Thursday, September 22, 2016

The Make-Work Economy?

Is 99% of our economy just make-work?

I got to thinking the other day, which is always dangerous.   Economics has always been considered a "dark art" and not long ago many thought that the foundation of any economy was in farming and food production.   In a way it makes sense if you think about it.   Meeting our basic needs of food, clothing and shelter are really all that is essential to staying alive.   And quite frankly, we probably could shiver naked in the rain so long as we were well-fed.

But of course, very early in our human history (and animal history before that, if there is such a thing) - or more precisely, pre-history - some clever caveman figured out that farming and hunting was fine and all, but it would be a lot simpler to simply kill your neighbor and then take all the things he has worked so hard to acquire.

So self-defense (and the need to form tribes, villages, governments, and armies) quickly became a "necessity" of life.   So I suppose that you could say that food, clothing, and shelter - along with defense - are the core of any economy as these activities help preserve human life and civilization.

But what about all the other stuff?   Sure we need trucks and tractors and ships and whatnot to transport our food and so forth.  Communications equipment is needed to manage it all.   But how do things like movies and television - or twitter or casinos fit in?    Are these things that are little more than make-work in our economy?

In response to a previous posting about casinos and lottery tickets I received an e-mail from an economist who posited that there is "entertainment value" in lottery tickets as the purchaser finds some amusement in them worth a dollar.   And I suppose this is so, although the amusement level is worth about what you pay for it.  In other words, even gambling has a "value" in an economy as entertainment, even if it really doesn't create anything of real value.

We once again visited a Casino where a friend of a friend is a "high roller" and having to use up his "points" he invited us to a free buffet supper.  I could write for days about it.  For all the flashing lights and glitz and glamour, though, it was an unglamourous place - most of the patrons were decidedly middle and lower-middle-class people who were living on borrowed money and could ill-afford to gamble.   When I saw a 500+ pound man at the buffet (in a three-wheeled scooter) I lost my appetite.  It is really kind of a depressing place.

And by the way, these casinos have computerized the entire "comp" thing.  You use a credit card or special card for all your gambling and then acquire frequent gambler (gamer) points just like the airlines.  And just like the airlines, it is a game you literally can't win.   My friend even admits that he loses a lot of money at the casino, but today he goes less and less and he now realizes he really can't afford to just piss money away.

But again, one could argue there is an 'entertainment' value in all of this, but again, is this really accomplishing anything or just frittering away money for no apparent purpose?   A company that makes televisions takes parts and labor and manufactures a product worth more than the sum of its components.  It creates wealth through manufacturing - even if the end result (a television) really isn't very useful for food, clothing, shelter, or defense.   A casino, like twitter, just pisses money away on nothing whatsoever.

But this got me thinking (dangerous again) that maybe a lot of our human endeavors are merely make-work designed to keep us busy.  Or put more succinctly, once we have more and more free time, humans find more ways to fritter away their hours on pursuits which have little or no real value to the economy.

Much of this falls into the categories or "entertainment" or "hobbies" or whatever.   Enormous sums are spent on cars that serve no real purpose, motorcycles which are useful only for "recreational" driving, and boats that never are used to catch a fish, except perhaps as a hobby.   Are we just all running around keeping busy?

Despite the good financial news, some folks are still harping on "income inequality" - failing to realize our incomes in the US are the envy of most of the rest of the world.   It is "unfair" that a Billionaire is buying a new mega-yacht while the rest of us have to ride around in rowboats.   And after visiting a number of boatyards in New England lately, I've seen more than a few of these yachts which are beautiful but are far beyond my means (realistically).

On the other hand, each hand-made Hinckley represents a lot of jobs for the people who build and sell them, as well as jobs for those who maintain and repair them, not to mention those who run marinas and storage facilities, as well as shippers and boat-movers.   And let's not forget the crews who are often hired to run such boats or move them from one vacation resort to another.  You could make the argument that the rich person ordering this boat is using wealth to create jobs (here in the US), even if the end result is not really of much use to the economy.

And before you get all up-in-arms about how "unfair" it is that these rich people get to drive around in yachts, bear in mind that the guy who washes the boat spends more time on it than the owner, in most cases.   If you want to ride around in a yacht all day long, become a crew member or work in a marina.

So the income inequality argument doesn't come down people starving while others eat caviar (at least in this country) but whether some have a Sears Jon-boat while others have a Grand Banks.   It is the argument about "the other guy has nicer shit than I do."

If incomes were more equal, well, maybe we'd all have 16-foot runabouts and the rich guy would have to settle for a Sea Ray.  Either way, people are put to work making things out of fiberglass that serve no real useful function in our society.

I am not sure what the point of all this is, other than it seems that we tend to find things to do with our lives and things to make and sell and buy, once we are beyond the subsistence living level.   And this is a good thing, as in countries where getting an adequate caloric intake every day is a challenge are usually shitty places to live.   We like having our entertainments, our movies and sports and twitters and whatnot, even if they serve no other function than to amuse.  And oddly enough (or not so oddly) these often are the most expensive things in our economy.   You can go broke as a farmer - providing the bedrock foundation of any civilization.   But as a sports star or Hollywood actor, you can make millions of dollars.  And in terms of export, it seems that our entertainment products are eclipsing food, even though the world has more of an appetite for the latter.

I guess it gets down to who decides what make-work most of us do.   Do we have a centralized government telling people what to make and how to make it, as they did in Communist countries?   Workers there coined the phrase, "They pretend to pay us, and we pretend to work."  Or do we let our more anarchistic system determine what make-work jobs most of us will end up doing, based on the relative popularity of  various entertainments?

I guess that gets down to the real question.

P.S. - the problem with casinos is like any other commodity - supply and demand.   Trump went bankrupt in Atlantic City when his casinos (highly leveraged) were eclipsed by newer casinos located more closely to New York and Philadelphia.    Today, more and more casinos are being built, including some in the Catskills (which is bad news for Mohegan and Foxwood) and up to six or seven in Maryland.   Even my small "home town" in Central New York has a sad little casino in an old shopping mall.   Eventually, the market for gambling - like anything else - will be saturated and many will go out of business, after being hyped and often subsidized by local governments.

Also, they let you drink while you gamble, and boy-howdy do they provide the drinks (and no, I did not gamble.  I couldn't even figure out how to work the machines).   I wonder about the buffet, though.  Is there a connection between over-eating and gambling?   Does being stuffed full of prime rib and shrimp make you want to gamble?   I am sure the casino owners know for sure.

Also interesting, as on the cruise ships there are a lot of Chinese folks in the casinos, both as gamblers and employees.   Supposedly gambling is a cultural value in China where much weight is given to luck.  Or is that racist?   All I can say is, Sheldon Adelson seems to know where his market lies.

Monday, September 19, 2016

Are Russians trolling our election? Well, duh.

Are Russians trolling our election?   Well, duh.

I wrote before about Russian Troll Farms.   Russians, along with everyone else in the world, troll the Internet for fun and profit.  You will see videos on YouTube extolling how to cut bottles with string and lighter fluid.   A friend of mine tried this and it really doesn't work, and you have to ask yourself why you are cutting bottles in the first place.   The goal of these "how to" videos is to get clicks and ad revenue and also, as in one video, sell a commercial bottle cutter to the inevitably frustrated viewers.   What is funny is that there are a number of "copycat" videos out there as well - all vying for that tasty bit of click money.

But governments also troll the Internet trying to alter public opinion.  This is merely an extension of what governments did before the Internet.   We did it.  The Russians did it.  The Chinese, and so forth.   Read Normal Mailer's Harlot's Ghost sometime for an in-depth description of how the CIA and other agencies tried (and succeeded) to steer public opinion in many third-world countries, alter the outcomes of elections, or even install leaders of our choosing.   This is no State secret, either.

In the 1960's, kids rejected American consumerism and of course protested the war.  They did drugs, and of course our soldiers were often also high.   Was this just a spontaneous movement, or one guided by our opponents in the world?  Or was it a spontaneous movement that was aided, abetted and guided by outside forces?   You decide.   But it is no big State Secret again, that the North Vietnamese made sure our G.I.'s had ready access to recreational drugs all the time they were in Vietnam.   There is more than one way to win a war.

