thoughts on personal finance

I’ve been quiet for a while, going through a number of struggles that have left me without the — in the vernacular of my childhood, the ‘gumption’ — to keep writing frequently.  I’m trying really hard to get the spark back now, because I know in the long run the pocketmint project is important to me.

Here’s a little of what we’ve been dealing with: about three weeks ago, the big corporate monster suddenly chewed me up and unceremoniously spat me out.  By innocently mentioning what I thought was a widely obvious event, I apparently violated some unknown policy of the parent company (the details of which remain vague to this day) and in under 24 hours received my walking papers — no mercy, no appeal.

This abruptly cut our income by half.  Then, last week, Jak learned that due to staffing cutbacks at Microsoft his hours will be cut to half-time.  This means one-quarter income, and total loss of health insurance.

The bad news is that the mortgage alone on our house come to slightly more than Jak’s remaining half-salary, so we’re behind before we even start.  The good news is that the mortgage is the only debt we’re carrying — we paid off the last of our massive credit-card debt a couple years ago — and we have a pretty decent cash emergency fund. I’ve been putting aside at least 40% of our take-home for the last two years; some of that we’ve pulled out again for major house improvements and additional (Roth) retirement funding, but we’ve got almost $30k in cash savings.

We can put off all the remaining house projects and hunker down to the bare essentials, and make it for maybe 6-8 months like this. Hopefully it won’t come to that; salaried jobs may be rare right now but I should be able to pick up some freelance or contract work. And Jak’s employer will be working on his behalf to try and increase his hours again. Right now he’s burning PTO to keep the insurance going through December. We’re trying to make this work, and hopefully something will get better before it all gets a lot worse, but we’re definitely in a new era now.

We had a talk with the kids last night, resetting their expectations about our way of life — we won’t be going out for sushi anytime soon, or ordering pizza; we won’t be funding any more weekend out-of-town trips for Michaela to watch her school athletic teams. They took it pretty well; Claire immediately wanted to know how we could cut our costs. Someone else must have previously explained to her about the connection between lighting and your electricity bill, because Claire instantly morphed into Lightswitch Nazi, turning off every light in the house that wasn’t immediately necessary, scolding all the while. We were amused.

I also made the point, which I hope Michaela at least will remember, that this is exactly why it’s important to save a lot of what you earn for a real emergency. She tends to spend money as fast as she gets it, which concerns me in someone about to turn sixteen. But only the difference between us and all those people with ‘foreclosed’ signs on their houses is going to be our empty credit cards and our emergency savings account.

If you have a job now and aren’t saving most of your money for emergencies, please start. You may think this is an isolated incident, but I fear it’s not; if the collapsing economy hasn’t touched you yet, it will. Be prepared.

(Photo by sunchild_dd.)

The presidential candidates have finally figured out that the top concern of most Americans right now is our floundering economy, and predictably they’ve both claimed to have the best economic solution.

As I wrote before, I’m skeptical about how much influence the President has over the economy, especially in the short term. But I’m just a layperson. Wouldn’t it be great to know what a majority of professional economists think about the presidential candidates?

Scott Adams thought so too. The author of Dilbert says, “I found myself wishing someone would give voters useful and unbiased information about which candidate has the best plans for the economy. Then I realized that I am someone, which is both inconvenient and expensive.”

Also: awesome. Adams personally commissioned and paid for a survey of 523 economists, and then released the detailed data to the public. There’s a whole lot of raw information there I won’t go into; you can read the original source (.ppt) or an overview with commentary by Adams on CNN.

Back to our original question, though: in this survey 59 percent of the economists say Obama would be best for the long-term economy, while 31 percent prefer McCain. Only 10 percent believe that there would be no difference.

Two points come to mind: one, note the phrasing: long-term economy. No one here is expecting a quick fix, regardless of election outcome. And two, the question was asked on a seven-point scale, with the three points on either end representing a candidate, and only the middle point representing ‘no difference.’ This would tend to skew the responses toward picking either candidate over none; there was no reporting that separated the ‘major change’ voters (the 1s and 7s) from the ‘minor change’ voters (the 3s and 5s).

