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Bill Gates on the Future of College

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At the National Association of College and University Business Officers Annual Meeting on July 21, 2014, Bill Gates delivered an address on the “Future of College” in America. A transcription is on Mr. Gates’s blog.

Looking at the individual level of opportunity, do people have equal opportunity? The data we see shows that, unless you’re given the preparation and access to higher education, and unless you have a successful completion of that higher education, your economic opportunity is greatly, greatly reduced. There’s a lot of data recently talking about the premium in salaries for people with four-year college degrees. In 2013, people with four-year college degrees earned 98 percent more per hour, on average, than people without degrees. That differential has gone up a lot. A generation ago, it was only 64 percent.

If you look at the numbers more closely, you will also see that unemployment, partial employment, is primarily in people without four-year degrees. Our economy already is near full employment for people with full year degrees. And, so, the uncertainty, the difficulty, the challenges, faced, if you haven’t been able to get a higher education degree, are very difficult already today. And, with changes coming in the economy, with more automation, more globalization, that divide will become even more stark in the years ahead.

So, if we’re really serious about all lives having equal value, we need to make sure that the higher education system, both access, completion, and excellence, are getting the attention they need.

It is unfortunate that, although the US does quite well in the percentage of kids going into higher education, we’ve actually dropped, quite dramatically, in the percentage who complete higher education. We have, amongst developed countries, the highest dropout rate of kids who start. And, understanding why that happens is very, very important. For many of those kids, that experience is not only financially debilitating, being left with loans that are hard to pay off, but, also, psychologically, very debilitating, that they expected to complete, they tried to complete. And, whether it was math or getting the right courses, or the scheduling, somehow, they weren’t able to do that, which is a huge setback.

Worth the read in entirety.

The Pay It Forward Phenomenon at America’s Drive Throughs

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A feel-good story from this weekend is about the pay it forward phenomenon happening at America’s drive-throughs at fast food restaurants, where the car ahead of you in line pays for your meal. The New York Times is on it:

You could chalk it up to Southern hospitality or small town charm. But it’s just as likely the preceding car will pick up your tab at a Dunkin’ Donuts drive-through in Detroit or a McDonald’s drive-through in Fargo, N.D. Drive-through generosity is happening across America and parts of Canada, sometimes resulting in unbroken chains of hundreds of cars paying in turn for the person behind them.

Some great trivia in this paragraph:

Perhaps the largest outbreak of drive-through generosity occurred last December at a Tim Hortons in Winnipeg, Manitoba, when 228 consecutive cars paid it forward. A string of 67 cars paid it forward in April at a Chick-fil-A in Houston. And then a Heav’nly Donuts location in Amesbury, Mass., had a good-will train of 55 cars last July.

Serial pay-it-forward incidents involving between 4 and 24 cars have been reported at Wendy’s, McDonald’s, Starbucks, Del Taco, Taco Bell, KFC and Dunkin’ Donuts locations in Maryland, Florida, California, Texas, Louisiana, Pennsylvania, Oklahoma, Georgia, Alabama, North Dakota, Michigan, North Carolina and Washington.

It hasn’t ever happened to me, but then again, I hardly order food from a drive through (I prefer to walk inside to order a meal).

Post-Scarcity Economics by Tom Streihorst

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Tom Streihorst, a filmmaker and writer who publishes articles on finance and economics, pens an excellent essay titled “Post-Scarcity Economics” in The Los Angeles Review of Books:

We fly across oceans in airplanes, we eat tropical fruit in December, we have machines that sing us songs, clean our house, take pictures of Mars. Much the total accumulated knowledge of our species can fit on a hard drive that fits in our pocket. Even the poorest among us own electronic toys that millionaires and kings would have lusted for a decade ago. Our ancestors would be amazed. For most of our time on the planet, humans lived on the knife-edge of survival. A crop failure could mean starvation and even in good times, we worked from sun up to sundown to earn our daily bread. In 1600, a typical workman spent almost half his income on nourishment, and that food wasn’t crème brûlée with passion fruit or organically raised filet mignon, it was gruel and the occasional turnip. Send us back to ancient Greece with an AK-47, a home brewing kit, or a battery-powered vibrator, and startled peasants would worship at our feet.

