1. Write checks. Checks are still free, for the most part, at BoA, although you do have to pay to have checks printed.
2. Use a credit card and then immediately pay it off using BoA online bill payment or "pay my bill" on your credit card website. This is fine, but runs the risk of you developing a credit card debt over time.
3. Use your Debit card only as an ATM card, and take out and pay cash. If the card is not used as a debit card (run as debit or credit, it doesn't matter) no charge is made. But once you make even one purchase a month, the $5 fee kicks in.
4. Switch to another bank which does not have this fee structure.
Friday, September 30, 2011
Bank of America claims to be instituting a $5 a month Debit Card fee in January. What is behind this, and should we care, as consumers?
The recent news headlines are blaring about Debit card fees to be imposed by BoA in January. I have been a big fan of Bank of America as, from a consumer point of view, they can be a very useful bank to have.
Since they are large, they are everywhere. So if you travel around the country, you can access your money and do business in nearly every State. So it is convenient.
And so long as you don't do povery-think tricks like bouncing checks and creating overdrafts, or using 3rd party ATMs to take out $10 to buy ciggies and gas, they are a good bank in that they don't charge a lot of fees. People who "hate" BoA are often stupid people to bounce checks and get into trouble and then whine when they discover that banks charge bounce fees. But all banks do this - and singling out BoA for abuse only serves to highlight the stupidity of the consumer, not the bank.
As I noted before, if you put $25 a month into your savings account, your checking account is free. Not bad. In the last few years I have banked with them, I have yet to pay a single banking fee - even for paying bills electronically, which often costs them 44 cents in postage.
But all of that is about to change, it seems. And $5 a month to use a debit card is $5 too much for me.
Why are they doing this? Banks previously got 44 cents from retailers for every debit card transaction. for some reason, this is being reduced to 22 cents, a 50% reduction in their cash-flow. If you run your debit card as a credit, however, the bank gets a hefty percentage of the purchase price - usually 2% or more. So debit cards can be very profitable - if run as a credit, not a debit.
And for this reason, many banks offer frequent flier miles or other "kickback schemes" on debit cards, to encourage users to run them as credit cards, not as debit cards, as the bank makes more money this way.
But regardless of the backstory, what is important to the consumer is the overall effect to their bottom line. And if we have to pay fees for using a debit card, this is a very slippery slope to be traveling down, as it will open the gateway for more fees down the road.
At this juncture, the consumer has three options:
For me, I think the answer is #4, unfortunately. I have been a big fan of BoA, but perhaps our relationship is finally drawing to a close. They have a great online website and a great network of ATMs. But I am not going to stick around and see my wealth dissipated in more and more bank fees.
Perhaps BoA needs to instead look at its bloated cost structure - excessive branches and offices with redundant tellers - and think about CitiBank's model instead - using teller-less ATMs for most transactions, and cutting the number of branches.
Regardless of the reasons behind the BoA move, you have to analyze this from a consumer standpoint. And monthly fees make no sense at all, so long as other banks offer free checking and free debit cards.
This move is doubly disappointing for me, in that I had hoped BoA would turn around in the next year. I had bought BoA stock, thinking that, with such a great infrastructure, they could overcome their Countrywide Mortgage debacle and eventually emerge as a key player in the banking industry.
However, this fee model might just drive away a lot of customers in their customer base. I am not sure how it will allow them to succeed in the long run.
* * *
UPDATE: January 23, 2014. Bank of America backed down on its proposed debit card fee, after customers made quite a fuss about it (quite clearly, they read my blog, right?). However, in 2012, they changed the basic checking account, so that if you want to use a teller for deposits and withdrawals, there is a monthly fee.
However, BoA decided to offer an "eBanking" account, which is fee-free. How does this work? Well, it is like the Citibank model - you do all of your transactions online or at the ATM (the BoA check and cash deposit feature is very well done!) and foreswear using the teller. Since I had not seen the inside of a BoA bank in over two years, I agreed to this.
This tells you where banking is going in the next 10 years - automation. Traditional banks, with their tellers and drive-up windows are going away - to be replaced by highly sophisticated ATMs. Yes, there will still be bank offices, but far fewer of them.
And if you think about this, it makes sense - banking is prime to automation, as most of the tasks involved are data entry and processing of data. There really is nothing a live human being adds to the picture, except the opportunity for data entry errors.
This next wave of automation will, of course, put a whole new class of people out of work - bank tellers and employees - even the janitors.
Rampant inflation in Germany in the 1920's made the Deutschmark worthless. It was worth more as fuel than as money. Even "mild" inflation of 10% or so can cause great economic distress to ordinary citizens. Why are some people advocating this as a solution to our economic problems?
Inflation can wipe out a lifetime of savings and also put a wrench into the most carefully crafted retirement plans. Are we headed for a period of inflation? It appears some folks think we should be.
In the press lately, we are being told that what we need to fix things is inflation. I am not sure how this works, frankly, and it scares me to death. The last major recession we had in the USA in 1979 was marked by high inflation - in the double-digits - as well as high interest rates. Mortgages back then were as high as 14%, which depressed home prices. The high cost of everything meant people spent less, and jobless rates climbed to well over 10%. Inflation is a good thing? I think not.
Inflation fans argue that if you ratchet up inflation, people will consume more. They argue that if prices are going up, people will buy more things NOW on the premise that they will be more expensive down the road. This, I think, is an idiotic argument.
Most of us don't rationalize purchases this way. If we need a car, we shop for one on price and features and make what we hope is an informed decision. Or, at least rational people do this. Many, many more just drive by a dealer, see something shiny, and then go in, talk to a salesman and get talked into trading in a serviceable car for something they really don't need or want - on a whim.
Either way, most folks don't rationalize inflation into the deal. I cannot think of anyone in my lifetime saying, "Gee, I should buy a new Impala today, because the prices are going up next month!".
And I think there are two reasons for this. First, as consumers, we do not perceive inflation that directly. While we notice prices going up over time, this is in the form of a backward-looking model, not a forward-looking one. So we say, "Gee, a hamburger at McDonald's used to be 50 cents" but we never say, "Gee, next year, the hamburger at McDonald's will be a dollar-fifty". We cannot perceive the future as clearly as we do the past.
The real reason some folks want inflation - including perhaps, the government - is that it allows you to pay back debts at a lower effective rate. If you owe someone $10,000 (enough to buy a cheap car) and have to pay it back, and then rampant inflation drives down the value of the dollar to the point where it barely pays for a cup of Starbucks coffee, then you come out ahead. You borrow a car and pay back a cup of coffee.
Debtor nations tried this technique over the years, most notably Wiemar Germany and in the 1970's, Argentina. Inflation rates of 1000% or more devalued the currency and wiped out nearly everyone's savings portfolio. And of course, it ruined the economies of both countries.
In the late 1970's, during the Carter administration, we had an effect known as "stag-flation" where the economy stagnated and inflation rose. High inflation and high interest rates meant that everything became more expensive, so people consumed less, not more.
And that, I think, is the problem with the "we need inflation" argument. Inflation is often a symptom of a growing economy. But it is not the cause of it. The inflation hawks think that if you have inflation, you have a growing economy. So if you cause inflation, this is akin to causing the economy to grow. And it is a flawed argument, as it places the cart before the horse.
It is akin to the bed of ice they put me on as a child, when I was ill and they needed to get my fever down. Reducing my body temperature prevented the fever from killing me, of course. But it did not, in and of itself, cure me of the illness I had. It merely altered a symptom of the illness. In a similar analogy, it is like the cold medicines people take, which alleviate the symptoms of a cold (runny nose, aches, pains) but of course do nothing to kill off the virus that causes the cold.
