College Tuition Increases...

This article rants and raves about the cost of college tuition, which for the past 20 years or so has been rising much faster than inflation.  The author explores several possible reasons for the increase, but none of them are satisfyingly simple and obvious. 

There is such a reason, however: the fast ramp of college tuition almost exactly correlates with the easing of student loan availability.  Way back in the Cretaceous era when I was examining the possibility of going to college, there's no way that I could have gotten a student loan.  These days, thanks to numerous Federal and State programs, if you can fog a mirror and get admitted to any college, you can easily get a loan to pay not only your tuition, but your books and living expenses as well.

So why would that make college tuition increase?  Because the marketplace for college has been distorted by the government subsidies and guarantees in the student loan market – a student selecting a college no longer needs to worry so much about what it costs.  Because the loans are so easy to get, the only pricing pressure comes from a students deferred need to pay off the loan.  This greatly reduces the pressure on colleges and universities to keep their prices low, as the “buyers” not longer care so much about the price.  Instead, they are now motivated to spend more money to compete for student loans (the fact that a student comes along with the loan is just a cost of doing business for them, and a relatively minor one). 

This is yet another example of the government's intervention causing a huge distortion in the market.  Like the housing bubble, the taxpayers are going to be on the hook again – because a large fraction of all the trillions in student loans are guaranteed by some Federal program or another.  Of course “Federal guarantee” is just the polite way of saying “They're going to stick their hands in my pocket to steal the money”...

How Could They Be So Stupid???

Megan McArdle explains why countries seem to repeatedly make utterly foolish economic and financial policy decisions.  The doom approaches, apparently inevitably.  Politics are (of course!) the problem...

Diamonds Are Bullshit!

Most of this story I knew, particularly the '30s-era marketing campaign and artificial supply restriction by De Beers.  Some of the details were new to me, though, and it's nice to have the whole story laid out in one short article...

Here We Go...

I've no doubt that this is just an early salvo in the Obama administration's re-energized wealth redistribution campaign:

H.R. 4170 would forgive student loan debt for those who have paid 10 percent of their discretionary income toward their loans for 10 years and would cap interest on federal student loans at the current rate of 3.4 percent. Individuals who go into teaching, public service or practice medicine in underserved areas would have their debt forgiven after only five years.

Because over 90% of student loans are made directly by the Federal government, to “forgive” them simply means that future taxpayers will pay them – the debt doesn't simply disappear; instead it's due date is moved to the future and interest accumulates.

This is one example of precisely what Greece et al are fighting the consequences of right now.  Not that we'd learn any lessons from that – it will be different for us, bleat the Progressive politicians.

I have no idea what the chances are for passage of this bill.  It doesn't really matter, though.  Things have progressed too far when a Congressman can even introduce such a bill without the rest of the House shouting him down.  All I hear is...crickets...

Best and Worst Run States...

An interesting analysis for anyone considering leaving the worst-run state: California.  The results are available in tabular form and in text form.

Debbie and I are experiencing a cyclical emotional reaction to the thought of leaving California.  The cycle starts with a gradually increasing sense of regret and unease at the thought of leaving our friends, places we've come to love, and so much that's familiar and comfortable.  Then we'll hear a piece of news (most recently, that the takers in Sacremento are seriously considering a radical rise in the commercial property tax rates)...and we'll snap back to “Oh, crap, we've got to get out of here!”

This analysis is clarifying for the simple reason that it sets down in tangible form the real (and quite striking) differences in the way various states are run...

A Fourth Branch?

Last night I pondered my frustrations with our government, and I realized that quite a few of them all boiled down to one thing: fiscal irresponsibility.  That's not all my frustrations, mind you...but a good number of them.  For example, the fact that our federal government is now operating without a budget, on continuing financing resolutions – that's completely irresponsible.  Or the accounting gimmicks that Obamacare is rife with – also completely irresponsible.  Or the near-universal underfunding of state and municipal pension funds.  But most of all, it's indefensible that we keep spending money (at all levels of government) that we simply don't have.  All these issues have one thing in common: the legislators and executives being way, way too free with the taxpayer's hard-earned dollar.

The rest of our society doesn't have this problem.  There are safeguards in place that prevent the same kinds of abuses that we see our governments perpetrating on a daily basis.  Which led me to an idea...why don't we have such safeguards in place for governments as well?

This is akin to our legal safeguards, implemented by our system of justice, culminating in the U.S. Supreme Court.  Why not have a similar system of financial safeguards, with the same power as that of our justice system?  A system of auditors, covering all levels of government: municipal, state, and federal.  A U.S. Supreme Auditors, a council of 9 auditors whose word was final.  The whole system set up to prevent the financial shenanigans currently foisted upon us by our criminal politicians (the only reason these things aren't actually crimes is because they're being committed by the same people who make the laws!).

This would require a Constitutional Amendment, and with 100% of all politicians deadset agin it, I don't think it would have a chance in hell of passing.  Dang...

Financial Impact of Photovoltaic Solar Power...

