Tuesday, October 21, 2008

Just wait until 2010 or 2012

On many conservative blogs, people are more or less resigned that Barack Obama is going to win. However, there's often a retort that Obama will be a disaster, and the Republicans will come roaring back in 2010 and 2012. After all, it happened in 1994. Many conservatives seem to think it'll be good for the Republicans to be back in the wilderness, so they can remember that they're for smaller government, tax cuts, etc.

I just want to point out a few flaws with this argument.

The Democrats should be able to deflect any blame for an economic mess. After all, they'll be able to argue that it started when George Bush was president. Even if the Democrats put in disastrous policies (and they probably will), it's going to be very hard to pin a bad economy on them. They can implement higher taxes, forced unionization, cap-and-trade, restrictive regulation, windfall profits tax, and so on, and after the economy tanks and unemployment rises, they can blame the previous administration and maybe big corporations.

The Republicans at this point don't seem to have an inspiring leader like Newt Gingrich was in 1994. They look set to elect the same group to the leadership as they've had for a while. Conservatives may have a lot of good ideas, but the Republican party leadership hasn't seem interested.

The Democrats are going to implement several new policies that will help them secure a future advantage. These include implementing Card Check to end secret ballot voting for unions; elimination of the right-to-work law provision in Taft-Hartley, and reimposition of the Fairness Doctrine. This will ensure a steady stream of union dollars, and it'll stop a lot of conservative talk radio. They'll also likely advocate same day registration and voting. Felons could be granted the right to vote, and illegal immigrants could be granted citizenship.

If Obama wins, there's no guarantee he's a one term President. On election night in 1994, when Republicass were sweeping the nation, it seemed nearly impossible that Bill Clinton would get reëlected. Yet he did, quite handily. Even Jimmy Carter was close in the polls until the very end. The power of incumbency is quite powerful. There's also no guarantee that the Republicans would choose a good nominee. After all, the Republicans chose Bob Dole in 1996.

Remember, the things that upset you aren't necessarily the things that upsets the "Joe Sixpack" voter. I presume that the Democrats aren't stupid enough to try some sort of widescale gun confiscation or an "assault" weapons ban. And despite the efforts of George Miller, the Democrats won't nationalize 401K plans. And they won't demand America stop burning coal (although if they did, the Senate and House switchboards would not be lit up because there'd be no electricity). They'll raise taxes, but not to 70%. Capital gains taxes will hardly matter since no one has capital gains.

Obama could really screw up in foreign policy, which would be harder to pin on George Bush. Especially if he deploys troops to a new theater and one tht has minimal strategic interest for the United States.

He could put some disastrous energy policies in place that result in brownouts or gas lines. But he won't. He's got some smart people working for him.

Although we live in a right-of-center nation, there's no guarantee that Obama would definitely lose in 2012 or that the Democrats would suffer big losses in 2010. Sure, in 2010, they might lose some traditional Republican seats they managed to win (that looks like it will even happen in a couple of seats this year), but remember that the Dakotas keep electing Democrats to the Senate even though both states are overwhelmingly Republican.

It's looking like it's going to be very difficult for McCain to win. Let's hope the Republicans can win enough Senate sets to maange filibusters of the craziest Democratic attempts.

Wednesday, October 08, 2008

Why is Cheap Housing a Problem?

Many Republicans and Democrats seem to think that a major problem is that houses have gotten too cheap.

Sure, it's not great for people that bought a house at a higher price, but now have negative equity. However, those people still have the same house that they had before, and they presumably have the same mortgage they had before. So their mortgage payments should be the same (unless they decided to play the rate game and get an adjustable rate mortgage, but with rates down, that shouldn't be a major problem). So if they were comforable paying $1,000 a month two years ago to live in a house, they should be comfortable with that same amount today, no?

Now, it really sucks for those people who have to, for whatever reason, relocate. But even then, what matters is not that you sell your house for a loss, but what the differential between houses is. So if the region of the country you lived in goes down a lot, but you have to move to a region where prices haven't collapses as much, that makes you worse off. But that has to be a relatively small subset of the population.

