Money Talks

by Larry Teren

Money talks. Who’s listening?

A book written more than a decade ago presents, for example, two case studies on the:

  1. Financial consequence of being lazy or tardy.
  2. Financial incentive to cheat.

The first case involves a day care center where parents are habitually coming to pick their child(ren) up well past the 4pm closing time. A not-too-happy employee is obligated to stay at least once a week a half hour to an hour late without pay because of the inconsideration of these parents.

The owners of the day care center make a decision to charge a $3 fine per each child when a parent arrives late. The fine is tacked on to the monthly bill. Before the fine system is instituted, maybe a handful – four or five- parents a month are habitually late. A couple of months after the fines begin to be assessed, it turns out that more than twenty parents are now late and being assessed fines.

The increase in the number of late parents are the result of a couple of unintentional actions by the day care center management. Assessing a late fee becomes a validation for such action. It also places a value on being late for which the parent then can decide if it’s worth it. In other words- one can be late and this is how much it is going to cost.

There are parents who most likely wanted to be late but until the penalty comes into place are afraid to do so. They see that the day care people recognize it as a fact of life and place a financial worth to it. This validation gives these parents the impetus to change their personal time management, even at a cost. There are also parents who probably feel guilty about being late but now that they are being fined their guilt is relieved. They see it as an extra service fee worth it as a sacrifice to their budgeted time.

This is no different than public library users borrowing books. The vast majority return their books on time but there are a few who for whatever reason let the deadline slip. The library publishes the late fee and the borrower knows in advance how much to expense against their tardiness. Everyone goes home happy, hopefully.

It’s the same with paying off credit card purchases. Some people pay their bills in full- others know the consequences in advance of late payment and make those decisions recognizing the cost of the consequence.

The other case involves the Chicago Public School system which about a dozen years ago sensed that there is cheating going on. All of a sudden, evaluation tests show a marked improvement in class-wide scores.

The highest level administration is convinced there is cheating. Statistician analysts are brought in to review the grades on the multiple choice tests and the pattern they detect becomes obvious. The cheating is not being done by the students but rather the teachers. The instructors are erasing the marks made by their students and systematically marking a range of answers with the correct solutions. The intention is not to be too obvious and create a glut of A students but to reduce the number of D and F students percentage-wise. Why? Because teachers are given financial incentives for improving the average grades in their classrooms.

The result is that those teachers are identified and fired. Of course, the Teacher’s Union protests but facts are facts. No one wants cheaters to be teachers.

In the early part of the 2010s decade, the Chicago schools are still using the same testing system. By 2013 or so, they shift to a test system authored by the Common Core State Standards Initiative, which is used in most other states. There is a dramatic shift in several school’s evaluation of entire grade ranking compared to the same grade around the country. It has gone significantly down.

Some schools are put on warning of closure, others do indeed close. It is a case of throwing out the baby with the bath water. The thinking is that a school’s sense of educational worth has become so polluted, it is better to shift those students to nearby schools. Fumigate the culture by vacating the school building into obsolescence.

Our first example shows that having enough money helps make it easier for some to perpetuate a personality fault- being late for an obligation. The second example exposes that financial incentive may lead to unethical action that unfairly causes the rest of us to spend more money.

Yes, money talks and we all wish we can control the conversation.

Should Rich People Pay More in Taxes? or It’s the Economy, Stupid!

So, how many millionaires are there in America anyway? That’s a fair question, right? Some people of a certain political persuasion believe that the solution to our economic crisis is to ask the very wealthy to cough up more dough. Repeat this mantra- “if we collect more tax revenue, the deficit will eventually disappear.”

Did you know that more than a third of the income tax returns that are filed end up in not having to pay taxes at all during the course of the year or what is paid in is refunded back 100%? This is especially true for senior citizens who rely solely on monthly social security payouts for income. That means that a little more than 60% of us are paying for everyone’s needs in America . In the interest of full disclosure, the quarterly estimates I begrudgingly pay don’t come back to me or at best are used to help reduce the estimated amount I owe for the first quarter of the next year. And I am not in a bracket that is going to put a dent in the deficit.

Continuing with this disclosure business, I am not an economist nor even a licensed accountant. In the early 1970’s, I was required to take a class in Economics at Northeastern Illinois University in order to fulfill the obligation for a more well-rounded education. A not-so-bad looking blonde lady professor was the teacher who tried to pour ideas about bell curves, trends and consumption- the consumer type, not the disease- into our minds in class. What made it a challenge- for both her and my classmates- was that she was cross-eyed, like Ben Turpin. (If you don’t know who Ben Turpin was, forget it.) She’d ask a question to elicit whether we were reading our textbook at home or wherever. If she was looking in your general direction, you were in trouble. You weren’t sure if she was calling on you to speak up or the person one row behind and to the right. Each time a bunch of hands were raised, she’d say, “you!”. And you’d hear for the next two minutes, “who, me? No, you! Who, me? No, him. Alright, then you speak up….” We learned more about diplomacy and tact in that class than how to balance a budget. Maybe that is what’s missing now.

So, how many millionaire are there in this great country of ours? I asked this question on the Internet and found several answers depending from which the year the statistics are taken. It is probably a safe bet to say that there are at least five million households with more than a million in cash in various banks. I’m excluding those who are on the bubble because their wealth is mostly in property equity.

Let’s say we ask these 5 million rich dudes to donate an extra 1,000 dollars to the tax coffers. What does that do? It brings in an extra 5 billion in cash. Wow! But that is not going to do much for closing the gap on a 4 trillion dollar deficit. What if we gave them all a free supper and raised the ante to 10,000 dollars each? No one likes to cough up so much extra like that but it still will not make a dent in their lifestyle, right? Besides,we only need to stroke them for a couple of years. Just to try to stabilize the economy and bring back confidence to our global partners that this is a great place to invest in. We gain an extra 50 billion in cash but still a mere speck of a dent.

What if we increased the pool of givers and asked those making over 250,000 dollars a year to give one thousand extra dollars to the tax coffers? You are still adding less than 100 billion dollars to federal revenue.

Some people argue that the extra revenue should come from businesses that shelter their income from taxes. Yes, there are a handful of global corporations that stiff Uncle Sam but still not enough to dent the deficit. Bottom line, any extra revenue generation is just going to go into some legislator’s pork barrel project anyway.

Unless you ask 100 million Americans to give big chunks of money the next couple of years in addition to what they are currently obligated, it is not going to do much to narrow the deficit. It seems plain simple to me that the major effort to reduce the deficit is to tackle it from the other side- cutting spending without choking those of us who need the services that are provided by the Federal Government.

A lot of tax-paying Americans- those that don’t give a penny should keep still- would be more amenable to tough compromises if we were all on the same playing field. This means that no government workers including legislators, judges and even the President should have special health care benefits and pension plans. We should all have the same. You cannot expect those with better perks to wisely make decisions that concern the Economy for the rest of us. It’s called conflict of interest, otherwise. What affects our pocketbooks have to affect theirs. And no legislator should be allowed to vote on raising his or her own salary. Any vote on salaries should not be instituted until one term of office following the one being voted on. No one has ever put a gun to the head of a legislator and forced them to run for office. When the rest of us suffer financially, no one in public service should demand or even expect to receive improved benefits.

When do I pick up my Nobel Prize in Economics? Or tell me that I am an idiot and give me concrete examples and no political talk. Thank you.