May 122016
 

Bar Stool Economics

Capitalism in the United States is in serious disrepute. The Bush tax cuts have been said to give the top 0.1% of Americans an average of $520,000. That is over 400 times the average tax cut received by middle-class households. Many people are upset at how tax cut policies seem to disproportionately benefit the upper class. If anything, shouldn’t tax breaks help the poorest people? 😕 Well to understand how the tax system works let’s take a look at bar stool economics.

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The origins of this parable have been attributed to Professor T.Davies from the University of South Dakota and R. Kamerschen from the University of Georgia. The following is a modified version of the original.

Suppose 5 friends go out for drinks and the total bill comes to $100. If they paid their bill the same way we pay our taxes, in proportion to income, then it would go something like this:

  • The first 2 men, the poorest, pay nothing.
  • The 3rd man pays $4.
  • The 4th man pays $19.
  • And the 5th man, the richest, pays $77

The 5 men are happy with this payment arrangement so that is what they decided to do. 🙂 Then one day, drinks at the bar were on sale, and the total bill for the 5 gentlemen came to $80. To make it fair the men still wanted to pay their bill the same way taxes are paid. So the bartender reduced each man’s bill by roughly the same amount based on their economic status. The first 2 men were unaffected because they simply continued to drink for free. The remaining 3 patrons split the $20 in savings, and paid the following amounts:

  • The 3rd man paid $2 instead of $4 (50% savings)
  • The 4th man paid $14 instead of $19 (26% savings)
  • And the 5th man paid $64 instead of $77 (17% savings)

Each of the paying 3 men spend less for their drinks than before. And the first 2 men continued to drink for free. But once outside the bar, the men began to compare their savings. “I only got $2 out of the $20 in savings,” complained the 3rd man. “Don’t look at me,” replied the 4th man. He pointed to the 5th man and said, “he received the majority of the $20 savings. The wealthy get all the breaks.”

“Wait a minute,” yelled the first two poorest men who didn’t pay. “We didn’t get any savings at all. *harumph* The system always exploits poor people like us.”

Similar to wine tasting, the discount for the men can be seen as good or bad depending on their mental frame of reference. The first 4 men ganged up on the 5th man and patronized him for being too greedy. Then they went to a Bernie Sanders rally without inviting their rich friend. 😛 Feeling betrayed and ostracized the 5th man didn’t show up to the bar the following night. The 4 remaining men decided to drink without him anyway. But when it came time to pay they discovered an unpleasant surprise. They didn’t have enough money between all of them for even half of the bill. 🙁 It appears they were in a bill pickle. 😀

Continue reading »

Apr 282016
 

The start of the unofficial U.S. driving season begins on Memorial day which is a U.S. holiday that generally kicks off the summer season.  The date generally falls in late May on a Monday allowing vacationers a 3-day weekend to drive to the beach, or mountains or other destinations.  Ahead of the summer driving season, gasoline prices generally rise as refiners begin the maintenance of their distillation units.

Over the past 8-years, gasoline prices have generally increased as reflected by the ETF UGA (United States Gasoline Fund).  Price rise on a seasonal basis approximately 75% in April for an average increase of 4%.  This year should be no exception as refiners begin to draw down their gasoline.

The Energy Information Administration expects the retail price of regular-grade gasoline will average 2.04 per gallon during the 2016 summer driving season which is down from an average of 2.63 per gallon last summer. This should help buoy demand which is currently up approximately 5.7% year over year. A summer average of 2.04 per gallon would mark the lowest summer average since 2004.

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Daily and weekly national average prices of gasoline can differ significantly from monthly and seasonal averages. There are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 40 cents per gallon or more. Unplanned refinery outages or other disruptions to supply can also increase regional product prices to above forecast levels in the short term. In addition, higher overall gasoline demand in 2015, along with changes in the U.S. vehicle fleet in response to fuel economy standards

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are primarily the result of changes in both crude oil prices and wholesale margins. Oil prices have recently come off their lows at WTI printed at 26 per gallon in March and has climbed nearly 55% over the course of the last 6-weeks.

The Energy Information Administration expects wholesale gasoline margins will average 47 cents per gallon this summer, about 12 cents per gallon lower than last summer. Wholesale margins are forecast to be lower this summer compared with last summer because of higher gasoline production, and because the severe refinery outages from last summer.

