The myth of the $600 hammer (12/7/98) -- www.GovernmentExecutive.com: "Bookkeeping based on congressional appropriations makes such cost-finding immensely difficult. Functions that in practice are inextricably intertwined are often paid for by totally separate line items in the budget. New weapons are bought with one 'color of money,' existing weapons are maintained with another, and the personnel who operate them are paid with a third. In fact, to save administrative costs, military salaries and pensions are all paid from one central office. As a result, said Eckhardt, among commanders 'there's a tendency to view military labor as free, because you're not making any expenditures from your installation [budget] to pay those people.'"
This is a fascinating article that, IMHO, should be required reading for every voter and taxpayer in the country.
In my household, we live the data-driven life. Our budget is updated to reflect actual fluctuations in income as well as risks to income. Our retirement plan includes a spreadsheet tab showing our assets and future income, with risk level specified (our home equity, for example, for a house east of Sacramento, is subject to employment trends at the major local employers, including the State of California). We break our budget down into monthly figures for both monthly costs and intermittent costs. For example, although we don't have a car payment, we have a monthly budget item for a car "payment" (the cost of our average car, divided by 5 years, because we typically replace one car every 10 years, and we have two cars). We budget for vacations and gifts and replacing the computer every few years and redecorating periodically.
The idea behind our budget is to 1) recognize the true costs of a daily latte or a Christmas splurge and 2) ensure that we set aside enough money for our day-to-day expenses as well as our year-to-year expenses. Most of our savings - in retirement accounts and taxable accounts - is earmarked for retirement and we hate to take money out of retirement for current expenses. It is, perhaps, an odd habit to try to account for both daily expenses and once-a-decade expenses in our monthly budget, but it encourages us to be honest about our expenses.
Let me give you an example. When we buy groceries, we multiply the per-meal cost by 30 to determine where it fits in our budget. If the meal cost is so low that eating it everyday would put us under-budget, that's a meal we can eat as often as preference and health considerations allow. For instance, $5 meal, if we ate it every day, would put our monthly dinner budget at $150, which is affordable. On the other hand, we make some recipes that use multiple fresh herbs. At $2 per herb, plus a pricey cut of meat and out-of-season vegetables, we have accidentally spent as much as $25 on a good, but unexceptional, meal. If we ate like that every day, our dinner budget would be $750, which strikes us as unreasonable. That's not to say that a $25 meal is out of the question - it's still cheaper than going out to eat, so it's a good value if it is at least as enjoyable as going out to eat. Our local restaurants don't use particularly fresh ingredients or especially creative recipes, so cooking something special at home is often more enjoyable for us than dining out. Expensive meals are relegated to occasional treats, not cut out altogether.
On the other hand, I agonized over replacing my laptop computer. I could get a fast, powerful computer for about $1,000, or I could get a functional computer that is much faster than my current computer, for around $500. That's a lot of extra money to spend. (In fact, I am still on the fence and holding out for prices to drop.) But we realized that we hadn't budgeted for computer replacement, so we added it to the budget. We replace the computer about every 3 years, so a $1,000 computer works out to about $30 a month. In other words, I should agonize over the $4 daily latte ($120/month or $4,300 over 3 years) and just go ahead and buy the better laptop computer.
See, without data, the latte seems like "it's only $4" and the computer - which is more useful and valuable - seems like a lot of money. Data is powerful stuff, useful stuff, and if it helps me spend money smarter and save money more often, imagine what it would do for the government?!
Friday, February 27, 2009
Sunday, February 15, 2009
Ziprealty can kiss my price predictor
I've written before about the heinous algorithm used in Ziprealty's "Predict It" price "game." It still sucks.
There is a neighborhood that I track. I know this neighborhood pretty well. A house came on the market, bank-owned REO. Before it hit MLS, we spoke with the bank's agent about buying the house - but their price was crack-smoking high. When the house hit MLS, I "predicted" the selling price on ziprealty. The house has languished on the market, unsold at its unrealistically-high asking price. The bank finally lowered the price, but the price is still unrealistic. Another house on the same street came on the market last week, a smaller house on a larger lot, but in much better condition. The second house is priced realistically - although not low enough to drive much traffic, let alone a bidding war.
The listing agent decided to relist the property when he lowered the price. So although the asking price is now within spitting distance of my price prediction, my "Property IQ" for the property is calculated by comparing it to the asking price in the original listing. That's a bogus programming choice, and one designed to support the asking (wishing) price as the realistic value - in a market where the State budget crisis, continuing economic uncertainty, and the all-important employment rate are all dragging home prices down. The major local employers have announced cutbacks - or investment anywhere other than California - and the State of California keeps threatening to layoff State workers. These are not conditions that bode well for rising home prices anytime soon, so why design a price algorithm that is heavily weighted towards asking price, unless the intent is to subtly manipulate buyer sentiment towards the asking price in the complete absence of any validation of asking price?
Ziprealty has an "Offer Evaluator" tool that compares the offer price you enter to recently sold properties in the same area. I simply enter $1 as the offer price, and the Offer Evaluator tells me that $1 is unlikely to be accepted because most comparable properties sold within ___% of asking price. But that's the key piece of information - it tells you what percent of asking price (typically 95%-105% of asking) most similar properties sold for. And yet, the Price Predictor skews towards asking price, even when the Offer Evaluator shows that most similar properties sold well under asking price.
Another flaw in the price predictor is that it basically ignores user input. On several properties I've "played," all players entered prices well below asking price, yet the algorithm claims that the Community prediction is merely hundreds to a couple thousand below asking price. Which begs the question - how many users does it take to make the "Community Prediction" actually match the predictions entered by the Community? A thousand? A million? 4.6 Trillion?
If this was meant to be a useful tool, it would have been designed without so many major flaws in its algorithm. If it was meant to be a subtle marketing manipulation, well, it's perfect. Bankers weren't the only sleazebags that created the bubble, they're just the only ones who've had to stop being so overtly sleazy.
There is a neighborhood that I track. I know this neighborhood pretty well. A house came on the market, bank-owned REO. Before it hit MLS, we spoke with the bank's agent about buying the house - but their price was crack-smoking high. When the house hit MLS, I "predicted" the selling price on ziprealty. The house has languished on the market, unsold at its unrealistically-high asking price. The bank finally lowered the price, but the price is still unrealistic. Another house on the same street came on the market last week, a smaller house on a larger lot, but in much better condition. The second house is priced realistically - although not low enough to drive much traffic, let alone a bidding war.
The listing agent decided to relist the property when he lowered the price. So although the asking price is now within spitting distance of my price prediction, my "Property IQ" for the property is calculated by comparing it to the asking price in the original listing. That's a bogus programming choice, and one designed to support the asking (wishing) price as the realistic value - in a market where the State budget crisis, continuing economic uncertainty, and the all-important employment rate are all dragging home prices down. The major local employers have announced cutbacks - or investment anywhere other than California - and the State of California keeps threatening to layoff State workers. These are not conditions that bode well for rising home prices anytime soon, so why design a price algorithm that is heavily weighted towards asking price, unless the intent is to subtly manipulate buyer sentiment towards the asking price in the complete absence of any validation of asking price?
Ziprealty has an "Offer Evaluator" tool that compares the offer price you enter to recently sold properties in the same area. I simply enter $1 as the offer price, and the Offer Evaluator tells me that $1 is unlikely to be accepted because most comparable properties sold within ___% of asking price. But that's the key piece of information - it tells you what percent of asking price (typically 95%-105% of asking) most similar properties sold for. And yet, the Price Predictor skews towards asking price, even when the Offer Evaluator shows that most similar properties sold well under asking price.
Another flaw in the price predictor is that it basically ignores user input. On several properties I've "played," all players entered prices well below asking price, yet the algorithm claims that the Community prediction is merely hundreds to a couple thousand below asking price. Which begs the question - how many users does it take to make the "Community Prediction" actually match the predictions entered by the Community? A thousand? A million? 4.6 Trillion?
If this was meant to be a useful tool, it would have been designed without so many major flaws in its algorithm. If it was meant to be a subtle marketing manipulation, well, it's perfect. Bankers weren't the only sleazebags that created the bubble, they're just the only ones who've had to stop being so overtly sleazy.
Thursday, February 12, 2009
Is Saving Sexy? Is Talking about Finances Romantic?
Laura Crowley wrote an article about the romance of talking about finances. Oh, it seems silly - Happy Valentine's Day, honey! Let's talk about the budget! - but maybe not. In my house, we talk before holidays about what our gift expectations are, and what our budget is. It's unspontaneous, sure, but there haven't been any "how could you buy me a toaster when I got you a sports car?!" arguments, either. And the B word - budget - has been helpful for holiday spending choices, too. This is my second marriage. In my first marriage, I was always the bad guy because I tried to limit our spending to increase our saving. I got lucky this time around - I found someone I love and respect, and I also stumbled upon the perfect fall guy, Mr. Budget.
Okay, honestly, Mr. Budget doesn't get a lot of blame, but he gets to be the unromantic guy that says "Diamond tiaras for President's Day?! No way!" We agreed on a gift budget for the year, and our pre-holiday budget discussions usually go something like this:
"How much do we want to budget for [upcoming holiday]?"
"I dunno. How much do you want to budget?"
"I dunno. How much do you think is reasonable?"
"I dunno. How much do you think is reasonable?"
(Side note: Before we created a budget, this conversation would go on 5 minutes, get nowhere, and repeat every few days until the holiday itself. Now, thanks to the budget, we have an out.)
"Well, we've budgeted $__ for the year. We have $__ left. Will 10% of that work?"
"Gosh, that's not much. Do you want to just exchange cards and have a nice dinner?"
"Sure."
"Okay."
There are certainly holidays where we decide to exceed our budget. But looking at the budget first makes us mindful that the extra money has to come from somewhere - withdraw it from savings or cut some other expense. We both hate withdrawing from savings. Since we're honest with each other, we know that steaks and lattes are a luxury, and we know where we can cut back.
Chocolates and flowers are romantic gestures, but creating a way of dealing with finances that honors both partner's fiscal AND emotional needs in the long-term and short-term, that's more than a gesture. It's like getting the brakes fixed or buying clothes for the guy who hates to shop or doing the early feeding so she can sleep in. It's grown-up love, and it's romantic in a very boring, very loving way. It says "I hope I don't, but I could die. I want you to have a good, happy life without me," and then buys life insurance. It recognizes that "til death do we part" is a mighty long time, so we'd better build some savings. It puts more credence on keeping a healthy heart then on buying a fake diamond heart. This Valentine's Day, as I count my blessings, I'll spend a moment being grateful for the Hallmark-free gestures of love that sometimes get taken for granted.
Besides, a good budget always has room for chocolates.
Happy Valentine's Day!
Okay, honestly, Mr. Budget doesn't get a lot of blame, but he gets to be the unromantic guy that says "Diamond tiaras for President's Day?! No way!" We agreed on a gift budget for the year, and our pre-holiday budget discussions usually go something like this:
"How much do we want to budget for [upcoming holiday]?"
"I dunno. How much do you want to budget?"
"I dunno. How much do you think is reasonable?"
"I dunno. How much do you think is reasonable?"
(Side note: Before we created a budget, this conversation would go on 5 minutes, get nowhere, and repeat every few days until the holiday itself. Now, thanks to the budget, we have an out.)
"Well, we've budgeted $__ for the year. We have $__ left. Will 10% of that work?"
"Gosh, that's not much. Do you want to just exchange cards and have a nice dinner?"
"Sure."
"Okay."
There are certainly holidays where we decide to exceed our budget. But looking at the budget first makes us mindful that the extra money has to come from somewhere - withdraw it from savings or cut some other expense. We both hate withdrawing from savings. Since we're honest with each other, we know that steaks and lattes are a luxury, and we know where we can cut back.
