What Can Whites Learn from Blacks? And Why Would It Help?


In an oped in our local newspaper, the writer stated that “white folks should learn to listen when black people speak.”  She then went onto gave her story of how, as a young grad student TA who grew up in a white neighborhood with mainly white friends, she was surprised by what she learned in a sociology class she was assisting on the issues facing black Americans.  She then went on to become an adjunct professor and teach a similar class.

She talked about things like how people frequently touch black people’s hair without asking.  About how there are schools in black neighborhoods where they are lucky if one teacher shows up to teach.  About how housing discrimination that benefited whites has had a lasting impact on the ability of black families to build wealth.  And also about how she was unaffected by the unintentional racist comments that students in her class expressed because she was white, but how black professionals are affected by similar comments, but need to pretend like they aren’t.  Her conclusion was that whites need to listen when blacks speak, and that they should not get defensive when they kneel for the national anthem or talk about discrimination.


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Personally, I am all for hearing different views and from people with different experiences.  Being a libertarian, I particularly like to hear the viewpoint of liberal individuals since the proposals they make seem senseless to me.  I want to understand their beliefs and see the evidence that supports their beliefs so that I can understand why they feel the way that they do and understand why they think the ideas they express will work.  Since I feel that government control leads to waste, high costs, and poor quality products, based on my experience, expanding social programs makes little sense to me.  When you realize that liberals feel most individuals have the intelligence of moss, however, suddenly having everyone (except for the liberal elite) put their healthcare in the hands of government bureaucrats makes some sense.   The question then becomes who is right about the capabilities of the average person and average government worker/agency to do what is best when deciding which course to take, private control or government control.

In the case of the oped, however, when you get past the racist ideas that you can lump all blacks together as victims and all whites together as privileged, I still don’t know why having “white folks listen to blacks” would be helpful.  What exactly are whites supposed to do, and what makes the writer think that blacks would need whites to do anything for them?  I think that whites already know that things are bad, and dangerous, in many inner city black neighborhoods.  The issue is that the solution to those issues will come from people within those neighborhoods, not from whites in suburbs and penthouses.

From my understanding, which granted is based on documentaries and newspaper articles since I have never lived in places like Compton, CA or South Chicago, most of the issues that blacks in those areas face aren’t due to their race or something whites are doing to them.  I don’t think there are white people working to keep blacks locked into those areas, or even taking resources from them and leaving them disadvantaged.  In fact, in the case of schools, I actually think a great deal of money is being funneled from the suburban areas into the inner city schools.  Conservatives groups, which are majority white, are also working to offer alternatives to inner-city kids such as private school tuition and charter schools.  It isn’t like whites could do something, or stop doing something, that would cause the lives of inner-city blacks (and whites, and Hispanics) to become better unless inner-city residents are willing to do what is needed to change their lives.  In fact, I think you could swap the populations of Compton and Beverly Hills and within a year Compton would start looking like Beverly Hills and Beverly Hills would start looking like Compton.

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This issue has nothing to do with race, but of culture.  And this is not black culture or white culture.  It has nothing to do with soul food or African headdresses, or with boiled meats and kilts.  It has to do with the inner city culture and the suburban culture.  With the culture of poverty and with the culture of self-sufficiency.  The primarily white culture centered around meth and welfare found in some rural areas is equally destructive as the primarily black culture centered around crack and welfare found in inner cities.  It is more a function of the cultures of the communities than of skin color or racism.

From my limited understanding, again based on documentaries and news stories, the issues in inner cities, which are primarily populated by blacks and Hispanics, are things like gang violence, a lack of parents in the home (particularly male parents), and drugs like crack and meth.  I agree that it would be difficult to get a good education in a school with constant disruptions, teachers that are not present and not motivated to teach while they are there, and the danger of getting stabbed or shot in the hallways or on the way home from school.  But the typical family currently living in the suburbs today would not accept those types of schools.  The parents would be down at the school in the principal’s office every day.  They would be at the school board meetings too, or voting to replace the school board.  If those options did not work, they would move somewhere else with better schools, because their culture places a high value on education.

