First of all, if the parents are paying for the education, the child will then be expected to earn enough to pay for his/her children’s education. Of course, by the time these children are in college, tuition will have climbed to at least $140’000 (if current rates continue). This is far above any inflation rate and is therefore like one big Ponzi scheme.
The second option would be student loans, which then means the students needs to pay back this $100’000 on top of all other life expenses, including a car, mortgage, family, etc. Chances are, more than 20 years will be spent paying this, at which point the child is getting ready to go through the same cycle. Here the loans will be for a greater amount (to cover higher tuition rates), since there is very little chance the parents were able to save enough since they’ve been paying off their loans*.
Well, could anything make this situation worse? Sure. It turns out many students in China, as well as many other countries in Asia, just have other people apply to college for them. This means someone else who can offer “ghostwritten essays in flawless English, fake awards, manipulated transcripts and even whiz kids for hire whoʼll pose as the applicant for SAT exams.” The price for this? Between $5,000 and $15,000.

And, lest you think it was purely a cultural matter, a certain Sam Eshaghoff from Emory University was recently convicted of taking the SAT for six other students, earning between $1,500 and $2,000 for each test.

In other words, families are paying extra, under the table money in order to have their children go to an institution where they will then pay exorbitant fees, and somehow hope that our economy will provide jobs to make it all worthwhile.

This does all sound a bit crazy, doesn’t it? So what are the alternatives? Some have been proposed, such as degree-based tuition in Florida (science students pay more than humanities students since their degree is technically worth more in legal currency), or just offering elite education for free. While we don’t disagree with the fact that certain degrees are worth more monetarily than others, an increase is certainly not what is needed. And unfortunately, even if MIT offers courses for free (as does Berkeley in the form of online lectures), people will still pay much more to actually have the degree.

Here is one likely scenario, however: A recession might occur, during which students decide to get more education so they can A) ride out the recession and B) be more qualified once it’s over. Unfortunately, if it’s a prolonged recession, this strategy won’t work. This means they will search and search for jobs, finally settling for being underpaid in a job they likely could have had without the extra education. In other words in two years they’ve only gained a degree and loans.

Suddenly people will look to who was able to weather the recession and come out on top. As happens with all recessions, creative destruction (as described by Schumpeter) will occur. This means that old, inefficient companies will die out, while new, more efficient ones will be born. The dot-com bust brought us Google et al. In fact, some people will even realize how 70% of the Forbes 500 started during downturns**. In other words, entrepreneurial activity is what is beneficial, not higher degrees. At first a few intrepid souls will start pushing their children towards entrepreneurship rather than more and more degrees (these will most likely be entrepreneur parents to begin with). Slowly but surely, other parents will catch on.

The process might take a while, but the longer the economic downturn lasts, the more it will be sped up. At this point the bubble that is higher education will finally burst, and parents will stop blindly and mindlessly throwing money at these institutions for unworthy degrees.

* For more precise calculation check out “The proud parents”.
** Including Texas Instruments, HP, 20th Century Fox, Eli Lilly, IBM, Lexis Nexis, Merck, Burger King, IHOP, Hershey’s, Gillette, GM, Alcoa, J&J, Hyatt, Chevron, CNN, GE, AT&T, Fedex, Abbott, Procter & Gamble, Lilly, MTV, Coors, Trader Joe’s, Bristol-Myers, Microsoft, Apple, Sun, Adobe and many others.

Well, it turns out it’s neither of these. It is cars. By far. And this isn’t because I’ve recently relocated to Portland. Freakonomics recently had a podcast entitled “Where have all the Hitchhikers gone?“, which brings up an interesting point. Hitchhikers, despite their reputation for being dangerous serial killers, were great at increasing the efficiency of cars.

Think about it, around 80% of car seats go unused. When you are looking at rush hour traffic, remember that 80% of that space is just that: space. It is not being occupied by anyone. Needless to say, if any other form of transport, like planes or trains, operated at only 20% occupancy, it would be deemed a huge failure. So how can we change this?

Well, hitchhiking has all but disappeared. This is due not only to safety concerns, although those are quite big (thanks to safety campaigns and various serial killer headlines). This is also because cars have become much cheaper recently, gas is very cheap as well (at least in the US), and interstates make driving from A to B very easy. In other words, convenience. So one might as well use his or her own car, or rent one, or use a service like Zipcar, right? Except, none of these solve the problem of 80% vacancy, and the relative traffic, congestion, pollution, etc. that come with that.

So how do we solve this? Well, cheap cars, gas and interstates should not be deterrents to hitchhiking per se, but of course safety is (although the serial killer aspect sensationalized the whole ordeal quite a bit). An easy solution is to car pool, which is done mainly among coworkers when convenient. Although, if you have a dinner or drinks after work, you’re just as quick to use your own car so as to be independent.

