Money Talks, again

Hello Friend,

The last time I talked about money talking was with respect to the velocity of money.  Velocity is another way of saying we hold onto our money for some amount of time before we spend it.  Someone who is very poor spends money within hours, days, of getting it.  Someone who is rich and wealthy may hold onto it for years, decades, before putting it somewhere else.  Today the government tracks this “stickiness” indirectly.

This time the talking money is speaking directly to us.  Yes, in this high-tech information age of electronic funds and stateless money (go check out bitcoin) the money that you will have in your electronic wallet is going to be able to tell all about itself.

From the moment that it’s “born” into the world of commerce, that piece of money will know who owned it and what it was traded for.  Did the owner buy lunch?  Tasty.  Did the restaurant buy food.  Good choice.  Did the cheese vendor pay her truck driver?  Good move.  Did that driver buy drugs illegally?  Got you!

Talking money will do more than make our real wallets lighter.  It’s going to enable an enlightened government to find and shut down operations that injure society.  Not only will it be able to track the drug dealer on the corner, but find his supplier, HIS supplier, and eventually all the people who are part of the operation.

Tax dollars being wasted?  Your money will be able to find that as well.  If there’s a general getting a lucrative consulting fee for doing almost nothing, your money will know it.  Politician spending campaign contributions on a luxury hotel room for two, while his wife is spending money at home for groceries?  The money will know.

Notice that I highlighted “enlightened” above.  A government that is so inefficient, so corrupt, or so focused on its own success rather than that of society in general, that kind of government can’t be considered enlightened.  And that government will do everything possible to keep the money from talking.  And if the money talks, the government can make sure no one asks it any embarrassing questions.

Here’s the good news.  If technology continues, and if our society doesn’t succumb to some other great disaster (see tomorrow’s post), talking money will be inevitable.  And if there is only one enlightened government in this world, then it’s very likely they will show the way for the rest of us.

The sad news is that we could be doing this today, if we really wanted.  I want.  Do you?

Thanks for reading.

 

Foretelling Stories

My friend appeared in a local production of the play Vanya and Sonia, playing the part of Cassandra.

Cassandra is a fortune-telling housekeeper.  And my friend was brilliant.  Easily the most interesting person on the stage, playing her part with gusto.  Multi-colored headbands, crazy eye shadow, striped socks and funny sneakers, wild skirts with funky shirts.  Throw in some interesting jewelry and hairpieces and you get the idea.  And those are only the trappings.

What she portrayed was a half-crazed, half-possessed, but wholly compassionate dervish who transitioned from quiet domestic servant into a tornado of words and action.  In some scenes she danced about, flailing her sticks and feathers and other voodoo goodies to exact revenge.  And throughout the play she warns everyone of the nefarious “hooty pie.”

Fortune telling, soothsaying, and astrological prediction have been around as long as we’ve had questions about the future.  Many of us pay good money to know what our horoscope says today.  It doesn’t matter if it’s almost always wrong, because, sometimes, it’s right.  Right?

Oh, so many fancy shmancy people think that gypsy palm readers and tea leaf readers are absolute charlatans.  These fancy people are so full of themselves because they read the business news and understand advanced mathematics.

I thought of these things as I watched my friend scream and chant across the stage and into our hearts, and then I realized something crazy.  What if I was an alien watching this play as my first exposure to humanity?  How would I know that my friend was not truly a clairvoyant?

I wouldn’t!  Unless of course you provided me with absolute proof.

Being an alien, I wouldn’t trust your words, or the words of your friends.  I’d prefer hard data.  In fact, I’d probably really want to see it for myself.

As I smiled to my alien self, I realized that there was another type of human I wouldn’t believe.

Economists.  Yes, modern economists.  If I was an alien, and you told me that economists were the only people on Earth who could foretell the future, I simply would not believe you.

Yes, you can find me millions of people who watch their newscasts, who pass laws based on their words, or even set policy based on their massive calculations.  But can you show me and my alien friends true results of their predictions?  Better yet, can I see those for myself?

Is there even a scorecard that shows, unequivocally, that what an economist predicts today comes true tomorrow?  Or next week?  Next month?  Even next year?

Somehow, I doubt it.  Somehow, I feel that there is a vastly overpaid economist predicting the future, and doing it in a way that is boring and tiresome.