Note the flight, of mainly whites, from the urban centers to the suburbs during the 1960’s through the 1980’s when schools and communities in general started to decay.  Granted, some of the reason was based on racism as the number of blacks and Hispanics in these areas grew, but there was also the feeling that the values and culture of the neighborhoods were changing, and the residents who historically occupied those neighborhoods were not willing to live under the new conditions.  There were also factors that further affected the inner cities in the 1970’s and 1980’s, which by that time were mainly occupied by blacks and minorities, like the loss of factories and the rise of drugs.  These factors affected the culture of those neighborhoods, which became “The Hood,” where power, money, and drugs became more important than education and family stability.

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It is true that there were a lot of factors that affected those neighborhoods.  That was then, however, and this is now.  Most of the wealth middle-class individuals accumulate during their lifetimes comes from their own work – not inheritance.  Most people buy their own homes, pay for their own children’s college (or the kids pay for their own school through loans), and buy their own cars.  There is no secret society for white that provides jobs, access to schools, and other perks.  If anything, minorities have an easier time due to affirmative action at colleges and companies wanting to increase diversity, which never means hiring more whites.  Poor people have it easier since they do not need to pay for anything – they just need to put forth the effort to apply and then apply themselves.  The inner-city communities can continue to complain about the past and live day-to-day, or they can change their culture and make things better.  It will take a large number of people in those communities to decide to make a change since a few individuals cannot make the change.

As a white person growing up and living in suburbs most of my life, except for about six years during college, I don’t think there is anything I could do to help inner-city communities.  All I can do is say what I would do, since perhaps that would be helpful, but those living in those communities really need to chart their own path and help themselves.  If I woke up in the Southside of Chicago today, and there were a large number of other people who wanted to make a change, the first thing I would do is form a community improvement council to work together since I could not do it alone.  I would work to make the streets safe, which would require a lot of help from the police.  And chasing the police out, as Black Lives Matter is trying to do, is exactly the wrong action since the police are the solution, not the problem.  If the police really were the problem, I would work to replace the city government, who hire the police, and I would encourage people in the community whom I trusted to go into law enforcement.  (Realize that the black residents of Furgeson, MO, could easily replace the entire city board and mayor at the next election, and then form whatever sort of police force they wanted.  This makes more sense than burning their town down, if they really want change.)  Because the drug dealers and the criminals would likely not go quietly, I would make sure I was regularly armed and that those in the neighborhood watched out for each other since the police take time to arrive.

Once the streets were safe, I would then work to improve the schools by getting rid of the students who weren’t there to learn (setting up alternative schools with strict discipline to help turn those around that could be saved).  I would also work to elect a good school board, which in turn would hire good superintendents, who would hire good teachers and improve the schools.  As the interest and work-ethic of students increased, many teachers would improve on their own as they became more motivated by being teachers and not babysitters.


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As the streets became safe and schools improved, these neighborhoods would start to see people move back in who would improve things.  There would be entrepreneurs, restauranteurs, and wealthy individuals who want to live in urban areas close to lots of customers and entertainment.  These individuals would not only bring jobs, but also the work ethic and the culture of success.  They would be mentors for people growing up in those areas who today are mentored by gang leaders and drug dealers.

So that is what I would do.  I would love to hear from Black Lives Matters individuals to understand their viewpoint.  Would your lives be better without police officers in your neighborhoods?  Why can’t you just elect a different city council and make changes in the police force?  Why don’t your sons and daughters join the police to make things better?  What do you think would make your lives better?  I’m listening – what do you have to say?

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Why Health Insurance isn’t Working


Health insurance is somewhat different from other forms of insurance.  Really, what we call health insurance today is part insurance and part prepaid healthcare, which is why it isn’t working very well.  Today I thought I’d discuss how insurance works, and how health insurance is different.

Most forms of insurance are used to reduce risk.  For example, let’s say that there are 100 homes in an area, all valued at about the same price.  The homeowners decide that if they had a fire, they would not be able to pay to rebuild their home since it takes them 20-30 years to build up enough money to buy one.  They therefore decide to each chip in some money into a pool that they could then use to rebuild homes if there is a fire.  In doing so, they eliminate the risk that they would need to come up with a lot of money at one time to rebuild their home.

