Helpful Behaviors for Building Wealth

There are some really good points in this article (link below), although the title is a little misleading. It's not so much about becoming super-rich, but rather, it's really about the behaviors that may help someone become more wealthy than they otherwise might, whatever their income level may be.

The author refers to these things as being traits, but they're really skills that can be developed by anyone. Not everyone has the ability or opportunity to become a financial expert or to even go to college, but that doesn't need to condemn them to a life of financial insecurity. It's never too late to develop these skills either, although they're certainly more beneficial if picked up at an early age. I agree that comfort and confidence with basic math is really important, as is developing a methodical approach to problem-solving. The article emphasizes planning skills as well. In my experience, I've found that many people have an aversion to planning simply because they are afraid of the unknown and what they might learn from the planning process. The simple truth, though, is that it's better to be prepared and to learn about potential problems as soon as possible in order to maximize the amount of time available to rectify them. Developing a willingness to encounter uncertainty and a fearlessness about tackling problems, therefore, can by extremely valuable behaviors. If parents could help their kids zero in on these skills, it would go a long way to improving their children's long-term prospects no matter what those kids end up doing in life.

What can someone do to develop these skills or to instill them in their kids? First, you get comfortable with planning simply by doing it. Start small in order to stay within your comfort zone. For example, if you find yourself running out of cash every month, then put together a simple monthly budget. If you're concerned about retirement, then play around with some of the retirement calculators that are available on the Internet. They'll help you determine how much you have to save every month prior to retiring in order to support your lifestyle in retirement. As far as the kids go, there's nothing wrong with getting them involved in household budgeting. Explain to them how much you make, how much comes off the top in taxes, and how you budget the remainder, which hopefully includes some savings. Demonstrate to them that it's important to not spend more than you make. Explain the concept of priorities. Help them understand that maybe spending $100 a month on a cell phone for them isn't a great idea when mom and dad are concerned about their retirement or making tuition payments. If kids don't know what the limitations are, then there will be no limit to their expectations. The main point, though, is you'll be getting them used to the planning process early, which they will hopefully carry forward into their adult lives.

Click here to read "Character Traits and Behaviors that Make You Rich," by Laura Rowley.

Nassim Nicholas Taleb: A Crazier Future

The author of Fooled by Randomness and The Black Swan speaking at a Long Now Foundation event. Fresh and irreverent as ever.

The runtime is about 90 minutes, but it's a good overview of the key concepts in The Black Swan, if you haven't had time to read the book. The parable of the turkey is particularly humorous, but makes an important point: intentions that we infer from previous events that may tend to confirm a belief, may actually be the opposite of what we believe. As Taleb's story goes, by virtue of the farmer showing up every day and feeding the turkey, the turkey's trust grows more each day that he is loved and cared for, right up until the hatchet falls. Another good takeaway: don't confuse infrequency with randomness. There's nothing random about market crashes, terrorist attacks, great fires, wars, earthquakes, etc., as they are, in effect, planned or conditions-based. The normal distribution (bell curve) doesn't apply to them, yet we insist on assuming that it does, and often to our peril.

Click here to see the video.

As Yogi Berra said, "The future ain't what it used to be."

Fortune's Top 10 Stock Picks for 2011

Leigh Gallagher, assistant managing editor at Fortune, tells CNBC which stocks will be standouts in 2011. (The Raging Capitalist has no opinion on these stocks.)



You can read more from Fortune here

Was the Stimulus Too Small?

Given Tuesday’s election results, there has been much reflection and debate in the media and in Washington about what went wrong for Obama and the Democrats. As suggested by Kathleen Parker in a recent op-ed, and I agree with her, "The election was a referendum on policies that are widely viewed as too overreaching and, ultimately, threatening to individual freedom. It's that simple." Others, perhaps most notably Paul Krugman, state that the stimulus was simply too small and was consequently ineffective, thus not reviving employment and turning voters against the Dems. As Krugman says, "Mr. Obama’s problem wasn’t lack of focus; it was lack of audacity. At the start of his administration he settled for an economic plan that was far too weak. He compounded this original sin both by pretending that everything was on track and by adopting the rhetoric of his enemies."

