Rising Inflation and Some Suggestions on How to Deal With It

According to the Washington Post, consumer prices have risen faster in September than they have in the last 25 years (1.2% in one month). Obviously if you've been around in the United States, you can guess that Hurricane Katrina cuased most of this increase becuase of the effects from rising fuel costs (12% last month). This in turn has an effect on the price of goods that are transported across the U.S., like food.

Inflation is a reality that most people are aware is inescapable. What I ask myself is, "is there a way to avoid it or protect my money from it?" Inflation destroys cash. Or more accurately, it destroys your purchasing power. The longer you hold money with inflation as a consideration, the less that money can buy.

So how can I protect myself from inflation? Well, first you could look at investing. Normally, when you invest in stocks, bonds, mutal funds, etc. they generally have a higher return than what the inflationary rate is. There are even inflation-linked indexes that gaurantee a higher rate of return than the inflation rate. What these options boil down to is this: if you own something tangible with a commonly perceived value, you can beat inflation.

If you have ideas on how to beat inflation, please post them in the comments section.

Municipal this, Municipal that...

(Sigh) Okay. I just came across this article at Wired.com written by Jennifer Granick, a Stanford University Law School Professor. She is an advocate for municipally funded Wi-Fi access, or as she puts it, "free wireless internet access." She equates this service with public toilets, drinking fountains and park benches. She also states that the only major argument against this is its potential for abuse (i.e. people downloading illegal material, hacking, etc.).

I would like to propose that an even greater argument strikes through the heart of her primary assumption that we are entitled to free Wi-Fi: "nothing in life is free." I find it preposterous that she believes Wi-Fi could be deemed a "need" that our city council members or mayor should have an obligation to provide to their constituents for "free."

Let's take a macroeconomical perspective for a moment and look at a hypothetical procedure for setting up this "free" service. First, the city would need to purchase the infrastructure from the current providers or another wholesaler (roughly in hundreds of millions of dollars). Then they would have to install that infrastructure (wireless servers with enough power to broadcast over the air) and maintain it (a line item in the city budget). I don't know about your own experience, but at my company, our servers occasionally crash and maintenance is constantly being done on them. Finally the true cost to you. Perhaps a few cents added to the city sales tax, or maybe a few dollars onto the property tax, or maybe just an overt "Wi-Fi" tax on your next tax return. Any way you slice it, you're going to pay. And what I find even more outrageous is that not everybody has Wi-Fi; I sure don't and I don't want to pay for someone else to have it.

This isn't a need. It's a want and a frivolous one at that. In the cities considering these proposals, you already have service providers, sometimes more than one (which is a good thing if you believe in competitive capitalism). In Iowa City, you can go to a local coffee shop or Panera Bread Company. They provide the service for free because they know it will lure customers who will in turn buy products to help subsidize that "free" service. This, in my opinion is the route to go. If there is a demand, a private company will provide. Obviously in Ms. Granick's hometown, there is a demand because there are two companies offering the service that the city wants to grab.

Sure, some municipal power companies charge less than the going rate, some municipal telephone companies have great service, but people are always paying for it in the end and why take a gamble? These companies don't necessarily innovate and bring out new products (Plus, water, power, sewage, garbage disposal and the such are needs of a city). The private sector is usually the driving force behind innovation. All those revenues and profits they're making is the motivating factor to better their products, make them cheaper, and expand their service. When was the last time a municipal utility came out with a revolutionary breakthrough in the way they do business?

Ms. Granick looks to the government to solve her problems and make her life better. I look to myself and those with a track record for success.

Baseline Budgeting: A Contemporary Illustration

Have you ever heard of basline budgeting? The majority of programs funded by the federal government use this principle to determine how much their budgets will be in subsequent years.
Because of the recent hurricanes in the southern United States, President Bush has asked Congress to "slash spending," in order to provide monetary relief without raising taxes. I applaud President Bush for not forcing me or a business to pay extra for this burden. Critics of the president say that the programs he is cutting are necessary and that any cuts will cause mass riots, millions to go hungry and countless others to be homeless. While I'm not sure about those claims, if we look at the details of these "cuts" we will find that they really aren't spending cuts at all. They are, in fact, a decrease in the amount of the budget increase.

