Senator Charles Grassley (R) was on C-SPAN this morning talking about Social Security reform among other things. He attributed the following quotation to Albert Einstein: "Compound interest is the only miracle in the world."
Did Einstein say that? I rather doubt it. It is too stupid a thing for Einstein to say. And there is no room in his worldview for miracles. There is nothing miraculous about compound interest, and there is no 'magic' in it either. It is very simple arithmetic. Suppose you invest $2000 at 10% compounded annually. At the end of the first year, you have $2,200. How much do you have at the end of the second year, assuming no additions or subtractions from the principal? $2,400? No. What you have is $2,200 + 220 = $2, 420. Where did the extra twenty bucks come from? That is interest on interest. It is the interest on interest on interest . . . that make compounding a powerful tool of wealth enhancement.
But there is nothing miraculous or magical about it. Words mean things. Use them wisely.
And don't look to Einstein for advice on personal finance.
A useful article on an intriguing topic. I take no position on its content, but merely note it for future reference, in keeping with my motto, "Study everything."
Did the Church’s change of teaching on usury constitute a doctrinal change? No. What changed was our understanding of the nature and function of money, neither of which has doctrinal status. Once the understanding of money changed, the sin of usury ceased to be identified in any simple way with charging interest on money. This is development, not substantial change.
I have posted several times over the years on the irrationality of playing the lottery and on the immorality of state sponsorship and promotion (via deceptive advertising) of lotteries. The following e-mail, however, raises an interesting question that gives me pause:
As I was reading this story of an impoverished young rancher who won $88 million net with a Powerball ticket, I was wondering whether you'd allow that a case could be made for the rationality of his gamble. The young man and his whole family were in desperate financial circumstances with no way to cover back taxes, livestock loans, etc. They faced foreclosures, eviction, etc. The young man bought one ticket. He was not a chronic heavy lotto-gambler. The one ticket did not make his situation worse. Arguably, the lottery gamble was his only hope of salvaging his situation. If you have only ONE way to save yourself, the odds don't really matter.
Actually, according to the account linked to above, the cowboy bought $15 worth of tickets. So he bought more than one ticket. But no matter. Let us assume that this $15 was the only money he ever spent on the lottery. And let's also assume that the cowpoke was at the end of his rope — pun intended — facing foreclosure and imminent residency on Skid Row. We may also safely assume that the young man will never again play the lottery. (For he seems resolved not to fritter away his winnings on loose women and fast cars.) The question is whether it was rational for him in his precise circumstances to spend $15 on lottery tickets.
Now one question to ask is whether the rationality of a decision can be judged ex post facto. I would say not. A rational agent agent is one who chooses means that he has good reason to believe are conducive to the ends he has in view. A rational decision is one made calmly and deliberately and with 'due diligence' on the basis of the best information the agent has available to him within the limited time he has at his disposal for acquiring information. A rational decision cannot be rendered irrational by a bad outcome, and an irrational decision cannot be rendered rational by a good outcome.
So I am inclined to say that our cowboy made an irrational decison when he decide to spend $15 on a chance to win millions. The fact that, against all odds, he won is irrelevant to the rationality of his decision. The decision was irrational because the chances of winning anything significant were astronomically small, whereas the value of $15 to someone who is down to his last $15 is substantial.
But I can understand how intuitions might differ. Suppose we alter the example by supposing that the man will die and knows that he will die if he does not win today's lottery. Suppose he has exactly $15 to spend and he spends it on lottery tickets. He now has nothing to lose by spending the money. It is perhaps arguable that, in these precise circumstances, it is prudentially if not theoretically rational for the cowpoke to blow his last $15 on lotto tickets.
Good societies are those that make it easy to live good lives. A society that erects numerous obstacles to good living, however, cannot count as a good society. By this criterion, present day American society cannot be considered good. It has too many institutionalized features that impede human flourishing. Here I discuss just one such feature, state-sponsored lotteries.
