Free College Courses

College makes nearly everyone search for free money. And since many find it, colleges simply raise tuition, in an ongoing battle for prestige. Meanwhile the return on getting a college education drops. It is still worth something — if you do some actual learning — but it is no longer the guaranteed ticket into the upper classes it once was.

Innovators are doing something about it. Check out this Wired article on free online Computer Science classes being taught by Stanford. No credit granted, but if you contemplate college in order to learn something…

Massachachusetts Institute of Technology is also getting into the game with MITx.

And for those who want to get spun up to speed to get ready for college, there is Khan Academy.

This is a great age to live in for those with time and willpower to learn, but limited funds.

The list above is incomplete. I’ll add more later, either by updating this post or in future posts in this category.

If you are unemployed, take advantage of these opportunities. Use your time wisely.

Saving Money

A penny saved is a penny available for something else. It’s almost free money. And unlike writing grant proposals or convincing Congress to give all citizens free money, saving money is something you can do now. And for those of you who will need to live off the universal stipend without getting a job, mastery of the art of scrimping is key. For those of us trying to affect public policy, studying the art of scrimping helps us determine how much money the government needs to dole out to prevent poverty.

Once upon a time, I was pretty good at living off a low income; I was a graduate student for six years. While I am way out of practice in the art of living cheap (and do not want to get back in practice!), I do remember the key disciplines.

  1. Share a home. Whether it be house or apartment, two or more can live cheaper under one housing unit. The kitchen is the most expensive room in the house; it pays to share. If you share with people of similar tastes, then luxuries like cable television can also be shared. Warning: this strategy can backfire if you share a home with a parasite or a barbarian. Vet your potential housemates carefully! Also, he who is on record for the rent should not be on the record for the utilities. Make sure whoever doesn’t pay their share of the bills gets to deal with creditors.
  2. Cook. When you eat out, you are paying for expensive First World labor. This is not a bad thing if your finances are overflowing, but a serious error if you are scrimping.
  3. Entertain at home. The markup on booze and other party items at bars and restaurants is astronomical.
  4. Drive a well-used car. For the interest alone on a new car, you can pay for quite a few extra repairs and come out ahead. You can also forgo collision insurance. It doesn’t take many years for the money saved on insurance to add up to another old car.
  5. Buy used other stuff. Furniture and appliances can be had at incredible discounts used. When I was an undergrad I made many a trip to the Salvation Army thrift store as I was one of the few people at my university to drive a pickup truck. (There was a time I wondered if it was taking from the poor for middle class people to buy from thrift stores. I stopped wondering after trying to donate some of my used furniture; I had to pay the charity to take some of it.) Used textbooks can be incredibly cheap after a new edition comes out. While problematic for taking a class since the problems and page numbers can change, these can be excellent for self-study. I have quite a few 90+% off textbooks on my bookshelves to this day.
  6. Make use of public facilities. Parks, libraries, and even more are free for you to work out your body and brain. (This goes triple if you are a student.)

This list is not complete. I may throw in some more posts on the subject if there is interest. If you want to really live cheap, check out the Early Retirement Extreme blog, and its associated network of blogs. Continue to live like a grad student after graduating and you can retire young. Or you can use the same techniques to live the good life without going to college at all. (Early Retirement Extreme is dormant today, but most of the posts are timeless. Read the archives.)

How About some Supply Side Love for the Poor

Megan McCardle gets it right when she writes When It Comes to Taxes on the Poor, the Supply Siders Are Right.  (Hat tip Mike Dixon.) Read the article and take special note of the graph. As income goes up, benefits go down so fast that it pays to take a lower paying job! Fixing this greater-than-100%-marginal-tax-rate is far more important than preserving the Bush tax cuts for the rich. It might even save the government some money.

Now if only we could get the talk radio buffoons to read McCardle…


The Laffer Curve and Farm Labor

The New York Times has discovered the Laffer Curve! Has the esteemed liberal newspaper of record been bought by Rupert Murdoch? Has hell frozen over as a result of global warming?

Not quite. Though the Times has implicitly recognized the logic of the Laffer Curve, it took more than the plight of hedge fund managers and dot com billionaires to merit their notice. The disincentive of a mere 15% tax was not news fit to print. When a Colorado farmer was unable to find local laborers willing to pick onions, despite high unemployment rates, however, the New York Times took notice.

