Saturday Miscellany: Money, Food, Plumbing, and Body Acceptance

userpic=angry-dogIt’s Saturday. Time to clear out the bookmarks from the week that didn’t form into otherwise coherent themes. As always, these are news articles or other items that came across my RSS feed during the week:

Music: If Not Now When? (Debbie Friedman): “Kumi Lach”



The Problem of Debt

userpic=moneyThe other day, I was reading an article on the agreement on the debt ceiling when something caught my eye:

 The new proposal to balance the budget in a decade would zero out the federal deficit almost twice as fast as previous Republican efforts.

“It’s time for us to get serious about how over the next 10 years we balance this budget and put America on a sustainable fiscal path,” the speaker said after the debt ceiling measure passed the House, 285 to 144.

Think about what that says. We had a balanced budget under Bill Clinton.That meant that we were not increasing the Federal debt. After 8 years of a Republican administration and 4 years of a Democratic administration (here’s another analysis), we are now at the point where it will take at least 10 years to bring the budget back into balance, let alone pay down the debt to a reasonable level.

How do the Republican’s propose to achieve their goal? Not through new taxes. Not through cuts to the Defense budget. According to the article, “their approach would require steep reductions in domestic programs — particularly education, infrastructure investment and the safety net for low- and moderate-income Americans.”

Now, I’m all for working our way back to a balanced budget, and to bring the debt down to a reasonable level (but not wiping it out–there are many reasons not to do that). But if we are going to do it — and if it is a National priority — it has to be shared sacrifice. It can’t just be in domestic programs. There needs to be significant increased income and significant cuts across the board. If there is going to be pain — and there will be — it must be shared.

If our leaders do not feel this is a program worthy of shared sacrifice… if our leaders feel do not feel this is important enough for everyone to give a little… then we may just as well live with the debt we have. After all, other countries are perfectly happy having us pay interest to them, reliably. They show no great desire to be paid back; they are not increasing the interest rates they charge us because they do not believe America will pay its bills. (As an aside, that was the problem with Spain and Greece: other countries believed there was a risk they wouldn’t get their interest payments, and thus kept raising the rates to account for that risk — this is something that hasn’t happened with US debt). I certainly feel that most people don’t understand the National debt, nor realize that households are different than nations, and there is no agreement on what is too much debt.

Personally, I do not believe our leaders feel the debt and deficit is a real issue that requires shared sacrifice and pain from everyone. They are willing to use it as a campaign issue to goad the other side, but want to protect their sacred assets while letting others pay. This is being done by both side. That’s not fair.



A Primer on Government Spending and Debt

userpic=moneyAs I’m reading various news sites over lunch, I’m seeing article after article about the next fiscal problem — the debt ceiling. Every time this comes up I realize that many people don’t understand what the real issues are here. Here’s a little primer to help. Note that throughout this discussion I’m not going to talk about what the government spends money on; I’m just going to presume it is spending it on something. We can argue the what later. I’ll note that much of this was learned by listening to NPR’s excellent Planet Money podcast. I’ll link where I can.

The government spends money through the appropriation process. In this process, Congress dictates how much money each Federal agency can spend over the next fiscal year (October 1 to September 30). Once the appropriation bills are signed, the agencies can spend the money. They don’t have to wait for the income to be received from taxpayers.

The budget for any year may run a surplus or deficit. This reflects whether the anticipated income is sufficient to cover all the money appropriated. If the anticipated income is not sufficient, the budget is running a deficit and money must be borrowed to cover authorized expenditures. If there is a surplus, this means that there is extra money that can be used as Congress sees fit — extra appropriations, paying down the debt, etc.

The Federal debt is what the government owes to those who have lent it money. How does the government lend money? Via government bonds, which are one of the safest investments around. These are instruments such as savings bonds and T-bills. Do you have savings bonds? Then you own government debt. Do you have investments, such as 401(K)s or pensions? Do you have savings accounts? Those put their money in T-bills because they are safe. This is one reason you do not want the Federal debt to go to nothing. There would be no safe investment for you to put your money in. If the Federal debt went to zero, there would be no savings bonds or treasury notes — which would be disastrous for the economy.

There’s another reason you don’t want the Federal debt to go to zero. Credit-worthiness. Economic markets prefer if there is some manageable level of debt; you get better interest rates that way. So the goal in paying down the debt should be not to eliminate it, but to bring it to a manageable level. There has 0nly been one time in the country’s history when we haven’t had a debt — during Andrew Jackson’s presidency — and it was disastrous for the economy (see here and here on Planet Money).

