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March 27, 2006

Say "No" to Social Engineering

Captain Capitalism has gone and had an idea. In the abstract, I think ideas are good and more is better. But this particular idea is not so good.

Then it hit me. I wasn't thinking about it. I wasn't pondering anything related to it. But it just popped into my head;

I know, I was thinking "Stay-Puft Marshmallow Man" too. But that's not where he was going with this.

"Hey, why don't we make extra principal payments on debt tax deductible? That would not only serve as a sort of tax cut, but would strengthen the country's fiscal position, and help to increase many people's credit rating. It'd also serve to keep most interest rates, short and long term low, thus attracting investment."

He goes on to list the alleged benefits of this change in the tax code — complete with charts; he loves charts — then goes on to say:

It was such a good idea that I promised myself, first thing in the morning I'd tell my senator so that he'd realize the merits of this and submit a bill right away.

Hold on. Stop right there!

He resolved to go running to his senator before having analyzed the unintended effects of his plan. Bad economist, bad! No soup for you!

His commenters immediately picked apart the idea by pointing out unintended consequences, which is right good of them. But they also suggested tweaking the proposal to counteract (partially, I stress) those unintended consequences. And I recoil for a second time — hold on, stop right there!

This is exactly how our tax code became a labyrinthine mess in the first place. Economists think about the influences on economies, and when they team up with politicians they together believe that they can actuate the levers and push the buttons of the economy to make it — and let's not forget the individuals comprising it — behave how they want them to.

That's a fine attitude for a statist. But as a lover of freedom I must strongly object. Government should not (dis)incentivize behaviors based on the whimsy of politicians and the assistance of corrupt economists. Government should protect individual rights, and that's all it should do. Government should not be concerned with whether people are making "good" or "bad" decisions (as judged by who?) with their money or with their lives.

Each individual's personal savings rate, or debt load, is exactly that: personal. They have their reasons for saving or for not saving, for borrowing or for not borrowing. If you think people are making the wrong decisions, you should reach for the printing press, not for your senator's pen.

Each individual person's financial position is exactly that: personal. Don't reify a collective "national" financial position. It doesn't exist.

Interest rates should be a product of the market, not an exogenous input. Manipulating interest rates causes malinvestment.

Who will protect me from my guardians? They tell me it's for my own good, but I rather think I'm in a better position to judge my own good than they are. I wish they'd stop "helping" and leave me alone.

In happier news, Captain Capitalism got a makeover. I did that a few months ago, also largely outsourcing the decisions to someone else who knew what they were doing. (But I learned a lot and once in a while I think I'm nearing self-sufficiency.) Somehow he did his for only $300. Either I grossly overspent, or he didn't buy a lot of clothes.

UPDATE 2006-04-02 01:30:18 UTC: Captain Capitalism spared a few moments to write me a clarification before he went back to spending time with an absolutely freaking hot gorgeous blond. He wrote:

I have changed my official stance to allow for a temporary deductability in mortgage principal and ONLY on the ORIGINAL mortgage amount as to quell any unintended consequences.

That adjustment gets rid of the long-run incentive-changing effects because it amounts to making this policy a one-time surprise windfall. It would mostly benefit people with big mortgages and lots of cash flow. Yep, it's another giveaway to the upper middle class. And despite being one of the people with potentially a lot to gain from this, I must still oppose it on ethical and political grounds.

March 21, 2006

More Search Engine Fun

It was funny when my blog was prominently ranked by a search engine for a query about breast enhancement.

This time I'm horrified. My blog's front page is the top result at Yahoo for the query … read this slowly to get the full effect … "sending cash to the US from Russia through diplomatic pouch".

Try the search yourself (this probably won't work for more than a couple days) or click on the image below for a full-size view:

Unfortunate search ranking

I don't even want to be associated with those search terms. I don't need that kind of exposure. Please, CIA and FBI types who might be reading this, heed these words:

"Look, I'm very sorry. I do not know anything about any money laundering." I don't want to go to Federal pound-me-in-the-ass prison.

March 20, 2006

It's Good to Doublecheck

I don't do my own taxes. It wouldn't be good for my health. I'm perfectly happy to take my stack of papers to a smiling accountant who for a small fee will relieve me of this burden.

But it's good to doublecheck them. I think I just saved myself from an audit.

When I picked up my taxes I was all smiles at seeing a substantial tax refund due to me, instead of my expectation of a near wash (federal refund offset by what I would owe to the state). I almost mailed in my returns immediately, but a fortuitous telephone call and subsequent shopping trip pulled me away from my taxes until later in the evening.

