The Caffeinated Penguin

musings of a crackpot hacker

Planning for the coming trade war

| November 9, 2016

So, now that the die is cast, it’s time to execute on contingency plan T (as opposed to plan C, which was “prepare for war with Russia”).

In the short term, I have some computer hardware that I’m going to buy that, ideally, I was going to wait until after tax time (in case I needed the liquidity), but now I want to make sure to grab it before Trump assumes office and places tariffs on those foreign goods. I think the right play here is to wait until the post-Christmas tech goods price drop, so the time to buy is early January.

I also am replacing my cell phone, but that will be a used one (I am not spending $700 on a phone. $200 is about where I’m comfortable, so a Galaxy S5 from swappa is in my future), so the lifecycle timeframe doesn’t matter, and I will therefore be getting it as soon as I get my VW money.

The only long term CapEx that we wanted to do was a new family hauler in 2018, but the front runner for that is a VW Atlas which is being built in Chattanooga, and is therefore likely to be minimally impacted by tariffs. As such, that remains on plan.

There were some optional things to be done (pave the driveway, add a fireplace to the living room), which may or may not happen depending on wage and market volatility. We’ve put those off for about 5 years due to having kids, and, we can easily put them off for the forseeable future.

I think everything else is just absorbing price increases, minimizing expenditures, and trying to keep ahead of increases in parts I might need (German cars, Japanese tractor, etc.) for service and repairs. But, the savings is likely not worth the cash outlay now.

Finally, as far as investments go, if your employer matches your 401(k), then that’s still the best deal going. Even if it loses 25% of its value, if your employer matches 100%, then you’re still up 50% over your contribution. Plus, as I am only 36, my horizon for collecting off of it is pretty long, and I can handle the world markets hammering it for the next 8 years (just as they have for the past 8 years). I have other investments, mainly in municipal bonds (because they’ve been doing well) and I’ll be meeting with my financial guy in Q2’17 to reevaluate. With any luck, the markets will have sorted themselves out by then, but, I expect they’ll freak out again when Trump starts poking at Obamacare. After all, when Obamacare was being debated, they went nuts, so it’s reasonable to assume they’ll do the same if it starts getting revised.

Eventually, however, the uncertainty (which is really what markets don’t like) will resolve and stabilize. The real question will be how much wealth will be destroyed in the process.

In summary, I expect I’ll just batten down the hatches, paint a bunch of miniatures, and wait for the storm to pass, just like I always do.

The economics of the VW TDI buyback program

| August 10, 2016

So, using the VW Court Settlement tool, I punched in my VIN and answered the questions to find that VW is going to give me just under $15k for my 2012 TDI Jetta, plus just under $6k of “We’re sorry” money, for a total of just under $20k. Armed with this information, I went searching for a new car so that I can sell back the old one without having to scramble to find one when everyone else is doing the same thing. Voila:

20160808_152459

But, the economics of the buyback are interesting. In 2012, I bought the car for $28,500 less a $6,500 trade-in for my old TDI Golf, which means I paid $22,000. I’m getting back $20,777. This means that I drove the car for 4 years for a total of $1223, plus about $800 or so in maintenance (3 oil changes plus a fluid change on the DSG trans). Spending $2k over 4 years and 62k miles is not too shabby.

“New” car is a 2013 Turbo Beetle (early year, so it’s the Gen 1 TSI, not the Gen 3 fitted in the bottom half of 2013) with just under 19k miles on it. It is more than paid for by the money I will get from VW in a couple of months.

Matt’s voluntary “tax” plan

| June 10, 2016

In talking with people about taxation being theft, the argument of “but we need taxes to pay for roads” (aka, the OMGMAHROADS! argument) often comes up. I’ve even had folks say, essentially, that “taxes are the price we pay for civilization”. The goal of this post is to articulate a plan where we can have civilization similar to what we do now, without it being supported on a foundation of violence, coercion and theft.

Caveats

Since state laws vary, I will just contain this discussion to federal taxes, since they are common across the US.

