tag:blogger.com,1999:blog-62807656121279368082024-02-08T03:33:23.278-08:00Two-Headed QuartersHow to see through deceptive numbers and save moneyJoe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.comBlogger62125tag:blogger.com,1999:blog-6280765612127936808.post-26951157342994333422012-06-27T08:50:00.000-07:002012-06-27T08:50:07.509-07:00Gram Scams in the Information AgeThe expression “con man” is a short form of “confidence man,” which describes a scammer who employs ruses that gain the trust of his victims. Scams that target vulnerable groups, such as the elderly, using confidence tricks have been around a long time. However, the loss of privacy brought about by the Internet has allowed scammers to concoct more enticing stories because of ready access to personal information.<br />
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My father-in-law lost $6250 in a matter of hours to a scam last year, and this month, almost exactly a year later, my father became a target of scammers using the exact same techniques that tricked my father-in-law.<br />
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The theft from my father-in-law unfolded in the following way:<br />
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The phone at his house in Holmen, Wisconsin rang and when he answered his 24-year old grandson Isaac spoke on the other end with his familiar greeting of: “Hi grandpa, how are you?” Isaac, who lives in another part of the state about 150 miles away, went on to recount a disturbing sequence of events that had just happened to him. He had travelled to Canada with some friends to attend a funeral. They were pulled over for speeding and cocaine was found in the car. He needed $5950 within two hours to pay the bond to get out jail. He begged his grandfather to please wire him the money and not tell anyone because he didn’t want it to get out what had happened.<br />
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My distraught father-in-law went immediately to the bank, withdrew the money, went to Western Union, followed the wire transfer instructions, and in addition to the $5950, paid a $300 transfer fee. Within an hour Isaac called back. He needed an additional $5000 to pay a lawyer. Still in shock, my father-in-law went back to the bank to withdraw more cash, but this time the bank refused his request. The bank manager told him that he was being scammed.<br />
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How was he being tricked? The person on the other end of the phone line was impersonating Isaac. The real Isaac was still in Wisconsin having an ordinary day at work. Phone calls to Isaac’s mother and then Isaac himself confirmed that he was not in Canada, or in any kind of trouble.<br />
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Impersonating grandchildren in severe distress is an effective technique for emotionally upending grandparents to the point at which they will suspend normal skepticism. Last week my father became the target of the exact same scam. The phone at his house in Clifton Park, New York rang and a person claiming to be my 23-year old son Tom recounted a similar story. He was in Baltimore with some friends and had to attend a funeral. Afterwards he and his friends went out for some drinks. There had been a car crash and he had been arrested for drunk driving. Then a second person got on the line, his “court appointed attorney,” who told my father he needed to wire $6300 for a bail bond, and gave him instructions on where and how to use Western Union.<br />
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As any good storyteller knows, filling your narrative with vivid and compelling details is the way to emotionally engage your audience. This story had plenty of upsetting details. My son’s “nose was broken in the crash,” a “woman had been hit and her medical condition was unknown,” police alleged that he had a “blood alcohol level of 0.12,” the charge was “felony drunk-driving,” and the jail was “rat-infested.” He needed to be bailed out immediately and he didn’t want anyone else to know what had happened to him.<br />
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Deeply shaken, my father said he would need about an hour to go to the bank to get the money. The “attorney” said he would call back in about an hour. Fortunately my sister and brother-in-law were visiting. My brother-in-law, who is a real attorney, told my father it was scam and suggested the obvious, that he call my son. Fortunately my son had programmed his cell phone number into my father’s cell phone a couple months earlier. Fortunately when my father called, my son answered immediately. My son was having an ordinary day at work in Rochester, New York and was nowhere near Baltimore, let alone in any kind of trouble.<br />
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So why is this scam so effective? My father-in-law, Dean Baldwin, was absolutely convinced that he was talking to Isaac on the phone. He thinks that the scammer dubbed his grandson’s actual voice. The <a href="http://lacrossetribune.com/courierlifenews/lifestyles/article_77cfd1d0-8d47-11e0-bc1a-001cc4c03286.html">article about the crime</a> that appeared in the Lacrosse Tribune reported the following:<br />
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<i>"They dubbed his voice," Baldwin said. "It was his voice. He said ‘Hi Grandpa, how are you.' That's the way he opens a conversation. We would have never fallen for it if they hadn't used his voice."</i><br />
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<i>Holmen Police Chief Mike McHugh said dubbing a voice is a different twist. "That would really take a lot of preplanning by the person, but it's possible," he said. "They already know a lot about the person they are faking."</i><br />
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<i>Brock Bergey, spokesman for the Wisconsin Department of Agriculture, Trade and Consumer Protection, said he had heard about software that allows people to manipulate voices, but he had not heard of it being used in the Gram Scam before.</i><br />
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When I talked to my father about what happened, he too thought that the voice on the other end of phone was my son Tom’s. The act is very convincing.
So are the thieves surreptitiously recording voices and then using software to synthesize fake conversations? My belief is that the scammers aren’t that sophisticated, and don’t have the time or technical know-how to bother with such an elaborate ruse. I don’t think that they need to. Real voices already lose much of their fidelity when transmitted over phones. I cannot tell the difference between the voices of my two daughters over the phone, but have no trouble doing so in person. For octogenarians (my father is 85, my father-in-law is 84) who rely on hearing aids for normal conversation, voice recognition over phone lines is much more difficult than they realize. All voices of distraught 20-something males are going to sound similar, and as a result the grandparents assume the person is whoever he claims to be.<br />
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What makes this scam believable is the knowledge of personal details that grandparents unconsciously assume are not readily available. The thieves are able to piece together family networks that extend over large geographical distances. Who else but a close friend or family member would know that my son, who grew up in Baltimore County, has a grandfather living more than 300 miles away in Clifton Park, New York? And when my son’s impersonator says he is in Baltimore that gives him immediate credibility because my father expects him to be in Baltimore. The scammers also know that grandchildren and grandparents that live far apart are probably not in daily contact, so the false story of the funeral will not be immediately challenged.<br />
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However, personal details about anyone’s life are not as personal as many people believe. Using Google searches, social media Websites, and online public records, it is now possible to pick any person and easily learn a great deal about his or her life story, friends and family relationships, and age and income level. The elderly in particular are unaccustomed to the loss of privacy that now pervades our entire society. As a result they are more susceptible to the kinds of unconscious assumptions that make this scam so effective.<br />
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The privacy genie is out of the bottle and it is not going back in. Everyday more and more personal data accumulates on the Web in databases that are easily searchable and will stay public forever. We all must be aware of the fact that thieves can now know a great deal of personal information about someone without knowing that person at all.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-2544564119010421792012-04-30T05:06:00.000-07:002012-04-30T05:16:19.009-07:00The Consumer Financial Protection Bureau: Reining in Greed<style>
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<span style="font-family: Times; font-size: 10pt;">“It is not from the
benevolence of the butcher, the brewer, or the baker that we expect our dinner,
but from their regard to their own interest.”</span></div>
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<span style="font-size: x-small;">--Adam Smith, <a href="http://www.amazon.com/gp/product/3981216237?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=3981216237" style="font-style: italic;">An Inquiry into the Nature and Causes of the Wealth of Nations</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=3981216237" style="border: medium none ! important; font-style: italic; margin: 0px ! important;" width="1" /><br /></span><br />
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The assumption behind Adam Smith’s concept of the “invisible
hand of the marketplace” is that if participants in a free market seek to
maximize their personal gains, society will benefit as a whole even though the
individuals have no other motivation beyond their self-interest. The character
of Gordon Gekko in the 1987 film <i style="mso-bidi-font-style: normal;">Wall
Street </i>expressed the idea succinctly with his exhortation that “greed is
good.”</div>
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However, in practice there have been a few problems with
relying completely on “the invisible hand.” First, for numerous psychological
reasons people do not always act according to their self-interest. For example,
many people are greedy and greed is not the same as self-interest. Greed is a self-destructive desire that is
listed as one of the “seven deadly sins.” Second, people do not always know the
course of action that is in their self-interest. In our modern complex economy
the best financial decision for an individual is not always obvious. Most
agreements concerning mortgages, consumer financing products, credit cards, and
bank accounts are complex contracts that are difficult for anyone to fully
understand. Without knowledge and understanding it is not possible for
consumers to act in their self-interest.</div>
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The government can do little to change human nature, but it
can put in safeguards against its excesses. For example, the government can
require that financial contracts be written so that consumers actually
understand the agreements. To better inform consumers, in 2011 the federal
government created the <a href="http://www.consumerfinance.gov/" target="_blank">Consumer Financial Protection Bureau</a> (CFPB). The purpose
of the bureau is to regulate consumer financial products so that the agreements
are fair and transparent. But, since its inception, the CFPB has been
excoriated by the banking industry, and the bankers have unleashed lobbyists in
Congress in a successful bid to limit the CFPB’s effectiveness.</div>
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The irony of this hostile action against the CFPB is that
the banks blamed consumers for the financial crisis. Consumers purchased homes
that they couldn’t afford, falsified mortgage applications, charged too much on
credit cards, and in general didn’t understand the obligations and consequences
of the agreements they signed. In other words, consumers were greedy and greed
isn’t good for the banks.</div>
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However the banks want to continue the same consumer lending
practices that preceded the financial crisis. Without the obfuscation and
one-sidedness characteristic of many of their lending agreements, the banks
feel that they can no longer profit. In other words, greed is good for the
banks, except for the fact that it wasn’t, which is why so many of them failed.</div>
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Complex contracts designed to disguise inherent unfairness,
benefit neither party. If a contract is so one-sided that a clear understanding
of its terms would not lead to an agreement, it is better for both parties that
there be no agreement. The banks should actually be vocal advocates of the CFPB
because adequate regulation would insure a level playing field.</div>
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Much like the role of drug testing in sports, in which no
competitor should be able to get an unfair advantage by engaging in unhealthy
practices, financial product regulation should serve the same purpose – keep
all players healthy.</div>
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But the banking industry continues to push for unfair
advantages because greed is good. In other words, greed drives the market. At
least until the market crashes, in which case the destructive consequences of
greed are everyone else’s fault and everyone else should have to pay.</div>
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What is often overlooked in Adam Smith’s quote is that the
butcher, the baker, and the brewer all need each other if they are each to have
a complete meal. If greed ruins anyone of them, it will ruin them all. In other
words, greed is not good and it is not what Adam Smith meant by self-interest.</div>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-56568709099310444092012-03-30T12:05:00.004-07:002012-03-30T12:15:09.405-07:00Understanding InsuranceIt is clear to me from reading public reaction to arguments made in the Supreme Court this week on the constitutionality of the new healthcare law, that many people do not understand the concept of insurance.<br /><br />Insurance is a means for a group of people to share the financial burden from losses that are unpredictable for the individual members, but predictable for the group as a whole. All members of the group contribute to a pool of money that is used to pay for individual losses when the need arises. Insurance is not a means for getting other people, corporations, or governments outside of the group to pay for losses. It is the members of the group that pay for losses and share in the benefits.<br /><br />Insurance agreements work best when the loss events are truly random occurrences for individuals, but have well known probabilities so that the loss rate for a large population is a known quantity. I cannot know for certain if my house will be struck by lightening this year, but I do know that it is a certainty that someone's house in my community will be struck by lightening. If everyone contributes a small amount to an insurance pool so that the total equals the expected communal cost of lightning strikes, then those that do experience lightening strikes will not suffer a catastrophic loss. Not knowing who among the group will suffer a loss that is almost certain to occur, motivates everyone to contribute to the insurance pool.<br /><br />Unpredictability is what makes an insurance contract possible. Whenever loss events become predictable, the entire concept breaks down. There are two ways that predictability can enter the system.<br /><br />•People's behavior: The likelihood of an auto accident is partly random and partly the result of a driver's skill and tolerance for risk. Because these traits tend to correlate with demographics, market pressures arise for insurance pools to either exclude, or demand higher payments from people who fit certain demographic profiles. As a result, teenage boys pay more for auto insurance than middle-aged moms. A person with a history of traffic infractions and accidents might not be able to purchase auto insurance. Even though in the auto insurance market people are treated differently solely because of age, gender, and prior history, these pricing practices are not considered discriminatory.<br /><br />• Past events: Obviously you cannot insure the past or else no one would contribute to the insurance pool for the future. Unlike the future, the past is entirely predictable because it has happened. No state would sell lottery tickets after the drawing. No bookie would accept bets on a football game after it has been played. No auto insurance company will sell a policy to someone after that person crashed. If this were allowed all these businesses would be broke in a matter of weeks.<br /><br />I feel like I am stating the obvious, but many people in the healthcare debate do not understand these points. My people are outraged that the new law forces everyone to buy health insurance, and at the same time support the provision in the law that forbids insurance companies from denying coverage to people with pre-existing conditions. But if no one bought health insurance until it was needed, no pool of money would exist to pay for claims. The insurance model would breakdown quickly and no one would have insurance. The belief that it is possible to have universal healthcare coverage without a universal mandate to contribute is completely irrational.<br /><br />In fact, without the new healthcare law the insurance model will breakdown in the near future. Too much concerning an individual's need for healthcare is predictable. Age and prior history are big factors in predicting healthcare costs for an individual, and just like for auto insurance, market pressures have arisen to exclude older and sicker individuals from insurance pools, either by barring them or pricing the insurance out of reach. But, unlike auto insurance, for which most states mandate coverage in order to drive, there has not been a health insurance mandate, so there is little incentive for the young and healthy to contribute to insurance pools that pay the cost of care for the aged and ill. Financing the healthcare system through a patchwork of private insurance plans simply isn't working because the predictability of the need for healthcare undermines the entire concept of insurance.<br /><br />Opponents of the new healthcare law argue that mandated health insurance is different from mandated auto insurance because people can choose not to own or operate motor vehicles. Therefore it is possible to opt out of paying for auto insurance. But the irony is that as a consequence of our mortality, the need for healthcare is truly universal. Even though many people would prefer not to pay for health insurance and to opt out of the healthcare system, that choice is not possible. Almost everyone will need healthcare at some point in his or her life and federal law already requires that emergency rooms treat all patients. That means that healthcare is already socialized. <br /><br />Unfortunately the emergency room is the most expensive and inefficient place to provide healthcare, and many uninsured are using emergency room services and not paying because they have no other choice. This practice further drives up insurance costs for those that do pay and prices more people out of the health insurance market. The current system is spiraling out of control. Eventually when so few people are insured that the healthcare system can no longer cover its overhead, it will experience a financial crisis with an unpredictable outcome.