Meanwhile, on the stage stands my friend.  She is vastly underpaid, far more entertaining, yet her predictions are equally as valid.

As an alien, I smile.  As a human, I sigh and shake my head.  Then I sit back and enjoy the rest of the play.  By the way, if you go see this play, I predict that you will like it, too!

 

 

Fired Up

Anyone have a boss?  At work.  Not at home, and siblings don’t count.

I mean, do you have a person at work who decides how much to pay you and whether or not you still have a job?  That’s your boss.

Maybe YOU’RE the boss.  How many people report to you?  How many people report to them?  Do you have the authority to hire and fire all those positions?

Maybe you don’t, and you dream about the power.  Like King Midas dreamt about being able to turn anything into gold.  Be careful about what you wish for.

I have this “power.”  It’s not fun.  I get to go to work and be friendly with everyone.  I get to see everyone on their best behavior.

Then I hear stories.  So and so did this, or said that.  Always behind “so and so’s” back.  Ah, the drama.  Do you like drama?

I can’t stand drama.  I don’t need to watch it on TV.  I live it every day.

Let’s make this easy on both of us.  “So and so” is officially “Sue.”

So I eventually meet with Sue and what do I do?  I’m friendly and business-like at the same time.  And watching.  And wondering.  Am I going to have to fire Sue?

Meanwhile Sue is telling me about her problems, her sick parents, her troublesome kids.  I’m sympathetic.  And I’m still thinking to myself, will I have to fire you?

Finally, something happens that everyone sees, no one can ignore.  I’m going to have to call Sue into my office and find out what’s going on.

I want to ask her: “Do you want this job? Do you need this job? What are you thinking?”  But I can’t do that, either.  It’s not professional, and it leads her to the “right” answers.  No, I have to find out what’s going on inside her head, and hold her to her job description.

The problem is that the job description for managers is a lot fuzzier than for others.  So I have to hold Sue’s feet to a fuzzy fire.

I have to think about this every time I meet with my coworkers.  It makes for a very full day.  One of these days I’ll find a job without drama.  Chances are there won’t be any people involved.

 

 

Mental Accounting

Accounting is the profession of adding up money.  Accounting records are among our oldest.  Clay tablets recording Ahmet’s twenty bales of hay is among the oldest writing we have.  Keeping track of our money has always been important.  How could something so old be improved?

Within the last century a new kind of accounting has emerged.  It’s the kind of accounting that looks at the brain as real estate.  My brain.  Your brain.  Everyone’s brain.

Here’s how it works.  If you owned a piece of land in the desert, it would only be worth as much as you paid for it.  If no one else visited, or wanted it for any reason, it wouldn’t be worth much.

If you owned a piece of land in the center of Tokyo, then you would have something of great value.  Some land in Tokyo goes for as much as a million dollars a square meter.  That’s the same area you make when you twirl in a circle with your arms outstretched.  Many people want that land.

It turns out that inside our heads we also have real estate.  Today we call them “brands.”  A brand is something that a company owns and can put a dollar value upon.  Donald Trump isn’t only a person, he’s a brand.  Even the President of the United States is a kind of brand, not only as a person, but as an occupant of the office.

A search for popular brands comes up with this file.  It lists them by companies, but if you look for individual brands they are harder to find.  For instance, Disney is extremely popular, but how popular is Mickey Mouse alone?  What about the actor Harrison Ford?  I read that this last Star Wars movie makes him today’s most expensive actor.  That’s because he’s not only an actor, he’s a brand.  And you can take that to the bank.  Or, more exactly, HE can take that to the bank.

The reason he can bank his own brand is because you and I know who he is.  He occupies a little piece of our brain.

It’s possible that you may never have heard of him, but unlikely if you live in the US.

It’s possible you know more about him than just his name.  For instance, he’s also a pilot.

It’s possible you know very much about him: his birthday, his family, even his favorite color.

In any case, you have dedicated some amount of your own mental landscape to the brand of Harrison Ford.  The more of your brain you have given to him, the more his brand is worth.

So Disney was willing to pay billions of dollars for Star Wars because so many people already have the story inside their heads.

