What is your goal in writing, whether blog posting or commenting, or in face-to-face meetings?  It could be one of several:

  • Education – describing something that the reader might like to learn more about
  • Debate – presenting an argument to counter a competing argument
  • Insult – a putdown, the wittier the better
  • Expression – translating the thoughts in your head into words

What if your goal is to persuade?  How many are willing or capable of being persuaded?

I think there is a hierarchy of beliefs.   At the top is the general outlook of the person: optimist/pessimist, in favor of limited government or in favor of a large government, views on  business: generally helping us or are they trying to screw us at every chance, etc.  At a lower level are beliefs in the virtue of large projects:  healthcare reform, stimulus.  At the bottom are judgements about specific situations:  was the food good, what is the weather like outside.

It is very difficult to persuade a person to change his or her topmost beliefs, although it does happen, sometimes through experience or reflection.  When I was in high school I believed that society could be run much better if smart people were in charge of it (basically, the progressive outlook).  In college, I read Karl Marx and marveled at his analysis of society in economic forces (although I would never have considered myself a Marxist).  But I was exposed to classical liberalism in college through the works of Hayek, von Mises, Rothbard and Milton Friedman, and became a libertarian.  My views have changed only slightly since then.

In college, I was attracted to the logic of the libertarian position: no initiation of force.  Now, I realize that few will be persuaded on that basis – in the end the case for liberty must be made by showing how illiberal approaches are harmful and how limited government reduces tension in society by reducing the scope of all-or-nothing choices.


What is the persuasive style? A few characteristics come to mind:

  • Avoidance of ad hominem attacks
  • Make arguments based on specifics – avoid generalities (Bush is bad, Obama is bad) in favor of concrete examples.  Highlight a specific policy or action and enumerate the reasons why it is bad.
  • Do not respond to an attack with an attack
  • Keep a cool head
  • Be of good humor
  • Do not argue with those who are unpersuadable – remember - “It is useless to attempt to reason a man out of a thing he was never reasoned into.”
    ― Jonathan Swift

If you deflect heated words and parry with a temperate reply you will confuse your adversary and possibly open him or her up to the smallest particle of mind-changing.  Or not, but at least you will not be sucked in. When you wallow with pigs, expect to get dirty.  Stay away from arguments with fools, lest you look like one.

Gorging on the Beatles

My wife often says that she used to like the Beatles but I destroyed them for her by playing their music and talking about them too much.  Sorry, but let’s move on.

I finished Mark Lewison’s Tune In, which is the first of three projected books chronicling their history. Tune In takes them up to the end of 1962, on the verge of breaking out in England.  It starts before they were born, with excursions into Beatles family genealogy and the history and culture of their hometown, Liverpool.  According to Amazon, the book is 944 pages, so I won’t bother to give a detailed recap (I read in on the Kindle, so I wasn’t turning pages in the old way – there are a lot of footnotes after each chapter and at the end, so the actual text is probably 600-700 pages).

They were born during dark moments in Britain and grew up in modest circumstances. Starting with John Lennon, each was brought into a series of musical groups with shifting goals and personnel.  No drummer at first, but a surplus of cheap guitars.  Eventually, a mediocre drummer was added (Pete Best) and they performed around Liverpool until they were booked for an extended stay in the fleshpots of Hamburg.  Their job was to play multiple sets each night and day in front of drunks and gangsters.  When they returned to Liverpool, they had been transformed into one of the top draws.  But they would not have gone much further if they had not met a manager (Brian Epstein) who cleaned up their look and persisted in shopping them to indifferent record companies.  Finally, Epstein found someone who would give them a chance – George Martin, a record producer for EMI’s Parlophone label.  Martin was ambivalent, but felt that there was something about this young group.  The Beatles fired their drummer and replaced him with Ringo Starr and their lineup was set.  Tune In ends with the recording of their first record, Love Me Do.  Not a huge hit at first, but it stayed on the charts for an unusually long time, moving up and down, but generally higher.

What stands out from the Beatles early history?

  • The role of passion in driving them to immerse themselves in listening to and learning the music that they loved
  • Their quirky interest in unusual music and the B sides of records
  • Their interest in writing their own songs, apparent from an early age
  • The sharpening of their showmanship through marathon gigs in sordid Hamburg clubs
  • Serendipity – the appearance of key players who were essential to their success – Brian Epstein, George Martin, Astrid Kirchherr (who photographed them in Hamburg and gave them their Beatle haircuts)

I am anxious for the second book to come out.