So how about an Airbnb (or Couchsurfing if you will) for cars? Users have to register, so we can be pretty sure they’re not serial killers. Ideally an app on your phone can show you which options are close by and, if need be, you can schedule regular pick ups, etc. Maybe a payment system can even be arranged, where members pay a nominal fee, and those who offer rides are paid something via the website.

A cursory Google search turns up a few companies that perform carpool and rideshare services, and yet this doesn’t seem to have picked up very much. Well, if safety isn’t a primary concern anymore, it must be due to convenience. It seems that inconvenience might be the best way to encourage filling up the 80% vacancy rate.

Empty car seats are currently a tremendous resource. If sharing seats can be more convenient, not linked to status and considered safe, this could bring overall driving times and costs down (suddenly driving down the coast becomes an option when you find a website full of other people doing it). As a consequence, airlines and public transport will have more competition and will therefore have to upgrade their service, which would be a nice thing indeed.

Enter a model used by the Dutch, wherein a whole postcode will win each month’s lottery. The winnings are divided up between all residents within that postcode, meaning all winners receive around $13,000. So everyone in the community can be that much better off.

So how can these two ideas be combined? Well theoretically, the 40% of winnings taken by the government should be used to benefit its citizens, correct? What if these citizens received the winnings themselves? Could this allow the government to decrease (or eliminate) the amount of taxes taken out of the savings’ winnings?

As an explanation, people would be able to open bank accounts, knowing the interest they earned would be directed toward a pool of money. This money would then be doled out in a monthly lottery but, rather than have one individual win the full amount, a whole postal code could win it. Of course, this probably means winnings will be in the $10,000 range rather than the $1,000,000 range, but it also means 40% wouldn’t be taken out as taxes, since these would constitute a form of payment to citizens regardless.

The devil, as always, is in the details. Would the bank accounts still be private or state owned? And exact amounts of earnings, winnings and (eventual) tax payments would have to be calculated. But if it encourages people to save and not to spend their own earnings on lottery tickets, might it not be worth checking out?

Let’s start with the basics. A patent is granted to an inventor wherein, in exchange for his revealing the secrets of his invention, he has a 20 year monopoly over the technology. This means that others can build on his invention and invent their own products in the meantime. This encourages innovation and also means that others don’t have to wait 20 years before inventing new products.

Recently, however, this hasn’t been the case. When the total profits from patents are around $4 Billion, but the associated litigation costs are $14 Billion, it is hard to argue that they are helping the economy in any sense. What is going on here?

First of all, the patent office in the United States is falling very much behind in its approval of patents, with a 700,000 patent backlog and a waiting period of three years.

Secondly, the so-called “patent trolls” are buying up patents and using them as lottery tickets. In other words, they are not creating anything but just suing any company they can for infringing upon their patents. Whether they are right or wrong often doesn’t matter, since the other party will usually prefer to settle, rather than fight the case. Needless to say, lawyers on both sides of the case will pick up a percentage of every IP lawsuit they can bring about.

This has the opposite effect of what patents were originally supposed to do: It stifles innovation. Entrepreneurs and small businesses are regularly finding themselves sued for one reason or another, and are therefore often scared to forge ahead in new industries and markets.

Recently, the America Invents Act was passed. This has been touted by politicians (who were quick to pass it) as, well, the “America Invents Act” (some marketing firm might have helped). It is a step in the right direction, in that patent protection is granted from the moment it is filed, rather than issued and, secondly, the patent office itself will have more control over its budget. But will this really stop any of the associated litigation? We doubt it.

So what is the solution? Mark Cuban has mentioned that we should get rid of patents completely, at least in software and processes. According to him most inventors don’t invent for the patent, but to get a new business up and running, so that new patents merely get in the way of innovation. According to him, software should be copyrightable, while if you’re creating a new process “… use it. The benefit is from creating the idea and using it in a business to your advantage. Afraid that some big company might steal the idea? That is life. When you run with the elephants there are the quick and the dead.”

And we are inclined to agree. Business ideas are just too abstract to merit patents, and big companies (remember when Google bought up Motorola for its patents back in August last year?) are finding it much too easy to buy up more and more of these in order to stifle future innovation by suing more small businesses. So when it comes to online businesses, Enough with the Patents.

Despite all this rock hard evidence, however, it turns out that the numbers might beg to differ. Yes, numbers. Those numbers that so often get in the way of a good story-telling; because if we try telling it, studies like the one released by Carnegie Mellon will tell a very different one:

• There are 1.35 male deaths as opposed to .77 female deaths for every 100 million miles driven.
• Male drivers are 77% more likely to die in a car accident than women.
• The reasons for elevated risks of male drivers include speeding, and a higher likelihood of drinking and driving.