Unemployment and labor shortage at the same time. Something seriously stupid is going on. This prompted an in depth debate. Tom Lutz gave a pretty good answer:

First let’s do some easier math: the Colorado farmer is offering 10 bucks an hour. Say you’re a 50-year-old agricultural manager earning in the 75th percentile, or making $90,000 a year, and you are one of the 6,000 such managers to lose their jobs this year (as predicted for that job category by the Bureau of Labor Statistics for the next decade). You are eligible for a maximum of $13,000 in unemployment benefits. Even though it is not much, it would pay a year’s major medical coverage for your family as you try to get back on your feet. You might not want to screw up those payments in order to earn $400 a week for a seven-week harvesting season. Unless of course, you got paid under the table. Does making such a calculation mean you have a bad work ethic? Obviously not.

Unemployment insurance is not free money. You have to stay unemployed to collect. If you are unemployed anyway, this is a sunk cost. But as the Times noted, there are jobs out there: they just don’t pay enough to risk losing government benefits. The effective marginal “tax” rate is way higher than 15% or even 35%. It can be greater than 100% for those down on their luck.

Make the government benefits unconditional, however, and seasonal work becomes worth doing. Environmentalists take note: if you want your local foods and free range meats, you need cheap farm labor. Demand a high wage and/or job security for farm workers and the masses will opt for factory-farmed badness or food grown in poorer countries — food grown on what used to be rain forest.

Free money for all gives us affordable farm labor with a better life for those who pick our tomatoes. Harvest work is brutal work, suitable for short bursts only. Using migrants to follow the harvest is inhumane. Far better to hire locals who don’t have steady jobs. But to make that happen, we need to replace our sticky safety net with a safety trampoline.

Playing Fair

Miller-McCune Magazine has a very interesting article “The Fairness Doctrine” reviewing Peter Corning’s book The Fair Society. Activists of all political stripes would do well to read this article and perhaps the reviewed book as well. (It is now on my reading list.) Corning makes the case that many of our notions of fairness are hard wired, part of our instincts which make us social animals, and that neither the egalitarian socialists nor the followers of Ayn Rand have it right. We have a mix of egalitarian and meritocratic instincts in our “biosocial contract.” This contract has three important provisions:

  • Goods and services must be distributed to each of us according to our basic needs. (In this, there must be equality.)
  • Surpluses beyond the provisioning of our basic needs must be distributed according to merit. (There must also be equity.)
  • In return, each of us is obligated to contribute proportionately to the collective survival enterprise in accordance with our ability. (There must be reciprocity.)

If Corning is correct, both the Left and Right represent subsets of this hard wired social contract. If so, it seems to me that a political movement which consciously put forth all three provisions might crush the competition. This might make for an interesting experiment…

This is especially so given that my free money plus freedom proposal fits in nicely with the above, as long as the amount of free money is reasonable, and the free market rules are truly fair. That is, if the free money is sufficient to meet basic needs, then my proposal meets the first criterion. As long as the free money is insufficient to indulge in luxury, it meets the second. As for the third, free markets with simple rules and a simple tax system does the job. Not only that, even the needy—the net dole recipients— have some incentive to do what they can for society.

Therefore, if Corning is correct, my proposal should be an easy sell. Yet experience tells me otherwise. Maybe Corning’s ideas are bunk. Maybe there are subtleties which are found in the book and not the review. Maybe ideology has blinded people to their core instincts save when violations of the biosocial contract are truly blatant, such as the recent bailouts of rich financial institutions.

I can see a couple of other possibilities, which all who wish to bring about this proposal should consider:

  • Perhaps the biosocial contract is hard-wired, but holistic thinking is not. The instincts cut in for the three provisions separately. This would explain the success of the ideological camps which are based on subsets of the biosocial contract.
  • Perhaps people see free money as violating either the first or second provision, since people’s needs do indeed vary. The same amount of free money for all is an imperfect approximation.

If the former is dominant, then our task is simply a matter of education. If the latter, then we might provide part of the universal stipend in the form of vouchers for health insurance, since variations in health are a major factor in variations in need. Some experimentation is in order.

Finally, libertarians especially should take into account this idea of a biosocial contract. Do some studies, some focus groups. Methinks you will find that Ayn Rand’s moral philosophy is strongly at odds with our hard wired human nature. Maybe we need to become more like the peaceful production men Rand extols, but is and ought are not the same thing. To promote Rand’s vision of liberty requires remaking human nature, much as the fictional Vulcans of Star Trek remade their nature in order to avoid war. Start your monastaries now if that is your goal. But if you plan to win political battles, some concessions to hard-wired human nature (not to mention our predominant religion) is in order. Freedom may require free money.