<br /><br />The demand for healthcare is universal and government works best when addressing universal needs. The ideologues who denounce all government interventions ignore the fact that without government action there would be no Interstate highway system, no universal electrical service, no universal phone service, no Internet, no national defense, and the list goes on. Private enterprise could not have provided these services that we regard as essential to the modern functioning of our society. The loud voices denouncing all government intervention in the marketplace ignore reams of facts. Conservatives may long for a simpler past, but I doubt many of them would be willing to go back and live in the past, and give up all the modern conveniences they take for granted today.<br /><br />Obama's affordable healthcare law is not a perfect solution, but first attempts to solve complex problems always need modifications. Scrapping the law and doing nothing leaves in place a healthcare financing system that is unsustainable. It is time to stop the shouting and have a serious, informed, and reasonable discussion on how to move forward with our nation's healthcare policies. Unfortunately in our current political climate, characterized by fear mongering, rigid ideologies, insatiable greed, and blind irrationality, I don't see that happening.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-14400190842371483912012-02-25T17:17:00.003-08:002012-02-25T17:24:13.737-08:00My Troubles with the U. S. Postal ServiceThe troubles of the <a href="http://www.usps.com">U. S. Postal Service</a> have been in the news over the past year. Unfortunately, its financial situation continues to deteriorate with no conceivable path to solvency in sight. This saddens me because I have always liked the business of the post office—the delivery of actual words on paper—typed, printed or written by hand—to any person in the United States. But, modern technology has rendered much of what the Postal Service does obsolete, and in performing the tasks for which it still has a purpose it functions badly. In fact, “self-destructive” might be a better description of its methodology.<br /><br />To be fair, the Postal Service is in a position that is by definition untenable. It is suppose to function as a private company without the need for government subsidies. In principle, that would require it to keep its expenses in balance with its revenues. Of course any private corporation with falling revenues would be forced to slash expenses or face bankruptcy. The Postal Service cannot undertake either action without Congressional approval. It cannot cut services without Congress intervening at the behest of constituents who continue to demand every service that they have been accustomed to in the past. Nor can the Postal Service simply cease to exist, as is the case with most insolvent corporations.<br /><br />But what does the Postal Service do today? Currently, I receive three types of mail:<br /><br style="font-weight: bold;"><span style="font-weight: bold;">• Junk Mail:</span> The economics of the modern junk mail phenomena perplex me. It must cost a great deal of money to produce, print, and ship the myriad catalogs, circulars, and direct mail solicitations that go directly from my mailbox to the recycling bin. I have found that if I make a single purchase from a vendor, no matter how small, I will receive mail for years to come, even if I never buy another thing. How can they make money from that practice? Even I want to buy again, I have found that a Google search is faster than getting up from my desk and searching for a printed catalog. Therefore, there is no reason to keep a printed catalog, which I use to do in the past. When will the advertisers catch on to the amount of waste involved with junk mail?<br /><br /><span style="font-weight: bold;">• Invoices: </span>Companies plead with me not to have paper invoices sent. Most vendors prefer that I receive statements via email and pay the bill with an electronic check. Evidently billing departments are more conscious of the cost of paper than marketing departments. However, I still receive and pay most of my bills the old-fashioned way, with paper statements, checks, and first-class stamps. I do this so that my wife can see how our money is being spent and a private email account would hide that information from her. I have heard of couples opening up an email account with a shared password just for the purpose of receiving and paying bills. That is not a bad practice to consider.<br /><br /><span style="font-weight: bold;">• Periodicals:</span> I still like to read printed magazines. Subscriptions have become incredibly cheap as publishers struggle to attract eyeballs just so that they can charge for advertising. I think publishers have given up getting readers to pay for the actual cost to produce and mail magazines. I might be old fashioned in regards to periodicals because the paper format is probably on the way out.<br /><br />But, it’s only in this last category of mail—periodicals—that I find enjoyable to receive. However when it comes to the delivery of periodicals the Postal System is at its worse. I speak both as a receiver and sender of periodical mail. I routinely receive weekly magazines two to four weeks late. I’m certain that it is not because of the publisher.<br /><br />I also work for a publisher—<a href="http://www.chessbymail.com">The Correspondence Chess League of America</a> (CCLA)—editing and mailing a periodical—<span style="font-style: italic;">The Chess Correspondent</span>. That job requires me to navigate the byzantine practices of the Postal Service’s system for Periodical Mail.<br /><br />The price for mailing a periodical is computed using a multi-part, multi-page <a href="http://about.usps.com/forms/ps3541.pdf">form 3541</a>, laden with cryptic jargon and acronyms, which is so complex that no one at my local postal office understands it. When I walk into the post office, I am not a customer that the postal clerks want to see. My arrival means that one of the clerks will have to take money from me in payment for a service that they are unsure of how to price. In the bureaucratic, CYA (cover your ass), mentality of employees of the Postal Service, it is better not to have customers than risk being held responsible for messing up completion of a form.<br /><br />The clerks all complain that they have not been “properly trained” in filling out the periodical mailing form. You would think learning the form would be a routine part of the job. However, the training for periodical mail involves spending a week at a special school in Oklahoma. As a result it is not uncommon for the clerks to procrastinate on processing my periodical mailings.<br /><br />In mid-December, I mailed an issue of <span style="font-style: italic;">The Chess Correspondent </span>that vanished for nearly four weeks. It showed up in no one’s mailbox, including my own mailbox just 3 miles away. (I always send a copy to myself to make sure they process my mailing.) Only after I returned, spoke directly to the postmaster, and asked for my money back, did issues start being delivered.<br /><br />I find it ironic, that my post office would rather not process my periodical, which is about playing chess using the mail, a practice that appears to be about as old as the game itself. While much of modern correspondence chess has migrated to the Internet, there are still many correspondence players who continue to send their moves on postcards through the mail system. Many players enjoy receiving hand written postcards from distant opponents, and believe or not, prefer the slower pace of a correspondence game played in the manner that it was for centuries before the Internet— using regular mail.<br /><br />Companies in trouble should be happy to see paying customers. Even better, I am a customer with a publication that promotes the use of the U. S. Postal Service. Instead the postmaster told me when I complained that forced cutbacks have decreased the resources that he can allocate for periodical mail service.<br /><br />In the mean time I’m encouraging more of my readership to subscribe electronically. Like most periodicals, we publish dated material that needs to be read by a certain deadline. Given the delivery problems, it would be cheaper and easier for our organization to not have to deal with the Postal Service. For a discount on membership fees, <span style="font-style: italic;">The Chess Correspondent </span>can be delivered in PDF format via email. Transit times are measured in seconds, not weeks. Better still, if you lose it I can easily send you another one. That is something I can’t do for the many members still waiting for their paper copy, nearly three months later.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-81633112003288636412012-01-31T06:45:00.000-08:002012-01-31T07:02:25.646-08:00Eric Cantor’s Misunderstanding of CompromiseThe <span style="font-style: italic;">60 Minutes</span> interview with House majority leader Eric Cantor broadcast on January 1, 2012 had a number of moments that revealed the causes of the current dysfunction in Congress. One particularly revealing response occurred when Leslie Stahl asked him about compromise. He said:<br /><br /><span style="font-style: italic;">"Comprising principles, you don't want to ask anybody to do that. That's who they are as their core being."</span><br /><br /><embed src="http://cnettv.cnet.com/av/video/cbsnews/atlantis2/cbsnews_player_embed.swf" scale="noscale" salign="lt" type="application/x-shockwave-flash" background="#333333" width="425" height="279" allowFullScreen="true" allowScriptAccess="always" FlashVars="si=254&&contentValue=50117371&shareUrl=http://www.cbsnews.com/video/watch/?id=7393500n" /><br /><br />Stirring, noble words, but deeply misguided when the issues that Cantor is being asked to compromise on are considered. Somehow, Cantor has pulled off the ultimate misdirection when it comes to governing. Instead of debating the morality of what the government does, he has re-framed the debate to be on the morality of having a government.<br /><br />Cantor is part of a loud contingent in Congress who refuse to compromise on budget and tax policies because according to their narrative, government itself is the problem. The constant refrain from Republicans, like Eric Cantor, that the normal activities of government are immoral, leads me to question why they even want to be a part of an institution that they abhor. If their idea of a utopia is a place without a government, maybe they should consider moving to Somalia, a country where a functioning central government ceased to exist many years ago. Of course the results have been far from utopian. With no government, Somalia has been racked by widespread famine and constant civil war, and its chief industry is international piracy.<br /><br />The preamble of the U. S. Constitution sums up the reasons for the existence of the federal government: <span style="font-style: italic;">"to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,.." </span>Obviously for the government to exist and carry out its mission, Congress must appropriate money through taxation, enact laws and regulations, and appoint judges and executive officials. There is nothing inherently immoral about any of these activities.<br /><br />However, by framing the normal activities of government as immoral, Cantor gets to have it both ways. He can avoid the tough moral choices that actual governing involves. He can say that his failure to effectively govern is the better outcome. In short, he can avoid responsibility for doing his job. But, this approach is dangerous and destructive because it paralyzes government, poisons relationships, and worst of all cheapens morality.<br /><br />When even the most basic functions of government are subject to debate, it becomes impossible for the government to operate at all. When Congressmen and staffers are denounced for doing their jobs, it becomes impossible to foster productive, cooperative relationships between people who need to work together. When <span style="font-style: italic;">all</span> disagreements are framed as battles between good and evil, it becomes impossible to recognize real moral issues.<br /><br />In fact, the vast majority of disagreements people have with their co-workers, business associates, friends, and family members do not have a moral component to them. Most disagreements are about the best choice of action from a menu of equally moral choices. Since none of us are omniscient, disagreements with the people around us are a normal part of life, which is why at a young age (kindergarten) most of us learn how to compromise.<br /><br />The government is a necessary institution; it must be funded through taxes, and in the interest of the common good, it must to some extent curb individual freedoms. Reasonable people will of course disagree on the best courses of action to accomplish the goals of government, and that means compromise is necessary.<br /><br />Framing normal disagreements in terms of moral absolutes, clashes between good and evil, heroes struggling to prevail against villains, makes for compelling narratives. But, the stories told are fraudulent. The only morality tale I see in the <span style="font-style: italic;">60 Minutes</span> interview with Cantor is the one of his hubris, self-aggrandizement, and intellectual dishonesty.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-23871654445146231612011-08-31T18:55:00.000-07:002011-08-31T19:04:31.865-07:00The Law of Unintended Consequences: BG&E Tree Trimming PoliciesToday marks day four and counting without power in my house. Hurricane Irene passed through early Sunday morning and tore up the area’s electrical grid. <a href="http://www.baltimoresun.com/news/maryland/bs-md-irene-power-20110828,0,5287786.story">Initial reports</a> were that over 850,000 customers were without power in the immediate aftermath of the storm. I’m not sure how customers are counted. Is a customer just the account holder, or the actual number of people using that account? In our household we have one account holder, but a total of five persons living in the house. If on average each account holder represents about three electricity users than 3 x 850,000 or 2.55 million people are without electricity. That is almost half of Maryland’s 5.5 million people, and there is no firm timetable for complete restoration of services.
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<br />The primary causes of the power outages are fallen trees and tree limbs. For the most part the electric poles and wires withstood the winds. But the wires cannot withstand trees being dropped on them. Maryland, including Baltimore County and City (where I live and work) is heavily forested, so almost all power lines have nearby trees. Several years ago Baltimore Gas & Electric (BG&E) decided to be “proactive” about the hazards that trees pose and sent crews out to trim back tree branches along their right-of-ways. However, as is often the case, the corporate policy makers don’t think through the real-world consequences of their policies. On my property, BG&E’s policies have increased, rather than reduced, the hazards to their power lines. I’m certain that my property is not unique.
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<br />The back edge of my property is along a BG&E right-of-way for power lines that feed many of the houses in my neighborhood. Several years ago, I returned home to find BG&E workers high up in the large mature oak trees at the end of my yard, cutting off the branches jutting out in the direction of the power lines. I asked them immediately to leave which they did, but it was too late. The damage had been done.
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<br />The tree trimmers insisted that lopping off branches would not harm the trees. That might be true if the trimmers took proper precautions, but it was clear to me that was not the case. The workers simply moved along the right-of-way, from one tree to the next, and did not stop and clean their cutting tools after each tree. There is a fungus in the area that attacks oak trees, and I had already lost several large oak trees in my yard to the fungus. I had to have the remnants of these trees cut down and removed, which is very expensive. A sure way to spread the fungus would be to do exactly what these tree trimmers were doing.
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<br />I’m sure that when trimming thousands of trees it would be tedious and time consuming to thoroughly clean cutting tools after every tree. I’m sure that my dentist finds it tedious and time consuming to clean dental instruments after every patient. However, not doing so is guaranteed to spread disease. The large oak trees, clearly many decades old, that BG&E trimmed, caught the fungus and died within a couple of years.
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<br />The trees are far from my house and no threat to anything but BG&E’s power lines. I have left them up because it would very expensive for me to have them removed (thousands of dollars), and they were perfectly healthy trees before BG&E mangled them. Through the years the wind and rain have stripped off most of the branches and bark.
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<br />Early this summer I called BG&E to explain that the trees are likely to fall on their power lines and recommended that a crew be sent out to remove them. The person answering the phone asked if the trees were touching the power lines. I said no, but I explained that when the trees do fall the power lines would be brought down. The BG&E employee told me that the trees have to be touching and putting tension on the wires before action would be taken. That is BG&E’s policy for dead trees that pose a serious threat to power lines. In contrast, when these same trees were alive and healthy and little threat to the power lines, BG&E had work crews out hacking away at them.
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<br />The morning after the storm the first thing I looked at outside were the dead trees. They withstood Irene’s onslaught and are still standing. It will not be Irene, but some other storm in the future that will eventually take them and BG&E’s power lines down. However, thousands of trees throughout the area did fall. I can’t help but wonder how many of those fallen trees were victims not of the storm, but of BG&E’s inane tree trimming program. I also wonder if the tree trimming actually prevented any power outages. With so many people without power due to fallen trees, it is hard for me to imagine that BG&E’s tree trimming programing accomplished much of anything.
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<br />Trees are an important part of the environment in Maryland. Even if it were not prohibitively expensive, it would still be undesirable to remove every tree that threatens a power line. However, healthy trees are far less of a threat than dead trees. If BG&E wants to be better prepared for the next storm, they should focus removing the dead trees along their right-of-ways instead of creating more dead trees through careless tree trimming practices.