And perhaps the inflation hawks are taking too much cold medicine to see this. Cranking up inflation at this point in our economy is akin to the Republican's efforts to cut spending. It will cause nothing but more and more hardship. Cutting spending will put more people out of work, cause more houses to be foreclosed upon, and cause more economic hardship for workers. Cranking up inflation will wipe out or reduce the effective savings of the booming retirement and near-retirement segment, and also cause hardship for workers, as they struggle to pay more for basic needs, with the same amount of income (or less).
So why are some people advocating this as a solution to our economic problems? Well, it isn't hard to do, first of all. Just print more money. As you print more money, you increase the money supply, and like anything else, the law of supply and demand applies to money. So with more money in circulation, the less it is worth. And as I noted before, money is just an idea, not a physical thing. And when you start printing more and more money, well, the idea of money becomes devalued. People start to think of it as worth less and eventually, worthless.
Inflation also acts as a uniform tax on the assets of everyone. Well, almost everyone. It really taxes the snot out of the poor and middle-class. If inflation surges to 10%, then your portfolio is effectively decreased by that amount - as is your income. If you are facing retirement, this is a scary scenario, as your savings may turn out to be woefully inadequate over time. So we pay back the Chinese with worthless dollars, but in effect, what we are doing is robbing everyone who owns dollars to do this.
And like I said, this affects nearly everyone. Folks who can afford to do so can move their money into other areas and try to avoid inflation. They can invest in other currencies, or indeed, even minerals or other commodities (which perhaps explains the fascination with Gold these days - and why the last gold boom-and-bust occurred in 1981, when inflation ran high, and then dropped). During the heyday of the Argentinian inflation crises, it was said that people spend a significant amount of time every day moving their money around from bank to bank, trying to get the best interest rates, to prevent what little they had from evaporating in their hands. People who cannot afford to do this - or don't have the sophistication to do this - end up broke.
So the rich can afford to find shelters against inflation, while the middle-class and poor just get screwed. Sounds like a swell idea, if you are a billionaire.
And it seems to me that we are seeing the early stages of inflation taking place. More and more people are striking for higher pay, and prices of basic commodities seem to be going up. Of course, the price of oil often drives all of this. The inflationary recession of 1979 was "solved" by cheap gas prices of the 1980s. The recession of the early 1990's morphed into the economic boom of the late 1990's and early 2000's - which were all fueled by cheap gas. Owning a 2-mpg boat made "sense" in the late 1990's when gas was under a dollar-a-gallon (remember those days? They didn't last!).
The current recession is caused by a lot of things, the housing bust being prominent. But $5-a-gallon gas and continued high gas prices are one factor that is overlooked. Spending cuts in the name of budget-balancing, as well as inflation, will extend the current recession, which for some folks seeking office, is a fine and dandy thing.
You can't persuade people to change governments when things are going well. So one way to get people to vote for Communism or National Socialism, is to intentionally wreck the economy, to get people riled up for a change in leadership.
So the next time your 401(k) tanks 20% because Congress can't agree on a budget for spending or on a debt ceiling, think about who is causing this sort of problem, and what their real agenda is. Because, chances are, they don't have your real interests at heart.
It seems to me the Republicans are hell-bent on wiping out what pitiful little I have saved, by creating instability in the markets and by downgrading national debt - and by fueling inflation. And as a "cure" for our debt problems, they propose cutting back on the only other retirement options I have - Social Security and Medicare. Homelessness, it seems, is not such a farfetched future for many retirees.
Why would anyone, in their right mind, vote for a party that is trying to destroy the middle class so completely and utterly? Because they can't stand a Black President? It makes no sense to me, whatsoever.
Wednesday, September 28, 2011
Inexpensive Kayaks like this model purchased from Boat U.S., are easy to paddle, stable, lightweight, and affordable. More expensive Kayaks are often less fun, heavier, harder to use, and less stable. For most people, going to expert-level equipment is just a waste of money and a means of decreasing, not increasing, enjoyment of a sport.
We are renting a lakeside house in Camden, Maine, which is pretty affordable ($2500 a week) at the end of the season, and when you divide the cost by three couples. And we are enjoying an Indian summer and great fall foliage. The lake is placid and calm, and there is a picnic island in the middle to Kayak to. So why not get the whole gang out on Kayaks and have a champagne picnic on the island?
That is what we did. But the experience was an eye-opener. We have been Kayaking across maritime Canada for the last two months, using inexpensive ($350) Kayaks we purchased years ago at Boat U.S. These are by no means "serious" Kayaks at all, but, as the advertising label on one notes, "Suitable for bird watching and family fun". They are very light - one person can carry them and put them on top of the car - and that is a handy thing. And they are indestructible, being made of a molded plastic.
And they are easy to paddle, and since they are wide and have flat bottoms, stable and easy to use. And for most people, this is all you need - or want. These are similar to the Old Town Kayaks we had previously (bought at the annual Labor Day Sale in Old Town, Maine, for $200 apiece, years ago) although those were much heavier and harder to carry. But those were wide and stable and had no moving parts to them.
At the rental house, they have a number of "ocean" Kayaks that are nearly twice as long - and half as wide - as our cheap Kayaks. These are "serious" Kayaks, with rudders and elaborate steering mechanisms (mostly broken or in poor repair) and cargo compartments fore and aft (most never having been opened in years, with dry-rotted straps). They are heavy as all get out and take two people to lift. They are expensive ($800 or more, even used) and when you put them in the water, well, they are tippy as all get-out.
Trying to get our friends, who have never Kayaked, to use them was a challenge.
This is a more serious Kayak, but it is also more tippy and very hard to get in and out of, due to the small opening. It is also longer and heavier and has an elaborate steering mechanism. And of course, it is far more expensive. Is this better? Not for most folks.
They did have one advantage over our "lame" Kayaks, and that is they were faster. Since efficiency is a function of hull speed, these longer and narrower "serious" Kayaks glided through the water with less effort. However, for a jaunt around a small lake, it really isn't much of an issue, and the point of Kayaking is to get exercise.
Many folks like to use fiberglass Kayaks, which often have white hulls with yellow tops. These are also narrow, but lightweight. But since they scratch easily, they cannot be dragged over the rocks like the polyethylene cheaper models. As a result, the owners often carry these in elaborate sock-like covers, and have to carefully lift them into the water - and back out again - to avoid scratches. Fun, eh? Even worse are very beautiful, but impractical, wooden kayaks, which look very cool on the roof of your car, but are fragile and easily damaged on rocky shorelines.
And yes, people who use such Kayaks often turn up their noses and refuse to even make eye contact with, much less talk to, people like us in our floating buckets.
This lovely hand-made wooden Kayak would look great - hanging from the ceiling of a vacation cottage as a decoration. As a practical Kayak for daily use, I would think it would be less than practical. Dragging this Kayak, even on sand, would damage the beautiful finish. I think people have more fun building these types of boats than using them.
Many young "dudes" tend to buy very short whitewater style Kayks, which are turned up on both ends and look like little elfin shoes. These are often so thin that you can see through the thin fiberglass, although most are more practical polyethylene. These type seem to spend more time sitting in the corner of a dorm room than actually traversing white-water rapids. But they do announce to all your friends that you are a serious whitewater dude!
Looking more like an oversized shoe than a boat, these whitewater Kayaks are really only for serious Whitewater rafting. On a calm lake, they are less than useless, as they are not very directionally stable. we went Kayaking with someone who had one of these, and they kept spinning in circles. The ultimate Kayak for one application is often the least useful for another. But having one of these in your dorm room, or bolted to the roof of your Subaru, marks you as a serious Kayaking dude!
While such Kayaks might be useful for limited circumstances (well the whitewater kind, anyway. I am not sure what the point of a $2000 Kayak that you can never, ever scratch, is) for just general paddling around, they are not only overkill, but less useful.
