The 6 Pack Economist

I think that what will eventually kill capitalism is these moron CEOs.  Capitalism depends on that the people who are rewarded, are also to take the risk.  But the latest issues with these CEOs who have golden parachutes have thrown the whole system to the wolves.

 I have no problem with the money they were paid per se, what I have a problem with is the amount of money they made with little to no risk.  They screwup and are forced to resign, the company is in ruins and they walk away with a multi-million dollar severance package.  That’s like walking into your neightbors house and throwing your feces on the wall and charging them for painting their house.

 This type of compensation for failure just pisses a lot of people who then vote in a socialist who say that they will take care of everything and tax the rich.  PS taxing the rich never really works.  They tax them which just trickles down to the person who put the socialist in office to begin with.  Which in turn brings more taxes on you etc….  I have whole posts on this crap.

 I would love for these guys to be hung out to dry.  Lets be honest most of these guys are not that smart anyway.  They really do not have some grand talent that makes them really deserve this kind of money. Then again they are not that stupid either they were able to set themselves up in such a way that if they succeed they make money and if they fail they make money and get a vacation.  I guess in the end they are smarter then I am.

 How to solve the problem?  I don’t know.  But rewards for failure should not be part of it.  I think the top salary should be limited.  I know it sounds socialist but the guaranteed pay should be limited.  Everything else should be bonuses.  With something nominal for becoming disabled or whatever, but the principle is simple.  Do good get stuff, do bad don’t get stuff.

 There should also be rewards for post retirement kind of like a five year bonus plan.  One bonus for yearly achievement and then more bonuses for two, three, four, and five year achievement.  This way short term actions that kill the company long run will not be undertaken.  It could be a dividend based system or some other method. 

 Think about it this way.  You go into your neighbor’s house (your neighbor had some bad luck).  You promise to make your neighbor more money this year then your neighbor made last year. They agree (we are going to pretend they really don’t know you too well).  Afterwards you sell everything they have including the house.  Take your 50% cut and leave them with the shirts on their back.  You on the other hand get to walk away with your 50% cut. At the end of the year they have more money but the next year does not seem too good for them.

 The only real punishment for these crooks is to empty their bank accounts and sell their assets.  Then force them to live off a janitor’s salary for 5 years with no-contact of their former business associates.  Then again their business associates are the same people giving out the punishment so fat chance there (Politicians are cheap). 

So my alienware computer is now a paper weight in addition I have a feeling my 160gb Ipod is also a paper weight.  So 2600 plus 400 is 3000 thrown down the toilet. 

 I guess I should have stuck with my philosophy on computers get just what you need and throw it out in 3 years when nothing will run on it.  But I thought that for once I will go and get something really really nice.  I play games a lot and most are of the strategy variety and do not really push the graphics too much so I figured that if get something really good now if should last me about 5 years.  In which case the investment would have paid off. Well the first time I really spend money on a piece of electronics it dies in two years.  I did not buy the extended warrenty since I never really had hardware problems that either did not show up in the first year or did not give me trouble till I was ready to replace the thing anyway. 

 So the great alienware turns out to be an overheating piece of junk.  Sure it was able to max out every game I had but now it’s a paper weight because the mother board is shot.  I would buy another motherboard and replace it (it’s a laptop) but these bastards don’t sell them to the regular public.  I have to send it in.   So I am out like 500 bucks and a computer for a month.  And if their message board is any indication of quality of work it will happen again or they will mis-diagnosis the problem.

 As for the ipod I am not sure what is wrong.  I tried to sync it up after a month of not syncing it up and it just froze.  The screen is on but nothing happens.  Will wonders never cease.  And yes I played with the lock and unlock button.  But wonderful apple does not allow anyone to have access to a failsafe on/off button so that is all I can do.

 So I guess I could sell designer Paper Weights on Ebay. 

I love to hear this.  It makes me feel all warm and fuzzy because someone doesn’t get it.  It’s like watching someone turn the screw the wrong way.  Of course there are far too many people who refuse to turn the screw the other way and I just get frustrated and walk away.

Tax the Rich is actually counter productive.  The first thing is that what the government considers rich is not really rich.  It’s well off but your still only about 4 months from poverty.  I was shocked to learn that I was considered rich.  I was like “wow my used car is actually a Bentley”.  Who knew?

Second point is that the truly rich are ones writing the tax laws.  They will ensure that they have a way out.  As the taxes go up for them and the incentive to hide income goes up so does the use of these income hiding techniques.  In the end they pay just about the same they paid before the taxes went up.  But the not-really rich get hammered.  The extra 500 bucks we have to pay does not pay to get a really good account who can hide your money.

