28 August 2011

Is Private School Worth It?

There is an article in The Age Magazine (26/08/11, Page 37, by Lucinda Schmidt) about parents angry over their children's private school fees, which have increased significantly over the last ten years. Furthermore, these parents are demanding more transparency, claiming that they don't know how the money is spent.

While reading this article, I couldn't help thinking, "What do these parents expect?" It is no surprise that there are some very expensive private schools out there, some charging over $20,000 per year. If these parents were complaining about a government school, it would make sense. However, they have already signed on the bottom line and agreed to pay the fees. This is how things work in the private sector (i.e. the seller sets the prices and the buyer accepts it by entering into an agreement or rejects it by walking away). These are private schools that set their own prices. I would have thought that private enterprises have the right to set their own prices. If parents believes these fees are too high, they could demant that the government intervene to set prices. But if government sets prices, these private schools wouldn't really be private.

Would I send my children to a private school? The answer to that is yes. There is one private school that I consider to be a good school mainly because I spent eight years in there as a student. I then spent five years in a Catholic school and noticed a drop in quality. The quality of the first private school is not really in terms of good teachers or good methods of teaching. Rather, the original school had better facilities and students engaged in much more extra-curricular activities. Some people argue that it would be cheaper to bring your child to a government school and, with the savings, get the child to do these extra-curricular activities outside of school hours. This is not practical as there is limited time outside of school to do these activities and, secondly, the child would be performing these activities with his school colleagues, which is a missed opportunity in terms of building social skills.

But of course I don't have children yet and maybe I won't ever have children. The reasons why I would put my own child through a private school was because of positive experience that I myself had in the school. But I do believe that in terms of academic performance, much of it has to do with the talent of the child himself and furthermore how much support the parents give the child.

27 August 2011

Equity Index Fund Investors Being Plundered

A friend of mine told me that executives and directors in many publicly listed companies sell shares and accept money from index investors. Then they plunder this money by accepting bribes from unions to lift wages of workers. They also accept bribes from corrupt politicians to raise company taxes to help fund election campaigns to keep them in power. The union leaders are able to "negotiate" a higher wage and get performance pay bonuses. The politicians too raise tax revenue to use to help them stay in power. The executives take bribes and pay themselves large bonuses and salaries. Everyone wins except the shareholders (including index fund investors).

So why then do people keep investing? Why do shareholders keep plowing money into the company only to see it being plundered? Because they are sold a dream. By telling investors to invest for the long term, there is no accountability. Index fund investors keep plowing money into stocks like lottery players keep plowing money into tickets.

Buying and holding in equity index funds worked in the past because we were living in an era when the size of government was small. Today, the size of government is large and, let's face it, government is controlled by a network of executives and directors of big corporations whose objective is to create wealth for themselves. Hence they use the power of government to seize the revenue of corporations and distribute it among themselves. They are looting shareholders and selling them the opiate of the investor masses (i.e. "in the long run everything will be okay").

If you don't believe me, look at the statistics on the size of government. It has increased massively. Furthermore, the dividend yield on S&P500 companies used to be high but has fallen to almost nothing.

14 August 2011

University Not Worth It?

The video above questions the common wisdom that you will get ahead if you go to university. Going to university normally leaves the student will massive debts that need to be paid off upon graduation, and going ot university simply does not guarantee that your pay will even be much better than that of someone who never went to university.

I have spent a long time in university, completely believing the common wisdom that you must go to university and that only losers became construction workers, plumbers, or carpenters. My parents would look down upon these tradies, commenting that they are uneducated people who got where they are because they lack university education. But after graduation I found myself with a fairly average job that the typical university graduate would get, but look over at the tradies and they are earning big bucks (see cashed up bogans).

I don't see anything wrong with going to university to get knowledge for its own sake, but if that is what you want then going to an expensive and elite university is not necessary as you can effectively get the same knowledge in libraries or even online. The university degree not only gives you the knowledge but it also gives the piece of paper that brands you, and that piece of paper is used by the graduate to secure himself or herself a better job. University was and is mainly a snob tool.

Even if I were in high school again and thought about what I wanted to do for a living, I would probably still go to university mainly because I don't think I'd be a good plumber, but young people out there ought to think twice before going to university. It may not be worth it.

