Archive for the 'Economics' Category

Unless you don’t follow politics, you know about the McCain/Clinton plan for a gas tax holiday. The basic idea is that to reduce the pain of the annual summer gas price hike these two candidates propose that federal gas taxes be suspended through the summer months. At first, this might seem like a good plan, but then you would talk to an economist or take a few seconds to think about it and realize that it isn’t a plan at all so much as a campaign talking point designed to play on an economically strained public.

I have mentioned my general distrust of economist in the past, so I am not going to spend a lot of time quoting them on why this is a bad idea. Suffice it to say that basically no economist will support the idea as a viable solution. You don’t need an economist to tell you why this is either an extremely poorly thought out policy or simple pandering. You see, gas prices go up in the summer because the refineries can not keep up with demand, which is the same reason that prices are high these days anyway. Gas prices rise and frivolous demand goes down and the available resources are distributed by necessity. Its the economics of scarcity, supply and demand and other sorts of voodoo.

It’s simple, if the 18 cent per gallon federal tax ‘goes on holiday’, the price of gasoline will simply rise to fill the difference. There is precedence for it and it will be done and to suggest otherwise is buffoonery.

This is pandering. The thing is that once again, we are not being asked to sacrifice and work together to find lasting solutions. Instead, we are being offered cheap gimmicks and feel good politics. Times are tough, but we need some perspective on this. The average Montanan uses about 544 gallons of gas per year, so lets assume that usage is distributed evenly throughout the year (I know that it is not), that means we go through about 45.33 gallons per month. At the current rate of $3.70 a gallon for mid grade, we spend around $167.72 a month. Even if the 18.4 cent gas tax holiday did lower the price, the average Montanan would save around $8.15 per month. That is the cost of two cups of coffee at Starbucks, four energy drinks, two packs of cigarettes or 2.2 gallons of gas. Even if it were to work, it really isn’t a lot of help at all.

Look back at that 2.2 gallons of gas though. All of the candidate’s ought to be asking us to sacrifice by dropping 2.2 gallons of gas from our monthly consumption. For the average Montanan, that is cutting 4% of their normal rate. That’s 61.6 miles of city driving in a Toyota Carolla or 26.4 miles in a Dodge Ram 1500. By lowering our consumption, we reduce demand which lowers the supposed purpose of rising prices. Additionally, consider the positive environmental impact. Sure, it might be a little uncomfortable. You might have to carpool, or pool your errands, but have we really come to the point where we are not willing to sacrifice a little? Are we that self focussed really?

We don’t need politicians who pander to us. We don’t need politicians who propose feel good legislation. We need leaders who will put forward lasting solutions to our very real issues. We have all acknowledged that we are facing real problems and as American’s, we should be willing to stand up and fight the good fight. We should be willing to make the sacrifices needed, not cozy up to politicians who promise they will fix everything for us. They can’t and nohing will ever get fixed that way.

As a Chinese acupuncturist might tell us, everything is connected to everything else. In the wake of Bill Clinton’s NAFTA (how much damage can one man do?), American farmers flooded the Mexican markets with cheap corn. Mexicans, unable to protect their markets, left their farms in droves, and began flooding across our borders in record numbers, seeking only to make a living.

Then there’s this: Americans are corn-fed from birth, and ingest ungodly quantities of the grain in the form of sodas and chicken nuggets. The massive calorie intake results in obesity and diabetes, huge public health problems.

But help is on the way. Due to the influence of large commodity corporations like ADM and Cargill, Americans are subsidizing the ethanol industry. This has placed new demands on our farmers to grow more corn. The price has shot up. Where it was stagnant throughout the late 90’s and into this century (as low as $1.54 a bushel in 2000), prices have recently gone as high as $5.70 a bushel. There’s joy in Ames, Iowa. Farmers are making money again.

In other words, ethanol might be a godsend. It might keep corn prices high, and allow Mexican farmers to stay home. And it might drive up the price of fast foods, encouraging Americans to eat less.

