Guest post #2 at Get Rich Slowly

Back in July I got a note from J.D. Roth, who was lining up some guest posts to run on Get Rich Slowly while he and his wife were on vacation in France and Italy. I was pleased to be asked once again, and wrote a piece that I ended up being rather pleased with. . . .

Back in July I got a note from J.D. Roth, who was lining up some guest posts to run on Get Rich Slowly while he and his wife were on vacation in France and Italy. I was pleased to be asked once again, and wrote a piece that I ended up being rather pleased with. It went live this morning: Why Now is the Time to Think Long-Term. (Spoiler alert: low interest rates are the reason that now is the time to think long-term.)

About twenty-five years ago (as an example of long-term thinking), I had a whimsical investment idea: Buy some cheap land and plant hardwood trees. The trees wouldn’t be ready to harvest for 100 years or so, but it would have been a cheap investment with (eventually) a fairly large payoff.

It takes a certain perspective to make such a long-term investment. I call it a whimsical idea because I’d never have been able to enjoy the financial return. I was already in my mid-20s at the time. Even if I’d selected the hardwoods for quick maturity, they wouldn’t have been ready until I was well into my 90s.

It’s a topic I’ve been aware of since the early 1980s, when very high interest rates produced a spate of very short-term thinking. (In particular, my dad’s publisher tried to weasel out of a book contract, because it seemed more profitable to invest their money in the money market at a guaranteed 14% than to invest it in a book that might not make so much.)

When rates are high, it doesn’t make any economic sense to think long-term. But when rates are low, long-term projects are suddenly reasonable. Since just now rates are at multi-generational lows, Now is the Time to Think Long-Term.

Financial disaster stories—mortgage crisis

I always enjoy James Howard Kunstler’s rants, and the recent revelation of sloppy bank record-keeping gives him a good jumping-off point.

It’s true that this rather seems to be a third strike by the banks. First, they lent money to people without regard to whether the borrower would be able to make the payments. Second . . . .

I always enjoy James Howard Kunstler’s rants, and the recent revelation of sloppy bank record-keeping gives him a good jumping-off point.

It’s true that this rather seems to be a third strike by the banks. First, they lent money to people without regard to whether the borrower would be able to make the payments. Second, they made loans on houses that were wildly overpriced thanks to the housing bubble. And now, strike three, it turns out they did such a poor job of record-keeping that they may not be able to prove that they own the mortgage on the house!

The value of those mortgages was already somewhat doubtful, given that the banks only option was to foreclose and sell the house for a fraction of its bubble-inflated value. But if their bad record-keeping means that they can’t even foreclose, maybe the paper is worth zero. If the paper is worth zero, Kunstler figures the results will be dire:

With fraud absolutely everywhere in our banking system, like some advanced metastatic cancer, financial metabolism comes to a sickening stop. Nobody can buy or sell property. Nobody can trust any American financial institution. Money can’t circulate. Nobody will be able to get any money.

Personally, I doubt if most of the records are really lost. If the banks are willing to spend the money—hire a bunch of researchers, archivists, and paralegals along with some secretaries and assistents—I expect they can prove most of the mortgages. But it’d be expensive.

My hope is that this will mean, finally, that the banks will have a real incentive to do what they should have been doing right along—renegotiate the mortgages, writing the value of the mortgage down to something under the fair market value of the house, and the interest rate down to current market rates. If they keep proper records of these new mortgages, they can sweep the problem of the old, sloppy records under the carpet.

So, I’m rather more optimistic than Kunstler on this issue. In fact, I think it just might save us.

Retirement, health insurance, financial institutions up at Currency site

Currency, a new personal finance site sponsored by American Express, has just gone live with several articles by me. . . . .

Currency, a new personal finance site sponsored by American Express, has just gone live with several articles by me.

On retirement

The main article is How Much Money Will You Need to Retire?

