“Don’t Dream It, Be It” – The Value of Something Better

In the cult classic film The Rocky Horror Picture Show, Dr. Frank N. Furter sings, “Don’t Dream It, Be It.”  Admittedly, his context is rather different from my own, but I love the sentiment.  If you’re like me, some portion of your “thinking time” (in the shower, in bed at night, while worshipping, whenever) leads to your reflecting on something better.  Something better: it can be a blessing or can be a curse based on how we think about it and what we do about it as individuals. 

The Something Better of the Past: When we look back on the various decisions in our past, certain poor ones may have an outsized impact on our lives today.  We can choose to view where we are, and think “If I’d only done X instead of Y, things would be so much better for me.”  Or we can make the positive choice to live with acceptance of the consequences of our earlier decisions, hopefully learn from them, and ideally not look upon them with regrets.  Then look forward to how to make our something better in the near term.

The Something Better of the Present or the Near-Term Future: When we examine where we are today, it’s tempting to forever dream of improving our circumstances by living somewhere else, by associating with other people, or by pursuing a different professional direction.  Such dreams can be the critical path to personal fulfillment and growth, or the road to disappointments based on our willingness (or unwillingness) to act on them.  Put simply, dreaming of something better without taking action to make those dreams a reality is the road to extreme frustration.  We envision the something better as optimal, but our current situation becomes increasingly unbearable by comparison if we don’t take tangible steps toward something better.  But by using something better as a way to motivate ourselves to action, we suddenly become dynamic players in creating our own futures.  And something better becomes the animating influence for a greater sense of personal growth and fulillment.

The Something Better of the Societal, Longer-Term Future: When we envision something better for society in the next decade, or the next generation, it brings to mind (at least for me), unbelievable excitement.  I think of the innovations to come.  I think of the things today that my children (and their children) will someday find “quaint”, and I smile.  Few things frustrate me more than reading an article, some variety of which appears every so often, citing a poll indicating that X% of people believe they’ll have a lower standard of living than the prior generation.  The dream of something better on a societal, long-term level may be the closest thing on earth to a universally-shared goal.  But the something better of the societal future does not emerge by accident.  It only emerges when societies are organized in ways that encourage individuals to try to do things that make things better.  Put differently, societies don’t change the future.  Individuals change the future, and certain political, economic, and societal structures have proven more successful than others in driving progress.  Societies that reward hard work and individual initiative are those most likely to make the dream a reality.  For those that do not, the societal dream of something better is little more than utopian fantasy.

The Something Better of the Next Life: The vision of an everlasting life in paradise is powerful.  It, too, can make this life seem magnificent or hellish or depending on our approach.  It is admittedly easy to look at our day-to-day challenges and even the broader levels of pain and suffering in this world, and feel that in the context of “forever”, it’s just a blip.  Our physical lifetimes are something to just be endured so we can get to the good stuff.  Or as the Righteous Brothers succinctly put it in their song Rock and Roll Heaven, “If you believe in forever, then life is just a one night stand.”  Such a view can bring comfort during our times of greatest despair.  But it can also be a cause of despair…if we allow ourselves to simply float along in this life as we await the next life, we miss out on the chance shape our time here.  And we run the risk of dulling ourselves to the magnitude of the joys (and, yes, the sorrows) that are a part of our life on earth.  But a deep belief in something better in the afterlife need not cause withdrawal from this world.  It is more than possible to remain fully engaged in creating our own something better in this world while awaiting the something better that lies beyond.

Thus it is that the vision of something better, in all its forms, can be a curse or a blessing.  If we think of what could have been, then choose to constantly revisit past decisions that brought us here, then it is a curse.  If we think wistfully of what our own lives could be, then choose to passively remain in our current state without taking action to improve it, then it is a curse.  If we dream of a wonderful future for society, but advocate approaches that offer utopian hope based on societal will rather than individual initiative, then it is a curse.  If we dream of a next-life paradise and use that as an excuse to “check out” from fully living and experiencing this world, then it is a curse. 