Sure, if housing prices drop, you can no longer use your equity as a piggy bank for a home equity line of credit. But that was all paper gains anyway.

So whom do falling house prices really hurt? Those people that bought houses they couldn't afford (either to live in or do speculate with), and who were hoping to refinance later and take out equity. I'm sorry, that's just so damned irresponsible on so many levels. So we try to keep housing artificially expensive so that people who couldn't really afford their houses and put in little or no equity can stay in them?

About 15 states have a crazy law that says if you walk away from your negative equity house, the bank can't come after your other assets. So these people can move across the street into an identical house, cut their mortgage, and leave the bank holding the bag.

Who benefits from falling housing prices? Well, for one, young people. If you just graduated college, I'd imagine that given the choice, you'd rather have cheap houses than expensive houses. If people can spend less money on their mortgage, they can spend more money on everything else. In our society, we like everything else to get cheaper. No one laments when cars get cheaper, or when personal electronics get cheaper. No one promises to do something about falling oil prices. (Weirdly, however, the government does keep some food prices artificially high, but I'm sure most Americans don't realize this).

Yes, I own a house and I have a mortgage. But even with falling prices, I have the same house and the same mortgage. So I'm really only worse off if I prepare an internal balance sheet of my net worth...

Tuesday, September 30, 2008

Foreclosed on No Money Down Mortgages

To all the politicians that are demanding that we help the families that are being foreclosed on, not just the big banks, I have one simple question:

If someone bought a house with no money down, and now can't make the mortgage payments so they are foreclosed on, what have they lost?

Even those with small down payments have not lost a lot.

Thursday, August 14, 2008

Open Door Policy

New York City is strongly considering fining stores that leave their doors open while their air conditioning is running.

Now, obviously, leaving you doors open while you run the air conditioning results in higher electric bills. But why should there be a fine for engaging in a wasteful activity? Shouldn't it be up to the stores to decide how they run their business?

Councilwoman Gale A. Brewer, a co-sponsor of the bill, said, "There's no use cooling the sidewalk." Well, except that it entices people to enter the store. I'm sure the stores feel that leaving the door open is worth it. People walking down the street can just walk right in, without having to negotiate through a heavy door. I'd imagine that more people enter stores with an open door than with a closed door. Obviously, the companies believe this to be the case, since they keep their doors open.

Having more people enter a store means that there are more sales, and thus more profits.

According to the NYC government's website, Ms. Brewer has served on the council since 2002. Prior to this, she's worked almost exclusively in government and non profits, except for working for Telesis Corporation, an organization that builds low income housing (and thus must have significant interaction with government).

So in any event, her private sector experience is extremely limited. Yet now she wants to tell companies how to run their business.

Now suppose my assertion that open doors cause more foot traffic to enter is false. Why should the city council try to force companies to be more efficient? Shouldn't they also pass a bill that fines a company if they employ too many workers, or pay their workers too much? Or if they don't have an optimal phone plan? Or if they aren't securing their inventory from the lowest cost distributor? After all, all those things are wasteful as well.

Saturday, July 19, 2008

A Review of VaultStreet

Like many people, I have accounts at several different financial institutions that I've established over the years. I've always been a bit uneasy about signing up for e-documents. For a while, I was self employed, and because I had so many business expenses, I was used to storing lots of paper in case I got audited. I also was unsure of how to organize e-docs. Would I store them on my hard drive, so that if my hard drive crashed, I would have no financial records whatsoever? What filename methodoogy would I use? Would it be easy to sort the statements by date so I could see what I had?

Or would I leave the statements in my email account, thus endangering my quota, and not being able to find the emails amidst all the spam that makes it through my filters? Would the statements get mistaken for spam and dumped into my spam box that I rarely look at because it is so large? Or would I just leave the statements on the company's web site? Problem with that is, how long do they keep them there? For investments, you need to know what you paid for a stock when you sell it so you can compute capital gains. Some stocks I might keep for 5 to 10 years. I have the prices in Quicken, but if I got audited, what to do?