It appears along with sidebars:

On health insurance

The main article is How Freelancers Can Budget for Health Insurance.

It appears along with sidebars:

On financial institutions

The main article is Should You Put Your Money in an Alternative Financial Institution?

It appears along with sidebars:

You may have noticed my posting on Wise Bread was a bit sparse lately. Part of the reason is that I was writing all of those. Enjoy!

Failure to deliver possession

Around here, most leases have a “failure to deliver possession” clause that says that, if the landlord can’t deliver the apartment at the start of the lease, you don’t have to pay the rent until he does. That seems superficially reasonable, so lots of people sign leases with that clause. Especially lots of students.

What the students don’t understand is that, without that clause, the landlord would be responsible for paying the damages that result from the landlord not honoring the lease. (Typically, the cost of a hotel room and storage fees for your stuff. Also extra money to your movers, since they probably charge extra to unload your stuff into storage, and then load it back up to deliver it when your apartment is finally ready.) Instead, with the clause, the student is just out in the cold—no place to live, no place to store their stuff—for an indefinite amount of time. Plus, they can’t just go find another place to live, because they’ve signed a lease. Once their landlord delivers the keys, they have to start paying the rent.

This is not something that I would have worried about when I was a student. In fact, I was shocked and appalled the first time I heard about a whole apartment building that was supposed to be finished in time for students to move in August 1st, but was still unavailable the day the dorms opened in late August. (The most common version of this clause in contracts around here does give the renter the right to cancel the whole lease if their apartment isn’t available after 30 days. Maybe that’s required by state law, or maybe it’s just that judges found it unconscionable to try to hold a renter to a lease for an apartment that can’t be made available even several weeks late. In any case, it’s kind of meager comfort since all the good and cheap places to live will have been long ago rented out by the time it’s safe for you to sign another lease.)

Over the years, though, I’ve gotten kind of inured to it. It happens year after year. Especially in years that a big new apartment building goes up, the newspapers have a bunch of stories in late August with sad and angry quotes from frustrated students with no place to live. I almost begin to hold it against the students, for being so foolish as to sign such a one-sided lease. And then I remember how surprised I was the first time the real effect of that clause was explained to me. I remember realizing that I could easily have been caught in the same error. Even six or seven years out of college, I didn’t know the ins and outs of that clause. How could the students know? (Actually, I kept a dorm room right through college, partially because I knew that I didn’t want to try to deal with all that stuff.)

I wish I knew a way to prevent this problem. The two obvious ways have both already failed:

  • Education doesn’t work, because there’s simply too many things that someone who’s trying to set up housekeeping for the first time needs to know. The evidence shows that this particular one falls through the cracks. (The local Tenant Union has been warning about this issue forever.)
  • Reasonable rules don’t work, because there are reasonable rules, except that the rules permit the parties to agree to waive them.

I guess what we need are rules that can’t be waived (or, at least, can’t be completely waved) in the lease. But that’s always fraught. Some people really don’t need the protection—local students who can easily enough wait another few weeks to move out of their parents’ house, for example. And the landlords are already taking a risk by investing in constructing a new apartment building. Layering it up with the risk that a minor construction delay could force them to cancel dozens of leases may be asking too much.

But I’m sure that the current scheme is bad. I see the bad results in the newspaper year after year.

Making doom funny

In my review of Dmitry Orlov’s book Reinventing Collapse, I talk a bit about how everyone says that the book is funny, but no one ever quotes the funny bits. There’s a reason: The humor sneaks up on you, building on previous bits. All the really funny bits are only funny if you’ve read up to them.

For those of you who want to read something really funny about peak oil, but were unconvinced that such humor was worth shelling out the cost of a book (or taking the time to read it), there is now an alternative: Dmitry Orlov’s latest article at Culture Change, Peak Oil is History.

Once again, it’s tough to quote a sentence or a paragraph that’s funny, but that’s okay: Just click on over and read the article. It’s free, and it’s much shorter than a book.

