Shin Adachi

On efforts to control prices

Today, I was reading news stories about hand-sanitizers and masks being sold online for ten times their normal prices amidst the worldwide coronavirus outbreak. Given the circumstances, apparently Google and Amazon are prohibiting sales on their platforms at exorbitant prices. They are private companies so I have no qualms about what they decide to do, but their responses reminds me of historic efforts imposed by the government to control prices of various goods and services.

These price control efforts I’m thinking of are mandates like “anti-price gouging laws” that prohibit sellers from raising prices of products beyond a government-set percentage in case of a natural disaster, “rent control laws” that make it illegal for landlords to charge rent over a certain allowed annual percentage increase, and “minimum wage laws” that set the floor for how low of a wage an employer is allowed to pay to its employees.

On the surface, these issues seem pretty simple. Charging a high price for necessities that people need in times of a natural disaster, increasing the rent on someone struggling to pay rent, or hiring unskilled workers for the benefit of business-owners while taking advantage of cheap labor, all seem wrong. In a perfect world, we wouldn’t have to do any of that. But the world is not perfect, and a lot of discussions I have been having around this topic tend to miss an important aspect: what would we be giving up by implementing such laws? Are there unintended consequences? Are the decisions being made as a result of weighing the pros and cons to make sure that we are not causing unintentional harm? To help me understand the topic, I have been researching counterarguments against price-control measures, because the opposing views are not often talked about in the liberal state of California where I live, even though these are things well worth considering. My goal is that we can all think critically about such laws in order to be an informed voter, because these issues often come up in local elections.

Rent Control
Let’s start with rent control by considering the case of San Francisco, a city notoriously known for its lack of housing and exorbitant prices despite its rent control laws.

According to the citywide ordinance in San Francisco, an owner of a rental unit may not increase the rent by more than 5% annually against a current tenant. Given the current severe housing shortage in San Francisco, there is a drastic difference between how much a landlord can charge a tenant who already lives in a unit and wants to stay, compared with how much a potential new tenant moving in is willing to offer for the same unit. Rent control laws are popular among the public because the name suggests that it should control the rent, making it affordable for more people to live in that area. Because of that, many politicians in the past have implemented them to gain the support of the voters. However, a careful study of the topic reveals that rent control laws are ineffective at best in what it claims to do (to control the rent), and actually result in the opposite effect. Rent control is the main driver in rising rents, homelessness, and gentrification in an area, harming people, especially the poor.

To understand the topic better, it helps to first to put ourselves in the shoes of the landlords, such as an owner of an apartment complex. Remember that rent control law results in a large price difference between what future tenants are willing to pay, and what a landlord is allowed to charge the current tenant. As a result, the owner has all the incentives to kick out the current tenant for a new tenant. But that is often difficult to do, so the next best thing is to convert the rental unit into other forms of investment, such as commercial buildings or luxury condos for sale, which will command very high prices and offer a better investment opportunity than being a landlord. Such an incentive placed city-wide by an ordinance leads to an even greater shortage of rental units in the city, as more and more rental units get converted to serve other purposes, while very little new rental-units are being built in the city. Even as the city is expanding and businesses are moving in which should also have a corresponding demand increase for housing, investing in rental units is not as attractive as other forms of investment. The resulting shortage almost always means higher prices in the long run for the remaining rental units due to low supply and high demand. As prospective tenants bid up the prices for their chance to move into the city, rent becomes exorbitant. The people hurt most by rent control laws are the poor. Many rich future tenants pay bribes to the landlords to secure rental units. Some tenants even secretly sublet their unit at market price significantly above what they are paying to the landlord. In fact, my friend was recently paying $1600/month to his roommate to share a unit in San Francisco in which she has lived before him, signaling that the fair market value for the unit should be around $3200. Despite that, his roommate was paying significantly less than that to the landlord, because the landlord was forbidden by law to collect the profit from the arrangement between my friend and his roommate. No wonder that less and less investors want to supply rental units in such a city. As an investor, if I cannot collect the fair profits from my investments, I will forego the opportunity to invest in something else with my capital.

So a law designed to make housing affordable for people has the exact opposite effect as it causes a shortage and drives up the cost of housing. The story is much the same in other places that have implemented rent control: New York, Los Angeles, Washington D.C., and Oakland which are all facing increasing rent and homelessness.

Compare them to Tokyo, a large city with no rent-control laws. Tokyo has enough housing for people of all income levels because supply of housing has steadily increased in proportion to its population-growth historically. In Tokyo, a low-wage worker earning an equivalent of about $10 per hour can afford to live in one of the cheaper rental units in the city whose market rate is around $400, or about 25% of his monthly earnings, as long as he is okay with not living in the most convenient areas of the city. He would also likely have to live in a very small studio unit, and take a few more subways to get to work than the rich who tend to live in more central areas. It may not be the most ideal living situation, but it is comfortable enough, and it sure beats being homeless or having to live hours away from your place of employment, as workers in San Francisco often must do.

Speaking of homelessness, Tokyo has a homelessness population of about 1 per 10,000 residents. Compare that to New York city and Los Angeles, with a dismal 67 and 40 homeless persons for every 10,000 residents, respectively.

