Can You Afford That?

For people who are just entering the work force or who are relatively new to it, determining how much income it takes to live comfortably can be a challenge. Let’s assume you want to live at or above the level at which your parents live. How much money do you need to make? You might be surprised.

On the whole, you probably need to make more money than you expect in order to duplicate the life that your parents have. Quite frankly, ordinary living is expensive. Who hasn’t gotten a paycheck, only to be shocked at how little you take home and how quickly it disappears?

The main reason is simple: most things cost more than they seem to cost – for you, for your employer, and for the businesses producing the items you consume. We’re going to take a look at how much things really cost and some of the ways in which those costs are determined. To start thinking about how these factors add up, think about not just how much you pay for an item, but all that is built into earning, producing and selling it. And don’t forget to think about the taxes, for both the business selling the item, and for you, the employee. Taxes can add up, changing the bottom line on both what you pay for something and how much you have to spend.

Consider a Cup of Coffee

Coffee shops seem like a relatively inexpensive business to start, and most consumers can afford a visit to one. But think about it – how many cups of coffee would you have to sell to pay the rent? Pay employees? Pay yourself – if you even can afford to do so? You start getting the idea of what business owners must consider.
Writing for AZ Central, Steve Lander of Demand Media explores the cost of a single cup of coffee to a business owner. In “What Is the Profit Margin on a Cup of Coffee,” he details some of the ways in which the numbers add up.

For starters, he notes that business owners need to think about all the expenses that will affect their profits – directly and indirectly. A single cup of coffee involves water and beans, sure, but it also requires a container, with a lid and a thermal wrap if it’s a to-go. Many customers like to add milk or cream (don’t forget the alternatives such as soy), and sweetener, and they’ll need a stir stick and a napkin. Someone has to make that coffee, and a cashier needs to ring it up: those are labor costs.

Lander notes that, in 2011, the Specialty Coffee Association of American surveyed the cost of the components of a 16-ounce cup of coffee [1] – Grande for you Starbucks’ Fans. The coffee beans accounted for the majority of the cost: 64 cents (take a moment to ponder how those beans get to the coffee shop—they have to farmed, prepared and shipped, all of which cost money). Other items include the cup at 13 cents, the lid at 3 cents, sugar at 4 cents and labor worth 33 cents. Total cost: $1.17. Each of these costs can vary, depending on the quantity and quality of items used. But wait: where’s the profit?

That equates to 82 cents of gross profit on a cup of coffee; gross profit is the difference between revenue from sales and the cost of goods sold. When totaling net profits, however, one must consider a few more expenses. Lander’s article examines the fixed costs that coffee shops pay. Fixed costs are the expenses that do not change no matter how many goods or services are sold—these include rent and Internet service, which stay the same whether the coffee shop is packed or empty.

“Rent and utilities add about 15 cents to the price of the coffee, while marketing and advertising add five cents. Research to find the next great coffee drink costs 3 cents, while general administration of the store is 22 cents. Finally, taxes, interest and other miscellaneous costs add up 13 cents, making the fixed cost of a cup of coffee an additional 58 cents,” the article notes. [2]

All the figures add up to a total cost of $1.75 per cup of coffee, which creates a profit margin of 24 cents on a $1.99 cup of coffee. That 24 cents equates to the net profit, which is what the business owner really earns on a sale. In the case of an average cup of coffee, the net profit is about 1/8 of the cost.

Remember the Tax Factor

Let’s return to considering taxes for a moment. How taxes impact the bottom line remains one of the most important points to understand. Taxes affect every aspect of a business: choosing location, setting prices, hiring staff, and predicting break-even. Tax rates for unemployment insurance, workers’ compensation and payroll influence a business’ decision to hire another employee. [3] A report from MIT notes that tax rates mean that an employee who earns a $50,000 salary can actually cost from to $62,500 to $70,000 to the business. [4] The difference in those figures could be the difference between a business owner hiring an employee or doing the job herself.

As an employee, you’re affected by taxes in significant ways, too. Gross income is your total income before any deductions or federal, state or local taxes are withheld. It’s the salary level you usually talk about in a job interview, which in turn leads you to believe your paychecks will be higher than they are. Let’s say you’re offered a salary of $60,000 annually. That breaks down to $5,000 monthly. In reality, your take-home pay, or net income, will be considerably less, closer to $3,500 – it varies as you will see.

Expect your net income to be 60 to 70 percent of your gross income. [5] That means for every $1000 you negotiate in the interview, your paycheck will reflect $600 – $700.

The difference is due to exemptions you choose, taxes, and deductions such as health benefits and retirement savings. You must know and understand what your net income will be before you commit to new car payments, or even before you splurge every day on a cup of coffee. You also need to think about realistic salary levels. In an article based on his book, “The Graduate’s Guide to Life and Money,” Bill Pratt notes “the average college graduate overestimates their starting salary by 44 percent. It takes a lot of work just to remain in the middle class.”[6]

Understand Your Own Paycheck

Let’s return to the example of the coffee shop and the $1.99 cup of coffee, which you buy five days a week. Multiply $1.99 by 5, for a total of $9.95 per week or $39.80 per month. Multiply $9.95 per week by 52 working weeks per year, totaling $517.40 – not including tips or cost of gas to drive to the coffee shop.

Since we know that the $517.40 is your net income, let’s add back 30 percent to approximate your gross income on that amount, which brings the annual total cost of your cups of coffee to $739.14. In other words, you have to earn almost $740 in order to spend $520 on your daily coffee if 30% is withheld off the top of your paycheck. If you’re in a city such as New York, it’s closer to 40% rate and our coffee is usually more expensive! Take home pay to keep that coffee habit ($2.29 for same $1.99 cup everywhere else, 40% rate…) $992.

If your gross salary is $60,000, which is realistic for competitive early-career earners, daily coffee runs are precisely the kind of expense that you may need to monitor. Here’s an examination of what a $60,000 salary, or $5,000 a month, looks like.

These estimates are for a single person with no children and no special circumstances living in New York City. Exemptions and standard deductions each month average $858.33.

What are exemptions? They’re amounts of money that you can subtract from your adjusted gross income to reduce the amount of your taxable income. You complete a W-4 form from your employer to indicate how many exemptions you’ll take. For each exemption, the government “exempts” a portion of your paycheck from being taxed. The more exemptions you take, the less comes out of your paycheck. [7]

Keep in mind, notes Pratt, that at the end of the year, your tax liability is calculated based on your income for the year. “So, if you took too many exemptions and did not have enough taxes taken out of each paycheck, you will owe the difference,” he writes. [8] Pay now or pay in April….

Exemptions are essentially the same as a deduction, which is also a tax-free amount that comes out of your paycheck and reduces your tax liability. [9] The $858.33 we’ve used is based on a single individual exemption plus a standard deduction.

After exemptions, your taxable monthly income is now $4141.67.

Subtract the following: Federal income tax, $683.02; New York state income tax, $253.98; Social Security, $310.00; Medicare, $72.50; [10] and New York City tax, $141.16. [11][12] Your take home pay each month now equals $2681.01 plus the $858.33 that was exempt for a total of $3,539.34. Since 69% of 20-somethings have college debt averaging $28,950, we’ll use $183.39 as the approximate monthly student loan debt.[13] Now you have $3,355.95 to live it up. Right?

That’s the amount you have left to pay all your expenses, which might play out each month as follows:
Rent, for a single person living alone in a 480-square foot studio apartment: $1904.00; utilities for that studio, $100.00; Internet, $57.00; cell phone, $75.00; Metro fare, $120.00; food, $450.00. [14] These expenses, which are reliable estimates, total $2706.00 per month; not included are expenses for laundry, clothing, student loans, entertainment and so on. Remember your, take-home pay is $3,355.95. So your net take-home pay after making sure you keep your lights on at home is $649.95. That’s approximately 1/8th of the base salary of $5,000/mo. Particularly when in NYC, living in shoeboxes makes sense. But that’s not even the worst of it.

An employee being paid $60,000 annually costs a company about 1.25 times that salary, or $75,000. The additional costs come from employee benefits, such as health insurance and the cost of Medicare and Social Security to the business, along with fixed costs such as renting space. The business must bring in 1.25 times the salary of every employee in the company just to cover the cost of the salary. Entrepreneur Ryan Born explains that, because most companies have a gross profit (profit before taxes, overhead, administration, etc.) of about 50% to stay in business, the company must generate $150,000 for every employee who makes $60,000 a year—including you. [15]

That puts pressure on you to generate $150,000 of revenue to pay for yourself at breakeven.

Let’s take one last look at that $1.99 cup of coffee. It costs you $39.80 per month and your take home pay is $3,539,34 per month. The coffee equates to about 1.1 percent of your monthly take home pay. It could hold its own as a budget ledger line. Surprised?

Extrapolate these costs to every item you buy. You’ll start to get a clear picture of why your paychecks seem to disappear extraordinarily quickly and why it might feel as though you may never live as well as your parents – certainly you won’t reach their standard of living as easily as they seemed to reach it. That sense—a valid one—is not due to tax rates alone. It enfolds a number of other factors, such as slower job growth and increased student loan debts for younger earners. None of these circumstances is likely to change soon. Your best tool for reaching specific financial goals is to understand how much money you need to earn, and how much you need to save. Knowledge, in this case, does have the power to give you a solid financial hand in the future.

[1] Lander, Steve. “What is the Profit Margin on a Cup of Coffee,”http://yourbusiness.azcentral.com/profit-margin-cup-coffee-25065.html 20 June 2016.
[2] Lander.
[3] Lister, Jonathan. “How Taxes Affect Businesses,” http://www.ehow.com/info_7996486_taxes-affect-businesses.html 20 June 2016.
[4] “How Much Does an Employee Cost,”http://web.mit.edu/e-club/hadzima/how-much-does-an-employee-cost.html 20 June 2016.
[5] Pratt, Bill. “Understanding Your Paycheck,”http://finance.youngmoney.com/credit_debt/money_management/budgeting/understand-your-paycheck/, 20 June 2016.
[6] Pratt.
[7] Pratt, Bill. “Taxes, Exemptions and Stretching Your Paycheck,” http://finance.youngmoney.com/credit_debt/credit_basics/paycheck_basics_part2, 25 June 2016.
[8] Pratt (ibid.).
[9] https://turbotax.intuit.com/tax-tools/tax-tips/Family/Tax-Exemptions-and-Deductions-for-Families/INF12053.html 25 June 2016.
[10] http://www.irs.gov/pub/irs-drop/rp-14-61.pdf
[11] http://www.taxformcalculator.com/state_tax/new_york/60000.html 23 June 2016.
[12] https://www.tax.ny.gov/pdf/current_forms/it/nyc_tax_table.pdf 23 June 2016.
[13] http://ticas.org/posd/map-state-data-2015
[14] https://www.expatistan.com/cost-of-living/new-york-city 23 June 2016.
[15] Born, Ryan. “Back of the Envelope: How to Estimate the Annual Revenues of Any Private Company,” http://ryanborn.net/revenue-estimates/, 22 June 2016.

Why You Don’t Belong at Harvard

Only a fool competes on another’s terms.

