Easy Cases and Bad Laws

There is an old saying in the legal community: "hard cases make bad law", but maybe that saying should be changed to "easy cases make worse law". From time to time we hear about incidents so bizarre, absurd or ludicrous that their stupidity seems to cry out for government intervention. Such easy cases make really horrible laws. The case of the Octo-mom - the bizarre single mother, who after having six children gave birth to octuplets, by means of in-vitro fertilization. Listen, there is something plainly wrong with that woman, but you wouldn't see me writing about such tabloid fare if not for an even more preposterous person: Georgia State Senator Ralph Hudgens, who recently introduced a bill to regulate the number of embryos that may be implanted into a woman's womb. Seriously? 

That's what I call completely bogus legislation. The esteemed senator - and I use esteemed in loosest sense of the word - seems to think that there is a serious issue here that merits strict regulation. How many times, Mr. Senator, have we run into a problem of this nature that you decided that a law must be placed on the books to eliminate this public nuisance? Regulation is not free. It has a carrying cost. Government should not inflate the law books for the questionable benefit of preventing a rare and bizarre case. Does such questionable benefit justify replacing the judgement of medical professionals and their patients who desperately want to have a child? If something is wrong with the Octo-mom, we have such perfectly adequate institutions as child protective services and mental institutions. A law is most certainly not needed, just as one was not needed and was morally abhorrent in the case of Terry Schiavo. 

Of course in this specific case, I suspect that state senator Hudgens is riding the octo-mom horse to push a pro-life agenda. And that's the other thing that's bad about easy cases: it gives special interest groups a red-herring by which to further their pre-existing agenda. Nevertheless, I have no doubt that copy cat laws and regulations will now pop-up all over the country. Who can resist the lure of such easy cases?

Our self righteous legislators and government officials should mind their own business. Their role as legislators gives them no moral advantage or additional intelligence to make people's decisions for them. 'Nuff said.

Enjoyed this post? Please consider subscribing to Money and Such by free RSS Feed or by email.

Why Reducing My Lunch Money Really Wouldn't Matter

For some people, saving small amounts of money on a daily basis can mean the difference between making ends meet and getting into financial trouble. My wife and I are lucky enough not to fall into that category. We lead a pretty modest life style, but I am not the type take a bagged lunch to work with me to try to save some cash. For one thing, lunch is my chance to get out of the office and actually see the sun - doesn't happen a lot these days. For another, spending social time with my friends and colleagues is both fun and productive for me.

But never mind all that - trying to cut out small amounts of money out of the budget simply doesn't make a lot of financial sense for us. Take for example the month of February: during the past month slightly over 90% of our spending was non-discretionary. About 50% of our non-discretionary spending went to childcare, 20% went to rent, and the rest was spent on utilities, medical expenses, groceries, fuel for the car - you get the picture. If we needed to drastically slash spending the only way for us to do so would be to rethink our childcare situation and to move to a less pricey neighborhood. Short of that, any changes we made would be cosmetic. Apparently, I am not the only one in this kind of situation. 

There are those who subscribe to the latte factor theory, believing that saving small amounts regularly eventually yields a big pile of cash. Maybe so. The theory is certainly tempting, and I too am fascinated by the prospect of riches with minimal effort - I have even created this nifty little latte factor calculator a while back to demonstrate the impact of such a saving strategy. However, I have now come to believe that small amounts have a way weaseling their way out of your wallet and never get to pile up and compound over time. Yes, it's probably possible to take some aggressive measures to eliminate such spending leakage, but for folks with our spending characteristics and income level, this hardly seems like the wise thing to do. I think we are better off holding off on buying a new car or buying a mcmansion if meaningful savings are our goal.

Enjoyed this post? Please consider subscribing to Money and Such by free RSS Feed or by email.

Is Saving Money Bad for the Economy?

One of the things that I never understood about Keynsian economic theory is the issue of spending vs. saving. How's that for an obscure start to a blog post? These days you hear all about government economic stimuli and how the government needs to spend more money to offset declining spending in the private sector. Supposedly, us wretched members of the public are so concerned about our own economic fate that we are spending less and saving more (the savings rate hit 5% in January, up from virtually nil last summer). Government must pick up the slack and get the economy going again, or so the explanation goes. The theoretical economic basis for such government intervention was developed by influential 20th century economist John Maynard Keynes. 

However, I never understood how and why the fact that members of the public started saving more could be a bad thing. After all, when you save money it goes into a bank, which uses your money to lend to other people who in turn use the cash to invest or spend. Savings equal investment. Yes? I understood the supposed logic behind government stimulus, but I never understood why consumer retrenchment in the form of savings could actually cause an economic downturn.

