What Color is the Dress? Political Edition


I had a conversation with a medical doctor 2 days ago-we looked at the now infamous Inauguration comparison images and he stated that “he wasn’t quite sure which image had the largest crowd”. Wow. We are just in a brand new place where objective facts and evidence are meaningless to a large group of people. Psychology does provide justifications for this. Cognitive biases like the confirmation bias and the backfire effect can explain why people would reject evidence that does not conform to their worldview. It is just so amazing to engage with people who you think should know better resort to mental gymnastics to explain their unsubstantiated worldview.


Last night, Rachel Maddow  discussed results from a PPP poll asking about the new Trump administration. Take a look at the chart below.  There is a bubble alright…two bubbles. The Trump supporter bubble…and the everybody else bubble.

President Trump appears to have his own reality where he is sacrificing trust in the White House to claim that 3-5 million undocumented immigrants illegally voted in the election and that his Inauguration was the largest ever–both easily prove falsehoods (or lies).  The good news is that a plurality of the people still believes in the objective truth.


Why discuss politics and psychology on a personal finance blog? Now, this is a matter of financial security for our customers and readers. White House policies from Obamacare repeal with no real plan for replacement, deregulating Wall Street and eliminating Dodd-Frank, weakening the Consumer Financial Protection Bureau, Infrastructure spending plan that is just tax breaks for Trump’s friends, and a tax reform plan that may raise taxes on the middle class are all affronts to the financial wellness of our customers. Trump’s Tax plan has been published and analyzed-it benefits top earners the most-as much as 7% and only 0.6% on the bottom quintile.


“A single parent who’s earning $75,000 and has two school-age children, they would face a tax increase of over $2,400,” Batchelder says. That’s if they had no child-care deductions; the increase in taxes comes partly because the Trump plan eliminates the $4,000 exemption for each person in a household.

Source: NPR, Who Benefits from Donald Trump’s Tax Plan

Facts matter. The truth matters. It matters that the Obamacare repeal and replace plan will leave more people without health insurance. President Trump may try to shower himself with praise after the Obamacare repeal and claim that the replacement is “terrific!” We the People, need to embrace the truth and recognize that the “shower of praise” isn’t rain-it’s something entirely different.


We Against the World

The world is rife with problems. As of late, issues like war, Ebola, income inequality, and climate change have been on the front page. We live in a complex world with many voices and many points of views. However, there are moments like the Arab Spring, Occupy Central with Peace and Love, and national elections when groups of people can speak with one voice and make a change. Coming together to affect positive change requires recognition of the situation and forces of power, standing up to the status quo, finding common ground, and playing to the strengths of the agents of change.

Occupy Central with Peace and Love

Umbrella Revolution, Source: BBC, EPA
Umbrella Revolution, Source: BBC, EPA

Hong Kong was formerly a colony of the British Empire following the First Opium War.  On July 1, 1997, the United Kingdom signed a treaty transferring the sovereignty of Hong Kong to the People’s Republic of China. A professor by the name of Benny Thai had a vision that Hong Kong citizens could move closer to a democratic society by having the right to vote and elect their own leaders. Benny Thai started the Occupy Central with Peace and Love with the intent to use civil disobedience to win the right to vote. I was personally touched and amazed when I saw images of Hong Kong protester’s used the same “hands up, don’t shoot” gesture used in Ferguson, Missouri.

Source: Alex Ogle/Getty
“Hands Up, Don’t Shoot” Gesture in Source: Alex Ogle/Getty

The Desert of the Real

I recently wrote about Ferguson and the challenge of being a black male in America. The reality is although white people are more likely to deal drugs, blacks are more likely to be arrested for it. Stop and frisk, shopping while black, standing while black; and, even following the orders of law enforcement can result in bodily harm or even death. Brutal honesty and critical analysis is necessary prior to building a coalition and facing a giant. The Matrix is my favorite film. Morpheus introduced to Neo to the “Desert of the Real”, the bitter truth hidden from humanity. Accepting reality for what it is can be difficult. Yet, this realization coupled with the urgent desire for change can awaken amazing creativity. It can also reveal the path forward. Thurgood Marshall utilized the law to effect change. Ghandi and Martin Luther King utilized civil disobedience. Analyze the options in the same manner that a war strategist like Clausewitz or Sun Tzu. It is paramount to have clarity of purpose and specific desired outcomes to develop a winning strategy.