It is, in a way, like the scenario I described in The Bicycle Trap, where people spend thousands of dollars on racing bicycles for street use, that are actually less useful than more pedestrian bikes - at least in terms of recreational riding on real streets and trails. Or the gourmet kitchens with their high-end appliances which are less reliable than a cheap model from Sears. Our generation, it seems, is hooked on paraphernalia, and we all want to have "top of the line" stuff, even if it is wildly impractical for daily living.
A Ferrari or Porsche is a fine racing machine, but as many owners discover, very esoteric, high-end cars are not very practical for daily driving in heavy traffic. 500 HP is not going to help you out of L.A. Freeway traffic jams, and hard-butt racing seats get pretty old after a few miles. It may be the "ultimate" ride, but you might find that the guy in the next lane in the rented Impala is actually having more fun and more comfortable (and has a place to put his luggage).
Not surprisingly, these Kayaks at the rental house were covered with dirt from sitting in the side yard. They had not been used much lately, and no doubt the owners discovered that moving these heavy monsters, wedging into the tiny, uncomfortable compartments, and dicking around with rusted steering cables, was more hassle that it was worth. I think they would enjoy a cheap "lame-ass" Kayak a lot more - and save a lot of money in the process. After all, they live on a small lake that rarely have any chop on it.
But of course, in America, we all have to become "experts" in what we do, so we all go out and buy this stuff. You can't even walk today without some sort of special shoes and ski poles, and even lessons (I kid you not). I haven't needed walking lessons in 50 years, and I am not going to start now. But for many folks, even taking a hike is no laughing matter, but something that requires that you be kitted-out in fancy and expensive gear - and something that be taken deadly seriously and very competitively. It sucks all the fun out of it!
But the rise of creeping expertism, I think, serves to do little than to induce consumers to spend money - or spend more than they should - and to suck the joy out of any sport or endeavor. By definition, most of us will never become experts in any given sport or endeavor - nor should we. The idea that one can excel in everything they do, is inherently flawed. If you are a recreational skier, you will never become an Olympic contender, unless you devote your life to the sport. Buying all high-end gear will not make up the difference.
Similarly, the best golfers are not the best because of their fancy clubs, but rather because they golf a lot - and have some natural talent for the game. Buying hyper-expensive golf clubs, as an amateur, is not going to improve your game much. Golfing more, will. But the expensive clubs are impressive to look at - and let's face it, that is sort of the point of buying them - to impress people we don't know.
Of course, this can all backfire horribly. The fellow with the shiny new set of expensive clubs who whiffs the ball off the first tee, is sure to get chuckles from the Plumbers and Carpenters in the next foursome, who blast the ball off the tee with their mediocre, but battered golf clubs. After all, they play nearly every day, at 4:00, provided it's not raining. The lawyer with the pricey clubs rarely has time to golf, unless he is schmoozing a client.
Or consider the "serious" bicyclist, with the $5000 carbon-fiber bicycle and spandex bike clothing (with advertisers logos all over it) who is pedaling down the road in the wrong gear, with the seat too low, the front wheel wobbling side-to-side. Clearly, he or she doesn't know what they are doing, and the fact they are 60 pounds overweight emphasizes this point. But the salesman at the bike shop was certainly persuasive. They probably would be happier and better off with a cheap mountain bike from the chain sporting goods store - and be more likely to use it, as well.
And that is the other problem with expensive gear. People buy this stuff, pay a lot of money, and kid themselves they are going to become fans of the sport or activity. But since the racing bicycle is no fun for recreational riding, and the high-end Kayak is no fun for putting about in the water, they end up languishing in a garage somewhere. And as a result, the person with all the good intentions and the checkbook, once again feels guilty that they have yet to follow-up on yet another project. So the recrimination and low-self-esteem engine is fueled yet again, priming the individual for the siren song of the next salesman or next trend or activity bandwagon to jump on.
Another problem with amateurs buying expert equipment, is that it tends to dumb-down the equipment over time. Many folks buy high-end stuff, figuring it is "better" when in fact, it may be merely more esoteric and suited only for special applications. When the Z28 option package came out for the Camaro, it was designed for Can-Am racers who needed a package of options for that 5.0 liter class of racing. Air Conditioning was not even an option on such cars, early on. But over time, people got the idea Z28 RPO option code was the "ultimate" Camaro, and thus insisted on owning one - and demanding things like automatic transmissions, air conditioning, and power windows. Before long, the Z28 devolved from a factory race-car to an overloaded pimp barge.
So, what did I learn from this experience?
1. More expensive is not always better.
2. Consumer grade products are often best - for consumers.
3. Expert products should be left to experts.
4. It is OK, and in fact, normal, that you will not be an expert in every endeavor in your life.
5. This does not mean you can't have fun at other levels of skill.
6. People who are experts at sports may in fact have less fun than you.
7. People who try to pretend to be experts by buying fancy crap will very likely have no fun at all.
8. People who try to make everything into a competition of expertism are no fun to be around.
We have been Kayaking three times here so far, and we have had fun. But I've had to lend my "lame-ass" Kayaks to my friends, as they are easier to use and more comfortable. The "serious" ocean-going Kayaks are OK, but a lot less fun to use than our cheap ones.
Tuesday, September 20, 2011
Growing up, my Dad was angry all the time. The lessons we learned from this were not healthy.
I had a flashback last night to a day in my childhood. We are sitting at the dinner table and my Dad, as usual, is angry. He was angry a lot - shouting at us and never happy with us. And that was when he was not physically abusive. We were all glad when he left home to go to work and sad when he returned in the evening.
He was on the verge of losing yet another job, and he was angry. Work for him was not a happy thing, and he made sure to tell us this - a lot. "I don't like going to work every day!" he would say, "but I have to support you kids!"
The lessons we took away from this attitude were many:
1. Work sucks and should be avoided at all costs.
2. Our lives were destined to be little more than prolonged misery, forced to do things we did not want to do, for no apparent reason whatsoever.
3. Having kids is just a waste of time, as they just end up being a bitter disappointment.
Now of course, these are all wrong lessons and not, of course, what my Dad intended to teach us. But like programming a Neural Network, you sometimes find out that what you "taught" was not what you intended.
The lesson he intended to teach was that we should all work hard, get a good education, and a good job and settle down and raise a family - just as he did. But given how miserable he was, it didn't seem like such a swell proposition.
At the time, in the 1960's, people were dropping out, tuning in, and turning on. I suspect that a lot of the kids of that era got similar messages from their parents - subliminal messages that their chasing of the American Dream was not making them happy, but rather just miserable. And the most important thing in their lives - their family - was just another burden to bear.
So not surprisingly, my older siblings got into the hippie culture and rejected materialism. One joined a Commune for a decade or more. Why not? Dad certainly didn't make it seem like working for Corporate America was a swell deal. And for me, well, getting married and having kids wasn't made to seem like a real dream to go after - at least not the way it was sold to me. So not surprisingly, I never went that route.
And we all got heavily into drug and alcohol use along the way as well. Well, why not? When your parents tell you, "Hey, here's life, one fucking bitter disappointment after another!" you sort of think, "Well, might as well get shitfaced, then!" - particularly if your parents are, most of the time.
But of course, that is not how life is - or how it should be, anyway. For many folks, it is a miserable existence, even on $100,000 a year. People spend their lives buying things and spending money and paying bills and working at jobs they hate. And they end up miserable and making their kids miserable.
But of course, it doesn't have to be that way at all. Work can be fun - a game, if you will. A career is not misery, and going off to work every day shouldn't be a chore. And if it is, perhaps you need to examine why it is you are going off to work and why - and why you shouldn't change your life while you can.
And children should be something cherished, not merely another set of bills to pay. It is sad, to me, that we sat at the dinner table back in 1968, our Dad yelling at us, concerned about some stupid job, when the most important thing in his life was sitting right there in that room - his wife and family.
