Thursday, May 29, 2008

Take the Politicians out of Politics

A friend of mine, Justin, recently posted this quote on his blog:

"Anyone who is capable of getting themselves made President should on no account be allowed to do the job." -Douglas Adams

I took this to mean that in order to be a successful politician, you must be inherently incapable of making good policy. Taking campaign donations, making broad and impossible promises, and changing your stances based on their current popularity are all useful in getting elected, but are actually obstructive to good policy. Justin's suggestion was somehow getting rid of the two party system, but I don't think that's the answer. In fact, that "us-them" mentality may actually keep both parties fairly moderate and work to keep the size of the government small. Instead, I suggest something a little more audacious. Instead of getting more choice in our politicians, why not get rid of them all together?

My proposal is Online Direct Democracy. Instead of having representatives that vote on issues for us, we could allow each and every willing citizen vote issue by issue. This idea could start with a single representative, who vows to vote as his constituents do online (as this Australian political party strives to do). Then move to allow citizens to vote on all local, then state, then national issues.

The main benefit I see is the elimination of the major flaw with democracy, special interests. Lobbyists would no longer have the incentive to solicit an elite few. Granted they may still advertise and promote their position to sway voters, but there would be no backroom deals. It also limits the influence financial donors have on the election, something campaign finance has failed to do. As long as the sale of votes is prohibited, money can only be spent convincing citizens.

To ensure that the tyranny of the majority is not too great, I propose having a large percentage needed to pass legislation. If 75% of the American public is needed to pass a law, then we will simply have fewer laws. This from my perspective is probably a good thing. To decide what bills make it to the ballot, you can require a certain amount of signatures, keeping the list to 50 or so. Then once or twice a year you sit down at your computer and vote yes or no on the 50 topics or so (with maybe emergency elections if needed for war or major pressing issues). Now basing your vote on issues, not predictions of how politicians will vote on issues.

Here are some details I need some help working out:
-Who appoints judges? Are they now elected and not kept non-partisan?
-Who chooses military leaders? Are military officers going to be elected now?

Tuesday, May 27, 2008

The Root of all Evil, Charity

A question I have been asking and discussing a lot lately is how should I contribute to society with my career? I have recently come across an interesting answer: follow the money. Price signals will tell you where you can be most valuable. The higher paying a job (and by pay I also mean benefits, perks, and ease), the more that position needs to be filled. The wage you are paid is directly correlated with how much you produce. Despite popular belief, doctors do not get paid a lot because they have a lot of education (if that was true philosophy professors would get paid more). Instead, they earn a great deal because they contribute a great deal to the general welfare of society. They are also harder to replace and in short supply. This is not to say money should be your only deciding factor, but I do think that it is a valuable one.

Friday, May 23, 2008

Top 10 Reasons Why American Idol is a Phenomenon

First off let me just say that I am not an American Idol fan. I have never voted, I’ve never seen a season all the way through, and this is the first season I have watched enough episodes to really know what’s going on. This year there were two main factors keeping me watching the show: 1) my wife enjoys it 2) Fox is the only channel we can get clearly on our rabbit ears. So in honor of the only show I have regularly watched on TV this year (I am forced to watch Lost online) here are the top 10 reasons why my grandchildren will know what American Idol is.

1) Ratings wise it is the most popular show of all time, averaging 27 million viewers this season. Also, this year’s finale beat out last year’s huge turnout with almost 32 million viewers. It has even helped make Fox America's most popular television network for the first time since it began operation in 1987.

2) The ratings are so big there is a death star effect. That is, other channels are moving their popular shows and replacing them with duds to limit the negative impact.

3) It has made Ryan Seacrest the next Dick Clark (literally), where as his original co-host who left after the first season, Brian Dunkleman, is doing Celebrity Fit Club.

4) This show gives no names the chance to be famous. It is the ultimate place for people with no industry connections to get international exposure (sorry Miley Cyrus). It has done for music what blogging has done for news.

