Political Calculations
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February 29, 2008

Carnival Midway from The Jerk Welcome to the Friday, February 29, 2008 edition of On the Moneyed Midways! Each week, OMM reviews the best of the blogosphere's ongoing early social media experiment known as blog carnivals to bring you the best posts we find related to business or money there.

Before we begin this week's edition, we need to get something out of our system....

Die Blog Carnival, die!

Okay, now back to business....

We admit it. We hate Blog Carnival. Here's the three main reasons why we hate it:

  • It's slow and clunky.
  • It's submission form creates the generic text that we've come to absolutely despise: "SUBMITTED NAME presents SUBMITTED POST TITLE posted at BLOG NAME saying SUBMITTED COMMENT."
  • It's utterly obsolete.

Now, the first two items on that list are things that the people behind Blog Carnival could fix if they wanted to, so let's talk about that third reason which explains why they won't: Blog Carnival is obsolete. Once upon a time, Blog Carnival was the only game in town for putting together the early form of social media known as the blog carnival. If you wanted to gather a bunch of recent posts on a related topic together from a bunch of bloggers, the now obsolete Blog Carnival was the 800-pound gorilla on the web that had the tools to do the job.

And then one day, Blog Carnival became utterly obsolete. That was the day that Google's Blog Search became available, which means that all it takes to create something resembling a weekly blog carnival from scratch is a simple search of posts over the past week on a given topic.

Here's an example. Just for fun, we've created what we'll call the "Carnival of Savings." Click here for the latest edition for 2008.

Pretty cool! Not to mention that the content is much better than anything auto-generated by the thoroughly obsolete Blog Carnival. The only weakness of this approach is that it lacks the hand of an editor - someone who can really tell you why reading a particular post might be well worth your scarce time. Speaking of which, here's one of the neater links that came up today when we ran the "Carnival of Savings" search: "Secret" Flights for Better Service and Savings, Peter Greenberg's tips and examples of popular international destinations offered by carriers that you might not have ever predicted would fly the routes!

For an example of why a hand-picked selection of posts can still hold its own in the modern world of the web, just scroll down! The best posts from the best business and money-related blog carnivals edited and posted by humans in the past week await you below....

On the Moneyed Midways for February 29, 2008
Carnival Post Blog Comments
Carnival of Debt Reduction How I Got Out of Consumer Debt: The BUDGET DebtFREE Revolution Ana and her husband are about to make the last payment for their truck, capping off nearly two years of intensively focusing on getting out of debt altogether! Her secret weapon: making and keeping a budget!
Carnival of HR When Incentives Backfire Trusted Advisor Aligning goals and incentives seems like something simple to do, but Charles H. Green explains the potential consequences of not getting them right in The Best Post of the Week, Anywhere!
Carnival of Personal Finance My Sources of Alternative Income and how I Make Them Work for Me My Two Dollars Would you like more income? David describes where he's found opportunities to make extra money beyond his day job by building off the things he knows how to do.
Carnival of Savings "Secret" Flights for Better Service and Savings Peter Greenberg You didn't think we'd leave this entry from our impromptu Google Blog Search-driven "blog carnival" out, did you? ;-)
Carnival of Taxes Want to Get Out of Paying Taxes? Don't Try These Excuses! Fraud Files Tracy Coenan offers a Top Ten list of totally false excuses that will keep you out of trouble with the IRS!
Carnival of the Capitalists What Every Manager can Learn from Barack Obama Great Management Andrew Rondeau isn't endorsing Barack Obama, but he is impressed with the management skills he's demonstrated throughout his campaign to win the nomination to be the Democratic Party's candidate for U.S. President.
Cavalcade of Risk Usually, It's Cheaper to pay than to Go to Court GNIF Brain Blogger JC, MD writes that the costs of litigation are such that it often makes sense for health professionals to settle out of court rather than risk a fight.
Festival of Frugality Slashing Our Budget by 25%: Our Latest Frugal Moves Digerati Life The Silicon Valley Blogger describes how she and her spouse are preparing to go through two or more years of lean times while one launches a startup company while the other leaves the corporate world.
Festival of Stocks Simple Strategies to Inflation Proof a Portfolio! FIRE Finance FIRE Finance describes how Vanguard's Inflation-Protected Securities mutual fund (VIPSX) might be able to deliver outsize returns in a high-inflation economic environment. Absolutely essential reading!
Odysseus Medal (Real Estate) The Art of Rhetoric - and the Rhetoric of Art BloodhoundBlog This week's Odysseus Medal winner is difficult for us to write up since it's actually eight posts (from a series of 13 posts) by Mike Farmer of Bonzai Real Estate Blog describing how Web 2.0 connectivity is affecting the world of real estate professionals. Just go and click each and every link!

Previous Editions

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February 28, 2008

Detroit Mayor Kwame Kilpatrick and Chief of Staff Christine Beatty (AP File Photo) We haven't featured a Geek Logik-derived tool for a while, so we thought the best way to bring it back would be to really turn up the heat in your workplace! Specifically, we're going to help you decide if acting on that hot feeling you're getting from that special someone in your office is such a hot idea.

But first, Geek Logik author Garth Sundem offers this disclaimer:

Official Disclaimer: Hooking up with a coworker leads to nothing but trouble. At best you can hope for an awkward truce; at worst, one or both of you will soon be taking a renewed interest in the Sunday classifieds.

