Recipe For A Happy Life

 

On January 1, 2023, Charles T. “Charlie” Munger celebrated his 99^th birthday. Charlie is the Chairman of Daily Journal Corporation but is better known as the Vice Chairman of Berkshire Hathaway and Warren Buffett’s business partner and sidekick for over 60 years.

 

I love watching Warren and Charlie answering questions at the Berkshire Hathaway (Woodstock for Capitalists) annual meeting each year. Warren tends to be verbose and comes off as a kindly but wise Middle-American grandfather. Charlie’s answers are direct, succinct, and often hilarious.

 

Over the years, I have watched virtually every taped interview that Charlie has given. Most are available on YouTube and I highly recommend them. On or around his recent birthday, he was asked about what his advice for a person was to have a happy life.

 

His answer was not making billions as he and Warren have. He summed it up as “lowering your expectations.” We all have dreams, but Charlie seemed to be cautioning about getting unrealistic with him. He suggested honesty in all that you do, working steadily, spending less than you earn, keep learning and stay positive.

 

At times, during the various questions he has received on the topic, he sounded like a blend of Ben Franklin’s advice and suggestions made in Thomas Stanley’s THE MILLIONAIRE NEXT DOOR.

 

With typical self-deprecation, he said that nerds got a lot out of his advice, but most people did not follow it. By playing the long game in life and in finances, you tend to be happier than most.

 

One thing that I have observed in recent years makes me wish that many more people would be exposed to Charlie’s simple suggestions. When I began teaching almost full time some 14 years ago it was not uncommon to have some “happy go lucky” students in each class. By my final year, the levels of angst were off the charts and students tended to be in two distinct groups:

 

1)  Many felt that the world was against them and that they had little chance. Student debt would hold them back, social security would be empty by the time they were geezers, and AI and robots would grab millions of jobs.

 

2)  The second group came off as if they had just spent the last 48 hours at a Tony Robbins seminar and they were going to be billionaires by the time that they were 35. Oddly, they were not the best students nor were they particularly inquisitive.

 

A smaller group had their feet on the ground and instinctively seemed to follow Charlie’s mantra of realistic expectations. They seemed well adjusted and optimistic.

 

So, while this remnant may be nerds they will keep going, take life as it comes, and if they live long enough, have a very substantial level of happiness, fulfillment, and financial gain.

 

Bless you, Charlie.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

 

 

 

 

 

 

A Sleeper Reason For Growing Inequality in America

 

Almost daily you hear or read comments about inequality in America. Some phrase it as “a hollowing out of the middle class.” As someone for whom demographics were his beat these past 50 years, it is hard to dispute the clear data.

 

The causes by most in the media run the gamut from Ronald Reagan, Newt Gingrich, Neutron Jack Welsh, the decline of unions, tax policy by all administrations which favor the truly rich, globalization, financialization of the economy, unchecked immigration, an aging population, robots, computers, and the growing threat of artificial intelligence.

 

Well. You may agree with some or many of the reasons listed above but here is one that is rarely mentioned that I find to really have some traction. It is the Minimum Wage Rate in the United States.

 

Do you know what the Minimum Wage Rate is? It is $7.25 per hour. It was last raised in July, 2009. Not a typo, my friends. The rate has not been raised in nearly 14 years. Has your pay remained flat during that period?

 

On April 28, 2021 newly installed President Joe Biden signed an executive order that raised the minimum wage on all federal contracts to $15. I had no problem with that. Federal projects were funded by taxpayer money and debt.  A few months later he asked that it be raised to that level for the 27 million workers who earned less than $15 per hour in the private sector. I had to smile at the absurdity of the suggestion.

 

The president admitted that it would squeeze some employers. What an understatement.

 

Most business startups in the U.S. fail within five years and the majority of them are restaurants (more about them later). Around one half of one percent of shops last 40 or more years and every year hundreds of thousands of small firms go bankrupt. So, a big jump to $15/hour in the minimum wage would not just squeeze small employers. It would put them out of business!

 

Now, while the federal minimum wage is now at $7.25, it varies greatly by state. The prosperous state of Washington pegs it at $15.74 cents an hour and California $15.50. New York is $15 in New York City and $14.20 for the rest of the state. Oregon is $13.50 and Vermont is $12.55.

 

Yet some states including Alabama, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, New Hampshire, North Carolina, North Dakota, Oklahoma, South Carolina, Tennessee, Texas, Utah, and Wisconsin are still pegged at the 2009 rate of $7.25 per hour.

 

When I bring this fact up with many people some express shock but others shrug and say “it is a great deal less expensive to live in Biloxi, Mississippi than San Francisco.” Agreed, but people still need to buy food, shelter and perhaps a used car at some point and $7.25 is a living wage in very few localities in the U.S.

