I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.- Thomas Jefferson.

debt clock

Tuesday, June 8, 2010

Put Down the Burger and Take a Chance

I love just about everything Vedran Vuk writes, here's another-

By Vedran Vuk

The smallest daily risk-and-reward decisions reveal a lot about an individual. Those who avoid the smallest risks rarely achieve much. In the investment world, you won’t get rich investing in T-bills. In daily life, you won’t get far avoiding all risk either.

Even daily food choices can reveal one’s risk preferences. Whether trying a new restaurant or an entirely new cuisine, the chance of being unsatisfied is always present. However, the return is high. Finding the perfect restaurant or a favorite dish can be a life-changing experience.

Discovering a new cuisine can be more rewarding than many investments. If I had to choose between permanently giving up Indian, Vietnamese, or authentic Szechuan cuisine for $10,000, I would honestly choose the food instead. The 10K will be spent; good food can last a lifetime – health permitting, of course.

But success and food? Where’s the connection? Exotic foods seem to attract the risk takers and movers in society. For example, walk into the average Indian restaurant or Vietnamese pho joint, and the demographic will be completely different from the average Burger King or Applebee’s restaurant. Usually, the crowd will be educated young professionals on the move. These are the types of people building careers and planning for the future. The price range doesn’t keep others out. An Indian buffet can go as low as 6 to 8 dollars. A sink-sized bowl of Vietnamese pho soup is nearly the same price. Yet suburbia is filled with a wasteland of chain restaurants and fast food.

We shouldn’t be surprised at all by these chains. The modern American abhors risk of any sort. Just look at locations such as New York’s Times Square. Tourists crowd into the square and then dine at the local TGIF chain. This is an insane concept to me that one would travel hours and hours to see a new location only to eat at a chain restaurant. But most Americans would rather eat microwaved garbage than face disappointment and uncertainty. The whole chain restaurant industry operates around risk-averse eaters rather than quality food.

Another risk crutch for many is geographic location. America’s poor are particularly scared to death of leaving their places of origin. The majority don’t need more programs to better their condition. They just need to move to the countryside. The benefits of being poor in the countryside compared to the inner city are immeasurable, ranging from better schools and less crime to lower rent.

My solution isn’t for everyone to get a college degree. It’s far simpler. If your career goals amount to being a fry cook at McDonald’s, then maybe it’s best to live in the country rather than the city, especially for a family with kids. In my book, raising children on the drug-filled streets of Baltimore or Detroit is right next to child abuse.

When a person becomes completely risk averse, there’s no amount of prodding, pushing, or government benefits to save them. But it hasn’t always been this way. In fact, it was the complete opposite. Previously, the poor sailed oceans to reach America, they crossed a continent for the California gold rush, and left the family farm for city factories. Now, people refuse to leave modern urban hellholes for the reward of a better life.

How do we get back to the old ways? And can we? Who knows. We’ll have to see a lot more adversity until the entrepreneurial risk spirit returns. Maybe the Greater Depression could offer such an unfortunate opportunity.

When the left looks out at suburbia, they see the evils of capitalism. When I look at the suburbs, I see characteristics that will end capitalism instead. Economist Ludwig von Mises once said, “The entrepreneur serves the consumers as they are today, however wicked and ignorant.” Unfortunately, today’s consumer wants the familiar, the secure, and the safe rather than risk the new and unfamiliar.

We’re willing to trade quality for safety. It’s no wonder that our national policies exhibit the same trends. With the new airport scanners in place, Americans are literally allowing their wives and daughters to be strip searched by TSA goons – just for the thought of being a little safer on an airplane. We’re willing to let the government take over health care – just for the thought of a slightly better safety net. We’ve become obsessed with security and safety rather the elements that made us great in the first place, risk and opportunity.

Wall Street regulations are dealt with the same way. The safety net and bailouts must be maximized. The opportunity to even consider engaging in risk must be eliminated. Without risk, there also isn’t reward – a fact forgotten by most schemers choking off risk.

There’s the old saying, “You are what you eat.” Then, who are we? Looking at our food choices, I would say scared, closed-minded, risk averse, and safety obsessed. The entrepreneur continues to serve this consumer, and the government continues to take advantage of him as well.


Links to Reality

If you read the mainstream news, you might be excused for thinking that the nation’s real estate markets are on the mend. However, if you paused to read the Cash for Clunkers article above, you may have already come to the correct conclusion that it was the government’s stimulus that has been almost entirely responsible for what will turn out to be a temporary pick-up in sales so far this year. And you’ll know what to expect when the May data comes out later this month and the June data appears later in July, and can act accordingly.

If you’re interested in following real estate, there are also several web sites that cater to the industry. I have found these sites to be much more focused on the hard data and not the false promises of “happy days being here again.” Here are three articles on real estate, from three of these sites.

Commercial Real Estate Loans Contribute to Bank Failures

CMBS Losses Keep Up the Pace

Strategy of Last Resort: To Default or Not to Default?

Now, just a minute ago, Joe the Plumber walked into my basement. No, not that Joe the Plumber, but a plumber named Joe that we have worked with on various projects over the years.

Joe is not your garden variety type plumber, with the greasy hair and sagging jeans, but a sharp young guy who has built a solid business in doing all sorts of high-tech installations, including geothermal and energy efficient boilers. That sort of thing.

In support of my thesis about the power of the Internet to shed light on reality, I just now had the following conversation with Joe.

“How’s business?”


“Any real pick-up in the economy, from your perspective?”

“No. People are considering doing projects, but so far they’re waiting to see how things go. In fact, if it wasn’t for the stimulus, there wouldn’t be a lot going on.”

“What stimulus?”

“You know, the 30% credit the government is offering for upgrading appliances to be more energy efficient. Last year, the amount a person could receive was capped. This year, there’s no cap. Which means a lot when someone is putting in a solar-powered water heating system or geothermal system, which can run $40,000.”

“How much of your work involves upgrades associated with the government’s incentive program?”

“Pretty much all of it. So it’s working out pretty good.”

“Yes, but I wonder where the money for all this is coming from,” I said, knowing the answer. “After all, money doesn’t grow on trees.”

Joe laughed and rolled his eyes.

“I know, I know. The government is just running up debt like there’s no tomorrow. The dollar is doomed.”

I kid you not, he actually said that.

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