Chocolates and flowers are romantic gestures, but creating a way of dealing with finances that honors both partner's fiscal AND emotional needs in the long-term and short-term, that's more than a gesture. It's like getting the brakes fixed or buying clothes for the guy who hates to shop or doing the early feeding so she can sleep in. It's grown-up love, and it's romantic in a very boring, very loving way. It says "I hope I don't, but I could die. I want you to have a good, happy life without me," and then buys life insurance. It recognizes that "til death do we part" is a mighty long time, so we'd better build some savings. It puts more credence on keeping a healthy heart then on buying a fake diamond heart. This Valentine's Day, as I count my blessings, I'll spend a moment being grateful for the Hallmark-free gestures of love that sometimes get taken for granted.
Besides, a good budget always has room for chocolates.
Happy Valentine's Day!
Friday, February 06, 2009
Unemployment at 13.9%?
John Burns Real Estate Consulting publishes a newsletter on housing. This week's report says that unemployment is 13.9%. "The U-6 unemployment rate, which represents 13.9% of the total adult population who wants to work, also includes part-time employees who would rather work full-time."
There is a problem with saying that things are better (or worse) today than they were during the Great Depression. We have modified our data definitions so much that today's data really isn't comparable to 1930's data.
Meanwhile, California State workers are crying about mandatory furloughs. They take a day off without pay - but their pay rate isn't cut - and they keep their jobs. One of my concerns about the mid-term housing prospects in Sacramento County was State layoffs. It has been clear for several years that state spending was unsustainable. If the State can keep workers on at a lower rate of pay (via furloughs or pay cuts), that would be a positive for State employees, for the housing market, and for the local economy.
In fact, we might consider adding tax breaks for employers who avoid layoffs over the next three years, as an incentive for employers to pull together and help the economy avoid further contraction and decline.
There is a problem with saying that things are better (or worse) today than they were during the Great Depression. We have modified our data definitions so much that today's data really isn't comparable to 1930's data.
Meanwhile, California State workers are crying about mandatory furloughs. They take a day off without pay - but their pay rate isn't cut - and they keep their jobs. One of my concerns about the mid-term housing prospects in Sacramento County was State layoffs. It has been clear for several years that state spending was unsustainable. If the State can keep workers on at a lower rate of pay (via furloughs or pay cuts), that would be a positive for State employees, for the housing market, and for the local economy.
In fact, we might consider adding tax breaks for employers who avoid layoffs over the next three years, as an incentive for employers to pull together and help the economy avoid further contraction and decline.
Thursday, February 05, 2009
Stimulus Brings Out City Wish Lists: Neon for Vegas, Harleys for Shreveport - WSJ.com
Stimulus Brings Out City Wish Lists: Neon for Vegas, Harleys for Shreveport - WSJ.com:
Stimulating the economy back to 2005 would not be a good thing - we were wasting money we didn't even have, buying jewelry (bling) for our cell phones (!?!) and putting $50k/yr. families into $50k SUVs.
We need to stimulate HEALTHY spending. What's healthy spending? Investing to increase future earnings or to decrease future expenses. Building projects, though they sound good, will merely take workers off unemployment for the duration of the project, then put them back on the street when the project's done. Obama could take a page from Kennedy's book - putting a man on the moon gave us a surge of innovation and a huge psychological boost. It was ambitious, it was crazy, and it worked. President Obama needs his own "man on the moon."
"Las Vegas, which by some accounts already glitters, wants $2 million for neon signs. Boynton Beach, Fla., is looking for $4.5 million for an 'eco park' featuring butterfly gardens and gopher tortoises. And Chula Vista, Calif., would like $500,000 to create a place for dogs to run off the leash.
These are among 18,750 projects listed in 'Ready to Go,' the U.S. Conference of Mayors' wish list for funding from the stimulus bill moving through Congress. The group asked cities and towns to suggest 'shovel ready' projects for the report, which it gave to Congress and the Obama administration."
Stimulating the economy back to 2005 would not be a good thing - we were wasting money we didn't even have, buying jewelry (bling) for our cell phones (!?!) and putting $50k/yr. families into $50k SUVs.
We need to stimulate HEALTHY spending. What's healthy spending? Investing to increase future earnings or to decrease future expenses. Building projects, though they sound good, will merely take workers off unemployment for the duration of the project, then put them back on the street when the project's done. Obama could take a page from Kennedy's book - putting a man on the moon gave us a surge of innovation and a huge psychological boost. It was ambitious, it was crazy, and it worked. President Obama needs his own "man on the moon."