<br />Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com3tag:blogger.com,1999:blog-6280765612127936808.post-7023822150119769952011-07-17T07:21:00.000-07:002011-07-17T07:54:31.234-07:00My Suzuki Verona: Bait and Switch Warranty RepairsOne year ago I purchased a used 2005 Suzuki Verona with about 40,000 miles on the odometer. Because of the low mileage and less than seven-year age of the car, many of its parts remained under the power train warranty. However, I have discovered that getting Suzuki to perform a needed warranty repair is extremely difficult, very expensive, and has left me wondering if Suzuki is manipulating their customers in order to cover up serious safety issues arising from design flaws.<br /><br />A risk in buying any used car is being saddled with someone else's lemon. My Verona is certainly a lemon. I understand now why Suzuki stopped making Veronas. The car has been nothing but trouble since I bought it. Over the past year, there has not been a period of longer than two weeks without the check engine light coming on and staying on for several days at a time. During those intermittent periods of engine trouble, the car hesitated when I stepped on the gas and then either suddenly accelerated or stalled. Needless to say it was challenging and dangerous to drive.<br /><br />However, diagnosing and fixing the problem proved difficult. My mechanic did the obvious-replaced the spark plugs, located and replaced a defective ignition coil, changed an O2 sensor-but nothing solved the underlying problem of hesitation followed by either a sudden acceleration or a stall. My mechanic eventually realized that the problem was with the on board computer that controlled the operation of the engine. Every time the check engine light came on the diagnostic codes from the computer were different and contradictory.<br /><br />His recommendation to replace the computer was both good news and bad news. The bad news: it is a $1000 part. The good news: it is still under warranty. However, my mechanic cannot perform warranty repairs, those can only be done by Suzuki dealers. My trip to a Suzuki dealer turned into an expensive and time-consuming odyssey that raised troubling questions about the company and its products.<br /><br />The closest Suzuki dealer to my house in Reisterstown, Maryland, is Adams Suzuki, located in Fallston, Maryland, about 40 miles away. After a hair-raising drive-the car stalled at most of the red lights along the way-I arrived and explained that my mechanic had recommended a new computer installation to solve the engine problems. The service manager received the car and told me that I would be called after they did their own diagnostics.<br /><br />The next day I was told that the wiring harness needed to be replaced. This is an expensive part ($597.15) and labor-intensive repair ($227.50), for a total of $876.38 after taxes and waste disposal fees were included, and the warranty does not cover the parts and labor. The engine and computer are warranted, but conveniently for Suzuki, not the wires connecting them. The dealer said the computer worked properly. I asked the service manager how she knew that the computer worked. She said that the computer would not generate diagnostic codes at all if it didn't work, an assertion my mechanic says is false. However, the dealership provided me with no other option but to replace the wiring harness. I reluctantly agreed, although I said that if a wiring harness replacement did not fix the car's problem I would expect my money back.<br /><br />In the mean time I rented a car so that I could commute to work. Two days later on a Thursday, the dealer called me back to say that Suzuki had sent them the wrong wiring harness and that the repair would be delayed another two days. I said that I would be out of town for the next week, and I would pick up the car on the next Thursday morning (one week later).<br /><br />The following Thursday morning I called, only to find out the repaired had just been started. The car would be ready Thursday afternoon, which forced me to spend more money on a rental car so that I could get to work. I asked for a 10% discount on the repair to offset the added expense. The service manager's reply was no. She said that it was not her fault that Suzuki shipped the wrong part the week before.<br /><br />I picked up my car that Thursday evening and paid the $876.38. The car continued to hesitate and then lurch forward, although no stalls occurred. The check engine light came back on before I arrived home. I returned to complain. This time the computer diagnostic codes indicated a vacuum leak that the dealership claimed to have repaired about 30 minutes later. I again asked about the reliability of the computer, and I was assured that it worked. I was not charged for the repair because the manager said moving parts around during the wiring harness repair could have caused the leak.<br /><br />I drove away and traveled about 3 miles before the check engine light came on again. I returned and this time the computer diagnostic codes indicated a problem with an O2 sensor, a part that I knew had been recently replaced. This time I spoke directly to the service technician who told me that O2 sensors fail frequently on Veronas, even relatively new ones. But, when I asked what was wrong with the O2 sensor, he discovered that the computer codes kept changing. First the O2 sensor was completely dead, then it was good, then it was sensing a "lean" mixture, then a "rich" mixture. I argued that a computer spitting out bad codes was a more likely explanation for the problem than an O2 sensor cycling between all four possible states.<br /><br />But, the service technician told me that Suzuki's instructions were not to replace computers, even when that appeared to be problem, but instead to replace wiring harnesses. I asked why Suzuki was so convinced that the wiring harness was bad. He explained that the original wiring harness had design flaws that caused the wires to corrode and form intermittent connections that could cause the same kind of problems as a malfunctioning computer.<br /><br />The technician said that the service department would provide an estimate for a new O2 sensor. But, I said I wanted the computer replaced before I agreed to spend any more money. If the computer spits out bad codes, I could replace parts one at a time forever. After all, there are hundreds of possible diagnostic codes the computer can generate. Reluctantly, the dealership agreed to order a new computer and replace it under the warranty agreement.<br /><br />I returned a fourth time when the new computer arrived to have it installed. I have not had any problems with the car since the computer was replaced. The O2 sensor appears to work fine. Needless to say the $876.38 I spent on the wiring harness repair has not been refunded. The dealership argues that it was still necessary, and since the car did not stall afterward, the new wiring harness resulted in some improvement.<br /><br />However, the experience raises some deeply troubling questions about Suzuki. If the original wiring harness design is indeed defective, it should be recalled. There is no question my car was dangerous to drive given its propensity to either lurch forward or stall when pressing the gas pedal. It appears that rather than issue a recall, Suzuki is instructing its dealers to replace the wiring harness and bill the customer for the expense, before doing needed warranty repairs.<br /><br />I would not have traveled to a dealer 40 miles away for a non-warranty repair. My mechanic could have replaced the wiring harness cheaper, faster, and closer to my house. I would not have had to make four round trips (320 miles total) to the dealer and spend a total of $235.55 on rental cars to get to work. But my mechanic correctly diagnosed the problem as a bad computer and recommended that I have it fixed under the warranty. Between the repairs, rental cars, and travel expenses, I spent over $1100 on what should have been a no-cost warranty repair.<br /><br />The car definitely needed a new computer. I still don't know if the car needed a new wiring harness, but if Suzuki is correct that it did, that raises deeply troubling questions about the safety of Suzuki products and integrity of its management. If it did not need a new wiring harness I should get my money back.<br /><br />The sequence of events leads me to believe that I was a victim of a bait and switch. I brought the car to a Suzuki dealer for a needed warranty repair. But, before Suzuki would honor the warranty, the company insisted on selling me an expensive non-warranty repair. If the wiring harness repair was necessary because of possible design flaws, the part should be recalled. Suzuki should not be insisting that customers pay for its replacement before agreeing to do necessary warranty repairs.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com5tag:blogger.com,1999:blog-6280765612127936808.post-13428432547158722222011-04-30T19:55:00.000-07:002011-05-01T09:07:31.460-07:00The Republican Party: In The Twilight ZoneThe ability to assert two mutually exclusive statements, as both being true, has been a requirement in politics for some time. But the cognitive dissonance within the Republican Party has gone off into the twilight zone.<br /><br />The Republicans have threatened to not raise the federal debt limit unless the Democrats agree to substantial cuts in spending. This is equivalent to threatening to end a hostage standoff with a nuclear weapon. Obviously the United States government cannot default on its debt obligations because the worldwide economic catastrophe that would result would make the 2007-08 financial crisis look insignificant in comparison. A threat that can never be executed isn’t much of a threat at all.<br /><br />Actually, it’s interesting to track where the federal largess that the Republicans so bitterly complain about goes. A <span style="font-style: italic;">USA Today</span> article on April 25 <a href="http://www.usatoday.com/news/nation/2011-04-26-new-york-government-aid.htm#table">ranks states in order of government benefits received</a>. Heavily Republican states that voted for McCain in the 2008 presidential election tend to rank high on this list, meaning that they receive more government benefits than most states. For example, West Virginia ranks number 2. Some followers that voted Republican, with their rankings in parenthesis, are Kentucky (8), Mississippi (11), Arkansas (12), Alabama (14), and Louisiana (17). Why are the Republicans in those states so opposed to the benefits that they receive? Maybe they should be careful what they wish for.<br /><br />On that note, I wish Ayn Rand were alive and giving interviews on her economic and philosophical theories. She is a cult figure in the Republican Party, especially among the Tea Party wing, for her advocacy of unfettered capitalism and ethic of rational self-interest. A new movie has just been released based on her novel <i>Atlas Shrugged</i><span style="font-style: normal;"> in which the capitalists are the heroes.</span> <br /><br />Actually, Ayn Rand, a Russian Jew who emigrated to the United States at the age of 21, was a committed atheist who opposed all forms of religion. To her, valid knowledge arose only from sense perceptions and human reason. She rejected all claims of knowledge obtained outside of the senses, such as divine revelation. It’s hard to imagine her going very far in today’s political climate as a Republican or a Democrat.<br /><br />Although, some Republicans simply ignore inconvenient historical facts about their heroes. Maybe Republican Congresswoman and Tea Party favorite Michele Bachmann could re-write Rand’s biography in the same way that she re-wrote American history in a recent speech. She stated in regards to the U. S. Constitution that: “the very founders that wrote those documents worked tirelessly until slavery was no more in the United States.” Actually, many of the founders, such as George Washington and Thomas Jefferson, owned slaves. Not until after the Civil War, nearly 100 years later and long after the founders were dead, was slavery abolished.<br /><br />On the other hand, if Ayn Rand did endorse Republicans her religious views might not matter. The Reverend Franklin Graham in an interview with Christine Amanpour says that Donald Trump could become his “candidate of choice” for president because “the more you listen to him, the more you say to yourself, you know, may be the guy’s right.” This was said in the same interview that Graham questioned Obama’s Christian faith. There was no discussion of Trump’s faith. Franklin Graham has since been clarifying his comments. I would advise him not seek help from John Kyle’s press agent for issuing clarifications.<br /><br />John Kyle stated on the Senate floor that “well over 90% of what Planned Parenthood does” relates to abortion. When called out on that obvious falsehood, his office released a statement that “his remark was not meant to be a factual statement.” I checked the definition of the noun “lie” at dictionary.com and found this definition: “a false statement made with deliberate intent to deceive; an intentional untruth; a falsehood.” In other words, according to John Kyle’s office his statement on the Senate floor was a lie. Evidently John Kyle must have realized this too because he clarified his clarification by stating that he “misspoke.” As to the earlier statement released by his office, he said: “"That was not me - that was my press person.”<br /><br />The upcoming presidential contest should be a great event for comedy writers. Unfortunately it’s going to be a very bad contest for the electorate who will have to listen to all this nonsense.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-74515234252527485462011-03-10T17:38:00.000-08:002011-03-10T17:42:19.060-08:00Closing My Bank of America Account: The Parable of the Ungrateful Servant<span style="font-style: italic;">"</span><span style="font-style: italic;">Therefore the Kingdom of Heaven is like a certain king, who wanted to reconcile accounts with his servants. When he had begun to reconcile, one was brought to him who owed him ten thousand talents. But because he couldn't pay, his lord commanded him to be sold, with his wife, his children, and all that he had, and payment to be made. The servant therefore fell down and kneeled before him, saying, 'Lord, have patience with me, and I will repay you all!' The lord of that servant, being moved with compassion, released him, and forgave him the debt.<br /><br />But that servant went out, and found one of his fellow servants, who owed him one hundred denarii, and he grabbed him, and took him by the throat, saying, 'Pay me what you owe!' "So his fellow servant fell down at his feet and begged him, saying, 'Have patience with me, and I will repay you!' He would not, but went and cast him into prison, until he should pay back that which was due. So when his fellow servants saw what was done, they were exceedingly sorry, and came and told to their lord all that was done. Then his lord called him in, and said to him, 'You wicked servant! I forgave you all that debt, because you begged me. Shouldn't you also have had mercy on your fellow servant, even as I had mercy on you?' His lord was angry, and delivered him to the tormentors, until he should pay all that was due to him." </span><span style="font-weight: bold;">Matthew 18:23-35 </span><br /><br />I thought about this parable from the Gospel of Matthew as I closed my Bank of America account at the start of the New Year. I had a long-time checking account (for more than a decade) in which I had dutifully kept the $750 minimum balance to avoid a monthly maintenance fee. In December I received a statement that showed $14 missing. At that point I read more carefully the letter I had received from Bank of America on new fee structures. It explained that to avoid a $14 monthly fee I now needed a $1500 minimum balance. I did not like either choice-paying the $14 per month or adding another $750 to the minimum balance.<br /><br />It is bad enough that the interest banks pay on deposited money is negligibly small. Now you must provide the bank with large amounts of free capital or your deposited money will be appropriated. Prior to the 2008 financial crisis, institutions such as Bank of America generated large amounts of revenue from usurious interest rates on credit cards and hefty fees for overdrafts and late payments. However, new laws forbidding some of the more egregious practices have sharply curtailed that revenue stream, so banks are instituting new fees to make up the difference.<br /><br />I decided to shop for a new bank and I was struck by some advice given while conversing with a local businesswoman. "Never do business with a bank that has more than three branches. Banks with three or less branches are too small to be of much value to bigger banks, so there is little risk of a buyout." On hearing this advice, I remembered that I had never opened an account at Bank of America. I opened an account at a large regional bank that was bought by Bank of America. The same is true of another bank I do business with-M & T. I originally opened an account with First Maryland Bank, which was bought by All First, which then disintegrated in a currency trading scandal and was acquired by M & T.<br /><br />I went to Farmers and Merchants, a small community bank with only three branches, all in northwest Baltimore County. They offered me totally free checking with no minimum balance. I opened a new account and the next day went to Bank of America and closed my account before any additional fees could be assessed.<br /><br />There are, of course, some tradeoffs with switching to a small local bank. I can only visit the bank when I'm near my house, not anywhere in the country, which was the case with Bank of America. I can only have free use of an ATM machine at one of those three branches, anywhere else I have to pay a transaction fee. But, with proper planning and use of the Internet-even small banks offer online banking-these inconveniences should not be much of an issue. I have to ask myself, is $14 x 12 months, or $168 per year worth it for the additional accessibility Bank of America offers. I would never have the need to use ATMs far away from my house often enough to justify paying $168 per year to access Bank of America's nationwide ATM network. If I have to do that occasionally, I'll pay the $2 transaction fee.<br /><br />When I closed my account at Bank of America, the manager noted that I had been a long-time customer and asked my reason. I told her that I was unhappy with the new fees being imposed. I said that it reminded me of the parable of the ungrateful servant. She didn't seem to understand the biblical reference. She handed me the cash for the remaining funds in my account and had me sign for it. No counter offer or apology for the new fee structure was made.<br /><br />Bank of America and the other large banks created an unsustainable business model that generated revenue from high fees and usurious interest rates on high-risk loans. When the model failed they were shielded from the market consequences with billions of dollars in taxpayer bailouts on the condition that they end many of the practices that caused the failures. But it appears that rather than comply with the intentions of the new law, Bank of America is looking for loopholes in order to revive their old business model.<br /><br />Of course, the large banks insist that even though they are exempt, all their customers should abide by the rules of the market place. That being the case, I think we the customers need to shop more for banking and ignore much of the slick marketing. We also need to overcome our inertia and be willing to change banks when market conditions change. It is easy to close an account and open a new one at another institution.<br /><br />Ask yourself, if I were shopping for a bank today and considering all the available options, would I choose the bank that I currently have? If the answer to that question is no, then it is time to change banks. Look around and you will find many community banks and credit unions that offer excellent services at fair prices.<br /><br />When I think about it, there is really no reason for Bank of America and its ilk to even be in business. In fact, if not for the billions of dollars in bad debt forgiven by the taxpayers, they would not be in business. But, Bank of America was not about to forgive the new fees they were imposing on me. It is time for customers to stop paying for all the lunacy and take their business elsewhere.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-81058161462623964002011-01-30T10:11:00.000-08:002011-01-30T10:22:43.464-08:00Political Posturing: Misdirection with NumbersI've written a lot about misdirection with numbers in consumer advertising. But, the political posturing seen in Congress over the past two months takes misdirection with irrelevant numbers to a whole other level.<br /><br />Consider all the indignation mustered on the Senate floor last month over the $8 billion in earmarks in a proposed bill. Let's put that number into perspective. The federal budget deficit hit a record $1.4 trillion last year. Eliminating the $8 billion in earmarks trims the deficit by 0.6%. While earmarks might be an unseemly practice, the dollar amounts are insignificant.<br /><br />President Obama's federal pay freeze will save $60 billion. It's great political theater to require federal workers to tighten their belts along with the rest of the citizenry. But, that number is only 4.3% of the deficit.