Quick Aside: The photo we're featuring with this post is of Detroit Mayor Kwame Kilpatrick and his former chief-of-staff Christine Beatty, who both recently found out the hard way why the office hookup may not be such a good idea.

For our part, if you go down this road, we can't stop you. But we will laugh at you.

That said, if you're still here, it's obvious that you're weighing the pros and cons of romance in your office. Our tool below will at least give you some idea of the things you ought to consider before going where Garth has warned that you perhaps ought not. Just enter the data that's relevant for your situation below, and we'll see you below the results.

Coworker Chemistry Data
Input Data Values
How hot is your coworker?
(1-10 with 10 being "can fry bacon on backside.")
Level of sexual tension between you.
(1-10 with 10 being "c'mon already!")
Are either of you married?
(No or Yes. There's no in-between.)
Chance that the rest of the office will discover your liaison.
(1-10 with 10 being "neglected to disable security camera; stumbled across incriminating footage on adult Web site")
Chance of getting fired if caught.
(1-10 with 10 being "coworker is boss's debutante daughter.")
How much do you like/need your job?
(1-10 with 10 being "would rather go to work than sit next to Swedish supermodel at 50-yard line of Super Bowl.")


Should You Become Intimate with a Coworker?
Calculated Results Values
Your Office Hookup Index Score
The Bottom Line

In the results above, a Office Hookup Index Score greater than zero would perhaps indicate that it might be okay for you to plunge into the office dating pool. As always, we provide this data point so you can play with the numbers to find out where your boundaries of acceptable conduct might actually be.

Going back to Garth's disclaimer, we're happy to offer the following links that you might find very useful in the future should that index score of yours come out to be greater than zero:

Happy hunting!

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February 27, 2008

Fed Chairman Ben Bernanke: A Guy with a Tough Choice to Make Let's say, for a moment, that you're in charge of the U.S. Federal Reserve. You've just assumed the top job shortly after a significant surge in prices has taken place in the U.S. economy's housing sector, during which home prices across the U.S. increased significantly as the credit needed to buy a home has become much easier for a wider range of people to get.

But now, the apparent bubble that had been driving up housing prices on increased demand has dissipated. In a number of markets, housing prices have begun falling, but too slowly to really reignite demand to establish a new level of relative stability. The banks, mortgagers and other lending and leveraging institutions that enabled the resonance effect that powered the housing bubble are now dealing with properties whose values have fallen below the amount of credit they extended.

The potential losses are staggering. The threat of the expansion of the housing sector's misery into other sectors of the economy is very real, as the financial engines of the U.S. economy are turning to tighten up the supply of credit to protect themselves and their continuing existence.

Realistically, there are only two ways out of this situation. First, you could encourage steps that would be the equivalent of a kind of shock therapy, by which you would risk a prolonged economic recession by accelerating the decline of housing prices. Doing so would first affect those who bought or refinanced their homes during the boom based on the lofty heights at which their homes came to be valued, who would find themselves exposed to the situation of having negative equity.

But worse than that are the banks and other financial institutions and their insurers who would then be on the hook for what would be the largest series of write-offs ever in U.S. history, as the value of their asset portfolios turns into huge losses. The bottom line is that one or more major financial institutions would fail, perhaps turning what might only have be a moderate recession into a severe recession instead.

The bright spot is that you would go through the pain much more quickly. Nobody would be happy with you, but at least the really painful part of the experience would be over with much faster.

Your second option isn't all that pretty either. Rather than wait for housing prices to decline to relative levels where the level of demand would eventually be able to hold them relatively stable with respect to other prices, you could instead raise all the other prices through inflation. That way, housing prices would stabilize at a higher equilibrium, but everything else gets more expensive.

By increasing the rate of monetary inflation in the U.S. economy, you could prevent the imminent failure of major financial institutions. This way, you would at least have protected the major financial institutions whose assets could stay as assets rather than change into huge losses.

The downside of this approach is that there are those who would actually enjoy that kind of pain. These are the people whose status and wealth are built on the ethereal returns of ever-increasing rates of inflation propping up and propelling the value of their assets. Once inflation gets going, they would keep demanding it and use their influence and apparently new-found wealth to push to keep it going.

The worst part of choosing inflation would be that the kind of pain involved would be very drawn out. The pain would start slowly, but as time goes by, large sectors of the U.S. population would really begin to feel it, particularly by those at lower-to-middle income levels and especially those living on fixed incomes as the prices of everyday items keeps going higher and higher.

Allowed to go on for too long, you would end up with the same kind of imbalances and economic nightmare had you chosen the shock therapy approach instead. Only now, lots of people cannot afford anything like their previous standard of living because everything costs so much more.

So which do you do - rip the bandages off quickly or slowly?

The early evidence would seem to indicate that the Fed may well have chosen to take the pain slowly (aka: inflation). With all its "potential benefits" and looming pitfalls.

We'll just have to see again what that pain is like.

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February 26, 2008

As Deer in the Headlights, So Are the Congressional Leaders of Our Lives.... We've weighed in several times now on the lack of quality leadership that characterizes the current U.S. Congress, so we thought we'd take this opportunity to consider an instance where the law-making body appears to have gotten their act together.