Third the government gets little blip of extra income and quickly spend it.  The worst thing for a government to have is a lot of money.  It’s like extra heroin or crack.  It only feeds the addiction.  They will budget it and depend on it next year.

My final point is never try to screw someone who can screw you worse.  The truly rich can get the hell out of the way the on rushing train of taxes.  They can move to the Caribbean.  The not-really rich get hammered and start cutting costs.  Which means your job.

So your taxes are higher but you lost your job so maybe they are not higher. At least you feel good about sticking it to the rich guy.  I am sure he feels bad while sipping on his margarita. 

Just accept that the truly rich have more then you.  What you should be trying to figure out instead is how to get to where they are and not how to take it way from them.

I am sure that you have heard all about the banking industry and its crisis.  If you have not, the cave you are in must not have cable or internet in which case you are not reading this.  In the following post I will go into the reason for this crisis from the basis of a simple economic principle of Risk and Reward. 

 In the beginning god created the mortgage payment (part of terms of the agreement was the last payment was to be personally delivered to god himself).  The person who lent you the money for the mortgage was also on the hook if you decided to spend your mortgage payment on lottery tickets instead of paying him.  So he had a self interest to ensure that he did not lend you money, that you could not payback.  There was a self interest on both parties not take too big of risk.  After living on the street because you paid too much for a home you could not afford was your risk, the reward was some place to go when it rained.

All was right in the world, unless of course you lived in California but then again California is fantasy land anyway.  The rest of the world see periodic increases and decreases in home values but they were generally because of real factors, not because you want to live near where Brad Pitt gets his Starbucks. 

So what screwed this all up?  Well the federal bank, which by the way is not run by the federal government lowered interest rates after the dot com bomb to help jump start the economy.  In addition rules(created by the government to help those less fortunate) in the mortgage industry pushed them to help those that had shady or no-credit.  Well with the low fed interest rates the industry was able to offer lower mortgage rates.  These rates were substantially lower then what they were previously and dramatically lowered the monthly mortgage payment made by the average person (most people judge what they can get by the monthly payment and not the actual price).  They could now afford a bigger home.  Since they could afford a bigger home the demand for a bigger home drove the prices for bigger homes up.  This in turn drove the prices for every other type of home also.  After all people still need to live somewhere.  Caves can get musty after all.

So the price of homes began to move up.  Since the price of homes was going up the risk of the loan was lowered since the home was the collateral.  If you had an outstanding balance of 100K but the home was worth 200K you could get out of loan by selling the home and still have some money to find something smaller or less expensive.  In addition if you defaulted on the loan the bank could do the same.  So in essence the risk was lowered.  No matter what happened everything worked out.

With the risk of the these loans lowered the banks were able to start selling these loans to other banks filling their coffers with the sale and then use that same money to offer more loans that are then quickly sold to the next etc..  And here is where the problem started.

The person offering the loan only had a short term exposure to risk but a large reward.  They held it for a few months and sold it.  Very few people fail to make the first year of mortgage payment.  Soon the prices of houses began to get higher and higher, even with the low rates they became unaffordable.  But with the prices still going up and the advent of the “house flipper” mortgage companies got creative (there were always scams out there, these new ones just got rediculous).

So how creative did they get?  Since they were dumping the loans on someone else after a few months, they began to make mortgage terms that kept the price of the loan low in the beginning so they could get the person the mortgage.  Now that they have someone making payments they needed to get rid of it before the terms of the mortgage made the payments too high for the person to afford and they defaulted.  So they packaged all these bad loans into more traditional loans and sold them to bigger banks that could deal with a bad loan here or there.  The first guy selling the mortgage effectively had a big reward with little risk.  This led to more and more risky loans.  People could sign up with no proof of income or negative amortization of the loan (you had a higher balance each month despite making payments). 

It does not take a genius to figure out that this was set to fail.  It depended on three things; home prices rising, dumb people to sign the mortgage, and dumb banks to buy them.  If anyone of these failed the dominos would fall.  And it did.

Everyone knew the game, and they all went along with it.  Except for a few people just looking for a home they could afford,  but most of them were smoking their cigars and drinking their brandy laughing all the way to the bank.  Of course the bank they were walking to eventually collapsed right after they took out their money.  Falling on the guy who just signed up for a loan.

