Mark Gregory Turansky

$45 of every $100 dollars spent at local businesses stays in circulation in the local economy.  The money is spent on local salaries, payments to other merchants, and so on.  A big chain, on the other hand, only keeps $13 in local circulation.  This is the finding of an economic study done in Austin, TX.

Buying local is a nationwide trend.

For years, I’ve seen bumperstickers around Charleston, SC that read “Friends don’t let friends buy imported shrimp” or other slogans mean to encourage support for the local fishing industry.  Other communities have taken the Buy Local idea even further.

One community businessman in Brewton, AL handed out $2 bills to his employees with the rule that after a charitable gift the money must be spent locally.  The bills floated around town and eventually found their way back to his store, which dramatically drove home the point that money circulating in the local economy is its own form of stimulus.

Other communities have encouraged a “10% shift,” which encourages people to redirect 10% of their spending to local businesses or “$20 on the 20th” campaigns where you would spend $20 at a local business on the 20th day of the month.

Best selling author Barbara Kingsolver wrote “Animal, Vegetable, Miracle” about her and her family’s quest to grow or buy only local food for one year. They intimately learned the value of their labor, the strength in their community, and the power of taking control of their health and environment.  They put the kitchen back in the center of their family and learned to work together toward a common goal.  Yes, they had to give up the instant gratification of being able to buy strawberries year-round, but they gained an intense appreciation for delectably fresh asparagus that you can only get by growing it yourself and you can only experience once a year in springtime.

Some may call buying local mini-protectionism, and in a sense it is, but it makes for a strong local community.  It’s kind of like saving your money during a recession.  It’s good for the individual who’s saving, but it’s bad for the overall economy because no one is buying.  But just as saving keeps more dollars here at home than abroad, so too does buying local keep our dollars in our own community.   There are intangible benefits, too, in that communities and families are strengthened as they come together not just for the greater good, but for their own.

The Federal government is bleeding red ink, as are nearly all other states in the union.  Why?  Because Americans have lodged in their heads the idea that we are entitled to everything, which includes paying nothing.

We expect and demand safety and security from our police force and fire fighters.  We ask our real estate agents about neighborhoods with good schools and the best test scores.  We cry about the ever-increasing age at which we can retire and collect social security because we all want to retire early.

But we don’t want to pay for any of it.  We feel entitled to it all.

The Greatest Generation was raised in the depths of the Depression only to be called upon to fight World War II.  During the war, families grew Victory Gardens and accepted rationing to aid the war effort.  Buying Victory Bonds was patriotic.  Women entered the workforce, manned the factories, and worked hard to increase our industrial output that proved to be a decisive material contribution to the war.  This generation sacrificed, saved, worked hard, and built a nation.

After September 11, 2001, what did George Bush ask the nation to do?  What kind of sacrifice did he call us all to make?

None.  He told us to go shopping.

The real crack in the foundation wasn’t 9/11, though.  It was the tax cuts in 2001 and 2003.  Together, these cuts turned surpluses into massive deficits. After 9/11, the Bush administration engaged in two wars without asking the American people to sacrifice anything, even while our sons and daughters were sacrificing everything overseas.  Profligate spending accompanied by reckless tax cuts were a recipe for disaster.

Worse still, tax cuts at the Federal level forced all state and local government officials to cut taxes, too, lest they lose their jobs.  That was the political climate of the day.  Today, government at all levels — federal, state, and local — are in extreme financial straits.  All are hemorrhaging money and drowning in a sea of red ink.

Reaganonmics is dead.  Paul O’Neill was Treasury Secretary in 2002 when Cheney was discussing the tax cuts that passed into law in 2003.  O’Neill was concerned that the U.S. was “was careering toward a fiscal crisis” but was silenced by Cheney’s retort “Reagan proved deficits don’t matter.”  Paul O’Neill resigned later that year.

For the party that loves Reagan so much and hails his landmark tax cuts of 1981, Republicans seem to have forgotten that Reagan raised taxes!  In 1982, he signed two tax increases into law that raised 1% of GDP as tax revenue (~$40 billion, equivalent to $100+ billion today).  Other tax increases followed in 1983, 1984, and 1985.  George H. W. Bush raised taxes in 1990.

The Gipper raised taxes.  It was fiscally prudent to do so in order to reduce his growing deficits.