But if we use the vision of something better:
-To accept our decisions of the past without regret
-To take actions that move us closer to our near-term, personal dreams
-To advocate sometimes-difficult policies that move our society toward long-term dreams
-And to choose to live fully and deeply today, in this life, and to strive to make our something better a reality
Then the vision of something better is indeed a blessing and something of nearly limitless value.  So to paraphrase the venerable (?) Dr. Frank N. Furter, don’t just dream of something better.  Be something better and make something better.

Everyone Knows What a House Is Worth, Right?

The original inspiration for Well Worth It blog was the wild fluctuations in prices for certain goods and services in the last couple of years.  Price fluctuations are nothing new, but the events of the last couple of years were what originally got me thinking more deeply about the intrinsic value of things, why we price them a certain way, and the impacts of those approaches.  Perhaps no subject with respect to price changes has gotten more ink in the last couple of years than housing prices in the U.S.  Maybe oil prices.  Maybe stock prices of financial services companies.  Never mind, today we’re talking about housing prices, and one in particular that’s of interest, to me anyway.  

With the dramatic reduction in interest rates, I decided to refinance my house loan.  In preparation, I looked up my home’s estimated value on Yahoo!’s Real Estate home values site.  They utilize calculations from Zillow and eAppraisal.  So that gave me two possible values.  Then as part of the refinance process, the mortgage company required a mandatory house appraisal, presumably so that they’d know the value of the asset against which they were lending, and could appropriately calculate a loan-to-value ratio.  So I had a third value.  Then, coincidentally, the county in which I live was simultaneously sending letters to homeowners with the results of our once-every-four-year value estimates for tax assessment purposes.  So in a very condensed period of time, I received four estimates of my home’s value.  It should be noted that Memphis did not participate in the upward climb of the housing bubble.  We did not see the dramatic run-ups of some of the “hot markets.”  Nor have we seen prices dropping off a cliff.  Given that, and given the fact that I bought the house less than two and a half years ago, I expected some reasonable consistency among the four recent values and even with my purchase price.  How wrong I was. 

Without explicitly revealing the actual numbers (though enterprising individuals who are really interested can probably figure them out without a whole lot of work), I’ll give you a feel for just how different the numbers were.  I’ll use 100 as the score for the lowest estimate.  Then I’ll give you the “score” reflecting the percentage increase for each of the other four estimates over that “base” number.

1. eAppraisal: Score = 100.0
2. Local Taxing Authority: Score = 101.4 – Let’s just say I wasn’t sad that this one came in relatively low among the various values. 
3. What I Paid in Late 2006: Score = 106.7
4. Zillow: Score = 113.5
5. Official Appraisal for My Refinance: Score = 120.4

Just to make sure we’re all interpreting correctly, the mortgage lender wrote a loan involving real dollars based on an appraisal that is fully 20% higher than another appraisal out there.  Admittedly, they sent a real live appraiser out to the house who took measurements in every room and ran comparables.  So I want to believe in that high number compared to the other ones, but I’m fairly sure it is wrong.  I do not believe a real live buyer in the current market would pay the appraisal price for my house that became the basis of the re-finance.  And that’s where something seems a bit unholy in light of where our economy is now and a look back at how we got here.  I don’t mean to imply that anyone in the process is purposely doing anything wrong, and I’ve been very impressed with everyone involved.  But something in the incentives seems bad.

1. I called a mortgage lending company and started the process.
2. This is a mortgage company that sells every loan they write to other companies.
3. They hired an appraiser who is paid by the mortgage lender.
4. He evaluated the property and came in with a number that might be right, but based on what I know of the market, and of the five values I’ve mentioned here, was on the high side…notably higher than the other four values I’ve noted here.
5. The mortgage lender wrote a loan, which based on the appraisal, implied a much higher level of equity than seems likely in the marketplace.
6. Within days of the loan being written, it was sold to Citi mortgage.  I, of course, plan on paying the loan back, but the fact remains that Citi now has a loan on its books that is based on a high appraisal.  One loan like that won’t make a difference.  But multiplied across the country, well…