Another interesting fact is that economists (both in this study, and in the country at large) are predominantly Democrats. Don’t know why, but there it is. Among Independent economists, however, Obama is still favored, 49% to 37%. (The other 14% are in the ‘no difference’ camp.)

And finally, on the question of whether we should care about the opinions of economists, I’ll quote from Adams’ blog:

If a weather expert tells you what the weather will be on a specific day next year, you can safely ignore him. If he tells you a hurricane is heading your way, it’s a good idea to get out of the way, even if the storm ends up turning. That’s playing the odds.

Likewise, if an economist tries to tell you where the stock market will be in a year, you can safely ignore that. But if he tells you a gas tax holiday is an unambiguously bad idea, that’s worth listening to, especially if economists on both sides of the aisle agree.

If you think it is okay to ignore economists because they are so often wrong, you’re looking at the wrong questions. Economists are generally wrong with complicated models but right about concepts. For example, they know that additional domestic drilling won’t make much of a dent in the energy problem. And they know that free trade is generally good for all economies. (You can argue with my examples, but the point is that some things are generally known by economists while not being understood by the general public.)

By analogy, a mechanic knows that changing your oil is good for your engine, but he can’t tell you what problems you will have with your car next year. You shouldn’t ignore the mechanic’s advice on changing oil just because he doesn’t know when your battery will die, or because he didn’t personally perform any scientific studies on oil changes.

Personally, I’d love to see a Nobel Prize-winning economist as President. Sadly, this is not an option.

One way or another, though, it’s time to change the oil in our car.

With the entire country in dire financial turmoil this week, I’ve been fighting my own great depression with the quintessential American pastime: shopping!

Well, sort of. I didn’t go on any kind of wild spree, nor was I shopping just for shopping’s sake; we’ve had a few months to grow our home-improvement fund since our last big remodeling outlay, and so I made a list of the next steps I want to take. It’s a longish list that includes some cleaning and organizing, some remodeling and landscaping, and some things to purchase or replace. Most of the shopping (like pricing attic insulation, or careful selection of litter box scoops) makes for less-than-fascinating blog fodder, but I’ll share a couple of exceptions.

Last Saturday I made a trip down to what might be Seattle’s best little shopping secret: the Pacific Coast Feather outlet store. You almost have to hear about it through word of mouth, as it’s not even mentioned on Pacific Coast’s own web site, much less advertised anywhere else. It’s a factory outlet in the original sense of the term: there’s just one, right next to the factory, and it holds mostly overstocks and discontinued items, occasionally seconds. (You may not know — I didn’t for a long time — but most ‘outlet stores’ in malls carry predominantly items specially made for those outlets, of cheaper materials and manufacture than regular merchandise from the same company.)

The PCF outlet is a bare-bones shopping experience, just a warehouse with some industrial tables, bins, and shelving piled with feathery bedding. Available stock varies: sheet and pillowcase options can be sparse; you’ll have the best luck with pillows and comforters. I expected to get a basic white down comforter but was happy to find a chambray stripe instead. I also picked up two of my favorite pillows, the ones with a feather core surrounded with down on all sides. Then I had to resist the urge to add a feather bed to my haul. Bargains can be a slippery slope! But I’m consciously keeping a tight rein on unplanned purchases.

Next up was replacing our dishes. We have some plastic Ikea kid dishes, some Ikea stoneware that Jak picked out before we were living together, and a twelve-place stoneware set that his mom gave us a few years ago. I’ve lived with them so far for reasons of frugality, but the frustrations include:

• the table settings don’t fit our lifestyle: we have way too many large plates and never enough bowls;
• the large plates of the better set are ginormous (12.5″ diameter) and don’t fit in standard cabinets or the dishwasher …
• … nor do they help with portion control!
• various pieces of both are scratched, chipped, or broken and missing altogether;
• the better set doesn’t include any serving pieces, and is impossible to match;
• and while I can imagine many less attractive options, these aren’t my preferred style.