The Russians are at it again.  As I noted in my previous postings, we are seeing weird videos and comments and discussions online where people are touting the "superiority" of Russian technology over that of the West.  They are literally re-writing history.  Never mind that their space shuttle flew only once (and was empty of any cosmonauts at the time) while ours flew hundreds of missions.  Never mind that their naval fleet consists of one aircraft carrier and a host of unsafe rusty and abandoned submarines.   Russian tech is supreme!

Oh, and all those nasty accidents they have that kill their sailors?  Had to be interference by America - not merely incompetence by drunken sailors.  The Kursk was rammed by a US sub!

Putin is smart about this.  He realizes that at least for a while, if you win the propaganda war, you win the war.   It doesn't matter what reality is, only what people's perceptions of it are.  And for at least a while - often decades - you can skew people's perceptions until reality finally plays its ugly hand.   And that in short is how the Soviet Union stayed afloat as long as it did and why it eventually failed.  And taking a page from the CCCP handbook, Putin (who has been in office, in one form or another, for decades) is trying to "Make Russia Great Again!"

And helping him are Donald Trump and his allies.   Already his campaign manager had to quit when it was revealed his previous client was a Putin lackey from the Ukraine.   The Donald makes no secret of his admiration of Putin, who is a brutal dictator who murders his own people.   Oh, but of course, this is no different that what Obama does - or at least in the funhouse mirror world of Trump.   I am not sure, but I don't think Obama has poisoned anyone with Polonium lately.

Of course, you probably don't buy any of this crap and see through it as the propaganda it is.  That doesn't matter.  It isn't aimed at you.   It is aimed at an audience willing to believe such things - people who believe that America is "in peril" at a time when its economy is the strongest in the world and growing daily.  Our unemployment is at record lows.  Inflation is low as are interest rates.  Gas prices are shockingly low.  And the latest news from the Census bureau is that median income is rising and the poverty rate is going down.    Even the Sanders people have to admit things are doing pretty well.   Oh, and Obama just shut down one of the worst "for-profit" colleges in the country.

So, how do you win an election with stats like this?  The status quo looks pretty good to most Americans.   The answer is, of course, to convince people that reality isn't real and that an alternative reality is.   So we have this constant barrage of propaganda, with the baseline assumption being that our country is in trouble and we are in dire straits.

But where do the Russians come in?   Well, from their perspective, they got a raw deal with the Berlin wall fell.   Communism was overthrown, but in its place they got... well, more of the same unequal distribution of power and wealth.   The worst part, for their country, was that they no longer had influence in the world, and one by one their former satellite countries were being lured into NATO or the EU, surrounding Russia.   You can't blame them for being paranoid.  We are the 6000-lb gorilla now, and all they have as leverage is oil and gas reserves.

So from their perspective, any action which weakens America helps them.  A weaker America, a divided country, a divided Europe (hello Brexit? - the fellow behind that nightmare is also on the Trump team!) is helpful to the Russians - and the Chinese.   

We spend more on our military than the next 8-10 countries combined.  They can't catch up in terms of spending or in terms of technology (at least technology that works).   So they play the propaganda game instead.  That's why you'll see stories in the paper about how such-and-such defense project is over budget and doesn't work right.  You never hear stories about how effective our technology is, most of the time.   The perception they want to spread is that we are weak and misguided.   And it is a message that many folks believe.

So Trump praises Putin, because Putin wants him in the White House, knowing it would lead to an economic collapse, just as the Brexit vote did in the UK.    Similarly, they want to hype divisions among European countries (which isn't hard to do, as everyone hates France, right?).   Or fund separatist movements in Northern Ireland or in the Basque - and now Catalan - regions of Spain.  Divide and conquer, the oldest game in the book.

And perhaps that is one reason why we are so divisive today in America.   Again, you have to wonder whether this is one of those things that occurred organically that they are taking advantage of, or whether they "primed the pump" so to speak.  But candidates like Trump don't seemed too much interested in "bringing America together" but instead playing to our divisiveness and fears.

A divided America is a weak America.   And this cannot go unnoticed in Moscow or Beijing.  Our adversaries and competitors in the world see these things and do their best to cause them to fester and erupt.   It has always gone on - since the dawn of human civilization.  People playing others emotionally and psychologically in order to gain advantage.   It is just today, it is much easier to do, thanks to the Internet.

Friday, September 9, 2016

Starker-type deferred exchanges and Real Estate buying no-nos.

Buying a house is a big decision.  Deciding what house to buy based on the paint color is idiotic.

A reader noted in response to my previous posting that I could do a Starker-type deferred exchange on my condo and thus defer taxes.  This may be true, but I want to spend the money at this point in my life and get out of the Real Estate business for good.  So I will have to pay capital gains taxes.  I could structure the sale in installments or take back a mortgage and thus profit two ways (and take advantage of the installment provisions of the tax laws) but since it is slated to be bulldozed, those options may be limited.

I wrote about Starker-type exchanges before and how they work.  It is one of those "loopholes" you hear politicians railing about, but of course, no one wants to close it.    If you buy an investment property in Chicago and then decide to move to New York, you might want to sell the Chicago property and buy a similar property in New York.   Is this a "realization event" (see my posting on that) or merely transferring funds from point A to point B?   Mr. Starker seemed to think not, and thanks to his court case, the law has been changed to allow such transfers.

Your equity in the original property is transferred to the new one, tax-free.   There are rules and limits to this, of course - consult a tax adviser for details.   We did this back in the 2000's, selling a duplex and buying two condos in Florida.   The duplex had doubled in value during the crazy days of the 2000's and we bought the condos with the proceeds, transferring our basis in the property to those condos.

We then decided to sell one condo, after it doubled in value from its purchase price.  We had to pay tax on that.  The other we made our principal residence for three years and then sold it, tax-free, as you don't pay taxes on the sale of your principal residence.   Neat trick if you can swing it.

Others "roll over" gains to larger and larger properties and then leave them to their children, who get a "stepped-up basis" in the property (meaning their basis is the market value at the time of death of the parent) and thus get the property tax-free and once again the tax man is cheated.

Well, not cheated per se as it is the law - just a law that favors real estate investors.   Ah, the neat stuff you learn in law school - like how the rich get richer.

But why is a personal residence not taxed?  Again, we covered this before - you don't really make money on the house you live in, it generally appreciates at a rate equal to inflation.  And when you factor in how much you spent on the house to maintain it, well, it is a zero-sum game at best.   You might get a big paycheck at the end, but it is equal to all the money you spent over the years on the house - in most cases.  Again, see my posting on that subject.   So the law recognizes this and doesn't tax personal residences.

But you can convert a rental property you own into your personal residence and then (if you live there for three years or so) not pay taxes on the sale.   Pretty odd law.   But it illustrates how laws - like Obamacare - can be oddly crafted to produce unintended results.

Three recent events in my life occurred which made me think about home buying.  First was an article the Chicago Tribune (I think) saying that mini-mansions are hard to sell these days.   Some guy bought one in 2005 for 2.5 million and had to take a $600,000 loss on it (which is NOT deductible!) in order to sell it.  The styles of the 2000's and colors are not as salable today and new home can be bought for less.

The second thing was I found the first season of Glee! at a garage sale for $1 and was watching it.  The part about "Sheets and Things" (where Mark worked briefly) was spot-on, as was the scene where the young couple is looking to buy a house - more concerned about features and appearances than real value of the home.

The third thing was my Brother-in-Law telling me about showing houses to a millenial couple.   They turned down solid houses at decent prices because they didn't like the color of the interior paint which of course is idiotic.

It got me to thinking though, that a lot of people make huge mistakes in home buying based on appearances and other superficial things and end up broke as a result.  A former secretary of mine turned away free-standing houses that were a good value to buy a "brand new" townhome that ended up being a PEX plumbing nightmare (as well as roofing problem) that resulted in a lawsuit against the builder.   Like the lady in Glee! she said she didn't want to buy a "used home" - as if houses were the same as cars.

