Wednesday, December 24, 2008

Wrong versus Stupid

I had a boss once that we called “The Crazy Man,” because he would lose his temper for no apparent reason and end up in an apoplectic rage. Moreover, if you disagreed with him, you weren’t just wrong, you were stupid. He’s no longer with the company, but a recent blog I read got me to thinking about that concept.

In his December 20 column in the NY Times (, Nicholas Kristof made the interesting observation that self-described liberals give less to charity than self-described conservatives. He then invited readers to offer their thoughts on why at his blog, and did they ever!

The first thing I immediately noticed was the rage. Kristof had been straightforward in his purpose: “a transparent attempt this holiday season to shame liberals into being more charitable.” My immediate thought was, “Good for you!” Encouraging one’s own group to live up to its ideals always seems like a good goal to me. Alas, Mr. Kristof and I were alone in that opinion.

There were 685 posts when I first looked, and I stopped reading after about 100. By then, the trend was pretty clear, and interesting in about three ways. First, many of the posters were clearly very angry at the notion they should do more. Some insisted that they gave of their time, so that was better than “simply dashing off a check.” While I’m glad they’re giving their time, economics don’t really care who’s doing the work, so I don’t grant them a special moral position. Some insisted that giving to political causes would do more good than giving to charity, because that would restructure the country. Here, again, I admire their dedication, but that seems just a bit too convenient. There’s a reason some organizations have tax exempt status and others don’t. But the largest portion seemed to insist that they had no obligation to give to charity—they paid their taxes, and aiding the poor was a communal duty, period. They had absolutely no obligation to pay more, because that just meant others would take advantage of their generosity.

That seems completely absurd to me. The very people who insist we should care more about our fellow man also insist that they don’t have to do one iota more until everyone else has paid their fair share? (However that’s defined?) So much for leadership by example!

To be fair, a lot of conservatives seemed pretty put out by the other posters, but that makes sense based on the subject of the Op-Ed. I think I could sum up their position as, “We give more but get called selfish and greedy. Who are the hypocrites here?” And, to be fair, some liberals pointed out that they give personally, which never gets counted. That’s legit—I have helped out several relatives, and that isn’t counted by anyone as charitable giving. By the way, the second time I checked, it was at 858 posts.

What struck me as the most interesting, however, was the liberal argument that having government provide charity services is “more efficient” than relying on private charity—one poster called it more “professional;” another called charities “bureaucratic;” a third praised government bureaucracy for being able to avoid the need for donor mailings. Having worked for government, and being able to read, I know that the government spends more on overhead than any charity would ever be permitted. I don’t know how these posters arrived at their conclusion, other than that’s what they wanted to believe.

I suspect that is, in fact, the case—they simply want to believe that government is a better solution. My first evidence is the posters’ words—that they don’t think charity should exist at all, because it won’t assure that the money goes where it’s truly needed. My second evidence for this is the number of posters who insisted that conservatives should pay more, because they had higher paying jobs. The problem with that assertion is that Kristof was quite clear that he had corrected for income, and the conclusions didn’t change—in fact, the poorest conservatives gave the most, percentage-wise. So, either the liberal posters couldn’t read, or they simply didn’t register an inconvenient truth. They didn’t want to believe it was true, so they didn’t.

And anyone who disagreed with them wasn’t just wrong. They were stupid.

Monday, December 22, 2008

Upside Down Mortgages

Today’s paper mentioned some 14% of Americans are now upside-down on their mortgage—that is, they owe more than the house is worth. I’ve been reading about this for some time. I’ve vaguely wondered whether my house, bought in the heady days of 2006, might be one.

And then I realized—who cares? Seriously—unless you’re planning to sell, being upside down on your mortgage is irrelevant. I bet a lot more than 14% of Americans are upside down on their investments, yet how many financial advisors are recommending we bail out now and take the 40% loss?