On the other hand, the change in interest rate for me will make a difference.  And I intend to multiply that difference in ways that will help me and the economy.  The difference will be plowed into:

1. Investment in stocks and mutual funds.  I fully expect to profit by the economy’s roar-back that is coming.
2. Strategic de-leveraging on a personal and business level by principal paydowns where it makes sense, which brings me to #3.
3. Investment in my wife’s and my business, Shara’s Paperie.  In addition to plowing personal savings based on the re-fi into the business, we’ll bring other resources to bear.  I keep hearing about the banks not lending to businesses.  Maybe for big, big dollars that may be the case.  But as a small business owner, I continue to see credit extended at very attractive rates.  We’ll continue to invest with those dollars, while de-leveraging on higher-interest obligations.  In our case, it will finance a soon-to-be-active e-commerce capability on our site and accelerated marketing.  If other effective small business owners are doing the same thing, the economy will be cooking soon! 

And all this is impacted by a few measures of what a house is worth.  And I still don’t actually know the real value.

Whose Money?

In a post not long ago, I invited readers who wanted to see a particular topic covered to send their thoughts along.  And some interesting suggestions (along with comments on some of the posts) have emerged.  My thanks to my buddy Micah H. for suggesting the following topic:

“With the obscene amounts of money being given out in bailout payments to banks, auto industries, etc. as well as the stimulus money, I was wondering – why can’t they just give everyone (or every taxpayer) some money?  I know we got $600 last year, but $600 doesn’t make a dent for anyone. I’m talking about, what if you gave every taxpayer like $20,000? I realize that would be a ton of money, but they are already spending trillions, so what’s the difference?  20K can make a huge difference in people’s lives and literally change how they live them (or so it would seem to me). And you could place restrictions on it perhaps, like you couldn’t just save it all, you had to spend it, or something like that. I pulled 20K out of thin air, so if you think that number is high or low, what do you think would be a fair number that could actually work?”

It’s actually a fascinating question on a lot of different levels.  To the question of “would it work?”, so much of the answer depends on how we’d define success.  It would definitely put money back in people’s pockets (though it’s just money borrowed from other pockets).  And to Micah’s point, that means people could spend it, could save it, could invest it…in short, people could decide how they want to use it.  Generally speaking, individuals allocate money in the ways that they believe it will benefit them the most.  Some would splurge on short-term things that make no sense (which is part of how we got into the mess in the first place) while others would “de-lever” meaning pay down debt while others would invest it. 

Whether this is a better use of taxpayer dollars than the combination of stimulus and bailout dollars spent so far would be a subject of a LOT of debate.  So it would depend on who you ask.  Since you asked me, you get my answer.  Governments establish priorities (and wield power, and creative enormous incentives for interest groups to lobby for largesse) by allocating dollars which are paid by taxpayers.  When the government passes a stimulus package, or when they give a fixed dollar figure back to households, it is implicitly a statement of what they believe is the best way to spend our collective money, or who they want to reward, or who they want to punish, or whose votes they want to get (buy).  And make no mistake about it, there are winners and losers in the process based on who is contributing and who is receiving tax payouts.  And there are a lot more receivers of tax largesse than there are givers. 

That, incidentally, brings me back to the question of why not $20,000 instead of $600.  At $600, last year’s tax rebate could reasonably be positioned as a minor stimulus.  But that $600 that we received had to come from someone, and it came from those who pay the most taxes.  And $20,000 would come from someone too.  And who is that?  Looking at stats on the IRS website for 2006, it’s fairly telling. 

• 3.8% of returns showed Adjusted Gross Income (AGI) of greater than $200,000.  Those 3.8% of returns paid 50.6% of the total income taxes that year.  You read that right. 

Alright, so maybe they’re really lucky…”the winners in life’s lottery”…I hate that expression incidentally.

• Take it down to AGI of $100,000 and you’ve got 15.1% of all retuns.  They paid 70.8% of all taxes. 