<br /><br />In the mean time, Congress reached a painful "compromise" with a bill in which each side got what they wanted and no one had to pay. Republicans got their tax cuts while Democrats got their spending programs. In other words, voters have a choice between tax-and-spend Democrats or borrow-and-spend Republicans. It is no wonder that voters are angry. Most of us think that the word "compromise" means that each side has to give up something. This isn't a compromise at all.<br /><br />To solve the government's fiscal problems will require looking at the numbers that matter, in particular the large numbers. As large it might sound, $10 billion is no longer a large amount of money in Washington. In fact $100 billion is no longer that large an amount. The significant amounts are measured in trillions of dollars and saving that kind of money requires overhauling programs that no one wants to touch.<br /><br />The <a href="http://tpmdc.talkingpointsmemo.com/2010/11/deficit-commission-co-chairs-simpson-and-bowles-release-eye-popping-recommendations.php">Bowles-Simpson commission</a> made a sincere effort to propose significant deficit reduction, and few politicians of either party have embraced their proposals. Notice that their proposal will not eliminate deficits, just stabilize the problem. Their recommendations include:<br /><br />* Reducing the yearly increases in Social Security<br />* Increase the retirement age<br />* Raise the Social Security contribution ceiling<br />* Eliminate the home mortgage interest deduction<br />* Raise the federal gas tax<br />* Increase Medicaid co-pays<br /><br />These are just a few examples from a long list of recommendations, but what they all have in common is that no politician would ever dare support any of these actions. Unfortunately, these are the programs that soak up most of federal expenditures. I think Peter R. Fisher said it best in a 2002 speech when he was Under Secretary of the Treasury.<br /><br /><span style="font-style: italic;">"Think of the federal government as a gigantic insurance company (with a side line business in national defense and homeland security) which only does its accounting on a cash basis - only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting is not really an insurance company at all. It is an accident waiting to happen."</span><br /><br />-Peter R. Fisher<br />Under Secretary of the Treasury<br />Remarks to the Columbus Council on World Affairs<br />Columbus, Ohio<br />November 14, 2002<br /><br />Meaningful deficit reduction can only occur if we make an honest appraisal of where the bulk of the money actually goes. It isn't spent on the programs that Congressmen complain loudest about. In Peter Peterson's book <a style="font-style: italic;" href="http://www.amazon.com/gp/product/0312424620?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=0312424620">Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=0312424620" alt="" style="border: medium none ! important; margin: 0px ! important; font-style: italic;" border="0" height="1" width="1" />, he wrote: that the parties have mortgaged our future "with reckless tax cuts, out-of-control spending, and Enron-style accounting." He wrote that warning in 2004- six years ago-and the problem has only gotten worse.<br /><br />In Peterson's moral structure, it is unconscionable to leave this enormous debt to our children. Each generation should pay for its own expenses and excesses. Actually, I find it the height of hypocrisy that the attitude of our political leaders towards money goes against everything financial principle we seek to instill in our children. Lessons on delaying gratification in order to save and invest, so that resources will be available for unforeseen problems, are apparently lost on politicians.<br /><br />The real problem is the constant framing of political debate in terms of absolutes. In today's hyper-partisan climate you are either for or against Social Security, for or against Medicaid, for or against taxes. Actually you can be for and against all of these things. There is no reason that we can't have Social Security, Medicaid, and taxation, as long as all the costs are within reason. In other words, we need to make real compromises, not fake compromises for the sole purpose of political theater.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-42635011950288444332010-12-31T14:15:00.000-08:002010-12-31T14:20:55.976-08:00Save Big by Saving SmallWith the New Year upon us, the number of media stories on financial planning is exceeded only by the number on weight-loss. Most of us don't need sweeping changes to our finances. However, identifying and avoiding small-dollar losses can add up over the course of a year. Here are some small ways to save big.<br /><br /><span style="font-weight: bold;">Compare weight not size.</span> For food items, large containers often cost more than small ones. But, frequently the actual amount of food in the big container is the same or only slightly more than the smaller one-usually not enough more to justify the higher price. Compare the price per pound-in small print-when you shop, not the large-print price per container.<br /><br /><span style="font-weight: bold;">Buy only the amount of food that you need. </span>Bulk purchases to "save money" can actually cost more when items are thrown out after spoiling. When you shop, ignore the suggested number of items to purchase. Signs created by retailers, such as "2 for $5," or "4 for $10," are for their convenience, not yours. In most instances a purchase of a lesser number of items will be automatically pro-rated at the register. If that doesn't happen, buy from a different store.<br /><br /><span style="font-weight: bold;">Consider the total cost of a purchase rather than just the price.</span> Long distance drives to chase sale prices can cost more for gas than you save on the purchase. Visit <a href="http://www.computegassavings.com/">ComputeGasSavings </a>to determine how far you should drive for a lower price. Even chasing down low-price gas can get expensive. At $3 per gallon and climbing, driving long distances, or idling your car in long lines to save a few cents per gallon on gas, can cost more than the savings.<br /><br /><span style="font-weight: bold;">Start a savings fund for home and vehicle repairs.</span> Because few people budget for these recurring expenses, most are forced to pay with credit. Paying cash for needed repairs is much cheaper than accumulating credit card interest. Look over your repair receipts for the past couple of years to get a feel for how much you spend. It could easily be $1200 to $1800, over the course of year. That averages to $100 to $150 per month. Start setting aside $100 per month now for repairs so that you are financially prepared for these "emergencies."<br /><br /><span style="font-weight: bold;">Ask your insurance agent how much you would save by increasing your deductibles.</span> Over the long run it might be cheaper to pay out-of-pocket for life's little mishaps than to pay extra year-after-year for a low deductible. Would you pay for a small repair (less than $500) on your own rather than report it to your insurance company and risk a rate increase? If the answer to that question is yes, your deductible should be $500, not the standard $250 that comes with most policies.<br /><br /><span style="font-weight: bold;">Avoid Extended Warranties.</span> Almost all electronic devices and appliances become obsolete before they break down. Lots of people have stories to tell about an extended warranty on a new purchase that proved valuable. But, these same people forget about the dozens of problem-free devices that they have bought through the years. A 10 to 20% extra surcharge on each item for an extended warranty added up to far more than the cost of that one repair. If you make it a rule to always decline extended warranties, you will save more than enough money in the long run to pay for the few repairs that you actually need.<br /><br />Increase your retirement contribution the next time you receive a raise. Put half of the additional income into your retirement account. You will save on taxes, increase your future retirement income, and still see more money in your paycheck.<br /><br />In fact, if you examine some of the small ways to save money that I've mentioned, it's possible that you could find $100 per month of unnecessary expenses. That is the equivalent of a raise that could be set aside and invested for the future.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-43499403560058452192010-11-19T05:25:00.000-08:002010-11-19T05:30:45.308-08:00Distorting Science: BP's Buy OutAn investigation by the <a href="http://www.al.com/press-register">Mobile Press-Register</a> revealed that BP has offered lucrative contracts to scientists engaged in research on the Gulf of Mexico oil spill. According to one source, BP attempted to hire the entire marine sciences department at an Alabama university. The Press-Register reported that the contract "prohibits the scientists from publishing their research, sharing it with other scientists or speaking about the data that they collect for at least the next three years."<br /><br />I find this a disturbing development in the ongoing oil spill catastrophe because it will allow BP to pretend that it is doing science, when it is not. Employing scientists for private purposes is not a new practice. Nor is the act of keeping data and results proprietary. Many scientists work for private companies and must uphold the terms of the contract agreed to by both parties. Open sharing of information is often not desirable because companies that invest in research should be the first to benefit from the results.<br /><br />However, conclusions drawn from proprietary data are not necessarily scientifically valid. BP's contract is a deliberate attempt to control the publication of data on the effects of the Gulf oil spill, while at the same time invoking scientific authority for the conclusions obtained from the research. This is not how the scientific method works, and to pretend otherwise is dangerous.<br /><br />The act of employing scientists to take data, publish results, and interpret findings, does not necessarily mean that valid scientific conclusions will result. Scientists are fallible human beings, prone to error and motivated, in part, by their own beliefs, prejudices, self-interests, and parochialisms. In other words, the work of science is hampered by the same human foibles that plague all human endeavors.<br /><br />But in the past few centuries science has advanced at a remarkable rate because its method has a self-correcting mechanism built in. Scientists throughout the world usually work independently and openly share ideas and results. Independence and openness are two features of the scientific method that are little appreciated, but essential to scientific advancement. By reviewing and checking each other's work, scientists uncover errors and biases. Over time evidence accumulates to support valid results and interpretations. Ideas that are wrong get culled and eventually become relegated to the history books.<br /><br />Independence and openness are qualities not typically valued by businesses, or for that matter governments and churches. In fact, these institutions tend to regard open sharing of information and independent questioning of established precepts as existential threats. But, these institutions often invoke scientific authority to buttress their own self-serving claims.<br /><br />But, you cannot have it both ways. Scientific "authority" derives from a method that self-corrects because of a tradition of independent researchers openly sharing information. You cannot take away this part of the method and still claim that you are doing science.<br /><br />Science is a method for interrogating nature. While people might answer questions incorrectly, nature never does. In fact nature never makes mistakes in the human sense of that word. Natural laws are obeyed at all times, and the natural laws are blind to human concerns.<br /><br />To date, science has been a remarkably successful human endeavor, but we should not take for granted the continued advancement of science. Especially while the benefactors of science attack it. The recent phenomenon of people choosing scientific beliefs that are consistent with their choice of church, or career, or political party is deeply troubling. Obviously nature has no affiliation with any churches, corporations, or governments.<br /><br />But, more and more, we see organizations of various types cherry-picking data to advance their own agendas. BP will be very careful in regards to the proprietary data it releases, in the same way that pharmaceutical companies are very careful about the results of drug studies that they release. Creationist/intelligent design advocates are quick to point out any problems with evolution theory, while ignoring reams of supporting evidence. In the United States, belief in global warming now falls along party lines, a situation that could not possibly occur if people were independently evaluating the evidence.<br /><br />In fact, it would be remarkably coincidental if natural phenomena just happened to perfectly align with the economic self-interests of a particular group. Such a coincidence is highly unlikely. In the aftermath of the space shuttle Challenger disaster, the physicist Richard Feynman noted that political pressures contributed to the disastrous decision to launch that day. He warned: "Reality must take precedence over public relations because nature cannot be fooled." It is a warning we should all keep in mind.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-39038198051420343042010-10-01T05:16:00.000-07:002010-10-01T05:27:20.769-07:00Atheism, Creationism, and TautologiesRenowned physicist Stephen Hawking was back in the news this month as co-author of a new book titled: <a style="font-style: italic;" href="http://www.amazon.com/gp/product/0553805371?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=0553805371">The Grand Design</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=0553805371" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" />. He and collaborator Leonard Mlodinow set out to answer three central questions in science: Why is there something rather than nothing? Why do we exist? Why this particular set of laws and not some other? That's an ambitious agenda for a single volume, but the newsworthiness of the book was its assertion that no creator was necessary for the universe. Hawking writes that "the universe can and will create itself from nothing."<br /><br />The publicity surrounding that assertion reminded me of a famous quote from the nineteenth century French mathematician Pierre-Simon Laplace who also wrote a book on the laws of the universe. He presented the book to the emperor Napoleon who said to him: "M. Laplace, they tell me you have written this large book on the system of the universe, and have never even mentioned its Creator."<br /><br />Laplace answered: "I had no need of that hypothesis."<br /><br />When Napoleon told Joseph-Louis Lagrange, another renowned mathematician of the time, what Laplace said, Lagrange replied: "Ah, it is a fine hypothesis; it explains many things."<br /><br />After reading The Grand Design, I can't help but think that nothing has changed in the two centuries since this back-and-forth between Napoleon and the mathematicians. Explaining the universe without God is about as futile as explaining the universe with God. To assert that the universe creates itself from nothing, Hawking and Mlodinow appear to lapse into the same kind of tautology that creationists use to defend their beliefs.<br /><br />A tautology is a statement that is true by definition and therefore provides no real explanation or insight. The Christian understanding of God, in the words of the Nicene Creed, is that God is the "creator of all that there is." This statement alone provides no insight on the mechanisms or motivations for creation.<br /><br />Scientists have sought to understand the mechanisms for creation, and in doing so have amassed enormous amounts of evidence that the Earth and its inhabitants did not simply come into being over a one-week time span 6000 years ago as creationists believe based on their literal interpretation of the book of Genesis. But, a creationist will argue that none of this evidence matters because God, as the omnipotent creator of all that there is, could just as well have created the "appearance" of an older Earth and evolutionary processes. This is a tautology because the creationist position is unassailable. All evidence that does not support the creationist's views can be dismissed as part of God's creation.<br /><br />In Ken Miller's book, <a style="font-style: italic;" href="http://www.amazon.com/gp/product/B003H4RDUQ?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=B003H4RDUQ">Finding Darwin's God: A Scientist's Search for Common Ground Between God and Evolution</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=B003H4RDUQ" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" />, he likens the belief that the universe was created with "the appearance of age," to a belief in God as a charlatan. Miller is a committed Christian who believes in God, not in spite of evolution, but because of evolution. In Miller's view, the process of evolution is awe-inspiring. In response to creationists, Miller writes that a God that has negated science by "rigging the universe with fiction and deception" is not a plausible divine being. To Miller, embracing the God of creationists is to "reject science and worship deception itself."<br /><br />But, the model of a universe devoid of God presented in The Grand Design falls into a tautological trap akin to creationism. The "M-theory" Hawking and Mlodinow advocate allows for the existence of innumerable universes each with different laws of physics. To explain why our universe is so remarkable, they resort to a decades-old idea known as the "anthropic principle." The essential idea is that of the multitude of universes that can exist, only a tiny fraction of them have physical laws that allow us to evolve. Therefore our existence as observers means that our particular universe must appear to us as special in extraordinary ways.<br /><br />Whether the alternative universes exist in parallel or sequentially is not important because other universes are inaccessible. The universe is by definition "all that there is." And this is the tautology that Hawking and Mlodinow fall into: To say that anything that could possibly happen actually does happen in alternative universes, is an unassailable position. For example, it is a tautology to say that I write this blog entry or I do not write this blog entry. To say that I write this blog entry in one universe and do not write this blog entry in another universe, explains nothing. Saying that both events happen but in different universes is wordplay, not physics.<br /><br />Hawking and Mlodinow cite the implausible values for the fundamental constants in physics as evidence for their anthropic argument. It is a great mystery in physics as to what determines the values for the fundamental constants. The basic forces in nature and the elementary particles that form all matter, possess intrinsic properties that to date have no theoretical explanation. The electron, which is a fundamental particle that determines how atoms interact chemically, has an intrinsic mass, electric charge, magnetic moment, and angular momentum. These values are measurable, and essentially define the particle because electrons have no discernable size or internal structure.<br /><br />What is especially striking is that all electrons are identical. Nature does not make defective electrons. Apparently every electron that there ever was, or ever will be, has the exact same physical properties. Electrons are identical to the point of being indistinguishable from each other. It is impossible to ever label or tag an electron, and the fact that no single electron can ever be distinguished from all the others in the universe, has profound consequences when formulating the physical laws that govern electrons.<br /><br />The precise values for the physical attributes of an electron are among the fundamental constants in nature that can only be measured. No theory accounts for their values, but it appears that these values must be set very close to what they actually are in order for our species to have evolved. Because the "M-theory" that Hawking and Mlodinow advocate allows for many possible universes, each with different fundamental constants, they contend that all these universes exist and we just happen to be the observers in a universe with fundamental constants that allow us to observe.<br /><br />In other words, M-theory doesn't explain the values of the fundamental constants. It just says that if you roll the die an infinite number of times, a universe with our fundamental constants will eventually appear. That is not a theory in the scientific sense of the word because it doesn't predict anything about the actual universe we observe.<br /><br />Physicists have long hoped that a unified theory of all the forces in nature (Theory of Everything) will predict the values for the fundamental constants. In other words, the mathematics would predict the existence of particles, such as electrons, and the mathematical solutions would provide numerical results for the electron's physical attributes that would agree with what we know about electrons.