Citizens Against Government Waste (CAGW) is a non-profit group that monitors the budget Congress submits and the President signs every year. They point out wasteful spending and unnecessary programs that our representatives sometimes sneak into the budget. They also point out ways to cut spending and thus have the Federal Government be less a burden to the common citizen.

CAGW points out that Baseline Budgeting is a way for Congress to increase spending when they really claim to be decreasing it. How does it work? Let's say that a specific department, let's say, the Agriculture Department's foodstamps program is expected to grow $100 million next year. In fact, we project that its need will grow $100 million every year. But this year we only increase its budget by $30 million. The headlines will exclaim that we just cut $70 million out of the Ag. Dept. budget! The example in the link says its like expecting to gain 100 pounds, only gaining 75 and then claiming to have lost 25 pounds! Absurd!

Well, the foodstamps program is in fact a nice target for the Congress to do such a cut. Last year, $2.1 billion went unclaimed and unused. Why? This article claims that it is because of lack of knowledge or language difficulties. My guess is that the budget has continually increased irregardless of the number of people that actually need or use this subsidy. This practice should stop!

So how should Congress go about finding the proposed $62 billion in aid without raising taxes? House Majority Leader Tom Delay (R -TX), after increasing the budget deficit up to over $400 billion with the proposed aid, said he would be willing to accept suggestions on locations to cut. The Cato Institute, a free-market think-tank, has offered these suggestions. While these are legitimate cuts, even decreasing the total amount of Baseline Budgeting increases would be sure to find the $62 billion.

A worthy (and wise) goal of any individual, business or organization is to have a balanced budget. What you spend should only equal what you take in. I myself have a balanced budget and it is treating me well. It is also responsible. Is it possible to balance the Federal Budget without raising taxes? Yes. Another paper, dated 1995 has seven suggestions on finding ways to keep the government in line and prevent such frivolous spending and irresponsibility. It is as relevant today as it was then.

Next time you hear about spending cuts and the horrors that might befall us all if they are allowed, remember baseline budgeting and look into the issue some more to be sure that the Congress or other special interest groups aren't pulling the wool over our eyes.

Retailing Uneasy About the Near Future

An article in the Economist points out a worldwide trend of consumer confidence dropping. In Germany consumer confidence has dropped for its third straight month. In America, confidence is down in October almost 15%. Retailers are worried about this trend, especially as the Christmas spending orgy, er, "buying season" nears.

The thing I find most useful in the article is that from the perspective of the consumer the growing retail establishment and their catering to the specific tastes of the consumer (mostly because the market is growing more competitive) is a real boon for consumer advocacy. The article talks about Target comissioning their own fashion designers and other stores around the world are looking at local fashion providers instead of Chinese imports, because they are more timely and in tune with finicky "consumer trends." Wal-mart is looking into carrying organic foods to compete with some specialty chains. Wal-mart is also exploring the idea of having consumers send their digital photos to them over the internet, to be produced and picked up within the hour at their local store. Brilliant!

Each of these efforts will most likely decrease the overall costs of these traditional "specialty" goods and bring their prices down to earth. And with lower prices comes greater economic value for our hard-earned dollars.

Wine: The Expression of Civilization

Wine has interested me for a while. The way it has begun to impact and grow in cultural relevance is curious to me. I don't claim to be an expert, but I am fascinated by this "living, breathing thing. Constantly able to change and gain complexity." That quote is from the movie Sideways (2004). The movie follows a wine Conessiur, Milo, and his friend on a tour of wine country. It touches on some cultural issues that surround wine drinking and the wine community. The movie alone may have caused an increase of 147% in sales of Pinot Noir, the movie's unofficial star.

