Author: A.T.

An employee of mine, a Rastafarian, was arrested last week for possession of a pound and a half of marijuana. Rastafarians smoke a lot of pot. It’s hard to argue they should all be imprisoned, at taxpayer expense. This particular Rastafarian — who’s a lot more congenial when he’s stoned than when he’s not, incidentally — has a lovely wife and three beautiful young daughters. He’s determined to see them grow up and go to college. How should society treat someone like this?

More background:

He lives in a tough part of town that, quixotically, a few of us are trying to turn around. He’s anything but a saint. A man in his mid-thirties about Rodney King’s size, he long ago fell into the trap of believing a black man can’t succeed in racist America — especially a big, scary-looking black man — which, because there is an element of truth in it, becomes self-fulfilling. He has a huge chip on his shoulder, and it’s also his excuse to be lazy. (When I say he works for me, I don’t mean to suggest he does a whole lot.)

But what do we do with a guy like this? Send him to prison because he’s filled with racial bitterness? Because there’s a streak of larceny in his heart? Because he smokes a lot of marijuana and may be selling it to his fellow Rastafarians? (He’s almost certainly not selling it to kids.)

When the Swat team arrived to arrest him, he was minding his own business, out in the yard. The next minute, he was face down on the ground with a machine gun at his head. For half an hour the police ransacked his apartment, broke the TV, destroyed some other stuff, confiscated seven firearms, four of which were licensed, and found the marijuana but no other drugs. (Rastafarians are don’t see marijuana as being like crack.)

The night he was carted off to jail, I called his wife. She was sick with worry. What would the family do without him?

This is getting to be a long comment, so why don’t I end it here and leave you to decide how the story should end.

Tomorrow, I’ll tell you what did happen. And suggest a “middle course” for marijuana.

Tomorrow: The Denouement

My thanks to Alvin Benas of San Francisco for all sorts of good tips. Mr. Benas is not yet connected to the Internet — he hand-writes his letters, in fact — but at 83 has learned a thing or two:

For auto insurance, try GEICO. Not only are the rates often low (call their 800-number to see, then shop around), the claims service, he’s found, is good. It sounds to me as if he should have been taking a higher deductible and not bothering with these claims at all, but he describes two incidents — one where a rock cracked his antenna-imbedded windshield, the other where some kids scratched up his old car (parked half a block from a police station — and how GEICO responded. He never saw a human or had to fill out any paperwork, it was all done over the phone. The windshield was fixed at his choice of three places GEICO recommended. Three hours later it was done. As for the vandalism, “GEICO referred me to their representative at a Cadillac agency. (I had a Chevy.) The representative took photos and said we could have it painted or they would give me $500. We took the money and I touched it up myself. No paperwork and he gave me the check on the spot.”

Maybe this is why Warren Buffett owns so much GEICO, and not some other outfit. (Progressive Insurance is also terrific at handling claims, by and large, although in some states they still only offer insurance to substandard risks.)

E-mail me any auto insurance experiences you may want to share. Anybody have a GEICO or Progressive nightmare?

And stay tuned for more from Alvin, the voice of experience.

Tomorrow: Alvin on Not-So-Stale Bread

If anyone is skeptical of a good deal, it’s moi. I can usually figure the “catch” in any good deal pretty fast.

But one gets complacent. One lowers one’s guard.

So when I got Visa’s American Airlines upgrade promotion — stay at a Fairmont or Loew’s hotel and you’ll get a free American Airlines upgrade certificate — I figured what the heck. I have to stay someplace in San Francisco. The Fairmont’s nice.

I assumed that when I called the Fairmont, they’d tell me I could have a room for $169 . . . but that when I told them about the Visa promotion, they’d say, oh, that only applies at our standard $259 rate. But it was worth a call to see.

To my surprise, the rate they quoted was only $99! Whoa! That’s pretty great even without the upgrade.

At that point I figured, hmmm. It’s probably not a round-trip upgrade, just one-way. (Yup.) And it probably involves limited availability. (Yup.) And is valid only within the U.S. (Yup.) And you probably can’t confirm it until shortly before the flight. (Three days.)

But even so, as any American frequent flier knows, a coast-to-coast flight normally requires “two longs and a short” — two 1000-mile long-segment upgrade stickers and one 500-mile short-segment sticker — which, between them, now cost something like $110. So here was a deal where for $99 I got a room at the Fairmont and an upgrade that would save me $110 in stickers on my flight home.

They were paying me $11 to stay at the Fairmont! (Room tax, phone charges and my $11.38 cup of black coffee we won’t discuss.)