At that time, I decided to browse through my returns and see what was responsible for my large refund. I reached my Schedule D and immediately saw a problem. I had no long-term capital gains. Impossible, I thought, because I had sold two lots from my employee stock purchase plan that I knew resulted in such gains.

As much as I detest knowing anything about taxes, in this instance I think my meager knowledge saved me from an audit. The IRS would know about those sales, but they weren't on my tax returns! <gulp> As repellent as it is to waste my mental capacity with information about taxes, I think an audit would be even more horrible.

So, what happened? How could my preparer get this wrong? I learned the answer when I returned my returns and explained the problem.

There's no scandal here — the error was almost trivial. It was a photocopying mistake. The particular 1099 that described these stock sales was printed on both sides, but only the front side had been photocopied by the tax preparation staff. And they worked from their copies, not from the originals (which were also in their possession). The information about these sales was, of course, on the back side.

They're fixing the glitch.

This is the sort of event that makes me stop and wonder. Professionally, I'm accustomed to seeing systems fail for subtle and complex reasons. I vacillate between thinking how remarkably robust microprocessors are as compared to other systems, and worrying that it only takes one mistake in some mundane detail to make them fail.

But making photocopies? Give me a break. That shouldn't go wrong.

March 19, 2006

Dumbest Pirates Ever

Arr! What's the stupidest possible thing a modern-day pirate can do?

I'm talking really, really stupid. Worse than forgetting where you buried your treasure. Think about it.

The answer is: attack the United States Navy:

Commander Jeff Breslau, of the Navy's Fifth Fleet, which is based in Bahrain, told VOA what happened next.

"As [the Navy ship] Gonzalez's boarding teams prepared to conduct a routine boarding of the suspect vessel, the ships noticed that a group of suspected pirates were brandishing what appeared to be rocket-propelled grenade launchers," he said. "The suspected pirates then opened fire on the Navy ships."

Commander Breslau says the two U.S. ships then returned fire with small arms in self-defense.

"In the exchange, one of the suspected pirates was killed and a fire ignited aboard the main suspect vessel," he added.

Twelve suspects, including the five injured, were taken into U.S. custody. A rocket-propelled grenade launcher and automatic weapons were also confiscated. No U.S. sailors were injured in the engagement, and there was only minimal damage to the American ships.

See what happens? Imagine you're the foolhardy pirate captain who ordered the attack. One of your men is killed, several more injured, your ship gets set on fire, and you're taken into custody. All without harming a single American sailor.

That is a pretty lousy day for a pirate. These guys are not doing much for the reputation of the profession.

March 10, 2006

Port Deal Blocked

Congress's latest bad move has been to block Dubai Ports World from operating several American ports:

On Wednesday, the House Appropriations Committee voted 62-2 to insert an amendment into a $68 billion emergency supplemental funding bill for military actions in Iraq and Afghanistan.

This was a clever move designed to defeat President Bush's threatened veto of legislation that would block this deal. This is the sort of politics that makes my blood boil — a funding bill for military action abroad should not be a vehicle for a domestic agenda. The two are unrelated; it's inappropriate to bundle them.

National security matters at ports are properly the responsibility of government agencies. (Navy and Coast Guard, please — the Department of Homeland Security is a joke.) To whatever extent private companies (foreign or domestic) are running security, the government should have adequate oversight to ensure good systems are in place. If they're not satisfied with the system and its results — as judged against objective criteria! — they should kick the bums out and find someone else. Or do it themselves.

Obviously, I prefer that they'd find someone else. The government shouldn't be running security unless it's absolutely necessary because I don't trust them to do a good job.

Port operators have additional information about the security procedures, sure, but so what? There probably isn't much that a little ordinary espionage wouldn't reveal. And the really sensitive stuff, assuming there is any, shouldn't be available without a security clearance to begin with! People who obtain the clearance are presumably trustworthy.

If there really were national security problems with this deal — and I don't believe it — that's evidence that the security system is broken and needs to be fixed, not that we should be protectionists.

I appreciated President Bush's veto threat. I wish he had gotten to exercise it. Congress has made damn fools of themselves throughout this brouhaha. They've made national security an excuse for racism and xenophobia.


March 08, 2006

Why You Can't Buy e-gold with PayPal

I've recently gotten several e-mails from people wanting to know how they could buy e-gold with PayPal. A little investigation revealed that this is very difficult, and I'd like to explain why. (IOW, stop e-mailing me to ask about this.)

