I’m going to be honest, understanding economic policy is as exciting as counting the amount of sand grains in the Sahara Desert. There is no way to make this field of finance as exciting as watching the latest “crash and burn” reality show or sucking up the latest tabloid. It’s unfortunate that the latest statements from Ben Bernanke, current Fed Reserve Chairmen on printing more money to “save” the economy, also known as “quantitative easing” gets as much attention as C-SPAN during the Super Bowl. The problem with this type of nonchalant attitude toward understanding monetary policy, is this quantitative easing and moving of the Feds funds rate has more impact on your livelihood than you might think. Your credit cards, the price of goods (inflation), jobs in the economy (or lack there of), housing, school loans, mortgages, U.S. treasuries and many other areas of your life.

Out of curiosity I took a look at Nielsen’s Top 20 Network and Cable shows. Quite sobering. The usual suspects are bringing in millions of eyeballs, Dancing with The Stars, Jersey Shore, Desperate Housewives, Keeping Up with the Kardashians, Hannah Montana Forever, etc. No shows from C-SPAN, No shows from CNBC, No shows from Bloomberg-TV, no shows from Book-TV, no BBC. The only news show that made the list was the The O’Reilly Factor. Need I continue? I’m not going to go any further with my “soap-boxy” rant but we need more balance. If we are going to know the in and outs of Snooki or the Kardashians life, we should at least know what quantitative easing is. If people are going to spend 20 hours a week listening to music, we should at least throw in a couple hours learning the impacts of U.S. economic policy. I get tons of invites on my FB to go to clubs and party all night (not that I even do these things), but can’t remember the last time I got an Invite for hundreds of people to sit in a room and discuss something serious. Where is the balance?

I get it. You’d rather run in shorts and a t-shirt through a car-wash on a winter day in Antarctica than read anything about monetary policy. The language the Fed uses is more foreign than Vulcan. I started reading up on this stuff because the decisions of the U.S. government and the Fed was severely impacting my bottom line. My dough, my cash, my duckets, my C.R.E.A.M, my clams, my dead presidents, I’m sure you get the picture. Once you mess with my money, now we got beef! I now love reading up on this stuff. I don’t think anyone needs to have such a wide appetite for this econ stuff, but we need to know the basics. Simply, you don’t have to be Mario Andretti if you want to drive a car. If you know the basics, you’ll be able to get from A to B.

Here’s the bottom line: This stuff is extremely important. I or anyone else in this country cannot afford to ignore this. If there was anything of significance which contributed to the 2008 Financial Crisis, it’s citizen apathy. It’s not just rogue banks or CDS (Credit Default Swaps), or CDO (Collateralized Debt Obligations, or Fannie Mae/Freedie Mac or irresponsible rating agencies (Moodys, Standard & Poor, etc), or just shadow banks that contributed to the current state of the economy. These different organizations knew we’d be sleeping at the wheel, so they did whatever they wanted. Government policy wonks knew we wouldn’t question the Fed, or question the backward policy of setting an arbitrary goal of who should own housing without looking at the underlying fundamentals of the economy (or those home buyers), or watching the 5 major banks push their capital requirement so low that a financial collapse was inevitable. Basically what I’m saying is we have a bunch of criminals running the government and if we don’t understand what these political thugs are doing, we are going to get robbed blind (again!). I’m not blaming the victim, I don’t want us to be victims again. If we really want to move this country in the right direction, we have to demand accountability from our government. If not, what will be left of this country?