So I stumbed across a website called Vaultstreet (www.vaultstreet.com), and it seemed to have a pretty good idea. Here's how it works: you log into that account, and you give it your passwords to your brokerage accounts. Then it logs in to these accounts and downloads all your statements in PDF format, and stores them all, and it sorts them by date using metatags.

I was able to import statements from ING Direct, Schwab, TD Ameritrade and Fidelity. Many of the Schwab statements came in with the wrong date, the ING statements didn't have my account # in the metatag, but otherwise, the process worked relatively well.

You can specify which other people you want to examine your documents. So you could add your accountant, and he or she could log in and view all your statements, including your 1099s and other tax forms.

However, VaultStreet only lets you do this automatic download with about 15 different institutions. It doesn't have some big funds, like Janus, at least not yet. It seems to have most of the major online brokerages, but otherwise, its coverage is pretty skimpy. They really need to enhance their breadth of institutions covered.

They also don't allow you to upload documents that you scan yourself.

It took a little getting used to how their UI works, but I got the hang of it after a few sessions.

I also question their business model: after the 30 day trial period, they charge $200 per year. With the number of institutions they have, this seems like an awful lot of money. If you compute it at the cost per statement processed, it probably works out to $5 to $10 per statement. That seems like a lot to pay for a little bit of convenience. Furthermore, this should be a product that is very sticky. I doubt many people would leave after they use it: after all, they'd then have to figure out what they would do for filing their documents. Since this is a very sticky application, they really should price it low then have somewhat aggressive increases each year, especially as they add new institutions to download from.

Furthermore, VaultStreet should be going to smaller institutions to get them to pay Vaultstreet for processing their statements. Every statement that is printed and mailed must cost the financial institution at least $1: postage, paper, printing, stuffing, and so on. So if VaultStreet could get them to pay them instead, Vaultstreet would get a lot of individuals using their site. These individuals would only be able to access the statements that the institutions were paying for, but might decide to subscribe to get access to everything. They could do this with utilities (they've got Verizon broadband and Verizon telephone now, but that's it), mortgage companies, leasing companies, etc.

You'd think that by charging the institutions a fairly low amount, they'd get a lot of new customers, and some of these might sign up for the full package.

It'd be really nice if you could upload your exisitng stuff to the site. Because let's face it, you're probably going to have some paper documents from institutions that are too small for them to worry about. Another thing that would be excellent would be a way to add documents via email. So if I were emailed a statement, I could just forward it to a specific email address, and it would be added to my documents. (If they had email uploading, it'd be nice if you could specify meta tags like the statement date in the email message somehow).

I'd love to be able to scan and upload all this paper I have, and it's not just financial stuff. For instance, receipts for major appliances purchased. Car repair records (I have an extended warranty: what if my engine goes bad and the car company says I never changed the oil? So I keep all my valvoline receipts). A few weeks ago, I was stopped at a light, and the woman behind me didn't stop. That resulted in my needing a new bumper, paid for by her insurance company. It also resulted in about 30 pages of paperwork: accident report, insurance claims, mechanic, rental car agreement, and so on. Wouldn't it be nice if I could take all those pages, put them on my scanner, and then upload the file, or better yet, just attach it to an outlook email, type in the metatags (i.e., date, and brief description) and then upload it?

Don't get me wrong, I really like what Vaultstreet has done so far: it is a great idea to suck in stuff from the financial institutions directly. But I think the company has really overpriced its product based on how many statements you're likely to get per year from the institutions it supports now. Seriously, it's going to probably equate to $5 to $10 per statement, as I doubt you'll get more than 20-40 statements per year from the institutions they support. I'd also like to see Vaultstreet allow generic uploading, and especially generic emailing. As it stands now, it seems to be a very interesting technology, but unless you have a myriad of accounts at the few insttutions it currently supports, it's going to be hard to justify the $200 annual price tag.

