29 Jan 2011, 10:05pm


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  • Obama’s State of the Union and catabolic collapse

    No, Obama didn’t say the US was due for catabolic collapse 😉 You can just imagine the thunderous sound of jaws dropping if he said.

    “Fellow Americans, State of the Union? Yep, the Union is in a right state at the moment, and it isn’t going to get better. We’re hooked on oil, there’s a load more people on earth wanting it and it’s been a darned old while since we last found major discovery.”

    No. This is America, and with their can-do attitude you can’t go round telling them they can’t do anything. OTOH, perhaps he should have, Americans would kick up something rotten and then maybe we might get those thorium reactors and electric airliners that mean we can all carry on as normal.

    He did, however, do a pretty good job of summing up what’s gone wrong with work of late.

    “Many people watching tonight can probably remember a time when finding a good job meant showing up at a nearby factory or a business downtown. You didn’t always need a degree, and your competition was pretty much limited to your neighbours. If you worked hard, chances are you’d have a job for life, with a decent paycheck, good benefits, and the occasional promotion. Maybe you’d even have the pride of seeing your kids work at the same company. That world has changed. And for many, the change has been painful.”

    That’s pretty much a dead ringer for my post Where have all the Jobs gone, Ma? I didn’t realise they read Simple Living in Suffolk in the White House 😉 Okay, so the soi-disant leader of the free world tightened my post up somewhat.

    Now the problem is this part

    You didn’t always need a degree, and your competition was pretty much limited to your neighbours.

    Last time I looked, they aren’t making people any smarter than they did a few decades ago. Globalisation has meant that we all have to run harder and harder just to stay in the same place, work-wise. And the trouble with that is we are ending up with a winner-takes-all world, where a few people get blindingly rich, while the rest of us fight over the dwindling scraps. There aren’t many decent manual and semi-skilled jobs nowadays, office jobs are becoming de-skilled with digital Taylorism (a fine example of that sort of management here)

    The problem, as Obama pointed out, is that it is getting increasingly difficult for somebody of average ability to earn a decent enough crust to live a typical life that their parents did. For sure, they now have toys and trinkets galore to distract them from this fact – my Dad didn’t have iPhones and Xboxes. But he did get to buy his own house and own it outright at an earlier age than I managed it, and he did it largely on one wage (as I did, so the achievement is comparable).

    And that’s the tragedy. Frippery like the iPhones and Manolo Blahniks distracts us from the unfortunate truth that modern capitalism is beginning to deny a lot of our fellow citizens self-determination in the very basics of life, while bamboozling them with cheap distractions. That would be okay if most people seemed to be happy with that, but if they aren’t, then we have to ask ourselves exactly what is our economy for? Is it so people like Goldman Sachs’s Lloyd Blankfein can earn $13,000,000 while ‘doing God’s work‘ in 2010 while, as Obama told us, yer average citizen’s life becomes financially insecure? Why are we feeding this machine with our lives and our happiness foregone for so little return?

    As Blankfein himself said in the WSJ

    Is it possible to make too much money? “Is it possible to have too much ambition? Is it possible to be too successful?” Blankfein shoots back. “I don’t want people in this firm to think that they have accomplished as much for themselves as they can and go on vacation.

    Why the hell not, Lloyd? What exactly is it that you’ve got against vacations? It’s people like you, punk, that have screwed up the vision I was offered at school that by the time I was 40 we’d be working a couple of days a week and have lots of leisure time.

    What actually happened is too many people like Lloyd and his buddies are chasing the money god, and bidding up the price of the things we all need, like houses and stuff. So we end up having to work even longer to try and keep our heads above water.

    We have ended up with a sociopathic economy that can’t employ people of average abilities, and then rubs their noses in it by letting Lloyd and his chums trash the financial system and get bailed out while they ‘do God’s work’. It’s about time that God sent his quality control inspectors in to the banks and educate these guys that just because everybody else is buying NINJA mortgages doesn’t make it all right for them to. Even I learned that chasing momentum was a bad idea after I had lost enough money.

    Oh and Lloyd, stop being such a jerk about those vacations. A lot more vacations might let us all step back a moment and think about things for a change. Go easy on the boys okay?

    24 Jan 2011, 6:58pm
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  • A New Capitalism – can it ever work?

    You might have noticed we’ve made a right mess of our economy of late. It seems to be a general fit of collective madness, though I should acknowledge I’m looking at this from Western eyes, and from 1950 to 2000 we’ve been king of the hill, particularly if we lived in the US.

    I’m not so sure that readers from Asia would feel the same – I can’t say from personal knowledge but I would imagine Chinese and Indian folk could say they have had a pretty good financial crisis, thanks very much. As Oswald Spengler said, civilisations rise and fall, sic transit gloria mundi… In his seminal work The Decline of the West (Der Untergang des Abendlandes) Spengler opined in the 1920s that we were living in the winter time of the Faustian civilisation, where the populace constantly strives for the unattainable. It’s not a bad definition of the rat-race.

    Not all the ills of the current time can be placed at the door of capitalism – population growth and environmental degradation are as much to do with our life choices as they have to do with capitalism. However, it’s probably fair to say that in the West the current gut feeling is that capitalism has gone wrong somewhere.