5) American Idol not only creates new music stars, but brings attention to old ones. Performers include Bryan Adams, George Michael , Seal, Donna Summer, Graham Nash, ZZ Top, OneRepublic (and that's all from the last episode). They also have themes such as "country music, hits of the 21st century and Elvis Presley songs, along with appearances and mentoring by legendary artists like Tony Bennett, Jennifer Lopez, Martina McBride and Bon Jovi. These guest performers not only share their expertise with the contestants, they enable audience members to experience a variety of musical styles."

6) They have a great business model. Every part of the show is cleverly crafted as a way to maximize profits:
-iTunes sponsors the show and they use them to sell recordings of the performances each night
-They have contestants do Ford commercials, drink Coke products, call on AT&T (each having to pay $35 million dollars)
-Total the show had 4,184 product placements
-There is even have an idol camp, featuring real past contestants
-The final episode was one big advertisement for the summer tour which will have 50 shows around the country at about $75 a seat

7) First show ever to get its own theme park.

8) Idol Gives Back raised over $70 million for charity in the last two years. Not only is that helping millions, but it sure makes the show look good too.

9) It also gives unknown songwriters a chance to make it big. This year they even let the final two contestants choose their favorite and sing it.

10) And finally, more people voted in the final two elimination than in the 2006 election. Yeah that’s an midterm election, but still, 97.5 million votes is phenomenal.

Like me, you may not like most of the music that comes out of the American Idol scene, but clearly a lot of people do. I also have to admit that I really liked Kelly Clarkson’s Breakaway album.

Wednesday, May 21, 2008

The Market in Everything

I think Obama will win the Democratic primary and the presidency. I think we are not and will not go into a recession. I don't think any European Union member nation will announce an official boycott of the 2008 Olympics in Beijing. On what evidence did I make these predictions? Other than my own personal assumptions, I used, an online prediction market. Intrade works just like the stock market, only instead of investing in companies, you bet on your ability to guess the outcome of current events.

It works by creating contracts between bidders on various topics from entertainment, politics, and even weather. For example, there is currently a category called "Mike Huckabee to be the Republican VP Nominee in 2008." If you think Mike will be selected, you buy stock in that outcome. If you then change your mind, you sell the stock. As more and different information is revealed, the value of investing in Huckabee fluctuates with it. When the nominee is chosen and the result is official, if Mike Huckabee gets the nomination that contract will close at 100. If on the other hand he fails to get it, the contract will close at 0. You win or lose real money, so talk is not cheap.

One major problem I have read about on this site is that the deposits are in non-interest-bearing cash. So if I put $100 on Huckabee and I break even, I have actually lost money (because I could have put that money somewhere else and earned some interest or return on investment). For this reason, the expected rate of return is negative, which limits the amount of profit and therefore restricts people from really putting their money where their mouth is. Having a similar effect, laws against gambling also restrict the amount of people can make in these information markets. Here is an article that discusses how this potential research tool is hindered by unnecessary government restrictions.

Monday, May 19, 2008

Evangelical Manifesto

The purpose of this document is to clarify confusions about the common term Evangelical and to clarify how they stand on issues that cause concern over our participation in public life. It was written by a group of Evangelical leaders who "do not claim to speak for all Evangelicals, but who invite all other Evangelicals to stand with them and help clarify what Evangelical means." Here is my brief summary:

I. Reaffirm Identity: The seven core beliefs are:
1) Christ was fully God and fully man, without whom there is no hope of salvation.
2) Our acceptance by God is through Christ's death and resurrection alone which we receive freely by grace through faith.
3) Christians receive new life powered by the work of Christ and the Holy Spirit.
4) The Bible is God's inspired word and is the final rule for faith and practice.
5) Disciples of Jesus worship in every sphere of their life; secular and spiritual, public and private, acts and words, and kindness to those who especially need to be shown mercy.
6) The fulfillment of God's undying kingdom will come when Christ returns.
7) Believers are called to love God through worship, fellowship with other believers, ministering to the needs of others, and sharing Christ with those who do not yet know him.