Anti-Price Gouging Laws
Let’s turn our attention to price-gouging laws. In California, its anti price-gouging statute prevents a merchant from raising the price of any item by over 10% in response to a declared emergency, such as a natural disaster. In theory, such a law sounds good, as it should keep items affordable for the poor, who tend to be the most vulnerable when disaster strikes.

However, forbidding prices to go up ignores the fact that in case of a natural disaster, the demand for certain products can rise significantly in a very short amount of time, driving up the market rate for various products. The very definition of what used to be “normal” does not apply anymore, as there is a new normal price determined by the sudden spike in demand. If merchants are not allowed to raise the price of these products, these products will immediately sell out, and their prices will rise any way through the secondary and black markets, as people who make it to the stores first will hoard these items, often to stock up for emergency or to sell them at a much higher price that people are now willing to pay given the new circumstances, leaving little for the poor for a chance to get the products. An anti-price gouging law cannot fight the market forces to control the prices as it intends to do.

What is the effect, then, of such a law? It turns out that it is very similar to rent-control laws mentioned above. When a law prevents price of a product to rise in response to the current market conditions, producers of that product don’t have a strong enough incentive to produce more of that product, and the merchants of that product who operate in multiple regions to divert its normal supply chains to provide more of that product to the area where price is rising, signaling the highest need. Because of the lack of incentives on these key players in the market, laws preventing price hikes lead to a severe, ongoing shortage of the product in question. A price hike may be unfortunate, but as long as incentives are allowed to fluctuate freely with changing market conditions, high-prices prevent people to hoard an item unnecessarily in the short term, and prices come down quickly as more suppliers start providing the product to the affected area. This is a much more desirable effect than an ongoing shortage.

For example, an ongoing shortage of masks in an area devastated by a wild fire could mean life and death for many of its residents, and it is tragic that anti-price gouging laws can indirectly kill people by failing to incentivize the market forces to bring more masks to the area. It is one thing to be skeptical of free market forces when it comes to topics like health insurance and the environment which have externalities that the market fails to address, but a whole another to ignore its efficiency of providing a high-demand product in a high-demand area. Free market forces act significantly faster to solve a simple shortage than a government bureaucracy trying to supply the product in such a scenario. The government does not have the right connections to the producers and the merchants to devise an effective policy overnight to save the lives of these people, while a web of producers, delivery services, and retail stores responding to the market forces are very effective to quickly divert products to areas in need.

Economists are often criticized for simplifying the world with sketches of supply and demand curves on a napkin to explain such phenomena, but there is an important wisdom to be gained by trying to understand how supply and demand works at the most basic level. I liken it to future mechanical engineers who study about frictionless inclined-planes in their introductory physics course, even though no such object exists in the real world. The education obtained here is nonetheless crucial to the career of this future engineer or the future voter in understanding more complex topics.

Anyone who studies the history of price controls cannot deny that government-imposed price control measures have consistently led to severe shortages any time the market price for any product goes above the price allowed by law. The gasoline shortage during the 1970’s oil embargo, the shortage of apartments in rent-controlled cities, food and basic necessities in Venezuela under Hugo Chavez’s policies placing a cap in their prices, the shortage of doctors in countries where the government imposes how much a doctor can charge for various services, are all examples of this. It is just difficult to see the causal negative effect of these policies because under normal circumstances, market prices for most services and products do not go above the level imposed by the government. When it does suddenly many years later, the politician who implemented such an erroneous and mistaken economic policy (often with praise from the citizens at the time of implementation) is usually long gone from the office, as society is left to deal with the devastating consequences, wondering why the shortage does not get solved even as people suffer.

Minimum Wage Laws
Finally, let’s turn our attention to minimum wage laws. Perhaps this is the most controversial of the three price control laws I mentioned today, because it affects the most number of people on a daily basis. It is also the most complex of the three, with its long-term effects not completely understood given the complexities of the labor economy. The key difference between a minimum wage law and the other two laws I mentioned above is that a minimum wage is a “floor” placed on the price of labor setting a certain minimum, as opposed to price-control measures such as rent control and anti-price-gouging laws, which are “ceiling”s setting some maximum level.

The typical Econ 101 textbook states that a price floor results in surplus, while a price ceiling results in a shortage. So the minimum wage law, which effectively sets a floor on wage, should cause a surplus in the available labor, meaning higher unemployment rates. The simple explanation may miss some key insights because of the long-term effect on the well being of the economy when people, especially the young, forego working for other high value activities such as education. Also, it is possible that businesseses may be underestimating the value of a worker and underpaying them. Paying too much for a worker hurts the bottom line for obvious reasons, but paying workers too little could also be damaging too if the wages are so low that a job loss does not hurt, in which case those workers have little incentive to be actually productive at work.

The key argument for minimum wage law is that by setting the minimum to a “livable wage” to meet the basic living conditions, poverty should be eradicated. It sounds beautiful in theory.