I’ve never really shopped for good dishes before, so I was appalled to discover that ordinary stoneware typically runs $10 to $12 per bowl or plate! We’re not talking fine china here, yeesh. I wasn’t ready to drop $400 on new dishes, so I kept looking for a cheaper option.

Outlet store? I remembered there was a Mikasa at a nearby outlet mall (for loose values of ‘nearby’ — actually about 30 miles away). But when I looked it up, I discovered that Mikasa had closed all its retail stores and gone web-only. Thank goodness I didn’t just drive out there.

I’ll spare you the rest of the dead ends and just skip to the finale: I did eventually find two real bargains that fit our needs. For cheap daily dishes I ended up in Corelle’s online clearance section, where I bought 8 bowls ($1.19) and 8 ‘luncheon’ plates ($1.49). Corelle isn’t my idea of ’stylish’ but it’s nicer than plastic, lightweight, easy to clean, and virtually indestructible — a good choice for the kids and our informal lunches and snacks.

I had nearly despaired of getting a nice dinnerware set I both liked and could afford before I finally found the clearance section at Pfaltzgraff. They have a surprisingly large selection of discontinued patterns, both sets and open stock, for as little as $2 and $3 apiece.

I found a style from last year that Jak and I both liked, and selected ten each of the bowls, small plates, and dinner plates, plus six mugs, two serving bowls, one serving tray, and a coordinating decorative bowl and urn. (We can only seat eight, but I got extra plates and bowls in case of future breakage; with a discontinued pattern I assume replacements will be hard to come by.) Total price: $126. Then, icing on the cake: my usual online coupon search got me an extra $25 off; after tax and shipping (dishes are heavy!) the grand total was $134.

I confess that the decorative bowl and urn were impulse purchases not on the original shopping list, but I judged them to be well worth the extra $16 or so. We sorely need some decoration around our house; I’ve just been too focused on the functional basics to go looking for any.

And while yes, I know that shopping is not a cure for depression — either mine or the economy’s — sometimes new things do make me happy, especially when they directly improve my daily environment. I love snuggling up in bed with the new comforter and fluffy pillows. I expect the Pfaltzgraff, when it arrives, to make cooking and serving dinner more enjoyable and cleaning up afterward less of a frustration. Heck, I’m even a little bit pleased to have a better litter scoop!

I’m glad (and a little amazed) that we have enough money right now that we can selectively upgrade for attractiveness and better functionality. It’s a nice feeling.

(Photo by pillowhead designs.)

Okay, so we’re all worried about the economy right now, for obvious reasons. And because it’s a Presidential election year, we’re hearing the usual promises from both candidates about how their administrations will improve it. There’s a lot of discussion about whether Obama or McCain will be better — for the national economy as a whole, or for a particular economic segment of the population.

Not many people, however, seem to be questioning the basic concept that the occupant of the Oval Office can even have a significant impact on the national economy. I’ve long harbored a suspicion that Presidents are taking too much credit for the good times and too much blame for the bad. So I’ve been looking around to see how much leverage professional economists believe the President actually has.

In an essay on exactly this topic from the last Presidential election season, professor Russell Roberts points out “two strange assumptions” implicit in these discussions:

The first is that the President “runs” the economy. The President hardly even runs the government. He certainly cannot direct the fortunes and failures of millions of workers, managers, investors and entrepreneurs.

The second implicit assumption is that the success or failure of the President depends on his ability to “stimulate” the economy, as if the economy were an engine that simply needed a different setting for its carburetor.

Roberts illustrates the silliness of trying to control the national economy with tax cuts and stimulus payments with a parable of a boy dipping water from the deep end of the pool and pouring it into the shallow end. I liked this, because it exactly illustrates my problem with the $600 check I received in the mail this summer.

(On the other hand, spending untold billions of dollars on the Iraq war has always seemed to me a lot like dipping water out of the pool and dumping it out in the middle of the desert. Perhaps I just lack a global perspective?)

