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Archive for the ‘Economics’ Category

What You Really Need for Retirement

Posted by hyperpat on December 23, 2013

If you look at advice from financial adviser after adviser, they all say you need to have 70 to 80 percent of your pre-retirement income and at least 10 times your earnings in savings in order to maintain your same living standard in retirement. Is this really true, or is there a certain amount of scare tactics in all all this advice (after all, you more you save and invest through those same advisers, the better their income will be!)?

 

Let’s look at what changes when you retire. The big change in income sources is from your paycheck to social security, pensions, and money you withdraw from your savings (instead of adding to those savings). The other big changes deal with what you do in retirement – at the least, there is no more daily commute to work, which might mean no need for two cars, but might also include more vacation type travel that you couldn’t do while working. Let’s put some numbers behind this.

 

Assume a total family income of $100,000. Out of this, you normally pay a net of about $13,000 in federal and state income taxes, plus an additional $7400 in social security and medicare taxes. In California, there’s also another $900 in worker’s compensation taxes. So your net after tax income is about $78,700. If you’ve been following the advice about savings, you’ve also been stashing at least another $5000 in your IRA/401K, and paying another $4000 in medical insurance, assuming a typical employer/employee split of this cost. So your actual cash income to handle everything else is about $69,700. This number matches up pretty well with the low end of what they say you’ll need in income, but will you still need this much?

 

As alluded to earlier, one of biggest changes when retiring is no more commute or need for a second car. Just how much does this cost? The annual cost of car is about $2500, assuming a typical car bought and held for 10 years. Gas for a 20 mile commute 250 days a year at 25 mpg at $3.35/gallon is $1340. Car maintenance is another $800 (tuneups/oil changes/smog checks/tires, etc). Auto insurance is another $600/year. Total cost/year $5240/year, which is not insignificant. Let’s reduce what you need to retire by this amount, leaving us with $64,500 that we need to find somewhere.

 

The other big change is hopefully you have now paid off your mortgage on your house, or, if not, you have enough equity to buy another smaller house (after all, there probably aren’t any kids to house any more) free and clear. This is probably the biggest variable in calculating what you’ll need; obviously if you’ve been renting all your life, you’ll still need to rent or take enough out of your savings to buy one. As a mortgage on a $250,000 house runs about $1250/month or about $15000/year, whether or not you’ll need to fund this in retirement is a big deal. I’ll assume for the moment you don’t need this, leaving us with only $49,500/year to come up with.

 

Social security at full retirement age for someone who earns $100,000 (and has earned similar amounts adjusted for inflation through most of his/her working life) is about $2500/month, or $30,000/year. This leaves about $20,000 that we need to get from our savings. Assuming you’re withdrawing at 4% from your IRA/401K, that means the account balance should be $500,000. Note that at this income level, your federal and state income taxes are near nonexistent. If you haven’t paid off your house, let’s add another $250,000 so you can buy one. This makes the total savings needed is $750,000, still quite a bit less than the advisers advocate.

 

So it would seem from all the above that the advisers are inflating the requirements by about 1/3 to ½, which is quite a bit. More might be better, but some people are being scared so much by the advertised numbers that they are delaying retirement, and possibly missing some of the best times of their lives.

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Posted in Economics, General | Leave a Comment »

Ayn Rand and the Gold Standard

Posted by hyperpat on December 22, 2013

This is the first in a series of posts that will look at the philosophical points Rand presented in Atlas Shrugged. I picked on this particular item to tackle first because its probably the easiest to debunk, and it’s an item that I flagged as invalid even on my first reading of this book back in 1965, when the US was still nominally on the gold standard.

Rand makes several references throughout the book that gold is the only ‘true’ money, that anything printed by a government is essentially valueless as governments can always print more bills, essentially creating value from nothing. But she is making a very basic logical error, that just because gold has been used for many centuries by many cultures as a yardstick of value, that gold has an intrinsic real value. This is obviously false. If you are standing naked on an iceberg, which would you rather have: a nice warm parka or a pound of gold? If you answer this by choosing gold, then I’m afraid you’ll not be around for very long.

Gold’s value is relative to what use it can be put to. Clearly it won’t directly help in a survival situation, and gold has very few everyday uses other than for jewelry and electronics. But if there was an Inuit standing on the other side of that iceberg who had an extra coat that he would be willing to give you in exchange for that pound of gold (because he likes how it looks, and he’s not freezing!), now that gold has some real value. This illustrates that the value of any gold you have is dependent on what other people are willing to exchange for it.