There are other ways to live. And in fact, chasing after status and buying crap really isn't living at all, but a form of slavery - gold-plated slavery, but slavery nevertheless. If you wake up every day dreading going to work, something is definitely not right. And if the reason you are doing this is to have a fancy house and be accepted into a country club, it is a false set of values from the get-go. I understand now, more, why my siblings rejected "materialism" and the corporate world.
Of course, trying to reject society is not the answer, either. There is a third option. You can enjoy your life and your career by not wanting so much "stuff" and status. You can choose a career because it is something you enjoy, not because it is something that pays a lot of money. Money is fine and all, but it really can't buy happiness - but will buy all the misery you can stand.
Sunday, September 18, 2011
A Class-B Motorhome is a small camper built on a van chassis. Are these a good deal? Or is it better to have a trailer? A trailer can cost 1/10th as much. Any other questions?
We are traveling for two months in Canada with our small travel trailer. We see a lot of Class-B motorhomes, like the Roadtrek pictured above, and wonder whether these are a comfortable option to trailering.
As I noted in a previous posting on the subject, one fantasy of the motorhome is what I call the 70-mph cheese sandwich. People think that with a motorhome, they can drive down the road while the wife makes them a cheese sandwich. But this is a fantasy, not reality, as it would be unsafe to do so - or to use the shower, take a nap, or use any of the other motorhome facilities while in motion. If you had an accident while on the toilet, it would be a messy affair, and not just in the obvious way.
But the big deal is cost. A class-B motorhome is expensive. The unit shown above is listed for sale, used, for $70,000. New ones can cost $100,000 or more, depending on make and model. Even a well-used model can run $20,000 to $50,000. Below that, well, they are pretty clapped out.
A trailer like this 17' Casita can cost as little as $6000 used.
A small travel trailer, on the other hand, like the Casita shown above, has the same amount of room (perhaps a bit more) than a Class-B motorhome, but costs about 1/10th as much. We paid $8000 for the trailer, five years ago. It might be worth $6000 today. Not a lot of depreciation!
And in terms of tow vehicle, you may already own one. But even if we put in the cost of the tow vehicle, the cost still comes out a lot less. We paid $25,000 for the BMW, again, several years ago. So the overall cost is far, far less than a Class-B motorhome. And when not pulling the trailer, the BMW can be used for daily driving.
And that is the big problem with the Class-B right there. Motorized vehicles depreciate like mad, even if not driven. And campers are used only seasonally and even then, not driven far. We will put 10,000 miles on our camper this trip - and that is a rare exception for most campers. Most motorhomes can go for a decade or more, hardly racking up 60,000 to 70,000 miles. But engines don't like to sit, and a motorhome, left to sit for 8 months of the year, is rotting away like old fruit - and moreover depreciating.
So a Class-B motorhome, in addition to being expensive, will depreciate a lot. Yes, a tow vehicle depreciates too, but since you have to own a car anyway, this is not an additional expense to have.
And when a motorhome gets to be 10, 15, or 20 years old, well, things start to go wrong, usually in the engine department. With a trailer, you just go out and buy a new tow vehicle and start over. A brand-new Nissan frontier crew cab can be had for about $20,000. And it would be far more reliable than a rebuilt engine in a decade-old Class-B motorhome.
In a trailer, the only moving parts are the wheels. Repack or replace your wheel bearings, and you've pretty much rebuilt the entire thing. The other parts (refrigerator, toilet, etc.) don't really wear much, or at least haven't worn out on our trailer, which is now 15 years old.
But hey, even if the trailer was "worn out", a new one can be had at the Casita factory for about $20,000. So the overall cost of a small truck and trailer - even brand new is still far less than a Class-B motorhome.
And of course there is insurance. The trailer requires none - in the way of liability - and even collision is only a few hundred a year (we do without). But a Class-B has to have its own motor vehicle registration, insurance, and likely collision (due to its cost). The trailer needs only $15 trailer tags every year. And let's not talk about property tax costs - if they have them in your jurisdiction.
The layout of the trailer allows for more room, too. Since there is no driver's cockpit taking up room, a bathroom can fill in the whole front of the trailer and a bed can go across the rear. Most Class-B's either have double beds (with a center aisle) and a rear bath, or a clumsy and confined side bath with a rear bed. Either way, it isn't as roomy or comfortable.
And of course, with a Class-B, when you are traveling, you are driving a commercial van, which is noisy and uncomfortable, and everything in the back rattles as you go down the road. We travel in a BMW, which has excellent seats and rides nicely, even hauling the trailer. A small trailer (emphasis on SMALL) towed with a properly sized tow vehicle (emphasis on PROPER - we see a lot of people trying to pull Airstreams with minivans here in Canada, particularly Quebecois, who view tow ratings as mere suggestions) is very easy to drive, even in Newfoundland's infamous "Wreckhouse" (where tractor trailers have been known to be blown over) during the aftermath of a hurricane.
And once at the campsite, we can unhook and explore the local tourist attractions in the tow vehicle. The Class-B people are forever hooking and unhooking, if they want to explore, and struggling to fit a van in tight spots. And forget going off-road at all!
Garagability is often touted by the Class-B set. But most garages cannot handle a "van with a hat" as I call them, as they are too tall to fit in. On the other hand, we store our Casita in an $88-a-month storage locker when it is not in use, and the X5 easily fits into the garage.
Gas mileage is another thing mentioned. But I am not sure the Class-B wins here, either. We get about 20 mpg in the X5 (which sucks, thanks to full-time AWD) and about 17 mpg when towing the trailer. These are about on par with even the best of Class-B motorhomes (Some Mercedes Sprinter based models claim 22 mpg, but those are just claims, and the $50,000 cost delta buys a LOT of gas!). And when unhooked, most tow vehicles are going to get better mileage than a van.
As shown in the picture above, two Kayaks easily fit on top of our car. With a Class-B, this would be problematic, as the fiberglass "cap" is not suited for roof racks, due to the presence of the A/C unit, etc. Plus, it would be quite a reach to get them up there. One couple we met solved this problem by towing a small trailer (!!) to haul their Kayaks. So they went Class-B to get away from towing a trailer - and ended up towing a trailer!
Some folks counter that the Class-B can be used as a "Second car" when not in use as a camper. I suppose this is an argument, but one that is specious. While driving a medium-sized SUV is not hard to do and not TOO expensive, driving around in a 1-ton commercial van loaded with a stove and toilet is not really practical, in terms of gas mileage and maneuverability, not to mention comfort. And the more you drive the Class-B, the faster you accelerate the depreciation.
So why do people pay $50,000 to $100,000 for a Class-B motorhome? Good question. Why do people drive $80,000 cars that really are not much better than $40,000 cars? People get sold things, usually on monthly installments. They fantasize about how "easy" it would be to just pull in and park, anywhere, without having to "set up". But it takes only a few minutes to unhook a trailer and set it up. And that about equals the hooking and unhooking of water, electric and sewer lines than a Class-B user would have to do, every time they wanted to leave their campsite.
It makes no sense to me. I enjoy camping, or more specifically, RVing. But it is expensive enough, with the gas and the campsite fees. Tacking on tens of thousands of dollars in depreciation, well, you might as well stay in a nice B&B and sleep in a real bed....
UPDATE: After 150,000 miles, we sold the X5 and bought a Nissan Frontier, for $25,000. That is the beauty of trailering - it is cheaper to buy a new tow vehicle than it is to buy a new Class B motorhome.
Meanwhile, the trailer, now 15 years old, is as good as new. The RV part never wears out. The motor part does. Buying an RV with a motor means that it will depreciate and wear out, over time.
A hundred grand buys a lot. For less than the cost of a new Class B, you can buy a real motorhome, even brand new. Used, you could buy a diesel pusher.
Or, just keep your money in the bank and spend a few grand on a used trailer and use your daily driver to tow it around with!
