Ben Stein's Money
By Benjamin Harrell
Spring 2006 Issue

However remarkable the accomplishments of Benjamin Jeremy Stein, whose career spans a variety of fields from economics and law to finance and film, his most distinct contribution to the American historical memory may indeed be one trivial question he posed in the 1986 film Ferris Bueller's Day Off. That event has had such a profound effect on Stein's life that he said, "[When I die], I fully expect that on my gravestone, it will say, 'Bueller? Bueller?... Anyone? Anyone?'" While his lines as a high school economics teacher have since immortalized him as an icon of entertainment, few realized in 1986 that Stein's previous career accomplishments would already fill a full-length feature film. Two decades later, YER was invited into Stein's home to discuss a range of topics with an individual who has succeeded as an actor, a lawyer, a political speechwriter, an economist, a financial advisor, and a family man.

The House that Economics Built

Stein was practically born an economist. His father, Herb Stein, was an economist who served as the Chairman of the Council of Economic Advisors under President Richard Nixon. His mother, Mildred Stein, was also an economist. "[Growing up as the son of an economist] made me think that it was possible to understand it and to learn it... since there was a man whom I played ping pong with every night who knew it," said Stein. "Because my father could, so to speak, 'do' economics, it made me think I could 'do' economics as well." Stein never looked back.

In 1966, Stein graduated from Columbia University with honors and a degree in economics. Four years later, he graduated from Yale Law School as the valedictorian. He maintains a strong view on the importance of an education, even if students must borrow heavily to acquire it.

"There is no better investment than a good education. It's a very, very good idea to borrow to buy an education. It will pay itself back hugely. There is no better investment than a college education, and no better investment among college educations than a Yale education."

Politics, Professorships, and Prizes

After a solid education and a myriad of employment experiences - as a poverty lawyer, a professor for multiple universities, a columnist for the Wall Street Journal and a lawyer for the Federal Trade Commission - Stein threw himself into the political ring, becoming a speechwriter for Presidents Richard Nixon and Gerald Ford. The life of a young speechwriter in the Whitehouse may not be as glamorous as it sounds, however. "I gave them lots of advice. Whether they took it is very doubtful," Stein quipped. "I wrote speeches on all matter of subjects but mostly I was told what to write and I just tried to add a few ruffles and flourishes here and there. The only advice I gave [Nixon] was that he should not resign, but that he should say that he'd done various wrong things, but that was in the nature of the President to make mistakes since Presidents are human." As history recalls, Nixon did not heed Stein's advice, but he never stopped offering it, and one person who did eventually listen was George Akerlof '62, the 2001 Nobel Laureate in Economics.

In the 1980s and 90s, Stein had extensively researched Drexel Burnham Lambert and the junk bond industry. Drexel spearheaded the rapid growth of the use of high-yield, junk-quality bonds, specifically for reasons of mergers and acquisitions, where in order to perform a leveraged buyout, a corporation would issue junk bonds to raise capital specifically to purchase another firm. Stein's research helped to bring national attention to the conflicts of interest inherent in the rapidly growing practice, and served as a catalyst for its subsequent downfall. Years later, Akerlof cited Stein's research on financial fraud in a paper for which Akerlof won the Nobel Prize in economics. "I like to say that I'm the only person who has both won an Emmy for the best game show host [on Win Ben Stein's Money] and also had his work cited in the work of a Nobel Prize-winning economist." Always an entertainer, Stein quickly added, "But I'm [also] probably the only one who gets pushed around by his dog."

The Big Picture

As John Maynard Keynes said, "It is better to be vaguely right than precisely wrong." The relative ambiguity of macroeconomics has led many economists to speak in loose terms, fearing an incorrect prediction or explanation might tarnish their reputation. While he may agree with Keynes, Stein provides a refreshingly unambiguous description of his assessment of macroeconomic issues. "When people say I am wrong, sometimes they are right, and sometimes I am wrong," he jests in "The Gift of Peace," one of his many books. Stein no longer needs to add "ruffles and flourishes" to the words he writes, electing instead simply to report his beliefs.

"American corporations [have] been cancelling their pensions right and left. That's a huge problem. American corporations have been breaking their promises to their workers now for a long time. I'm carrying out a crusade about bosses who fire workers, cut the other workers pensions, and then loot the companies of the cost savings. They're doing terrible damage and it undermines everything - the whole faith in the economy. In a capitalist society, the number one building block of the society is trust... and if you have corporate looting going on, on a titanic scale, without any kind of government regulation, the trust is destroyed."

Stein is also critical of the current monetary system, especially the specific inflation targets advocated by Chairman of the Federal Reserve Board Ben Bernanke. "As soon as we get close to that [inflation] rate, Wall Street goes into conniptions, whereas if we have a vaguer range, Wall Street will respond more slowly, which is better for the investors and the capital of our nation," he said. While Stein holds the utmost respect for Bernanke, he also offers the following advice: "Move very slowly in everything you do, and don't make any sudden moves. [Former Chairman Greenspan's] genius lies in the word 'gradualism.'"

According to Stein, two other problems facing the United States are the federal deficit and the trade imbalance. "We have an enormous current account deficit with the rest of the world and no reasonable possibility of paying it off," he said. "We have an enormous federal government deficit growing rapidly and no likely possibility of paying it off. We spend more and more of each year paying the interest on that debt to foreigners."
"We're spending a lot of our lives working to pay off debt to foreigners. We owe them the debt - the debt was acquired because they sold us goods so cheaply, so in a way it all comes out even, but those cheap goods are not free. We're going to have to pay the piper, and that's the problem."