So why has gold been used as a currency standard by so many for so long? Gold has several properties that make it useful (but not essential) for this purpose. It doesn’t corrode (do you really want that money you stuffed under your mattress to turn into crumbling powder a year from now?), it’s not flammable and resists acids quite well, it’s quite malleable and easy to strike into coins that are easy to carry, it is relative rare and takes a fair amount of effort to find, extract and refine (if your money was based on, say, timber logs, then everyone could go chop down their backyard tree and presto! they have more money – except, when everyone does this, no one would want more timber logs) . It’s this last property that Rand seized on – governments can’t just create a new ton of gold whenever they want; the supply is limited and not likely to grow substantially in any human-life time frame.

But gold is not money! Money is merely a medium of exchange, a human invention to allow for the exchange of goods between various parties without the hassle of barter – my bushel of wheat for Joe’s ounce of salt, that I will then use to trade for Jimmy’s rabbit – barter as a system is unwieldy and does not scale with increasing population densities. Anything can be used as such a medium, from cowrie shells to, yes, salt (they’ve both been used as such). All that is required for something to serve as money is that all the parties in a society will accept the item as a marker of value, and the same people have pretty much the same appreciation of what the value of one unit of that marker is.

So what will change people’s valuation of the worth of that marker? Like almost anything else, the value of a currency is dependent on supply and demand. If a government prints more and more markers, supply goes up, but the value of each marker will only thereby go down if there is not an equal increase in demand. What causes the demand to increase? Production of more goods, things that have intrinsic value (food, clothing, housing, etc), and more people. If the supply of markers was totally static, population increase alone would eventually increase the value of the markers (only so many to go around!), so governments (or whoever is controlling the supply) do need to make more markers available over time. How many to make is not clear cut; clearly if way too many are made, you end up with the hyperinflation of post WWI Germany; too few can lead to a brake on growth and recessions.

But forcing a government to limit its marker supply to the amount of gold it has in its treasury (as Rand basically advocates) is idiotic. Money is a tool, and like any tool needs to be used correctly. Using gold as a basis for a currency does impose some limits that would help curb irresponsible spending, but the real answer is for the government to act in a responsible manner at all times – and if it doesn’t, it’s time for a new government, which will almost automatically occur if hyperinflation sets in.

The ultimate value of any currency is dependent on the people who use it having confidence that everyone else will accept it, will be willing to trade things of value for it. Here the Tea Party has some valid points. They are insisting that the US government limit its spending and have a concrete plan for how to pay for the things the government is funding. Both of these items are likely to increase everyone’s confidence in the long-term viability of the dollar. But adamant, no compromise allowed, stances on these issues to the point where the government must shut down does just the opposite, and can do real harm to our economy and everyone’s standard of living.

Posted in Books, Economics, General | 1 Comment »

A Warmer World

Posted by hyperpat on August 31, 2009

The UN is holding another conference this week about strategies to ameliorate the possible consequences of global warming, from floods and droughts to more severe tropical storms. Pointedly, they are not addressing anything having to do with CO2 emission caps or reductions in fossil fuel consumptions. And for a very good reason: agreements about such matters are almost assuredly not going to happen in the near future, or perhaps ever. What’s not being discussed is just how difficult such caps will be to implement, or what their true economic cost would be.

A quick look at the current state of energy production in the world would show that the overwhelming percentage of such production is fueled by fossil fuels: coal, oil, natural gas. Water, wind, and solar represent only a tiny fraction of the total. Nuclear has a fair percentage, but it faces a very large uphill battle against greatly expanding its use.

A fair question is, can the so-called ‘green’ methods of water, wind, and solar actually be expanded to sizes great enough to significantly reduce dependence on fossil fuels in a reasonable time frame and with a reasonable economic cost? And even if they can be, what effect(s) will they have in their own right on the world’s ecology?