Mark Lewisohn also wrote The Complete Beatles Recording Sessions: The Official Story of the Abbey Road Years 1962-1970.  This seems like it would be pretty technical and it is, but there are many interesting photographs which provide a history of their development.  In addition, it charts the evolution of their recording techniques, from the recording of their first album in less than 10 hours, to Sgt. Peppers, which took more than 700 hours.  The Beatles never stood still; they were always driven to innovate and invent.  Accidental sounds were incorporated in their recordings, strange effects became essential parts of their songs – note particularly the backward guitars that came into play on Revolver.  These sounds were not easily obtained: guitars were recorded and the tape was reversed for the final result. Today, you can go to Guitar Center and buy equipment to create bizarre effects.  Even Garageband seems has more capability than Abbey Road studios in the early years.  In the Beatles’ days, it was new, and it was hard work.

The effects of unprecedented fame and years of working closely together undid the Beatles.  During the later recordings, longtime engineer Geoff Emerick quit because he couldn’t stand the atmosphere in the studio.  They were demanding, they fought, they were torture to work with.  So many seek fame without understanding its demands.

Fame, (fame) lets him loose, hard to swallow
Fame, (fame) puts you there where things are hollow

(Fame, David Bowie, co-written with John Lennon)

The fame that the Beatles achieved was unique – it was a product of four outstanding talents who were confident enough to ride the wave for almost 10 years, it was a product of the times and chance.  It may be replicated again some day, but not soon.

Adam Smith warned us about Obamacare

I read an amusing but painful aphorism: “Good judgment comes from experience, and a lotta that comes from bad judgment.”  Most of us learn from experience.  We believe we know better when we are young and ignore the advice of our elders.  Time passes, we make painful mistakes  and eventually come to realize how much wisdom we ignored.

Despite our sophisticated technology and advanced knowledge, human nature has not changed in thousands of years.  Many of the lessons about human life and human folly which were noted by philosophers many years ago remain true and we ignore them to our own sorrow.

Adam Smith is recognized as the father of modern economics based on his Wealth of Nations, which was published in 1776 and which helped inspire the principles on which the United States was founded, among them free trade, free markets and limited government.  Less well known is a book that he wrote in 1759, The Theory of Moral Sentiments,   As described by the Adam Smith Institute, “It identifies the basic rules of prudence and justice that are needed for society to survive,and explains the additional, beneficent, actions that enable it to flourish.”

In this book, Smith described what he called “the man of system”:

“The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”

In other words, there are people who think they know how to arrange society and seek to impose their vision.  They put their plan into operation with highly detailed rules, penalties and prescriptions.  They override the individual desires of the governed and subject them to the will of the government.  In the end, the failure to take into account the desires and actions of the governed leads to disorder and unhappiness and in the end, the destruction and overthrow of the plan.

The failure to heed the wisdom contained in Smith’s words has caused great suffering.  The French Revolution attempted to remake society, but resulted in thousands of murders and the eventual reaction.  The various Communist revolutions led to millions of deaths, the oppression of the survivors and impoverishment of most of those living under these regimes.   Most very eventually overthrown, but a few miserable countries continue to live under these systems.

But the man of system doesn’t just try to remake entire societies, but can try to execute plans of more limited scope. We are living through the imposition of just such a system, which is formally known as the Patient Protection and Affordable Care Act.  Who could be against protecting patients and making healthcare affordable? But the law’s name was only a wish, an intention, designed to make it seem desirable.  Added to this branding PR, the administration has added deception and changes to the legislation by fiat in order to keep it afloat as its major provisions are poised to come into effect in 2014.

First came the problems with the website, which we are promised will be fixed.  Next came a wave of cancellations of policies and replacement with less desirable or more costly policies.  The chessboard pieces stopped moving smoothly and started to howl.  The number of enrollments is pitifully small for a law that promised universal coverage. This is just the start – next will come the employer policies which will not be compliant with the law.  More howling.  There are more clinkers in the law which will cause more damage and pain.


Want to bet that Obama did not read Adam Smith?