Back on Tuesday, 12 February 2008, we thought we'd have a good example for when partisan interests would be set aside for the pursuit of the national interest. The Senate passed an update to the thirty-year old Foreign Intelligence Surveillance Act (FISA), which would extend what had been temporary provisions enacted in the aftermath of the September 11th terrorist attack of 2001, by a wide bipartison majority.

With the temporary provisions set to expire on Saturday, 16 February 2008, this act allowed sufficient time for the U.S. House to hold a vote on the Senate bill, without compromising the efforts of U.S. intelligence agencies to monitor the international communications of foreigners related to committing additional acts of terrorism in the United States.

A key part of the Senate's bill protects U.S. telecommunication companies from liability for agreeing to cooperate with U.S. intelligence agencies seeking to gather information to prevent further attacks on U.S. soil. Without the provision, the companies cannot afford the risk of cooperating with U.S. intelligence agencies. On Saturday, 23 February 2008, the White House confirmed that the telecommunication companies assisting intelligence investigations were continuing to voluntarily cooperate with their efforts, cooperating with the government in anticipation that they will ultimately be protected from lawsuits.

But since the Senate passed the FISA update, the leaders of the House of Representatives have chosen to not act on the matter. At all. That lack of action increases the risks to telecommunication companies, which in turn increases the risk to the safety of the people of the United States should these businesses instead choose to reduce their risk of legal and financial exposure to potentially crippling litigation.

So why are we writing about this matter? FISA legislation is pretty far afield from the kinds of things we normally cover.

Because yesterday, the priorities of the leadership of the House of Representatives was driven home to us by a visit from the halls of Congress. Just in case anybody might be wondering what the U.S. House of Representatives might find to be more important than, say, passing a critical to national security update to the Foreign Intelligence Surveillance Act as of Monday, 25 February 2008, we offer this bit of evidence from our traffic logs:

Site Visit 255,217 - U.S. House of Representatives 25 February 2008

M&Ms While we appreciate the visit, as well as the need for humor in contentious times, this is to us just another indicator of the failure of the Congress' leadership, one that demonstrates a lack of serious commitment to attending to things that need to get done in a timely manner. We are especially taken by the rather unique Google search that brought them to us.

Trust us, the M&M Theory of Evolution will still be here after you've attended to the nation's business. We'll be waiting....

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February 25, 2008

Every now and again, we go back to data we've featured previously just for the purpose of playing around with how to visualize it. Today, we're featuring a new look at the United States' national income (as measured by non-inflation adjusted GDP) and national debt from 1791 through 2007!

First, here's a standard look at the US' Nominal GDP and National Debt, using a standard scale:

US Nominal GDP and National Debt, 1791 to 2007 (Adv), Standard Scale

The problem with the chart above is that given the exponential growth of both national income and debt, it really is only capable of showing how the two change with respect to one another in the most recent years. It's a picture that washes out what the data really looks like for pretty much everything older than thirty years.

So now, here's the exact same data, but this time, presented on a logarithmic scale, which we think does a better job at capturing how both national income and debt has changed in each year since 1791: US Nominal GDP and National Debt, 1791 to 2007 (Adv), Logarithmic Scale

Now, you've got to admit, that's a lot cooler!

Data Sources

US Historic Nominal GDP Data

The bulk of historic data is taken from Louis D. Johnston's and Samuel H. Williamson's Measuring Worth site, which had previously been hosted by EH.net.

US Historic National Debt Data

Straight from the U.S. Treasury!

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February 22, 2008

Carnival Midway from The Jerk Welcome to the Friday, February 22, 2008 edition of On the Moneyed Midways! Each week, OMM surveys the best of the blogosphere's ongoing early social media experiment known as blog carnivals to bring you the best posts we find related to business or money there.

Also each week, we identify one post as being The Best Post of the Week, Anywhere! and we also identify the posts that nearly claimed the top spot as Absolutely essential reading! Simply put, OMM is the best way to catch up with a week's worth of stuff worth reading as you downshift from the work week to the weekend!

So let's get straight to it this week - just scroll down for the best posts of the week that was!

On the Moneyed Midways for February 22, 2008
Carnival Post Blog Comments
Carnival of Debt Reduction What to Do Before You're Fired Debt Reduction Ryan Healy knows 15 people who are losing their jobs - his best advice for those who might find themselves looking for new employment is to reduce debt as much as possible before leaving, but to focus more on developing the marketable skills that businesses need, from the tangible to the intangible.
Carnival of Money Stories Stupid Tax: Car Inspection, Commute, and Margin Interest Moolanomy Pinyo lays out the whys and hows he ended up wasting money he didn't have to.
Carnival of Personal Finance What Price Are You Paying to Have It All? The Supermom Myth Digerati Life The Silicon Valley Blogger, pictured in her post (!), considers her situation in life and announces her intent to stop having it all, all of the time!
Carnival of Real Estate Would You Buy and Drink Outdated Milk? Real Estate Radio USA Brett Wilson looks at the fine print in recent National Association of Realtor ads and finds the numbers supporting the claims the benefits of homeownership are, shall we say, a tad out of date. Absolutely essential reading!
Carnival of the Capitalists Unasked-For Advice to New Writers About Money Whatever Successful author John Scalzi offers his insights and lessons learned over the years to those considering writing for a living because, where money is concerned, "writers have as much sense as chimps on crack."
Carnival of the Capitalists Sex Sells? Oh Really? About.com Entrepreneur's Guide To Scott Allen, it's obvious that sex sells. He considers the recent track record of a number of Fortune 500 companies that incorporate sex into their ads and considers what it means to you as a business owner.
Festival of Frugality Simple Grocery Hack: Buy What You Can Carry Honest Dollar Lily lives in New York City and discovers that she can save a lot of money by only buying what she can carry on the six block walk from her apartment to the store - kind of a neat approach to cutting out all the extras!
Festival of Stocks Examples of Bad Magic Formula Stocks MagicDiligence There are four basic principles for investing in stocks using Joel Greenblatt's "Magic Formula," MagicDiligence shows how they would screen out Idearc (IAR), Heelys (HLYS), King Pharmaceuticals (KG) and USA Mobility (USMO) from your portfolio.
Odysseus Medal (Real Estate) She Tried to Make Me Buy a Rehab Bloodhoundblog Geno Petro spans modern American culture in considering how to thwart his wife's inspiration to fix up a shack on the Tennessee River. The Best Post of the Week, Anywhere!