Why I Prefer to Rent

There was a documentary on 60 Minutes this month called The Big Squeeze about families who made good incomes who borrowed incredibly large amounts of money from the bank to buy a lot of real estate. They then lived large and expected to come out ahead assuming that real estate prices always went up. Unfortunately, their dreams have now been crushed as rising prices of essentials, rising interest rates, and falling wages and even unemployment have squeezed them. The documentary asks whether it is better to rent rather than buy a home, as is the norm in Asia and Europe.

If you rent, you can live for cheaper and you can invest the difference in shares, managed funds, or property syndicates. If you buy the bank, you pay off the mortgage to the bank and hope the value of the family home rises steeply. The decision to buy or rent is quite an even match if you do the numbers, but the problem with making an economic forecast is that you are making massive assumptions over long period of time (the average mortgage lasts for about 30 years). After many of these buy vs rent calculations are done, renting and buying are normally about the same.

When you are buying a house, you are assuming many things working in your favour, namely that interest rates are low, house prices go up steeply, you keep your job and don't get a pay cut, and you live in the same place forever. This, in my opinion, is the deal breaker. Far from providing security and stability, buying a house actually locks you in and limits you. It denies you freedom to move to get a better job or to take a risk in your career. A home owership culture, in my opinion, does little in a country other than encourage wage slavery. When you get a mortgage, the bankers have you by the balls, and you stay quiet and work hard for them for the next thirty years of your life.

The benefit of renting is the flexibility. I spend about $10 per day to eat out at restaurants for lunch. If McDonald's offered to give you a $10 meal every single day for the rest of your life for a lump sum of $50,000, would you take it? I certainly wouldn't because I don't know if I will continue to like McDonald's for the rest of my life. Furthermore, if I give $50,000 to McDonald's then they have no incentive to work hard because they have all their money. They can produce poor quality food and it wouldn't matter because I have already paid the $50,000. This analogy is supposed to be similar to buying vs renting a house. If you buy a house, you lock yourself in because moving have immense costs (due to high stamp duty). Furthermore, if you buy a house, you are responsible for everything, for all the repairs and you even suffer is something goes wrong in the neighborhood that impacts the house price (e.g. if the council approves for a tip to be built next to your home). Buy renting allows you to shop around for the best product. Like the restaurants who fight over your money, lordlords will fight over your rent money.

Fame and Fortune by Horatio Alger

Three years ago I read Horatio Alger's Ragged Dick, a story about a young bootblack who grows up to be a respectable young man. I have just finished reading the sequal to this story called Fame and Fortune.

This story continues on from the original story and sees Dick being blessed with a respectable job by the father of a boy whose life he saved. The generosity of this man as well as this new job of Dick's ensures that a number of people are jealous of him. As a result, those who are envious of Dick's success plot to frame him for a crime he did not commit.

This sequal is very much like the first story Ragged Dick (and probably like every other Horatio Alger story) in that this story is very much a fantasy and a moralistic story (some have described Horatio Alger fiction as male Cinderalla stories) about how even the poorest and disadvantaged man can gain riches and respectability through honesty and hard work. Nevertheless, I believe that the lessons taught in this book are very positive, and I would not hesitate to encourage young people (children and teenagers) to read it because of the lessons it is meant to teach.

Some of the negative points about this book and this idea that honesty and hard work will result in success is that it does not address the possibility that in some areas and in some instances hard work does not pay off. Although the rags to riches story is very popular in America, there is some evidence to suggest that there is not much social mobility in America, a country that is characterised by an immense gap between rich and poor.

Download Fame and Fortune at Project Gutenberg
Buy Fame and Fortune at Book Depository

The Virgin and the Gypsy

I have recently purchased a second-hand HTC Desire, which I mainly purchased because I wanted a phone with a fairly large and high-resolution display for me to read ebooks on the train on the way to and from work. I downloaded D.H. Lawrence's book The Virgin and the Gypsy to read.

This is the story of a young virgin girl who is the daughter of a rector and her fascination with a big and masculine gypsy man. This story is short and intense, unlike the meandering and boring David Copperfield by Charles Dickens (a book I am also currently reading but struggling to finish).

I enjoyed Virgin and the Gypsy immensely and high recommend it. Read or download the ebook below for free:

The Virgin and the Gyspy, eBooks@Adelaide

13 August 2011

UK Tenant Evicted over Son's Rioting

According to Cameron Backs Eviction for London Rioters published in The Age today, "a London council became the first to begin evicting a tenant whose son faces unrest charges."

