Posts Tagged ‘wage’

Free Market or big racket economy?

Monday, November 16th, 2009

I hate to complain on a blog but…

It is commonly held that in America we operate under a mostly free economy.  Free meaning the consumer can choose which good to buy based on her criterion and the producer is free to produce what she likes.  Our economy is held to be “mostly” free because we the people also hold certain products to be more important than others, so we subsidize them to achieve greater economies of scale ensuring that those goods will always be found in ready supply

I posit however that America does not have such a free economy.  I posit 3 points as evidence.

  1. Recently it slipped my mind that I had a credit card bill due.  We don’t use it very often so it wasn’t on my priority list.  And since this credit card had no “auto pay” feature I was late by 3 days. Thus I triggered an automatic “rate increase” from my previous 3.25% APR to the kindly rate of 29.65% !  What?! Seriously?!  My 5 year loyal customership meant nothing?  My only option was to pay the ridiculous interest rate or cancel the card.  Cancel I did.  If it was a free economy then the amount of pressure to keep me as a customer would be great enough that Capital One could not survive as a business without offering me more than the given two options of pay up or get out.  Instead they would be forced to assess a one time “late-fee” and only when my credit score changes could they move my interest rates upwards.
  2. The cellular phone industry is another good example of why our markets are not free.  The cellular phone industry has figured out how to 1.) lock people in to their service by assigning them huge penalties for leaving prior to the end of 2 year contracts 2.) sell “plans” which either provide excessive usage capacity (1400 minutes) or under capacity plans (700).  If you happen to have the misfortune of exceeding your minute usage then the cost per minute of usage goes up by a factor of 10 to 20.  Under a free market, prices must remain fairly liquid and transparent.  A free market economy would provide the ability for 1.) free transferance between services and 2.) more liquid pricing (i.e. 700, 800, 900, 1000…. etc.) minute plans.
  3. But perhaps the biggest example is that producers are not free to produce what they like and what they are best at.  How many producers and workers are employed at something they are both good at and enjoy?  How many workers have the freedom to take the day off to go look for another job?  How many folks have the freedom to change jobs and not worry about their health care benefits while they change jobs?  How many folks could balk at unreasonably low pay or poor working conditions in a serious enough way to affect a significant change in their working condition?  How many companies are producing top quality goods to meet an unmet demand…how many are producing goods simply to survive?

This is why I beleive that 1.) Credit card regulation 2.) Public option health care will provide a freer and more robust economy.  When the average consumer has choices then everybody prospers.

Tags: , , , , ,
Posted in Utopian Politic | No Comments »

What to Invest in?

Monday, April 20th, 2009

With all the economic mayhem happening these days you might be wondering… “where can I put my money so that it will”:

  • never lose 50% of it’s value over night
  • beat inflation and a little more
  • remain highly liquidatable in case of emergency
  • remain usable in case of apocalypse and total societal breakdown

The idea most people have in regard to savings and investment is to develop a security blanket.

The Chinese government is thinking the same thing as it pushes for a new super sovereign currency[1].

So I came across this article which says  to put your money in:

  • 25% in U.S. stocks, to provide a strong return during times of prosperity.
  • 25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation (but which do poorly during other economic cycles).
  • 25% in cash in order to hedge against periods of “tight money” or recession.
  • 25% in precious metals (gold, specifically) in order to provide protection during periods of inflation.

But I disagree… let’s look at the options.

U.S. Stocks

A diversified and broad selection of US stocks from the S&P 500 (the 500 largest companies in America) is a very safe and prosperous bet over the long term.  American companies have been and will continue to be some of the most innovative companies on the planet.  While some industries wane, others will wax.  Furthermore, the NYSE, NASDAQ and other trading arenas have some of the highest traffic, nearly guaranteeing a buyer for every seller.  My recommendation is to definitely put money in US stocks by purchasing index funds like the S&P 500 index.

The main advantages of US stocks is:

  1. Tracks with the US economy at large thus making the investment a hedge against inflation.
  2. A diversified portfolio does spread risk effectively.
  3. Stocks are not officially govt backed, but as we’ve seen… the larger the company the more likely subsidies and govt. protections will be involved.
  4. In booms and busts stocks can do well (Countrywide in the boom went way up, Netflix in the bust tripled).

