Cashless and Cash Only Stores

Neither of these makes a lot of sense to me and the Philadelphia area has both, though the cashless stores are now illegal in Philly proper.

I get that cash is a source of loss (via employee theft) for businesses and that credit card service fees can be crippling, but to completely shut out potential customers by requiring only one or the other just doesn't make sense.  I try to leave tips in cash (since some restaurants take the fees out of the tip otherwise), and when I'm dealing with smaller businesses (like my local deli) I try to use cash to save them the fees. When I'm going out to a nicer restaurant, on the other hand, and the bill is going to be in the $50 per person, I want to use my card--in large part because I don't generally have or want to have that much cash on me. 

Creekside Co-op Fails

My local cooperative grocery just closed its doors.  There have been issues from the start, and it's hard to say what exactly was the nail in the coffin, but in my opinion it was a combination of the meat/seafood and the organic emphasis.  The former is easy enough to outline but hard to fix: the meat, poultry and seafood were very limited and too expensive, and some of that is tough to manage at a smaller store, but there's a small butcher near me that has excellent selection and prices, so I suspect that it had a lot to do with the other issue: there was an insistence by the founding members that this store be heavy on the organic, local, smaller farm sourced...everything. 

In some areas this was nice: they always had a better selection of apples than any big chain grocery store around here (including Wegmans), and the ones that were not organic labeled were priced well.  In fact, I greatly preferred getting produce there, and consequently that was one of the main things we would get.  They also had excellent milk (including raw and goat) and other dairy products (though not really cheeses) from nearby dairies, and now I'm going to need to go out of my way to get something decent.  There was a really good local ice cream that I've never seen anywhere else (will need to check other co-ops maybe), and some of the bread/bakery goods were great, though I don't think specific to them and kinda pricey but we don't eat too much bread.  Their prepared foods were good, and the store cooked meats in the deli were some of the best I've ever had (roast beef and roast pork in particular). 

Then there was the antibiotic free, humanely raised or something chicken.  One [small] rotisserie chicken: $12 (maybe $15). A--likely significantly bigger--one from Costco: $5 (and ~$7 at most big groceries).  Sure there are people who can afford and are willing to shell out more for less because it is [ostensibly] better (for the chicken, maybe the planet), but most people don't care enough and maybe can't really afford to care that much. 

I'm perfectly willing to admit that meat products are generally too cheap and we consequently eat too much meat, but if you're 2x the price of the other grocers then you're not going to lure people away.  A 10% price premium can probably work, maybe 20% on select items, but those chickens were effectively 3-5x the price at Costco, and that's a big ask.  The other meat/seafood options were not as extreme, but still too high priced, and too poor of a selection for us to get anything there.  Even if meat was the only thing we didn't get there that still probably accounts for nearly 50% of our grocery spending, but that wasn't all.  We use a lot of dried beans, and the selection at the coop was just way too limited (and, again, often organic).  We also use canned/frozen veggies that were either not available or only available from some small producer at 2-3x the price. 

It's a nice idea to feature smaller producers and locally sourced items but if it's difficult for people to get a standard set of groceries for a comparable price to the bigger stores, it's not going to work. 

Sounds Good to Me

I'm not sure I agree about the $20 but yes, the main use of the $100 and $50 bills are illegal (tax evasion and illicit purchases/sales).  So drop them.  Of course if we're going to start changing up our money system we should also drop the $1 bill in favor of $1 coins and start minting $2 coins, drop the useless penny and really drop the almost as useless (and also money losing) nickel (note the only multiples of 5 cents that can't be made without a nickel are $0.05 and $0.15).

A part I thought was interesting that I would guess most people aren't aware of was when Rogoff said:

The tax evaders are at the upper part of the income distribution. Payment recipients, like cleaners, don’t owe taxes. And if they’re paid under the table, then when they reach retirement age and try to get their Social Security, there isn't any.