General rules:

If taxation is theft, then:

  1. The government may not collect income, property, excise taxes, or any other taxes which result in a seizure of “owned” property if taxes are not paid.
  2. The government may collect “usage fees”. For example, the government owns the roads, and can legitimately charge you for their usage. This is analogous to the electric company charging you for the line maintenance in addition to the electricity they sell you. Previously, these fees were collected with gasoline taxes, because the technology wasn’t there to charge people based on road usage. However, we now can do something akin to “EZ-Pass” but writ large. This is voluntary because, if you do not want to pay the tax, you can elect not use the service/utility/etc. However, while this is definitely a topic worth discussing in general, I will not discuss it further because it starts to get out of scope.
  3. By the above definitions, the government may conceivably collect “sales tax” on non-essential goods, because, if you don’t want to pay the tax, you could not purchase the goods. However, I will not put those in my plan because, to me, that pushes the edge of “voluntary”.
  4. The government may not take out loans as this represents a tax on future generations. Just as I cannot take out a loan and expect my children to pay, the government cannot take out a loan and expect future generations to pay. A possible exception here is “in time of war”, where the threat is so dire that there could conceivably be no future.
  5. The government may not play “the inflation game”. Assuming the current central bank and fiat currency model (again, another topic) the government may not inflate the currency supply except at a specific, predictable rate. For example, “the money supply expands and contracts at a rate equivalent to GDP growth and shrinkage”. This is because inflation is a hidden tax on savings, and therefore immoral, but you also want your money to supply to grow with the size of your economy in order to keep price stability (so that, absent market forces, etc. a chocolate bar is always $1, for example).

Plan A (the simple one)

Given the above constraints, we make the following changes:

  1. We eliminate the mandatory income tax.
    • There are no tax returns, because paying taxes is not required.
    • There are no deductibles, because there are no tax returns.
  2. At the same times where you would currently fill out a W-4 (basically, when you take a job and whenever you like thereafter), you fill out a similar form which states how much money your employer would withhold from your paycheck (percentage or dollar value) and those are remitted to the government.
    • They do this already, so it is not an increased burden to them.
    • They would not send out a W-2 because you don’t need it, because there is no tax filing. So, in all, it makes their lives easier.
    • Self-employed folks can still pay quarterly, as they do now. Or yearly. Or whatever. It’s voluntary, so it’s not required.
  3. As happens now, money goes into the general fund and is apportioned off by the government to appropriate agencies via the conventional budgeting process.

Q&A

  1. How will the government be able to operate if they don’t know what their budget will be ahead of time?
    • They’ll have a good idea of what it will be, because they’ll have the receipts from Q1-Q3 to, in Q4, do the budget for the next year.
    • Businesses deal with this variability all the time.
  2. What about Social Security?
    • This deserves its own discussion, because Social Security reform can happen with or without the above. But, the super short version is “we make it voluntary except for a transitional period where some people will be forced to pay into it in order to pay off all of the people who have paid into this Faustian Ponzi scheme their whole lives”.
  3. What about Medicare/Medicaid?
    • Now comes out of the general fund. I’ve never understood why it was under a separate line item on my paystub anyway.
  4. What about disability?
    • Buy your own disability insurance if you want to, otherwise don’t. The government shouldn’t force you to do what is in your best interest, nor should it compete with private disability companies and unions.
  5. But we won’t collect the same amount of money we collect now.
    • Then we’ll get exactly as much government as we are willing to pay for, and no more. The economics of “how much something costs” are totally divorced from the conversations these days, so people vote for the sun, moon and stars, and then complain at being taxed somewhere in the 60% range.
  6. I’ll pay, but other people won’t (the free rider problem).
    • Do you really have such a low opinion of your fellow citizens?
    • In reality, I think that most people who pay taxes now still would (though maybe not as much), and some rich people would pay more (and have said that they think their tax rate should be higher. This gives them the opportunity to pay more).
  7. What about corporations?
    • I see no reason why the corporate tax couldn’t be replaced with a voluntary contribution either.
  8. But they spend the money on the wrong things!
    • See “Plan B”, below, for an option which addresses this.

Plan B (the more complicated one).

So, this one takes Plan A and:

  1. Works the same way if you don’t care (puts all your money in the general fund)
  2. If you do care, you can file a separate form which works like a 401(k) election, and allows you to distribute your tax dollars according to your personal preferences as to where the money should be spent. You check the boxes for the things to which you want to give money, and fill out a percentage of how much you want to go into there. Must add up to 100%.

