I ran into a terrific example of the concept of economic bundling last week.
Every year I go on a ski trip, arranged by a ski club. When I started going on club trips (a long, loong time ago), the process was remarkably simple. You wrote the club a big check, and you were told when to show up at the airport. Once there, the trip leader handed you an airline ticket. You deposited a massive amount of gear at the gate (skiers travel with more equipment than your average Himalayan expedition), and got on the plane.
When the plane landed, you got on a bus that took you to the resort. After check in, you got your lift ticket for the week. Invariably, several dinners were included in the price of the trip, so you would get together with other members of the club and swap lies about how adventurous you had been.
The dominant feature of the pricing was that it was all inclusive. That is, you paid one fee, and everything was included. Put another way, all of the various services had been put together in one bundle by the club.
This year's trip provides quite a contrast with those earlier experiences.
First, I had to make my own airline reservation, separate from the payment for the club trip. I also had to pay an additional fee to cover the bus transfer from the airport to the resort. Several years ago, the lift ticket had been broken off from the rest of the trip package. You select the number of days you want to ski, and pay for those apart from the main trip fee.
When I bought my airline tickets, I thought I had a pretty good deal. That illusion stood until I got to the airport with all my luggage, and had to pay baggage fees, which were equal to 30% of the original ticket cost. Since the airlines no longer serve food on the flights, we bought something at the airport to eat on the plane. The trip price also included only one final dinner at the end of the week. There were other group activities planned, but they were pay as you go.
All of the discrete pieces of the original trip package had been separated, or unbundled, from each other.
The advantage of unbundled prices is the additional freedom and flexibility it offers the individual. When prices are bundled, you pay for everything, whether you use it or not. You don't like airline food? Tough, you still have to pay for it. Renting your equipment to ski? You don't get to use all of the baggage allowance built in to the ticket price. You like to rent a car and drive yourself to the resort? The other people who are riding the bus appreciate your subsidizing their ride. So unbundled prices give you a chance to save some money.
Bundling prices offer a couple of advantages, however. First of all, it is less complex, both for the buyer and the seller, and complexity costs money. If you use bundled prices, you only have to pay one time, and there is only one revenue collection point for the seller. In the context of my ski vacation example, bundling has another, even larger benefit. By grouping together a number of individuals, the club was able to get discounts by buying in bulk. A batch of wholesale purchases bundled together are going to be cheaper than the same set of purchases made at the retail level.
For my trip this year, I had more options, but the sum of my individual choices cost me more than what the old group price would have been. For once, I can actually put a price on freedom.
Sunday, January 30, 2011
Wednesday, January 26, 2011
Tax Tales
If you ever want to know how loose the average American’s connection to the concept of honesty is, you just have to do taxes for a while. Most folks will say anything to get a bigger refund. What’s even more amazing is that they expect the person preparing their taxes to collude with them. Some examples:
“Off the record, I did air conditioning repair work last year. But I had to buy my tools all over again, because somebody stole them, so I didn’t hardly make enough money to talk about. We don’t have to report that, right?”
That would be a Schedule C business, and the excess of revenue over expenses has to be reported as income. And yes, you do have to report it, especially when you have just told the tax preparer that you have a side business.
Or another:
“I was separated from my husband in 2008 and 2009, so I filed as Head of Household. But my husband I got back together a few months ago.”
So you were married on December 31. You and your husband will have to file as Married, either Jointly or Separately. If you choose Married Filing Separately (MFS), you will lose the Earned Income Credit, along with most of the refund you got last year.
“We only got back together a few months ago, and he doesn’t want to file with me. Can’t we just forget I mentioned him?”
You can’t unring a bell. You can’t change your story after learning the tax consequences. The good news is that you get the share the joys of connubial bliss again.
Or this one, taken over the phone:
“I get $8000 a year in disability payments. Someone else claimed me on their tax return. How much of his refund belongs to me?”
If he provided more than 50% of your support, he can claim you as a dependent, in which case his refund belongs to him. If he did not provide half your support, and you knew he was going to claim you as a dependent, you have both committed tax fraud. What did you say your name was?
“*click*”
“Off the record, I did air conditioning repair work last year. But I had to buy my tools all over again, because somebody stole them, so I didn’t hardly make enough money to talk about. We don’t have to report that, right?”
That would be a Schedule C business, and the excess of revenue over expenses has to be reported as income. And yes, you do have to report it, especially when you have just told the tax preparer that you have a side business.
Or another:
“I was separated from my husband in 2008 and 2009, so I filed as Head of Household. But my husband I got back together a few months ago.”
So you were married on December 31. You and your husband will have to file as Married, either Jointly or Separately. If you choose Married Filing Separately (MFS), you will lose the Earned Income Credit, along with most of the refund you got last year.
“We only got back together a few months ago, and he doesn’t want to file with me. Can’t we just forget I mentioned him?”
You can’t unring a bell. You can’t change your story after learning the tax consequences. The good news is that you get the share the joys of connubial bliss again.
Or this one, taken over the phone:
“I get $8000 a year in disability payments. Someone else claimed me on their tax return. How much of his refund belongs to me?”
If he provided more than 50% of your support, he can claim you as a dependent, in which case his refund belongs to him. If he did not provide half your support, and you knew he was going to claim you as a dependent, you have both committed tax fraud. What did you say your name was?
“*click*”
Monday, January 17, 2011
Martin Luther King Day
Watching the news this morning, there was a story about school districts that are not taking off Martin Luther King Day as a holiday this year. Because of unusually heavy snowfall's this year, these school districts are using MLK Day to makeup for snow days they have had to take.
Outraged over the lack of reverence shown to the memory of Dr. King and the civil rights struggle, it was reported that there were calls for parents to pull their children out of school for the day. These calls for a boycott were led by...wait for it...Al Sharpton and Jesse Jackson. There's a shock for you.
Somehow, I don't think that the legacy Dr. King wanted to leave was that it is okay to skip school. Much of the civil rights struggle was about gaining access to education. You know, the whole Brown v. Board of Education thing.
The Reverends Al and Jesse could have campaigned for special class sessions on civil rights on MLK Day for schools that were in session. Instead, they argued for a boycott of education. Maybe it is just me, but the priorities seem a little screwed up.
Outraged over the lack of reverence shown to the memory of Dr. King and the civil rights struggle, it was reported that there were calls for parents to pull their children out of school for the day. These calls for a boycott were led by...wait for it...Al Sharpton and Jesse Jackson. There's a shock for you.
Somehow, I don't think that the legacy Dr. King wanted to leave was that it is okay to skip school. Much of the civil rights struggle was about gaining access to education. You know, the whole Brown v. Board of Education thing.
The Reverends Al and Jesse could have campaigned for special class sessions on civil rights on MLK Day for schools that were in session. Instead, they argued for a boycott of education. Maybe it is just me, but the priorities seem a little screwed up.