Mike Sandiford has a very nice analysis of the impact that photovoltaic solar power (i.e., solar panels) has had on Australia's power markets.  The answer was unexpected for me, for reasons that Mr. Sandiford explains well: solar has had a large impact, completely out of proportion to the small percentage of the overall power that it supplies.  The key to understanding why is all about the timing: solar panels supply power during the peak sunlight hours, which happen to coincide with the most expensive electricity on the spot market.  Mr. Sandiford thinks that power operators have very good reason to be afraid of the impact of solar panels...

What Does This Mean?

I've been watching the T-bond rate for months now, as it decends to impossibly low interest rates.  From highs of over 15% APR in the early '80s, it has dropped to just over 1.5% APR as of Friday.

This is an absolutely incredibly low interest rate.  These interest rates are set by auction; by definition this means that there are plenty of borrowers (the buyers of the bonds) willing to lend the U.S. billions of dollars at these absurdly low rates.  If 1.5% doesn't really mean that much to me, here's another way to look at it: would you lend the U.S. government $1,000 for ten years, in exchange for $15 a year?  That's exactly what thousands of willing lenders, lending an aggregate of many tens of billions of dollars, are doing.

What on earth is wrong with these people?  Why would they do such a thing?  It especially seems to fly in the face of reason when you see the size (and rate of increase) of the U.S. debt, nicely shown on the graph at right.  In this sort of situation, one might reasonably expect to see inflation – which would make you very reluctant indeed to lend money at such low rates.

I've read dozens of articles claiming to explain this phenomenon.  They all boil down to some combination of two things:

– U.S. Treasury Bonds are the least bad place to park your money right now (in other words, the most likely place to give you your money back).  Because of that, it's a seller's market – lenders trip over each other competing for the chance to buy T-bonds.  The problem I have with this explanation is that 1.5% APR is hardly any better than stuffing money in my mattress.  I don't find this argument particularly persuasive.

– the smart lenders are persuaded there is almost no risk of inflation in the U.S., because of the success of the Fed in managing it.  This is so implausible that I simply cannot believe even the stupid money would believe it, much less the smart money.

So I am left completely puzzled by this phenomenon.  Any of my readers have any ideas?

Spending: Up, Always Up...

It's the first law of government: spending always grows, even when they say it isn't.  Here's a nice interactive graphic to help you explore what's happened to the U.S. budget over the last 30 years or so.

The perpetual mystery to me is how so many Americans can remain so blissfully ignorant of the disaster that's being visited upon them by the corrupt, incompetent government we've voted into office.  Even with the data readily available, and even with other nations illustrating the future we're careening towards (hello, Greece!)...most of our citizens are somehow unaware of what's happening to us.

I have blue days when I think the human race may be doomed.  Over the past few days, I've been doing a lot of reading about Greece.  Result: this morning, I'm fearing we're doomed...

Budgets and Debt Ceiling...

The Washington Post has a couple of primers on the current budget plans before Congress and the history of the debt ceiling.  If you don't know this stuff, go study.

What to Invest In?

Via reader Dr. Simi L.:

I called my stockbroker and asked him what I should be buying.

He said, "If the current administration is in office much longer, canned goods and ammunition is your best bet."

Bernie Madoff Unleashed...

...and no conscience in sight...

Fascinating Visualization...

For the past year or so we've all been inundated by a never-ending series of gigantic financial numbers – $300B for this, $750B for that, $1.2T for that.  Getting any sort of understanding about these numbers is challenging; I, for one, will take any help I can get.

So when I saw this graphic, I found it instantly appealing.  By visualizing the relative amounts of money as different sized colored polygons, the authors have put the data in a form that our brains can easily digest.

Take a tour!  And check out the whole site -- it's full of interesting visualizations like this...

Fascinating Economic Information...

I just discovered a source of some fascinating economic information, courtesy of Google. They've been tracking the frequency of certain search queries since 2004. The results are publicly available.

For example, the graph at right shows computer and electronic related queries. An industry rule-of-thumb for many years has been that consumer electronics make a quarter to a third of all their sales in the last six weeks of the year. On the graph you can clearly see that exact trend, including two big peaks at Thanksgiving and Christmas. You can also see the generally downward trend of the past few years.

On the other hand, look as the graph at left to see how the current recession affects queries about unemployment benefits. Obviously we're not out of the woods yet (on the current recession)!

Dig a little deeper into that unemployment graph and you'll see small peaks of activity every January (when extra holiday season retail workers are laid off), and dips every mid-November (when extra holiday season retail workers are hired). There's a small peak in the summertime, I'll speculate because of high-school and college kids trying to find jobs.

Fascinating stuff, updated every day. Unlike government-supplied data, this is raw data – not “adjusted” in various ways with often political motivations. It's also near-realtime, so you don't have to wait a month or more to see what's happening. Personally, I'd trust my own interpretation of Googles raw data on unemployment queries much more than I'd trust the government's opaque unemployment numbers. I'll be watching this site...

One of the Many Reasons...

This is one of the many reasons why we need a revolution at the polls. We need to throw all of these bums out on the street – Democrats and Republicans alike – and replace them with a new crew that's less fiscally insane.