Sure, if you are planning to sell, being upside down sucks. And, having to sell because your company just reassigned you sucks, too. (If you’re one of those folks whose company will buy your house, good for you, but that’s not the point.) And, if you're in that situation where you bought for $400k and your house is now worth $250k, believe me, I feel sympathy, even if I can't feel your pain. I have a good friend who was assigned to, and then from Las Vegas--I never had the heart to ask him how badly he was hurt in the sale.

But, let's also be realistic. Anyone who ever bought a house using a VA or FHA loan started out upside down—you can finance all those fees, plus a little more in order to make improvements. I didn’t get my loan and immediately think, “I owe more than it’s worth! I should just walk away!”

About 10 years ago, my Dad sold a house at a $30,000 loss when he found a better job across the country. He said it really hurt writing a check as the seller—but the market had dipped, and that was that. When I moved in August 2001, my goal was to make a small profit when my house sold. On September 12, my goal changed to “I don’t want to write a check at closing.”

The point is that you have to live somewhere. Either you own, or you rent. Being upside down doesn’t change either fact—it just means you’re renting from the bank instead of yourself for a while.

Of course, if the house you’re upside down in isn’t your primary residence, but a rental or an investment property, that’s different—but not in the way you might think. It’s different because now you’re a businessman (good for you) and you have a business decision to make. You shouldn’t be lumped in with other homeowners in order to make the statistics look worse.

Sunday, December 21, 2008

Update: Gas Prices

Gas prices are now down to $1.42 per gallon. I'm told of stations offering $1.29 if you buy a car wash.
A few people have noticed the dropping oil prices:
Unfortunately, they seem totally focused on how this will hurt the bad guys, and completely unaware that maybe, just maybe, we could take advantage of the situation here at home. I guess that would require some knowledge of economics...and maybe the ability to analyze root causes.

Originally posted on my personal blog Dec 14.

Good News About the Recession

This morning, I paid $1.89 a gallon for gas. Just five months ago, I was paying $4.02. More than anything else the government is likely to do, this is effectively a tax cut for millions of Americans—and specifically, it is targeted at lower and middle income families that both political parties claim to want to help. Set aside all the arguments about “progressive” tax policy, free market versus regulation, and everyone paying their “fair share,” and this is a tax cut that benefits everyone—fairly.

A question worth asking, then, is what the government might do to keep prices low. It’s too late for John McCain to argue it, but before Congressional Democrats start talking about raising gas taxes (oops, too late), they might want to think about what this means for a slowing economy. Barak Obama might even want to argue it.

The unfortunate aspect of these falling prices is that they are the direct result of reduced demand, first sparked by consumers reaching their personal tipping point at $4.00 a gallon; then further cratered by the collapsing financial markets. When America sneezes, the world catches a cold, and it was worldwide demand, as much as the United States’, that was causing the record prices earlier in 2008. The specter of extended recession has the whole world hesitant to buy anything—and if goods aren’t purchased, they don’t need to be transported, nor raw materials hauled to the factory.

But, as the saying goes, there’s good news and bad news. Or, more specifically, there’s good news, great news, bad news, and then more good news.

The good news is actually the very fact that the original high prices were caused by increasing demand—demand from countries such as China and India. Never mind whether or how much to regulate free markets. The Communist Chinese government needs capitalism to employ and feed its billion people, and it isn’t exactly a laissez faire organization. Globalism and the market are here to stay.

The great news is that those same markets, once we begin to climb out of the recession, will eventually earn a standard of living that makes them not just producers for the developed world, but consumers, as well. No longer are the Vietnamese content to ride bicycles or motorcycles—they want cars. Now, in my best William Shatner voice, imagine, if you will, a billion Chinese and a billion Indians wanting cars. And computers. And airplanes. Detroit, are you listening?

The bad news is that before we get to the great news, there’s going to be a recession—maybe a pretty deep and pretty long one. That will be painful. But, it will also keep those oil prices down, which will ease the pain a little. It will also buy us time.

The good news about all this is that we now have a breather. In June 2008, when gas was topping $4.00, every politician worth his or her salt was talking about what we needed to “do” vis-à-vis energy. Offshore drilling will take 5 years—or 7, or 10, or whatever. Wind will take 3 years—or 10, when people discover they don’t really like those loud turbines in their backyard (or even spoiling the view off their shore). Nuclear will take 10 years—or 50. Solar has been on the edge for 20 years. We don’t even talk about fusion anymore. So, nothing we can do will help for at least a couple years. But, we now have a couple years, if the government will do the right thing.

