Should this come as any surprise?
Tuesday, November 07, 2006
Sunday, November 05, 2006
The Rich and The Poor
There are two datasets I keep a close eye on to see if their respective stewards ever update them.
One is the natural gas production at Bolivia's state owned government agency (as I wait, patiently crouched like a ninja ready to jump upon the inevitable data that will show production has declined under state ownership).
The second is the mean household income of each quintile of income earners put out by the US Census Bureau.
The latest data had only gone up to 2001, and I was particularly interested in this information because it would ABSOLUTELY AND COMPLETELY resolve one of the main (if not THE MAIN) claim of the left that George Bush's tax cuts have only benefited the rich. So imagine my joy when I found out they had updated them to 2005 this past week!
Well junior and aspiring deputy economists, here's the latest income distribution figures from the US Census Bureau;
As you notice the long term trend of EVERYBODY'S income is that EVERYBODY, POOR INCLUDED is getting richer. However, the short term trend, since the economic slow down of 2001 (I still refuse to call it a recession) is that people have been getting poorer, with a recent recovering in income.
Now, leftists, socialists, communists and other mainstream members of the democratic party, will pounce on this as proof positive that GW's policies have failed since he was inagurated as president in 2001. That he is out there whooping it up for his rich oil buddies, and when he's not whooping it up, he's sending his storm troopers out to knee-cap poor people.
But there are two problems with this;
1. It seems that it's more a historical economic trend for incomes to decline (and then recover) after each recession, rather than Bush training Barney to bite and pee upon poor people. I circled in light blue what has happened to the bottom 4 quintiles of incomes after the previous three "recessions" and you'll note that the trend is consistent across all incomes.
After each recession, ALL PEOPLE'S INCOMES DECREASE...LIKE YOU WOULD EXPECT THEM TOOOO, MAYBE HUH?????
2. The left likes to focus their attacks on the "super rich" because they know they can tax such a small minority, promising the masses to transfer the wealth and thus bribe poorer folk to vote for them. Well, even the "super rich," GW's presumed "bestest of buddies" suffered. With not only the top 20% of income earners suffering a decrease in income, but also the tippy top super secret elite top 5% of income earners suffering a loss as well.
So there you have it folks. The answer to the brainwashed, massed produced, broken record mantra of the left, "GW's tax benefits have only benefited the rich," is
"No it hasn't, it seems to have had the same effect on all income levels, besides which the broader economy seems to have a larger role in determining outcomes."
Now, a signed autograph and CERTIFICATE OF JUNIOR DEPUTY ECONOMIST-NESS goes to the adventuresome aspiring economist that can tell me why incomes of the lowest quintile have not recovered as quickly as other quintiles.
One is the natural gas production at Bolivia's state owned government agency (as I wait, patiently crouched like a ninja ready to jump upon the inevitable data that will show production has declined under state ownership).
The second is the mean household income of each quintile of income earners put out by the US Census Bureau.
The latest data had only gone up to 2001, and I was particularly interested in this information because it would ABSOLUTELY AND COMPLETELY resolve one of the main (if not THE MAIN) claim of the left that George Bush's tax cuts have only benefited the rich. So imagine my joy when I found out they had updated them to 2005 this past week!
Well junior and aspiring deputy economists, here's the latest income distribution figures from the US Census Bureau;
As you notice the long term trend of EVERYBODY'S income is that EVERYBODY, POOR INCLUDED is getting richer. However, the short term trend, since the economic slow down of 2001 (I still refuse to call it a recession) is that people have been getting poorer, with a recent recovering in income.
Now, leftists, socialists, communists and other mainstream members of the democratic party, will pounce on this as proof positive that GW's policies have failed since he was inagurated as president in 2001. That he is out there whooping it up for his rich oil buddies, and when he's not whooping it up, he's sending his storm troopers out to knee-cap poor people.
But there are two problems with this;
1. It seems that it's more a historical economic trend for incomes to decline (and then recover) after each recession, rather than Bush training Barney to bite and pee upon poor people. I circled in light blue what has happened to the bottom 4 quintiles of incomes after the previous three "recessions" and you'll note that the trend is consistent across all incomes.
After each recession, ALL PEOPLE'S INCOMES DECREASE...LIKE YOU WOULD EXPECT THEM TOOOO, MAYBE HUH?????
2. The left likes to focus their attacks on the "super rich" because they know they can tax such a small minority, promising the masses to transfer the wealth and thus bribe poorer folk to vote for them. Well, even the "super rich," GW's presumed "bestest of buddies" suffered. With not only the top 20% of income earners suffering a decrease in income, but also the tippy top super secret elite top 5% of income earners suffering a loss as well.
So there you have it folks. The answer to the brainwashed, massed produced, broken record mantra of the left, "GW's tax benefits have only benefited the rich," is
"No it hasn't, it seems to have had the same effect on all income levels, besides which the broader economy seems to have a larger role in determining outcomes."
Now, a signed autograph and CERTIFICATE OF JUNIOR DEPUTY ECONOMIST-NESS goes to the adventuresome aspiring economist that can tell me why incomes of the lowest quintile have not recovered as quickly as other quintiles.
Saturday, November 04, 2006
The Economics Supper Club, Eh!
So I wake up, eh.
And I check my website stats, and like, ders a bunch of hits, eh.
And so I find out dat der Kate over at www.smalldeadanimals.com has put a link up to my web post.
Soooo I wanted to let not just de Americans know abooot my radio show, but our friendly neighbors to da north, eh!
So you should all tune in, www.am1500.com for the web site streamline. 1-3PM central standard, eh.
1-877-615-1500 for Canadians and out of state people
and 651-646-8255 for da local ones.
It'll be a good time, eh!!!!
And I check my website stats, and like, ders a bunch of hits, eh.
And so I find out dat der Kate over at www.smalldeadanimals.com has put a link up to my web post.
Soooo I wanted to let not just de Americans know abooot my radio show, but our friendly neighbors to da north, eh!
So you should all tune in, www.am1500.com for the web site streamline. 1-3PM central standard, eh.
1-877-615-1500 for Canadians and out of state people
and 651-646-8255 for da local ones.
It'll be a good time, eh!!!!
Friday, November 03, 2006
DAMN YOU GEORGE BUSH!
And your low low unemployment rates and high economic growth and income per capita of $40,000 per person in this god-foresaken land!!!
They're Gettin' Loopy at the OECD
Again, another daily perusal through the OECD and I think they're getting bored. So bored they calculated how much countries spend on "knowledge" as a % of GDP.
Knowledge defined as software, R&D, and higher education.
No doubt there is a correlation between higher economic growth and these three items, and how else would you economically measure "knowledge." But it just kind of seems hookie to me.
Knowledge defined as software, R&D, and higher education.
No doubt there is a correlation between higher economic growth and these three items, and how else would you economically measure "knowledge." But it just kind of seems hookie to me.
Thursday, November 02, 2006
Overjoyed with the Self-Employed!
Two things caught my attention at my random trip to the OECD this time.