Tuesday, February 03, 2009
How much is a Trillion?
The current porkulus package is just shy of $1 Trillion. Gosh, just a decade ago, we were hearing "a million here, a million there, pretty soon you're talking about real money." Obama isn't even proposing a whole trillion - just 8 or 9 tenths of one.
We have 300 million citizens in America. Go google "1 trillion divided by 300 million" and you'll see that this one little bitty trillion dollar package will cost every man, woman, and child in America $3300. The average family is about to add $10,000 to their debt load.
America has an unfunded liability - money we've borrowed from Social Security, promised Medicare benefits, and military/government pensions that haven't been funded - of about $40 Trillion. Our national debt is about $10 Trillion. We are $50 Trillion in the hole, and digging our debt grave ever deeper.
With $50 Trillion owed, every American owes $150,000. That is roughly half a million dollars per family. That's $150,000 per man, woman, child, bank executive, welfare recipient, student, dog trainer, social worker, engineer, and salesman. That's an average of $150,000 per person, but, truthfully, a huge population of Americans will never pay more than $5000 in taxes in their lives. The rich and middle class taxpayers will end up paying their own $450,000 per family, and then they will have to pay for one or two or a hundred other families' share of the debt. And, in the meantime, we'll be paying interest on the debt. Right now, $10 Trillion of the debt is owed to outsiders, and the other $40 Trillion is owed to Social Security beneficiaries and government retirees. As baby boomers age and retire, that unfunded liability will become an actual liability, and the government will have to borrow to pay out real dollars to retirees.
For every $1 Trillion borrowed, we owe $30 Billion a year in interest (at 3%) every year. Right now, we pay about $300 Billion in interest on government debt. If we don't find a way to reduce debt and pay off our liabilities, our yearly interest payments could grow to $1.5 Trillion in interest payments every year.
So to anyone complaining about the GOP holding up the stimulus bill, maybe you should thank your local obstructionist lawmaker. Or else put your money where your mouth is - send Obama a few thou to help "stimulate" the economy, and toss in a few extra thou to help break out of the debtor's prison the United States is building around ourselves.
We have 300 million citizens in America. Go google "1 trillion divided by 300 million" and you'll see that this one little bitty trillion dollar package will cost every man, woman, and child in America $3300. The average family is about to add $10,000 to their debt load.
America has an unfunded liability - money we've borrowed from Social Security, promised Medicare benefits, and military/government pensions that haven't been funded - of about $40 Trillion. Our national debt is about $10 Trillion. We are $50 Trillion in the hole, and digging our debt grave ever deeper.
With $50 Trillion owed, every American owes $150,000. That is roughly half a million dollars per family. That's $150,000 per man, woman, child, bank executive, welfare recipient, student, dog trainer, social worker, engineer, and salesman. That's an average of $150,000 per person, but, truthfully, a huge population of Americans will never pay more than $5000 in taxes in their lives. The rich and middle class taxpayers will end up paying their own $450,000 per family, and then they will have to pay for one or two or a hundred other families' share of the debt. And, in the meantime, we'll be paying interest on the debt. Right now, $10 Trillion of the debt is owed to outsiders, and the other $40 Trillion is owed to Social Security beneficiaries and government retirees. As baby boomers age and retire, that unfunded liability will become an actual liability, and the government will have to borrow to pay out real dollars to retirees.
For every $1 Trillion borrowed, we owe $30 Billion a year in interest (at 3%) every year. Right now, we pay about $300 Billion in interest on government debt. If we don't find a way to reduce debt and pay off our liabilities, our yearly interest payments could grow to $1.5 Trillion in interest payments every year.
So to anyone complaining about the GOP holding up the stimulus bill, maybe you should thank your local obstructionist lawmaker. Or else put your money where your mouth is - send Obama a few thou to help "stimulate" the economy, and toss in a few extra thou to help break out of the debtor's prison the United States is building around ourselves.
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