    Enter the New Capitalism

    If ‘new’ is good enough to promote soap powder, maybe it’s good enough to fix some of the things that are wrong with capitalism. A couple of respected commentators have postulated the idea of a ‘new capitalism’ which is presumably less rapacious than the old form. Less of the robber barons, more of the kindly face of philanthropic Bill Gates, fixing the world after he spent three decades making such a mess inside your computers, trashing you work with the blue screen of death  and disclaiming all responsibility with his impertinent ‘nothing to do with me’ EULAs.

    In the dark days of 2008, when it seemed that in the turning gyre the falcon could hear the falconer no more, it seemed that if we could hold our heads and recall the wayward bird of prey then everything could be different. No less a sage that Robert Peston, he of the BBC and ex FT, with his somewhat nerdish manner but excellent sense of timing and pace, delivered himself of this statement

    A New Capitalism is likely to emerge from the rubble. And although it’s impossible to be precise about how the reconstructed economy will operate, parts of its outline are taking shape. What lies ahead can be determined from an understanding of what’s gone wrong with the existing model.

    This, in itself, is no reason for gloom or despair. For many, the New Capitalism may well seem fairer and less alienating than the model of the past 30 years, in that the system’s salvation may require it to be kinder, gentler, less divisive, less of a casino in which the winner takes all.

    It is easy to be caught in the crossfire of history, and lose perspective. Yet Peston is backed up more recently by Harvard’s Prof Michael Porter, who breezily acknowledges that Harvard Business School pumped up all those MBAs to charge around Western companies beating the outsource, downsize, reduce drum but he’s changed his mind now and perhaps business should be less rapacious and look to some of the externalities it imposes on society.

    Porter elucidates on Peter Day’s World of Business, available from this mp3 from the BBC. He talks a good talk, even offers a mea culpa for some of the outsourcing excesses of globalisation that has degraded the world of work for many in the West.

    The solutions he proposes were to skew capital gains tax to favour holdings of more than three years, hmm, we used to call that taper relief and we’ve just got rid of that. He was also advocating social enterprises, which sounds all well and good until we remember that the skills to run a successful business are not that widely spread in the community. You need a certain degree of self-interest and low cunning to do well in business…

    What do we want of the New Capitalism

    Perhaps we should ask ourselves first, what does capitalism do for us? In the Adam Smith version, capitalism allocates effort in the most optimal fashion, and indeed when Adam Smith wrote that, he was talking about businesses that were largely SMEs. He may not have approved of multinational corporations, judging by what he had to say about the East India Company, probably the first MNC.

    in 1698 a proposal was made to Parliament, of advancing two million pounds to government at eight percent, provided the subscribers were erected into a new East India Company, with exclusive privileges.

    It quite warms the cockles of your heart, just how open a company could be about what we would call bribery and corruption. “Here’s two million quid, mate, so we can stitch this market up like a kipper”. Oh, all right then…

    The modern Adam Smith Institute is, of course, a bunch of right-wingnuts but we shouldn’t visit the sins of the children on the fathers…

    Let’s be a bit simpler about it. What is it that a capitalist enterprise does for society?

    • It provides goods at the cheapest price
    • it generally tries to not pay for any external costs imposed on society by its activities (pollution, noise, mine tailings etc)
    • in conjunction with other capitalist enterprise and according to the principles laid down by Smith, it allocates stored resources (capital) in an empirically determined optimal way.
    • it develops new technologies and ways of doing things

    That’s what most people think a company does for us. We miss something very important out here, however.

    • it provides jobs, and pay for people to buy the products of the company or those of others

    That is the bit we’ve lost sight of . Another thing we have an issue with is that there is a wide range of human abilities, so it would be good if in aggregate our companies were to provide a range of jobs that matched the bell curve of human intellectual and other abilities.

    Some of the other things we might like our companies to do work-wise are asking the impossible. We humans and frail, egotistical and greedy types. Just as the head of a sweet shop will never want for sweets, is it really so surprising that the the chiefs of a money shop, a.k.a. banks, decide they are so special that they need lots of…money?

    Indeed since money is desirable, is it such a surprise that the heads of bigger companies decide they are particularly special, so they need lots of money? Especially when you put a bunch of these guys together to slap each other’s backs and set each other’s pay as part of a remuneration committee? I mean, heck, I would, wouldn’t you 😉  I don’t know what we can do about the ratcheting up of executive pay, but I do know that we used to have long lasting successful companies before this all started to happen 20 years ago, after Bill Clinton forced companies to set performance related goals for their executives in 1991.

    So that’s an awful lot more that we want the New Capitalism to do for us than the Old Capitalism. Where Peston and Porter are a bit on the hazy side is how we get from where we are to where we would like to be. It’s all very well having goals, but you also want to have a roadmap for how you’re going to get there.

    Without that roadmap, and the will to follow it, and a big enough stick to bash the vested interests arrayed against the New Capitalsim (CEOs of the world’s multinationals, we’re looking at you, kid) I just don’t see how this ones going to fly. There may be other forces that may roll back the forces of globalisation enough to improve the world of work, but these forces will come from without.

    With a hard layer of embedded vested interest scum at the top of capitalism, it ain’t going to want to change of its own accord. It held the line in 2008, ably abetted by the taxpayers of the then rich world. It’s basically ‘so long, taxpayers, and thanks for all the fish‘, now let’s get back to business as usual.