For the “capitalist” center of the world, the US sure has a low percentage of entrepreneuers.
They broke down this statistic further by male and female. As was to be expected, a higher percentage of the male labor force was self-employed than the women, but there were a couple countries where the women were more entrepreneurial. Thus I subtracted the male self-employment rate from the female self-employment rate, resulting in a kind of ‘index’ to measure female entrepreneurship in different countries.
For the “capitalist” center of the world, the US sure has a low percentage of entrepreneuers.
They broke down this statistic further by male and female. As was to be expected, a higher percentage of the male labor force was self-employed than the women, but there were a couple countries where the women were more entrepreneurial. Thus I subtracted the male self-employment rate from the female self-employment rate, resulting in a kind of ‘index’ to measure female entrepreneurship in different countries.
The Best of Captain Capitalism - Support Your Local Cynic
This was sent to me by a reader and reminded me not of the playboy post, but this one, support your local cynic. I caught a lot of flak for this post from women, but (as is many of the times) they don't realize my main aim in this post was to save future women (and men as well) from wasting their precious time and money on such worthless degrees. Oh well, tough fatherly love is out of fashion in today's DesperatehousewivesDawsonsCreekTeenIdol America.
Often I have been accused of being a cynic. And not necessarily in a positive light either. No, usually it is followed by some commentary that I should “let go” or “loosen up” otherwise I shall “blow a gasket” and my “blood pressure will skyrocket” and “do I really want to live life this way?”
So to disprove the doubting Thomases and to help us once again advance our understanding about economics I shall demonstrate why cynicism and those that participate in it, cynics, are necessary and right in their insistence on being cynical.
First off, the majority of people you view to be “cynics” are not really cynics at all. No, those of us who seem to have a negative outlook on life and pummel those that come up to us with their brainwashed ignorant smiles saying, “Hey, don’t worry be happy” are in reality REALISTS.
The reason for this is instead of being placated by Desperate Housewives or Teen Idol and satiated by marrying and having the 2.2 kids in the suburbs as our cookie-cutter American counterparts have done, we think ahead. We survey the land. We ask ourselves questions, “what do we want in life and what will happen in the future and what action should be taken to best navigate that future.” This leads any independent-thinking individual to study and take note of various sociological and economic factors, some of which will certainly be; the pathetic savings rates we have, the impending social security crisis that is looming, not to mention the Medicare/Medicaid crisis, all under the shadow of a property market bubble, and an increasing parasite class nudging the US ever closer towards socialism.
And no, don’t tell me to loosen up.
However, the deteriorating economic fundamentals of the future US is not the reason for my bringing up cynicism. The reason is a talking point that I have heard now one too many times in the talk radio world and that is somehow that men, or rather, boys, are being neglected in schools and this results in (ready for the sound byte???) women earning the majority of college degrees.
Usually this is set in the context of reverse discrimination where boys are forced out of their traditional male role models at school and then usually an accusation of some leftist policy that heralds girls over boys, and then the ensuing “woe are we poor men/boys being discriminated against by the leftist educational machine.”
I have two major points of contention with this;
One, we on the right are not whiners. It’s one of the key things that separates us from the left. You want to call us names? Fine. You want to make the playing field unfair? Fine. But we are not going to bitch and whine and feel sorry for ourselves. That’s the job of the left, liberals, and their bevy of political allies. We on the right get up off the ground and go back into the fight, regardless of the odds. So cut as many men jokes as you want. Post as many oafish, tail-behing-the-legs Ray Romanos on TV as you want. We don’t care, because frankly men know better and we are actually secure with ourselves and needn’t any pity or affirmative action hand out and can let whatever unfair practices in the schools roll off our backs for that is what makes us men. And radio talk show hosts should know better.
My second point of contention was started when a little voice in the back of my head said, “something ain’t right about that” when I heard Michael Medved complaining about how men were trailing women in earning college degrees. Certainly he was right, women do earn the majority of college degrees, but something was amiss. Something didn’t add up. Something I couldn’t put my finger on.
Fortunately, I have that trait that all people seemingly are hell-bent on hating and beating out of me, cynicism. And whilst many of you want to just “let go” and be blissfully happy, ignorant to the realities around you whilst you hold hands around the camp fire singing Kumbya and participate in candle-light vigils, some of us were being vigilant.
For as a cynic I remember college and I remember the majority of the women I dated were frankly, morons. Now one could make the argument, this was a sample bias since only morons would go out with me, but I contend another theory. That the majority of girls I dated in college were morons not because only morons would go out with me, but rather because the majority of women majored in what I call “crap studies.” Fields such as “sociology,” “communications” and my all-time favorite, because you’ve only been speaking it for 18 years, “english.”
In other words, the reason why more women are earning more degrees than men is because they major in subjects that are easier.
“WHY, HOW DARE YOU!!!! YOU CYNICAL ASS YOU!!!!”
Yeah, well, like I said, the majority of cynics aren’t pessimistic, but realists. For you see, to test my theory I called up the University of Minnesota with its some 50,000 students and asked them if they could send me a breakdown between the types of degrees awarded and gender. And after a little number crunching it seems my theory was not a theory at all, but reality.
When broken down the majority graduate degrees that are awarded to women are in “fluff” or since I’m subsidizing their education, I call them “crap” fields such as psychology, women’s studies, urban studies, etc., while the majority of real degrees in fields such as engineering, medicine, accounting, etc., with practical applications to the real world are awarded to men.
Similar statistics are shown in undergraduate degrees, where again the majority of “crap” degrees are earned by women and the majority of real degrees are earned by men.
As an economist I have a particular respect for engineers since they compose not only the majority of my friends, but I deem it the field most productive to society (and the labor market agrees with me based on their starting salaries). Alas, men outdo women 5 to 1 in these fields.
Now you can go ahead can contest that I’ve tainted the data. That somehow the University of Minnesota is not a representative sample of an American college, and who am I to say degrees in Chicano Studies are not as warranted as chemical engineering (you racist cynic you!). All I can say is that if you are offended, well you should be, because it’s not the falsities of life that are truly insulting, but rather the truth. The question is whether you want to deal with it, or go watch some more Desperate Housewives.
"Your are a cynical person, Rick, if you forgive me for saying so."
"Oh, I forgive you."
Often I have been accused of being a cynic. And not necessarily in a positive light either. No, usually it is followed by some commentary that I should “let go” or “loosen up” otherwise I shall “blow a gasket” and my “blood pressure will skyrocket” and “do I really want to live life this way?”
So to disprove the doubting Thomases and to help us once again advance our understanding about economics I shall demonstrate why cynicism and those that participate in it, cynics, are necessary and right in their insistence on being cynical.
First off, the majority of people you view to be “cynics” are not really cynics at all. No, those of us who seem to have a negative outlook on life and pummel those that come up to us with their brainwashed ignorant smiles saying, “Hey, don’t worry be happy” are in reality REALISTS.