The defining features of an Evangelical:
1) Holds not just a belief but devotion.
2) This devotion is expressed just as much in our actions as it is in our theology. Followers of Jesus require great change in thinking, acting, and living.
3) Not limited to certain churches or defined by specific movements, ages, or cultures. Recognize that Evangelicalism has its roots outside of America and that in fact there are more in the Global South than in the North.
4) Must be defined by our theology, not our politics.
5) The message is always positive before it is negative. The root of the word comes from the Latin meaning "good news" for that is what the gospel is. But they do not claim this is unique to them, they do not intend to condemn, but to reform.
6) Is not analogous with liberal revisionism or conservative fundamentalism (defined in the full paper below).
7) Looks equally to both past and future.Rethink Place in Public Life: Called to be in the world, but not of the world, and so be engaged in public affairs, but never completely equated with one party, ideology, class, or nation.

From what I gathered it seems like their definition of Evangelical is my definition Christian. On the one hand I'm glad they did not attempt to segment the Church further by narrowly defining this faction of Christianity. On the other, I'm afraid by defining the term so broadly the writers have not really accomplished anything. In fact, I'm not sure what the purpose of this document was supposed to be. Yes the term Evangelical gets thrown around a lot, especially by secular groups, but these groups that misuse the term will not stop because of this. My suggestion to the writers is to not try and redefine a term that has so much baggage. Instead they should reject the use of such a divisive word all together and encourage the global Church to unite under the name and work of Christ.

Friday, May 16, 2008

Free Monthly Audio Books

Today I began listening to my first audio book ever, Atlas Shrugged, and it has shown me two things. One, it reminded me that I don't really like fiction books (especially ones that take up ten full audio CD's). And two, that audio book are pretty useful. If you like books and you drive a lot, then may be the thing for you. It has a free monthly download of fairly well known books that doesn't require you to sign up for anything, which is always nice. They even have some that are always free. Of couse, you can also pay a monthly fee to rent audio books. Enjoy.

Wednesday, May 14, 2008

Top 5 Things I've Learned from Dave Ramsey

1) Pay off your debts before you start saving/investing. You wouldn't borrow money to invest would you? (By the way, this is the main reason for the housing "crisis" right now. People borrowed money to invest in a sure thing, their house)

2) Don't spend money you do not have. Dave recommends, and I would agree, buy everything with cash, except the house.

3) Emergency funds makes real emergencies a rarity. Don't use the credit card as a back up. Keep some money easily accessible in case something breaks, because something always breaks.

4) Don't take on extra debt just to get a good credit score. I hear people say not to pay off debt too fast for this reason. A good credit score just means that you have borrowed money and paid it back. Most good lenders will use manual underwriting to take detailed look at your employment history, salary, and financial statements to get a real understanding of default risk. A person who has been financially responsible for 20 years and has not borrowed any money will have a credit score close to 0.

5) Follow Dave's 7 Steps to being "financial peace":
1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball (smallest to largest)
3. 3 to 6 months of expenses in savings as a full Emergency Fund
4. Invest 15% of income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give!

I really like listening to Dave a lot. He has a lot of straight forward and common sense (his words) advice to credit hungry Americans. Spending money you don't have is not what a responsible adult does, it's what Congress does. However, I don't totally agree with his seemingly total distaste for credit. Here is an example:

"Borrowing so much hurts the economy in multiple ways. More debt means less money invested. If money isn't invested, the economy doesn't grow as well. More debt also means less money to outright buy things, which leads to more financing to buy things."

I have taken out several thousand dollars in students loans as a form of investment in my human capital. Investing in myself is the same as investing in a building or business. This isn't less money invested overall, it's just a different form of investment. Also, borrowing money is a good way to smooth your consumption over a lifetime. Borrow when you poor and pay it off when you rich. However, borrowing should only take place if you expect your future income to increase by more than the amount of the loan. If you are borrowing to keep up your living standard now and you income isn't going to increase by that much in the future, the math just doesn't work. Credit is not bad, but it can be used unwisely.

You can listen to Dave Ramsey in the Carolinas, Georgia and Tennessee at 660 AM from 2-5pm or listen online at

Monday, May 12, 2008

Making a Scene in Anderson

This year I began teaching an improv class for the Anderson Christian Youth Theater with the end goal of competing in the annual Improvathon competition located in Denver, CO. However the main focus of this theater is not improv, but instead their regular main stage musicals. Inspired by Improv Everywhere, they found an interesting way to advertise for their upcoming show. I wish I would have done more things like this in high school. Here is the video from the Anderson Mall:

Friday, May 09, 2008

Peer Pressure Cartoon

My first attempt at authoring a cartoon thanks to

Wednesday, May 07, 2008

The Effects of Payday Loans

Below are the highlights of a literature review I wrote summing up several articles that have been published about the payday lending industry.