Disney itself is worth so many hundreds of billions of dollars because it has billions of heads filled with all of its storied brands: Mickey and Minney Mouse, all the Pixar characters, its entertainment parks, video broadcast companies, and so much more.

What other kinds of “brands” can we consider within our brains?  Concepts that aren’t so directly entertaining or profitable?

Consider these unconventional brands: Like the concepts of good and evil?  Right and Wrong?  The First Amendment of the US Constitution?  What about democracy in general?

How much of your mind is devoted to understanding nature, or working to fight things like injustice or hate?

Now that we can start accounting for what’s in our minds, let’s be honest with ourselves.  Which is more valuable to you: True Love, or Star Wars?  They are both “brands” and they both occupy some of your brain space.

I’m willing to bet you a lottery ticket that I know the answer.

 

 

All Fed Up

I attended an economic talk last week from a former Fed economist.  His name isn’t important, and what he talked about isn’t that great either.

It’s what happened at the very end of the talk.

He accepted questions from the audience, and on a lark I sent in my question.  I asked what his thoughts were about the crossing of the M2 and MZM curves I talked about yesterday.

Mine was the very last question!  And here’s what he said.

Velocity isn’t important.

I’m not even summarizing what he said.  That was how he dismissed my question.

Not important?  How long we hold onto money isn’t important?  One of the most fundamental forces working against the Fed and inflation isn’t important?

Better yet, one of the best behavioral indicators we have of monetary “stickiness” isn’t important?  What’s wrong with this guy?

Here’s what’s wrong.  He’s part of the old way of thinking, and can’t see the forest for the trees.  The old way of thinking got us into the savings and loan crises of the 1980s, the internet bubble of the 1990, and the Great Recession of 2008.

Fixing our economy, improving our society, and smoothing out our lives so that we can start planning our future more accurately is going to take a new way of thinking.  Paying attention to velocity is more important than an arbitrary number like unemployment.

And that’s why I’m all fed up.  And that’s why I went out and drank with my friends.  And that’s why I hope they don’t invite him back next year.

Now, let’s all get out there and make that money slippery!

 

Money Talks

Yesterday we talked about “sticky” money.  The fact that it sticks in your pocket for some amount of time.  Maybe a day, or maybe a year.  If it sticks in your pocket for a year, it’s very sticky.

If you’re really making lots of money, you might think that you wouldn’t spend money very fast.  But it’s not so.  Some people with lots of dough do double duty and get that money in circulation – fast.

And here is where the big picture comes in.  Our Federal Reserve Bank is like the Supreme Court of Banks.  They are the bank that all the other banks bank with.

One of the best things for us is that the “Fed” gathers great statistics.  The one stat that is most interesting to us is the velocity of a few forms of money.  The first type of money is the kind that us regular people keep around: checking accounts, savings accounts, what’s in our pockets and rolling around in the cracks of our cars.

The other kind of money is a really big aggregate.  It includes all the money that is tied up in stocks, bonds, fancy investments, and things like that.  It also includes all the money of regular folk.

As you can imagine, the aggregate money includes everyone.  So, the people with no money are lumped together with people with lots of money.  The result is that it shows us what the big money people are doing.

Enough talk.  Here’s the graph.

https://research.stlouisfed.org/datatrends/mt/page12.php

If you can see this, you notice the red line represents MZM, that’s the big aggregate.  This includes the people with lots of money.  The number starts out at 2.6 and has dropped down to 1.4.  This means that the big money people and all the regular people together spend their disposable dollars about 1.4 times a year.  Every 8.5 months.  It used to be every 4 to 5 months before.  What happened?

Meanwhile the M2 line shows what regular people have.  It dropped from 2.2 to 1.5.  This means that the velocity of regular money went from 5.5 months to 8 months.

The overall conclusion is that money is getting a whole lot stickier than it used to be.  But there’s another interesting thing going on here.

Look at the second quarter of 2001.  See how the red and blue lines cross?  For the first time since the Fed has collected this information, the MZM has gotten stickier than M2.  Why?

Notice how it’s in the shaded area.  That means the economy was in a recession.  Hmmm.

Is it possible that people with lots of money stopped spending it as fast as they used to?  It is possible that they like holding onto it, even more than those of us without lots of disposable income?

