Half Changed World

No one who is my age or younger in the US really has any experience dealing with inflation.  If anything, we’re used to consumer goods, especially electronics, getting cheaper each year.

I’m looking at the reports of 4.3 percent inflation over the past year, and the 4.5 percent interest we’ve been getting on our main savings account doesn’t sound like such a good deal.  On the other hand, it beats the negative returns that my retirement account (which is mostly stocks) got.  And it’s hard to see how banks are making money on mortgages in the 5% range, even setting aside the wave of defaults.

The headlines about stagflation are ridiculously premature.  But what’s true is that the Fed can’t do anything to combat inflation without risking turning the downturn into a full-blown recession.  So the hope is that weak consumer demand will control prices.  But the stimulus package and its "rebates" are supposed to increase consumer demands.

So what exactly are we supposed to be doing?

For those of you who don’t live in Virginia, the key piece of background information here is that the Virginia House of Delegates is generally controlled by the lunatic right.  These are people who aren’t sure that contraception should be legal, who would rather see all of Northern Virginia permanently frozen into gridlock than raise taxes to build roads, who think that preschool for poor kids is a socialist plot.  The Senate is usually more reasonable, even before the Democrats took back control in the last election.

So, I’m more than a little bit shocked to find myself supporting the payday lending reform bill adopted by the House of Delegates, rather than the sham reform being sponsored by Senate Majority Leader Dick Saslaw.  It’s not a perfect bill –while it theoretically imposes a 36 percent cap on interest rates, it allows for fees to be charged on top of that, which drives the real cost of lending far higher.  But it would be a good start, and would help prevent people from getting caught into an endless cycle of taking out another loan to pay off the first one. 

By contrast, the folks who have been fighting payday loans — including the AARP, the AFL-CIO, the NAACP, Voices for Virginia Children, and the Virginia Poverty Law Center — say that the Senate bill could be worse than nothing.  It’s hard not to conclude that campaign contributions are driving policy. 

As previously discussed here, there’s a real need for low-cost small dollar loans for people without great credit.  Even usurious rates can be worthwhile if the choice is losing your job when your car breaks down.  I’m not sure what the best solution is.  But a study from North Carolina — which banned payday loans a couple of years ago — shows that low-income people aren’t reporting hardship as a result of the ban.

Last time I posted about banking, reader Dave S. posted this link for the Predatory Lending Association.  I assume that anyone who spends a minute on that site will figure out that it’s a parody put up by the opponents of payday lending.  By contrast, I’m not sure that it’s immediately clear that the folks who were advertising on CNN during the coverage of the Potomac Primary results, with the URL "www.ReformPaydayVA.com" is the payday lending industry.

One of the sections of The World Without Us that caught my attention is the description of the gigantic collection of plastic trash in the middle of the Pacific ocean.  It was running around in the back of my head last week when I read the NY Times article about how Ireland has essentially stopped using disposable shopping bags, driven in large part by a 33 cent per bag tax.  Meanwhile, D has been learning about recycling at school, and I’ve been trying to use that as a starting point for a broader lesson about the environment (and turning off lights when you leave the room, please).

So we’ve decided to see if we can break the plastic bag habit.  We’ll keep track of how many we take in each month, and see how low we can get the number.

I understand that giving up plastic grocery bags isn’t going to save the world.  And there are plenty of things that involve plastics that I have no intention of giving up.  But it strikes me that using disposable plastic bags in no way improves my quality of life.  It’s just a habit.  And one that we can choose to break.

We’ve got some canvas bags already, and I went ahead and ordered some folding ones that I can keep in my purse so I always have one with me.  We’ll see how it goes.

Updated:

So far, so good.  We’ve had some slip-ups, but have been using them more often than not (and often forgoing the plastic bag even when we didn’t bring the grocery bags).

Jo(e) has a great post up about reusable bags.  She argues that the problem is that they’re so convenient that they get used for everything BUT groceries.  But if you buy enough of them, they become ubiquitous, and you stop having to worry about what you did with them.