To this I’d also like to add that European stock indexes are overall quite similar in advantage to the US.  Essentially, if the US and Europe can’t make it… nobody can.

Long Term Treasury Bonds

These are also very safe investments in the near and far term.  They are extremely safe (if the govt defaults on it’s loans then cashing out your bonds will be the least of your worries), and dependable.

But they have 2 very serious downsides.

  1. Buying a bond today for 30 years locks in an  interest rate.  Inflation may rise, but the interest rate wont.
  2. Many of the ‘worst case scenarios’ possible would render government bonds illiquid (same is mostly true for stocks).

Money Markets and ‘Cash’

Cash and money markets are extremely liquid.  They are not much more than a savings account with a low interest rate.  And even though they are extremely safe, like treasury bills they:

  1. Don’t protect against inflation
  2. Don’t have a very high growth rate
  3. Many of the ‘worst case scenarios’ would render the fiat money in the money market account nearly useless

Gold!

Perhaps the most misleading of investment vehicles is Gold.  It is a widely held belief that in times of great disaster gold or precious metals would be the only ’super-sovereign’ currency.  The belief is supported by the thought that humans assign inherent worth to gold.  They don’t!

Furthermore, it is believed that gold hedges against inflation.  Because of the first assumption, that gold is inherently worth something, we think that gold must track with inflation on a nearly 1:1 basis…. it doesn’t!

Thus gold has the following drawbacks:

  1. It doesn’t hedge against inflation:
  2. Most of the demand for Gold comes from Jewelry and for making into bouillon coins.  In bad times it will become an illiquid commodity.
  3. It’s growth is low on average.
  4. It’s easy to steal ($20k of gold is far easier to steal than $20k of stocks)
  5. In time of great chaos it doesn’t provide the function of a super-sovereign currency…real goods do[2].  Furthermore, if everyone used Gold as currency in the ‘bad-times’  rampant inflation would occur relative to the supply of gold in circulation… thus rendering moot the potential of Gold to serve as a currency.

Gold is perhaps one of the most worthless investments in the market unless you know something about the supply and demand cycle of Gold.

So What’s Left?

The following is a list of investments that I believe have the highest safety, return and hedge against inflation and Chaos.  It’s difficult to say what the % of your portfolio should be in each area… so no percent is given.

  1. U.S and European stocks are highly liquid, move with inflation but are not nuclear-apocalypse proof. A good place to put money.
  2. Housing Rental Income – barring a communist take over (and even with one), people need a place to live.  The income tracks with inflation, but can be depressed in a housing glut or in a very low interest rate time period.  Regardless, housing is the largest purchase that the average person can make.  It’s subsidized by the government in many ways and gives a large store of capital which appreciates with  inflation plus a little.  Add on to that the rents received over time and housing rental income can be a very good, safe and reliable investment.
  3. Education – the bulk of one’s lifetime wealth comes from wages.  It is well established that wage level is tied in with education level.  Plus learning thins like farming, mechanics, and carpentry could either give a little extra cash when needed or provide post-apocalypse survival skills.
  4. Family – Price of going to the nursing home for retirement… $50k/year.  Cost of living with a family you love and who loves you back until you die[3]… priceless.  Blood ties run thick and they’re worth having.
  5. Community/Friends/Civics – Nothing hedges against loneliness, hard times and even financial struggle than friends and a surrounding community.  By involving yourself in Civics you could also have a chance to set policies and change tax codes that directly affect your financial well being.  It only costs time.
  6. Land – As Lex Luther said in Super Man… they only thing they aren’t making any more of is land.  Rather than putting money into gold, put it into arable farm land.
  7. Religion – Hey, this life might not be all there is right?  Better find the truth about the metaphysical world… and supposing that God is an active and personal God then it might not be so bad to have him on your side no matter the circumstance.  I hear it can be good for your health too.

There you have it, the Greentheo plan to fail proof investments that do grow over time.