Although it's important to understand the political climate, we must address the real issue when we start talking about the stimulus and our economic recovery. We all want to reduce unemployment, but the first question to ask is, is unemployment the real problem or is it a symptom of something else? To date, the Fed and the Obama administration have approached our economic woes as if we were merely in an ordinary recession. Following the standard cures for such an event, they believe all will be well with a little time, provided we can just keep the public spending. In essence, they're trying to load the citizenry onto an arc so we can ride-out a tsunami safely at sea, and once the waters subside from our island paradise, we'll return to the shore and resume our lives. Well, I would suggest that the shore is not there any longer, and never really was.

I absolutely agree that we need to buffer our citizens from the shocks of this downturn. However, the real problem is that the economy we have known for the past 30 years was a myth. With the inventions of credit cards, second mortgages, and the mortgage securitization markets (the one sponsored by the government and its evil cousin, sponsored by Wall Street), we have been riding a debt-fueled bubble since the Reagan era. Debt-fueled growth was an easy path for the Republicans to take because it kept the economy firing on all cylinders once the growth associated with the post-WWII/baby boom era began to subside. The bubble worked for the Democrats as well, because it supported their social agenda of home ownership, and it enabled growth in the tax base that supported the progressive agenda of big, "the-government-shall-provide" government. The ruse created an unholy alliance between left and right that went unspoken, even when it became very dangerous. In any event, as we have learned twice now in the past 10 years, bubbles are not sustainable, and we experienced the inevitable collapse.

What disturbs me is that our political leaders still don't seem willing to face the reality that we need to create a new economy. When the dot-coms went bust, everyone knew the early-stage dot-coms didn't have viable business plans, so no one advocated that we devise ways to keep their employees in place until the public came to their senses and started finally using Webvan and Pets.com. Instead, we let those businesses go bust, we provided unemployment benefits to the dislocated, and we waited for businesses to get back on their feet and start hiring again. It actually didn't take very long. The current situation is more insidious, though. Because we were riding an inflated economy for so many years, many excesses became baked into our culture that simply cannot be sustained: federal and state agencies that don't provide a return on investment; ridiculous salaries, benefits and retirement schemes for many government workers; plus we had a misallocation of labor, with many civilians working in bubble-related industries, such as mortgage banking and construction. All of these excesses need to be eliminated in order to create a new, sustainable economy, as we are not going to have the money available to pay for governmental waste or to keep people in jobs that provide goods and services that are no longer in demand. Instead, rather than returning to a consumption-based economy, we must create an investment-oriented economy that is supportive of innovation and entrepreneurship. We must build a new economy that is based on viable business models that generate in-demand goods and services.

The current stimulus may, in fact, have been too small, but that's not to say that what has been spent was wisely spent in an effort to bridge us over to a new economy. The spending has been incredibly scattershot (details here), and virtually all of it supported the "arc and tsunami" scenario noted above. So far, we have spent on tax cuts to support consumption, we have kept government workers in their jobs, we have helped states keep their Medicaid programs going, we've provided unemployment benefits, and we've created some temporary jobs at incredible cost, not to mention doled out billions in pork to individual Congressional districts as quid pro quo payoffs to our Congressional reps. All of this spending has been done with no one -- not Obama, or anyone in Congress, or any members of the intelligentsia, like Krugman -- painting a picture of the new world we would emerge into once all the spending was done, nor have they given us a realistic, properly prioritized spending plan or timeline for getting us there. And do you know why that is? It's because they still haven't faced the reality that our world must change, and that's because they've never really searched for the root cause of our problems.

The answer is that we need to spend little AND we need to spend large. In other words, the spending needs to be differentiated and prioritized. Our former economy popped, yet the Fed and our government are spending trillions in doomed fiscal and monetary strategies to try to reinflate the same bubble. It won't work. Rather than clinging to broken systems, we need to accelerate the destruction of the old and the creation of the new. We need to support our brothers and sisters who have been displaced, but we need to steamline our spending so we can marshal the rest of our resources and refocus them on revitalizing the economy. Inconsistent with revitalization is spending on "make-work" temporary employment. Tempting as it may seem, it should be avoided, as there is no lasting value in the jobs, the projects cost too much to plan and supervise, and the work only postpones the inevitable. Moreover, the cost of the labor can oftentimes be exceeded many times by the cost of materials; e.g., there's more to the cost of a bridge to nowhere than the cost of the labor. The people are better off spending their time learning a marketable skill.