Wine is also a business. Last year, the Californian wine industry was estimated to be worth $45.4 billion. Traditionally an old world specialty, wine has increasingly become more popular in America and so has its production. America, Australia, and South America have really begun to see sales of their wines take off. While in France, the government had to bail out their wine industry last year. And America is also the largest consumer of wines in the world.

Another film, Mondovino (2005) explores the differences between small wineries and large companies such as Mondavi and EJ Gallo. It interviews small vintners and they claim that the wine industry is falling apart and that there is no personality left in wine. Large companies are happy with their sales and strive to increase their market share. The movie explores the idea of terroir, literally "soil" in French, but has increased in meaning to the taste that an agricultural product takes on based on where it is located. The small wineries claim that they have a rightful claim to terroir and that is what produces the tastes of a Burgundy or Bordeaux. Large companies use technology to make up for their lack of geographic location. Mondavi and Rothchild for example, add new oak to their production process to add flavor to their wines.

An article in the Economist points out another issue affecting the wine industry. In California, grapes are able to grow larger and contain more sugar. When fermentation takes place, this causes more alcohol to be produced, which generally does not taste good in a wine. Some wineries in California are adding water to their batches in order to "mellow" the alcohol content. Most of the wine world frowns upon this practice, but consumers might not tell the difference, and it is wondered if they even care.

Wine is also sometimes seen as an investment. You can buy a good bottle of wine, place it in a safe location for a few years and then sell it at a higher price. While I don't know much about this process, it intrigues me and I have posted some websites that explain more about the differences of wine.

The Internet Wine Guide
A Guide to French Wines
A Guide to Italian Wines

Check out the above sites and go out and enjoy the world of wine!

Manufacturing Jobs Disappearing: That's a Good Thing!

This article from the Economist calls attention to the high number of manufacturing jobs disappearing in highly-developed, richer countries.

It suggests that less than 10% of jobs in America are of the manufacturing variety, yet America still leads the world in manufacturing (by dollar amount). This gets to the heart of an observation and its implications.

The article implies that manufacturing in richer countries is inefficient. Change is a good thing and those economies are changing toward more service-oriented economies. R&D, marketing, and management are becomming the strong points of the American economy. Putting together shoes or cars is left to economies that may have an edge on wages, but don't necessarily have an edge on inovation.

With respects to the common worry about China taking everyone's jobs the article has this to say:

a basic principle of economics, proven time and again, is that even if a country can make everything more cheaply, it will still gain from specialising in goods in which it has a comparative advantage. Developed economies' comparative advantage is in knowledge-intensive activities, because they have so much skilled labour. For years to come, China will be more likely to assemble the best computers than to design them.

Tom Peters, a management guru, in the book Re-Imagine! talks about a white-collar chateclism, which will change all our jobs forever. He forsees a world where companies are no longer eternal entities. People will come together with a good idea, produce the idea, and when the idea is beaten by another or becomes obsolete the "temporary company" will disolve and those workers will move on to other projects. His point is that business and the world change. It is up to us to change with it.

The Economist article illustrates this point at the closing:

People always resist change, yet sustained growth relies on a continuous shift in resources to more efficient use. In 1820, for example, 70% of American workers were in agriculture; today 2% are. If all those workers had remained tilling the land, America would now be a lot poorer.

Municipal Power Utility in Iowa City?

Iowa City will be voting on the following two questions on November 8th:

Shall the City of Iowa City in the County of Johnson, Iowa, be authorized to establish as a city utility and power plant and system?

and

Shall the management and control of an electric light and power plant city utility be placed in a board of trustees consisting of five trustees as provided by law?

The reason this vote is being put to the people is because a certain group perceives our utilities prices as being too high in Iowa City. I've linked to some sites below that cover a range of opinions on this issue:

MidAmericanEnergy
Press-Citizen OpEd piece about the confusing wording of the ballot.
An Iowa City Law Professor talking about the implications of a "yes" vote (and favoring one).
A letter refuting the above letter.
Citizens for Public Power website. I encourage you to check the "Reasons to Vote Yes" section and the "What people you know and trust say" section.
Finally, a letter to the editor from a candidate for the Iowa City council.