The EIA reported that gasoline production decreased in April, averaging about 9.6 million barrels per day. This accounted for the recent draw that occurred in gasoline by refiners. Over the last four weeks, crude oil imports averaged over 7.8 million barrels per day, 4.1% above the same four-week period last year. This accounted for the build in crude oil.

Gasoline inventories decreased by 4.2 million barrels last week, but are well above the upper limit of the average range. Demand remains robust, as total products demand over the last four-week period averaged 19.7 million barrels per day, up by 3.2% from the same period last year. Over the last four weeks, gasoline demand averaged 9.4 million barrels per day, up by 5.7% from the same period last year.

The summer driving season will be off to a strong start as low prices should spur demand but if CFDs on crude oil prices continue to rise, the demand destruction will occur quickly making the issue of elevated gasoline inventories a reason to push prices lower.

Apr 282016
 

A 50 Dollar Lesson in Personal Responsibility

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I’d like to share this joke I found on tumblr.

I recently asked my friend’s little girl what she wanted to be when she grows up. She said she wanted to be President some day. Both of her parents are liberal Democrats who support Bernie Sanders. They were standing there beside her.

So then I asked the little girl, ‘If you were President, what would be the first thing you would do?’

She replied, ‘I’d give food and houses to all the homeless people.’

Her parents beamed with pride.😁

‘Wow…what a worthy goal.’ I told her. ‘But you don’t have to wait until you’re President to do that. You can come over to my house and mow the lawn, pull weeds, and sweep my yard, and I’ll pay you $50. Then I’ll take you over to the grocery store where the homeless guy hangs out, and you can give him the $50 to use toward food and a new house.’

She thought that over for a few seconds, then she looked me straight in the eye and asked, ‘Why doesn’t the homeless guy come over and do the work, and you can just pay him the $50 directly?’

I said, ‘Welcome to the Republican Party.’ 😛

Her parents still aren’t speaking to me.

The point of this allegory is clear; There’s an untapped market of homeless people who could be doing yard work & making $$$ 🙂

It also addresses the hapless reality of economic inequality even in developed countries. If we want the poor to succeed we need to give them the opportunity to pursue their own dreams instead of enabling them to continue living in poverty. Government run redistribution programs are part of the problem. Giving money to the homeless without any strings attached robs them of their dignity, economic potential, and the chance to develop the internal motivation to succeed. Besides, the government doesn’t have money in the first place so when it gives money to the poor it has to take that money from somewhere else.

Some children think that their parents are all no-ing. 😆 Even so, we understand it’s wrong and destructive for parents to do their children’s homework. It undermines their children’s intelligence, sets them up for failure in life, and is not fair to other students. We also understand it’s wrong to feed fauna at the local park.

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It’s hard to say no to a begging squirrel, but we resist the urge to feed it because we don’t want it to be dependent on our generosity. We don’t want to rob these hungry creatures of their ability to be self reliant. So I think we should help the homeless through education rather than simply giving them free money with no obligations.

The ultimate freedom in life comes from being able to internalize personal goals that give us meaning and purpose. 😀

If we are kind enough to offer these gifts of self-discovery, personal accomplishment, and self worth to children and animals, then I think we ought to extend this same offer to financially unfortunate people as well. 🙂

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Random Useless Fact:

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Mar 222016
 

Many people choose not to think of worst case scenarios, instead they prefer to be optimistic. This may be helpful in daily life but is not the greatest asset in financing. 2008 was the year that everyone became aware of just how badly the economy could get. This prompted a change in how people continued with their investments. The volatility of the stock market and the economy means that you should invest in industries that will be less affected by negative forecasts. You must be able to protect yourself and your portfolio against significant losses. Here is how you can endure during a recession:

Commodities

Commodities are a great way to diversify your portfolio. They allow you to spread your investments and thus reduce the risk affecting your total investment. When you invest in commodities, for instance buy gold, you are actually safeguarding yourself against devaluation. This is because certain goods, especially hard commodities can move inverse to the stock market and currency. Commodities are also usually an imperative aspect of other productions and services. This can make them invaluable to retailers and businesses. This ensures that they are in demand even when the economy is not performing so well.