So what is the debt ceiling? There’s a simple answer: Congress has authorized spending money, but it doesn’t always have that money to spend. This could be because tax receipts haven’t arrived yet, or more likely, Congress authorized spending money with a known deficit. In the early days of the US, the Treasury had to come to Congress for each loan individually, and that became a burden for Congress (which would debate the terms and conditions for each individual loan). At some point, Congress authorized the Treasury department to create the loans without coming to Congress… up to a certain amount about of national debt. Each time that amount had to be raised to borrow money that Congress previously authorized spending, the Treasury department came back and said “Mother May I” (see here and here on Planet Money). So right now, that’s what we’re fighting about: raising the borrowing limit to cover the money that Congress previously authorized.

So, when you hear some critter on TV talking about reducing the deficit, realize they aren’t talking about reducing the national debt. They are only talking about increasing the debt at a slower rate (see, you do use calculus in real life). To reduce the national debt, you need many consecutive years of a budget surplus, with that surplus being applied to the debt in a regular manner. We all know how reliable Congress is when presented with extra money. They’re just like you and me: we always pay our bills instead of buying the new and shiny. Right?

Now for the big question: Is the debt a problem? Not necessarily. Further, the debt problem won’t be solved overnight, and may require temporary spending to get the economy moving again… which generates more revenue that can pay down the debt without slowing the economy.

I hope this helped you to understand things.


The Reason for the Season: News Chum!

userpic=chanukah-christmasAh, Christmas. The day when a jolly fat man in a red suit, hopefully legally, comes down your chimney (or through an unlocked window) and leaves you a collection of news articles to chew on while unwrapping economic incentives:

  • Ugly Sweaters. It’s become a hipster phenomenon — ugly holiday sweaters. It has even been written up in the Los Angeles Times, so it must be hip. They are even going so far as to make ugly Chanukah sweaters: Berkeley clothing label GeltFiend has introduced a line that includes a sweater featuring Chasidic snowmen (complete with beards and peyos) or $65 for a dreidel cardigan. As for Christmas goodies, Tipsy Elves offers reindeer dancing in a conga line and a multitasking Santa spelling out “Merry Christmas” in the snow as he relieves himself. Kitsch is the reason for the season, right?
  • Celebrity Christmas Deaths. Two celebrity deaths to report. First is Jack Klugman, an actors’ actor. Wonderful roles include his performance in 12 Angry Men, Gypsy, and of course The Odd Couple and Quincy, ME (the latter being the prototype for CSI, in my opinion). The second is Charles Durning, who also had many great roles, but I’ll remember him as the governor in the movie version of The Best Little Whorehouse in Texas (whose author, Larry L. King, also just passed away).
  • Baker. Another near death to report: The community of Baker, CA. The world’s largest thermometer is no longer working or being maintained, and the town is slowly dying due to the recession. Of course, there is a plan to save it. A UFO-themed hotel attached to a jerky stand. I kid you not.
  • Pay Phones. Also reportedly coming back from the dead (to continue our theme of the reason for the season) are pay phones. Evidently, the superstorm Sandy alerted people that cell phones are not always reliable, even if they are installed in churches. It appears that copper wires with independent power are much more reliable, and people surged to the remaining pay phones during the emergency.
  • The Reason for the Season. Of course, this all boils down to the apparent real reason for the season (note the use of the word “apparent”): money. So what better to end with than a link about money. The US Mint is testing a number of different metal alloys to develop a coin that actually costs less to produce than its face value. That’s one way the US Government makes money.

As Stan Freberg says, “We going out on that joke?” To which I say, “No, we do reprise of song, that help. But not much.” Oh, and speaking of Stan Freberg and the reason for the season, we go out on this classic: Green Chri$tma$.

Music: All American (1962 Original Broadway Cast): “Our Children”



Reading Between the Lines

While eating lunch, I was staring at an article in the LA Times titled “Bank of America speeds up branch closures, 16,000 job cuts“. I’m thinking this is big news, and I’m wondering how it will be spun. Then I start to read the article closer, and notice little things:

Chief Executive Brian Moynihan, in his attempts to make the company more focused and profitable after its disastrous 2008 takeover of mortgage giant Countrywide Financial Corp….

The focus here is increasing corporate profit, probably back to what is the shareholder expected high levels they have been. This is a reminder of where the money goes in banking operations: to profits and shareholders.

Through the end of the second quarter, that means a 23% downgrade in the number of junior investment bankers compared to September 2011, according to the document.

This really caught my eye. Why the junior investment bankers? Seniors earn more and get larger bonuses. Why aren’t seniors being cut? Could it be a difference in fixed costs per employee (benefits)? Also what would result in a loss of investment banking business? This all could be a side effect of the economy meaning that fewer people have money to invest.