It was at this point I should have smelled a rat. But, as I say, I had become complacent. Maybe I’m losing my edge.

You don’t get your upgrade until you check out, which is smart for two reasons. First, they assume, I’d guess, that some percentage of the folks will simply forget to ask for it. Second, they assume you’ll be in the cab on the way to the airport before you realize you’ve been had.

You’ve been had because, I realized on my way to the airport (well, how could I not have intuited this from the start?), the one-way upgrade applies only to a full-fare coach ticket. It says it right there in tiny print on the back of the coupon. Which means it applies to almost nobody (and certainly not the kind of people looking for a bargain). When was the last time you bought a full-fare coach ticket? OK, you, maybe. But most of us find some kind of discounted rate. My flight from Miami to San Francisco was $344, round-trip. Full fare coach would have been about $1,458. The upgrade coupon said all I had to do to use this upgrade was to pay the difference when I arrived at the airport. Uh-hunh.

Actually, I can’t complain. For starters, how can you miss with a $99 room on Nob Hill? What’s more, to my surprise, there actually is some value to this coupon. Unlike most, it’s transferable. Anybody traveling on a full fare American Airlines ticket before July 15? Do I hear any offers?

I learned something about the minimum wage recently. (Fortunately, not first-hand.) I’m one of those bleeding hearts who believes it should be raised — but who also understands why perhaps it shouldn’t be.

The Clinton administration handled this problem deftly early in its term. For many minimum-wage workers — perhaps even the majority — this is not a household’s primary job, but rather a supplemental job a spouse or teenaged child may have. Not to say the kid may not have it tough slinging fries. But if Mom or Dad earns $34,000 a year — or $80,000 — and junior is slinging fries, how much government assistance is required?

So what the Clinton administration did is push through the Earned Income credit, which many people still don’t even know about. Its premise is simple, and gets more directly at what we liberals are after in the first place: No one who works full-time in America, the thinking goes, should fall below the poverty level.

If an individual or joint tax return shows full-time work resulting in an overall income below the poverty line, not only is no federal income tax due, the Earned Income Credit kicks in and a check will be sent to make up the difference. Or some of it, at least.

This is better than raising the minimum wage, because you only subsidize the people who really need it — those who fall below the poverty line. And the cost of the subsidy is borne by those who can best afford it — those of us who earn enough to pay taxes — whereas a rise in the minimum wage would be borne by everyone, in the form of higher prices.

Of course, the best thing would be to have enough high-paying jobs for everyone, which means having everyone bright enough and sufficiently well-educated to be worth that much in a highly competitive global marketplace. But in the meantime, Clinton’s Earned Income Credit is a sensible solution.

In this election year, some Republicans are looking to do away with or trim the Earned Income Credit. But in a country where the gap between the highest and lowest paid full-time workers is growing obscene, Clinton’s Earned Income Credit is a compassionate but targeted response.

Tomorrow: The Visa Promo

Today, advertising on a TV screen drives people into stores to buy things. Tomorrow, stores may increasingly become the “advertising” that drives people to buy things via their screens.

Have you never gone into a full-service retailer, decided which item you liked best, and then (feeling just a bit guilty, I hope) gone down the street to buy it at a discount store? Or gone home to order it from an 800-number? Or even, via the Net?

Companies may begin paying retail chains to “showcase” their products, just as they now pay ABC to run their ads. Today they know people watching ABC will run down to the store and buy the product. Tomorrow they may assume many people browsing the full-price store will run home and buy the product, cheap over the Internet.

Worse (from the point of view of the embattled full-service retailer, or his landlord), the Internet will rapidly become more and more adept at providing full-service itself. Full motion videos of the product in action, expert answers and comparisons that a human might not be able to give with such accuracy, or might not have the time or patience to give, or might not care to give 24-hours-a-day.

Shopping is fun. Impulse is fun. Walking around in the real world and talking with attractive young or engaging old sales people is fun. The world won’t change entirely or overnight. There will still be stores.

But more and more people, I think, will come to think of their “UPS man” and their “FedEx person” as a member of the family. That’s why FedEx may not be a bad long-term “core holding.”

Tomorrow: The Earned Income Tax Credit vs the Minimum Wage

Yesterday I made the case for index funds — stock-market mutual funds that typically outdo most others because they typically have no sales fees, very low expenses and (yesterday’s point) high “tax efficiency.” They don’t sell often, so they incur relatively few taxable gains.