Take a look at what the past few administrations and Congresses have done to our tax system. Even while the lefties are fostering the meme that the “wealthy” (a very, er, flexible term that is, in progressive hands) aren't paying enough taxes, here are the actual facts: the U.S. now has the most progressive federal taxes amongst all developed nations.

“Progressive” in this context means that the more money you make, the higher the percentage of your income you pay in taxes. For the last couple of decades, it has also meant something else in the U.S.: if your income is below a given amount, you “pay” negative taxes – you get a check from the government instead of the other way around. This welfare is euphemistically called the Earned Income Credit, and of course the money for it comes from taxpayers with higher incomes – the money is being taken from them and given to the “poor” (many of whom make over $40,000 per year).

Scott Hodge has a short post over at the Tax Foundation's blog. He notes:

To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.

Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation.

Many states (including California, where I live – currently) have progressive income taxes as well, making this situation even worse.

It's not free money, folks. Those people paying the higher tax burdens are not going to do nothing while their hard-earned incomes are stolen. The easiest thing for an oppressed minority to do is to simply leave – and that's a lot easier when you have financial resources. It's happened before (think Sweden and England in the 20th century) and it's already happening now – the “wealthy” are leaving the states with the worst most progressive taxation policies (Maryland, Michigan, etc.) and headed for the states with the best most regressive tax policies (Florida, Nevada, etc). The internal immigration figures for the past few years demonstrate this rather clearly. And, though my wife and I are far from “wealthy” even by the Obamanation's flexible definition, we're starting to think about such a move ourselves – in no small part to escape the stifling total tax burden in California (said burden here comes complete with unrivaled fiscal irresponsibility and insanity as well)...

Doing Business In California...

From serial entrepreneur Nolan Bushnell:

California's government is the problem. The state is business-hostile. It is merit-hostile. It has the highest tax rates and returns less in services to its average citizens. Massive pension abuses are not dealt with.

Worst of all, the state's crazy regulation structure creates uncertainty, cost, and risk in doing business here. The system is chilling to investment and innovation. This is true for businesses of all types, from technology companies to basic franchises.

Many businesses founded elsewhere now try to avoid for as long as possible doing business in California. Meanwhile, I have watched company after company leave the state. And, as you might imagine, it is much harder to get businesses back than to keep them from leaving.

This is so sad for those of us who love California...

I'm lucky enough to work for one of the very few entrepreneurial efforts that's doing so well it still works in California, despite the government's best efforts to prevent it. But there aren't many software startups like this one, and California is going to pay for this foray into brain-dead liberalism. It's not hard to see that the startups are going to go elsewhere – and with them will go the best engine for economic growth that the world has ever seen. A few years from now, the name “Silicon Valley” may refer instead to someplace in Montana, Nevada, or some other business-friendly state. Or worse, in some other country.

The Voters Speak...

...but I sure wish they'd send a coherent message!

A few years ago, California's governor Arnold Schwarzenegger asked the voters to approve a series of propositions that would slash the state's expenditures, mainly by reducing services provided by the state. That series of propositions lost at the ballot box. So Arnie said, very publicly, “The voters have spoken!” – and went on a spending binge that made the recalled Gray Davis look like a miser.

Yesterday, Schwarzenegger asked the voters to approve a series of propositions that would raise the money to pay for this spending binge. These propositions lost by a wide margin (the one winning proposition in the table at right would limit lawmaker's salaries if they couldn't pass a budget).

Now don't get me wrong – I'm absolutely delighted that these propositions went down in flames, and I'm hoping (seriously!) that it leads to a bankruptcy in California. I think that's likely the only path that will lead to some badly needed replacements in the team of loonies up in Sacremento.

But think about the message that “we, the people” have just sent Sacremento. We've said “give us all those expensive benefits and programs”, but “we don't want to pay for them”. Rather a juvenile pair of messages, wouldn't you say?

Which is why I sometimes despair about the long term viability of democracy. Armed anarchy sometimes seems like an attractive alternative...

Credit Crisis, Explained...

Reader Peter M. (in Estonia!) sends along this excellent visualization about the causes of the current credit crisis:


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

The Banking Crisis, Explained...

Don't understand the recent banking crisis? Here it is, explained in a single, very easy-to-understand graphic.

Video Explanations...

A few days ago, a well-done video was posted up on YouTube explaining the origins of the current financial crisis. The video paid particular attention to the role of Congress in first mandating mortgages for non-creditworthy home buyers (they didn't call it this, of course – but that's what it was), and secondly in refusing to impose restrictions or even oversight when things started to go awry nearly ten years ago. Instead they did the opposite, mandating more of these “dodgy debts” – featuring new provisions even dodgier than the old ones (that's where things like the 120%, no down payment, no document mortgages came from).

I didn't bother linking the video because it had gone viral – every major blog (on both sides of the issue) was carrying it. But yesterday the video was pulled, ostensibly because of copyright violations (something not often encountered in political ads). Many who oppose Obama suspect foul play, or at least dirty tricks. Meanwhile, the video (slightly modified) is still available here – if you're one of the 14 people and 33 monkeys who haven't already seen it, do watch it...