Q&A

  1. How will program X get funded?
    • Either out of the general fund or as a result of specific allocations.
  2. But most people don’t like program X, so it won’t get funded!
    • If people don’t like it, why is it being funded now? (Hint: I bet someone donated to someone else’s political campaign!)
  3. Won’t this remove politician’s “power of the purse”?
    • You say that like it’s a bad thing.
    • Seriously, yes, a bit. On the one hand, they won’t be able to give out benefits to their friends, but, on the other hand, they won’t be able to clamp down on government agencies by limiting their budgets if the public specifically allocated them monies. However, the public would have to do that, and the main reason congresspeople investigate government agencies is because of their constituents pressing them to do so. Look at the Snowden revelations. If something like that happens and people like what those agencies do, they would get more money. If not, then they would get less. No congressional input required – it’s the most direct form of governance and oversight.
  4. All that choosing sounds complicated.
    • No more than doing your taxes is now.
    • You can also just use the default and kick it to the general fund.
  5. This is doing to lead to government agencies spending tons of money on advertising to get people to spend more on advertising in order to get the people to give them more money.
    • Maybe, but they’d spend less on lobbyists (which is who they pay now so they can get more money) while at least being more straightforward and transparent.
  6. But then all these hippies wouldn’t fund the military and the terrorists would win!
    • Maybe some hippies wouldn’t fund it, but I’m sure there are enough folks who believe in a strong military that they’d be willing to specifically check a box and earmark a ton of their contribution to the military.
  7. But then no one would fund the roads!
    • I bet more folks would fund the roads than the military.

$17/day challenge

| April 7, 2016

So, I may be a little late to the party on this, but a few weeks ago I learned about this $17/day challenge legislators had been doing in order to drum up support for raising the minimum wage. Here is a link to the longest article on it I could find. It states:

The $17 figure was calculated based on what a full-time minimum wage worker could expect to have left on a daily basis after basic living expenses

What do they mean by basic living expenses? This other article says:

That figure represents what a minimum wage worker has after the costs of taxes, childcare and housing are deducted from an $8.05-an-hour paycheck.

Okay, so, I make a lot more than $8.05 an hour. However, here is what I actually ate today, with costs. This is retail, no coupons. I don’t have a grocery receipt handy, so I’m using the prices from Price Chopper’s shopper service. Also, I work in an office, but the only thing I’m using there is their hot water, microwave and toaster oven. No free coffee (I fudged that a little, because I do drink it, but I don’t know how much it costs, so I replaced coffee with bags of tea).

  • 2 packets of oatmeal (Quaker) @ $0.30 = $0.60
  • Thai Kitchen Pad Thai Noodle bowl = $3.69
  • Snickers bar (luxury!) – $1.25 from the vending machine.
  • Tea (PG Tips. Price chopper doesn’t sell this, so this is an amazon price) = $10 for 80, so $.125 each.. Say, 8 cups of tea in a day? What can I say, I like tea… $1.
  • Assuming your car gets 25MPG (mine gets 40, but I paid extra for the diesel) and you have a 50 mile round trip (mine is 54) and gas is $2.50/gal (diesel is $2.25), that’s $5 in fuel.
  • Subtotal = $11.54
  • So, I have $5.46 left for dinner and other necessities, and that’s without even trying!

Now, what if I was actually poor.

  1. No vending machine food, saves $1.25
  2. Generic oatmeal, that’s $0.19 each, so saves me $0.20
  3. Ramen noodles for lunch, and those are $0.22 each if you buy a 12 pack @ $2.69.
  4. Don’t want Ramen? Store brand ready to serve soup is $1.59 each. We’ll assume that.

Okay, so:

  • Oatmeal – 2 @ $0.19 = $0.38
  • Store brand soup – $1.59
  • Fuel – $5
  • Subtotal = $6.97

So, you’ve got $10 left for dinner and other necessities. How about this for dinner:

  • Bag of stir-fry vegetables = $1.69
  • Boneless skinless chicken breasts, 1lb = $3.69
  • Long grain rice (white or brown), 2lb = $1.99
  • Subtotal = $7.37
  • And it easily makes enough for 2, so you can have it for lunch the next day for no cost.
  • And that’s way more chicken than you need for that amount of vegetables.
  • And that amount of rice will last for several meals.
  • So, realistically, we’ll say the amount of money is actually half of the above – $3.69
  • Which means our total is $10.66, including dinner, which is less than my 2 meal total of how I actually live.