The general understanding of immigrants taking jobs, being paid under the table and not paying into the system is really a case of employers cheating the tax system.  Bringing undocumented immigrants out of the shadows, will help prevent this possibility.  I would guess that it would do a better job than abolishing the $100 and $50 would.

Incidentally after that statement the next back and forth was somewhat nonsensical (going from 2% to 4% inflation target would confuse people but negative interest is perfectly sensible?!?).  I think both issues would actually be solved by NGDP level targeting (say 5%) that doesn't have the inflation only "confusion" (which is really banker hysteria) or the goofiness of negative interest.

Poor vs. Wealthier, College Degree Edition

I have a feeling this is a network effect.  Basically: wealthier people who get college degrees have a better network to plug into via family/family friends than do poorer people.  This makes it easier to get jobs straight out of college, and that makes a big difference down the road (promotions, experience...).  A college degree is nice, but it doesn't by itself get you a job.  Having better connections helps a lot when it comes to finding work.  The degree is just a check-mark on the resumé (more often required now).

Not Sure That's a Good Thing

Mark Toma links a piece talking about negative interest rates (tl;dr). I don't really care about the headline question but in the conclusion (quoted) they state:

The bottom line: international experience suggests that negative interest rates...will become a permanent part of the monetary policy toolkit. If that’s right, we need not worry quite so much whether a 2% inflation target is too low. [my bold]

That last part bothers me a lot.  From an economics standpoint the main reason that a 2% inflation target is too low may be that it does not allow enough room for monetary accommodation in the face of severe shocks.  The ability to use negative rates does, in fact, ameliorate that somewhat.  From a human welfare perspective, however, that makes things worse because it will allow very low inflation to no longer be seen as much as a problem.  Higher inflation (not 10%+ but more like 4.5%) has benefits beyond central bank monetary concerns.

The two big things are: it shrinks the value of debts, and (related) it encourages growth to outrun it.  If we can look forward to 4% inflation then that means any debt we take on today is smaller.  This means that student loans are not as daunting, and that a large mortgage will become more managable (it also encourages buying over renting, which, when not overdone, is a huge part of our potential economy).  It also means that businesses have a strong financial incentive to grow and build today: debt is better taken today than tomorrow, and even for debt free businesses, their giant piles of cash losing value at 4%/year doesn't look so good and should therefore be invested.

Of course modestly higher inflation does hurt one group of people: bankers/finance types.  Because of that, it's likely off the table anyway, but this reasoning will make whatever chance a higher inflation target had vanish.  That's not a good thing for our economy.

Capitalism Values

I feel like I'm the only person whose mind boggles that Apple is the highest valued company in the world (and by a huge margin). Apple is a gadget company.  They make toys.  They do innovate, but not really all that much when compared with the research done by companies in medical (incl. pharma) and energy markets.  At some level they don't even make their products, they just design them; a Chinese factory makes them, and Apple gets all the profit.

Their high valuation comes not because they make great products that enhance human welfare--everything they make is made by other companies, sometimes (often?) better, and almost always cheaper--but because their product market is massive (pretty much everyone on the globe), and they are able to sell those products with much higher profit margins than any of their competitors.  Buying an Apple product is like buying any luxury good: you spend a lot more money for something that isn't measurably better but that has the proper logo on it.  It's arguably worse since many luxury goods are measurably better than the non-luxury alternatives, whether that is nicer materials or better construction, or simply, somehow more (think houses or boats).

This isn't saying Apple is bad (it isn't) or people are stupid (we are but this isn't really a great example), but rather that capitalism values making money, and Apple is better at that than anyone else.

Most other large companies require huge capital investments to get going--oil companies need rigs, labs, land access, mineral rights..., pharma companies need lots of expensive laboratory equipment, as well as plants for scaling up.  Apple doesn't.

In most competitive markets the profit margins of products get driven down--Amazon's margins are sometimes negative.  Apple doesn't reduce its margins to gain advantage.