It looks like Congressional leaders and the President are going to be meeting today to hammer out an agreement on the outlines of an economic stimulus package.  If you can possibly send an email or make a call to your representative and Senator this morning, and emphasize that any tax rebate should include everyone who pays payroll taxes, not just those who owe federal income tax, it could make a big difference.

Most people’s eyes glaze over when they start to read about the details of the stimulus proposals, so let me try to explain what’s going on and why it matters.

The key thing to understand is that this is a case where making sure that the rebate reaches low-income families is both the efficient and the just thing to do.  Liberals spend a lot of time arguing about the value of justice when it conflicts with efficiency, but there’s no conflict here, and this point isn’t getting enough attention.

• Efficiency:  If people get their rebate checks and stick them in the bank, this doesn’t actually stimulate the economy.  It only makes a difference when people spend their money, putting more money into the pocket of the people they’re buying from, and so on and so forth.  (This is in fact the argument behind Bush’s much maligned response to 9/11, encouraging people to go out and shop…)  And economists overwhelmingly agree that low-income people are more likely to go out and spend the additional money, because they’re more likely to have urgent unmet needs.  Upper-income people are more likely to stick the money in the bank.  All the news stories use a big screen TV as the example of what people might buy with the rebate, but upper income people are more likely to already have a big TV.  And especially if they think a recession is coming, it makes sense to build up a bit of a cushion.  (The CBO report is also unequivocal that business tax credits are inefficient stimulus, but the Dems seem to have already folded on that front.)
• Justice: You can make reasonable moral arguments that it makes sense to spread this windfall payment out equally among everyone in the US, or that it makes sense to give more to those who are most in need.  But what the Bush proposal would do is give less to those who are most in need and most to those who don’t need it.  Their claim is that they’re giving it to "everyone who pays taxes" but that’s a lie.  They want to only include people who pay federal income taxes, which totally excludes a huge chunk of low-income families — who do pay payroll taxes (for Medicare and Social Security), sales taxes, etc.  Moreover, families who are in the 10 percent bracket would only get a partial credit.

This should be a no-brainer.  But the Administration is proving once again that it places knee-jerk opposition to progressive taxation over common sense, and the Democrats in Congress haven’t consistently shown the backbone needed to stand up.  So call in this morning and demand a stimulus package that is both just and efficient.

Updated 1/24/2008:  Bush, Pelosi and Boehner announced their agreement today.  The good news is that at least a partial rebate — $300 — will go to anyone who earned at least $3000 (unclear what the reference year is, or the phase-in range, or any of that).  The bad news is that as part of the compromise, the House Democrats both accepted business tax credits that none of the economists think will do any good and gave in on demands for extended unemployment insurance and a temporary increase in food stamp benefits.  On the Senate side, the Dems are at least making noises about holding the line on including an extension of unemployment benefits.  So if you’re just reading this, and are inclined to make some calls, that’s probably the issue to focus on.

T and I were astonished last summer to notice a "made in China" label on a bottle of bubble solution.  This is a statement about how mindbogglingly cheap international shipping is, given that even in the US, it can’t cost more than pennies to make a plastic bottle, put a label on it, and fill it with water and soap.

Given that, how on earth is an American manufacturer supposed to compete?  I want to talk about the couch that we just bought, because it offers one answer to that question.

The couch is made by Carolina Chair.  This is a small, family-run company.  (Seriously, when I asked Cathy in customer service what something would cost, she said "let me ask my brother and get back to you.") They’re surviving in the era of globalization by:

• making a high quality product
• cutting out the middleman — they only sell direct to customers
• cutting out inventory — every piece is custom made, and they don’t start making it until you place your order.
• providing incredible customer service — truly friendly and helpful — they even emailed us a photo of our couch in their manufacturing plant. 

I found them via googling for a love seat/chaise combo because the ones we were looking at from Pottery Barn were really just a bit too big to fit in our living room.  When I emailed them, they were quite happy to make one just the right size for us, in the fabric of our choice.  (Ours is the 3rd one down on this page.  Yes, it’s very red.)  It made me a little nervous to order something like a couch online, but this Wall Street Journal article reassured me.  So we went ahead, feeling good about supporting an American company.

