General: June 2003 Archives

I was going to use that title to write about an issue related to Tulsa's Dialog / Visioning process, but when I was googlechecking the definition of the term, I found this fascinating article by Michael T. Killian on opportunity cost as applied to personal finances. The definition given for the phrase is:

the advantage forgone as the result of the acceptance of an alternative

Killian goes on to say that a dollar spent today represents an opportunity cost of $6.70 measured against investing that dollar for 20 years. He suggests that we should think about the opportunity cost when we go to make a purchase -- consider it in terms of dollars, and in terms of hours labored to earn those dollars.

The article has some links to other useful personal finance concepts, including a plan to pay off all your debts in seven years.

In a later entry, I'll apply the concept of opportunity cost at the macro level, to our elected leaders as they consider the proposal before them. But for now, consider the opportunity cost of the Dialog / Visioning tax in the context of family finances. At a price tag of $877 million, it comes to an average $1500 per Tulsa County resident, or $6000 per family of four. That's about $39 / month over 13 years. If that money were invested at, say 6%, adding that $39 each month for 13 years, then letting it sit for the next 7, at the end of 20 years, that family would have over $20,000.

These sorts of tax increases are frequently referred to as an "investment", and if we take that sort of language seriously, it's reasonable to ask what is the return on investment. Would an average family stand to gain more than $20,000 as a result of the items purchased with these new tax dollars?

Every Friday, a set of five personal questions are posted at the Friday Five website, as a sort of conversation starter for bloggers. I'll give it a try -- maybe I'll do it most weeks.

1. How are you planning to spend the summer [winter]?

Working on a couple of high-priority projects at my job. Playing with the kids. Swimming with the family at the neighborhood pool. Keeping nature from utterly reclaiming our yard. And for the next week or so, trying to influence Tulsa's Dialog / Visioning leadership team to come up with a plan that I won't feel compelled to oppose.

2. What was your first summer job?

A programmer for Valuation Systems Company, writing depreciation software in BASIC for Wang and TRS-80 computers. The office was on the 30th floor of University Club Tower, south of downtown Tulsa, with great views of the entire city. I was making $6 an hour without having to sweat, and the fridge had all the free pop I could drink. That job spoiled me for life. It certainly spoiled the expectations I had of life in the software business.

3. If you could go anywhere this summer [winter], where would you go?

Paris, not withstanding the French. My son, nearly 7, has been hearing about Paris from his art teacher, and he wants to see the Eiffel Tower, the Arc de Triomphe, and most of all, the Louvre, to see all the art works he's been studying at school. It would be a thrill to take him there and to see it for myself for the first time.

4. What was your worst vacation ever?

Hard to say, because any vacation that involved traveling to new places had something to commend it to me.

5. What was your best vacation ever?

Another tough one.

The "Rest and Be Thankful Tour" -- our June 1994 trip to Scotland and Ulster -- has to be near the top of the list, along with our return to Ulster in September 1995. We stayed at this B&B on both trips, hosted by some of the nicest people we've ever met.

Those were both before kids. A favorite family vacation was our trip to Florida last fall, which included Sea World, Kennedy Space Center, a week on the beach at Siesta Key, and a visit to friends in Fort Lauderdale.

You'll notice a new item at the right. I've joined the BlogSnob text-based ad exchange. The ad is a randomly selected BlogSnob member. BlogSnob assures users that it scans sites for family friendliness:

First, when a site signs up, the blogsnob system automatically goes out, and checks it. It tries to see if the site is a blog, is clean, if it contains any objectionable language or pictures. If it finds no problem with the site, or the ad, it approves the site.

All applicant sites that have objectionable words, pictures, etc. are politely rejected.

Secondly, if any user of blogsnob finds any site that is not a personal or a blog site, or it is offensive, or improper, he/she reports it using the contact page. The site is then immediately checked out by first the BlogSnob system itself, and also by the Admins. [That's me, arnab and my friends :) ]
The site is then dealt with accordingly.

Overall, this system has worked fine, so if little Harriet asks "mommy can I please click on the blogsnob ad?" , let her.

Try it out, you may discover a great undiscovered talent.

Changed the style sheet. I think this is more readable, and it fixes a problem with Internet Explorer and horizontal scrolling. Let me know what you think -- drop me a line at blog(at)batesline.com. (E-mail address disguised to fool spambots. Replace (at) with an @.)

Dave Russ sends along a fascinating analysis of our national economic situation, by Gary D. Halbert of InvestorsInsight.com. He points out that GDP has been growing since the 4th quarter of 2001 -- following three straight quarters of GDP shrinkage. The US is, in formal terms, in a recovery.

So why does it still feel like a recession? Unemployment is rising as many industries are in the midst of a massive restructuring in response to rising worker productivity, slow growth at home, and increasing competition from abroad. Technology advances have made it possible to do more with fewer people, foreign competition and slow growth have made it mandatory.

The bottom line is, worker productivity has been growing faster than the overall economy. That has allowed corporate executives to meet increases in demand while still eliminating jobs. This is very unusual.

Worker productivity historically increases in the early stages of a recovery, but this time the mismatch between productivity and overall economic growth is unprecedented. There have been 10 recessions since 1949, including the recession in 2001. In the recoveries following eight of those 10 recessions, demand grew faster than the increase in worker productivity. Usually, demand far outpaced worker productivity. The result: Unemployment actually declined, and more people went back to work following the eight recessions from 1949 to 1982.

However, following the 1991 recession, which was also relatively mild, demand and worker productivity increased at about the same rate. But as noted above, worker productivity has exploded since then. Here are the numbers for the latest recession:

GDP (demand) has expanded at an average annual rate of 2.7% since the 4Q of 2001. Yet during the same period, the productivity of the nation's work force (defined as output per hour of work) has expanded at a much faster rate of 4.2%. End result: higher unemployment.

The unemployment rate isn't anywhere near the peaks reached in the recessions of 1982 and 1992 -- at 6% it's just a bit higher than the 55 year average, according to Halbert. But the profile of the unemployed is changing -- more educated and highly-skilled people are finding themselves out of work.

Educated workers seem especially prone to bouts of long-term unemployment in this downturn. Hilsenrath found that of the 1.9 million workers who have been unemployed for six months or more, one in five is a former executive, professional or manager, according to a study by the National Employment Law Project, a nonprofit advocacy group for the unemployed. Because these workers have specific, often technical skills, it is often harder for them to find a job that matches those skills.

Halbert says the way out is for demand to grow faster than productivity, and he seems to think that 3% growth will start to turn the unemployment numbers around.