But at the same time, it doesn’t take the most intelligent economist to see that you can’t just raise the minimum wage to any price you wish. For example, raising the minimum annual salary to $100,000 for everybody sounds great at first if we can all earn a six-figure income starting tomorrow and live in abundance. But if such law were to be implemented, any employee who does not produce that kind of profit for the employer with his or her skills will be laid off soon, as there is no reason whatsoever for the business to keep such a person on staff. Engineers, doctors, and lawyers already earning a six-figure salary will likely keep their jobs, while many people will lose their jobs, at least temporarily, as the economy slowly adjusts to inflate the price of everything to negate the effect of a higher income, at which point people can be employed again.

So by common sense, we can’t set the minimum wage to $100,000/year without causing massive unemployment in the short run and inflation in the long run. So what is the result of a more realistic minimum wage, such as $15/hour, that many proponents argue for?

In the short term, it will not change much of anything for most people in their mid-careers, because they are already earning wages well above $15/hour anyway. The only people initially affected by the law are people currently working for under $15/hour. By the same logic as the example of the $100,000/year minimum wage above, with a $15/hour minimum wage, companies will have an incentive to layoff anyone whose work and skill does not produce a profit to the business equivalent to $15/hour. These are mostly people in entry-level jobs with little experience nor knowledge on how to do the jobs effectively yet, such as students or people straight out of prison working at their first job.

Even though the proponents of minimum wage often cite how impossible it is to raise a family on minimum wage, it is important to recognize that a majority of people working minimum wage jobs are actually not raising families. They tend to be young, inexperienced workers working their first job to gain a footing in the world of work. For such people, an opportunity to work and build experience, regardless of any wage, may be more important than a higher wage, and a minimum wage law inevitably means that some of them will be unemployed because their market wage is worth less than what the law allows. Many proponents of minimum wage I’ve talked to seem ignorant about all the negative consequences of it, such as higher unemployment rates of low-skilled workers, hours of work cut from those who need or want it, loss of flexibility in many positions, capital replacing human labor faster than it naturally would under a free market, higher cost to all businesses but especially to small businesses, and higher prices on various consumer goods and services.

Of course, young people finding a difficult time finding employment can forego work now and focus on their education which also lead to future opportunities, and perhaps that is not necessary bad. Also, the negative consequences of the minimum wage law is not as obviously visible to the ordinary voter who has other things to worry about in life. That is because minimum wage workers represent only about 0.1% of the labor force. Regardless, to those few workers, a minimum wage increase could mean a disruption to their career, because the law will suddenly prevent an employer to keep employing that worker at a price that they both had agreed on, and the employer often has no choice but to let them go, cut their hours, or raise their prices. If the law unintentionally prohibits a contract between a business and a potential hire even though both parties are willing, it has done harm to both of those parties. People can disagree whether it is role of a third party such as the government to prohibit two willing parties to buy and sell labor at a price that they both agree on, but there is no doubt that the minimum wage causes much more harm than good, and the people hurt the most by it are low-skilled labors, the very people the proponents of the law claims to be “helping”.

Another irony of the minimum wage law is that its proponents are often “economic liberals” in the American sense, who generally favor government intervention to control business sizes. They claim that corporations are getting too large and that is bad for competition. But they fail to recognize that minimum wage laws favor large corporations, as they are the ones who can afford to pay a higher wage, while small businesses are more likely to go out of business because they tend to have much smaller profit margins and thus are hurt the most by having to pay a higher wage.

Proponents of minimum wage laws should critically think about these trade-offs before coming to any conclusion.

Summary
My goal in analyzing price control laws today was to frame the conversation as a trade-off between pros and cons after having understood both sides viewpoints, rather than an emotional argument about right and wrong which will never lead to good policies. These are nuanced topics with no one right answer, so being aware of the implications is crucial. Policies and their effects are not simple to understand. It is not about implementing what satisfies our emotions. Every policy has trade-offs that must be considered. Have we thought about what those might be? If not, let’s think them through. After we’ve done so, are the trade-offs worth it? These questions must be driving our conversations.

Looking back

Music has been a major part of my life, starting early on. My mother’s diary speaks of the day when the 26-week-old me discovered that a piano responds to my touch to make a sound. By age two, I was able to sing over fifty Japanese songs with precise intonation.

I must have decided early on, although not consciously, that it was okay to not be the best at everything, if it meant that I could play more music. Of course I wasn’t thinking that deeply about my life, but now I realize this about my past self, because whenever I got a time-consuming assignment or a project from school, I tended to not do them, opting to practice with my time instead. Of course I tried to make sure that my grades did not dip so low to a point to fail the class, but I was not always successful.

One evening after I came home with a failing report card, I was trying to sleep when I overheard my parents discussing in the dining area. The topic was whether I should stop playing music so that I can focus on my studies more. Thankfully, they decided against that idea. My father’s precise words were, “But if we take away music from Shin, he would have nothing left.” I think he underestimated me a bit though, as I have achieved some things outside of music too. I was just a late bloomer on most of my pursuits in life.

When I got in trouble with my mother, unlike most mothers who would take away their video games or a day out with friends, she took away my ride to music lessons. That did not deter me, and I simply walked. My cello teacher’s house was a 1.5-hour walk each way, and so I walked from and to the lesson, with a cello on my back.