Let’s look at wind power, to start. The UK actually has a plan to deploy about 3000 wind turbines in the ocean over the next ten years (I picked on this set as they do have a fairly comprehensive plan, unlike many other developed countries). But the numbers are daunting: to achieve their stated goal would require the erection of a turbine almost every single day in that next ten years. The result of actually doing this would increase their total wind power generation from less than 1% of the total electricity generation to about 5%. Not a bad start, you might say, but look at the cost: about $1M per turbine, or a total of $3B for just the UK effort. And this does not count the equipment needed for distribution and load balancing. But you argue that surely wind power is the most ecologically friendly way to produce power? Perhaps, but it does have at least four impacts: large wind turbines are not the most sightly things to have cluttering up the horizon, they do produce a fair amount of noise, there are impacts on bird populations, and a final impact that I don’t think anyone has modeled, that of ‘stealing’ energy from the world total of wind production. What effect that might have, if these turbines were installed in significant numbers around the world, on things like cloud formation, storm generation, or rainfall patterns is a complete unknown.

Dramatic increases in solar and water power have similar costs and problems associated with them. Nuclear can be increased from its current level, and can make a significant dent in the need for fossil fuel generation, but it is also a very high cost solution, with its own ecological problems of waste generation and possibilities of both significant accidents and of being terrorist targets.

Now, just for argument’s sake, let’s assume that the current targets that have been agreed to by most countries actually happens. What’s the end result? Do we suddenly have a world where the total CO2 level is stable or even declining? Not by a long shot. Even with the 20% reductions being aimed for, this only gets us back to about 1988 levels of CO2 production. Which means that while the rate of increase of this stuff in the atmosphere might decline, the absolute level will continue to climb. To actually stabilize this level calls for far more draconian measures of 50% reductions along with strategies to increase sequestration of CO2. And the only foreseeable way to achieve anything close to this is for the developed world to drastically reduce their total energy consumption, while at the same time forcing the undeveloped world to stay where they are (the quickest route to developing is to employ the cheapest method of increased energy production, and that implies the dirtiest method, burning coal). How would we go about reducing our energy consumption, especially considering that any reasonable projection shows we will continue to increase that consumption? Conservation only goes so far, there is only so much that is wasted, and is a self-limiting strategy. We could go back to horse and buggy days, if we were willing to somehow get rid of 4/5 of our population – people forget that the current world population is only made possible at all by high-tech and energy-intensive farming methods. I don’t think this is a solution that many will sign up for. The basic answer is that it’s not going to happen.

So what do we do? We learn to live with a world that is going to get a little warmer. Whether CO2 is actually the driver for the observed increase in temperatures since about 1850 is still highly debatable. Another theory states that almost all of the observed increase is due to variations in the sun’s output, and such variations happen over a 1500 year cycle. In support of this theory are the known historical data of the Dark Ages warm period of about 900-1300AD (which, by the way, was apparently about 2 degrees warmer than today’s world, and saw the Viking colonization of Greenland, which really was green, then), the ‘Little Ice Age’ from 1300-1800, and our current warming trend; much longer data points obtained from ice cores, sedimentation data, tree ring growth; astronomical and satellite observations, and a host of other points. But regardless of which theory you subscribe to, both point to this world heating up about another 2 degrees C in next century. Given that it doesn’t look at all feasible to make significant changes to the CO2 generation or overall level, and we obviously can’t do anything about the sun’s output level, it looks to me, at least, that much more effort should be going into developing methods to live in a warmer world. And this probably means more energy generation will be needed, not less.

Generating more power via alternative sources from fossil fuels does make sense, but not because of all the scare tactics that are being tossed around by the advocates of the CO2 warming theory. It makes sense for the simple reason that those fossil fuels are a very finite resource. When they’re gone, and if we don’t have good alternatives in place, then we really will be up the creek minus paddles. But crash programs to switch over, even if you could get everyone to agree to them, driven by unrealistic fears, will do nothing but at the least cause a global depression that will make the current economic crisis look trifling, or cause resource wars that make the current set of brush conflicts seem puny.

Posted in Economics, Politics, Science & Engineering | Leave a Comment »

Positive Feedback Cycles

Posted by hyperpat on March 3, 2009

The latest news on the economic front is all bad. Housing starts down, resales of homes down, unemployment up, reduced profits or losses being reported by company after company, more bank bailout money required just to keep the tottering ship afloat, etc.