I help people reach their professional dreams. A few start early, age 12. Most come in around age 24 when they are preparing to go to graduate school – for some this is a reset button, for others it is a continuation down their well defined path. The first step is to determine what the candidate can master both through skills and interests as the next 50+ years dedicated to work are much easier to bear when you have a willingness to master your area. Then we figure out the most efficient paths. Often that will lead to schools such as Harvard and Harvard Business School. Not a romantic notion of learning and camaraderie, it is a strategic decision.

When it comes to elite school admissions, there’s a game. If the outcome of an elite education is important for your long term development, you need to acknowledge that there is a game and learn what it is so you can choose how you want to play it. For those less inclined toward the elite education path, beware cutting your interest prematurely**.

 

Part 1: Don’t confuse how you want the game played for how it is played.

An admission colleague asked me my thoughts on this article, which is summed up with this excerpt:

Sometimes this toughness comes through in the application proper. Were you an award-winning debater? Did you write snippy op-eds in the paper? Did you muscle out people with Ph.D.s to get a second author on a scientific paper? Have you had to endure a lifetime of pressure from your legacy parents, warning you that if you don’t get in, you’ll be disinherited? Congratulations. You’re in.

As someone involved with admissions overseas she felt strongly that “international admissions are even more skewed towards the children of the elite.”

Is that ok?

Is it okay that some schools seem to favor the children of the elite? As a family you can reject the elite status that Harvard and Princeton proclaim. After all, you don’t need the Ivy League to be successful. Choose any industry and you will see a broad spectrum of non-Ivy grads at the top. Why all the fuss about elite schools?

Elite schooling is a personal brand issue. It can have substantial impact in your career and your ability to enter certain fields. For practical reasons, as someone squarely middle class, I think it far better to be able to decipher which schools will impact my progress than to have blanket statements about elite schools. Not all schools can generate the access you may need within your field. I’d like to know in advance what battles are ahead for me – so I can choose which ones to fight and which ones to avoid.

For example, The University of Chicago is a great school – strong quantitative programs and excellent faculty, known for Finance and Economics. But Chicago undergrads find far too much competition for getting to NYC. The deeply entrenched Ivies and NYC local schools have far more pull for analyst positions in NYC. If you study at Chicago and you wish to work in Finance in NYC, expect to make a detour through Chicago, Houston, or Dallas working with commodities or energy.

For the Chicago student who really wants to work in Finance in NYC, it is important to understand just how much bigger the uphill climb for his target analyst role will be. Understanding the game allows him to choose different recruiting opportunities or to make a different school choice.

Let them drink Lemonade!hbs lemons

Causation: The more lemons we import the fewer traffic deaths we’ll have. Let’s drink Lemonade.

Correlation: The Quantity of Lemons imported has increased as Traffic Fatality Rate has decreased.

This boils down to a broad problem in society of confusing causation for correlation. At our worst, we draw lousy conclusions from complicated information. We depend heavily on patterns we think have worked before.

In any one case, with appropriate information, a reasonable adult can suss out the difference in causation and correlation – the lemon/traffic data example. Does it seem reasonable to conclude that importing more lemons has reduced the traffic fatality rate? At the very least we would be suspicious of the conclusion and would (hopefully) seek more information to corroborate the conclusion. A conclusion is always an opinion. When faced with too much information, we make really simple stories out of the data. In that overload we look for markers – cues that match patterns we recognize so we can draw a conclusion and move on.

Brands live and die by that. Elite schools have particular brands and the brand has very little to do with the content of the education. By default, others who understand the brand lean on it to do their evaluations of you.

Where there’s smoke there’s fire.

Texas A&M has been an excellent Engineering school for generations. Civil, Mechanical, Aerospace, etc. We can build great things. But Texas A&M is not known for its History department. The BA from TAMU in History isn’t likely to carry much weight with academic departments should you seek a PhD and isn’t likely to prepare you for anything other than cocktail party conversation. So if you want to be in that field, you would be far better off at a different undergraduate institution. When I see a resume with BA History from Texas A&M – my alma mater – I try to keep an open mind, but do immediately think, “Wow, this kid had no idea what he was doing and frankly, screwed up. 1. He missed the best opportunity – our ENGR resources, and 2. He didn’t notice how bad an idea it was to major in History at an Institution that does not prioritize the History department. Double whammy.”

Everything you do sends a signal. For better or worse.

It’s worth knowing what signals your choices send. You can’t control all the signals people read on you, but for the ones you can . . . wouldn’t it be nice to know which choices can help you the most?

Part 2:

Premium education is freely available.
And it has been. For centuries.

The Public Library system including the US and the World Libraries has housed massive amounts of information, which has been largely freely available for hundreds of years. Perhaps not always easy to access, it’s been there, waiting for the diligent scholar. As academic journals have proliferated, some have been removed from public circulation (often due to expense), but the WWW has now made even those most abstruse journals available, International Journal of Fuzzy Systems (not about cuddling) for example.

Lack of access to educational content is not what holds anyone back professionally.

RightAdmission inequality ends up self-perpetuating in part because most candidates don’t realize the game they’re playing*** and those who do have no incentive to share the game strategy. Imagine you were on a 400m oval track. You and an opponent are told the race is complete at the 300m mark. If this were a high stakes race like the push to get into top schools, would you share your running strategy? Let your opponent run 300m. You’re clever enough to run 100m in the opposite direction. No one said which direction you had to cross the 300m line.

I spend a good deal of time with my uninitiated candidates on understanding the perspective of what school choice is all about in terms of network effects, access, and patina. I also help them understand that they may not be accepted on the professional path they want in a way they want, but that they can prepare for success on that path anyway, i.e. you’ll get accepted at School X, but you’ll be perceived as the class dummy. In that case, don’t expect to make friends. You just have to survive this stage so you can thrive at the next stage when you get to break into your chosen field. If you understand what’s waiting for you on the other side it becomes far easier to endure seemingly dark days.

Part 3: The Game

I can’t really blame the Elite schools for admitting the predetermined elite kids. The not-yet-elite kids will still be less-elite when they come out – not necessarily in terms of economic advantage but in terms of access and perspective on what to do next. We are conditioned at a very early age. It is very hard for us to throw off our family values and habits.

The elite kids know what they’re supposed to do next. And who to call. And which jobs and companies will give them the biggest boost. Kids who didn’t grow up with that access have a harder adjustment to school and the next phase after school. A student might have to change aspects of his personality to capitalize on his new reality. He’ll face push-back from friends and family. He may stay stuck in limbo.

Is it important for Harvard to invest its reputation in people who only have a cursory understanding of what the power of Harvard can do? It’s a social engineering question. 

What good is a moat if there’s no one to keep out?

Imagine you are the Harvard Admission office.

You have spots to hatch 2000 eggs out of the 10,000 eggs who apply. Which eggs will hatch into the best ducklings for your institution?

The eggs’ happiness isn’t Harvard’s concern. I’d even say it’s not the potential future donations that are of concern. It’s the persistent brand impact.

Brand ambassadorBrand Impact Rating Scale:

0 – no ability to sway your target population and no reach
1 – slightly more persuasive or more socially connected 0
2 – holds some sway over her colleagues but has no reach with your target market – OR – is not a compelling person but does have limited social reach
3 – revered by her colleagues but has no reach with your target market – OR – is not a compelling person but does have social reach
4 – revered by her colleagues and has limited reach with your target market – OR – is a decent candidate and has tremendous reach
5 – revered by colleagues and is well positioned

*A quick note about legacies because it kept coming up in editorial comments…. I don’t think legacies are very advantageous. Not at all for HBS and not much for undergrad. Indeed a Harvard admissions person stated that the worst position you can be in is that of a double legacy. But that isn’t the full story. A double legacy who is also a future mover-shaker is a shoo-in. But a double+ legacy who is lame is barely a 2 on my scale above and not likely to be admitted. Legacy may make you a 2+, but you had better be able to carry yourself up to the 5 – i.e. you’d better be a compelling person.

If you accept a group of zeros – people who have no real ability to influence other candidates directly and indirectly within your market – and build them into 2s and 3s, the new 2s and 3s may be much better off professionally, but are you as Harvard? If you take 5s and help them stay 5s, you maintain your brand presence. Throw in the rare zero who can climb to 5, a small number of 3s who can climb to 4s and 5s, and you have a strong presence that creates brand craving, a moat around your Ivory Tower. The brand benefits from the children you reject just as those you accept. What good is a moat if there’s no one to keep out?

Eliza Doolittle.

So what does it all mean? Elite schools are elite and they serve the children of the socio-economic elite – based on a certain social norm. Attending an elite school does not make you elite. If you want to be that form of elite you have to mold yourself accordingly. Attending an elite school can open doors if you use the opportunity strategically.

Which is why . . .

Harvard isn’t for everybody. No one needs Harvard to have a great career and a fulfilling life. You have access to the same content – perhaps not as neatly packaged – freely available. But if you want to be on a particular path and 75% of the people on that path went to Harvard, you need to learn what they learned and begin to operate the way they operate so you can join their ranks. It all depends on the path you choose.

Once you choose a path, learn the game at play.

 

**For those who would shout that Harvard isn’t important, etc. Fine. Sure. Of course. I don’t think Boxing is a particularly interesting sport. But if I wanted to become a World Champion Boxer, I’d better learn how to land punches, take hits, and manage aggressive promo staff. My objective is to get you to consider what the game you are getting into really is, so you can play it well.

***And the more your family emphasizes fair play and middle class American values, the less likely you are to consider alternative routes – at least the first time on the track.

V&V: Aaron Cohn of Laundry Puppy

This installment of V&V covers Aaron Cohn of Laundry Puppy. He recently sold to FlyCleaner and we caught up around Thanksgiving for a debrief. Down-to-earth and super personable, Aaron is still helping Laundry Puppy clients through FlyCleaner and helping FlyCleaner maximize their investment in him. Acquisition for Talent.

Big Learn: You really can do just about everything on your own when pushed.

Secondary Learn: Man can exist almost entirely on dumplings. Current BDR (body dumpling ratio): .65

Aaron started his career as so many over-achieving college grads do . . . he wound up in consulting. And while he had some good experiences in consulting, he knew it wasn’t for him for long. He yearned for the days of bringing stars (and duds) to the stage for Spring Fling, selling tickets, convincing performers, and building teams to put butts in chairs for the Concert Board in College.

He lasted less than two years in consulting, launching Laundry Puppy with his roommate/best friend and selling LP within 2 years of launch to the aggressively marketed FlyCleaners in NYC. Wherever you go, expect to see a FlyCleaners truck. He now works for FlyCleaners helping them clean up customer service.

The Nitty Gritty
Laundry Puppy started with 4 friends. 2 Full Time: business development, and 2 Part Time: tech. As many young founding team experience, LP had trouble from the beginning. While the four had worked together previously, they hadn’t “Worked” together. They had worked around each other not actually with each other. Within 2 months, the CEO decided to quit. The tech team wasn’t committed to seeing the project through. The team crumbled.

From 4 founders to 1.

So he did what any other sane person would do (after a 2 week pity party), he went super duper manual MVP.

He built his own site, and used google voice and text to interact with customers. He did the matching between service providers and clients. While not scalable, he learned a ton about what his customers actually wanted and he got clever about getting it for them.