Still, they’re pretty rich.  They can afford it, right?  Hate that line too.

• Take it down to AGI of $75,000 and you’ve got 25.5% of all returns.  They paid 80.1% of all taxes.
• And then at AGI of $50,000, you’ve got 43.1% of all returns, and they paid 90.3% of all taxes. 

So back to the rebate, consumer bailout, personal stimulus, or whatever we want to call it.  At $600, it’s a little stimulus.  At a really big, but flat across-the-board number, it’s straight up wealth re-distribution.  Check out those numbers above.  Taxpayers below $50,000 AGI – there are 60.7 million (technically 60.7 million returns).  They make up 56.9% of returns and only pay 9.8% of the taxes, but they’d get the same “rebate” as the others.  For a really big number, even the bleeding-est of bleeding hearts would likely see that something’s wrong there. 

Incidentally, this is why “across-the-board” tax cuts can be painted as tax breaks for the rich.  Let’s consider a 10% across-the-board tax cut.

• There were 4.05 million greater-than-$200,000 AGI returns.  They paid $536.9 billion in taxes.  At 10% across-the-board cuts, they’d average over $13,000 in tax cuts.
• There were 60.7 million less-than-$50,000 AGI returns.  They paid $103.5 billion in taxes.  At 10% across-the-board cuts, they’d average over $170 in tax cuts.

Those who pay the most in taxes “save” the most when there’s a flat, across-the-board tax rate cut.  Those pay the least in taxes clearly “get” the most when there’s a flat, across-the-board rebate.  The difference is, that in the first example, the taxpayers are simply keeping more of what they earned.  In the second example, certain taxpayers are getting more from other taxpayers. 

So Micah finished with the question of, “What do you think would be a fair number that could actually work?”  I think any number back in taxpayer hands could work in the short term, but I’d rather it never be taken in the first place.  Cut tax rates so that those who earn the money keep the money.  Don’t take it and then re-distribute it.  As for the “fair” number…a great question.  For me, it’s $0.  The fairest stimulus involves not taking the money at all.  But if we take as a given that it’s in the form of a rebate, I’m not sure what the magic number is between $600 and $20,000 where “desired stimulus” would morph into “horrifying re-distribution” in the minds of Americans.  But there’s some number there where Americans would draw the line.  And that’s in spite of the fact that the vast majority of us would be getting money (albeit money taken from those in higher income brackets than ours).  Why, then, will it not happen?  I like to think it is because we still believe in the idea that we, too, can make it to the top if we want it.  We believe in the promise that ours is a dynamic economy where amazing things can happen, and where we can be a part of it.  And I believe somewhere, deep down in most of us, there exists the general feeling that if we distribute money willy-nilly, financed either by foreign debt or by those in higher tax brackets, that we’re asking for trouble in the long-term.  We know that in our own lives, we can’t forever be financed by debt nor can we simply take from those with more.  It’s not sound economics on a micro-level and it’s not sound economics at a macro-level either for long-term economic health.  

Thanks to Micah for the great, very thoughtful and thought-provoking question.  Would love to hear other readers’ thoughts on this topic as well!

Please Don’t Go. Don’t Go Away. I’m Begging You to Stay.

Yep, the title of today’s entry is indeed paying homage to KC & The Sunshine Band, quoting the very first #1 hit of the 1980′s.  The only thing that would have made this more perfect for the theme is if KC had been a highly skilled immigrant; particularly one who ended up leaving the U.S. for opportunities abroad.  As far as I know, this is not actually the case, though I haven’t seen much of KC & The Sunshine Band lately except on Time Life Disco Fever infomercials.  For the record, I still think they’re awesome.  But that’s not the main point of this post.

One of the key growth drivers of the U.S. economy, throughout our country’s history, has been the contributions of immigrants.  And yet, we are making it more and more challenging for skilled immigrants to stay here.  And we’re doing so at a time when many of their home countries are making their economies more and more competitive so that professional opportunities are plentiful. 