Paint can be changed.  So can appliances and cabinets - once they wear out after 10-15 years.   But many people choose a home based on the color of the walls, the type of cabinets and flooring, and the appliances.   It is pretty stupid.   When we bought our last house (in every sense of the word) it came with white appliances and Corian countertops.   Maybe not my first choice, but it was all brand-new.   Rather than ripping it out for granite and stainless steel, we decided to live with it, and frankly, it works very well.

In our former vacation home (see my posting about the kitchen "remodel") we were faced with the same problem - black appliances and drab walls.   New hammered knobs on the cabinets, hardwood flooring, and a color change made the place look like a new kitchen for very little money.

What is really important about a house is not the color of the walls or the types of appliances or other superficial things but its cost, location, and structural soundness, pretty much in that order.

Real estate agents like to tout "location, location, location!" and that is a very important factor to be sure.  But the cost of the home, in terms of its affordability to your budget and whether it is overpriced for the market is far more important.   Cost is the one term never mentioned by agents or by other types of "review" sites.  But it is the factor we all consider in every purchase we make, first.   For example, a car site may say that a Toyota is a better car than a Nissan, and that may be true.  But the Toyota is more expensive and the Nissan dealer is offering discounts.   Price is a huge factor.  I bought the Nissan.

People who want the "perfect" house with the sun nook and the colors and cabinets and appliances they like may end up paying far too much and end up "house poor" or upside-down on a house and unable to sell it later on, without taking a huge loss or declaring bankruptcy and walking away from the mortgage.  It happened in 2009 and it will happen again.   In fact, the episode of Glee! mentions this, with Will arguing that so many houses on their street are in foreclosure and are good bargains.   Again, his wife responds with "I don't want a used house for our children".   An idiotic statement, but people make it in real life.

Location is a close second and closely related to pricing.   If you buy a house in an inconvenient location or a bad neighborhood, you will end up unhappy and perhaps broke.    Buying a cheap house in a crime-ridden neighborhood with poor schools, so you can have money left over to buy consumer products is an idiotic choice - but a choice millions of people make - installing alarms and fences and getting dogs to protect their "stuff".

A good location holds its value, and a location with good schools appreciates in value.   A location that is personally inconvenient (long commutes in rush hour) will end up being costly and make you unhappy.   If it is in an area that is a long commute for everybody then it will not appreciate but in fact, depreciate in value.  We saw this in the DC area where people moved further and further out to the cornfields, only to realize that no one wanted to buy a 2-hour one-way commute every day.

Structure is the third factor in the equation and one that can be costly to repair.   Shaky foundations, leaky roofs, rotting sill plates and backed-up plumbing can be expensive to fix and make a property hard to sell.  Young buyers are wow'ed by modern color choices and trendy kitchens and baths, but may overlook a serious structural issue that will make the house impossible to sell once trends change and the house is "dated" looking.   A good home inspection is key here - and you should pay more attention to that than to color choices or carpet types.

Sadly, most people are awed by superficial things and not by substantial things.   We like the flash and sizzle which is promoted on the television shows.   So many of these "improvement" and "buy and flip" shows concentrate on that and not on the real meat-and-potatoes issues.  I saw one recently while in a Hotel room, and the guy was "flipping" a house next to a junkyard by putting in trendy countertops and appliances, and a big fence between the house and the junkyard.   Granite countertops or not, a house next to a junkyard is not a good investment.  I felt bad for the buyers.

Rooms can be painted.  It isn't hard to do and needs to be done every few years or so (our house is about ready for every room to be repainted).    Appliances and cabinets last maybe 15 years.  If you are more concerned about impressing your friends and neighbors with your "designer kitchen" than with having a positive bank balance, you are headed for trouble.   And let me be clear about this - your friends and neighbors aren't going to give a shit about your designer kitchen for the simple reason that they won't spend much time there, if ever.   I've seen people blow tons of money on "look at me!" kitchens and baths, only to live lonely, impoverished lives, without even the satisfaction of intimidating their friends.

It is interesting about so-called Millennials, though.  Raised in the mini-mansion era, they probably expect that a "normal" house should have all sorts of look-at-me features.  Indeed, one of the largest growth areas in construction is in luxury student housing which makes no sense at all to me.   When I was a student, the term "student housing" meant run-down and roach-infested tenements which were overpriced but close to campus.  We sacrificed because we were getting an education.   A generation raised in McMansions perhaps has different standards.

But perhaps there is hope.  There are signs that the average size of new homes is shrinking somewhat or at least staying static.   The reasons are multiple - no one can afford huge houses anymore for starters.   No one wants to pay the property taxes on a monster house (which can exceed $10,000 a year in some jurisdictions).  No one wants to pay the utilities on a monster house or have to clean it or pay to have it cleaned.   Less is more, as I have learned.  And being a slave to a possession, including a house, makes no sense at all.

Wednesday, September 7, 2016

The Strange Mathematics of Early Retirement and Obamacare

How does Obamacare work for those who are forced into early retirement?

I wrote about early retirement and Obamacare and how it might make early retirement easier for some retirees.   This assumes, however, the retiree qualifies for Obamacare, of course, and that their income won't take them outside of the tax credit subsidy limits.

I met a fellow the other day and had an interesting conversation about early retirement.  Like most people, he had early retirement thrust upon him rather than planned out.  He worked for years at the mill at a Union job, but saw the writing on the wall.  When the layoffs came, he had paid off his house and cars and had no debt.   Good for him.  Smart move.   Others at the mill weren't so smart and found themselves on the street with a mountain of debt and no way to make money.

He made sure his kids learned skills rather than relying on union jobs at the mill.  One is an electrician and the other a journeyman plumber.   Good for them.  Smart move.  They both have jobs and careers and skills that are in demand.   Dad, however, is scraping by on part-time jobs, as no one wants to hire a 50-something former union employee these days.   It is tough.

His largest expense is health insurance - about $850 a month on his wife's policy at her place of work (the local school).   It is a pretty staggering amount and sure to go up before he reaches age 65 and can qualify for medicare.  He claims that he can't qualify for Obamacare as he is covered by his wife's policy.  I am not sure if that is true or not.  If so, it is grossly unfair as we shall see below.   He is paying a lot of money for insurance and not getting the subsidy.

Speaking of which, why is health insurance so expensive and who is making all the money?  Many folks think (wrongly) that the insurance companies are raking it in.   If so, they are doing a good job of hiding it.  My stock in Anthem (Blue Cross) has dropped by over 20% since I bought it and the stock pays a paltry 2% dividend.   Other insurers don't seem to be doing much better - my agent who is on the board of Humana claims they will ask for a 20% rate increase just to remain solvent.   Other companies are withdrawing from the market as it is unprofitable.

Where is all the money going?   Well, with no checks and balances on pricing, I think a lot goes to drug companies.   One reason you read these articles about "obscene" pricing on drugs like the Epipen is that since insurance is paying for it, no one in the loop "cares" about the pricing.   A "generic" pen is offered to the few people who actually have to pay out of pocket.

The other aspect of health insurance is supply and demand and the market.   Think about it for a minute - how much would you pay to live for another decade, or even a year, a month, a week, or even a minute.   Odds are, you'd say, "whatever money I have" because once you are dead you won't need money, and the will to live is strong.   Medicine - when it works as advertised - is the ultimate "must have" product when it comes to the supply/demand curve.   And even in countries with socialized medicine we see this, as the supply of medical care often dries up in response to demand and the lack of incentive to provide supply.

And medical care can be costly and the results amazing.  Today there are routine procedures that can extend your life by decades - procedures that were "hail Mary" experimental treatments with little prospect for success, only a few years back.  Multi-bypass and other heart operations are quite routine now, as are things like bone marrow transplants.   Routine, but staggeringly expensive.

And then there are things that make the quality of life much better in the declining years.  Hip and knee replacements can change your life completely and add another decade or two of active living.  They aren't cheap, however.   And when they go wrong, well, they can be a nightmare.   Modern medicine can do so many marvelous things, but at a staggering cost - a cost we are all willing to pay if it makes us live longer or live happier.   We'd prefer, however, that someone else pick up the tab.

