Business & Economics: April 2008 Archives
In the wake of last year's catastrophic failure in AIDS vaccine research (in which vaccine recipients actually had a slightly increased incidence of contracting the disease) it's eminently reasonable to consider other approaches to the problem. Considering the gazillions of dollars we've invested into AIDS vaccine research with no benefit, why not try redirecting our money away from the failing scientists and simply pay people not to get AIDS?
Thousands of people in Africa will be paid to avoid unsafe sex, under a groundbreaking World Bank-backed experiment aimed at halting the spread of Aids.The $1.8m trial – to be launched this year – will counsel 3,000 men and women aged 15-30 in southern rural Tanzania over three years, paying them on condition that periodic laboratory test results prove they have not contracted sexually transmitted infections.
The proposed payments of $45 equate to a quarter of annual income for some participants.
The programme, jointly funded by the World Bank, the William and Flora Hewlett Foundation, the Population Reference Bureau and the Spanish Impact Evaluation Fund, marks an important step in the fight to tackle Aids, which claims 2m lives a year.
In spite of billions of dollars spent annually on treatment and prevention worldwide, there were about 2.5m new HIV infections in 2007, predominantly in Africa.
Carol Medlin from the University of California, San Francisco, one of the researchers, said: “We hope this ‘reverse prostitution’ will make people think hard about the long-term consequences of their short-term behaviour.”
Sounds worth a shot. It would be surprising to me if a few dollars would provide much additional incentive to avoid a fatal disease, but then it's surprising to me that anyone contracts AIDS from sex or drug use anymore. If these payments reduce the infection rate by even 1% then they'll be more effective than all the research into AIDS vaccines thus far.
I'm normally skeptical about claims of corporate interference/conspiracies having much effect on the behavior of government, normally because government, industry, and the general population all have similarly-aligned interests: maximize productivity and wellbeing. Some individuals and cabals are focused on maintaining and extending their own power (see: Congress), but generally even this goal is pursued by attempting to improve the lives of the population as a whole (generally, in the net, on average). However, this article about lobbying and environmentalism shows just how dangerous the government can be when We The People allow it to exercise so much power that it can create whole industries for its corporate buddies.
NBC Universal is owned by General Electric, which plays a regular role in this column because of how aggressively the company has hitched its profits to its lobbying successes. GE spends more than any other corporation in America on lobbying the federal government — more than $20 million annually over the past three years — and Green Week and Earth Week probably should be disclosed as lobbying efforts.In many of GE’s businesses, the profit model appears to be: (1) invest in something for which there isn’t much demand; (2) then lobby to mandate or subsidize it.
Wind turbines are a great example. GE describes itself as “one of the world’s leading wind turbine suppliers.” Absent subsidies, however, there might be no windmill industry, because windmills cannot reliably produce energy, and certainly not as affordably as traditional fuels such as coal. ...
GE’s coal gasification, solar power generation, electric cars and biodiesel businesses are the same: Consumers and investors acting with their own money would not patronize these technologies, but Congress, acting with your money, will. GE’s $20 million annual lobbying budget sees to it. ...
But sometimes it pours it on a bit thicker. Tuesday morning, Tom Brokaw went on NBC to give a talk about the first Earth Day. “It was a massive success,” Brokaw explained, because “the Clean Air Act, the Clean Water Act, the Endangered Species Act quickly followed. President Nixon created the Environmental Protection Agency.”
There’s the rub. Everyone who rolls her eyes at “Earth Week” or lectures from Schwimmer on “going green” was bracing for that. Environmentalism today almost always means government intervention. Government intervention means higher costs and higher taxes. And as this column has documented for more than a year, government intervention usually means profits for a well-connected special interest.
In the long run, market forces will smooth out these minor artificial inefficiencies, but that doesn't make the graft less offensive in the short run. What's more, blithely accepting this corruption opens the door to stifling the liberty that allows market forces to work at all... and in the long run we'll all be dead.
Rather than focusing on net worth, My Money Blog suggests the Financial Freedom Ratio as a more meaningful barometer of your financial health and positioning for retirement.
If someone tells you that they have a net worth of $1,000,000, you might be impressed. But what if they spent $150,000 per year? If they stopped working, the money wouldn’t last very long. However, if they only spent $15,000 per year, they might already be set for life. In other words, your income doesn’t matter. Your expenses do. It may be assumed that the two are related, but that is not necessarily true. We all have the power to disconnect the two.I’m sure somebody somewhere has already coined this term, but until told otherwise I will call it the Financial Freedom Ratio (FFR):
FFR = Liquid Net Worth divided by Annual Expenses
By liquid, I simply mean you can sell it for cash while not affecting your expenses. (Don’t count your car if you need it for work.) For example, if you had $200,000 but only spent $20,000 per year you would have the FFR value of 10 as someone with $1,000,000 but spent $100,000 per year. This also calls into focus how important spending patterns are when talking about financial freedom. Let’s say you had the 200,000 net worth and you wanted to increase your FFR from 10 to 11. You could either
- increase your liquid net worth by $20,000 and spend the same,
- decrease your annual spending by $1,820 and not earn any more money,
- or some combination of spending less and accumulating more.
