Wednesday, May 2, 2018

New Paradigm? Maybe.

Can social, technological, and economic conditions change to the point where what we thought was right is now wrong?  Perhaps.

A lot of what I harp on in this blog is what I think is "common sense" and based on my personal experiences.  It doesn't mean I'm right about everything - or indeed anything - and I make no guarantees.   But suffice it to say, saving money and spending less usually ends up working out better than trying to clip coupons, acquire mileage points, leasing a car, or racking up high-interest credit-card debt - or chasing "deductions" by purchasing an oversized mini-mansion.

It makes more sense to buy a car you can afford, that meets your lifestyle requirements (as opposed to your ego requirements) and keep it for as long as possible - as opposed to leasing a new luxury car every three years.   Unless of course, you have millions in the bank - they go for it.  Only have a million?   You're a plebe like me.  Don't think you can afford it, even if the bank says so.

But could that advice change?   Suppose this new era of self-driving cars does indeed occur (hopefully before I lose my faculties and driver's license.  Well, I still have my driver's license, anyway) and we have Uber cars or whatever to take us from place to place?   Would it make sense to own one of these highly complex cars, or would it be better to lease one?   Or would you just call one when you need it and forget about owning a car entirely?  Maybe, if that turns out to be cheaper, or at least more convenient, than owning a car.   I think, perhaps, that actually driving your own car than you own will remain cheaper than autonomous cars, for a long, long while.  And I doubt the citizens would allow for traditional people-driven cars to be outlawed anytime soon.

These are interesting questions, but since it hasn't happened yet, and since I suspect it will take longer to implement than people think,  we shouldn't get ahead of ourselves.   But it is true that cars are far more complex these days and can be harder and more expensive to service down the road.  A car with "all the toys" is nice, until those toys break.   One reason you can buy an older 7-series BMW for nearly nothing is that even minor repairs get expensive.  And if something like the A/C evaporator needs to be replaced (which usually means removing the entire dashboard) it can cost more to service than the book value of the car.    So cars like that, looking like new (other than a few scratches here and there) and running "fine" for now, can be had for as little as five grand.

It's like the Porsche Cabrio that a friend of mine just bought for ten grand.  He's put that much into it in repairs already - something he expected to do.   It is a nice car, and since he doesn't drive it much, it may last him a long time - as long as he wants to run it.   And since it didn't cost much....   But as a daily driver to commute to work?   Probably not a good choice.

So, I suppose you could argue that it "makes sense" to lease one of these highly complex cars, as the repair costs could be extensive.  Or maybe get one of those "extended warranties" to cover these kinds of repairs.

You could argue.  I would still not be convinced.

You see, there are other alternatives.  You could buy a less complicated car.   Buy a simple front-wheel-drive four-cylinder, four-door sedan, made in mass quantities.  They are cheaper and since they make so many of them, parts are cheap and most mechanics can work on them.   And since they don't cost a lot to buy, well, you can afford so simply throw them away, when something expensive breaks, as opposed to throwing money down the rabbit-hole of the German Car Repair Shop, until you throw in the towel and just sell the car to the mechanic.

I used to have BMWs.  They were nice cars, but they depreciated quickly, once they were out of warranty.   And the reason was simple - the parts cost was high and labor for repair costs was high.  And few people knew how to work on them.   It is sad, but I see fewer older BMWs on the road than more plebian cars -  the latter of which you would think would be junked sooner, as they are worth less.   But many a BMW can go to the crusher, simply because a "minor" repair exceeds the book value.

But what about other paradigms?   When I worked for the odious big law firm (briefly) we handled these "dot com" startups, which are not unlike the "app" startups of today (which are also poised to crash).   The wild-eyed entrepreneurs would tell me things like "Profits are a thing of the past!  It's a new paradigm!  A sea change!"   One friend of mine - a Patent Attorney, actually - was also a software engineer and started his own "dot com" company.  He explained to me that the higher the "burn rate" of the company - the rate at which they squandered their capital - the more the company was worth.  A Venture Capitalist wanted to buy him out, but told him his "burn rate" was too low.   He finally got an offer for the company and turned it down, thinking it would be worth even more down the road.

Oh, the siren song that lured the mini-mansion, gold, and bitcoin buyers onto the rocks.  "I can make money now, but why sell?  It can only go up!"    A year later, the dot-com thing crashed and my friend sold his company for a pittance.   He's still a Patent Attorney, last I heard.

It turns out that profits are not a thing of the past, but of the present and future.  And this is not something that is based on human emotions or government regulations, but rather a law of nature.  You cannot sustain an enterprise indefinitely without paying the bills at some point.  Elon Musk may discover this inflexible rule later this year - we'll see.   It can take a long time for this sort of thing to play out - look at Sears! - but eventually, well, you run out of capital.

So while the economy changes, jobs change, technology changes, and people change, some things pretty much stay the same.   People can't just vote themselves a raise.  You can't pass a law rounding Pi off to three.  You can't run a company forever losing money.   And no matter how "advanced" our society becomes, some things remain the same - perhaps get worse.  The con-man of days gone by has not become obsolete, he's moved to the Internet.

So the same old adages are still true today, tomorrow, and always.  "If it sounds too good to be true, it probably is" and "a sucker is born every minute."  We like to think we are all modern and sophisticated, what with our smart phones and Internet and whatnot.   We thought we were smart and sophisticated back in 1970 with our television and moon rockets.  My parents thought they were smart and sophisticated, what with the radio and talking pictures.   Each generation looks back at the last as primitive and simple.   How did people live back then, in the days of infant mortality, polio, and early death?

Funny thing is, they lived.  And often they did great things, like forming a democracy, as imperfect as it was.  But I digress.

The laws of nature don't change over time, no matter how smart and clever we think we now are.  And the laws of economics - which are the laws of nature - remain static as well.   We cannot defy economic gravity for very long, as much as we might try.   We can call it a new paradigm or a sea change or whatever, but it really is the same old shit in a different package.

And the bottom line always remains the same.