Not so long ago, everything was booming. Then a little fly started to appear in the ointment: the default rate on sub-prime mortgages started to climb. No biggie, right? After all, how many of these types of mortgages were there compared to the normal, ‘safe’ mortgages? What people forgot about, or didn’t understand, was the huge multiplier effect that occurs in what’s known as the derivative market. Lots of sub-prime mortgages were packaged up together and sold as a security that paid handsome interest rates. Lots of people bought these securities, and many banks did too. With the uptick in default rates, all of a sudden it became somewhat problematical whether it could continue to pay out that interest. Their ‘risk’ factor was now higher, so to compensate for the increased risk, the base value of these funds went down. Now comes the multiplier effect: most of these securities were purchased effectively on margin: often only 10% of the real price was being paid upfront, with the rest borrowed. At this kind of margin, a 5% drop in the base price translated to a 50% drop in the net value to the securities holder, a 10% drop basically wiped its value out. All of a sudden, large banks found that they had huge losses piling up in these securities. These heavy losses ate up the bank’s working capital, leaving them with little or no money to lend out, and a requirement to replenish their capital to meet Federal regulations which are designed to protect those who have put money into a bank. Where can that new capital come from? Investors. But if they are putting money into these banks, they are not putting it elsewhere in other types of companies, so the overall effect is a drop in the entire stock market.

With reduced stock prices and banks not willing or able to lend money, many companies put on hold or canceled plans to expand. Other companies that supplied these companies suddenly saw projected orders disappear, and they cut back expenditures, salaries, and employees to compensate. As more and more employees found themselves out of job, more and more mortgages, even of the ‘prime’ type, fell into default, making a glut on the housing market of properties the banks needed to unload at any price just to salvage something on their investment, driving housing prices down, which made it near impossible for many people to re-finance or be willing to do home improvements and also affected their outlook about any other type of large outlay, such as buying a new car. Fewer people buying fewer things = less profit for the companies that make such things = lower stock prices = more cutbacks and layoffs = more mortgages in default = still lower housing prices = still lower consumer confidence = fewer people buying fewer things. This is what’s known as a positive feedback cycle.

The question is, where does it end? What is needed to break this cycle? The last truly major recession took the impetus of WWII to really break the cycle. All the public work programs, bank credit fixes, and deficit spending that was implemented between 1933 and 1939 didn’t break this cycle – at most these items prevented the economy from complete collapse here in the US (Germany did experience that complete meltdown, but it had other special factors that made things worse there).

Breaking a cycle like this can be attacked at any of the points within it. Any action that improves consumer confidence, makes companies more likely to expand and hire new people, puts more spendable cash in people’s pockets, increases sales and/or prices of homes or consumer goods, gives people and companies a positive road-map to the future where planning to do and get new things has a high probability of becoming true, all could work.

The current actions by the government are trying to attack exactly these items. The only real question is, are they putting enough money into all of these fronts to make a significant difference? The lesson from the Great Depression is that it really takes a lot more ‘stimulus’ than most people and politicians can even begin to imagine, and I’m afraid that the current amounts being bandied about are going to amount to too little, doled out over too long a time frame. Current US GDP is estimated at about 14 trillion/year. The stimulus package is currently touted as somewhere around 800 billion to 1 trillion, with a lot of that not being available immediately, but only in future years. Only perhaps 300 billion is going to seen immediately (in the next three months). Which means we’re trying to influence the movement of the entire US economy by spending about 2% of its total size. Worse, part of that stimulus is going to be offset by tax and fee hikes by various state governments desperately trying to balance their own budgets in the face of declining income.

I’m afraid, given the current planned course of action, that this current nasty feedback cycle is going to continue for quite some time, and get a lot worse, before the appropriate amount and kinds of stimulus are voted through that can really break this spiral.

Posted in Economics, Politics | Leave a Comment »

Space, The Same Old Frontier

Posted by hyperpat on October 30, 2008

Over at SF Signal, there is an extended discussion about whether SF has at least partly caused the current general disinterest in space exploration, occasioned by a comment by Buzz Aldrin to that effect.

My answer to that is yes, it’s at least partly true that some of the presentations of SF, especially those by the visual media, have caused a fair number of people to dismiss space exploration as either silly childish dreams not worth spending money on, or have focused the attention on wildly unrealistic expectations of being able to merrily zip around universe in minutes, against which the real space program’s accomplishments look extremely drab and uninteresting.

But it’s far from wholly true. Again and again, when you talk to the people who are actually involved in doing the real work of space exploration, the scientists and engineers for whom this field is their daily bread and butter, you hear the statement that SF was one of the major things that inspired them to get into the field in the first place. What many forget, when they see the overall lack of interest in space exploration, is that those who actually work in this field of endeavor constitute a tiny fraction of the entire populace. For the great majority, all they see and care about is their shiny new tech toys, their ever more capable Dick Tracy phones, their awesome high-definition flat panel TVs, their amazingly capable video game machines, and these people have no idea how these devices came to be, have no idea of how much effort and money it took to create them, have no concept of the deep infrastructure needed to build them, do not understand the economics driving their development, have no clue about the scientific principles and discoveries that make them possible, nor do they care.