Of course it is.  Perhaps it’s because of legislation.  Or maybe potential investments have dried up.  But it shows that one of the forces the Fed is fighting is that people simply aren’t spending money like the should be.

When people don’t spend money, it means there is very little pressure for companies to increase prices.  And if they can’t raise prices, then there’s little inflation.  And if there’s little inflation, then there’s no incentive for banks to give us interest.  So no savings.

Worse, the biggest tool the Fed has for stimulating the economy is pumping money into it.  Into us.  But if we hold onto the money instead, then the Fed has a problem.  They have to pump even more money.  And that can cause other problems.

So, there it is.  Sticky money.  Some of it is stickier than others.  And it tells us that people with lots of money don’t spend it as fast as those of us with less.

The money is talking.  Is anyone listening?

Stay tuned!

 

 

 

Sticky Money

Behavior.  It’s what you say when someone sneezes.  And why you say it.  And where that phrase come from.  And why.

Behavior.  It’s also about how our species evolved.  And how all species evolve.  And where the first life-like molecules came from.

Big behavior.  Bitty Behavior.  Where do you want to sit?

I like looking at the big picture, mostly.  Sure, why we “bless” someone who sneezes is interesting, but not as interesting as why those sexy Italians can’t seem to make any babies.

Here’s a big picture item.  It’s called velocity by the bankers and economists.  It refers to the “sticky” component of your money.

What does sticky mean?  It means that when you get a dollar of disposable income, it sticks in your pocket.

What’s disposable?  That means it’s not rent, phone, or other expenses you HAVE to pay or you HURT.

Disposable income is what YOU get to CHOOSE to spend money on.  If you have any left over.  Do you want a fancy sweater?  That’s disposable income.  Do you want ice cream with those eggs and milk?  That’s disposable cash.

But if you never spend that disposable income, if you keep it in your pocket or savings account, then it’s sticky.

If you gave me a dollar and I spent it instantly, then it’s not sticky.  If the next person also spends it instantly, then it’s also not sticky for him.  And so on.  In one year, that one dollar may have changed hands a hundred times!  If that happens, we say the velocity is 100.

But if I wait a month to spend it, and the next person waits a month, then that dollar has a velocity of 12.  See?

Here’s the bad news.  Today’s money velocity is between one and two.  And the overall velocity is going down.

What does this mean?

It means that people are making their money stickier.  It means that we hold onto it longer.  And it means that whatever money our federal reserve puts into circulation, it ends up being less effective.

Sticky money.  Not a rock star, but something sitting in your pocket.

It’s something we measure, and something we can learn from.  Stay tuned!

 

Equal pay, for… what?

Americans are very much into putting dollar amounts on everything.

A gallon of milk.  A gallon of gas.

How much do you make in a year?  How much do you pay in taxes?

How much is your marriage worth?  How much does it cost to raise a child?

Yes, even children come with price tags.  The latest numbers claim that the average cost to raise a child up to (not including!) college is about a quarter million.

That means a family with four kids are millionaires without knowing it.

How about our lives?  Our experience?  Our brains?

These are also valued at some rate.  How much are YOU worth?

According to your employer, you’re worth what they pay you.

That’s right.  That’s your worth.

Which brings us to something we like to call the “gender gap.”

It’s always been true that women are less appreciated than men in the workplace.  Fewer of them are employed.  They get promoted less frequently.  Trained less.  And make less money.  The difference between the money women make and the money men make defines the gap.

What’s great about our American economy is that we can put a dollar figure on the gap.

Though it varies, women make around 80% of what a man makes, for the exact same amount of work performed to the exact same standard.

Why?

Here’s a boring and obvious reason; women say “yes” faster than men.

If all women were to stand as a single entity and demand equal pay, they would get it.

Let’s look beneath the first reason and ask this; why do women say yes faster than men?  Why do they accept less money for the same amount of work?

Hold onto your hats, kids.  This one is going to be a doozy.

Oh, and for the guys in the audience, prepare to be dope slapped.  If you’re easily offended, you can peal off now.

The reason women accept less money than men for the exact same work is because women are smarter than men.

Yes.  They are smarter, in pretty much all ways.  In general.

To start, they have bigger brains.  They remember stuff better, and have way better grasp of intricate social relationships that men will never have (or want I should say).