This should serve as a major indictment of capitalism (similar to the unhealthy profits and values of banks and other financial institutions).  I'm not sure why it doesn't, but I'm suspicious that the people most vocal about the "evils of capitalism" also happen to like and use Apple, and so can't see that the company that makes their computer is very representative of the problem.

It seems that if capitalism best served human welfare, then the largest companies would be the most welfare enhancing.  But the most welfare enhancing aspects of [most] societies are actually government run: health care, infrastructure (water, power, transportation), and social welfare programs (anti-poverty, unemployment, retirement) all contribute massively to increasing human welfare, but they are government operated precisely because they are not profitable enterprises which means capitalism wants nothing to do with them.

In reality it is neither capitalism nor socialism but some melding of the two that best serve society, but still, Apple's valuation is mind boggling.

10/28/2015 Update: Looks like Vox is following my blog.  Of course they come off more like fans than seeing this as an strange byproduct of the values of capitalism.

Seriously: Don't Use Brokers

Even before Wolf of Wall Street and now the Furman memo (first at Bloomberg but more fun read is Taibbi's). It was obvious to anyone who paid any attention that managed funds were a bad idea.  Tons of fees and most do worse than the market average (deducting fees even more are worse).  Yesterday's golden boy is tomorrow's goat--past success does not predict future success in finance.

Your best option is and has been to park your money in a couple low cost index funds (exchange traded or not) and then leave it there.  For balance split between total stocks and total bonds.  You can add REIT and international if you feel like it and the ratio of the split(s) should relate to your risk tolerance (more simply: to your age).  That's it.  Anyone who tells you differently is trying to take money from you and pocket it himself (well, maybe herself, but let's be honest: it's probably gonna be a dude).

Yes some people (and maybe you!) can get lucky and pick the right blend of stocks at the right times and make a killing: doing way better than the market.  But 00 may also come up on the roulette wheel, the dealer may not be sitting on 20 with that face card showing, and 7 could get rolled 3x in a row.  If you want to gamble, that's fine, and the stock market is as good a place to do it as any (and more respectable for some odd reason).  If you are just trying to save for retirement the best way possible, on the other hand, gambling isn't the wise choice.  You may hit the financial jackpot, but probably, you're going to be a lot poorer than you would be if you had just stuck with the simple, cheap option.

Game Economics

I read--years ago--an article/document/paper on the economics of the many games out there (like Candy Crush Saga or, my current addiction, Dark Galaxy).  It also dealt with the psychology of the users, and how those who do spend real money in these games do it.  The thing is that most users spend nothing, and quite a few will spend from $1 to $10, but then there are a handful that spend hundreds, and even thousands.  I am willing to purchase a game, but I won't spend anything in-game.  Still I do enjoy some of the free games, but I am occasionally mystified at why anyone would spend real money on them.  Take Dark Galaxy...

In the game you have weapons and ships that you supply allies and mercenaries.  You also have your personal stats (tactics, attributes), and when you battle and complete missions you do better or worse based on these.  If you want to be very powerful you will need to get 100 mercs, and 300 each special "LE" vehicles and weapons.  You will also need to max your tactics.  Mercs, LE items, and extra tactics points can be bought in game with artifacts (arts), and arts can be bought with real money.

But here's the thing: it takes a lot of artifacts to maximize, and artifacts aren't cheap.  $5 gets you 27 artifacts but that will only buy you 1 merc (25 arts).  LE items can cost less than 20 for weak ones on sale, but can also run to 60 arts (and those aren't the most powerful, just the best you can buy...you have to build the top ones).  There are some price breaks but not much ($10 gets you 60, $100 gets you 750).  One particular "Ultimate" LE ship requires 7 60 art ships to construct (ships which can be obtained in-game for the sufficiently dedicated and well equipped).  That would cost a minimum of $60 real dollars to obtain...1 LE ship, leaving 299 ships and 300 weapons to go.  Oh, and one really powerful ship doesn't make a huge difference.  Add to that 100 mercs which will require 2500 arts as they can't be obtained otherwise, and that would run $350.