desert of the real
“Welcome to the Desert of the Real” Morpheus in The Matrix

I Love My Congressman, I Hate Congress

The United States has many different political groups despite being stuck with a two-party system (for now): conservative, progressive, libertarian, independent, green, etc. I have marveled at conversations between conservatives and progressives that ignore the fact that there are common values. For instance, some liberals and libertarians may agree on same-sex marriage but for different reasons. There is even a Tea Party group in Georgia that teamed up with the Sierra Club to support Solar Energy in Georgia. Having a clear purpose can hopefully overcome persistent dissatisfaction with the US Congress. People hate Congress: 83% of people disapprove of the job Congress is doing while 50% of people think their Congressperson deserves to be reelected. Yes, gerrymandering is an issue but it is exacerbated by having too many candidates in “safe” districts and threats of primary challenges. Effecting change requires focusing on common goals to overcome inertia, build momentum, and prevent divisions from slowing down a movement.

Play To Your Strengths

Don’t strive to be well-rounded. A well-rounded person is average; thus, they do not stand out in anything. Author Malcolm Gladwell goes into detail on the importance of focusing on one’s strengths in his recent book David and Goliath: Underdogs, Misfits, and the Art of Battling Giants. Gladwell tells a few stories about small, ill-equipped forces battling military giants throughout history. Gladwell pointed out that the smaller forces won over 60% of the time when they focused on their strength. Examples include Toussaint L’Ouverture of Haiti defeating the French army and Hannibal of Carthage defeating Roman forces. Moreover, it is important to be flexible so as to take advantage of Goliath’s weaknesses and miscalculations. Wars, movements, and revolutions have been fought  and won with these tactics.

David and Goliath by Malcolm Gladwell
David and Goliath by Malcolm Gladwell

My Fight Against a Giant

I can’t continue writing about all of these important battles without mentioning a battle that my company has been facing for several years. My company, Spendology LLC, started using the Spendology trademark and applied for Federal trademark protection with the USPTO before one of the largest banks in the United States. This bank went on to file a notice of opposition (like a lawsuit in administrative court) that resulted in blocking my company from registering the trademark Spendology. Fortunately, there are common law rights to trademarks, thus my firm can continue to use its trade name. The bank, a recipient of a taxpayer bailout, is PNC Bank. PNC continues to use my firm’s name and they have refused come to the table to negotiate. At the same time, a major trademark case is headed to the US Supreme Court that deals with one of the key issues in my firm’s ongoing dispute with PNC Bank.

My firm does have many available moves left on the chess board. I’m fighting this fight because the danger of corporations establishing Eminent Domain for intellectual property is simply unacceptable. I’m also hoping that this encourage other entrepreneurs, consumers, and citizens to courageously confront the giants in their lives. Rights must be fervently fought for and exercised; otherwise, they are, at best, only hopes and wishes. Make sure you vote in the upcoming national election this November. Your voice is your vote. In places like Hong Kong, people are taking to the streets to fight for the rights we take for granted in the US.

The Fallacy of Perfect Information

The idea of attaining perfect or complete information to make decisions is the thing of science fiction novels. Top MBA programs prepare leaders to make decisions under uncertainty and with incomplete information. The concept of attaining perfect information can be a bit philosophical. If you knew the future with 100% certainty, could you take advantage of that knowledge. Would there be any physical limits to achieving your goal?


Recent reports have shown that the Federal Government has information about your phone calls, emails, online files, search history, etc. The idea is that more information – or even perfect information – will keep America safe. The NSA whistleblower, Edward Snowden, is in a world of trouble for bravely informing Americans that their Government has been snooping on them. Big Data is a big joke – it just leads to information overload. It’s not possible to boil the ocean. Moreover, humans are terrible at prediction even when we have terabytes of data. We don’t need all the information – we just need the right information.