When I was in high school, my father left his job to pursue more education. My parents said that they were financially okay to continue paying for our living expenses, but the music lessons had to go. That’s when I decided to take the only job I knew how to get at that time, a minimum wage job washing dishes in a restaurant in the evenings and weekends, and used almost all of my earnings from the job to continue with the lessons. Surprisingly, this was a change for the better (take note, parents). Did you know that people value things much more when they have to pay for it? I never knew until then, but from that day forward, I have never hesitated spending money for my education. My growth as a musician accelerated precisely because I had to fund my own music education. In fact I even asked my piano teacher to charge me more, simply because I had learned that I would take my studies more seriously if it cost me more.

When it came time to decide on a college major, I considered studying music for a bit, but the practical side of me won out and I chose physics instead, and I eventually changed to an even more practical major in engineering. Little did I know that the lessons I learned through music would propel me in all these pursuits.

Looking back, I still don’t know why music has always been such a large part of my life, but in hindsight, I do realize what a positive force it has been in all aspects. I attribute so much of the beauty of life: my happiness, a meaningful and challenging career that I’ve been lucky to have, relationships with other growth-oriented people, and the insights to make good decisions. Here are some key takeaways:

I couldn’t bullshit my way through music.
In an academic environment, I can have the illusion of having mastered something. For example, if I do everything that a teacher tells me to do, I can expect to receive an “A” in a course and I would think that I have mastered it. But in reality, getting an A is hardly “mastering” that subject, as plenty of students get A’s, unlike in the real world where only a few are called “masters” of any field. Compare that to music. Music is very honest, and less confusing. The music that comes out when I sit down at the piano and improvise is a very real reflection of the work that I put in, and my limitations because of the work that I did not put in yet. I doubt that I will ever get to call myself a “master” of music. As such, just sitting down in front of a piano daily aligns my goals to my long-term growth. It’s the small things that matter. The daily decisions to act in ways that improve the unseen future, that’s what most of life boils down to.

Music taught me about “abstraction”.
Some people are puzzled why pianists can memorize a long piece of music, such as a 3-movement sonata. If you think just in terms of the number of notes, it should be impossible that any human can just memorize so much information. But music is not about memorizing notes. It is about how the notes are combined with other notes, and how that combination of notes moves to the next combination of notes. All of those follow a few common patterns that appear in lots of different places within all genres of music. These common patterns are the “abstractions” of music, and by having the knowledge about more and more of these abstractions, what I am able to create musically has increased exponentially over time.

I later learned that my other pursuits in life, such as physics and engineering, are also largely built on this concept of abstraction. So a difficult problem is actually not a complex problem. It is a combination of many simple problems that add up to give it its seemingly complex nature.

Something I’ve noticed about my philosophy in life is that unlike many people who tend to focus on the end-goals and results, I don’t have long-term goals, nor am I interested in what the final result of my actions will be. Kind of like a good poker player, who can detach the aspect of decision making from the result of their actions which are driven by luck. I have never had typical aspirations in life such as getting married, buying a nice house, or being successful. If they happen, great. If not, also great. My focus has simply been on building up my skills from the foundation up, like a pyramid, and I just let life unfold. As a result, I get off to slower start compared to others, but I eventually get to a point where my foundation is strong so that I can learn things faster. That explains my struggles in math classes early on, and my eventual success in physics and engineering. It also explains I was never the kid to enter piano competitions. What I could play was extremely basic compared to other kids taking piano lessons. Instead of learning to play impressive-sounding pieces by these genius composers, I was slowly building up my ear for music by listening to songs and learning them by ear, note by note and chord by chord.

The result is that now I can hear a piece of music and learn and understand both the melody and its chord progressions in a matter of minutes. I can join a band and come up with a piano part on the spot to make the band better. I can compose a piece of music at will. I can accompany a singer singing in any key without sheet music. I can improvise my way out when I get lost during a performance. It turns out that all these skills are important to a musician.

Abraham Lincoln apparently believed in this “foundations-up” approach too, as he said “give me six hours to chop down a tree, and I will spend the first four sharpening the axe.”

Music is more science than art
Although music is so powerful in appealing to the listener’s emotions, the process of becoming better at music is very scientific in nature, and has so much to do with planning effective practice sessions and executing on them. To detach the emotional part and focusing on the science almost seem wrong, and I even remember being told by a non-musician friend that I should “feel” the music more while I was drilling on a left-hand passage methodically with a metronome, but such practice can be a very effective way to develop the techniques so that later on when you are feeling that emotion in music, you have the capability to express that emotion by moving your hand in a very specific way that matches what the emotions require.

But music is still art
After all I said in the previous paragraph, the purpose of music is still to capture the beauty in the moment in time and space with your music. Music’s power is in its fleeting nature, as no same sound will ever be produced again. As such, music parallels life, because after all, there is so much joy in being alive and experiencing each current moment. It’s a tragedy that we forget this, and life goes on without us basking in the beauty of it.

Yesterday does not exist anymore, and tomorrow is not guaranteed. Today is different though. Today, we can choose what to make of it.

cup of coffee anyone?

There once was a peculiar coffee shop called “Akaneya”, located by the train station in Karuizawa where their baseline coffee started at double the price of a typical coffee at other cafes. Not only that, Akaneya’s secret menu is rumored to have included a cup of coffee that costs upward of $100.

