The Values Gap (Part III)

Thrift (noun) 1.the quality of using money and other resources carefully and not wastefully.

Thrift is a virtue, a value that can practiced by anyone. Not everyone has the ability to earn large sums of money. Even with a degree in engineering, I only managed to barely broach the top quintile late in my career. The Apostle Paul observed, “I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want.” I don’t know if I ever will discover the secret of being content in any and every situation, but with the exception of buying our first home, I have managed to live on less than I earned. That is my definition of thrift. If you practice this virtue with patience and perseverance over the course of a lifetime, it is highly probable that you will find financial freedom.

But, freedom is never free. We live in an immediate gratification society that constantly tells us we can have everything our minds can possibly desire without effort. We are told, credit is easy, without the Biblical reminder that the borrower is slave to the lender. As long as you are spending your money, chances are, you are going to be OK. It is when you start spending other people’s money that you are likely to get yourself into trouble. What are you willing to give up? Your mind is full of screaming little demons demanding that you fulfill their every desire regardless of the cost. When do you say, “No!”

How can you tell if one of your desires is in keeping with your highest values?

If your spending patterns are truly aligning with your highest values, it is likely that you are on the path to financial freedom. If you are working to satisfy the agendas of all the two year old brats living in your subconscious mind, you are on the road to a lifetime of financial slavery. How does that work out in 21st century America? Let’s consider a hypothetical two income family. Both husband and wife earn $30,000 a year, putting them right at the current median household income of, $57,617. Remembering that rules of thumb are rules that work thumb of the time, let’s, let’s apply a few financial rules of thumb to this couple.

Rule of Thumb: Your house should not cost more than 3 times your annual income. The median selling price of a home is $225,262. Strike one! Unless they are lucky enough to be living in a low cost area of the country, it looks like our hypothetical couple is house poor.

Rule of Thumb: Your car should not cost more than 1/3 of your annual income. Since they both have jobs, it is likely that we are looking at a two income family, so we shouldn’t expect them to buy a car that costs over $10,000. The average price for new car is $34,968, so they can forget about buying a new car. Given that the average cost of a used car is running at $19,227, the chances are good that our family is spending too much on a depreciating asset that only generates costs.

Rule of Thumb: If you graduate with student debt that exceeds your projected first year salary, you have too much student debt. The average student loan debt burden for a 2016 graduate would be $37,172. Strike three! You’re out!

No one is asking you to wear a loin cloth and live in a cave, just spend less than you earn. If you value gourmet meals, go ahead, drop $250 on a steak and a bottle of wine. If you want to shoot targets in your spare time, a CZ-75 can be found for less than $1,000. If you want a BMW 540I, it will likely run you somewhere around $65,000. If you have the cash and it won’t damage your higher values, like feeding your family, providing for your retirement, or sending your kids to the college of their choice, go ahead, you’ve earned it.

This brings us back to the 80/10/10 rule, a simple rule of thumb for budgeting your income. Live on 80% of your income. Give 10% to the charities that line up with your highest values, the ones that you believe will follow you into eternity. Put 10% in savings. What that last number will mean is that, sooner or later, you will have enough in savings to buy assets that generate income. As those assets begin to pile up the income that they generate will buy more assets that generate income. You have now have the miracle of compound interest working for you instead of working for another person’s financial freedom.

Before you make that next purchase, that next financial decision that could possibly be at a crossroad in your life, stop, look at what you are about to do, and above all take the time to listen to your heart. If you do this on a regular basis, with patience and perseverance, over the course of a lifetime, I believe you will find your way to financial freedom.

The Values Gap (Part II)

The Zen master, Thich Nhat Hanh once observed that anyone wanting to understand the Buddhist concept of the Hungry Ghost need only visit Las Vegas. The Hungry Ghosts are souls tortured in a specific hell realm for particularly evil deeds driven by desire, greed, anger, or ignorance. Hungry Ghosts are pictured as having gigantic bloated stomachs with necks that are too thin to swallow food. Attempting to eat is extremely painful, as is the insatiable desire to feed a hunger that can never be appeased.