Which Way is Up?

Richard Pryor is one of my favorite comedians of all time. He starred in a movie way back when called Which Way is Up? The film is about a working class family man who turns on all his loved ones and becomes extremely selfish, vindictive, and power-hungry. Pryor’s character mirrors the modern corporation.

Wall Street is Too Big to Fail, Too Big to Jail, Too Big to Understand and Too Big to Manage. We have bail outs, financial weapons of mass destruction, London whales, and implicit funding advantages from “Too Big to Fail”. Yet, for all the forgiven faults and advantages conferred to Wall Street, they have tragically failed to deliver for Main Street. The Dow Jones and corporate profits are hitting record highs,  worker wages are hitting an all-time low, and bailed out banks are using the funds to repay government bailouts rather than lending to small businesses.

Washington, DC is certainly not helping to protect consumers. Politicians have failed to appoint a director for the Consumer Financial Protection Bureau. President Obama attempted to make a recess appointment which was later overturned. Senate Republicans have blocked the nomination of Robert Cordray, the President’s selection, unless the White House weakens the power of the CFPB. Weakens? As if American consumers have too much protection.

America has lost her way when it comes to favoring corporations over citizens. Washington is not only unwilling to lift a finger to help citizens; they are complicit in scheming with business to advance their interests. George Carlin was right about the American Dream. However, things do not need to continue to move in this direction. People have the power to make a difference – we can encourage Society to focus on people rather than corporation interests.

Parents Just Don’t Understand

Let’s say Junior moved back home after graduating from college and found a job at a local coffee shop. Junior and some of his fellow college grads may be stuck working low-paying jobs. Pew Charitable Trusts studied the issue of recent high school and college grads finding employment at a college level role. Only 60% of working college grads have a job that require college-level skills. The numbers are worse for high school diploma and associate degree-holders. Who is responsible for this situation? Perhaps it’s their parents’ fault.

Ultimately, the parents of Generation Y are the people running America. They work, pay taxes, save, consume, own, and vote. At the height of the financial crisis, many of these folks were impacted while some remained at their jobs. Parents are the HR directors and managers and middle managers who decided that the new Financial Analyst job required a Master’s degree and 5 – 8 years experience rather than a Bachelor’s degree and 0 – 2 years experience. The directive could have come down from Corporate. The CEO might have demanded these changes. The data show that Mom and Dad complied and didn’t successfully push back.

Parents of Gen Y have had ample opportunity to vote. Wall Street , Washington, and Main Street have railed about the size of Government. There is an intense focus to reduce the Debt by reducing investments in science, education, and the social safety net. The sales pitch is that we don’t want to pass on debt to our children. Instead, Very Smart People are telling us that we should pass on lower expectations to the next generation. Parents just don’t understand that their actions (or the lack thereof) created the economic and political malaise.

Retirement Planning for Very Smart People

Let’s say you are 55 years old and 10 years away from retirement. You visit your financial adviser to check your preparedness for retirement. The financial adviser has bad news for you: 10 years into your retirement you will only be able to afford 75% of your projected expenses.  Your very smart adviser tells you that you have two options:

  1. Start cutting expenses right now by 25% or
  2. Take your retirement savings to a Casino and hope for the best

My hope is that this financial adviser would be immediately fired. There are a plethora of other options. The individual in the example could save more now and invest more aggressively in addition to cutting back on expenses. This balanced approach makes a lot more sense than drastically cutting their budget or gambling away their retirement nest egg. However, this is the discussion that Very Smart People are having in Washington regarding Social Security.


The argument is that the trust fund will only be able to pay out 75% of benefits in 20 years and the well runs dry in about 60 or so years. Therefore, we must either make drastic cuts or consider privatizing Social Security and sending the money to Wall Street to “save” it. This argument is flawed. We should just take a step back and ask “who stands to benefit?” if we continue to listen to the Deficit Hawks.

