every State Constitution calls forth a State duty to provide a free public education.

Ok.  Fair enough.  I can argue against that quite-easily but so long as it's present in State Constitutions the law has to be followed in that regard.

But on whom should the funding costs fall?

Answer: Those closest to the output of the program, who thus have every incentive to do something about it if it sucks.

That's not you, as a common citizen.  If the schools suck in your local area you don't, for the most part, get the direct costs.  If you're a parent at age 18 your offspring are no longer your responsibility.  You can throw them out of the house -- literally.

Now it's certainly true that the indirect costs wind up on the citizens -- mostly through crime and social dependence.

The direct costs fall on the local employers.

How do you think the local electricians would response to there being no shop class? Or the local welding and machine shop?  The local construction companies would like people who can work with wood and metal too, right?  How would the computer software shop behave if schools failed to teach reasonably current computer programming languages?  Would any of the local businesses put up with High School graduates that can't write a business letter, make change for a $20 in their head or figure out sales tax on a piece of paper when the power goes out?

Nope.  They'd make a hell of a lot of noise and, in the extreme case, they could move their company and entirely de-fund the system.  That's a very effective and legal threat, which would serve to force the public education system to produce a quality product: Educated young adults.

Let me point out that when I ran MCSNet not only could not 1 applicant in 10 write said business letter while using proper English, make change for a $20 and compute the sales tax for a given amount on a piece of paper using nothing other than a pencil a good percentage of said applicants had been accepted to colleges in the area, including the University of Chicago, because they were current college students at the time!  How the hell do you both get a diploma and get accepted into college when you can't make change for a $20 in your head?

So why do we have a public school system that isn't funded by a tax on business in the state?

They are the direct beneficiaries of a good workforce and thus have the greatest incentives to make damn sure the money is spent well on people they are then able to employ!

There are many more reasons to do things this way, rather than through ad-valorem property tax levies.  One of the biggest is that it doesn't cost more to educate a rich person's kid than a poor person's.  In fact it's often the other way around; the poor kid is more-likely to be born into a broken and dysfunctional home, to have parents who are raging drug addicts or worse.  Yet today we demand that more-wealthy people subsidize these other children even though some of the parent's behavior is voluntary, often to the tune of 10x or more what the poorer family pays!  The poor family thus has no financial incentive to cut that crap out; they don't get the bill for their behavior in the form of higher school expenses, the rich bastard across town does!

The result is crap schools, especially in the cities.  It also results in schools that try to run the garbage that every kid needs to go college.  We then wonder why all the electrical and plumbing shops can't find good people to train and employ, and why all the framing and roofing seems to be done by illegal Mexican invaders.

The usual argument on the other side is that even the wealthy childless individual or couple benefits from an educated workforce.  That's true.  But that benefit is "soft" and impossible for the wealthy person to objectively measure where for the businessperson it's simple: EITHER THERE ARE QUALIFIED WORKERS IN THE LOCAL AREA TO HIRE OR THERE ARE NOT.

It's time to scrap the premise of funding schools with ad-valorem taxes.  Yes, schools have to be paid for, and yes, in a purely Libertarian world parents would pay for education on their own if they had kids, and only if they had kids.  But we don't live in that world and given State Constitutional guarantees of a free public education for all children we are left with the question of who is going to get taxed to pay for it, not whether it will happen.

There's nothing unconstitutional about a state-wide (rather than county-specific) levy for such a purpose, assessed on all employing businesses in the state.  Anyone with one or more employees (that is, other than a sole proprietor who has no employees on the payroll, whether part or full-time) should be getting the bill, from farmers employing people to pick oranges to the warehouse that pays people to move goods to the coffee shop on the corner, the lawyer's office downtown or the corporation that writes and sells software or provides Internet service.

It's in their best interest to make damn sure they have qualified workers available to them, and thus they're the best people to assess the quality of education and demand improvement because they will be like rabid dogs sicced on the County Education Boards to make damn sure they get their money's worth.

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There's an interesting article in The Atlantic that contains a graph you should pay attention to:

This is the number of hours you must work at minimum wage to pay for a credit hour at Michigan State University.

In 1979 it was about 10.  Now it's about 60.

Note that a "full load" is generally considered over 12 credit hours per semester; let's take the minimum (you usually need 120 hours to graduate, so this would be a "five year" plan); this means you would need to work 120 hours (or about 10 hours a week) to pay for school while in school.  That can be done along with the academic load.  It also can be done during the summer. Note too that tuition is nowhere near the entire cost; the usual "all in" price is about double tuition expense, so you would need to work 20 hours a week to cover it.  Again, that's doable -- two 8 hour shifts on the weekend and an hour four nights a week, and you're good.

Today, at six times that cost, it cannot.