Steve Wynn, the owner of several hotel casinos in Las Vegas and Macau, the new Chinese Las Vegas, revolutionized the business. Before Wynn started building large spectacularly luxurious casinos, most of the hotels in Vegas were little more than glorified motels attached to casinos, show rooms, and famously inexpensive restaurants. Everything was subsidized to bring players into the casino. Gambling paid for the hotel, restaurants, and the shows. Wynn changed the rules. He decided that every aspect of the business should generate a profit. He built hotels that were an order of magnitude more expensive than anything seen before. He charged an appropriate price for that kind of room. The occupancy rate for this new kind of hotel proved that Wynn’s business model was sound. No more free food! Wynn opened world class restaurants with world class prices. They made money. He once observed, “There are people who rather have a bottle of wine than $1,000 in their pocket. I want to be certain that I am the one who provides that special bottle of wine to my customer.” Steve Wynn correctly guessed that people are willing to pay—a lot—for the things they really value whether that would be the adrenalin rush of high stakes roulette or the gourmet who wants to eat a meal prepared by a celebrity chef in a five star restaurant.

The reality TV show, Pawn Stars is set in Las Vegas. The owners of the pawn shop are willing to buy anything that they can resell for a profit. The entertainment value comes from watching people try to sell their prize possessions, guessing the value (if any) of bizarre items like a WWII hand grenade signed by general George Patton (OK, I made that one up). An expert is consulted to authenticate the signature and the bomb. If it is the real deal, the owner and the pawn broker argue over the price until an agreement is reached, or the disappointed seller walks sadly away from the store. The visitors always tell the camera why they are willing to part with their treasure. The reason given tells a lot about the values of the seller. Since this is Las Vegas, many of the Pawn Stars customers are raising money for the slots, the opportunity to take their wife to an expensive restaurant, or upgrade their hotel room. Others are raising money for their wedding or their grandchildren’s college educations. Some are collectors, selling one antique firearm to get the money to buy the next antique firearm. They are making enough money to feed their habit without infuriating the wife. The owners of the pawn shop value money. Typically, they are looking for 100% profit before taxes and overhead. If it is something they know they can flip with a phone call to an existing customer, they will take less, as they understand the time value of money.

This morning, I listened to another video explaining that almost half of American families could not cover a $400 emergency without hitting the credit card or selling something of value. The author, who lives in one of the most expensive zip codes in America, admits that frequently he is one of those Americans, even though he has earned significant amounts of money. He values an address in the Hamptons and expensive private schools for his daughters more than he values $400 in the bank. I simply can’t understand people who can live without any contingency plans. When I was earning little more than minimum wage bagging cloth in a textile mill, I would volunteer to work overtime to make certain I had money in the bank. I was willing to scrimp on food, drive an aging rust bucket, and share a small apartment with a roommate, but if my bank balance dropped below $1,000 (which it did) I took immediate, radical action to rectify the situation.

It’s all a question of your values. If you value getting high, you will be willing to risk your freedom or even your life to satisfy that desire. If you value your child’s education, you will live in a small house, drive old cars, or take a part time job to cover the tuition to the best private school in town. If you show me your credit card records and your checkbook register, I will have a pretty clear picture of what you really value.

But America is Las Vegas.

I once heard Doyle Brunson, a superstar poker player, interviewed on the radio. He told the hosts of the show that while he had earned millions at the poker table he lost it all gambling on sporting events. In a voice that was both sad and wise, he assured the audience that no matter what your weakness, whether it was alcohol, drugs, gambling, or women, Las Vegas would take you down. Where else in the world would you find a luxury car dealership in or right next to a hotel?

The Values Gap

Recently, I have been listening to Ray Dalio, creator of the world’s largest hedge fund, opine about lessons he has learned from life, investment strategies, and our current economic situation. He believes that our economic stability faces two major threats the wealth gap and a values gap. The wealth gap has been discussed endlessly over the last ten years. Basically, the current economy works well for the top 20%, but not so well for the bottom 40%. In addition, the middle is being squeezed out of existence by the deindustrialization of America, free trade, and other macroeconomic forces that are beyond the control of any single individual. My ears perked up when I heard the term, “values gap.” How was he going to define that term? I couldn’t imagine a deeply analytical investment cyborg, like Ray Dalio, launching into a Dave Ramsey rant about debt, thrift, and hard work. He went on to explain that 50 years ago, almost all Americans basically shared the same Judeo-Christian understanding of morality. Today, as in the book of Judges when Israel had no king, all the people are doing what seems right in their own eyes. Dalio believes that a culture that is so deeply divided on a fundamental understanding of good and evil will be fundamentally—unstable.