Adventures in healthcare and healthcare insurance

I retired in July of 2013, and elected to continue coverage under the high-deductible healthcare plan that I had when employed.  Even though the COBRA rate was much higher than the monthly rate before I retired (employer subsidy), I did not know what the effect of Obamacare would be and wanted to have a backup in case of difficulty. Good thinking, validated by subsequent events.

I did look at plans available on ehealthinsurance and found a few with substantially lower monthly costs. When I went to fill out the detailed application, there was a question about cholesterol.  I had been doing an experiment to see if I could discontinue the small statin dose I had been taken, but I found out that my cholesterol was significantly lower with the statin.  I called my physician and got a refill and began taking it again – she estimated that it would take about a month for it to have effect.  After taking it for 5 weeks, I decided it was time to get a blood test.

Under my HDHCP, the cost of the test was not likely to be covered as I was well below the deductible, so I thought I would shop for a test based on price.  I went to a lab connected with a local system and asked for the price. The nurse did not know the price and spent a couple of minutes searching on her computer before she told me that it was roughly $380.Aha – a price!  I thought that was high compared to what Labcorp (the authorized lab under my insurance, United Healthcare) had charged me in the past, so I checked their website, could not find a price, but decided to set up an appointment.  When I got there, one of the papers I had to sign was one indicating that I would be responsible for a charge of $233 if my insurance did not cover it.

I did also find a lab, Econolabs, which had prices for various tests, but I could not be sure if the tests that my doctor had ordered corresponded exactly to the ones on their list.  I think that their prices were a bit lower than Labcorp – maybe $150-200, but decided to err on the side of safety.

As soon as my tests come back (with an expected lower cholesterol level) I will return to ehealthinsurance and finish my application.  My worry is that for 2014, my HDHCP will be much more costly or eliminated.  I realize that any plan I get may be deep-sixed by the end of 2014, but I am not going on the exchanges, given what I have read about them.

My experience has driven home the key point of John Goodman’s excellent book, Priceless, which is the basic lack of a market in healthcare products and service (outside of some isolated situations).  Our country has prospered with a market economy.  Why is healthcare more like a Soviet-style system?

Does Social Security favor the “rich”?

Isn’t it obvious that Social Security (SS) favors the rich?  Let me count the ways:

  1. The tax rate is the same for all (6.2% for OASDI)
  2. Taxes only apply to wage income and ignore investment earnings, for example
  3. Taxes only apply up to the Taxable Wage Base (TWB), which is $113,700

Seems unarguable as long as you forget the relation of SS taxes  to SS benefits. Most taxes do not entitle the taxpayer to a specific service or benefit, so there is no advantage to paying higher taxes or disadvantage to paying lower taxes.  But SS taxes and benefits are linked via a “progressive” formula that favors the lower paid and disadvantages the wealthy.  The higher your income, the worse the deal is for you. To understand the effects of this link, you need to understand how SS benefits are calculated.

How SS Benefits are determined

The core benefit is the Primary Insurance Amount (PIA) which is the monthly benefit payable to the retiree at his Social Security Normal Retirement Age (SSNRA).  SSNRA was age 65 until changes were made in the 1980′s as part of big fix of SS finances.  SSNRA is based on the retiree’s year of birth.  I was born in 1951 and my SSNRA is age 66.  Younger workers will have SSNRAs as late as age 67.  You can elect to receive a benefit as early as age 62, but your PIA will be reduced – mine would have been 75% of the PIA if I had elected to take it at age 62.  I plan to defer it until at least age 66, but that is the subject of another post.

The PIA is based on the Average Indexed Monthly Earnings or AIME. AIME is the average of your Social Security Earnings adjusted for increases in the National Average Wage (NAW).  35 years of earnings is considered to be a full career – in that case your AIME is the sum of your indexed wages divided by 420 (35 years times 12 months).

Next, you apply the PIA formula to the AIME using what are called “bend points”.  There are two bend points and the BP that applies to you is based on their values when you attain age 62 (they change each year),  For someone turning 66 in January 2013 the BP are based on those for 2009. Those bend points are $744 and $4,483.  How are these used in the formula? All AIME up to the first BP are multiplied by 90%; all AIME in excess of the first BP and up to the second BP is multiplied by 32% and any AIME in excess of the second BP is multiplied by 15%.