Of course, you may think “Well what does Carnegie Mellon know? I mean, they’re one of the best schools out there, but this is driving!” So, let’s check with someone from the Real world. Quality Planning is a company that collects and rates pretty much all the information that can be found for auto insurers. In other words, this is what the experts rely on. So what do they say? Well, let’s take a look at some common violations, and whether they are more likely they are to occur to men than women:

Reckless driving: 3.41 times more likely to happen to males than females
DUI: 3.09 times more likely to happen to males than females
Seatbelt violations: 3.08 times more likely to happen to males than females

Ok. Well even then. Men might wear their seatbelt less often and, ok, we try to race someone every now and then. But we still have better skills, don’t we? Well, unfortunately, no. It turns out that per 100 million miles driven, men will have 33’733 crashes compared to womens’ 14’633. This statistic is corroborated by the Insurance Information Institute (it does what its name implies).

And, lest you thought this was strictly an American phenomenon, it has been prevalent everywhere. The EU has come under fire for trying to equalize insurance premiums for men and women, when all the insurance data shows that women are safer drivers than men. Even the Malaysian Institute for Road Safety Research keeps coming to the same conclusion.

Oh well, we always have the remote, right?

A curiosity: Gary Vaynerchuk, Tim Ferriss and Seth Godin, all prior Best Selling authors and all masters of online marketing techniques, all released their latest books: The Four Hour Body, The Four-Hour Workweek, Expanded and Updated, The Thank You Economy and Poke the Box on a Tuesday. Each of these books was a best-seller.

Sometimes it might be better to just imitate what successful people do.

Bitcoins cannot be tracked
Bitcoins cannot be taxed
Bitcoins cannot be frozen
Bitcoins can be traded without commission (or very low rates, depending on the transaction)
Bitcoins are not controlled by any government entity

So, why should we care? Well, if you live in the United States and want to play poker online, bitcoin is pretty much your only option. In fact, if you want to perform any monetary transaction online that your government doesn’t allow, then you can do so with bitcoin (obviously this doesn’t mean you can break laws like buy narcotics, which are quite illegal to possess).

We won’t get into the algorithm used to create bitcoins in the first place and to establish their value (if you’d like that information you can read about it here). Rather, we’d like to address the question: Will Bitcoin change the world?

Bitcoin gives us a place to buy and sell goods and services online that are otherwise restricted, either due to governments or to private entities (read credit card transaction costs).

The problem, of course, is that governments will not allow bitcoins to be used. Charles Schumer, a democratic senator, has already spoken out against it, saying they’re a drug dealer’s dream come true (we find it odd that a drug dealer would prefer online transactions to untraceable cash, but we can’t rule it out). Will he, and others like him, cut bitcoin’s chances before they can even bloom?

Of course, we don’t know, but then again, not everyone is dead against government controlled currencies and looking for ways to buy pharmaceuticals or to gamble online. Other websites, like Amazon and Ebay, may start accepting bitcoins. Once this happens, it could signal an interesting turn toward bitcoin becoming an international decentralized currency. Until then, except politicians to quash it and not much else.

No, the reason they find the patients worse off is their lack of will to survive. One doctor talks of how patients in Africa with heart failure walked 50 miles “in the broiling sun, with panting breath and swollen legs, to obtain treatment—and then walked home again.” In London, on the other hand, people let their yards become overridden with trash and then complain that social services does nothing about it. They then go in and out of the hospital due to alcohol, drugs and being beaten by spouses, all the while cursing the doctors and complaining about the system.

This argument is interesting, because it can be applied to countries as well. Let’s say that the more people are handed benefits (house, food, livelihood) the less they cherish them and therefore the worse they are at managing them. How can this apply to countries? Well, what are many countries handed that others aren’t? A clear example is Natural Resources, such as oil. For example, Venezuela has much oil, while Chile has none. Nigeria has huge amounts, while Ghana has none. So do countries who have oil manage their gains worse than countries who have to earn their money (via trade and commerce)? We can answer this because we aren’t the first ones to come up with it. Fareed Zakaria, in The Future of Freedom, says the same thing, claiming that natural resources can be a curse. Without them, a government has to provide equal laws that provide a framework for wealth generation and legal recourse, but all bets are off if there is a constant access to oil.

So, if you are handed things on a platter there is more chance that you squander it than if you have to work hard to earn it, whether you are human or a country. What other parallels can be drawn between people and countries?

The US, by raising its debt ceiling, has basically extended its own line of credit. This is as if you had maxed out your credit card but then raised the spending limit (don’t expect VISA to offer that option anytime soon) so you could keep on buying. This is good if the money you then spend earns you more money, so you can start paying back what you owe and you never have to default on your monthly payment. Likewise, if the economy picks up the US can use future gains to pay back what it owes. If the economy doesn’t pick up, however, the US will just accumulate more debt and will have the same problem (albeit more severe) in the near future.