Now there are in-game available artifacts.  A limited number from missions and extras from tournaments and bosses.  But that waters down the value of those artifacts.  If I can play the game occasionally and pick up a few hundred arts (which would cost $50 to buy) why would I purchase?  When it isn't hard to see how expensive using cash is why does anyone do it?  It's basically flushing money down the toilet.  It doesn't give much advantage unless you spend hundreds or thousands, and the game isn't nearly that entertaining.

I find most "free" games with in-game purchases to be similarly worthless.  You get so little for the $ you put in, that I feel ripped off for the people who do buy (and I know people do).  In most games the money you spend essentially buys you time: you don't have to wait for recharges or things to finish.  But for games like these, I appreciate the time.  It's a built in "you're done playing now" point; "go do something else" (like loading up another game).

Mostly, however, games like this seem to me to be further proof that we are not rational actors when it comes to how we spend money.  If we were then companies relying on in-game income like this would all be bankrupt.

What is "Self-Made"

A lot of the income inequality/mobility discussion has, as part of its background the fact that most of the really wealthy are "self-made" which, as far as I can tell, means they didn't inherit their great wealth.  But there's a problem with that fact: it doesn't count leg-up wealth.  Mitt Romney is a good example.  Everyone knows he was born to wealth and opportunity, but his current wealth is "self-made".  Sure he inherited (or would have, not sure on the timing) lots of $$, but he has made quite a bit more.

Even Bill Gates, who most people see as an innovator and self made man, had pretty well off parents.  The children of wealthy people have advantages that others don't, even without looking at some big inheritance/gift.  They can afford to take more risks and chances than most people, because if they fail, they won't be destitute.  Bush Jr. failed at every enterprise he ever attempted and he was gifted the presidency thanks to daddy's little supreme court justices!

That America has lots of "self-made" extraordinarily wealthy individuals is not a testament to America as a land of extraordinary opportunity unless rich, middle class, and poor alike all have the same chance of making it.

83% Out of $1 Billion Bracket...After Game 1

So 83% of people in the billion $ bracket picked Ohio State over Dayton, and are now marred.  As one of the 16% who picked Dayton, I'd brag, but chances are very good that I will miss a game by the end of today (if not the end of this afternoon) and almost certain that I will have at least one miss before the second round finishes.

Still, it is fun to fantasize about what I'd do with the money.  As I've said before, mostly, I'd give it away.  I don't have any use for that much money, but it would be nice to be debt free and to get all the work done on my house that I want, and some new furniture.  ...Also a Tesla.

Free Money For Everyone

Sounds crazy but it would work.  Since it's really no less likely than fiscal stimulus (infrastructure spending please) pushing for it is not a bad idea.

Income Mobility

Since the news came out that income mobility in this country, while crappy, has actually been pretty bad for a while, there's been some changing to the inequality debate.  Mostly not in a good direction.  It shouldn't need to be pointed out that mobility and inequality are very different issues.  It is possible to have very high mobility with simply insane inequality.  Imagine a country where the .01% owned 99% of the wealth, and everyone else was pretty much equal.  There could be a lot of mobility (it could be very easy for someone to move from the 10th to the 85th percentile if it only took an extra 20% of income to get there), but that level of inequality is still a major problem.

So these are two different issues and should be addressed as such.  It's great if people have the same chance as ever of making it to the top tier in this country, but it is pretty disgusting for that top tier to be so far separated from normal people (even upper middle class) as they are.  Two separate issues.  Not really even linked.

Not Doing it Right

I like coins, and keep a lazy person's collection (those I've gotten as change and think are cool), so at some level I'd be a little stoked to see a brown nickel (I'm guessing copper).  Really though, we should kill the nickel (along with the penny), up production of $1 coins and add $2 coins.