Personally, I agree with the final letter. I like the points he makes about not all communities using public power have rates lower than Iowa City. A significant number have higher rates.

I also do not like the idea of a municipality claiming to be able to run something better than the private sector. Often times, people believe when the government steps in to run things, all their troubles and cares will disappear. A brief glance at the State and Federal government's handling of the Katrina disaster should snap them back to reality. Bureaucracy and delay is all they know how to do well.

The article by Rick Dobyns rightfully points out that to purchase the energy from a co-op or from an energy broker, the citizens will have to pay for it (in this case with bonds sold to make the purchase. Hopefully, the income from the public utility will meet the costs of interest and principle, while allowing the energy rates to stay lower). The power wholesalers are not going to give Iowa City power for free, just because we've taken a more "progressive" view of distribution.

Another fact Rick points out is the almost $100 million discrepancy between both camp's cost estimates for acquiring MidAmerican's distribution means. The "Yes" group says Iowa City will save $60 million dollars and the "No" group says the city will lose $58 million. This is just too large a gap between estimates, leading me to believe that neither is true.

A neighbor of mine is a strong advocate for the "yes" vote. She came around and knocked on our neighborhood's doors trying to gain support for the two initiatives. I told her I was leaning toward voting "no." She explained that MidAmerican Energy has a 12% profit margin and that was too high. She also said that we shouldn't trust a large company.

Had she let me get a word in edgewise, I would have replied that profits for a company are good and that even she could participate in those profits by purchasing stock in Berkshire Hathaway or even the company itself. Those profits aren't just squandered. They are reinvested in the infrastructure and used to fund R&D in order to provide more efficient and cost-effective ways to continue to deliver power.

By the way, I'm sick of people demonizing large companies. See my post about Wal-mart for more in-depth opinion on the issue, but it is because of these large companies that we are able to live the lifestyles we do. These companies are able to deliver to consumers what they want or need. Yes, they do it for profit. But only the foolish, shortlived companies would not use that profit to seek better ways of "delivering the goods." I'm not naive. I know about Enron and Worldcom, but please, these examples are few and far between when taken in the context of the number of capitalistic and entrepreneurial companies in America.

I'm still keeping an open mind and reading the local papers and talking to friends, but as of today, I'm probably going to vote "no."

The Economic Pulse of the Country

The Congressional Budget Office last week released a summary of economic indicators in the United States. Check it out here. Especially interesting is the unemployment rate and the number of new jobs created over the last two years.

Devils on the Deep Blue Seas

I read an article about the true financial windfall that Katrina enabled the Cruise industry to collect on. The federal government is leasing the three ships from Carnival to aid in the relief and rebuilding effort for Katrina. From Carinval's perspective, the money is just making up for the lost profits.

This reminded me of an interesting report from "The World" on NPR I heard about the way a cruise ship is run. The number of crew on a cruise is amazing. Cruises are also highly diverse. The report comes with a Marxist slant, but it is interesting nonetheless. I'd love to hear your perspective.

Avian Flu epidemic

I don't want to scare anyone, and this may be a bit off topic for the blog, but I thought I would post some links to articles about the H5N1 flu virus. It is transferred to humans from ducks and has already killed a number of people in Southeast Asia. So far it is not made the mutation to be able to transfer from human to human, but as most viruses do mutate constantly, many people think that time may not be far off.

This virus has a high death rate (over 50%) and the symptoms are similar to pneumonia. Scientists have been studying the virus and have been unable to create a vaccine for it. They have, however, identified a medicine which has a high success rate at treating the symptoms. The drug is called Tamiflu and is manufactured by only one company in the world: Rosche.

A number of news sites have posted articles about the potential economic and physical devastation a human outbreak could cause. ABC news ran a report on Primetime about the virus. Prudent people will prepare accordingly, possibly acquiring a Tamiflu regimen and preparing for possible social unrest and disruption of daily life.

