There’s no doubt that globalization has its benefits, but we often ignore the fact that it has also exponentially increased the complexity of the world markets and has eliminated many of the redundancies (economists call these “inefficiencies”) and robustness that once made it so individual markets could withstand failures in other parts of the world.  Complex systems are very fragile.

See Nassim Nicholas Taleb’s Ten Principles for a Black-Swan Proof World

Here are a couple of my favorites:

1.  What is fragile should break early while it is still small. Nothing should ever become too big to fail.  Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

8.  Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial.  The debt crisis is not a temporary problem, it is a structural one.  We need rehab.

9.  Citizens should not depend on financial assets or fallible “expert” advice for their retirement.   Economic life should be definancialised.  We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require.  Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

For more Taleb see here.  (h/t John Robb)

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Here’s an excellent photo essay showing the human costs of war (h/t The Strategist)

AND…

Here’s how much Iraq and Afghanistan have cost us according to a few different sources:

The Congressional Research Service estimates the total cost of both wars to be just over $1trillion.

CostofWar.com estimates Iraq at over $700billion and Afghanistan at $255billion for a total of just under $1trillion dollars.

To give you better perspective that’s $1,000,000,000,000.00

Nobel prize winning economist Joseph Stiglitz and Linda Bilmes say the official costs are actually quite deceiving and estimate that the total costs of Iraq alone are closer to $3trillion dollars. He talks about it here at Big Think.

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In a recent Washington Independent article, Spencer Ackerman asked the all-important, but seldom asked question, “Why Should Defense Spending Be Sacrosanct?”

It’s not popular to ask this question, especially if you’re a congressman because in doing so you’re bound to be labeled as not supportive of the troops.  However, the present course of the DOD is completely unsustainable. And in our current economic state ($12 trillion in debt and counting) I, like Ackerman and others, find it odd that there has been no serious talk of freezing the gargantuan DoD budget. In 2008, the US military spent more than the next 46 highest spending countries in the world combined (see here).

The spending problems come from personnel costs on one side — full retirement benefits for members who serve 20 years of active duty (most retire in their 40′s and now live well into their 80′s and beyond, a.k.a. 40 years of retirement pay), rising healthcare costs, salaries, housing pay, etc.  Equipment costs on the other — planes, bullets, tanks, UAV’s and an aging fleet of …well, almost every weapon system you can think of.  Just to send one combat troop to Afghanistan costs the taxpayer $1 million a year.

Almost everyone close to the organization knows we’re plowing ahead like a drunk driver headed for the cliff, but no one seems up to the task of fixing it.  Worse yet, much of the leadership seems bent on simply increasing spending rather than fixing a broken system.

Defense Secretary Robert Gates is making a noble effort, but the military-industrial complex is a three-headed monster, devouring every plan formed against it through strategic lobbying, creative bookkeeping and a view of the world based more on fantasy than reality.

Ackerman cites an October assessment from the CSBA’s Todd Harrison who compares the DoD to GM, explaining (emphasis mine),

Another similarity between the two is that both organizations are in a period of disruptive change in the competitive environment. In GM’s case, its market share rapidly eroded as gas prices climbed higher, the economy slowed, and consumers turned to smaller, more fuel-efficient vehicles. GM found itself building a fleet of SUVs and trucks that consumers did not want and could not afford. Similarly, DoD now finds itself saddled with a number of weapon programs whose capabilities are ill-suited for the types of conflict the military currently faces and whose costs have risen beyond what the Department can afford. Many of the new weapons being funded today are optimized for middle-of-the- spectrum conflicts—that is, conventional, military-on-military conflicts such as Operation Desert Storm in 1991. But adversaries are well aware of the United States’ overwhelming advantage in the middle and are instead moving to either end of the spectrum: irregular warfare on one end and high-end, asymmetric warfare on the other. The challenge for DoD, as it was for GM, is that the competition is adapting faster than it can keep up.

The last sentence is key, “…the competition is adapting faster than it can keep up.” Much of it has to do with the huge, inflexible, bureaucratic organizational structure of the DoD as compared the nimble, decentralized, open-source structure embodied by al-Qaeda and affiliate organizations. One bans twitter, facebook and gmail while the other uses the internet train to organize its cells all over the world.

Changing the DOD’s organizational structure is one thing, putting a freeze on the defense budget is another and one that may be a bit more realistic. However, none of this is bound to change anytime soon if we insist on keeping our country in a state of perpetual war.

Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes … known instruments for bringing the many under the domination of the few.… No nation could preserve its freedom in the midst of continual warfare. – James Madison, Political Observations, 1795

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An article in this morning’s Washington Post points out that many top employees of financial firms being targeted for pay cuts by the government have already left or are on their way.

“There’s no question people have left because of uncertainty of our ability to pay,” said an executive at one of the affected firms. “It’s a highly competitive market out there.”

