Mortgaging the Future, Part 1 (Maybe)

I suppose there's some neat symmetry in the fact that I decided to actually get around to reading Jared Diamond's Collapse at about the same time I first learned about George W. Bush's proposal for a $3.1 trillion budget in 2008. To the uninitiated, Diamond is a geography professor who won the Pulitzer for his book Guns, Germs, and Steel about how societies rise. Collapse is about how they fall. And 3.1 trillion dollars is a lot of frickin' money. That's enough to by a Shelby Super Cars Ultimate Aero (the world's fastest production car, yours for a cool half-million) every day for sixteen thousand, nine hundred eighty-six YEARS, one hundred nine days. And you'd still have a quarter of a million left to spend on gas. (Now, if you wanted to go with the massively classy and similarly named Morgan Aero 8, clocking in at $129,000 each for the American version, you could get one of those every day for 65,838 years.) It used to be that Republican = fiscally conservative proponent of a small federal government and Democrat = tax and spend with the attitude that there's no job too small for the government to take on. We've completely reversed that trend over the last 15 years. Under Bill Clinton the federal budget never reached two trillion dollars and rose at a modest pace of about 2% a year. This was during the economic boom of the internet explosion, too. Instead of taxing and spending, Clinton managed to leave a $559 billion surplus and a plan to spend down the $5 trillion national debt over a decade to his successor. Bush's first budget exceeded $2 trillion, reflecting a 6% increase over Clinton's last and never went below the $2 trillion mark. Rather than getting spent down, the national debt has nearly doubled to reach a mark over $9 trillion on Bush's watch. It's almost enough to make me want to support Ron Paul. Of course I'm not insane, so that won't be happening. One of the small pieces of that 2008 budget plan is the $145 billion tax rebate. Last I heard, it amounts to $600 for individual filers and $1200 for families, with the possibility of random $300 amounts paid out to dogs, cats, and small woodland creatures. Meanwhile, under that same budget, scientific research is getting shortchanged. The government is basically not giving money promised to institutions, such as Fermilab and Argonne, but it's also not going to be contributing to international projects it pledged to support. Which leads to an interesting question. I know $515 billion is going to defense, $145 billion is going to the tax rebates and somewhere in the neighborhood of $70 billion is going to Iraq. Where's the other $2.37 trillion (4,740,000 Shelby Super Cars Ultimate Aeros, alternately an amount larger than the entire federal budget in all years preceding FY 2003) going? Also, do we even know that the money that's in this budget is being spent wisely? Now, six hundred bucks is nice. Twelve hundred is even nicer. But let's be honest, here. For the average American, who's got ten grand in credit card debt, is probably still paying off student loans, may well be getting completely screwed by one of those subprime jumbo loans on a house that's now far, far upside-down in terms of equity, that money is a drop in the bucket. And that's even before we factor in that the money isn't supposed to be saved or used to pay off debt. It's an "economic stimulus," which means we're supposed to use it to buy an Xbox 360 and a copy of Rock Band or a couple of video iPods (or just over one thousandth of one percent of an SSC Aero). That's probably going to happen, since I seem to fuzzily recall from high school econ that Americans spend something like 99% of their income. Also, it’s not like anybody’s getting free money, anyway. Basically, it’s just an advance on next year’s tax return. See, here’s how it works. Say you’re a single filer who made $25,000 in taxable income last year and paid $2000 in taxes. You get a $600 refund. Since there’s $1400 left, you’ll get the full $600 economic stimulus tax rebate. However, that’s counted against your 2008 tax return, so if you make the same $25,000 and get the same $600 refund in 2008, you’ll get a refund check for absolutely nothing next year. From what I understand, if your 2008 refund is $700, you will get a $100 check, but if you only get $500, I don’t think you’ll owe extra. So you’ve got that goin’ for ya. And anyone who uses the money now to buy an Xbox they can't really afford is going to get a rude surprise come next April. Moreover, I highly doubt that we're all going to spend six hundred bucks on some component of a next-gen spaceplane or a chemistry set to donate to NASA or Argonne. Which is really too bad, since that six hundred dollars will be gone in the blink of an eye for most Americans and we'll never know what it's going to cost us in progress. Furthermore, we don't know what that pointlessly added bit of national debt is going to cost us in fifty or a hundred year’s time. We'll just be passing it on to our children or grandchildren (or an older version of ourselves, but we can leave that to future us, right?). Back in 2001 I was driving a 1988 Chevrolet Nova. I bought the thing for $700 bucks. It was pretty much a pile of garbage, but it was really, really easy to maintain (I once bought tires for it. The guy at Firestone said he could sell me tires that were $25 each. I said I didn't want to buy the cheapest tires, so I could do better than 25 bucks. He