That’s how we met. I needed dry cleaning at 9p on a Saturday night. I didn’t need the items right away, I just needed to be able to drop them off at a dry cleaner. And while LP wasn’t able to help me right away, they were able to do a pick up as early as Sunday morning at 7a so I could check that item off the todo list. Yeah! Best of all, it was clear a human was responding to my text despite the late hour on a Saturday. That buys some loyalty.

Consider this
Aaron went to his last choice college, but considers it an advantage now. He was able to start an organization that allowed him to build experience and helped him understand in an experimental setting how to build user experience. He got to be a big fish.

Aaron’s ordering for fellow startups:

Team

Product and experience
Business model + strategy
.

.

.

office space, lawyers, all that other stuff

Follow Aaron Cohn and his projects at

Have a Venture survivor you want to see interviewed? Send suggestions to: kate_at_prepwise_dot_com


IBM and Canada – Bad Food or Bad Numbers?

IBM recently launched an ad campaign highlighting their work on education, crime prevention and food poisoning reduction . . . okay, really, the interlocking theme is Outcomes for a smarter planet. But they demonstrate those outcomes in the fields of education, food safety and crime prevention among other areas.

The graphics are cute, it’s the statistics that scare the living daylights out of me.

This ad shares that “IBM is helping Manitoba tackle Canada’s 13 million cases of food poisoning every year by tracking the freshness of meat.” Seriously, 13 million cases of food poisoning . . . I don’t think Manitoba has 13 million people.

Nope, nowhere near 13 million. Surely they don’t mean to state that each resident of Moanitoba experiences 13 bouts of food poisoning a year, or roughly 1 a month with an extra in July at a poorly planned BBQ, so I re-read the figure…. Oh, 13 million cases in CANADA. Apologies to my friends up north, but are there 13 million people in Canada?

Okay, so Canada does have more than 13 million people, but how are you feeling about a steak in Canada? On average, you are expected to get food poisoning at least every two and a half years. That’s not counting boozing up with your buddies and feeling the ill effects the next day. This concerns a preventable condition when some nasty bacteria/virus or assorted other critter ends up in your tummy.

This brings up all sorts of other questions. Given the fairly frozen nature of Canada, how are they having such trouble with meat spoiling? We’re roasting at 110 degrees and we manage to get meat to market in Texas. We’re not talking about Thailand with a devalued Baht and limited refrigeration. It’s Canada – supposedly the example of exceptional health care and pensions. One has to wonder . . . is this how they manage their population?

At the very least Team Canada might want to request that IBM remove that stat from these posters rolling out across the internet. It’s a shocking figure that upon further research is even more shocking. I moved to China for the Summer of SARS and ate off of street carts, but I’m not sure I would have a steak in Montreal.

How do you feel about Canadian meat?

What is Talent

The most obvious expression of talent is that which is shown externally. A fast athlete,the top of the class, MacArthur grants . . . some talent is innate, the rest is cultivated. Can we do better cultivating the good stuff? That might depend – what is our definition of the good stuff?

We fixate on the stories of someone with extraordinary talent who never quite gets it done, perhaps because substance abuse interferes, or of someone who didn’t look like much in high school only to run a very successful company years later. Sure, those are the tail end of the bell curve, easy to get the imagination going.

But more important to actual talent is knowing when to say when, knowing when to quit. A huge part of encouraging talent is actually stopping less talent-worthy activities. It may be obvious that you stop skiing after the 5th major fall. For some that is the decision point of yes, I can be a world class skier, but for most of us, that will be the time to put away the skis. If you are one of the ones who would put the skis away eventually, why not do it earlier?

In other words, if you are ultimately going to quit, why not quit sooner? Quitting sooner allows you to spend the energy that would have been slushing the slopes on other activities, perhaps activities at which you can excel. Activities you won’t quit.

This idea of quitting what you can’t do well in order to focus on what you can came to mind as I watch Blockbuster Inc. shuffle itself into Bankruptcy. Blockbuster has had a rough few years, but it wasn’t because the economy sunk. If anything, more people are renting movies and staying home. And, no, it wasn’t because Netflix is bigger, or has been around longer….

It never had to be about beating Netflix. It could have been about changing the game. Blockbuster had a tremendous opportunity to utilize something Netflix doesn’t have. Space. Physical space. Space where people can rub noses and bump iPhones. As it turns out those under 27 are so plugged in, and have been their entire lives, that they go out to plug in. My grandmother cannot understand why at a table full of college students, all of the students are on the phone talking to someone not at the table. These folks are so plugged in that they actually seek public places to plug in in order to feel connected, because being on the phone is no longer enough to feel connected.

To those over 35, it’s just rude and ridiculous. But ask someone under 27 why he is on the phone when he is at a table with 3 other people, and he won’t even understand the question. Wild, yes? Game changer, certainly.

Coulda, woulda, shoulda, Blockbuster still has a chance to to turn this around, but after reading their 10-k I am even more discouraged by the prospects. The 10-k focuses on “video rental distribution” as though that is the business model. They should quit referring to their business as video distribution. They have to spend a page discussing the effect of Piracy on the bottom line – in other words, they’re busy counting pennies instead of creating dollars.

They provide entertainment. Access to imagination.

Too bad they seem so stuck in neutral. It’s as though they are just waiting for someone to tell them what to do…. The Blockbuster I watched growing up was more of a data driven company. They were effectively pioneers are geo-targeting. They had databases that connected local potential customers and their tastes to the local store. So some stores carried 5 copies of Die Hard and other stores carried 50 copies. This may seem obvious now, but it wasn’t as obvious or as easy to execute successfully in the late 1980s.

I spent a few blog posts creating potential action items for Blockbuster on our corporate site under Blockbuster Bankruptcy. Please add your thoughts.

Instead of focusing on what Blockbuster can do with excellence, they are playing catch up in game they don’t even want to admit they are playing. I had occasion to chat with Jim Keyes 2 years ago. He is a nice guy and a smart man. We talked more about real estate and less about providing obscure video selections (the perceived Netflix model – not quite right, but …). So why are they pretending to chase Netflix when they could be crushing it with a different concept?

What do you think Blockbuster should do to turn itself around?

As a side note: Carl Ichan left the Board of Blockbuster this spring before they were delisted at NYSE (ouch!). How many of the companies on which he sits as a Board member are successful? I’m asking. If you happen to know, I’d be mighty obliged.

More Math Education, Less Self Esteem Training

 

Finances.

If you’ve ever struggled with your tax return, wondered how interest rates could stay so low, or tried to explain why raising taxes on employers is actually not conducive to job creation….

We need solid math education now more than ever. We are no longer an agrarian nation yet we teach math like we are.

Thirty years ago an ARM was attached to your body. Now it is attached to your credit report. An adjustable rate mortgage is not evil, but it is now maligned as so many folks feel like they have lost their homes to the ARM. In reality they lost their homes to poor judgment of risk. It’s kind of like building a house on sand, in a hurricane zone….

Smart or Foolish?

Which really brings us to a question of risk.

How risky is that (your idea goes here)?

Imagine for a moment that a stock you like has a 90% chance it will rise by 20%, and a 10% chance that it will fall to zero over the next year. Our current models for risk imply that there is a certain probability that an event will occur. So, we price the total cost of an investment based on those factors. So if you can buy at $10/share today, you can sell at $12/share or you lose the investment completely in one year.

The most straightforward approach is to price the total investment based on the proposed outcome proportion. To simplify, either the market rises 20% or it falls to zero.

$12*(90%) + $0*(10%) = $10.80

Since the $10.80 is above your purchase price, you are in the money and the investment looks good. But what did we really just do? We assumed that each dollar invested had equal probability and opportunity to earn that 20%. In effect, we implied that one share could gain 20% and one share could lose 100%. But that’s not really true. If one share gains 20%, all shares gain 20%. If one share loses 100%, all of the shares drop to zero. So, in reality, you either get $12/share or you get nothing. There is no $10.80. Average doesn’t actually exist. It is a construct.

MathWe averaged all of the shares to simplify our decision, but we didn’t account for the actual risk. So we missed the point.

This isn’t a question about modeling stock prices and returns – there are certainly more elaborate methods to model prices – it’s simply to illustrate our tendency to dumb down the basic math and therefore the real risk of various proposals, because, most of us don’t really have the tools to understand the math.

Indeed the more I teach, the more I see, most of us don’t have the tools to balance our checkbooks. A few months ago I had a student tell me that he went to a school (NYC) that operated much like a Montessori – he was able to discover math at his own rate….

Well, he’s 25 now, a graduate of a very prestigious college, well employed, and he genuinely does not understand the purpose and function of fractions. Sure, he recognizes them when written out, but ask him to perform operations with fractions or to interpret a word problem, and he is two steps away from toast. Here’s the killer, he believes he is good at math because his teachers told him he was smart.

Sadly, this is nowhere near an isolated incident.

So, he has great self esteem, but he can’t calculate his mortgage payment on his own. As a consequence, we have ever more elaborate financial products rolling off the line and fewer and fewer people equipped to understand them. This is what leads to catastrophic failure – of banking systems and of entire economies.

We need more math education and less self esteem training. You bomb your multiplication tables, guess what, no gold star for you. Get back to the drawing board. You need those multiplication tables. As a society we cannot afford to both PAY for public education AND ignore the lack of results of that education.

No Child Left Behind gets a lot of grief in teaching circles, but the fact remains, we have a HUGE gap between those who understand math and those who can’t function in an increasing complex society. Which costs us more, under-educating the average population who then make catastrophic miscalculations or creating a super class of teachers and testing students on performance?

If we were just farmers growing crops and bringing them to market, we might be okay. But we offer the average high school grad an adjustable rate mortgage and a 401k. Perhaps it would be good idea to equip them with the tools to understand the consequences of their choices, never mind the innovation curve….

It’s all in the NUMBers – Insurance 101

Have you ever tried to figure out your health insurance benefits?

InsuranceWhat a confounding experience. I spent a little time today reviewing my coverage. As much as I’d like to claim it’s because I’m that organized, but really it’s just because my part time employer recently made benefits available to us. So, why not take a look at my coverage and options.

Health Insurance is not my bailiwick, but a person with reasonable education should be able to figure out her own insurance costs and benefits. Yes?

If you treat the total payout for this policy as full use of resources and the total cost as monthly premium + copays, you get a decent reflection for apples-to-apple comparison with other policies. It ain’t perfect, but it works. Since this policy caps the payout annually, it’s easy to calculate as the Maximum Benefit – assume full use of maximum benefit. The Cost is set in stone through bi-weekly withdrawals – so that too is blissfully easy to calculate.

Here’s how the numbers break down:

My Maximum Benefit My Minimum
Cost
NET
Medical Option 1 $1,050 $868 $182
Medical Option 2 $1,250 $1,388 ($138)

So . . . how’s that option 2 looking? Just because a plan is offered, does not mean it makes sense. This is an actual apples-to-apples for these two plans, same provider, same stuff. Remarkable. Keep in mind, once I hit the Total Benefit mark, the plan is 100% out of pocket for me, so this is only an in-between type plan to cover those of us who elect to have a high deductible plan.

Aetna, thanks but no thanks.