But regardless of who is making all the money, the bottom line is, health care is freaking expensive.   My friend has to pay out of pocket and can deduct the cost from his taxes.   I can take a tax credit for Obamacare so long as I don't make more than $60,000 a year or so (actually closer to $62,999).   In fact, the staggering cost ($1098 per month) pretty much wipes out my entire Federal tax burden for the year.  So instead of paying Uncle Sam, I now pay Blue Cross.  No word yet on how Uncle Sam intends to fund his budget without my contribution.

My friend who is on his wife's plan can only deduct his premiums, which means if he is in the 25% bracket, he might save 25% of the cost of the premiums off his taxes, while I get a huge tax credit (equal to about 75% of premiums) instead.

This incentivizes me not to make more than $60,000 a year and this raises some interesting issues.   

For example, if I can stay under $60,000 per year, I can get this great tax credit and early retirement is no big deal.  But if my income drops below about $21,000 a year (the so-called poverty line) I would no longer qualify for Obamacare, but would instead have to go on Medicaid - medical care for the poor.

Now this may seem like an unlikely scenario, but it is quite likely.   Since I cannot tap into the IRA/401(k) money until age 59.5 (without a 10% tax penalty) then I must rely on after-tax savings I have accumulated over the years.   Since this money was already taxed, I pay no taxes on it, other than capital gains.   If I have no capital gains, or not much in the way of capital gains, I might end up with an effective income of under $21,000 a year, even if I am spending $50,000 a year or more.

So this means I either have to invent some income to declare to qualify for Obamacare, or take money from my IRA and pay the tax penalty to qualify.  Either way, it gets kind of awkward.

My friend hopes to get a job at the school so he can get on their policy, which would cost only $50 a month as an employee (as opposed to a spouse).  In the meantime, he is handy with tools and can fix his own cars, so he can get by on occasional odd jobs and not have to worry about making a lot of money.   It is just that $850 a month hole in his budget that is really killing him.  Fortunately, he was smart enough to make sure he was debt-free by age 55 so at least he has no mortgage or car payments to deal with.   Others are not so lucky or smart.

Another scenario that troubles me is if we sell our Condo, which is slated to be demolished.   We would be paid about $160,000 for the unit, which would be all capital gains, since the unit is completely depreciated.   As a result, not only would this cause me to pay capital gains tax on the entire amount, but also it would knock me out of the Obamacare subsidy limit, meaning that the entire cost per year for insurance ($13,000 or so) would be borne by me, with no tax credit (although I suppose I could claim a tax deduction?  I need to call an accountant!).    It would be nice if they could pay me in nice $55,000 installments over three years or something.  That would keep me under the Obamacare subsidy limit.

All of of this is new territory as the law is fairly new.   People have been trained over the years how to deal with taxation of social security and how to qualify for medicaid in nursing home care.   Over time, people figure out how to work around the law to minimize their tax burdens.  But the Obamacare system needs some adjustments as it does create some unintended consequences.   The first problem is the staggering cost and figuring out why it is so staggering.  Where is all the money going?  The second problem is to adjust the tax credit system so it doesn't cut off at $62,999 or force you into medicaid at under $21,000.  There are plenty of people who have low declared incomes but can "afford" the premiums of health care, since they are living off of savings.

None of the politicians talk about this of course.  And few citizens understand any of it.  Most folks don't understand the difference between a tax credit and a tax deduction.  Many think even today that you can make money on tax deductions, in fact.  So when you start talking about marginal rates and stuff, well, you lose them pretty quickly.

Of course, one alternative is to go back to work.  The problem is, for many of us this isn't an option.  No on is hiring old people, or at least not hiring them full-time with health insurance benefits.   In fact, few people are hiring anyone with these sorts of "gold plated" benefits anymore.   That is an other unintended consequence of the new health insurance law - if you hire someone full-time, you have to provide health insurance.  So it incentivizes companies to hire part-time labor instead.

I am not saying the system is wrecked or anything, only that the math is, well, somewhat odd.  My friend is doing OK in life - he has a paid-for house and cars, and his wife makes enough such that with his part-time work they can put food on the table.  Their kids are doing well and have good paying jobs.  It is just that they never envisioned that health insurance would be their largest expense in life.

Similarly for me, it is the queer math that is troubling - a system that incentivizes me to make not too much and not too little money, and penalizes folks who strive to rise above a median income.   It also makes figuring out early retirement nearly damn impossible.

Thursday, August 25, 2016

Is China "taking all our jobs"?

Assembly of a car in the 1970's took twice as many people as it does today, even though cars today are far more complex.  Are the Chinese "taking our jobs away" or are we losing them to automation?

Watching the video above, I was amazed how many people worked at union plants back in the 1970's, many of them sort of just standing around.   It is the way I remembered it during my days at GM.   Just the painting scenes give pause, as about a half-dozen workers are involved in painting each car, even with some primitive automated painting systems in place.

Today, cars are painted robotically using a number of robots but very few actual workers.  The end result is not just a better paintjob, but a car that lasts far longer and rusts less.  Also, less paint is wasted to the atmosphere, improving plant emissions.

American factories today look like ghost towns compared to the past.   Fewer people are needed to assemble cars than in the past - less than half as many.

So, where did the jobs go?   Well, there are still jobs to be had, of course, assembling cars.  But the wages aren't what they used to be.   Foreign car makers - nearly all of them - have factories in the US, but pay non-union wages.   Nissan pays as little as $15.50 an hour in Mississippi for part-time labor.   Before you howl in anger, bear in mind that is about $31,000 a year annualized, and that's a pretty damn good wage in Mississippi these days.

It is, of course, what we were paying UAW workers at GM back in 1978 when I worked there.

The reality is, the idea you could graduate from high school and then go down to the factory and get a "good paying job" and then be set for life is no longer the case.   And in  fact, that sort of lifestyle was present only for a brief blip in our nation's history.

Unions, using extortion, were able to blackmail companies into paying wages that were anywhere from 3X to 10X the local labor rates for unskilled labor.   And by padding the payroll with excess workers, they raked in millions in union dues and pension funds.   It was organized crime basically, and this is the "good old days" that some folks want to go back to.   Crappy overpriced goods were the only choice for most Americans back in the "good old days" where buying a television set was a big a deal as buying a car - and often cost as much.

Think carefully before you pine for the good old days.

And those union jobs were not for everyone, either.   In most cases, you had to have a friend, a relative, or some other connection down at the Union Hall in order to get a cushy union job.   If you had no connections, well then, go fuck yourself.

Still pining for the "good old days"?

There is a lot of ink spilled about the "disappearing American Middle Class" and maybe to some extent this is true.  Then again, a lot of this hand-wringing is based on our definition of "Middle Class" which has been distorted lately.   If you drive through America, you still see our cities ringed with hundreds of miles of suburbs, all nice houses which apparently someone is buying as they are building even more of them as we speak.

The problem is, I think, we define "middle class" in terms of a median between the very rich and the very poor, and there are a helluva lot more very rich these days, or at least the very rich have a helluva lot more, or at least according to some people, they do.   This tends to skew our perception of what "middle class" means.

Most Americans, I think, would define "Middle Class" as having a nice 4-bedroom house with a two-car garage, at least 3-4 cars in the driveway, a smart phone for every member of the family, all the cable channels, and of course, the vaunted six-figure income.   And there are a lot of folks out there who are living this lifestyle, along with a mountain of debt, and then wondering "where it all went" and then blaming the politicians for their woes.

Simply stated, we live a better lifestyle today than in the past.   A "poor person" today arguably has a better lifestyle or at least better crap than a middle-class person did back in the day.   My Father bought his first color television in 1975 - long after my "poor" friends had them (color television was largely the norm by the mid-1960's).   Today, even folks in the ghetto have a nicer flat-screen television than my parents could have dreamed of in the 1970's.

The man at the Trump rally holding the sign saying "Make America Great Again!" and whining about how awful he has things likely drove there in a $50,000+ pickup truck that seats six people.   Irony is lost on these folks.