    Maybe I’m wrong. I’d like to think so, but my money is on the slow thighs of the rough Beast slouching towards Bethlehem…

    19 Jan 2011, 11:35pm
    peak oil:


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  • Fighting Energy Costs – my journey

    A big part of retiring early is reducing running costs. When you are working, and assuming you a living a little below your means, there’s no great incentive to save energy usage, and indeed there are a lot of things about working that mitigate against saving energy. You are usually cash-rich and time poor, and much about saving energy is time consuming.

    And yet it is a parasitic cost which is worth attacking, and attack it I have done. My total power bill was at a peak of £1030 in 2007 and 2008 and by attacking my electricity usage I have brought down my usage to about 1/4 of what it was in the early 2000s. I am trying to do the same to my gas bill by substituting the use of a log burner for heating but this is a much harder fight. I haven’t been helped by the fact that the last couple of winters have been quite cold. My combined power bill was £650 for 2010 (gas + electricity)

    Bringing down electricity usage is more complex – there are a lot more things connected to the AC mains than there are connected to the gas. I live in a very average three-bed semi of 1960s construction, and I have gas central heating with a boiler that’s over 15 years old and a reasonably modern all gas cooker, hob and oven. That’s it for gas usage.

    My gas costs and usage

    The low start is because I haven’t got all the data for 2003. Although I have managed to push down gas usage over the years since 2004, the cost of gas has sky rocketed, it has almost tripled since 2003. This sort of headwind is likely to continue in future, and is a major hazard for my annual running costs because a) I haven’t had much success getting it down and b) gas is by far the largest financial component of my power bill.

    On the electricity front I have had a lot more success

    My electricity costs and usage

    Most of the success has been in driving down consumption which has paid handsome dividends, to the point that most of my focus in this area needs to go on the gas bill.

    As far as the actual unit costs of power are concerned, there has been a steady increase, reversed in the last year when I switched from using two different suppliers to getting both from EDF. You usually save by taking both from one supplier, but extablishing how much is deliberately made fiendishly complicated. The companies effectively work as a cartel, obfuscating what should be a pretty simple calculation using all sorts of exceptions, such as a standing charge hidden in a higher price for the first few units, promotions for direct debit and attempts to lock customers in to a tariff for extended periods, charging them a switching fee. I was offered a 2% discount by EDF to switch to a lock-in tariff for 18 months. I passed, on the general principle that what’s good for them isn’t likely to be good for me. They’ll probably jack prices up by more than the norm in the next few months, so I’ll pass on the switching fee, thanks. If they’re good boys and girls then I won’t take the sucker punch and lose £13 a year. I’ll take the risk of eating the loss to avoid taking the switching fee of four times that if they aren’t the nice guys they pretend to be.

    Electricity and gas per unit (=1kWh) costs

    I regard my usage as careful, but not hair-shirt. It takes some effort to achieve, but is not unreasonable for a couple in a three-bed semi. We don’t wear coats indoors in winter or use torches in the dark, but on the other hand we don’t run a hot tub or 10 halogen lamps in the kitchen and bathroom just because they look nice. Don’t get me wrong, halogen lamps do look very nice indeed and a lot better than those awful CFL things. I use regular light bulbs in the bog and for reading, except for a couple of LED lamps for reading lamps.

    The average utility bills for guys in the office I work with are much higher – two of them are running £2500 and anther is £1500. However, they do all live in larger, and in the two £2500 cases very poorly designed from a heat POV older properties. I haven’t managed to track down the average utility bill for the UK but I think I am on the right track at £650. However, that gas bill is a future liability and needs to come down at some point…

    17 Jan 2011, 4:02pm
    peak oil:


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  • Energy costs are doubling every five years. Adapt, don’t whinge

    I was dismayed to read the right bunch of whingeing petrolheads at the Torygraph whining about how dreadful the government was for putting up fuel tax and spoiling their right to live miles away from work in the country and drive everywhere. The idea that the Government should reduce fuel duty for rural residents sounds truly cracked to me.

    In the years to come, rural areas will have to learn to become more self-sufficient and produce more of their needs locally, or they will depopulate to the cities. Government help, if any, should be targeted to assisting communities become more resilient, locally self-sufficient and self-reliant. Pouring our last resources into subsidising an unsustainable rural living pattern is the very last thing we should be doing.

    It’s not so much that that the petrolheads are wrong, the government probably does tax fuel too much without having a good reason other than that it’s easy to tax and hard to avoid. My beef is that these guys are fiddling while Rome burns.

    The cost of fuel is doubling every five years. This is because the amount of oil extracted from the ground has plateaued

    Oil production is flattening out

    and the second thing that is happening is that there are a lot more potential consumers lining up to split this limited amount across. The burgeoning middle classes in China and India, would also like to live in the attractive suburbs and drive to work, like us. A fixed supply distributed to an increasing demand usually results in increasing per unit prices, shaking out the poorer customers who get to do without, or use something less desirable instead.

    Berlin, car with Wood Gas generator

    There are alternatives to oil, and yes, they were used in the war on both sides by those too poor to afford petrol. The Torygraph petrolheads' modern engine management units won't appreciate it though.