Interesting Historical Note

England had, for a brief period of time, something much resembling a basic guaranteed income.  It seems like it worked quite well, though it had some issues--mostly to do with how it was implemented, though other marginal ones as well.  It was then and is now the moralistic argument against this that seems to resonate strongest and it is one that isn't easy to push back against rhetorically--experience, on the other hand pushes back nicely, but people like anecdotes over data and you can always find the anecdote that proves your side right.

I Hate CNN Money

Their personal finance is slanted so heavily to advice for people in much better shape than the general populace that I get pissed every time I read anything on it (which is very rarely).  This article on advice to a couple wanting to retire early is a fair example.  The couple sounds like a normal couple--early 40s, middle class jobs, couple kids--but they have $50k cash (seems like ~$150k in other investment), a $2000 monthly surplus and pensions (pensions!).  These are people who don't need advice.  They are so far ahead of the curve that most people should be asking them.  They don't have financial problems.

Most of the advice is fine, so far as it goes, though I'm a bit disgusted with the idea that anyone would think that $300k set aside to send kids to college was reasonable (actually, there's at least a fair chance the adviser doesn't find it reasonable, just necessary, but since they thought publishing advice to people who don't need it was a good idea, I'm not so generous here).

So few people in this country have pensions, that giving this couple advice in the personal finance section of Money is kind of like giving a millionaire advice: even if it's good, it doesn't really help real people.  If they really wanted to help out people then they would advise people in their mid-to-late 50s without pensions, with $80k in 401k's, and with $200k+ left on a mortgage, or people in their 20's and 30's with $60k of student loan debt, no assets, and income of $30k/year.  There's a lot more of them, and they need a lot of help.

...I suppose that, if I'm going to be fair, a fair chunk of readers of that site have a level of financial security more like the one in the article.

Asked and Answered...Well, Kinda

Also, preemptively.  So I admitted some confusion regarding people (anyone, really) purchasing luxury goods.  I still think that it is a broadly stupid thing to do--even for wealthy people--but there is a logic presented in this piece to poor people buying expensive [designer] goods that makes sense.  I don't really like that it makes sense.

Student Loans

I still think the Federal Reserve should use its awesome power to buy up all the student loan debt and make it go *poof*.  More money for mostly younger people who will tend to spend it, or maybe take the chance to strike out on their own.  Right now, it may mean extra presents for the holidays.

Amazon

I have actually wanted to get some Amazon.com stock for some time, but I really, really can't figure out it's price point so I haven't (current P/E is 1200!).  It is a scary company in a lot of ways but there are not many things that I don't look there first when I want to buy, and in most cases: that's where I do buy.  I really like that they exist, but they are a danger to lots of businesses in ways Apple and maybe even Google never will be.

Kinda Obvious, Really

I'll bet most rich people reading the article in the NY Times nod and think it doesn't apply to them, but rich people do care less.  I wonder, however, which way the cause and effect goes.  Is it that becoming rich induces people to care less or is it that people who care less are more likely to become rich?  I can see either, but the latter makes pretty good sense.  It is easier to become rich if you don't care about others.

I Get Calls

I have contributed to various [progressive] campaigns in the past, and so that puts me on some list that leads to me getting harassed (often at work by people who force me to hang up on them if I want to get off the line) by groups and campaigns looking for money.  I get that, and that's fine.  My problem is with their pitch.  It is almost always about how bad the Republicans are or some horrible thing that some person or group within the GOP is trying to do.

I understand why that works for many people, but I've been around (and paying attention) long enough to know that it's kind of a bait and switch: they are so horrible, that our less horrible behavior seems acceptable by comparison.  If they called up and told me about great things that [Democrats] will do then I may give them some time (and money) to do those things.  So long as the only thing they claim to stand for is anti-GOP extremism, then they can go take a flying leap. 

Some Reps and Senators (Alan Greyson is an excellent example) are doing good things and "fighting the good fight" but too many others--up to and including Obama--just pay lip service to those good things while fighting for things that Wall Street and the Military Industrial Complex want.