Unintended Consequences of Charities for African Relief

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I once had an application from an overseas aid fund cross my desk. A group of neighborhood people wanted to gather food, clothing, glasses, money and send it to a rural village in Senegal. It had come about because a charismatic young man who had emigrated from there became a well known identity in their community. He told people about the plight of his countrymen and the conditions there, so they were anxious to help. There seemed to be little planning at that time, other than to gather the goods and send them.

 

Among the documents they sent me to prove their worthiness were some pages of email correspondence between them and an Australian Department of Foreign Affairs official who one of them had a connection with and who knew something about Senegal. His advice to them was to be very careful because dumping things into the wrong hands (even things like old clothes, that have little or no value in a Western country) can cause violence and social disruption in a poor, isolated village. Despite that advice, they were determined to continue their efforts. I don’t know what became of that group.

 

One point the diplomat failed to note is the economic consequences of this kind of aid. What happens to the village dressmakers when everyone gets their clothes for free? What happens a few years later, when the flow of overseas donations stops and there is nobody in the village who sells cheap clothes? This destruction of local industry and commerce is magnified with the bigger aid projects.

 

One very big project is Jeffrey Sachs’ Millenium Villages initiative. Jeff Sachs, a former child prodigy, is an economist who had some success in helping to reform Bolivia’s economy, applied the same solution to a few countries in Eastern Europe after the collapse of the Iron Curtain and then attempted to apply the same solution in what is now Russia. It became clear that it was lucky circumstance, not universal principals that had allowed his cookie-cutter solutions to succeed. Despite this failure, Sachs’ previous success had given him some excellent connections. Perhaps it is because he had suffered his first major failure that he took on an even greater project: to cure Africa of poverty.

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Pay with Cash When you Can

A 600 word article in the Guardian relates to the current financial trend for technological innovations to make it easier to pay electronically.

 

It also links to psychological research that shows we have a tendency to spend more carefully when we use cash and coins than simply waving a card at a scanner. This is because electronic payment systems disconnect us from the reality that we are spending actual money. This is why it is important to keep as much of your budget in cash as possible.

 

Unfortunately it is getting harder to avoid paying electronically. Internet purchases are always electronic. If you have any ideas on how to give more ‘friction’ to what you buy on the net, I’d be glad to hear them.

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The Push Towards Part Time Employment

U.S. companies are increasingly forcing employees on to part time arrangements. In an almost 2,000 word article on tomdispatch.com, Barbara Garson gives a heart rending case study while noting that:
 

  • In June 2013, 4 years since the official end of the great recession, the U.S. has recovered only 6.6 million of the 8.7 million lost jobs.
  • 21% of the jobs lost were low wage, but 58% of the jobs regained fall into that category.

Garson says a common explanation for that second statistic is that the bad jobs are coming back first and the good jobs will follow. She believes the actual reason is that companies have simply degraded the pay and conditions for their less skilled workers.

I think part of the problem may be an unintended consequence of Obama Care which requires employer funding for staff working longer than 30 hours per week. But more than that,it is part of a post industrial trend for jobs to vanish and for companies to farm out their work.

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Parental Preparations to Secure a Place in a Prestigious College

Competition for places in highly regarded universities is increasingly ferocious. In this 1940 word essay in the New York Post, former college admissions counselor Lacy Crawford explains the admissions process from the applicant’s point of view but raises some issues over whether forcing one’s way into a school is the best course of action. As usual, I’ve summarized the points I want to use later:

College admissions are the culmination of a scramble that begins with nursery school.

For many children of the wealthiest parents, the college admissions process begins when a child is 2, with hiring a consultant to deliver nursery-school acceptances for the finest kindergartens.

Once in school, if the child is slow in any subject, parents hire tutors. If the tutors fail, the parents will find a learning specialist who agrees to identify a deficit in the student’s capabilities (in other words, to label the child as learning disabled) after which the parents will force the school to exempt the child from certain obligations, so she doesn’t have to study e.g. maths or do timed tests.

The college list will be drawn up no later than sophomore spring, and it will only include trophy schools – ivy league, Duke, Stanford – selected not for fit but according to where the parents have influence. If a parent went there it’s a ‘legacy school’ and it’s on the top of the list. If they know a trustee, that’s number 2 etc.

By junior spring, the ‘early decision’ school is chosen, meaning a single application will be made with the promise the student will attend if admitted.