    So there’s really no point our Telegraph users whining about it. For sure, it’ll help them feel better, but here is what they need to be doing, as intelligent adults:

    Examine how much they are spending in petrol to get to work. Then double it. That is what they will be paying in five years time. It has nothing to do with the government, and everything to do with too many customers and a less elastic supply. You can’t fight the market. If paying twice as much for getting to work is too much, then you have choices. Something has to change in the next five years. Effective choices include:

    Reduce the travel distance

    • move closer to work
    • work closer to home
    • work from home half the time (this option works badly with public transport season tickets which aren’t set up for that)

    Change travelling mode

    • car share – one to two passengers buys you 5 years, fill the car with 3 coworkers buys you 10 years of rising fuel costs
    • get on your bike
    • use a motorbike
    • use a moped

    Or economise in other areas of your lifestyle and shift resources to pay for your journey to work

    • holiday every other year
    • eat out less
    • take Tarquin out of public school
    • ease back on Mum’s taxi miles for Jemima’s afterschool activities
    • walk Tarquin and Jemima to school – it might be better for them too
    • live more frugally
    • work longer/harder to earn more so you can work longer/harder (funny old world, eh?)

    All of those are effective options. Ranting about the government tax being over 60% or the cost of petrol isn’t going to help. Petrol is taxed highly because we demand the government does a lot for us, which costs money. It needs to finds ways to raise that money that are hard to evade. he only effective way to evade petrol tax is to use less of it. Fuel costs are going to go up independently of that taxation.

    The same applies to fuel usage at home. Look at your power bills. If doubling them is too much, effective responses would be

    • reduce electricity consumption
    • insulate the home better
    • avoid using electricity for space heating
    • get more diverse heating sources
    • consider alternatives to fossil fuels – wood and biomass
    • consider heat pumps
    • consider living with more people to share costs
    • move to a smaller home
    • move to a more energy-efficient home

    Ineffective responses include

    • whining that it’s all an oil company company conspiracy
    • saying since you rent you have no choice – you may need to move….

    These increasing fuel costs are coming our way whether we like them or not. It appears the great mass of Western consumers hasn’t realised this yet, and choose to believe it is their government’s fault for the increases they have observed. That means those of us whose minds have not been infantilised by consumerism can make some changes, selling our fuel-inefficient lifestyle choices to mugs who don’t spot the downside yet, and buying enrgy-efficiency before the market starts to jack up the prices because it is a sellers market.

    Oh and if you don’t believe energy prices are doubling every five years, take a look at this

    electricity costs have gone up 100% between 2003 and 2009

    I paid the same amount for electricity in 2009 as I did six years earlier. I halved my usage from over 7MWh a year to a little over 3MWh/year, so the cost of electricity doubled. Increased energy costs are here already. You can run. You can moan. You can whinge. But you can’t hide, so either do something effective, or be financially destroyed. Yes, it will reduce your material standard of living. Your choice is to have influence over what part of your standard of living gets reduced, or whether you are just going to sit back and let whatever happens happen to you. Obviously, if you work for J.P. Morgan or Goldman Sachs, you don’t have to give a damn. But if you’re an ordinary Brit, you have to ask yourself whether you shouldn’t be giving this some thought. After all, it worries me, and I am not in the lower 50% income bracket…

    10 Jan 2011, 8:29pm


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  • CalvinistWatch – Happiness is having a job, according to Civitas

    In a shocking confusion of correlation with causation, Anastasia de Waal from Civitas bangs the drum for the Calvinist world-view that happiness is having a job. I’ve already had a run-in with the Calvinist work-ethic on here. It may be damned fortuitous that this makes the wage-slaves pliant, but it still needs shooting wherever it arises.

    Say it ain’t so, Anastasia. Even at Civitas they must know deep down that there’s more to life than having a job. It’s also damned convenient for a right-wing think tank to take the line that the serfs do it for the good of their souls and the money doesn’t matter. So there’s no need to pay the oiks a living wage then, leaving more for Sir Hector Fat Cat’s bonus, presumably.

    Clearly the standards of logical discourse are slipping these days. I think that in a capitalist society such as ours, for most people having a job would appear to be a necessary, but not sufficient condition to be happy. Me, I’d kick the job into touch in a heartbeat – it’s having an income that is necessary, though again not sufficient for being happy.

    Civitas take a look at the undoubted unhappiness that goes with not having a job if you have no other means of supporting yourself and your family, and flip the sense of it to imply “Happiness…. is having a job” to plagiarize the Hamlet cigar ads of yesteryear.

    Anastasia de Waal, a social policy analyst at the think tank Civitas, said employment was central to people’s sense of identity and wellbeing.

    “A job is about your life, it is not about your income,” she said.

    “It is about every aspect – having the motivation to get up in the morning, self-esteem and being a role model to your children. Income is almost secondary to that.

    “People’s lives fall apart if they don’t have a job. They are much more likely to be depressed if they are out of work, and there is a strong relationship between unemployment and family breakdown and health difficulties.”

    Well, colour me stupid , but let’s just run that lot again with “have any money” swapped for “have a job”

    Ermine, a cynical bastard at the blog Simple Living in Suffolk, said having enough money was central to people’s sense of identity and wellbeing.

    “Having enough money is about your life, it is not about your job,”

    [Calvinist claptrap omitted]

    “People’s lives fall apart if they don’t have any money. They are much more likely to be depressed if they have no money, and there is a strong relationship between being skint and family breakdown and health difficulties.”

    Works pretty well for me. None of this is to gainsay the obvious suffering and hardship that many people are suffering as they lose their jobs, but I’d say that the hardship would be a damn sight less if they didn’t lose their income at the same time as losing their job.Some of the wage-slaves might even get to meet their kids and see what they’re up to these days…

    We need to understand this subtle difference if we have to re-engineer our societies for a world in which the myth of continuous growth is shown to have been an illusory dream all along. Although it is hard to image from where we are standing, it is possible to conceive of a society where not everybody had jobs, but everybody had enough income to lead an interesting life.