Even though the NPV of plan 1 is positive on a cash basis, adjusted for hassle factor, it rolls negative pretty quickly. I look at it this way, I’ll need to spend 2-3 hours a year (at least) dealing with the paperwork, submitting receipts, and assorted shenanigans. Is my time worth more than the $182/3 hours, or roughly $60 an hour? Without a doubt.

Insurance CheckupAs a healthy person, I can get away with less . . . that’s part of the reason I make certain choices . . . to keep my health care costs down. When business was down for a bit I did just fine, not optimally, but just fine, on a cash-to-provider plan. The plan consisted of me paying my provider directly for services rendered. Annual cost for medical and dental was under $500. But the threat of idiots running red lights and slamming into me and my family is enough to keep me renewing the high deductible plan for “just in case” situations. So, I’m still on that cash-to-provider plan and have a safety net if needed.

Turns out doctors really appreciate the no nonsense approach too. Two out of three of my annual providers now no longer file insurance forms for clients. You pay cash at the door. Why should a doctor spend his or her time shuffling through insurance mandates? Which would you rather have a doctor who has time and attention for you or a doctor who file insurance forms?

Image courtesy of 401(K) 2012

The Real Robin Hood

Would the real Robin Hood please stand up?

“If you don’t stop levying these evil taxes, I will lead the people of England in a revolt against you!” -Robin, Men in Tights, 1993

Mel Brooks made a mildly popular movie to skewer the story of Robin in 1993 – if you love puns, you will enjoy Men in Tights. Remarkably, the sentiment of the Men in Tights Robin is that of many business owners.

RobinThe popular current version of the Robin Hood story states that Robin steals from the rich and gives to the poor, making Robin the scourge of barons everywhere. We were so indoctrinated in Texas that we even named an unfortunate school program the Robin Hood program. The Texas Robin Hood program took tax receipts from the “rich” school districts and redistributed those proceeds to “poor” districts. Never mind that the state took a 40% processing fee to handle the money . . . and never mind that the overall quality of education demonstrated a decline (attributable to the policy) in both the supposedly rich and poor schools….

But never mind all that, we were abusing the story! Did you know, Robin Hood probably did not steal, but definitely resisted his local law?

In the August-September issue of Reason, Cathy Young clarifies the story the story of Robin Hood and explains that indeed, Robin Hood was about reducing the burdens of government, not income redistribution. Robin’s original story was one of civil disobedience. He fought the forces of corrupt government. In some versions of the early Robin Hood, he suggests that the local Lord – I’m not making this up – reduce the Tax Burden so the farmers and local townspeople can revive weak industries.

Robin Hood“The one person Robin assists financially is a knight who is about to lose his lands . . . ”

Robin is an outlaw for freedom, not redistribution. So sing the praises of Robin Hood to your kids, but emphasize the message of freedom from oppression, particularly the governmental kind.

Image courtesy of Robin Hood

Obama’s Fiscal Priorities are Skewed

Blinder’s Blinders lead to National Blunders, or Obama versus King Solomon . . .

So here’s a question for you:

Is it better to give 50,000 people $1 or give one employee a $50,000 job that allows him to contribute to a growing company?

Increasing the tax burden on small employers to increase the unemployment benefit keeps us from creating an actual job for a flesh and blood human.  This is a bit of a hot topic as the Obama administration is promoting their Tax dollars“we know better than you do” economic policies with a heavy PR blitz. As part of the blitz, Alan Blinder published on the Wall Street Journal Opinion page, “Obama’s Fiscal Priorities Are Right,” July 19. There is one item on which I can agree with Mr. Blinder, “Finding the right level  of unemployment insurance . . . (is) a tricky calculation.” We diverge based on his faulty assumptions, namely the idea that ending the Bush tax cuts will simply reduce top-level consumer spending, but that lower level spending will more than make up for the loss at the top.

Unemployment benefits are a gift, not stimulus. We fund the insurance to help folks get back on their feet. We offer gifts out of compassion. Never mind the slippery slope to legislating compassion, the administration is now telling you to give more to people you don’t know than to those you do (by way of government agency – angry yet?).

Blinder’s main problem rests in his version of spending a dollar. One dollar to a hungry person is $1 spent on food. The net expansion for our economy is zero. One dollar out, one dollar back in.

One dollar to a comfortable person is perhaps $0.80 spent on food and $0.20 saved in a bank who can reinvest at a 5% return, net economic expansion $0.21 with a compounding effect over 5 years of $1.16. One dollar to a business owner who feels safe investing is $1 invested in production, which is expected to generate some minimum return, say 10%. So the business owner gets $1.10 back from the $1. And then she reinvests the $1.10 . . . net economy expansion, $6.71 in 5 cycles.

It isn’t the consumer spending we should be worried about, but rather the amount of money these upper-middleStimulusclass earners pump back into their small businesses. Of those earning more than $200,000/year, roughly 2% of the population who pay almost 44% of the taxes, the IRS states (2007) that 1.4 million participate in S-corp and Partnerships, reporting an average of $317,000 per return. Sole proprietorship and small C-corp are included in the larger group of 3.8 million who report an average of $309,000. As a business owner you can generate more by reinvesting, and so we do, until we feel that we can’t get anything else out of reinvesting.

Real jobs to real people or just more dollars into the tax bin?

Of all the points he mixes together, Mr. Blinder comments that extending unemployment benefits will be a net job creator. Fascinatingly, he is a professor of Economics. He even admits, “Economics research suggests they are right,” referring to those who suggest extending benefits will increase unemployment. Yet, he stands by the administration’s idea that this will be a job creator. How?

My mom told me many years ago, “Sometimes the best thing a boss can do, is not say no.” The heaping regulation and painful taxing regime is tantamount to a big NO from the US Government when we want to grow.

Extending the unemployment benefits is cash out of our pockets to divide among those who get neither enough to create their own opportunities, nor enough to actually live. The Judgment of King Solomon comes to mind, Obama’s policy is effectively cutting the child to divide between the mothers….

Other items you may enjoy:
FORBES and the Forgotten Employer

City of Oakland is bad at Math – this gem explains how many police officers are being laid off to support the Oakland City budget. Here’s a great idea for advertising your city . . . Grand Theft is no longer illegal in Oakland, Criminals Play for Free.

If you want to look at the data the IRS collects – loads of tables, crank up excel and have a good time.

Image courtesy of Gene Tew

Laffer’s Laughing

Arthur Laffer recently offered his thoughts on the Unemployment Benefits in the Wall Street Journal opinion pages…. What kept coming to mind is, how are we even having this conversation? And by conversation I mean, how can we look at the empirical evidence concerning unemployment benefits and still somehow draw the conclusion that extending them will be a good idea?

How is giving more cash to an unemployed person going to stimulate the economy? Is the unemployed person creating wealth? How about jobs? No?

No Kidding.

Indeed, if you are unemployed you are either searching for an opportunity or you have given up. In each case, the extra funds would go toward putting food on the table, not stimulating the economy – to compound the negative effect, the buyer would be spending less on food than if employed. In essence,

band-aid = unemployment benefits

This is not an argument against band-aids, but you wouldn’t put one over a broken leg. Why not stimulate the economy instead?

Laffer puts forth a tax holiday – all taxes – on hold – 18 months….

How does this compare? Turns out the tax receipts for 18 months, corporate, private, individual sum to the $3.6Billion that has so far been spent on “stimulating” the economy with unemployment benefits.

Mathematically let’s compare:

Band-Aids1. Tax holiday – The IRS requires quarterly payments and they’re rather fussy about getting it in cash. A small business paying 30% on corporate taxes now has an extra $450,000 in cash for every $1Million in annual profits over 18 months. That’s enough to replace the roof over the server room, thereby hiring roofers, have plenty left over to add 2 full time mid-level staff so they can bid on larger projects and expand the firm, and possibly give the employees a nice bonus. Statistically, small and local business owners give back when they can. They just need the cash to do so….

Versus

2. Extend unemployment benefits – Each family receives a nominal amount more. As studies from Washington’s last stimulus package demonstrate, American families aren’t as lazy/dumb as some might portray – the families spend what they must and save what they can. Yes, save. In interviews they express gratitude for the help, but in many cases would simply rather get back to work. They feel a little bit better for a little bit longer.

Is a little bit better for a little bit longer good enough?

Pushing the idea of extending benefits demonstrates a failure to understand the logic as well as the simple mathematics. In scenario 2, unemployed families get a little bit more. But, at the expense of the roofer, 2 mid-level staff and staff bonuses in scenario 1. The business owner continues to pay taxes and will not have the cash to do the extra activities. No stimulus.

No matter how much you hurt today, hurting tomorrow is ten times more painful. If you want to get back to work, you want to find a boss who has the authority and incentive to hire you . . . and the cash.
Photo Attribution: LarimdaME

Frenchonomics

I can’t even make this up . . .

Students in France are protesting again. A few years ago they protested AGAINST lowering the bar for employers to be able to hire students. Employers wanted to be able to pay less experienced people a lower rate. The minimum benefits an employer has to set aside for each employee makes taking on a student worker a very expensive option.

SeriouslySo instead of entering the workforce, students stay in school. Or they travel. Or maybe they munch on baguettes in cafes. The average age of a university trained student entering the workforce has shifted. Many are now 27 when they enter the workforce for the first time. Now they’re upset that the age to receive a full pension is moving from 60 . . . to 62.

Let’s do the math. Enter the workforce at 27. Retire at 60. The average lifespan is 81.52. So that’s 81.52 years of living, 33 years of working. Or in other terms, 27 years of “education,” 33 years of work, 21 years of loafing, making work 40% of the lifespan. Now let’s factor in the hours. Keep in mind, the French work 35 hours a week, 45 weeks/year for a total of 1575 hours/year.  So total portion of a French life spent toiling: 7.28%. With the additional 2 years of work, that bumps to 7.7%.

In all fairness, they are supposed to contribute to the pension for 42 years before receiving payments in full. That bumps the toil factor to 9.2%. One way to look at this is that they  have agreed to take care of each other for 91% of their lives. The other way to look at it is that they expect to generate an internal rate of return of 980% on each person. So the hurdle rate for making babies in France is 980%.

How likely is that as an investment scenario?

For more on students protesting the retirement age: Frenchonomics.

Image courtesy of Frog and Onion

Cost of Education

Friday night my little sisters graduated from high school. Come Fall they are off to college. What better time to reflect on the changing values of a college education. Does it make sense to go to the best school you get into? Is it worth $100k, $200k in debt?

100000It seems to depend on what we expect to get out of the education.

1. If you just want to get a good liberal arts education so you can be witty conversation at cocktail parties, there are several low cost and no cost alternatives to a proper college. Do you really need to be signed up for Lit 201 to read Beowulf?

You’ll need a copy of the book, the online forum full of medievalists and a few discussion partners to really understand the significance that Beowulf plays in the great context of literature.That would take getting organized, but identifying what you want and going after it are two very useful skills.

Or you could watch any of the Foundations of Western Culture Classes at MIT . . . for free. So there’s really no excuse, if you want access to the best minds, this is a mighty fine start.

2. Perhaps you consider college preparation for the working world. That is perfectly reasonable, but let’s review….

Is there a causal relationship between wage rate and level of education? Is there a relationship between COST of that education and the wage rate? Seth Godin put together a chart comparing the relative, relevant cost increases. I added the aggregate wage data.

