Setting Your Priorities With Care

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Decisions
are to life’s successes or failures what tactics are to a general’s
strategy. Getting your strategy clear is necessary in order to design
appropriate tactics. So it is with life. Priorities undergird decisions
in the same way that strategy undergirds tactics. You can make terrific
tactical decisions and lose the war if your strategy is muddled
or just plan wrong.

I
write this as an introduction to a discussion of a front-page story
in USA Today (Oct. 31), a true Halloween horror story. I
read USA Today only in hotel rooms, assuming that it’s free
at the desk, and airports, assuming that someone has left the paper
on a seat. In the Denver airport, someone had. The headline announced:
"Welches disclose finances in divorce court."

Rarely
do the details of a divorce’s battle hit the front page. This one
did because of the immense sums involved, and because the Welches
have not settled this out of court. How the rich and famous handle
their marital affairs is their responsibility, not ours. But when
the numbers hit the press, I occasionally take interest.

Jack
Welch, the former CEO of General Electric, has decided that he wants
to change wives for his golden years. His present wife’s lawyer
has something to say about this: setting the price tag for the trade-in
model. According to Welch’s lawyer, Welch has offered her $45 million.
She has refused.

I
don’t blame her. Welch is worth $456 million. To get cut off for
10% would make her a K-Mart loss-leader. "Attention, shoppers:
On aisle W, you can get a fresh, new squeeze for only ten cents
on the dollar."

I
don’t live the way these people do, and if I had their money, I
still wouldn’t. My lifestyle models among the rich and famous are
Sam Walton and Warren Buffett. "If you’ve got it, don’t flaunt
it." In an age of envy, this is common sense.

There
is an old saying: "If you want to know what a man’s priorities
are, review his bank statements." A divorce proceeding allows
the public to do this.

Mrs.
Welch has a monthly income of $11,000. She just can’t seem to make
ends meet. Her monthly expenses are about $141,000. But she is a
Salvation Army thrift store shopper compared to her husband. His
monthly expenses are $366,114. (I wonder about the $114.)

A
free society allows people to spend their money any way they please.
This is what drives the free market economy: consumers who have
final authority in determining where to spend their money. Capitalism
is a consumer-driven system. To become consumers, people who are
not on charity must become producers. If someone wants to spend
$366,114 a month, he must produce goods and services that in turn
produce after-tax income at this level. A person must become very
productive to achieve this kind of expenditure pattern. Consumers
benefit from his productivity. So do those producers who have this
guy as a customer.

Mr.
Welch has earned his right to spend $366,114 a month. But he has
not earned my respect. As a producer, he did good work. As a consumer,
he is in need of psychological counsel. So is his wife.

NOT
MY MODEL

I
look at the combined budgets of this no longer happy couple, and
think: "What can a couple do in a month that costs $500,000?"
People like this don’t have mortgages on their mansions. Yes, there
is a lot of upkeep. They have to hire servants, but you can hire
a whole lot of servants for $500,000 a month. Where does the money
go?

In
the 1940′s, Dennis O’Keefe starred — to the extent that any
movie starring Dennis O’Keefe can be said to have had a star —
in "Brewster’s
Millions
." I saw it on TV as a teenager. It had a profound
influence on me. (I have never seen the
re-make with Richard Pryor
.) A rich man leaves his fortune to
his wastrel nephew. He had feared that the heir would not know the
value of a dollar. To teach him this lesson, his will makes the
heir spend a million dollars in one month as a condition of inheriting
the really big money.

At
first, O’Keefe thinks it will be easy. But there are only so many
hours in the day. He invests in some turkey of a stock, only to
see it shoot up. He is running out of time more rapidly than he
is running out of money. With two minutes to go on day 30, he still
has a dollar. He is at home: nothing to buy. (This was long before
the Home Shopping Network.) He is about to lose the inheritance
unless he buys something, fast. A door-to-door salesman knocks at
the door, selling can openers for a dollar each. O’Keefe buys one,
just in time, but then tells the salesman that someone could buy
a perfectly good can opener for half as much downtown. (Note: this
was 1945.)

One
lesson was clear to me in my teens: the dollar itself was obviously
on the road to hell. A can opener delivered to your door for $1?
Not in 1958. Second lesson: a dollar is not to be wasted.

My
great uncle once used reverse psychology on me. Anyway, I guess
that was what he was doing. He was the only rich man in our family.
He had married my grandmother’s sister. He had made one wise investment
in his life: buying shares in a local bread company. When it was
bought out by a national firm, he got rich. He was very frugal.
So, he stayed rich. I eventually inherited some of that money through
my grandmother. I may still get some more of it when my parents
die. (We are talking thousands of 21st century dollars,
not 1962 dollars.)