    Say, for instance, we were in some sci-fi future where we had matter replicators and robots. Provided we had managed to avoid the MegaCorporation of Earth copyrighting everything beforehand, this could lead to a society where there were no material wants. Of course it would probably be unsustainable and environmentally destructive too, but hey, if you run out of Earths you could always make another, that’s what a matter replicator is there for 🙂

    6 Jan 2011, 8:09pm
    economy personal finance:


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  • The Gold Conundrum

    piece of gold from a long-defunct bank

    Gold is a funny old material, really. Even in trying to photograph this lump, which is the only example of gold that I have in my physical possession, that I saw the numinous hold that the lustrous metal has had on humankind through the ages. It’s only worth about a twenty pound note *

    * depending when you read this that statement may of course be wildly wrong. It  was right-ish at the beginning of 2011

    It was given to me many years ago by someone in my family, not as long ago as when I heard the story of inflation, but a good few years ago – I don’t think the issuing bank is still in existence.

    But that’s one of the beauties of gold – it has value because of what it is, not what it represents or who issued it. Time and bad government policy gnaw at the value of that twenty pound note over time, but like the Fallen, time does not age gold, nor does it turn to rust. It is one of the last atavistic race-memories of a time when the value of currency was inherent, not symbolic, a throwback to barbarous times, of swapping animals and goods and even human beings.

    People turn to gold in troubled times for many of the other reasons that Spengler listed in his treatise on the Decline of the West – they hark back to the supposed security of the youth of their civilisation, when the layers of complexity upon complexity didn’t obfuscate all meaning in the all-pervasive fog of millions of transactions. It tickled me to hear the hints of this called out in this post

    I wish I hadn’t sold my Gold and General Fund back in 2007 – not so much for the performance since then, but so I wouldn’t have to worry about whether I should buy some now to protect me from the indisputable currency games going on. There’s a lot of fear and momentum in the gold price, in my view.

    Gold is all about fear. I’m not so sure that it’s so much about momentum, but I defer to Monevator’s greater experience 😉 Or perhaps I do agree with him about momentum – but not the momentum that he is talking about, which is presumably the momentum of the gold price measured in pounds (or USD etc)

    The trouble is, as you jump from a skyscraper for a delirious few seconds it looks to you that all the windows are going up… It may well be that the gold price is all about momentum, but the momentum is not the price of gold measured in pounds. It is the momentum of the pound measured in gold, as the pound races downwards in value. Gold is simply the skyscraper, perhaps it isn’t moving, but it is performing the unique role it often does. Maybe it reflects back something of ourselves and our greedy ways… In finance Gold performs some of the functions of the luminiferous aether that lent an external absolute reference point to the physical sciences while they still needed it. So too, in finance, we prefer to have a definitive answer to ‘how much is this worth’ that holds meaning across the years, rather than the sordid “£19 in 2010 pounds”, where you know it will be £19 plus some uncontrolled amount in a decade hence.

    Gold is both an Investment and not an Investment

    My gold (and silver to some extent) ETFs are an investment in one sense. I bought them to provide a counterpoise to some of the volatility in my ISA when the net worth of the ISA was what I targeted.

    I observed that gold and silver tended to move in opposite directions to the stock market, equities are buoyed by greed and sunk by fear whereas gold is buoyed by fear and sunk by greed. Particularly when the fear is existential, and is about the financial system itself. It is a swing component of last resort, but unlike income asset diversification it has a bad side-effect. If your gold holdings in your ISA are all that stand between you and financial Armageddon, you are already in the danger zone and on the way down, because your assets are not under your control.

    I target income now for my financial investments because that is what I want. Although it is possible to convert capital growth into income you often end up eating transaction costs or having to batch transactions. My ISA savings are smaller than a pension as they will be a top-up, so I am more exposed to this than most.

    We have been here before, though not in my lifetime. In troubled times, gold is not an investment. It is money. I have my asset allocation wrong. Gold should be in physical form and part of my tin hat portfolio, because gold is money. There must be a hermetic seal between the two, because bad money drives out good. No part of my tin hat portfolio should depend upon the finacial system. Unfortunately there’s a great big lump of it in my ISA, which is treating gold as a speculative investment. The incorruptible nature of gold is what makes it a store of value, and in this regard it is quite unlike most non-financial investments, which are usually lumpy, illiquid, non-fungible and have an alarming tendency to decay over time.

    We invented money for a good reason, and it is just a shame that we can’t stop democratic governments over-promising to too many people and craftily increasing the money supply to deliver. If we could trust them to not stealthily trash the store-of-value function of money we could rely on the financial system to store value as well as using it to facilitate payment and trade.

    Gold and the Austrian School

    The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

    Ludwig Von Mises

    You know how it is, when you get on a bus, sometimes you take a sneaky look around at your fellow travellers. Sometimes they’re a reflection of part of you. Well, I am not sure I feel total fellow feeling here, and the Austrian School is to my mind extremely right-wing (and I’m hardly a bleeding-heart liberal all the time, but I was brought up to not actually kick people when they are down) and at times has a harsh, almost Calvinist view of the world, and I don’t go with the Calvinist angle one little bit.