Whether you’re one of the people who understood peak oil some years ago or one of the people who just figured it out, Orlov wants to make sure that you understand that the reality of life on the declining side of the oil production curve won’t look like the mathematically smooth logistic function that’s usually displayed. Rather, it will look something like the front side of the curve, with spikes and dips that map to wars and recessions and other catastrophes. Further, he wants to make sure that you know those little jerks up and down—especially the jerks down—matter to you.

It would be theoretically possible to ride the downward curve of oil production in a fashion that would look like the reverse of riding it up. In fact, if we’d spent the thirty years since Jimmy Carter warned that our “intolerable dependence on foreign oil threatens our economic independence and the very security of our nation” preparing to do so—improving our rail infrastructure, switching to wind and solar energy, and generally becoming much more efficient—we’d be in a position to do that pretty comfortably.

In practice, though, things are going to suck.

Things will, however, suck rather differently than people expect—which is Orlov’s point. People expect that the rich will go on much as they have, while the poor will get squeezed by high prices—and there will be plenty of that. But after laying out the reasons why it won’t work that way, Orlov concludes by saying, “it becomes difficult to imagine that global oil production could gently waft down from lofty heights in a graceful smooth and continuous curve spanning decades. Rather, the picture that presents itself is one of stepwise declines happening in more and more places, and eventually encompassing the entire planet.” A stepwise decline that quickly results in even rich people having “no access to transportation fuels and severely restricted transportation options.”

Orlov makes doom just about as funny as possible, perhaps even a little funnier.

Immigrants not competition for jobs?

Cardiff de Alejo Garcia links to a paper by economists Gianmarco IP Ottaviano and Giovanni Peri that tries to make the case that, because US and foreign-born workers choose different occupations, they’re really not competing for the same jobs. (The paper itself is behind a paywall.)

The main thrust of the argument seems to be this:

Certain jobs get lots of foreign-born workers while others get almost exclusively US workers (tailors 54% foreign-born, crane operators 1% foreign-born). Because of this, more foreign workers won’t increase unemployment, because the foreigners would just be competing with other foreigners for those jobs. Further, more foreign workers won’t even decrease US wages, because even another thousand tailors won’t put any pressure on wages for crane operators.

No doubt my own experience as a software engineer colors my perceptions (computer engineers are 33% foreign-born), but I’m unconvinced.

For one thing, these sorts of pressures occur at the margin. Even a modest number of workers (of any nationality) willing to work for less, will have the effect of holding down wages for everyone else.

For another, there is indirect pressure. Even if a Chinese cook doesn’t compete with a US cook for a job at a diner, another thousand of them will hold down wages for Chinese cooks. That will result in lower costs for Chinese restaurants, which do compete with diners. That puts pressure on diners to hold down their costs—including wages for cooks.

Finally, people’s job and career decisions aren’t static in the face of these pressures. Perhaps few software engineers decided to become lawyers (only 4% foreign-born), but a great number of software engineers have moved on to doing something different. Each one who does so is now competing in that new field, potentially holding down wages over there.

Of course, outsourcing production overseas has had at least as strong an impact on employment and salary levels as immigration has. I’m just glad that I figured out early that I would shortly be competing with someone who could live a middle-class lifestyle on $6000 a year. That gave me a few years to take the necessary steps to arrange my life otherwise.

Responsibility for oil spills

I’m as outraged as anyone at the incompetence that led to the Deepwater Horizon oil spill in the gulf: both the slipshod regulation by the government and the incompetence and criminality of BP, Transocean, and Halliburton. I wouldn’t mind one bit if all three companies were broken by cleanup costs, restitution to injured parties, and civil and criminal penalties. But I’m a bit sad to see all the blame being laid at their doorstep.

The fact is, spills like this are an entirely predictable result of consuming 85 million barrels of oil per day. If you consume that much, you have to produce that much. And if you produce that much, you will have accidents. Some of the accidents will kill people. Some will contaminate huge swaths of the ocean.

