I think that San Fran exists in its own little universe out there sometimes.  I just read an article from the LA Times where San Fran has passed legislation that prevents a land lord from raising the rent to more than 33% of a renters income and allows a renter to add roommates and family members even if the lease the signed strictly forbids it.

Now I am all for lower prices but this kind of legislation leads to only one thing; poorer living conditions.  I think many times the people we elect have great intentions but their ideas many times have unintended consequences.  What happens when you cap what a landlord can charge their tenants?  You get a disgruntled landlord who will not (or cannot) fix anything.    The market dictates what a landlord must charge in order to make a profit and keep the building in good shape.  Are some people going to gouge?  Absolutely!  But you are not forced to live in those buildings you can just go to another one that is not price gouging.  It will be interesting to see what happens to rentals in San Fran as a result of this legislation.

With recent news on businesses cutting jobs (unemployment raised to 6.1%) I thought it might be interesting to look at business taxes and how they effect us.  

Ultimately, business taxes are a scam.  The federal and state governments tax businesses under the ruse that this means you don’t have to pay as much out of your paycheck.  The truth is that businesses do not pay taxes.  They just pass them through to the consumer in the form of higher prices.

However, with the advent of free trade and the global economy, there are much greater ramifications for having a higher tax rate on businesses.  We have already established that a company paying a high corporate tax rate has to sell its products at a higher rate.  If another company can pay a lower tax rate in a foreign country and then import a competitive product with no taxes on imports they can sell the product for less and make the same amount of profit.  

I know you are probably thinking, “How does this effect the average joe worker?  Who cares about where the product comes from?”  Well we should all care.  When a corporation or even small business locates in an area they bring jobs.  Many times these are good paying jobs that are then supported by lower paying jobs.  This gives a community not only high earners but entry level positions so that young people move into a community and keep it revitalized.   A country, state, or municipality that keeps its corporate tax rate too high hurts the people who live there.  

A great example would be the merger of Daimler Chrysler.  When Daimler took over Chrysler the newly formed company had a choice about where to place its headquarters.  Because the U.S.A. has the second highest corporate tax rate in the developed world they chose to locate in Germany and save themsleve 17% in taxes per year.  As a result the U.S. lost out on having all those highly paid executives living in our country paying taxes.  We also missed out on all the vice presidents, middle managers, secretaries and low level employees that come with a corporate headquarters.  This also doesn’t take into account the jobs it would take to support all those employees (shopping malls, grocery stores, people to build roads and homes, etc.).  Through this example it can be easily seen that the big loser in this scenario was the average joe worker in the U.S. (not to mention the governement treasuries that lost out on all those tax revenues).

If we want to see our economy rebound in a big way we need to start putting the pressure on elected officials to, not just cut but, slash corporate taxes.  Someone promising to do that would have my vote in a heartbeat.

In his bid to become president of the United State, Senator John McCain has proposed that the U.S. government offer a 300 million dollar prize to the individual or company that can produce a batter that will allow for inexpensive long range travel (100 miles or more).  With so many options out there I wondered why this would be an important development, but then I started looking at what it would mean to own an electic vehicle (EV) I realized that this was a brilliant idea.

I have been trying to find a low cost way for my wife to travel back and forth to work.  Currently she is driving 32 miles one way and with the rise in gas prices this starts to eat away at the budget.  I have compensated by cutting back in other areas but it would be nice if I could just pay less for commuting expenses.  I have looked at many different options and the EV makes the most sense from a per day cost analysis.  The problem is they are expensive to buy, expensive to convert and expensive to maintain.  Purchasing one is out of the question because they haven’t really been around long enough to create a competitive market.  Converting a gasoline running vehicle makes sense since it would only be a one time expense and electric motors will last longer than the other parts inside the vehicle.    The only drawback is the maitenance and the one thing that kills the price is the cost of replacing batteries every three to five years.  The current batteries available to the consumer are either expensive or do not last very long (the cheap ones break and the good ones cost too much). 

This technology could completely change the cost of commuting to work.  Right now the cost per mile of an EV is between three and seven cents.   To put that in perspective at $4.00 a gallon a vehicle would have to get 60 miles to the gallon to get the same cost per mile.  The best part is you do not have to give up your SUV.  The electic motor could be used to power any type of vehicle you like.  That is what makes this idea so great.  You don’t have to go riding around in a micro machine in order to experience significant cost savings.  $300 million is only one dollar for every man, woman, and child in the U.S. and this kind of technology would make all of our lives better.

I have been meaning to get this off of my chest for a while.  So many people I talk to do not understand how businesses work.  They think that businesses are by nature evil.   The larger they get the more evil they are.  So large corporations are like the devil incarnate.  For this reason many politicians have made friends of the working class by promising to tax corporations instead of individuals.  The problem with this mindset is that corporations do not pay taxes.  How can this be?  Well, a business looks at taxes as just another cost of doing business.  So if the tax rate goes up they don’t just eat it and keep everything the same.  Instead they raise the price of the good or service they offer.  Eventually this works its way down to the consumer in the form of higher prices.  So in reality the individual is still paying the tax.  The estimates vary slightly but the amount of taxes that are embedded in the goods and services we buy is somewhere around 22%.  That’s just crazy.  The high rate of corporate taxes also causes business to not want to put their headquarters inside the US.  When Daimler and Benz merged, instead of putting the headquarters in the US, they decided to locate in Germany.  Why?  It saved them 17% per year in taxes.  This advantage allows them to have a more competitive price on their vehicles.  On top of that the US does not get the high paying jobs that go along with having corporate headquarters inside our borders.  So the next time a politician talks about raising corporate taxes we need to get on to them for being dishonest for how that effects everyone.