    On my bus I find approval of ticket scalping (ticket touts to us Brits) and a pretty heady deconstruction of the welfare state. You shouldn’t always judge a chap by the company he keeps, but it does sort of make me want to pinch the shoulder blades together a bit to present a smaller area for the stiletto knife in the hands of another co-rider!

    History may not repeat, but it can rhyme

    Ludwig’s History of Money is quite fascinating history lesson from the last time this all went belly-up in the West. Let’s just say that although Weimar Germany screwed up in an exceptionally big way, the only thing that helped Britain around that time looks like being able to call on the resources of empire, which in the end was not enough to hold the line.

    Mises was talking about the actions of the Federal Reserve Bank of New York, who seemed to do for the Bank of England what the ECB will probably do for the profligate PIGS this year.

    It didn’t work for the BoE which surrendered the gold standard in September 1931 – Mises report absolutely drips disdain for the lack of fiscal integrity on page 451.

    Some commentators like Barry Eichengreen’s Golden Fetters put the fact that Britain had a relatively good Depression compared to the US down to the fact that Britain came off the Gold Standard earlier. That’s not the sort of thing that the Austrian School has a lot of truck with, the light of human compassion burns a little less brightly here when it interferes with the important business of getting the fiscal situation right.

    There is a distant drum-roll that has been heard before

    The more I read of the early part of the 20th century, the more I recognise similarities with now. Then it was Great Britain, catastrophically wounded from the costs of the First World War, which was thrashing about trying to preserve its Imperial lifestyle while the upstart United States was in the early stages of its economic ascendancy.

    Presumably the nascent successor to Ludwig Von Mises is already living now who will be writing the report of how the behemoth United States, thrashing about to try and preserve its unsustainable lifestyle while the upstart Chinese, Indians and others don their napkins and prepare to dine out on the carcass of the once-powerful bankrupt West headed up by the United States. Sic transit gloria mundi.

    A hundred years will probably have passed from the toppling of the last reserve currency from the throne to the end of the US dollar reserve status, as its creditors begin to suspect that while the head and torso appear to be noble metals, the feet are of clay, and will fail the world in its hour of need.

    Some things just are. You may not like ’em, but ignoring them doesn’t make them go away.

    Where I am with the old boy Ludwig is that some things just are. You can’t make them go away by dropping money from helicopters to make up for the money you used to be able to borrow from the Chinese to keep the party going. I find you have to take the world as it is, and modify your actions to adapt to it, rather than take your actions as you’d like them to be, and modify the world to conform to that model.

    It’s easier for me than for a government to accept that, because a government can make it look like they can beat the world in submission and make it do what they want for a while. Thus they can stop exams telling people that they are stupid ensuring that no child gets left behind. Until, that is, we start losing jobs to countries that still discriminate academic ability, like Germany and many Asian countries. No failures means no successes.

    Much in life is an inherent polarity, and just like you can’t get rid of the South pole of a magnet without destroying the North pole so too you can often not KO the undesirable without kissing goodbye to the desirable that it keeps in balance. Want to eradicate child poverty? You can do that, but you will end up sponsoring the feckless instead. Want to live beyond your means? You can do that too, but it may mean you’re skint later on.

    Governments can do all sorts of stuff to make things look different from how they are, because they have more power than me. If I charged about saying day is night, or that all people have the same ability, people laugh at me. If I’m a government, they end up voting for me 😉

    My gold and silver are in the wrong place

    I have managed to stitch myself up over the past year – my holdings of virtual gold is in ETFs is because I viewed gold as an investment. It is, sort of, it is a hedge against the debasement of the currency, plus some variability due to the usual fear and greed.

    The corollary of Ludwig’s angle is that gold and silver belong in my tin hat portfolio. My ISA is predicated on the assumption that Britain is booming again, and that China and the United States will lead a global mega-boom lasting for the next 40 years, which ought to see me out. Actually I can’t really bring myself to believe such arrant tosh as the HSBC megaboom. Exactly what part of peak oil, resource crunches, overpopulation and environmental degradation do they not understand at HSBC? On the other hand I can see they need to talk their book, and nobody got rich telling their customers “You are hosed. Adopt the brace position right now”.

    However, gold doesn’t belong in my ISA. It is a bugger, as you can’t just take money out of an ISA and buy sovereigns with it, so I have a significant amount of wedge stuck in the wrong place. The other trouble with gold is it never, ever, under any circumstances pays an income. Which is also sub-optimal for an ISA, which is a way to turn income into non-income from a tax POV.

    I guess I could turn that round, and think of it as an opportunity to put more into my ISA than I could have done this year, by liquidating my Gold ETF and buying equities, and mustering extra savings of equivalent value to go to London and buy some gold coins…

    a photographic aside

    Photography is ‘painting with light’ and when you take a picture of most things, like a sunset, your cat or your mother, you think of taking a photo of them – something that is essentially of them. Though my engineering background made me fall into the same traps Ken Rockwell berates, sometimes I can jump over that, to become a competent photographer with the occasional flash of something better.

    Getting this average photo of this pedestrian piece of gold was in fact far harder that I expected. For it is in the nature of gold that for it so speak to you visually, its essence is in how it reflects the world – it has no inherent lustre, unlike your cat or mother-in-law…

    take 1 - the dispassionate observer shot. Okay for the police forensics department, but this photo of the lady won't launch a thousand ships...