And we’re really happy with the couch.

I don’t have the words to say how appalled I was by today’s Washington Post article on how Senator Schumer has become a wholly-owned subsidiary of the hedge funds.  If being a Democrat doesn’t mean that it’s a no-brainer to vote for closing a loophole that lets people who earn tens of millions of dollars a year pay taxes at a lower rate than people earning the minimum wage (because payroll taxes are over 16 percent), then being a Democrat doesn’t mean squat.

Last week, I listened to most of the Ways and Means Committee debate over Rep. Rangel’s one-year patch bill, which would fix the AMT for one year, extend a bunch of expiring credits for a year, and also help some low income families by extending the refundability of the child tax credit.  No one argued against any of these things, but all the Republicans were saying that they didn’t need to be offset with tax increases anywhere else, because taxes are too much of the GDP already.  The Democrats were all responding by saying that it would be irresponsible to increase the deficit.

It’s sort of bizarre that the Dems have become the spokespeople for fiscal responsibility (at least on the House side).  I listened to a radio show a few weeks ago where a bunch of traditional fiscal conservatives sounded totally shell shocked about how little today’s Republican leadership cares about running deficits. In principal, I agree that modest deficits aren’t inherently a bad thing, if they’re supporting investments in future productivity.  (And I’d add that government spending needs the flexibility to be countercyclical — e.g. to expand when the economy gets bad).  But given the Republicans’ willingness to mortgage the future, I think there’s more to be gained than lost from "paygo" rules (e.g. where any tax cuts or spending increases need to be offset).

Based on a few posts that looked interesting from the TPM Cafe bookclub, I requested Daniel Brook’s The Trap.  I got it last week, and spent about an hour skimming it today, but couldn’t really get into it.  The online discussion is far more interesting.

Brook’s overall thesis is that the high cost of living in desirable urban areas, the cost of college and health care, and the very high salaries paid to workers in certain professions (big law, investment banking, management consulting), makes it harder for idealistic college grads to follow their dreams.  I think that’s probably true, but am not sure it’s the major crisis he portrays. 

Two quick points:

1)  As several of the commenters at TPM Cafe pointed out, Brook is wildly overstating the case when he suggests that the only alternatives are selling out and being a "saint" destined for poverty.  And by overstating the case, he actually makes it easier for people to sell out.  In reality, I know plenty of people who have darn good lives on public and nonprofit sector salaries.  By and large, they don’t have second homes and they don’t expect that their kids will make it through college without taking out student loans, but they’re not living on ramen noodles either.

2)  When I wrote about the cost of living last of week, the comments were running pretty strongly against the "just move" idea.  And I agree that you shouldn’t have to move time zones in order to make ends meet.  But I don’t have a lot of sympathy for recent college grads who feel like they’re entitled to live in hip urban neighborhoods and don’t want roommates.

On a related note, my team at work is hiring a Research Assistant.  I’m not sure exactly what they’re offering for salary — probably not enough to live in Dupont Circle, even with a roommate — but the benefits are excellent, they take work-life balance seriously, and it’s a terrific group of people. 

Last week, someone advertised a bunch of used toys that her kids had outgrown on the neighborhood email list.   A couple of them looked interesting, so, for $25, we got some k’nex, a snap-in circuits kit, and a bunch of tubes that connect together to make forts and stuff.  The tubes came with a manual, but some of the things that they showed required more pieces than we got, so I went online to see if I could find some more pieces.

It turns out that they’re Playskool Pipeworks, and are almost as old as I am.  The good news is that if my kids decide that they’re not interested in the forts any more, we can sell the pieces for a lot more than we paid.  The bad news is that I’m not buying more pieces, not at those prices.

And then today, via Daddy Types, I found out that my sister’s old dollhouse furniture is also apparently collectible.

Who’d have thunk?  Not me.