The summer before a student’s senior year, the parents work for a golden ticket – a recommendation from a trustee of the first choice school – while the student interns at an exclusive institution (a neuroscience lab or a political office) or performs community service in a far-flung location (building schools in Bangladesh).

After these 15 years, the student finally has to do one thing by herself – write the actual application with an essay in her own voice. This is something which they can’t hire someone else to do because the college admissions officer can usually identify an essay which is technically perfect but has no spirit as the work of a more polished author than the student.

The trustees letter can also be a curse. Some trustees use secret code to tip the dean of admissions that she felt obligated to write the letter for social reasons and does not really have faith in the child’s abilities.

Of course, for the seriously rich the essay is not going to matter if the child’s father donated a building to the school.

The one thing which is really missing from this process is whether college, which is going to be another struggle, is the best option for the child. If a person needs such a high level of help to qualify for admission, perhaps their talent lies elsewhere and their lives would be much richer if they were to pursue something less appealing to their parents but more suited to their characters.

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How Government Subsidies Push Up the Cost of Education.

In an interview with the Wall Street Journal, Richard Vedder outlined what he sees as the reason for the parabolic increases in the cost of higher education. The article runs to 4,300 words. I have set out what I see as the main points below. While I think there is merit in the bulk of his argument, I am not convinced that online courses are the solution :

Rising costs
In 1964, federal student aid was a mere $231million. By 1981 it was $7billion in student loans alone. This amount doubled in the 1980’s and tripled in each of the following decades and is now $105billion. Taxpayers now stand behind nearly $1trillion in student loans.

Many colleges are using federal largess to finance Hilton-like dorms and Club Med amenites. Stanford offers more classes in yoga than in Shakespeare. Princeton built a $136million student residence with leaded glass windows and a cavernous oak dining hall (funded by a $30million tax—deductible donation from Hewlett Packard). The dorm cost about $300,000 per bed.

“Universities are in the housing business, the entertainment business, in the lodging business, in the food business. Hell, my university runs a travel agency which ordinary people off the street can use.”

Some college officials are also compensated more handsomely than CEOs. Since 2000, NY University has provided $90million in loans, many of them zero interest and forgivable, to administrators and faculty to buy houses and summer homes on Fire Island and the Hamptons.

Ohio State University paid President Gordon Gee $2million last year while also providing him a 9,630 square foot Tudor mansion on a 1.3 hectare estate. It includes a $532 shower curtain in a guest bathroom. They also paid $23,000 per month for Mr. Gee’s soirees and half a million for him to travel the country in a private jet.

Low income earners can’t get in.
Today about 7% of recent college grads come from the bottom income quartile compared with 12% in 1970 when federal aid was scarce. Government subsidies are not making college more accessible. They have not improved outcomes or graduation rates.

Degrees not needed
30% of the adult population has college degrees. The Department of Labor tells us that only 20% or so of jobs require a college degree. Why are we encouraging more kids to go to college?

The average student loan debt is $26,000 but many graduates, especially those with professional degrees have six-figure debts.

Online
The Department of Education has been littered with demonstration projects, innovation projects, proposals for new ways to do things for decades and there is nothing to show for it.

Innovation is being driven by entrepreneurs like Stanford computer science prof Sebastian Thrun, who founded the for profit company Udacity that offers ‘massive open online courses (MOOCs). Mr Thrun began teaching AI at Stanford and then at Udacity. 200,000 people signed up for the course.

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Work as Punishment

A 3,650 word article in the New Statesman reflects on our rather unhealthy obsession with work at the expense of recreation. I wrote some notes on a few of the facts which struck me as being relevant to my cause:

Adam and Eve
Adam was punished for his disobedience by having to work hard for a living, as well as the first deadly rivalry between the farmer Cain and the herder Abel, each striving to have God favor his own produce over his brother’s.

We refer to that time as the Fall because it signalled the opposite of an ideal way of life. Work is seen as both ethic and punishment.

The workhouse
The Poor Law Amendment Act of 1834 embodied the view that if you made destitution unpleasant enough, with grim and regimented workhouses providing the only sustenance, only the most hopeless cases would consider it an option. Genesis gives us work as punishment and the Victorians doubled it by punishing those who couldn’t or wouldn’t work. Even today, willingness to work is the government and the corporate definition of the good citizen.

Retirement
There are many stories of how retirement kills people. Are they merely myths intended to ‘improve’ people?