Previous Editions

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February 21, 2008

As Deer in the Headlights, So Are the Congressional Leaders of Our Lives.... You know who you are. You're the kind of person for whom competition means nothing, because you always stack the deck in your favor. You think taking the time to become wealthy by building a solid business that makes its customers happy is a total waste of your time. You think taking on any risk for any future returns you might gain from stocks, bonds or any other kind of investment is for total losers. You also think hard work and real jobs are for chumps, those people way beneath you in importance.

You're a rent seeker. And like most rent seekers, you've discovered that what matters is who you know in government. More than that, you know that the people you most want to know are the people who can steer money taken from other people your way. And for a token of appreciation, preferably in the form of a campaign contribution, they're more than happy to help!

Where the United States is concerned, at the national level, we're talking about the members of the U.S. Congress. If you're a rent seeker looking to get huge quantities of taxpayer money to guarantee a huge payday for yourself, justified for public expense by a sham of a hare-brained venture that could never get funding in the real world, where else would you go?

Nowhere else! There's no place like Congress, where you're not even in the real world! You're on Capitol Hill, baby!

And like most people on Capitol Hill looking to get something for nothing, you're looking for the best deal. And that's where our latest tool comes in, because now you can find out which elected member of Congress can give you the best return on your investment!

Here's how it works. All you need to do is to plug in the numbers that apply for your situation: the amount of the campaign contribution(s) it takes to get the prospective member of Congress to set up your very own line item or earmark in the U.S. Federal Budget and the total dollar amount of that line item or earmark (or perhaps even the total dollar value of having the Congress set up a new regulation that protects you from real competition)!

From there, you'll be able to take our results and use them to comparison shop for the member of Congress that best fits your rent-seeking budget!

Contribution and "Investment" Return Data
Input Data Values
Total of Campaign Contribution(s) [$USD]
Value of Line Item or Regulation


Congressional Return on Investment
Calculated Results Values
Raw Return on Rent-Seeking "Investment" [%]

The default numbers in the tool above come from the curious situation described here, which we've provided to give you a sense of the huge returns you can get from your Congressional rent-seeking investment! (HT: Captain's Quarters)

And remember, it's not that the price is so low or that the rewards are so high that makes this kind of arrangement desirable. The real bonus is that you and some member of Congress get to join forces to stick it to all those honest, time-consuming, risk-taking, hard-working chumps and losers, not only because you know so much better than them what's best for them, but because you know better than them what to do with their own money!

Because you're rent seekers. What's good for you is all that matters to you.

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February 20, 2008

Calculator Right on schedule, the Bureau of Labor Statistics has released the Consumer Price Index numbers for January 2008 today, which means that we've officially updated our signature tool The S&P 500 at Your Fingertips with all the data you need to find the rates of return that you might have received from investing in the S&P 500 between any two months since January 1871!

But that's yesterday's news! If you're like us, you want the picture of what's going on right now. Or even tomorrow! And since we only recently figured out that our view of the future was flawed, we've been working to capture the full picture that we should have been using in the first place.

In doing that, we've projected a new future for where corporate dividends are expected to go and, to avoid the situation that we found ourselves in where we didn't catch on for several weeks that we were missing important parts of our data, we're opening our books to you to show how we did it. After all, what's a blogosphere for if not to provide very smart people with the opportunity to point out where the problems in your analysis might be?

We began with by taking what S&P projects the year-over-year dividends per share will be for 2008, $30.30. Since this value represents an increase of 9.3% over the full year dividends per share of $27.73 for 2007, we'll use this annualized growth rate in our projections for dividends per share for each quarter this year.

Our next step is to take this growth rate and apply it to each of the year-over-year dividends per share for each quarter of 2007 to get the corresponding value for 2008. Our intermediate results are presented in the table below:

S&P 500 Year Over Year Dividends per Share for 2007 and Projected for 2008
Quarter 2007 [Actual] 2008 [Projected]
First (Ending in March) 25.49 27.86
Second (Ending in June) 26.17 28.60
Third (Ending in September) 26.97 29.48
Fourth (Ending in December) 27.73 30.30

The next step is to fill in the months in between these quarterly figures, for which we'll use the same linear interpolation method utilized by Robert Shiller for his S&P 500 data. The table below summarizes our projected dividends per share results for 2008:

S&P 500 Projected Dividends per Share by Month for 2008
Month Jan Feb Mar Apr May Jun
Dividends per Share 27.77 27.82 27.86 28.11 28.35 28.60
Month Jul Aug Sep Oct Nov Dec
Dividends per Share 28.89 29.19 29.48 29.75 30.03 30.30

So that's how we determine the dividends per share data that we use in our tool. We expect that we'll need to revise these figures in the future, which we'll do in the course of our regular monthly updates, preferably when S&P releases the actual dividends paid for each of the quarters that we've projected or perhaps if they revise their annual projection for the S&P 500's dividends per share.

