Category Archives: Our Theory

Theory originally by Dumbagent.com members

Technology frees us

I re-post from Ocean’s blog here, and while this topic is not strictly about economics, the subject of disruptive technology is nonetheless of interest.

Bottom line: you are either bored in a museum or you are not. It is not the phone that makes you so.

Titled I’m getting fed up with people who are fed up, Ocean points out that just because a person is looking in to his or her phone does not mean that person is playing candy crush saga.

We wasted just as much time in past years as we do now. Before smartphones we had cell phones, before those we had tamagotchis, before those we had discmans and walkmans, and before those we still had trashy magazines, as so on and so forth. We always found a reason to be “anti-social”.

He continues:

In fact, I would venture to say that a greater sign of our dumbing-down times is how we recreate the same tired arguments every time a new disruptive type of technology appears. In comparison to the Phone, Telegraph or TV, the smartphone is a rather small step, all things considered, and yet we still believe it will be the downfall of society. Well, I believe cynicism will bring our society down far sooner than any smart phone.

 

Understanding communism

In the kitchen:

Setting: I am cleaning out our food shelves

Me: I’m going to put the coffee salt and pasta all on the lower shelf since it is what we use the most. I’ll put bread crumbs and flour above.

G: hmmm

Me: …?

G: flour and pasta should be kept together

Me: *sigh* this is the difference between a communist and a free marketeer. A communist rules by ideology, regardless of whether the enforcement is welcome, sensical or beneficial. A free marketeer adapts his approach to human nature and positive outcomes.

G: so I am a communist?

Me: kitchen communist

G: *starts to pour water on my head*

Me: as a free marketeer I probably believe in private gun ownership…

Wondering about support

I work at Acme Inc. Ltd., and I have been for 10 years now. But I have realized, recently, that my strengths no longer align with what the company needs. And the company’s growth strategy no longer aligns with where I want to be in ten years.

So now we decided to part ways. Maybe I was the one to sever our agreement, maybe the company decided they no longer needed me, or perhaps – it does happen – we mutually agreed that we were no longer a productive team. I forget how it exactly it went down. But that doesn’t matter.

Here, however, is the catch: I now have no job. Which means no salary. That salary was an agreed amount paid to me in return for my services to Acme Inc. Ltd. And I used it to live. You know: buy groceries, pay my rent, keep my utilities on, and even a holiday or shopping spree now and again. After all these years of getting along, I think that Acme should:

“recognise any economic advantage or disadvantage to employees arising from employment or its breakdown”.

You see where I am going with this: I want support payments, to maintain me in the lifestyle to which I have become accustomed, until I find my next job. Because, see, Acme Inc. Ltd. has more money than I do.

How does that sound?

Nice, perhaps, if you are the one leaving the job. Outrageous if you are still working at, or an owner of, Acme Inc. Ltd.. And just a little bit crazy if viewed from the outside.

The quote above is actually paraphrasing Canada’s Divorce Act, and the above scenario is an alimony agreement. The correct quote states that decisions in alimony payments must “recognise any economic advantage or disadvantage to spouses arising from marriage or its breakdown”.

My question is: why?

Let me premise right away: child support is not alimony, and I am not talking about child support in this post. Let me also premise that I support any payments or exchange between two agreeing parties. If I am divorcing a spouse and I am concerned about my ex not being able to live by the same standards he enjoyed as my partner, and I wish to give him money or a house to rectify that, then fine, I am free to do so.

What I do not understand is alimony as a law.

Let’s remember that in previous generations (and indeed going back to antiquity), alimony was to be paid to a woman (scorned), because her support was a husband’s duty (those old traditions didn’t necessarily always favour men). This was back when a woman was seen as a financial burden – one which plenty of men or parents were happy to carry, but a burden nonetheless.

Have we moved beyond the days of a spouse as a burden, necessary mainly for home maintenance, money and procreation?

A quick Happiness Primer

A) List here below your 5 happiest moments in recent history. We don’t do anything with what you write in the text boxes, we’re just putting them there so you write something:

1.

2.

3.

4.

5.

B) Now, list here below the 5 things that take up most of your time (be more specific than just “work”):

1.

2.

3.

4.

5.

C) And finally, what are the 5 things you own that cost the most?

1.

2.

3.

4.

5.

Ok, now compare list C and list A. Is there any overlap?
Compare list B and list A. Any overlap there?

Remember when you were young and you had a great time by being with people you liked, or discovering new things? Well, chances are you haven’t changed much. You just thought List C had taken the place of List A because that’s what we keep hearing should happen. But hearing it doesn’t make it so.

And for those saying they are dedicating their time to list B so they can indirectly have more of list A, are you sure you’re not justifying things? For example, if you are working at a job you hate so you can have fun on a one week vacation, check this out.

