Monthly Archives: November 2011

Got Optimal?

Posted on by
5

It seems to me that one of the most underrated notions in the world is that of the “optimal” arrangement.    You hear a lot of folks talking about things like  “exploitation”, “growth”, “fairness”, “maximizing profits”, etc, etc, but it seems to me we don’t talk nearly enough about how to structure the world in the way that best benefits the most people, ie to seek the optimal arrangement given the needs and contributions of all the players involved.

Nearsighted conservatives will sometimes mistake that kind of discussion as “socialist” because they see it as veering away from the competitive, individual forces that very effectively drive  highly productive economies, but they forget that in the game of economics we should generally be looking at metrics such production divided by number of people (GDP), and this number will be bigger if we optimize correctly.

The left in this sense is usually too “far sighted”, looking to distribute the wealth that may vanish if we eliminate those individual and corporate competitive structures that are the hallmark of industrialization and the spectacular rise in the average standard of living in the industrialized world over the past century.

So, how to optimize things?   Economist Vilfredo Pareto  (OMG he’s Italian?!  economic credibility challenge alert!) had some neat ideas with respect to optimizing systems where we’d examine them to find ways to increase the well being of some participants without decreasing that of others.    http://en.wikipedia.org/wiki/Pareto_efficiency

I think this simple basic idea should factor in a lot more, especially for those who fret a lot about the inequitable distribution of production towards the rich.    Those folks generally, and very wrongly, assume that redistribution won’t have negative effects on production.    It will, although that certainly does not mean we should not redistribute anything.   It just means we need to redistribute with *great caution* to avoid the catastrophic kinds of problems faced by basket case economies like North Korea.

I think the single greatest challenge of optimizing is the degree to which you factor in the needs of other nations.   Optimizing with the rural Pakistan peasantry in mind is different than if we draw our lines at the US border and say to heck with the needs of everybody else.   Although I believe we have a moral imperative to take the needs of the world into much better account than we do now, I also recognize that it’s not practical or even possible for those of us who enjoy the many benefits of industrialized capitalism to successfully integrate our economies with those of countries like North Korea or China or even very friendly “economic allies” like India.     Fortunately for those guys – and probably for us too – industrial globalization and the communications  and technology revolution are handling much of this task, often via the invisible hand of Adam Smith style free marketeering.

The future … is better optimized !

Those poor folks in the 99% who only have 8 million to their name.

Posted on by
10

After some time looking I finally found the number I’ve been after, which is the cutoff point in terms of the wealth of those elusive and mysterious  “1% people” everybody is talking about.  Here’s the excellent research document:

http://www.levyinstitute.org/pubs/wp_589.pdf

We learn that the cutoff for moving from the impoverished 99% to those nasty ONE PERCENTERS is …. wait for it …. a  Net worth of $8,232,000 or more..

WoW.

So here’s the problem if you are an anti occupation person – those one percenters SURE have a LOT of money!    In fact as you go into the category of the super duper rich – the top tenth of a percent, you get wealth so great it’s hard for most of us to even imagine – hundreds of millions of dollars.

HOWEVER if you are a “pro occupation” person I think you have even a bigger problem, and that’s the thing most  would not even call a “problem” at all, it’s the fact that we are SO prosperous here in America that millions and millions of people who are well below the “one percent” mark are incredibly well off .   Somebody with 7 million in the bank won’t make the 1% cut, but clearly they are very rich.

How moved should we be by a movement that considers millionaires to be among the disadvantaged in America?  

Of course the 99% folks don’t mean it literally, rather they are concerned that a small number of elite rich folks control the whole show.   It’s an important topic, yet it seems to me the concept of exploitation of the poor by the rich weakens as you examine closely the actual data as well as the procedures and power structures as well as how things work in the country’s business and political circles.  Lots of redistribution is already taking place, though tax critics will reasonably note that taxes go mostly to entitlements for the middle class and the defense department.   Higher taxes are not necessarily a path to “greater fairness”.

Certainly we want more even distribution of America’s massive wealth, but it’s also important to keep the production levels high so we have something to redistribute.  This balance is not easy.  Not easy at all.

To Prosper or NOT to Prosper.com ?