Thursday, January 13, 2011
Hit the Ground Running
I read an article on the Motley Fool website the other day that referred to the “Red Queen” economy. In Alice in Wonderland, the Red Queen is the one who says you have to run as fast as you can just to stay in place. If you want to get anywhere, you have to run faster than that.
In the Motley Fool article, the phrase “Red Queen economy” was used to describe deleveraging in the face of falling asset values. Normally, deleveraging, or paying down debt, increases your net worth, because you still own your assets, there is just less of a claim on them by the bank. If asset values are falling, however, you can pay down debt and still go under water, with your equity less than the remaining debt. You have to run as hard as you can just to stay in place.
I thought it was such a good metaphor that I’m going to try and use it in the area of work skills. When I started my career, back before globalization had taken hold, and at the start of the information technology revolution, it was possible to learn one set of skills, and use those skills for an entire career, oftentimes at the same company.
Early in my career, I met a man who was a draftsman. In his fifties, he had spent his entire adult life making drawings on a drafting board. When times were slow, he was laid off. When business picked up, he went back to his drafting board.
He had done basically the same job for the last thirty years. In the 20+ years since then, he would have had to reinvent his skill set twice to stay employed. First, he would have had to master computer aided drafting. A few years later, mastery of three dimensional modeling software. That's two reinventions of the job, for a field that had been the same for the previous fifty years.
In today’s economy, whole industries are created and wiped out in near record time. To stay ahead of this wave of creative destruction, you have to be upgrading your skills all the time. This requires a couple of judgment calls on the part of the skill seeker. First, you have to place a bet on what skills are going to be in demand. Second, you have to acquire those skills.
Formal education can only get you so far. You also need to find ways to sharpen and deepen new skills acquired in the classroom. To keep yourself employable, a necessary step is to pick up some experience, as well as education.
In the meantime, you have to continue performing in your current position. Run as fast as you can just to stay in place.
Like the survivors in the movie Zombieland, there are rules for surviving the Great Recession. Rule number 1: Cardio.
In the Motley Fool article, the phrase “Red Queen economy” was used to describe deleveraging in the face of falling asset values. Normally, deleveraging, or paying down debt, increases your net worth, because you still own your assets, there is just less of a claim on them by the bank. If asset values are falling, however, you can pay down debt and still go under water, with your equity less than the remaining debt. You have to run as hard as you can just to stay in place.
I thought it was such a good metaphor that I’m going to try and use it in the area of work skills. When I started my career, back before globalization had taken hold, and at the start of the information technology revolution, it was possible to learn one set of skills, and use those skills for an entire career, oftentimes at the same company.
Early in my career, I met a man who was a draftsman. In his fifties, he had spent his entire adult life making drawings on a drafting board. When times were slow, he was laid off. When business picked up, he went back to his drafting board.
He had done basically the same job for the last thirty years. In the 20+ years since then, he would have had to reinvent his skill set twice to stay employed. First, he would have had to master computer aided drafting. A few years later, mastery of three dimensional modeling software. That's two reinventions of the job, for a field that had been the same for the previous fifty years.
In today’s economy, whole industries are created and wiped out in near record time. To stay ahead of this wave of creative destruction, you have to be upgrading your skills all the time. This requires a couple of judgment calls on the part of the skill seeker. First, you have to place a bet on what skills are going to be in demand. Second, you have to acquire those skills.
Formal education can only get you so far. You also need to find ways to sharpen and deepen new skills acquired in the classroom. To keep yourself employable, a necessary step is to pick up some experience, as well as education.
In the meantime, you have to continue performing in your current position. Run as fast as you can just to stay in place.
Like the survivors in the movie Zombieland, there are rules for surviving the Great Recession. Rule number 1: Cardio.
Tuesday, January 11, 2011
Sarah Palin and Gabrielle Giffords
Everyone has heard the classic definition of insanity: doing the same thing over and over again, and expecting different results. But sometimes insanity expresses itself by doing something wildly different than what has been before.
The mass shooting in Arizona is a case in point. Interviews with the shooter’s former college professors at Pima Community College have indicated pretty clearly that he was barking mad, but not violent. He was unstable, but there was no evidence of being a danger to self or others. The fact that he was obviously off his rocker was a necessary, but not sufficient prerequisite for what he did. That is to say, he had to be crazy to do what he did, but there are plenty of people who run the spectrum from mentally ill through to pure looney tunes, and most of them don’t bring a loaded Glock to a political meet and greet event.
So we are left with the question: what drove the shooter’s behavior? In these cases, the insanity of the action is defined by the fact that it defies rational analysis. We’re never going to know why he shot all those people, beyond the fact that he was crazy.
There has been considerable commentary expended on trying to connect this tragedy with Sarah Palin. On the web site of her political action committee, there was a graphic that showed a bulls eye over the Arizona congressional district of Gabrielle Giffords. It has been claimed that this somehow incites or condones violence.
This is absurd. I have seen the graphic in question. It is actually a map of the United States with all of the states outlined. There are cross hairs drawn on districts considered vulnerable, because they voted for McCain/Palin in 2008, but elected a Democrat to Congress. If it was a photo of specific congressmen taken through a rifle scope, the idea might have some traction, but it is a graphic of the entire country.
I would say trying to connect Sarah Palin to the shooting of Gabrielle Giffords was crazy but I don’t believe that it is. After all, the commentators airing this theory are, as far as I can tell, diametrically opposed to her on the political spectrum. Trying to discredit a political opponent’s rhetoric by tying her to a dangerous, violent lunatic’s attacks on innocent people? It doesn’t take much rational analysis to understand that course of action.
The mass shooting in Arizona is a case in point. Interviews with the shooter’s former college professors at Pima Community College have indicated pretty clearly that he was barking mad, but not violent. He was unstable, but there was no evidence of being a danger to self or others. The fact that he was obviously off his rocker was a necessary, but not sufficient prerequisite for what he did. That is to say, he had to be crazy to do what he did, but there are plenty of people who run the spectrum from mentally ill through to pure looney tunes, and most of them don’t bring a loaded Glock to a political meet and greet event.
So we are left with the question: what drove the shooter’s behavior? In these cases, the insanity of the action is defined by the fact that it defies rational analysis. We’re never going to know why he shot all those people, beyond the fact that he was crazy.
There has been considerable commentary expended on trying to connect this tragedy with Sarah Palin. On the web site of her political action committee, there was a graphic that showed a bulls eye over the Arizona congressional district of Gabrielle Giffords. It has been claimed that this somehow incites or condones violence.
This is absurd. I have seen the graphic in question. It is actually a map of the United States with all of the states outlined. There are cross hairs drawn on districts considered vulnerable, because they voted for McCain/Palin in 2008, but elected a Democrat to Congress. If it was a photo of specific congressmen taken through a rifle scope, the idea might have some traction, but it is a graphic of the entire country.