An Update on Annuities vs. Social Security

About a month ago Disqus commenter “Pnwgy” noted an error in my analysis comparing private annuities vs. Social Security. Unlike some conservative writers who compare Social Security with a fixed income annuity, I did play fair and compared SS with an inflation adjusted annuity, which is what Social Security is. But what I failed to realize is that FICA taxes pay for more than annuity; they also include disability insurance, which uses up .9% of the 6.2% FICA tax rate. That is, I should look at how much you would save if you contributed 5.3% x 2 = 10.6% (not 12.4%) to a diversified portfolio during your career and then purchased an immediate annuity with inflation rider with Social Security. Needless to say this makes Social Security look better than the previous edition.

But this leaves us with a mystery: how can Social Security do so well when even under adverse conditions the S&P 500 grows faster than wages? The answer: many contribute without collecting. Illegal immigrants are the obvious example. (And this may be why the federal government is lax on immigration enforcement. No NAFTA conspiracy theories needed.) Also, people who only work as paid employees for a few years (cf. housewives) don’t receive benefits from their contributions (but they do from their husband’s career). This may balance out well enough but a seller of immediate annuities doesn’t get that money.

But here is the big injustice: if you work a full career and die young you don’t get any benefits. Social Security is an annuity you make payments on starting with your first real job. I am being unfair to private sector immediate annuities since they get money only from those who at least reach retirement age. Perhaps more importantly, those who are unhealthy generally opt out of the inflation adjustment rider. Why pay a huge premium for years you are unlikely to live? Private annuities thus suffer from adverse selection.

But note what happens if people saved vs. contributing to Social Security. That smoker who kicks it at 60 leaves a big pot of money to his family. Granted, under Social Security his wife gets the benefit as a survivor, as would minor children. But consider if the wife smokes too and dies young, and the children are adults. Under a savings plan the children inherit. The working class experiences a bit of multigenerational wealth building.

Anyway, for the record we aren’t here calling for simply doing away with Social Security and expecting to save. We call for a fixed amount of free money for seniors to provide a livable, though not cushy, retirement for all citizens regardless of income history. If you want more, save as you will.

Money for Home Owners

For the most part, I prefer to keep the free money unconditional. But perhaps we also need a special allocation of free money for home owners. Purists might protest, but here are some powerful reasons for adding this provision:

  1. The home mortgage deduction is incredibly popular. Political reality says we need to replace it with something.
  2. Home ownership may well make for good citizens. People with a stake in the neighborhood have more incentive to keep it up than renters.
  3. Property ownership begets respect for private property. Once upon a time the right to vote was limited to property owners. Government stayed small. There might be a connection.

So, anyway, see my new article series, and realize that the potential benefits of moving from a mortgage deduction to simply free money for home owners is enormous.

A Conspiracy to Rob Retirees

There is a conspiracy to rob retirees of a decent predictable income stream. The Bavarian Illuminati, the House of Rothschild, the Rockefeller Foundation and the Skull and Bones Club have subverted Congress and have sneaked through hidden legislation which funnels money to Wall St. wizards, money that should be going to Joe Sixpack’s retirement account.

Yeah right!

Actually, there is a conspiracy, and it benefits Wall St. wizards, but it isn’t bankers behind it. It’s tightwad banking customers who want fee-free checking accounts and below market home mortgages. Congress, as the will of this truly massive conspiracy, have funneled trillions of tax dollars, and create the Federal Reserve system in order to comply. Were it not for this conspiracy, banks would need patient money to make mortgage loans. Mortgages would be more expensive, but the economy would be stable. And Joe Sixpack could get a good retirement income from simple bank CDs.

So, are you part of the conspiracy? If so, what is the secret handshake anyway?

How Much Money are We Talking About?

If you want to get rich, you need to work for it, inherit it, marry it, beg for it or steal it. Big money is not lying around for free. Bummer. In fact, if we divide up all the receipts from 2008 federal budget and gave it out equally to adult citizens, each would get about $12,000/year. For a married couple this comes out to $24,000/year. Not exactly riches but not chump change either.