said the $25 ones were the best ones they made in my car's size). I couldn't wait to get rid of that Nova. One day at the Randall Road tollbooth on I-90 it gave me the opportunity. The car started running really rough and it was all I could do to get it off of the expressway and call for a tow. It turned out that the car had lost compression in two cylinders and probably gotten so hot that it cracked the engine block. There was absolutely no reason to repair it. So I decided it was about time for me to get my very first nice car and went out car shopping and bought a 1996 Chrysler Concorde for something like $10,000. It was a sweet ride. It had full leather trim, one of those on-board computers (back in the day when they were a one-line display with a compass, temperature, and gas mileage as opposed to a GPS and the ability to run your mp3 player), a 7 speaker Infinity Premium Audio system and those awesome aluminum wheels with the sparkly gold insets. It was clean as could be and burgundy with gold trim and accents. with a tan and black interior. I loved it. Except for when it started costing me a thousand to fifteen hundred dollars in repairs every six months or so. It was disgusting. Once I hit about 80,000 miles (I got it with 61,661 miles. Yes, I remember it that specifically) it just started to fall apart on me. I got laid off in May of 2002 and started to really miss that old Nova. Yeah, it was a pile of crap, but it was paid off and hadn't had any problems until that whole engine block cracking thing came up. The final straw came almost exactly three years after I bought the car. One of the cylinders sucked a rod. Basically, it meant that a chunk of metal was pulled down in to one of the cylinders and that it would have scratched the inside of the cylinder and I'd be getting a new engine installed. At that point I just gave up on the Concorde. It was much easier for me to go get a new car and have the remaining amount owed on the Concorde applied to my new, much less cool 2004 Chevy Cavalier. Fortunately I managed to get in at the tail end of the 0% financing boom and the point when Chevy was trying to sell off all the Cavaliers to make way for it's replacement, the Cobalt. When all was said and done, I did the math and figured that about $70 of every payment I made went to a Concorde I no longer possessed. And that's the way it's been for the last three and a half years. I am intimately aware of the inherent problems with creating unnecessary or poorly planned debt. It's not just the amount I pay every month in car payments. There's the four or five thousand I paid in car repairs to consider. More than that, there's the issue of opportunity costs. I often wonder what I could have done with the money I paid every month for that Concorde and the Cavalier I'm currently driving. I also wonder what would have happened if I hadn't abandoned my planning and bought something I knew more about than a 1996 Concorde and paid it off two and a half years ago. I figure my costs on car payments over the last two and a half years are roughly $11,000, but my opportunity costs add up to over $20,000 when you factor in that I could have paid off whatever car I had, kept driving it, and had about $9000 that I wasn't sending to a loan company in that time. The opportunity costs rise to something close to $30,000 if I had simply spent two or three thousand dollars to have a new engine installed in the Nova and kept it going (of course that assumes that I had been able to keep a 1988 Chevy Nova running with no appreciable difficulties for seven years, which sounds pretty much like an impossibility). However, there are other factors that go in to the opportunity cost calculation. I rang up some pretty hefty credit card debt while I was unemployed for nine months or so in 2002/2003. I figure I probably could have saved at least six thousand dollars in credit card debt over the last five years if I hadn't been using my credit card to purchase things while using my savings to make car payments. If not that, I'd certainly have no credit card debt today and I'd probably have a lower level of school debt if I had stopped making car payments two and a half years ago. At the very least, though, my automotive woes have taught me a thing or two about how to look at the issue of money and debt. I'd like to think that I've been lucky to learn these lessons at a young age with a fairly small level of debt (a $10,000 Chrysler is significantly easier to work around than a $1,000,000 McMansion, after all). I did my taxes over the weekend. I'm getting a refund. It used to be that my tax refund plans involved buying something cool with half, then putting the other half away towards future bills. Last year I got a really cool Clarion head unit for my car. This year, I think 1/3 of my refund is going to go to pay down credit card debt, 1/3 to future bills and 1/3 to investments. My tax rebate will probably end up in a CD that I can safely ignore until next tax season. I understand this means I'm not doing my civic duty to spark the economy, but hey, that's life, right? Besides, I really don't need an Xbox 360 and I need to figure out how my future self is going to afford to live in a nation saddled with the debt we're currently giving to ourselves. Anyway, in the spirit of Collapse, I think I'm going to spend a little bit of time in future installments musing about this topic. I have no idea what that's going to mean, though, so whatever...