Four trivial financial notes

  1. Savings accounts suck. I have an account with Capital One 360 (née ING Direct), where the interest rate is uncommonly high at 0.75%. The inflation rate, for comparison’s sake, was 1.2% last year. So the real interest rate on that savings account is -0.45% per year. I.e., you’re losing money every month. I realized the other day that it’s actually even worse: your interest is taxable. Suppose your marginal rate is 28%; that means your interest rate drops to (1-.28)*0.75% = 0.54% in nominal terms, or -0.66% in real terms.
  2. Somehow the world allowed me to become an adult at some point, which is weird to me. In part because of the realization in 1., I looked around the other day for some basic index funds to put some savings in, while leaving enough in my savings account to cover about six months of expenses. [1] So I just opened up an account on Vanguard and transferred a significant sum of money into it … like I’m some kind of adult who’s capable of handling his own money. Frankly, I think the world got something horribly wrong here, but I won’t tell them.
  3. When I created the Vanguard account, I told it to seed the account with money from my bank account. The withdrawal happened with no roadblocks at all. But in order for me to withdraw money from Vanguard into the bank account, I need to go through a verification step that involves the standard “deposit two small sums of money into your bank and confirm that you know what the amounts were” trick. Q: does this make any sense at all?
  4. I’ve decided for now not to buy a single-family home. a) The housing market here is just insane, b) any number of calculators tell me I shouldn’t buy unless my rent is insane (which it’s not), and c) my partner’s and my geographic location in this world isn’t entirely static for the next few years. I still think the economics of a multi-family home are different, but I need to save up the downpayment on that for a while longer.

Not that anyone asked about my finances. But since I’m off Facebook and Twitter, this is what I’ve got.

[1] – Why an index fund? Because I’m not smart enough to do better than the market. Or if I’m smart enough, I’m too lazy. There are people who get paid many millions of dollars a year to pick stocks as their full-time jobs. It’s hard to believe that I am going to win against them. Granted, there are well-known anomalies. Last I knew, there were even some persistent patterns, owing to people’s reluctance to end a quarter with a loss and so forth, such that there’s predictable non-randomness all over the place. And maybe in time I will get un-lazy enough that I will build a portfolio for myself based around these anomalies. It’s still hard for me to believe that hedge funds and so forth wouldn’t have already exploited these, but you never know.

In the meantime, I follow Daniel Davies’ advice:

As far as active investment goes, I always put it this way – are you prepared to put as much time and effort into managing your investments as you would into running a small business? If you are then go for it – playing the market is not a bad hobby, about as interesting as birdwatching or something. And most people on this list actually do have enough intelligence to beat the market and therefore to beat most active-managed funds, in my opinion. The trouble is of course that beating the market doesn’t just require intelligence, it requires self-discipline, hard work and the ability to control your emotions. But in many ways so does success in bird-watching.

Susan E. Eaton, The Other Boston Busing Story: What’s Won and Lost Across The Boundary Line

A toy school bus on top of a map of metro Boston

This book is a couple-thousand-word-long blog post that has, through laborious and painful editing, been stuffed into a couple-hundred-page-long book.

Boston has two busing stories, one famously terrible, the other successful and not famous. The first busing story is the one covered epochally well in Lukas’s Common Ground, which is one of the few books that I think every American ought to read (the others are The Making of the Atomic Bomb, Caro’s The Power Broker, and Cronon’s Nature's Metropolis). It is the “forced busing” story that everyone’s heard of, which tore apart Boston in the Seventies.

The other story is METCO, a voluntary program by which the parents of poor black students from inner-city Boston can choose to send their kids to white suburban schools. By all accounts that I’ve seen, it’s been a quiet success. There are many questions you could ask about it:

  • How are the outcomes? Compared to their peers, how well do METCO students do later in life? How well do white people relate to black people after they’ve shared a class with them?
  • Are the parents who send their kids to METCO systematically more involved in their kids’ education than the parents who don’t, so that the kids would be more likely to succeed than their peers even if they attended inner-city schools?
  • Why has the program not expanded, if it’s been so successful?
  • Has METCO helped or hindered the goal of merging urban and suburban school districts? Was that ever an option?