Everyone complains about the rising price of gasoline, but I am seeing prices go up on just about everything.  Now some people will tell you this all goes back to oil.  Since we transport just about everything with some form of refined oil it makes sense that as the price of oil goes up so does the price on most other items we purchase.  From what I can tell this only accounts for a small portion of the price increases we are seeing.  The problem is much more complex than most people want to talk about.

The first problem is perception.  We have had a good number of years with VERY low inflation.  We as a nation are just not used to seeing prices go up.  So when they do it is a shock to our system.  Over time prices go up.  It is what it is.  We have enjoyed a time where wages increased at a higher rate than prices and now it is time for things to balance themselves out a little.

When it comes to food we have, as usual, a government problem.  The price of corn has skyrocketed.  Grains do not usually sky rocket like this unless there is an outside force (drought, flood, etc.) that has reduced the supply.  In this case demand has changed.  The U.S. government has decided to subsidize the production of ethanol which is made from corn.  So now farmers can take a portion of their crop and receive a non market driven reward for their corn.  This means corn is being taken off the market to go toward ethanol production.  This means there is a smaller amount for feeding livestock and feeding people.  Shortened supply higher prices.  If it costs more to feed a cow beef will go up in price.  Overall I think ethanol from corn is a terrible source of energy.  It is way too expensive and does not provide the kick we want.  Lets scrap that idea and work on other forms of energy that have proven more reliable.

The final problem is the monetary policy of the U.S.  The dollar has been falling in value.  When this happens prices rise.  I have not heard one presidential candidate talk about monetary policy and how the weak dollar is hurting America.   A large reason for the policy of a weak dollar is the “Housing Crisis.”  The government was not willing to sit by while the market made its correction.  People and businesses who make bad deals should have to pay the consequences of those deals, not those of us who made good decisions with our money.  When I see stories of people who are getting hurt by this “crisis” it is almost always a person or family that bought a house that was too expensive or was buying multiple house, speculating that prices would up, and got burnt.  In order to counter act this natural correction the fed (federal reserve bank) has lowered interest rates (essentially increasing the money supply) to help out the people that made poor decisions.  This decreases the value of the currency (it also lowers the interest I get on my savings accounts which makes me angry).

From what I can tell these three areas are where we are seeing our price increases.  If I had to pick the one most responsible it would be our monetary policy.  I am just beside myself with that one.  Are there areas where you are seeing a price increase?

For the next couple of days I will be showing how I am counteracting the rising costs in my life so I can still have a lot of fun in my budget.  You will not want to miss it.

With the economy slowing I have fielded more questions from friends and readers about why some of this happens. Since this topic tends to get political in nature I won’t be making this a weekly part of my blog but will visit the subject from time to time as we watch what the U.S economy is doing.

Oil prices hit another high yesterday and forecasters expect it to continue to climb. Why is oil going up in price so quickly? There are three reasons and two of them are caused by government.

The non-government caused reason is that India and China are starting to become prosperous. A middle class is developing in these huge countries and they are starting to buy vehicles. Why live in a smog infested city when you can live just outside of it and commute. This is putting a strain on oil markets every where. Increased demand and steady supply equals a rise in prices. Our government could have This leads to the second reason for an increase in prices. No new drilling in the U.S.

We have tons of oil in Alaska and off of the coasts of our country. Oil we can extract safely with little to no fear of spills. In fact we have had no spills from oil platforms even though giant hurricanes went through that region. This problem is all caused by government. The government has decided not to drill in these areas for various political reasons. No one can come to a compromise so nothing is getting done. When drilling in Alaska first came up one of the arguments against it was it will take six years for any oil to flow. It is now seven years later and I wish the oil were flowing. If we drill in Alaska we will have opened up a huge oil reserve that would allow us cheaper oil in the short term while we explore other forms of energy for the long term. I think one of this elections campaign slogans should be, “Let it flow for now, so we can find a way how!” Speaking of other forms of energy…

We don’t use other forms of energy that are available. We could be building nuclear power plants but we haven’t built one since the 70’s. France gets most if its energy from nuclear and they have developed a process to reuse the worn out nuclear fuel. This just makes sense instead of getting so much of our electricity from oil. The other form of energy we never talk about is natural gas. We have all the technology we need to make natural gas vehicles and yet they are hardly used. The U.S. produces roughly 95% of the natural gas we use. This would be a great way to reduce dependence on oil from the middle east. In fact natural gas is so plentiful, when we are drilling for oil, it comes up with the oil. What do we do with it? We burn it off. Thats why you frequently see a fire burning at the top of oil wells.

In economics there are two ways to reduce prices, increase supply or lower demand. We are doing neither, and thus, the price of oil has soared 400% in the last 10 years.  A curse be on both the democrats and republicans for doing nothing to encourage oil exploration and viable alternative fuels (Ethanol is not a viable fuel!) in that time frame.

So how can we absorb some of this.  I would suggest getting a compressed natural gas (CNG) vehicle for your next car.  There are a lot of them out there  you just have to look.  You can get an equvalent amount of natural gas for more than a dollar less than gasoline.  Honda makes a CNG civic called the GX.  You can also buy these cars used.  The easiest place is ebaymotors.com.   Their search feature makes it really easy.  If the vehicle is listed as Bi-fuel it means that it can run on both gasoline and CNG.  This means if you run out of CNG it just switches over to gasoline.  These vehicles also burn very cleanly so the engines can last as much as 500,000 miles and the oil only needs to be changed about every 7,000 miles.  Did I mention you get a tax rebate for buying one of these?  What’s not to like?