Karuizawa is a rural little town that my family used to visit during the summer to get away from the Tokyo heat. You may also know it as the home of a recent season of the reality show “Terrace House” on Netflix, which has created a very interesting cultural phenomenon with viewers worldwide. The show claims to simply follow some Japanese young adults go about their lives, with no scripts.

Back to coffee. What’s really interesting about Akaneya’s coffee is in its philosophy and history. The first Akaneya opened its doors in Kobe, a large city in west Japan. Its owner, Mr. Funakoshi, had suffered from medical issues throughout his life and reasoned that he could not work a normal day job like everyone else. About all he could handle was to own a small coffee shop, and not only that, his goal was to work as half as much as a typical coffee shop owner. What interesting aspirations! Can you imagine going into any job and right off the bat claim “my goal is to work as half as much as others”? Well that was precisely his goal.

He got to thinking how he can achieve this. He set a goal to serve about fifty or so customers in a day. He figured that the coffee must be priced high to not attract too many customers, but he had some pride. He wouldn’t allow himself to serve anything whose quality didn’t justify its high price. A coffee that tastes bad but is expensive just for expensive’s sake was of no interest to him. And so began his journey to figure out what exactly makes one fine cup of coffee.

His first stops on the journey were the various operators that import and process coffee beans. He carefully observed how they work, and asked them questions until he was confident in his understanding of how this industry operated and the important concepts that end up affecting the taste of the final product, the brewed coffee.

This was 1966 and as such times were different. Of all the coffee bean processors in Japan, there was only one that roasted the beans using charcoal. He decided to buy the beans from them. But instead of letting this operator blend the beans as they saw fit like any other coffee shop would, he brought back a variety of beans in order to decide on a blend himself after much trial and error. He made each cup of coffee to order using the pour over technique, which was eventually made popular in other coffee shops in Japan (and later in other countries as well), but putting in so much work into each cup was certainly not the norm at the time, as no other coffee shop was known for doing the same.

His meticulous research did not stop at the coffee itself. For the best drinking experience, he also needed to find the right cup. He looked into cups made domestically and internationally, made from a variety of materials, and eventually found cups to his liking in Okura Touen, a Japanese producer of fine artistic china, after visiting various factories and observing the pride that each put into their work, as well as the conditions, cleanliness, and management of the factories.

With all this research and preparation, he opened his first coffee shop in Kobe, Japan, and it did better than he expected, which meant he was working more than he would have liked. Remember, his goal was to open a coffee shop that did not attract many customers. Eventually he left the operations of this busy shop to others, and opened up another location in the rural Karuizawa where the population is small and people would typically only visit during the summer months. This store was more to his liking, and he was working less, just like he wanted to. He spent his newfound free time learning about various things, and unexpectedly, the second floor of the shop eventually became a secret meeting place where various important officials and higher-ups of society would come and talk to Mr. Funakoshi for inspiration, to learn from his profound insights about business and the world.

So goes the interesting story of the Akaneya coffee shop and its founder, Mr. Funakoshi. What’s the point you say? Well, whatever lesson you learn from this is up to you. At the very least, it’s a fascinating story of the irony of life, about a guy who ended up successful because he didn’t want to work. Perhaps herein lies an important aspect of work: be creating something that you can be proud of.

worthy of your attention

The plane landed slightly before the scheduled time. There was an air of excitement among the passengers. We were all eager go home and do whatever it was that each of us were going to do next. Sleep, see our loved ones, or in my case, play my piano. Then we got word that we had to wait on the taxiway for an indefinite amount of time because there was another plane parked at the gate where we were supposed to deplane. I thought to myself, “cool, extra time to get my Spanish studying in,” and started studying. About twenty minutes into being stuck there, I couldn’t help but notice the complaints coming from those around me about the situation: “Oh come on who messed up?” “How is it that airlines can never figure this stuff out?”

I admit that I too express my share of complaints about things at times, but if you step back and assess the situation, you notice just how silly this is. It is one thing to complain about something that can be changed. But to complain about a situation that simply won’t change or you have no power to change? What’s the point of that? Are those things even worth your attention?

One time, a student of mine messed up pretty bad in a piano recital. I asked him afterward, “so what do you think happened?” He was quick to respond “I got nervous. Also it was cold and my fingers didn’t move well.”

While it may be true that he got nervous and had cold fingers, I really was hoping for a different answer. Something like “I didn’t practice enough” because really, that would have been a much better attitude to have about what had just happened.

Do people get nervous for a performance? Sure, I get nervous every single time. Does a venue where you perform get cold at times? Of course. But those are out of your control. But you know what you could have done? Practice more. Practice so much so that you are so damn good, so that even with your nerves and freezing fingers, you still have complete command of the instrument, and you are able to perform at a high level.

Stop giving any of your attention to the things you cannot control, and focus meticulously on the things that you can. You will be amazed with your results.

All about IRAs

This is a continuation of a series of posts on personal finance. You can read the entire series here: https://blog.shinadachi.com/category/finance/

If your employer does not offer a 401-k or 403-b, there is still a way to get a similar tax advantage while saving for your retirement with an IRA (Individual Retirement Account).