We use a similar technique for the earnings per share data but here, S&P provides quarterly projections of the earnings data so we only need to perform the linear interpolation step to get the values for each month.

And now, finally, what you've been waiting for, we'll combine the average monthly index value of the S&P 500 with our anticipated dividend per share data to produce the picture of where the S&P 500 is today!

S&P 500 Average Monthly Index Value vs Dividends per Share, June 2003 through January 2008 with February 2008 Projected

It really is that easy, and anyone with a little bit of math know-how can do it!

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February 19, 2008

Going Down a Blind Alley Political Calculations really is unlike just about every other blog you might find out there.

For a lot of readers, we suspect that we fit the description of being "that blog with all those interesting tools." But what we really are would not necessarily seem to be a lot different from that description. We ask questions for which we don't already know the answers and we answer them. We make tools along the way because they help us answer those questions and we go the extra mile and make them available to you too. The payoff is that we all know more at the end than we did when we first asked the question and we can often take what we found out and put it to practical use.

But what makes us really different is that we bring you into our process of discovery (see this post for a really good and recent example!) We do a good portion of the analysis we present "live" and in many cases, we're no more than maybe a day ahead of what we write!

The trouble with all that starts because the path of discovery is almost never a straight one. For every seemingly simple solution, there are twists and turns that we never see coming and we'll find ourselves having gone down a blind alley before we know it.

We've gone down blind alleys like these before during the course of our major projects. And as we discovered over the weekend, we've just gone down one again!

Here's how it happened. We have developed a method to measure the level of distress in the stock market. There are two major pieces of data that go into the method's calculations: the year over year rate of growth in stock prices and the year over year rate of growth in stock dividends per share. The key driver in the relationship between these two factors is the dividend rate of growth, which is significant because when it approaches a value of zero, the level of distress in the stock market peaks.

Back on 16 January 2008, following a series of dividend cuts in major mortgage and financial companies that triggered a breakdown in the order that had existed in the stock market since July 2003, we turned to dividend futures as a source of data that we believed we would provide the most up-to-date and real-time view for tracking the progress of building distress in the stock market.

In doing that, we made a rookie mistake. We had interpreted the data as being the value of dividends per share that S&P 500 stocks would pay out in total for the first quarter. Instead, it turned out to be that the data really represented the value of dividends per share that would be paid out between the current date and the end of the quarter.

As such, the value of dividends per share will always decrease as the companies paying out dividends actually pay them during the course of the quarter. Over time, and by the end of the quarter, these dividend futures will eventually hit zero, not because corporate dividends are being slashed, but because they've already been paid! Because that's the case, we didn't pick up that things weren't quite right early, because the numbers weren't that far off from what they should have been. But, as more time went by, the discrepancy became greater.

Here's an example of that effect. Back on 16 January 2008, near the beginning of the quarter, the level of dividends per share was high enough to look like the reduction in dividends to be paid in the first quarter of 2008 was the result of the financial companies in the S&P having cut their dividends. So we ran with them. And unfortunately, we kept running with them.

Ultimately, we finally figured out that we had the error in our data because we kept asking questions. The question that directly led us to finding our mistake was this one: "If dividends are being cut so much for the current quarter, why aren't they changing more in the farther future?" And the reason, as we discovered, is because the dividend futures work in the way that we've described above.

The good news is that things aren't getting as bad as fast as it might have otherwise appeared using our previous analysis. The bad news is that whatever distress is now occurring in the market is more likely to be drawn out over time than what the later portion of our erroneous data-driven analysis had suggested.

Beyond this, Standard & Poor has confirmed that its forecast for dividends per share for the S&P 500 will still likely come in at $30.30 for 2008, a 9.3% year over year increase. This increase is expected even with several major financial companies having cut their dividends as other healthier companies have acted to increase theirs. The practical upshot of all this is that we'll be returning to what S&P is forecasting in our models. And now that we understand what the dividend futures are really communicating, we can make more effective use of them as we go forward as another tool in our analytical toolbox.

Perhaps no one really understands this, but dealing with this kind of problem is really kind of thing we live for. It's like the adrenaline rush you get from going down a blind alley that no-one else knows you've gone down, working out how you got there and how to get out, and then the satisfaction of getting back onto the real path to discovery after having been diverted from it. That's where the real fun in the art of analysis is to be found.

As they say, a straight line may be the shortest distance between two points, but it is far from being the most interesting one.

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February 15, 2008

Carnival Midway from The Jerk Welcome to the Friday, February 15, 2008 edition of On the Moneyed Midways, the only review of the best posts from best of the past week's major business and money-related blog carnivals!

It's surprising to us how far blog carnivals have fallen in terms of traffic. Just three years ago, it was not uncommon for a hosting blog to have more than a thousand additional visitors on the day it hosted a carnival. Today, it's exceptionally rare if you see that in a week.