    Take 2 - bit of a museum shooter's approach, depth of field gives some tactility, but no soul

    take 3 - only by reflecting some of the observer back to himself can the yellow metal begin to speak

    4 Jan 2011, 2:08pm
    personal finance reflections:


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  • New Year’s Resolution 2011 – I want to pay less tax

    Losing weight, getting fit – it’s all so passé IMO. What I want to change in 2011 is to reduce the amount of income that HMRC steal from me. I haven’t lived beyond my means over the last ten years and I’m damned if I want Hector the Taxman to swipe my cash to keep the bankers in champagne and dancing girls, or indeed the feckless to sit on their butts and breed us into Idiocracy.

    Don’t get me wrong, I’m all for bankers, booze and birds as long as it’s not on my dime. I do think a pair of housebricks applied sharply to the offending organs might address Keith McDonald’s animal instincts but if he manned up and turned up for work to pay for them then 15 kids mightn’t be so bad. Either way, there’s enough that I seem to end up paying for, and I don’t want to pay for them any more, along these lines, though my bugbears are subtly different.

    So how do you avoid tax, legally?

    For wage-slaves like me on PAYE, there are only three easy ways to reduce one’s tax bill.

    1. Earn Less
    2. Spend Less
    3. Shelter taxable income in tax shelters like ISAs

    1 and 2, the earns less/spend less do the heavy lifting here for wage slaves. If 3 is doing a lot for you you’re probably not on PAYE. What that means is to get a win here you have to be prepared to change your lifestyle. That’s why the taxman can raise enough money to waste on the aforementioned fripperies – because most people want to spend all they earn as they earn it.

    Earn less, you might say, well, that’s like cutting off your nose to spite your face. However, there are ways you can reduce your taxable earnings while keeping hold of the money for deferred usage – things like pension AVCs (provided you can convert the saved money into a tax-free lump sum), some employee share plans and similar things like salary-sacrifice childcare schemes are ways to do that.

    Of these, my weapon of choice is pension AVCs. Previously I have had a moderately successful run with employee share schemes, but you can only shelter £1500 a year that way and you take stock market risk. You can accept a lot of stock market risk in return for removing the risk of the taxman stealing 41% at source mind you.

    AVCs are an easy win for me as I am probably within five years of drawing a pension. For younger people or those my age and not preparing to retire early the choice is harder, since a desperate government can change the rules at whim. At the moment one can draw 25% of a pension pot as a tax-free lump sum, and since I don’t want to draw this from the pension pot itself it makes perfect sense to save up 25% of my nominal pension pot on top in the form of AVCs, to withdraw tax-free rather than paying 40% tax on it. However I wouldn’t bet on that possibility remaining for ever…

    I plan to use the £1000 extra tax allowance in 2011/12 that is one of the few useful outputs of the Lib Dem part of the Coalition. By controlling my taxable income I can avoid getting hit by the reduction in higher tax threshold and the increase in National Insurance to keep the money in my pocket, rather than Hector the Taxman’s. Incidentally, the same techique would enable Britain’s hard pressed ranks of impecunious middle-class parents to avoid the higher-rate tax child tax credit hoo-hah quite legitimately. Don’t want to lose your child tax credit? Don’t pay HRT. Simples. I think you have until 2013 to get ready for that change, so you can warm Tarquin and Jemima up to the fact they may have to share the iPad next  Christmas rather than get one each…

    Reducing tax by reducing taxable income is easy enough to understand, though harder for some people to implement that others. However, the the gains to be had by spending less is due to a nasty hidden tax bomb that people often miss. Say you choose to live in Hastings and work in London, so your train season ticket costs £5192. For sure, Hastings is probably cheaper to live in, but you are losing £6800 of gross salary each and every year for the enjoyment of being packed in like sardines every working day, since you have to pay 20%tax, 12% NI on the money earned to pay that season ticket. The taxman also gets 20% of the ticket price as VAT (no he doesn’t, thanks to Ken below for setting me right on that) , so in total you are paying 50% tax for the privilege of going to work. Or if you are on higher rate tax then 60-70% of what you had to earn to pay the ticket goes to the government. I am assuming that if you earn over £100,000 and work in London you probably don’t live in Hastings 😉 If you did then you are being rushed even more.

    Live below your means to get the flexibility to pay less tax

    So the way to pay less tax is to spend less and do more for yourself. You have to have space in your budget to be able to do that, ie live below your means. If you spend out every penny you earn, you have no room for manoeuvre. The Government is smart this way and knows that most people in a consumer society end up living at, or above their means. As far as consumption taxes go, Governments pump up taxes on two classes of consumables – things people can’t easily eliminate from their lives, and wants that people can eliminate from their lives.

    Fuel duty is one example of the former – over 60% of what you pay at the pump goes into the Government’s hands (and remember you’ve already paid about 30% tax on that money before it got into your wallet). Eliminating this sort of cost is difficult in the UK. For all the greenwash, public transport is a joke in the UK. I live 6.5 miles from work and the cost of the bus round trip is over £5 which is way more than twice the cost of the fuel. I actually have a choice here, and have driven down the annual cost of fuel considerably by cycling to work. That’s obviously not an option for our Hastings dwelling London commuter, and it highlights one of the issues about living below your means. You have to gain flexibility and control in your budget, and that means be very careful about picking up ongoing commitments.

    Ruthlessly eliminate fixed costs from your lifestyle, consistent with your values.