While being critical of our current situation, he realizes the benefits as well as the difficulties accrued from those deficits. "It is very lucky that we have foreigners that are willing to sell us high quality goods at low prices. It makes the life of the ordinary American much more pleasant. On the other hand, as it displaces the jobs of Americans, it's very unpleasant for them." In addition, the future consequences of the trade imbalance loom on Stein's mind. "We're spending a lot of our lives working to pay off debt to foreigners. We owe them the debt - the debt was acquired because they sold us goods so cheaply, so in a way it all comes out even, but those cheap goods are not free. We get those cheap TVs and sneakers and cars, but we're going to have to pay the piper, and that's the problem."

"You can spend money you don't have for a while, but you can't spend money you don't have forever," Stein notes. Relating that to the macroeconomy, he continued, "The idea that deficits don't matter is certainly true, we've learned, in the short run, but whether it will be true in the long run is very dubious."

Essentially, the problem as Stein sees it is a failure to plan for the future. "The most typical American... is the one who works but doesn't save any money, and lives a very high consumption current lifestyle. That's the real American problem." As economists maintain, everything has its price, and myopia is no exception.

Where's Ben Stein's Money?

Even though Stein lives an extravagant lifestyle, by his own admission, he never loses sight of his favorite economic rule of thumb, which he borrowed from Raymond Lucia: "You must match your assets to your liabilities." He clarified by saying, "If you're going to have a very large liability in retirement, you must have a very large asset to match to that liability." Simply put, each of us must have a substantial nest egg set aside prior to reaching retirement, or financial ruin is only a matter of time.

Today, Stein works as a financial advisor, writing books and regular columns on the subject. Some of his finance books include "Yes, You can Still Retire Comfortably" and "How to Ruin Your Financial Life." In the latter, Stein offers financial advice that is not worth taking - in fact, it should be flat out avoided. "Compete with your friends to see who can spend the most," he writes. "Act fast - those stock tips you heard about in the locker room have real value." The idea behind the book is that upon reading the sarcastic tips, the reader will recognize the foolishness of those financial errors and will avoid committing them.

Stein enjoys giving financial advice, in part because he takes pleasure in helping others. "If I can feel as if I've, at the end of the day, accomplished something in terms of helping a little bit for somebody... I feel pretty good."

Stein chooses to help people by giving them sound financial advice because of the great aid that money provides for everyone. In the introduction to "How to Ruin Your Financial Life," he writes, "[Money] may not be able to buy happiness, but it sure gives a good impression of a long-term lease." Stein clarified by explaining, "I cannot closely correlate happiness with extreme wealth [but] I can correlate unhappiness with extreme poverty without question. I see plenty of extremely unhappy, extremely wealthy people, but I see even more distraught impoverished people."

In order to help investors make wiser choices, Stein has collected, from personal experience and substantial research, what he believes to be the best general investment strategy for the long-run. He advocates passive investing in several different, broad indexes. Specifically, he suggests holding a US index fund like the S&P 500, an index that mimics the US stock market as a whole, an index of small-cap stocks, an index of emerging market stocks, a commodities index, and an international index that tracks European, Asian, and Far Eastern securities. This strategy has worked well for him in the past, and he believes that it will continue to perform well over long periods of time.

Even with Stein's remarkable experiences in a wide array of employment experiences, there is still one thing that he would like to do. He acknowledged, "I'd like to start a mutual fund that would use some of my investment ideas - just the idea of a broad range of indexes mixed with high dividend stocks. I'm a huge fan of high dividend stocks and I think that they're extremely underutilized in most people's portfolio and they are a gigantic help in helping a person's portfolio do better because you get that consistent high return."

It has taken Stein most of his life to decide what his "optimal" portfolio is, and he has not been a perfect investor, admitting, "I've made so many bad investment decisions, I hardly can list them, [but] the single worst ones were [missed real estate opportunities]." Even though each investor is bound to make mistakes, he nevertheless believes, "The road to wealth in this country has never been easier." Stein is not saying that everyone will become wealthy, but rather that there are more opportunities for financial success than ever before, and that given an average market return comparable with that of the last century in the US, with sufficient time, financial security at retirement is not only possible, but probable. Nevertheless, he does not necessarily equate wealth with success in life.

Winning in Life

Considering the alacrity with which Stein offers his opinion on politics, economics, and investing, it should surprise no one that he readily offers advice on life in general. However, in this case, he defers to the wisdom of one of his friends, the novelist Joan Didion: "You can't win if you aren't at the table."

Stein credits his prestige, in no small part, to his appearance in Ferris Bueller's Day Off. If he had not been in Hollywood, "at the table" for acting, he never would have had that opportunity. "Work is the sovereign cure for low self-esteem. Work is the best thing for mental health that has ever been invented. If [someone] doesn't work, he will pay the price for it in a big way. [He'll have] no self-esteem, no feeling that he's capable of doing anything, and it's all because [he will have] no experience working." Ironically enough, Stein's "happiest day of work ever" was acting in a film that portrayed ditching school and personal responsibilities to pursue immediate gratification instead.
"Very little happens in life that you can't either profit from or learn from."

To enjoy life, Stein believes one must work hard toward success, which he defines as, "Being at peace... being at peace with God, and with your wife, and with your dog, and being at peace with the world around you and feeling like you haven't done anything too terribly horrible that day."

Having amassed an incredible amount of knowledge, apparent to anyone who has chanced upon an episode of Win Ben Stein's Money, Stein can outperform most college graduates in just about any subject. Fortunately, he disclosed one of his secrets of learning: "Very little happens in life that you can't either profit from or learn from." Ben Stein strives to learn from each experience he has, without regard to the subject matter, and whether he is speaking about law, macroeconomics, finance, or even personal success, it would pay to listen.