I would say trying to connect Sarah Palin to the shooting of Gabrielle Giffords was crazy but I don’t believe that it is. After all, the commentators airing this theory are, as far as I can tell, diametrically opposed to her on the political spectrum. Trying to discredit a political opponent’s rhetoric by tying her to a dangerous, violent lunatic’s attacks on innocent people? It doesn’t take much rational analysis to understand that course of action.
Wednesday, January 5, 2011
2011 Goal Setting
I let other people make New Year’s resolutions. I do goal setting. I had a lot of success with my goals for last year, hitting the mark on eight out of nine. My targets for the year ahead will be pretty similar to last year’s, with some tweaking around the edges. The objectives fall into three rough categories: personal finance, professional development, and private life.
Personal Finance
Save 20% from earned income. The heavy lifting on this goal is done by salary contribution to a 401K, with accompanying company match. That combination gets me to 15%, with the last 5% done the old fashioned way—not spending all of my take home pay.
End the year with less than $70K in debt. The deleveraging that started in 2010 will continue in 2011. Working against that is my plan to buy a new car before the end of the year. Since I pay off my current car loan in March, every month I defer that big ticket purchase allows me to build a bigger down payment on the new vehicle. Meanwhile, I will continue to make extra equity payments on my home mortgage. The goal of $70 K is actually $10 grand more than 2010’s goal, but I’ll be trading a fully depreciated asset for a new one.
Earn $2000 from outside sources. Last year the target was to earn $2 grand from tax prep with H & R Block. I was only able to get halfway there. If tax preparation isn’t enough this year, I will have to find some other kind of moonlighting gig to take up the slack. Needless to say, my day job comes first.
Professional Development
Take 9 credit hours of graduate accounting classes. With the classes already taken, accomplishing this goal will get me 2/3 of the way towards finishing the prerequisites for a Masters degree in accounting.
Build two new Access databases. One of the classes taken last year was a course in database programming. The student project is up and running, although it still needs some tweaking. The goal here is to deepen and extend that knowledge by building two new projects.
Private Life
Run 60K of road races. I’ve upped this from last year’s goal of 50K. At least one race will be at the longer 10K distance.
Entertain at home at least once a month. This encompasses everything from private dinner parties to blow out barbeques with thirty guests.
Read Proust’s “Remembrance of Things Past.” I’ve only got 3700 pages left to go. In addition to Proust, I’m going to continue with my Shakespeare reading group for at least another six plays.
I keep these goals written on a Post-It note on my desk, to keep them present for all year long. I’ll post on my progress around the mid year mark.
Tuesday, December 28, 2010
Refund Anticipation Loans
There has been interesting news in the tax preparation world this week. The Office of the Controller of the Currency (OCC) announced on Christmas Eve that it was directing HSBC Bank not to fund any refund anticipation loans for H & R Block in 2011. Accordingly HSBC cancelled their contract with HRB, leaving Block without a provider for the coming tax season.
Since the ability to provide refund anticipation loans (RAL) to tax clients was a major marketing tool for Block, this is considered a body blow to the company. Shares of HRB dropped almost 8% when the news was announced.
A RAL is a short term loan made at the time a tax return is filed. The size of the loan is usually the calculated amount of the refund, less tax preparation fees, interest, and charges. Basically, the tax client signs over their IRS refund to the bank making the loan. When the IRS sends the refund to the bank, the loan is repaid. With electronic filing, the time the loan is outstanding averages about 10 days.
H & R Block bent over backwards to prevent this from happening. The company even offered to cover any credit losses that HSBC would have had, making the loans essentially risk free. Since the OCC did not change their position, I have to conclude that protecting the integrity of the banking system was not driving the regulatory action. This looks like a politically driven decision, based on consumer protection arguments.
Consumer protection activists dislike RAL’s, because the loans have very high calculated interest rates. This is because the $29.95 charge to process the loan is added to the actual interest charges, then divided by the length of the loan to determine the APR. For an example, let’s suppose you borrow $2000 at a 24% interest rate for 10 days. The interest charge would be about $13. A high interest rate, but the overall bite of $13 bucks isn’t too bad.
Now, add in the $30 loan processing fee to the $13, and work the calculation backwards. That calculation is $43, divided by $2000, times 36. That comes out to just over a 77% annual percentage rate.
Your outrage over this depends a lot on how you look at the transaction:
Outlook I
“I’m going to loan you money and charge you 77% interest.” “That’s usury! You’re no better than a loan shark!”
Outlook II
“I’m going to loan you $2000 for one to two weeks, and it will cost you $43.” “That doesn’t sound so bad, and I’d like to get the money as soon as I could. I’ll take the deal.”
In point of fact, millions of tax clients took the deal every year. Now they will be “protected” from making this choice by the OCC.
Since the ability to provide refund anticipation loans (RAL) to tax clients was a major marketing tool for Block, this is considered a body blow to the company. Shares of HRB dropped almost 8% when the news was announced.
A RAL is a short term loan made at the time a tax return is filed. The size of the loan is usually the calculated amount of the refund, less tax preparation fees, interest, and charges. Basically, the tax client signs over their IRS refund to the bank making the loan. When the IRS sends the refund to the bank, the loan is repaid. With electronic filing, the time the loan is outstanding averages about 10 days.
H & R Block bent over backwards to prevent this from happening. The company even offered to cover any credit losses that HSBC would have had, making the loans essentially risk free. Since the OCC did not change their position, I have to conclude that protecting the integrity of the banking system was not driving the regulatory action. This looks like a politically driven decision, based on consumer protection arguments.
Consumer protection activists dislike RAL’s, because the loans have very high calculated interest rates. This is because the $29.95 charge to process the loan is added to the actual interest charges, then divided by the length of the loan to determine the APR. For an example, let’s suppose you borrow $2000 at a 24% interest rate for 10 days. The interest charge would be about $13. A high interest rate, but the overall bite of $13 bucks isn’t too bad.
Now, add in the $30 loan processing fee to the $13, and work the calculation backwards. That calculation is $43, divided by $2000, times 36. That comes out to just over a 77% annual percentage rate.
Your outrage over this depends a lot on how you look at the transaction:
Outlook I
“I’m going to loan you money and charge you 77% interest.” “That’s usury! You’re no better than a loan shark!”
Outlook II
“I’m going to loan you $2000 for one to two weeks, and it will cost you $43.” “That doesn’t sound so bad, and I’d like to get the money as soon as I could. I’ll take the deal.”
In point of fact, millions of tax clients took the deal every year. Now they will be “protected” from making this choice by the OCC.
Wednesday, December 15, 2010
Qualitative Easing Explained...Twice
There is a service that takes text and converts it to simple animated video. Here is one that has been making the rounds. It is quite critical of the Fed's move towards quantative easing (AKA pumping money into the economy). The deadpan delivery of the computer generated voices makes it hysterically funny.
The video above got enough play to cause somebody to generate a response in the same format:
It is not as funny as the first one, but probably a little more balanced. I still think the Fed is playing with fire by running the printing presses.