A simple example will show how this works.  Assume AIME is $3,385 and the bend points are those for 2009. What is the PIA?

  1.  90% of PIA up to the first BP – 90% times $744 or $669.60, plus
  2. 32% of PIA above $744, but not above $4,483, or $3,385 less $744 ($2,641) times 32% or $845.12, plus
  3. 15% of AIME in excess of $4,483 or 0, because AIME is less than the second BP

The total PIA is thus $669.60 plus $845.12 or $1,514.72.  The actual benefit payable at SSNRA is about 5% higher because the COLA adjustments after age 62 are also applied.

How does the benefit vary for various pay levels?  The following chart shows the PIA at SSNRA for three compensation levels:

  • A worker whose earnings were always equal to the TWB – “high paid”
  • A worker whose earnings were alway equal to NAW – “Average paid”
  • A worker with low earnings (as defined by the SS calculator) – “Low paid”
Annual pay before retirement PIA as % of
High paid  2,533  8,073  110,100 31% 28%
Average paid  1,596  3,385  42,979 47% 45%
Lower paid  968  1,523  19,341 64% 60%

Remember that taxes are proportional to earnings.  If benefits were equivalent for each pay level, the benefits for each pay level would be similar.  The fact that the benefit proportions for the high paid are less than 50% of those for the lower paid and less than 2/3 or those for the average paid worker show that SS is a relatively bad deal for the higher paid, by a large margin.  Note also that for those whose earnings are a multiple of the taxable wage base, the benefit does not go up, but declines as a percentage of earnings.

Some will argue that the lower paid are less healthy and have lower lifetimes.  Even if that were true, it is not likely to offset the advantage that the lower paid have in the basic benefit.  There are also death and disability benefits which are available which are likely to be more valuable to those in worse health.

The illustrations shown in this post were developed using the downloadable calculator which is available at the Social Security website at this link.

Social Security – basics

What is Social Security?  Are taxes for SS really regressive and do the “rich” unfairly get a break by the cap on wages subject to tax?  Will this program vanish before the current 20-somethings (Gen X, Y or Z) reach retirement?

History of Social Security

The Social Security Act was passed in 1935 and taxes were first levied in 1937.  The original tax rate was 2% combined employer and employee, on income up to $3,000.  That was just a start – the following chart shows the combined tax rate, the maximum earnings on which taxes were based and the maximum combined tax each year:

SS rate chart

As you can see, things started small, but taxes climbed steadily.  A combination of repeated benefit enhancements and declining ratio of workers to retirees lead to an increase in taxes on workers.  Although almost half of American workers pay no Federal Income tax, most pay Social Security of FICA taxes.  Because the FICA tax is a flat rate and applies up to the wage base, many claim that FICA taxes are regressive and demand that the maximum taxable wage be increased, or that all wages be subject to tax.  As we will explore in a later post, this claim fails to take into account the Social Security benefit formula, which is strongly skewed in favor of the lower paid.  This also has important implications for retirement planning.

New-found respect for top bloggers

The only way you can really understand the difficulty of performance is to try it yourself.  I It could be sports, it could be music, but trying your hand at it makes you appreciate the talents of top performers.

I now appreciate how hard it is to write interesting blog posts on a daily basis.

Was there a “golden age” of retirement?

Apparently, the American retirement system is a mess where the failure of the 401k plan has left millions unprepared for enjoyment of a post-employment future.  The old system of defined benefit plans was dismantled by greedy employers and merger and acquisition vultures, leaving workers to rely on their own resources.  I haven’t watched it yet, but PBS  has run a documentaryThe Retirement Gamble, explaining how the 401k system has failed workers.

In the old days, workers were covered by a defined benefit plan and worked for one employer and then retired with few cares to live out the last stage of their lives on the golf course. Did they really?

First, a brief explanation of the difference between the defined benefit (DB) plan (the traditional pension plan) and the defined contribution (DC) plan (of which the 401k plan is the most common example).  The DB plan uses a formula to determine what the participant receives at retirement, as a monthly income.  Traditional formulas are typically based on the last 3-5 years of compensation at retirement, with a percentage based on the years of service.  A plan could provide 1% of final 5-year pay times the years of service; for example, an employee with average pay of $75,000 and 30 years of service would receive 30%  of $75,000 or $22,500 annually at retirement.  In practice, DB plans usually provide benefits at age 65, but also reduced amount at earlier ages, and also upon death and disability.