The conclusion, however, is backward:

Is it any surprise that so many students today are suckered into taking out non-dischargeable loans, in growing chunks, to pay for their bachelor's degrees?

Wrong answer.

The reason the price went up 600% is the availability of those loans.

That is, it was the financialization of education that made this possible, because it is through financialization that entities sit down and figure out exactly how much they can extract from others in a transaction, causing the price to rise right to that limit.  At the same time they lobby vigorously for "ever-easier-appearing" (but more-onerous in fact) terms that increasingly transfer the fruits of the result of whatever has been financialized from the buyer to the seller through that increased price!

The result of this paradigm and the unholy alliance between banks, Wall Street, Washington DC and the colleges themselves is that the marginal utility of college degrees for many, perhaps even the majority of students, is now negative.

Remember that the school, the lender, Wall Street and Washington DC do not care about individual outcomes.  They could give a damn about whether college is a good deal for you.

That is what happens when anything becomes financialized; the only metric that matters is the aggregate outcome for the financial chef; that is, his goal is to strip all but one penny of the benefit on average from the participants and keep it. 

The closer he gets to that goal the more money he makes.  He does not care about your outcome, only that in aggregate the pool of "buyers" keep just enough that the next group will come in the door.

In other words so long as they can point to a few rocket scientists that make $100,000 a year right out of school that you can only make $30,000 and leave school with $150,000 in non-dischargeable debt,  thereby virtually guaranteeing financial hardship if not outright bankruptcy, does not matter to them at all!

The colleges are not only aware of this they are willing participants in that they have their own finance offices that will help you arrange for your own fiscal destruction and, if they (or you) can talk your parents into it, theirs as well.

This must be stopped -- but until the financialization of education is reversed it won't be.  Until that day comes the best you can do is to take a long, hard look at the numbers and figure out how to get the education you want without taking any debt at all.  If that cannot be done given your specific set of circumstances then in most cases what you're proposing to do is objectively a bad deal.

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So by now you have three reasons to tell the college finance office to go blow a donkey when they "propose" that you go into debt to fund your education.  You can read them here, here and here again if you need to.

Now I'm going to give you the biggest reason of all not to do it, and it has to do with your personal wealth over time.

It's simply this: Statistically speaking you will never get rich working for someone else.

Oh sure, there are exceptions.  You might wind up working for the next Google before it goes public, and be far enough up the food chain that you get stock options and the company hits the home run in the public markets and those options vest and they're successful long enough for you to cash them out.

That's a lot of "ands", by the way, so let's put probabilities on it.

  • Working for the next Google: 1 in 10, if you work for a startup. 9 of 10 fail entirely.
  • Being far enough up the food chain to get a lot of options: 1 in 5, if you're high-skilled.
  • The company hits the home run: 1 in 10 again; from venture capital to IPO with nothing that blocks them in the middle somewhere due to a mistake.
  • The options vest: 75%, probably, provided you get the other three first.
  • The firm succeeds long enough to cash them out: Lockup periods and all, you know.  Maybe 50%.

So how's this work out?  .1 * .2 * .1 * .75 * .5 = 0.08% chance.

In other words, less than 1 in 1,000.

Still think this is a good path to getting rich?  Uh, no.

By the way, I still have some paperwork somewhere around here with a bunch of options that I was granted in a spin-off that ultimately did go public.  So I got 1-3, and guess what -- the firm failed anyway and thus the options were worth zero.

Oh well.

This, by the way, is why you never, ever count those options as part of your compensation when you're figuring out whether to take an offer in a non-public firm, even if it's planning to go public.  The odds are overwhelming that you have a nice small stack of pieces of paper with their highest and best value will be found in starting a campfire or your BBQ in a few years.

Now sure, there are exceptions.  Google has its share of millionaires, as does Facebook.  But remember that people win the Powerball all the time as well -- this does not make buying Powerball tickets a good investment.  In fact the lottery, just like options in non-public companies, are a stupidity tax to the extent that you actually expect either to be worth anything.

What options in non-public companies are is an incentive for you to work hard in an effort to make them valuable.  They do a very nice job of that, by the way, and my comment on the odds has nothing to do with whether they're proper to grant to people.  They clearly are, and they clearly serve a purpose, but the purpose isn't making you, the grantee, rich.  It's to do the firm's level best to spike your performance in your job to the maximum possible extent.

So how do you get rich?  You work for yourself.

Let me clue you in on a secret to working for yourself: It is utterly essential that your life overhead is as low as possible in order for you to succeed in working for yourself.

The reason is this: On average you will fail at least once, and probably more than once, before you succeed.  It is only through having a very low life overhead in the form of essential spending that you will personally be able to get through those failures without being rendered destitute, having creditors chase you, being thrown into the street or all of the above.

