Watch "The Money Fix"

Do you know how money is created?  Here's a hint:  most of it is not created in a mint.  Most money is created as debt: you take out a mortgage and POOF the bank creates that money based on your promise to pay it back.  It's sort of mind-boggling and confusing.  The first 10-15 minutes of "The Money Fix" detail the process of how money is created as debt, so at least watch that.  Here it is:

Do the United States need to "win the future?"

I was seriously taken aback by the language of President Obama's State of the Union, primarily his theme of "winning the future."

At the beginning of the speech, he spoke of a "new era of cooperation" between Democrats and Republicans.   But from that lip-service phrase, he launched into a declaration of competition.  America has to win and everyone else has to lose.  “We need to out-innovate, outeducate and outbuild the rest of the world. We have to make America the best place on earth to do business...that’s how our people will prosper."  He mentioned that China has the world's largest private solar research facility, and our expected response is: we must build a BIGGER one.  They have the fastest supercomputer, we will build a FASTER one.  No one questions the Holy American Dogma of being number one.


In this way, America can "win the future," Obama said.  "The future is ours to win." Wtf does that mean?  The future is not a trophy or a promotion.  Usually when you win something, it means everyone else necessarily has to lose.  If America wins the future, who loses it?  The rhetoric of American competitiveness, although always pervasive in our history, sounded particularly insane to me in this State of the Union.  It conjures images of frenzied Americans with bulging eyes ripping apart other nations, somewhat like feeding koi:

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Maybe it's because I just read No Contest: The Case Against Competition by Alfie Kohn.  Kohn debunks the idea that competition is the most efficient model to make people prosper, as Obama suggests and most Americans accept.  As Americans, we compete in every aspects of our lives.  Kohn shows that competition is not the most efficient model to educate, conduct research, play, or work.  Obama said we have to "win the race to educate our kids."  In context, he's not even comparing our students to Chinese students or anything, it's just a race against...time?  Kids growing up?   Obama said: "we need to teach our kids that it's not just the winner of the Super Bowl who deserves to be celebrated, but the winner of the science fair."  What he clearly means is: only winners should be celebrated, and everyone else who submitted a science fair project is a loser and can't be a scientist.  This, of course, reflects the language of Obama's Race to the Top education competition, which pits schools against each other to compete for funding.

I guess this rhetoric shouldn't suddenly surprise me - it's the same cowboy "we're number one" swagger as usual.  Sure, educating our kids and doing scientific research and building high-speed rail are great projects.  But framing it as "we won't be happy until South Korean kids are dumber than American kids" and "our high-speed rail is faster than yours" just sounds, well, insecure.  We're a nation that loves to one-up.  Over and over, Obama used the idea of a race, a battle, a war, a contest.  Why does the rest of the world have to lose in order for Americans to prosper?

Be Your Own Boss. Start a "Business."

There's a job scheme that's been annoying me lately.  The most direct way to introduce it is to recall those "summer job" ads for Cutco knives.  Via Vector Marketing, CutCo makes most of their sales through "independent sales representatives."  Here's an article by Scott Schlimmer that explains his experience with Cutco.  He got an offer in the mail when he was 18 years old which promised him an $18 an hour job.  He bought the required $200 sales kit and then was instructed to practice selling to his "nearest relatives and family friends."

His account is worth quoting because it outlines the basic model that I want to discuss:

"My parents, relatives, and family friends did buy Cutco. They did not buy because they were wowed with the products. They bought because I was selling to them, and they were supportive. This is what Cutco preys on. Bring in young kids. Use these kids to make sales to the kids' family and contacts. 

Once you have sold to all of your family and friends, what do you do then? Vector does not give you leads. As if the $100+ dollars each family member has spent on knives is not enough, Vector then has you pull your leads from them. You ask each person for 10 leads...

The seller does not get paid just to show you the knives. There is no $18 per hour. You get paid a minimum of $18 per appointment. However, it is extremely embarrassing to request the minimum, because that would indicate that your commissions are low."

In researching this, I've learned that this is called network marketing or affiliate marketing or home-based business marketing or just direct selling.  Not surprisingly, wikipedia has some pretty clear descriptions going on.  There's a fine line between this model and an illegal pyramid scheme.  Here's how it usually works:

1. Use the language of entrepreneurship to lure students and low income workers in.  Phrases like "start a business," "be your own boss," "flexible work schedule," or promises of high hourly wages or commissions are common.  This angle is obviously very appealing to people whose other employment options may be low-paying service or retail jobs.
2. Make the new contractor purchase a sales kit.  Could be $99, could be $400.
3. Train the contractor in how you want them to sell: what to say and what to purposefully omit.
4. The contractee makes appointments through his social network to "demonstrate" products and make a high pressure sales pitch.
5. His friends and family buy products because they know and like him and want to help him.
6. Not surprisingly, there is a lot of markup and most of the profits go to the company.