IRAs are recommended over normal investment accounts for a simple reason: the significant tax advantage that it gives you.

IRAs come in two flavors: The traditional IRA and the Roth-IRA. They are taxed differently, as follows.

Traditional IRA
A traditional IRA account can be funded with your pre-tax money. This means that whatever you invest into an IRA account this year can be deducted from your income, resulting in a smaller income tax for you.

Once invested, your money will grow tax free, unlike a normal investment that incurs a tax on your capital gains.

When you take the money out in retirement, you will pay income taxes on whatever you take out.

Roth-IRA
A Roth-IRA account is funded with your post-tax income. This means that you will NOT be able to deduct your investment from your income. But because you have paid taxes before the initial investment, you can take it out in retirement completely tax free. And just like the traditional IRA above, the money also grows tax-free.

Which should you choose?
If you are trying to decide between a traditional IRA vs a Roth-IRA, consider how much your income is now, and how much you expect you will draw from your IRA in your retirement years.

This is not easy to figure out since your life and your future has a lot of unknowns, but the typical advice is that for young low-income earners, Roth-IRA may be the optimal choice as your income is likely lower today than in the future. You have a long time to amass a significant net-worth, which will likely lead to withdrawals in the future larger than your current income. I purposefully did not draw the line the separates young/old or low/high income, as each life situation is different and there is no clear answer here.

My case is a little special, because as an engineer and a freelance musician, I tend to make a lot of money in certain years and not in other years. So I actually invest in a traditional 401-k (similar rules to traditional IRA) in the years I work a normal day job, and convert a portion of it to a Roth-IRA when I focus on music. The conversion is considered a taxable event, but since I make significantly less money as a musician than as an engineer, my income for the years I work as a musician is taxed at a lower percentage.

How do you start an IRA account?
Most investment services allow you to open an IRA account with which to invest your money. Whatever you choose, a good philosophy to follow is to do the following with your assets.
1. Invest most of your assets in a diverse stock index fund. I like Warren Buffet’s advice, 90% stocks, 10% bonds, and rebalance occasionally to keep the ratio. This is good because even though the stock market is volatile, it has a higher average annual return in the long-run than other investment vehicles. One precaution here: volatility of the market makes some investors scared, or react to the market (like selling all of their stocks after a market crash). Don’t be like those investors, and stay invested and consistently stick to the 90/10 ratio for the best long-term results.
2. Invest with a firm that does not charge you a high fee. When I got my first job and started investing back in high school, I made the mistake of investing in mutual funds with fees as high as 1% annually. In hindsight this didn’t make much sense when many index funds have expense ratios below 0.1%.

Vanguard is considered the king of index funds with their variety of offerings and low fees. I am quite fond of their VTSAX fund, which is the total stock market fund that exposes you to the entire U.S. stock market. How cool that you can be a part owner of every single publicly traded U.S. company by simply investing in this one fund! There is also the VBTLX, the total bond market index fund. So implementing Buffet’s advice of 90% stocks and 10% bonds is easy with Vanguard. Invest 90% in VTSAX, 10% in VBTLX, and rebalance occasionally as the market fluctuates to stay close to a 90/10 holding ratio.

I also love the wealth of low-fee “robo-advisors” available today that implement strategies similar to the above, but does all the work of investing/rebalancing for you. This includes services like Schwab Intelligent Portfolio, Wealthfront, and Betterment. Robo-advisors tend to have much prettier and easy-to-use user-interfaces compared to Vanguard, so they are recommended for people who may not be interested in learning the nitty-gritty details of the different kinds of funds but simply want an easy way to consistently put away money for their future without having to think about it.

Tokyo concert

If you’ve been wanting to visit Japan, next month might be the perfect time to go.

Why? Because I’m playing a solo concert! Besides, Tokyo is just a cool place that you should experience regardless.

I’ll be performing some of my newest pieces, some I haven’t even recorded yet.

When:
5/18 4PM JST

Where:
Tokyo Lutheran Church
1-14-14 Okubo

It will be free admission. I will be collecting donations though, to support a young struggling musician, me.

Just kidding, I am not struggling, and I will donate all the proceeds to an organization that provides training for people to become effective conversation partners. It means a lot to me to support them, since they were instrumental in helping my grandmother overcome her anxiety and depression. The best part? My grandmother, who has never shown an interest in my music, is actually planning to come to this concert. It will be her first time to see me perform, ever.

See you next month Tokyo!

on motivation

“My passion doesn’t give me joy any more. I don’t feel like doing anything,” a former coworker and a fellow artist called me asking for advice.

I knew exactly what she was going through.

People assume that because I have been pursuing music all my life, any time I spend on music is nothing but joy.

Lies. Far from it. In fact, it is perfectly normal for me to have days when I don’t feel like writing any music.

About four years ago, I took a sabbatical with the intention of focusing all of my time on music. I looked at the savings I had built up, which at that time was enough to cover about ten years worth of my then minimal living expenses. I told myself, “Let’s give this five years, give or take. For the next five years, I won’t work a normal day-job, and instead I’ll focus all my time on music and see where it takes me.”