Don't be fooled either by the claim that you "have to" go to college to earn a good living.  That's a lie.  You can do a number of things that don't involve college yet make a darn nice living, and give yourself the opportunity for entrepreneurship.  How about plumbing or electrical work?  Both have no college requirement and reasonable apprenticeship or certificate requirements with you actually getting paid to learn the trade instead of the other way around.  There are dozens of others, from various forms of physical labor to intellectual labor such as web design, and the nice thing about all of them is that none require going into debt of any sort in order to gain the "first job", and most have a direct path into self-employment.

Now let's look at the economics.  Let's assume instead of four years in college you instead spend them apprenticing for electrical work.  Let's further assume you can make $15/hour doing so as an apprentice, then $25/hour once you have the certificate or license.  There are 2,000 working man-hours in a year, assuming 50 weeks of 40 hours and two weeks off for vacation.

So in the first two years you earn $30,000 each, and then $50,000 the next two.  You do not blow all of this on creature comforts nor do you go into debt.  Instead you stash 20% of your gross and live frugally.  In those first four years you have amassed $32,000 in savings and have no debt.

The college graduate, on the other hand, has $52,100 in debt and at the nice low current interest rates will be paying $522.35 a month on graduation.  The problem is that at graduation if he gets a $50,000 a year job he has $4,166 a month in gross income less the $522.35 in loan repayment, or $3,644.32 before taxes.

You, earning $50,000 a year at the same point in time, have $4,166.67 a month in gross income and no debt obligation at all.

Now let's assume two things: First, from that day forward you both live equally frugally and spend the same amount.  Second, the $32,000 the trade-follower amassed continues to expand.

Let's assume that inflation is 3%, or roughly historical averages (yes, that's 50% higher than Fed target, but it's reality over the last 50 years or so.)  Let's further assume you can earn 6%, or 3% after inflation, and that we will do so for 45 years before you retire.

That $32,000 the non-college-goer amassed turns into $440,467.55.

What's worse is that if you both live under the same standard of frugality from that point forward for the next ten years the non-college goer gets to add $6,268.20 to that balance every year for the first ten while the college graduate has to pay off the debt.

Now let's look at what happens.  The college graduate has zero saved at that 10 year point.  The non-graduate has $139,926.99, and both are living under the exact same standard.  The entire difference is the loan repayment the college graduate has to make.

Can he make this up over time with better salary?  Maybe.  How much does he have to make up?  More than you think.

Guess what happens in 35 more years?  The non-graduate has $1,075,490, and all of that is due to (1) living frugally during the four years while the college grad is in school and (2) socking away only the loan repayment he is not making during the next ten years.

By doing just those two things the guy who doesn't go to college has over a million dollars when he's 65.  Note that this is a quite-conservative set of assumptions -- if you can manage to get an 8% return (hint: not without a lot of risk you can't!) then that "nut" is over $2 million at age 65.

Note that neither of these guys stuck one penny in a 401k or 403b, or anything like it, from that 10 year point forward.  The college graduate is literally over a million dollars behind in retirement income at the point his student loans are paid off and he's also 14 years behind in contributing -- a crippling deficit that will require that he both make a hell of a lot more money and save more of it to catch up.

Now here's the other part of it.  Neither of these two guys will get truly rich doing this.  The college grad and non-grad will work for someone else and while both can find their way to retirement and be ok, neither is going to hit the jackpot and retire at 40 on this path.

And here's where the real bad news for the college guy who has to take out loans comes from.

During those first ten years the college grad can't start his own business because he needs that $500+ a month every month without interruption -- if he doesn't pay he's screwed, permanently.  There is no way for him to cut way back for the inevitable bad months while starting up a business where there is little or no income.

The non-graduate has the option at any point in time to split off from working for someone else, and after a decade or less he's going to be in a utterly excellent position to do so, assuming that he or she does good work.  And it is there, in entrepreneurship, that one finds the path to wealth.

Wealth, by the way, is not really about having a lot of money when you get to 65.  Wealth is actually about freedom.  The choice to change careers, to raise your kids and be there for their important times, to take a day or a week off when you want to, to "retire" at 40 and go do something else.  To have a kid that needs you there for him or her in some form or fashion so you back off on what you're doing and voluntarily accept far less economically for a while, because you can and in doing so you'll be ok. You can never do these things working for someone else; that set of options simply doesn't exist.

If you're a young adult there is one thing I will tell you above all else that will impact your economic success in life: Do not go into debt no matter how it's sold to you or what someone claims you can accomplish with it.

Either find another way or do a different thing.

How do I know this is utterly true and works?

Because I've been there and done that, both personally and in business.

That is, in fact, why I can write this column, and why you're reading it today.

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