What should we do today?  Raise taxes!  We’ve got the money!  The average savings rate jumped to over 4%.

Thanks, Obama, for my $1,000 tax cut, but please, take it back.  In fact, raise taxes by 1% of GDP, just like Reagan did.  Restore my tax rate to what I was paying before Bush took office.  Cut spending wherever possible (like that F-22 you successfully fought against).  Restore fiscal sanity to the Federal balance sheet.  Return us to a surplus and start paying down the national debt.

I would much rather pay a few hundred extra bucks per month than be in the crisis we’re in today.  I would much rather be asked to sacrifice to continue the prosperity of our country than be able to buy more imported plastic pieces of crap I don’t need. I have children.  I am looking forward to bettering their future.

Mr. President, please, raise my taxes.

It’s said that some of the most stressful things you can do in your life are move, have a kid, get married, and start a new job.  It’s all true, too, but this essay focuses on starting a new job because I’ve just started one.

All new employees are vulnerable, regardless of rank or position.  The newbie doesn’t know anyone, doesn’t know the culture, the business, or how to do the job they were hired for.  Yes, they have the skills and are experienced enough to do the job, but they lack all required institutional knowledge to start doing that job on the first day.  It’s a tough position to be in, especially considering the new hire is probably excited and enthusiastic, but rendered utterly impotent by lack of knowledge.

The best way to keep the enthusiasm alive and make that new hire productive is to get them integrated as quickly as possible.  Here are 5 simple things that will reduce downtime, reduce stress, and increase morale for the newbie.  This list is geared towards developers and techies, but some items apply generally.

1.  Make yourself available!

Nothing is worse than being shown your desk or office and then having your guide disappear, leaving you all alone.  Plan on spending time with your new hire or otherwise arranging their first few days to learn from the right people.  Yes, it takes time and everyone is busy with the current release, but abandoning your newbie increases their stress and lengthens the learning curve.

2.  Make sure their PC is ready to go

Twiddling thumbs is bad enough, but not having a PC online with email ready is even worse.  Make sure the new hire can connect to whatever resources they need to do their job.  Many companies achieve most of this by having ghost images of machines with most software pre-installed, but there are necessary network tasks as well.  Email setup?  Is the new hire in the right distribution groups?  All shared drives and other resources given the right permissions?

Make a checklist of all the tasks required to get the new hire into the network and domain.

3.  Hello, World!

The canonical “Hello, World” program proves a lot of things for such a simple application.  It proves that your environment is setup correctly, that you can checkout, build, deploy, and run your code.  It provides a working foundation to build upon and learn within.

What is the “Hello, world” equivalent for real world projects?  A working build from a clean checkout where all unit tests can run, preferably within the IDE, with minimal setup and configuration.

Your new developer needs a checklist of software to install and a simple guide to building and running the project’s unit tests.  I think a checklist is better than a preconfigured environment (from, say, an OS image with everthing preinstalled) because it gives the developer a thorough grounding in the technologies used for the project.  Let them install the build tools themselves and set the appropriate environment variables.  Let them install the source control software and checkout the project.  I believe this gives the new developer a sense of ownership over their PC and deeper project knowledge by knowing how to get it running from the ground up.

It’s true that the new developer will not be truly productive until they gain more intimate knowledge of the code and project, but by having the project running quickly on their local PC, the amount of downtime is lessened and the new developer feels less stress.

 4.  Define your SDLC

How does your new developer get new issues to work and resolve?  What is the process for testing and check-in?  Who are the people responsible for helping the developer get code through the process?

This is basic Software Development Life Cycle stuff and the foundation of the Capability Maturity Model (CMM).  It also helps the new developer feel a whole lot less lost when entering a new environment.

5.   Pair ‘em up!

There’s strength in numbers and comfort in a crowd.  The new hire doesn’t know anyone, so pairing him up with another new hire encourages bonding and forges immediate workplace friendships.  It also helps them both learn more quickly because they are both asking questions and going through it together.  They’ll remember different tidbits when overloaded with too much information in the first couple of days.

If there is only one new hire, have a more tenured employee work with them the first several days.  It’ll slow down the developer who’s been there a while, but it will speed up the new guy.