Where this landed me was a complete surprise. It didn’t take very long for me to discover that I actually don’t like music as much as I thought I did. Yes I still love music to this day, but I don’t love it to a point to be spending all of my time on it. I have many other interests that give me joy. That unfortunately means that I won’t be the best player in the world, not even close. But I’m actually ok with that, and it took my sabbatical to come to this realization. When I went back to working, I regained my deep love for music again. How life works is funny sometimes. Although I didn’t get to the point where I thought I would, the saving grace is that I have been able to turn all of my interests (music, teaching, and engineering so far) into a way to generate income anyway, which is a great place to be in as that income then funds my continued self-improvement in various ways, which then leads to even more income, creating a wonderful positive feedback loop. I thank the mindset that I have gained from other artists which helped me to get to this point, so today, I want to share a bit of that mindset.

Why?
Some people ask, “Why bother? Why do I have be good at what I do?” This is something I’ve wondered too, and I don’t know if there is a universally correct answer. I don’t know if improving and becoming good at something is a worthy cause for everyone. But from personal experience, the better I get at something, the more enjoyable it gets, so that fact alone is enough to fuel my constant quest for improvement. There are also many side effects at being good at something too. That it creates an income stream is one, but more important for me is the ability to make a difference through art.

For example, it’s happened on multiple occasions that I am playing something on the piano and someone in the audience starts crying. There is some profound power in music that can’t be explained by words. I’ve also had a handful of young musicians tell me that they started playing music because of me. That’s actually why I started playing music seriously too, when I was inspired by a particular musical performance, so it’s heart warming to know that I have been able to pass on the torch to others.

What?
What should you be good at? I actually don’t think it matters much, as long as it is something positive. Like your goal shouldn’t be to elevate yourself by putting others down. But I also don’t think that you need a pre-existing passion for the things that you pursue. Phrases like “do what you love” and “follow your passion”, while they come from good intentions, are not very actionable advice. The problem is that these sayings can make you think that if you don’t “feel” like doing something, it may not be your passion and therefore you should stop. Now I know that that’s not the intent of both phrases and I still generally agree with the spirit of both (for example, if your life is shitty because you hate what you’re doing, you definitely have the power to do something to make your life awesome instead), however it is concerning to me that a person can hear these pieces of advice and takes away the wrong message, as explained below.

A common misunderstanding is that a passion is “found” and you must find yours too. But that’s not how it works. Rather, passion, like most other things in life, is developed slowly as a result of your actions. Your passions are also dynamic, as they continue to change drastically as you live out your life.

A common mindset among people, mostly due to cultural factors of our current society:“I feel like doing this” -> “Maybe this is my passion” -> “I’ll work on it” -> “I don’t feel like doing this today” -> “This must not be my passion” -> “Go find something else” -> Rinse and repeat

Unfortunately, this won’t lead you anywhere, as you will never find anything that you “always” feel like doing. There simply isn’t such a thing, and you will never be good at anything with that mindset.

An alternative (and more helpful) mindset: “I’m going to commit to working on this whether I feel like it or not” -> You develop a habit of self-improvement. -> You start to enjoy it more and more as you start to see the result of your work. -> The action becomes an automatic habit. -> You get really good at it. -> People appreciate you for your knowledge/ability/whatever. -> It feels good because you are contributing to something greater than yourself. -> You have developed “passion”.

Or, put it more succinctly,
“Passion leads to action” – No
“Action leads to passion” – Yes

Making a Living

In a society that so often ties your identity to your job, a lot of people equate “making a living” with “making money”. Such an expectation is setting up a lot of people for disappointment when they realize (as I did after trying many jobs searching for the perfect fit) that no job will completely capture all of their unique tendencies and passions as a human being, so let’s set the record straight once and for all.

“Making a Living”
To make a living means to do the things you love to do in your life. For me, this includes things like reading, learning something new, teaching and helping people, donating to my favorite non-profit organizations, cooking, playing and writing music, getting inspired by watching the musicians I admire, seeing my family in Japan, and spending time with my close friends.

Note: the typical (but incorrect) definition of going to a job that you don’t enjoy and coming home too exhausted to do anything other than to watch TV, unless you think that the purpose of your life is to watch TV, should not at all be called “making a living.” A more appropriate phrase for that is “making a dying”, as you are slowly but surely getting closer to your death while not doing anything to make you come alive.

“Making Money”
Do I even have to define this? This is everything that you do that earns you money. For me, that includes activities like engineering of various kinds, playing music, teaching, and investing.

Now that we got those definitions out of the way, let’s talk about something really important: “the meaning of life”.

What is the meaning of life? Many find this question quite difficult to answer, because there isn’t really a one-size-fits-all answer here. But I think it’s actually rather simple. The meaning of life the way I understand it, is to do as much of “making a living” as possible, whatever that means for you. Keep in mind that you have only been given a finite amount of time on this planet to do that.

“Making a living” is about you. “Making Money” is about the economic need of society that you fill. You are lucky if those two are one in the same. But naturally as you and society both change over time, the two will almost always fail to align 100%. There is no such thing as a perfect job in which you get to do the exact thing that you want to do with your life on your job every single day. Your job, therefore, is not your identity, despite the cultural myth that makes it seem so. You are so much more complex and so much more beautiful than a mere job title you happen to hold.