In this case, doing the right thing doesn’t even cost anything. It just means encouraging, and voting to permit, all those plans we liked when gas was $4.00 a gallon. At this moment, we have two choices—celebrate that prices have fallen, pretend the problem is gone, and react in shock 2 or 3 years ago when China decides to buy oil again or…or get busy with that program that sounded so good just a few months ago. Get busy offering long term incentives to develop all those things that will either bring us energy independence or a carbon-neutral life, depending on your politics. It’s one of the few areas that “why” doesn’t even matter.

There are a lot of specific things government actually can do, effectively. For starters, it can decide what things are going to be fast-tracked through the regulatory process. Until 2012, that will be President Obama’s responsibility to push, but if he plays his cards even reasonably centrist, he’ll have huge bipartisan support. There are even a few things that government can actually help get done. Compressed natural gas is an interesting technology, but without a nationwide infrastructure of CNG stations, most people aren’t going to buy one. So, Detroit won’t make them. So, no one will build a CNG gas station. See the problem? That is the sort of thing government can help with, just as governments sponsored exploration 500 years ago, and pushed space technology 50 years ago. Governments can incentivize gas stations to offer CNG (yes, it’s a subsidy), can incentivize purchase of CNG vehicles (because the more that are purchased, the sooner the price comes down), and while we’re at it, maybe should even subsidize the on-board nav system with a database of every CNG station in the country. As a free-marketeer, government involvement causes me shivers, but if we truly believe this is a social good, there are ways to bootstrap adoption without picking winners and losers.

Electric cars? Hey, I love technology, but I’m not paying $5000 extra for a car that only goes 75 miles on a charge, won’t last beyond 100,000 miles without replacing $10,000 worth of batteries, and will save me $3000 over its expected life. I leave it to electric proponents to come up with a logical incentive plan for that—but I bet it isn’t that difficult. As a crazy suggestion, how about all government buildings have electric plug-ins right next to the handicapped spots (i.e. close to the door) and the juice is free? (Let’s be clear—the juice is actually bought by the taxpayer, but that’s the whole point of social policy). If the plug-in spots are all full, then put in more. As adoption becomes more widespread, then some of them require payment. (An incentive for the suckers who have to show up at 6:30 a.m.)

While we’re at it, both the electric and CNG ideas require a build-out plan. Governments love build-out plans. Just as Amtrak only has Acela trains in the northeast corridor, perhaps these (and maybe California?) are the areas best suited to CNG stations and plug-ins. Only when sales warrant do we extend the infrastructure to the rural west. (Note to rural west: you don’t really want to pay for CNG stations every 100 miles along Nevada’s Highway 50, do you? Check a map.)

These are just two ideas picked randomly from items in the news. There are many more. The key is that, collectively, we have an opportunity to get ahead of our energy problem, a problem we all say we want to solve. We can do this, not by subsidizing foolish activity, but by thinking through the second and third order effects of every incentive, examining where a market jump-start offers a high payoff, and then acting swiftly to provide the incentives and cut through the bureaucratic red tape.

If there was ever a time to make lemonade from lemons, this is it.

Originally posted on my personal blog Nov 12.

Tuesday, December 16, 2008

Now for Some Content

I keep finding these little ideas banging around in my head, and have finally decided I should scribble them down. Where better than a blog? I have no illusions that this blog will reach a huge audience--or for that matter, that anyone other than me will ever read it. But, I've been arguing at work the importance of "writing it down, so people will at least know what you were really thinking." Time to follow my own advice.

Note to anyone who does stumble across this page: it may not be pure blog etiquette, but I reserve the right to revise and extend my remarks.

Starting Somewhere

So, the first step in any new page is to post something and take a look...

Okay, I like the layout. The black background seems sleek, and too many web pages are way too busy. Now, for some content.