The video above got enough play to cause somebody to generate a response in the same format:
It is not as funny as the first one, but probably a little more balanced. I still think the Fed is playing with fire by running the printing presses.
Sunday, December 12, 2010
A Bad Deal All Around
Sometimes compromise means taking the best from both sides of an issue, creating a consensus that leads the way forward.
That’s not what happened with the recent tax deal put together between the White House and the Republican leadership, however. In that case, the worst of both sides was adopted. The deal panders to the short term interests of the principals, while creating the conditions that will lead to more long term pain further down the road.
The Republicans campaigned on the twin themes of rolling back ObamaCare and enforcing fiscal discipline. The White House wanted to raise taxes to combat the deficit spending they created. So, to compromise, let’s do neither of those things.
The White House agrees not to raise anyone’s taxes. In exchange, the Republicans will support extending unemployment benefits for another 13 months, along with two more years of not applying social security taxes to the first $6600 of earned income. Oh yes, we’re continuing heightened payouts on the earned income credit as well.
The net effect of this deal is that government spending will exceed revenues by almost a trillion dollars next year and the year after. We will continue to provide a reverse incentive to find work, allowing people over two years to stay on the dole. The long term sustainability of the social security program is made worse, because we are starving the program of revenues from a vast cross section of the employed.
This is the reverse of leadership. This is kicking the problem of fiscal deficits down the road two years, while entrenching an entitlement mentality ever more firmly into a large section of the populace.
In every game of musical chairs, eventually the music stops. In this game of political musical chairs, what scares me is that by the time the music stops, we’ll find that all of the chairs have been taken away, and we’ll all fall down.
Monday, December 6, 2010
'Tis the Season ...
This is my annual Christmas diatribe. I can’t keep up my reputation as a “Bah, humbug” kind of guy without one.
This is the time of year when we are encouraged to give more. Everywhere you turn, someone has their hand out, asking for a donation. Bell ringers at the grocery store. Angel trees at church. At work we are running a cash drive to raise money to buy Christmas presents for a number of families.
I think we should all just go out to eat instead. Take the twenty bucks we could give away to buy presents for somebody else’s child, and buy a steak dinner with it.
“Oh, that’s horrible.” “Have you no Christmas spirit?” No, not much. Still, even if I had the Christmas spirit, my method makes more economic sense.
First, consider multiplier effects. In economic terms, a multiplier is when you spend a dollar, and the business where you spend it pays their employees and their suppliers. Those suppliers, in turn, spend their share of that dollar on their suppliers, and so on. Economic activities with a high multiplier give you more bang for the buck. A low multiplier means that the impact of a dollar spent is damped out pretty quickly. So if you want to spread Christmas cheer as widely as possible, you should seek out ways of spending your money with higher multiplier factors.
Think of throwing a stone into a pond. The ripples spreading out from that event are a function of the multiplier. The higher the multiplier factor, the further the ripples spread before dying out.
Consider buying toys with your money. Almost all of the toys in the stores are imported from China. Even if the retail markup on those toys is 50%, the immediate impact on the American economy is less than a dollar. If the first stage of your calculation is .5, it is very difficult to see how your multiplier can get over 1.0. Instead of throwing a stone into a pond, imagine throwing a stone into mud.
Now consider dining out. When you buy that steak dinner, the employees of the restaurant get paid. But all of the purveyors to the restaurant also get paid. And those purveyors are sourcing Colorado beef, corn fed with Iowa grain. All of the money you spend stays on shore, and get respent by Americans. The multiplier effect is much higher than if you buy toys at Wal-Mart.
Also, if you’re feeling generous after your steak dinner, you can give a bigger tip to the server. After all, it’s Christmas time. That way, the server can go out and buy presents for her own kids, instead of having strangers buy for them. Maybe it is just me, but I’d rather support the working poor than the non-working poor. At least the working poor are in the game, trying to support themselves and their families. Between Section 8 subsidized housing, food stamps, and Medicaid, I feel like my tax dollars are providing enough charity. I want to use my uncompelled donations to give extra benefits for extra effort.
And finally, if you give cash to the annual Christmas drive, you don’t even get to see the results of your giving. When you eat out, you get to enjoy your meal, deriving a real and tangible benefit from your expenditure. All in all, it makes a lot more sense to dine out more than to give to charity this time of year.
Oh, who am I kidding? I put twenty bucks in the envelope along with everybody else.
This is the time of year when we are encouraged to give more. Everywhere you turn, someone has their hand out, asking for a donation. Bell ringers at the grocery store. Angel trees at church. At work we are running a cash drive to raise money to buy Christmas presents for a number of families.
I think we should all just go out to eat instead. Take the twenty bucks we could give away to buy presents for somebody else’s child, and buy a steak dinner with it.
“Oh, that’s horrible.” “Have you no Christmas spirit?” No, not much. Still, even if I had the Christmas spirit, my method makes more economic sense.
First, consider multiplier effects. In economic terms, a multiplier is when you spend a dollar, and the business where you spend it pays their employees and their suppliers. Those suppliers, in turn, spend their share of that dollar on their suppliers, and so on. Economic activities with a high multiplier give you more bang for the buck. A low multiplier means that the impact of a dollar spent is damped out pretty quickly. So if you want to spread Christmas cheer as widely as possible, you should seek out ways of spending your money with higher multiplier factors.
Think of throwing a stone into a pond. The ripples spreading out from that event are a function of the multiplier. The higher the multiplier factor, the further the ripples spread before dying out.
Consider buying toys with your money. Almost all of the toys in the stores are imported from China. Even if the retail markup on those toys is 50%, the immediate impact on the American economy is less than a dollar. If the first stage of your calculation is .5, it is very difficult to see how your multiplier can get over 1.0. Instead of throwing a stone into a pond, imagine throwing a stone into mud.
Now consider dining out. When you buy that steak dinner, the employees of the restaurant get paid. But all of the purveyors to the restaurant also get paid. And those purveyors are sourcing Colorado beef, corn fed with Iowa grain. All of the money you spend stays on shore, and get respent by Americans. The multiplier effect is much higher than if you buy toys at Wal-Mart.
Also, if you’re feeling generous after your steak dinner, you can give a bigger tip to the server. After all, it’s Christmas time. That way, the server can go out and buy presents for her own kids, instead of having strangers buy for them. Maybe it is just me, but I’d rather support the working poor than the non-working poor. At least the working poor are in the game, trying to support themselves and their families. Between Section 8 subsidized housing, food stamps, and Medicaid, I feel like my tax dollars are providing enough charity. I want to use my uncompelled donations to give extra benefits for extra effort.
And finally, if you give cash to the annual Christmas drive, you don’t even get to see the results of your giving. When you eat out, you get to enjoy your meal, deriving a real and tangible benefit from your expenditure. All in all, it makes a lot more sense to dine out more than to give to charity this time of year.