Here are some resources to get you started:

Podcasts

• NPR:Planet Money
• Russ Robert’s EconTalk
• Bloomberg on the Economy

Online Media/Blogs

• VIDEO: Understanding Inflation in 13 minutes
• Gambling with Other People’s Money: How Perverted Incentives Caused the Financial Crisis
• NYTIMES BLOG: Economix: The Science of Everyday Life
• NYTIMES: Dismal Science, Dismally Taught by Robert H. Frank

Books

• Naked Economics: Undressing the Dismal Science by Charles Wheelan
• The Ascent of Money: A Financial History of the World by Niall Ferguson’s
• The Return of Depression Economics and the Crisis of 2008 by Paul Krugman
• End the Fed by Ron Paul
• Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E Woods

That’s right, I don’t own a flat screen, I still have my old school 27” RCA Remote Monitor ColorTrak (Picture embedded in the post) that came with the Co-op when I bought it almost 4 years ago. It never went bad, so I never replaced it. Until that day comes, I’m rocking the RCA 27” till the tube explodes like a spark from those old school cameras that used flash powder (aluminum and potassium perchlorate) to light up the pictures. Unfortunately this post is not about my electronic frugality, but close to the topic at hand. Last night my wife and I attended Poetic, People and Power 8th annual show Price Check: How We Became a Culture of Consumption. Here’s a bio from the website:

Poetic People Power was founded by writer/performance poet Tara Bracco in 2003 to create an ongoing project that combines poetry and activism. Each year, a diverse group of poets are commissioned to write new works on a political or social issue. The new poems are then brought to a public audience in April to celebrate National Poetry Month. Poetic People Power entertains and informs. It raises awareness on specific topics and engages audiences through the expressive art of poetry.

Right now it’s 6:52am, and I’m postponing my P90x routine this morning to write about this, because I was so moved by the poet(s) poetry. This particular show was about the power of consumerism and how our society has become somewhat enslaved to an ideology of spending and debt. I touched on this topic in a post I wrote in 2006 called Slave to Fashion Dominatrix to Prices. This is not just about people who overspend, it’s also about the cost of living (healthcare, education, etc) skyrocketing and how wages have stagnated (relative to inflation), while pushing many of us further into debt.

In light of the recent financial crisis, this is extremely important. I cannot find the exact words to explain how last night’s topic is connected to the happiness and financial solvency of the average household, but I’ll leave you with this.

In the foreward of Tim Kasser’s book The High Price of Materialism, Richard M. Ryan summarizes Kasser’s research by stating.

Once people are above poverty levels of income, gains in wealth have little to no incremental payoff in terms of happiness and well-being.

Also check out this very eye opening and disturbing documentary on how our kids are becoming indoctrinated by a new culture of consumerism. I have 1 year old so for those parents out there, keep your third eye open.

Get informed, Get Active, and Become a smarter consumer!. There are resources below for those who are interested:

• Affluenza: The All-Consuming Epidemic ~ John de Graaf (Author), David Wann (Author), Thomas H Naylor (Author), David Horsey (Illustrator), Vicki Robin
• The Overspent American: Why We Want What We Don’t Need ~ Juliet B. Schor
• The Hight Price of Materialism by Tim Kasser
• Credit Card Nation by Robert D. Manning
• The Paradox of Choice: Why More is Less by Barry Schwartz
• Your Money or Your Life by Vicki Robin & Joe Dominquez
• No Logo by Naomi Klein

Welcome to Part III of Economics Made Simple. I hope you have enjoyed the the first two parts of this series and if you haven’t had the moment to dig into the first two parts, the links are below.

1. Part I: Renting vs Buying a home
2. Part II: Why Can’t I Make Ends Meet?
   (How I found the Austrian School of Economics)
3. Part III: Saving Money vs Serfdom
4. Part IV: Casino Capitalism

At first I titled this post Saving vs Being an Idiot, To be honest, that title was a bit harsh, and I’m not here to demonize anyone or make them feel bad. What I really want to do is send a message that the alternative to preserving your money (AKA Saving), could potentially be a form of serfdom . Piggying-back of F.A Hayek classic book The Road to Serfdom, it’s important to understand where the road leads if we decide to treat money as if it grows on trees. So what does being a Serf or to be in Serfdom mean? Here is the definition:

A person in bondage or servitude.

