Every so often, someone comments on a really old post and I start poking around the archives for old stuff. This time, someone commented on a post from August 2005 in which I suggest that ING Direct increase their rates to entice more customers. Their rate was a “meaningless 3.3%.” Getting 3% (or 2%), let along 3.3%, would be a significant jump from the best bank rates today, which currently sit around 1.0%. Heck, when Ally raised their rates a few weeks ago by a few fractions of a percentage point, it was big news.

But despite such low rates, Americans are saving more. The increase in savings is driven not by interest rates but fear of the future as a result of the recession. When things are good, the future is bright and people are comfortable spending like there’s no tomorrow. Pile on the debt because the good times are rolling, we can pay it off later. The unintended consequence of lowered spending, is a weaker economy. A larger percentage of our economic growth is driven by consumption. Say what you will about the implications, that’s the reality.

So the big question is, would a higher interest rate drive you to save more? Do you even look at the rate? I know I don’t. I save because I want to be able to spend it in the future. Whether I get 1% or 5% really doesn’t impact the decision. It’s like when politicians talk about lowering tax rates in order to spur job creation… that’s just not how I would think as a business owner. You hire when the person you’re hiring can earn your business more revenue than they cost. You hire a new employee when they take some of your workload so you can focus on projects that can generate more income for your business. The taxes, which affect take home income of the profits, matter later in the decision making process. (You could argue that given how small business is taxed, higher rates constrict cash flow. That is true, but it doesn’t necessarily directly impact hiring decisions, it just makes payroll harder to meet and that’s affected by plenty of external factors… anyway, beyond the scope)

A higher interest rate would be nice, especially one above inflation, but it just doesn’t change my choices. Does it affect you?

Here’s a remarkable statistic – low-income smokers in NY spend 25% of their income on cigarettes. Those earning less than $30,000 a year account for 39% of the state and city taxes on cigarettes. Those with incomes over $60,000 spend about 2% of their salary on cigarettes. The article itself was meant to discuss the regressive nature of consumption taxes like the ones on cigarettes, where a pack can cost around $12. $12 is nearly twice the national minimum wage after you account for taxes and FICA.

Next to the impact it has on the body, the absolute ridiculous prices you have to pay to buy cigarettes should be reason enough not to smoke. It’s terrible for you but I get why people smoke, it’s something to do and it’s relaxing. Some people don’t like the weight gain when they stop smoking. But to pay $12 a pack? That adds up quickly. Granted, my reaction probably has to do with how I’ve never smoked, and I do enjoy an occasional beer (not to the tune of $12-$24 a day… I don’t think!) so maybe it’s similar.

That’s not what I’m curious about… what’s your biggest expenditure outside of your housing and groceries? For us, it’s easily going to be dining out. I don’t put eating at restaurants in the same category as eating at home, since it’s often more expensive and more of a luxury. We like to go out to dinner, especially to our favorite spots, because we can eat inexpensively, have no dishes, and just relax and have a good time. If we don’t go out, we can just as easily order takeout and enjoy it at home.

What’s your biggest expenditure each month?

Fabian Pfeffer, a sociologist at the University of Michigan’s Institute for Social Research, recently studied inequality across generations around the world and discovered that exceptional upward mobility in the U.S. is a myth. His findings are based on data from the ISR’s Panel Study of Income Dynamics, which surveyed a nationally representative sample of 5,000 families in 1968. He found “that parental wealth plays an important role in whether children move up or down the socioeconomic ladder in adulthood. And that parental wealth has an influence above and beyond the three factors that sociologists and economists have traditionally considered in research on social mobility – parental education, income and occupation.” In other words, how much money your parents had was a bigger influence than everything else.

The data is sobering but my question is whether you think that exceptional upward mobility is a myth? I believe that if I study hard and work hard, I can succeed. Now whether that’s “exceptional” upward mobility or just regular upward mobility, I don’t know. I have to believe that there’s an opportunity there for me to better my family and myself.

That said, I don’t believe my networth will ever hit a billion dollars. Is that the definition exceptional upward mobility? Or are a few million enough? Or a few hundred?

Is exceptional upward mobility a myth?

Last year, I got an iPhone 4S, the first iPhone I’d ever purchased. Before that, I was running with a Palm Centro that worked well but was just too unwieldy and the OS just wasn’t that great. I considered getting an Android enabled phone but after briefly doing some research, I went with the iPhone. While I’m not an Apple fanboy, I do enjoy using their products so I did pay attention to the news about iPhone 5 (to be honest, I was more excited about the new Armoured Kill DLC for Battlefield 3).

The big question now is – should I get the iPhone 5?

There’s one mitigating circumstance… my lovely wife really wants my phone. She has a Blackberry from the stone ages and it’s really in need of a replacement (she had an Android phone but the microphone inexplicably failed and the repair tech said it was a motherboard failure), she was hoping that I’d buy an iPhone 5 and she could have the 4S. Absent that, I probably wouldn’t get a new phone.