Wednesday, July 09, 2008

A Matter of Years

We've all heard that expanding our drilling for oil won't do any good because it would take at least ten years for the oil to reach the market:

"Let's remember that the amount of oil in ANWR is too small to significantly improve our current energy problems. Further, the oil exploration in ANWR will not actually start producing oil for as many as 10 years." -- Sen. Patty Murray (D-WA)

Many of the opponents of ANWR advocate a greater investment in mass transit, including high speed rail. For instance, Patty Murray won some award in 2003 for advocating rail subsidies.

So how long does high speed rail take to get from conception to actually bringing passengers?

The Southeast High Speed Rail (SEHSR) Corridor provides us with a good case study. The SEHSR will run from Washington, DC to Charlotte, NC, and will primarily be built on existing right of way. Four states formed the coalition in 1992. It is projected to open sometime between 2015 and 2020. So what's the hold up? It's not funding. It's environmental studies, and other studies. Here is what they need to complete:

Planning studies (1 - 1.5 years)

  1. Determine existing studies
  2. Traffic Forecasts
  3. Analysis Needs
  4. Conceptual Solutions
  5. Preliminary Cost Estimates
  6. Cost Estimation Valuation Process

Environmental Studies (5 years, after the planning studies)

  1. Purpose and Need
  2. Traffic Analysis (I guess the Traffic Forecasts from the planing studies isn't enough)
  3. Preliminary Alternatives
  4. Public Outreach
  5. Technical Studies
  6. Air Quality
  7. Noise Analysis
  8. Traffic Analysis (again?)
  9. Socio Economic
  10. Cultural Resources (what the hell is this?)
  11. Biological Resources
  12. Hazardous Materials
  13. Water Quality
  14. Floodplan / Hydrologic
  15. Energy
  16. Land Use
  17. Economic
  18. Wetlands
  19. Visual Effects (from the studies or from the actual rail?)
  20. Environmental Justice
  21. Cumulative and Secondary Impacts (one secondary impact: lots of trees killed for studies)
  22. Cost Benefit Analysis
  23. Refine Alternatives
  24. Alternative Selections
  25. Section 400 Evaluation (not to be confused with 404 - File Not Found)
  26. Record of Decision

Preliminary Design (2.25 years, concurrent with the end of the environemtal studies)

  1. Geometric Design (they've got visual effects already, what's this for?)
  2. Typical Selections
  3. Grading
  4. Drainage (this after they've got a study done on Floodplan / Hydrologic)
  5. Structural
  6. Traffic / ITS (another traffic study!?)
  7. Signing / Striping
  8. Lighting
  9. Utilities
  10. 30% plans

Final Design / Right of Way Engineering (3.5 years)

  1. 60% Plan
  2. 90% Plan
  3. Final Plans
  4. Specifications and Estimates (of what?)
  5. Right of Way Setting
  6. Right of Way Engineering
  7. Appraisals
  8. Purchase Offers
  9. Counter Offers
  10. Relocation
  11. Asbestos Clearing
  12. Demolition
  13. Condemnation (if necessary)
  14. Federal Regulations

So the sum of all these is about 10 years, according to the SEHSR website. And this is before construction starts, but after the several year period when they were getting the coalition of states assembled and doing preliminary planning. In the case of the SEHSR corridor, the total time is currently estimated at 23 - 28 years.

So 10 years to get oil out of the ground seems pretty fair compared to the speed under which the government would be able to get a high speed rail link to go a few hundred miles.

Friday, April 25, 2008

The $40 billion question

Barack Obama (and various other politicians) have often cited ExxonMobil's $40 billion in profits earned in 2007 as a bad thing. For instance, after winning one of his primaries, Barack Obama said, "I know that it won't be easy to change our energy policy. Exxon Mobil made $11 billion last quarter. They don't want to give those profits up easily."

Now, a few bloggers have remarked that Exxon actually paid taxes of 41%, and over the past few years, Exxon has paid an average of $27 billion per year in taxes.

However, I'd like to explore a different question: is Exxon Mobile really making huge profits? Now granted, the numbers are huge, but Exxon Mobil has to sell a lot to make that profit. Therefore, it's better to look at the percentage profit than the actual figure.