When
I was about 11 or 12, I stayed at their home overnight. At some
point, I left a light on in my room. He told me, "That wastes
money." I knew he was right. "Maybe I should charge you
a dollar." I knew that was too much. "But I’ll give you
one instead." He did. Over four decades later, that incident
remains clear in my mind. And ever since, I have tended to flip
off the light when I leave a room — not always, but more often
than if he had not given me that dollar. He was tight-fisted, which
enabled him to make his point. A tightwad had given me a 1953 dollar.
I had gone from a potential fine of one dollar to an equally big
windfall. Why that reverse psychology worked, I don’t know, but
it did. I did not know the old man well. That is the only event
that I recall about him, other than his death. But it was a great
lesson: don’t waste money. Money is to be taken seriously.

This
doesn’t mean that we should never sacrifice money in exchange for
time, or money for some other priority. It does mean that we should
take care to make our decisions in terms of systematic priorities.
There should be consistency between our priorities and our spending
pattern. Our bank statements reveal our priorities.

Back
to the Welches. Their spending habits reflect a serious misunderstanding
of life’s priorities. Their bank statements are like the shoe closets
of Imelda Marcos and Tammy Faye Bakker: testimonies against them.
Anyone who spends $500,000 a month on personal expenses is suffering
from a serious debilitating addiction. There are too many causes
worthy of support, and too few hours in a day. To spend that much
money, you have to invest too many hours either managing servants
or going shopping. Time races by us relentlessly. To spend that
much money in a month, you have to waste too much time. It’s better
to invest the money and reinvest the earnings automatically.

GIVING
IT AWAY

In
1905, one of the most influential unknown men in history, Frederick
Gates, wrote a memo to his employer, John D. Rockefeller, Sr. I
have seen the original document in the archives of the Rockefeller
Archives in Tarreytown, New York, which scholars are allowed to
use for free. It was one of the most important letters in history.
It was a call for Rockefeller to set up charitable foundations.

Gates
gave this reason:

Your
wealth is rolling up, rolling up like an avalanche! You must keep
up with it! If you do not, it will crush you and your children
and your children’s children.

The
old man was already giving away lots of money. He had set up the
General Education Board in 1902, which I regard as the most important
unknown organization in American history. It was the first academic
accrediting agency. It gave away big money to select colleges, but
only if they added men holding the Ph.D. to the faculty. Through
endowed chairs in education in colleges, it promoted public education,
especially high school, especially in the South. Through it, the
Rockefellers re-structured American education, from graduate school
to kindergarten. A century later, there is still no comprehensive,
academic history of academic accreditation, which is how the Establishment
has gained almost complete control over higher education in America,
including private colleges. But I digress.

It
was through Gates’ influence that John D., Sr., along with the various
Carnegie organizations, spent tens of millions to re-shape America,
back when a million dollars was big money. For two decades, Gates
was Rockefeller’s director of charities. I refer to him as the bag
man. Those millions bought a lot of silence from potential Rockefeller
critics in the middle class. Gates was replaced in 1921 by Raymond
Fosdick, brother of the famous minister, Harry Emerson Fosdick.
Raymond helped direct the spending of John D., Jr. over the next
four decades. Among their "gifts" to America was Federal
income tax withholding, which raised revenues from $3.2 billion
in 1942 to $19.7 billion in 1944. This program was proposed by Beardsley
Ruml, who had been hired by Fosdick in 1922. (The academic economist
who helped design the original program was Milton Friedman.)

http://www-hoover.stanford.edu/publications/digest/993/shlaes.html

When
we trace the history of the big family foundations — Rockefeller,
Carnegie, Ford, Guggenheim, Pew — we discover the truth of
economist Ben Rogge’s observation: "Rich men know how to make
money, but they don’t know how to give it away."

It
takes a life of dedication and practice in giving away minor sums
to be able to give away big money without causing great harm. The
rich man’s chief priorities may or may not be tied to amassing a
fortune. Maybe the person is a pure entrepreneur or innovator, like
Bill Gates is. But as soon as the avalanche of money starts to roll
up behind him, his moral proprieties must guide him, not his ability
to make money. The two skills are very different. Rich men don’t
do very well, once the avalanche begins.

I
wrote about this dilemma in 1995. I have just discovered that someone
has posted the essay on the Web. I sent it to donors to my Institute
for Christian Economics, whose assets the ICE board transferred
to another ministry late last year. My topic in 1995 was the Sugar
Daddy: the megabuck donor to causes. My advice: never become dependent
on the good will of a Sugar Daddy. I wrote:

A
million people giving away $100 every year can do more good than
one man giving away $100 million once. His yes-men will guide
him into very large mistakes. Our decentralized mistakes are spread
over many projects. The best projects will survive. We can fund
more of them.

http://reformed-theology.org/ice/newslet/coverletters/cover95.07.htm

A
Sugar Daddy can pull the plug at any time. If your organization
has become dependent on him, this can sink it. Sugar Daddies are
eccentric. Their replacements after he dies are bureaucrats, and
they seldom share his either eccentricities or his vision. You are
seen by them as his eccentricity. They will then pull the plug.