Eaton’s focus is not on any of these. Instead she repeats the same few points over and over:

  • Black students often felt like they had lost their identities to METCO, with their friends back home thinking them too white for the neighborhood and their white schoolmates treating them as gangland curiosities (“Do you own a gun? How often do you see people being shot?”)
  • Later in life, METCO students often found themselves able to walk the line between black and white people in the workplace; they were ambassadors, in a way that their colleagues who’d grown up with a segregated education were not.
  • For all its difficulties, most METCO adults would go through the experience again, and most would put their kids through METCO. The few who really hated METCO did so because they felt it had destroyed their identity and left them rootless, or because white people just couldn’t get over their classmates’ blackness.

These are fine, interesting points. I would have liked them much more had they been in the hands of a different author. Or indeed, I would have liked them more had the author just stepped out of the way and added no narration to the lengthy interviews she’d conducted with 65 METCO adults. The interviewees were interesting enough on their own. Also, this just didn’t need to be a book; an academic paper would have been plenty.

Most of us, though, are primarily going to want to know other things about METCO, like how it functions as a program as well as how it changes the racial identities of its participants. That is indeed why I found this book to begin with: it was cited in Gerald Grant’s book, as though Eaton’s book had something to say about METCO as a whole. Sadly for me, it doesn’t. Perhaps your interest is much more about racial identity than mine was; if so, Eaton’s book may be for you.

I just saw amazing theater

The Tempest at the American Repertory Theater. Music by Tom Waits. Dance by Pilobolus. Magic by Teller of Penn and Teller. It’s all so elegantly and fluidly combined that it seems perfectly natural for all of these things to exist cheek by jowl. Ariel lazily makes card decks disappear. A Greek chorus performing Waits’s “Dirt in the Ground” couldn’t be more natural. Caliban is performed here by two dancers practically lashed to one another, twirling across the stage and always just a few degrees from the vertical; indeed, they’re always unstably in motion. Prospero, by contrast, is all economy of motion, upright and stern throughout. I couldn’t breathe whenever he uttered a word.

The play was by turns funny and unspeakably moving, jaw-dropping and toe-tapping. Waits’s music and Teller’s magic couldn’t be a better fit for The Tempest‘s playful, mythological island fantasy.

If you’re in the Boston area, you need to find some way to get into The Tempest during its run. If there’s any justice in the world, it’ll soon move to Broadway, and you’ll be able to catch it there.

Boston taxis: an industry worth destroying and rebuilding

Boston cab drivers spent May 22nd protesting, rather than making their service better. I’ve taken a lot of cabs here in my time, and the story is the same every time: Rude drivers. Crazy drivers. Unsafe drivers. Drivers with gross, unclean cars. Drivers whose credit-card machines mysteriously stop working right when you need them to work. Drivers who won’t take you from Boston to Cambridge, or vice versa, out of the legitimate fear that they’ll have to deadhead (i.e., that when they take someone from Boston to Cambridge, they can’t then pick someone up in Cambridge and return them to Boston, because Boston cab laws are stupid).

I’m no expert, but this system doesn’t seem to benefit the cabbies. Medallions cost $625,000, 20% of which are in the hands of a single company (Boston Cab). It’s a giant scam benefiting only a few people.

Uber, on the other hand, has been almost unfailingly great. I’ve taken both the black cars and the cheaper UberX; under the latter scheme, Joe Schmoe can pick you up in his ordinary car, provided it passes certain tests: it has to be reasonably new, and apparently Uber gets on the drivers about keeping their cars in shape or getting new ones. And apparently the company has very low tolerance for poor drivers. Tonight I had my first unsatisfactory experience with an UberX or black-car driver; within a few minutes of submitting the review, I’d received a personal, apologetic email from Uber, assuring me that they’d contact the driver and tell him to clean up his act. Otherwise the batting average has been 1.000.

Markets don’t always work. But in this case we have every reason to believe that they will: there’s a nimble entrant up against an underperforming monopolist. Let Uber continue to be Uber, and maybe cab companies will get it together. Or maybe they won’t, in which case the Boston cab industry should go away.