The first thing they would do is to determine how much money they would need to contribute to cover the costs of rebuilding homes.  Let’s say that they look through data and discover there is a home fire that destroys a home about once each ten years, and that the value of each home is about $100,000.  The amount they would need to contribute is:

(Value of Home x Frequency of Fires)/(Number of Insured)

= ($100,000x 1/10 years)/100 homes = $100 per year

Now, there is a chance that they could have two fires in a year or have a fire relatively early before they had built up enough money to cover the expenses, so they may choose to increase that a little, maybe to $110 per home until they built up enough funds to cover a fire or two, and then reduce the premiums back down to $100 until there was a fire and they needed to replenish the funds.  If a fire occurred and their funds were depleted, they might raise the premium rates back up for a time to build up a reserve.


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Note that everyone is actually paying the cost of replacing his/her own home as often as he/she was likely to have a fire.  He/she could also just save up the money and replace the home himself/herself if a fire did not happen for a long period of time.  There is a risk, however, that a fire could happen right away before savings had built up – hence the need for insurance.  If he/she had enough money in the bank to just pay to rebuild the home, he/she could just be self-insured and save the insurance premiums.

After a little while without a fire, the homeowners in the insurance pool would start to build up some funds in the pool.  Rather than just leave the money in cash, they might want to get a better return for their money.  For example, if they had built up enough to cover 5 houses – $500,000 – they might choose to invest $300,000 of the money in stocks where they could get a good return over long periods of time, keeping $200,000 in cash so that they could cover at least 2 home fires without needing to sell stock.  If the market swooned right when there were a couple of fires, they would still be covered.

An insurance company is no different.  They figure out how often a fire will occur and charge enough to rebuild homes at that frequency.  They also charge more for people who are more likely to have a fire, based on things like neighborhood and the age of the home, and based on how much damage they expect a fire at the residence to cost.  They would therefore charge more for homes that cost more, and less for homes that are close to fire hydrants and maybe those which have sprinklers and other measures to reduce the damage from a fire.  They also charge a little extra to pay for the salaries of the insurance company workers and executives, advertising, and other costs of running the insurance company.  If there is enough competition they will reduce these costs as much as possible to keep their premiums in line with those of the other companies.

The insurance company makes money by charging a little more than they pay out and by investing the money that they have stored from premiums during the periods between events.  If there is a big event they may raise premiums for a while to rebuild their savings to reduce the risk that they will not have the funds to pay for the next event.  If there are changes in their risk – for example, the value of the homes increases or there is an increased risk of fires because the town authorizes the use of fireworks – they may increase their premiums to cover the additional risk.  Likewise, if people start using the insurance more often, they raise premiums to cover the additional costs.

Health insurance is different.  In the past, what was called “major medical insurance,” which only covered hospitalization, was similar to fire insurance.  Most people would not go to the hospital in a given year, and therefore money would build up in the insurance pool which could be invested.  Modern health insurance, however, is really just prepaid healthcare.  Because it covers doctors visits, shots, and other things that most people do each year, most of the money that people pay into health insurance is paid out in claims each year.  Also, unlike homeowners insurance that most people do not use and would not use unless there was a major event, many people will go to the doctor for the least thing because they have the sense, correctly, that they are paying for it anyway.  Likewise, they might choose the expensive medicine over the cheap medicine because they like the color of the pill or the box it comes in.  If they had to pay $100 more themselves, they likely would not think the color or the box was worth the extra price.

So with health insurance, you are just paying the cost of your likely medical expenses each year to an insurance company, which then turns around and pays the doctors, in addition to paying into a risk pool for major events.  The portion going to the risk pool for the very serious conditions that require hospitalization may be building up and being invested, but the portion going to general healthcare like doctor’s visits is spent each year.  Because the money is being spent each year, the cost is equal to the amount you would pay the doctor when you went plus the cost of the insurance company administration, advertising, and a fee to make it worth their while.  So you end up paying more for healthcare than you would if everyone just went to the doctor and paid cash and only used insurance for hospitalization.

In addition, because the natural tendency is for people to use more healthcare since it costs the same whether they use it or not and because the most expensive treatment and the least expensive treatment generally cost the same to the patient, insurance costs are higher than they would be if people were limiting their visits and choosing the low-cost treatment because they were paying out of their own pockets.  This feeds on itself, with premiums increasing, causing people to be more likely to go to the doctor and “get their money’s worth.”  We would be paying less and be in a much better situation if health insurance were like auto insurance, where you pay for the tune-ups and the oil changes yourself, reserving the insurance for only unexpected accidents.


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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Beware the Fed


There is an old axiom on Wall Street:  “Don’t fight the Fed.”