What is a Payday Loan?
A payday loan is a small cash advance, usually less than $300, for a short period of time, typically two weeks. The process uses a personal check as collateral. The borrower will write a postdated check to the lender for the amount of the loan plus the fee charged. For example, the customer will write a $300 check, dated two weeks from the current date, and receive $250 back, with the $50 fee taken out. When the loan has expired, the payday service will cash the check.

Michael Stegman
Payday Lending

Are they just urgent but useful types of short-term loans or are they predatory businesses that increase the government’s welfare problem?
A common explanation for mainstream banks’ lack of involvement in this industry has been a fear of reputation damage. Doubt is cast on this idea is when you recognize that in many ways large banks already do provide a type of short-term high interest loans. When regular checking accounts are overdrawn the customer pays a fee that is very comparable in size to a payday loan. Interpreted into an interest rate, these figures look more like cash advances than typical bank loans.

The demand for these short term loans is surprisingly widespread. According to Stegman’s article, 5 percent of the population has claimed to have taken out such a loan and 10 percent say they are likely to do it in the future.

payday loaners’ main market is consumers with poor or risky credit, but it is not the poorest of the poor that these loaners aim for. Borrowers must have a checking account and steady employment to be eligible for such loans.

Twenty states currently limit the number of payday loans a customer can have at one time and thirty-one states limit customer rollovers.

Mandatory breaks between loans and limiting lenders’ legal resources to reclaim unpaid debts have also been used.

Michael Stegman describes the regulation of the payday lending business as a legal chess game. A state will pass a law limiting their power and the payday lenders find ways around the law. More parameters many times mean more loopholes.

Michael Stegman showed that attempts to regulate the business have only led to structural changes in the industry and do not have the intended result. Another important point he makes is that we cannot seek to entangle the government in the cash advance industry without also dealing with mainstream banks and their bounced check fees.

Don Morgan and Michael Strain Payday Holiday: How Households Fare after Payday Credit Bans
In 2004 and 2005 Georgia, followed by North Carolina, made illegal and hence closed all payday loans stores in their two states. Donald Morgan uses the resulting data from these new laws to test the theory that payday loans are “debt traps”

Relative to other states, the people in Georgia substantially bounced more checks, complained more about lenders and collectors, and filed for Chapter 7 bankruptcy more after the ban on payday lending.

These results make a clear argument that consumer’s find cash advances from payday lenders a cheaper solution to financial constraints than the bounced check protection offered by banks. This makes sense when we realize that translated into APR, bank fees for covering a bounced check are equal to 2400 percent (this compared to average 390 percent charged by payday loans).

By taking the changes from other states and comparing them to the changes in the number of bounced checks in Georgia, we see a 13 percent increase in the amount of checks returned in Georgia. This comes to 300,800 more bounced checks per quarter, at $30 per check; Georgians paid $36 million more in returned checks fees.

Morgan shows that the amount of complaints increased by 64 percent increase against debt collectors. Georgia was higher than any other state after the ban.

We see an increase of 8.5 percent in Chapter 7 bankruptcies in Georgia relative to before the ban.

The final critique that Morgan confronts is the claim that these decreases in welfare after the ban are only due to the problems that are associated with the immediate withdrawal of the stores and that they only temporary. In 2003 Hawaii took a different route than that of Georgia and North Carolina and actually doubled the allowable limit of loans from $300 to $600. This larger “dose” of instant credit gives us a chance to look at the effects of loans from the increase in availability perspective. If these critics are correct and credit traps are real, then we should see an increase in financial problems as more payday debt is allowed. The results of the study proved just the opposite.

The difference in the number of complaints about lenders and debt collectors saw a 50 percent decline as compared to other states. Chapter 7 bankruptcies also fell by about 27 percent relative to the national average.