If the cost of education was a relatively small percent of the budget, then a 10-fold increase might not be that important. But the cost of education has been and continues to be a stumbling block for many families. Are we really getting the value out of it or is it a luxury item?

If you are preparing for a specific field: engineering, medicine, or any other field where you need access to equipment not likely to be found at Home Depot, then you must get thee to a University. But how is this different from a Vocational school?

3. Or do we really go to college simply because it is socially expected? Can we be honest enough to admit that? It isn’t bad to do things that are socially expected – we stop at stop signs (for those of us outside of Boston), but we shield college under the guise of higher education when in reality most schools require students to sit through junky, giant classes taught by disinterested Teaching Assistants. Star faculty are absent or inaccessible. Students will take multiple choice tests where only one answer is correct.

Where is the HIGHER in this form of education. On the whole schools are teaching average students average material and then handing them an average piece of paper that will not change the job prospects, nor the level of enlightenment.

We would benefit more as a society to teach our kids tolerance for ambiguity.

At no point is there just one option. It is challenging to authentically look at the purpose of our actions.

-All that being said, Kelly and Victoria are off to college in the Fall and I’m mighty proud of them. 🙂 Kate

Yet, all of these require a child to be independent and self motivated . . . isn’t that what we really want for our kids?

Image courtesy of Tax Credits

Consenting Adults Part 2

 

So how is the Federal Government going to save me from myself today?

Back to the topic of interns . . . which can mean SO many different things depending on the administration…. For the Obama administration it means legislation. In particular, enforcement of legislation against unpaid internships. Never mind that the Obama political campaign is requesting UNPAID Interns right this moment.

InternshipsSpeaking of coincidence, you may want to see Atlas Shrugs on this one…. Included is the reading list for the Winter Interns. Seriously, check it out.

Back to the topic at hand, Interns.

Last week I spurred a private discussion by asking what an Unskilled, Unemployed person is to ask of others if he/she wants to break into a new field.

If you are a musician, you expect to play for hundreds of hours at dives before you gain enough reputation to charge a living wage. Actors and actresses, the same. So why do we have this tumult over interns for Investment Banks? Architecture Firms? Veterinarian Clinics?

I could make a statement about the various values of the end product of each activity, but I’ll refrain.

If you are an unskilled person who wants to break into a new (to you) field, you have to make an offer that someone in the field will find acceptable. It costs me money, both in hard dollars and in my time to train a staff member. That is time that could be spent producing more for my business, picking up additional clients, etc. It is a trade-off to the business owner. So if you are unskilled, but energetic, well, that’s something, but you’d better be ready with more.

One of my students informed me that if he was producing a work product for me, I should pay him. True. If that’s Down Bar Graph Yield Sign White Backgroundwhat we agree to beforehand. If on the other hand you want to work with me either to build your portfolio or because it will give you access to others with potentially bigger and better opportunities, I may not be willing to pay you in dollars. What you can take from your experience is worth phenomenally more than cash.

When you have 2 consenting adults, the situation can be resolved between the 2 parties. There is no need to have the Federal government intervene as though to enforce a collective bargaining agreement.

Let’s circle back to the example of a high schooler who is interested in Architecture and would like to get to know what it is like to be an Architect at the ground level.

The challenge for her right now is that the economy is down. Construction and therefore Architecture are down as well. Few Architectural firms are hiring and those who are certainly aren’t looking for unskilled labor in a field full of skilled labor. How does she convince the firm to spend time and energy training her?

She really has 2 options:

1. She offers to do the work no one else wants to do such as re-arranging the sample store room or cost estimating (both jobs I have done).

2. She lowers her price to work. In this market, that might mean zero.

If she is really interested in Architecture, she will be lucky to get the opportunity to test out her career choice BEFORE she invests 5 years getting her basic credentials for Architecture. One summer was enough for me….

Images courtesy of One Way Stock and Bernard Pollack

Consenting Adults

The Labor Department is out to protect you from yourself. Legislation prohibiting unpaid internships is officially in force.

“If you’re a for-profit employer or you want to pursue an internship with  for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law,” says Nancy J. Leppink of the Labor Department.

What’s all the fuss?

Why is the government beefing up enforcement NOW, when the teenage unemployment rate is 26%?

For teens without marketable skills, where do they start?

Let’s take a hypothetical situation….

Say you are 15 and you are interested in becoming an architect. But you don’t know much about what architects really do, or how they do what they do. What is the fastest way to figure out if architecture is for you?

ArchitectRead a book?

Work for an Architect?

While reading a book about how Architects do what they do is helpful, no amount of reading can prepare you for the actual day-to-day activities of an Architect.Best case, you get a more realistic picture of the profession. Worst case, you still think all architects get to design cool buildings (most do not), and your IM Pei fantasy persists.

Now how about working for an Architect…. If you are in the office you get to see the day-to-day in action.You end up learning that architecture is less about building cool buildings and more about client management. If you’re lucky you’ll get to participate in the mind-numbing meetings. In other words, you’ll get to know if you like architecture enough to deal with the drudgery that it, as with every profession, has.

But here’s the current challenge. Now is a particularly tough time for Architects. Few are hiring and fewer still need unskilled labor when there’s a pile of skilled labor available. It costs an employer a significant investment of time to bring any staff member in – paid or unpaid. How do you as the unskilled teenager convince the firm to hire you?

What do you think?

Image courtesy of Wonderlane

Basic Economics – Competitive States

My buddy Scott recently sent a gem of a report along. The report was written by Dr. Aurthur Laffer. You may recognize his name from the world of finance and politics. He’s a bit of a supply-sider.

Since this marks the 10th pdf uploaded to the site for the sake of sharing, I’ve created a repository for all of them. For future reference and the table of contents for good reads past and present:

http://katemckeon.com/good-reads

Enjoy!

The others will be listed on the good-reads page as time permits. This site along with all of the partner and holding sites are being recast. Look for our new look mid-April. Spring, it’s all about renewal.

-Kate

Image courtesy of Lisa Nottingham

Education Issues: Quantity, Quality?

So let’s go for a drive.

If you’ve ever had the opportunity to cross the US by car . . . say from Chapel Hill, NC to Berkeley, CA, or Boston, MA to Berkeley, CA or Atlanta, GA to San Diego, CA, you have seen that there are many choices to make along the way. Do you go Interstate Highway all the way, do you detour to Route 66 (recommend in limited portions, it ain’t what it used to be)?

Do you take the most direct route . . . well, actually, what is the most direct route? If it is winter, heading across on I-50 is a BAD idea with a U-Haul. Actually, even in late April that’s a bad idea.

Some choices are better than others. So as a rational person, you do two things:

1. You establish your objective – where are you going, speed or leisure, caravan or solo….
2. Then you decide how to get there.

Sounds a lot better than someone else mandating how you will drive, what you will drive and when you will arrive. This system works well. It is the brains behind the free market. You do it instinctively.

DETOUR

The Wall Street Journal featured the concept of Saturday school in this weekend’s edition. While I am a strong supporter of more education, not less, I slam on the brakes for this one. Quantity does not equal quality – sheer volume can occasionally overtake quality instruction, but brute force versus dedicated finesse has no chance.

The bigger issue we face is that we do not have an objective for American education. We talk about being strong in science, math, well, anything, but it’s all talk. Take a look at the standards in the average classroom.

In classes taught in the science and social science subfields of Earth sciences, economics, geography, and government/civics, fewer than 50 percent of classes were taught by a teacher who held a major in the respective subfield. Fast Facts on Education

DetourWithout a clear objective, Saturday school is at best a thorn in the side of kids who yearn to play in creeks and at worst is yet more time for your children to be exposed to revisionist history and ridiculous propaganda. More college students arrive on campus fully aware of the recycling program (good), but totally UNAWARE that we participated in the Korean War of the 20th century (bad). No joke.

For any educational program to be successful, we have to establish standards. The purpose of No Child Left Behind was to do just that. The Teacher’s Unions were the most vocal opponents. No program is without flaws, but you can’t drive efficiently from the East Coast to the West Coast without a clear plan. Otherwise, you’re likely to end up running out of gas in Kansas and that means your history class never learns about the Asian theater of war in WWII or the Korean War.

2006, Twelfth-grade students who explained a reason for the involvement in the Korean War: 14%

So, before we have kids sit in class on Saturday, let’s make sure that we have teachers who understand the subject matter they teach and we have a curriculum designed for the most important elements for the students to learn. It’s nice to know how your future college’s recycling program operates, but if you stink at fractions . . . every day you will be further and further behind your international peers. And our ability to innovate as an economy dies.

Image courtesy of Tom Woodward

Margaret Thatcher – We Must Win

The newsletter this week includes a favorite item from Mrs. Thatcher:

War“Democratic nations must try to find ways to starve the terrorist and the hijacker of the oxygen of publicity on which they depend.”

A few weeks ago the Wall Street journal published an opinion piece worth a revisit. The original piece by Warren Kozak concerns the Real Rules of War. For those of us safely ensconced in our warm homes, it is easy to forget the brutality and the . . . well, the point of war.

War is not war for the sake of fighting. That’s why god created hockey. And football. And rugby. Mostly rugby. If you want to beat the tar out of other people and there’s not a local Fight Club, go join a rugby team. Expect many broken things. And beer.

The point of War is that you won’t have to keep fighting.

Beat your opponent so soundly that all fighting stops. WIN. This doesn’t happen when one side runs out of money . . . 8488016185_35bf43e81e_obecause that is a temporary condition. If there’s still a chance, no matter how slim, they can beat you they may go underground for a few years or even decades, but they will be back. It is not sufficient to call game over.

You must win. Totally and completely. Because the other side won’t stop until you do. If we want peace, we must go for the WIN. Not the draw.

Kozak points to a line in Paul Fussell’s memoir, which quotes British captain John Tonkin, “the Geneva Convention is a dangerous piece of stupidity, because it leads people to believe that war can be civilized. It can’t.”

You know what our “peculiar institution” is now, the public tendency to browbeat ourselves for having the audacity to stand up and fight back. Our modern media has enslaved us.

Image courtesy of Robert Huffstutter

It’s Not the Size of (the School Day), It’s What You Do With It.

What would you do if you had another hour everyday? Could you get more done? How would you spend that time? In Chicago, the parents are raising money so their kids can spend an additional 1 hour a day at school. At a cost of $385 per student, per year, that breaks down to $2.13 per hour – the base wage of a waitress.Adoption

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Getting the Scoop on Entrepreneurship Early

A new program at Milford High School in upstate NY has opened the doors of entrepreneurship to students in grades 9-12. The students are building their own businesses and interacting with local business owners.

This is a brilliant way to encourage growth!

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Education Issues: Cuts to Classtime is Unacceptable Way to Cut Costs

Reprint in full from education.change.org

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One of the highest ranking education officials in America has told Hawaii they’re going in the wrong direction by reducing the number of school days, and that the state and union need to put their personal agendas aside to help their students. Peter Cunningham, the assistant secretary for communications and outreach at the Department of Education, explained that shortening the school year by 17 days is an unacceptable way to cut costs: “There are lots of ways to do this, the one way you shouldn’t do it is by cancelling class time.”