<br /><br />Such a theory remains elusive so let me make my own tautological statement. A future Theory of Everything will either predict the values for the fundamental constants or it will not. If it does, physicists will find the theory extraordinarily elegant, and theologians will say that God intended our existence by establishing physical laws at the moment of creation that allowed us to evolve. If the theory does not predict the values for the fundamental constants, physicists will keep puzzling on the issue and theologians will say that God intended our existence by choosing values for the fundamental constants that allowed us to evolve.<br /><br />Either way scientists and theologians will agree that God is a hypothesis that cannot be tested. There comes a point in theology where you just have to believe that the universe has a higher purpose and meaning, even if that meaning is not readily discernable. There comes a point in physics where you have to say: "that is just the way things are" because explanations through causation have to stop at some point.<br /><br />My own view is that humans might not be evolved enough to comprehend a Theory of Everything. There is no reason to believe that the human brain is the pinnacle of evolution because there is no reason to believe that the evolution of intelligence will not continue long into the future. On an evolutionary time scale the human species, Homo sapiens, has not been around all that long. Modern humans have only existed about 100,000 years, which is an insignificant amount time compared to the hundreds of millions of years that evolutionary processes have shaped species on the planet. What might brain structures and intelligence look like 100 million years from now?<br /><br />As I write this paragraph my dog lies patiently at my feet waiting for me to get up and do something of interest to her, such as work in the garden where she can enthusiastically contribute by chasing the various critters that inhabit our yard. My endless fascination with pixilated patterns of light on a computer screen has no meaning to her. I sometimes say to her that if she could do calculus, or edit and proof my writing, she could do work that would be of real use to me. She listens to me attentively, as she does everything I say, wags her tail, and maintains her vigil.<br /><br />Of course, I could talk to my dog all day about advanced calculus, unified theories of physics and their theological implications, and she would listen attentively and understand nothing. We know that this is not the fault of the dog. A dog does not possess the brain structures to process the concepts needed for language, mathematics, or theology. Nor does a dog have the life span humans require to learn advanced concepts in all these subjects.<br /><br />But those facts about dogs leave open the possibility that far into the future, another species, with a more advanced brain structure, might have similar things to say about humans. Will they say that the species, Homo sapiens of the Holocene epoch, figured out many important concepts in physics, but lacked the brain structure needed to understand the math required for the Theory of Everything?<br /><br />A central tenet of Christianity is that God created humans in God's image. As a result the human striving to understand the natural world (God's creation) is a quest to know God. It also follows that how humans treat other humans is a reflection of our relationship with God.<br /><br />But, all around I see humans creating God in the image of humans. Much of the evil done in the name of God, that atheists cite to disparage theists, arises not from believing in God, but from anthropomorphizing God. Humans have created innumerable images of God that for most part depict God as acting and thinking like humans. But, the sheer scale and grandeur of the universe is evidence that a creator God is unimaginably extravagant and inventive. I would be careful about concluding that humans are the endpoint in the creative process.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-18427396449001560092010-09-01T19:05:00.000-07:002010-09-01T19:24:34.393-07:00When Markets FailI just finished reading <a style="font-style: italic;" href="http://www.amazon.com/gp/product/0061733210?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=0061733210">Broke, USA: From Pawnshops to Poverty, Inc. How the Working Poor Became Big Business</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=0061733210" alt="" style="border: medium none ! important; margin: 0px ! important; font-style: italic;" border="0" height="1" width="1" /> by Gary Rivlin. It is a disturbing read about what Rivlin calls the "poverty industry" in the United States. Poverty is in fact a lucrative business opportunity for the many entrepreneurs that Rivlin profiles. This is a discovery not lost on major banks that now have large investments in companies that provide sub-prime loans of all types. I knew from doing research on my own book--<a style="font-style: italic;" href="http://www.amazon.com/gp/product/0967755131?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=0967755131">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=0967755131" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" />--the counterintuitive result that collectively the working poor represent an enormous source of wealth for those who know how to tap into it. Rivlin's reporting explains how the systematic stripping of resources from communities on the financial edge is accomplished.<br /><br />In my book, I liken some of these payday loans, sub-prime mortgages and credit card products to old-fashioned "company stores." But, as I read <span style="font-style: italic;">Broke, USA,</span> I was reminded of another analogy raised in the book by Stacy Mitchell-- <a style="font-style: italic;" href="http://www.amazon.com/gp/product/0807035017?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=0807035017">Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America's Independent Businesses</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=0807035017" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" />--colonialism. Mitchell reports on the systematic destruction of local economies and businesses by mega-retailers such as Wal-Mart, Home Depot, and Target. The rationale for allowing mega-retailers entrance into a community is the market demand for their products. But, often after the destruction of local businesses and jobs, there is no longer enough wealth left in the community to support these large retailers. The corporations move on, abandon their stores, and leave a shuttered main street as well. To Mitchell, this is not the free market at work. Rather, it is exploitation akin to colonialism, in which a large power imbalance allows a distant corporation to appropriate wealth for its own enrichment at the expense of a local community.<br /><br />But, the question I kept wondering about was: Why doesn't the market for loans work for poor people? Much of Rivlin's reporting was about political battles fought in state legislatures, not about businesses trying to out-compete other businesses with a better product. One of Rivlin's protagonists, Martin Eakes is founder of the <a href="http://www.responsiblelending.org/">Center for Responsible Lending </a>(CRL), a company that specializes in providing reasonably priced mortgages to high-risk, low-income homebuyers. Eakes argues that CRL shows that it is possible to lend at reasonable rates to "sub-prime" borrowers and make money. He contends that the usurious, triple-digit annual interest rates, routinely charged by sub-prime lenders are not necessary, and should be banned.<br /><br />However, in Rivlin's narrative, Eakes spends more time joined with community activists lobbying for bills to protect consumers against predatory lending, than expanding the CRL business model to compete nationwide against the sub-prime lenders by offering a lower-priced product. It is this paradox that gnawed at me while I read the book. It was only by the end that I realized the reason the market fails for sub-prime borrowers, and why government intervention is necessary.<br /><br />The argument from the sub-prime lending industry is that interest rate caps take away consumer choice. No one forces people to take-out payday loans, pawn possessions, or sign documents for sub-prime home equity loans. Because these choices are freely made, the borrowers must see some value in the loan product. If the demand for sub-prime loans didn't exist, neither would the sub-prime lenders.<br /><br />I tend to have a bias in favor of these kinds of arguments. I believe that consenting adults should be free to make decisions with their money for or against products. I have also observed that in any event, markets are extremely resilient and difficult to stamp out. One only needs to look at the markets for vices--such as drugs, gambling, and prostitution--to see the futility of trying to eliminate the supply of a product or service when there clearly exists a demand.<br /><br />As a result, I tend to believe that the best way to effect change is through the market. Educating consumers on how to act in their best interests is my preferred approach. My writing, in books like the <span style="font-style: italic;">Two Headed Quarter</span>, is intended to teach consumers how to make the best choices, not to proscribe choices. Admittedly, my bias is influenced by my own societal role as an educator.<br /><br />However, I also know that markets cannot solve all problems. We would not have roads, airports, the Internet, universal phone and electrical service, without the intervention of the government acting for the common good. I also know that markets can and do fail. I was never naive like Alan Greenspan, who seems to have believed that the self-correcting tendencies of markets would eventually right all wrongs. (This belief came from a man whose job was to artificially manipulate the mortgage market by raising and lowering interest rates.) As we have recently seen, market failures can be spectacular and so threatening to the financial order, that the most committed "free market" advocates will abandon their principles and grovel before Congress when their luxury lifestyles are at stake.<br /><br />But, I realized by the end of the book that the problem is deeper than lack of education. For a market to work the participants must trust each other. They must act in good faith. It would be impossible to conduct business of any kind if no trust existed between the buyers and sellers. The simplest economic interactions-grocery shopping, car repair, hair styling, eating in a restaurant-could not happen. Think about the implied contract when you order food off a menu, drop your car off for an oil change, or get your hair cut. You trust in an honest delivery of the service, and the provider trusts that you will pay.<br /><br />During the financial crisis of 2008, banks could not trust other banks to repay loans, and the entire system for extending credit on a daily basis to cover short-term obligations froze. Without government assurances the banking system might have collapsed, not because of a shortage of money, but because of a shortage of trust.<br /><br />Many of the lending practices profiled in Broke, USA violate trust. The lenders are not acting in good faith when they sell loans to people who cannot possibly repay the money, sell unnecessary and overpriced mortgage insurance, provide less favorable loan terms when the borrower qualifies for better terms, and then sell the toxic products to investors representing them as a safe securities. It is disingenuous for the lenders to rationalize these actions by saying that they were only acting in their best financial interests, and that the borrowers and investors should have taken more care to act in their best interests because that is how free markets work.<br /><br />No, free markets will not work if greed is the only motive driving them. There is a famous quote from Adam Smith that is frequently invoked to justify greed. He wrote:<br /><br />"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest."<br /><br />--Adam Smith, <a style="font-style: italic;" href="http://www.amazon.com/gp/product/3981216237?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=3981216237">An Inquiry into the Nature and Causes of the Wealth of Nations</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=3981216237" alt="" style="border: medium none ! important; margin: 0px ! important; font-style: italic;" border="0" height="1" width="1" /><br /><br />But, self-interest in the community setting that Smith describes is more than just maximizing income. It's also about sustaining the relationships necessary for a community to exist in the first place. The butcher, the brewer, and the baker, will not be in business for very long if greed is their only motive. They must trust in and look out for each other, or else none of them will have their needs met. Their self-interest is not just money; it includes a need for each other.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-86032044455016464622010-08-01T11:34:00.000-07:002010-08-01T11:46:23.565-07:00Avoiding the Expectations Trap: A Tribute to Dick NorbergMy scientific mentor, <a href="http://news.wustl.edu/news/Pages/20614.aspx">Richard (Dick) Norberg</a>, died this spring. He provided my training as a scientist and supervised my doctoral thesis. Dick was a professor of physics at Washington University in Saint Louis for more than 50 years, and a pioneer in the field of magnetic resonance. Long before magnetic resonance (MR) became part of the medical imaging technique known as MRI, he made key discoveries and obtained insights that led to our modern understanding of the phenomena.<br /><br />I worked with Dick for three years in his laboratory at Washington University. Learning to become a scientist is nothing like school would lead you to believe. Science, as it is practiced by scientists, is more of a craft than a method. Graduate training in science is akin to an apprenticeship in which an aspiring scientist learns the trade from a master craftsman. Each master has his or her own style and approach. I am often confused when my children ask me for help with their science homework because I am unfamiliar with the "scientific method" their classes teach. For an excellent article on how actual scientists conduct science see: "<a href="http://undsci.berkeley.edu/article/howscienceworks_01">How Science Works.</a>" It is on a Website <a href="http://www.understandingscience.org/">http://www.UnderstandingScience.org</a> that provides resources for K-12 teachers to correct many misconceptions about the process of doing science.<br /><br />Dick loved doing physics and remained enthusiastic and engaged until the very end of his life. I loved having him as a teacher. He expressed his usually strong opinions in ways that stayed with you forever. I can still hear his voice when I recall the many words of wisdom he imparted. Some examples of his observations and advice:<br /><br /><span style="font-style: italic;"> "Any academic department with the word 'science' in its name is not."</span><br /><br />I recalled that statement with a chuckle the year after I left Washington University to do postdoctoral research at the University of Georgia. On one of my daily walks from the bus stop past the school of home economics I noticed that a new sign had gone up in front of the building that said: "School of Consumer Sciences."<br /><br /><span style="font-style: italic;">"When you write a paper, always separate the data and put it first. What you say about the data might turn out to be wrong later on. But, if you did the experiment correctly the data will be true forever." </span><br /><br />This is actually a profound insight on the nature of scientific progress that many people fail to understand, and high school science classes fail to teach. People are always quick to point out that scientific theories change and that many ideas scientists of the past believed turned out to be wrong. The implication is that nothing about science is permanent. But, nature does not change. An experiment poses a question directly to nature and the answer that comes back will always be true. All future scientific theories will still have to explain today's scientific facts.<br /><br />But, the most important advice I received from Dick Norberg was on the day I left. I had completed and defended my doctoral thesis, finished up with the movers, and packed my car for the drive to my new city and job. I stopped at his office to thank him and say goodbye. His parting words were:<br /><br /><span style="font-style: italic;">"Whatever you do in life, do what you enjoy. Don't do what others expect. Your wife, your parents, your children, your friends, will all have expectations. Don't give into them. Do what you most enjoy."</span><br /><br />As time has gone on, my appreciation of this advice has grown. As a teacher for the past 16 years, I've seen many students sabotaged by expectations.<br /><br />I've seen students in majors for which they have no real interest or aptitude, but their parents refuse to fund their college education unless they study something "practical." The result is students in engineering programs even though they cannot do the math and have no interest in building anything. There are also students muddling through business degrees who would be much better served in the long run with a liberal arts degree. It is actually more practical to have good grades in history major than bad grades in a business major.<br /><br />I've seen students who are not mature enough to be in college but go because it is the expected next step after high school. The result is that they are wasting their time and their parent's money. Partying all night and sleeping all day can be done at a much lower cost at home than in college, and the results achieved will be the same.<br /><br />I've seen exceptionally smart students who should become scientists, but their parents expect them to become medical doctors because of the prestige it will bring to the family. The result is if you ask these students why they are so passionate about medicine that they intend to devote their life to its practice, they can only express a nebulous desire to "help people." Of course, I can think of many professions that "help people" and are unrelated to medicine. If you intend to become a medical doctor you should have a real interest in medicine.<br /><br />I've seen students juggle the demands of double and even triple majors so that they can pursue their interests and satisfy family expectations. The result is a great deal of stress from pursuing credentials that have little meaning in the long run. Employers care more that you have a degree with decent grades than all the majors and minors that you acquired along the way.<br /><br />My own three children are all artists. I have two in college and one in high school. They are now aware enough to observe friends doing what's expected. My daughter said to me one day: "I'm so happy that you and mom support me. You don't discourage my interest in theater and force me do something else. Many of my friend's parents aren't like that."<br /><br />I said: "You have to do what you enjoy the most and see where your interests and talents take you. You'll figure out how to earn a living. You can't spend your life doing what others expect."<br /><br />I thought about Dick Norberg when I said that. Dick loved to teach and loved doing physics. I was one of 47 doctoral students he taught in his more than half-century as a physics professor. Had he wanted, he could have held more prestigious administrative positions at the university. But those kinds of positions would have kept him away from research and teaching.<br /><br />I now realize that as a teacher he wasn't just speaking to me that day. He was speaking to my children and my students, and in the future their children and students. Teachers have the ability to speak to the future. That is what he enjoyed.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-47068317257201742132010-07-04T07:34:00.000-07:002010-08-01T11:45:41.082-07:00The BP Oil Spill: Why Slow Is Much FasterAs I read an <a href="http://online.wsj.com/article/SB10001424052748704026204575266560930780190.html">article</a> in the online <span style="font-style: italic;">Wall Street Journal </span>about the equipment failures leading to the disastrous oil spill in the Gulf of Mexico, I am reminded of a lesson that I teach my laboratory students. It is this: The fastest, cheapest way to get something done is to proceed slowly. Check and recheck each step before proceeding to the next. Don't rush and don't make assumptions. It is counterintuitive advice to give students, who like everyone else, are in a hurry. But, as BP is finding out, assumptions can be costly, time consuming, and deadly.<br /><br />The <span style="font-style: italic;">Wall Street Journal</span> investigation is the most complete account to date in the media of what went wrong on the Deepwater Horizon. It is a story of rushed procedures and faulty assumptions that appear motivated by schedule and budget considerations. For example:<br /><br /><ul><li> BP cut short a procedure designed to detect gas in the well and remove it before it becomes a problem.</li><li>BP skipped a quality test of the cement around the pipe (despite a warning from the cement contractor).</li><li> BP installed fewer centering devices than recommended (6 instead of 21).