  1. China has been running enormous dollar surpluses to keep the yuan-dollar ratio low.  This keeps goods flowing to America and it’s economy growing more rapidly in the short term.  It also gave America extremely cheap credit. [↩]
  2. what do starving people need with Gold?  nothing… what they need is food and other “real goods” [↩]
  3. assuming you don’t annoy the Hell out of them in your crotchety old age [↩]

Tags: , , , , , , , , , , , , , ,
Posted in Green | 3 Comments »

Greentheo’s plan for economic recovery

Monday, February 2nd, 2009

It all seems so overwhelming.  The economy is a sinking ship.  Everyone is losing their job so it seems.  We’re all going to be poor!  And to top it off, Democrats and Republicans can only agree that Billions (800 of them) must be spent in order to save us.

We all know that borrowing more money (to solve a problem caused by borrowing too much money) wont work and neither will printing money.  Long term both solutions require higher taxes on our children and increased devaluation of our savings.  That is, if we are lucky enough to have savings!

But we’re not helpless!  That’s right!  You the average citizen can help save the country even while Senators and Presidents are busy trying to ruin us as quickly as possible.

  1. Refuse to let the news affect your well being.  Keep up your productivity, creativity and hard work.  Keep investing, saving for the future, learning and above all spending time doing things you love with people you love.  If you become part of a negative statistic, work hard to turn it into a positive one!
  2. Pay off your debts and refuse to live a high risk[1] lifestyle by purchasing from a surplus and not a deficit.  Being debt free not only gives you a 10-20% discount on everything you buy (no debt = no interest payment), but also lowers your interest rate on things you might consider going into debt for in the long term, like a house.
  3. When you buy, buy local.  Money spent in the local economy has a much higher chance of coming back to you.
  4. Repair, don’t upgrade.  If you want to stimulate the economy, the best way to do so is through wages.  When a product, like repairs,  consists mostly of repairs it enters the economy (especially the local economy) much more quickly.   Repairs are not only labor intensive, but also save money for you in the long term.
  5. Donate to charities.  Giving frees you up from the focus on getting more.  If you aren’t focused on more, you may start to be focused on actual productive activities.  And besides, charities are a great way to release money into the economy… they have no problem spending it on the services that stimulate an economy the most.
  6. Give your time to folks with special needs, mental health issues or just plain disabled people.  Mental health issues not only impact 1 person’s life but 100’s of other’s who help care for them.  Special needs are a fact of the world.  Helping them out is to give them the ability to reallocate their resources elsewhere.
  7. Rake an old person’s lawn, or help them fix their house.  It’s extremely expensive to live in a retirement center and most older people can’t afford it.  What if instead of giving all their money to a retirement home an older person could spend it elsewhere in the economy?
  8. Help prevent substance abuse.  Have a young friend who is soon to be hooked on drugs?  Hundreds of people are negatively impacted financially and emotionally by 1 substance abuser.  Not to mention that it’s hard to be productive when you’re wasted.  Do your part and help others to say no.
  9. Repair your marriage.  Divorce and relational hardship are a huge drag on an economy.  Not only does it cost money in legal fees, but it costs productivity, creativity, energy and emotional pain for years in both you, your ex-spouse and your children.
  10. Participate in friendships.  From carpooling, and networking to splitting vacation costs, free entertainment and above all… joy … friendships are a must for economic stimulation.

Above all, keep in mind that economics is not about the exchange and getting of money, it’s the exchange and getting of things that we desire and need.  Not all things can be purchased!  So let’s get out there and stimulate our economy in whatever way we can!

  1. debt is extremely risky because of the default effect.  When just a few payments are missed the interest rates default to the maximum allowable rate drastically increasing the risk of bankruptcy [↩]

Tags: , , , , , , ,
Posted in Green | No Comments »

Linux = Silvio Gessel in Action

Monday, December 15th, 2008

Silvio Gesell was an economist concerned with the prosperity of the working class. Unlike Karl Marx,  Gesell did not believe in taking back the capital resources from the rich by force. Gesell instead believed that the capital of the wealthy was only valuable because it was in limited supply.  Therefore empowering the working masses could be achieved simply by producing surplus capital.  Surplus capital drives down the demand for capital, and as demand drops so too does price.  As price drops and demand drops, interest and rent on that capital drops.