Here are some articles:

CDC website
AP News article about U.S. potential response (not enough, in my opinion)
Council on Foreign Affairs article
Asian Times article
CNN website

Financial Aid for Casinos

Financial aid for casinos in New Orleans? The below email was copied me by a friend. I tend to agree with it. However, casinos are businesses too, and they weren't spared the wrath of Katrina. What do you think?

Please forward this to Representative Lewis:

Dear Mr. Lewis: I petition you to join with Rep. Frank Wolf of Virginia in opposing the half-billion dollar tax credit for the casinos on the Gulf Coast included in the GO Zone legislation. Government has avoided giving tax aid to the gambling industry in the past, and they should continue to do so. This is a misuse of tax money, especially in light of the fact that the casinos didn’t even ask for it!

Please support legislation that will put the money toward reconstructing the infrastructure, not toward a group of financially robust giants whose industry is known to increase crime rates and poverty within any society in which it is introduced. If indeed this is true, and there are many studies that show it is, then casinos actually exacerbated the problems caused by Katrina because many of those who did not leave the region didn’t do so because of financial woes probably indirectly or directly caused by casino industry.

This is an important issue for me and my family. Thank you for your time and I look forward to hearing from you.

Ayn Rand's Philosophy on Money: Not the Root of All Evil

As promised an expert from "Atlas Shrugged" by Ayn Rand. Here the character Francisco D'Anconia is explaining the value of money and where that value comes from to guests at a dinner party, who are saying that money is the "Root of all Evil."

"So you think that money is the root of all evil?" said Francisco D'Anconia. "Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?

"When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor - your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil?

"Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions - and you'll learn that man's mind is the root of all the goods produced and of all the wealth that has ever existed on earth.

"But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man's capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made - before it can be looted or mooched - made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can't consume more than he has produced.

"To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of you effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit, not for their own injury, for their gain, not for their loss - the recognition that they are not beasts of burden, born to carry the weight of your misery - that you must offer them values, not wounds - that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men's stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade - with reason, not force, as their final arbiter - it is the best product that wins, the best performance, the man of best judgment and highest ability - and the degree of man's productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?

"But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality - the men who seek to replace the mind by seizing the products of the mind.

"Money will not purchase happiness for the man who has no concept of what he wants: money will not give him a code of values, if he's evaded the knowledge of what to value, and it will not provide him with a purpose, if he's evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason you call it evil?

"Only the man who does not need it, is fit to inherit wealth - the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir; his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one, would not bring back the dead virtue which was the fortune. Money is a living power that dies without its root. Money will not serve the mind that cannot match it. Is this the reason you call it evil?

"Money is your means of survival. The verdict you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men's vices or men's stupidity? By catering to fools, in the hope that getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment's or a penny's worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you'll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of hatred of money?

"Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money?

"Let me give you a tip on a clue to men's characters: the man who damns money has obtained it dishonorable; the man who respects it has earned it.

"Run for your life from any man who tells you that money is evil. That sentence is the leper's bell of an approaching looter. So long as men live together on earth and need means to deal with one another - their only substitute, if they abandon money, is the muzzle of a gun.

"But money demands of you the highest virtues, if you wish to make it or to keep it. Men who have no courage, pride or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich - will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt - and of his life, as he deserves.

"Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see that money is flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: 'Account Overdrawn.'

"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world?' You are.

"... Throughout men's history, money was always seized by looters of one brand or another, whose names changed, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves - slaves who repeated the motions once discovered by somebody's mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers - as industrialists.

"To the glory of mankind, there was, for the first and only time in history, a country of money - and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man's mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being - the self-made man - the American industrialist.

"If you ask me to name the proudest distinction of Americans, I would choose - because it contains all the others - the fact that they were the people who created the phrase 'to make money.' No other language or nation had ever used these words before; men had always thought of wealth as a static quantity - to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words to make money' hold the essence of human morality.