Sure, BP et al deserve much of the blame. But there’s plenty of blame to go around. A good share of it belongs to every one of us who drives a car, heats their home, or buys anything made out of plastic.

What did you think was going to happen?

Backyard Chickens in Champaign

Backyard Chickens
Chickens at Creque Dam Farm in St. Croix

When I was looking for a house a few years ago, I only looked in Urbana. The main reason was that Champaign prohibits residents from keeping chickens, while Urbana allows it. As you can imagine, I was delighted to learn that the topic of legalizing chickens has come before the Champaign City Council.

I know a little about what it’s like to have chickens in the yard, from one summer when my parents got a flock of chicks and raised them up to fryer size. We didn’t keep them for eggs, but they were around for several months, and I was never bothered by noise, smell, or any of the other problems that backyard chickens are supposed to bring.

I’ve had eggs from free-range chickens—real free-range chickens, not the mockery of free-range allowed under USDA regulations. They’re not just better; they’re so much better as to not even be the same thing.

So, I’ve written to my city council representatives:

I was very pleased to see in the local paper that the topic of changing the law to allow Champaign residents to keep chickens has come before the council. I urge you to support this change.

One of the most important changes we need to make Champaign a more sustainable community is to stop viewing the household purely as a center of consumption: it needs to become a center of production as well. Allowing residents to raise chickens is a step in the right direction.

Many communities (including Urbana) allow residents to raise a modest number of chickens in their backyard. With a few sensible restrictions (no roosters, adequate space for each bird), there’s no reason that chickens can’t be kept in an ordinary backyard without adversely impacting neighbors.

I urge you to support such a change in the law.

The picture that illustrates this post was taken at the Virgin Islands Sustainable Farming Institute’s Creque Dam Farm, which I visited in August of 2008 and about which I wrote a piece for Wise Bread: Learn Techniques for Sustainable Living. I’d earlier written a piece for them on backyard chickens called Real Eggs.

Update to add: I got a quick response from Thomas Bruno, one of the at-large city council members. He described the process for getting an item considered by the city council and adds:

Get a science teacher involved or a scout troop and your chances of success will skyrocket.

So, I guess my next step is to get in touch with some of the other people mentioned in the article as pushing for a change in the law, and see if anyone knows a science teacher or a scoutmaster.

Second update: I found and linked to a great article on how to get your town to legalize backyard chickens.

Daniel Akst on thrift, sexiness, and Jack Benny

In his article Saving Yourself [Note: article is now behind a paywall] Daniel Akst buries at the end a particularly good statement of the central point I try to make in my personal finance writing:

Thrift is thus a way to redeem yourself not just from the unsexy bondage of indebtedness but also from subjugation to people and efforts that are meaningless to you, or worse. Debt means staying in a pointless job, failing to support needy people or worthwhile causes, accepting the strings that come with dependence, and gritting your teeth when your boss asks you to do something unethical instead of saying “drop dead”. Ultimately, thrift delivers not just freedom but salvation—which makes it a bargain even Jack Benny could love.

To get there, though, he takes you on a wonderful journey through the American history of thrift, from Jack Benny to the Puritans and back again, with a couple of side trips to Sexyland.

Kind mentions from Lifehacker and Planet Green!

My Wise Bread post Buy Your Groceries European-Style picked up mentions at both the Discovery Channel’s Planet Green and Lifehacker.

Jason Fitzpatrick had kind words for my post in his piece Shop European-Style for Fresher, Cheaper Food.

Lloyd Alter was especially generous, saying (in a green-living piece subtitled “I thought I was a lonely failure as a frugalista, but I am not“):

I thought we were pretty much along among the frugal living types to do this. However, one of my favourite writers on frugal living, Philip Brewer at Wisebread, agrees…

Thanks guys!