Did his job go to China though?   Maybe, maybe not.   Automation took a lot of these brain-dead jobs away long ago.   Unionism took away the rest of them.   Companies forced to spend all of their capital on wages cannot compete long in the marketplace before failing.   And that is what happened to a lot of those old-line companies.

And factories are not forever, either.   Drive through New England and you will see thousands of old factories dating back to the 1800's, now converted to lofts or offices for high-tech firms.   The idea that you can bring back the old looms and water-wheels of that era is, of course, laughable.   Their time in the sun came - and went.   And that is a natural part of business.

The idea that we can "go back" to an earlier era is not only flawed, but dangerous.    We cannot simply revert to earlier times and values - it is impossible to do.   But even if we could, it would not be desirable to do so.   What the "Make America Great" again folks fail to remember is the stag-flation and failing economy of the 1970's and 1980's (yes, even during the Reagan wonder years).   And part of this problem was that union workers were holding American industry hostage.

It is a populist message, to be sure - and it is telling people what they want to hear.  And what a young white man with no more than a high school education wants to hear is that high-paying jobs are his for the asking and that unskilled labor has a high value in the marketplace.    The fact that he has no marketable skills or much economic value is not a message any politician wants to make.

So we blame the Chinese and the Muslims, and whoever "other" is a convenient whipping boy today.

But the reality is, there are a lot of high-paying jobs in this country  - or even just decent-paying jobs - going unfilled for lack of qualified candidates.   Maybe learning a skill is a better option than waiting for a political overhaul and a return to yesteryear that will never happen.

* * *

NOTE:  Some will be quick to point out that "skilled" jobs such as IT related jobs are being outsourced to India.  I would disagree that managing a bunch of PCs and servers is a "skilled job" and moreover, when you make a shitty product and charge too much, you encourage your customer (or bosses) to automate and outsource.    Consider the "IT professional" at your office.  A slovenly lad who spends all day long on Reddit or playing computer games, who uses his limited powers and knowledge to leverage himself into a position of indispensability to the company.   As with the union assembly-line worker, they are not being "outsourced" so much as they gave their jobs away.

Monday, August 22, 2016

Mental Health, Prosperity and Urban Legends

People who are losers in life tend to spend a lot of time and energy on conspiracy theories, urban legends, and belief - at the expense of reasoning, rationality, and analysis.  As a result, they tend to be unhappy people who fall down the economic ladder.

In an earlier posting, I noted that "Mental Hygiene is like Physical Hygiene - you have to work at it!"  And by this I meant that it is possible to drive yourself crazy by indulging in weak thinking.  Of course, this becomes one of those correlation/causation issues.   Does believing in crazy bullshit make you crazy, or does being crazy make you believe in crazy bullshit?

I think it is a matter of both answers being right.   Full-on batshit crazy people will believe in and propagate conspiracy theories, such as this poor fellow who killed himself last week after writing a dozen tomes attacking the Clintons, denying the holocaust, and claiming 9-11 was an inside job.   Clearly he was an unhappy person, but was that what drove him to far-right hate-speech, or did indulging in such theories drive him to be unhappy?   You decide.

But on a more mundane day-to-day level for the rest of us, I think the tendency to want to indulge in weak thinking can indeed drive you a bit batty and also cause you to fall down the economic ladder.

The other day, a friend of mine told me this story, which is a hoary old Urban Legend that has been long debunked on Snopes:
"A couple of guys from New York City came up here once to go deer hunting.  Those city folks are so dumb that they shot what they thought was a deer and then tied it to the fender of their car.   Only later on when they were stopped by the game warden did they find out they had show a farmer's cow!  Haw-haw!" 
I smiled nicely and changed the subject.  Did my friend really believe this story or was he just baiting me?  After all, it is so easy to debunk.   Even if you are a "city slicker" you no doubt saw the movie Bambi and know what a deer looks like.  Even in the suburbs, you see deer.  They are quite common.   You may have seen pictures of one in a book.   It is hard to imagine someone not knowing what a deer looks like, and yet at the same time wanting to go hunting.

Moreover, of course, a cow can weigh hundreds of pounds - over 1,000 in some instances - and it would be hard to lift or carry a dead cow without a crane or forklift.   And people stopped strapping deer to the hood of their cars years ago (now that we all drive pickup trucks).   And a cow would crush the fender of a modern car - and obscure all forward vision as well.   The story is more than improbable - it is impossible.

But the telling of the story is telling.   What the real message is, is one of lack of empowerment.   Those "city folks" with their six-figure salaries, fancy foreign cars, and expensive loafers are not smarter than us "country folks" but rather just plain idiots.   It is a way for people who are unempowered to feel better about themselves by running down folks who clearly are more successful than they are.   Those city folks may have lots of money, but when the economy breaks down, we country boys will survive by hunting deer!  Yesirree!

I guess it is harmless fun and a way of mentally making yourself feel better about your station in life.  Maybe so, but it also is harmful in that it allows you to indulge in weak thinking.   When you posit that your disadvantages in life are actually advantages then there is little reason to change your station in life, is there?

When I was younger and poorer and working as a technician, I engaged in such thinking - as did many of my peers.   Folks who made money, did well, got an education, got good jobs, well, they were "sell outs to the man" or whatever.   Not only was being poor and stoned all the time not so bad, it was actually better as we were morally superior to richer folks for some obscure reason I can't remember right now.

The irony is, of course, that the real stories about deer hunting mostly paint the "redneck" in a bad light, and that is mostly because "city slickers" have little interest in leaving the city to go shoot deer.  On our little island, some local fellows decided to go hunting, but failed to shoot any cows:
On 01/08/2013 at about 11:00pm, the State Patrol received a call about shots fired at the soccer complex on Jekyll Island and sent a Trooper to investigate. The trooper saw a vehicle in the area driving erratically. When he stopped the truck he immediately noticed several dead deer in the back of the truck. He then called RFC John Evans and Sgt. Chris Hodge to the scene to investigate the incident. After the investigation the driver and passenger were charged with hunting deer at night, hunting from a vehicle, and hunting from a public road. The driver was also charged by the trooper for driving on a suspended license and driving under the influence. The passenger was a convicted felon and was charged with possession of a firearm by a convicted felon. Both suspects were taken and booked into the Glynn County detention center. They had killed a total of 5 deer. The deer were turned over to a local processor who was willing to come out and clean them and then turn the meat over to a local food bank.
Sadly for these "country boys" hunting is not allowed in a State Park, and certainly taking five deer is more than the limit.  Unfortunately, this is not the only such incident to occur on our island. 

But getting back to urban legends and conspiracy theories, are they really harmful to your mental health?  Well, yes, they are.  I think once you go down the rabbit-hole of weak thinking and indulge in more and more in belief and not reason, the world becomes distorted.   Since your world-view is constantly skewed with regard to the real-world, you tend to indulge in more and more bizarre beliefs in order to square things up.  The reason the Federal Reserve is controlling your life is, well, Aliens, right?

It may start out as a simple urban legend, or even some religious belief, but it can quickly devolve into some sort of scary world conspiracy in short order.   After all, if one urban legend conflicts with reality, the only plausible explanation is that some even greater conspiracy is afoot to suppress the truth.

And I think this is how conspiracy nutters end up where they do - encompassing everything from Holocaust denial to aliens in area 51 to whatever, into one grand "Illuminati" scheme of one sort or another.  If someone points out the flaws in your thinking, well, they must be part of the conspiracy, too!

(And to all you conspiracy nutters, as I have freely admitted before, I am part of the conspiracy as well - the Illuminati, the inside circle, and so forth.  Buhaawahaha!)

Of course, that brings the question:  If there is some sort of "insider" Illuminati who are running everything and whatnot, why not simply join them and share in the riches of this grand scheme?   Well, it is possible to do so, of course, simply by engaging in real society.   You see, if there is an "secret inside" cabal of people running the world, it really isn't all that secret.  All you have to do to join is to get an education, get a good job, work hard, and put away some money.  Bingo!  You're in the Illuminati!