"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns - or dollars. Take your choice - there is no other - and your time is running out."

Pretty powerful view of economic theory and the value of people in relation to money, no? The above expert comes from pp 411-414 of Atlas Shrugged. A good book, in my opinion.

Let me know what you think of the above passage by leaving a comment below.

More astonishing housing market statistics

This article in the LA Times surveys a cross section of people to discover their housing purchasing plans and stories. It gives a number of statistics about home ownership and the increasing reliance of Americans on debt.

Toward the end of the article, the risk of all of this debt is mentioned. While debt can be perceived as a tool, it should also be perceived in the context of its inherent risk. When you borrow money, you have to pay it back. If something happens to your income stream (you get laid off, you need to change jobs, an accident, etc.) that debt that was liberating you and helping you have the lifestyle of your dreams becomes a weight around you neck dragging you down and forcing you to either try and sell what you bought or declare bankruptcy.

If the market turns down and people's houses are "flipped" the opposite way (they owe more than the house is worth), we as Americans are going to see a lot more bankruptcies and hard times.

It makes me mad and sad at the same time when I read about why people are living this risky lifestyle. Here's a quote:

Irvine-based Financial Freedom Corp. says one of the major reasons people buy its reverse mortgages is "lifestyle enhancement" — extra money to have fun. Financial Freedom says it is on track this year to nearly double the 5,000 reverse mortgages it sold in 2004 in California.

Read the article and leave a comment.

Alan Greenspan warns of potential housing market crash

At a speech in Wyoming, the chairman of the Federal Reserve Board, Alan Greenspan, warned that the housing market could suffer from a serious crash. He warned of people buying houses as a "one-way bet" on making money. Greenspan mentions that "history has not dealt well with investors who ignore risks."

The article, from the (London) Times mentions that over a third of US housing markets are overpriced. I don't own a home, but sometimes, I wish I had bought one three years ago when I moved to Iowa City. This market has grown rapidly during that time and I probably would have seen a nice appreciation. At this point, though, if prices do fall or flatten, I might be better off. We'll see.

Econ4U helps educate people about money

I received this in my inbox this morning and thought it was appropriate to post here. Looks like an interesting program and one that is right in line with the goals of this blog. Visit them and let me know what you think:

Econ4U Takes Unique Approach to Increase Financial Literacy Among Nation’s Youth

With a steady decline of financial literacy among young Americans there should be little doubt as to why our personal savings rates are at an all-time low and bankruptcy rates are at an all-time high. Basic economics classes are only required in 15 states, and studies prove those who need this information most aren’t getting it elsewhere.

Many may say “information is out there, it’s not my problem.” But in fact it is an American problem that’s not going away on its own. American consumers now spend a record 18.1 percent of after-tax income just to cover existing debts! What does that mean for you? As their disposable income decreases they are most likely borrowing more and more just to stay afloat. We as consumers end up paying for their “forgiven” debts through higher fees and interest rates when they get in too deep and file for bankruptcy.

As many American families try to “keep up with the Jones,” they find themselves in a cycle of debt, passing their bad financial habits onto their kids. And how would they know any better? Media culture encourages spending, not saving. Young people are marketed to with promising offers like “no payments for one year” without understanding that when they don’t pay off the entire balance within that year they’ll probably be charged 20% interest from the date of purchase. Unfortunately many young Americans see these offers as free money today that they’ll worry about tomorrow. And frankly, nobody’s stopping them.

If you don’t know better you can’t do better. There are volumes of information available on how to repair credit scores and file for bankruptcy, but if this is the information you need, you’re probably already in over your head. You’re wishing you had better information before you made bad financial decisions in the first place.

Econ4U is a public economic education campaign designed to do just that. It brings basic economic facts to young Americans—those who will not seek this information on their own until it’s too late—when they are captive and comfortable. Most young people find economics courses complicated and dry. That is why Econ4U takes an innovative approach to teaching about personal finance, government spending and business economics.