The Federal Reserve holds an enormous amount of power over the economy.  While the President is usually blamed for a bad economy and praised for a good one, the fact is that the federal reserve actually has significantly more power over the state of the economy.

Despite the name, the Federal Reserve is not an institution of the Federal Government.  The Federal Reserve is made up of a board of bank executives from around the country — the “Governors” — with one individual chosen as the Chairman.  The Chairman is chosen by the President and confirmed by the Congress, but the post is meant to be non-political.  The group meets periodically to discuss the state of the economy and any action that should be taken.  The power of the Federal Reserve over the economy is so acute that the discussions held during the meetings are kept in secret with notes from the meeting only being released several months after they meet.

Often traders will move the stock market up or down before the Federal Reserve meets based on what they expect the group to decide.  If the group’s decision surprises the market, the stock market will often move up or down several percentage points.  The announcements made by the Federal Reserve are purposely made rather vague since they know the power of their words.


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The Federal Reserve controls the economy through two levers, the Discount Rate and the Fed Funds Rate.  The discount rate (http://en.wikipedia.org/wiki/Discount_rate) is the amount that the Federal Reserve charges banks that borrow funds from it.  Generally, it is frowned upon for banks to borrow from the Federal Reserve directly and they generally get a scolding when they do so.  The exception is during the recent money crisis where borrowing from the discount window was encouraged since other sources of capital had dried up.

The Federal Funds Rate (http://en.wikipedia.org/wiki/Fed_Funds_Rate) is the rate at which banks loan each other for overnight periods.  The Federal Reserve does not control the Fed Funds rate directly, but instead adds money to the economy or takes it away to affect the rate.  This is done by selling notes, which has the effect of removing money from the economy, or buying notes, which injects money into the economy.  Like anything else, the more money there is in the economy to lend, the lower the price for borrowing (therefore the lower the interest rate).

Because the bank’s costs of capital decrease when the rate at which they can obtain decreases, they also tend to lower the rates they charge.  This trickles up into the economy (except, interestingly, credit card rates), such that most rates tend to fall.  Because the rate savings accounts provide drops, bonds become more valuable, so their price tends to rise, dropping the amount of interest they provide.  Likewise, because the return of common stocks becomes more valuable, stock prices also tend to rise.

This is the reason to not “fight the Fed.”  When the Fed is lowering rates, it’s best not to be short, and when the Fed is raising rates, it’s best to prepare for a fall.  Note that in the early ’90’s, the Federal Reserve lowered interest rates to bring the economy out of the early 90’s recession.  The stock market took off first, followed by the economy.  President Clinton was credited with the good economy that followed, but it was all touched off by the Federal Reserve.

In the late 90’s, when inflation was starting to pick up and internet stocks were trading at ridiculous prices, Fed Chief Alan Greenspan warned of what he called “irrational exuberance.”  The Fed began raising rates to pick the ensuing bubble.  A few months later, the bubble burst and the early 2000 recession occurred.  President George Bush Junior was blamed for this recession, but the stock market had already started to fall before he took office because of the actions of the Federal Reserve.  Finally, just before the latest recession, the Federal Reserve, concerned about housing prices, began to raise rates to dampen the economy.  This caused the housing bubble to burst, leading to the current state.

The action of the Federal reserve typically takes half a year to have an effect.  It takes time for companies to start borrowing and hiring after rates are lowered.  Likewise, when the economy has a good head of steam it takes time for the wheels to grind to a halt.  The Federal Reserve set rates at near zero in 2008 and had been waiting for the economy to pick up.  It appears that there has finally started to be some growth, and the Feds are starting to slowly raise rates because they fear inflation picking up.  As they do so, it is likely to slow the economy and may cause stocks and bonds to fall, at least temporarily.

It would not be wise to fight the Fed.  If you have money invested that you need within a couple of years, it might be wise to take opportunities to sell.  If you are invested long-term, however, it would probably be better to just stay put.  You don’t know if the effects will be immediate or if there will be a great run-up through this New Years’ season as there often is.  If President Trump is able to get a tax cut through, that will also add fuel to the fire and you might miss out on a great advance in stock prices before the Fed’s effect is finally felt.  The effects of the Fed are temporary and matter little if you’re investing for 20 years.  Missing a big move up in stocks because you’re sitting on the sidelines will.

Have a question?  Please leave it in a comment.  Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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