Category Archives: Business

Coronavirus economic stimulus may lead to high inflation

This time central banks have responded to the Coronavirus by injecting trillions of dollars into their economies, which could generate Demand-Pull Inflation because “too many dollars will be chasing too few goods.”

Source: Desperate Actions Can Lead to Desperate Consequences, Including a Debt Spiral | Nasdaq

This is my concern too – the problem right now is that goods are not being manufactured and services are not being delivered as much of the economy is shut down by government mandate.

Throwing more money into this encourages people to purchase goods that are now in scarce or limited supply, thereby driving up their prices.

Plus, where is the cash coming from? I have not looked into that. But if we are just printing money (or the electronic equivalent of printing money), we are devaluing the dollar – which is the same thing as inflation.

If this is the case, then you want to own real things as cash will go down in value. A $100 thingie now will sell for $110 after 10% inflation. But $100 of cash now will be worth the equivalent of about $90 after 10% inflation.

Disease: Good summary of coronavirus COVID-19 situation

Summarizes possible impacts to the U.S. and economic issues. CDC is planning for possible school and business closure mandates, summer Olympics could be canceled, and hoping the disease, like many, subsides during warm summer conditions.

The total number of COVID-19 cases climbed above 80,200 as of Tuesday with deaths climbing to at least 2,704.

Source: Coronavirus live updates: US confirms 53 cases, CDC outlines pandemic planning

U.S. firms discouraging or prohibiting travel by employees to affected areas now including China, Italy, South Korea and southeast Asia including Australia.

Quality Control: “Boeing finds debris in wing fuel tanks of undelivered 737 MAXs”

It’s also unknown if anyone will be willing to fly on a Boeing 737 MAX:

Regarding the additional 385 MAXs that were delivered to customers but have been grounded for almost a year and are parked at airfields around the world, company spokesman Bernard Choi said Boeing is recommending inspections for those airplanes that have been in storage for more than a year. “It’s still undecided if we will inspect the rest” of the delivered MAX fleet, he added. “Obviously, we’ll do what’s right for safety.”

Source: Boeing finds debris in wing fuel tanks of undelivered 737 MAXs, orders inspections | The Seattle Times

No idea what someone was thinking with that last quote – “it’s still undecided if we will inspect the rest“. When you are in a hole, stop digging. That decision ought to be obvious.

Economics: When there is no scarcity

This is a though provoking video: Economics theory is based on the idea that wants (demand) exceeds supply. Stated another way, we tend to want more than we can afford – we do not have the resources to acquire everything we may desire. But today we are, for a great many, and for many of life’s necessities, living in a post scarcity world. Once we have fulfilled our basic “wants” we have the luxury of being tricked by marketing into wanting even more (basically, a fake want designed to increase demand).

Maslov’s Hierarchy of Needs tries to explain human motivation in terms of fulfilling the basics, like food and water, first, at the bottom of his pyramid. Above that we seek shelter and safety, then peer support, self esteem and finally self actualization.

The reality of life today is that life is actually quite good – compared to the past. (Poverty is at a global low point, for example. Literacy is at a historical high point, and so on, in spite of the daily dose of fear mongering news media.) In effect, for most people, the goods and services of daily life are not scarce. We enter a world of post-scarcity economics for much of our daily needs.

Most people (yes, there are definitely exceptions) in modern economies have fulfilled the bottom 3 tiers of the Hierarchy of Needs. At this point, our wants become warped. Few people need digital watches (to quote Douglas Adam’s comments about the 1970s) – or for that matter smart phones or any number of other goods and services.

Since we do not really need a lot of “stuff”, marketing tricks us in to wanting things we don’t need. So we acquire more.[1] Because many of our basic wants are satisfied, we create new “wants”. Some “wants” are not goods or services – we have the luxury of time so we build ourselves up (top of the pyramid) by running marathons and ultramarathons or spending time at the gym or the hair salon to look good.

At some point, many people are persuaded to want things they cannot afford today – so lenders step into loan money to acquire stuff (you probably don’t really need). This can be loans for cars, homes, or consumer loans for vacations and home improvement, or accumulation of credit card debt to acquire “stuff” we believe improves our self-esteem (catching up or exceeding those in our peer group). As satirist JP Sears says, “Tesla – pretend to save the environment while looking rich” 🙂

Eventually, our loan payments cause us to cut back on spending on other things. As collective debt loads become too high, economic activity slows down and we enter a recession.

Post scarcity economics means we have the means to be persuaded (by marketing) to acquire stuff we probably don’t need and a ready supply of lenders to enable us to buy it today (versus saving our money).

A small observation: When we choose to purchase an item X, it is not so much a decision to buy X as it is a decision that we are not going to buy Y (and A, B and C too!) Few people think of purchase decisions this way though. But we should be asking ourselves, if I buy X, what product Y am I choosing not to buy? If we did this, we’d balance our spending – and wants – a lot better.

We see this effect at work in government spending. Legislators are constantly asked to spend more money on government programs (let’s call them X). But seldom is anyone simultaneously suggesting what projects (call them Y) we should not be funding in order to fund X. The solution is to buy X – and Y – and just borrow more money.

Keep this in mind the next time you “want” something (X) and ask yourself, what will I give up (Y) to buy X? Most people never ask this question and buy stuff they probably cannot afford. Spending decisions are about choosing between things X and Y, but most people view spending decisions as deciding whether to buy X1, X2 and X3.