As we reported in October, Hawaii was been forced to cut the school year as the state continues to suffer the effects of the economic crisis. Cunningham says that school days are already too short, and standards are not high enough. Further cuts to teaching time is only going to exacerbate the problem. Parents recognize the essential investment that children constitute, and the necessity to educate them to help America compete internationally. Margaret South, a parent and President of Friends of Niu Valley, explained that “I’m hoping we realize as a country that we need to put our investments in children and their education so they can compete on a world stage.” Cunningham and other education officials are touring the U.S. to “listen and learn” as the Department of Education plans to revamp the No Child Left Behind Act. There is no surer way to leave children lagging behind than to close schools an extra 17 days a year.

Photo credit: Torres21

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It is possible, just possible that the biggest costs of the school district aren’t the teachers. When Dallas ISD laid their books open some 20 years ago (Robin Hood Plan was threatening Texas), it became obvious that the increasing layers of administration were eating the school budgets more than the cost of the teachers. Not only were there no efficiencies to be gained by being a large school district, but also, it seemed to encourage . . . shenanigans. Systematic shenanigans.

Why aren’t we talking about the cost of administration?!?!?

Education Issues: Calling Out Bill Gates on Treating Schools Like Corporations

Now they’re eating their own! Mike Smith at Change.org skewers Bill Gates’ plan to provide $200 Million annually to schools willing to take on his ideas for reform. Apparently the idea of basing teacher pay on student test score performance is untenable. What I keep circling back to is this, if we are not to use test scores (never mind that we could simply fix the current flaws in the tests…), then what the blazes are we to use?

Bill Gates is smart, clever and incredibly dedicated . . . which is exactly his problem when approaching education. Despite running a very large organization, Bill hasn’t consorted with the hoi-polloi . . . ever. He wasn’t like other boys and girls growing up; he was working from the time he was 12 (give or take).

Well, most teachers and most students will never really understand that kind of dedication, that kind of insatiable curiosity, nor that work ethic. Let’s look at it another way, how many students WILL understand 80+ hour work weeks at the age of 12? How many teachers?

So yes, Gates’ plan to open mini high schools hasn’t gone as well as he’d like. But it hardly seems appropriate to attack him personally as Alan Singer does. Unimpressed by Gates’ big vision to put the best teachers’ lectures online, of Gates he explains “not only are you fool, but you are cheap fool at that.” He goes on to explain that students will suffer as a consequence of Gates’ involvement.

So here’s what Mike Smith said at Change.org:

… annual corporate results and a student’s report card are not the same thing, and believing that increasing test scores indicates a better education is misguided. Achievement is not signified solely by a report card, something the CEO-like managers coming in to run America’s schools don’t seem to understand. When we further consider the increasing importance of the arts in early-learning and cognitive development, we learn that numbers aren’t anything, and that not everything of value can or should be measured in dollars and per cents.

First, “numbers aren’t anything” are you kidding me? This fellow must be a journalist. As fascinating as it is to read and discuss news all day, someone must go design the airplanes, computers and buildings – the things you depend upon . . . and all of them use numbers. Numbers are extremely important. And that’s where we’ve fallen behind our international peers the most.

Second, everything has a cost. Direct and indirect costs are the very reason we provide education to the masses. It is not a god-given right to have someone else foot the bill for your child’s education. That is a decision we made as a country. Why? Twofold. Ultimately, it is less expensive to care for an educated population AND it is more productive for our economy to have talent for hire locally. If we had to depend on outside talent every time we wanted to design buildings, machines, highways . . . we’d be a podunk, backwoods, back water country.

The attacks are from people who put forth no solution. No solution, no credibility. And so my question to you is this – if we are not to measure progress by test scores, HOW DO WE?

What is your solution?

Photo credit: World Economic Forum

Education Stimulus Money Establishes Test Standards, Can’t Fix Test Problems

One-hundred billion dollars of stimulus money is beginning to go into education, prompting states to track students progress more closely, use more rigorous tests, and generally embrace the Obama administration’s reforms. These changes in federal education policy is explained in a report by the Center on Education Policy who are working to understand what the impact of stimulus funds, reports the Christian Science Monitor.

They explain that “the stimulus dollars, in a time of economic challenges, mean that the federal government is poised to play a far greater role in driving education reforms.” YOWZA!

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Frightening: Arne Duncan Say Principals Must Act Like CEOs

 

Ran across this article this morning . . . in which the author complains that pushing principals to be like CEOs will single handedly destroy education. Hey buddy, we’re already there.

More telling is the vitriol for CEOs. Are all CEOs bad? Really? I missed that. Indeed, anyone familiar with local Education (2)businesses has met plenty of very, very good CEOs. CEOs who care passionately about their companies, their people and their communities. The defeatist mentality of all-business-people-are-bad is exactly what gets us into debates that reduce to screaming matches. There’s no reasonable conversation possible if you believe the other side is pure evil. Article follows…Continue Reading

How to Fix Education — the Greatest National Security Crisis

 

Why is it so hard to bring quality leadership to the table in education? Surely we have a decent mix of men and women who have served both in the business world and the education field? But do we have enough to make a difference?

I am a huge proponent of speak softly and carry a big stick . . . but what do you do when the population can’t figure out what a stick is? “The greatest national security crisis in the United States is the crisis in education,” those are the words of Bob Herbert in the New York Times. He’s right on with his call for exactly the sort of leadership that is currently lacking in education: a cross section of skills — not principals that exclusively come from a business background (as we reported recently), and not those coming from traditional schools of education who then lack the necessary business acumen to lead and efficiently manage their school or district.

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Adult Education Issues

The Wall Street Journal recently published a special section on Education. What inspired me was the opener.

If an educated work force is the nation’s human capital, business is seeing a lot of subprime these days.

FreedomIt’s a snarky little comment, but it hit entirely too close to home. Even if your school’s graduation rate is stable . . . what do the kids know? You may remember my rant a few months back when I had a boyfriend explain to me that the GMAT (standardized test for those seeking an MBA) is unfair and unrealistic because it asked him to calculate the area of a triangle. And he, “Knows triangles.” After all, he “earned” A s in math, including a 98 in Geometry.

How has this happened?

The majority of our teachers are graduating in the bottom quartile of their college classes. Fewer than 31% of 8th-grade math teachers have degrees in mathematics. Less than 7% of 5th-8th grade science teachers have a degree in science.

And folks care more about climate change?

Really?

Excuse me?

A poorly educated mass population leads to slavery. If you can’t discern for yourself, you must depend on others to do the discerning for you. You give up your independence, your control and all that is holy because you didn’t bother to learn the basics.

This is a particularly sore point with me. I recently had a student complain that I unfairly singled him out when I suggested he get back to the basics. Never mind that I made the suggestion to the entire class, he took it personally.  Here’s a kid who was flunking class and had not done his homework. It was anyone’s fault but his own . . .

What’s wrong with the basics?

What do we have against doing “basic” work? Is knowing the multiplication tables really that awful? Is proficiency with simple concepts going to dumb us down or build us up?

Look at education systems that encourage the rote drills we have eschewed state-side.

usstudents3

Proponents of our education system will tell you that, “That’s okay, because Americans do better with complex critical thinking.”

Um, no, no we do not.

usstudents4problem solving

The reality check is that American students performed far below other advanced nations on a test of original, creative thinking, and also were well below the international average. The notion that students in some of the highest scoring nations simply regurgitate memorized facts is false.  -Walt Murfin

As though rote drills pushes critical thinking skills out . . . Another myth perpetuated by those who are too interested in creative teaching and not interested in the results of their experiments.

But the problem is even more insidious. Highly educated families have always had more interest and therefore created more access to education opportunities. Guess what, even our top performers are behind. Click on the graph to expand it.

TIMSS2007

We’re not just kind of behind, we’re under a rock behind. We’re in front of economic powerhouses like Malta, Slovenia and Bulgaria. These are our top students as compared to other top students.

Is there any hope? Of course! Families are voting with their wallets and private education is discovering new ways to deliver education. Adults are getting access to levels of education previously unattainable – Stanford and MIT have both made a series of classes available online for free.

But how many will partake?

The larger issues is not really one of access. At the micro-level, perhaps specifically for low income families, access is indeed a huge impediment, but families can move. We are a mobile society. At the macro-level, we have a problem with interest. What do we celebrate culturally?

We used to celebrate winning.

I’m not into the politics of education. Let’s just get it done.

Is it important to know your multiplication tables 20 years later? Yes.

Is it important to know the Krebs cycle 20 years later? Well, probably not, but wouldn’t it be great if we celebrated those who did?

Citric acid cycle

Thank you to the Kenyon Biology Department and The terror of 9th grade, Gail Liljestrand – who terrorized us into learning things for life.


Leadership in Education

How about this for a campaign: We for Rhee!

Washington DC public schools rank in the worst of our nation despite being potentially attended by our nation’s leader’s progeny. Of the 45,000 students in the district, how many do you think are the children of senators and representatives?

rheeBut never mind that, Michelle Rhee, chancellor of D.C. public schools is under serious fire from the American Federation of Teachers as well as her own local union shop.

Why?

She had the audacity to layoff under-performing teachers and has since floated the idea of asking the teachers to walk away from their union contracts . . .

Brilliant!

What union wants to see it’s members leave? What use is the union to its members if better performing teachers can get better pay without a union contract?

Pivot point.

Teacher (1)Highest performing first year teacher pay stands to go from $45,000/year to $78,000/year. Veterans can earn up to $131,000. That’s double what they can earn now. This proposal was put in front of teachers, those who prefer to stick with the union can opt-out of the bonus.

And that is fair.

The union can retain the members who care to retain membership. Teachers who believe in their ability can choose to optimize thier own pay. And no one is forced to go either way.

Michelle Rhee is introducing CHOICE and personal responsibility – sound, basic economics – to the teacher pay discussion. Three cheers for Rhee.

Isn’t that what America is all about?

http://online.wsj.com/article/SB125860189986054965.html


Comic Break

Yesterday I had the opportunity to be reamed for my opinions about the current state of affairs. It was a sorry little conversation that got out of hand before it even started. Actually, now that I think about it, I never did get to share my opinions . . . my opinions were inserted for me.

“You’re part of the vast right wing conspiracy!”lapdogs

Whoa. What?

“Uh, hi, I’m actually somewhere in the middle, but if you are way on the left, I suppose I do look like I’m on the right . . . you know from a physical perspective and all.”

My attempt at cheeky humor fell flat. It was like walking into a field with landmines.

It is unfortunate that our political discourse has devolved to the point that folks scream at each other. But perhaps the most offensive bit I get from those who believe me to be right yet wrong . . . they vindicate themselves with the “fact” that the rest of the world disagrees with America.

Really?

In my travels I get to speak with ordinary people in developing countries and I get to speak with folks in well developed countries. Here’s what I have seen.

Ordinary folks have a perception about our president (whomever that is at the time) and then they have a perception about our country. And, by and large, the perception when W was in office was . . . wait for it,

Positive.

Say what you will, I’m just reporting here.

Now, on the flip side, those who were well heeled, well traveled and well educated felt that . . .

America is a-okay.