And yet we are not happy, we expected more, we were promised better. Our economy is a shambles, millions are out of work, and few of us think things are going to get better soon. When I graduated high school, in 1975, I assumed that whatever I did, I would end up somewhere in the great American middle class, and that I would live better than my father, who lived better than his. Today, my son doesn’t have nearly the same confidence. Back in those days, you could go off to India for seven years, sit around in an ashram, smoke pot and seek spiritual fulfilment, and still come home and get a good job as a copywriter at Ogilvy and Mather. Today kids need a spectacular resume just to get an unpaid internship at IBM. Our children fear any moment not on a career path could ruin their prospects for a successful future. Back in the 1970s, pop stars sang songs about of the tedium and anomie of factory work. Today the sons of laid-off autoworkers would trade anything for that security and steady wage.

Most of us are working harder, for less money and with no job security. My father and I both worked at the same large corporation but there was a difference, a difference determined by our respective eras: he was staff, I was freelance. When he got sick, the company found him doctors, paid his salary, put considerable effort into his recovery. Had I ever gotten sick, they would have simply forgotten my name. He yelled at the CEO habitually without any fear of losing his job. I mouthed off once to a middle manager and was never hired again. He had a defined benefit pension paid for by the corporation, the government gave me a tax break should I choose to save for my own retirement. The company had legal and moral responsibilities to him, which both he and they viewed as sacrosanct. All they owed me was a day’s pay for a day’s work. His generation gave their you to a corporation, and the corporation took care of them in their old age. Today loyalty, if it exists at all, goes just one way. Many of my college buddies, are unemployed at 50, or earning less than they did ten years ago.

He discusses economics in the context of Paul Krugman, Keynes, and Alan Greenspan. Worth a read.

Warren Buffett: Women are Key To America’s Future Prosperity

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Warren Buffett joined Twitter today. To coincide with that move, he also penned a piece in CNN/Fortune, in which he explains how women are key to America’s prosperity:

Start with the fact that our country’s progress since 1776 has been mind-blowing, like nothing the world has ever seen. Our secret sauce has been a political and economic system that unleashes human potential to an extraordinary degree. As a result Americans today enjoy an abundance of goods and services that no one could have dreamed of just a few centuries ago.

But that’s not the half of it — or, rather, it’s just about the half of it. America has forged this success while utilizing, in large part, only half of the country’s talent. For most of our history, women — whatever their abilities — have been relegated to the sidelines. Only in recent years have we begun to correct that problem.

Despite the inspiring “all men are created equal” assertion in the Declaration of Independence, male supremacy quickly became enshrined in the Constitution. In Article II, dealing with the presidency, the 39 delegates who signed the document — all men, naturally — repeatedly used male pronouns. In poker, they call that a “tell.”

Finally, 133 years later, in 1920, the U.S. softened its discrimination against women via the 19th Amendment, which gave them the right to vote. But that law scarcely budged attitudes and behaviors. In its wake, 33 men rose to the Supreme Court before Sandra Day O’Connor made the grade — 61 years after the amendment was ratified. For those of you who like numbers, the odds against that procession of males occurring by chance are more than 8 billion to one.

I couldn’t agree more. Go Warren go!

Who Runs America? The Top 0.1 Percent

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I’ve read some interesting factoids about the 1% of the American population, but this post by a money manager who works with ultra-wealthy individuals has a perspective on the upper echelons of the top 1%:

Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.

Recently, I spoke with a younger client who retired from a major investment bank in her early thirties, net worth around $8M. We can estimate that she had to earn somewhere around twice that, or $14M-$16M, in order to keep $8M after taxes and live well along the way, an impressive accomplishment by such an early age. Since I knew she held a critical view of investment banking, I asked if her colleagues talked about or understood how much damage was created in the broader economy from their activities. Her answer was that no one talks about it in public but almost all understood and were unbelievably cynical, hoping to exit the system when they became rich enough.

Folks in the top 0.1% come from many backgrounds but it’s infrequent to meet one whose wealth wasn’t acquired through direct or indirect participation in the financial and banking industries. One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a “paper” asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. The bulk of any CEO’s wealth comes from stock, not income, and incomes are also very high. Last year, the average S&P 500 CEO made $9M in all forms of compensation. One client runs a division of a major international investment bank, net worth in the $30M range and most of the profits from his division flow directly or indirectly from the public sector, the taxpayer. Another client with a net worth in the $10M range is the ex-wife of a managing director of a major investment bank, while another was able to amass $12M after taxes by her early thirties from stock options as a high level programmer in a successful IT company. The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations. I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them. They are, of course, doing nothing illegal.

So who runs America? The author’s conclusion is damning:

A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules.

Full post here.