Economist Steven Landsburg noted that policy wonks want people to die rich while economists want them to die happy. Is it better to die rich or die happy?
“Why die at all?” will be the reaction of some. Science has not advanced quite far enough to make this attitude practical, although that may change shortly after we die. Others will find it impossible to separate the two outcomes, let alone treat them as mutually exclusive. How could one die happy without dying rich? Then there are those of us who would cheerfully settle for either outcome.
The reason for pondering the question [...]
Die Rich or Die Happy?
March 9th, 2010The Trade Deficit is Falling. Should We Care?
March 3rd, 2010A few weeks ago, The Wall Street Journal announced that the U.S. trade deficit had fallen for the second consecutive month. Should we care about that datum? The trade deficit is one of several economic indices that receive stylized media treatment: They are solemnly reported, their accuracy is taken for granted and their importance is assumed. In the case of the trade deficit, none of this is appropriate.
What is the Trade Deficit?
The term “trade deficit” relates to a line item on the U.S.’s balance of international payments. The balance of payments is a double-entry accounting summary of aggregate economic transactions [...]
The Season for Buying – and Selling
February 23rd, 2010To everything, there is a season – and a time for every purchase under heaven. No, that‘s not a misprint – just an economist’s reworking of the Biblical passage.
Every recession brings with it a curious phenomenon. Non-professional investors exit the stock market like a herd of lemmings with an appointment at the edge of the cliff. Eventually, the same people stampede into the stock market during the expansion phase of the cycle. Typically, net stock-market inflows peak at or around the apex of the cycle.
This is no way to run a railroad.
The general idea behind portfolio investment is to make [...]
How is the Municipal Bond Market Like the Grocery-Checkout Line?
February 14th, 2010Bonds are big these days. They’ve always been big among fixed-income investors – older people who have begun to prize the return of their money more than the return on their money, in Will Rogers’ immortal phrase. These security-conscious people are also the same kind of people who buy annuities. Nowadays more people are thinking about safety in investments than at any time in living memory.
Municipal Bonds – a Paragon of Bond Safety
Municipal bonds enable cities and states to borrow to finance big projects like roads and bridges. Sometimes municipal bonds are backed by the general revenue collected by the [...]
What Is It With Insurance Companies, Anyway?
February 9th, 2010A film about insurance companies could aptly be titled Rashomon. Commentators and public figures each paint a different picture of insurance companies, each one viewed through a special-interest lens.
Politicians cast insurance companies as characters in a morality play. The companies are villains who earn monopoly profits at the expense of their customers. Only the efforts of idealistic lawmakers and well-meaning regulators prevent the insurance companies from defrauding their policyholders.
Internet savants portray insurance companies as clever malefactors who profit from knowledge denied to the rest of the world. Fortunately, the savants are on the job telling us the “things the insurance [...]
Where Is the Market Headed?
January 29th, 2010The exact date and location of America’s first cocktail party is lost in the mists of time, but we know what the main topic of conversation was. “Where is the market headed?” ranks with weather and sports as one of the three conversational mainstays. Notwithstanding all the effort and attention paid to it, the level of forecasting expertise is no higher for the stock market than for the other two.
You Can’t Beat the Market
The world’s leading portfolio managers are unable to consistently forecast the prices of individual stocks well enough to “beat the market” – that is, compile a rate [...]
Practical Tips for Retirement
January 24th, 2010The operative word in the title is “practical.” This discussion won’t try to prophesy how much you’ll need to save in order to live comfortably in retirement. (Who knows?) It won’t be an essay on which investment vehicles you should or shouldn’t select when saving for retirement.
It will dispense some casual but sound advice
Take charge of the things you can control…
Nobody is going to provide for your retirement if you don’t do it. You control your budget and your spending pattern. You preside over your investments, and have the power to adjust the allocation of assets as needed. (Studies suggest [...]
Home Ownership: Retirement Nest Egg?
January 15th, 2010For years, conventional wisdom – no, let’s call it conventional thinking – held that owning your own home was the best investment you could make. As it happens, that belief was partly based on misunderstanding.
Now the market for residential real estate is in shambles throughout large sections of the country. Commercial real estate is not much better off. We are continually assured that prosperity is just around the corner, but every time we reach the corner we find that the data on prices or new construction have worsened. This must mean that home ownership is a lousy investment for retirement [...]
How Is a Variable Annuity Like a Bumblebee?
January 11th, 2010The answer is: Both are not optimally designed for their primary activity.
Bumblebees fly, but their aerodynamic characteristics make aviation engineers shudder. Variable annuities are investment vehicles, but their packaging and operation – what we might call their investment-design characteristics – make radio and Internet commentators shudder with horror.
We aren’t called upon to vote on the existence of the bumblebee. We are, however, expected to vote with our portfolio allocations on the desirability of variable annuities. How should their ungainly structure and visible imperfections affect our vote?
“I Think That I Shall Never See… Fair Variable Annuity”
A variable annuity is an investment [...]
Are Consumers Rational?
January 6th, 2010The financial crisis of 2008 had numerous repercussions, many of which are still percussing. Perhaps the most profound was the shaken faith in the efficacy of markets.
This complaint is not new. It origin goes at least as far back as the 19th century. How much of it is true?
What Happened to the Irrational Housing Consumers?
As a preface to the answer, consider this bit of news. Bloomberg Financial News Service reports that home mortgage applications fell during the first week in November to their lowest level in nearly 9 years. Why? Because Congress was considering a bill that would extend a [...]