The reason for this is instead of being placated by Desperate Housewives or Teen Idol and satiated by marrying and having the 2.2 kids in the suburbs as our cookie-cutter American counterparts have done, we think ahead. We survey the land. We ask ourselves questions, “what do we want in life and what will happen in the future and what action should be taken to best navigate that future.” This leads any independent-thinking individual to study and take note of various sociological and economic factors, some of which will certainly be; the pathetic savings rates we have, the impending social security crisis that is looming, not to mention the Medicare/Medicaid crisis, all under the shadow of a property market bubble, and an increasing parasite class nudging the US ever closer towards socialism.
And no, don’t tell me to loosen up.
However, the deteriorating economic fundamentals of the future US is not the reason for my bringing up cynicism. The reason is a talking point that I have heard now one too many times in the talk radio world and that is somehow that men, or rather, boys, are being neglected in schools and this results in (ready for the sound byte???) women earning the majority of college degrees.
Usually this is set in the context of reverse discrimination where boys are forced out of their traditional male role models at school and then usually an accusation of some leftist policy that heralds girls over boys, and then the ensuing “woe are we poor men/boys being discriminated against by the leftist educational machine.”
I have two major points of contention with this;
One, we on the right are not whiners. It’s one of the key things that separates us from the left. You want to call us names? Fine. You want to make the playing field unfair? Fine. But we are not going to bitch and whine and feel sorry for ourselves. That’s the job of the left, liberals, and their bevy of political allies. We on the right get up off the ground and go back into the fight, regardless of the odds. So cut as many men jokes as you want. Post as many oafish, tail-behing-the-legs Ray Romanos on TV as you want. We don’t care, because frankly men know better and we are actually secure with ourselves and needn’t any pity or affirmative action hand out and can let whatever unfair practices in the schools roll off our backs for that is what makes us men. And radio talk show hosts should know better.
My second point of contention was started when a little voice in the back of my head said, “something ain’t right about that” when I heard Michael Medved complaining about how men were trailing women in earning college degrees. Certainly he was right, women do earn the majority of college degrees, but something was amiss. Something didn’t add up. Something I couldn’t put my finger on.
Fortunately, I have that trait that all people seemingly are hell-bent on hating and beating out of me, cynicism. And whilst many of you want to just “let go” and be blissfully happy, ignorant to the realities around you whilst you hold hands around the camp fire singing Kumbya and participate in candle-light vigils, some of us were being vigilant.
For as a cynic I remember college and I remember the majority of the women I dated were frankly, morons. Now one could make the argument, this was a sample bias since only morons would go out with me, but I contend another theory. That the majority of girls I dated in college were morons not because only morons would go out with me, but rather because the majority of women majored in what I call “crap studies.” Fields such as “sociology,” “communications” and my all-time favorite, because you’ve only been speaking it for 18 years, “english.”
In other words, the reason why more women are earning more degrees than men is because they major in subjects that are easier.
“WHY, HOW DARE YOU!!!! YOU CYNICAL ASS YOU!!!!”
Yeah, well, like I said, the majority of cynics aren’t pessimistic, but realists. For you see, to test my theory I called up the University of Minnesota with its some 50,000 students and asked them if they could send me a breakdown between the types of degrees awarded and gender. And after a little number crunching it seems my theory was not a theory at all, but reality.
When broken down the majority graduate degrees that are awarded to women are in “fluff” or since I’m subsidizing their education, I call them “crap” fields such as psychology, women’s studies, urban studies, etc., while the majority of real degrees in fields such as engineering, medicine, accounting, etc., with practical applications to the real world are awarded to men.
Similar statistics are shown in undergraduate degrees, where again the majority of “crap” degrees are earned by women and the majority of real degrees are earned by men.
As an economist I have a particular respect for engineers since they compose not only the majority of my friends, but I deem it the field most productive to society (and the labor market agrees with me based on their starting salaries). Alas, men outdo women 5 to 1 in these fields.
Now you can go ahead can contest that I’ve tainted the data. That somehow the University of Minnesota is not a representative sample of an American college, and who am I to say degrees in Chicano Studies are not as warranted as chemical engineering (you racist cynic you!). All I can say is that if you are offended, well you should be, because it’s not the falsities of life that are truly insulting, but rather the truth. The question is whether you want to deal with it, or go watch some more Desperate Housewives.
"Your are a cynical person, Rick, if you forgive me for saying so.""Oh, I forgive you."
Wednesday, November 01, 2006
Sunday, October 29, 2006
WHAT AN INTERESTING COURT CASE!!!!
Let me tell you about Pete.
College Republican buddy from the days. Older than me and thus one of the few folks I take wisdom from rather than dispense to. Also a lawyer and former military. So you can sit down and have a beer with Pete and pretty much be guaranteed that you will be talking about something slightly higher brow than Dawson's Creek. Runs a blog called Swanblog which is more law than it is economics, so if you want pit stop over there sometime and check it out.
Anyway, he forwarded me this article which is about a guy who got sued for defaming somebody over the internet through the use of a blog.
I know this is a deviation from our standard economic fare, but I'm sure there are some readers who are VERY interested in these sorts of lawsuits.
College Republican buddy from the days. Older than me and thus one of the few folks I take wisdom from rather than dispense to. Also a lawyer and former military. So you can sit down and have a beer with Pete and pretty much be guaranteed that you will be talking about something slightly higher brow than Dawson's Creek. Runs a blog called Swanblog which is more law than it is economics, so if you want pit stop over there sometime and check it out.
Anyway, he forwarded me this article which is about a guy who got sued for defaming somebody over the internet through the use of a blog.
I know this is a deviation from our standard economic fare, but I'm sure there are some readers who are VERY interested in these sorts of lawsuits.
Open Budget Index
My favorite is when I'm doing battle with a socialist, I have the budget pulled up on my laptop or the stats on my memory stick, and I show them, PROVE to them, beyond all reasonable and unreasonable doubt that they are wrong and/or misinformed to the point it would be glaringly obvious to a 5 year old that they're wrong and what do I get in return?
The standard leftist, knee-jerk reaction response;
"Well, you know you can't trust those figures. Bush and the Republicans are manipulating the budget to make it look that way."
And my standard response to them is, "OK, do you have an alternative budget or proof that would suggest that?"
Of course, the answer is "no."
"Well then, until you have some rival data or budget and that rival data or budget comes from a reputable source, it'll be the official US Federal Government Budget figures we'll be using."
Thus, I was pleased when I saw this new chart from The Economist.
Measures how open a government is with its budget.
The standard leftist, knee-jerk reaction response;
"Well, you know you can't trust those figures. Bush and the Republicans are manipulating the budget to make it look that way."
And my standard response to them is, "OK, do you have an alternative budget or proof that would suggest that?"
Of course, the answer is "no."
"Well then, until you have some rival data or budget and that rival data or budget comes from a reputable source, it'll be the official US Federal Government Budget figures we'll be using."
Thus, I was pleased when I saw this new chart from The Economist.
Measures how open a government is with its budget.
Saturday, October 28, 2006
Banned Statistics on Education - Part II
This is appropriate to re-post as Minnesotans in 75 school districts are facing a vote on levies this November.