Vivek Wadhwa recently wrote an article in Business Week called “Why Skilled Immigrants are Leaving the U.S.”   In it, Professor Wadhwa paints a fairly bleak picture on some current trends.  While he acknowledges that certain statistics are hard to come by, he and his research team did go to great lengths to get relevant information.  Specifically, they used LinkedIn to track down 1,203 immigrants who had returned to China and India.  “Fifty-one percent of the Chinese held master’s degrees and 41% had PhDs.  Sixty-six percent of the Indians held a master’s and 12.1% had PhDs….precisely the kind of people who make the greatest contribution to business and job growth.”  What a spectacular loss for the United States.

It’s almost trite now to write about the globalization of the economy.  And it’s not a bad thing for the Indian and Chinese economies to strengthen (from a worldwide economic standpoint anyway; I’m not talking about global security here).  But this is a disturbing trend for the United States in terms of long-term growth and job creation.  I’ve written previously (here and here) about my deep, deep feelings that this is NOT another depression, and that in spite of the gloom-and-doom reporting, our normal pace of economic growth will resume in the not-so-distant future.  All of that is predicated on my fundamental belief that an economy based on free market principles, where capital and talent are allocated efficiently, will always have the incentives in place to foster innovation, entrepreneurialism, and growth. 

Note that I said “where capital and talent are allocated efficiently”.  Talent will move where opportunities are.  In the prior century, the best and the brightest chose to come to the United States because it truly was the land of opportunity.  And it still is.  However, it is not the only land of opportunity.  The Asian tigers, Finland, India, China, Russia, Brazil, the former Soviet-bloc countries of Eastern Europe, Ireland…the list goes on and on…all offer opportunities for individuals to capitalize on brilliant ideas, inventions, and innovative business models.  Put bluntly, we can no longer assume that talent will automatically flow to the United States and remain.

Back to Wadhwa.  His article, noted earlier, actually summarized a longer report that he and others wrote entitled “Losing The Word’s Best and Brightest.”  The report has sparked other articles, including one called “Why the U.S. Is Losing Foreign Graduates.”  In that article, author Moira Herbst describes the pull of home for skilled immigrants: “The strongest reason students cited for leaving the U.S. was the desire to be with friends and family at home.”  Not much we can really do about that.  But certain other factors are somewhat more controllable.  “The second most important factor was the perception that economic opportunities at home were better.” [emphasis mine]  That should concern every American. 

Wadhwa’s report “also recommends loosening restrictions on temporary work visas, such as the H-1B visas that are used by highly skilled workers from other countries.”   This has been an area where political winds have blown back and forth.  But it does seem that if there are opportunities to steer available visas to those with the greatest potential to add value to our the economy, we should do so.  One paragraph in Wadhwa’s article, in particular, was etremely powerful:

“Despite the fact that [immigrants] constitute only 12% of the U.S. population, immigrants have started 52% of Silicon Valley’s technology companies and contributed to more than 25% of our global patents.  They make up…47% of science and engineering workers who have PhDs.  Immigrants have co-founded firms such as Google, Intel, eBay, and Yahoo!.”

The loss of such talent, on an ongoing basis, would represent a tremendous blow to the long-term health of the U.S. economy.  While we can’t necessarily do much about the “being close to friends and family” component of the problem, we can certainly do something about making sure that the U.S. economy remains free enough to provide substantial rewards for those willing to take risks.  That leads to private funding for new businesses.  It leads to the best and the brightest wanting to stay.  It means talent will flow to the United States.  And we can take action to make it easy for those with the greatest skills to stay.  It benefits all of us today and tomorrow.  So to all the immigrants in the U.S. who are adding value, who are innovating, I thank you!  We’re glad to have you here.  As KC sang 29 years ago, “Please Don’t Go.”

Seinfeld, Kramer, Calipari, Memphis, Kentucky, and the Cost of Employee Attrition

The title of this post is almost long enough to be a blog entry on its own.  But believe me, we’ll cover all these topics (and they all actually relate to one another whether you believe it or not) in one reasonably concise post.