Space exploration is merely the most visible result of what science can accomplish. The real ‘final’ frontier is not space exploration itself, nor has it ever been. The frontier is human knowledge, and additions to that mass of facts has always been the prerogative of a small group of people who just have to know what is over the next hill, who have to understand how a bee flies, who are completely unhappy about things that they can’t explain, who continuously dream about doing something no one else has ever done before. It is exactly this type of person that has continuously driven civilization beyond existing boundaries, has made the average human existence much more than pure subsistence. Every once in a while, the dreams of such people have invaded the space of the average person, and for brief moments have ignited a collective drive to accomplish a particular goal. One such moment was the initial drive to reach the moon. But such moments never last for long, and the average person goes back to his everyday concerns, of putting bread on his family’s table, and money spent on ‘dream’ goals again is looked upon with deep suspicion as not doing anything for them.

Science fiction is all about what is possible. It’s roots are deeply grounded in the concept that there is always something new to discover, and as such it mainly appeals to exactly the type of person who is not satisfied with the status quo, who needs something beyond the everyday to satisfy their internal reason to exist. For this type of person, science fiction stories with imaginative ideas can inspire, and in some cases even lead directly to new discoveries and accomplishments, as the inspired person drives to make that idea a reality. But for the average person, SF is merely another form of entertainment, and when the real world doesn’t provide the same level of drama as what he sees on the movie screen, concludes that it is just fanciful fiction, and doesn’t deserve dollars out of his pocket.

It’s not that SF has killed interest in space exploration, it’s the everyday, humdrum demands of living that have killed it in the absence of any great drama or immediately visible economic benefit. Space exploration is merely one more thing that’s barely visible on the average person’s radar, as it apparently has no immediate, direct affect on his life. And this will probably always be true: the very few will drive what’s new, the great majority will merely stumble on.

Posted in Economics, Science & Engineering, science fiction, Science fiction and fantasy, SF, Uncategorized | Leave a Comment »

Was Chicken Little Right?

Posted by hyperpat on May 19, 2008

The doom-and-gloom crowd has been predicting that we’ll run out of oil real soon now for a long time. I can remember articles in the sixties that predicted this would happen by 1990, more articles in seventies that pushed this out another ten years, and current articles that peg the date at 2040. Obviously, at least so far, this hasn’t happened. And I doubt that the 2040 date will be any more accurate that the prior predictions. But what has happened is that the price of oil has now reached the point that alternative energy generation methods are beginning to become cost competitive. Never mind that the current price is probably artificially inflated by speculators and cartels that are only looking to get theirs while the getting is good, in real terms it has become more expensive to find, drill, extract, and refine oil. There truly is less readily available (read: cheap) oil to be found out there, so the current price is unlikely to decline very much.

As our current high-tech society is very much dependent on this energy source, is it perhaps time to really start worrying? The answer to that depends on what the alternatives are, and how diligently we investigate these alternatives. So far, the considered alternatives are wind, solar, hydro-electric, fuel cell, nuclear fission, nuclear fusion, biomass, and tidal. Let’s look at each of these and see just how far they’ll go towards providing the world with both cheap and reliable power.

Wind power: Lot’s of energy available here. Winds are basically generated by two major factors, the solar influx and the Earth’s spin, neither of which are going away anytime soon. Capturing this energy in significant amounts is another story. There are few places in the world that have steady winds high enough to justify the cost of the high tech windmills that can efficiently turn that wind power into electricity. Currently, wind power provides less than 1% of electricity production in the U.S. If all possible sites for wind power were developed, it could provide perhaps 20% of the electricity demand, but there are two problems with this. First is that these wind farms would then occupy something like 300,000 square miles of land area. As the U.S. has only 3.7 million square miles of land, this represents something like 8% of all the land, most of which is used for other purposes right now. Second is the problem that the energy produced is a) highly variable b) not easily stored, meaning it has to used when it is produced.

Hydro-Electric, currently providing about 11% of the electricity demand, has similar problems, along with the fact that most of the available hydro-power sites are already in use, and to add more would cause significant changes to the ecologies of the areas around them.