Can you see where I’m going with this? Rather than bore you with a whole bunch of “savings rules”, (that most people ignore anyway), I’m going to go into a story about myself and how I went from a destroyer of money to preserver of money. Let’s begin, shall we?

Table of Contents

1. Mi av chree job (Patios to English translation: I have three jobs)
2. Syra-cash University
3. Rockbottom
4. Conclusion
5. Articles that will scare you into saving Money

Mi av chree job

So growing up in a West Indian/Jamaican family the importance of saving money or as my mother says “Saving for a Rainy Day” is one of those things that is drilled into your head as soon as you come out of the womb. I wouldn’t be surprised if my parents handed me a shovel and newborn work permit to get started at the nearest construction site. Although I jest a bit here, this ideology was one of the most important life skills that my parents gave to me. So as soon as I hit fifteen I got my work permit and started to get busy on the work grind. Very strange things start happening when you start working and you live in a Jamaican household. Similar to the parody of the Jamaican family called the Headley’s on In Living Colour, where having dozens of jobs was the joke, in real life, things aren’t so different.

No, I didn’t have 10 concurrent jobs, but I most certainly could not have 1 job. If you have 1 job in a Jamaican household, you might as well be seen as someone who is unemployed. With 2 jobs you are officially working, and with 3 jobs you are doing extra credit, if you will. So I started working at Waldbaums Supermarket in East Meadow, NY (Long Island) pushing carts. Not a very exciting job, but the $4.25 an hour was better than no dollars a hour. Right after school I would rush to do my 4:00pm to 9:30pm shift. Having 1 job was good during high school, but as the summer approaches, in probably the most natural and normal voice, my mother says “Su, wen ya start ya sekon job?” (Patios to English Translation So, when do you start your second job?”). As if that was what in the plans for my summer! Rather than dodge the question with, “What second job?”, I said “Oh, yeah..I’ll..um look around.”.

So my mother worked at EAB (European American Back) at the time, it is now Ciitbank, and I was able to get into the teller program at the bank. By the time the summer hit, I was promoted to cashier at Waldbaums, so I had a bit of experience handling money. Getting the teller job was not only a natural transition for me, but double the money I was making at Waldbaums. So I would work at the bank during the day (8am to 4pm) then rush over to Waldbaums to do my 6pm to 10pm shift. I always worked on weekends at Waldbaums and especially Sunday to get the time and a half. My weekend shift at Waldbaums started to get later and later. They needed me for the night shift, the 4pm to 11pm shift. Sometimes up until midnight. So that left a huge pocket of time during the day on weekends. Uh oh, step in mom dukes “Yu hav nuff tyme ina di day, huh?”. (Patios to English Translation: You have a lot of time in the day, huh?”. This my friends is a very passive aggressive way of saying “Hey, you have way to much time during the day, time for another job”.

So a friend of my mother, Bobby, big Italian guy that was known as “The Grape”, had a construction business. He needed help cutting down trees and busting up concrete for contract jobs around Long Island. I have no idea where Bobby is today, but let me tell you, this dude was the sweetest and nicest guy ever. He would bring fresh “muzzerallla” for my mother that was probably the best “muzzerella” I ever had. He’d buy lunch for the working crew and was just really easy going guy. Of course you had to work your behind off, but that was expected from a guy like Bobby. The job was roughly $100 bucks a day. At this point I feel like the Jamaican version of the Rothschild’s children. I had never seen or made so much money in one day. So I did a couple jobs with Bobby during the summers until it was time to go to college.

So there you have it folks, 3 jobs. I was a great saver then. I would save about 80% of my paycheck and use the rest for cds, clothes, and movies. With those jobs I was able to save about $4,000 to $5,000 dollars. That’s about $6,500 dollars in today’s dollars. Not bad. I would end up using this money for books for college, but during college I would reverse all my diligent and prudent savings practices which I will elaborate in the next section.

Syra-cash University

There is something very strange about going to college. It’s like the anticipation of going on a roller coaster for the first time. Although the anticipation of being sky-rocketed to 2-3 gs of force has you laced with fear and excitement, you can’t wait till the moment where you are at the top of the peak, and you are driven down at over 100 miles an hour down the track. Like any roller coaster with cork screws and swift roundabouts, if you are not careful you can get sick or even injure yourself. College is no different. Syracuse U. (or as I like to jokingly say Syra-cash University) was by far one of the most expensive, beneficial, and culturally diverse experiences I’ve every had in my life. Although I’m very close to paying off my school loans completely, one of the first experiences I’ll never forget is walking up on campus and seeing a row of tables with these professionally looking men and women standing before a stack of several dozen crispy white t-shirts. Before I can even blink, The nice women with the blonde hair and pearly whites says, “Sign-up for this credit card and get a FREE T-shirt”. Wow, I’ve only been on campus less than 10 minutes and I’m already getting “free” stuff. Not only do I get 10K in credit, but I get a t-shirt out it of it. Little did I know that this so-called “free” t-shirt was going to cost me almost 14K in credit card debt later on. That was the most expensive free gift anyone has given me, thanks a lot!

One of the most seductive parts of the credit card is it’s ability to fulfill the desire of instant gratification. In less than 1/100th of a second you can get whatever your heart desires. Need new shoes or clothes?, no problem, need new T.V.? no problem, need to go eat a nice restaurant? no problem, get depressed or sad and need to feel better, no problem, need to pay off the blasted credit card that got me into debt, PROBLEM. Here is a good example of what I’m talking about. There was this great little sandwich spot called Kostas. I mean, their cheesesteaks were the best. Yes, no disrespect to Philly but better than your cheesesteaks. Yes, Syracuse makes better cheesesteaks than you, get over it. However these cheesy steak subs of delight (Cheesesteak with onions, peppers, lettuce, tomato and mayo) cost me $1,000 dollars in one semester! I was to Kostas what a drug addict is to a heroin dealer. My mother called me, “Yu maad? Cyan spen dis tipe a muny an jus sanwige” (Patios to English Translation: Are you crazy?!! You can’t spend this type of money on sandwiches). Of course she was right, and there would be a host of other little subtle weekly expenses that would eventually balloon my credit card debt to 10K after I graduated from college.

After I graduated from college, my addiction to debt wasn’t getting any better. Now keep in mind that I always made the minimum payment aka share cropping payment. Like a share cropper you never ever grow or earn enough to make ends meets. All you are doing is rolling yourself into more and more debt, which was very typical of the share croppers during the 19th century. I never missed a payment, but my debt burden was not getting any smaller. Now it time to hit rock bottom.

Rock Bottom

So you would think getting a fancy job at one of the largest health care companies would stop the debt spiral, right? No. So instead of batting down the “cost of living” hatches and paying off my debts, I increased my standard of living, hence plunging me into more debt. To be honest, I wasn’t one of those debtors that buy huge expensive items. I was the most dangerous kind. I’m was what you call the “here and there” credit card user. I just used to it here and there for things I really didn’t need. My expenses, (car note, insurance, rent, etc) at the time were pretty manageable but it was the other “here and there” type of expenses that was doing me in. To be honest I can’t even remember half the stuff I bought, but by the time I was ready to move back in NY in 2000, I had less saved in my bank account than what I had saved in high school with over 12K in credit card debt. I couldn’t believe it. No only did I not have anything saved for a “rainy day”, but even a puddle of water could wipe me out. Although I was “cash poor”, I did have money in my retirement investments, but relative to how much I was making, it was a sad state of affairs.