A hundred grand buys a lot. For less than the cost of a new Class B, you can buy a real motorhome, even brand new. Used, you could buy a diesel pusher.
Or, just keep your money in the bank and spend a few grand on a used trailer and use your daily driver to tow it around with!
Saturday, September 17, 2011
Learning how to take care of yourself is the most important thing you can learn. Today, there are forces at work to stop teaching people these basic skills - because many industries thrive on your ignorance.
On CBC Radio two today, an interview with a woman who is trying to bring back Home Economics to the High School curriculum. Where did it go? In the States, and in Canada, "Home Ec" as we called it, has been dropped from the curriculum of many schools, in favor of "Readin' Writin' and 'Rithmatic" type courses, on the premise that school children are not learning "the basics" anymore.
What could be more basic than knowing how to feed yourself?
At one time, Home Economics was an honored course of study - one that girls (and even boys) could take for every semester in High School, at least when I was a kid (back in the 1900's). My Grandmother even majored in Home Economics in College and received a B.A. degree in it (much to my Mother's chagrin, as the nesting instinct never took hold with her).
Today, such courses are cut from the curriculum, and Home Ec is seen as a relic of the past. Which is too bad, as it has a lot to teach young people today - it is a means of empowerment.
So things like Music and Art, and Shop, and Home Ec, and Driver's Ed, are all tossed in the trash bin, replaced with more study halls and courses in self-esteem. Of course, never touch the Football or other sports programs! Those are sacred cows in most U.S. High Schools, even though such programs benefit few students and rarely lead to careers or jobs for those who participate. And lets not talk about sports injuries. It is all fun and games until you hit 50 and that "trick knee" really bites you on the butt.
Why is Home Ec important? And why do some folks want to see it killed off? One answer leads to the other.
Knowing how to run a home, prepare a meal, balance a checkbook, and do all the basic things of everyday living is vitally important to all of us. However, few of us were trained to do so, and as a result, we stumble through life learning lessons the hard way - or never learning them at all.
Most people claim they "can't cook" - a mantra so many people chant today, despite the popularity of cooking shows and even channels (which turn food into a reality show contest, not a "how to" type of thing) and so-called "gourmet kitchens". People spend hours a day watching someone else cook food on the TeeVee and then they go to their fabulous expensive kitchens and warm up entrees that were often made halfway around the planet.
And I kid you not on this last point. At a grocery store one day, Mark picked up a frozen entree (which is out of character for him) thinking that "Cocoanut Shrimp" sounded pretty good and that the price was reasonable. I read the box and was shocked to discover that the product was made in Vietnam. I was puzzled as to how it was economically feasible to have someone at a point halfway around the globe from me, cook my food, flash-freeze it, and then ship it across the planet so I could eat it. It just didn't make economic sense. And many folks think it doesn't make environmental sense, either.
And as you might guess, the pond-fed shrimp were bland and tasteless, and the "Cocoanut" breading was laced with sugar. We never bought that again. But many people do - and if you watch what other people buy in the grocery store, it is often very frightening.
A recent trip to Sobey's is a case in point. Several shoppers had six or more two-liter bottles of soda pop in their carts. One fellow had nothing but Root Beer and Hamburger - the latter apparently being the only thing he knew how to cook (At least he can cook something!).
Others have all frozen entrees. In the food business, such customers are called "Eskimos" - they do most, if not all of their shopping in the frozen food aisle. And while such prepared entrees seem "inexpensive" they are usually double the price of the same foods prepared from raw ingredients. And usually, such entrees are loaded with salt, starch, and sugar.
But increasingly, people cannot cook. And if they do cook, they merely follow instructions on the back of a box and microwave or heat a prepared meal.
And right there is why Home Ec is dead - the processed food industry, as well as the restaurant industry, don't want people to learn to think for themselves or even cook for themselves. And it is a strategy that is working. More and more people are using restaurants as their kitchens, and it is showing, in terms of their personal financial situation as well as their waistlines.
And while Home Ec is dropped from the curriculum, the School Board decides to put in vending machines in the high school to sell soda pop. Why not? Those nice people at Coke and Pepsi say they will pay for new uniforms for the football team - and that IS important, right? And while we are at it, let's just replace the School Cafeteria with a Pizza Hut or McDonald's. It's what the kids like to eat, anyway, so why not just cut to the chase?
But Home Economics, as the name implies, is so much more. It teaches concepts like budgeting and basic financial planning. And again, without such an education, most of us stumble along in life, not understanding how dangerous credit can be and how important it is to watch where ALL of your money goes, rather than just spending it willy-nilly until the credit card is over the limit.
And again, guess who doesn't want this taught to people? Well the banking and credit card industries, for starters. They make a LOT of money out of other people's ignorance and lack of discipline. So no doubt they don't shed a tear when Home Ec is tossed into the waste bin in favor of some cheerleading course in "self esteem".
I am not saying, of course, that there is some grand conspiracy theory at work here, because, as I have noted before, I don't believe in conspiracy theories. However, things do just sort of fall into place over time. Perhaps a School Board member works for a food processing plant - and is inclined, perhaps even subconsciously, to disfavor Home Ec. Why bother teaching that? After all, people can just buy his processed frozen entrees, so there is no need for Home Ec. Besides, most couples have dual careers, so no one has time to cook anymore, right?
Right. I will have to address that last issue in another blog posting. How did we get snookered into believing that it was "progress" for a typical family to have two working spouses, working 50-60 hours a week each (as opposed to the 40 hours our Fathers worked) to have the equivalent standard of living of 40 years ago? Under the rubric of gender equality, I think we were snookered into working twice as hard, just to have a mound of crap parked on our lawns and electrical gadgets in our homes. But that is a subject for another posting.
We need to bring back Home Economics, I think, and update and modernize it for the new generation. Knowing how to take care of yourself is important for people of both genders. A student graduating from school should know how to prepare a meal - from other than a package - and know how to balance a checkbook and prepare and follow a budget.
When I was in High School, it was not even offered to boys - other than a few adventurous ones who insisted on being allowed to attend classes. Obviously, that was wrong. But today, it is offered, in many schools, to no one. And that is an even greater wrong.
Thursday, September 15, 2011
Are e-readers like the Kindle a good thing or a bad thing? It depends.
I have owned a Kindle for a few months now, and can comment on its merits - and disadvantages. As I noted in a previous posting, a friend offered me this Kindle for $70 as they had won it at auction. This was about $50 off the retail price for a "promotional" Kindle - that displays ads on the screen as a screen saver.
By the way, these ads do burn into the screen over time. Not a good thing. Spend the extra dollars on the non-promotional model.
The original Kindle lasted about a month before the screen died after a trip to the beach. I called the Amazon people and they sent me a new one, no questions asked. The new one arrived before I could ship back the old one. So they are good about replacing the units under warranty.
Of course, after that, I received offers for extended warranties from Amazon.
I have spend about $100 on books for the Kindle. This is about $100 more than I spent last year on books overall. Last year, to save money, I used our local library to check out books, ordering books from other branches, online, when necessary. It was a pretty seamless process, although I had to wait a week or two for some books to arrive. Libraries rock, frankly - offering you the world of books for the overall purchase price of NOTHING. Free. Bubkis. Zilch. You really can't beat that.
The Kindle, on the other hand, encourages consumption. A simple click on the unit will download a book for anywhere from 99 cents to 99 dollars, depending on the tome. You can spend a lot of money this way, without realizing it. They have cleverly set up the system so you can buy books with "one click" shopping. So you hear about a book on the radio, say, on NPR, and a moment later, you can download it and read it. But it costs you, of course.
One advantage of the Kindle, of course, is portability. We are traveling for two months (!) in Canada in a 17 foot travel trailer, and keeping stacks of books is out of the question. Local campgrounds have paperback book exchanges, but most of these are of the mystery, thriller, or bodice-ripper variety. And while local libraries may lend out books to travelers, if you are in one place for only a few days or weeks, this is not practical.