For example, instead of unscrambling movie titles as they wait for the feature presentation to begin, a moviegoer will now learn that it will cost them 46 years to pay off that $5,000 credit card bill if they only pay the minimum balance each month. Teens are exposed to the miracle of compounding interest on their tray liners in fast food restaurants. Average profit margins are explained on scoring machines as bowlers wait for their scores to be calculated. By putting this information in front of people in a way that they can easily understand and retain, Econ4U reaches young people with vital financial information before they make mistakes we’ll all pay for.

Go to econ4U to learn more about how you can support the Econ4U program. And while you’re there, tell us what you think young Americans should know about their finances. Submit new questions by September 7, 2005 for your chance to win business-class airfare to anywhere Delta flies worldwide, tickets to the Outback Bowl in Tampa, FL with a ride on the Outback blimp, or round-trip tickets on JetBlue Airways.

University of Iowa a good ROI

Here is an expert of an article Agent Disco sent me:

Forbes Magazine Ranks Tippie MBA An Excellent Return On Investment

Graduates who receive their MBA degrees from the University of Iowa's Tippie School of Management received $102,000 in additional pay between 2000 and 2005 as a result of the degree, according to a new survey by Forbes Magazine. That figure places the Tippie MBA in the 12th spot overall in Forbes ranking of business schools, up from 26th in the magazine's most recent survey in 2003. That ranks the program third among public universities, behind the University of Virginia and the University of Texas; and second in the Big 10, behind only Northwestern.

Check out the entire article here.

Being a student of the University of Iowa, I sure hope this is true. Wouldn't want to get out into the real world and realize I've wasted my time!

Vioxx to cost Merck at least $250 million in jury case

According to this article, the wife of a man who died from taking Vioxx, a pain-killer, was awarded $253 million for lost wages, lost companionship and emotional anguish. While Merck should have tested their drug better, and the FDA obviously let the ball drop on approving this medicine, I think the award is significantly severe and a bit over the top. This case has obviously hurt Merck, as their shares dropped more than $2 to $28.06 today.

Wired News added to Cashtalk's list of links

Wired News on-line is a great, alternative site to keep up with fads and trends in the technology and business worlds.

This article talks about Amazon.com getting involved in the DVD rental business as a direct competitor to Netflix. Agentdisco and I have done a little research on this. We speculated that Netflix ended its relationship with Wal-mart because of this impending move by Amazon.

Is futuristic, 3-D, full sensory television going to be on the market by 2020? According to this article it will be.

With the impending end of the Space Shuttle program, NASA turns to smaller companies to offer up ideas on cheaper, safer ways to carry supplies into space. Read about it here.

I've added the link to those at the right and encourage you to check it out.

Gas Prices Keep Going Up...

Some people might find that living in Venezuela would be nice right about now, as their average gas price is only $0.12 a gallon. The most expensive place in the world for buying gasoline is the Netherlands at $6.48 a gallon! An interesting spectrum of prices CNN posted on this list. Check it out and let me know how much you're paying for gas right now. (I'm paying $2.49 a gallon in Iowa City.)

It's been a while...

Hi everybody! I hope everyone is having a good summer. I just got back from a trip to sunny Mexico. We did a little snorkeling, swimming, climbing and a whole lot of relaxing. Fun stuff!

I'm reading Ayn Rand's masterpeice, "Atlas Shrugged" as my summer reading material. It is a very interesting book with a lot of ideas about the way business and ultimately society should be run. I don't agree with everything she says, but a lot of it makes sense from a practical point of view. I'll post an exerpt I found quite interesting about the philosophy of money. I'll try and get that up in the next few days.

Agent Disco and I would like to start another Stock Market contest. We learned a lot from the last one, and want to continue to learn about stocks, bonds, options, and all the related stuff. We hope this one will go longer than a month and we'll have a lot of people participating. I'll post more details in the near future.

I hope you are all having a good summer. If you have any questions or thoughts on the economy, business, or money, feel free to post!