There are many things that we can and should be doing, and that's where the big spending comes in. For example, maybe I'm dreaming, but how much would it cost and how huge would the benefits be if we completely revitalized the city of Detroit? Can you imagine the economic and societal benefits of lifting half a million people up a step or two on the economic ladder? Undoubtedly, the cost would be enormous. Doing so might involve paying to relocate half of the population to other parts of the country (voluntarily, of course) and demolishing entire sections of the city, then consolidating the rest in order to make the city a community again. The remaining people would need to be trained and businesses would need to be provided with incentives to move in. This is just one grand-scale project that would cost big, but until we take it on, a city like Detroit will forever be an anchor chained to this country's feet. Of course, there are many smaller initiatives as well that we should take on: provide business start-up loans and grants; provide salary-based tax credits to existing businesses to take the risk out of hiring new employees; provide vocational training; provide businesses with tax credits for relocating and hiring the unemployed from economically depressed regions, and so on.

It's no wonder many people questioned the value of the stimulus. The problem we were trying to address had never been defined, a picture of the end game had never been painted, the objectives of the spending were too unfocused, and the results were not visible enough or were not individually significant enough to demonstrate the kind of success that would win public support. For example, there was no Hoover Dam, Golden Gate Bridge, AlCan Highway, or Tennessee Valley Authority, which were all projects from the Depression era that generated huge economic benefits, past and present. Moreover, as many on the left have criticized, expectations were not properly set. It was a mistake to let the public believe that a real fix could be effected in just a year or two. We are attempting to rebuild from a disaster that was 30 years in the making. That's going to take time, patience, determination, and a real plan.

Restoring Confidence is the First Step

I just read a good article by David Smick on the role of confidence in restoring and maintaining a robust economy.

To add my own thoughts, confidence comes from predictability and trust. Job #1 for the government is to stop creating uncertainty and to implement systems that ensure fair playing fields for all, whether they be entrepreneurs or ordinary taxpayers.

Job #2 is to eliminate government waste and other spending that isn't absolutely vital to restoring the economy, thereby allowing government funds to be aimed at viable investments and a reduced tax burden (which also helps with Job #1).

Job #3 is for government to make the targeted, huge investments -- that only it can make due to its size and reach -- in education and infrastructure that will enhance industrial productivity and enable new business formation.

Job #4 is to provide incentives for people and companies to invest their new excess capital (from #2's tax savings) here in the U.S. Creating abundant capital and making it easier to achieve returns on that capital will reduce the cost of that capital to those he want to use it. Many investments that have been off the table for a generation now -- like building a blue collar factory -- would become viable again. Despite all the press about everyone needing to be a knowledge worker, we can definitely make use of well-trained people who can work with their hands, as they do in Germany.

It is well within our means to put people back to work and to set the stage for sustained prosperity. Some sacred cows will need to be slayed, "business as usual" (e.g., earmarks) in Washington will need to change, and we'll need to endure some upheaval as government workers are displaced and redeployed in industry, but the effort would be worth it. We just need to get on with it.

Follow-up on Obama and Change Management

As a follow-up to my last article on the importance of change management, below are a coupled of links to analyses of Obama's success or lack thereof in managing change. Both analyses reference the Harvard/Kotter change management model that I mentioned in my article.

"...Obama seemed to miss the opportunity to re-mobilize and engage the millions of supporters that had been energized by his campaign and to redirect them towards specific initiatives. Instead, he seemed to focus his efforts on traditional political forms of influence, with the unintended consequence of even greater polarization than there was at the beginning of his term."

Analysis from the Harvard Business Review blog: click here.

"President Barack Obama embarked on one of the most challenging change leadership initiatives imaginable -- with no previous large-scale change experience. Some have said that inexperience does not matter if the president surrounds himself with experienced people.

They were wrong."

Analysis from Human Resource Executive Online: click here.

Our Future Depends on Change Management

‎"We need to stop waiting for Superman and start building a superconsensus to do the superhard stuff we must do now."

This is an essential truth from Tom Friedman's brilliant October 2, 2010 article in the NYT (see article below).

To expand upon the importance of consensus building, in my opinion, we will never move forward as a nation until our political leaders understand the change management process, keys to which are establishing a legitimate sense of urgency about the problem(s), developing a unifying vision for a better post-change state, and building the consensus necessary to proceed into action.