Any government that promotes lotteries is promoting behavior that is harmful to many and positively good for none, not even the few winners who are morally if not economically undermined by them. Sufficiently disciplined people can of course gamble without harming themselves economically. They gamble for diversion and they know when to stop. They have no illusions about it and they appreciate that in the long run it is a losing proposition. But even these people are not doing themselves much good by gambling: they are wasting time that could otherwise be used in some productive way. The undisciplined, however, positively harm themselves, and not only by going into debt. They wallow in irrationality and ‘innumeracy’ (the mathematical analog of illiteracy). How many gamblers could explain the Gambler’s Fallacy? They associate with people who are likely to have a bad influence on them. Since the virtues and vices tend to come in clusters, the gambler is likely to become a drinker, a glutton, and so on. In the words of the old song: "Drinkin’ and gamblin’, stayin’ out all night; . . . you're just livin’ in a fool’s paradise."
I am not saying that gambling should be illegal; nor am I saying that it is immoral. Some gamble for relaxation, and no ill comes of it. I am saying that gambling ought not be state-sponsored. Government should cause no harm. Primum non nocere!
Some will respond by pointing to the supplemental revenue that state lotteries generate, revenue that can be put to good uses. The tacit assumption seems to be that, if X is a source of supplemental revenue, then X is a good thing.
This assumption is false. State-sponsored prostitution would be an excellent source of revenue — there would be no lack of eager customers — but prostitution is not something a state should sponsor. If it is wrong for the government to promote prostitution, the use of tobacco products, the drinking of alcohol, and the taking of drugs, then it is wrong for the government to support gambling in the form of lotteries.
One can argue with some show of plausibility that governments should permit the aforementioned activities; but I cannot see how any rational and morally sane person could argue that governments should support or promote them.
Some of us from modest origins will end up with more money than we will ever need or be able to spend. The wages of our frugality will not be spent by us but passed on to benefit others. We credit our success to the old-time virtues. We understand that poverty is more a lack of virtue than a lack of money.
But to suggest that blacks could profit from these old-school virtues will get us branded as 'racists.' Apparently, to the mind of a leftist, a black who can defer gratification is like a black conservative, a 'traitor' to his race, as if race is a political construct.
Such is the real racism of low expectations fueled by 'progressive' reality denial according to which race is a socio-political construct.
Good advice. I learned the lesson back in '87. New to the game, I freaked out on Black Monday. Of course you remember the 508 point drop in the Dow. I got out, locking in losses, but then took too long getting back in. Now I am older, wiser, and if truth be told, a tad wider.
Here is an old post of mine from 2008 that stands up well: Some Principles of a Financial Conservative. Agree or disagree, but if you disagree you won't budge me from views only reinforced by my experiences since aught-eight. The main, thing, however, is to think hard, critically, and for yourself.
And another thing.
Don't say that money is the root of all evil. That's just silly. Say something that is true:
The inordinatelove of money is the root of some evils.
I appreciated your post. I am on the other side of the coin: I am a server and I depend on tips to help get me through nursing school. So hopefully I can help bring some insight. I agree with your overall point that one ought to tip based on service. Bad service? Bad tip. Excellent service? Excellent tip. The restaurant I work at bases my tip out (my pay out to the bar, bussers, food runners for their help) on my overall sales (4%); suppose I sell $1000 worth of food and beverages on a particular night; this means I dish out $40 of my tips out to those who directly helped me. So when I don’t get tipped (whether justified or not), I am still paying the tip out. I had a table of Europeans last week and the bill was around $400. If I did my job well—and I think I did—then I ought to have earned an $80 tip. Well, they left me zero. It happens. But here I am paying out $16; so I essentially had to pay to wait on this table! It usually evens out because some people are generous and see me busting my ass and tip over 20%. And if mistakes happen—which they do—99% of the time a nice attitude and an apology fix everything and I still get the 20%.
Another important point is this: if you are nice to me (which is a low bar: just acknowledge I exist and have feelings), I will do everything within my power to get you free stuff. You asked me how my day was? I won’t charge you for that soda. You say please and thank you (embarrassingly enough you’d be surprised how many people don’t use these words at all)? I’ll get you that free dessert all on company moolah baby. I don’t expect a bigger tip when I do this, but you get my point.
I also notice this a lot: how you treat waitstaff directly correlates to a deep part of your character. It’s a good litmus test for first dates. I went on a date with a girl and she was rude/snippy to the server because our food was late. Guess what? 99% chance it was not the server’s fault. The kitchen is busy and things come out late during a dinner rush. Needless to say we didn’t go out again. How can you be rude to someone who is bringing you food and beverages? It blows my mind.
