Occam's Razor

Dave Ramsey is an American businessman and motivational speaker trying to get people rich by motivating them to get rid of their debt. There is certainly nothing wrong with being debt free. It’s a state that I happen to be in at the moment, which gives me a leg up on some surprising people, like Donald Trump. Trump owes at least hundreds of millions of dollars to Russian banks and likely lots more to others. Who knows for sure? It’s not like he’s telling us but it likely clouds his judgment and explains why he is so friendly toward the Russian government. Trump seems to celebrate debt in a way that Ramsey does not. He proudly called himself the King of Debt during the campaign.

However, I am quite convinced that if I hadn’t incurred strategically good debts over the years I wouldn’t be as comfortable as I am today. It turned out that for me the real key to wealth was earning more money than most people over a longer period of time. If you can do that and you invest your money wisely at some point you should exit a reasonably wealthy person and with no debts too.

So it turns out that garnering real wealth, unless you are lucky enough to inherit a bundle of it, is about using an effective strategy. Many of us do this without really thinking it through. For example, most of us live near or within cities. Do most of us prefer this sort of existence, which is much more costly than living in a trailer park somewhere in southern Alabama? It’s hard to say but it is clear that living in or around cities expands our possibilities for acquiring wealth. It puts us closer to a variety of different jobs. It makes it easier to expand our educational credentials should we need to do so because there are colleges and universities nearby. Better employers prefer to locate in cities because the talent pool is richer.

Obviously there are downsides to living in cities. I experienced them by spending over 35 years in the Washington D.C. metropolitan area. The downsides are probably too numerous to mention but among them were a higher cost of living in general, housing prices that were frightening and barely attainable even at a higher salary, crushing and frequent traffic jams and long days that began before sunup and lasted past sundown. I was glad to cash in my chips in retirement and move somewhere without these issues. By doing so not only do these downsides go away but also I get much more value for the money I have. Having wealth doesn’t mean much if you can’t enjoy it before you die.

So there was that but there was also the trick of making more money than most people. This was made possible in my case by some combination of talent, passion, circumstance, risk, luck, strategy and privilege. When I made the decision twenty years ago to get a graduate degree, I didn’t have to look far. George Mason University was not far away and they had a top-notch software engineering school plus I got some employer subsidies for the tuition and a lower in-state tuition rate. Moreover, it was a great field to get credentials in as it distinguished me over many other candidates for higher paying positions.

About the time I got the degree I used the degree to successfully get a higher-earning position. I used the higher income to reduce debt, as Ramsey would advise. I also used it to squirrel away as much money as I could toward retirement. And I used a lot more of it than I would have liked doing sensible things like replacing the windows and roof of our house. I didn’t pay for this out of pocket. I paid for it using a home equity loan. Some debt is both good and useful.

One way to build wealth turned out to be allowing our house to appreciate in value. We paid $191,000 for it in 1993, mostly with borrowed money. We sold it for $505,000 in 2015. Not only did we get a place to live for 22 years, thanks to the crazy real estate market (made possible by so many people wanting to live in our neighborhood) we also made nearly $500,000 by occupying it, paying off the mortgage and maintaining it so we could sell it for a good price. If you are so debt-phobic that you live in a trailer park instead then unless you are very savvy with your extra money you probably aren’t going to get that sort of return on your investment. And even if you do, you will have spent thirty plus years living a cramped and challenged life. Is this a price worth paying to be debt free?

I mentioned that being a white male helped. I’ll never be able to attach a monetary value to this, but it was huge. I was always implicitly one of the guys. Cultural factors made it easy for me to fit in. Mostly it was other white males that promoted me. I knew what they were looking for and mirrored those behaviors.

And so today I am properly retired. And while I have no doubt that Dave Ramsey is wealthy, he’s still out there selling stuff. Me: I’m retired. I can enjoy the rest of my life. Maybe Ramsey takes joy in his work and it’s what he’d be doing for free otherwise. From all the marketing material he sells and the seminars he puts on I suspect his life is not quite as rosy as it seems. As for the quality of his advice, I for one take it with a grain of salt. Certainly it’s a good strategy to work toward being debt free, but it’s one of many strategies needed to acquire wealth. It begins with a clear-eyed assessment of your strengths, the labor market, current economic forces and figuring out how to optimize your assets to fit these forces.

Ramsey also peddles what I think is the false Republican notion that any man (or woman) can pull themselves up by their own bootstraps. False! False! False! Some people through circumstance and by being blessed with nurturing parents can do so. There are lots of minefields to acquiring wealth and there are many institutional forces out there working actively to reduce your odds. Much of the wealth generated from recovering from the Great Recession came from something Republicans seem to loath more than anything else: Obamacare (the Affordable Care Act). People mostly lose wealth when unexpected medical costs balloon into crushing debt. By extending the health insurance franchise to more Americans, it cushioned these impacts. That plus a recovering economy created wealth, which allowed many to invest that wealth in places like the stock market that is soaring today.

So I firmly believe that it’s a combination of talent, drive, strategy and smart governance that brings real wealth. The only issue is who gets the wealth and right now it’s clear that most of it is going to those who are already rich. No combination of talent and drive can fix a rigged system. Bernie Sanders understands this, which is why his message resonated in the last campaign and is likely to resonate even more in 2020.