Posted on by
2

Last year I began an experiment with PROSPER peer to peer lending.    The concept is great – cut out the banking middlemen and middlewomen, delivering higher returns to lenders and more borrowing power to investors.     Years ago PROSPER struggled with its initial implementation, running into SEC issues which, I think, related to them effectively overreporting the interest PROSPER lenders could reasonably expect to get.   Part of the trick here is that as far as I can tell their are a LOT of borrowers on Prosper who have no plans to ever repay the loans.   They are assuming, perhaps reasonably, that collections on these small, unsecured loans in this wild online environment will be inadequate and they’ll simply default on them without much consequence.
My strategy last year was to start by lending a total of $500 to the  “higher risk, higher return” types of loans.  After noting that the return appeared positive I added $2000 to this amount for a better test of the overall return.
I pretty much forgot about this experiment until last week when I logged in to see what was going on with my PROSPER investment.   Unfortunately  it’s very hard to tell if the return is even positive.  They provide me with several numbers but they are confusing. The 4% return they cite seems like the return I’m getting so far – clearly NOT good enough to hassle with this and take the risks,  even though it appears I also have an extra 2% from “bonuses” that are given for investing in certain loans at certain times.
All that said, it’s possible I’m going to start to make a much higher return now that the “bad loans” appear to have defaulted.   I intentionally picked risky loans that said they’d have a much higher net return  and I’m still not clear if Prosper reflects this in the current stats.     The average “expected” return on my loans per Prosper would have been well over 10%, so if I wind up with 4%  it would seem Prosper could be up to their old trick of under-reporting the risks and/or inflating the expected returns.
Note that with fairly small investments – like my $2,500 in this Prosper Experiment – your TIME starts to  matter more than extra money.    Making an extra 1% on 2500 is only $25 per year, so it’s worth an hour or two of hassle time but NOT WORTH many hours of hassling, extra tax issues, etc.
I’m skeptical that Prosper offers more than a few extra percent if even that much.  THUS thus it would only be worth hassling with if you were investing tens of thousands.   In THAT case there is some serious uninsured risk involved, so I’m leaning against Prosper until I see more results from others who, like me, have tested them out and hopefully, unlike me, can figure out the Prosper reporting.
Prosper loans are often paid early or defaulted, which complicates the earnings calculations a lot.    They also do NOT pay interest on the ‘float’, or time between funds going into your account and getting invested.   Thus you’ll always have some days – perhaps months – where you earn 0% interest.   Not a big deal in the current interest environment but even a few weeks at 0% will trim a total rate down quickly.   I think there are “auto invest” options to lower this float time and I don’t think it’s scandalous – but it’s not a good thing.
Also, the tax issues alone appear like they may be a major hassle with Prosper.  I think one may need to report the total interest and then deduct the “bad loans” as capital losses or gains to avoid overpaying on interest received.  This is NOT a simple deal since one generally funds dozens of notes per year.   I’m still confused by this part of the PROSPER adventure.
Of course if LENDING is a bad idea at Prosper, Borrowing may be a GOOD idea, though I’m wondering if those who simply default immediately are the big beneficiaries here.    The interest rates on borrowing seem incredibly high with Prosper – much higher than a home equity line or even many auto borrowing situations, so if you pay it all off you are going to be paying … a fairly high rate of interest on these small loans.
Overall I’m thinking this may be a “high risk” loan environment and therefore not all that Prosperous one for anybody.
I’ll have more in another post where I’ll show my statement to see if others can figure it out.

How to Use Twitter

Posted on by
6

Yes, of COURSE you’ll be doing Twitter soon, so might as well jump on the bandwagon now.  Below are the instructions to the extent you need any – Twitter is, if nothing else, very easy to use.

The normal phases of Twitter adoption are

1. “Wow, Twitter is  stupid!”  2. Hmm, lots of people LIKE Twitter. 3.  I wonder how you do Twitter?   4. I’m tweeting, I’m tweeting!  WooooHooooo!”

I’m assuming you are here in stage 3 of the process and that you realize it’s best to just jump in and do this and there really aren’t any formal “rules” so here you go with general ideas:

HOW TO USE TWITTER: 

1.  Sign up at www.Twitter.com    Easy, takes 2 minutes.

2.   By clicking the follow tag on a person, you should follow a LOT of people (hundreds at first, eventually thousands) who share your interests plus any friends you know who are doing Twitter.   If you are like me, also follow people who don’t agree with you.   I think the best approach is to find interesting people for a topic and follow their followers – this is MUCH FASTER than following people one by one (UNDERSTAND THIS POINT or you’ll spend too much time waiting to follow and click!)

Don’t worry about being picky, just click up to 500 per day until you hit the 2000 limit.   This will only take you about 10 minutes per day.  Don’t worry, you’ll be surprised how LITTLE activity there is on Twitter even with lots of followers.   I, for example, spend only about 10 min a day with it unless I’m bulking up followers – then I’ll spend 30 minutes following and unfollowing those who do not reciprocate.     Unlike Facebook, Twitter is not much of a time sink unless you get obsessed with it.   It’s partly for this reason it’s such a great business tool.

One of the neat things is that you can pretty much post what you like, there really aren’t many protocols.  Until you have a lot of followers (and even then), you’ll be surprised at the low feedback.  I use and see Twitter as more of a public soapbox for shouting than as a serious communications tool, though I love it when it becomes serious as when I’m complimenting a business or reporting a problem, or when I’m an insider to international twitter activity as during the ongoing “Arab Spring” where heroic folks are keeping the flame of freedom alive using Twitter and other social media.

Arab spring is only one example of people using Twitter very seriously.    YOU can take your cause and post links to your pictures (if they are public), make a comment, and then use a tag like this:  #PutAnyTopicHere         .
Using tags allows people searching for that topic in the tag to see your tweets.    Otherwise and in general only your followers will see what you write.
Retweet tweets you like that others make by simply clicking “retweet”.   This is nice for them and also helps you get “noticed”.
Summary of “How to Use Twitter”:
Join,  TWEET,  change the world.