Here's a couple of snapshots in time. First, here's our post summarizing our experience hosting the Carnival of the Capitalists back on 25 July 2005, which includes graphics revealing our site traffic for that week. Now, compare that with the latest data for the Carnival of the Capitalists at its new permanent home at Bizosphere.com.

Over that time, two things have happened that have really contributed to the drop-off in blog carnival traffic. First, search engines got better at indexing blog content, which means that all it takes to effectively create a blog carnival based on a central theme is a Google blog search of posts on a related topic over the past week.

Second, blog carnivals were really an early version of social media, which has been markedly improved by such Web 2.0 type interfaces like MySpace, Facebook, Twitter or LinkedIn. While creating a good blog carnival takes a lot of effort on the part of its weekly host (at least, if it's done properly!), the social network opportunity originally represented by the blog carnivals has largely been replaced by resources like these that make it much easier to do.

There's still a market for a well-hosted (read: well-edited) old-fashioned blog carnival, which is why we bring you the best posts we find in the best of them each week, but if you're a host looking for the old days of having a significant traffic spike to your blog, we hate to tell you those days are gone.

Speaking of the best posts from the best blog carnivals of the week that was, well, they're awaiting you below!

On the Moneyed Midways for February 15, 2008
Carnival Post Blog Comments
Carnival of Debt Reduction How I Paid Off My Student Debt in Six Months squawkfox The key, says squawkfox, is to keep living like a college student, but more than that, new graduates should pay attention to both sides of the income and spending equation!
Carnival of HR 3 Sure Fire Ways to Alienate People of Color at Your Meeting Race in the Workplace Carmen Van Kerckhove provides invaluable advice for how to stage a panel and avoid putting people into a race ghetto if the demographics at your company aren't all that diverse.
Carnival of HR A Rescinded Offer Evil HR Lady Absolutely essential reading! The Evil HR Lady explains what to do when that next job you had lined up goes "poof" after you've given notice to your current employer.
Carnival of Personal Finance The All Cash Spending Experiment Is Over (Yes, Already) Chief Family Officer Cathy's family's experiment at living the all-cash lifestyle derailed after just two days - she explains why and finds better ways to save money.
Carnival of Real Estate Commitment Letter Is No Letter of Commitment Matrix Jonathan Miller reveals the change in outlook in homebuyers as they changed from focusing on their down payment to focusing on their monthly payment. The Best Post of the Week, Anywhere!
Carnival of Taxes Q&A: Do I Need to Collect Sales Tax? Ebiz Tax Tips For those who have online businesses, Kristine McKinley explains when you have to charge sales tax and whether or not you have to show it as income on your tax return.
Carnival of the Capitalists Special K is SOOOOoo NOT Getting My Business - Ever! Lipsticking Yvonne was, shall we say, highly offended by an inexplicably sexist commercial seeking to sell cereal. Absolutely essential reading!
Cavalcade of Risk Excessive Risk-Taking The Frontal Cortex Jonah Lehrer finds that the budding science of neuroeconomics might help explain why people are willing to pursue highly risky investing strategies.
Economics and Social Policy Food Shortages The Human Imprint Louise Manning faults the politically-driven subsidies that are driving a change from producing fuel instead of food on farmland for the growing risk of food shortages in the developing world.
Festival of Frugality Why My Perimeter Is More Expensive Than My Aisles I've Paid for This Twice Already… Paidtwice isn't used to shopping on the perimeter of the grocery store, where non-processed foods are mostly found, ending up paying nearly twice what she normally does when buying food.
Festival of Stocks Consistent Cash Creators Fat Pitch Financials George screened through thousands of stocks to find the companies with a strong history of continously increasings their free cash flows!
Odysseus Medal (Real Estate) Blogging Etiquette - The Blog Comment Policy - Do You Need One? The Real Estate Tomato The Black Pearl winner in a week without an outright Odysseus Medal winner, Jim Cronin discusses what policies regarding comments a blogger needs to state and enforce on the site supporting their business.

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February 14, 2008

No, we're not talking about the former insurance company pitchmen from a series of highly entertaining commercials who later went on to star in a lackluster US sitcom. Instead, we're talking about the original cavemen who worked out that even if one caveman is an all-around better hunter-gatherer compared to another, less capable hunter-gatherer, it still may make a lot of sense for them to each specialize in a given task and trade with one another (HT: Free Exchange):

Even if Iga is better than Og at both fishing and fruit gathering --

-- It takes Og 3 hours to catch a fish and would take 4 hours for him to gather some fruit,

-- While it only takes Iga 1 hour to gather some fruit, and 2 hours to catch a fish,

Then is still pays for Iga to get her fish from Og. She could gather 2 meals of fruit and swap one of them for Og's second fish.

Because that way Iga works only 2 hours for a meal of fruit and fish, instead of 3 if she was self-sufficient, and Og only works 6 hours, instead of 7 if he was self-sufficient.

Seafood As we see in this example, Iga is the superstar hunter-gatherer, able to leave hapless Og in the dust when it comes to both fishing and fruit gathering. But, as the example points out, they both come out ahead when they divide the hunting-gathering tasks between them and trade with one another. Both end up with the same amount of food as they did before, but now, they have a lot more time to do all other things cavemen would do if they didn't have to spend so much time barely eking out a subsistence level of existence!