In other words, in my travels: China, Japan, Thailand, Malaysia, Singapore, Hong Kong (it’ll always be HK to me), Greece, Cyprus, Turkey, Italy, Germany, UK and Argentina, the folks I met in big cities and in small cities by and large thought W was okay (but not great) and that America was still kicking butt and taking names.

Nice. So why don’t we hear that?

Here are some comics that have been published in papers in Australia. I am not aware of the distribution in the US. Glenn McCoy publishes stateside and can be found on mycomicspages.com (not that I have an account or anything). If you wonder how others may perceive the US, check these out.

teddykennedy

bodebatesprogress

greeningscarylikeafoxboom

When Free is too Expensive

I am writing from Newark, New Jersey, which is not my new favorite place. But this is not a post about that. On the flight here I noticed the airline magazine and spent a few minutes going through the puzzles. Across from one of the puzzle pages was a full-page glossy ad for FRE*E Hotel Bookings.

FreeSo we have folks advertising to give presumably a valuable eservice away without expense to me. Either

A. We have folks unclear on the concept of profitablility, or

B. They are very clear about profitability and want to lure me to their site for the sake of add-on fees or upsells to make their free offer not so free.

I have nothing against f*ree, but I’m done with it. If you offer fre*e hotel bookings, then you are getting paid by the hotel to make the booking and that removes choice from me and pervert the recommendation system. No one works out of the goodness of their own heart. No one gives away full-page ads in a top 3 highest captive audience rated magazines.

We have to eat. We sell.

I would rather pay a hotel booker to make sure I get the kind of room I want, where I want, when I want for the price I am willing to pay. It seems like we should have this service offered already . . .

Oh wait, we do!

Or did….

They were called travel agents. And while most have raced to the bottom to offer me-too basic booking services for nothing or next to nothing, some are still around, thriving.

Booking my hotel room is brainless. What we are willing to pay for is intelligence.

It is also more profitable for those who choose the long term committment to excellence demanding consumers seek. For my trip to Newark did I need a hotel booker? No. Due to the gig, there is exactly one hotel where I will stay. So I booked directly with the hotel, like most of us do.

When I want to go white water rafting . . . then I have options.

Travel AgencyThis is an unpaid recommendation for a friend of mine’s business, Golden Adventures. Diane Golden specializes in Baby Boomers and mild adventures. She organizes trips for runners, cyclists, wine lovers and hikers. And she does a mighty fine job. She specializes in her choice of population: Active Baby Boomers and her activities. And this year she’s been hiring.

So never mind the down economy, while it hasn’t been her best year ever, she has been growing. Providing expert service is more compelling than a f*reebie offering. I know the game for hotel . com, and for better or worse I use their paid reviews of properties written by low-paid staff members who have never been to the property (I’ve known some of these folks) to compare against other reviews, and then I make my choice and book directly.

That may seem unfair, but they don’t give me any reason to be loyal, they aren’t ultimately providing me with what I want which is real intelligence about my options. They are not making my job any easier. Indeed ultimately the free offerings cost me more time and THAT is the most precious commodity right now. F*ree is just too expensive.

Image courtesy of Platform London

Why you want to Win

The internet has brought tremendous opportunity to the masses. Who would have predicted 20 years ago that selling schlocky stuff that didn’t sell at your garage sale on a little community website would allow you to make millions of dollars?** Yet, eBay has done just that.

Long TailThe success of eBay highlights the idea that as individuals we are all interested in very different things. From this we started to hear about the long tail . . .

If the Big Head, mass culture, promotes Britney Spears, the Long Tail offers ambient dub (a music style no one knows about), 80s hair metal bands that never made it on a tour and other seemingly obscure offerings.

So, the world of marketing heated up with talk of micro-marketing, niche marketing and plenty of other adjectives that describe small + marketing.

Chris Anderson of Wired even wrote an entire book on the Long Tail; it was a phenomenal success. Supposedly you could produce and market a wide variety of long tail items and make even more money than subjecting yourself to the massive competition of the big head. Yeah for the little guy!

NicheWith all the talk about how powerful marketing could be now that marketers can essentially offer mass customization, we forgot to look at the data. So let’s do that now.

Charles Blow reports in the NY Times that:

“A study last year conducted by members of PRS for Music, a nonprofit royalty collection agency, found that of the 13 million songs for sale online last year, 10 million never got a single buyer and 80 percent of all revenue came from about 52,000 songs. That’s less than one percent of the songs.”

If that doesn’t demonstrate the Pareto principle or Zipf’s curve, I’m not sure what else could. Ten Million never got a sale. If you owned all 10 million of the long tail songs, you had amazing ability to capitalize on the Long Tail, but you made ZERO dollars. Indeed, the irony is, if you owned all 10 million long tail songs plus 1-2 very popular songs, the record industry would attempt to shut you down for monopoly . . . as long as you have nothing popular in your catalog, they aren’t paying attention to you. Because, they know….

The Big Head wins.

You want to be #1.

We reward #1 with our dollars disproportionately. Look at sales for Vanilla Ice Cream. Almost 30% of all ice cream sales are vanilla. Never mind the 31 flavors available, people overwhelmingly reach for #1. Chocolate ice cream sits in second place and earns 8% of all sales. The top 4 flavors account for more than 50% of all ice cream sales.

Think again before you offer Apricot ice cream with chocolate bits and vitamin wafers….

Look at search results on google. How many times do you click on the second page of results? How about the 40th page? Ever?

googleSERPBeing in spot #10 on that first page of google is actually better than being in spots 5-9, because so few people want to click on the second page that they click on choice #10 of the first page rather than roll to page 2. Searchers are desperate to get out of the search engine results pages and into an authority site. So if the first few 1-3, sometimes 4, entries didn’t get them excited, they will scroll that first page. But they will make a choice among those first page items.

It varies by search term, but searchers overwhelmingly chose the first search result: 55-75%. For the top 3 search results expect 85%. Search result 10, the desperation click, can garner 8-10% of clicks leaving very little for results 4-9 to split. We disproportionately reward #1.

Big head + short tail + lots of junk.

The Long Tail isn’t dead, it just isn’t very long.

**I sold a set of not-totally-awesome kitchen knives to someone in Australia! He paid as much for shipping as he did for the knives. I had written a clever story about the adventures the knives had almost had, dinner parties the knives almost served…. I suspect he purchased the long tail writing effort more than the knives.

Image courtesy of Tim Wilson

Leadership in Education: No Child Left Behind

AmericanRewriting the No Child Left Behind Law is in process. If you have children in school this may be important to you. If you are childless, it may seem unimportant.

That couldn’t be farther from the truth.

Whether or not you have children, if you plan to be living in 20 years, how our children are educated today will influence your quality of life. In 20 years, the children just starting school will be having their mid-20s crisis (did anyone have one of these prior to the baby boomers?). The children now finishing school will be leading major companies and entering the upper rungs of politics . . .

These kids are our future, literally.

So how are they doing?

Oh, #@$*@!

From what I can tell, they have a lot of self esteem. They feel good about themselves. Really, really, good about themselves. But, they don’t have any proof of earning that self esteem, and deep down, each child knows it.

Let’s take a quick look at our rankings in international tests. This chart demonstrates performance in problem solving – Math.

usstudents3

The reality check is that United States students performed well on some tests, not as well as might be expected on others, and very poorly on some.

There is a “counter myth” that the United States generally performed at or close to the international average in math and science. This is true, as far as it goes. However, some of the nations tested were decidedly disadvantaged compared to the United States, and the international average included the scores of those less favored nations. To say that the United States is near the international average largely means that our students fared better than students in some severely deprived countries. Many other advanced nations scored far above the average.  See the article with stats from the international tests.

But, surely there are ways to counter this information, right? The standard excuses that we educate all of our population so a comparison of our students is broader than in other countries . . . not true. How about the idea that our best students outperform the best students in other countries – again, that our average is pulled down by the lower end of students . . . again, not true. US best students ranked second to last of the 20 advanced nations. How about . . . our students are more attuned to creative thinking whereas these other countries are drilling facts and using rote memorization?

It is true the other countries lean on heavy drills, memorization and other (apparently) seeming barbaric learning mechanisms. Guess what?

American students were dead last of the advanced countries and well below average for all countries in ability to apply knowledge through creative problem solving.

Perhaps rote memorization serves a purpose….

As a nation, we’ve been punked. Our children are learning to feel good, but they aren’t learning to read, write, add/subtract/multiply and divide. How can you feel good as an Zombieadult if you can’t cover the basic functions and then apply them. We are creating a nation of zombies.

When you cannot contribute to the vibrant, productive fabric of this country you are more likely to have problems with substance abuse and depression. Those are expensive problems for society….

Are there any bright spots?

Our 4th graders have often done well, especially in reading. Our 8th graders have done exceptionally well in civics.

Well that’s something. At least until you read the conclusion. Emphasis is mine.

However, American students have not generally performed as well as our national advantages would lead one to expect. Between 1995 and 2003 our students made good strides in factual learning in science and some improvement in factual learning in mathematics. They deteriorated in application of knowledge in all subjects between 2000 and 2003. They did very poorly in tests of original, creative, logical thinking. Most of the excuses for low American performance fail the reality test. Quibbles about sample participation and the age of students tested are specious and cannot explain away the obvious defects in US students’ performance.

The harder a student works, the more he will struggle with concepts, the more he will own those concepts once he gets them. Upon mastery of a concept, the child will develop a security that he knows something. That’s the beauty of it, he will know something. This leads to self esteem.

Self-esteem can not be taught, it must be earned.

The Secretary of Education is coming to your state by the end of December, look here for his schedule – then go give your input!

Image courtesy of simpleinsomnia

Does Teaching Attract Liberals?

In the Education Leadership post a few days ago Rob commented that teaching attracts liberals. So let’s dissect. Is it true that teaching attracts liberals or is there something more going on?

LiberalsThere are a few ways to go through this. Let’s start with the premise that teaching attracts liberals. That premise is either true or not true. How do we decide, scientifically? We have to identify the population of teachers as liberal or not liberal versus the same in the overall population.

If it is true that teaching attracts liberals disproportionally, what is it about teaching or liberalness that brings the two together?

Could it be that Teacher Unions somehow block non-liberals? Or matriculation for conservative PhD students is somehow blocked by liberal faculty….

If it is false, how did the profession get the reputation? Better yet, has it always been this way?

So let’s tackle these one at a time (1999 data from the North American Academic Study Survey):

By their own description, 72 percent of those teaching at American universities and colleges are liberal and 15 percent are conservative, says the study being published this week (April 2005). The imbalance is almost as striking in partisan terms, with 50 percent of the faculty members surveyed identifying themselves as Democrats and 11 percent as Republicans….

“What’s most striking is how few conservatives there are in any field,” said Robert Lichter, a professor at George Mason University and a co-author of the study. “There was no field we studied in which there were more conservatives than liberals or more Republicans than Democrats. It’s a very homogenous environment, not just in the places you’d expect to be dominated by liberals.”

In contrast with the finding that nearly three-quarters of college faculty are liberal, a Harris Poll of the general public last year found that 33 percent describe themselves as conservative and 18 percent as liberal.

Hmmmm.

The evidence I have for liberal professors blocking the advancement of conservative students is painful and anecdotal, so give me a few days to dig for the science to support or deny this – look for that next week.

Has it always been this way?