Joseph Alois Schumpeter, Capitalism, Socialism and Democracy

A bunch of maps of the world in blue up at the top of the page, with latitude and longitude lines clearly marked off; then in the middle of the page, the title of the book; then at the bottom of the page, the world having apparently been run through the meat grinder of capitalism, of socialism, and of democracy, we have a bunch of fractured worlds ... for some reason that I can't really discern. I have this hypothesis about works labeled ‘classics’; the hypothesis is that the only parts of ‘classic’ works that anyone bothers to quote are those from the beginning of the works, and that the reason for this is that that’s as far as most people read.

So it is with Schumpeter. All anyone ever quotes is the thing about ‘creative destruction’, which is indeed important, but which Schumpeter is done discussing by 1/3 of the way through Capitalism, Socialism and Democracy. So because I am expected to talk about creative destruction, even though it is not actually all that important to the book, I am now going to talk about creative destruction.

The real risk to corporations in a dynamic capitalist economy, says Schumpeter, is not that someone will come along and make the same product as they do, only cheaper. The real risk is that someone will come along and invent something that makes their entire business model irrelevant. Think the Internet displacing newspapers; think, indeed, of people who spent their entire lives training to work at printing presses and now find themselves in their fifties without skills that anyone is willing to pay for. Or think of record stores in the face of MP3s. Or think of train conductors in the era of the personal motorcar. Or think of secretaries in the era of Microsoft Word.

So that’s the bit about creative destruction that everyone bothers to discuss. Where they don’t go from there is where Schumpeter goes, namely to pointing out that in a world that is being creatively destroyed, much of economics is studying the wrong things and understanding the world in the wrong way. We need to stop thinking about a static world, where we have a static problem in front of us and entrepreneurs are expected to solve that static problem with a static solution. For instance, the problem isn’t just “how do I maximize my profit on widgets, given this set of competitors before me who are all trying to make the same widget, only cheaper?” The problem is “how do I fight off this set of competitors, and prepare for the possibility that my entire industry will be wiped out in 10 years?” As Schumpeter notes, this new framing makes “monopoly” look a lot less menacing than a static analysis alone would imply: the monopolist may just be saving money in preparation for being creatively destroyed.

Or the monopolist may not! It may just be good old-fashioned evil monopoly. But the point is that our entire mode of analysis has to get out of a static frame into a dynamic one, and that the dynamic frame is a lot more complicated than the static one.

Maybe 20 pages after the discussion of creative destruction, Schumpeter notes that capitalism won’t survive. And he spends the remainder of the book defending that point. The reader might spend a moment pondering why the latter argument gets less play from the likes of Thomas Friedman than do the creative-destruction parts.

Schumpeter’s reasons for believing that capitalism won’t survive look fairly questionable these days. First, he says that bourgeois rationality — the habit of rationally calculating costs and benefits for everything, in all spheres of life — inevitably removes the heroic, innovative potential from capitalism. Bourgeois capitalism inevitably leads to big business (here Schumpeter and Marx would agree), and big business trains us all to effectively be good little managers, counting our dollars and cents. This eventually works its way into our personal lives: in 1942, Schumpeter expected that fewer people would choose to have kids as their bourgeois worlds narrowed, and as child-rearing thereby became yet another institution subject to cost-benefit analysis. The scope for heroic capitalism would fade away under capitalism’s own tendencies. Not only that, but the decrease in the number of children would lead people to plan less for the future, which again would weaken one of capitalism’s motive pillars.

The outcome — capitalism destroying itself from within — agrees with Marx, to the extent that I understand Marx, but the mechanism is a little different: while Marx believed that increasing scale would lead to bigger and bigger business, with workers being repeatedly thrown out of work as machines replaced them, Schumpeter argues that capitalism as a cultural force would undermine the very creative-destructive underpinnings of capitalism. The system’s internal contradictions, in both cases, would cause it to burn out, but in the Schumpeterian world there is no reserve army of the unemployed to rise up and expropriate the expropriators; there’s just a slow exhaustion from within.