I understand that people are frustrated with the economy, but it is foolish to think that cutting the pay of people within the financial industry will turn out well. Compensation is a drop in the bucket compared to the host of other problems plaguing our economy.

This is going to backfire and the evidence above shows that it already is. If you are an executive in a multi-billion dollar financial firm chances are strong to very strong that 1) You are highly skilled and educated and know how to create value in an organization  2) You can find another high-paying job at the drop of a hat, or the ring of a phone.

The people working at firms that the Pay Czar is going after are already leaving and those who haven’t yet, soon will. As Alex Tabarrok of Marginal Revolution commented the other day (emphasis mine),

There is no way this will work as advertised. If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere. Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut. Chaos will be created at these firms as top people leave in droves. Will the administration then order people back to work?

Ayn Rand fans are chuckling right now asking themselves, “Who is John Galt?”

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Economist Paul Krugman presents an alternative view on the falling US dollar in his piece, “Misguided Monetary Mentalities,” (hat tip Fabius Maximus) saying,

The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

I agree that shrinking our trade deficit is a definite plus, but there have to be better ways to get rid of it than a falling dollar.  Right?

**What say you readers?  Is Krugman right or is he off his rocker?**

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If you are the type of person that likes to do everything yourself then you can quit reading now, this post is not for you. If, however, you are like me and just smile and nod when your friends start talking about the new engine mod they just installed in their car or watch “This Old House,” for the design ideas and go get some coffee when they start talking about actual installation…sit back and enjoy.

The following are six professionals that will drastically improve the quality of your life if you give them the chance. The problem is most people don’t take the time to build relationships with these people and end up just throwing darts at the yellow pages when crisis comes, or even worse, wasting endless amounts of time and money trying to do it all on their own.

Accountant/Financial Adviser – It should come as no surprise that a key aspect of skilled living is managing your money well. I place accountant and financial adviser together because whether the roles are fulfilled by one person or two they should always work together. An investment strategy that doesn’t take into account good tax planning is meaningless.

A couple of years ago I began using my dad’s long-time accountant to do my taxes. I could have instead taken the time, as so many do, to do my taxes myself, but in using an accountant I found two huge benefits: 1) peace of mind in not having to lay in bed at night worrying whether or not I had missed something 2) time freed up to do other things I enjoy a lot more like spending time with my wife and daughter, reading, studying investments, etc. If you are looking to hire a professional in this area and you’re confused by all the acronyms like CPA, CFP, etc. here’s a good article on CNNMoney that explains it well.

Tailor – I am a big fan of dressing up, but there’s nothing worse then wearing ill-fitting clothes and feeling more like a clown than James Bond. Most people don’t realize the benefits of having clothes tailored. For guys, most American made dress shirts seem to be cut for 300lb CEOs than they do an average joe. The Italians make their clothes for more physically fit guys, but unless you’re ready to shell out a few hundred dollars per shirt, these aren’t always a viable option.

For years I trounced around weddings and special events with the sides of my dress shirts flowing in the wind. It wasn’t until I found a tailor who informed me he could bring the sides in on all my dress shirts that I discovered the joy of wearing shirts that actually fit. Surprising to me, the price for this service was very reasonable. Not sure how to find a decent tailor? Go to a high-end department store like Nordstrom’s or Neiman Marcus and ask an associate who they recommend, or ask your local dry cleaner. Find a tailor that you trust knows your style and you’ll be clothed well for life.

Mr. Fix-It – More damage has been done to homes, cars and other possessions by people who are convinced that they can “do it themselves” than almost anything else. One of the best examples of this is “Flip That House,” on TLC. All you have to do is watch the first five minutes to know how the flip is going to turn out. If they decide to hire professionals to do the work they almost always finish the project on schedule and on time. If they decide that their 5-year subscription to “The Family Handyman” qualifies them to completely remodel a house you can sit back and watch tempers flare, marriages crumble and money vanish.

If you have the knowledge and skills and find hammering nails soothing, than by all means, have at it. But, for the rest of us developing a good relationship with a professional handyman is incredibly valuable. Hiring a professional will cost you money, but there is a great difference between first costs and life-cycle costs. While you may avoid some first costs by DIY you will make up for them in life-cycle costs.

Lawyer – All the jokes aside, at some point everyone needs a lawyer whether its for simple tasks like drafting a will or something more serious like a civil suit. Like most things in life it is far better to have already have a lawyer that you know and trust before the storm comes than trying to find one in the midst of serious crisis.

Lawyers can do much more than people realize depending on their areas of expertise and can be a great help, but these benefits are only as strong as the relationship you form with your lawyer beforehand. Here’s an article from Business Week on “How to Hire a Lawyer.”

Doctor – Staying healthy is something all of us want, but part of this equation is having a good doctor that you trust and feel comfortable with. Nothing is worse then sitting there naked on the butcher paper debating how much you should reveal to your doctor. Finding a doctor you can be completely open with will greatly increase the quality of your personal care.