Oh, who am I kidding? I put twenty bucks in the envelope along with everybody else.
Sunday, November 21, 2010
Full Body Scanners
There has been a ton of foofarah surrounding airport security procedures this last week. The TSA has rolled out the new full body scanners at terminals across the country. These are the machines that use a low level of backscatter x-rays to produce a picture that looks like a shadowy outline of you without any clothes on. Installing the scanners was put on a crash basis after last Christmas' underwear bomber. He only managed to set his own genitals on fire, but his aborted attack revealed a weakness in the current security system.
People are complaining that it is too invasive, that the new scans violate privacy. Others claim that it is an unwarranted government intrusion into our lives. I have read some people urge that we boycott the air travel system until these scanners are pulled.
Worse, because there is a low level of x-ray exposure that is cumulative, frequent fliers may choose to opt out of the scans. If they do, the alternative is a "pat down" inspection. I've got to admit, I have no desire to have a TSA representative prod my genital area, checking to see if I have strapped explosives to my inner thigh.
But you know who I really feel sorry for? The TSA employees.
You want to see what I look like with no clothes on? Bring it, but I can't promise you'll be able to sleep at night. You need to "touch my junk?" Go ahead. You'll be the one to wake up screaming, not me.
It's not just me. A third of all Americans are obese, with another third in the category of overweight. I can just imagine the daily meeting at the airport where jobs for the day are assigned. "Joe, you'll be working the body scanner today." "Oh geez, no! Can't I x-ray bags instead, please!"
Seriously, I can't imagine a more thankless task than trying to stop terrorists from blowing up random flights.
Thursday, November 11, 2010
The Pnedulum Swings Back
A week after the election, and the changed realities in Washington are still settling in. The electorate has decided to throw the rascals and scoundrels out, and bring in a new crew of rascals and scoundrels.
The results are not really too surprising, given the partisan overreach of the first two years of the Obama administration. After all, slapping the label “liberal” on a candidate carries significant negative connotations with the public at large. Even the liberals agree with that, which is why they’ve tried to rebrand themselves as “progressives.”
Two years ago, the picture looked quite different. There was plenty of talk about a new New Deal, the assumption that Democratic Party gains signaled a mandate for a gigantic expansion of the power and reach of the Federal government. America was finally going to take its rightful place among the nations of Europe.
It turns out that most Americans don’t want to live in France, even if they could find it on a map. If they did, Massachusetts would be a lot more crowded.
Even more shocking were the pronouncements made about the Republican party. One pundit wrote that the GOP was doomed to be a “rump party of southern white males.” Astonishingly, just two weeks ago editorial writer DeWayne Wickham wrote:
"Don't be fooled by the political gains Republicans are expected to make in the midterm elections. The GOP is on the critical list. The wins it will score, possibly enough to give it control of the House of Representatives, will be short lived. They are the dying gasp of a political party that has become too intolerant and too white in a nation whose population soon will be dominated by Hispanics, blacks and Asians."
Sure, because if you think massive expansions in government programs, along with tax rates to match, it must be because you are racist. The last time I checked, to gain a majority in the House of Representatives, the Republicans had to have more than half the voters choose their candidate in more than half the Congressional districts in this country. That seems pretty egalitarian to me.
But I think the best riposte to the claim that to be a conservative is to be exclusionary is this: New Mexico elected a new governor this week. Susana Martinez is the nation’s first female Hispanic governor. She’s a Republican.
The results are not really too surprising, given the partisan overreach of the first two years of the Obama administration. After all, slapping the label “liberal” on a candidate carries significant negative connotations with the public at large. Even the liberals agree with that, which is why they’ve tried to rebrand themselves as “progressives.”
Two years ago, the picture looked quite different. There was plenty of talk about a new New Deal, the assumption that Democratic Party gains signaled a mandate for a gigantic expansion of the power and reach of the Federal government. America was finally going to take its rightful place among the nations of Europe.
It turns out that most Americans don’t want to live in France, even if they could find it on a map. If they did, Massachusetts would be a lot more crowded.
Even more shocking were the pronouncements made about the Republican party. One pundit wrote that the GOP was doomed to be a “rump party of southern white males.” Astonishingly, just two weeks ago editorial writer DeWayne Wickham wrote:
"Don't be fooled by the political gains Republicans are expected to make in the midterm elections. The GOP is on the critical list. The wins it will score, possibly enough to give it control of the House of Representatives, will be short lived. They are the dying gasp of a political party that has become too intolerant and too white in a nation whose population soon will be dominated by Hispanics, blacks and Asians."
Sure, because if you think massive expansions in government programs, along with tax rates to match, it must be because you are racist. The last time I checked, to gain a majority in the House of Representatives, the Republicans had to have more than half the voters choose their candidate in more than half the Congressional districts in this country. That seems pretty egalitarian to me.
But I think the best riposte to the claim that to be a conservative is to be exclusionary is this: New Mexico elected a new governor this week. Susana Martinez is the nation’s first female Hispanic governor. She’s a Republican.
Tuesday, November 2, 2010
Election Day
If the polls are correct, the Republican Party is poised to retake control of the House of Representatives. The outcome in the Senate is more in doubt. Although the Republicans will certainly pick up several seats, they will probably not gain the majority.
The most likely result will be divided government and gridlock, to which I say: Long live gridlock!
As a proponent of limited government, I am quite pleased at the prospect of a government that can’t get anything done. A government that can’t get anything done will not expand. A government that can’t get anything done will, of necessity, leave the citizens to their own devices. There is a technical term for that state of affairs. It’s called freedom.
The Republicans don’t need control of the Senate to resist the threat of encroachment into private concerns by the power of the state. Under Senate rules, they only need enough votes to prevent cloture and continue debate. The filibuster is a powerful tool for conservatism.
In the US Senate, it requires 60 votes to be an irresistible force. But it only takes 40 votes to be an immovable object.
The most likely result will be divided government and gridlock, to which I say: Long live gridlock!
As a proponent of limited government, I am quite pleased at the prospect of a government that can’t get anything done. A government that can’t get anything done will not expand. A government that can’t get anything done will, of necessity, leave the citizens to their own devices. There is a technical term for that state of affairs. It’s called freedom.
The Republicans don’t need control of the Senate to resist the threat of encroachment into private concerns by the power of the state. Under Senate rules, they only need enough votes to prevent cloture and continue debate. The filibuster is a powerful tool for conservatism.
In the US Senate, it requires 60 votes to be an irresistible force. But it only takes 40 votes to be an immovable object.
Tuesday, October 26, 2010
Not Long Before the End
The fact that we only have one more week before the election makes we want to shout "hurray!" I think we should all have a celebration on Election Day. No, not because we get to see the awesome power of democracy in action, as we and our fellow citizens get to exercise our basic right to choose our political leaders.
The celebration is because after the election, they'll finally stop running campaign ads on television. Thank God for small favors.