Lazy cavemen
In 1974, Chicago anthropologist Marshall Sahlins published Stone Age Economics. He proposed they did not live ‘nasty, brutish and short lives’ but were members of the ‘original affluent society’ working only so long as to get enough to eat. Spending the rest of the time daydreaming, exploring, telling stories, doing culture or just lazing.

Only when you worship the idea of accumulation and status based on wealth do you have to work hard all the time.

Today
Even the most successful people ultimately end their working lives in disappointment e.g. Julius Caesar, Margaret Thatcher. Yet we think there is something wrong when someone decides they’ve done enough and now want to actually enjoy their lives e.g. Pope Benedict XVI.

Leisure is so terrifying to our culture, we have to cut it up into small chunks of a working year and leave most of it to the very end of life.

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No Charity for Old Men

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I once spoke to a lady who wanted to establish a charity to care for abandoned elephants in Australia. She had two problems. First, all the elephants in Australia belong to zoos and circuses. Second, there are already a great many animal charities and zoos which would fight each other for the privilege of caring for an elephant if ever there was the possibility that one could be obtained. Elephants are such popular animals, these charities know that if they can secure one, their membership will soar and donations will flood into their fundraising accounts.

Children are almost as popular as elephants. While there are many genuine children’s charities, I’ve noticed the kind of people who establish charities to give themselves a job almost always use children as the beneficiaries. Women’s charities are also quite popular, although they don’t seem to attract the big donations that children’s charities do. Charities for the aged are not so popular. Charities for aged men almost don’t exist.

The only charity for old men I can think of is the ‘Men’s Shed’ movement. This is basically an Australian effort to provide suburban workshops for old men to tinker about in, doing carpentry or metalwork projects for the community. I guess it helps alleviate loneliness and depression, gives the old men something productive to do. For funding, member organizations are encouraged to apply for government grants and conduct fundraising activities. So, even though they can accept tax deductible gifts they do not expect to receive much by way of public donation.

If you are an able-bodied man, you have many advantages in life. Enjoy them while they last. If you fall prey to drugs or gambling the public will consider it to be your own fault. Even if you avoid these traps, there is no avoiding age. When your mind becomes feeble and your body weak there will be little sympathy for you.

If you relied on your strength and size to intimidate people into giving in to your demands, you will look ridiculous trying those tactics in your 70s. Good looks and charm? Your good looks will be gone, your charms will be ignored. Do you actively seek out the company of old men? I doubt it. They are often boring because of their self focus and tendency to live in the past. They are sometimes violent, usually stingy.

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001 Quote for Today

“If speculation keeps you awake at night, sell down to the sleeping point.”

Dickson G Watts.

 

This is probably the most famous quote from Mr Watts’ Speculation as a Fine Art. It’s a classic quote because there is so much wisdom in it. If you are risking so much money that it keeps you awake, then your bets are too big. Small bets can still make a profit. There is no dishonor in selling down, but in future: remember where your pain threshold is.

Do you have any more thoughts on this quotation?

 

 

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Shaking up the Wine Establishment

A 4,500 word article on Fred Franzia, the US winemaker responsible for inventing the ‘two buck Chuck”. It outlines the history of his business life and his adverse relationship with high end wine makers.

“Two buck Chuck” is the term used for wines sold under the Charles Shaw brand for $1.99. In 2002, the wine market was in a glut and premium wineries were slashing prices to reduce inventory. Franzia’s business is in the bulk wine catergory, which was suffering because premium wines could now be bought for the same price as his own cheap wines. So Franzia cut his margins to allow his wines to undercut the discounted wines. These cheap wines made a sensational impact on the public because wine had never been available for such a low price before.

In general, however, his strategy is to buy vineyards and labels when those assets are in distress, gradually adding economies of scale to his business.

Although innovative, his way of doing business has caused hostility among his fellow winemakers and he has crossed into legal gray areas (at one time paying a $500,000 fine for mislabeling cheap wine as premium). He criticizes the premium wineries and the appelation system, yet he uses their names and brands to sell his product.

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How the NFL Fleeces Taxpayers

I’ve been reading about how the owners of NFL teams lobby local governments to fund their stadiums at little or no cost to themselves. It’s no surprise to me, as I’ve plenty of experience of the non-profit sector. But if you don’t know that some businessmen use charities and non-profit entities to lobby government for their own benefit and profit, this article is a good place to start.

The sporting industry is interesting because it occupies a gray area between charity and business in most people’s minds. A football team can evoke religious fanaticism among its followers and even greater profits for its owners.

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