Monday, October 13, 2008

Patriotic Taxes

Click on image for full size.
I was curious, since the Pit Bull has been spouting off about how Obama & Biden "think it's patriotic to pay more taxes," just how she and those supporting her line up on the issue of spending other's tax dollars. I recall over and over hearing the phrase "tax and spend liberal". George W. has proven that those from the historically fiscally conservative side of the fence can spend like drunken sailors. So, if paying taxes isn't patriotic, how about spending the taxes that other people have paid. Let's see what that looks like. I superimposed NPR's election predictions with the amount of federal dollars returned to states per tax dollar paid. Unfortunately, the most recent data seems to be for 2005. I can only imagine it's gotten worse, since spending has gotten even more out of hand since then.

Original spread sheet from: The Tax Foundation website.
NPR Election data from National Public Radio.

Wednesday, October 8, 2008

Eat, sleep, breath

Often I head off to sleep contemplating possible solutions to the problems I face in my research. Mornings, I frequently awake with these same thoughts on my mind. I mentioned this to RocketMom this morning. She replied "it sure beats waking up and thinking 'I really don't want to go to work today.'"

I think of the line from Tom Robbins' Even Cowgirls Get the Blues about calling in well to work: I won't be coming in again, ever. Not me. I'm doing my work. This is my choice. It's a challenge. It's fun. It feels so abundantly, wonderfully good to finally finally be getting paid for my mind, for my thoughts, for my ideas; to be trusted and respected. I can't say enough how good that feels. (Of course, it will feel a bit more real when I finally get that first income (around the middle or end of November. Meantime, it's scrimping, and biting my lip when I have to sell some investment that's 40% off for the year, because we simply need the cash to pay the bills). And it will feel so absolutely spectacular when I have in my hands those proofs of concept that show the success of my methods and techniques.

Would I have felt this way, had I gotten a professorship? Perhaps. I really can't say. Do any of you feel this way?

But it's not all clams and oysters. I worry about this nation and the world. I worry about the economy. Thankfully this six-month contract, even if I don't get the next stage funding, should keep us in the black for another year or two. I had made the explicit promise to myself and my wife that I'd have income before we ate through half of our non-retirement savings. With the precipitous fall of the markets this past month (even with a large chunk of our holdings in bonds and cash) we're perhaps 3 or 4 months away from that magical midpoint. With the contract, income should start flowing a couple months before we get there.

For the most part, I'm hoping to simply sit this wave out, and leave most of our investments untouched, hoping that in a year or two things will have stabilized. I have few illusions that they will come back to their lofty heights (even if those heights were already down six months ago. But they may recover some of this decline. I'll sell off only what we need for cash. No need to contribute further to the decline. But I anticipate keeping a large proportion of the income in conservative holdings, at least until I know about the second phase (likely around February or March).

I only hope that the U.S. electorate chooses a change in leadershp. For sure, Obama doesn't have all the answers. I fully expect some mis-steps. But I trust that he is smart enough to pick good advisors and to listen to their advice. Something George W. has proven incapable of doing, and which I fear the Maverick is constitutionally averse to, as his ridiculous choice in running mate reflects. Assuming Obama wins the election, that is but the beginning of the work ahead. It will be our task to help lead this nation back to sanity in all its affairs. I hope.

Tuesday, October 7, 2008

Wrong Task

I read a bit of an article in the grocery store yesterday about the bailout plan and it's impact on the local economy. The article read (and I paraphrase):
... so, now that the $700 billion bailout package has passed Congress, the money will start flowing to local banks, and be made available to consumers, right? Wrong, the first thing that has to happen is housing prices need to stop falling.
Um... no! First off... it is not the job of the government to set prices. It is the job of appropriate government agencies to oversee fairness in business and social exchanges. It is the job of these agencies to ensure reasonably honest dealings, to set reasonable (though not excessive) regulations and disclosure requirements toward that goal, and most importantly to staff these agencies sufficiently to enforce the regulations. These are things that Ronald Reagan started dismantling, and which has accelerated in the ensuing two decades, and which must be reversed.

Housing prices are falling because they have become out of line with their inherent value! No amount of government intervention (short of providing every citizen with a housing allowance!) can change that. Let the values drop until they are in line with that value. To some extent this is where "free market" principles must be respected. Values should and will be set by the public's ability and willingness to pay. Gasoline prices have dropped ~20% over the last month for exactly this same reason.

The task that the government should have been and should be focused on is not stabilizing housing or stock prices, but rather mitigating the negative effects of their fall. They will continue to fall! We should brace ourselves. And we should turn to our elected officials, to step up to the plate and swing. And if they won't, or they foul, or they strike out (as has clearly been the case these past few years), we should expect them to get out the way, and let someone else step up who can handle the job!

Thursday, October 2, 2008

In other news...