Here's an attack ad:
"This politician supports amnesty for illegal aliens and increasing the income tax. He wants to export jobs to China. Do we really want a leader who thinks it's okay to give our jobs to illegals?"
That's an ad attacking a Republican!
Then there are the ads put out by the candidates themselves:
"I'm a gun-totin', truck drivin', Bible reading conservative."
That's from a Democrat!
Then there are the robocalls:
"We have a quick two question survey. 1. Do you support the rise of the anti-Christ, like our opponent? 2. Do you support having good jobs, like our candidate?"
Yes, I'm looking forward to the day after Election Day. Nothing like a little piece and quiet.
The celebration is because after the election, they'll finally stop running campaign ads on television. Thank God for small favors.
Here's an attack ad:
"This politician supports amnesty for illegal aliens and increasing the income tax. He wants to export jobs to China. Do we really want a leader who thinks it's okay to give our jobs to illegals?"
That's an ad attacking a Republican!
Then there are the ads put out by the candidates themselves:
"I'm a gun-totin', truck drivin', Bible reading conservative."
That's from a Democrat!
Then there are the robocalls:
"We have a quick two question survey. 1. Do you support the rise of the anti-Christ, like our opponent? 2. Do you support having good jobs, like our candidate?"
Yes, I'm looking forward to the day after Election Day. Nothing like a little piece and quiet.
Sunday, October 17, 2010
Foreclosure Moratoriums
You can look at the mess in the mortgage banking industry, and the current foreclosure moratorium, from two different directions. Looked at from one side, it a mess of terrible complexity and ambiguity. Uncertainty clouds the outlook. Looked at from the other side, there are no issues, and everything is as clear as a summer’s day.
The current moratorium is being imposed by the banks that process mortgage payments. In almost every case, these banks do not actually own the mortgage in question. The bank may not even have been the original lending institution for the mortgage. In today’s housing market, most mortgages are resold shortly after the real estate closing. Thousands of mortgages are pooled together into securities, which are then sold and resold. What the bank is doing is servicing the mortgage on behalf of the investors who actually own it. So in a foreclosure, the bank has to submit paperwork to prove that it has standing to foreclose on an individual. That is complication number one.
The systems for processing mortgage payments are highly automated, which keeps the cost down. Because almost all of the work is done by computer, it only takes a few people to handle thousands of mortgages. But the legal system is not automated at all. In a foreclosure proceeding, paper documents have to be submitted for every case, covering every aspect of the procedure. That is complication number two.
In the past, only a few mortgages were in foreclosure at any one time, compared to the number of mortgages outstanding. After all, is the borrower couldn’t make the payments, they were encouraged to sell the house to get out from under the mortgage. As long as home prices were rising, this worked. With the collapse of the housing bubble, millions of homeowners are underwater, owing more on their house than it can be sold for. Combined with high levels of unemployment, that means the number of houses being foreclosed upon has grown by leaps and bounds. There are vastly more houses in foreclosure than just a couple of years ago. That is complication number three.
In a foreclosure proceeding, the bank has to submit paperwork to back up their position. In the absence of the original loan documents, bank employees sign affidavits attesting that they have reviewed all of the documents connected with a case. It turns out that, faced with a crushing backlog, some of the document signers were filing up to 400 packages a day. They could not possibly have been reading all of the documents to ensure accuracy.
Now that this has come to light, some attorneys who represent homeowners facing foreclosure are arguing that not only are current foreclosure proceedings invalid, but that many past foreclosures are also questionable. That’s the background for the current moratorium. Lots of heat, not much light and clarity.
But as I mentioned before, there are two sides to the story. The other way to look is at the homeowners. These are people who borrowed the money to buy houses, and aren’t paying it back. I think even the attorneys representing them will admit that these guys have stopped paying the mortgage, sometimes years ago.
To me, this seems pretty simple. You stop making payments, you get your butt thrown out onto the street.
Right now, the squatters keep possession of the house until the bank can prove it has right of ownership. All of the delays are on the bank side of the equation. But it strikes me as unjust, that some people can get away with not paying back a loan without consequences. My solution: throw the deadbeats out, but don’t allow the bank to resell the property until they can catch up on the appropriate paperwork. In the meantime, the bank has to pay to maintain the properties, which they have to do anyway, until they can find a buyer.
This way, the squatters don’t get to make chumps out of the majority of homeowners who continue to pay their mortgage every month. At the same time, the banks have a powerful incentive to get their paperwork straightened up. Case closed.
Sunday, October 10, 2010
A Right to Fire Protection?
Much has been made of the recent new story in Obion County, Tennessee. This was the story about the rural trailer that caught fire. When the fire department arrived on scene, they realized that the homeowner had failed to pay the annual $75 fee for fire protection. Accordingly, the firemen were ordered to back off, allowing the trailer to burn to the ground, a total loss.
The chief of the fire department has been roundly castigated for his decision. Apparently the trailer owner had paid the fee in years past, but this year he “forgot.” But I don’t see how the fire chief could have made the decision any other way. If the fire had been put out, not only would they have no guarantee that the homeowner would pay up next year, but as word spread, surely other homeowners would also choose to make the payment optional. “I just don’t have the money this month. Besides, what are they going to do, just let the place burn? They won’t do that.”
Here’s what I would like to see reported: in the week or so since this story broke, how many $75 checks have arrived at the Obion County courthouse, from other homeowners who had “forgotten” to pay for fire protection? “Holy crap, ma, they’re serious! They just let the Jones place burn to the ground! We gotta come up with the money, just in case.”
Many people, including me, had not realized that purchasing fire protection insurance was optional. It seems that this situation applies in many rural areas. When you think about it, this makes sense. In cities, and even in the suburbs, built up densities are high enough that a fire that starts in one structure can easily spread to surrounding buildings. Accordingly, fire protection becomes a common good. Everyone bears the risk, and the costs are covered through tax revenues.
In this case, the risk was isolated to the individual property owner. He could have pooled his risk with the other property owners by paying the fee, but whether on purpose or through negligence, he bore the risk alone.
He chose to roll the dice on needing the fire department. This time the dice came up snake eyes.
Wednesday, October 6, 2010
This does not bode well.
In 2009, Frito Lay started selling their Sun Chips brand in a new kind of packaging. They began using a biodegradable polymer made from corn in their plastic bags. The corn based plastic bags would break down much, much faster in a landfill than the traditional bags, which will probably still be recognizable as snack food packaging when the Sun expands to a red giant star.
A giant corporation is taking a step to protect the environment. Yay!
There was only one problem. The new bags were much noisier than the old ones. Noisier? Yup, a lot noisier. The corn based bags made a crinkling sound, kind of a cross between cellophane and tin foil being crumpled up. That is, if a jet engine was being fueled by tin foil and spitting out cellophane exhaust.