Secondly, there’s the New Deal. Schumpeter is annoyingly loath to criticize specific policies or specific people for at least the first 2/3 of Capitalism, Socialism and Democracy, but it’s fairly clear even before he turns explicit that he’s annoyed with Depression-era economic policies. Again, Schumpeter believes that the New Deal and friends are the self-contradictions of capitalism weakening it from within. Capitalism, he says, creates a class of out-of-work intellectuals who profit on critiquing the capitalist order. When I read this, I confess to you that I raised my left eyebrow in an “oh, come on” sort of way: this does seem to massively overstate the importance of intellectuals. In any case, if you hand-wave over the middle part of the argument, it goes like this: capitalism creates this critical caste of workers, who then somehow work their ideas into the corridors of power, thereby creating the New Deal and friends, thereby sapping capitalism of its vital powers, thereby (again) weakening it and eventually ending it.

This all seems awfully wrong in retrospect. I’d like to have the historical imagination to put myself back in Schumpeter’s shoes. Whatever the context around his thoughts was, he seems like very much an iconoclast. He was pretty clearly anti-Keynesian, anti-New Deal, and so forth. And he was maybe socialist, but maybe not; he’s reluctant throughout the book to tell us what he really feels, instead suggesting that all he’s doing is mapping out the world that would result if present trends stayed the course. He might well be a socialist, but if nothing else he understands his Marx. And he certainly understands why people are socialist; in this, you might say that he echoes Corey Robin: socialists aim to convert hysterical misery into ordinary unhappiness.

I would have liked Schumpeter to have expanded upon the analysis of capitalism’s social effects. In the full scope of his argument, the social analysis is mostly there as a building block toward the larger analysis of capitalism’s future. He’s less concerned about the effects that capitalism has, for instance, on the family as an institution. The family itself is just a building block toward the larger structure. This is unfortunate, because his analysis of capitalism’s social effects seems far and away the most prescient.

There’s much else that I can’t get into here, including a fine synopsis of Marxist thought and an analysis of what democracy actually is. Actually, maybe I’ll spend a moment on the latter. Schumpeter wants to know what democracy really is. In some vague sense, we would probably all say that it’s a system under which “the people [in some sense] rule [in some sense]“. Schumpeter picks this apart. What do we mean by “the people”? We can’t mean that democracy is a system under which every citizen has the right to vote: the modern U.S. won’t allow those under 18 to vote, and we’re clearly a democracy; the U.S. didn’t allow women to vote until the 20th century, and we were clearly a democracy then, too; Germany was a democracy in some sense when Hitler rose to power; etc. After quite a bit of arguing along similar lines, Schumpeter defines democracy as a system in which leaders compete in the market for power. … Here I’ve only sketched a few pages of argument, which Schumpeter then uses as the groundwork for still more analysis of whether socialism or democracy ought to give way when they come in conflict.

It’s intensely thoughtful and intricate, and I’ve not even unpacked half of it yet. The only critique I’d make is that the writing style seems to come from someone who spoke German natively; I lost the thread of many sentences by the time I reached the end. But it’s worth it, because Schumpeter is unorthodox and brilliant. Well worth your time and thought.

I put together a cocktail map of Boston and its environs

…but it’s a little sparse at the moment. Does anyone have any interesting additions?

Granted, my criteria are fairly arbitrary/idiosyncratic. I love the Sligo in Davis Square (I watched the Sox win the ALCS in 2004 from there), but it’s a dive bar, and I don’t think it really fits here. Cambridge Brewing company is on there even though it’s all about the beer and not about the cocktails. People might like The Burren, but I don’t, so it’s not on there. Etc.

I guess what I’m probably after are just nice bars that take the quality of their drinks seriously, and are reasonably close to a T stop — though that’s also not strictly enforced: Sarma and La Brasa are fairly distant from the T.

Anyway, if you’re into my arbitrary standards, and you’d like to contribute to a Steve Laniel-Approved Map Of Boston Drinking, you should.

Work music recommendation of the week

Steve Reich, Music for 18 Musicians, on the basis of The Edge of the American West’s recommendation. Actually, that’s not 100% true: I wouldn’t have bothered to look into the Reich piece had I not already been obsessed with another of Reich’s works (viz., Tehillim / The Desert Music). Both are trance-like and beautiful.