My personal rule is that I tip whenever and wherever I can. I rationalize it by thinking: how much will me giving this extra $1-2 actually affect me financially (*wink* famine and affluence)? The coffee shop? I tip like I would at a bar. The car wash? You bet. The dishwashers at my work? Certainly; they have the worst job in the entire restaurant and are not part of the tip out. And it’s nice because I know the money is going directly into their pocket and the government doesn’t see it (when it’s cash). Always tip in cash if you can.
While there might not be a moral obligation to tip, to me it does show something about your character if the service was excellent and you stiffed them. If you are opposed to tipping at sit down restaurants, then don’t go to them—simple as that.
Some points:
It’s dehumanizing when someone doesn’t acknowledge you or even looks at you in the eye. Be a decent person and say please and thank you.
Don’t be rude because of mistakes (again: the vast majority of the time, the person you will tip had no control over it).
Control your kids (most kids nowadays are sadly glued to phones or tablets so it’s not usually a problem).
Here, in no particular order, are my maxims concerning the practice of tipping.
1. He who is too cheap to leave a tip in a restaurant should cook for himself. That being said, there is no legal obligation to tip, nor should there be. Is there a moral obligation? Perhaps. Rather than argue that there is I will just state that tipping is the morally decent thing to do, ceteris paribus. And it doesn't matter whether you will be returning to the restaurant. No doubt a good part of the motivation for tipping is prudential: if one plans on coming back then it is prudent to establish good relations with the people one is likely to encounter again. But given a social arrangement in which waiters and waitresses depend on tips to earn a decent wage, one ought always to tip for good service.
2. Tip on the nominal amount of the bill, not the amount less a discount. You got the discount, you skin-flint coupon clipper, don't be so cheap as to demand a discount on the tip as well.
3. Tip no less than 15%. But when in Rome, do as the Romans do. In Turkey, 5% suffices and more might be perceived as ostentatious. And in some places, a tip is an insult.
4. Do not hesitate to leave no tip or a measly tip to punish poor service. The whole point of tipping is to reward good service and to encourage good service in the future. If I have to beg for a second cup of coffee at a breakfast joint, or am reduced to swiping silverware from adjoining tables, then I am not inclined to leave much of a tip. Lousy service, lousy or nonexistent tip!
5. Tip on the entire bill, including alcoholic beverages, unlike a cheapskate I once knew who tipped only on prandials but never on potables.
6. At buffets, smorgasbords, and other self-service establishments, one should also leave a tip depending on the services rendered. In such places I sometimes tip less than 15%. Why? Because I do more of the work.
7. What about tipping on a take-out order in a sit-down restaurant? My inclination is not to tip there any more than I would tip in a fast food joint.
8. Tip the bartender, but if he complains about the size of the tip, tell him to go to hell.
9. I always travel light and carry my own luggage. This obviates the tipping of bellboys and other baggage schleppers. But a hard-working maid who has just done up my room may garner a few bucks.
10. Tip the barber whose floor is now littered with your long hair. I exercise my frugality by having my hair cut only four times per year. I've been known to go to barber colleges for cheap haircuts. There I can play the big shot and leave a 100% tip. If you are ever in Mesa, Arizona, check out Earl's Academy of Beauty.
11. Discount Tire around here offers a great free and friendly service. They will check your tire pressure including spare and inflate if necessary. I always give the kid a $5 tip. They also fix flats for free. I tip the guy who does the work $5.
12. I tip my massage therapist $15-20 for a 90 minute session. More at Christmas.
13. Having driven cab, on the mean streets of Boston no less, I always tip taxi drivers unless they are surly pricks in which case they get zilch. I once tipped a taciturn Jamaican two bucks on a twenty dollar fare and the guy had the chutzpah to complain. I told him to shove it.
The most I ever tipped a cabbie was 20 semolians on a short airport run to McCarran in Las Vegas. He was an interesting character and his conversation was scintillating. I asked him to name his tip. He said 'twenty' so I gave it to him. It is worth remembering that there are people out there who actually work for a living. We can't all be men and women of leisure.
People are so easy to swindle because the swindler has as accomplices the victim's own moral defects. When good judgment and moral sense are suborned by lust or greed or sloth or vanity or anger, the one swindled participates willingly in his own undoing. In the end he swindles himself.
How is it, for example, that Bernie Madoff 'made off' with so much loot? You have otherwise intelligent people who are lazy, greedy and vain: too lazy to do their own research and exercise due diligence, too greedy to be satisfied with the going rate of return, and too vain to think that anything bad can happen to such high-placed and sophisticated investors as themselves.
Or take the Enron employees. They invested their 401 K money in the very firm that that paid their salaries! Now how stupid is that? But they weren't stupid; they enstupidated themselves by allowing the subornation of their good sense by their vices.
The older I get the more I appreciate that our problems, most of them and at bottom, are moral in nature. Why, for example, are we and our government in dangerous debt? A lack of money? No, a lack of virtue. People cannot curtail desire, defer gratification, be satisfied with what they have, control their lower natures, and pursue truly choice-worthy ends.
Theodor Haecker, Journal in the Night (Pantheon, 1950, tr. Dru), p. 38, written in 1940:
155. The worst of poverty — today at any rate — the most galling and the most difficult thing to bear, is that it makes it almost impossible to be alone. Neither at work, nor at rest, neither abroad nor at home, neither waking nor sleeping, neither in health, nor — what a torture — in sickness.
Money cannot buy happiness but in many circumstances it can buy the absence of misery. Due diligence in its acquisition and preservation is therefore well recommended. The purpose of money is not to enable indulgence but to make possible a life worth living. Otium liberale in poverty is a hard row to hoe; a modicum of the lean green helps immeasurably.
Boethius wrote philosophy in prison, but you are no Boethius.
Things being as they are, a life worth living for many of us is more a matter of freedom from than freedom for. Money buys freedom from all sorts of negatives. Money allows one to avoid places destroyed by the criminal element and their liberal enablers, to take but one example. And chiming in with Haecker's main point, money buys freedom from oppressive others so that one can enjoy happy solitude, the sole beatitude.
Sloan Wilson's The Man in the Gray Flannel Suit appeared in 1955 two years before Jack Kerouac's On the Road. I never finished Gray Flannel, getting only 80 or so pages into it. It's a book as staid as the '50s, a tad boring, conventional, and forgettable in comparison to the hyper-romantic and heart-felt rush of the unforgettable On the Road. Since how 'beat' one is in part has to do with one's attitude towards money, which is not the same as one's possession or non-possession of it, I'll for now just pull some quotations from Horace and Sloan Wilson. The Horace quotations seem not to comport well with each other, but we can worry that bone on another occasion.
Quaerenda pecunia primum est; virtus post nummos. (Horace, Epistles I, 1, 53) Money is to be sought first of all; virtue after wealth. Or, loosely translated, cash before conscience.
Vilius argentum est auro virtutibus aurum. (Horace, Epistles I, 1, 52). Silver is less valuable than gold, gold less valuable than virtue.
The next morning, Tom put on his best suit, a freshly cleaned and pressed gray flannel. On his way to work he stopped in Grand Central Station to buy a clean white handkerchief and to have his shoes shined. During his luncheon hour he set out to visit the United Broadcasting Corporation. As he walked across Rockefeller Plaza, he thought wryly of the days when he and Betsy had assured each other that money didn't matter. They had told each other that when they were married, before the war, and during the war they had repeated it in long letters. "The important thing is to find a kind of work you really like, and something that is useful," Betsy had written him. "The money doesn't matter."
The hell with that, he thought. The real trouble is that up to now we've been kidding ourselves. We might as well admit that what we want is a big house and a new car and trips to Florida in the winter, and plenty of life insurance. When you come right down to it, a man with three children has no damn right to say that money doesn't matter. (The Man in the Gray Flannel Suit, Simon and Shuster, 1955, pp. 9-10)
I have a little disagreement going with the Dark Ostrich. He asserts, "Relative poverty is all about status." In an earlier entry, I quoted him as maintaining that
We are born with a natural inequality which soon turns into economic inequality. The reason it turns into economic inequality, I believe, is that humans have a natural desire for status.
I replied,
Yes, we are naturally unequal, both as individuals and as groups, and this inequality results in economic inequality. But I wouldn't explain this in terms of the desire for status. Status is relative social standing, and depends on how one appears in the eyes of others. But this is relatively unimportant and has little to do with money and property which are far more important. I can live very well indeed without name and fame, accolades and awards, high social position and the perquisites that come in its train. But I cannot live well without a modicum of material wealth.
It is not desire for status that [primarily] explains economic inequality but the desire for money and property and the sort of material security they provide.
I would guess that no one who reads this weblog is absolutely poor, i.e., bereft of life's necessities, and that every one who reads it is relatively poor, and significantly so. What do I mean by 'significantly so'? Suppose A has a net worth of four billion USD and B a net worth of 3.9 billion. Then B is poor relative to A. I will call this insignificant relative poverty. But the Ostrich and I, though we have far more than we need, are significantly relatively poor as compared to, say, the late Fidel Castro, that man of the people and hero of the Left.
The Ostrich tells us that relative property is all about status. I take that to mean that it is the drive for social status alone that brings about economic inequality and with it relative poverty. That is empirically false. I am the counterexample: I live wisely and frugally and my net worth keeps going up. But I don't care about status, which is relatively unreal, being mainly a matter of what's going on in the heads of others. I carefully husband my resources because I want to be in a position to take care of myself and others when the inevitable disasters occur and not be a burden on others. What others think of me, though of some importance, is of less importance to me than my material well-being.
But let's be charitable. Perhaps what the Ostrich means to say is that it is the lust for status that mainly brings about economic inequality and relative poverty. I concede that that might be so. It is an empirical question and cannot be answered from the arm chair.
But there are a couple of normative questions in the vicinity and these are what really interest me. One is whether it is morally permissible to pursue loot and lucre, property and pelf, for social standing. The other is whether it is rational to pursue these things for social standing. I will leave the moral question for some other time.
As for rationality, it can be understood in two different ways.
An agent is instrumentally rational if he chooses means conducive to the achievement of his ends. A rational agent in Phoenix who intends to travel to Los Angeles by car in eight hours or less will head West on Interstate 10. If he were to head East he would show himself to be irrational, at least in respect of this particular goal or type of goal. This says nothing about the rationality or irrationality of driving to Los Angeles. Indeed, there are those who will say that it makes no sense to speak of ends as either rational or irrational, that such talk is meaningful only in respect of means.
On a second way of thinking about rationality, one can coherently speak of ends themselves as rational or the opposite. Consider social status and material security. Which is a higher value? Which is more choice-worthy? Which would it be more rational for a being of our constitution to pursue? To me the answer is obvious. Material security, which includes wealth well beyond what one needs physically to survive, is a higher value that social status. Modifying slightly what I said above,
I can live very well indeed without name and fame, accolades and awards, high social position and the perquisites that come in its train. But I cannot live well without material wealth in excess of what is needed for necessities.
Given how benighted human beings are, it may well be instrumentally rational to pursue wealth for the sake of status. That's an empirical question. But no reasonable person prefers status to wealth, just as no reasonable person prefers transient sense pleasures to long-term physical health.
So the Ostrich and I may be at cross-purposes. I am making normative claims while he remains at the level of the merely factual.
Now suppose someone asserts that the good is whatever satisfies desire, and that there is no way of ranking desires as objectively higher or lower, and their objects as more or less choice-worthy. Could I refute such a person? I don't think so. Contradict yes, refute no. For it all comes down to whether one has correct value intuitions. Some of us do and some of us don't. Just as some of us are color-blind, some of us are value-blind, wertblind in the terminology of Dietrich von Hildebrand. While color blindness is a defect in the eye of the head, value blindness is a defect in the 'eye' of the soul.
Since the day Donald Trump was elected president in November 2016, the Dow Jones industrial average has risen by some 35 percent, making the last 14 months one of the greatest bull market runs in history. Some $6 trillion of wealth has been created for Americans — which is very good news for the 55 million Americans with 401(k) plans, the 25 million or so who have IRAs, and another 20 million with company pension plans and employee stock ownership plans.
The left was certain exactly the opposite would happen with a Trump presidency.
[. . .]
3) "It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? We are very probably looking at a global recession, with no end in sight." Paul Krugman of The New York Times, the day after the election.
I wonder: Did Krazy Krugman liquidate his stock holdings?
Krugman is living proof that a Nobel Prize (outside of the hard sciences) means nothing. I'm a Dylan fan from way back, long before most of you whippersnappers were born, but the Nobel Prize for Literature?