There are two things that you probably know about me in reading my little economic posts from time to time;
1. I live in Minneapolis
2. I do not like children.
Thus you can imagine my happiness when I conducted the research for the second portion of my foray into whether or not more money = better schools and found out that not only do Minneapolis property tax payers pay 44% more than the Minnesota average to educate our precious little children, but those children performed 15% below the state average in standardized tests.
Of course many people will claim those tests are biased, archaic and practically racist for they only test those abhorred evil Eurocentric subjects; reading and math (GASP!).
But test them on the merits of diversity and the drawbacks of Western Civilization, America and Capitalism and it will be on par with their indoctrinators’…er…I mean “teachers’” college dissertations.
As an economist I do not so much contest whether everybody should somehow pay to educate our children (I do agree with that), but can we at least get a bang for our buck???
Apparently economic efficiency is not on Education Minnesota’s (teacher’s union) agenda, and especially not so in Minneapolis, for while it takes only $8,739 a year to educate the average Minnesota student, it takes $12,537 to educate the average Minneapolis student (and $15,845 if you include loans and levies).
Alas, I made two calculations.
First, I’m all about the opportunity cost and so I calculated how much it costs to educate a child in the Minneapolis public schools for the 13 years they’re in there (even though some spend a couple more years than that). And this came out to be just shy of $163,000, $3,000 more than what I paid for my house some time ago. And granted property prices have risen, but ask yourself the question;
“Why bother educating some of these morons when they’re only going to go out and live off the system anyway. Hell, just buy them their own damn house and save us the bill on future public housing. Kid is born, and if it doesn’t get its act together by the 1st grade, BOOM, “here ya go kid, the American dream! Now leave us alone and never come back.”
Of course how can you ascertain whether the kid is going to be a good or bad student by the first grade? But you can get a pretty good idea by the 4th or 5th grade I’d imagine. And who says that $12,537 a year can’t be invested in a mutual fund or some other investment? Earning a reasonable 8% a year starting after the 5th grade, there would be over $120,000 in the kid’s housing account. Certainly enough to get them a condo, even in the hot property market of Minneapolis. And who is to say this would be “cruel” or “evil.” We’re buying these losers a free house, the American dream for doing nothing, yet at the same time getting them out of the classroom so the remaining 4 students in the Minneapolis public school system can get a real education uninterrupted.
Now, admitted, I am being a bit satirical, but sadly the economics of it are just so compelling, one really has to wonder if society wouldn’t just be better off doing it this way.
The second calculation I made was to further advance our excursion into the question whether more money = better education. Previously, I looked at state spending per pupil for all 50 states and compared it against average standardized test scores for those states. Interestingly the more spent per pupil the lower the standardized tests scores were for the COLLEGE BOUND, but the higher the standardized test scores were for all students, thus indicating more resources were spent on achieving mediocrity and not excellence.
However, I frankly don’t care too much about what New York spends on its students, for I am not paying the property taxes out there. It’s largely a local issue for me and thus I ran the same correlation for each school district in entire state of Minnesota and the findings were very interesting.
It seems it literally doesn’t matter how much money you spend on education FOR THERE IS NO RELATIONSHIP BETWEEN MONEY SPENT PER PUPIL AND STANDARDIZED TEST SCORES!!!! And if there is one, it’s SLIGHTLY NEGATIVE!
The correlation coefficient between money spent per pupil and the MCA tests (Minnesota’s standardized state tests) is -.08 and -.10 depending on which spending per pupil measure you want to use. And with a sample size of 323 there’s a pretty good statistical argument that this is significant.
In other words the system is bust. Throw all the money you want at the system and it isn’t going to do squat.
Of course, the question is whether you’re going to want to believe this (though since it's factual, I hardly see how one can). No doubt it’s much easier to just regurgitate what the teacher’s union told you to regurgitate. To sit and feel good about yourself when you advocate spending more money on the children. But I wonder, how many of you in Minnesota (right or left) ever bothered to take the time to research this and look it up before taking a position on it and then advocate forcing millions of people to spend billions of dollars on something you truly did not know whether it worked or not.
There are two things that you probably know about me in reading my little economic posts from time to time;
1. I live in Minneapolis
2. I do not like children.
Thus you can imagine my happiness when I conducted the research for the second portion of my foray into whether or not more money = better schools and found out that not only do Minneapolis property tax payers pay 44% more than the Minnesota average to educate our precious little children, but those children performed 15% below the state average in standardized tests.
Of course many people will claim those tests are biased, archaic and practically racist for they only test those abhorred evil Eurocentric subjects; reading and math (GASP!).
But test them on the merits of diversity and the drawbacks of Western Civilization, America and Capitalism and it will be on par with their indoctrinators’…er…I mean “teachers’” college dissertations.
As an economist I do not so much contest whether everybody should somehow pay to educate our children (I do agree with that), but can we at least get a bang for our buck???
Apparently economic efficiency is not on Education Minnesota’s (teacher’s union) agenda, and especially not so in Minneapolis, for while it takes only $8,739 a year to educate the average Minnesota student, it takes $12,537 to educate the average Minneapolis student (and $15,845 if you include loans and levies).
Alas, I made two calculations.
First, I’m all about the opportunity cost and so I calculated how much it costs to educate a child in the Minneapolis public schools for the 13 years they’re in there (even though some spend a couple more years than that). And this came out to be just shy of $163,000, $3,000 more than what I paid for my house some time ago. And granted property prices have risen, but ask yourself the question;
“Why bother educating some of these morons when they’re only going to go out and live off the system anyway. Hell, just buy them their own damn house and save us the bill on future public housing. Kid is born, and if it doesn’t get its act together by the 1st grade, BOOM, “here ya go kid, the American dream! Now leave us alone and never come back.”
Of course how can you ascertain whether the kid is going to be a good or bad student by the first grade? But you can get a pretty good idea by the 4th or 5th grade I’d imagine. And who says that $12,537 a year can’t be invested in a mutual fund or some other investment? Earning a reasonable 8% a year starting after the 5th grade, there would be over $120,000 in the kid’s housing account. Certainly enough to get them a condo, even in the hot property market of Minneapolis. And who is to say this would be “cruel” or “evil.” We’re buying these losers a free house, the American dream for doing nothing, yet at the same time getting them out of the classroom so the remaining 4 students in the Minneapolis public school system can get a real education uninterrupted.
Now, admitted, I am being a bit satirical, but sadly the economics of it are just so compelling, one really has to wonder if society wouldn’t just be better off doing it this way.
The second calculation I made was to further advance our excursion into the question whether more money = better education. Previously, I looked at state spending per pupil for all 50 states and compared it against average standardized test scores for those states. Interestingly the more spent per pupil the lower the standardized tests scores were for the COLLEGE BOUND, but the higher the standardized test scores were for all students, thus indicating more resources were spent on achieving mediocrity and not excellence.
However, I frankly don’t care too much about what New York spends on its students, for I am not paying the property taxes out there. It’s largely a local issue for me and thus I ran the same correlation for each school district in entire state of Minnesota and the findings were very interesting.