A whole lot of crap was out there basicly poisoning anything it touched.  The whole sham was about to fall in.  Unfortunately those that benefited from this whole thing the most are not going to take a brunt of this mess. They had golden parachutes.  These were all the executives of the banks that knew this crap was going on and authorized it.  After all one year’s salary for these bastards was enough to live for the rest of your life.  So screw it if in two years it all collapses they were safe.  So they did not have any risk.  See a pattern here.  The person benefiting most held no risk.  Therefore they only looked at the reward and the reward was an incredibly high salary and bonus.  Their future well being was not wrapped in the future of the company/bank they were heading it was in the huge bonus they were set to receive in one year.  Year two be damned.

Now here we are.  A bunch of fat cats have beaten the system.  And we are left holding the bag.  And the bag is full of dog crap.

I will go in what to do about it later.  Good luck and make your mortgage payment.

To see the crap I had to do deal with apples in my life go to here.  If you just want to hear about the ipod crap then read on.

So after a few years of everyone having an Ipod, I finally get one for Christmas.  Mainly my wife wanted something big and so she needed to get me something big.  I would have been happy with a few pairs of pants and an Xbox game or two. 

So I have my brand spanking new 160gb Ipod.  I have two computer with music scattered on both.  Well itunes will only accept songs from one computer if you hook it up to another computer any songs on the ipod that are not on the new computer are deleted.  In addition if you try to use the ipod as a mobile harddrive.  Who has a 160gb of songs anyway.  It craps out.  It must reinstall the os and rewrite the songs to the ipod.  WTF!!!!

I figured it out eventually. I just use the ipod to move all the songs to one computer.  Let it reset and behappy. 

Well the first computer died,  the one with all the songs.  Now I have to move everything over to the back up computer before itunes tries to delete everything.

In addition the ipod has just turned into a 400 paper weight because it is frozen with the screen on.  None of the buttons work and there is no easy way to do a hard reboot of it.  So an old megadeth song is stuck at 13 seconds left to play.  And yes I tried to lock and unlock it, plug it into the wall, plug it into the computer.  Still nothing.

What a great weekend.

I guess my hatred of apple began when I was lowly service tech at computer city.  This hippy moron came in and described the problems he was having with his computer and printer or something else, I don’t remember.  But he did not use words like printer instead he called it the wolverine.  His monitor was the owl, and the box was the elephant or something else.  I should have bought weed off him because he obviously had some good shit. 

 So this moron who took the whole mouse naming convention way to far was trying to tell me his printing problem but instead of telling me it would not respond when he wanted to print, he told me the wolverine would not talk to the elephant and I don’t know why because the go along so well before.  I am freaking serious.

 I finally gave up and just signed everything in for the service people and said it would not print and to see me for details. 

 Later I had a very nasty conversation with a MAC book user who came up to me slammed his computer down on the counter and said something to the effect “You are morons and after a month of being in the shop my mac book does not work”.  I was calm, mainly because I did not give a shit, and asked him what the problem was.  “It doesn’t even turn the f%^& on.  It beeps and lights turn on but that’s it.”  I said let me see. 

 For bonus points can anyone guess what is wrong?

 The dimmer was all the way down.

 His face was priceless.

 Most Mac or apple people who came by were not nearly as aggravating most were just clueless.  And it was kinda cute. 

 In fact I thought about getting an apple or the clone that was out about that time,  “power computering” or something.  But when I went to the software isle to look for games there was basically nothing.  Went to the hardware isle, again nothing.  Then came the price and that did it.  So I went with a brand new windows 3.11 4mb Ram computer and went home.

 After computer city I only had to deal with a mac one more time.  This time I was sent to install photoshop on some computers for a business client.  It was a one day job for a contracting company I worked with and it was a flat pay assignment.  If it took me an hour or eight hours same price.  I install photoshop in about an hour and everything works just fine.  At least after I figured out how to put the CD in the tray (no button on the tray).  

But then the kicker came.  They wanted to update the OS to the latest version that they just got.  I calmly said to myself, “they are apple people and really don’t understand how computers work and that an OS install is a big deal”.  I tried my best to talk them out in a polite way but they eventually were able to get me to do it.

 It started off easy enough, that is what I remember anyway.  I reboot to finalize the installation and wham the freaking sad face.  No error messages, no I don’t like this software, or this hardware thingy isn’t working. Just a sad face.  What the f^&* am I supposed to do with this? 

I spent the next 6 hours turning stuff on and off in the config screen till they worked.  Well sort of worked.

Now  go to the Ipod rant.

If you are doing a research paper on Einstein’s theory of relativity just go back to Google now.  On the other hand if you want some random bloggers insights on the theory of relativity in day to day life feel free to read on.