Mark Flannery and Katherine Samolyk Payday Lending: Do the Costs Justify the Price?
Flannery uses individual store data from two large cash advance lenders to investigate store costs and profitability. Using this store level data we can see whether the price of payday lending is predatory or just a reflection of business costs.

The costs of this type of business are very fixed. The rent for the building and the payment of the workers are a large cost to these lenders as compared to other parts of the financial market. For this reason, loan volume is a major contributor to store income. This helps explain the gap between new and mature store profits.

Another contributor to the high price of payday lending is the higher average default rate. This of course is correlated with common economic understanding of interest. The higher the risk of an investment, the higher the expected return should be.

Repeat customers, those claimed to be trapped by their cycle of debt, are the victims that consumer groups say are being extorted. But in fact, these chronic borrowers are not especially profitable to these individual stores, not per loan at least. They are of course more profitable in the sense that they visit the store more, but this is true for all businesses. Are graduate students a victim of university’s because they pay for several more years of education? The same is true for payday lending. Repeat customers are only more profitable in the sense that they contribute to a larger volume.

The two major costs are the fixed costs of employees, rent, local advertising and taxes and the variable cost of loan defaults. According to Flannery, fixed costs account for almost half of the total costs. That comes to about $19-27 per loan. Defaults on loans account from between 21-25 percent. This equals roughly $6-9 per loan. All of these statistics are greatly depending on the maturity of the store, with the mature store being generally lower cost.

For a loan of $100, these costs come to $11-14 per loan. The average loan is $250 for 20 days with typical fees of $15-20. We can see very little overcharging. In fact, pretax income for mature stores comes to about $11.26 per loan and -$3.01 for young stores. This all makes clear economic sense when realizing the huge boom in the industry over the last decade. Competition has kept down any possibility of exorbitant prices.

Adair Morse
Payday Lenders: Heroes or Villains?
Personal economic distress can be due to many things, one of them being natural disasters. The occurrences of natural disasters are inherently out of the control of individuals and governments, but the resulting harm of the disaster is not. By looking at the availability of payday loans in an area struck with a natural disaster, Morse measures whether these high interest loans are beneficial or harmful to borrowing communities.
He measures welfare by investigating the number of foreclosures, alcohol and drug treatments, deaths and births in a community, all organized by zip code and measured before and after disaster. Prior research has proven that birth and death rates decrease after a disaster and that building foreclosures increase. They have also shown that drug and alcohol treatment goes down after this rude awakening. Drug and alcohol abuse tend to rise in most stressful times, except for some reason in natural disasters.

To test the arguments of both sides Morse used natural disasters in communities in California from 1996-2005. By using information from only one state, he held constant any legal restrictions on the cash advance industry. To ensure accuracy, Morse measured the welfare determinants two years before and two years after the disaster. Another benefit of using the exogenous shock of natural disasters is that previous data has shown payday lending shops do not open up in response to natural disasters. This is probably because of the benefits of having a regular customer base in the payday loan industry. There is no long-term demand and hence no chance to collect regular customers in an area with short-term financial shortage.

The conclusion of the data collected is that payday lenders do in fact provide an important service to communities in unexpected short-run financial hardship. In fact, short-term high interest loans seem to be a valuable tool to communities trying to recover from unforeseen destruction of assets.

Natural disasters normally increase foreclosures, but areas containing payday lenders significantly counteract this increase. What's more, in most communities birth rates drop following a disaster, but those neighborhoods with easy access to instant credit are able to sustain their previous rate. The same proves true for the death rate after a disaster. The final measure used is the amount of drug and alcohol treatments. The decreases in these treatments are magnified when there is access to payday loans.

Further Study
Although the articles reviewed here are thorough, there are still some areas for further study. One would be to see how the payday lending industry affects crime. Does it cause the small minority who are hurt to commit more crimes? It may even have the effect of lowering crime by raising the financial stability of the working poor.

Click here for the full paper.

Sunday, May 04, 2008

Movie Buffet Ratings

If you’ve been to a buffet, then you understand the tendency to overindulge. A Blockbuster Movie Pass is not too different. You enjoyed the experience, but when was all over, there were some things you regretted getting. Here are my rankings. Anything with three plus stars I would recommend.