But in finance, it's not just the net after-tax profit figure that you should look at, but you should examine other indicators of profitablity as well. First, there's the issue of taxes. Corporations deploy legions of accountants, lawyers, etc. to delay paying taxes, and to shift money around to avoid certain taxes. So companies may pay high taxes one year and low taxes another year, so when comparing firms to each other, it's sometimes best to use pre-tax profits.

But there's another wrinkle: interest. Suppose you had two firms that were exactly the same, except the first paid dividends of its excess cash each year and the other one did not. The second firm would earn interest on its cash balance. Alternatively, one firm could have sold shares to the public to get its start up funds, while the second could have taken on debt, which comes with interest. So taking interest out of the equation also helps compare firms' profits to each other.

Finally, there's depreciation and amortization. When a firm buys equipment, it has to expense that over several years -- this is called depreciation. When a firm buys another firm, it has to amortize part of the cost of buying that firm over several years (namely, the amount that it paid above and beyond the net value of the assets acquired).

If you exclude amortization, depreciation, interest and taxes you get what's termed in the financial world as "EBITDA": Earnings before interest, taxes, depreciation and amortization.

It's also best to look not just at a single quarter, but a full year. This avoids the problem of one firm having a really good quarter or really bad quarter.

Here is a brief summary of how various other international oil companies have performed during the past 12 months, according to Yahoo finance:

CompanySales ($B)EBITDA ($B)EBITDA %Net IncomeNet Income %
Exxon Mobil $361.71 $73.01 20.18% $40.61 11.23%
BP PLC $284.37 $36.74 12.92% $20.84 7.33%
Chevron Corp $208.11 $38.48 18.49% $18.69 8.98%
Conoco Phillips $171.50 $35.17 20.51% $11.89 6.93%
Eni SpA $139.76 $41.06 29.38% $15.91 11.38%
Hess Corp $31.65 $5.30 16.75% $1.83 5.78%
Marathon $59.39 $7.60 12.80% $3.95 6.65%
Respol YPF $82.81 $8.14 9.83% $5.07 6.12%
Royal Dutch Shell $355.78 $53.77 15.11% $31.33 8.81%
Total SA $217.94 $49.67 22.79% $20.95 9.61%

By examining the above, it's clear that versus other large, integrated oil companies, Exxon Mobil's after tax profits and its EBITDA are a little higher than other companies. However, this is due to it having a more efficient cost structure: if it charged much more than its competitors for oil, people would purchase oil from the competitors. Also note that the above revenue figures do not include sales taxes collected. Since sales taxes are included in the price of gasoline, they are sometimes included in companies' reported revenues.

Now, let's take a closer look at Exxon Mobil's profits:

Exxon Mobil splits its net income across three segments: upstream, downstream and chemicals, and it separates each of these according to US and non-US. Here is how Exxon Mobil's profits break out:

Division US Non-US Total
Upstream $4,870 $21,627 $26,497
Downstream $4,120 $5,453 $9,573
Chemical $1,181 $3,382 $4,563
Total $10,171 $30,462 $40,633
Upstream 12.0% 53.2% 65.2%
Downstream 10.1%13.4% 23.6%
Chemical 2.9% 8.3% 11.2%
Total 25.0% 75.0% 100.0%

(The above excludes a cost of $0.23 billion used for corporate overhead purposes)

Thus, 75% of Exxon Mobil's profits were earned outside of the United States, and only 25% -- $10.2 billion -- were earned in the United States. Now, Exxon Mobil is a huge company, and its lawyers and accountants almost certainly devise methods to shift taxes from high tax jurisdictions to low tax jurisdictions. For instance, if Exxon pumps crude out of the ground in Saudi Arabia, ships it to a refinery in the Caribbean and then sells the refined gasoline in the United States, how do you allocate the profits across the various countries?