You can imagine a struggling family living in social housing. The son may be a rebellous teenager who spends his time rioting and looting. But then suddenly the whole family, including the mother and father, the daughter, the baby, the dog, etc are evicted from the house and left to fend for themselves on the streets simply because the son commits a crime.

This strikes me as grossly unjust.

07 August 2011

Corruption Not Harmful?

A Singaporean friend of mine who had just been on a month-long holiday to his home country, chatted with me a few days ago about what he perceives to be a high level of corruption in Singapore whereby the ruling party in that country silences opposition parties by passing through legislation that punishes those who publish opposing views. This came as a surprise to me because the highly regarded corruption perceptions index (CPI) by Transparency International declares Singapore to the least corrupt country in the world.

According to Transparency International, Singapore is not a corrupt country, but according to many Singaporeans I actually talk to, Singapore is a highly corrupt country.

From what I hear, the corruption perceptions index merely gives surveys out to people and asks them about their perceptions on how corrupt a country is. This is hardly a rigourous measure of corruption. Some have suggested that a measure of the amount of bribes you need to pay is a better measure, but the problem with this is that I don't think corruption can be measured by bribe payments alone. We first have to look at the definition of corruption. Most academics define it as follows: "The use of government power for private gain."

It is my opinion that most of the time people's perceptions of corruption is itself corrupted by snobbery. That is, most people believe that rich countries are not corrupt while poor countries are corrupt because rich people have integrity and are honest whereas poor people are dishonest and have no integrity.

Based on this definition of corruption (corruption is "the use of government power for private gain."), let's face it, virtually all politicians and public servants are corrupt, even politicians and public servants in rich countries. Most politicians and bureaucrats use their position as a career, and large companies make non-transparent political donations to parties to effectively bribe them. Even in developed democracies politicians are driven by private gain, trying as hard as possible to stay in power, whether it is by accepting political donations from large interest groups and lobbies but also by pandering to voters' demands. A politician giving to voter demand is, by the definition of corruption we agreed to above, is corrupt.

It is clear that in all countries government responds to the demand of whoever is most powerful. The only difference between a democracy and a dictatorship is that power is not concentrated. In most healthy democracies, the country is still ruled by an elite but a little bit of power is given up to the people as a compromise.

My point is that perhaps we should not worry too much about corruption. There are numerous stories about corruption in China and India, yet these two countries are growing rapidly, more rapidly than the growth of Western economies when they were developing.

A particular public official in a developing country may not approve of some development unless he receives a bribe from a company. This public official may hold out for the highest bribe so he can make the most money possible. Companies offer him cash in briefcases under the table and the public official accept a particular company. This may occur in many developing countries, but it also occurs in developed countries. It is no different to the government allowing projects based on auctions.

If a dispute occurs in a developing country between two parties, the richer party will pay off the public official. This is no different to developed countries whereby disputes between two parties are settled in courts whereby the richer party hires better lawyers and drags the case on for long periods to bankrupt the other party.

Corruption in the form of bribes is merely the replacement of "might makes right" with "wealth makes right." It provides a non-violent means of conflict resolution.

GFC2's Impact on Australia

GFC2 is here. The US and Europe are piling on more and more debt and many investors are skeptical about whether they can pay it off. Here in Australia, many seems to be optimistic. In The Melbourne Age, this piece Forget US Woes, China Keeps Our Economy Strong claims that the Australian economy does not rely on the US economy anymore and that the Chinese demand for our resources will keep our economy strong. According to the article, "40 per cent of China's exports went to the US in 2001. Now that figure is down about 20 per cent and falling..." This means that even if US consumers were to become too poor to afford Chinese imports, China has other countries it can export to.

But one area that bothers me is how much US debt China holds: US$1.2 trillion worth (source: NPR, China Blasts US over Credit Rating Downgrade). If the US is unable to pay off this massive debt and defaults, the US$5 trillion Chinese economy will have a substantial amount of its wealth wiped out. This would have an enormous impact on the demand for Australian resources and hence the Australian economy. Even if the US were to avoid default by printing money, the outcome would be similar. The Americans would print money and hand these dollars to the Chinese. The printing of money will cause massive inflation thereby causing the American dollar to drop in value. Even though the Chinese hold US$1.2 trillion worth of US debt, if the US dollar is worthless then that will drop demand for Australian resources.

Many newspaper economists are going on about how China is now Australia's master and not the US. Be that as it may, these newspaper economists do not seem to give much description of the linkages between the US economy and the Chinese economy.