Well, the increased amount of noise was sufficiently irritating that customers began calling up and complaining. Apparently the folks stuffing their pie holes with salty snacks want the chips to be crunchy, but not the packaging. Frito Lay has listened to their customers, and has pulled the new biodegradable plastic from production on all but one flavor of Sun Chip. They’ll probably switch that line over as well in a year, once they’ve used up the corn-based plastic resin they are contractually obligated to buy.
They’ve probably already contracted for oil tankers to bring in the petroleum for next year’s plastic. No doubt from some despotic Middle Eastern country where the only other export is hatred for America. “We would spit on you decadent, chip loving Americans, but we have no water, so our bodily moisture is precious to us.”
What strikes me about this situation is that this one small step towards sustainablility is being retracted for the most miniscule of reasons. Some poor sap at Frito Lay headquarters made the gutsy decision to try out the biodegradable packaging material. Don’t you know that guy’s career is in the toilet now. It’ll be a long time before anyone else suggests changing the packaging to improve the environment.
“You’re a bright guy, Jones, and you’ve got a bright future with the company. So let me give you some advice. See that poor, shambling wreck of a man? The ruined giant pushing the broom around the offices? He was the man who championed the Sun Chips packaging change back in ’09. Don’t go pushing the ecology thing. It won’t be healthy for you.”
To deal with resource depletion, global warming, and dependence on imported oil, we will all have to make changes in our lifestyles. Here we have an example of a positive change that was rejected by the consuming public because the bags were too noisy. That gives you an indication of how far the average man in the street will go to protect the environment.
No, it doesn’t bode well at all.
In 2009, Frito Lay started selling their Sun Chips brand in a new kind of packaging. They began using a biodegradable polymer made from corn in their plastic bags. The corn based plastic bags would break down much, much faster in a landfill than the traditional bags, which will probably still be recognizable as snack food packaging when the Sun expands to a red giant star.
A giant corporation is taking a step to protect the environment. Yay!
There was only one problem. The new bags were much noisier than the old ones. Noisier? Yup, a lot noisier. The corn based bags made a crinkling sound, kind of a cross between cellophane and tin foil being crumpled up. That is, if a jet engine was being fueled by tin foil and spitting out cellophane exhaust.
Well, the increased amount of noise was sufficiently irritating that customers began calling up and complaining. Apparently the folks stuffing their pie holes with salty snacks want the chips to be crunchy, but not the packaging. Frito Lay has listened to their customers, and has pulled the new biodegradable plastic from production on all but one flavor of Sun Chip. They’ll probably switch that line over as well in a year, once they’ve used up the corn-based plastic resin they are contractually obligated to buy.
They’ve probably already contracted for oil tankers to bring in the petroleum for next year’s plastic. No doubt from some despotic Middle Eastern country where the only other export is hatred for America. “We would spit on you decadent, chip loving Americans, but we have no water, so our bodily moisture is precious to us.”
What strikes me about this situation is that this one small step towards sustainablility is being retracted for the most miniscule of reasons. Some poor sap at Frito Lay headquarters made the gutsy decision to try out the biodegradable packaging material. Don’t you know that guy’s career is in the toilet now. It’ll be a long time before anyone else suggests changing the packaging to improve the environment.
“You’re a bright guy, Jones, and you’ve got a bright future with the company. So let me give you some advice. See that poor, shambling wreck of a man? The ruined giant pushing the broom around the offices? He was the man who championed the Sun Chips packaging change back in ’09. Don’t go pushing the ecology thing. It won’t be healthy for you.”
To deal with resource depletion, global warming, and dependence on imported oil, we will all have to make changes in our lifestyles. Here we have an example of a positive change that was rejected by the consuming public because the bags were too noisy. That gives you an indication of how far the average man in the street will go to protect the environment.
No, it doesn’t bode well at all.
Thursday, September 30, 2010
The Democratization of Indolence
The modern industrial state has created a phenomenon that I call the democratization of indolence. That is the expansion of the number of people who do not work for a living, but instead have their economic support provided by others. Once the preserve of the wealthy, freedom from the need to work has now grown to cover large numbers of every socioeconomic class is our society.
Historically, almost everyone labored for their sustenance, almost until the hour of their death. If you were too old and broken down for physical labor, you were taken in by your children to support. Almost the only exceptions were the landed gentry, whose lifestyles were supported by the possession of large estates. The cash flow from that capital base enabled a lifestyle freed from the requirement to hold down a job.
Two factors have enabled enormous growth in the number of people who are exempted from the need to work. The first factor has been the institution of social security, disability, and pension programs. If you are old enough, sick enough, or have worked at one place long enough, these programs guarantee you monthly cash payments for life.
The second factor has been the dramatic advances in medical knowledge of the last few decades. It used to be that retirement would last only a few years, if you reached that point, before some degenerative disease would take you out. But nowadays our medical abilities have advanced to the point that diseases can be arrested, or symptoms managed.
Clogged arteries? We can put in a stent, and you’ll have more energy than you’ve had in years. Cancer? Catch it early enough, and we can cure it, or at least put it into remission for years. Joints worn out? We can replace them, giving you decades of increased mobility. I even know some folks who are “disabled,” yet give few signs of it. After all, once you get on the free money train, why would you ever get off?
Consider the case of a 55 year old schoolteacher who retires after 30 years on the job. A reasonable expectation is a life expectancy of 85 years, meaning she will be supported without having to work for as long as she actually worked. And for much of that time she will be able to sustain a high level of vigorous activity. Or not. After all, I call this the democratization of indolence. The key is, our hypothetical schoolteacher now has the cash flow to support a life of leisure, and the health to pursue whatever interests tickle her fancy. An enviable position.
The problem is that the promises to pay were made before the advances in life expectancy came about. The system is in danger of breaking down, because it is financially unsupportable. In France, the government is proposing to increase the minimum retirement age from 60 to 62. The result has been large scale protests and a general strike. Everyone wants a life of financial freedom, even if someone else has to pay for it.
The economist Herbert Stein once famously remarked “if something cannot continue, it will stop.” Despite the amazing advances in productivity of the last century, our society will not support half the people working while the other half does not. So we can either find a solution to the problem and coast to a stop, or stop by hitting a brick wall. It’s like jumping off a tall building. It is not the fall that kills you. It is the sudden stop at the end.
Historically, almost everyone labored for their sustenance, almost until the hour of their death. If you were too old and broken down for physical labor, you were taken in by your children to support. Almost the only exceptions were the landed gentry, whose lifestyles were supported by the possession of large estates. The cash flow from that capital base enabled a lifestyle freed from the requirement to hold down a job.
Two factors have enabled enormous growth in the number of people who are exempted from the need to work. The first factor has been the institution of social security, disability, and pension programs. If you are old enough, sick enough, or have worked at one place long enough, these programs guarantee you monthly cash payments for life.