While I understand and agree with Dalio’s “values gap,” there is another values gap at work in the economy that correlates strongly with individual outcome. Our personal financial values drive our behaviors. Our behaviors become habits. Our habits eventually define the outcome of our lives. Of course, there are exceptions. Winos win the lottery. Hardworking honest families can be wiped out by war, illness, or even by something like a factory closing. We live in what is basically, a cause and effect universe that has been corrupted by the fall. Given there are limits to free will, the question becomes, what kind of values based actions that are within the control of an individual can lead to financial freedom?

Family is most fundamental value that leads to financial freedom. The dice are loaded against a child born into a single parent home. A Stanford study discovered that children from single parent homes are 5 times more likely to grow up in poverty than children with intact families featuring both a father and a mother. The absence of a father also correlates with drug addiction, teenaged pregnancy, and criminal behavior. Beyond the nuclear family, our culture has forgotten about the importance of the extended family. Although grandparents are still sources of high quality, free day care, it is unusual for multiple generations to live in the same house or work in the same business. There are exceptions to this rule. Asian immigrant families frequently live in multi-generational households. One of the main reasons Asian unemployment tracks below that of other ethnic groups are family owned businesses. When junior losses his job that required a college degree, he can always come back to work at his parents’ convenience store until the economy turns. Strong family connections are one of the reasons I have seen first generation Asian immigrants move from poverty to the upper middle class in less than a generation. There are some groups that have a history of extending the definition of family to those who share their belief system. Mormons are well known for supporting church members who have fallen on hard times, not only by bringing over a casserole when the news hits the church email chain, but by providing them with employment in some business owned by a fellow member of the Church of Latter Day Saints. Jewish Americans refer their customers to other businessmen in their community. I guess that any group that has faced so much persecution understands the concept of, “We are all in this together.” Would that all churches understand the importance of supporting one another’s financial wellbeing as well as worrying about correcting our brother’s understanding of theological minutiae.

I am privileged to know a young man who is always hustling work, no matter what the current economic condition. If he cannot find work he invents it. As far as I know he has walked dogs, been a house sitter, worked, installed, and maintained sound boards for various organizations and events, installed car stereos, and even driven my wife’s car to our new home in SC. A killer work ethic is almost enough all by itself to raise someone out of poverty. I am frequently amazed at the number of ways excellence can find to generate wealth. Yesterday, I watched a reality TV show about a man who makes his living rebuilding and flipping cars. In this particular episode, he paid the best car detailer in his city $3,500 to clean a 1938 Aston Martin that had been sitting in a barn for over forty years. That was all it needed to net the car guy a handsome profit. Imagine paying someone $50.00 an hour to wash your car and believing that the price was a bargain.

Solomon observed, “Do you see someone skilled in their work? They will serve before kings; they will not serve before officials of low rank.” Traditionally, this trait has been called the Protestant Work Ethic. It includes the ability to defer gratification, a critical component in staying out of debt and finding your way to financial freedom. Now the name of this value is changing to the Confucian work ethic. Asian American have highest median household income of any racial group in our country. They are simply outworking other Americans.

Although I left the workforce for a few years to get an engineering degree, my work life has been limited because I never really learned how to take a calculated risk. There is a very famous story about the owner of the largest chain of truck junkyards in the Southern United States. After graduation with a MBA, he found employment in a fast track program for young executives with a major manufacturing company. His first assignment was at a dealership. There was a wrecked truck in the dealership’s lot. His boss told him to sell it to a local junkyard. He received $600 for the truck. Two weeks later his boss sent him to the same junkyard to buy a used part to repair a similar truck. The junkman went to the same truck sold to him two weeks earlier, removed the part, and sold it to the young man for (you guessed it) $600. The young man found the love of his life. After buying his first wrecked truck for $2,000 he quit his job and never looked back. I was raised and trained to be a cog in a great corporate or governmental machine. I never learned how to take the kind of risks that make a successful entrepreneur. I think in the future, this skill will become more and more valuable.

Education is no longer a guarantee of a good job, but the love of and respect for education and educators seems to be a common thread in the lives of people who are generally employed. I won’t waste your time with stories about overeducated failures I have met. I am sure you have seen plenty of these unfortunate stories in your life. However, communities that traditionally placed a high value on education (Jewish and Asian come to mind) have lower unemployment rates than the general population.