We also downloaded a lot of guidebooks, (Fodors, Moon, etc.) to the Kindle, although the traditional book is easier to read in the car. I also downloaded a French/English dictionary, which came in handy.
So for traveling, it can be handy, although it is delicate and can break. I bought a case for it, made of leather, that folds out like a wallet. It works well to protect the device, and I can clip an LED book light to it to read at night.
But, it is not the same as owning a book. For example, we downloaded some of the "Joe Gunther Mysteries" after hearing an interview with the author on NPR. The problem is, only one of us can read them at a time, and since you can't "share" a book between multiple kindles, if you download a book, you are basically downloading it for one reader at a time.
In this regard, the revenue model is advantageous to the publishers. Since a Kindle is very personal - like a cell phone - when you sell a copy of a book, you sell it to one user, basically. Unlike a paperback, which can be shared, re-sold (in a garage sale, for example) or swapped or whatever, a Kindle book is basically a one-time, one-use sale to one reader - for practical purposes.
The Kindle has a primitive "experimental" mode that can access the Internet - provided you are in range of a WiFi station. They have approved sites, such as google, gmail, Yahoo, and the like (but NOT hotmail, oddly enough, or perhaps not so) and it works OK for reading those sites, although the "mouse" jumps between fields, rather than moves linearly. They call this "experimental" mode for good reason - they don't have to guarantee it will work - and it does "hang" on occasion, forcing you to hard boot the unit.
Overall, it has a kind of clunky DOS feel to it - or perhaps UNIX. I like that primitive aspect of it. But it concerns me that it encourages consumption - in the form of buying books. And it concerns me that it effectively limits use of a book to one person (the owner of the Kindle).
Perhaps these types of readers are the future. However, they are more expensive than other forms of traditional reading - borrowing books from the library, or borrowing a book from a friend. The price of many books online rivals the paperback cost at the store, so there are no savings in buying an e-book over a paperback - and in some instances, a hardcover!
And it concerns me that eventually, the format used for the Kindle, being primitive, will become obsolete, and the Kindle will end up in a drawer somewhere, its batteries flat and its formats no longer recognized. We've seen this before - in the transition from LP to Cassette to CD to iPod and beyond. A consumer spends a small fortune accumulating a content library, only to see it obsoleted overnight.
So for me, the Kindle will remain a toy. I plan on renewing my library card when I get home. And I certainly have no interest in spending $500 or more on an iPad or other device with a $100 a month access bill attached to it. That is far too much money to be spending on content, IMHO. Particularly when you can get it for free....
Wednesday, September 14, 2011
Here in Newfoundland, they have three things - wind, water, and rock. And when it rains, the wipers come on. And even though I have intermittent wipers with rain sensor technology, and even though I replaced the blades with special silicon high-tech edge plastic spring do-hickey hi-tech wipers, when the go across the windshield, they go "Screetch, screetch, screetch!"
These blades are only a year old, but off to Wal-Mart we go for replacements. The assortment is staggering. Rain-X special blades ($28 each) or triple-edge, high-tech bending edge, silicon edge, or whatever, you can get many makes, models, and types to choose from.
But, after years of seeking out the "perfect" wiper blade, and coming up short every time, I settle for the generic $13 wiper blade that looks like the one that came off my 1965 Chevy.
And you know what? It works better than the "high-tech" models I put on 12 months ago.
Manufacturers know that we want to 'fix' things better than they were before, and so they offer the siren song of the "upgrade" to DIY home mechanics. I'll fix those wiper blades good this time, for sure!
But the reality is, they are a wear item, and if you use them a lot, they wear out, no matter what you do, and they go "screetch, screetch, screetch!" and the only thing you can do is replace them.
With the cheap kind....
Is 9/11 on its way to becoming a National Holiday? I hope not....
We are near Gander, Newfoundland, and they had a 9/11 celebration of sorts the other day, replete with national anthems, speeches by MPs and for some reason, the little children singing a medley of "farmer in the dell" and other children's songs (WTF?).
While we are grateful for our Canadian friends putting up over 6,000 stranded passengers on 9/11, I am a little concerned that 9/11 is fast becoming a national holiday, much as Guy Fawke's day is in England (commemorating the attempted bombing of Parliament).
Perhaps in 50 years, people will exchange 9/11 greeting cards (I am sure Hallmark is ready and waiting), and children will take a whack at the Osama Bin Laden Pinata. "I whacked the Muslim good, Mommy!" kids will say. Why not? Easter morphed from a remembrance of a man slowly tortured to death to something having to do with bunnies and candy. Time turns tragedy into celebration. Heck, in this country, we used to make picnics out of lynchings. Anything is possible.
Perhaps it is post-traumatic stress reaction, but Mark and I want to bury the memories of that day - and the days after. Remember the Anthrax guy? Getting all your mail 2 months late, soaked with chemicals? Or the sniper dudes? People forget about them. People being gunned down at the Home Depot for no reason whatsoever. We moved from DC shortly after all that.
Perhaps from the perspective of another country, it all seems so heroic and noble. But at the time, feeling the ground shake and seeing the smoke plume up in your back yard was more of a horror show than anything else. We went to NYC a few days after the disaster, and I can still remember the dust covering lower Manhattan - as well as the smell of the still-burning rubble pile. It is not something I care to remember.
I dunno. 10 years later and more troops have been killed in Iraq and Afghanistan than in the 9/11 attacks. And let's not talk about the tens of thousands of civilian casualties. Ouch. I am not sure we need a day of national remembrance so much of a day of national forgetting.
So, I sort of wince when the local Canadians cheerfully greet me with "happy 9/11 day!" type messages. I guess to them, it was a time to show solidarity and support with America, and that is great. But to me, personally, it is like a long nightmare than we still have to awaken from.
And the point of the tragedy, I think, is missed by most people. This was not an attack by a foreign country or an organized army of militants, but rather an operation of maybe 20-30 people. Terrorism does not require a lot of infrastructure, as the Oklahoma City bombers - and the Norway terrorist - illustrate. What these types of attacks illustrate is how vulnerable we all are - and still are - to the whims of even a few, or indeed a single, deranged individual(s).
I am not sure turning this anniversary into an annual circus will somehow remedy that.
Tuesday, September 6, 2011
GM no longer owns parts suppliers like this. And most of them have gone belly up since being spun off from the big-3.
To many people, why the largest automaker in the world went bankrupt is a mystery. But to anyone who ever worked there, the thought was, "Gee, what took so long?"
It was not just the Unions, the scandalous wages and benefits and onerous work rules, but also inept and weak management - which was scared of the Unions and more interested in protecting their personal fiefdoms and perks than in making good cars. And the following story illustrates the problems with both the Union and management.
My friend Paul worked for Detroit Gear and Axle, or as he put it, "Detroit Endearing Asshole", as a GMI co-op student. As co-op students, we were all young, eager, and wet behind the ears, and ready to do our part to help GM take on Toyota and the imports, which were starting to be a real threat to the business, even back in 1978.
One of Paul's student jobs was to supervise construction of an office, on the factory floor, for the foreman. It was so loud in the stamping room, where axle housings were pressed out of white-hot metal, that the foreman couldn't make phone calls or even talk to workers. If a small office could be made, to hold his desk and phone, he could work on the floor and be "close to the action" and still hear himself think.
Paul eagerly set out on this task, figuring out a budget for the project, working with the carpentry shop to design the structure, and the like. One problem, of course, was that UAW workers, then making more than $15 an hour, had to be hired to build every aspect of the structure. It would have to be framed up, sheetrocked, trimmed, and then painted. The painting cost alone, using Union painters, was staggering.