Well, this weekend I listened to an episode of EconTalk which covered this exact question. This excellent weekly podcast consists of an hour long discussion between two economists, covering a different topic every week. It's an intelligent discussion - not exactly dumbed down, but the conversation is jargon free and largely accessible to anyone with even a basic grasp of subject matter. Consider it econ 101 on your iPod. Anyway, the episode I listened to covered the issue of Keynesian economics with guest Steve Fazzari (you can find it here). The host, Russ Roberts, asked Fazzari the question that has been on my mind all this time but which I never bothered to explore: how can it be that a higher rate of savings causes an economic slowdown? A 30 minute discussion ensued which essentially boiled down to this:

Consider John who eats out every work day at a local restaurant. If John decides to save more and bring a bagged lunch from home, he will reduce his spending by say, $5 a day. His savings will go up by $25 a week. However, the restaurant owner will see his income reduced by $25, and therefore will either need to reduce his own spending by $25 a week or else his savings will be reduced by the same amount. The fact that our protagonist decided to boost his savings by $25 did not raise the total savings in the economic system. All it did was move the savings from the restaurant owner to John. This is like conservation of energy applied to money... maybe we can call it conservation of savings? Since no more savings exist in the system, no more investment exists in the system. All that changed is that the restaurant owner is now seeing a lower income. Interesting...

I don't know if I fully grasp or buy this explanation, but I am very intrigued. I have been thinking about this idea for a couple of days, and it seems to hold water so far. I think I want to learn more about the subject.

Enjoyed this post? Please consider subscribing to Money and Such by free RSS Feed or by email.

Don't Give Up on the Market Now... Unless...

One of my colleagues, a Ph.D. and senior executive in my company, told me yesterday that the economic situation has him so concerned that he is moving all his new contributions to his 401K to a stable, money market fund. He explained that he does not know what to do and is too stressed about the prospect of losing any more money. I can certainly understand the fear having lost about 22% of our stock portfolio's value since the year began two months ago. Nevertheless, what my colleague considers a defensive move is probably a bad financial error for the following two reasons:

Driving by Looking at the Rear View Mirror - if there was a right time to sell, it was probably before the economic meltdown began and stock prices went all to hell. Selling now is the equivalent of closing the barn doors after the cows have made their getaway. In fact, it's shutting the barn doors BECAUSE the cows have escaped. It makes no sense.

The Upside is Still There - I don't care what anyone says about the economic situation, this too shall pass. The stock market will not keep declining forever, and investing in stocks for the long term is a regular guy's best bet for ensuring his long term financial well being. Money markets may be stable, but they will certainly not beat inflation - the killer of financial security - over the long run.

Nonetheless, if you are so concerned about your finances that you are unable to sleep at night, are fighting over money or investment strategy with your spouse, or don't have a sound emergency fund to keep you afloat if you happen to lose your job or run into other trouble, even though this might not be the financially smart thing to do, you might be right to retreat to a safe haven anyway. In the end, its all about happiness. Money is not worth losing sleep over.

Enjoyed this post? Please consider subscribing to Money and Such by free RSS Feed or by email.

Claiming My Niche: a Two Year Anniversary

The very first post on Money and Such was published on February 27, 2007 - two years already. Time flies when you are having fun... and what a couple of years to be writing about personal finance, am I right?

My first post was about my investment philosophy, i.e. buy-and-hold index investing. Over the past 18 months that was quite a painful philosophy to stick to, but we're staying the course believing that in spite of all the pain, and possibly because of it, this strategy will yield the desired results in the long run. If you're worried about the market just remember: "past performance is no indication of future results"...

Money and Such has not taken the world of personal finance blogging by storm, nor did I expect it to (although I might have secretly dreamed that it would). There are many personal finance bloggers out there and many of them crank out high quality materials and do a killer job of getting the word out about deals and bargains and are simply fun to read. Still, even though there are hundreds of personal finance bloggers out there, I believe that Money and Such fills a relatively under served niche in the blogospehre. The way I see it, most personal finance blogs focus primarily on the basics of educating the public on how to start taking better care of their personal finances. The topic is well covered by well informed, talented writers, whose blogs are far more popular than Money and Such will ever be.

At Money and Such, I write about the topics that are of interest to me, which tend to be slightly more complex than what I find on other personal finance blogs. Yes, I write about investing, but I try to tackle a little more advanced topics such as diversification strategies and the impact of dividends. I write about the economy and economic policy. I am not an economist, but I am a lawyer and MBA by training and my views are colored by my industry experience of what works and what doesn't. They are also colored by my bias against government intervention in the markets, except for by means of well crafted regulation - which is why I recently spoke out against government imposed salary caps. 

At least once a week I typically write a post about career planning - my career is important to me, and I devote a lot of time to thinking about it and analyzing it. I also try to observe the careers of those around me to learn what works and what doesn't. This type of observation led to such posts as the true value of two incomes and avoiding dead-end career paths. Oh yes, occasionally I have been known to go on a little rant that's completely off topic. That's one of the privileges of having your own blog... 

So what to expect from Money and Such? Pretty much more of the same. I like the way this blog has been evolving and the topic mix so far. I expect to continue posting 3 or 4 times a week. How long will Money and Such be around? Don't know. I fully expected it to disappear after a few months, but it sort of became a habit. It's still fun and it will keep going as long as it is.

With that little monologue, let me solicit your input. Any advice on where to take this blog? Things that you would like to see less or more of? New topics that you would like me to cover?Should I finally get my own domain name, and if so, how the hell do you set-up your own website? Let me know by jotting down a quick comment. Thanks for stopping by and please come back soon!

Enjoyed this post? Please consider subscribing to Money and Such by free RSS Feed or by email.