If you look around the websites of the exchange services, they usually don't even mention PayPal. But if they do support it, it's only an option for customers who are selling (not buying) e-gold. Both the general lack of support and the asymmetry can be explained.

First of all, it's unclear whether PayPal to e-gold transactions violate PayPal's acceptable use policy. Exchange services would be covered by the money service business section of that policy, which requires pre-approval from PayPal to use their system in this manner. Furthermore, there is a blanket prohibition on using PayPal "to operate a currency exchange," but the question of whether e-gold is considered currency in the first place is not legally settled yet. So it's either against PayPal's rules, or would require PayPal's consent. And they would understandably have little interest in helping a competing payment system.

Another major reason has to do with the "soft" nature of PayPal payments. Whereas e-gold payments are irreversible without a court order, PayPal payments can be reversed even months after the transaction was thought to be complete. This sort of phenomenon is one of the largest risks of exchange services — after they deliver the e-gold, they're stuck if anything goes wrong with the transaction. PayPal is legendarily bad about this. When I asked e-gold exchange services about PayPal, I got stories of chargebacks and frozen PayPal accounts and electronic withdrawals from bank accounts and unresponsive customer service … and losing money as a result.

This general problem with PayPal is magnified by the fact that e-gold payments are irreversible. This attracts crooks who are eager to get their ill-gotten funds out of PayPal and into something more solid … and of course, e-gold is as "hard" as they come. When PayPal eventually tries to unwind the transactions, the trail stops at the exchange services, who can't adequately protect themselves from PayPal. They'll have their accounts frozen and be charged for the disputed amount, etc. It's not a good business to be in if your hoped-for $50 proft on a $1000 transaction turns into a loss of the full amount of revenue. A very small percentage of fraud completely wipes out your business. Adding insult to injury, you won't be able to earn additional revenue while your PayPal account is frozen.

The bottom line is that even if PayPal permitted it, it's very risky for e-gold exchange services to accept PayPal. And that's why almost none of them do. (I've only found three, and I doubt the legitimacy of one of those.)

The asymmetry of PayPal availability should be obvious, now. More exchange services are willing to send PayPal in exchange for e-gold because the risks of having accounts frozen, etc., are much lower when you're sending known-good funds instead of receiving funds from some stranger on the internet.

PayPal is a hostile environment for exchange services. They generally do not and will not support it. If you want to buy e-gold, do it by another method. There are plenty! Money orders, personal checks, cashier's checks, bank wires, credit cards … and for the deeply paranoid, it's even possible to buy e-gold by mailing cash. Fees vary, of course, but at least these methods are available. PayPal generally isn't. Don't ask for it.

I'd like to express my gratitude to those on the "e-gold-list" mailing list who responded to my request for information about this subject. You were very helpful.

March 06, 2006

Uncertain Humor

I thought this two-line joke deserved a better setup. I stole the punchline, and embellished the rest. My co-workers liked it, so I thought I'd share…

Werner Heisenberg and Erwin Schrödinger were bored one day in the lab, passing the time by setting up silly experiments. You know men and their toys — things progressed about like you'd expect. First some simple things, then more elaborate, on to slightly risky, and inevitably to outright dangerous.

Their last experiment of the day was an experiment involving radiation and Erwin's unfortunate pet cat, Fluffy. (And a geiger counter, and some poison. Use your imagination.) This was their last experiment because something went horribly wrong. Schrödinger's cat was half-dead; a serious situation indeed.

All three quickly loaded into a car for an emergency trip to the veterinarian. Schrödinger tending to Fluffy in the back seat, and Heisenberg driving. Worried about Fluffy's chances for survival, they were understandably not adhering strictly to the traffic laws.

They were pulled over by a police officer who thought their driving was a little too extreme. The scientists bemoaned Murphy's Law as the officer approached their car. The officer gave a stern look as the window was rolled down, then asked Heisenberg, "Do you know how fast you were going?"

"I have no idea. But I know exactly where I am!"

March 02, 2006

No Such Thing as Bad Publicity

There's a private currency called the Liberty Dollar that I've been aware of for several years. It's a silver-backed (or silver-coin) currency. I've always felt conflicted about it, because while I agree with the goal — a return to hard money — I haven't been comfortable with the way the liberty dollar hopes to do it.

The "problem" is that the liberty dollar has a face value, and that people are encouraged to spend it at face value rather than at its intrinsic (silver) value. Of course it's a negotiable instrument, so people could trade it at its intrinsic value. But even though the price of silver is readily available, very few people have even a rough idea of what it's worth.