Paul hit on an idea to save money. Rather than paint the office, he would use cheap fake wood paneling - the kind they sell at Home Depot - which would not need painting. The cost per sheet was a little more than installing sheet rock, and without the painting expense, it would come out a lot less.
After a couple of weeks of work, the office was done, and his boss and his bosses' boss came down to inspect the work. They looked around for a minute and said, "Wait a minute, is this paneling in here? This guy is a foreman! No one at his level is allowed to have paneling! You have to be a supervisor to rate that!"
So, the next day, the order came down, and two union painters showed up with buckets of beige paint to paint over the paneling - so that the supervisor's boss would be appeased, and the pecking order of management would be maintained. The cost savings Paul had strived for - trying to be creative and innovative - were wiped out. His project ended up coming in over budget.
Naturally, Paul got discouraged. And after a while, he stopped trying so hard and started questioning why he was working there. All that mattered, it seemed, was fitting in, playing the game by the rules, protecting your perks, and looking out for your own interests. Somewhere along the line, cars would get made, but that was secondary, of course.
Not surprisingly, Paul doesn't work for GM anymore. In fact, such a system tends to drive out creative and innovative people and attract the worst sort of slackers and sycophants known to mankind. The people who rise to the top of such a festering dung heap are the most odious sorts of human beings known to mankind - self-promoters, glad-handers, and back-scratchers.
With management more concerned about protecting perks and appeasing the union - and the union more concerned with keeping dues up by insuring more workers were hired - the end result was inevitable, over time. Cost started to bloat out of control, and eventually, well, bankruptcy was a forgone conclusion. If not for the cheap gas of the 1990's and the SUV craze of that era, GM's bankruptcy would have been a decade earlier, easily.
And Paul's story is just by way of example. Such shenanigans and utter squandering of money were so common - such as the infamous "five foot high" machine rule I wrote about at New Departure. It was not an isolated phenomenon, but endemic to every branch of the operation.
Today, similar problems affect modern companies - and may indeed threaten the "new" GM down the road. Hewlett-Packard, once an industry icon, faces hard times, as it sheds its PC division, and foolishly relies on things like the printer cartridge business to support it (Printing, as I noted before, is on its way out, as displays become larger and larger). And what was management doing? Holding pep rallies at stadiums to get the "troops fired up" - instead of watching the bottom line.
The good news is, it appears we are heading toward a different model of working, in this new Century, that may help alleviate the type of empire building that has plagued our institutions in the past (documented, for example, in Robert Townsend's book, Up The Organization!). More and more people are working independently, or in smaller groups or for smaller companies - which eliminates the layers of inept and meddlesome middle management so cleverly skewered, for example, by books (and the musical) How to Succeed in Business Without Really Trying.
Simply stated, you can't have the sort of sycophants and parasites that thrive in a 10,000 employee company in a one-man operation or a small start-up shop. The idea of the large, efficient corporation has turned out to be a farce, as such organizations inevitably attract the type of people who want to get ahead - without trying. The type of people who want to take all the credit, without doing all the work, and shift the blame when it all goes so horribly wrong.
Of course, such organizations will continue to exist and have to exist. Government, the military, and some large commodity-producing companies require a large, organized workforce. And some projects require large groups of people to interact in an organized fashion. But increasingly, companies - even GM - are finding it far more profitable to "farm out" a lot of work, as even though the overhead cost per person may be higher, the fat and inefficiency saved by cutting out middle-management slackers and meddlers more than compensates.
The Japanese, of course, pioneered this technique with their Kerietsu supply chain systems - hiring companies to build their parts for them, rather than trying to own parts companies as GM did as part of its Sloan vertical integration model.
In my own life, I did the same thing, leaving the big law firm for a solo practice. I may make far less money this way, but I do not pay 2/3 of my billing in law firm overhead (1/3) and in partnership profits (1/3). As a result, I can work less hard, charge less, and get more done. No one tells me to paint the paneling beige.
Walking is a pretty inexpensive sport or vacation.
I just finished reading In the Garden of the Beasts, which is an interesting book and reminded me of a post hoc version of Nora Waln's The Approaching Storm, which sadly is out of print. The Larson book is an interesting insight, as was Waln's, into the slow creep of National Socialism into everyday life.
One of the interesting features of the Nazi regime, which was echoed, to some extent, in other countries, was the concept of Strength Through Joy, which encouraged workers to take more time off from work for inexpensive vacations. Since money was tight in those times, and unemployment was high, it made more sense to hire more people, pay them less, and give them more time off. Workers would go on inexpensive walking vacations or camping trips.
Today, this tradition continues - and has spread - in the form of Volksmarches. And here in Canada, walking and hiking seems to be quite popular. St. John's, Newfoundland, has installed walking trails (the Concourse) that traverse the city in many directions. And every Provincial and National Park has miles - or kilometers - of hiking trails from easy to challenging.
The idea did not originate with Hitler, of course. Many industrialists and Industrial Engineers in the 1930's thought along the same lines. If workers could have inexpensive and healthful vacations, it would be cheaper than paying them more money. Henry Ford experimented with model communities and forms of Corporate Socialism in this regard. Industrial Engineers such as the Gilbreths, touted ideas along this line - of making workers lives more productive by encouraging exercise, reading, culture, and enlightenment.
Today, that has largely changed. We are encouraged to consume, and consuming is seen as the ultimate goal of working. You don't work for a two-week walking vacation in the Alps, but for a Jet Ski or a Bass Boat. And workers accumulate such consumer goods at a rapid clip. When I worked for GM, the typical hourly worker I worked with had a motorcycle, a Camaro, a Winnebago, a Snowmobile, and a host of consumer products, all depreciating rapidly and all bought on time.
And of course, this was not by accident, but by design. Perhaps Henry Ford realized he needed more customers for his cars, and if his workers could not afford them, then demand would drop. So we were encouraged to work to consume, and to consume to drive up demand for work. It was circular reasoning and pretzel logic of the worst sort.
When we go to a "campground" or indeed, when "campers" arrive at our vacation island, they often are towing a plethora of motorized vehicles - sometimes in trailers behind trailers! One cannot camp out, it seems, without a motorcycle, a golf cart, an ATV, and of course a separate car for every member of the family. So when our campers arrive at the campsite, they come with a 40' fifth wheel trailer, towed by a crew cab 1-ton dually pickup, towing a Bass boat or Jet skis behind that. The kids arrive with their own cars, towing utility trailers with golf carts, ATVs, motorcycles, dirt bikes, and the like. You cannot recreate without consumer products - and you aren't having fun, it seems, unless an internal combustion engine is running somewhere, even if it is just the generator.
But the funny thing is, having less is often more. We have been living, for the last month in a 17-foot travel trailer that is smaller than a Supermax Prison cell. And that's double-occupancy, too! What I have learned is multi-fold.
First, you don't need a lot of space or a lot of things to live. A place to sleep, a place to cook and eat, a place to relax, and a bathroom. That's it. Yet we all have so much more than that and rarely find it satisfying.
Second, when you don't have a lot, you tend to make more use of public spaces, such as parks, streets, picnic areas, retail businesses and the like. When you have a large house with a 50" HDTV, you tend to stay home more, live a sedentary lifestyle, and not go out. Without all those distractions at home, public spaces are more compelling to visit.
Third, most of this sort of thing is free or cheap. Walking and hiking require little more than a good pair of shoes. Some folks like to expertize this with special clothing or those ski-pole-like walking sticks. But you really don't need all of that just to get out and get around.
But I think that many folks don't get that. A vacation requires a motor being run or a ride being ridden on, or some sort of "experience" that requires an admission fee, a ticket, or some other sort of cost. And perhaps this sort of approach is comforting - after all it is easier to follow the herd up the chute to the slaughterhouse as it is to get in line at Disney World.
And I am not knocking Disney World, either. It is fun. You should go sometime, if not just for the irony of it all. Branson is the same way. But having fun doesn't require a ticket stub, a can of gas, an internal combustion engine, a cooler full of crappy beer, or expensive specialized clothing or equipment.