Sure, it can be very difficult to keep slashing expenses, but this ratio keeps you honest as to how close you are to financial independence.
He also does some estimates of what a "good" FFR would be based on annuity pricing, and comes up with a suggested FFR of 25. (This value is pretty obvious, considering the conventional wisdom that you can safely withdraw 4% of your savings per year without eating into your portfolio.)
A while ago I read an article about economic growth in Europe during the Middle Ages, but I can't find the article nor any other source for what I remember reading. According to my memory, this article said that economic growth averaged 0%-1% for centuries in the feudal agrarian system, and that everyone was so excited about exploiting the New World because the average return on investment for a transatlantic expedition was far higher than what could be reaped by farming.
The latter part seems completely logical, but I'm especially interested in the "0%-1%" figure, if there's any way to substantiate it. Such low growth rates would obviously make the wealthy extremely conservative with their investments. Does anyone know anything more about this?
I read "The Black Swan"
There are two types of businesses: those that are exposed to Black Swans and those that are relatively insulated from them - not because Black Swans cannot occur, but because their impact is not going to be monstrous. Your dentist's income will not disappear on a single day: No single event will carry big consequences for her. But trading profits can all be lost by a single transaction. So some businesses are insulated, some (like technology) are exposed to positive Black Swans, and others are exposed to negative ones. ...The Black Swan is a matter of perspective. A turkey is fed for 1,000 days - every day lulling it more and more into the feeling that the human feeders are acting in its best interest. Except that on the 1,001st day, the butcher shows up and there is a surprise. The surprise is for the turkey, not the butcher. Anyone who knows anything about the history of banking (or remembers the 1982 Latin American debt crisis or the 1990s savings and loan collapse) will tell you that the subprime crisis was so bound to happen. Banks are exposed to such blowups. Bankers have been the turkey, historically.
I recommend buying the book.
Argh... inflation. Now that my net worth is positive (and all my remaining debt is at fixed rates) I'm starting to understand the perils of low interest rates. My low-risk savings are returning a pittance thanks to the Federal Reserve, and now their ludicrously low rates are further undercutting the value of my investments by provoking inflation!
Inflation is the great economic equalizer... maybe leftist regimes create it intentionally. Debt inflates away as the value of the currency degrades, and wealth evaporates.
Examiner.com has a great twist on John Edwards' "two Americas" trope: tax payers and tax consumers.
Tuesday is the deadline for filing federal income taxes. Half of American taxpayers will pay 97 percent of the individual income taxes the government will collect for 2008, according to IRS data. The other half will pay little or nothing, yet receive billions in benefits in the form of cash, subsidies, “free” services and other benefits, and loans. There are indeed “Two Americas,” but the two aren’t the rich and poor, but taxpayers and tax consumers. It’s going to get even tougher for the taxpayers in the near future, thanks to legislation being readied by Democrats who control Congress.
(HT: Glenn Reynolds, who also thinks we should hold national elections on April 16th.)
I'm both an optimist and a contrarian, so all the gloomy economic forecasts rub me the wrong way. I'm not really qualified to opine on the merits of one smart-guy's view over another's, but Ken Fisher at Forbes sees things the way I do.
My critics call me a perma-bull. They forget I called the last three full-fledged bear markets right here in FORBES--reasonably well and better than most--and mostly alone (June 15, 1987; Nov. 27, 1989; Feb. 19, 2001). I know I may be wrong now. But I see what's happened since Jan. 1 as just a major correction, very comparable to 1998, with a few things flip-flopped, as described in my Feb. 25 column. ...You can't find a time in the 20th century when, less than five months into a real global bear market, people were talking bear market and recession in any visible numbers. But they always talk disaster during corrections. Check out "Russian Financial Crisis" on Wikipedia. The second sentence says 1998 was a "global recession … which started with the Asian financial crisis in July 1997." Wrong. There wasn't a global recession then. There isn't one now.
An old saw says, "You should be fearful when others are greedy and greedy when others are fearful." Clearly folks are fearful now. So you should be greedy. Another saw: "Buy when there is blood on the streets." There's plenty of blood, or at least depression, on Wall Street. So keep buying.
Well, that's what I've been doing. I've got friends in the financial services industry who thing I'm an idiot because all the professionals they know are crapping their pants. Hey, I've been wrong before! But I know one thing: you can't "buy low, sell high" unless you're willing to "buy low".