Fuel cells are not net energy producers. It takes more energy to produce the hydrogen used than the fuel cell will deliver. They are a partial answer to the problem of storing energy, and at least can be considered partially mobile if placed in cars. If we can generate enough energy via other means, then these items would be a possible replacement for all the oil we gobble up as gasoline. However, the distribution channels for hydrogen are not in place, and building up the infrastructure necessary represents a large investment in both time and money.

Bio-mass generation has similar problems as those of fuel cells, as it takes more energy to grow and process the plant material needed than will be generated by the final product. It has an advantage in that it won’t require a whole new infrastructure to distribute the end product, but once again the total land area required to grow the necessary material is a significant fraction of our total land area, and would force out farmland currently used to grow edible crops – something we are already seeing in the price of basic foodstuffs in the grocery store. However, this type of technology also provides us with a way to make the oils we need for things other than power generation: lubricants, ingredients in plastics, and other such uses. If crude oil really does run out or becomes prohibitively expensive to get, this avenue is available, and additional research and technological improvements need to be actively pursued.

Tidal power is a non-starter with today’s technology. While there’s a lot of energy in the tides, in most places of the world this energy is very diffuse. Only in few bays is there enough of a water height differential to make energy generation efficient or possible.

Nuclear fission power is an option. It is possible for us to generated a much larger fraction of our energy needs this way than we currently do, but once again there are significant costs and risks associated with going down this route, not the least of which is the spent material disposal problem, along with the terrorist/crazy factor. Nuclear fusion, on the other hand, just isn’t possible today. We really haven’t solved the technological issues with this one yet, and probably won’t for some time, even though they’ve been predicting it’s advent as 15 years from the present for the last forty years. If it ever does become a reality that can actually produce more power than what it takes to generate the reaction, it might become the ultimate savior of our high-tech civilization, but I wouldn’t count on it.

Which leaves solar power as a possible solution. Solar comes in couple of different flavors: direct electricity generation, and as a heat source to drive conventional generators. The heating method is fairly simple, and can be of great use in relatively undeveloped nations, but it is not terribly efficient. Direct conversion shows more promise, though current solar cell efficiency is really not high enough to make it cost competitive with other generation methods. But calculations of the potential energy available show that, yes, it can provide enough power, assuming we wish to the cover the state of Arizona with solar panels, along with every housetop in America. There is still the problem of variable generation (no power produced at night!), the same problem that plagues some of the other potential generation methods. Some better means of storing energy must be found – battery technology is right now not anywhere near to being able to handle this.

Or there is one other alternative: put your solar generation plant in space, where the sun shines all the time, where there is plenty of room not needed for other purposes, and microwave the resultant power down to the ground. This is the option I’d like to put my money on and into, but so far at least it doesn’t seem as if there is any real work being done to make this happen, even though it’s within our technological capability. It would just take an astronomical (pun intended) amount to build it. Our average citizen complains about the amount of money being used for space exploration, as they see no direct benefit from it (we’re just throwing dollars into space!). Science fiction stories have been touting the benefits available from space for a long time, but those who read the stuff represent a very tiny fraction of the entire populace, and it’s still “Buck Rogers stuff” for most. Perhaps if they could be shown how it would directly affect their pocketbook via their power bill they might be more willing to spend more to make true space industry an economically feasible  reality.

The world’s energy demand is not going down. If we don’t wish to see our way of life collapse into wars over a declining resource, or subside into just making-do, with a lower standard of living for all, real work must be done to find appropriate energy sources, all the while keeping in mind just what is ultimately possible with any particular technology and what its total costs are.

Posted in Economics, Science & Engineering, science fiction, SF | Leave a Comment »

West Virginia – Almost Heaven?

Posted by hyperpat on May 15, 2008

The West Virginia primary results have evoked quite a bit of commentary. Many were somewhat surprised at Hillary’s large majority, which was even more pronounced in places like Mingo County (about 88% voted for her). As Mingo County was where I was born, this has influenced me to do a little web research on what the area is currently like.

This first item that really struck me is the decline in population of some of the old mining towns. Delbarton, where I spent the first couple years of my life, has gone from a population of about 1,300 in 1948 to today’s 474. The reason for this is pretty obvious, namely the decline in coal mining jobs available, although this occupation is still one of the largest in the county.