So the US needs to earn more money. What would you do if you needed to earn more money? Well, you could start by cutting down on lattes at Starbucks and other measures. Maybe you could eat in more often. Or maybe you could trade in your car for a bike. These are what is called Austerity in economics. The US decides to cut back on its spending. The most affected sectors are usually welfare benefits and development projects.

But, of course, cutting down on spending only takes you so far. You will also have to start making more money. You could do this by getting a second job, a part time job, freelancing, etc. The US tends to do this by raising taxes and public transport fees.

Here is the problem, however. You new job is across town, but you sold your car for a bike. Your freelance job requires a flipcam, but you can’t afford to buy one. Or you have to network more to get that new project, but you don’t have a budget for eating out. Likewise, the US took away benefits and raised fees for its citizens, while asking for more taxes.

There is one other option, however. This is exports. It’s as if you took all your belongings and had one big garage sale (or sold them on eBay or Amazon), or you decided to sell cakes or become someone’s personal assistant. This, too, is good. Except you discover that all your neighbors and the neighboring towns are going through the crisis as well. This is what the US finds when it tries exporting to Europe, which is going through its own economic turmoil. In other words, the US could try to rely on exports, but other countries are going through a process of debt reduction.

So you can turn to other towns further away. The problem here is that they tend to have much lower incomes than your neighborhood. In fact, what if their income and spending were tied to yours? This isn’t common for people, but more common with countries when they peg their currencies, as China did with the US.

So you could maybe move to a cheaper part of town, or a cheaper town. Except if your potential buyers’ income and spending are tied to yours, this means they can suddenly buy less regardless. In fact, when they are going through hard times, they try to find more ways to raise your income and spending so theirs can go up. In other words, the US could try to have the dollar depreciate, and therefore increase its exports, but America’s second largest trading partner, China, has its currency pegged to the dollar, which means the dollar won’t be cheaper for them. In fact they’ll resist a dollar depreciation. On top of this, when investors worldwide seek a safe base, they buy US treasuries and debt, thereby strengthening the dollar further.

So what do you do? The more you cut back, then less you can invest in your career. You can try to sell your goods or offer your services to neighbors, but they’re going through the same problems you are. Moreover, neighboring towns have their salary and spending levels tied to you and your town, so they suffer when you try to cut back as well. At a certain point you run out of a market to sell goods to, and suddenly your credit card is maxed again. Time to raise the spending limit once more?

Well, this is partly true. We would argue that countries’ traditions tend to become embedded during times of prosperity – it’s more common to say ‘let’s not forget our past’ when one is well off than when one is starving – so it stands to reason that (developed) parts of the world that have been developed the longest are the least efficient. Let’s see if this is true.

One part of the world that sprouts to mind is Western Europe. This part of the world has been well-off more or less since the renaissance, with a break during the first half of last century. So most European ways of doing things have been around for a long long time (although espresso only became an italian drink in the 1950′s, after the war and when Italy was once again becoming prosperous, thereby affirming our theory) which should make Europe relatively inefficient. The United States, on the other hand, has been around for less time. In fact, it became prosperous between 100 and 200 years ago, so it has had less time to have established habits and ways of doing things.

So, if Longer Period of Prosperity = Less Efficiency then the United States should be more economically efficient than Western Europe. For those who have lived in both areas, this should not be news. Try setting up a phone line, bank account, and insurance in France and then try again in the US; the efficiency in America will become obvious. Most of your work can be done online, while in France you will find yourself waiting in several lines in various offices (the difference is evident even for tourists: just look up Paris Syndrome).

But what about other areas? Does our theory still hold? It can get complicated when one looks at East Asia. This area has long been associated with many traditions. Most of these traditions were established much earlier than European or American traditions, and were followed by over 100 years of hard times (involving invasions, world wars and communism, among other things). Many of the traditions held their ground and others went by the wayside, although people are trying to keep them alive these days. On the other hand, prosperity in this region kicked in much later than either Western Europe or America, so it should be more efficient, correct?

The answer would have to be Yes. As far as we know there are no economic indicators for overall efficiency, but in terms of convenience, not only is East Asia much more advanced than the US (let alone Europe), but parts that are newer (such as the city of Shanghai) are much more efficiently run than older parts (such as Tokyo).

When a new area becomes prosperous after a long time of suffering, it tends to cast aside traditions and excuses such as “We’ve always done it this way” and will try its best to compete and do the best it can, thereby becoming more economically efficient and more convenient a place to live in for its residents. So if you’re considering moving, you might want to consider a modern city rather than an older one.