Given that, it is very important that you carefully think about how you are handling your time and money. If you educate yourself about personal finance and take an optimal approach, you will be able to live more. Fail to do so, and you will be “making money” for the rest of your life, regardless of how little that may align with your “making a living”.

self-limiting beliefs

One of the tragedies of this world is the prevalence of self-limiting beliefs. It is common among people of all ages. A self-limiting belief goes something like this:

“I’m just not talented enough to do/learn ___.”

Now, it is true that sometimes you just aren’t talented enough, like in the case of certain athletic feats. For example, most of you, no matter how hard you try, will probably not break Usain Bolt’s 100-m dash world record, simply because of the body that you were born with.

But when it comes to other goals, the only thing limiting you is your belief.

I just got back from a trip to Juan Aldama, a small town in the state of Zacatecas, Mexico. One of the fascinating things I’ve come to realize (other than my newfound appreciation for reliable tap water that I have back home) is just how incredible the human brain is. I consider myself a pretty intelligent person, yet the Spanish I’m able to speak was nothing compared to the little kids playing about in the streets of Mexico, and they haven’t even had a single class on Spanish!

“Of course they can speak Spanish, they’re growing up in Mexico” you may say. But speaking a language is an incredibly difficult feat. Any language spoken in the world today has a great variety of sentence structures and subtleties to say the same things in a slightly different tone, yet humans are incredible at picking up these subtleties by performing pattern recognition, almost all unconsciously. In the case of a language like Spanish, it is made even more difficult by the presence of verb conjugation. In order to use the language effectively, you must know every conjugation of every verb, and boy are there lots of them! The verb form changes depending on so many factors (1st, 2nd, or 3rd person? singular or plural? present, past, or future?). Put all those together and you quickly realize that it is nothing short of a miracle that kids are speaking any language. Speaking a language is a much more complex task than solving calculus problems, playing jazz piano, or programming a machine-learning algorithm. Yeah those things are kind of complex too, but nowhere near the complexity of the vast knowledge and problem-solving skill you must possess to speak a language. Yet these kids handle it no problem. They’re still little kids!!

So don’t you dare say that you are not talented enough. Your brain, with enough practice, has mastered the art of speaking your mother language. What makes you think that it cannot master other things?

comfort zone is boring zone

I recently had the opportunity to serve in jury duty. Although I did not end up being selected as one of the twelve jurors, I got to experience the jury selection process for the first time, and it was quite interesting just learning about how this process works. I also learned of this magical machine called “stenotype” that the court reporter types on, and I still don’t quite understand how those machines work, but it was so cool to see someone type at godly speeds!

The jury selection involved, probably due to the content of the case, the lawyers representing the plaintiff asking the potential jurors the question “have you been turned down by a job?”.

What followed was a really fascinating outlook on life that I hadn’t known.

Overwhelmingly, the most popular answer was “No I have not been turned down.” Now I don’t know if people were just saying that, or if they really have not been rejected, but assuming that most people were telling the truth, I was shocked that that answer is at all common in this society. The friends that I’ve talked to about such matter all seem to be people who have been rejected, and in many cases, rejected MANY times! I’m no different, as I probably have been turned down by over a hundred jobs by now, because let’s face it, most job applications that you submit, if you’re submitting them for positions that you don’t meet all the qualifications (which are the most interesting and challenging jobs that you should be applying for anyway), you will naturally get rejected most of the time.

It has become kind of a goal of mine to always be seeking rejection by doing things that I might fail at. This isn’t something that I randomly picked up, it’s something that I’ve learned throughout the course of my life to be the path that leads to the most growth, and to me, growth and satisfaction are one in the same. Failure is good, because it motivates you to better yourself.

The first time I began to internalize all this was when I failed my Algebra 1 course. The failure was demoralizing, but I noticed that because I had to take the course a second time, I got more practice, and I got really good at it. It was as if I had twice the practice as everyone else, and little did I know that failing this one course really set my life well for the future that was to come. I can’t thank Ms. Leung (my first Algebra 1 teacher) enough, for having the insight to see the value of me repeating the course. So many teachers would have not cared and just passed me on as it often happens. Luckily, that was not the case for me. Sometimes, failure is the best thing that can happen to you.

Similar thing happened when I was applying to colleges. I’ve always been a slower learner compared to my peers, and my poor academic performance resulted in me being rejected by every university I applied to. I literally felt like a failure, because the younger me back then did not know how the world worked and so just assumed that going to a prestigious (or at least some four-year) university was a requirement for success. But the motivation I got from this failure was so valuable, because even though I had always worked pretty hard, I worked harder than ever during my junior college years for no good reason other than in hopes that I would prove to the world that I am not a failure. Thinking back, that was probably not the healthiest motivation for studying, but it did equip me with some really valuable, fundamental knowledge in various subjects that I used as a stepping stone to take my learning further at the university level and beyond. I no longer have the desire to prove anything to the world because I’ve learned how pointless that is (the world is too big to care about small beings like each one of us, so better not worry about such grand things and just be happy), but my urge to keep learning something new has remained with me to this very day and continues to fuel my curiosity.

This illustration by Jessica Hagy sums up my point better than I can, so I’ll just stop talking: