Ludwig von Mises Institute
Israel at the UN
Cascade Policy Institute
Voluntary Trade Council
Dr. George Reisman
Mises Economics Blog
The Angry Economist
Civilian Gun Self-Defense
In The Pipeline
Fall of the State
Voluntary Trade Blog
Free Money Finance
I'm publishing a computer parts list for the benefit of a few of my co-workers who are also planning to assemble computers in the near future. I ordered most of the components from Tiger Direct and all prices are after manufacturer rebates. (Rebates totaled $110.) I'm writing this after having ordered the components, not after assembling the system, so I might yet discover some incompatibilities.
Note to marketing analysts: I bought almost everything through Tiger Direct because they had a great price on the first component I shopped for — the motherboard. After my shopping cart had one item in it, I kept filling it without shopping at other sites. So, ya know, it might be a worthwhile strategy to sell motherboards as loss-leaders. Just FYI…
OpenBSD is free to download, but I purchased it on CD. The current releases support both multithreading and 64-bit operation.
The processor is extremely high-end — almost too high-end, because I had to buy a correspondingly high-end motherboard in order to support it properly. The "trouble" is that it's a dual-core that also supports multithreading, so I have a total of four hardware threads. I very much wanted to buy an Intel® D945GNT because it offers integrated graphics, but that motherboard doesn't support Extreme Edition processors. (As an aside, don't mistake the "Intel® Pentium® Processor Extreme Edition 840" for an "Intel® Pentium® D Processor 840" or an "Intel® Pentium® 4 Processor Extreme Edition" — these are all very different products. Don't get me started on how much time it took me to fully understand the differences, and I work there…)
There are no motherboards for Extreme Edition processors that offer integrated graphics. This seems reasonable if you realize that this particular market segment is populated by computer gaming enthusiasts who need fancy and expensive graphics capabilities … but I'm not a gamer, and I don't need those capabilities. I would be happier with integrated graphics and fewer components to buy. As you can see, I did not spend big money on a fancy graphics card.
I did not purchase any thermal compound (to place between the processor and heatsink) because I already have some left over from the last computer I built even if the cooler unit doesn't ship with any. I'm not certain I'll stick with this cooler because I expect it to be fairly loud on such a hot processor. I may upgrade to something more expensive, but quieter.
You may have noticed that this is a "headless" machine — no keyboard, mouse, or monitor. That's correct. I'm going to add it to my KVM switch. I'd like to upgrade to an LCD monitor, wireless keyboard, and wireless optical mouse, but that will mean buying a new KVM switch too.
You may also have noticed that I didn't buy an optical drive. I'm going to salvage one from an older computer. I'll only use it to install the operating system, anyway. My CD/DVD ripping/burning needs are met by my laptop.
I toyed with the idea of building this system to be a media server and putting it in my living room, but I decided I'd rather upgrade my general use computer instead of having a media server. The multimedia capabilities of this computer will go sadly unused.
The FBI recently searched Rep. Jefferson's (D-LA) Congressional office and home as part of a corruption investigation. He was caught on videotape accepting a $100,000 cash bribe. He's guilty. But his guilt isn't what interests me about this situation.
The interesting thing here is the way that other Congressmen are complaining about the searches:
Any sense of controversy here is manufactured. This is an embarrassingly simple situation to analyze from a separation of powers context. No branch of government gets carte blanche — it's always restrained by the other two branches. In this situation, the FBI (executive branch) obtained a search warrant from a federal judge (judicial branch) to search Congressman Jefferson's (legislative branch) office.
Two branches of government thought the search was appropriate. Only one branch of government objects. Majority wins — the search is fine. There's not even a whisper of any overriding factors (national security or somesuch excuse) that would be a reasonable basis to forbid the search.
Congressional offices cannot be protected from the law. That would turn them into thieves' dens. <hrumph>
As an aside, what is the deficiency in Pelosi's thought process that causes her to single out the executive branch for attack? What about that federal judge who issued the warrant? It is fundamentally wrong to level accusations at one actor while totally ignoring a coequal actor.
A pox on Congress!
I spent three hours today working on a single problem. I can't describe the issue on my blog but take my word for it that it's wicked hard and deserved the time spent on it. It wasn't just me working on this — it actually consumed eight man-hours today (plus another three last week). We solved it. At least we think we solved it, but the plan will need to gestate for a while because we still might think of holes in it.
It's a curious thing that problem-solving can be a group activity even though there is no such thing as a collective consciousness. (You Borg in the back of the room keep quiet. Resistance is futile.) Every idea is the product of an individual person's mind, but a proper group environment enhances our ability to generate and evaluate ideas. How?
When I read about psychology I've frequently noticed that, unlike other fields, true ideas are easy to recognize once they're explained. Many times I've read about something and thought to myself, "of course — that's clear, intuitive, and very likely true." Not obvious, but compelling once explained. After today's problem-solving session I think I've identified one of these clear and compelling psychological truths, so I want to share it.
The greatest value in a group problem solving scenario is the questions. When you're problem-solving alone, it's easy to follow a train of thought for a long and perhaps fruitless distance. In a group setting, you need to outline where your idea is leading so that your co-workers can follow along. They'll ask questions in order to better understand the basis of your idea. These questions will very often cause you to restate the fundamental connections between your idea and the problem being worked on. The repeated building up and tearing down of ideas from this fundamental level reduces the amount of time spent on ideas that are unlikely to work because it encourages bad ideas to be identified as bad and discarded sooner. In other words, a group setting can increase focus on the actual problem being solved by interrupting chains of thought that get too far away from the problem.
I believe this explains why group problem solving can be so useful. It explains why group problem solving can be more effective than each member of the group independently working on the problem. (This is the proper comparison to make. It's not about having "more people" working on a problem, which can be done on an individual basis — it's about having those people working together on the problem.)
From an overall efficiency standpoint, it's important to note that a group problem solving session is not always best. My example problem was solved in approximately four wall-clock hours, but there were eleven man-hours of total work. A single person may have been able to solve it in (say) seven wall-clock hours. The tradeoff is between the timeliness of the result and the total amount of effort. Depending on the circumstances, either might be preferred.
I can't finish this post without a disclaimer. The people in the group have to work well together! If they don't get along, they'll waste time bickering and won't be productive.
Destroying My Credit for Fun and Profit
Making money with credit card arbitrage has hurt my credit. When I published my arbitrage calendar earlier this month, I noted that one of my introductory rates was expiring soon and that I had applied for a new 0% credit card to transfer the balance to. This transfer would help me to keep earning my expected $2,000 in free money over the course of the year. Two interesting things have happened since then.
First, American Express sent me a letter informing me that they were reducing my credit limit by $1,000. I thought this was very interesting but otherwise didn't care much because it would have no practical consequence for me.
Second, my application for the new 0% credit card was declined. They sent me a nice letter about it. I knew before opening it that my application was declined because I didn't feel a stiff chunk of plastic in the envelope. They were fairly terse about the situation:
It's a shame they couldn't write that as "we decided not to give you credit at 0% because we're pretty sure you'd use it."
So I plunked down $11.96 to check my FICO score (at myFICO.com with a 20% off coupon) and learned just how bad I look to creditors. I've only checked my FICO score three times; here's all the data I have: 754 in 11/2002, 762 in 05/2005, and now 676 in 05/2006.
When I checked my score last year I had already made the first small steps into credit card arbitrage because I was accumulating a balance on a card offering me 0% on purchases. But I hadn't done anything aggressive yet, and my revolving balances were only 19% of my credit limits. Today I learned that the average American's balance-to-limit ratio is 40% … and mine is 68%. I also learned that only 15% of Americans have credit card balances over $10,000. Mine are $45,000! According to my credit report I'm in financial distress. I wouldn't loan me money, either. :)
Perhaps if I was reading my blog I'd know that I wasn't a credit risk, but it would make me even less likely to loan me money because I'd be certain to lose money in the deal. (Pronouns confusing you yet?) Credit cards offer promotional interest rates to gain customers. They want to earn interest from carried balances and they want to earn transaction fees from merchants. A customer like me who is only using the credit for arbitrage is a total loss. We'll pay off the balance before paying any interest, and won't make any purchases because the purchase interest rate isn't 0%.
My FICO score of 676 puts me around the 35th percentile, with a predicted risk of missing a payment at 14%. There's no way I can qualify for a 0% balance transfer before my introductory rate expires at the end of this month. Regrettably, I'll have to pay off the balance on that card — about $14,000. (This is why we keep our funds liquid when we're playing the credit card arbitrage game, my friends.) The majority of my remaining balances will lose their introductory rates in October. This gives me a lot of time to think about a strategy for making a successful balance transfer instead of paying those balances off, too.
If you have any tips, you're welcome to drop me a line.
Approaching the End of Privacy
From President Bush's weekly radio address:
The government has created a database of information about domestic telephone calls for the purpose of looking for patterns that might be useful in gathering intelligence against al Qaeda. The database was created with the assistance of the major telecommunications companies. It contains metadata about the calls — such as the information you would see on your monthly bill — but not the content of the calls themselves. What does a pro-freedom, small-government type like me think about this situation?
I'm not surprised. But perhaps surprisingly, I also don't care very much.
This was inevitable. Not for any political reason; I don't think this is an ominous sign of an encroaching police state or a sinister new threat to my privacy. This was inevitable because of technology. The cost of data storage and manipulation has been falling exponentially, continuously, for decades. This database was created because it's feasible to make it. And if the government didn't do it, someone else would have.
In fact, someone else already did: the telephone companies supplied the data from their own databases. The only "new" thing here is that the data has been pooled together instead of held separately at each company. Because this data is valuable, the pooling would have happened eventually even if the government hadn't asked for it.
Strong advocacy of privacy is one of the common elements of libertarianism, but I realized it was a losing battle a long time ago. Computers are slowly killing privacy, and it can't be stopped.
When you make a telephone call, you're connected by a computer. Do you pay per-minute? It's necessary to record metadata about your call for billing purposes.
When you write a check, or pay a bill online, the bank has a record. You do want to see all your transactions in your monthly statement, don't you? The same is true for online currencies. Every transaction is performed by, and recorded by, a computer. Even if you keep your identity secret, the pattern of your transactions can be seen.
Your credit cards are tracked, too. Do you have a "rewards" card that gives you money back for food or gasoline purchases? That's only possible because the credit card company knows which transactions are made at restaurants or gas stations.
Electronic mail isn't secure at all (by default). Google's mail service scans the contents of your messages to target advertising. Even if the contents are ignored, the mail transfer agents certainly need to know where the message came from and where it's going to. These details can be logged. Traffic analysis is useful to fight spammers, after all.
Search engines can log your search terms. So can the sites you visit. For example, within the last day someone from Belgium found my blog by searching for "arbyte sexs". (While I appreciate the interest, the travel would be too expensive. Sorry.)
Your local library knows what kinds of books you check out. Amazon.com knows what kinds of books you buy. Your video store knows what movies you like. Unless you do business in person and pay cash, you're being tracked.
Everybody has information about you, and — snicker — "information wants to be free". As the costs of data storage and manipulation continue to fall, this information will eventually be combined. Even if various privacy policies forbid the sharing of data in this way, I expect the data will eventually be stolen because of its great potential value. The genie can't be put back into its bottle. I don't think the end of privacy will take the form of a police state. I rather think it will usher in a new era of advertising.
And part of me wants it to happen. Que "I, for one, welcome our new advertising overlords."
Atlas Ready to Shrug
I struggle to find the words to express how horrible non-objective law is. It must be possible to determine, before acting, whether or not that action is legal.
The classic example of non-objective law is antitrust. Now, in another public spectacle of gross economic ignorance, Congress is working to make "price gouging" a federal felony. (For the sake of argument, let's ignore the beneficial effects of high prices and pretend this law might be reasonable.)
The actual definition of "price gouging" is "charging a price that I feel is too high." That's it. There is no objective standard whatsoever, despite the delusions of Congress. Any definition that is clear and unambiguous is tantamount to price controls or central economic planning and will necessarily be a disaster; any definition that is vague leaves the matter entirely in the hands of unpredictable juries and will induce businessmen to abandon the market, as exemplified in my opening quotation.
The root of the trouble is the widespread belief that economic law can be overturned by political law.
It can't be.
The retail price of gasoline is "high" because that's the price at which the market clears. A lower price is only possible if the physical supply can be increased. If it can't be, trying to hold down the price will cause a shortage. If the additional physical supply is available, the profit motive will cause it to be brought to market and the price to fall. Cartels in profitable businesses do not work except when they have government support to keep competitors at bay. The oil companies emphatically are not conspiring to keep prices high.
Yes, Congress should act — but it should act to reduce the barriers put in the way of the oil industry in the name of environmentalism. Popular culture has it backwards; the oil companies are the good guys and the environmentalists are the ones to fear.
Gold at $700/oz!
Spot gold punched up to $700/toz today. It crossed $600/toz just a month ago.
Buffett on Frictional Costs
I'm not sure how this escaped my notice for two months, but in Warren Buffet's most recent annual letter to Berkshire Hathaway shareholders he explained the idea of frictional costs with an allegory:
Buffett is trying to explain why he believes stock market returns will be lower in the future than they've been over the past century. Frictional costs brought about by financial managers of various stripes will be to blame:
Conspicuously absent is any discussion of the fact that active financial management is a productive activity. The "Helpers" in Buffett's allegory do not simply take a slice of the earnings that would have gone to the investors. Contrary to the facts, Buffett explicitly endorses the zero-sum viewpoint:
He even uses the pie analogy!
This is a Shocking! Outrageous! thing to hear from a professional investor. As I said before:
The "Helpers" do not merely eat the pie. They also make it bigger. Whether they grow it by more than they consume is a debatable (and empirical) issue. My point here is not to declare the answer one way or the other, but to criticize Buffett for propagating economic ignorance. He has a powerful megaphone and he ought to wield it more carefully.
I hope that he knows better than what he wrote. As the world's preeminent investor, I expect him to.
Victory Over the FDA
I heartily approve of this:
The Food and Drug Administration is not authorized by the Constitution. I don't think the FDA is likely to wither up and die anytime soon, but it's valuable to publicize situations like this so that the public wakes up to the idea that the FDA can harm people. That the FDA prevents (potential) treatments from being available to people is an example of the "unseen" harms of government.
I look forward to the day when doctors and patients assert that they are capable of making their own decisions about drugs, and that they have the right to do so without the meddling of the FDA.
Two questions should make the matter clear: (1) Why should government, instead of a private group or groups, investigate drug safety? (2) Why should it be a crime to act against its recommendations?
Worrisome Essay Posted
Recordkeeping for Credit Card Arbitrage
When you're doing credit card arbitrage, it's important to keep a calendar. As the end of your introductory rate approaches, you need to transfer the balance to a new low-rate card. If you don't have a detailed calendar, you risk paying hefty interest. Here's my calendar:
Note the first and last dates. The end of my promotional period on my first Discover card is ending soon, so I just applied for a new Citi card (a Citi PremierPass) in response to a mailed solicitation. I applied online, but I'll have to wait for the response by mail, so I don't know how large my balance transfer limit will be. I'm hoping it will be large enough to cover the balance on my Discover card, but if it's not, I'll have to pay off the remainder because there probably won't be enough time to apply for another card.
Rising interest rates and a lower credit score have considerably thinned the field of good balance transfer offers. The best kind of card is one that offers 0% on balance transfers, no balance transfer fees, and 0% on purchases. My first Citi card and my American Express card both fell into that category. But I haven't gotten any offers like that recently. The card I just applied for offers 0% on balance transfers and no balance transfer fees, but it does not offer 0% on purchases, so I won't be able to use the card for anything but arbitrage. I've thrown away many solicitations offering 0% balance transfers but that would charge a balance transfer fee.
Regarding the other half of credit card arbitrage — earning interest on the money you've borrowed — ING Direct's 4.75% APY savings account offer ended in mid-April. At that time I moved my money back to E*Trade Bank which had just started offering a 3-month promotional 4.75% APY money market account. (I'm not sure whether this promotional offer is still valid. When I click through one of their ads, they're only offering 3.85%.)
Last year I had opened some certificates of deposit because they were offering better interest rates than I could find in more liquid accounts. That was a mistake, because interest rates rose rapidly and they're now earning slightly less than my money market account. I'm not going to open any new CDs until it's clear that the fed is finished raising interest rates.
I believe that competition among banks will keep the interest rates they're offering near the fed funds rate, at least for promotional periods. I'm comfortable predicting that I'll be able to earn 4.75% or better for the rest of the year. If I'm able to maintain my current balances of about $45,000 I'll earn over $2,000 this year — about $175/month. In other terms, credit card arbitrage is paying my electricity, natural gas, water, and garbage collection bills. (Accounting for taxes too, it still pays for my electricity and natural gas.)
It's easy money. But do keep good records.
In A Handbasket
Time for a rant.
Everything's broken! Nothing works! Ggghhhaaaa!!
Taxes are broken. I got a letter from the IRS explaining that they've reduced my refund — it appears something strange happened with respect to my Health Savings Account. The guy who does my taxes says it's probably bad software on the IRS's side and he'll look into it. Relatedly, a few weeks ago I received a corrected 1099 in the mail… after I had sent in my tax returns. The corrected 1099 was printed April 10th, all-but-guaranteeing to cause trouble.
Gasoline is broken. Idiot Republicans are trying to get me to mail myself $100 so I can afford to buy gas, and the oil industry is still horribly off-message trying to defend itself. They need to stop letting themselves be the scapegoat and start channeling Hank Rearden. They should be apologizing for profits that are too low, not too high. And weirdly, the fuel gague in my car stopped working today. I don't have enough data yet to know if it's a one-time issue or if it's really broken. But it's something I get to complain about. :)
My bank is broken. They sent a wire without a destination account number, so the money bounced back to me a couple days later. Precious metals sellers are broken, too — the wire was to buy some palladium. But they didn't have enough to cover my order, and didn't bother to tell me until after receiving the funds I had to re-send. This is shockingly brain-dead inventory management.
People are broken. I'm getting a higher-than-normal volume of e-mail about the ACN scam. Nothing good enough to publish, though.
Social Security is still broken. The 2006 Trustees Report has been released and the picture is slightly worse than it was last year. I still want to opt out of Social Security. I fear Arnold Kling has jumped the shark by advocating that we simply raise the retirement age without doing anything at all to compensate the young.
Personal finance reporting is broken. Here's a lovely example of the problem with imputed income. The article is reporting on an estimate of how much a mother would make if she was being paid for the various "jobs" she performs during the day. I always roll my eyes at these things because they never include any income associated with the job "prostitute" — which is the only example you need to realize the ridiculousness of the whole endeavor.
A bunch of stuff is broken at work too. But I mostly don't blog about work.
The lone ray of light is that the Chinese are still subsidizing America. That's a kind of broken I can like.
May Day 2006
Every year, Catallarchy offers a large set of articles reflecting on the lessons too few of us have learned from the last century's experiment with collectivism.
This is history we must know, an empirical lesson bought with the blood of millions of people — our fallen comrades. That the manifest evil done unto them never be repeated, it is right to periodically observe a day of remembrance.