Anyway, I don’t mean to sound unsympathetic to the plight of the poor, and will concede that if you had kids it would be way more difficult (but, if you did, you could get food stamps, etc. Heck, you can get food stamps as a single person on minimum wage, can’t you?). And, realistically, the way to make more money is:

  • Live as described above.
  • Learn more skills / gain more experience.
  • Get a better job.
  • Make more money.

I’m going to let people in on a little secret – the reason you make minimum wage is because you are doing a minimum-wage job. There are two conceivable reasons you are doing a minimum-wage job:

  1. You want to even though you’re over qualified.
    • I know people who are well over qualified for being a clerk at a shop making minimum wage, but they’re typically working as supplemental income when their primary, seasonal employer isn’t open (think school aides, etc.)
  2. You don’t have the job skills to get a better job.
    • In this case, you need to get those skills, as described above.

The $15 minimum wage is government pushing people off a cliff.

| December 17, 2015

So, there has been a lot of talk about a $15 minimum wage. Any idea where what number comes from? I have a theory. But first, a graph:

Graph of welfare cliffs. Click graph to open larger in a new tab.

Now, this is for Pennsylvania, and is a few years old, so the numbers have varied slightly. For example, that first big cliff is now about $32,000 as opposed to $29,000.

Now, some math – $15/hr 40 hrs/week 52 weeks a year (aka US full time work) = $31,200. This means that, at best, you are going to be pushed right up to the edge of the cliff and, at worst, over it, which would mean that you won’t be doing nearly as well as you would have if the government hadn’t raised the minimum wage.

Let’s assume, for the sake of argument, that the government pays you $30,000 if you make up to $32,000 and then pays you $25,000 if you make $32,001 (this is loosely extrapolated from the graph, and assumes that the minimum wage WON’T push you over the cliff). So, in the former case, you get $62,000, and in the latter, you only get $57,001.

This gives a few different sequences of events:

  1. If Alice is working for the current minimum wage of, say $8/hr, her current pay is $16,640 and, with benefit, that will go to $46,640. If the minimum wage is raised, she suddenly goes to $61,200. The government can legitimately claim this is helping her (and it is) while costing the government nothing (assuming that her employer can absorb the cost, which we will assume it can). So, she remains getting the same subsidy and the government just forces employers to pay more.
  2. If Alice then gets a raise to $15.50/hr, she will now be making $32,240 and therefore will get $57,240 after her subsidy. In this way, she is made worse off, but the government saves $5,000 annually whilst simultaneously being able to claim that it helped the poor by raising the minimum wage (because, remember, it helped Alice in the above scenario). As long as people never make the connection of the former causing a problem here, they can get away with it. Further, even though Alice has fallen off a cliff, she is still better off than before the minimum wage raise because before she was making $46,640 and now she’s making $57,240.
  3. If, however, Alice is a sharp person, she will realize that she is better off not working full time, and instead dropping back to 51 weeks a year rather than 52 (essentially, taking just the right amount of unpaid leave), which would get her $31,620 in pay ($61,620 after benefit), or cutting back to just 39 hours a week, which would give her $31,434 ($61,434 after benefit). Once you apply this logic to a large enough population, what happens? For every few dozen people who do this, businesses will likely have to hire an extra person to make up the hours. As such, the government won’t have to pay those people unemployment benefit and it will make the unemployment numbers look better. The more raises Alice gets, the less she has to work, and the more people would need to be employed to make up for her reduced hours. Now, this is all assuming it doesn’t push her over the cliff and looks pretty shady. If you tweak the numbers so that the cliff is at $31,000, then she is immediately pushed out of full time work because she’d be making $31,200.

So, is this really about trying to give people a living wage, or about externalizing costs while having the government have to pay less out of its various social welfare programs?

Protectionist tariffs are ultimately self-defeating

| December 17, 2015

So, the whole idea that we’re “losing the trade war” gets trotted out as a populist meme every few elections, and it’s apparently that time again, because I’m hearing it again, this time from a rather loud fellow with bad spray-tan-esque makeup and vastly more hair than I have. At the risk of trying to resist the idea that bravado and follicular fortitude automatically win arguments, allow me to try and offer some logic. Typically, the way you fight in the trade war is to adjust your tariffs to protect domestic industries, which is what I will address here.

So, a parable of what actually happens.