There is negative fallout too - farmers have converted acreage normally used for barley over to corn, and beer prices have foamed upwards. But it appears as though our gurus in Washington have finally hit on a policy that has positive impact on ordinary people.

Surely it was an accident.

It takes like a gallon of gasoline to make a gallon of ethanol, and federal subsidies are throwing everything out of whack and food is getting more expensive, and that’s all bad enough, and then I read this, from the Bozeman Daily Chronicle:

As predicted by experts last fall, spikes in the costs of barley and hops have led to more expensive beer … At Madison River Brewing in Belgrade, six pack prices increased by a dollar Jan. 1, and keg prices went up 5 percent … at Bozeman Brewery Co., keg prices went up $5 at wholesale, likely leading to $20 more a keg after distributors and bars ad mark-ups … hops are in severe shortage around the country … San Diego fires this fall burned many hops farms … droughts in Australia and floods in Europe are killing barley production … China is making more beer than ever … all of [the brewers] mentioned the ethanol boom, which persuade farmers to grow corn instead of barley and hops and channels more barley to feed lots where animals used to be fed corn.

I can stand a lot, but I will not stand for this - down with ethanol!

In yet another glaring example of heartless indifference to consumers and slavish loyalty to the bottom line, we learn now that Kellogg Corporation has stopped making the Hydrox Cookie.

We don’t keep sweets around the house (other than these Necco candy hearts I am currently eating) (bear hug, only you, cool cat), so I didn’t know that Hydrox had gone missing. And I didn’t know until listening to a comedian last year that Hydrox was kosher, Oreo not.

Never mind that. What I do know is this - we need choices - as Americans, it’s one of our first lines of freedom - to choose Crest over Gleem, Chevy over Ford, Coke over Pepsi, and Hydrox over Oreo. Now, thanks to Bush, we have one less choice in our arsenal of freedom.

May 2008 be the year we are again offered the Oreo alternative. Vive la Hydroxo!

Friday after thanks giving is called ‘Black Friday’. It is denoted as such due to the massive sales that will kick off the holiday shopping frenzy. Tonight I was watching my in-laws pouring over the inserts from the Helena IR with lists and highlighter pens and it set me to thinking on this sick tradition. Why does the Helena IR have a proclamation on the front page that this was the biggest paper of the year? Wasn’t there an election a few weeks ago? Aren’t we in a war that has cost more American lives this year than any other? Why does a Christmas sale the day after Thanksgiving warrant the largest edition of the year? Why is it called Black Friday?

The earliest uses of “Black Friday” refer to the heavy traffic on that day, an implicit comparison to the extremely stressful and chaotic experience of Black Tuesday (the 1929 stock-market crash) or other black days.

Additionally, the fact that people go out on that day and spend large volumes of money despite bleak economies. If you have ever been to Wal Mart or Target around the holiday season and paid any attention to the faces of people in the check out lines, you know what I mean. While household debt is increasing in this country at a rate bordering on exponential, we still spend. Why is this? Can this be healthy? It doesn’t feel like that is the right move.

The unemployment rate has remained low, at 4.5 percent. A recent report on retail sales shows a strong beginning to the holiday shopping season across the country — and I encourage you all to go shopping more.
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George Bush December 20, 2006

Is this the right advice? At a time when we are supposedly trying to get off foreign oil and stop sending the bulk of the GDP to China, shouldn’t we be conserving? At a time when our household debt is increasing and our wages are decreasing compared to the cost of living, shouldn’t we be conserving?

Is this consumer-uber-alles nature good for our souls? We have an entire room at our house that is bigger than some inner city apartments dedicated entirely to plastic toys. Will adding more plastic crap to that room really add anything of substance to my children’s lives? Will it make them feel any more loved? Will it help to give them the confidence and assurance that they need to go out into the world and make a positive impact and live up to their real potential? If it wont, then what is the purpose of the negative impacts of our consumerist nature?