NOT
IN THEIR LEAGUE

We
are not in the Welches’ league, obviously. We don’t mix with their
set socially. We rarely meet them. The only ones I ever knew were
Texas oil barons, who went bust in the 1980′s. Socially, they were
on the outside looking in, even in the 1970′s.

Be
thankful for large favors. To spend your life mixing with people
who spend $500,000 a month is not my idea of a fun time. Keeping
up with these Joneses would take out all but the richest of the
rich.

Maybe
that’s why they do it. Maybe spending money at rates like this is
how they buy themselves social isolation. They don’t need to hire
guards to keep us away.

They
just spend great wads of money, knowing that the rest of us would
be bankrupt in a brief time if we tried to keep up. You know: the
way Mexican immigrants could not keep up with us. When was the last
time any of us had dinner with a Mexican immigrant? Yet Jesus warned,

Then
said he also to him that bade him, When thou makest a dinner or
a supper, call not thy friends, nor thy brethren, neither thy
kinsmen, nor thy rich neighbours; lest they also bid thee again,
and a recompence be made thee. But when thou makest a feast, call
the poor, the maimed, the lame, the blind: And thou shalt be blessed;
for they cannot recompense thee: for thou shalt be recompensed
at the resurrection of the just (Luke 14:12-14).

I
have done this, but not on my own or in my own home. I have worked
with a highly successful interdenominational prison ministry, called
Kairos. The initial reason why this program works to change lives
is because freeworlders, as we’re called, come in and eat with the
inmates for three days, side by side. They aren’t buddy-buddy with
us initially. They are mainly interested in the cookies and the
hamburgers and the ice cream. But, after three days of sharing meals,
some of them respond personally.

It
takes a lot of cookies to break down their suspicion. I mean, a
whole lot of cookies! For one weekend meeting of 42 inmates and
maybe 30 freeworlders, the ministry’s supporters bake — you
will not believe this — about 4,000 dozen cookies. They are
asked to bake 6,000 dozen, but they rarely meet the goal. At the
end of the three-day meeting, there is not one bag of cookies remaining.
The guards get cookies, the inmates’ cellmates get cookies, and
(in our session, anyway) every inmate we can locate in the prison
gets several dozen cookies. The normal black market price per cookie
behind bars — $1 — briefly falls. Believe me, it is a
strange experience to stand with ten plastic bags of cookies at
the foot of a six-story sharpshooters’ tower, and watch a basket
being lowered from the top by a rope, like Rapunzel’s hair. Everyone
loves cookies.

If
you want to bake two dozen cookies for the next weekend meeting
in your state, find out the details here:

http://www.kairosprisonministry.org

So,
you and I are not in the Welches’ league, and approximately four
billion people are not in ours. Yet you and I probably give more
thought to our inability to mix with the Welches than we devote
to the inability of four billion hard-working, undercapitalized
others to mix with us. We watch "Lifestyles of the Rich and
Famous." The more affluent among the masses watch satellite
TV re-runs of dubbed versions of "Friends."

We,
too, have problems with priorities.

On
my trip, I was revising the text of my book, Treasure
and Dominion: An Economic Commentary on Luke.

Luke’s
Gospel emphasizes the moral risks of great wealth. I had extracted
quite a bit of this book from my earlier book, Priorities and
Dominion, my commentary on Matthew.

Both
are free on the Web: http://www.freebooks.com

To
read the account of the Welches’ level of spending immediately after
reading my commentary on Luke was a jarring experience for me. It
influenced me sufficiently to write this report. What Welch is to
me, I am to Mr. Patel, who lives in some village. The main difference
is, I can read about Welch. Patel doesn’t know about me. Lucky me.

We
don’t travel in the Welches’ circuit. This is good news for us.
While it would be nice to possess the organizational skills of a
Jack Welch, enabling us to serve consumers better, it would not
be nice to live with the responsibility of a Jack Welch. There are
no free lunches in life. Ownership is a social function. We legally
own our wealth, but always as economic agents of society and agents
of God. When you can do one thing with $500 or do something else,
you must please a few people and displease a lot of people. It is
never a question of "To spend or not to spend." It is
a question of "on what to spend." Investment goods are
expenditures, just as consumer goods are. Once the money is in your
possession, you become responsible.

I
would hate to be Oprah Winfrey, Warren Buffett, or a Walton. The
avalanche of responsibility would crush me.

You,
too. Never forget this.

CONCLUSION

Spend
a lot of time on your priorities before you spend any more time
on how to increase your cash flow. You may not be facing an avalanche,
but you could get a stone-filled snowball in the back of your head
when you least expect it.

When
it costs at least 45 million after-tax dollars to get a new wife,
that’s an expensive new wife. Personally, I prefer to keep my existing
wife and buy a used Lexus. I’ll invest the difference.

November
11, 2002

Gary
North is the author of Mises
on Money
. Visit http://www.freebooks.com.
For a free subscription to Gary North’s twice-weekly economics newsletter,
click
here
.

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