It seems it literally doesn’t matter how much money you spend on education FOR THERE IS NO RELATIONSHIP BETWEEN MONEY SPENT PER PUPIL AND STANDARDIZED TEST SCORES!!!! And if there is one, it’s SLIGHTLY NEGATIVE!
The correlation coefficient between money spent per pupil and the MCA tests (Minnesota’s standardized state tests) is -.08 and -.10 depending on which spending per pupil measure you want to use. And with a sample size of 323 there’s a pretty good statistical argument that this is significant.
In other words the system is bust. Throw all the money you want at the system and it isn’t going to do squat.
Of course, the question is whether you’re going to want to believe this (though since it's factual, I hardly see how one can). No doubt it’s much easier to just regurgitate what the teacher’s union told you to regurgitate. To sit and feel good about yourself when you advocate spending more money on the children. But I wonder, how many of you in Minnesota (right or left) ever bothered to take the time to research this and look it up before taking a position on it and then advocate forcing millions of people to spend billions of dollars on something you truly did not know whether it worked or not.
Friday, October 27, 2006
I'm Sorry, WHO Should Be Embarrassed?
So I hit Drudge and see that Calderon, who I’m happy won Mexico’s presidential election, seems to be suffering from the same dementia that Vicente Fox was suffering from. This illusion that somehow Mexicans run the US or have authority to tell us what to do despite the minor ass kicking we delivered to them back in 1846-1848.
But it seems to me what would be truly embarrassing is if your country was so poorly managed and inept that 10% of its population would leave. I mean, that would really be a blow to your pride wouldn’t it? That 1 in 10 people, 1 in 5 of your workers, are so fed up with the ineptitude of the place, that they leave their HOME, you know, turn their backs on their homeland and culture and go elsewhere because it’s so hopeless. I mean that would REALLY be embarrassing. It would be like your wife leaving you for another man. Or your children disowning you. Or U of Minnesota students cheering for the Wisconsin Badgers when they play against the Gophers. That, to me anyway, would be WAAAAAY more embarrassing that a country putting up a fence.
But it seems to me what would be truly embarrassing is if your country was so poorly managed and inept that 10% of its population would leave. I mean, that would really be a blow to your pride wouldn’t it? That 1 in 10 people, 1 in 5 of your workers, are so fed up with the ineptitude of the place, that they leave their HOME, you know, turn their backs on their homeland and culture and go elsewhere because it’s so hopeless. I mean that would REALLY be embarrassing. It would be like your wife leaving you for another man. Or your children disowning you. Or U of Minnesota students cheering for the Wisconsin Badgers when they play against the Gophers. That, to me anyway, would be WAAAAAY more embarrassing that a country putting up a fence.
Thursday, October 26, 2006
Chicks Dig Charts!
I mean, when doesn't it happen that you're just sitting there at a quiet jazz joint working on your Excel spreadsheets and then some babe comes up and says, "Oh my! Is that a chart you're working on? Wow, I've never seen one like that before! I can't explain it, but I suddenly find you irresistably sexy. I know this may be forward, but are you looking for some company tonight?"
Seriously, every day it's like that.
So be careful and aware of your surroundings all aspiring male economists when you look at the chart below. It's the Housing Market Index. In short it measures the health of the housing market and with all this talk from Greenspan and so forth about the worst being over, I thought it appropriate to compile this chart. But be warned of its effect on women!!!
Seriously, every day it's like that.
So be careful and aware of your surroundings all aspiring male economists when you look at the chart below. It's the Housing Market Index. In short it measures the health of the housing market and with all this talk from Greenspan and so forth about the worst being over, I thought it appropriate to compile this chart. But be warned of its effect on women!!!
The Best of Captain CapitalismFrom My Beloved Sister
This is one of my favorites, thanks to my sister. The chart should be up in ever classroom in the world.
As some of you know, my sister is a communist. Of course, this isn't her fault as she is currently pursuing her doctorate at UC Berkeley and if she were not an avowed communist, they'd shoot her.
That being said, it brings a tear of pride to my eye when I see the little aspiring economist in her send me a chart like this;
This is a "cartogram."
Sure, whatever.
But what is neat about it is that it magnifies each country by the size of its GDP.
Couple interesting observations;
1. Africa. Good lord, it's as skinny as the people, large amount of land, very little GDP.
2. North versus South Korea. Can you see that sliver on top of South Korea? Yeah, that's North Korea. If there's a visually stunning argument against communism, there it is folks.
3. Japan. You might at first mistake it for China, but if you look closely, it is an island. It's just that Japan's economy is so big that it once again distorts its geography.
4. When comparing Japan against China, it shows Japan bigger than China. This leads me to believe that they are NOT using PPP adjusting GDP figures. Sloppy sloppy sloppy.
As some of you know, my sister is a communist. Of course, this isn't her fault as she is currently pursuing her doctorate at UC Berkeley and if she were not an avowed communist, they'd shoot her.
That being said, it brings a tear of pride to my eye when I see the little aspiring economist in her send me a chart like this;
This is a "cartogram."
Sure, whatever.
But what is neat about it is that it magnifies each country by the size of its GDP.
Couple interesting observations;
1. Africa. Good lord, it's as skinny as the people, large amount of land, very little GDP.
2. North versus South Korea. Can you see that sliver on top of South Korea? Yeah, that's North Korea. If there's a visually stunning argument against communism, there it is folks.
3. Japan. You might at first mistake it for China, but if you look closely, it is an island. It's just that Japan's economy is so big that it once again distorts its geography.
4. When comparing Japan against China, it shows Japan bigger than China. This leads me to believe that they are NOT using PPP adjusting GDP figures. Sloppy sloppy sloppy.
Wednesday, October 25, 2006
Bribery
Hi All,
I apologize for not posting, but literally I'm knocking out 90-100 hours per week (I'm addicted to contributing to GDP).
REMEMBER YOU CAN SEND ME STUFF AND IF IT'S WORTHY I'LL POST IT!!!!
Here's a chart from The Economist. Thought you'd all like it.
I apologize for not posting, but literally I'm knocking out 90-100 hours per week (I'm addicted to contributing to GDP).
REMEMBER YOU CAN SEND ME STUFF AND IF IT'S WORTHY I'LL POST IT!!!!
Here's a chart from The Economist. Thought you'd all like it.
Monday, October 23, 2006
There's Hope for Us All Yet!
I think I'm going with the 8 billion minute plan and getting one of those nerdy Star Trek mobile phones that's implanted in your ear.
Best of Captain Capitalism - Investing Against Conventional Wisdom
This is an older one, harkening back to 2004. Still think it's one of your best moves to pay down debt...which of course makes me more hated than a pedophile in this land of home-equity-loan junkies.
DISCLAIMER-BY READING THIS YOU WAIVE THE RIGHT TO SUE ME! IF YOU FOLLOW ANY OF THIS ADVICE AND YOU LOSE MONEY OR DON'T MAKE AS MUCH AS YOU WOULD HAVE OTHERWISE, TOUGH! AND EVEN IF YOU WERE TO SUE AND WIN, I'D GUARANTEE YOU'D HAVE MORE PRESSING MATTERS TO WORRY ABOUT!