Delbarton is located about 50 miles southeast of Huntington, about six miles from the Kentucky border, and about five miles from Matewan. Matewan is famous as the area where the Hatfield-McCoy feud was waged, though the actual events were scattered more generally over the entire area, from South Williamson  and Pikeville in Kentucky through what is now Matewan to points north. As a side note, I may be distantly related to some of the participants in this feud via the Mounts family line. This entire area is quite mountainous and not really well suited for farming except in some of the valley bottoms.

The demographics of this area are telling: average income of about $21,000, 30% with incomes below the poverty line, 40% without a high school diploma, an unemployment rate around 7% (this last has been improving lately), with exactly one black person currently residing in Delbarton, and only about 400 in the entire county. This last item I think is significant in terms of the political landscape; West Virginia in general and this area of state in particular has always been very heavily white in composition, with most of its inhabitants originally hailing from Ireland or Germany. While the portrait is not quite the bare-footed hillbilly of the stereotype, the general picture is uncomfortably close, and Hillary’s message of aid for the poor must resonate much more with this population than when contrasted with a black candidate whose very articulateness may be a point against him.

No matter how you cut it, or how much we might wish it to not be true, race is playing a part in this presidential campaign.

Now Hillary’s victory in West Virginia will not materially affect the final results at the Democratic Convention, unless she pulls off some kind of miracle coupled with some back-room deals. But it should be a reminder that the racial problems and prejudicial attitudes of some in this country have not gone away and still need to be addressed. Obama will almost certainly end up as the Democratic candidate, and if he should win the general election, perhaps he will be able to really do something about a thorn that has festered in the American way of life for far too long. If instead McCain should win, I think he also will be driven to pay some real attention to the race problem, as Obama obviously has too many supporters to ignore.

Posted in Economics, Politics | Leave a Comment »

The ‘Whine’ Signal

Posted by hyperpat on April 28, 2008

Whine, whine, whine. Seems like that’s all we hear today when people are talking about the economy. Everyone seems to think that if we’re not in a recession already, we soon will be, and that it’s not going to turn around anytime soon. There are bank problems, housing problems, oil price problems, consumer confidence issues, inflation worries, the dollar valuation effects, the lingering occupation of Iraq,  and whatever other perceived problems you want to add to the kitchen sink.

Now is all this whining about nothing? No, the problems are real, as far too many people can attest who have had their house foreclosed, or those living on minimum wage who are finding it even tougher to keep it together, or everyone finding their wallets all too light after filling up at the gas station.

So what can we do about it? I think most of the necessary actions have already been taken: the Fed has very aggressively cut interest rates, which has already had a definite effect on mortgage rates which will eventually translate into less pressure on current homeowners and make new purchases more affordable. The Fed has also effectively injected a large amount of money into the system so that banks will be more willing to make loans and keep creditor confidence up. New laws and regulations are on the table to provide better oversight of the banking industry so they don’t continue to make loans that are very shaky, while making sure that prospective loan applicants have a better understanding of just what they are signing up to pay. The dollar’s fall has been so severe that it has once again made American made goods very competitive in the global market, and that effect is already showing up in some companies financial statements. The steep price of oil is having multiple effects: more people are opting for fuel-efficient cars, people are driving less and taking other conservation measures, solar cell energy generation is becoming a real force, other alternative energy generation methods are receiving more attention and more research dollars. Now all these things won’t produce any instant cures for the current mess, but looking forward it’s clear that we are now establishing a solid base for future growth.

My take on all of this: it’s time to start aggressively buying stocks. This follows a well known rule about stock market strategy – when everyone is yelling ‘sell’, it’s time to buy, and vice versa. All this whining is precisely the signal that if we aren’t at the bottom yet, it’s not far away.

Posted in Economics, Politics | Leave a Comment »

People Helping People – Something that Works

Posted by hyperpat on March 3, 2008

Scalzi is, once more, on his soapbox over on his Whatever blog about what being poor is like and what should be done about it. His original essay on this subject appeared way back in 2005, and has been reprinted, linked to , and discussed in numerous forums, including my own here at Being Poor is Not a Crime. This is one soapbox I hope he never gets off of (and feel pretty sure he won’t), because it’s a real problem here in America that most people blithely ignore and would just rather not hear about.