No matter what any president's party affiliation, consensus of Democrats AND Republicans will be necessary to avoid gridlock. Impossible, you say? Well, that's what true leadership is all about. Building consensus is absolutely necessary, no matter how long it takes and no matter how painful the process may be. It will take an enormously patient, open-minded, courageous and determined president, but as we've seen with the divisiveness that results from the traditional approach -- which Obama fell into the trap of following -- attempts to shortcut the change management process simply don't work. I'm not saying Obama hasn't been well-intentioned (although I do disagree with his vision for our nation), but he either didn't know or didn't respect the process, and more harm has been done than good.

Click here to read more about the change management process, according to Harvard's John Kotter, who is arguably the foremost expert on the subject.

Third Party RisingBy THOMAS L. FRIEDMAN

A friend in the U.S. military sent me an e-mail last week with a quote from the historian Lewis Mumford’s book, “The Condition of Man,” about the development of civilization. Mumford was describing Rome’s decline: “Everyone aimed at security: no one accepted responsibility. What was plainly lacking, long before the barbarian invasions had done their work, long before economic dislocations became serious, was an inner go. Rome’s life was now an imitation of life: a mere holding on. Security was the watchword — as if life knew any other stability than through constant change, or any form of security except through a constant willingness to take risks.”

It was one of those history passages that echo so loudly in the present that it sends a shiver down my spine — way, way too close for comfort.

I’ve just spent a week in Silicon Valley, talking with technologists from Apple, Twitter, LinkedIn, Intel, Cisco and SRI and can definitively report that this region has not lost its “inner go.” But in talks here and elsewhere I continue to be astounded by the level of disgust with Washington, D.C., and our two-party system — so much so that I am ready to hazard a prediction: Barring a transformation of the Democratic and Republican Parties, there is going to be a serious third party candidate in 2012, with a serious political movement behind him or her — one definitely big enough to impact the election’s outcome.

There is a revolution brewing in the country, and it is not just on the right wing but in the radical center. I know of at least two serious groups, one on the East Coast and one on the West Coast, developing “third parties” to challenge our stagnating two-party duopoly that has been presiding over our nation’s steady incremental decline.

President Obama has not been a do-nothing failure. He has some real accomplishments. He passed a health care expansion, a financial regulation expansion, stabilized the economy, started a national education reform initiative and has conducted a smart and tough war on Al Qaeda.

But there is another angle on the last two years: a president who won a sweeping political mandate, propelled by an energized youth movement and with control of both the House and the Senate — about as much power as any president could ever hope to muster in peacetime — was only able to pass an expansion of health care that is a suboptimal amalgam of tortured compromises that no one is certain will work or that we can afford (and doesn’t deal with the cost or quality problems), a limited stimulus that has not relieved unemployment or fixed our infrastructure, and a financial regulation bill that still needs to be interpreted by regulators because no one could agree on crucial provisions. Plus, Obama had to abandon an energy-climate bill altogether, and if the G.O.P. takes back the House, we may not have an energy bill until 2013.

Obama probably did the best he could do, and that’s the point. The best our current two parties can produce today — in the wake of the worst existential crisis in our economy and environment in a century — is suboptimal, even when one party had a huge majority. Suboptimal is O.K. for ordinary times, but these are not ordinary times. We need to stop waiting for Superman and start building a superconsensus to do the superhard stuff we must do now. Pretty good is not even close to good enough today.

“We basically have two bankrupt parties bankrupting the country,” said the Stanford University political scientist Larry Diamond. Indeed, our two-party system is ossified; it lacks integrity and creativity and any sense of courage or high-aspiration in confronting our problems. We simply will not be able to do the things we need to do as a country to move forward “with all the vested interests that have accrued around these two parties,” added Diamond. “They cannot think about the overall public good and the longer term anymore because both parties are trapped in short-term, zero-sum calculations,” where each one’s gains are seen as the other’s losses.

We have to rip open this two-party duopoly and have it challenged by a serious third party that will talk about education reform, without worrying about offending unions; financial reform, without worrying about losing donations from Wall Street; corporate tax reductions to stimulate jobs, without worrying about offending the far left; energy and climate reform, without worrying about offending the far right and coal-state Democrats; and proper health care reform, without worrying about offending insurers and drug companies.

“If competition is good for our economy,” asks Diamond, “why isn’t it good for our politics?”

We need a third party on the stage of the next presidential debate to look Americans in the eye and say: “These two parties are lying to you. They can’t tell you the truth because they are each trapped in decades of special interests. I am not going to tell you what you want to hear. I am going to tell you what you need to hear if we want to be the world’s leaders, not the new Romans.”