CONCLUSION

You know your new guy is stressed out and generally uncomfortable.  Making the assimilation process quick and easy is the humane thing to do, but it also makes a lot of business sense.  You are paying that new developer a lot of money.  You should want them to be productive as quickly as possible, as opposed to soaking up company resources.  Make them feel at ease and decrease the learning curve by getting them immersed quickly into the new environment.  It only requires a little bit of planning to keep them busy for the first several days and some basic documentation to get them up and running with a working project.

The above list is certainly not complete, it’s comprised of the first bunch of things that I thought would make my own transition easier. I’m sure a lot of new developers feel as I do when starting a new gig.  Please feel free to leave other helpful tips in the comments.

I don’t need a bailout.

I have two credit cards that I use frequently, almost daily, but I do not have any debt.  I agree with Dave Ramsey when he says debt is the most aggressively marketed product in our culture today.  I receive all kinds of solicitations in the mail and I’m encouraged to buy everything “With No Payments for 12 months!”  Still, I have no debt.

The problem isn’t with credit card companies, lenders, marketers or anyone else.  The problem is with you.

I’ve written before in amazement that the average credit card balance is $8,000.   Today, I read a Time.com article that confirms what I’ve long felt:  The Real Problems with Credit Cards is You.

Here are Turansky’s Tips for being debt free:

1. Pay your credit card bill on time every month
2. If you don’t have the cash in the bank right now, don’t buy it.  Don’t assume you’ll get paid before the bill comes due.
3. Live below your means

I can’t say I’ve always followed the rules.  I, too, once had a large credit card balance, but it bothered me.   I had balances on mutiple cards and moved the balances to low teaser rate cards.  The problem finally gnawed at me enough that I simply stopped buying stuff I didn’t need, started eating rice & beans, and began paying major chunks towards the balances every month.

What did I do when my credit balances were $0?  Did I start buying stuff again?  No, I took a look at my car loan:  $5,000 balance.  I started applying my credit card payments to my car loan.  And what did I do when the car loan was $0?  I took a look at my student loans:  $28,000 and a history of minimum payments.  So, I took the credit card payments and the car loan payments and applied them towards the student loan payments.

Rolling your payments into your next debt is Dave Ramsey’s Debt Snowball.   It’s good stuff.  I learned of Dave Ramsey only recently, long after I figured out the debt snowball, but it’s been fun to listen to him because he’s a breath of fresh air.  There aren’t many forces in the world today that tell you to consume less and get out of debt.

What’s next for me?  The only debt I have today is my mortgage.  I’m attacking it with a vengeance.

It’s easy to get used to a frugal lifestyle after you’ve rejected conspicuous consumption.  No big plastic pieces of junk for us, thanks, but I do love taking my daughter to Jack’s for lunch.  It’s fun and I’ve got money to spend because I’m not in debt.

I recently read an article about how the tax cuts in the stimulus package would affect me.  This particular sentence caught my eye:

Officials estimated it would mean about $13 a week more in people’s paychecks this year when withholding tables are adjusted in late spring. Next year, the measure could yield workers about $8 a week. Critics say that’s unlikely to do much to boost consumption.

I originally thought the same thing.  $1000 over the course of a year is not much money for me to spend.  I wouldn’t explicitly spend $13 more per week.  It would sit in my checking account, because that’s where my direct deposit goes.

And that’s the point.  It will be deposited in the bank (specifically checking, which were the original bank accounts needed for reserve requirements) and sit there, quietly recapitalizing banks with taxpayer money but leaving the money in taxpayer hands.

I like this plan — if this is, indeed, the purpose of the tax cut — a whole lot better than TARP simply handing money to banks without accountability.  Recapitalize with my money, but let it remain my money.

It’s a little bit brilliant.  Forget the critics.

Anyone reading the financial news these past several years is well aware of the impending stress that Baby Boomers will put on the retirement and entitlement systems.  In a nutshell, the U.S. is underfunded for the Boomers’ retirement to the tune of dozens of trillions of dollars.

It occurred to me — and probably many real economists, though I’ve not read about it yet — that the current meltdown of the financial system will require many Boomers to postpone retirement, to keep on working, thus contributing back to the system and staving off the impending financial crisis of the entire generation’s retirement.  The stock market is down 40% from last year.  That’s a lot of wealth lost.  Moreover, CDOs were Triple-A rated securities.  Conservative pension funds devoured them for the yield they promised because they were, after all, rated highly and therefore not risky to pensioners.