Now, one more thing I want to do. I want to compare Exxon's EBITDA and Net Income to other large companies in the United States, just to give an idea that its profits are not outrageous. All dollar figures are in billions:

CompanySales ($B)EBITDA ($B)EBITDA %Net IncomeNet Income %
Exxon Mobil $361.71 $73.01 20.18% $40.61 11.23%
Apple Computer $26.50 $5.56 20.98% $4.07 15.36%
AT&T $120.70 $42.38 35.11% $12.56 10.41%
Boeing $66.39 $7.09 10.68% $4.06 6.12%
Coca Cola $30.13 $8.99 29.84% $6.22 20.64%
Costco $67.91 $2.39 3.52% $1.19 1.75%
Ford $172.46 $13.84 8.03% $(2.76) -1.60%
G.E. $172.95 $37.69 21.79% $21.90 12.66%
Google $18.12 $6.51 35.93% $4.51 24.89%
H.P. $107.67 $12.25 11.38% $7.85 7.29%
IBM $101.26 $20.83 20.57% $10.89 10.75%
Procter & Gamble $79.74 $19.32 24.23% $10.96 13.74%
Starbucks $9.82 $1.47 14.97% $0.68 6.87%

So when you look at a smattering of other companies, you see that Exxon Mobil's profits as a percentage of revenue are not that outrageous. They'll beat most pure retail operations: pure retail companies are very competitive, and they are just selling what others make, so they rely on volume. Automobile producers have low profits these days as they cope with legacy costs.

So, overall, while Exxon Mobil has high dollar figures for its profits, it does not have really excessive profits. How could it? It competes with other firms seeking to make a profit: if Exxon charged a lot more for gasoline than Shell, very few people would patronize Exxon instead of Shell. The oil industry is highly competitive.

So what does Barack Obama think could be gained by taking more of Exxon Mobil's profits? Well, presumably, votes. However, taxing oil companies more would almost certainly lead to higher prices, not lower prices, as they'd pass their costs on to consumers. They'd also be more likely to shift profits out of the United States, which already has a higher tax rate than most other industrialized nations. It certainly wouldn't lead to cheaper gas at the pump.

Sunday, March 23, 2008

The Sequel to Se7en is Going to Suck

So a Vatican newspaper listed seven new Deadly Sins. It's apparently a little more complicated than that: it wasn't the official new deadly sins, but rather Bishop Gianfranco Girotti's comments about sins. However, he still did list seven new sins, and while they might not replace gluttony and envy, they are still considered really bad by the Vatican. Here they are:

  1. genetic modification;
  2. human experimentations
  3. polluting the environment
  4. social injustice
  5. causing poverty
  6. financial gluttony
  7. taking drugs

I'm not Catholic, but I don't think it's my theological background that makes it difficult for me how to exactly comprehend why some of these things are really that bad, or even how to judge that they're happening.

Genetic Modification

I don't have enough knowledge of science to know where the whole genetic modification thing begins: does plant grafting qualify, and if not, why not. Also, I fail to see how some things, such as implanting human genes into pigs so that pigs can grow organs that aren't rejected by humans should be a sin. I guess that all sins have some gray area, and I guess here the church is concerned that scientists can make some sort of super human like in Gattaca.

Human Experimentations

Again, where do you draw the line? Obviously, if it's involuntary human experimentations, that's bad, but I doubt that the bishop is trying to be so specific here. However, in some cases, human experimentation can yield great results. In 1967, South African Louis Washkansky had incurable heart disease. Dr. Christiaan Barnard performed a heart transplant at Groote Schuur hospital in Capetown. Mr. Washkansky lived only another 18 days, but an operation on Philip Blaiberg provided another 19 months of life, and Dorothy Fisher's heart transplant allowed her to live an additional 24 years. If Dr. Barnard had not "experimented" on Mr. Washkansky, Mr. Washkansky would have met his demise 18 days earlier, but the other patients would have lost considerable time.