In the consumer banking department, 5,300 workers will go; 3,200 employees overseeing new mortgages will be cut.

When you aren’t aggressively pushing bad mortgages, you have less of a need for people to process them. Banks are still reluctant to support re-fis.

The unit handling troubled loans had 55,000 workers by mid-2012, but will be reduced to 50,000 later this year, according to the document. The number of employees in the global wealth and investment management sector will stay steady.

As you clear out the bad loans, you need fewer employees. I’m curious how global wealth and investment management is staying steady when investment bankers are being cut.

Bank of America shut down 178 branches last year and will close an additional 200 this year, according to the document.

So B of A will be providing less personal service to the remaining customers they do have.

Interesting what you can see when you look closely.


A Taxing Situation

If you live in California, hopefully you are aware that this is the last day you can do “tax free” shopping with Amazon. Starting Saturday, Amazon will collect sales tax for purchases from California (it is unclear what Amazon is doing regarding Marketplace Sellers — they haven’t sent us any mail one way or t’other). As a result, there have been article after article on the subject, including one from Bargain Babe extolling readers to buy their big ticket things now!

Perhaps they should consult an accountant. All that is changing is who collects and submits the tax. You’ve always owed tax on online purchases in California. If the retailer didn’t collect it, it was called a “use tax” and was to be submitted with your annual state tax return. Although they didn’t really enforce it before, they started enforcing use tax last year; I know my accountant had me get a summary of our purchases from Amazon and calculate the tax.

With this change, you don’t have to do the calculation. Amazon will do it for you and add it on to the purchase. But the tax was always due, so you are only “saving” money if you were cheating the state out of their tax before.

So what will the tax get you? Quite likely, faster delivery. Amazon decided to collect the tax because California is a big market for them, and this permits them to have huge warehouses built outside L.A. and other locations around the state. This will help cut the shipping time by a day or more – another death blow to brick-and-mortar competitors. Some locations may even get same day delivery.

Music: The Sherman Brothers Songbook (Disneyland Children’s Chorus): It’s a Small World


Buying Things

Today’s hump-day lunchtime news chum brings together a collection of articles related to purchasing various things:

  • Digital Music. Over the weekend, a rumor went viral about Bruce Willis suing to leave his iTunes collection to his kids in his will. Although the actual incident is untrue, it has raised the question about what it means to own (and bequeath) a digital music file today. In the “old days”, music was captured on physical objects — sheet music, LPs, cassettes, 8-tracks, CDs — and was easy to pass on. Today, music is digital. There is no guarantee the music will be readable; even if it is, often the music isn’t owned by leased. Yes, leased. When you purchase a track on iTunes, you are commonly purchasing a lease to just you, and you can’t pass it on (this is true for DRM-protected music). This is the main reason why I still purchase CDs — and if I purchase digital, I purchase from Amazon or CD Baby as opposed to iTunes. They sell DRM-free music, and I keep copies of the music in multiple places.
  • Used Textbooks. The issue of passing on something that is used isn’t exclusive to music. It’s proving to be a problem with digital books as well. The Chronicle of Higher Education has a nice piece on textbook pricing: specifically, the issue of access codes for online content associated with a text. Professors are requiring those more and more, and those are exclusive to a single student. This means that only new copies of texts can be purchased (for they are often bundled with the code), and texts cannot be shared (because there is one code per student). Digital does not always mean cheaper.
  • Restaurant Pricing. LA Biz Observed has an interesting report on an NY Times article on variable pricing for restaurants. Variable pricing is charging different prices based on demand. Economists love this. This is often found in hotels and vacations, sometimes in sporting events and theatre. The notion is to lower prices when demand is low in order to increase demand, and to raise prices at peak demand times. The NY Times article reported on some restaurants that are trying this: prices are lower when business is slow, and higher during peak hours. How would you react to this? Would you change your eating times to save money?
  • Avoiding the TaxMan. According to the LA Times, spending at Amazon by Californians has increased recently. The reason: Amazon starts collecting California sales tax on 9/15 (Of course, this ignores the fact that use tax is still owed, and use tax laws are being enforced, so there really is no savings). I never think about the tax when purchasing from Amazon — I focus more on the total price including shipping and stuff. So is the upcoming tax enforcement date influencing your purchase schedule with Amazon? (and an odd question: If you just “lease” digital music, do you owe tax on it? Probably)



Friday News Chum, with Extra Link Sausage

Well, it’s Friday at lunch, and you know what that means: time to clean out the accumulated News Chum links:

Music: When I Need You (Roger Whittaker): A Weekend in New England