It turns out those CDOs were risky.  Lots of wealth was lost from mutual funds, 401ks, and retirement plans.  There is less equity in people’s homes than a year or two ago.  Anyone planning for retirement is taking this into account.  Many of them will have to continue working.  This leaves more workers paying into the entitlement system (which retiring Boomers would have turned upside down).  There will be more savings and investment.   Health insurance will cover these millions of workers longer before they join Medicare, thus reducing the taxpayer’s burden.

I don’t know how much of an impact this would make on our underfunded entitlements.  It will be non-zero, but it will not be as much as we need.  We’ll still be in the hole, but I wonder if that hole is a bit shallower now.

An “order of magnitude” gain in efficiency, whether its a business process or computer program, is something to strive for, but two orders of magnitude, despite sounding cool, is one too many.

Why?

Assume you have a perfectly linear process — say, a computer program processing data –  whereby you can add additional processing nodes for parallel processing.  If 1 run of your program takes 1 minute and you’ve got 100 iterations, you can reasonably expect to wait for 100 minutes.

100 units of work x 1 minute per unit = 100 minutes elapsed time

But since your program can scale linearly, you can add an additional program and cut the time in half!

(100 units x 1 minute) / 2 processors = 50 minutes elapsed time

Similarly, you can scale up to 4 processors and reduce elapsed time to 25 minutes.  This is perfect linear scaling and with your big math brain, you figure out that you can get a 10X gain by scaling up to 10 processors!

So far, so good.  10x is an order of magnitude and represents a 90% decrease in elapsed time.

(100 units x 1 minutes) / 10 processors = 10 minutes elapsed time
10 minutes is 10% of the original 100 minute elapsed time. 10x gain!

I think the second order of magnitude is a waste of time.  That’s right, it’s not worth going for another 10x gain.

Why?  It costs too much!

Assume that a server costs $1000 and your process will consume the entire processing capacity of a server.  Scaling up to 10 servers costs $10,000.  You reduced processing time by 90% for $10k.

Math is not on your side for the second order of magnitude.  Taking your elapsed time from 10 minutes to 1 minute is another order of magnitude, but it also is 90% of your cost!

You have a perfectly linearly scalable process, right?  So, reducing your 100 minute elapsed time requires 100 servers at $1000 each.  That’s $100,000!  Meanwhile, already achieved a 90% reduction for $10,000.

90% of the gain is achieved by 10% of the investment.  The remaining 10% of the gain requires 90% of the investment!

Pareto was right.  The 80/20 rule applies, but in our case its 90/10.

The chart below shows two orders of magnitude.  You can’t help but notice the point of diminishing returns.  It doesn’t seem worthwhile to go for that second order of magnitude.

What can you learn from the consumer confidence index?  Plenty, if you’re a fan of Warren Buffet!

Let’s look at this graph for a moment and focus solely on the points where consumer confidence slipped below 70: 1974, 1980, 1982, 1990/1, 2008.

1974

The first big dip on the consumer confidence graph above is October 1974 when the stock market tanked 40% in a single year (why does that sound familiar?).  How did Uncle Warren feel at that time?  “Like an oversexed guy in a harem.” The quote is from a Fortune article from 1974.

Note that consumer confidence cratered in 1974, touching below 60.  Buffet’s feeling was “Now is the time to invest and get rich.”

And what happened after the crash? Up 30% in one year.  Up 60% in two years.

1980

Another big dip in consumer confidence in 1980.  Lower than 1974.  If you were waiting for clear bargains in the stock market, how would you have faired?  Had you bought in the panic, you’d have gained nearly 30% in a couple of months.

1982

Consumer confidence gained after the 1980 dip, only to retreat again in the recession of 1982.  From nearly any point in 1982 (DOW around 850) to nearly any point in 1983 (DOW around 1250), you’d have gained 47%.

1990

Another hit to consumer confidence in 1990-1991.  Bill Clinton campaigned with the theme “It’s the economy, stupid!”   From the panic to the recovery by Clinton’s inauguration day (a little over a year), you’d have gained33%.

NOTABLE CRASH – 1987

Black Monday (again in October!) saw a 22% decline in prices.  Your shares would have recovered in two years, but buying in the panic yielded 16% in one year and 50% in two years.

 RECESSION 2002

We all know the market hit record highs in recent years, but simply focusing on the panic (again, October!) yielded 25% in a year and lots more if you held for another 5.