Taxes and Growth

Leveraging Empirical Data

A finance professor once told me that in physics you have 3 equations that describe 97% of events while in finance you have 97 equations that describe 3% of events. This is yet another reason that economics is considered that dismal science. As we head full speed towards the fiscal cliff we should be mindful that we do have existing data that can be analyzed to inform policy decisions. What should be done about tax policy? What is the relationship between marginal tax rates and economic growth?

Questioning the Dismal Science

Should we let the Bush tax cuts expire for everyone? A recent study by the Congressional Research Services group, a non-partisan research arm of Congress, did a study that indicated that lowering taxes at the top rate did not encourage growth. The study was withdrawn because it was considered too partisan. Economics is considered the dismal science because its laws and theories cannot be proven using repeatable experiments in the same manner as the laws of physics. However, we do have empirical data (observations) that can be analyzed to reach a logical conclusion.

Correlation is not Causality

We want to know what impact tax rates have on economic growth. We can estimate the correlation between the tax rate and economic growth (the change in the Gross Domestic Product). A positive percent change in GDP indicates that the economy is expanding.

Correlation Matrix

This table lists correlations between macroeconomic figures.

The data were collected from the IRS, BEA, and BLS websites. Links to the raw data are available below. The correlation between the top tax rate and GDP is -.7317 while the top tax rate and economic growth (change in GDP) have a correlation of + 0.3493. This data indicates that there is a moderate relationship between higher top tax rates and higher economic growth. There is also a very strong relationship between higher top tax rates and lower GDP. A possible explanation would be that higher tax rates discourage short-term consumption and encourage tax avoidance. Correlation certainly is not causality so we cannot  conclude that higher tax rates encourage economic growth. However, In a recent post I discussed some macro economic growth models that should be referenced at this point.

Macroeconomic GDP Model

Y = C + I + G + NX

Y=Gross Domestic Product (GDP)
C= Consumer Spending
I = Investment/Savings
G = Government Spending
NX = Net Exports

So, based on the analysis, Government Spending is reduced but businesses and wealthy individuals may be shifting from consumption that gets taxed at a higher rate to saving & investment. Savings in banks increases the lending capabilities of banks. Investment in real estate, business, etc. goes back into the economy. Hence, it may seem logical; albeit, counterintuitive that higher tax rates may decrease GDP in the short-term while encourage economic growth in the long run by spurring investment and saving rather than short-term consumption.

Marginal Propensity to Consume

The question at the heart of the fiscal cliff debate is: “Who should bear the burden of deficit reduction?”. This is obviously a touchy subject that can lead to claims of class warfare on both sides. The reality is that changes to the social safety net, defense spending, or tax policy will impact people of various socioeconomic levels differently. Take someone living paycheck to paycheck who is behind on a few bills. If they received a surprise check in the mail, the money would immediately be spent and go back into the economy. However, a wealthy individual may not be as compelled to immediately spend surplus income. This concept is called the marginal propensity to consume (MPC). Wealthy individuals have a lower MPC than the poor individuals because most of their basic (and advanced) needs have already been met. We can allow working and middle class individuals to bear the burden of deficit reduction; however, this may have a more negative effect on long-term economic growth.

Government Inc: Made By America

There are some people in America who think that the US Federal Government can’t do anything right. Moreover, conservatives think that the best thing that Government can do to speed up the recovery is get out the way by rolling back regulations and cutting taxes. I would argue that the US wouldn’t be a Superpower without Government Investment in infrastructure, technology, and its People.

We Built That

We put a man on the moon. We developed the internet. We protect our Nation. We built a national highway system. We mapped the human genome. 9/11 was a tragedy, but the FAA landed thousands of planes without a single accident. The mail gets delivered rain, sleet, or snow. Social Security sends grandma and grandpa a check for their hard-earned benefits every month.

All these things and more are Made By America. This infrastructure, in addition to establishment and enforcement of laws and regulations, enables entrepreneurs to launch new businesses. Elon Musk is leveraging technology from the space race to reduce costs for NASA to launch rockets deeper into spaces. Many have benefitted from using the internet to expand their business or launch new companies. Packages get delivered using the national highway system made by america.