Fruit and Basket But, what if Iga wasn't such an over-achiever compared to Og? Or, what if Iga was even more of a hunting-gathering dynamo? What if Iga and Og combined their efforts? Would it still make sense for Iga and Og to trade with each other?

To find out, we pulled a page straight out of the caveman playbook: we built a tool! In the input fields below, enter how many hours each it takes for Iga or Og to catch 1 fish and gather fruit for 1 meal on their own. The tool will work out the math for four different scenarios, each of which will result in two fish being caught and fruit for two meals being gathered:

  1. Iga and Og Fish and Gather Fruit Individually
  2. Iga and Og Fish and Gather Fruit Together
  3. Iga Fishes, Og Gathers Fruit, and They Trade
  4. Iga Gathers Fruit, Og Fishes, and They Trade

So, here we go - the default data is taken directly from the example above, and the tool will find the number of hours that both Iga and Og need to achieve their tasks for these situations, as well as how many hours they save over doing each task individually (here, positive values indicate that time is saved, while negative results indicate that more time was required than what was needed to work individually):

Iga's Fishing and Fruit Gathering Data
Input Data Hours to Accomplish
Time Required to Catch One Fish
Time Required to Gather One Meal of Fruit
Og's Fishing and Fruit Gathering Data
Time Required to Catch One Fish
Time Required to Gather One Meal of Fruit
Scenario to Consider
Select a Scenario (but try them all!)
Iga's and Og's Results For the Selected Scenario
Calculated Results Hours Needed Hours Saved
Total Time for Iga to Complete Tasks
Total Time for Og to Complete Tasks
Iga's and Og's Combined Hours Needed and Saved
Combined Hours Spent Completing Both Tasks
The Bottom Line

In playing with the numbers, we find that the best benefits come from trade where Iga and Og perform the task in which at least one has a comparative advantage! Perhaps that helps explain the prehistoric graffiti that was found recently written on the wall of an ancient cave:

Trade better than wheel! And fire!

There's no clear indication if either Iga or Og were the culprits, although when you think about it, free trade would be the greatest invention of all time.

Elsewhere, Regarding the Benefits of Trade

The following is courtesy of Art Carden at Division of Labour, who neatly summarized how economists across the ideological spectrum view the benefits of the gains of trade:

We had an interesting discussion about presidential candidates' stances on trade before my 11:00 AM class yesterday. Trade is an issue that definitely cuts across economists' ideological spectrum. Here's Greg Mankiw on Barack Obama's anti-NAFTA stance, including an instructive quote from his colleague Larry Summers on NAFTA's success. Here's Paul Krugman on "Ricardo's Difficult Idea." Finally, here's Brad DeLong explaining why comparative advantage is the most misunderstood concept in economics.

"Trade Promotes Economic Progress" is #4 among the "Ten Key Elements of Economics."


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February 13, 2008
John Palmer writes:

A month or two ago, I received a $10 gift certificate from LL Bean. It expires in a few days, and so during the past week, I browsed their on-line offerings to see if there was anything I might want to buy soon. There wasn't really anything, but I did see a hydration pack (a back pack designed to carry 2 litres of water, and which might come in handy for long hikes, except that this particular one is really small and has little room in it for much else). I wasn't sure whether I wanted it.

Then I checked the Mountain Equipment Co-op [MEC] website and saw the exact same thing for $11 less than the LL Bean sale price (I'm leaving out a discussion of taxes, duties, shipping costs, etc. here to simplify the story).

But because I had the gift certificate from LL Bean, I felt as if I ought to use it. I felt as if they'd be getting away with something if I didn't use it, even though the total price from MEC would have been lower. I didn't care about "sunk costs" and all that stuff, I just had this gut feeling that even though I knew the MEC price was better, I should order it from LL Bean.

I'm an economist. I am supposed to understand these things. It didn't matter, though; I still had these feelings and instincts.

In the end I decided against ordering the pack from either source. But the phenomenology of the experience was illuminating. No wonder we (or at least I) have trouble teaching these concepts in economics courses.

At the risk of treading on Tim Harford's "Dear Economist" territory, here we go with our best advice....

The company that gave you the gift card wants you to use it to maximize your utility in some fashion, otherwise they would not have given it to you. Actually, they're hoping that you'll spend far more than the value of the $10, which would maximize their utility, but that's a different concern.

The problem is that they would appear to have unfortunately constrained your ability to do so, in that their gift would, at first glance, only be able to fully realized through them. We say "unfortunately" because their likely intent was to simply get your business by creating an incentive for you to purchase an item from them at their regular prices. This much is evident in the difference of the price of the product you considered purchasing from them and the price for the same item from a competitor.

Then again, perhaps they gave you the gift card knowing that you would fall into this quandary and perhaps they are now deriving maximum utility from monitoring your evident discomfort. We think that's unlikely, as it would suggest evil intent on their part for which there are much more cost-effective means of deriving utility, such as toilet-papering your house.

As you've discovered through your search process, you can gain the most utility for yourself by purchasing the hydration pack from the other vendor while keeping the value represented by your gift cards intact. But now you are left with the problem of what to do with a gift card for which you cannot identify another product that you believe would make you better off to purchase with its stored value. Meanwhile, you recognize that the company is also not realizing the utility to themselves of giving you a gift from which they would recognize net gains. So what to do?