Keith Cameron Smith discovered one of the significant differences between the rich and the poor is their sense of time. We all plan, but our timescales are different. Smith makes the following observations concerning different groups.

“The very poor think day to day.” At the extreme end of the scale drug addicts have a time horizon limited to the distance to the next fix, but many of the world’s poor are forced by circumstance to think on a day to day basis. If they are unable to obtain food today, they will die. Making it to sundown is an accomplishment in this world.

“Poor people think week to week.” I have seen this in the factories of South Carolina during the 1970s, people literally living paycheck to paycheck. If they had money they spent it, sometimes irresponsibly and extravagantly. The idea of deferred gratification only appeared when Christmas was drawing near. Starting sometime around November 1 everyone, especially the moms, wanted overtime. Their time horizon jumped from a week to a couple of months.

“The middle class thinks month to month.” Smith believes the middle class focus is on comfort. What can they buy today to make their life comfortable? If they think they can make the monthly payments, “It’s all good, bruda.”

“The rich think year to year.” Smith believes one of the key strengths of the rich is an ability to defer gratification in order to achieve freedom. This long term thinking gives them an edge over time.

“The very rich (like Ray Dalio) think decade to decade.”

Sometimes, one wise decision is all that it takes to escape poverty. If you live in sinkhole of poverty in rural West Virginia, moving over the mountains to a city with jobs can change a life in a few hours. Sometimes, a single minded commitment to changing your family tree can move a man, like my grandfather, from extreme poverty to more than enough wealth to provide all his children with their own farms. He achieved this goal over the course of a couple of decades. The math, as well as numerous examples, demonstrate that a two income family can reasonably expect to achieve millionaire status over the course of a working lifetime. Holding the right financial values and acting upon them can change not only the destiny of an individual or a family, but an entire nation. Ray Dalio notes that in a single generation, Lee Kuan Yew turned Singapore from an impoverished city with serious drug and crime problems into one of the Asian Tigers, a center of global commerce, finance, and transportation, known as the most technologically ready country in the world. All of these considerable achievements required some combination of a stable family, a strong work ethic, the ability to take a calculated risk, a love of and respect for education, and a willingness to change your sense of time.

Look around, then ask yourself the questions, “What is working? What doesn’t work?” Sometimes, you might find the answers surprisingly obvious and simple.

Cash, Cash, and Near Cash

Cash is trash. Cash is king. Which of these two common statements are correct? What do they mean? What is cash? How much do we really need?

Holding cash is a liability in the current environment. Government policy guarantees that the cash you hold today will lose its value over time. Economists are pleased to call this phenomenon, inflation. Politicians call it, monetizing the debt. I call it theft. Cash (money) is a spiritual commodity. Gold, paper, or bitcoin, it only has value because buyer, seller, and holder all believe it has worth both as a medium for exchange and a store of value. To intentionally debase a currency is at best theft. At worst, it is sin.

There is nothing more fungible than cash. It can be transformed into a mutually accepted amount of just about anything. If you want to buy from the corner drug dealer, you better bring cash. When the bottom falls out of the market, those who have cash reserves can buy the future profits of great corporations for pennies on the dollar. Those who do not have cash, sell to those who do have cash at the very time when they should be buying everything in sight. Closer to the life of the average American, cash means that a flat tire or a trip to the dentist won’t result in a credit card bill that will hang around for 36 months at a 12% to 20% interest rate.

The most basic form of cash—is—cash, greenbacks, federal reserve notes, pieces of paper featuring the portraits of dead noteworthy (a joke) Americans. I think just about everyone should have at least $20.00 or so in their wallet and some change in their purse or pocket. Using plastic for fast food, vending machines, and things like football pools and office charity drives seems silly or downright impossible. Beyond what is called, “walkin’ around money,” I think it wise to have a few hundred dollars hidden in a drawer or a closet somewhere in the house, both as a convenient in-home ATM and for contingencies, like pizza delivery or a neighborhood handyman who works on a cash only basis.

The next form of cash, is found in checking accounts, money market funds, and the old fashioned FDIC insured savings account. Conventional wisdom dictates that a family should have 3 to 6 months’ worth of expenses in an emergency fund that can be tapped more or less immediately, but isn’t too easy to grab when handling “emergencies” like the afore mentioned pizza delivery man. Sometime following the crash of 2006-2008, Suze Orman bumped her recommendation to 8 months reserve, due to the dramatic increase in the length of time required to find a new job during what has come to be known as the Great Recession. To me, three months seems like a high priority goal. Six months is desirable, but reaching that goal can be discouraging for a young family when there are so many competing needs for money.