Oldie but Relevant: eBay vs. Hand-Me-Downs

Most younger siblings feel at a disadvantage throughout their whole life. If you ask them why, chances are they will reply: “hand-me-downs” (along with many, many other grievances). Unfortunately, it is not just the younger siblings that have had to endure this injustice; younger cousins, family friends, and even our own sons and daughters have all had to deal with it in one form or another. So what’s behind this rampant and intolerable behavior? Well, nobody knows for sure, but we are going to explore the possibility that, with all the advances in modern technology and increased market accessibility, we might be able to do away with these atrocities once and for all: specifically through the use of eBay.

This is the hypothesis: instead of holding onto that game or pair of jeans in hopes that the younger sibling will eventually grow old enough to use it, we will sell it on eBay, invest the profits in a high yield savings account, and take the money out later to buy something new for the next child. We will test two different scenarios: one will involve an old game and another a pair of jeans. We will test the game because these are assumed to be obsolete by the time the younger child comes along, and therefore (presumably) there will be more need to substitute it. We will test a pair of jeans because, assuming they remain in fashion and maintain the same price throughout time, they will have different dynamics when treated as hand-me-downs.

Siblings that are 3 years apart:

Game Boy Advance vs. Game Boy DS
In 2001, a Nintendo Game Boy Advance (GBA) sold for $89.99. The “hand-me-down option” here would have been to hold on to the unit for three years or until the younger sibling was old enough to play with it, rather than buying the new Nintendo DS (DS) which was released 3 years later in 2004. The alternative option would have been to sell the GBA off after a year of use, and then buy the DS for the younger sibling.
It did not take us long to discover that, in 2002 a used GBA would have probably sold for about 50% of its original value, or $45. If these $45 are invested in a 5% savings account over three years (compounded monthly) you would only have $52.27; not nearly enough for the DS.

Winner: Hand-me-downs.

Jeans vs. Jeans
A pair of jeans in 2001 could be bought for $25 (in current prices, since we’re assuming no change). If, one year later, your kid grows out of them, you could sell the pair on eBay for $7.50. Once again, $7.50 invested over 3 years at 5% interest makes only $8.71.

Winner: Hand-me-downs, Hands down.

Relatives one generation apart:

Eventually, after running more scenarios, it becomes fairly obvious that more time is needed in order to make this investment strategy become worthwhile. Not surprisingly, that time can best be attained by simply waiting one generation (there are few options other than waiting). This would mean that when your child grows tired of the GBA, you can sell it on eBay for $45 and then invest the earnings until the child has had a child of their own who would want the future equivalent of the device. Let’s assume that this would take place over the course of 25 years. Placing $45 in a savings account for 25 years with a rate of 5% compounded monthly would give you a future value of $156.66, hopefully enough (or nearly) for the latest and greatest handheld console. Likewise, if you were to sell your old jeans and use the invested proceeds for your kid’s kid 25 years later, the $7.50 you earned would be worth $26.11, just enough to buy your kid a pair of new jeans.

Winners: eBay and eBay

In conclusion, it seems as if the eBay approach is economically rational in all situations, although the younger person does not receive the same amount of utility as the older one unless they are separated by roughly one generation . Of course, a hand-me-down savings account might not be worth keeping track of for 25 years, but I also wouldn’t keep those old pair of jeans around thinking the future generation will appreciate the sentimental value.

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Oldie but Relevant: How to save money at the Gas pump

This post is from the archives, but seems to be relevant once again:

As of the writing of this article the price of oil has dropped from almost $100 to about $88 in one week. There is still plenty of uncertainty in the market, however, and counting for wars, attacks, natural disasters, OPEC’s whims, and just standard complications in getting enough oil from the pumps to the refineries to the gas stations to your car, we can say that the one certainty is uncertainty. Prices will fluctuate, we just do not know when, by how much or in which direction. So this raises the question: Do these circumstances present any opportunity for saving money? As a matter of fact, they might.

For those of you who have invested in stock for a while (or have seen Boiler Room one too many times), Dollar Cost Averaging might be a familiar term. For most of us it is not. Dollar Cost Averaging is an investing strategy, attractive because it can maximize revenue but can be applied very passively over time. The general idea is that you invest a set amount, say $100, every month in a certain stock (or group of stocks, or fund, etc). If the stock is cheap, say $20 per share, you will be buying 5 shares, but if it climbs up to $25 per share, and therefore is more expensive, you will only be buying 4 shares. This means you will be buying more of the stock when it is cheap and less of it when it is more expensive.

How do we apply this to gas (or petrol if you’re in Britain)? One way would be to establish a certain amount. For example, when gas was at its cheapest point this year, I could fill the gas tank in my car for about $25. Prices have been fluctuating a great deal in the meantime, so at times it could cost me close to $40 to fill up my tank. On the other hand, I realized that no matter what the price was when I filled up the tank, a day or two later it would usually be quite different.