</li></ul><br />The article also reported that on the day (April 20) the Deepwater Horizon exploded and sank, a disagreement broke on the rig over the procedures to be followed. A BP official had a "skirmish" with Transocean officials over how to remove drilling mud. BP prevailed and several hours later 11 people were dead and oil was spewing into the Gulf.<br /><br />It appears that all involved knew corners were being cut, but a consensus emerged that the process would "most likely work." The cementing contractor Halliburton said that it followed BP's instructions, and that while some "were not consistent with industry best practices," they were "within acceptable industry standards."<br /><br />But, the problem with complex equipment and procedures is that "most likely" can easily become "very unlikely" when everything has to function. Simply adhering to "acceptable standards" is no guarantee that everything will work.<br /><br />This is lesson my students usually have to learn the hard way, even though it can be proved mathematically. Suppose you have a 90% confidence in your ability to make electrical connections. You think that if you wire your project without conducting tests, it will have a 90% chance of working. But, if you have 10 connections and each one must work, it is unlikely your project will succeed. The reason is that probabilities for simultaneous events multiply. If two events with a 90% chance of success must occur together, the likelihood of the combined events happening is (0.9) x (0.9), or 0.81, which is 81%. If 10 simultaneous events must occur, the chance becomes (0.9) multiplied by itself 10 times (0.9)<sup>10</sup>, or 0.35, which is a 35% chance of success.<br /><br />A relative high confidence of 90% for a single can connection can be a deceiving number if all of them have to work. Worse still, when it doesn't work, you won't know why. It is difficult and time consuming to track down errors. The only solution is to spend extra time during assembly to test each connection when you make it, before proceeding to the next one.<br /><br />I see this problem all the time when I teach. Students will follow the assembly instructions but do not perform the tests as they go along. They assume everything is correctly assembled. At the end they will have a beautiful piece of equipment that doesn't work. It is brought to me to figure out why and the students watch in dismay as I dismantle it piece by piece to search for the problem. Sometimes it is a mistake or misunderstanding on the first step, and that forces the students to begin all over again. They learn that time-consuming testing actually saves time.<br /><br />It's not only students that struggle with this lesson. A friend once asked me for help wiring an external keyboard he purchased for a handheld device. He had followed the instructions, but after making all the connections it didn't work. Frustrated and confused he didn't know what to do next. He took it apart, put it back in the box, and called me.<br /><br />He came to my office where I spread the parts out on my desk and followed the enclosed wiring instructions. But, after making each connection, I tested it with an electrical meter while twisting and pulling to make sure it was secure. I did this for every connection, because I made no assumptions about reliability based on how it looked or the high probability that almost all the connections I make are secure. When I finished, I turned the device on and it worked.<br /><br />My friend said: "But, I wired it the same way you did. Why didn't it work?"<br /><br />"You didn't do the same thing I did. You didn't test each connection when you made it. When it didn't work, you had no good way of finding a single bad connection, which is all that is needed for it to fail. I made sure each connection worked before I continued to the next one."<br /><br />For highly complex equipment, such as on oil drilling platform, a 99.9% success rate for each step might not be acceptable. Consider a procedure that involves 10 steps with a 99.9 % chance of succeeding. The number 0.99910 is equal to .99, or 99%. A 1% chance of failure sounds safe, but the fact is 1% events happen frequently, about 1% of the time to be exact. If an event with a 1% frequency results in deaths, injuries, environmental and economic devastation, and possible bankrupting of the company, the risk is unacceptably large.<br /><br />But, what is most disturbing is that even if the executives at BP making decisions understood the mathematics of risk it might not have made any difference. The root of cause the Gulf oil spill is the same as the root cause of the financial meltdown two years earlier. The executives take dangerous risks because they realize enormous personal gain when they succeed, while others will pay for the losses when they fail.<br /><br />Imagine if Tony Hayward, BP's CEO, faced personal financial ruin from an oil spill. What if he had to contemplate having no yacht, no house, no assets, no job, and complete loss of livelihood? After all, those are the circumstances facing thousands of people on the Gulf coast as a result of the oil spill. What if Tony Hayward had to personally operate the equipment on the Deepwater Horizon so that its failure would end his life as it did eleven others? Do you think he would run his company differently? I bet if his life and livelihood were on the line he would make sure careful testing is done to insure safety for all concerned.<br /><br />Unfortunately, the most likely outcome of this disaster is that nothing will change. There will be calls for tougher regulation, but, just like the financial overhaul working its way through Congress, change will be cosmetic. Opponents of more financial regulation use the same rhetoric as opponents of more oil industry regulation. They denounce increased regulation as an attack on "free markets."<br /><br />But for "free markets" to work the agents must have a personal stake in the outcomes. Real free markets are composed of the thousand of small business owners and their workers who have a personal financial stake in their successes and failures. It's a sham to say that the executives of banks and oil companies are agents in a free market when they can only reap profits, while everyone else pays for their losses.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com1tag:blogger.com,1999:blog-6280765612127936808.post-14852722428879815672010-02-27T10:23:00.000-08:002010-02-27T10:27:53.222-08:00Financial Literacy: Maryland's Education ProposalThe <span style="font-style: italic;">Baltimore Sun</span> recently published an <a href="http://www.baltimoresun.com/news/opinion/oped/bal-op.franchot0210,0,5415553.story">op-ed piece </a>by Maryland Comptroller Peter Franchot, supporting proposed legislation in the Maryland General Assembly to require all high school students to complete a stand-alone course on financial literacy before graduation. Franchot argues that educating our children in the basics of financial literacy will help avert future economic downturns. As is typical of many people in the government, he blames the recent economic crisis on bad choices made by consumers. Mr. Franchot writes:<br /><br /><span style="font-style: italic;">"Thus, in far too many instances, we entered into financial commitments that we couldn't afford, with terms and conditions that we didn't truly understand, in order to buy things that we really didn't need. If more Marylanders had the benefit of sound financial literacy education, fewer of our friends and family members would be facing the loss of homes and life savings today."</span><br /><br />I think teaching financial literacy to high school students is a good idea. But, the problems with the financial system go far deeper than a new high school course will fix.<br /><br />First there is the problem with "stand alone" courses. To understand personal finance, students need to understand more about math, especially arithmetic, than they currently do. Many consumers made bad decisions on loans because they did not understand the basic math behind interest and payment calculations. My own belief is that personal finance education should be woven into current math courses. It would make math more interesting, and therefore relevant. Too many students, and adults view math as a "stand-alone" subject with no connection to their daily lives. If consumers learned just how many dollars their lack of mathematical knowledge costs them in the marketplace, they would see that math is an important subject.<br /><br />Second there is widespread corporate-government collusion to deceive consumers and then blame them for falling victim to the deception.<br /><br />I gave a talk on the U. S. mortgage crisis at an international conference on science in society at Cambridge University in the United Kingdom this past summer. In academic jargon the paper I presented was titled: "<a href="http://ijy.cgpublisher.com/product/pub.187/prod.28">Quantitative Reasoning Applied to Modern Advertising.</a>" The term "quantitative reasoning" just means applying arithmetic to real-world problems. It is a way of thinking that is second nature to scientists, but unknown to most people outside of science.<br /><br />I argued that if consumers learned some of these quantitative reasoning methods, they could greatly improve their day-to-day financial decision-making. I concluded that the best way to effect economic change is through the market. I said that people selling mortgages act according to their financial interests. In response, consumers need to educate themselves to make choices that are in their best financial interests.<br /><br />After my presentation, an Australian economist, in a private conversation, disagreed with my conclusion. He said that home pricing, and mortgages are too complex for the average person to understand. It is incumbent on the government to regulate the market. He said that Australian government did not allow the kind of toxic mortgage products that brought down financial institutions in the US and UK, and wiped out millions of homebuyers. As a result, Australia did not have a mortgage crisis.<br /><br />I admitted that my American bias influenced my conclusion. I told him that in the United States, government and corporate corruption is so institutionalized, that meaningful regulations to safeguard the financial well being of average Americans would never be implemented. From my viewpoint, education is the only realistic way American consumers have to protect themselves.<br /><br />But, my viewpoint is not meant to excuse corrupt behavior. If you leave your house unlocked and are robbed, you made a bad choice. But, a crime was still committed. If you agreed to a mortgage that you didn't understand, you made a bad choice. But, the lender should have made sure that you understood the mortgage. Instead, lenders created mortgages designed not to be understood.<br /><br />That is why I get so angry when I see government officials like Mr. Franchot blaming uneducated consumers for the financial crisis. Education is needed, but it will only go so far in fixing our financial problems. It will not replace trust. All parties to a contract must act in good faith for our financial system to work.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-42535202040433653692010-02-11T18:22:00.000-08:002010-02-11T18:35:12.860-08:00The Big Snow: Fooled by VarianceNo need to visit the gym this week, even if it were possible. I've had plenty of exercise shoveling more snow than I have ever seen at one time in my entire life. More than 4 feet of snow fell in the Baltimore region in just 5 days. As someone who grew up in Albany, New York, and attended schools in Rochester, New York and Madison, Wisconsin, a heavy snowstorm is not a novel event for me. I do not panic the moment flakes start swirling in the air, as many Baltimore-area drivers do. I often question the judgment of school officials, who close the entire system down when an inch or two of the white powder appears. But, 4 feet is an impressive amount of snow by almost any standard. I would not be able to drive anywhere even if I wanted to. Forward motion of my automobile is not physically possible under these conditions.<br /><br />As snowfall totals go, this event has shattered records. That has kept the media and government people busy tabulating and interpreting numbers. The tabulations are of interest, but the interpretations are mostly silly. Nassim Taleb's wrote a brilliant book on investing titled <a href="http://www.amazon.com/gp/product/1400067936?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=1400067936">Fooled by Randomness</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=1400067936" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" /><br />. With apologies to Taleb, I've titled this post "Fooled by Variance," which is a condition afflicting a great many of the public statements about the storm.<br /><br />Variance is a measure of the typical deviation of a measurement from its average value. The usual definition is that it is the range encompassing 95% of the measured values. For example, if we use our rulers to measure human stature instead of snow depth, we would find that the average height of an adult male in the United States is 69 inches. Of course, finding males taller or shorter than 69 inches is common. However, 95% of adult males have a height within 6 inches of the average-between 63 and 75 inches. That range is the variance. However, extreme cases outside of the variance still occur-male heights as short as 30 inches, and as tall as 100 inches have been measured.<br /><br />In the past week media reports about the storm have referred to it as "a once in a lifetime event," "unprecedented," and "a hundred-year storm." In other words, the storm intensity was far outside the expected variance. But is that claim true? In the 16 years that I've lived in the Baltimore area, this is the third time that I've been snowed-in for an entire week. The week of January 7, 1996 delivered a similar one-two punch with 22.5 inches falling on January 7 and 8, followed by another storm a few days later with more than an additional foot. The blizzard of February 15-18, 2003, with 28.2 inches, remains the record holder for a single storm event. We will never know if the February 5-6, 2010 storm would have topped that number, because the observer, at the official airport weather station, did not follow the proper procedure in recording snowfall measurements.<br /><br />The <a href="http://www.baltimoresun.com/news/weather/bal-md.storm07feb07,0,5429222.story">established procedure</a>, for determining snow accumulation, is to wipe the snowboard clean every six hours, and then total all of the six-hour measurements. If you wait until the storm ends to measure snow depth, the number will be smaller because the snow will compact under its own weight. If you total more frequent measurements-say every hour-the number will be higher because of reduced compacting. Of course, there is nothing magical about totaling six-hour measurements. It is just an agreed upon protocol to insure that the snowfall amounts were measured under the same conditions, so that a comparison makes sense. But, it also shows that these numbers, and the "records" based on them, are to a certain degree arbitrary.<br /><br />The 1996, 2003, and 2010 events were all massive paralyzing storms that in each case shut down the city for an entire week. There is not much difference between these three events, which would suggest that the natural occurrence of these kinds of storms is more frequent than "once in a hundred years" or even "once in a lifetime." Not that we would have anyway of knowing the actual intensity of a "hundred-year storm." Snowfall record keeping in Baltimore began in 1883-127 years ago-so we are many centuries away from having enough data to analyze for "hundred-year" or even "once-in-a-lifetime" events.<br /><br />So should Baltimore be more prepared for large snow events? An article in the <span style="font-style: italic;">Baltimore Sun </span>reports on the <a href="http://www.baltimoresun.com/entertainment/bal-ae.te.advice11feb11,0,4151951.story">amusement of the northern cities</a>. They brag that their streets are clear and their businesses and schools open. But, I lived for five years in one of the snowiest cities in the United States-Rochester, New York-with an average annual snowfall of 92 inches-about 7.5 feet. Actually, 4 feet of snow in 5 days would shutdown Rochester too. The high annual snowfall in Rochester results from lake effect flurries that blanket the city with light snow almost everyday during the winter. My freshman year at the University of Rochester it snowed for 60 consecutive days. It never snowed enough at one time to close the school, but over the course of the entire winter it resulted in an impressive snowfall total. Lake effect flurries mean that snow removal is an ongoing activity during the winter in Rochester. It is not an "event" like it is in Baltimore.<br /><br />Apparently Rochester has a high average annual snowfall but not much variance. In contrast, Baltimore has a much smaller average annual snowfall-only 18 inches-but a large variance. It is rare, but it does happen that in Baltimore a single storm will dump more than an average annual snowfall. In Rochester it is nearly impossible for a single storm to deliver more than the average annual snowfall. Which means that it makes no sense to have the snow removal capability of Rochester. It would be an under utilized resource, and still not save us in extreme weather events, when the real problem is where to put all the snow that is plowed.<br /><br />Although, if the climate changes, and monster snowstorms become frequent, then investing in more snow removal equipment would make sense. But a single storm event does not define a climate-a fact that commentators at Fox News are oblivious to. These global warming deniers were quick to claim that the storm "proved" that climate change theories are wrong. It is scary enough when science is politicized. After all, the laws of nature are oblivious to party affiliations. But the inane reasoning of Fox News is laugh out loud funny, a point made in a hilarious spoof on the Daily Show on how to misinterpret data. What is not funny is that Fox News commentators have such a high-profile platform to promote ignorance.<br /><br /><object height="296" width="512"><param name="movie" value="http://www.hulu.com/embed/hjlCh9ulXJMtnaujIz5HWw"><param name="allowFullScreen" value="true"><embed src="http://www.hulu.com/embed/hjlCh9ulXJMtnaujIz5HWw" type="application/x-shockwave-flash" allowfullscreen="true" height="296" width="512"></embed></object><br /><br />So what can we conclude about this event? The scientific answer is not much. Annual snowfall totals have a great deal of variance, especially in cities such as Baltimore where the annual average is a small number. In those cases, annual snowfall totals will not even form a normal distribution about a mean, because snow accumulations have no upper limit, but a lower limit of zero that cannot be breached. That means that the "average" annual snowfall isn't all that meaningful a number. It is the variance that we should be concerned about.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-9913061268906561002010-01-26T19:19:00.000-08:002010-01-26T19:33:08.143-08:00Cash for Gold Scams: Exploiting Desperation and IgnoranceWith the price of gold soaring, while the economy falters, selling little-used gold jewelry has become an attractive means for raising extra cash. In early December of 2009, gold hit a peak of over $1200 per troy ounce, about 3 times the just over $400 per troy ounce it sold for 5 years earlier. As a result the melt value of gold necklaces, rings, and bracelets, has become a valuable asset for many jewelry owners.<br /><br />That fact has also been noticed by gold dealers, who do a brisk business these days buying up unwanted jewelry in order to extract, and resell the gold content. Commercial TV, and the Internet are awash with ads offering cash for gold. Unfortunately, many of these "cash for gold" operations are scamming their customers. It is easy to fool people, because many jewelry owners have no idea how to estimate the worth of what they own.<br /><br />The <span style="font-style: italic;">Today Show</span> on Friday January 22, reported that heavily advertised online sites, such as <a href="http://www.cash4gold.com/">Cash4Gold.com</a>, only pay between 11% to 29% of the value of the gold. The reporter interviewed Ben Popken from the consumer watchdog site <a href="http://www.consumerist.com/">consumerist.com</a> that did a study on Internet cash-for-gold offers. According to Popken a pawnshop would pay far more for your gold jewelry than many of these Internet sites. You can see a video of the <a href="http://consumerist.com/2010/01/ben-popken-on-today-show-talkin-bout-mail-in-gold-places.html">Today Show report and interview with Ben</a>.<br /><br />The advice is to always get more than one offer for any gold jewelry that you sell. But, it is actually not that hard to appraise your own gold, and determine if an offer is reasonable or not. I've even created a <a href="http://www.thetwoheadedquarter.com/goldpricing.swf">Web calculator</a> to assist in doing your own appraisal. All you need is a kitchen or postal scale that determines weights in ounces (oz). Place your gold chain on the scale to determine the weight.