The use of a little common sense can help. If you have ten years of seniority in a government job, you might focus more on paying down your student loans and less on building your reserves past the six month level. If they just eliminated all overtime and shut down the night shift at your factory, you might want to buckle down on building that emergency fund and start filling out some job applications.

Retirement is a little different. Hopefully, your Social Security, and an inflation adjusted four percent per year draw from a lifetime of savings is providing you with a comfortable lifestyle. How much of that nest egg should be in cash? While there doesn’t seem to be any general agreement among the “experts,” I have seen the number, two years’ expenses in cash, bandied about. I think that sounds about right. Two years’ in cash or maybe something like 10% of your net worth sounds good to me. Remember, you are no longer receiving a regular paycheck. You don’t want to “need the market,” meaning you don’t want to be forced to sell when the market crashes. In fact, you want to be able to buy at the bottom. If you are retired and have investments, even a 401(k) that only offers a handful of mutual funds, you want to be able to shift your holdings to undervalued assets when the opportunity presents itself.

Finally, a word about “near cash” assets. These are investment vehicles like Certificates of Deposit, Treasury Notes, and bond funds, such as my Ginnie Maes that are “full faith and credit” guaranteed by you, the American tax payer. These assets go up and down—a little bit—with changes in the prevailing interest rates, but they are highly liquid, meaning they can be converted to cash in your money market fund in a day or less with only the possibility of minimal loss. It is very handy to have a goodly percentage of your net worth in such boring assets when facing a major stock market crash, something that happens every twelve years or so.

Ask the Rabbi

“The story is told of Zusha, the great Chassidic master, who lay crying on his deathbed. His students asked him, "Rebbe, why are you so sad? After all the mitzvahs and good deeds you have done, you will surely get a great reward in heaven!"
"I'm afraid!" said Zusha. "Because when I get to heaven, I know God's not going to ask me 'Why weren't you more like Moses?' or 'Why weren't you more like King David?' But I'm afraid that God will ask 'Zusha, why weren't you more like Zusha?' And then what will I say?!"
Quoted from the Ask the Rabbi website

Somewhere on the inside, you have a pretty good picture of what you are and who you want to become. All by itself, how you handle money would be an important part of that picture, but money is funny stuff. How you earn it and how you handle what passes through your hands are inextricably intertwined with who you will become, in this world and in eternity.

We all want financial freedom, the point at which money is no longer a concern that consumes an unhealthy amount of our time and emotional energy. As the French say, “Money makes a good servant, but a bad master.” Rich or poor, money can be your servant or your master. The tests you will face are different on every unique rung on the ladder of your life.

How you define financial freedom is a reflection of your experiences, your unique God given ability, and the meaning that you choose to inculcate into that mixture we call life.

Is your behavior congruent with your vision of yourself? In retirement, I have chosen to spend more time and energy on my health than I did during my working years. The desired image of my physical self has changed over the last five years. Is eating another fast food grease bomb for breakfast or drinking my mandatory evening beer congruent with that new vision of myself?

Apply that kind of reasoning whenever you are faced with choice concerning your money. If you want to become a hedge fund manager who can write a $100 million check to endow a university hospital with a new research facility, how will you live your life—today. Carl Icahn started life as a kid in a tough working class neighborhood. To hear him tell the story, half of his boyhood friends ended up in reform school, but that wasn’t the end of the story. Icahn managed to put himself through Princeton with proceeds from playing poker with the members of a club where he had a part time job, pretty good training for his future life on Wall Street.

That isn’t your dream? OK. How would a successful businessman who wants to run a small, off the grid, organic farm chose to bless his neighbors and the world?

It isn’t about what you have. It’s about how you use what you have.

In the parable of the shrewd manager, Jesus observes, “Whoever is faithful with very little will also be faithful with much, and whoever is dishonest with very little will also be dishonest with much.”

Then he asks, “If then, you have not been faithful with worldly wealth, who will entrust you with true riches? And if you have not been faithful with the belongings of another, who will give you belongings of your own?”

Maybe, today you will face a decision point that will help define your future. Do I loan that friend enough money to help with the power bill? Not an easy question. Why can’t your friend cover his power bill? Would it be better to offer him a job, if that is in your power? When would it be correct to just say no?