Last summer, I wrote about two social lending sites, one for money and one for stuff.  Borrowme seems to have gone under, without ever building up any steam.  But Prosper seems to still be functioning well, and hasn’t been totally swamped by the mortgage meltdown.

When I wrote about it, I hadn’t put any of my money into Prosper, but I did so in the fall.  I’ve now made 36 loans over the course of the past year, all of them for $50.  Two of them have already been repaid (ahead of schedule) and two of them are 3+ months late, and barring a miracle, likely to go into default.  Netting out the defaults, I’ve made a little more interest than I’d have gotten from the bank, but the difference is probably under $40.  So, not a particularly good return on the time spent reading through loan requests.  Although there’s a certain fascination with reading people’s stories…  I still think the real potential is for loans among people with 2nd and 3rd degree real life connections, but I see little evidence that’s what’s happening.

I’m slowly moving almost all of my real banking into the online world.  My main checking account is now at Ebank, which I love because I can take out money from any ATM without a fee.  I’m trying to figure out whether I think it’s unethical to keep our savings at Countrywide, which is offering awesome savings rates, presumably because they’re desperate for deposits to keep from sinking under all their bad loans.  (Yes, it’s FDIC insured.)  But they’ve got a reputation for being particularly unhelpful to borrowers in trouble.

D has been saying that he wants to save his money for a Nintendo DS.  I’m not thrilled at the idea of a handheld game system, but if he has the willpower to save that kind of money on a $1 a week allowance, we’re going to allow it.  I’m trying to convince him to open an account at a nearby bank that offers generous rates on kids’ accounts, but he likes having the piles of coins to play with and count.   We need to figure out if they offer safe deposit boxes — if so, we’re going to say goodbye and good riddance to SunTrust.

I was at a conference last week on accounts, assets and access.  It was a real eye-opener for me.  Call me naive, but I hadn’t realized how much money banks were making off of poor people on overdraft and late fees.  Now that  it’s been pointed out, it seems obvious — the dollar amounts that low-income people borrow are typically so low that even high interest rates don’t amount to much in dollar terms.  The killers are the fees.

Here’s an example of a card advertised as available to people with bad credit.  Not bad interest — only 9.9% APR.  But check out the fees — $29 set up fee, $95 one-time fee, $48 annual fee, $7 monthly fee.  And if you’re in this situation, you probably don’t have this cash on hand, so all of these fees are charged to the card when you get it.  So if you get the minimum possible credit limit of $250, your card will come to you with a balance of $179 and available credit of $71.  Oh, and they charge $11 for each autodraft (which actually costs them less to process than a check) and $25 each time they raise your credit limit.

Compared to that, a payday loan with a 100% interest rate doesn’t sound like such a bad deal.

Laura at 11d and Megan McArdle are going back and forth about child care subsidies today.  The comment that struck me was this one from "buffpilot" at Megan’s blog:

"We don’t need to give a subsidy to anyone, but making a means-tested
welfare, would be fine with mean. But base it on the income needed in
Mississippi – since you can move! If you want to live in NYC make the
money, don’t have kids, or move. Its YOUR choice. But don’t ask me to
give you money so you can live your lifestyle without making any
sacrifices. That’s what you want."

Similarly, when Bitch PhD posted last month about how unaffordable housing is, even given that her family has a good income, she got lots of "that’s what you get for living in California" type comments.

I really don’t have a good answer for the public policy question of how to handle cost of living disparities.  As has been pointed out repeatedly during the SCHIP discussion, a family in NYC living on $60,000 is in a fundamentally different situation than a family in Iowa with the same income.  But at least some of that difference is a matter of choice.  Are you willing to tax an Iowa family with a potentially lower income level to help that New York family?  Or do you tax the New York family more?  In spite of the federal tax deduction for state income and property tax payments, richer states — with higher costs of living — tend to pay more in federal taxes than they get back.  This is justified in the name of progressivity. But if you you take the cost of living argument seriously, progressivity might cut in the other direction.