Alice starts a company making widgets. She is an excellent widget maker, and her widgets are top notch. Perhaps they are patented, perhaps not, not really relevant. She makes widgets for years, is renowned for the quality, and her widgets are sold for $500 each.

Now, some time passes, the patent expires, or someone else sees a market opportunity. Enter Bob. He makes widgets similar to Alice’s, but at about half the quality, and he can charge $200 for his (either because of lower cost or lower profit margins, but that’s not really relevant, it’s merely his business model).

Time passes and Alice starts to notice her sales drop, investigates why and finds out that some foreigner, Bob, is making widgets. She does some market research and finds out that the people buying her widgets are willing to pay for quality whereas the people buying Bob’s widgets don’t care that the widgets wear out, because they’re used in more disposable or lower use applications. (This is akin to the whole “if you want a tool that lasts, go to Lowe’s or Home Depot and select said tool from the good/better/best sections. If you want to tool that is cheap, you go to Harbor Freight. The Lowe’s/Home Depot tool will generally be better and last longer, but the Harbor Freight tool is so cheap you can literally throw it away when you’re done with it, and thus build it into the cost of the project.)

Let’s assume that half of the widget buyers in the world want quality, and half of the widget buyers want cheap. Hence, Alice and Bob each control half of the worldwide market.

Now, Alice has a few options:

  1. Compromise on quality, perhaps by introducing a cheaper version to compete with Bob.
  2. Compromise on price, likely either by investing more heavily in automation thus lowering the cost of production, or by cutting profits.
  3. Convince people that they should buy her widgets and not Bob’s due to some motivator (superior quality, “buy local”, etc.). This is essentially advertising.
  4. Lobby the government for protection. Of course, since we’re talking about tariffs, she’s going to lobby for protection.

So, she goes to her friendly local government and convinces them that she is facing unfair competition from that evil foreigner Bob, that her business is vital to the local economy since she provides jobs, and that they should help her by “leveling the playing field” and “making it fair” (two common phrases I hear a lot). The government looks at it and says “well, if Alice sells for $500 and Bob sells for $200, let’s charge a $300 tariff on Bob’s widgets because then people will buy Alice’s widgets because they get superior quality for the same cost”. So, what happens when they do that?

  1. Many people in Alice’s domestic market will switch to buying Alice’s widgets.
  2. Any one who doesn’t will pay $200 to Bob and $300 to the government. This is, of course, the government’s incentive – they get money here. If they were truly clever about it, they might make Bob’s tariff slightly less so that more people would buy Bob’s widgets than if the costs were equal, thus increasing tariff revenue. Meanwhile, Alice can’t complain because some people switched back to buy her widgets, so she is made better off.
  3. Since the tariffs are for domestic sales, worldwide sales are unaffected.
  4. Anyone who had been Bob’s stuff domestically is made worse off because they need to spend $300 more than they used to because Bob’s widgets at $200 are no longer an option. Hence, their costs go up and they have to raise prices or reduce profits. So, we’ll say that Alice now has 90% of the domestic market, with Bob having the remaining 10% and Bob and Alice both still have 50% of the worldwide market. Alice is not as well off as she was before Bob’s competition, because then she had 100% of both markets, but she’s better off than in a truly free market, because the government has effectively subsidized her business for the cost of some amount of lobbying.

Then time passes and there are more entrants into the market. On the worldwide scale, they have to all compete with each other on delivering varying quality for the cost. However, in the domestic market, cost is fixed, so you can only compete on quality. Alice remains strong domestically, because her quality is still the best, but her worldwide sales are gradually eaten by competitors.

Then, however, tragedy strikes. The domestic market slows, if not outright implodes, and Alice now has nearly no domestic revenue and only a very small amount of worldwide revenue. Alice goes out of business.

So, in the end:

  1. Alice is out of business.
  2. Domestic customers had to pay more for widgets for years, thus driving up the cost of their widget-using products which limits their ability to compete on the world stage because their parts cost is higher. Now, if the government had told Alice “no”, what would have happened? She would have either gone out of business right then (which happened eventually anyway) or (more likely) she would have had to actually compete, meaning she would have probably ended up with a greater worldwide market share (because her quality/cost ratio would have been better) and a lesser domestic share and thus have been more insulated from domestic demand fluctuations.

Hopefully this makes sense and explains things a bit for folks.

Comments, as always, are welcome.