Just thought I'd update you on the business front. At the beginning of this week, I issued a press release on my firm's recent contract. I had a telephone interview yesterday with a writer for the state entrepreneurs' network. I got a couple calls from the business reporter from the main newspaper in a large city nearby. She wants to do a couple interviews with me, and try out a new mini-business plan feature with my firm as guinea pig. Also, got word this morning to expect a call from the business reporter from my own city's main paper.

There's a lot of excitement about my (albeit moderate) success. It's amazing to me how vested local parties are in the growth of my company. How different this feels from the complete and utter neglect I got from my doctoral institution, from my old department. How different this feels from the shame of the four years post-doc that I spent applying for one faculty post after another, and receiving mostly silence.

Talk about the economy! Why is it that this great nation has such little regard for teachers and professors and educational institutions? Why is it that the administrators of supposed institutions of higher learning haven't the courage to stand up and set priorities where they ought to be (to be clear, I mean that the priorities of colleges and universities ought to be focused on teaching and research, not on buildings, courtyards, and athletic events.) The number of faculty across the country should be doubled, and salaries should at least keep up with reasonable expectations for someone with the level of educational attainment and apprenticing that PhDs have.

I'm doing the research. I'm finally receiving income commensurate with my training, and in line with what I'm working towards. I'm getting support for that. But it's been a long and painful road. And I'm not out of the woods yet. My current contract is short. There may yet be lean times ahead. Who knows: someday, perhaps I'll be able to teach again as well.

Loosen credit?

Look, I can't second guess the folks in Congress. I'm not sitting there at the negotiations. I haven't read the full version of the bill that passed the Senate, and I don't know what may likely pass the House. What I do know is this: half the chatter I hear on the radio and read online indicate the concern over the tightening of credit standards. A bit of the chatter regards these absurdly convoluted structured securities that bundled loans together in a fashion that even those doing the bundling weren't sure what real value if any the securities represented. And finally, most of the remaining chatter speaks of how much of this mess began with defaulted mortgages and other loans (which were due in part to lax lending standards). So... wouldn't shoring up capital to encourage banks to relax their now tightened lending standards be counterproductive?

I think what needs most to be accomplished by any pending action (though from where I sit I can't say I'm yet convinced of the wisdom of what may or may not be done) is to change the present culture of living beyond our means. The problems did not begin with defaulted mortgages. The defaults were symptomatic of the underlying problems. When I moved with my wife to Paradise from Colorado to enter a doctoral program in 2000 we were shocked by the cost of housing. Granted, it was Paradise. But we had been paying about $800/month on our mortgage in Denver for a 1700 sq.ft. bungalow (with a 1500 sq.ft. finished basement). Our rent that first year, for a 1000 sq.ft. condo (in a marginal neighborhood) was $1600/month. Didn't make sense. But the apartments we had looked at for under $1600 were not livable by our standards (and we're not talking high standards here!).

But, we could afford that only because my wife got a 40% bump in salary (doing essentially the same work as she had in Colorado). Why did they pay so much more? In large part to attract and retain employees (since they all expected to afford a house). Problem was, the more firms paid, the more housing prices rose. We bought a condo the next year, because after the mortgage interest deduction, the cost of buying was equivalent to rents (and the location was better and closer to work and campus). We sold the property two years later at nearly a 60% profit! But rentals had barely budged. Meaning that the buyers were paying a hefty premium to buy, which made no sense. Of course, the value of that property grew another 60-75% over the next 2-3 years. According to zillow it's now worth about 20-25% less than at it's peak, about 15% higher than we sold it for in 2003.

The point I made then was that housing prices like that were unsustainable. They were even more unsustainable when we sold it, certainly even more so two years later... but I find it hard to believe that they are sustainable even at today's reduced level. A few years ago we were all led to believe by the "experts" that the "new economy" sloughed off the old standards of productivity and profit. We were told to ignore the price-to-earnings ratio of new firms. The old standard P/E of 15 or less was passé.

The Bush administration has relied on a simplistic view of wealth creation: spend, spend, spend. The objective has been to keep money flowing throughout the economy. Think of the tax cuts. Think of the "stimulus package". Go out and buy things, my friends. That was the mandate. We need to return to some sanity. We need to return our valuations to real values.

That will take a lot more than simply keeping money flowing. In some cases, it may take the opposite. If lending standards are tight, it will force us to rethink our priorities. Would that be such a bad thing? The best role of any government intervention at this point would be to ease our way back out of a credit card culture of easy spending, and overspending, and speculation. The stock market should not be a gambling haven. We should renew expectations of reasonable P/E values. Dividends should once again be standard practice of established companies. Housing values should return to a reasonable multiple of income (say the old standard of 2-3 times annual household salary). Any intervention by the government should aim toward these effects. Anything short of that is failure!