For instance, rent is high on houses because there are a limited supply of houses.  If one can control a large amount of houses in a limited supply market, he can set the price for rent as he wishes.  Karl Marx proposed to take the property back from the landlords and return it to the people.  In Eastern Europe and Russia this socialization of capital was achieved, but with disastrous consequences: nobody aspired to be a landlord; nobody wanted to take responsibility for the upkeep and maintenance of housing.  When profit is decoupled from individual

Under Gesell, the better solution would be for the working class to unite, pitch in, and build a hundred new houses such that the overall rent market either could not be controlled or had excess capacity[1].  In a housing glut rent drops to zero, freeing up a significant portion of worker’s wages to be used elsewhere.

Money can also be considered capital.  Under Karl Marx it is the job of the government is to redistribute wealth from the rich to the poor.  Money in this case is seen as a limited supply good.  Under Gesell, no redistribution is necessary.  The government simply taxes or devalues money (not wealth) periodically so that it is not worth hoarding.   Money must be spent or invested in order to obtain value.  Under Gesell the supply for money in circulation increases drastically, and interest rates must go down.  As interest rates go down general prosperity increases and the divide between the rich and poor decreases.

At the beginning of the 21st century we are now facing many challenges similar to the beginning of the 20th century.  Capital is in short supply, lending rates are low, and there is a sense of general panic in the market.  But, there is a bright spot in the economy which can’t be ignored: open source.

In the 1970s and 80s as computer programming was becoming more and more popular and accessible to the masses, a movement was started to provide hobbyists, academics, and enthusiasts with free software.  These innovative thinkers were responding to a perceived threat by the capitalists to their hobby and passion: computer programming.

At the time, a UNIX operating system computer cost around $10,000.  Hardly anybody could afford to buy a personal computer.  And so the free software foundation was started.  Today the largest legacy of the free software foundation is GNU.  At the same time Linus Torvalds created a UNIX like operating system which is now known as Linux.  Linux and the GNU software were given away completely free with the only restriction being that one could not capitalize on the it[2].  The price of the same system running Linux dropped by 80% to an affordable $2,000.  Today more than 12% of the commercial server market runs Linux, while an undoubtedly large percent of the non-commerical server market prefers Linux to the main alternative Windows Server.[3].

Over the last 20 years Linux has attracted millions of computer programmer-hours… all for free.  Many of these programmers collect a wage from installing and maintaining the software for a client, but they don’t make capital gains on the software.   This has allowed hundreds of thousands of workers to make a fair wage.[4]

In contrast Microsoft has kept their software closed, and therefore capitalized.  While its thousands of workers do make a fair wage, the real gain of Microsoft resides in the 1% of the company that benefits from the capitalization.  Furthermore the cost of Microsoft Windows is high enough that it excludes potential participants in a business that requires numerous licenses of Microsoft Windows from entering the market.

Aside from Linux, there are thousands if not millions of open-source software packages providing many of the daily services that an increasing number of people use.

The open source movement is not limited to software.  Imagine an economy where even jobs like engineering, teaching, construction, architecture and even restauranteering are open source, where those who most want to participate can contribute in the ways in which they are most skilled.  20 years ago few thought Open Source software engineering could ever be a profitable business model for anybody.  Now a very large portion of businesses rely on the Open Source software model to make it at all.

Open Sourcing and decapitalizing large pieces of our economy would truly be democracy in action at an unprecedented scale and it would provide prosperity such as we’ve not seen before for the average and lower class Americans whos main source of income is wages.

Go Linux!

  1. it’s not that they give the houses away necessarily but perhaps they build them Amish style, a prerequisite for living in the community is to help raise barns or houses [↩]
  2. without making significant modifications of their own [↩]
  3. http://en.wikipedia.org/wiki/Linux#Market_share_and_uptake [↩]
  4. It should be noted that some Linux companies do make a capital gain on their modified versions of Linux, though the free price of a nearly equivalent Linux package keeps their overall profit down. [↩]

Tags: , , , , , , , , , , , , , ,
Posted in Entrepreneurship, Green, Philosophy | No Comments »