Consider Thanksgiving.  Have you ever watched an overworked young mother entertain her family, her in-laws and her own parents?  Add in the fact that some or all of them are dysfunctional and it becomes a great challenge.  Now throw in the fact that she also had to make and serve and clean up the entire mess, all at the same time?  This makes quantum physics look like patty-cake.

What does being smarter have to do with getting paid less?

Women understand the value of money better than men.

In other words, women value money less.  They value other things more.

Shouldn’t this mean that a women should demand more money than men?  All other things being equal, yes.  But everything is not equal.

Women also choose where to work based on travel times, coworkers, self-image and many other things that male economist’s can’t value.

Women know and appreciate the fact that there are so many other things in life far more valuable than money.  A wholesome workplace.  A good boss.  Happiness in general.  Romance in particular.  Friendship, children, family.  It may be that money isn’t even in their top ten!

So, men, the next time you hear about the gender pay gap, ask yourself this; what do these women know that I don’t?

Women, if you do value money as much as a man, just ask for it.  You’ll get it.  But chances are you won’t enjoy it.

Whatever your gender, if you don’t value money, then your values are in the right place.  In every single instance when you ask an ancient about the value of their life, they will confide to you that a happy life is far more fulfilling than a “profitable” life.

Finally, think about this.  Your tombstone doesn’t list your bank balance.

If you’re lucky, you’ll be buried with your lover.  Together drawing eternal lines to time.

Now that’s closing the gap.

 

Millionaire Magic

Want to make a million?

That question is relatively new, as society goes.  Back when we all scratched each other for ticks, we didn’t worry about accumulating cash.  We wanted babies and power.

Even a few hundred years ago the idea of individual ambition was far-fetched.  Only your lords and royalty were allowed to be ambitious.  The rest of the herd could only rise so far, success was measured by your belly.

Today’s society allows us to be ambitious, to take chances, and accumulate wealth without great fear of it being swept up by his highness.  Maybe our Uncle will sweep some up, but that’s in exchange for intangible goods.  Another story.

So, let’s make a million.  Here’s two recipes, tried and true many times since the invention of the Renaissance.  First, take an ordinary substance, like water.  Second, take a dash of technology, like sugar, food coloring, or a spice or other natural element.  Maybe a combination of all of these.  Then create a story about your new product and weave them together.  PRESTO CHANGO!  You have a product that can make you a million.

We are surrounded by such magical products that have made many millioinaires, and indeed, global mega-corporations whose reach extends deeply into all of our lives.  But what does it say about us, as a society, that we are willing to exchange some of our wealth for a bit of their magical product.  What does it say about comparing societies, perhaps some allow more magic than others?

The moral of today’s story is that we as individuals, and we as a society should question everything.  Value should be of a lasting and improving sort, not something that merely subtracts from our current existence.

And what’s that second recipe?  Let me know if you want to know – and I’ll tell you!  Here’s a hint – Ben Franklin is one of the first to put it to use!

 

Extreme Fliers

I’m here at Oshkosh, Wisconsin, enjoying the world’s largest general aviation extravaganza.  The smell of jet A and 100 LL (low-lead) in the morning air, the gentle roar of piston and turbine, and the sight of man-made objects defying gravity is something I’ll never get tired of.

For many people, everything associated with aviation is scary, almost unholy.  Money spent for aviation is unnecessary.

What these people don’t fully realize is that it is only by pushing the envelope of human experience do we learn new technologies that can help everyone.  For instance, seat-belts and anti-lock brakes are two easy examples of aviation innovations that the rest of us use every day.

Here’s another innovation that we might appreciate years from now.  A group of aviation enthusiasts at Purdue is working with quadriplegics, paraplegics, and others who have been disabled in order to teach them to fly.  And so far, they have fledged 40 people into the skies.

Why is the work of Able Flight and the Purdue Aviation Technology Department important?  Because it pushes our knowledge and technology to the limits.  It does the seemingly impossible and makes it possible.  And in so doing, they may learn something that can help others, or perhaps even you and me.

So, the next time you see a child playing with a model airplane, or a youngster taking their first flight, encourage them.  After all, they might help the rest of us in unexpected ways.  Now excuse me, I’ve gotta fly!