Counting commas…

I can’t even count the commas and zeros the government is talking about to fund the war in Iraq. The current physical year, August, September and October is some 196 Billion dollars and the President now wants an additional 46 Billion dollars as emergency funding to support the war in Iraq and Afghanistan.

Of course this would have to by-pass the normal funding channels, which I highly doubt the Democrats (and many Republicans) will support that “open” checkbook. Also, please keep in mind the National debt – How many Trillion dollars?

The bottom line is too many commas and too many zeros for any average person to count or understand the enormity of $$$ being spent to fight what? Our freedom? It surely isn’t yours or mine.

The question to any of the hopeful candidates running for President would be – When and how would you stop all of this bloodletting?

Keep in mind that with this much money we could be solving a lot of families without insurance to insure their kids. With this much money we could have the resources needed to fight the raging fires throughout the United States. We could use this money to rebuild the New Orleans area from the throngs of Katrina. Need one go on?

The time is NOW my friends. We cannot let this to continue with no end in sight. We must take care of number one (us) before we can even begin to think about number 2, 3, 4.

I know I am a living cliche, but a bunch of us geeks were hanging out around the water cooler yesterday and the topic of retirement came up. People started throwing out terms like ‘money market’ and ‘Roth IRAs’ and I started getting really sleepy. Really really sleepy.

You see, I have taken a hands off approach to my retirement and investments. I figured that me and finances were a lot like the Montana legislature and laws, the less I did the better off things would be. I took the time to mosey on over to the Tiaa-Cref website though, just to see what was going on. One of the first things I noticed was that some of the investments were way outperforming others, according to some metrics. When I started to try and decipher some of these things, it occurred to me that I might need help. I started to get in touch with a friend of mine on some advice, instead I decided to do what any sane human would do: Ask people on a blog. Besides, I might not be the only person who could use a little clarity.

Here is how my portfolio looks right now:

Equities 11.22%
Real Estate 2.37%
Guaranteed 8.14%
Money Market 78.26%

I am concerned that all my money is going into money markets right now, since the total return year-to-date is less than 4%. I can get more than that from an ING savings account. Then I looked up money market on Wikipedia and see that it is “the global financial market for short-term borrowing and lending”. The real estate and stocks are returning about 12% and 14% (year-to-date) respectively. Presumably, they have a higher risk? Or is investing in money markets just stupid?

There are lots of other options too. I can choose growth, equity index, global equities, bond market or inflation-linked bonds, as well as equities, real estate or the money market. What are the advantages of each? At this point (fairly early in my career), should I favor being aggressive over stability? I think that there are some pretty smart people here, and more than just me will benefit from any insight you can give.

When my wife and I went on our honeymoon in Canada 10 years and one month ago, the dollar was worth $1.50 Canadian. I remember that it helped us out on our vacation, we were poor. Five years ago the American dollar was worth about $1.60 Canadian. My how things have changed in the last five years.

That’s right. For the first time in 30 years, the American dollar is worth about $1.00 Canadian.

After sinking steadily for most of the year, the US greenback hit a record low against the euro and declined against the yen on Tuesday. But nothing hits closer to home, literally, than seeing it fall to a 31-year low against the Canadian loonie, so nicknamed for the bird pictured on its coin.

This is the really scary part of this article though:

The dollar’s slide is affecting every corner of American life, from corporate earnings to vacation plans. But, more disturbingly, it also has the potential to punish the very mortgage holders that the Federal Reserve intended to help with its aggressive interest rate cut last week.

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That is because a low-value dollar makes long-term Treasury bonds less attractive, and new data from the Treasury Department indicate that China and other big investors in these bonds are beginning to sell their holdings. That helped send the 10-year Treasury price down and its interest rate up in the last week. Mortgages - particularly jumbo and adjustable-rate loans - are tied to this rate.

Yes, you read that right. Not only has China bought us, but now they are selling us. What started this slide? Increased borrowing? For what? What else started 5 years ago and is causing our debt to spiral out of control? What was that one guy asking for $200,000,000,000 for yesterday? Hmm. I’ll have to get back to you on that.