On the basis of that same EotAW review, I’d like to get an MP3 version of Philip Glass’s Symphony No. 9, but there doesn’t seem to be such a thing.

The latest This American Life is bananas

See here.

I’d like to call out a couple things:

  1. What the guy says about the plane arriving to rescue them: “In my head … you wanna start singing the national anthem … corniness aside, this is awesome: we live in a country that can do this.” I couldn’t help it: I was patriotically moved. Looking at it in a more wonky way, you can think of a society as an insurance policy; the Coast Guard here is insurance against getting hurt at sea. (Lane Kenworthy goes into this in Social Democratic America.) I like to think of my society insuring me in all kinds of ways. And I love living in a country that can do that.
  2. The entire Alan Simpson thing. I won’t spoil it by explaining any of what goes on. You can listen to Act 2 if you’d like. It’s just bananas.

Metrics for affordable cities

This Atlantic Cities piece measures which metro areas are the easiest for middle-income folks to buy homes in. They define this by the fraction of homes that the median earner in the city could buy, assuming this earner stays within sensible limits for what he spends on a home. That is, the earner is expected to spend 31% or less of his income on a home. I never know whether the 31% number there refers to gross or net. Again, people often make the mistake of considering their homeownership decision outside the context of the rest of their finances. You want your whole financial picture, including retirement savings and so forth, to be healthy, not just your homeownership picture.

But setting that aside: by this measure, Boston is not very affordable. If you take even the looser standard of the fraction of homes that are affordable if the head of household (love that Victorian label) has a college degree, then Boston ranks 93rd out of 100.

Consistent with my impression, Pittsburgh is 45th, and Detroit is 17th. This gets at something: you really want to measure along two axes. Along the x-axis, measure affordability; on the y-axis, measure desirability. Detroit is affordable but not desirable. The Bay Area, let’s say, is desirable but not affordable. What one wants is the set of cities that are both affordable and desirable. Or maybe, within the set of desirable cities, one wants to maximize the amount of desirability from the marginal dollar. (You’d want to limit to desirable cities to avoid Detroit showing up on the list. If you’re willing to consider the possibility of living in Detroit, perhaps you can relax this in the thought experiment.)

I don’t know how one would measure desirability. Basically you’d measure it by how many people want to live there. But the only way you can measure that is by how many people do live there or have tried to move there. The price of housing is a decent measure of those things. But the price of housing measures the intersection of demand with supply, and supply is controlled by regulators. So I can’t think of how to measure desirability.

It’s odd, though, that Pittsburgh may well end up maximizing the combination of desirability and affordability.

What tequila “should” taste like

This article is kind of annoying. It’s a bunch of people explaining what tequila is supposed to taste like. Apparently aging tequila too long is bad, because you end up tasting the notes of the aging and not tasting the tequila itself.

I mean, maybe. But we went through this with coffee. Back in the 90s and early 2000s, French roast was the thing, so people loved Starbucks. Then at some point the George Howell thing took over: now we’re only supposed to drink lightly roasted coffee, because “all those oils [that you see on the outside of a French-roast bean] ought to be inside the bean.” (For the record, I think Howell’s coffees are great as espresso, because the high-pressure / high-temperature extraction process gets more of the good stuff into the cup. I’ve not yet found a way to make them work well for French-press coffee.) Now maybe we’re in the full-city-roast era.

Whatever. Drink whatever you want to drink. Then there will be people who will tell you that you’re doing it wrong. Maybe you drink Cuervo, and maybe it’s shit. I don’t know; I’m not familiar with tequila. But maybe you’ll develop a real taste for tequila, and you’ll sip it neat, and eventually you’ll gravitate to other tequilas. Maybe some of those will be aged in oak for a long while; maybe others will be on the sweeter side, and will be less oaky.

Eventually you and I will both be dead, and it won’t matter at all whether we drank the “right” kind of tequila or coffee. Drink what you want to drink. Fuck those guys.

(I guess I’m feeling irritable today?)