 I believe that everything in life is relative.  How good you have it is relative to the things around you.  Humans have and always will be a competitive species and will be trying to get ahead of the next guy.  Communism does not work.  We are always trying to get ourselves to the next level.  I say that this is a good thing.  Sure it has brought about wars and people have lost their livelihood but it has also gotten us out of the farmer stages of societal evolution. 

 As we grow up what is expected of us has changed and expanded.  Why?  Because someone else has done it.  We are in a constant state of competition.  This can be material goods we acquire or inventions we have patented.    

 So what the hell does this have to with economics and curing society’s ills?  Well let’s get one thing out of the way.  We will always have poor and we will always have rich.  Even soviet communism had rich and poor.  This is because everything is relative and those that are poor merely have less then those that rich.  No matter what they actually have its all relative.  In today’s America the poor have multiple TVs, a computer, a car, heating, air conditioning, and food.  Do they have the best of these things? No.  But in comparison to what people had thirty years ago these things were only in the rich peoples homes.  The reason they are still considered poor is because others have so much more or better versions of these things. 

 This relativity applies to anything people can see.  I believe that shows like the “rich and famous” belittles the people who can not live like that.  It is an instant comparison to what the viewers have, which is little in comparison.  It does not mean that they do not enjoy what they have, but they think can or should have it better.  Perhaps one day the poor will also have yachts but the rich will have bigger ones.  And the poor will not be happy then either.

 In addition to macro comparisons like the shows on TV we also deal with relativity locally.  We compete most immediately locally.  It is a “I have more then the Jones mentality”.  This can range from a new set of rims on the car, to a new fishing boat in the driveway.  It is an outward sign of status and potentially makes one more attractive to a potential mate.  Sure in the greater scheme of things it is meaningless. Since in the end if you enjoy what you have you are usually happier then those that trying to keep up with the Jones, but we still do it.

 Since we can not eliminate people from being poor, because poor is relative.  What can be done to allow for people to be happy?  What truly makes most people happy is accomplishment.  This usually means that someone is getting better relative to what they did have.  In the end this is the only thing that can be done.  Allow people to move up.  And conversely allow people to move down.

I am sure you had many some type of economics course and never had a good grasp of supply and demand, because most people do not. Unfortunately for you supply and demand controls almost everything in your life.

The reason that most people do not understand supply and demand is because the supply and demand curve is about price not supply or demand.  If the demand for something high but the supply is low the price is high.  If the demand for something is low and supply is high the price is low. 

If you want to see this action, go to a flea market.  Stop by in the morning and check the prices and the supply of what the vendors are selling.  Then stop by mid-day and see who has a lot of what ever they are selling and who has very little left to sell.  You will see those with a lot of stock left to sell, they will begin to lower the prices.  Why they don’t want to go home with the stuff.  They want to make money on it.  This is especially true if they do not have a new market to attend in the near future.

Ok that example was a little boring.  Here is a better example for you bar flies.  If you are at a bar and the ladies out number the guys say 2 to 1.  Or maybe you need 3 to 1 after all you have nothing better to do then read some guys blog.  In this case the supply of women has out stretched the demand (I know you may want two for the night but just be with happy with one).  This will immediately move your chances up.  As the night goes on people begin to adjust their standards (lower or raise their prices) till the final sale is made.  If an actual transaction of money took place you wasted a lot of time and should have spent more time on Craig’s List.

I hope this gave you a little help in understanding supply and demand.  But look forward to more on this in later series.

Orginally Posted : 18/09/2008

I have come to the conclusion that given my background in IT and my quest for extra income need to come together.  I do not have the time to search for part-time web work because of my full time job and the lack of consistency that it offers.  That and of course small businesses paying me my going rate.  Given these circumstances I decided to give this blogging thing a try. 

I figured that I am opinionated (to a fault) and I have time to write a few posts a week.  I also believe I have some pretty entertaining insights.  How humble of me.  I also have an interest in both economics and beer.  So the title of the blog should be appropriate.  In addition I will touch on things like cars, relationships, and the occasion political comment.  The politics will probably come up more then many will want and those posts will unfortunately develop into firestorms of comments.

As a general summary of my thoughts on economics it comes down to a very true euphemism.  “Nothing is free.”  In my posts I hope to give you unique insights or at the very least expose a rather evident truth you may have already know but never applied to economics.  My post “It’s all about getting laid” will open your eyes into how we as human beings react to day to day economics.  In addition to these posts I will also be reviewing beer.  These two things may seem ways apart but when one thinks about these two things they end up being together.  After all you were not drinking orange juice the last time you discussed tax cuts, strong coffee maybe but not orange juice.

I hope you enjoy the blog and visit often and occasionally donate or pick up one the books I have listed.  Especially “The Arm Chair Economist”.