Kevin Warnock

Michael Milken at The Commonwealth Club January 13 2011

I saw Michael Milken speak yesterday evening at The Commonwealth Club of California. Milken invested in my first Internet company Hotpaper.com, Inc., by his participation as a limited partner in the Angel Investors I fund, the notorious and newsworthy Ron Conway fund from the late 1990s first dot com boom. I disclose this since it seems the right thing to do, since I’m starting to consider myself a journalist by these blog posts. In fact, a staff member from the Club asked me if I was with the press at this event, probably because he saw me taking pictures from the side isle with my professional looking camera and telephoto lens. I told him I wasn’t from the press and he said I couldn’t stand in the isle, which was fine since I already had some good shots. This was at the Mark Hopkins hotel on Nob Hill in San Francisco, California, so it was a lot more formal than events I’ve attended at the Club’s office on Market Street.

I wonder what kind of press credential bloggers can get, and I wonder how serious I would need to become to be able to get such a credential. I recognize these posts are pretty insubstantial, but I do try and I hope to improve my writing and analysis over time.

Milken is a convicted felon who served time in prison for securities fraud, for those of you who don’t know who he is. I vividly remember his rise to fame and his fall from grace in the 1980s. I bought and read the chronicle of his life, Den of Thieves by James Stewart, when it was published, which is noteworthy because back then I read few books, and it took a lot to get me to read a long book. I couldn’t put this book down, and I can still remember stories from it, such as when Ivan Boesky couldn’t decide what to order at a fancy restaurant, so he ordered one of each entrée, and walked around the table and took one bite from each. So when I had a chance to see Milken in person, I just had to go. I’m glad I did, for Milken is a smart guy that had interesting things to say. In fact, I think Milken would love my Green Homes housing idea, and I plan to talk with him about it when the project is further refined.

I believe the Club will post the full video of Milken’s speech, so I won’t try to recount all he said. What I will do is focus on the key part I found most moving… that Americans spend far too much on housing relative to their incomes. This is a point that is near and dear to me, and is part of what motivates me to think about advancing my green home plan I’ve written about on this blog.

Milken said residents in South Korea spend 22% of their income on education and just 13% of their income on housing.

Milken also said residents in China spend an average of 15% of their income on their children’s education but only 10% of their income on housing.

More generally, he said the first four highest consumer spending expenses of residents in the United States are:

• Housing – 32.7%
• Transportation – 18%
• Food – 12.8
• Insurance and pensions – 11.2%

In contrast, he said the first four highest consumer spending expenses of residents in Asia are:

• Food – 23%
• Education – 15%
• Housing – 10%
• Clothing – 8%

In Asia, transportation and housing account for just 16% of household income, while in the United States, these two items account for 50.7% of household income. In Asia, transportation ranks 6th on the list for consumer spending, while in the United States, transportation ranks 2nd.

Stated another way, in the United States people pay 317% more for housing and transportation than do people in Asia. This is an astonishing disparity, and I suspect it’s a disparity that’s ruining the United States and dramatically benefitting Asia. We just must ditch our jumbo sized residences and move into smaller homes. The country’s future may depend on it.

Milken really emphasized his point about how ridiculous it is to spend over half ones income on just housing and transportation. The average home size in the United States has doubled in not many years. My parents raised me in a house much smaller than the average new home size today in the the US. I turned out fine, and our parents turned out fine, even though their houses were half the size or less of today’s average US home.

Milken had other shocking facts to deliver, such as the US spends more each year to buy potato chips than it spends each year to research heart disease. I can’t recall the exact numbers, but $3.5B for heart disease and $5B for potato chips is probably about right.

Milken also pointed out Americans have gained a lot of weight since 1991, and that the US could save something approaching a trillion dollars if its inhabitants did nothing more than return to the average weight in 1991. I wish I could remember the period of time over which that trillion dollars could be saved, but I can’t, I’m sorry. If someone has access to the Milken slide deck, please send it to me, as I could write another dozen blog posts if I could review those slides again.

I’m not vouching for Michael Milken by this post. I don’t know much about him, and a lot of what I know is from years ago. But I do know he speaks well and delivers an engaging message that big changes need to happen in the United States. His heart seems to be in the right place, and if what he says he’s done is true, it seems he’s more than made up for the 6 crimes he was convicted of and spent time in prison for. However, if you disagree, I welcome your comments. I got a long and detailed comment on my post about Tim Ferriss, and while the comment was highly critical of my review of Ferriss’ interview, I was still happy to have the comment. I hope that I can spark vigorous dialog in the comment sections of this blog.