Government is not useless – it just needs to be used effectively.

Broken Bootstraps (Part II): What’s Holding Back the 99%?

The first part of Broken Bootstraps looked at external factors holding back the 99%. This post will look internally at steps that the 99% can take to improve their situation.

Living on a Prayer

Unemployment remains above 8%. Unemployment benefits will not be extended again. X number of homes are in foreclosure. The unique constraint is that a lot of American’s wealth is locked in their home. Home values have started to increase but many homes’ values are depressed or underwater. A slow market and an underwater home could prevent someone from moving to another state with available jobs because they may not be able to sell their home or desire to take a loss. This issue is compounded for families with children.

Skills Gap

The argument goes something like this: there are many jobs that remain unfilled because Americans lack the skills to qualify. Employers are actually looking for purple unicorns and overqualified workers willing to be underpaid. Also, did you know that iPhones would be made in America if we had enough industrial engineers? A NY Times article asserted that Apple needed to find 8,700 Industrial Engineers – they were able to find them in China in 15 days. The Bureau of Labor Statistics estimates that there are 211,490 Industrial Engineers employed in the US. Apple estimated that it would take 9 months to find 8,700 – perhaps they should apply their design principles to their US recruiting process?


The unemployed should seek retraining, certification and education that prepares them to compete for jobs in growing industries. However, the larger concern is that the US isn’t graduating enough people with the technical skills necessary to compete in today’s workforce. I will stick with the example of engineering. The popularly story line is the US graduates 70,000 engineers with a bachelor’s degree every year while China and India graduate nearly 1 million engineers per year. Unfortunately, these stats don’t compare apples to apples. The definition of an engineer in China and India can include auto mechanics or electricians. When you include computer science and technology majors the US number increases to 137,000 per year. In addition, a 2005 McKinsey Institute Study found that the percentage of employable engineers in the US was 80.7% versus 10% in China and 25% in India.

Right to Work

The argument for the skills gap is very weak. It seems like companies are voraciously downsizing, offshoring, and outsourcing to save money. We’ve had a discussion of “right to work” legislation but do Americans have a right to work earning a living wage in their own country? It’s cheaper to move your factory to a country that has no environmental regulations, safety requirements, or restrictions on low pay. No level of experience or education can compete with an executive’s desire to cut costs to the bone by finding cheap labor abroad.


The Heritage Foundation, a right-leaning think tank, strongly implied in a recent study that unemployment insurance discourages people from finding work. Moreover, post-recession job-hunting has proven difficult for the long-term unemployed. Some unemployed job seekers actually experienced discrimination. The real problem for the long-term unemployed is becoming underemployed or remaining unemployed. Also, new graduates have some difficult circumstances. Young people were once told to get a degree so they don’t have to flip burgers. Now the saying is: “Hey! Can’t find a job? Too bad! Go flip burgers!”

Society has failed the youth when we ship jobs to China without blinking and have graduates with advanced degrees working for minimum wage – or not at all. Moreover, downgrading to a low-paying job or underemployment may put money in the bank in the short-term but it will make it harder for the individual or family to stay in the middle class.


Starting a business remains a viable option if you have the capital, clients, or the capability to implement an idea. The Great Recession saw an increase in the number of self-employed individuals. Necessity is truly the mother of all invention. What if the unemployed could band together with the right mix of skills to develop solutions to consumer and business problems.

Employer-owned companies and cooperatives could be an answer to both income inequality and unemployment. We can’t look to a divided government to provide solutions at this time. Many politicians are too busy trying to protect their own jobs to care about jobs for America. We can solve our problems together.

Broken Bootstraps (Part 1): Who is Holding Back the 99%?

Today, September 17th, marks the one year anniversary of Occupy Wall Street. I wrote about the movement at its inception. Occupy has changed the discourse in Washington and the media. There was finally some focus on class warfare and the concept of shared prosperity.

