The Real Lessons of Trump University — Part 2
What government does wrong and why it needs to think differently to help the people
In my previous article, I talked about some of the real lessons taught in Trump University seminars, and how they often aimed to take advantage of people in a bad place.
But, there is an important objection that some might have to my points:
If you ignore the incompetence of Trump University’s teachers, “Those lessons are the same kinds of lessons that many Real Estate Investment (REI) seminars would teach!”
And this is exactly right!
Those weren’t genius ideas developed by Trump’s team. Those are widespread ideas. And they are widespread because they are opportunities created by the system as it currently exists in the U.S.
Recap
Instead of generating real value by building things, Trump University taught you the path of making quick money through techniques like:
- Flipping houses by getting them at far below their real value — through the seller’s ignorance or desperation, and by convincing them that it was worth far less than it was.
- Making money on Tax Liens placed by the government on people who failed to pay their taxes (again, likely because they aren’t doing well), so that you make a decent profit on your investment and sometimes even get to foreclose on the person’s house.
It’s worth noting that where many conservatives believe in the value of earning money through honest work, the main focus of Trump University was to make money by finding ways to take advantage, while not taking much risk or offering anything much of your own.
How government can do better
Like many other aspects of US culture, there is often an adversarial aspect to the relationship between the American people and our government, as opposed to the trust one would expect for a government that is democratically elected.
That lack of trust derives from the fact that many people have experienced that the government doesn’t respect their values, and doesn’t care much for their well being.
I imagine we can agree that especially for people who have come upon hard times, government shouldn’t add to their suffering, nor easily let them be taken advantage of and ruined.
Once you end up in a bad place like being badly in debt or homeless, it can be very demoralizing, and even a hard working person may have a bad time working themselves out of that mess — even if they ended up there through no fault of their own.
So, let’s look at the two Trump University strategies we mentioned earlier and see if we can come up with ways the government might handle them better.
1. Flipping Houses
If you can buy a house for far less than its market value by taking advantage of the ignorance of the owner, that’s honestly not very different in principle from insider trading, in that you are using knowledge that others don’t have to make a profit off of them.
You are not adding value to the system by giving someone less money than they fairly deserve for their property, just because you found them when they were desperate.
That you aren’t a Realtor and are thus not subject to some of the laws meant to protect buyers and sellers, doesn’t mean that your actions aren’t harmful.
So, the questions are:
- What kinds of deceptions need to be constrained to stop people from being taken advantage of?
- What kinds of checks can protect people from abuse?
For the latter, it would be a start if there was an automatic system to estimate the value of a home and allow the seller to invalidate the sale if the offer is obviously awful.
The government could also offer easy access to education and tools needed to find better offers — because not everyone knows the nuances of selling a house and how to avoid common mistakes (even in the age of the internet).
The point is that it might not be very hard to protect a fair number of people from parasites that specialize in taking advantage of people who are down on their luck.
But will this make selling homes more expensive for everyone?
Some of our conservative friends might object that this is an additional law and that like any regulation it could make the process more unwieldy and expensive.
It’s true that often when the government tries to do good, it doesn’t do it very efficiently or cheaply. And so the way the government does things creates its own harm. But that’s not so much a fault of the idea as it is of how they executed on it.
If it’s a software process, and if the government aims to keep the costs low and not create bloat, then they likely can.
Note: Reducing harm by 90% for cheap is better than reducing harm by 100% at a huge cost for everyone.
The system doesn’t need to be perfect, and the 10% that the main system fails can then be addressed by something else at a more reasonable cost.
2. Tax Liens
So… You got into some trouble — maybe hospital bills — and because you were late with your taxes, that $10K tax you owed on your house has been sold to some investor and you now owe him $15K — or you lose the house. Yay!
“Thanks, Uncle Sam! Didn’t know you cared so much!”
Seriously, we’re not medieval serfs. And democratic representatives acting like egotistical lords is not amusing.
Background
I don’t know much about the history of how this system came to be beyond that it and much of the case law around it is old. Sometimes centuries old.
From a common sense perspective, that should automatically make people worried because a lot of ideas were less mature a century or more ago… Even if you had geniuses working on it, they just didn’t have the tools and information needed to build much better systems.
If you built a car company today with the best ideas and tech that Henry Ford had when he started his company, it would flop. Because too much about the world and how people do things, has improved.
Also, many of the early systems of US Gov weren’t even systems built on the very best ideas available at the time, so much as they were the best compromises that those people could pull off.
We don’t think about it much now, but there was a time when US government was poor.
And the financial sector — that is part of the foundation of modern US power around the world — was very immature.
The value of human life wasn’t very high either… Not that the common man has much recourse even now if the government decides to mess with you.
However, the fact is that the world has changed, and our expectations are higher than they used to be. We see companies do things better, we see other countries do things better. And we know that it can be done better.
So, what should be done?
We should start by looking at the fact that this pattern of high interest rates being inflicted on people doing badly is very common.
It’s not just Tax Liens. Pay day loans are quite similar in nature in that they get a person out of immediate trouble via an approach that often puts them in worse trouble long term.
And the state also has other places where it may be owed money where it will happily sell the debt to someone else, in exchange for money now. Like court fees that aren’t paid on time.
The system is setup such that it’s often difficult for people to escape a difficult situation merely by working hard… And that especially applies to decent people who believe in paying their debts.
Being too short on cash will limit the forward progress of your life. You won’t be able to invest in yourself as much, and that will lessen your chances of growing and making the contribution to society that you could and should have.
But on the other side of things, the government does need money to be able to fulfill its responsibilities to the people.
So whatever minimum amount of money is needed for it to do its job, it must have — no matter where it gets it from.
Ideally, government systems shouldn’t be bloated and eat up tax money while creating little real benefit— but that’s another discussion entirely.
In this context, if we want to reform the system, then one option might be to allow the states to get forgivable loans from the Fed for dues they are already owed. Most of the time the dues would get paid, and if they don’t…
That way, you don’t create very much moral hazard (unless the state raises taxes or creates new taxes), and even if the state passes down the interest rate payment to the person who needs to make the payment, it at least won’t be a super unreasonable rate that puts people in a debt trap.
Not that it’s a good thing to favor intervention from the Fed directly, but as we can see in the current case with COVID-19, targeting areas that may become causes of instability in the system is understandable. There’s some sense in addressing small problems in a widespread way so that they don’t become bigger problems — while keeping the overhead as low as possible.
It’s not worth it for the government itself to be the cause of otherwise productive people’s lives entering a death spiral.
Building a common and cleaner system to facilitate all state and local governments, would be a sensible project for strengthening the U.S…
The machine needs to be streamlined, while also respecting the welfare of the people.
What we need from business minded people in government is not careless deregulation, but rather redesigning and streamlining of systems so that they cost less while producing more benefits.
In the end, you can’t use a hammer to improve a complex machine that impacts countless people’s lives. You have to take all the details properly into account, and then execute well.