 

When you dig just a bit, it gets even worse. Many states have a separate minimum wage for “tipped employees.” In states that still pay $7.25/hr., the tipped rate is $2.13/hr. Even Delaware which has a reasonable rate of $11.75, has a required rate of $2.23 for tipped employees. That might work if you are part of the waitstaff at a posh watering hole at Rehoboth Beach, but not everywhere.

 

I have read accounts over the years where investment bankers celebrating closing a new issue or big bond issue may go to a trendy restaurant in Manhattan, order endless bottles of $600 wine and tip the hot waitress several thousand dollars. Okay, good for her. What about the man or woman serving you at a pizza place or casual chain restaurant in Hammond, Indiana? Does he/she get enough tips to take them up to $15/hour in an average night. Highly unlikely.

 

My suggestion and no one in Congresss is listening would be to raise the national rate a few dollars and then index it a point or two above the CPI going forward. Why not simply index it to inflation a la Social Security? Well, what if Jay Powell and company work some magic and bring inflation down to their 2% target rate and somehow keep it there? At a 2% rate, the minimum wage would double in 36 years. Do the math. So, some catch up is needed but you still do not want to kill too many small businesses by doubling it all at once.

 

What can you do as a person? I have two suggestions and they are what I do personally. First, if you are at a white tablecloth restaurant give a generous tip if the service was good. Unless, it was horrible, leave at least 15%. Second, if it is a lunch counter or a casual chain (especially in a rural area), give your server a cash tip. Still want to use a credit card? Okay, give them the cash as a tip and write “on table” on the credit card slip. Servers love it as many have told me they often do not get tip money for a month and if the restaurant goes bust (most do eventually), they never see the tip money in many cases.

 

The second suggestion is when you are traveling. If you stay at an upscale hotel or inn, they invariably leave an envelope in your room market “chambermaid”. This summer many of you will be spending a night or two on a long road trip and could stay at a modest lodging such as a  Holiday Inn or even a Motel 6. Leave a bit of cash for the clean-up team. They get minimum wage but are likely immigrants or single Moms who are struggling. Over the years, people have stopped me in the parking lot or checkout desk and thanked me (some almost in tears) profusely for a $5 tip. C’mon. Leave them something. It will cost about the same as the umpteenth cup of coffee that you get at Starbucks that week.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

An Unsettling Statistic

 

As is often the case, politicians in Washington are arguing about raising the debt ceiling for the United States. To me, it has always been something of a theatrical pose as they will eventually raise it at the last minute. Actually, it serves no real purpose except to remind them and those of us paying attention to how high the total U.S. debt is.

 

What the media, in my mind, should be paying attention to is a simple calculation that speaks volumes to me. It is total debt to Gross Domestic Product (GDP) expressed as a percentage. I have followed it forever. When Ronald Reagan took office in 1981, it was 31. Twelve years later after George H.W. Bush did the handover to Bill Clinton, it was about 60. Clinton And George W. Bush held the line pretty well and we actually had a balanced budget at one point (under Clinton) so the statistic only crept up to 68. Since then, it has risen dramatically and the last figure that I could find was that the U.S. total debt to GDP was pegged at 129.

 

It is just a number you may say but how does it stack up against the debt levels of other countries? Okay, here is what I have been able to find out recognizing that the numbers change each quarter:

 

 

 

United Kingdom           105

Canada                        118

France                         116

Spain                           120

UNITED STATES        129

Portugal                       134

Italy                              156

Greece                         206

Venezuela                    350

 

Will we be playing tag with Italy in few years? It is possible.

 

Some Northern European countries such as Denmark, Holland and Norway weigh in at round 50 as does Australia. Germany, the largest economy in Europe is about 70 (since the great runaway inflation of the Weimar Republic in the early 1920’s plus the aftermath of World War II, Germany does not like public debt).

 

Again, you may say so what—it is just a number. The World Bank suggests that when your ratio of debt to GDP goes over 77, growth in the economy is hampered by debt service and slows expansion. The more you go over the benchmark, the harder it is to grow. Additionally, your credit rating declines as the possibility of default grows. Would you rather buy an Australian bond or a Venezuelan bond? I think you do not need to do some sharp figuring to decide on that one.

 

Yes, we are the United States of America and the dollar is the global reserve currency. We also are the top military power. Are we headed for default? I would say no as our debts are in dollars and the government can simply print money to cover it. What the purchasing power of those printing press dollars would be is another thing, but, nominally, we would not default on our obligations.

 

Greece and Spain are not in such an enviable position as their debt is in euros which they cannot control. Ditto places such as Argentina which has had debt problems for a few generations and can often only get financing which has to be paid back in “hard” US dollars.

 

So, default is not imminent no matter what the doomsters say. Yet, when I look at the debt to GDP ratio every few months, it gives me pause.

 

I have never been more confused about the state and direction of our economy. This unsettling statistic on debt to GDP does not help any and those in the media world rarely mention it.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.