Sure, lots of companies have salespeople.  But there are a few things very wrong about network marketing.  Most obviously, it commodifies relationships.  Would you buy $100 knives if you saw them in the store?  Probably not.  Would you buy $100 from your nephew Joey who just spent the last 45 minutes earnestly going through his sales script in your living room?  Probably yes.  It hijacks the trust between people.  It's not word of mouth if someone else is putting the words in your mouth.  When people are able to avoid traditional advertisements, marketing people find other ways. 

Once someone sells knives to everyone they know, CutCo has no obligation to that contractor.  She has served her purpose by exhausting her social network.  From a labor perspective, this is a brilliant strategy.  Salespeople don't get paid for training and have to buy a sales kit or put down a deposit to even start, so even if the person sells nothing the company still has $100.  Unless she sells more than $1000 of merchandise, her commission is 10%.  That might almost cover the cost of the deposit - a triumphant break-even, unless you count gas money.  One of the forums had a post from a CutCo corporate employee boasting that their knife factory in New York was unionized.  Seriously?  You don't see any inconsistencies there?

I'm not trying to pick on CutCo alone.  They are just a good, well known example.  Amway, Primerica, Tupperware, and Avon are others that operate like this.  When I search for these companies, I get lots of hits of long angry forum threads screaming "IT'S A SCAM!!"  Well, obviously I think so too, but they're not doing anything actually illegal. Some of these companies include a "multi-level marketing" aspect where salespeople have to recruit other salespeople, coming even closer to a pyramid scheme.  When it comes down to it, these companies are not offering real jobs and are just being exploitative and it's up to you to realize that.  This is where the deceptive recruiting comes in.

"What would the opportunity to own your own business mean for you? 
An opportunity to make more money, be your own boss, spend more time with your family, give back to your community, create a legacy for your children, or build something uniquely your own." (Amway recruiting materials)

Amway's four founding principles are Freedom, Family, Hope, and Reward.  Primerica's slogan is "Freedom Lives Here." At the end of one of their promotional videos, one fine print statement says "the images of luxury travel, homes, and purchases are not intended to demonstrate the earning potential of typical RVPs/Representatives."  These companies adopt the ol' familiar American rhetoric of taking initiative and not being a drone to shepherd you into a position where you probably will make less than a drone and compromise the integrity of your personal relationships to do so.

your life as an amway salesperson.  results may vary.

Sure, you make money - By taking it from people you know and then forking over most of it to some lame company.  I've been particularly angry (can you tell...?) about this since encountering a few people I know who are talking excitedly about "building their business" or being "promoted" after recruiting new people.  This is not starting a business.  This is marketing someone else's business.

One more point.  With Amway, you can buy anything you can think of online through an "independent business owner" and he will get a commission from it.  The logic is, if you're buying something anyway, like toilet paper, why not give my buddy Jonathan a cut of it?  Your desire to achieve the feeling of helping someone out may trump your usual comparison shopping.  And worse, it will further confine you to buying into Amway's way of doing things.  Buying a t shirt through your your buddy Jonathan's Amway products because you want to help Jonathan effectively blocks you from filling that need by buying a t shirt produced locally, sustainably, from someone you know, etc.

Now I'm all riled up.

Get yer Utils

The word utils is bandied about quite often here at Cheapions HQ.  Short for "utilities," wiki calls utility a "measure of relative satisfaction."  For example, I get a lot more utils out of 4 oz of dried apricots than I do from 4 oz of peanuts due to my great love of dried apricots and relative indifference towards peanuts, unless they are honey roasted or something magic like that.  We use utils when considering many decisions, for example, whether to attend an event.

Basically, it is useful to have an internal gauge of value instead of relying on external factors like prices or peer pressure.  What is this item or experience worth to me right now?  Buying General Tso's chicken for dinner when you are 3 blocks from your house is a different choice than buying it when you've been in the Minneapolis airport for 6 hours and you're very hungry and you have already licked the salt out of your little bag of peanuts which were not even honey roasted.  I read this quote that someone said somewhere: "Thrift becomes stinginess when it prevents you from having something you want and can easily afford."  Mmm.  I get so many utils from dried apricots that it becomes irrational to not buy them because they're a little expensive.
 

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Recognizing your priorities is a really important step in figuring out how to allocate your money.  People think of budgeting and saving as a form of dieting in which you have to deprive yourself of things you like.  But really, budgeting and/or saving is just a way of focusing your resources so you can get more of the things or experiences you like.  And then, there's the wonderful consideration of opportunity cost.  If I don't buy this falafel, what else could I do with these $7?  I could make an entire pizza or get 3 chocolate bars or rent a pair of snowshoes.  If I don't go to see Iron Man 2 tonight, what else could I do during that time?  You get the point.

Or do you?  If you have a full time job, consider the opportunity cost of that employment.  What do you give up in order to perform that job?  Timewise, perhaps you spend 40 hours a week at the office and maybe 5 hours a week commuting.  What costs do you accrue in order to be at work and adhere to the dress code?  Gas money, subway passes, wardrobe, lunches eaten out, etc.  What are you getting out of the arrangement?  Yes, money, but what else?  All I'm saying is, your biggest choice in your whole life and your biggest choice every day is what to do with your time.  Spend your time how you want to.