Gone Baby Gone: **** - Good mystery with great acting and an end that will keep you thinking. My favorite of the bunch.
Malcolm X: **** - Malcolm is intense, Denzel is intense, Spike Lee is intense.
American Gangster: **** - Russell Crowe and Denzel Washington are great. This true story and shows that maybe some drug dealers act just like business owners.
I am Legend: **** - Will Smith and his dog carry this surprisingly great horror movie.
The Departed: *** - Great acting by all and plot twists that keep you constantly guessing.
Atonement: *** - It wouldn't be my favorite movie, but it is an interesting way to tell and interesting story.
Dan in Real Life: *** - A fun movie about family, the hardships of parenting, and kissing your brother’s girlfriend.

Déjà Vu: ** - Let down for Denzel, but kind of fun to watch.
No Country for Old Men: ** - The creepiness of the bad guy can only take a movie so far. Definitely not my vote for best picture.
Cloverfied: ** - Interesting film, but I don't like leaving movies with more questions than answers.
Bee Movie: ** - Fun, but definitely a kids movie.
The Assassination of Jesse James: ** - Big let down. Brad Pitt and Casey Affleck make good movies, but this was not one of them.
There Will Be Blood: ** - Slow movie and a final monologue that makes you cringe: "I'll drink you milkshake!"

Four Weddings and a Funeral: * - This is the movie where Hugh Grant plays that awkward but yet charming guy.

For your own free month of movie gorging go here.

Friday, May 02, 2008

The Economic Stimulus Package

Some people have begun receiving their checks for the most recent attempt from our policy makers to curtail the recession, which interestingly hasn't begun yet (real GDP increased .6% in the last quarter). The first thing I want to mention is that this money is of course not free. It is not manna from heaven. I say this obvious fact to emphasize that anytime the government gives a tax cut it has four options: 1) cut spending, 2) raise taxes, 3) print money, or 4) borrow from lenders.

1. There have been no decreases in spending associated with the rebate.
2. There have been no increases in taxes associated with the rebate.
3. I am optimistic that we are not so foolish as to simply print extra money.
4. By default, the current plan is simply to add this new rebate to our current deficit.

Since the federal government plans on borrowing even more money, I think it’s important to discuss the repercussions of such an action. When a governmental body borrows large sums of money, it takes a portion of the borrowable money in the world. Instead of money being invested in Google or IBM, lenders invest in the United States government. This is called the crowding out effect. To put it bluntly, you cannot consume more today without hindering investment, thereby hurting consumption in the future.

The main thing to take away from this is you cannot "stimulate" spending without diminishing saving. Any money the government gives out to help the economy, must first be taken out of the economy. The idea that you can trick people into thinking they are richer so they will spend more now will not work, and may actually be harmful. If anything, this will encourage Americans to spend more and save less, which is how we got here in the first place. Many Americans are burdened by this momentary and minimal hardship because they didn’t plan for the future. Basically, the government cannot rescue us in the short-run; instead it should focus on long-run essentials (lower taxes, less regulation, less distortion of the market).

So how can we solve this problem? The short and simple answer is we can’t. When consumers over invest in some area, in this case houses, and businesses incorrectly assesses risk, in this case homeowners, then there will be consequences. But it’s not all gloom and doom. Remember, in real terms, adjusting for inflation, the average American is nine times richer than they were in 1840. This wealth is not a result of government intervention but is instead a result of the only real way to get rich, innovation. The average worker is richer because they are more productive.

Another problem that this package is supposed to help is unemployment. Which may I add is at a historic and geographic low. The reality is that this will probably hold back those who are unemployed and would be getting jobs. Giving someone an unexpected $1000 will be an encouragement not to work. As a result, this may actually prolong any recession we may have.

So how should we react to this stimulus package? What we should do with our package is simple: what ever we want! The money is ours and we should spend it like it is. You want to buy a stereo, buy a stereo. You want to invest in Dell, invest in Dell. You want to put it in your kid’s college fund, then for their sake do it. And please ignore the proposals that we all “Buy American.” We do no one a favor by supporting inefficient American businesses that cannot compete in the international market. And finally, what should my government do? Feel free to give my money back to me anytime, just cut spending along with it so you don’t have to tax my children.