Polluting the Environment

I guess the question here is how much and for what purpose? I don't think that many people would disagree that dumping your trash next to the road is a bad thing, or dumping used motor oil into your local pond. But we need some pollution: without any pollution, there would massive starvation. So I guess this must mean against excessive pollution, but again, but there's probably some way to get less pollution in exchange for higher cost or lower production of just about anything. Obviously, no one really wants pollution, but we have it because it's the result of a trade-off. Having no pollution just isn't feasible. Well, a government could mandate no pollution or very low pollution, I guess, but then they'd be guilty of "casuing poverty".

Social Injustice

This is one of those vague terms that can mean all kinds of things like living wage, and various mandates for economic equality. Many of the things adovated by social justice types are pretty much incompatible with economic reality. According to Wikipedia, Pope Benefict said, "The encyclical says that social justice is the primary responsibility of politics and the laity; the church itself should inform the debate on social justice with reason guided by faith, but its main social activity should be directed towards charity."

That sounds like a sensible approach...

Causing poverty

I'm at a loss here. I mean, the first guy that jumps to mind is Robert Mugabe. In fact, it would seem to me that the only people that could actually cause poverty would be people with the backing of a government or outright criminals. The former could mean heads of state or heads of government agencies or departments, or anyone else who implements disastrous economic policies. An industrialist who bribes a government to stop competition so he could charge more for his products would be causing poverty.

Criminals can cause poverty: an arsonist can burn down a building, which would result in someone being poor. Vandals (people who vandalize, not the Germanic tribe) can cause poverty. Thieves also can cause poverty.

Besides criminals and people with the backing of the government, I don't see anyone falling into this category. An industrialist may make a product that is better than existing products and put a lot of people out of work, causing poverty. However, without this, there'd be no progress: if a new technology is accepted by the market, it will lead to disruptions. The first lightbulb companies put candle makers out of work.

Financial Gluttony

This one at least features a word that indicates a degree of something ("gluttony") and not an absolute. However, just because one guy amasses large sums of money doesn't mean he's depriiving someone else of the ability to earn more and save more. And while I undertand where the Church is coming from on this one, it's sort of ironic that a lot of churches were build on the fact that some financial glutton died and left his money to a church.

Taking Drugs

Well, obviously, this must mean drugs that have no medicinal value for you. At least I hope so, lest the Catholic Church is preparing to do a merger with Chrisian Scientists. I hope that caffeine and alcohol get an exemption, or is the Catholic Church trying to also merge with the Mormons...

Anyway, one thing we can be sure about is that if this is the new seven deadly sin list, the sequal to Se7en (the movie starring Brad Pitt and Morgn Freeman) is going to suck. Unless they can bring Mugabe to a premature demise...

Thursday, March 06, 2008

Gluts and Shortages (Prices Change)

Prices change, but many people seem to wish they didn't.

There's a housing glut in the country. Do a Google search for that term in quotes and you get 14,000 hits.

Meanwhile, there's also apparently a nursing shortage. A Google news search for nursing shortage yields about 600 hits.

So why is there a housing glut and why is there a nursing shortage? The answer for why there's a housing glut is because many sellers of houses are hanging on to the hope that they can get what people were selling houses for a year or so ago. Lower the prices and you'll no longer have a housing glut. Waiting for a higher price may be economically sensible for an individual homeowner, especially if they want to move locally or are at least not in a major rush to move out.

There's a nursing shortage because hospitals and doctors don't want to raise nursing salaries as much as they should. If they raised the salaries, they'd no longer have to worry about filling all their available spots. Of course, it takes a while for this to fully take effect: someone can't become a nurse instantly. But if salaries were raised, perhaps some stay-at-home moms with nursing degrees would venture back into the workforce.

In a market economy such as ours, you should rarely have gluts or shortages in anything - goods or services. You may sometimes, like in a hurricane. But the media seems to report that gluts and shortages are a regular aspect of our lives. However, while there may be a lot of houses for sale at present, what there really is is that there are a lot of houses that are on the market at above market rates. And while there are a lot of nursing positions that are open, the employers don't think these positions are that essential, as they havn't boosted the salaries for these positions.

The house sellers may not get as much as they could have in the past, and the hospitals may have to pay more than they did previously, but that's the market. Prices move up and down, and trying to get an old price will be difficult.