Everything clear? OK, good, let's move on.
Several times now that I have run into the classical "starving student" while teaching economics at the local community college, where of course, we accept only the finest the public schools have to offer. And it is obvious these starving students received their education at the public schools, because their logic is so solid.
For example, one particularly starving student was so desperate for money, he had to sign up for MinnCare (Minnesota's state sponsored health care system). This means myself and other lucky fellow (and self-supporting) Minnesota taxpayers now provide this student in need with health care if he can manage to pay the $20 a month required of MinnCare. Unfortunately, I don't think he can even afford that because he bought himself a portable DVD player and the entire "Family Guy" series on DVD.
Another classic example would be the poor, tortured soul who stormed into my classroom tirading about the financial aid department's refusal to disperse any further financial aid to her. Don't these people realize that this is the same girl that needs to get hammered every weekend at the bars? And don't they realize that drinks nowadays cost about $5 a pop? I'm scared to speculate if she has a child.
Regardless, I could go on with endless examples of how students' choices to spend their money serves only to utterly destroy the broken record track of the left that 80 gazillion people are without health insurance, but that is not what this article is about. For while I certainly can critique the parasites of society for insisting the taxpayer subsidize their lives whilst they go and booze it up and buy the latest electronic gadgetry, the public school-educated youth are not the only ones guilty of making poor investment decisions.
For example, take the good little Jessica-Simpson-Americans. They work hard. They maximize their contributions to their 401k's. They get a house in the suburbs. Set aside some money in a 529 plan for little Jr. And if they have some extra money they perhaps contribute that to a Roth IRA.
What could possibly be wrong with that?
Nothing from moral standpoint. You certainly aren't having me pay for your health care (much appreciated). You certainly are contributing to GDP and thus society. You're probably doing more for your children than most by setting up a 529 plan. And despite Jessica Simpson making me want to gag, as an advocate of self-reliance I couldn't critique anything about it.
However, from a financial or economic standpoint rarely do I see anybody putting forth the effort to thoroughly and fully analyze what they're throwing their money into. And while it isn't an obvious waste like choosing Jack Daniels over college books, there are some things you should consider before you just blindly invest with the masses into your 401k.
First off is the crazy, outside chance that maybe, just maybe, with the entire Baby Boomer generation throwing all their money into their 401k's that this may have overvalued the stock markets. Beforehand people would just retire off the farm, sell the business, or (here's a foreign concept to the Baby Boomers) work until they died. But it is only recently that we've opted to use the stock market as our main investment for retirement. Using the S&P 500's P/E ratio (for those without a degree in finance, this a measure used to gauge how over/undervalued a stock is), you'll note that US stocks, despite the crash are still overvalued by about 25% from their historical average of 15 as notated by the red line. Furthermore, ever since the Baby Boomers have entered their "prime earning years" say in the late 80's the stock market has always traded above this average, suggesting this overvaluation is persistent and fundamental.
Worst still is what will happen when the Baby Boomers start to retire and withdraw their money from the stock market? Well, you just keep on contributing to that US equity fund of yours and see what happens 2009-ish.
Another item you might want to consider is that precious house of yours. Why, at all the cocktail parties who doesn't brag about how much the value of their house has increased? Certainly a considerably loose monetary policy and abnormally low interest rates hasn't artificially boosted housing prices. Well, very similar to the S&P 500's P/E ratio is the price to rents ratio for housing in the US. Put out by HSBC, this measures the average price of a US house to its plausible rents.
Alas, it seems the housing market is not only too pricey, but bound to correct a little.
But how about education? Specifically, your child's education. How can a 529 plan possibly go wrong? Well it can go wrong since you have to invest the money just like you would a 401k plan and thus face the same overvaluation risks. Best bet is to go with the prepaid tuition option for the 529's. But then again, and me being forever the cynic, your child will no doubt major in some crap study like "sociology," or "peace studies" or "feelings," effectively wasting all your money anyway.
Perhaps you should just buy yourself a boat.
So what's left to invest in if the stock and property markets are overvalued? Sure you could go overseas and invest there, but you'd be facing various exchange rate and political risks. You can invest in bonds...and earn a whopping 5.5%. What about commodities? They've had a bold performance.
Of course, that bold performance is solely due to China's blistering economic growth and voracious demand for raw materials, sure to reverse itself once China's economy slows down to a more rational 8% GDP growth.
But there is another option...an option that nobody considers. Well, perhaps somebody has considered it, but financial advisors aren't too keen to tell you about it, because they won't make money. Matter of fact, neither will you, but it certainly has more benefits than any other investment I've seen in a long time.
Pay off your debts.
Car loans, student loans, credit cards and even your mortgage; pay off your debts.
Now conventional wisdom had it that you should consolidate your debts under a home equity loan. This in turn would allow you to write off all that nasty interest from your taxes. But I am not conventional. And while I do subscribe to consolidating your debts so that its interest is tax deductible, I much prefer to pay off all that debt prematurely and forego the interest deduction.
Now MBA's from Ivy League schools are probably scratching their heads just as they were when Dotcom Mania came crashing down because it says in the Official Ivy League Textbook of Finance that you should always hold that interest deduction in high and holy regards. No matter what you do, you need that interest deduction. Shoot the children, sell the dog, but whatever you do, do not give up that interest deduction.
Here's the problem. Do you want to hold on to that holy and sacred interest deduction, or would you rather just not pay the $300,000 in interest expense over the course of the mortgage in the first place?
Yeah, I thought so.
But there are more benefits to paying off your mortgage and debts early than the cash flow you'd save. Converted into a rate of return, you'd actually be earning a better rate than you would most bonds. Below are the returns you'd realize on a standard 30 mortgage rate at 8%.
(Note - this "rate of return" is somewhat misleading. Sure if you pay off additional principal you save future interest payments, however you won't see an "annualized rate of return" out to 30 years simply because in paying off additional principal, you bring your mortgage to a pre-mature end. If this doesn't make sense, don't worry, I just put this in here as a technicality incase some math/econ/finance geeks were interested).
However, this "rate of return" is actually a misnomer since you aren't really investing in anything as much as you are paying off your debts to save future cash flow. This brings up another benefit to paying off your debt; it's risk free. You are not the one taking a risk, it is the mortgage company that loaned you the money that is taking the risk on you. Thus it is a completely risk free investment to pay off your debts early, even less risky than investing in US Treasuries.
While this is all well and good for you, there are also benefits to society and the economy as well. Realize Americans have saved themselves and the world from arguably two recessions with one thing;
Insatiable spending.
By spending like we're married to a ketchup heiress, and borrowing the money to do so, we not only merely post-pone an inevitable decrease in consumer spending into the future, but we rack up massive amounts of debt in the process. This has resulted in an amassing of $2 trillion in consumer debt, putting it at a historical high of over 17% of the economy's GDP.