And it is a very egalitarian system, too.  Anyone can join, but how far you advance is based on your native intelligence and how hard you are willing to work.   Step 1 to membership is just denouncing conspiracy theories, weak thinking, urban legends, belief and other nonsense and instead engage in rationality, clear thinking and believing in yourself.

But you see how this works to the paranoid conspiracy theorist.   Since they refuse to engage in rational society, they feel they are being "excluded" by an inside cabal when in fact they are simply excluding themselves from society in general.

But beyond whack-job conspiracy theorists, the same theory also applies.  If you are protesting for Bernie and think that your student loans should be "forgiven" or that college should be free, maybe you are not living in a rational, real world.   Not only are these things not likely to happen, they aren't going to improve your lot in life.   If you let your student loans go into default, it will seriously harm your financial record, make it hard to get a job or an apartment or anything you may want out of life.   Blaming your student loans on someone else might make you feel good (just as the hunter/cow story makes folks feel better about themselves) but it does little to make your own life really better.   In fact, it makes it far worse.

Or if you think electing Trump is going to get you a good paying job when they "throw out all those Mexicans and Arabs" maybe you need to think again, unless you think a job as a day-laborer or landscaper is a "good paying job".   And all those tech jobs are not going to come your way without a tech degree.  Companies hire H8 visa techs simply because not enough Americans want to bother getting the proper education to take such jobs.   Xenophobia isn't going to get you a six-figure job.   And when Donald Trump collapses the economy, well what job you have today will likely go away.

And so on down the line.  Indulging in weak thinking rarely amounts to much.

Trade and Technology

Can Elon Musk change the way the world does business?

The rise of the British Empire can be traced to free trade.  Well, free trade for the British Empire, anyway.   They used a clever system to grow opium in India, then trade it with China in exchange for trade goods, and more importantly, silver, to fill their coffers in London.   It is no coincidence that the British currency is known as a "pound sterling" as it was based on silver.

Prior to that time, the situation was reversed - British traders bought goods in China, paying in silver, while the Chinese failed to buy any foreign goods.   By altering the trade balance, the British altered the flow of wealth from outward to inward.

So long as that trade pattern continued, the British Empire remained an empire.  But eventually China became tired of playing this game - seeing its people turned into drug addicts and its coffers emptied.   And in a post-war era, new trade patterns emerged, and the UK became a debtor nation.   When trade patterns change, fortunes are made and lost.

Today we do business with some pretty odious people in the world, just to get oil to run our economy.   We are dependent on oil for almost everything, or so we think.   A lot of people are starting to wonder whether this is really true.   There are reports that Israel is trying to get to an oil-free economy or at least an economy less dependent on oil, as they must trade with hated neighbors (who hate them as well) in order to obtain this needed energy resource (recent discoveries of natural gas and the collapse of an electric car company seem to have put these plans on hold, however).

For years, people talked about solar and wind power as an alternative to an oil-based economy, and for years, this was largely a fantasy.  Solar panels were so expensive and cumbersome that they didn't make economic sense.  The same was true for wind power.  And since both depended on the weather to operate, they were not a complete answer for our energy needs.

Similarly, electric cars were mostly in the realm of hobbyists or experimenters or as show cars trotted out by the car companies to show their environmental credentials.   Reliant on lead-acid batteries, they were slow and had limited range.

But that has changed, and a lot more may change soon.  Lithium-Ion batteries have largely solved the problem of energy density, and as a result the range and power issues with electric cars.  Solar panels are now more efficient and cheaper, although not quite on a par with other energy sources.  For a while, with tax breaks and with the utility companies buying back solar power from homeowners at retail rates, they actually made a profit.   But tax breaks can expire and more and more States are dropping requirements that utility companies buy back solar power at retail rates (which makes sense, if you think about it) but instead at wholesale rates, which they pay for other energy sources.

But, suppose you could take the power company out of the equation?   Besides the oil companies and Arab oil States, the local utility companies are probably most hated by the average consumer.   Since we are dependent on electricity, we have to buy it from them, at standardized rates that guarantee them a profit.   Since their profit is guaranteed, they have little incentive to be efficient or cheap.  They have us over a barrel, just like the oil producers.

Musk's plan is simple:  Provide solar panels to consumers combined with home-based "energy banks" of Lithium-Ion (or even more advanced technology) batteries so that a homeowner could basically own his own utility company.   During the day, the power bank charges and at night it can be used to charge up your car or run home appliances.   Since you are not selling back excess power to the utility company, you are, in effect, getting "retail" value for your Kilowatt-hours.

Could it work?  Sure, from a technical standpoint, there is nothing blocking the way.  No new breakthrough in technology is required.   It simply is a matter of cost.   And that is the sticking point.  We live today in an era of cheap oil, and perhaps not by coincidence.   As I noted in another posting, the biggest enemy to the electric car or the hybrid car is cheap gas.   And if everyone goes to electric or hybrid cars, the cost of gas will drop as demand drops.    And as demand drops and prices drop, the economic value of electric or hybrid cars drops, creating a vicious circle.    Theoretically, electric cars will never be viable as a result, unless the world actually and truly runs out of oil.

And that may be a problem for Musk as well.   His energy system should work, but how many people can afford to buy it?  Solar City, which he recently acquired, leased panels to home owners and then reaped benefits from the energy sold back to utility companies at retail rates.   Once the utility commission re-set these rates, the entire business model was no longer viable.    A home-based energy bank may be a solution, but a costly one for most homeowners.   Even if sold on installments or leased, the cost may rival or exceed the monthly cost of a standard utility bill from the electric company.   Consumers may be simply trading one form of monthly payment for another.

There is also the issue of maintenance and repair of such a complicated system.   Granted, homeowners today typically own a fairly complicated HVAC system, hot water system, refrigerators, and other appliances.  Some even go nuts with hydronic heating and wood furnaces and whatnot, which require miles of piping, pumps, and controllers.  Arguably, a home energy system like Musk proposes might not be much more complicated and in fact may be simpler - merely a plug-and-play black box (albeit a large one) that is simply set in the garage or basement (or even outdoors in a weathertight enclosure).

Complexity and cost is one reason I haven't made the switch to solar.  I looked into buying a solar hot water heater, as hot water is one large part of our energy bill.  However, the number of pumps and controllers involved, plus the plumbing and panel (and drilling holes in the roof) made me pause.  The staggering cost didn't seem justifiable over time.   Finally, the prospect of a tree limb from the decaying pine trees surrounding my house shattering the expensive solar panel sealed the deal.  It just didn't make economic sense to me.

Similarly, putting solar electric panels on the roof might be problematic for me in terms of amount of light available and tree limb damage.   Solar power promises to be a boon for people in new developments in the suburbs who have large roofs and clear Southern views.   It will be less useful to city dwellers, condo or townhouse dwellers, or people who live in matured, treed neighborhoods.

Still, it is exciting technology, and I for one would like to see it work.   Sadly, there are people out there who not only think it won't work, but will go out of their way to insure it doesn't.

I wrote before about NEV - neighborhood electric vehicles.  I concluded that even though they are legal on our little island, they make no economic sense - for the price involved, I can drive my existing car an additional 1200 miles a year that the typical NEV travels.   But since I wrote that posting, the State of Georgia put the nail in the coffin of NEVs by adding a $200 registration fee.   They argued that since "electric cars" don't pay road taxes, they were getting a "free ride" on the backs of gas-burning cars.   Maybe this is true for a standard electric car, but these little golf-cart like NEVs hardly travel more than a thousand miles a year, and they hardly "wear" on the roadways.

However, like with anything else, there is a loophole.  We are still allowed to drive modified golf carts - and even NEVs  - on our island, and avoid paying the fee provided you don't bother to register them as motor vehicles.   I am sure the oil lobby will close that loophole soon enough.

Like I said, it would be neat if the technology worked.   But by "worked" I mean to the point where the decision to buy an electric car is a no-brainer - that the cost is so much lower than a gas-burning car that only a fool would pay extra to burn gas.  Sadly, that might not happen in my lifetime, but we are getting closer than ever before - almost every major automaker today has an electric car in their showrooms right now, for you to buy if you want one.  This is a far cry from days gone by when electric cars for largely for experimenters, hobbyists, and kooks.