[1] Getting tricked in to wanting and buying more is made possible by intense surveillance of our lives both on and offline. As Walmart says

“[W]e have a lot of data and we can gather even more data. [I]f you win their most frequently purchased items, you get the opportunity to serve impulse items online and in-store, and our focus is in driving that sweet spot,” he said.

https://www.marketwatch.com/story/walmart-could-run-into-privacy-issues-in-its-efforts-to-get-personal-with-consumers-analysts-say-2020-02-19?mod=home-page

Businesses are using multiple tricks to manipulate you in to wanting more than you need.

Personal finance: “FIRE” doesn’t really mean “retire early”

True:

In truth, “FIRE” should be “FICC” for “financial independence change careers.”

Source: What I learned about the FIRE movement while making a doc about it

I have followed several “FIRE” blogs from people who save aggressively (generally a good thing) and “retire” at 30 or 40. I admire them for practicing frugality (something we have practiced too). I am now retired, albeit, at the age when many people have retired (old dude, ok?)

I too noticed that most FIRE practitioners did not retire, exactly, but often took advantage of their near financial independence to work independently, on their own schedule – instead of the usual corporate rat race. That’s not  bad thing either – in fact, it sounds like a great opportunity for many!

But there are some hidden “gotcha” expenses that may be lurking for FIRE adherents in the near future …

Continue reading Personal finance: “FIRE” doesn’t really mean “retire early”

Business: Dumpster divers put their found items up for sale on Amazon, often as “new”

Dumpster divers say it’s easy to list discarded toys, electronics and books on the retailer’s platform, where just about anyone can set up shop. So we decided to try.

Source: You Might Be Buying Trash on Amazon — Literally

Another trick is to sell products that have a “best if used by date”, after that date has come and gone. They likely purchased these items at fire sale prices from legitimate vendors who do not sell expired products. The Amazon consumer, however, has no way if knowing that they are buying a product (think food or even OTC medication) that has expired.

Continue reading Business: Dumpster divers put their found items up for sale on Amazon, often as “new”

Energy: Should you buy carbon offsets, an EV or solar PV to reduce your environmental impact? It depends.

Some people think they should buy carbon offsets to reduce their environmental impact.

Others think that by switching to an EV, they will reduce their CO2-emissions.

And of course, some think that by installing solar PV panels, they will cut their CO2-emissions.

The reality is far more complicated. In some cases, buying an EV may increase your overall lifetime CO2 emissions especially when your electrical utility produces most or all of its electricity by burning coal and other fossil fuels. Similarly, installing solar PV panels when your utility is already 100% greenhouse free will likely increase your lifetime emissions of CO2. How? Because of the GHGs emitted during the solar PV panel manufacturing and installation and ultimately, not offsetting any GHGs because your utility is already GHG emission free.

Most people are oblivious to product’s lifetime GHG emissions, ignoring that for most products, the greatest production of GHG emissions is during the product’s manufacturing.

Continue reading Energy: Should you buy carbon offsets, an EV or solar PV to reduce your environmental impact? It depends.

Transportation: #Drone delivery of consumer packages is mostly hype but does have some specific good use cases

This euphoria is largely based on assumptions that drones inevitably deliver better customer service at lower costs with a better environmental footprint than conventional delivery by a driver in a parcel van. These claims are little more than flights of fancy that cloud a more realistic assessment of the potential for the use of drones in logistics.

For the technology to work in commercial practice, however, the economics must also work.

Source: Commentary: Drone-Delivery Projects Must Look Beyond the Hype – WSJ

The primary value in drone delivery may be

1. Delivering value dense items that need to be delivered quickly. Medicine is the classic example.

2. Very short hop delivery. The USPS is experimenting with drones that launch from your local postal delivery vehicles to carry small packages up to home door steps, rather than having the postal worker have to take time to walk that distant (and deal with loose dogs!)

3. Delivering items to remote customers, not urban customers. When a delivery truck comes through my neighborhood, they commonly stop and deliver packages to multiple homes. This is pretty efficient. But delivering to remote (e.g. farms, ranches) and rural properties is not as efficient.

The dreams promoted by Google, Amazon and UPS of zillions of drones flying miles out from warehouses to drop off low value packages at consumer homes are not realistic at this time.

Increases in student loan availability lead to increases in tuition and fees

Stated another way, the more money poured in to student loan programs, the higher the tuition charged. Tuition goes up because of student loans rather than the view that student loans go up in response to higher tuition.

Consistent with the model, we find that even when universities price-discriminate, a credit expansion will raise tuition paid byall students and not only by those at the federal loan caps because of pecuniary demand externalities. Such pricing externalities are often conjectured in the context of the effects of expanded subprime borrowing on housing prices leading up to the financial crisis, and our study can be seen as complementary evidence in the student loan market.

From: Lucca, D., Nadauld, T., Shen, K. (2015, 2017). Credit supply and the rise in college tuition: Evidence from the expansion in Federal student aid programs. Staff Report no. 733. Federal Reserve Bank of New York.

As the authors note, this is similar to other areas where a third party supply of money causes prices to rise – such as the effect of cheap mortgages causing home prices to rise.

A similar effect occurs in health care where third party “insurance” benefits are an enabler of higher priced health care services.

Whenever the cost of goods are services are subsidized such that their immediate direct costs are lower than the market clearing price, demand for those goods and services will increase. As demand increases relative to supply, the prices charged increase to a new actual and higher market clearing price.

Student loan programs are a major cause of tuition hikes. Cheap mortgages are a major cause of rising home prices. Health “insurance” is a major cause of higher prices charged in health care.