You're thinking, "Cap'n, most bullion coins have a face value. So what?" Unlike other bullion coins, the face value on the liberty dollar is higher than the intrinsic value of the silver. So it's slightly dishonest to trade a liberty dollar for face value. Naturally, this objection can be brushed aside by noting that Federal Reserve Notes have exactly the same problem except they have an even lower intrinsic value — zero. So is this a phony problem?

Not quite. The liberty dollar's face value is deliberately held higher than its intrinsic value. When the price of silver rises, the currency needs to be re-issued. This happened very recently; the old "$10" one troy ounce silver coins were reminted to be "$20" coins.

Hey! That's debasement! That's inflationary!

You bet it is.

And, perversely, that's supposed to be a feature. This is supposed to make the liberty dollar "inflation-proof", because its face value will keep up with the inflation of the U.S. dollar. Well, er, sort of … but that's a funny way to think about inflation.

It's also, perversely again, a marketing feature. The high face value makes it possible to manufacture the liberty dollar and sell it "at a discount", for less than face value. People who buy at a discount then hope to spend for face value. That's slightly dishonest, too.

I sympathize with the liberty dollar, but I can't endorse it. Nonetheless, I have to acknowledge that having a high face value has been a very good idea from the issuer's perspective. Offering the money "at a discount" makes people more inclined to get it and spend it — leading to publicity (h/t DGC News.)

News stories about the liberty dollar aren't frequent, but they're notable because they're free publicity. The news stories dutifully introduce the currency, explain that it's silver-backed, that it's not legal tender, and that banks won't accept it, but also that it's perfectly legal. They have to explain all this simply so the reader can understand the story. As I said, free publicity.

The liberty dollar is the only silver currency I'm aware of that's actually had success at circulation. People don't try to spend other bullion coins; they don't think of them as usable cash. This sets the liberty dollar apart. I recognize that success, even while holding my nose.

(I have a few liberty dollars, but only as a collector.)

The liberty dollar will have some competition soon from the Phoenix Dollar, a new private silver currency that will not have a face value. I'm much more comfortable with that, but I think building circulation will be a major challenge.

(In time I'll get a few of these too, but the coins aren't back from the mint yet. How weird is it that I collect privately-issued money?)

Lastly, a question. Why do silver bullion makers always make them pure silver, instead of an alloy? Pure silver is soft and tarnishes easily. How about sterling silver or some lesser alloy, instead? If you're serious about having a circulating coin, it would make sense.

A Good Rant

Oh, how I love a good rant! Take this one about how CD packaging sucks. I completely agree.

March 01, 2006

Net Worth Report - End of 02/06

February is my highest-income month because it combines an annual bonus with the delivery of ESPP stock. (Remember, I'm not accruing that.) I easily beat my goal for this month because my goal calculations don't account for this irregularity in my income. Otherwise, this was a financially uninteresting month, so I'll keep this brief.

Net Worth Figures

It was not a good month for my investments. I would have been down this month except for the boost of ESPP and my extra-large 401(k) contribution.

Recall that I'm defining "Adjusted Net Worth" as net worth excluding the value of autos and unvested stock. The "Estimated Contribution" is how much money I believe I'll need to invest outside of retirement accounts in order to meet the following month's ANW target. (I'm trying to calculate how much "non-automatic" investing I need to do.) A declining EC indicates that I'm ahead of plan, and an increasing EC indicates that I need to save more in order to reach my long-term goal.

Goal-Tracking Figures
Adjusted Net Worth$313,923.77$329,440.10
Next Month's Target$317,419.81$333,251.45
Estimated Contribution$755.82$739.74

My credit card balances are 100% backed by time deposits and/or savings accounts earning interest at a higher rate than I'm being charged by the credit card companies. The monthly payment is estimated as 2% of the balance. (Most credit cards are now using a 2% minimum payment, and due to this it is important to have a strong cash flow and/or pay with funds from your credit card arbitrage savings account.)

Credit Card Arbitrage Figures
Balances @ 0% APR$32,258.33
Balances @ 1.9% APR$14,705.11
Total Balances$46,963.44
Monthly Payment$939.27

I know I haven't written about the online finance classes I'm taking, yet. Between being busy and being sick, I only completed one module this month. I aim to do more next month.

You can keep track of other personal finance bloggers at NetWorthIQ. I've updated my entry there.

Tiny Island