This job or that job? Which career path is congruent with my vision of myself? Perhaps, becoming a husband who is willing to lay down his life for his family is more important than reaching self actualization as an artist. Perhaps in laying down his life for his family, he will reach a higher level, both in this world and the world to come than he could dream would be possible.

It’s your life. Large or small, you have been given a canvas, some brushes, and a selection of different colors. What you choose to paint, well that is your decision.

Hebrews 12:11

“No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it.”

Yesterday morning, I over did it. From time to time, I press my luck with the weight machines or distance on the trail. Sometimes I pay the price with sore muscles and joints for a day or two. I once heard a preacher say that he wished he could become physically fit by hiring a high school student at minimum wage to perform his exercises. This morning, I think that is an excellent idea.

Unfortunately, the world doesn’t work that way. Even if you hire a personal trainer or a financial advisor, you are the only one who can find financial freedom for yourself. It is primarily your effort and decisions that will ultimately create the outcome of your life. Dave Ramsey is fond of comparing our financial journey to a small boy riding a one speed bicycle up a long hill. Sometimes, he has to ride at an angle, back and forth across the street, because the hill is too steep for a direct frontal assault. Sometimes, he just has to get off the bike and walk it up the hill. If he persists, the time will come when he can coast down the hill, enjoying the fruits of his labor. This is a pretty good analogy, but the reality is both better and worse than the story. With a little luck, your one speed bicycle will someday become a motorcycle that generates its own fuel. If you try to ride down the hill, before starting up the hill, student loans, car notes, and credit cards will condemn you to years of debt slavery before you can break even.

Not everyone is born with the body of a Michael Jordan, but nobody, whatever their talent level outworked Michael Jordan, a man who said, “If you do the work, you get rewarded. There are no shortcuts in life.”

I remember listening to the story of a retired man who once worked in the same textile mill where I started my career. He never earned that much more than minimum wage, but he provided for his family, supported himself and his wife in retirement, and left a small legacy to his children. My own grandfather, a dustbowl farmer that just barely held on to his land during the depression, managed to leave a farm without a mortgage to each of his four children before his death. You don’t need the brain of a Warren Buffet to find financial freedom.

Money is funny stuff. Even if you are storing your money in Mason Jars and burying them in the Wooly Swamp, it is increasing or decreasing in value. Inflation, deflation, dividends, and interest are constantly changing the value of your stash. Albert Einstein stated that compound interest was the strongest force in the universe. While I expect this oft quoted statement was delivered with tongue firmly in cheek, nuclear fission and financial freedom both require a critical mass, enough money or fissionable material to produce a self-sustaining reaction.

“A critical mass is the smallest amount of fissile material needed for a sustained nuclear chain reaction. The critical mass of a fissionable material depends upon its nuclear properties (specifically, the nuclear fission cross-section), its density, its shape, its enrichment, its purity, its temperature, and its surroundings. The concept is important in nuclear weapon design.” Wiki

Like money, the nature of a nuclear reaction is defined by equations. Unfortunately, it is hard to quantify the effects of irrational human behavior on the price of objects of value until after the fact.

Even given our inability to predict the future of the economy,

Money In = Money Stored + Money Out

Mastering that equation is the work of a lifetime, but unlike physical exercise, the benefits of years of financial discipline won’t end with your death. The wise use of your money can not only provide blessings for yourself, your family, and others while you are alive, but those funds can continue to be a source of blessing for generations yet unborn.

When Disaster Strikes

It is the nature of large complex systems. When they fail, they fail catastrophically. Consider the old fashioned electro-mechanical switch that connected your phone to the network. If it failed, you lost service, but everyone else remained unaffected. Sometime around 1990 I remember a computer based switch failed. Long distance phone service for the entire east coast was knocked out for about twelve hours. The computer switch was cheaper and faster than the switches located in that little brick building without windows located somewhere in your home town, but when it failed, it was Katie bar the door.

The same can be said for major metropolitan areas. People have been living in cities for a long time because it is more efficient than roaming about the countryside in tribal groups of hunter gathers. However, when disaster, like a recent hurricane, hits a metropolis like Houston, millions of people are affected. I am confident Houston is going to recover. The south Texas area has a dynamic financial base and a lot of equally dynamic people. I have met some of them on business trips. Moreover, after the hurricane, damage control teams from neighboring states can move in to help.