But an argument could be made, and a sound one, that subsidies for solar panels and electric cars might be a good thing.   If our demand for oil was substantially or even marginally curtailed through the use of electric cars and solar panels, our reliance on oil from odious sources (those damn Canadians!) would decline.  Like with the British and their trade with China, we could reverse the flow of money or at least attenuate it somewhat.   More importantly, we would not have to intervene in Middle East politics as we frankly would no longer care about their internal matters.

So good luck, Mr. Musk.  You might end up changing the world.

Election 2016 - Emotional Thinking versus Rational Thinking

Our political system today isn't divided into Republicans versus Democrats, or Liberals versus Conservatives, but rather emotional thinkers versus rational thinkers.   Sadly, the latter are in short supply.  Pictured here, a tea party rally.

In Quebec it is interesting to hear how French Canadians view the election in the US.  Given all the press Donald Trump gets (and he gets a lot of press, but it seems that as of a month ago, the press "turned" on him and the love-fest is over) many Canadians assume he will win the election and that all Americans are infatuated with the Donald.

This reflects a nightmare most of the rest of the world has.   America by accident or design, is the only world superpower.   We spend more on our military than the next ten largest countries combined (or eight, depending on which source you cite).   We have fleets of aircraft carriers, while Russia has one, China is trying to finish its first (a rusty Russian hand-me-down) and the UK has none.

And despite all the hoopla you hear about China, their economy is not doing as well as ours is - in fact, our economy is the most robust on the planet, which is why investors worldwide flock to invest in things as lame as Treasury bills.  China doesn't "hold" a lot of our debt to blackmail us, they hold our debt because they perceive it as a safe harbor to invest in - safer than their own markets.

So America is the 600-lb gorilla, and the rest of the world simply hopes that we have some rationality and common sense not to wreck things more than we ordinarily do.   Some have called the post-war years the Pax Americana although during this Pax a lot of regional wars have been fought and millions have died.   But we've avoided a nuclear conflagration, so I guess that is something.

But in Donald Trump, the world sees trouble.   America might be abandoning what little rational thinking and intellectualism it had left.   We would not longer be the good guys in the white hats - to the extent we ever were - but rather self-interested take-all-you-can conquerors who would just look out for their own self-interest rather than the global interest.   And you see this attitude at Trump rallies, with supporters saying things like we should nuke the middle east and take all the oil that "rightfully belongs to us".

Trump supporters are like that - classic externalizes who view their personal problems as being the fault of unseen or vaguely defined "others" who are a threat to them.   And not surprisingly, most of these supporters are younger white men with no college education.   Their options in life are limited, as in a technological society you need to have a technical education to succeed.    As unskilled laborers, their value in the economy is not very high.    Unless they can acquire technical skills, they will not be able to climb the economic ladder.   And of course, this has to be someone else's fault.   

The fact they didn't pay attention in school or try to at least learn a trade is not their own fault, but the fault of "Liberals" or terrorists or the gays or whatever target-du-jour is being bashed.   "If only..." we could eliminate those bad people, the world would be a paradise-on-earth.   It is a message that resonates throughout the ages, with demagogues rallying the young, the dumb, and the poor with their message of "if only..."   Huey Long, Adolf Hitler, or Rodrigo Duterte, the message is the same.

And it is not a conservative message or a liberal one, a Republican one or a Democratic one.  Indeed, every aspect of the political spectrum has employed this form of emotional thinking to try to get into power.   Venezuela is using this sort of nonsense to prop up their failed government.   Communism would work, they argue, "if only" we could get rid of those rightists and profiteers.    Same old shit, different day.

Or take Bernie.   Both Trump and Bernie supporters are alike in that they are emotionally engaged with their candidate.  They fill rallies, they shout slogans, they are passionate about their candidate.   And both candidates promised a heaven-on-earth to downtrodden people who made bad decisions in their personal lives "if only" we could get rid of Muslim immigrants or the big banks or whatever.

Hillary, on the other hand, doesn't generate much excitement.   People don't put bumper stickers on their cars or get really emotionally engaged with her.   She represents the establishment and a continuation of the policies of the last eight years - policies which have resulted in steady economic growth and stable economy in an era where most countries are melting down.   Sure, she will change some things.  I hope she can fix the problems with Obamacare (instead of just abolishing it and leaving us all with nothing).  But no one really gets emotionally involved with a person who is the ultimate policy wonk.

This is a good thing,  trust me.

Every four years, the press plays to our emotional side and tries to portray the candidates in terms of emotional factors - kissing babies and whatnot.  Which candidate would we want to have a beer with?  That sort of bullshit.    I am not sure I want to have a beer with Hillary Clinton, although I would be fascinated to sit down and listen to her talk about policy issues.   Which is more important?

The election of 2016 will go down in history as one of the strangest of all time.   Unless Hillary has a nervous breakdown, it doesn't appear Donald Trump has a snowball's chance in hell of winning.  Even Georgia seems to be in play for Hillary (and you can bet I will be back in the State by November to vote!).

The Republican party, hopefully, will look at this debacle as an opportunity to re-think its strategy.  And many in the party are trying to do just that, but getting it all wrong.   They continue to seek out emotional issues as the backbone of their platform.   They fail to realize that being the party of "Just say No to everything" like some petulant child hasn't accomplished much in the eyes of the voters.   Rather than being against everything, they need to stand for something.

In the past, this was the case.  In the past, the GOP was the party of rationality, in terms of standing for sound government, balanced budgets, and limited government.   These were rational factors to argue, even if you didn't personally agree with some of them.  The Democrats, on the other hand, were more of the emotional thinking party, making arguments (as Bernie did) about how awful it was that the other fellows bank account was bigger than yours.

Somewhere along the way, the positions of the two parties changed.   It started with Nixon's "Southern Strategy" and his "Law and Order" campaign.   It matured with Reagan's "morning in America" and his appeal to evangelical voters.   No longer was the party about balanced budgets and limited government.  Instead, the GOP became the party of social issues - abortion, gay rights, women's rights, voting rights, and so forth - all in the "NO" column, of course.   Rather than a liasssez-faire approach to government, Republicans started campaigning on being "job creators".   And instead of balancing budgets, Republicans started running up deficits - even in times of economic prosperity, such as the Bush years.

As a result, the party started to splinter.   And the "big tent" of the GOP was suddenly full of people shouting "RINO" - and trying to force out anyone who didn't subscribe to their form of emotional thinking - failing to make the rational argument that forcing people out of the party isn't how one wins elections.

But it got worse.  The entire "Tea Party" movement was more like the Mad Hatter's tea party - a movement without purpose or direct, other than to wreck, delay, destroy, and usurp.   Nothing much was accomplished by the tea party candidates - many lost their re-election bids or failed to stand for re-election (that whole promise of one-term kind of backfired in a big way, as most emotional arguments do).   While ostensibly about taxes ("Taxed Enough Already" was their mantra) they were really a haven for anti-Obama and racist thinking, as evidenced by the signs and slogans at their rallies.   Taxes, it turns out, were just a cover story for what was really an emotional social agenda.   They were more interested in transgender bathroom issues than in tax policy wonking - as evidenced by their insane and unworkable tax proposals, most of which would have been a sop to the very rich.

There was a time in this country where we didn't view the government as the "enemy".   And we thought that government could be well-managed and well-run.   It was, after all, our government that managed to put a man on the moon within ten years of really starting a space program.   Back in those days, we thought that if proper scientific management techniques were applied to government, that government could be both efficient and effective.

We seem to have lost that thought somewhere down the line.   It became more convenient for us to blame our problems on the government rather than try to solve them.

Perhaps, once again, I digress.   What is the point of all this?   Well, the only real conclusion I can draw is that when there are two candidates up for office, and one tries to appeal to my emotional side by using emotional issues (greed, fear, externalizing) and the other candidate wants to talk policy until the whole audience is asleep, I have no trouble deciding which candidate is the better choice.