In the last major survey of college faculty, by the Carnegie Foundation for the Advancement of Teaching in 1984, 39 percent identified themselves as liberal.

Well then.

What is perhaps more troubling is the ripple effect it is having throughout the education Leadershipsystem. I have no beef with college professors who fly left of the spectrum. That’s your gig. And, yes, I will defend your right to have those opinions no matter how much I disagree with them.

But what about our primary and secondary education system? By the time a child reaches college he or she should be able to think critically and has been molded by mom and dad. When you are 5 years old, you take everything said to you at face value.

I have a very strong opposition to politics in the classroom for those who are not even the age of reason.

Give the lack of understanding for the basics (reading, writing, arithmetic) I see in adult graduate level students, there is no time for political shenanigans in the primary classroom. Get back to math, reading and writing. Science, critical thinking, scientific method – how to conduct an unbiased experiment and scientifically assess the results… those have a solid place in late elementary school and middle school. Being told smart cars are “better” in kindergarten, no place. No thank you.

So let’s leave this politicing aside and look at something perhaps more important, teacher qualifications. If teachers are qualified to teach our children how to think and to love learning, then perhaps the right/left (rather left/far left) leanings become less relevant . . ..

Oh dear.

According to the “Meeting Highly Qualified Teachers Challenge” report published in 2003, 28 of 29 states where the same standardized teaching tests are used, a teacher may be below the national overall (teaching and non-teaching populations) average in mathematics and still be a teacher. 29 of 29 for reading . . . and in some states you may perform in the bottom quarter (i.e. with more than 75% of the population performing better than you did) and still meet the requirements to become a teacher.

What?!

Yet, from my personal experience it is next to impossible to pursue the very low pay, grueling hours of teaching due to the certification process. Thanks, I’ll stick with private education.

As large donors to the Democratic party, the American Federation of Teachers and the National Education Association have an agenda, but it doesn’t seem to be educating our young ones.

Want more? A site dedicated to information on teachers’ unions.

Image courtesy of US Embassy

Basic Economics – Young Minds, Powerful Lessons

It is difficult to find a text to ignite enthusiasm in children for basic economics. Actually, it’s difficult to find a text that teaches economics to adults (I do recommend Thomas Sowell’s Basic Economics) . . . which leads to all sorts of other problems…. But that’s for another day.

In the far, far background of my pile of projects I have toiled on a set of Fairy Tales that convey complicated math concepts in bite-sized nuggets as well as basic economics with the intent of passing along to my godchildren and perhaps my own kiddos some useful stuff….

So I keep an eye out for similar projects. From me to you via NYTimes Blog via Twitter:

http://economix.blogs.nytimes.com/2009/09/01/the-economics-of-fairy-tales/

They’ve explained how you can convey the economic concepts of popular tales to your children.

The Three Pigs
The Three Pigs

If you think about it, what is the Three Pigs really about? Is it just a jumble of portly pink farm animals running about or is it a lesson in investment and return on that investment. Pig #3 builds a brick house. That took significant time and money. Pig #1 built a house of straw – like most start-ups, here today, gone tomorrow, but he could build it quickly. Pig #2 thinking he improved on Pig #1’s concept without the burden of Pig #3’s concept builds with sticks . . . which really proves to be nothing more than heavy straw – much like a start-up with “seasoned professionals?”

On the simple math side, the Three Pigs introduces the concept of cost / benefit analysis as well as perseverance with harder path in the face of seemingly quick fix solutions. Add in a few simple numbers and let the kids decide for themselves – build with brick or go for straw and hope your Brick brother will bail you out….

Simple Economics for kids of all ages.

Sports Stat of the Week – Favre Leadership

Minnesota Signs McKeon
No, of course not. I wouldn’t last 2 snaps on a field full of kickers. Having had the opportunity to kick one between the uprights at Texas Stadium I can also state that I wouldn’t make it as a kicker (missed completely).
Even those of us without TV and Radio know that Brett Favre has signed with the Vikings. The popular story is how he’s now playing for the rival team . . . so instead, we’ll talk economic impact.

$25 Million for 2 years, that’s a lot of cash to expend on a 39 year old quarterback. Is it a big risk?

Speaking of risks . . . nothing like spending $41.7M on young, not-tested-in-NFL, used-to-pelt-Kate-with-acorns Stafford, but we’ll talk about that next week. Back to Brett.

Risk Definition
Risk Definition

The past few months Favre and the Vikings have had back-and-forth negotiations. But, about a month ago, the underground put it as a done deal. As a former ticket broker, I received an alert to be ready for sales to spike from one of our networks. At no other time have I received an alert. No event, no concert, no nothing has warranted the kind of warning that the possibility of Brett signing did.

Think about that.

On August 16th, we received an even more urgent warning.

24-hr Alert.

Another first. Orders are typically processed immediately unless they happen overnight. In this case, no lag allowed. All brokers were expected to be processing 24-hours a day until the system cleared and the market settled. That would be like telling the NYSE it couldn’t DSC06651close until hysteria was over. Brett signed August 18th, exploding already unseasonably high Viking ticket sales. From the broker’s perspective it was a delightful nightmare. Speculators entered the fray competing with real customers. Mismatch of supply and demand, market clearing mechanisms pushed to the brink….

Brokers prefer to sell to customers as opposed to speculators as speculators have a tendency to walk away from their orders when the market turns. Short of a shotgun, there’s not much one can do about that. In normal market conditions, we can weed out the mass speculators 90% of the time (by choosing to not fill their orders).

So how much was the day of signing worth?

Now, the Vikings aren’t seeing those dollars directly, but they will see an increase in merchandise spending and in TV/radio revenue dollars.

Brett is like a small planet with his own gravitational pull. Where he goes so to do the dollars. So, is it a big risk? No.

Would I sign him?

Unequivocally yes.

Favre is to Football as Meatballs are to Spaghetti – so much better together.

Image courtesy of Barbara Moore

Economic Leadership Starts with Simple Math

Seth Godin proposed a simple quiz for marketers this morning. To instantly see how quickly statistics get out of hand with a natural bias – also known as fuzzy math, consider his “quiz for smart marketers,” below. It makes a brilliant point. Not feeling mathy today? I put some numbers to it so you can see for yourself how the quiz plays out. Work hard . . .

Let’s say your goal is to reduce gasoline consumption.

And let’s say there are only two kinds of cars in the world. Half of them are Suburbans that get 10 miles to the gallon and half are Priuses that get 50.

If we assume that all the cars drive the same number of miles, which would be a better investment:

  • Get new tires for all the Suburbans and increase their mileage a bit to 13 miles per gallon.
  • Replace all the Priuses and rewire them to get 100 miles per gallon (doubling their average!)

Take a moment to put some numbers behind this. Assume that the cost to rewire is the same as the cost for new tires. Isolate the gasoline consumption.

GasolineReady for the answer?

For the sake of easy numbers, let’s say the cars drive 1300 miles per year.

So each Suburban consumes 130 gallons at 10mpg.

Each Prius consumes 26 gallons at 50mpg.

By improving the mpg of the Suburban a little bit from 10mpg to 13 mpg, gasoline consumption goes from 130 gallons per year to 100 gallons per year saving 30 gallons per year per Suburban.

By improving the Prius a lot from 50mpg to 100mpg, gasoline consumption goes from 26 gallons per year to 13 gallons per year saving 13 gallons per year per Prius.

The answer to the riddle? Putting new tires on the Suburban will save more gasoline than improving the fuel efficiency of the Prius.

Image courtesy of Liz West

Education Reform

The strongest case for Education reform in the United States

Upon reading another author’s blog’s comments I was reminded how few people are put at the peril of the market in an obvious way, daily – i.e. they work for someone else, have benefits, and believe these things due to them. We need Basic Economics training for everyone. Without understanding how market forces major and minor contribute to profits and losses for businesses, a vast portion of our vocal population perpetuate the notion that businesses are profiting by skimping on employee benefits – benefits they feel are a right and obligation for someone else to provide.

John Mackey, CEO of Whole Foods

Howdy to healthcare reform. The comments are a hoot. On one hand, you have well reasoned responses discussing the economics behind healthcare from a personal point. EconomicsSome small business owners chime in. On the other hand, you have folks attacking Mr. Mackey – these folks refer to themselves as “Progressives.”

The talkers talk loudest making demands while the doers work their butts off to provide for both. There’s only so much a doer can take before she stops producing for the talker. Productive people will always find a way to make things work, even if it’s messy. A talker depends on the productive person to keep producing. A few of my family members fall into the Talker category . . . they would gladly strangle the goose who lays the golden eggs, because they can dismiss the golden eggs as luck.

It’s amazing how lucky you get when you work really hard.

There’s just no reasoning with folks so unreasonable.

The problem with socialism is that eventually you run out of other people’s money”-Margaret Thatcher.

Underlying most arguments against the free market is a lack of belief in freedom itself.”  — Milton Friedman

Image courtesy of Simon Cunningham

Tax Reform

So the concept of tax reform gets several of my family members hot and bothered . . . I’m not sure what that says about my family but I leave that for a therapist to sort out in 10 years when I have time for a visit. In the meantime, I propose the following:

1. Flat tax, say 15% on current income for those earning more than $50,000 annually. For those earning less than $50,000 annually, total payment can be made in kind as in #2 below. No loop holes. This will be a huge boost to the Treasury and will reduce the dead Tax Reformweight cost of filing for those who are contributing less than 5% collectively to the Treasury. See contributions based on income level on the middle of this page. Remember, the top 5% of tax payers contribute 57.1% of the total. The bottom 50% of tax payers contribute less than 3.3%.

2. In exchange for getting back at least one weekend a year, you will be expected to contribute to local charities that meet certain thresholds. You have the option of contributing TIME or MONEY or any combination of the two. The point of this measure is to reconnect locals with locals. Charities to benefit from your expenditure of time and or money must consistently demonstrate that more than 80% of all funds raised go directly to the mission purported and MUST BE LOCAL. This should not discourage you from supporting non-local charities as you are gaining both time and money from the measure. This measure is to redistribute our most valuable resource, you. Your intellectual capital deployed locally is much more important than a long-distance, fickle fingered bureaucrat’s.

By the way, the donation of time and or money must be done by you, personally. This represents work/money for a tax savings. You may pay your way out (thereby negating the effective savings) or you may perform the work yourself.

Proposed Schedule of work:

< $50,000, 25 hours of community service
$50,000 – $125,000, 10 hours of community service
$125,000 – $250,000, 20 hours of community service
>$250,000, 45 hours of community service

This schedule represents my experience working with those in a variety of income brackets – who has free time and free cash flow.

The pay your way out schedule would look more like this:

< $50,000, 15% of your total income
$50,000 – $125,000, additional 5% of your total income (above the 15% flat tax)
$125,000 – $250,000, additional 5% of your total income (above the 15% flat tax)
>$250,000, additional 10% of your total income (above the 15% flat tax)

I’d like to see the rate even lower, and it is important conceptually for everyone to pay into our system. Our government doesn’t really need that much money when we trim the fat and turn over local activities to local people. We will fund the government for less administration and more administering. We need a Federal system for roads, but do we need a Federal system for schools?

incometaxpie

Image courtesy of Fibonacci Blue