On a similar note back in February, economics professor Tyler Cowen wrote in the New York Times that, “The public this year will probably not vote itself into a much better or even much different economic policy… It is already too late to stop an economic downturn.” The reasons are varied, but seem to boil down to two points:

• The globalized economy limits the changes any one country, even a very powerful one, can make on its own.
• Most of our economic policies and strategies are entrenched beyond the ability of our current legislative and political systems to reform them. “Democracy is a blunt instrument,” reminds Cowen. (Ouch.)

Newsweek weighs in with a quote from Thomas E. Mann, senior fellow at the Brookings Institution. “[The President's] influence on the short-term macro economy is generally overestimated by voters.”

• In the short term, it may be a lot easier to do harm than good. Newsweek lists “notable [Presidential] policies that inflicted short-term damage” in the administrations of Jefferson, Grant, and Hoover.
• But most factors that influence the business cycle –”the end of the Cold War, the deflationary influence of an emerging China, the Internet … commodity inflation, a housing bubble and a weak dollar engineered by the Federal Reserve’s promiscuous policies, the demand-driven surge in oil” — would have occurred regardless of which person or party is in power.

On to Time Magazine, which noted that “The bigger issue for voters to wrestle with is … what the next President can do to the economy. Usually it’s not so much. But every once in a while, like when Franklin Delano Roosevelt was elected in 1932 and Reagan in 1980, the effect can be dramatic.” Cowen agrees: “The New Deal brought about a revolution in economic policy — but those were special circumstances.”

Are we in ’special circumstances’ once again? Not yet. Compared with 1932, 2008 is still looking pretty rosy. Could we wind up there eventually — next year, or the year after that? Answer hazy, try again later.

After all this reading, I’ve come away with four points of general agreement:

• There are no short-term solutions. The economy is an ocean liner, not a speedboat; course corrections take time.
• Rearranging resources is never the answer. Government ’stimulus’ doesn’t work because the resources used to do the stimulating are just water from the other end of the pool.
• A President may subtly set the tone of his administration but in most cases his direct power is limited at best. Congress and the Federal Reserve both have a greater effect on economic policy.
• The most important economic role of the President may be the ability to impact the mood of the citizenry in general. Franklin Roosevelt famously restored public confidence with the first of his “Fireside Chats”, halting the run on deposits that had flattened the entire banking system.

Newsweek again:

The most troublesome economic data points aren’t necessarily the rising unemployment rate and plunging home prices. Rather, they’re the miserable consumer-confidence numbers, which have hit a 16-year-low, and the high percentage of Americans who believe the nation is on the wrong track.

I could use a little clear, plainspoken communication right about now — what about you?

Sources:
Presidential Economics: What Leaders Can and Cannot Do about the State of the Economy, The Library of Economics and Liberty
It’s an Election, Not a Revolution, New York Times
Why the President Can’t Fix the Economy, Newsweek
The New President’s Economy Problem, Time Magazine

A job-matching site which has my resumé on file just emailed me an alert about a new position for which I was supposedly a near-perfect match. I dutifully clicked through and started reading. Job description sounded good, and then I got to the ‘About the Company’ section:

Seattle — home to gourmet coffee, grunge, and thrift banking. Washington Mutual (WaMu), the largest thrift in the US, offers traditional consumer and commercial banking services, including deposit accounts, mortgages and other loans, securities brokerage, and the WM family of mutual funds, through about 2,200 bank branches in the West as well as New York and Connecticut, and nearly another 500 loan offices nationwide. It is one of the largest originators and servicers of residential mortgages in the US, in part through subsidiary Long Beach Mortgage, which offers subprime loans. However, the bank is exiting the subprime business.

Gotta love that disclaimer at the end. Really, if I were to change jobs now it would be out of the financial industry altogether, not from a relatively stable bank to … yeah.

WaMu, you can have my savings for as long as I don’t need it, but I draw the line at my paycheck. Sorry.