So if I choose to constantly spend $25, I know at best I will be able to fill the tank. But when gas is more expensive, I will be buying less of it and if it then becomes cheaper, I will buy more. Applied in the long term, therefore, this simple and passive method should allow me to maximize the amount of gas I buy at lower prices, while minimizing the amount I buy at higher prices. This can be a handy way of averaging out your cost of gas.






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Is an Education Worth it?

"Is it really worth it...?"

We have received various requests for information and advice about education in this country. Is it worth the cost? And what is the relationship between the cost of education and its subsequent rewards?

Then again, some of you may be thinking “Does any of this even apply to me? After all, I’m getting a great education at University of Great, and I’ll be earnings tons once I have those extra letters from that cool school”.

So, we have decided to feature, once more, Ababon’s Is it Worth it Program, which will solve all your problems! (Editor’s note: This will not solve all your problems) You can find a link to the original post, along with its discussion, here.

If anyone is wondering whether to go for that Master’s degree, MBA, CPA, CFA, etc. you’ve probably put quite a bit of thought into it. You might be making a passable salary now, but you know you could be making a much more attractive one with a few more letters added to your name. On the other hand, these letters cost money, time not earning any money, and/or the foregone salary itself. So will it really be worth it?

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Oldie of the Month: Dumb History – Ricardo Was Wrong

The first name that an Economics student is likely to encounter is Adam Smith. The second name is usually David Ricardo, the proponent of Comparative Advantage.

As a quick summary, Comparative Advantage states that even if a country makes every possible good more efficiently than other countries, it should still concentrate on the goods it is best at producing and engage in trade to supply itself with the rest.

The example Ricardo gave was the trade between Portugal and England of Wine and Cloth. Ricardo said that it was easier to produce both wine and cloth in Portugal than it was in England, but it was beneficial to both countries for Portugal to concentrate on wine, while England produced cloth (due to relative costs), and they subsequently could trade with each other. The problem with this theory is that it was 100% wrong.

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Wishing you an Optimistic New Year

Here’s to wishing everyone an optimistic new year.

We, as a society, have accomplished a lot over this past year, and in recent years as a whole. As Steven Pinker has shown us, we are living in the safest day and age ever known to human kind. And as Matt Ridley so aptly put it, we live better lives than any of our ancestors could have ever dreamed.

As an example, the average citizen living on welfare today has a better life than King Louis the 16th (prior to his head rolling) could have hoped for. Even Andrew Carnegie never had it so good. He did not have central heating, nor air conditioning, nor constant (hot and cold) running water. TVs, telephones, instant coffee, bottled water, microwave ovens, let alone the Internet and public transportation, were not available to anyone until very very recently. Next time you ride in a car, think about having to make that ride in a luxurious horse carriage. With the constant smell of horse droppings, no suspension on wooden wheels riding on cobblestone streets (it is no wonder people had to take several days’ rest after going on a journey during those days).

Of course, if our lives are better, the fact is lost on many of us. Why is that?

Let’s demonstrate with an example. Two events happen at the same time: a plane crashes in Fiji and twenty people (whom you do not know) die, while a nurse in the Democratic Republic of Congo successfully saves 20 people (whom you do not know) from a malaria outbreak thanks to a quick intervention. Technically, these events should have the same effect on you. Their only direct effect on your life will be emotional, with one making you sad (and in a melancholic mood), the other making you happy (and in a hopeful mood).

Yet, if those two events happened simultaneously, which would be covered by the local news? Chances are, the plane crash.*

You may now think “Ok, I know where you’re going with this. The news loves their ‘if it bleeds it leads’ mantra and it’s too pessimistic and bla bla. But so what?”

Well, it is this “so what” that matters. If you watch enough television showing enough shooting and killing, you are convinced we’re all going to the proverbial hell in a handbasket. This, in turn, will make you want to think less about our accomplishments and  how we can build upon them.

Because, despite our accomplishments, we have quite a bit more to do. Famine, disease, drought, cancer, alzheimer’s, energy, literacy, among others, are all problems we can solve, but we certainly will not do so when we’re in our melancholic/feeling sorry for the human race/being mad at all our leaders/complaining about everything and everyone on Facebook state of mind.

So this is a call for more optimism in the new year. Let us recognize how, despite the downturn, GFC, and myriad other problems, we have actually accomplished very much, and that only by remaining childishly optimistic can we continue to accomplish more.

* I am not really blaming the news agencies here. After all, they show what we want to watch. This instinct comes from our frontal lobe – fight or flight – side. 150,000 years ago good news was nice but could be skipped. But bad news (like an enemy headed your way to kill your tribe) needed your full attention. This has now become distorted so that we rubberneck a plane crash in Fiji.