The preferred answer, as you know as an economist, involves turning to the markets where you might make gains through trade. In this case, you need to turn to those entrepreneurial businesses that have recognized this potential dilemma and have developed a market-based solution to your problem: gift card exchanges!

For a price, these companies can resolve the issue of what to do with a gift card for which you are unable to extract its full stored value by either selling it to them outright or by exchanging it for a gift card for which you can derive maximum utility by fully extracting its stored value. Gift card exchange companies include Cardavenue, Plastic Jungle and Swapagift, to name just three in alphabetical order. Then again, there's always e-Bay.

Your alternative, as you've noted, would be to recognize the gift card as a fully sunk cost from which neither you nor the company will ever recognize anything approaching its stored value.

What to do, we hope, now appears obvious. You should purchase the hydration pack from the Mountain Equipment Co-op and exchange your L.L. Bean gift card (remember, you need to act quickly!) either for cash or for a gift card for which you can fully realize its stored value. Perhaps from a large home improvement retailer where you might find a tool that you can use to remove reams of toilet paper suspended from the roof of your house. Just in case.

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February 12, 2008

Political Calculations' regular readers know that once we wrap up a major project, we often go the extra mile and also present the data we used as useful reference. Most often, that involves simple text data in a dynamic table that allows our readers to sort through the data themselves. It gets the job done, but it's not necessarily so pretty to look at!

Today, we're going one step further! We're still using a dynamic table, but this time, we're incorporating bar chart graphics into it! The table below contains the average state-by-state tax rates for unemployment insurance and workers compensation that employers have to pay for their employees, along with the combined rates for each tax. Now, you can quickly and easily see which states are really sticking it to the businesses within their borders!

As always, to dynamically sort the table, just click the column headings. The first time you click will rearrange the data in the table going from low to high value according to the column you selected, and clicking a second time will resort the data from high to low value.

U.S. State Unemployment Insurance and Workers Compensation Tax Rates
State Unemployment Insurance Tax Rate Workers Compensation Tax Rate Combined Tax Rates
Alabama 0.38%   3.17% 3.55%
Alaska 1.23%   5.00% 6.23%
Arizona 0.36%   1.73% 2.09%
Arkansas 0.80%   1.59% 2.39%
California 0.91%   4.13% 5.04%
Colorado 0.49%   2.40% 2.89%
Connecticut 0.71%   2.90% 3.61%
Delaware 0.49%   3.91% 4.40%
Florida 0.35%   3.32% 3.67%
Georgia 0.38%   2.02% 2.40%
Hawaii 0.55%   2.89% 3.44%
Idaho 0.74%   2.29% 3.03%
Illinois 1.13%   2.69% 3.82%
Indiana 0.64%   1.24% 1.88%
Iowa 0.85%   1.75% 2.60%
Kansas 0.96%   1.84% 2.80%
Kentucky 0.71%   3.78% 4.49%
Louisiana 0.32%   3.10% 3.42%
Maine 0.71%   3.21% 3.92%
Maryland 0.59%   2.03% 2.62%
Massachusetts 1.19%   1.70% 2.89%
Michigan 1.19%   2.05% 3.24%
Minnesota 0.97%   2.69% 3.66%
Mississippi 0.51%   2.29% 2.80%
Missouri 0.68%   2.50% 3.18%
Montana 0.84%   3.69% 4.53%
Nebraska 0.42%   2.25% 2.67%
Nevada 0.77%   2.36% 3.13%
New Hampshire 0.25%   2.75% 3.00%
New Jersey 0.92%   2.52% 3.44%
New Mexico 0.48%   2.41% 2.89%
New York 0.60%   3.15% 3.75%
North Carolina 0.74%   2.17% 2.91%
North Dakota 0.64%   1.10% 1.74%
Ohio 0.76%   3.0% 3.76%
Oklahoma 0.66%   2.96% 3.62%
Oregon 1.17%   1.97% 3.14%
Pennsylvania 1.16%   2.80% 3.96%
Rhode Island 1.45%   2.68% 4.13%
South Carolina 0.55%   2.50% 3.05%
South Dakota 0.25%   1.83% 2.08%
Tennessee 0.40%   2.48% 2.88%
Texas 0.46%   2.84% 3.30%
Utah 0.49%   2.06% 2.55%
Vermont 0.82%   3.24% 4.06%
Virginia 0.29%   1.52% 1.81%
Washington 1.22%   2.17% 3.39%
West Virginia 0.81%   2.20% 3.01%
Wisconsin 0.85%   2.18% 3.03%
Wyoming 0.67%   2.40% 3.07%

Update 13 February 2008: The nice thing about blogging is that the community of people who read blogs are also capable of providing faster and better fact checking than what you see in the mainstream media! (And as it happens, they're some pretty sharp beta-testers too, as we saw yesterday!) Today, we're filling in a gap that one of our readers caught: we forgot to include the sources from which the data we presented above was taken!

Data Sources

The average unemployment insurance tax rate data we presented was taken from Department of Labor data, as summarized by the Public Policy Institute of New York State.

The average workers compensation tax rate per state is considerably more tricky, especially as these rates vary not just by state, but also by occupation. Add in those states like Texas where workers comp may be voluntary and it becomes even more complicated. The data we've presented comes from the comparative state data compiled by the Oregon Department of Consumer and Business Services as presented in their Oregon Workers' Compensation Premium Rate Ranking for 2006.

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