TODAY!

It’s October again and the market is down 40% year over year.  The world is ending!  Panic ensues!  Everyone get out of the market before all the banks melt!

Consumer confidence is as bad as it was in 1974, when that decade saw oil shocks and a renewed focus on ending dependence on foreign oil.  Sounds familiar.  History repeats itself.

But “it’s different this time!”  Maybe.  Yes, we’ve lived beyond our means as a nation for twenty years.  Yes, the housing bubble is causing a global financial mess that requires us to recapitalize our banks, but the Asian Tigers did it in the late 90s and Sweden did it in the early 1990s.  It costs money and it’s painful, but we’ll recover.  The dollar, incidentally, has surged during this global crisis.  Traders are moving towards a currency and economy they are confident will recover.

We might be good and truly screwed or this might be another deep panic by the masses.  It might be a good time to be an oversexed man in a whorehouse.

It’s funny how math works.  The Dow Jones Industrial Average has declined 40% from its high last year of 14,000.  Sure, that’s bad if you’re near retirement and had all your money wrapped up in stocks.  It’s a fantastic buying opportunity if you’re young.

40% down means a 70% increase when it returns to the same level.  8300 is 60% 14,000, but 14,000 is 168% of 8300!

The Dow closed Friday 8/10/2008 at around 8300 points.  It’s a five year low.  When it hits 14,000 again, that represents a 69% increase from Friday’s closing price.  If it takes five years to return to the 14k level, that’s a very respectable 14% increase per year, not including reinvested dividends.  The dividend yield on a Dow ETF (I like DIA) is 4%, but even at 2% your five year return is increased another 8% for a total of 77% gain. A 4% yield would increase your five year return to 86%.

Consider the following table showing a 2% yield reinvested year over year:

1	$10,000.00  	0.00%
2	$10,200.00  	2.00%
3	$10,404.00  	4.04%
4	$10,612.08  	6.12%
5	$10,824.32  	8.24%
6	$11,040.81  	10.41%
7	$11,261.62  	12.62%
8	$11,486.86  	14.87%
9	$11,716.59  	17.17%
10	$11,950.93  	19.51%

Let’s not forget that the yield is a stock’s current dividend compared to price.  Your yield might be a lot higher.  How so?

If you buy stock in, say, Verizon at yesterday’s closing price (around $29), your dividend yield would be 6%.  Not too shabby.  $0.46 per share per quarter is $1.84 annually.  $1.84 / $29 = 6%.

But what happens if VZ increases their dividend two years from now?  Instead of paying .46 they start paying .52 per share.  Yield on your investment at $29 grows to over 7%!  The price of the stock may rise and new investors might still get a 6% yield, but your money is now earning 7%.  If they increase the dividend again two years later to .57, your yield relative to the price you paid will increase again to nearly 8%.

This blog post cannot be considered investment advice for anyone.  Consult your own financial adviser and be sure to diligently research any investment you’re thinking about making.  Just know that math is on your side should you invest wisely.

I think this article and the people therein missed the point entirely:  it’s not about not using your credit cards, but using them responsibly.

The article cites a study which finds consumers are relying on their credit cards less, that they are leaving them at home, not spending through them.  The article also talks about a couple trying to pay down their $8,000 debt balance.

The crux of the issue is the $8,000 balance, not the use of credit cards.

No one should be spending money they don’t have.  This is a matter of fiscal self-discipline.  The balance on a credit card should be paid in full each and every month.  No interest accrues when the balance is paid in full.  The card simply becomes a replacement for cash.

I use my credit card for everything.  It’s an Amex from Costco from which we receive a small percent cashback to be spent at Costco.  We buy a lot of stuff at Costco, so I’m happy with this arrangement.  But my wife and I make sure to pay off our balance each and every month.  We’re simply using the card as a cash equivalent to get the reward.  I have a Visa backup for the odd vendor that does not take Amex.  I use my cards so often that I very rarely have cash on me.  I just don’t need it.  It’s been this way for years.

Now, if people have compulsion issues and can’t break the credit habit without leaving the cards at home (I remember Oprah once suggesting freezing your credit card is a cup in your freezer, making you think long and hard about thawing it out to buy something), I’ve got no problem with that.  I’d rather have a nation out of debt than to enforce my idea of fiscal self-discipline, but the real solution is to behave responsibly for you and your family.