And maybe those social movements of the 1930's were right in that regard. Having more time off is more important than having more things to play with - and no time to play with them, or money left to live on.
Monday, September 5, 2011
Credit is really nothing more than a promise...
On CBC Radio One (which in Western Newfoundland is usually "Radio Only") there was a discussion on a talk show recently about the credit crises, the debt ceiling and the like. Was credit really a bad thing? As the guest noted, and as I discussed in a recent post, the GOP has tried to bootstrap people's feelings about personal debt to their feelings about government debt.
We have to pay back our personal car loans and credit cards, the thinking goes, so the government has to pay back its debts as well.
But as the commentator noted, debt is little more than a promise. I promise to pay you, and you, in return, deliver goods or services. In business, this form of credit is often the lubricant that makes things flow. I promise to pay you for raw materials, which you provide. I make a product from the raw materials, which my customer promises to pay me for, down the road. On any given day, in the business world, people owe other people thousands, tens of thousands, hundreds of thousands, or even Millions and Billions of dollars.
For example, in my business, at any given time, I typically have about $20,000 to $40,000 of "Accounts Receivables" which represent promises to pay me in the future. Getting people to uphold these promises is often akin to pulling teeth.
And one problem I have, is that my suppliers often don't accept these promises. Patent fees have to be paid in cash, unless I use a credit card - which is another promise - and pay a hefty fee in interest payments. so, increasingly, I am going to an all-cash basis - getting money in advance, rather than a promise to pay. It works better than promises.
Which begs the question - why do we use this credit system instead of a cash-basis for business and government? Wouldn't this "promises" concept work as well if people made their promises in the form of Hundred-dollar bills instead of credit notes? (A hundred-dollar bill is, after all, only another promise from the government, right?).
It is an interesting concept, and I think the short answer is that credit frees up Capital. If we went to an all-cash system, with no credit, then a lot of Capital - cash - would be tied up in payments between venders and dealers, retailers and wholesalers, customers and merchants, and the like. Literally Billions and Billions, if not Trillions of dollars would be tied up this way, without earning any income.
And it would mean, also, that only those with a ton of money could even think about starting and running a business. If you wanted to build a steel mill, you'd have to have cash to pay for all the parts and labor, as well as cash to pay for all the ore to process. Most businesses would never get built.
Credit also allows people to share risks. The banker lends money to the steel mill "owner" and in return gets interest payments. He is sharing in the risk of the venture, for a predetermined profit. But unlike the owner, he is first in line if things go bust - which is often why owning Corporate Bonds is a better deal than owning Corporate Stock. GM shareholders were wiped out 100% when GM went bankrupt. But bondholders at least got some of their money back.
And some might argue that credit - on a personal level - may work the same way. You buy a lot of crap "on time" and you appear to be rich. After all, you own a lot of crap, right? But on a personal level, consumer credit is very different than commercial credit. You don't make money - or have the opportunity to make money - from a car loan or a home mortgage. Consumer credit is just spending, not investing.
If I borrow money to buy a duplex, and rent it out with a positive cash-flow, I can make money (and I did). But if I borrow money to buy a vacation home (and don't rent it out, which I should have!) then I just lose money (and I did!).
If I borrow money to buy a car, I just lose money. If I borrow money to buy a tow truck or a taxi cab, and make money using the vehicle, then I would make money. Commercial loans can be a good thing, at times. Consumer loans are usually always losers.
Ironically, today, it is easier to get consumer credit than commercial credit. Commercial loans have always been viewed as riskier endeavors than consumer loans - mostly because they are for larger amounts, and in the case of mortgages, not backed by the Government. So today, banks are shying away from lending money from businesses, but still handing our cash to Mr. and Mrs. Verge-of-Bankruptcy. It makes no sense, of course.
Easy credit is viewed as a way of encouraging consumption - and it does. But while that might be good for GM or Toyota, it might not be good for you, on a personal level. Accumulating debt, even so-called "0% financing" (whose costs are not eliminated, just hidden) does not add to your bottom line, but detract from it, in the form of interest paid AND the excess consumption it encourages.
When you pay cash for a car or other consumer purchase, you tend to scrutinize costs more closely. Do you really need the heated seats and leather upholstery? Or would you rather pay $2000 less for the car? Or would you rather buy the same car, used? Cash makes these choices rather apparent. Credit, with its siren song of "It's only another $49 a month!" obfuscates them.
Before long, the consumer is spending more and more of their income on interest payments, and moreover it obligated to make monthly payments on a host of debts - to keep all those promises. And the credit industry these days, unfortunately, is all-too-willing to let you make a promise that will be impossible for you to keep. One way to avoid this fiasco is to make such promises rarely and for the smallest amounts possible.
Credit is a fine and wonderful thing in the business world and for governments, but on a personal level, it is rarely little more than a raw deal.
People no longer want homes, one Real Estate Agent told me, they want to build monuments to themselves.
About 15 years ago, we looked at a home in Harper's Ferry, West Virginia. At the time, I was making "good money" at the fabled "dream job" and the fantasy of having a weekend retreat in West Virginia seemed appealing - after all, it was only a train ride away from Union Station in Washington DC.
And we looked at a place on 10 acres. It was an old stone house that needed a complete overhaul. And even at $200,000, it was a lot of money back then - for a second home. I realized back then that owning two homes was not a good idea, as they were both expenses, not income producers like rental properties. So I walked away. I should have remembered that lesson later in life!
The Real Estate Agent we talked to noted a number of the mini-mansions that were being built in the area and we talked about these. Her comment nearly made me spit up. "People are building monuments to themselves" she said. And she was right.
The entire "look at me!" home trend of the last two decades was an ego trip, to be sure. To own an "impressive" home that would intimidate your friends and make people think you were rich, was considered to be the best possible thing you could do. And since all your friends were doing it, you had to, too, and get caught up in an arms race of granite counter tops, stainless steel appliances, whirlpool tubs, man-cave garages, and the like.
Most, if not all of this was useless garbage. Gourmet kitchens for people who can't cook. Whirlpool tubs that become oversized laundry hampers and dust attractants. Man-Cave garages with diamond tread toolboxes for men too busy to work on cars, even if they were inclined to, or had the skills. It was a show - a Broadway production - of a lifestyle that usually neither spouse wanted or actually lived. But it was a show that was put on to impress an audience of unidentified "others" who would be impressed - or so we thought.
Were we really that insecure - individually and as a nation? In retrospect, it all seems so odd.
As I have noted before here, if you do the math and add up the costs and benefits of home ownership, if you buy a lot of home, you have a lot of home - and a lot of cash-flow requirements. You don't make money from the home you own, so buying more of it doesn't make you more money. At best, you might get back - after 10, 20, or even 30 years - all that money you spent on mortgage payments, interest, taxes, utilities, repairs, and like - if you are lucky. But you don't make money.
So buying an expensive "Look at me!" house just stresses you financially, leaves you broke all the time (house poor) and unable to put aside money to fund your retirement. And if the market crashes - as it did - or if you lose your job - as many did - well then, you are really screwed. And many of us were and are. I was fairly lucky, myself.
Owning a lot of "stuff" is fine and all - if you are really rich. The temptation is, in our credit-based society (and don't kid yourself, despite what the naysayers say, it is still ridiculously easy to go into debt in this country - there is plenty of credit to be had, particularly on onerous terms) to have more NOW and pay later, and kid ourselves that this is real wealth and moreover is smart financial thinking.
But you have to ask yourself, are you getting something you really need in life, or just building a monument to yourself? And is real happiness to be found in a never-ending stream of onerous mortgage payments, credit card bills, and car payments? Or in something else?
Is it better to have a mortgaged mini-mansion or a paid-for bungalow?