His latest post makes a strong argument that shaming those who are poor merely because they are poor is not going to help: the great majority of those in that situation don’t need that kind of motivation to get out of their fix (they get more than enough of that as it is, thank you very much, merely from the stupid bureaucratic rules we have imposed for people to receive government aid). Rather, what they need is real help in terms of doing things that allow them to get more education, or ways to allow them to work while their kids are properly cared for (without having the child care cost more than what they can earn), or real help with medical conditions (universal medical insurance would help greatly in this regard) – this list goes on and on. Getting this type of aid to those who need it doesn’t just mean dropping a check in mail (though this helps too) – it means you personally doing things to help: babysitting those kids, driving the person to their medical appointment, helping them fill out some of those nightmare government forms, or giving them some private tutoring. The point of all these types of aid, though, is that they are of the nature of something that Robert Heinlein advocated as ‘Paying it Forward’. Help those who need it, not because you think you might get something back, but merely because it’s the right thing to do, and gain satisfaction in knowing that once those you’ve helped can afford it, they, in their own turn, will help someone else.

The net result of this type of aid (as opposed to those forms which stigmatize and otherwise denigrate the poor merely because they’re poor) will be a stronger, more robust America – the type of place that the whole world can look up to.

Posted in Economics, Politics | Leave a Comment »

A Drop in the Bucket

Posted by hyperpat on January 29, 2008

The economic stimulus package, as currently set by the House, will do darn little to actually improve the US economy. First, the amount of the individual ‘rebate’ is a comparative drop in the bucket – $600 or $1200 is, for most individuals and families, less than one months rent or mortgage payment. Versus the size of the economy, it represents a miniscule percentage of the GDP. Second is the timing. The earliest we can expect these rebates to appear in our mailbox is May, assuming the Senate quickly agrees to this package without significant changes that will cause more wrangling and delays. By the time May rolls around, the first of the interest rate cuts by the Fed will have had time to actually percolate through the economy, and which will probably be more effective than the paltry rebate sums planned. If this scenario plays out, the rebates will merely act as an inflationary impetus, and we’re back on the rollercoaster of loosening and tightening the money supply, trying to tread that fine line between recession and run-away inflation. If, however, the economy has not already started to dig its way out the hole by then we are likely to be facing a full blown recession, and the money slated for these rebates would be more usefully used as funding for federal job creation and unemployment compensation.

About the only really useful part of the currently planned package is raising the amount that can be funded as ‘normal’ mortgages, up from the current $417,000 to $730,000. There are several areas in this country where this small change (which costs the federal government almost nothing) could have a big impact, as the difference in loan interest rates between ‘conforming’ and ‘jumbo’ loans is significant, and often is the make or break item in whether a particular house is affordable by prospective buyers. As almost all urban housing in places like California and Hawaii exceed the $417,000 figure, this one change could help restart the housing market in these areas. This particular part of the stimulus package should be enacted regardless of what happens to the rest of it, as the maximum size of a conforming loan has not been adjusted for inflation or high cost of living areas since 2005.  In addition, this item should be made permanently adjusted for inflation and median local housing prices so that it does not (again!) fall behind the actual need for appropriate loan sources for purchasing homes. And the nice thing about this change is that it could be implemented immediately, and not have to wait till May.

But as far as the rest of the package, it’s too little, too late.

Posted in Economics | Leave a Comment »

The (Moronic) Thundering Herd

Posted by hyperpat on January 22, 2008

The herd mentality is alive and well. Seems like everyone is stampeding to sell their stocks today. Even as the Fed cuts interest rates by three-quarters of a point, far more than had already been priced into the market. And all the Presidential candidates are talking about some sort of economic stimulus plan.

Now the stock market is supposed to be forward looking, and a drop like today’s seems to be signaling RECESSION.  But is that really in the cards? Sure, there’s some pain on the inflation front, mainly due to the steep rise in oil prices last year, and there’s some more pain on the home mortgage front, which can reasonably be expected to lower consumer economic activity, to at least some degree. But what people seem to be forgetting is that most of this pain has already been priced into the market, and most companies outside of the mortgage lending business are reporting very reasonable earnings. Today’s steep sell-off, with the Dow down over 400 and the NASDAQ over a 100, is not justified by the numbers, but is merely a reflection of the lemming-style mentality that sometimes seems to infect trader’s minds.

So what should you do? Don’t be another lemming. Buy! Now’s the time! Use that old adage of ‘buy low, sell high’ to your advantage. This opportunity won’t last long – just while I’ve been writing this post, the DOW has risen 200 points and the NASDAQ 50.  Sure, it’s a little scary going against the tide, but the big prizes never go to chickens.

Posted in Economics | Leave a Comment »