The problem is they’re boring. No chance of bonanza, just your plodding old 34% annual return. (Well, last year may not have been typical.)

So here’s my plan. Vanguard and the rest should offer an “index-plus” fund. It would invest 99% of your money just as now. The remaining 1% — still millions of dollars — would be put toward a lottery, like the Publishers Clearinghouse Sweepstakes. You probably wouldn’t win, but you could dream.

Tomorrow: Retailers as Showrooms

Because I recommend no-load, low-expense mutual funds, I also recommend Mutual Funds Magazine (call 800-442-9000 and ask for a low-expense $9.97 “charter subscription”). The current issue (March) has a chart that compares “tax efficiency” of various funds.

The point is: it’s not what your fund earns for you before tax that matters (unless you hold it within a tax-sheltered retirement account), it’s how it grows after tax.

A fund whose gains come all from taxable interest or dividends isn’t as good, after tax, as one that grows mainly with realized and unrealized capital gains.

I like “index funds,” because of their low expenses and high tax efficiency. Index funds have high tax efficiency because they tend not to sell, and therefore not to realize gains. And sure enough, the Mutual Funds chart shows the Vanguard Index 500 with a 91% tax efficiency. That is, its after-tax return for an upper-middle-class couple is almost as great — well, 91% as great — as its pre-tax return. By comparison, Vanguard Windsor — a fine fund but with more turnover — has a rather miserable 75% efficiency.

Another fund family recommended in my book is Twentieth Century. Its Twentieth Century Ultra fund actually beat the Vanguard Index efficiency with an aftertax return of 93%. Mutual Funds suggests that the reason for this is Ultra’s low portfolio turnover. But as my savvy friend Less Antman pointed out to me upon seeing this explanation: “Baloney. Over the period examined in the article, Ultra’s portfolio turnover averaged over 90% per year. Its tax efficiency is the result of the fact that it invests in non-dividend paying growth stocks, and follows a momentum investing style, which causes it to sell losers quickly and hold winners for a long time.”

In other words, the tax losses from the losers sop up most of the realized taxable gains. At least for now. (You do have to beware of buying into a fund with tremendous unrealized gains. By doing so, you “own” the eventual tax liability for those gains, even though you didn’t realize them yourself. Then again, you can always sell before they are realized, and pass them on to the next guy.)

Don’t let the tax tail wag the investment dog. But tax efficiency is something to be aware of (although not a factor in a tax-sheltered retirement account) — and one more reason to go with low-expense index funds.

Tomorrow: A way to make Index Funds more exciting

Until you are actually ready to finance a car, do not authorize the dealer to pull a credit report. Each time a credit report is requested, the inquiry appears on subsequent reports, which may negatively impact your ability to get a loan or a good rate. (Dealers may infer that a previous dealer listed on your report rejected your credit.)

Tomorrow: Mutual Funds’ Tax Efficiency

I realize this is not the average guy’s or gal’s problem. But an acquaintance of mine recently regained control of his checkbook, after years of having an accountant pay his bills. Some high-income “creative” people do this — sports figures, actors, writers. (In Hollywood, it’s a status symbol.)

It’s also a little crazy, now that a computer can make the whole job so easy. But my friend only recently got into computers, only recently got the software to turn his Citibank account into the kind of account where he can now pay his bills on-line and take control of his life.

For years, all his bills would go to his accountant in New Jersey. And his paycheck would be direct-deposited into an account on which she had signing privileges. He never really looked at any of it. This is the joy of having someone else do it for you if you’re creative. And it cost him “only” 5% of his income — the standard fee for this service — which worked out to around $10,000 a year. Not being a deductible expense, that meant he had to earn nearly $20,000, before federal, state and city taxes, to pay for it.

After endless prodding, he finally did the uncreative thing. He terminated the accountant and started paying his own bills. Now that he’s set up with the computer, it couldn’t be more than an hour or two a month, tops — 25 hours a year to “earn” the extra $20,000 (pre-tax) she was costing him. Not bad: $800 an hour.

But it’s better than that, because in taking control of this himself he noticed some things his accountant hadn’t. For example, he noticed he’d been paying for a health club membership he hadn’t used in years. Oops. There was a couple thousand dollars down the drain.

Obviously, this is not a problem most of us have. But it does speak to the value of taking control of your own finances, running your eye down your own credit card bill to see if you’re still being charged for some $9.95-a-month service you long ago stopped using, let alone a $600-a-year health club membership.

Hey: it ain’t easy being creative!

Tomorrow: Borrowing Tip