Interestingly enough, $12,000/year/adult is about the amount needed to eliminate poverty! That is, based on federal poverty guidelines $12,000/year is more than enough to take a single person above the poverty line and is almost enough for a married couple with three children to be above the poverty line without working. Give out this much free money and we can eliminate all welfare programs save those for the seriously ill and mentally incompetent. At this much lower level, it should be save to leave these responsibilities entirely up to the states. We could close down the entire federal social program apparatus.

But it looks like we would need to shut down the entire federal government at this level! We might want to keep the Defense Department, the Patent Office and some national parks. So maybe we need to look at a lesser number. Besides, the American People might want people to have to work to be out of poverty. If we use free money to bridge the gap between the minimum wage and a living wage, the amount drops to between $575/month and $875/month, which translates to $6900/year and $10,500/year. The lower figure leaves us 42% of the federal receipts to run the federal budget. This might be enough if we didn’t already have obligations to retirees…

Of course, our proposal to use free money to replace the federal welfare state means replacing both federal welfare programs and the progressive tax system. If we merge payroll taxes and the federal income tax into a deduction-free 30% super flat income tax, then we need a rebate of around $2600/adult to ensure no one gets a tax increase. We can probably turn that rebate into a prebate without impacting revenues significantly, especially if that prebate substitutes for other social programs including Social Security. That is if today’s social benefit is greater than $2600/year, then you get today’s benefit without the prebate. If today’s benefit is less, you get the $2600/year prebate. This provides a bridge between welfare and work, which is one of our major goals.

To afford a bigger amount of free money rebate/prebate, we might need either a higher marginal income tax rate, or a two-tiered tax. It is hard to say without more detailed study, since the rich make use of many loopholes which are beyond my knowledge. The flat income tax I propose includes treating capital gains as ordinary income, which would eliminate many of the most squirrely loopholes, and the tedious tax regulations meant to thwart them. However, many people object that treating capital gains as ordinary income would make the double-tax on corporate founders hideously high. The simple solution? Reduce the corporate rate to 20%.

So, what are we proposing here? The answer is time-dependent. Let us start by replacing our fiendishly complex tax system with the 30% flat tax with a prebate of around $300/month. This may cost or save the government money. It is hard to say without doing the experiment. The enormous simplification of the tax code should inspire more people to start businesses, and the universal stipend should provide enough of a bridge between welfare and work that many in the welfare class will consider employment. If the resulting improvements in the economy reduce the welfare budget and/or increase the tax receipts sufficiently, we might increase the citizen’s dividend. If not, we might need to consider some further adjustments to the tax rates. I’ll return to this subject in a future post.

Freedom as in Free Beer

Rare Japanese Busch bush
Rare Japanese Busch bush
The rare Japanese Busch bush.

For many many years I pitched the idea of more freedom. Friends, family members, coworkers and complete strangers heard my spiels. I worked fair booths; I put up yard signs; I bought radio spots; I knocked on doors.

I failed.

OK, I failed in part because I was pitching a radical amount of freedom. Our electoral system is inherently conservative (in the sense of slow to change). Older now, I realize this is a good thing. Some of the ideas I pitched seem a bit iffy today.

But that was not the real reason I failed. Marx was radical and his ideas were worse than iffy, yet his followers took over close to half the planet. Maybe people hate freedom.

Or maybe, many people don’t associate smaller government with more freedom. As Bob Black pointed out in The Abolition of Work, the average person gets more direct orders from their boss than from any agent of the government. For those of us with some money — or at least the means to earn it — high taxes equals less freedom because it equals less money.

For someone on public assistance the story is rather different. More taxes = more money = more freedom.

But the government ties a lot of strings to that public assistance. It is not free money. And nowadays, the government is tying strings to the money it allows taxpayers to keep as well. Here is a call for more freedom that might appeal to poor and well off at the same time: keep the wealth transfers but get rid of the strings.

I realize that this does mean a lot of money running through the government’s ledgers. And some will fear that this will create a giant class of hippies or worse. Fear not! Free money for everybody will give the poor more incentive to work than the current system. I’ll explain in greater detail in the future.

Other people worry that giving straight cash to today’s welfare recipients will allow them to misspend. I have news for you: the current system encourages bad behavior. Spend some time at a public housing project if you dare. Yes, a few mentally ill alcoholics will drink the benefits instead of drinking the rewards from a day’s begging. This is a valid concern, but surely we can find a better special solution for these outliers than crushing the economy with red tape, breaking up marriages, discouraging work and thrift and creating a permanent underclass.

Free beer!