<br /><br />Next you need to know the purity, which is expressed in carats. If you have the original packaging, the purity is usually on the label. The most common gold alloy used in jewelry is 14 carat (although 10 carat and 18 carat are also widely used). Pure gold is 24 carat, which means that a 14-carat chain has (14/24) or 0.58333 gold content.<br /><br />The spot price of gold varies by the day. Updates can be found at many financial and precious metal Websites, such as <a href="http://www.goldline.com/">goldline.com</a>. Today the price is about $1100 per troy ounce. A troy ounce is slightly more than a postal, or food ounce, it is 1.09714 ounce to be exact. That means an ounce measured on a postal scale is (1/1.09714) or 0.91146071 troy ounce.<br /><br />Those are all the numbers you need to appraise the gold content of your jewelry. Suppose your 14-carat gold chain tips your food scale at 1.5 ounce. You own (14/24) x 1.5, or 0.875 ounce of gold. That is 0.875 x 0.91146071, or 0.7975 troy ounce. The dollar value today would be $1100 x 0.7975, or $877.<br /><br />Obviously no dealer will offer you that much for your gold chain. The dealer needs to cover costs of overhead, purifying the gold, and reselling it. The dealer will not be in business without a markup. But, if you are offered $250 for the chain, an amount that might seem like a lot, you are getting ripped off. The dealer's services are not worth that much of a difference between the spot price and the offer. A local pawnshop might offer 75% of the value, or $658.<br /><br />If you want to estimate the value of your gold, get out your food scale and use this <a href="http://www.thetwoheadedquarter.com/goldpricing.swf">calculator</a>.Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com5tag:blogger.com,1999:blog-6280765612127936808.post-7404186545198349222009-09-27T18:11:00.000-07:002009-09-27T18:19:53.072-07:00Debit Card Deceits: When Zero Isn't The FloorDebit cards have become a popular alternative to credit cards because they have many of the conveniences of credit cards without actual debt. I have come to rely more and more on my debit card because I don't have to carry a checkbook and hold up checkout lines with identification hassles every time I write a check. I simply swipe the card and go on my way. Money is deducted directly from my checking account, just as if I wrote a check. Once I deplete my checking account balance, the card stays in my wallet until the next payday. It appears to be a full proof system for staying out of debt.<br /><br />However, appearances can be deceiving because the belief that you can't get into debt using a debit card is based on a false assumption. Account holders naturally assume that once the balance is zero, transactions will be declined. The reality is banks will process the transaction even if the money is not in the account and then assess hefty overdraft fees. The account holder becomes liable for the purchase, the overdraft fee, and any additional fees that the bank dreams up.<br /><br />My teenage daughter had a recent run-in with debit card fees. She does not have a credit card, but she has a checking account at M &T Bank with a debit/ATM card, and a job with direct deposit for her paychecks. Like many consumers, she believed that a debit card protected her from ever spending more than the balance in her account. However, a couple of small purchases during a night out with friends unleashed a cascading series of bank charges put the balance on her account hopelessly below zero.<br /><br />At a local eatery she bought a sandwich for $8 and then moved across the street to the local coffee shop where she made a $4 purchase. She thought her checking account balance was low, but each transaction on her debit card was approved. What she didn't realize is that because she did not have the money to cover either purchase, each transaction triggered a $35 overdraft fee. Checking her account online the next day, revealed that she was now more than $70 below zero. She thought the problem would be solved in a few days when her paycheck for $90 would be posted.<br /><br />However, that was another false assumption. M&T's fee structure imposed a $10 charge everyday that the account remained below zero. By the time the $90 arrived she was more than $100 in the red and counting. Her paycheck vanished and the $10 daily charges continued. The next $90 paycheck would be in two weeks. It had become mathematically impossible for her get out of debt.<br /><br />After learning all this, I understand why payday loan operations continue to thrive despite their exorbitant fees. In some circumstances, a payday loan is a much better deal compared to a bank. For low-income people with small balances, a simple math error made while shopping can cause unrecoverable financial harm if a bank is involved.<br /><br />Because my daughter wanted to be responsible for her own finances, she avoided telling me what was happening. I found out by accident, when coincidentally, another problem occurred with her account that prompted the bank to call, and I answered the phone. Someone had obtained access to her debit card number and was making fraudulent purchases. These transactions, totaling hundreds of dollars for purchases in places outside the United States, had not been declined either. But the bank's monitoring systems had flagged them as suspicious and called to verify their authenticity.<br /><br />We had to visit the bank and fill out paperwork certifying that the transactions were indeed fraudulent so that the charges could be reversed. By the time we arrived, the fraudulent purchases, multiple overdraft fees, and daily charges had resulted in a checking account balance that was close to $1500 below zero.<br /><br />I asked the M&T bank manager: "At what point does the balance get so far below zero that transactions are declined?" Interestingly, he did not have an exact answer to that question. He indicated that there are limits, but that the limits are not hard and fast. From his point-of-view, the bank was doing a favor by allowing purchases to go through even if no money was in the account to cover them. Of course, it is an unasked favor, for which the bank is charging fees that are often far greater than the purchase amounts in question.<br /><br />On reflection, I found the bank's priorities deeply unsettling. After all, M&T had asked us to come in, but it was the suspicious pattern of activity that triggered the phone call, not the negative balance. A $4 purchase at a local coffee shop that resulted in hundreds of dollars in fees is part of the bank's business model. A $300 purchase for tickets to a Canadian amusement park that my daughter couldn't possibly have made, is a threat to the bank's business model. The latter event triggered a phone call from the bank; the former event did not concern them. The bank had no moral qualms about appropriating my daughter's entire paycheck for a $4 coffee purchase, but acted outraged by someone taking money from the bank.<br /><br />After reversing all the fraud, we still had the negative balanced caused by the fees associated with the legitimate purchases. I managed to negotiate reversals for all but the first overdraft fee. That restored her account balance to a positive number and eliminated the daily $10 charges.<br /><br />However, I found agreeing to even one overdraft fee a distasteful compromise given that my daughter never agreed to overdraft protection in the first place. In fact, not only do banks provide an expensive service that is not always wanted, but they also deceive customers further by re-ordering transactions to maximize fees. Suppose you went shopping with $100 in your account and made purchases of $4, $6, $8, and $102 in that order. You might think that the $102 purchase at the end would trigger a $35 overdraft fee because you had a large enough balance to cover the first three purchases. But, at the end of the day the bank would assess $140 in fees by re-ordering the purchases. It would process the largest purchase first as an overdraft, followed by the other three small purchases all as overdrafts.<br /><br />These practices might be changing because Congress is debating new legislation that would require banks to get your permission before setting up your account with expensive overdraft protection. Consumers are also fighting back. <a href="http://www.baltimoresun.com/business/money/bal-bz.ml.ambrose27sep27,0,792477.story">Eileen Ambrose </a>reported in The Baltimore Sun that Maxine Given of Baltimore County, sued M&T Bank, claiming the bank's overdraft program violates Maryland's consumer protection laws. And, as <a href="http://redtape.msnbc.com/2009/09/justine-gabbard-of-long-island-had-just-been-charged-hundreds-of-dollars-in-overdraft-fees-by-bank-of-america----for-the-seco.html">Bob Sullivan</a> reported in his Red Tape Chronicles, consumers are leveraging the power of social media online to publicly embarrass and shame the shady practices of many banks. Let's hope Congress gets the message and enacts meaningful consumer protections.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com2tag:blogger.com,1999:blog-6280765612127936808.post-81826245695300271632009-09-10T12:01:00.001-07:002009-09-27T18:22:02.051-07:00The Public Option for Healthcare: Logical Flaws in the Argument AgainstI am mystified by the arguments presented by opponents of the “public option” for health insurance. Their line of reasoning has a rather obvious logical flaw. The gist of the argument against the public option is that it would lead to a government take over of the entire health care system because private insurers couldn’t compete with the government. Opponents of the public option say that would be a bad outcome because government-run-health care would not be able to provide the kind of health care services people want and need. Their underlying assumption is that any health care plan run by the government would be an inferior product compared to private health insurance.<br /><br />But, that assumption is the source of the logical flaw. Since when is it a competitive advantage to offer an inferior undesirable product? If public health care were really as bad as opponents claim, why would anyone choose it? It seems that the real fear opponents of the public option have is that many people might find it an attractive choice. But, if it’s an attractive choice, why is that a problem?<br /><br />Actually the market place is full of examples where private, for-profit companies compete successfully against government-run or non-profit entities.<br /><br />My job at a private college is not threatened by the existence of cheaper public schools.<br /><br />Rural electric cooperatives are not a threat to for-profit electric companies because those companies do not find it profitable to serve the rural market.<br /><br />Package delivery services provided by private companies such as UPS and FedEx compete successfully against the “public option” of the U. S. Postal Service.<br /><br />The existence of member-run credit unions did not put private banks out of business.<br /><br />In fact the banks managed to fail by themselves; no outside competition was needed. That fact calls into question the entire assumption that privately-owned equals competent and efficient while government-run equals inept and wasteful. To borrow the title of a recent book on the collapse of Lehman Brothers, “<a href="http://www.amazon.com/gp/product/0307588335?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=0307588335">a colossal failure of common sense </a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=0307588335" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" />” permeates the management of many privately run companies.<br /><br />No organization, public or private, is immune from ineptness and mismanagement. But, if I worked for an organization that I perceived as incompetent, I would work to fix the problems or find another job. I would not contribute to the problems just to prove my point that the organization is dysfunctional. Unfortunately, many members of Congress work for the government solely to prove that government doesn't work.<br /><br />Actually, private and non-profit health insurers already compete head-to-head in the marketplace. My health plan through my employer is with a non-profit company. Its existence hasn’t put the private for-profit health insurers in my state out of business. I fail to see how public health insurance for people not currently served can be a threat to the existing private insurance system.<br /><br />No one has suggested that private insurance and private health care be outlawed. This being America, I have no doubt that those who have the jobs and income that provide adequate health care will continue to receive the kind of care to which they are accustomed. The issue is how do we as a nation provide care for the tens of millions of fellow citizens who are not served by the current system. Many of the uninsured have zero options available. Every other developed nation in the Western world takes care of its citizens. How can the richest nation of them all, claim it cannot afford to?<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-18713344061263531562009-08-14T11:30:00.000-07:002009-08-14T11:51:35.350-07:00UK Trip Part I: Executive CompensationI just returned from a trip to the UK where I spent four days touring London and then four days at Cambridge University where I gave a talk about the mortgage crisis in the United States. It struck me perusing the London media just how many of the banking problems in the UK mirror those in the US and even more striking, how the rhetoric matches word-for-word.<br /><br />A British tabloid-style newspaper—<a style="font-style: italic;" href="http://www.independent.co.uk/">The Independent</a>—ran a headline on August 4: <a href="http://www.independent.co.uk/news/uk/home-news/big-bonuses-it-would-be-wrong-to-stop--paying-them-1766927.html">‘Big bonuses? It would be wrong to stop paying them.’</a> Beneath it ran the subheading: "Barclays’ £50m-a-year boss delivers a defiant rebuff to critics who say bankers are overpaid." Quotes in the article could have been lifted from the financial section of any newspaper in the US. Here is a sampling:<br /><br /><span style="font-style: italic;">“performance-related bonus payments were vital given the bank's "obligation to run a client-first business”</span><br /><br /><span style="font-style: italic;">“It is pay for performance and it is based on principles we have followed for a while now.”</span><br /><br /><span style="font-style: italic;">“It would be wrong for the bank not to pay out ‘if we had really good performance.’”</span><br /><br />And my favorite quote described seven-figure bonuses as:<br /><br /><span style="font-style: italic;">“essential if we want people to work in our industry”</span><br /><br />When I returned home, the first headline I saw in my local paper, the <a style="font-style: italic;" href="http://www.baltimoresun.com/">Baltimore Sun</a> read: <a href="http://www.baltimoresun.com/business/bal-bz.compensation09aug09,0,7006855.story">“CEOs paid more even as profits fall”</a> followed by the subheading: “Debate swirls as most of the area's 10 top-earning CEOs receive higher compensation during a recession that has dragged down many companies' stock prices and profits.”<br /><br />The reporters analyzed the compensation for 20 Baltimore-area companies that paid their CEO at least $1 million and found that 17 received compensation increases even though in most cases company profits fell. The reporters obtain their compensation figures from documents filed with the SEC. The company spokepersons who responded to questions couldn’t give the usual “pay for performance” justification without sounding completely out of touch with reality. Instead elaborate mathematical manipulations were offered to convince everyone that the figures for executive pay on SEC-required filings were misleading because of SEC-enforced rules. The spokespersons insisted that the pay the CEOs actually received was much lower. I don’t know if I should take comfort in the argument that federal law requires that SEC documents misrepresent actual pay.<br /><br />It occurred to me as I read the articles in Baltimore and London that no matter what order of magnitude is attached to compensation figures, spokespersons for the industry will argue that it must be at that level. As the recession squeezes budgets, teachers with 5-figure incomes warn public education will suffer if salaries are cut, medical doctors making 6-figure incomes warn that public health will suffer if government-run healthcare puts limits on their income, and here we have bankers with 7-figure incomes arguing that banks will fail to function if CEO compensation is limited. It appears that compensation is like closet space, no matter how much you have, expenses will expand to require all of it. Any reduction in income then becomes unimaginable.<br /><br />However, I find the logic for executive compensation interesting on many different levels. First it would be interesting to know if independent studies have found cause and effect relationships between executive pay and company performance. Recently I came across a study on the relationship between the cost of executive homes and company performance.<br /><br />Two business professors, Crocker H. Liu and David Yermack, conducted a study reported in a paper titled: <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1300781">"Where are the Shareholders Mansions? CEOs Home Purchases, Stock Sales, and Subsequent Company Performance."</a> The study found an inverse relationship between company performance and CEO stock sales to finance large real estate purchases. In other words the bigger the CEO’s home the worse the company performs. The authors concluded that, “regardless of the source of finance, future company performance deteriorates when CEOs acquire extremely large or costly mansions and estates.” It is wrong to generalize from a single study but it does suggest that the justifications for high executive compensation might not hold up when the facts are examined.<br /><br />A large part of the problem as <a href="http://www.baltimoresun.com/business/bal-bz.hancock12aug12,0,3607943.column">Jay Hancock</a> pointed out in a recent column is that CEO pay is not negotiated with the company owners. Boards of directors determine CEO pay, not the shareholders who actually own the company. As a result market forces don’t work, an observation made by the father of free-market capitalist principles <a href="http://en.wikipedia.org/wiki/Adam_Smith">Adam Smith</a> more than two centuries ago. It is worth reading the entire section below from Smith’s treatise <a style="font-style: italic;" href="http://www.amazon.com/gp/product/0553585975?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=0553585975">The Wealth of Nations</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=0553585975" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" /> because it describes exactly the problems with executive pay today.<br /><br /><span style="font-style: italic;">“The trade of a joint stock company is always managed by a court of directors. This court, indeed, is frequently subject, in many respects, to the control of a general court of proprietors. But the greater part of those proprietors seldom pretend to understand anything of the business of the company, and when the spirit of faction happens not to prevail among them, give themselves no trouble about it, but receive contentedly such half-yearly or yearly dividend as the directors think proper to make to them. This total exemption from trouble and from risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies, who would, upon no account, hazard their fortunes in any private copartnery. Such companies, therefore, commonly draw to themselves much greater stocks than any private copartnery can boast of. The trading stock of the South Sea Company, at one time, amounted to upwards of thirty-three millions eight hundred thousand pounds. The divided capital of the Bank of England amounts, at present, to ten millions seven hundred and eighty thousand pounds. The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. It is upon this account that joint stock companies for foreign trade have seldom been able to maintain the competition against private adventurers. They have, accordingly, very seldom succeeded without an exclusive privilege, and frequently have not succeeded with one. Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it.”</span><br /><br />Adam Smith understood that “negligence and profusion” would always prevail in the management of publicly traded companies because the directors are not the owners. Of course newspapers like to report on the excesses of high-living executives and print their self-serving explanations because of the public outrage stirred. There is an obvious “two-headed quarter” in play that angers people. Executives profit handsomely when performance is good and profit handsomely when performance is bad.<br /><br />However, I see an attitude that is even more deeply troubling. Beyond the conflicts of interest Adam Smith described, the idea that seven-figure salaries are essential or there would be no executives might be a more revealing testament to the cause of dysfunction in corporate America.<br /><br />For most people pay is a necessary condition to work but not sufficient. Motivating people to do a job well usually requires more than money. For many people work is an opportunity to perform a social good and contribute to a cause larger than oneself. Teachers teach and doctors practice for reasons beyond money.