The second factor has been the dramatic advances in medical knowledge of the last few decades. It used to be that retirement would last only a few years, if you reached that point, before some degenerative disease would take you out. But nowadays our medical abilities have advanced to the point that diseases can be arrested, or symptoms managed.
Clogged arteries? We can put in a stent, and you’ll have more energy than you’ve had in years. Cancer? Catch it early enough, and we can cure it, or at least put it into remission for years. Joints worn out? We can replace them, giving you decades of increased mobility. I even know some folks who are “disabled,” yet give few signs of it. After all, once you get on the free money train, why would you ever get off?
Consider the case of a 55 year old schoolteacher who retires after 30 years on the job. A reasonable expectation is a life expectancy of 85 years, meaning she will be supported without having to work for as long as she actually worked. And for much of that time she will be able to sustain a high level of vigorous activity. Or not. After all, I call this the democratization of indolence. The key is, our hypothetical schoolteacher now has the cash flow to support a life of leisure, and the health to pursue whatever interests tickle her fancy. An enviable position.
The problem is that the promises to pay were made before the advances in life expectancy came about. The system is in danger of breaking down, because it is financially unsupportable. In France, the government is proposing to increase the minimum retirement age from 60 to 62. The result has been large scale protests and a general strike. Everyone wants a life of financial freedom, even if someone else has to pay for it.
The economist Herbert Stein once famously remarked “if something cannot continue, it will stop.” Despite the amazing advances in productivity of the last century, our society will not support half the people working while the other half does not. So we can either find a solution to the problem and coast to a stop, or stop by hitting a brick wall. It’s like jumping off a tall building. It is not the fall that kills you. It is the sudden stop at the end.
Friday, September 24, 2010
Education: Risk versus Reward
All investment entails risk. It is built into the very nature of the activity. You cannot expend resources, hoping for the promise of a reward, without accepting the possibility that the resources will be lost, and the award not achieved. After all, we cannot predict the future.
Anytime you make an investment, there is a chance that it will not pan out. As so many of us have discovered during the last couple of years, that is certainly true of our financial investments in our 401K’s. But it also true of the capital we invest in ourselves.
I’m talking about the money and time spent on higher education, specifically about post-graduate work. It’s not cheap. I’m taking graduate level classes in accounting at a local university. This is after completing an executive MBA a couple of years ago. Tuition and fees run about $1500 per class. I’m trying to get 18 credit hours (six classes) under my belt, because that is the minimum required to teach at the college level. I’m not quitting my day job, but I would like to teach at the adjunct level, part-time.
So I’m spending around $9 grand, along with hundreds of hours, plus the gas money to get to class, plus the opportunity costs of giving up what I could be doing with my time and money instead. In exchange, I get the potential to teach junior college students entry level classes, for about $1500 per class taught.
Strictly from an economic perspective, it is hard to make the numbers line up on this endeavor. Even ignoring the time value of money, it will take more than a few years to recoup the cash investment alone, disregarding the time invested. And what if I try teaching a class and discover that, contrary to my hopes, I hate teaching? There’s a technical term for that experience: it would suck.
From the risk-reward perspective, it is hard to make a valid case for continuing to go to school. The obvious question is: why do I continue to make this dubious investment?
First of all, I have a deep seated belief that continued acquisition of new skills is vital, both to expanding career opportunities and to enhancing job security. The more versatile and up-to-date your skill set is, the better able you are at withstanding the vicissitudes of an uncertain job market.
But ultimately, I have discovered that I love being a student. Oh, I’m not so fond of it when a paper is due, or I’m struggling with a problem set. But overall, I truly enjoy the educational process.
Basically, I’m an education junkie.
Anytime you make an investment, there is a chance that it will not pan out. As so many of us have discovered during the last couple of years, that is certainly true of our financial investments in our 401K’s. But it also true of the capital we invest in ourselves.
I’m talking about the money and time spent on higher education, specifically about post-graduate work. It’s not cheap. I’m taking graduate level classes in accounting at a local university. This is after completing an executive MBA a couple of years ago. Tuition and fees run about $1500 per class. I’m trying to get 18 credit hours (six classes) under my belt, because that is the minimum required to teach at the college level. I’m not quitting my day job, but I would like to teach at the adjunct level, part-time.
So I’m spending around $9 grand, along with hundreds of hours, plus the gas money to get to class, plus the opportunity costs of giving up what I could be doing with my time and money instead. In exchange, I get the potential to teach junior college students entry level classes, for about $1500 per class taught.
Strictly from an economic perspective, it is hard to make the numbers line up on this endeavor. Even ignoring the time value of money, it will take more than a few years to recoup the cash investment alone, disregarding the time invested. And what if I try teaching a class and discover that, contrary to my hopes, I hate teaching? There’s a technical term for that experience: it would suck.
From the risk-reward perspective, it is hard to make a valid case for continuing to go to school. The obvious question is: why do I continue to make this dubious investment?
First of all, I have a deep seated belief that continued acquisition of new skills is vital, both to expanding career opportunities and to enhancing job security. The more versatile and up-to-date your skill set is, the better able you are at withstanding the vicissitudes of an uncertain job market.
But ultimately, I have discovered that I love being a student. Oh, I’m not so fond of it when a paper is due, or I’m struggling with a problem set. But overall, I truly enjoy the educational process.
Basically, I’m an education junkie.
Sunday, September 19, 2010
A Modest Proposal: National Park Pricing
I just got back from a week in northern California, including three nights in Yosemite National Park. The admission fee for the park is one of the best things going. It costs $20 for a carload. The problem is that the price is too low. The Park Service is underfunded, and has a backlog of maintenance projects that aren't getting completed. The other problem with underpricing admission to the National Parks is that it leads to overuse and overcrowding.
One thing you will notice almost immediately when you visit a National Park is that a lot of the visitors are not Americans. I would guess that half of the people at Yosemite when I was there were Europeans or Japanese.
I wonder if anyone has ever studied the idea of increasing the price of admission, then offering a discount to US citizens. Lets say the price goes up to $40 dollars a carload (still cheap), but drops in half if the driver presents an American driver's license. You could even include Mexican and Canadian driver's licenses, on account of NAFTA.
This type of differential pricing would raise a lot of additional revenue for the Park Service. The potential downside is that it might dissuade some foreign visitors from coming, and with car rentals, lodging, and meals, foreign tourists pump a lot of money into the US economy. You certainly don't want to injure that golden goose.
Because we have a lot of National Parks, we could conduct an experiment. Several of the parks could be selected for a trial run of this idea. The makeup of the attendees could be monitored both before and after the price change to see if it makes a difference. If there is no change, the new pricing structure could be rolled out across the entire system.
There may be existing international agreements in place prohibiting such a scheme. If that is the case, we still should increase the price charged for entry into the parks. That way the people who use the parks will be paying to maintain them. And I don't think there is any argument against maintaining the National Parks, so that future generations will also be able to enjoy them.
Anyone who has visited the wonders of one of our National Parks will agree with that.
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