The key to the DB plan is that the output (benefit at retirement) is specified.  It is the obligation of the employer to see that the funds are available to provide the benefits.  He does this by using an actuary to determine the present value of plan benefits and how much the employer should contribute to the plan in the current year.  The risk of providing the benefits is undertaken by the employer (and by government agencies if the employer goes out of business).

The DC plan defines how much will go into the plan, and what comes out as a retirement benefit is variable.  It depends on the investment performance of contributions.  So, your employer might make a basic contribution of 3% of pay to the plan, and match 50% of the first 6% of your contributions.  You put in 6%, your employer puts in 3% plus a 3% match for a total of 12% of your pay contributed.   What you will have at retirement will depend on what you put in, and how well your investments perform.  The employer’s obligation is satisfied by making the agreed contributions and the risk (or reward) that the balance will be adequate for retirement is borne by the participant.

The DB plan rewards a long tenure with the employer, especially with your last employer, for two reasons: longer service means a greater benefit and the average pay is based on the years immediately prior to retirement.  If your service is divided between two employers with identical DB plans, your benefit would be significantly lower because the earlier one would be based on (lower) pay well before retirement.  DC plans do not have this disadvantage – you can build the same benefit as long as you maintain your contributions and do not withdraw money early.

Since tenure is key for the DB plan, how has this changed over time?  The Employee Benefit Research Institute is a valuable resource in this and many other areas related to employment and retirement benefits.  They have tracked job tenure by age and gender since the early 1950s.  What you see is that job tenure, while lower than in the 1950s, is not radically different. In figure 2, job tenure for males 55-64 peaked at 15 years in 1983, but is still 10+ years currently; in terms of a DB plan formula this is not a huge difference.

What about plan coverage?  Once again, from EBRI, the following shows coverage by medium/large and small employers. For large and medium employers, 84% of employees were covered by a DB plan in 1980, declining to 30% by 2010.  For small employers, only 20% were covered by a DB plan in 1980, declining to 9% by 2010.  The following chart from EBRI shows the percentage of private sector workers covered by DB, DC or both plans.  Even in 1979 only 38% were covered by a DB plan.

So even in the golden era, only a minority of employees were covered by a DB plan and most had not spent their entire career with a single employer.  Although any DB plan was useful, those who were covered by one were more likely to have an benefit that supplemented retirement rather than provided the main source of income.  If that was a golden age, only a minority of workers benefited.

Is retirement possible?

I wrote a piece for a prior employer about the Coming Crisis in Retirement, around 2000.  I was certainly ahead of the curve, but the crisis seems to be upon us, judging by the increasing number of articles I see on this topic.

I intend to explore this in more detail in future posts, focusing on a number of key elements, including:

  • Was there ever a “golden age of retirement”?
  • What happened to the defined benefit plan?
  • Has the switch to defined contribution plans really been a mistake?
  • What about Social Security?
  • Realism about your retirement prospects
  • How you might rehab your retirement

Each of these is worthy of multiple postings – more later.

Eilen Jewell Band

My wife and I are now big fans of live music and are game to go see artists that we really know nothing about.  In that spirit, we showed up at the Mauch Chunk Opera House (that’s right, folks) to see and hear the Eilen Jewell Band on my birthday, January 25th.  We were not prepared for what we heard.

Eilen is slight and has a reserved manner and a dry sense of humor.  Her songs range from the slow and spooky (I Remember You) to country ballads (Reckless) to the offbeat (Bang Bang Bang).  She and the band did a great job with Shakin’ All Over (done by the Guess Who, the Who but the original by Johnny Kidd and the Pirates is the best IMHO) which opened up into an extended jam showcasing the guitar work of a gray haired guy in cowboy hat and shades named Jerry Miller.  This guy could recede into the background, with some tasty country licks that weren’t flashy, but supported the song, the band and the sound.  Then he would step out for some brilliant leads.  His name didn’t ring any bells, but it turned out that he was in Moby Grape, a SF band that didn’t turn out too much, but what it did was excellent.  He will be 70 this year, but he is in fine form and a tremendous pleasure to hear.  How did Eilen manage to get him in her band?


What amazes me is why Eilen is not more well known.  There is so much great talent out there.