But that is nothing compared with the level of household debt (consumer debt + mortgages and some other liabilities) currently standing at $9+ trillion, roughly 85% of our GDP. Thus, the coincidence of the rise in household debt and the rise in property prices suggests the property "bubble" is driven by debt-always a good thing (for those of you with real lives and the ability to attract members of the opposite sex, this was a joke that only economists would get and find funny. A debt-driven stock or property bubble is a VERY BAD thing, so this was meant as sarcasm).
Worse still is it's incredibly poor timing to be racking up these massive debts on the precipice of the impending Baby Boomer generation retiring which demands MUCH MORE saving. While Social Security and Medicare currently consume 10% of our nation's GDP, that number is expected to double by 2040 taking a full fifth of our economy, Medicare inevitably about to eclipse its senior sibling, Social Security.
If these massive entitlements the Baby Boomers have promised themselves are to be funded, it will require additional "forced" savings in the form of increased payroll taxes. These taxes are expected to be doubled by 2040, taking a full 30% of your salary in order to pay for these things.
The whole point is that you can't afford to be blowing your money on BMW Z3's and pocket bikes for junior simply because in the future, your disposable income will be pinched, perhaps to the point that you may not be able to pay off your debts if you still have those debts. Thus it is important that you pay off your debts NOW while you still have the ability to do so and before the government takes a larger and larger share of your salary.
But spending less, saving more and paying down your debts should not be as painful as all that. As you've seen significant asset categories like stocks, property and commodities seem to be currently overvalued. Bonds are also not terribly attractive with their mere pittance of an interest rate they pay. But with a risk-free guaranteed rate of "return" by paying off your debts early, you take advantage of what could arguably be today's best and safest investment option. Furthermore, there are macro-economic benefits by Americans paying down their debts en masse. Interest rates would remain low, allowing for businesses and people to borrow cheap money to pursue ventures and grow the economy. The dollar would strengthen, increasing purchasing power and making imported goods cheaper. But most importantly, it will soften the blow and fortify the economy for the inevitable retirement of 70 million Baby Boomers. It is literally an economic, once in a lifetime "win-win situation."
Alas this last reason may not convince you to take the money you had earmarked for a European trip and instead pay down your mortgage. So perhaps I should be a bit more blunt. How about the threat of a massive recession that would put the Volcker Recession to shame and throw you into poverty and bankruptcy and make the likes of "pocket bikes" the things dreams are made of? For such a scenario is not likely, but guaranteed if Americans do not change their course. Of course that is my opinion, it's just up to you to convince yourself otherwise so you can sleep well at night.
Pleasant dreams.
DISCLAIMER-BY READING THIS YOU WAIVE THE RIGHT TO SUE ME! IF YOU FOLLOW ANY OF THIS ADVICE AND YOU LOSE MONEY OR DON'T MAKE AS MUCH AS YOU WOULD HAVE OTHERWISE, TOUGH! AND EVEN IF YOU WERE TO SUE AND WIN, I'D GUARANTEE YOU'D HAVE MORE PRESSING MATTERS TO WORRY ABOUT!
Everything clear? OK, good, let's move on.
Several times now that I have run into the classical "starving student" while teaching economics at the local community college, where of course, we accept only the finest the public schools have to offer. And it is obvious these starving students received their education at the public schools, because their logic is so solid.
For example, one particularly starving student was so desperate for money, he had to sign up for MinnCare (Minnesota's state sponsored health care system). This means myself and other lucky fellow (and self-supporting) Minnesota taxpayers now provide this student in need with health care if he can manage to pay the $20 a month required of MinnCare. Unfortunately, I don't think he can even afford that because he bought himself a portable DVD player and the entire "Family Guy" series on DVD.
Another classic example would be the poor, tortured soul who stormed into my classroom tirading about the financial aid department's refusal to disperse any further financial aid to her. Don't these people realize that this is the same girl that needs to get hammered every weekend at the bars? And don't they realize that drinks nowadays cost about $5 a pop? I'm scared to speculate if she has a child.
Regardless, I could go on with endless examples of how students' choices to spend their money serves only to utterly destroy the broken record track of the left that 80 gazillion people are without health insurance, but that is not what this article is about. For while I certainly can critique the parasites of society for insisting the taxpayer subsidize their lives whilst they go and booze it up and buy the latest electronic gadgetry, the public school-educated youth are not the only ones guilty of making poor investment decisions.
For example, take the good little Jessica-Simpson-Americans. They work hard. They maximize their contributions to their 401k's. They get a house in the suburbs. Set aside some money in a 529 plan for little Jr. And if they have some extra money they perhaps contribute that to a Roth IRA.
What could possibly be wrong with that?
Nothing from moral standpoint. You certainly aren't having me pay for your health care (much appreciated). You certainly are contributing to GDP and thus society. You're probably doing more for your children than most by setting up a 529 plan. And despite Jessica Simpson making me want to gag, as an advocate of self-reliance I couldn't critique anything about it.
However, from a financial or economic standpoint rarely do I see anybody putting forth the effort to thoroughly and fully analyze what they're throwing their money into. And while it isn't an obvious waste like choosing Jack Daniels over college books, there are some things you should consider before you just blindly invest with the masses into your 401k.
First off is the crazy, outside chance that maybe, just maybe, with the entire Baby Boomer generation throwing all their money into their 401k's that this may have overvalued the stock markets. Beforehand people would just retire off the farm, sell the business, or (here's a foreign concept to the Baby Boomers) work until they died. But it is only recently that we've opted to use the stock market as our main investment for retirement. Using the S&P 500's P/E ratio (for those without a degree in finance, this a measure used to gauge how over/undervalued a stock is), you'll note that US stocks, despite the crash are still overvalued by about 25% from their historical average of 15 as notated by the red line. Furthermore, ever since the Baby Boomers have entered their "prime earning years" say in the late 80's the stock market has always traded above this average, suggesting this overvaluation is persistent and fundamental.
Worst still is what will happen when the Baby Boomers start to retire and withdraw their money from the stock market? Well, you just keep on contributing to that US equity fund of yours and see what happens 2009-ish.
Another item you might want to consider is that precious house of yours. Why, at all the cocktail parties who doesn't brag about how much the value of their house has increased? Certainly a considerably loose monetary policy and abnormally low interest rates hasn't artificially boosted housing prices. Well, very similar to the S&P 500's P/E ratio is the price to rents ratio for housing in the US. Put out by HSBC, this measures the average price of a US house to its plausible rents.
Alas, it seems the housing market is not only too pricey, but bound to correct a little.
But how about education? Specifically, your child's education. How can a 529 plan possibly go wrong? Well it can go wrong since you have to invest the money just like you would a 401k plan and thus face the same overvaluation risks. Best bet is to go with the prepaid tuition option for the 529's. But then again, and me being forever the cynic, your child will no doubt major in some crap study like "sociology," or "peace studies" or "feelings," effectively wasting all your money anyway.
Perhaps you should just buy yourself a boat.