Real Estate

The real estate market crash in 2008, scared many people from investing in the sector. This fear is only increased whenever the market takes a turn for the worse. This, however, is actually a good opportunity to invest in the real estate industry. First, whenever the stock market or the economy begins to decline, real estate prices similarly decrease. This means that you can get good property for a fraction of the cost. Recessions or economic downturn last only for a certain period of time. Once the troubled period is over, prices of housing and real estate begin to soar. This is when you can take advantage of the situation. You will be able to make a considerable profit on what you will be able to now sell your investment for.

The Long Haul

It can be discouraging to go through a period of financial difficulty. Many people react to such bleak situations by simply focusing on the short term returns. The investments that they make reflect this mindset. To truly endure a recession, however, you have to be able to see beyond the financial decline. You have to be able to make future assumptions about the direction that the market may take. It is these decisions that will allow you to rebound from any losses that you may have occurred. To do this you have to carefully monitor the fiscal situation around you. You need to focus not just on the predicament of your country but also the rest of the world. This will allow you to see any emerging trends.

It is not a pleasant idea to ponder the approach of a recession. Past incidences, however, have proved that there is a need for such planning. You must be able to create a portfolio that will fare well during prosperous and bleak economic times. This is how you will succeed in the world of investment.

 Posted by at 8:56 am
Mar 082016
 

Always keep in mind that insurers are often in possession of key facts you might not be aware of, so you should do your best to pick the most reliable of the bunch.

What Insurers Might Not Tell You

  1. The New York Times found that it’s up to insurance policy holders to make sure they understand if they qualify for a discount. Policies change, and as a consumer, it is your responsibility to review the contract before you sign for renewal. There’s not much room for excuses, as inquiring is as easy as making a phone call.
  1. Frills and additional charges. Some companies tack on extra charges or fees for coverage you might not need at all. The best way to make sure you’re only paying for what you need is to review every inch of your policy, don’t leave any page unturned. Go over every clause and check all possible loopholes. And if you encounter any hidden charges, talk to your insurer. Your rate could drop a few hundred dollars just by removing some of those extra inclusions you didn’t know you had tacked on your policy.
  1. Better payment options. Some people pay by direct debit, thinking this is better than having to pay for your insurance on an annual And if you’re not very good at saving, or putting aside enough money for your monthly insurance payments, this could be a lifesaver. However, some companies often charge a monthly interest for direct debit payments. Before you choose to pay your bills through direct debit, ask you insurer if fees apply.
  1. Coverage and inclusions. It’s not always about the rate. Picking one car insurance provider over another should involve more than who has the lowest sticker price. Consider each agency’s coverage and package inclusions. One might offer a ton of coverage at a reasonable price, while the cheaper policy only offers the most basic of services. Base your decision on what you need, not on what you want to save. Going for the reasonably priced insurance policy can be the better choice in the long run. To save time and money, use comparison platforms like CoverHound for all of your auto insurance comparison Having your options laid out side-by-side and spelled out in clear terms can help you pinpoint the subtle differences in policies and packages, and thus help you make the best choice.
  1. You can bet auto insurance agents are in the know about all sorts of discounts you’re eligible for. However, it’s not always likely that they’ll let you know; sometimes they won’t at all unless you specifically ask about them. MSN says you could qualify for a discount when your child goes off to college, when you renew your policy early, or even if you choose to go paperless. It might not have occurred to you to ask about any of these things, so make sure that you do your research and check in with inquiries about what you might be eligible for. You might even qualify for other discounts and not even know it. Before you approach your car insurance agent, generate a list of all the discounts you could qualify for, and see if you can apply them to your policy.
  1. Non-renewal. If you’ve just been involved in a car accident, you might not think much of filing a claim, but your car insurance agent will definitely know if your premium is going to rise. To keep that from happening, make sure you know your insurance provider’s guidelines and follow them all to the tee. If you don’t, you risk non-renewal and higher insurance premiums when you sign up with another insurance company. Remember, your driving history is not your own, and that will ultimately jack up your premium.
  1. Your car’s Insurance Service Office (ISO) rating. ISO ratings are based on information such as your car’s safety ratings and its make and model. They help insurance companies determine the risk involved in insuring your car. For instance, SUV models tend to be less expensive to insure than a fancy sports car.

Good Luck Out There

Keep these tips in mind when you’re looking around for an insurance agent. Be knowledgeable and ask questions. These will help ensure you get the best car insurance premiums, year after year, regardless of your insurance agent potentially keeping some discounts under wraps.