Puerto Rico, isn’t so lucky. Federal law allowed Puerto Rico to issue municipal bonds with triple tax exemptions. Like Greece, this territory used access to cheap money to fund their social welfare system. This is very much like an unemployed person maintaining his family’s life style with credit cards. It will end and it will end badly. For Puerto Rico, the end came earlier this year. They defaulted on their bonds and are now in a condition of quasi-bankruptcy. The financial press noted sometime before the recent hurricane devastated the island, that the island’s infrastructure was in bad shape. Writers predicted that the next hurricane, and everybody knew there would be a next hurricane, would produce catastrophic results. The Puerto Rico Electric Power Authority filed for bankruptcy on July 2, reporting it would need more than $4 billion to upgrade its outdated power plants that rely on imported oil (Washington Post). By the way, the Jones Act which requires all shipping between American ports to be conducted by American flagged vessels, greatly increases the cost of everything in Puerto Rico including all that imported oil that is refined in the U.S. and shipped from American ports.

Unlike Texas, Puerto Rico is so broke (in all meanings of the word) it can’t possibly fix itself. The American taxpayer is going to foot this bill. Puerto Ricans are Puerto Rican citizens, but they are also American citizens without restrictions and they need our help. End of story. It isn’t going to be easy or cheap. Puerto Rico, unlike Houston, is an island. The power company in Ohio cannot send its emergency crews in their bucket trucks down the Interstate to San Juan. With 12% unemployment and no large scale wealth producing activities on the island, the financial infrastructure to fund the recovery doesn’t exist. I have also learned that a majority of the residents of that unhappy territory don’t have property insurance for a variety of historical reasons. The problem is compounded by an exodus of young productive ambitious Puerto Ricans seeking employment on the mainland. The island’s population is disproportionally old. Retired folks, like me, are not all that useful in rebuilding an island’s infrastructure and we draw Social Security.

So how about me as an individual? What can I do to prepare for an emergency? When hurricane Irma was targeting the upstate of South Carolina, I didn’t expect any problems other than a power outage. They seem to happen more often in SC than they did in MD. I had gas in my cars, shotgun shells in my closet, and plenty of flashlight batteries. I wasn’t worried about drinking water, but if I was concerned, I would have filled our rather large bathtub. Since we have a natural gas stove and a supply of matches, I could purify the water and cook canned goods. We routinely stock enough soup, chili, canned vegetables, and such to last a week or so. I wouldn’t expect a power outage to last longer than that.

I also have house insurance. During the storm (which barely touched us), a dead tree fell out of my neighbor’s yard and trashed a section of my fence before coming to rest in my yard, a foot of so short of our deck. I discovered that my deductible had been increased without my knowledge and that in the case of trees falling in one’s yard, a double deductible applied (one for the fence and one for chopping up the tree). My insurance wouldn’t have paid a penny. Fortunately, SC law states that while your neighbor’s live tree falling in your yard is your insurance company’s responsibility, dead trees are the neighbor’s responsibility. My neighbor graciously took care of everything. It could have been much worse. I am grateful. When I get a chance, I need to talk with my insurance agent. Evidently, I don’t know what is in my policy.

But what if we were facing what Puerto Rico is facing? Only 5% of their hospitals still have power. Fuel supplies for emergency generators are running low, machinery is failing, and it looks like it might be months before power is completely restored. Half the island is still without drinking water. Gasoline is pretty much unavailable. To prepare for such situations, Mormons are expected to maintain a three to twelve month supply of emergency food and drinking water. Where could a faithful member of the Church of Latter Day Saints store so many provisions in an efficiency apartment in a city like San Francisco? If all this stuff is in a nearby storage unit, how does the owner drive there without gasoline, or open the computer controlled security system to gain access to his locker? In places like the rural Midwest or the mountains of Appalachia, it seems the chances of survival would be much better. More people know how to live off the land, own animals that can be eaten, or know how to hunt. Also, more of these people are likely to belong to churches and know their neighbors’ name than is the case in suburban Washington, DC.

Perhaps, that is the big takeaway from this article. Know your neighbors, love your family, belong to something like a church that is likely to be there for you when things fall apart. Perhaps, in the end, we are not all that different from those bands of hunter gathers roaming around the grasslands of eastern Africa, looking for something better, moving on, confident that their clansmen have their backs.