A response to Occupy protesters was “go get a job after you take a bath”. The problem was that America was stuck in the slowest economic recovery since the Great Depression at the time. Pull yourself up by your own bootstraps. The phrase is actually considered an adynaton – an impossible task. In the wake of a slow economic recovery, the working and middle class need jobs. Companies aren’t hiring enough to meet the demand for jobs. Who is holding back the 99%?


Americans have plenty of reasons not to like Congress. The 2010 election was all about creating jobs and reducing the debt. Instead, the Tea Party caucus obstructed, said no, and threatened to allow the Nation to default on its debt. The 112th Congress, a Republican majority in the House and a filibuster-happy Republican minority in the Senate, has not helped to speed up the recovery – they’ve actually obstructed it. Congress’ shenanigans lead to a downgrade of the US debt by Standard & Poor’s. Republicans touted 30 jobs bills that were passed in the House but not brought up in the Senate. However, the majority of these bills involve reducing access to healthcare, eliminating necessary regulations, or fast-tracking the Keystone XL Pipeline. President Obama presented a JOBS bill (estimated to create over 1 million jobs) to the Republican-led House which was not voted on. Also, economists such as Paul Krugman argued that the stimulus should have been much longer. Public sector hiring on the federal, state, and local levels helped to speed up previous recoveries. The US has experienced a net loss of government jobs during the Obama Administration as states and municipalities have cut their budgets in response to the lower revenue following the financial crises.


Following the 2008 financial crises, too big to fail banks were bailed out while main street was sold out. A friend on Wall Street told me that we could have easily directed the bail out towards main street and had the same effect – but we didn’t. Nonetheless, banks (post-Glass Steagall) currently have 2-3 basic jobs: help clients manage risk, provide advice, and lend money. Banks are reticent to do the latter – especially where small businesses are concerns.


Presidential Candidate Mitt Romney asserts that labor unions drive up costs and stifle innovation. It can be argued that the presence of unions increases cost but they have also improved the lives of workers. Unions are responsible for weekends, paid vacations, sick leave, the 8-hour work day, and workplace safety among many other benefits. Innovation is defined as introducing a new method, idea, or device according to Merriam-Webster’s dictionary. Developing new products and services would start with R&D and Market Research. I don’t think that there are a lot of unions in R&D and marketing. Hence, on the surface, the argument that unions stop companies from creating new products and services appears superfluous.

Job Creator/Destroyers

Companies are looking for purple unicorns – they want to poach talent from the competition (hopefully at a discount). Companies also seek to take advantage of the economic downturn to underpay the overqualified. Job Creator/Destroyers are also downsizing, offshoring, and outsourcing their way to higher profits; and, thus, higher compensation.

Small Business Owners

Small business owners are still feeling the pinch of the slow recovery. I saw a small business owner from New York argue on MSNBC Sunday morning that lower taxes would encourage her to hire an employee. As a fellow entrepreneur, I would argue that people purchasing my products would encourage me to hire more people. Increased demand and money in the bank. A tax cut would increase cash flow if a business have the revenue.

The 1%

Taxes paid by individuals and corporations go directly towards funding the Government; e.g., Social Security payments, enforcement of regulations , Federal worker pay, National Defense etc. During the Bush administration, the going theory was that “deficits don’t matter”. We had two wars, tax cuts, stimulus programs, and Medicare part “D” that were not paid for. The economic downturn also substantially reduced tax receipts.

Occupy Wall Street forced us to discuss the concept of the 1% and the 99%. For the first time ever, the Nation has been at war without the majority of Americans having to pay a price via a war bond or the draft. Conservatives argue that asking the 1% to pay more in taxes is “class warfare” while it’s okay to seek to eliminate middle class tax deductions or increase taxes on families living paycheck to paycheck. Increasing taxes on those who can afford it can help reduce the annual budget deficit and the long-term debt. Wisely investing new revenue in infrastructure, education, and new industries will help speed up the recovery.

Obviously, there are a plethora of factors that are holding back the 99%. The next part in the Broken Bootstraps discussion will explore personal and macroeconomic factors that are making the economic recovery slow for the 99%.