In the nine seasons that Seinfeld was on the air, how many times did we see Kramer eat food that Jerry had paid for?  Jerry kept his refrigerator stocked, and the K-man would barge in and grab what he wanted.  In only one episode that I can recall was there ever even a discussion about whether Kramer should pay Jerry back.  The plan was initiated, but then flopped when Kramer tried to pay half price for only eating half a piece of fruit.

The University of Memphis has just completed its ninth season with Coach John Calipari as head coach.  He’s been a marvelous coach.  In the last four seasons, the team has reached the Sweet 16 all four years, the Elite Eight in three of the years, and the championship game one year.  Quite a run!  It’s been a fun time to be a Memphis Tigers fan.  While a tremendous amount of college coaching success lies in motivation, preparation, and bench management, a huge component of success lies in the day-in, day-out, year-round recruiting wars for the top prep players.  None have excelled in this regard quite like Coach Cal has.  He has been, quite simply, magnificent in recruiting talent to Memphis in spite of playing in a weak conference. 

So here’s the thing: in the last year, the University of Memphis paid Coach Cal $3.35 million for his services.  On Tuesday, 3/31, Coach Cal confirmed that he’s leaving for the University of Kentucky.  It’s one of the storied programs in college basketball, and probably a dream job in a number of ways.  I can’t blame him for going.  But what did Memphis get for it’s $3.35 million in the past year?  A great year of basketball to be sure.  And Coach Cal landed what may be the finest class of prep and junior college recruits in the country. 

Unfortunately, with Coach Cal leaving, that recruiting class may follow him to Kentucky, or at least disperse out to other schools.  After all, an enormous component of the attraction of Memphis basketball (for a recruit) was the chance to play for Calipari, who has proven that he can get guys ready for the next level.  So over the past year, Memphis has played Seinfeld to Kentucky’s Kramer.  The University of Memphis spent $3.35 million stocking a refrigerator which is likely to be empty when the 2009-2010 college basketball season gets underway.  All those hours, all those calls, all those visits, all that wooing of recruits, all on Memphis’ nickel….and all nearly worthless.

Is that fair?  Is that right?  Is there some way to protect against this?  Sadly, no…unless there are parameters for the University of Kentucky to pay Memphis for its troubles.  But even then, the dollars will do little good for the Memphis fans who will be watching a very different team next year than what was anticipated even a few days ago.  Then again, why should college basketball be any different than any other business?  In all businesses, when a valued employee is lost to a competitor, there’s tremendous fallout through the organization.  Former co-workers do their best to pick up the slack.  Sometimes a backfill can be hired, but that’s not always a given.  Even when it can be done, there’s often a wealth of institutional knowledge lost.  All of this is why, under certain circumstances, retention bonuses that would otherwise seem ridiculously outrageous, may actually make sense.  In some future entries on Well Worth It, we’ll take a more substantial look at the value of employee retention, as well as the costs associated with employee attrition.

As for me, while I love my co-workers and realize the burden they’ll have to carry should I go, I’m publicly announcing my availability here and now to coach the Memphis Tigers.  My qualifications speak for themselves.  This past season I coached my son’s under-8 basketball team to a 7-2 record with both losses coming on last second shots.   Should you call me, I will come and coach.  My asking price will be somewhat less than Coach Cal’s $3.35 million, so I’m pretty much a steal.  Give me a call.  And just so my current employer is not stuck ”stocking the fridge” a la Seinfeld for Kramer, I’ll even insist that in my contract with Memphis, they pay my current employer something for their troubles.  What a guy I am!

*As an almost final note, I’d like to thank my brother Michael for part of the idea for this post.  Regular readers will note that both of my brothers have come through with material for me (see this post for Jeff’s contributions).  You, too, can do so.  If you have ideas you’d like to see covered in Well Worth It, feel free to let me know. 

**And as a truly final note, as always, if you like what you are reading here, please send the link along to friends, family, enemies, and any acquaintances you have who are prone to forwarding things!  Thanks!