Emotional thinking is a dead-end.


Friday, August 12, 2016


Boating is like RVing, but some folks think it classier.

We are looking at boats with the idea of selling the RV and then living on the boat for the summer for a few years.  Boating is an interesting endeavor as there are all sorts of boaters, just as there are all sorts of RV'ers.   And like with RV's you can get into a lot of trouble with a boat very easily, and it can be hard to get out of it.

As I noted in the casino effect, there are a lot of financial transactions in this world that are easy to get into and very, very hard to get out of, just like a casino.   When we were in Las Vegas, the Caesar's Palace casino had a conveyor belt to haul people in from the sidewalk, just like a slaughter house.   Once inside, however, getting out required us to walk nearly a 1/4 mile through successive rooms of bright flashing lights, loud sounds, and noisy distractions.   The exits were not clearly marked - intentionally.

You can buy a boat, lease a car, sign a student loan, or get a 20-year note on an RV like falling off a log.  An hour in the "closing room" at the dealer or the registrar's office is all it takes.   Then it takes a lifetime to pay off the note - as often you are "upside down" on the car, RV, boat, or education, for decades.  Easy to get into, hard to get out of.  That is the casino effect.

One boat we looked at, a hoary old Sea Ray, was sitting on blocks at a marina.  The owner admitted that he hadn't had it in the water for over two years.   His ex-wife wanted it sold, but he "had to get" $35,000 for it as that is how much he owed the bank.   You see this all the time with boats, cars, jet-skis, or whatever - people thinking they are entitled to the balance on the bank loan, just because they owe that much.  You try to explain to them market values, and they are deaf.  You also try to explain to them that a boat that has high hours, shitty maintenance, and several major defects isn't worth squat, but don't bother.  The owner wants to pay off the note, and he thinks he is entitled to this, just as a millennial with $50,000 in student loans thinks he is entitled to a six-figure salary and a corner office.

And as I noted in the upside-down boat, there are millions of boats, RVs, cars, motorcycles, jet skis, and snowmobiles rotting in side yards across America, as their owners continue to pay on the loans on these items which are worth less than the balance on the note - and the owners have long since lost interest in them.  You can make expensive mistakes in life, very easily, in a matter of a few hours and a few signaturesLeave your pen at home.

Boating is particularly weird in that many people own boats and rarely go boating.   We've visited several marinas where people have made encampments on the dock next to their boats, with barbecue grills, refrigerators, entertainment systems, and a "nest" of chairs.  They drive 2-3 hours every weekend to sit next to their boat and drink cocktails with the other boat owners, occasionally washing and waxing the boat, but rarely ever leaving the dock with it.   This struck me as rather absurd, but it is what a lot of boat owners do.

For example, one boat we looked at had 400 hours on the engines (gas engines, which are good for about 1500 hours before a rebuild) since it was built in 1993.  The owners drove from Rochester, New York to the 1000 Islands every weekend for 12 years to "hang out" on their boat, but they rarely left the dock with it.   I can't in my own mind, justify such an expense for something used so intermittently.  If I have a boat, I want to be using it, not every weekend, but nearly every day.

RV'ers are no different.   Many will keep an RV at a campground all "season" and then visit it on the weekends only, hanging out with friends and drinking, but rarely, if ever, traveling in the RV itself.   One wonders why they don't just buy a cabin or at least a park model.   Buying a motorhome and then never driving it anywhere seems kind of silly, but I guess I am the only one to think that way.

One problem with these sorts of purchases - or any sort of purchase - as that few of us think of them in terms of the "end game".   If you buy something, how do you get rid of it down the road?   You want that shiny new cell phone, but fail to think about the five or six old cell phones you bought in years past that are not rotting in a drawer or closet somewhere because you can bring yourself to throw them away.   Everything you buy has an "end game" associated with it, and planning this end game is essential.

That is one reason some folks like leasing cars or "upgrading" to new cell phones every few years.   You get a new toy every so often and the old one goes away without fuss or bother.   Well, there is a fuss and bother, but it is in your bank account - you get dinged for "turn-in fees" on the car, or you pay far too much for the new cell phone.  But it illustrates how much people are willing to pay for convenience or perceived convenience.

Our plan in buying a boat is not to have one "forever" but for maybe 3-5 years.   And as such, we have to be cognizant of how to get rid of it later on.  After five years, you can expect the boat to depreciate by as much as half the price you paid for it.   Financing such things on 10-year notes is dangerous as your are likely to be upside-down on the note for at least 7 years.   Not only that, but you will pay as much in interest as you do in principal on the note.   And yet, that is how most people pay for things.

Paying cash avoids this problem, but many folks will make specious arguments that paying cash forgoes the "opportunity cost" to make money in the stock market.   Yet, if I borrow money at 4.5% on a boat loan (and pay almost 100% interest payments the first year) am I really coming out ahead?   What investment out there promises a guaranteed 4.5% rate of return on my money?   Moreover, if I decide I want to sell the boat, I don't have to worry about being "upside down" on it.

A boat like this can be had for about $30,000 with low hours and in good condition.   Since few people can pay cash for older boats, prices are low.

 In the age and price range we are looking at there are very good bargains to be had, as boats of this age are difficult to finance.   Joe Paycheck can get a loan on a brand-new boat at the dealer, who has a relationship with a local finance company.   But older boats are harder to finance and as such (like older cars) the price drops off accordingly. 

But as I have noted in the past, when you buy an older boat, car, RV or whatever, you really are just buying the repair rights.   Once you own the item in question, you have to pay for the upkeep.   And with larger boats, the upkeep can be expensive.  Just for docking, storage, winterizing, annual maintenance and the like, the costs can be $5000 to $8000 a year depending on the boat size, the marina in question, and the type of storage and docking.   Keeping a large boat clean is a major chore and many owners hire locals to wash and "detail" their boats on a weekly basis.   The actual cost of purchase will be quickly exceeded by the maintenance and fuel costs within a few years.  Add to that the cost of transient docking, if you want to travel at all - and don't want to anchor out every night.

And this is assuming you don't have any major repair problems such as a bent propeller or shaft, repowering, or whatnot.   Everything associated with boats is expensive, and often what would be a simple repair in a car is a major headache in a boat, particularly in some models which have engines located in remarkably inaccessible places.

So, are we going to buy a boat or what?   Maybe.  Maybe not.  Our timeline is the next two years, so we have plenty of time to do more research.  Since we can pay cash, we are in a position to make a deal when the time is right - for example in February when the boat is in storage and the owner needs to get out from under it in a hurry.

But it may turn out we don't want to own a boat at all.   You can rent boats in many places, and our immediate plan for next year is to rent a boat or houseboat on the Erie Canal and the Rideau Canal (in Canada) for a week or more and figure out whether owning a boat is worthwhile.   It may be that after a few weeks of renting a boat, we decide we've "been there done that" or that renting is a far better alternative than spending a pile of money on a rapidly depreciating asset and maintenance.

I also still like the idea of a boat I can maintain and haul myself.  One problem with larger boats is that it can cost $150 to $300 just to have it hauled out of the water.  And once out of the water, you are often at the mercy of the mechanic at the marina closest to where it broke down.   A trailerable boat may be smaller, but you have more choices in terms of storage, repair, and general maintenance.  The cost of "hauling out" a trailerable boat is often free.   And boats of 30 feet or more can still be trailered (although you'd better have a good trailer and truck to haul it with).

Traveling long distances by boat is often boring and sometimes dangerous, if the weather changes suddenly.   Our boats got maybe 1-2 miles per gallon and had a top speed of 30 miles per hour or so.   On the trailer, however, they were getting 10 miles per gallon and capable of 70 miles per hour.   Many States have free boat launch ramps (or ramps with modest fees) and free trailer/truck parking.   It may make more sense to buy a 28 foot cabin cruiser and trailer it than to own a 35 footer and never go anywhere.

But we have all the time in the world to decide, and we need a boat like we need a hole in the head.   Once you decide you "have to have" something, it is all over for you.   We are enjoying retirement and don't want to fuck it up with something as stupid as a boat purchase.