Business & Economics: February 2008 Archives
Here's a retirement calculator that's a lot slicker and simpler than many I've seen. I also like it because it shows that Jessica and I are in pretty good shape.... Gotta remember that our ultimate security comes from God though, not our jobs or assets.
Chris Anderson writes about the economics of "free". Everyone who's reading this blog has to know that everything the internet touches gets cheaper, and anything that exists entirely as bytes will eventually be free. This article describes how it happened and where it may be taking us.
(HT: GeekPress.)
Here's a slideshow that explains the subprime mortgage debacle using stick figures. I guess it's a little last-year, but still amusing.
(HT: My Money Blog.)
Looks like Congress recently changed some pension laws in a way that makes it extremely important for anyone who has the option to take a lump-sum from their pension to do it ASAP:
Are you now or have you ever been covered by a defined benefit pension, the kind that pays so many dollars per month? Would you prefer to take your benefits in a lump sum?Then pay attention: The lump sum benefit you've already earned is likely to shrink over the next five years. In 2006, in response to complaints from corporations that the old method for calculating minimum lump sums was too generous, Congress created a new, less generous one. It's being phased in over five years, beginning in 2008. Younger workers take the biggest hit; by 2012 lump sums for today's 35-year-olds are projected to be 44% lower than they would have been under the old law. And since this was Congress' doing, the Internal Revenue Service has ruled that employers don't even need to warn employees about the change.
Not me, more than 11 million Americans will be affected by this change in law.
I've linked to Robert Zubrin's flex-fuel vehicle plan before, but I think it needs frequent promotion. If we can undercut OPEC we can defund our enemies in the War on Terror and spur our economy at the same time.
However, there is now a way to break OPEC, a surprisingly simple one. What is needed is for Congress to pass a law requiring that all new cars sold (not just made, but sold) in the U.S. be flex-fueled — that is, be able to run on any combination of gasoline or alcohol fuels. Such cars already exist — two dozen different models of flex-fuel vehicles (FFVs) are being produced by Detroit’s Big Three this year — and they only cost about $100 more than identical models that can run on gasoline only. (The switch to FFV requires only two minor upgrades: in the materials used in the fuel line and in the software controlling the electronic fuel injector.)FFVs currently command only about 3 percent of the new-car market. After all, there is little upside for consumers to own one, with alcohol-fuel pumps being nearly as rare as unicorns. Little wonder: Why should gas-station owners dedicate one of their pumps to alcohol fuels (like E85 — a mix of 85-percent ethanol and 15-percent gasoline — or M50 — a mix of half methanol and half gasoline) when only a tiny percentage of cars can use them? But, within three years of the enactment of an FFV mandate, there would be 50 million cars on American roads capable of running on high-alcohol fuels. Under those conditions, fuel pumps dispensing E85 and M50 would be everywhere — creating, for the first time, an effectively open market in vehicle fuels, and competition for OPEC oil.
By mandating that all new cars sold in the U.S. have flex-fuel capacity, we would induce all foreign automakers who want access to the American car market to switch their lines to flex fuel as well, effectively making flex fuel the international standard. In addition to the 50 million FFVs we’d see in the U.S. in three years, there would be hundreds of millions more worldwide that could be powered by any number of alternative fuels derived from numerous sources around the globe, forcing gasoline to compete everywhere. This would effectively break the vertical monopoly that the oil cartel currently holds on the world’s fuel supply, constraining prices to the $50-per-barrel range (where alcohol fuels become competitive).
Such a development would also create a market that would mobilize tens of billions of dollars of private investment into techniques for the production of cellulosic ethanol and other advanced alcohol fuels. Those investments will further reduce the price of alcohol fuels and will radically expand America’s and our allies’ potential resource base (although methanol already can be produced from any kind of biomass, without exception, as well as coal, natural gas, and urban trash).
Yes, it's a government economic mandate that I'm in favor of -- primarily for national security reasons. The economic argument is also compelling, because infrastructure natural monopolies are hard to dislodge otherwise.
Happy Valentine's Day!
The recently-ended writers' strike cost Los Angeles more than $2 billion, not including "trickle-down" effects.
"That's a pretty bomb-proof number. Employees are not getting paid," Lindgren said. "But it does not take into account the trickle down effect."One particularly hard-hit industry in that "trickle down" category is limousines. Experts estimate there are about 1,200 limo companies and 6,000 drivers in Los Angeles.
Alan Shanedling, president of the Greater California Livery Assn., confirms that November and December weren't a problem, but the new year "has been devastating."
Shanedling's own company, Fleetwood Limousine, lost $200,000 in revenue in January alone, and his 34 drivers missed out on $30,000 in tips, money they couldn't spend elsewhere and the cause of more trickle-down pain.
Because of the stripped-down Golden Globes ceremony, for example, several limo companies that were to supply 800 cars saw that business disappear along with 6,400 hours of work for drivers.
Maybe in the future these folks will be quicker to understand the trickle-down benefits of tax cuts?
My Money Blog analyzes how to choose a mortgage length and his conclusion is the same I reached when I bought my first house six years ago.
Here’s the thing. Just because you have a 30-year mortgage doesn’t mean you have to take 30 years to pay it off. As long as you don’t have a prepayment penalty, you can simply send in additional money towards your loan principal and pay it off in 8, 15, or 23.5 years. However, if you have a 15-year mortgage, you have to make those higher payments every month or risk losing your home. So going for the longer term essentially sets you a “minimum payment”, which you can exceed as you wish. This can make a big difference if I run into extended unemployment or other large financial setbacks. ...I ended going with the 30-year fixed mortgage, primarily due to the reasons explained in Viewpoint #3. I am not against paying off our house early - I actually like the idea of having my home paid off as it would help simplify our income planning in retirement. (I could also treat paying it off early as owning a bond.) However, the flexibility of being able to make the lower payments as needed was a big draw, especially given the relatively small premium for doing so. Finally, if we rent the house out one day, the lower payment would also help with managing rental cashflow.
So why not a 40-year mortgage here as well? As you go longer, the mortgage payment stops dropping very much. A 40-year loan would involve an even higher rate and only lower our payment by 4%.
It doesn't surprise me that the standard term length is also the most generally advantageous. That's how markets work.
A new study shows that unhappy people are looser with their money, even if they're only unhappy temporarily.
The study found a willingness to spend freely by sad people occurs mainly when their sadness triggers greater "self-focus." That response was measured by counting how frequently study participants used references to "I," "me," "my" and "myself" in writing an essay about how a sad situation such as the one portrayed in the video would affect them personally.The brief video was about the death of a boy's mentor. Another group watched an emotionally neutral clip about the Great Barrier Reef, the vast coral reef system off Australia's coast.
On average, the group watching the sad video offered to pay nearly four times as much for a sporty-looking, insulated water bottle than the group watching the nature video, according to the study by researchers from Harvard, Carnegie Mellon, Stanford and Pittsburgh universities.
Thirty-three study subjects -- young adults who responded to an advertisement offering $10 for participation -- were offered the chance to trade some of the $10 to buy the bottle. The sad group offered to trade an average of $2.11, compared with 56 cents for the neutral group.
Despite the big difference, participants in the sad group typically insisted that the video's emotional content didn't affect their willingness to spend more -- an incorrect assumption, said one of the study's co-authors.
So here's a new approach to financial health: don't shop when you're unhappy.