So what's left to invest in if the stock and property markets are overvalued? Sure you could go overseas and invest there, but you'd be facing various exchange rate and political risks. You can invest in bonds...and earn a whopping 5.5%. What about commodities? They've had a bold performance.
Of course, that bold performance is solely due to China's blistering economic growth and voracious demand for raw materials, sure to reverse itself once China's economy slows down to a more rational 8% GDP growth.
But there is another option...an option that nobody considers. Well, perhaps somebody has considered it, but financial advisors aren't too keen to tell you about it, because they won't make money. Matter of fact, neither will you, but it certainly has more benefits than any other investment I've seen in a long time.
Pay off your debts.
Car loans, student loans, credit cards and even your mortgage; pay off your debts.
Now conventional wisdom had it that you should consolidate your debts under a home equity loan. This in turn would allow you to write off all that nasty interest from your taxes. But I am not conventional. And while I do subscribe to consolidating your debts so that its interest is tax deductible, I much prefer to pay off all that debt prematurely and forego the interest deduction.
Now MBA's from Ivy League schools are probably scratching their heads just as they were when Dotcom Mania came crashing down because it says in the Official Ivy League Textbook of Finance that you should always hold that interest deduction in high and holy regards. No matter what you do, you need that interest deduction. Shoot the children, sell the dog, but whatever you do, do not give up that interest deduction.
Here's the problem. Do you want to hold on to that holy and sacred interest deduction, or would you rather just not pay the $300,000 in interest expense over the course of the mortgage in the first place?
Yeah, I thought so.
But there are more benefits to paying off your mortgage and debts early than the cash flow you'd save. Converted into a rate of return, you'd actually be earning a better rate than you would most bonds. Below are the returns you'd realize on a standard 30 mortgage rate at 8%.
(Note - this "rate of return" is somewhat misleading. Sure if you pay off additional principal you save future interest payments, however you won't see an "annualized rate of return" out to 30 years simply because in paying off additional principal, you bring your mortgage to a pre-mature end. If this doesn't make sense, don't worry, I just put this in here as a technicality incase some math/econ/finance geeks were interested).
However, this "rate of return" is actually a misnomer since you aren't really investing in anything as much as you are paying off your debts to save future cash flow. This brings up another benefit to paying off your debt; it's risk free. You are not the one taking a risk, it is the mortgage company that loaned you the money that is taking the risk on you. Thus it is a completely risk free investment to pay off your debts early, even less risky than investing in US Treasuries.
While this is all well and good for you, there are also benefits to society and the economy as well. Realize Americans have saved themselves and the world from arguably two recessions with one thing;
Insatiable spending.
By spending like we're married to a ketchup heiress, and borrowing the money to do so, we not only merely post-pone an inevitable decrease in consumer spending into the future, but we rack up massive amounts of debt in the process. This has resulted in an amassing of $2 trillion in consumer debt, putting it at a historical high of over 17% of the economy's GDP.
But that is nothing compared with the level of household debt (consumer debt + mortgages and some other liabilities) currently standing at $9+ trillion, roughly 85% of our GDP. Thus, the coincidence of the rise in household debt and the rise in property prices suggests the property "bubble" is driven by debt-always a good thing (for those of you with real lives and the ability to attract members of the opposite sex, this was a joke that only economists would get and find funny. A debt-driven stock or property bubble is a VERY BAD thing, so this was meant as sarcasm).
Worse still is it's incredibly poor timing to be racking up these massive debts on the precipice of the impending Baby Boomer generation retiring which demands MUCH MORE saving. While Social Security and Medicare currently consume 10% of our nation's GDP, that number is expected to double by 2040 taking a full fifth of our economy, Medicare inevitably about to eclipse its senior sibling, Social Security.
If these massive entitlements the Baby Boomers have promised themselves are to be funded, it will require additional "forced" savings in the form of increased payroll taxes. These taxes are expected to be doubled by 2040, taking a full 30% of your salary in order to pay for these things.
The whole point is that you can't afford to be blowing your money on BMW Z3's and pocket bikes for junior simply because in the future, your disposable income will be pinched, perhaps to the point that you may not be able to pay off your debts if you still have those debts. Thus it is important that you pay off your debts NOW while you still have the ability to do so and before the government takes a larger and larger share of your salary.
But spending less, saving more and paying down your debts should not be as painful as all that. As you've seen significant asset categories like stocks, property and commodities seem to be currently overvalued. Bonds are also not terribly attractive with their mere pittance of an interest rate they pay. But with a risk-free guaranteed rate of "return" by paying off your debts early, you take advantage of what could arguably be today's best and safest investment option. Furthermore, there are macro-economic benefits by Americans paying down their debts en masse. Interest rates would remain low, allowing for businesses and people to borrow cheap money to pursue ventures and grow the economy. The dollar would strengthen, increasing purchasing power and making imported goods cheaper. But most importantly, it will soften the blow and fortify the economy for the inevitable retirement of 70 million Baby Boomers. It is literally an economic, once in a lifetime "win-win situation."
Alas this last reason may not convince you to take the money you had earmarked for a European trip and instead pay down your mortgage. So perhaps I should be a bit more blunt. How about the threat of a massive recession that would put the Volcker Recession to shame and throw you into poverty and bankruptcy and make the likes of "pocket bikes" the things dreams are made of? For such a scenario is not likely, but guaranteed if Americans do not change their course. Of course that is my opinion, it's just up to you to convince yourself otherwise so you can sleep well at night.
Pleasant dreams.
Sunday, October 22, 2006
Where are They?
'Unauthorized population" that's a new one. Illegal immigrants vs. "undcoumented alien" vs. "unauthorized population."
Saturday, October 21, 2006
Got a Question? E-mail the Captain!
Hi All,
Got a post recently that I had to think about whether I would post it or not. The reason why is that it wasn't pertinent to the original post I made and would actually lessen a future article I plan on writing not to mention it's in regards to a lawsuit so I'm erring on the side of caution and not posting anything (my apologies to the person who sent in the question). regardless, I do want to answer all relevant and pertinent questions the readers may have. All of you can certainly e-mail me (person who sent me the question included) any questions you have that may not be related to a particular post. Besides which, I like getting e-mail.
captcapitalism@yahoo.com
Make sure you copy and paste it, people have been mispelling it.
And tune in TODAY to The Economics Supper Club! To quote Bill Cosby, "It'll make ya smart!"
Got a post recently that I had to think about whether I would post it or not. The reason why is that it wasn't pertinent to the original post I made and would actually lessen a future article I plan on writing not to mention it's in regards to a lawsuit so I'm erring on the side of caution and not posting anything (my apologies to the person who sent in the question). regardless, I do want to answer all relevant and pertinent questions the readers may have. All of you can certainly e-mail me (person who sent me the question included) any questions you have that may not be related to a particular post. Besides which, I like getting e-mail.
captcapitalism@yahoo.com
Make sure you copy and paste it, people have been mispelling it.
And tune in TODAY to The Economics Supper Club! To quote Bill Cosby, "It'll make ya smart!"
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