Akshay Kapur, on his highly informative health care blog explained in a recent post, “…your primary care practitioner (PCP) is your gatekeeper to the rest of the medical world, so it is worth your while to develop a strong relationship with one.” So how do you find the right doc? Kapur recommends the relatively new website Vitals which provides backgrounds on doctors similar to a consumer report.

Real Estate Agent – As I mentioned in my last post on home buying, “Since buying a house is the single largest purchase most of us will ever make, knowing how to do it well is a great skill to have.” In order to navigate the real estate market well, having an informed and skilled real estate agent in your corner can pay huge dividends.

First, they know the market. Every market is different so it pays to have the expertise of someone who knows a local market well — the history, trends, and future changes. Second, real estate agents are constantly talking with each other so they are the first to know when a great property comes along.

All six of these pros can greatly help you navigate various areas of your life, but as I’ve tried to stress, their help is only as good as the relationship you have formed with them beforehand. Do not wait until you’re in the thick of it to search for professional help. Life is meant to be enjoyed, so build yours in such a way that you can focus on the things that matter most like relationships, travel and hobbies and leave the dirty work to the professionals.

What professionals have been of great benefit in your life? How have you developed relationships with these people and what have the benefits been?

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I was perusing the archives of one of my favorite bloggers, Ramit Sethi, and came across this great post highlighting the differences between one being cheap versus frugal. There is a definite difference between the two, but they are often thrown in the same pot. Here are some of the highlights from Ramit’s post contrasting the two:

Cheap people care about the cost of something.

Frugal people care about the value of something.

Cheap people try to get the lowest price on everything.

Frugal people try to get the lowest price on most things, but spend a lot on items they really care about.

Cheap people are inconsiderate. For example, when getting a meal with other people, if their food costs $7.95, they’ll put in $8.00, knowing very well that tax and tip mean it’s closer to $11.

Frugal people won’t order a Coke if they’re on a budget, so that when the bill comes, they don’t look cheap.

Yes, being cheap and/or frugal can be a cultural quality. I won’t spend much more time on this one.

Cheap people keep a running tally with their friends, family, and co-workers. Some frugal people do this, too, but certainly not all.

I think the difference between being cheap or frugal comes from one’s attitude and philosophy towards money and possessions. Someone who is cheap generally has a view that 1) they deserve the money they have 2) their money is for them only. Frugal people on the other hand often have the attitude that money is not an end in itself, but simply a means to achieve other goals. They believe they are stewards of money rather than owners. Frugal people are often generous while cheap people are not. Cheap people place accumulating money above relationships while frugal people use money wisely to enhance relationships.

One of the most interesting aspects of this issue (pointed out by many commenting on Ramit’s post) is that people who are cheap constantly live in fear. Fear of not getting their money’s worth, fear of getting ripped off, fear of not getting what they feel they deserve. In the end, a cheap person ends up becoming a slave to their money rather than its master.

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It amazes me the amount of financial advice available today. Books, seminars, blogs, dvds, etc. with the sole purpose of showing you how to make money. I’m all for it to be honest, the more information available the better….although there are a lot of crooks and idiots out there as well. So, you have to be careful who’s advice you take.

I found a blog yesterday entitled I Will Teach You To Be Rich by Ramit Sethi, a young Silicon Valley entrepreneur. While I admit I haven’t had the time yet to read through all of his articles, I was in agreement with his general views on creating wealth. The principles below are from his blog with some extra info added in by yours truly. I post these because they are, in large part, the same principles that I have come up with as I’ve attempted to hack my way through the jungle of financial plans, solutions and gimmicks in my own life. Nothing cosmic…THERE ARE NO SECRETS…but sound advice to any college/twentysomething wanting to create a stable financial base:

– Create and Maintain a detailed budget. Wesabe is an excellent site I use that helps you do this…best part, completely free! Upload your accounts, label transactions, set spending limits and you’re on your way.

– Get your credit report. A recent amendment to the federal Fair Credit Reporting Act requires each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months. To get these reports go to www.annualcreditreport.com

– Make sure you’re not paying fees on your bank accounts or credit cards.

– Open a high-interest bank account. www.bankrate.com will give you a comparison of all the different banks and their interest rates.

– Establish a savings goal of 20 to 30 percent of your income, if possible.

– Open an investment account at a discount brokerage. Most of my friends that I talk to about this look at me with horror saying they just don’t know what to do…believe me, brokerage houses don’t get rich by making it hard for you to open an account with them. Call, ask questions, don’t make any quick decisions. If you already use USAA they do a good job, I’m also a fan of American Funds…if you go the mutual fund route.

– Fully fund 401(k)s and Roth IRAs. If you are over the age of 22 and do not have a Roth IRA set up, even if you don’t contribute much yet, you are flushing money down the toilet. It takes literally a few minutes to set up an account that will allow you to grow money throughout your life TAX-FREE.

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