Will you be getting the new iPhone 5?

Sometimes I read news stories and wondering – what were they thinking?

Hui “Leo” Gao was your average gas station owner in New Zealand. He applied for a line of credit at his bank (Westpac) and instead of getting access to NZ$100,000, he was given access to NZ$10,000,000 – or about seven million bucks USD. The bank didn’t realize its mistake until Gao withdrew $6.8 million from the account over the span of a month and deposited it to banks in Hong Kong and China. Then he fled. His girlfriend, Hurring, went with him and they took their six year old daughter. Hurring was caught two years later when she returned to New Zealand to renew her daughter’s passport. Gao was arrested in Hong Kong and extradited to New Zealand. Westpac recovered $2.9 million but $3.8 million is still outstanding.

We all know that bank errors in real life are not like bank errors in Monopoly. You don’t get to keep the cash. I suppose Gao saw the millions and decided that taking the cash and running was worth risking the inevitable jail time when he got caught. What blows my mind is that Hurring decided to return to New Zealand to renew a passport… and that’s how she got nabbed.

Amazing.

Then I wonder… what would I do if $7 million just appeared in my account? What would you do?

I started my college experience back in the summer of 1998 in a degree in which every graduate had a fantastic job with an incredible company – computer science. Computer science graduates were getting snapped up by tech startups left and right, the tech boom was in full swing, and back in 1998, the companies were mostly legitimate. While in school, I packed my semesters full of classes and was set to graduate a semester early, December of 2001, when the dot com bubble burst is spectacular fashion in the spring of that year. Jobs were no longer plentiful and I would extend my college experience to include a Master’s degree before graduating into a much healthier job market a year later.

The lesson from all that? Four years is a long time. The best paying college major in 1998, when you start college, may not be the best (or even close to the best) when you graduate in 2002. Fortunately for me, computer science was a degree that would always be in the top ten for many years later and I enjoyed it.

When I see lists like this one, that list the top 15 college majors by median pay (taken from the latest College Majors Handbook with Real Career Paths and Payoffs), I force myself to remember that four years is a lot of time. The list itself is less valuable than the trends.

What’s the trend? Engineering is always king. Look at any list and you’ll see the top of the list peppered with a variety of engineering disciplines – computer, chemical, electrical, mechanical, aerospace, industrial, and civil. What else will you see on those lists? Math. Economics and financial management, #13 and #14 on that list, are proxies for mathematics (not the hardcore theoretical stuff that a mathematics degree demands, but it requires a healthy dose of math).

Finally, you’ll always see pre-med because medicine is an expensive field to be involved in. After ten years of education, internships, and residencies, you get the pleasure of earning six figures that is chewed up by insurance and loan payments. You get paid six figures because the expenses are tremendous. Good for them because we can manage fewer engineers (the pipeline there is four years), it’s tougher to get more doctors (if the pipeline is ten years of grueling punishment).

What do you think about these lists?

This is one of the proposals economists love but politicians hate and we’re going to discuss their first proposal – eliminate the mortgage tax deduction. This proposal is pretty straight forward:

Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

It’s not clear how carbon emissions would be taxed but it appears that the main thrust would be adding a tax on gasoline to cover externalities. An externality is a cost or benefit that isn’t covered by price. With burning gasoline as a fuel, there’s a cost that you, as a driver, are not paying. Unlike a company that has to buy carbon credits to offset the pollution from their manufacturing process, we don’t have to pay a similar tax to cover the pollution from our driving habits.

I think the tricky part with taxing this is the implementation. A consumption based tax makes the most sense, add a tax to each gallon of gasoline, with the proceeds going to cleaning up the impact of that pollution. The problem is that a basic one would disproportionately harm lower income Americans because anything that taxes everyone equally would disproportionately harm lower income individuals. While I like the idea of a tax on pollution, I don’t think it’s an easy one to develop.

What do you think about taxing carbon emissions?

(Photo: robbn1)

We know that a sales tax on internet purchases is probably on the way, either federally or slowly expanding across the states, with Amazon firmly in the sights of every state Treasurer. Unless there is a nationwide system, the rates will always vary among the states because they vary right now. The retail sales tax in Virginia is 5% but a hefty 6% in Maryland. Go up to Delaware and you pay no sales tax! (this is one of the reasons why sales tax holidays are always so popular)

Delaware is only an hour and a half away, which makes it impractical for most purchases, but it does start making sense for big ticket purchases like a television. We often stop at the Delaware Costco on drives up to New York or New Jersey in order to buy stuff tax-free (it’s rare and it’s mostly alcohol ) but we haven’t made a special trip just to buy something and avoid taxes.

But let’s say Amazon started collecting taxes in your state, like Virginia in September 2013, would you ship to a friend or relative in a nearby state to avoid the tax? My in-laws live in Virginia and if they wanted to ship things to our house to avoid the tax, I’d have no problem with it.