So I moved back home and spent a couple years rebuilding my savings and getting back on track. Started reading tons of books on savings, investing, managing debt, and got so good at it, I could actually start giving advice to other people. My debt situation was self-inflicted. Through all the years I had a credit card, I never had any financial emergency where I had to wipe my savings out and go to my credit cards. I was living a way of life that I could not afford. I wasn’t living withing my means, and my debt was getting so overwhelming that every dollar I had was going to my debts. I’m happy to say I don’t have any credit card debt.

Conclusion

Every person’s debt story is different, but if there is one area that we need to be mindful of, is our psychology towards money. All the “getting rid of debt” guidelines in the world won’t mean anything, if you don’t have a hold on your desires, behavior, and a understanding of how you view material objects and self. In addition, many of us need to up our financial literacy. I’ve heard of people who literally did not know that they had to pay the debt back on their credit cards. They just thought is was free money. Nor did they know what compounding interest, debt-to-equity ratio, or what a FICO score is. If you don’t know what these things are, then you should not have a credit card.

Not only was my debt burden financially debilitating, but it also took away my freedom of mobility. It was like carrying around a ton of bricks on my back with fetters on my legs. Just think about all the opportunities that you miss out on. At the time, I couldn’t give as much to charity, help family when needed, not to mention I did not have money around if an emergency happened, and could not re-invest any resources in myself/career or even other entrepreneurial endeavors. However you look at it, it’s a Road to Serfdom, and if I can help it (Inshallah), I hope to never experience that type of slavery again. Man, 1st Financial Bank got me good, but it was one of the most important lessons of financial wherewithal and debt management that I have ever experienced.

Before I bring this post to a close, I’ll leave you with two very significant quotes from Nassim Nicholas Taleb’s Black Swan: The Impact of the Highly Improbable that should heighten your awareness on some of the very dangerous psychological ideologies that many times, have led us to stray into making poor financial decisions. One is “Cheap Signaling and the other is the “Prediction error”.

Cheap Signaling, pg 6

There were some obvious benefits in showing one’s ability to act on one’s opinions, and not compromising an inch to avoid “offending” or bothering others. I was in a state of rage and didn’t care what my parents (and grandfather) thought of me. This made them quite scared of me, so I could not afford to back down, or even blink. Had I concealed my participation in the riot (as many friends did) and been discovered, instead of being openly defiant, I am certain that I would have been treated as a black sheep. It is one thing to be cosmetically defiant of authority by wearing unconventional clothes—what social scientists and economists call “cheap signaling”—and another to prove willingness to translate belief into action.

Prediction error, pg 194-195

I searched the literature of cognitive science for any research on “future blindness” and found nothing. But in literature on happiness I did find an examination of our chronic errors in prediction that will make us happy.

This prediction error works as follows. You are about to buy a new car. It is going to change your life, elevate your status, and make your commute a vacation. It is so quiet that you can hardly tell if the engine is on, so you can listen to Rachimanioff’s nocturnes on the highway. This new car will bring you to a permanently elevated plateau of contentment. People will think, he has a great car, every time they see you. Yet you forget the last time you bought a car, you also had the same expectations. You do not anticipate that the effect of the new car will eventually wane and that you will revert to the initial condition, as you did last time. A few weeks after you drive you new car out of the showroom, it will become dull. If you had expected this, you probably would not have bought it.

You are about to commit a prediction error that you have already made. Yet it would cost so little to introspect!

Articles that will scare you into saving money

• The Collapse of Personal Savings Rate in America
  http://www.billshrink.com/blog/personal-savings-rate/
• Why do so many NFL players go bankrupt?
  http://sports.yahoo.com/nfl/blog/shutdown_corner/post/Why-do-so-many-NFL-players-go-bankrupt-?urn=nfl,190555
• Income Inequality Is At An All-Time High
  http://www.huffingtonpost.com/2009/08/14/income-inequality-is-at-a_n_259516.html
• Winning Lotto numbers not always the ticket to dreams, success
  http://www2.tbo.com/content/2009/oct/01/winning-lotto-numbers-not-always-ticket-dreams-suc/