<br /><br />But, the apologists for high executive pay, talk about compensation and performance only in monetary terms. This is an attitude that does a disservice to the majority of their own employees. When I go into my bank the people who work there seem genuine in wanting to help me. It is a social transaction, not just financial.<br /><br />I am well aware that in any industry, compensation is determined by market forces that have more to do with scarcity than the value of the work to society. It is for those reasons major league baseball players will always make orders of magnitude more than teachers. But success in teaching and sports is usually defined in non-financial terms. To do the work requires a desire for more than just money.<br /><br />The evaluation of executives needs to include more than just financial measures. There needs to be ethical and societal dimensions when evaluating the performance of executives because the decisions they make have impacts far beyond the company stock price. The underlying assumption behind performance evaluation—rising stock price equals good; falling stock price equals bad—is overly simplistic. When large companies fail many more people than the shareholders lose.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-18517829987840755342009-07-16T14:18:00.000-07:002009-07-16T14:46:43.584-07:00The Widening Gap Between High School and College MathAn article in the Baltimore Sun this past week: “<a href="http://www.baltimoresun.com/news/education/bal-md.math12jul12,0,39197.story">A Failing Grade for Maryland Math</a>,” highlighted a problem that I believe is not unique to Maryland. The author, Liz Bowie, explained that the math taught in Maryland high schools is deemed insufficient by many colleges. More and more entering college students are required to take remedial math. In many cases incoming college students cannot do basic arithmetic even after passing all the high school math tests.<br /><br />The article resonated with me because in recent years I’ve witnessed first hand the disconnect between high school and college math curricula. As a parent of three children with current ages 14, 17, and 20, I’ve done my share of tutoring of middle school and high school math. The problems assigned to my children have become progressively more difficult through the years to the point of being bizarre. My wife keeps shaking her head at how parents without my level of math expertise assist their children.<br /><br />For example, my eighth-grade daughter asked me one evening how to perform “matrix inversions.” This is a technique I teach in a college sophomore-level mathematical methods course for physics majors. Matrix inversion is difficult for me to do off the top of my head. I needed to refresh my memory by referring to a highly advanced math book. Another night my daughter brought home a word problem that was easy for me to do with my advanced knowledge of differential equations but it took me a lot of thought to arrive at an explanation comprehensible to an eighth-grader.<br /><br />My other daughter struggled through a high-school trigonometry course filled with problems that I might assign to my upper-class physics majors. I certainly wouldn’t assign problems at such a high level to college freshmen. I kept asking her how she was taught to do the problems. I wondered if the teacher knew special techniques unknown to me that made solving them much easier. Alas no such techniques ever materialized. The problems were as difficult as I judged. At least I could solve the problems, a feat the teacher couldn’t manage in a number of cases.<br /><br />At the same time I work the summer orientation sessions at <a href="http://www.loyola.edu/">Loyola College</a> registering incoming freshmen for classes. Time and again students cannot pass the placement exam for college calculus. Many students cannot pass the exam for pre-calculus and that saddles them with a non-credit remedial math course. Without the ability to take college-level math the choices students have for majors are severely limited. No college-level math course means not majoring in any of the sciences, engineering, computer, business, or social science programs.<br /><br />A colleague in the engineering department complained to me that many students who wanted to major in engineering could not place into calculus. The engineering program is structured so that no calculus means no physics freshmen year and no physics means no engineering courses until it’s too late to complete the program in four years. For all practical purposes readiness for calculus as an entering freshmen determines choice of major and career. The math placement test given to incoming freshmen at orientation has much higher stakes than any test given in high school. But, the placement test has no course grade or teacher evaluation associated with it. No one but the student has any responsibility for its outcome.<br /><br />So if eighth graders are taught math at the level of a college sophomore why are graduating seniors struggling? From my knowledge of both curricula I see three problems.<br /><br /><span style="font-weight: bold;">1. Confusing difficulty with rigor.</span> It appears to me that the creators of the grade school math curricula believe that “rigor” means pushing students to do ever more difficult problems at a younger age. It’s like teaching difficult concerti to novice musicians before they master the basics of their instruments. Rigor—defined by the dictionary in the context of mathematics as a “scrupulous or inflexible accuracy”—is best obtained by learning age-appropriate concepts and techniques. Attempting difficult problems without the proper foundation is actually an impediment to developing rigor.<br /><br /><br /><span style="font-weight: bold;">2. Mistaking process for understanding.</span> Just because a student can perform a technique that solves a difficult problem doesn’t mean that he or she understands the problem. There is a delightful story recounted by Nobel-prize winning physicist Richard Feynman in his book <a href="http://www.amazon.com/gp/product/009917331X?ie=UTF8&tag=intelligentgames&linkCode=as2&camp=1789&creative=9325&creativeASIN=009917331X">Surely You're Joking, Mr.Feynman!: Adventures of a Curious Character</a><img src="http://www.assoc-amazon.com/e/ir?t=intelligentgames&l=as2&o=1&a=009917331X" alt="" style="border: medium none ! important; margin: 0px ! important;" border="0" height="1" width="1" /><br />about an arithmetic competition between him and an abacus salesman. (The incident happened in the 1950’s before the invention of calculators.) Here is the link to the <a href="http://www.ee.ryerson.ca/%7Eelf/abacus/feynman.html">full text of the story</a>.<br /><br />Feynman and the abacus salesman competed on who could do arithmetic faster. Feynman lost when the problems were simple addition. But he was very competitive at multiplication and won easily at the apparently impossible task of finding a cubed root. The salesman was totally bewildered by the outcome. How can Feynman have a comparative advantage at hard problems when he lags far behind at the easy ones? But when Feynman tried to explain his techniques he discovered the salesman had no understanding of arithmetic. All he does is move beads on an abacus. It was not possible for Feynman to teach the salesman additional mathematics because despite appearances he understood absolutely nothing.<br /><br />This is the problem with teaching eight-graders techniques such as matrix inversion. The arithmetic steps can be memorized but it will be a long time, if ever, before the concept and motivation for the process is understood. That raises the question of what exactly is being accomplished with such a curricula? Learning techniques without understanding them does no good in preparing students for college. At the college level emphasis is on understanding, not memorization and computation prowess.<br /><br /><br /><span style="font-weight: bold;">3. Teaching concepts that are developmentally inappropriate.</span> Teaching advanced algebra in middle school pushes concepts on students that are beyond normal development at that age. Walking is not taught to six-month olds and reading is not taught to two-year olds because children are not developmentally ready at those ages for those skills. It is very difficult to short-cut development. All teachers dream of arriving at a crystal clear explanation of a concept that will cause an immediate “aha” moment for the student. But those flashes of insight cannot happen until the student is developmentally ready. Because math involves knowledge, skill and understanding of symbolic representations for abstract concepts it is extremely difficult to short cut development.<br /><br />When I tutored my other daughter in seventh grade algebra, in her words she “found it creepy” that I knew how to do every single problem in her rather large textbook. When I related the remark to a fellow physicist he said: “But its algebra. There are only three or four things you have to know.” Yes, but it took me years of development before I understood there were only a few things you had to know to do algebra. I can’t tell my seventh grader or anyone else without the proper developmental background the few things you have to know for algebra and send them off to do every problem in the book.<br /><br />All three of these problems are the result of the adult obsession with testing and the need to show year-to-year improvement in test scores. Age-appropriate development and understanding of mathematical concepts does not advance at a rate fast enough to please test-obsessed lawmakers. But adults using test scores to reward or punish other adults are doing a disservice to the children they claim to be helping.<br /><br />It does not matter the exact age that you learned to walk. What matters is that you learned to walk at a developmentally appropriate time. To do my job as a physicist I need to know matrix inversion. It didn’t hurt my career that I learned that technique in college rather than in eighth grade. What mattered was that I understood enough about math when I got to college that I could take calculus. Memorizing a long list of advanced techniques to appease test scorers does not constitute an understanding.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com3tag:blogger.com,1999:blog-6280765612127936808.post-22006697668219595642009-07-02T12:01:00.000-07:002009-07-04T07:59:11.282-07:00Overdue Warnings on AcetaminophenThe news that the government is issuing stronger <a href="http://health.usnews.com/articles/health/healthday/2009/05/28/fda-report-urges-tougher-acetaminophen-warning.html">warnings about acetaminophen</a> and possibly banning its use in some products is long overdue. Because of my own experiences, I have been mystified by perceptions of the safety of this drug for years. To me the medical community appeared as oblivious as the public.<br /><br />Like most people, I believed acetaminophen to be very safe drug. In 2003 I had an illness with a high fever that continued for more than a week. I had never in my life, before or since, been so sick. The fever was so debilitating that to stay lucid I found myself taking the maximum recommended dose of acetaminophen each day. The chills and sweats came back as soon as each dose wore off and every six hours I popped more pills.<br /><br />After a week elapsed with no improvement I went to see a doctor. He examined me and said that I appeared to have hepatitis. Blood work would be necessary to confirm the diagnosis. He drew the blood and sent me home.<br /><br />How could I have hepatitis? I immediately started to read about the disease to learn more about the different types and causes. Hepatitis is a general term that refers to an inflammation of the liver. It is not a single disease because there are a number of causes of liver inflammation. If the condition continues untreated it can lead to liver failure.<br /><br />After learning about the different viral causes of hepatitis I started reading about chemical causes. A number of drugs can inflame the liver but the most common drug-induced hepatitis is caused by acetaminophen.<br /><br />Learning that fact caused the science part of my brain took over. What hypotheses can I form given the data and how can each be tested. I could construct two cause and effects narratives to fit the data.<br /><br />1. I have hepatitis that caused a fever and in response I took acetaminophen.<br />2. I have a fever that caused me to take acetaminophen and in response I developed hepatitis.<br /><br />The doctor had jumped quickly to testing the first hypothesis. But, given my unlikely exposure to any viral form of the disease, it occurred to me that the second hypothesis was the most plausible. I stopped taking acetaminophen and in a few days the hepatitis symptoms went away. The doctor called back to say that I tested negative for all the viral forms of the disease. He never asked about acetaminophen or mentioned its use as a potential problem.<br /><br />I eventually recovered from the illness. It took almost a month before I felt completely well. To this day I don’t know what I had. Most likely it was some random viral infection that it took my immune system a long time to eliminate.<br /><br />A few months later I crossed paths with a colleague who I had not talked to in a while. We inquired about each other’s families and he told me about a health crisis with his adult son. He began a story with remarkable parallels to my own. His son had an unexplained fever that went on for more than a week. The doctors did not know the cause and advised him to take acetaminophen to control the fever. But then his son’s experience took a harrowing divergence from my own. Following the doctor’s advice he continued to take acetaminophen for the fever and found himself hospitalized with liver failure.<br /><br />My colleague said to me: “We had no idea acetaminophen could cause liver failure. We thought it was safe drug because the doctors kept telling him to take it.”<br /><br />The makers of acetaminophen products—Tylenol, Nyquil, etc.—insist the drugs are safe when used as directed. But, I am skeptical about directions that include just two dosage variations—adult and child. There must be more variation in acetaminophen tolerance within the adult population. A one size fits all number for the recommended dosage for adults does not make sense.<br /><br />For example, I am an almost exactly average adult male—5-feet 10-inches, 185 pounds, right-handed. That means almost all personal products—furniture, cars, homes, etc. and yes, drug dosages—are designed for me. All other people have to make adjustments when they use these products because I’m the person everything is designed for.<br /><br />But, the dosing instructions for acetaminophen are too much for me to metabolize. Does that mean I have a less than average tolerance for the drug? How many other people are like me? What about the female half of the population? The current dosage instructions address none of these questions. Given the dangers of acetaminophen those questions should be addressed and the government is right to require warnings.<br /><br />The most important lesson I learned from my experience is to ask these questions early and do independent research. Do not blindly follow dosing instructions on a package or follow “expert” advice from doctors who cannot think through all the possibilities in the short 10-minutes they allot for an exam. It took me some time and effort to figure out what was happening but the insights saved me from potentially dangerous complications.<br /><br /><a style="FONT-STYLE: italic" href="http://www.josephganem.com/">Joseph Ganem</a><span style="FONT-STYLE: italic"> is a physicist and author of the award-winning </span><a style="FONT-STYLE: italic" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0tag:blogger.com,1999:blog-6280765612127936808.post-42093403559453829262009-06-13T19:44:00.000-07:002009-06-15T10:47:38.552-07:00Dropping the SAT Requirement at Loyola CollegeThe <a href="http://www.baltimoresun.com/news/education/bal-md.sat07jun07,0,4712926.story">announcement</a> by the school where I teach, Loyola College, that it would no longer require SAT scores for applicants brought a <a href="http://www.baltimoresun.com/news/opinion/editorial/bal-ed.yoursay10jun10,0,1852598.story">vitriolic response </a>from recent alumni that the Baltimore Sun published. That opinion piece generated a <a href="http://weblogs.baltimoresun.com/news/opinion/2009/06/backlash_to_loyolas_satoptiona.html">heated discussion</a> on blogs that the Baltimore Sun published two days later.<br /><br />I found deeply troubling the arguments made by the alumni for keeping the SAT requirement at Loyola and the tone of their reaction to the news disturbing. The assertion made in the opinion piece that making SAT’s optional for admission will “financially depreciate” the bachelor's degrees granted by Loyola is based on two underlying assumptions that are false.<br /><br />First, admission to Loyola is not a guarantee of a degree from Loyola. Students have to do the work required to earn the degree. Admission standards should not be confused with academic standards. I am never told the SAT scores, high school grades, or any of the reasons the Loyola admitted the students in my classes. Honestly, I am not interested in any of that information.<br /><br />I teach my subject to the students enrolled in the class and assigned grades based on performance expectations that have not changed throughout my career. SAT scores have no bearing on the criteria I have established for passing my courses.<br /><br />I also serve on Loyola’s academic standards committee. At the end of each semester that committee is charged with reviewing student grades and dismissing any students who are not making satisfactory progress towards a degree. Again it is grades earned at Loyola that are reviewed, not the reasons the students were admitted. SAT scores have never entered into these discussions.<br /><br />Second, college degrees have no “financial value” so it is not possible for them to “depreciate.” A degree is a non-transferable status that cannot be bought or sold. I know this seems like a strange assertion given the wide disparity between the average lifetime earnings of college graduates compared to those without college degrees. But students are mistaken if they believe that degrees are the cause of the higher income typically earned by college graduates.<br /><br />No employer pays a person because he or she has a college degree. Employees are paid for the performance of work if it has sufficient value that it becomes in the financial best interest of the employer to pay. It happens that the knowledge, skills, and insights that are acquired through the process of obtaining a college degree often results in the ability to perform work that is of greater value to employers. But there are people without degrees who are highly paid because they perform valuable work. It is work that causes payment, not the abilities associated with the degree. Graduates who cannot establish themselves as productive workers will find that their degrees mean very little financially.<br /><br />So do I think Loyola should become an SAT-optional school? I am in agreement with the new policy. I find the entire concept of “scholastic aptitude” that the SAT purports to measure suspect. Readiness for college depends on acquiring the necessary language, writing, and math skills necessary for college-level work. These are not “aptitudes” that a single test can measure, rather, these are skills acquired through study and practice.<br /><br />Once in college success is more dependent on attitude than aptitude. Students will do well if they attend class, do the assigned work, and major in a subject that interests them. That sounds simple and trite, but my experience on the Academic Standards Committee has revealed that students who fail in college haven’t mastered those basic practices.<br /><br />SAT scores were meant to provide a level playing field for college admission by putting students from all backgrounds on equal footing. But, as it usually happens when a number is substituted for judgment, inordinate amounts of time, effort, and expense are allocated toward manipulating the number. Witness the entire test preparation industry that has grown up because of the SAT. Spending thousands of dollars on SAT prep classes defeats the original purpose of a level playing field. It’s time to retire the number.<br /><br />For recent graduates entering the workforce, college reputation and courses of study are important because it is all employers have as a basis for judging competence and abilities. But within four to five years of graduation it will be performance on the job that counts. For me it has now been 32 years since I entered college and 28 since I graduated. I no longer remember my SAT scores and if my alma mater, the <a href="http://www.rochester.edu/">University of Rochester</a>, changes its SAT policy there would be no impact on my life—financial or otherwise.<br /><br /><a style="font-style: italic;" href="http://www.josephganem.com/">Joseph Ganem</a><span style="font-style: italic;"> is a physicist and author of the award-winning </span><a style="font-style: italic;" href="http://www.thetwoheadedquarter.com/">The Two Headed Quarter: How to See Through Deceptive Numbers and Save Money on Everything You Buy</a>Joe Ganemhttp://www.blogger.com/profile/13688552494593097153noreply@blogger.com0