    These come with alls sorts of price tags and timescales. They’re bad because they suck flexibility out of your life, flexibility you could use to bust sociopathic managers and bad employers out of your way. On the upside, these fixed costs make a lot of good stuff happen for you life keeping the rain off your head, and reality TV to deaden the pain of your existence as a wage slave.

    Commuting is a big fixed cost with a timescale matching how long you want to do the job/live where you do. An iPhone is a fixed cost, but at least it is a smaller cost that you can get out of after two years. Sky TV is a fixed cost to keep you from doing something else with your time, and a way to amplify your need for thneeds that you didn’t realise you thneed.

    Taking financial responsibility for something that eats is a fixed cost that tends to be associated with a long timescale of about two decades, be it a kitten or a child 🙂 The costs, and rewards, are different for the kitten and the child, but they are fixed costs, and because the cost and the commitment duration are both high, it pays to be sure that’s what you want to do. Unfortunately for the country’s population of songbirds, and fortunately for the continuation of the human race both seem to find wide favour.

    A mortgage is a high fixed cost, possibly one of the highest most people will take on, and it also has a long duration. It is crazy to take on a mortgage without a reasonable expectation that you will service it to the end (though accepted, not necessarily in the same house) since it hamstrings your flexibility and you lose so much on repossession.

    Fixed costs are budget-killers because they are inflexible, though they are often associated with the greatest rewards. If you fall on hard times then you can switch from Waitrose organic salmon to ramen in a week, and you can forego the purchase of Manolo Blahniks and the spa session.

    Reducing the mortgage, or the cost of your children’s clothes or kitty food are a whole different ballgame. Hence the personal finance stalwart of having an emergency fund of three to six month’s essential running costs in savings. Most of that emergency fund is there to address the fixed costs. My view is that three months is far too short. Take a look at this graph of the percentage of the unemployed who have been unemployed for more than 12 months

    Percentage of unemployed who are long-term unemployed for over a year

    The data is taken from the ONS. Now you have to ask yourself, with 12-month unemployment being the experience of a third of the unemployed, how good do you feel about a 3-month emergency fund? Now, granted, that 12-month statistic does include chavs like Keith McDonald so perhaps the odds aren’t so greatly stacked against people who actually want to work. However, if we assume the feckless are represented by the 20% figure in the boom times of the mid-2000s, the current 15% excess are probably real people, and look where that graph is heading.

    It wasn’t meant to be like this – in the 1970s we were promised more leisure time. Capitalism delivered on part of the deal, though its dark, evil Calvinist heart hates increased leisure time for its workers, because that increases switching time and management costs. Materially, if you want the basics that so enthralled people in the 1950s, you can have that, but nowadays you only need to work half the time to pay for it.

    You could argue we sort of have that now – Keith McDonald has worked out how. All he needs is a mug working full-time to sponsor his lifestyle of 100% leisure. I have realised that I can’t have the job I was promised, a 20-hour week paying me half my gross salary.

    I am closer to that 1950s lifestyle than many as  I don’t have:

    • an iPhone
    • an iPad
    • an i-anything
    • a mobile (other than the work-provided one I use only for work)
    • a flat screen TV (I am toying with outing my TV this year anyway as I don’t watch it enough)
    • a wii/games console
    • Sky/cable TV subscription

    By storing the excess half of my income, preferably keeping as much of it out of the hands of the Government as I can, I can quit working about fifteen years earlier than my Dad could. I was slow on the uptake – other people like Dreamer and ERE have managed a lot earlier in their lives than me.

    My extra time working hasn’t been totally wasted – I have more stuff than Jacob including a house, and living in a motorhome is not totally my idea of good living, and the harsh exercise regimen is also not to my taste, I’d rather not prolong life by hating a lot of it… Each to their own, however, Jacob will live longer than me 😉

    Sin taxes on elective wants

    How about taxes that the Government puts on wants, that people can eliminate from their lives? The classic sin taxes on cigarettes and alcohol are examples of that, but there are others more nuanced, such as air passenger duty.

    Although you wouldn’t think it from the way some people carry on, you don’t actually need to go on holiday, and even if you did, you don’t need to fly there. As for all that BS about air travel being good for people, well, it’s noisy for the rest of us on the ground, pollutes our air and buggers up our sleep. For the travellers, it is nasty, stressful and demeaning nowadays. If 80% of the travellers could be priced out of the sky I’d be all for it, I’d much rather save up and fly once a decade in comfort than once a year in a seething morass of humanity. Unfortunately, saving up to go business class wouldn’t help me, since it is the security theatre and airport experience which is the ugly part. I haven’t flown anywhere since a 2007 work trip which reminded me just how unpleasant air travel has become. Jean-Paul Sartre was spot-on, L’enfer, c’est les autres.

    Warren Buffett has the right idea, if you want to do air travel, get a private jet. Since Warren is ever so slightly richer than me, I do without. By the way, if you really find the extra £100 APD an unbearable imposition then for heaven’s sake use your brains, APD is levied on flights from UK airports. Travel to Amsterdam-Schipol to start your long-haul flight, tax avoided, job done. Less racket in the skies for the rest of us above the UK too, what’s not to like?

    Smoking. I don’t smoke, but if I smoked 40 a day it would cost me about £4380 a year according to the NHS. If I were a basic rate taxpayer I would have to find a job paying me £5840 a year more gross, to take into account the tax and NI I would pay before spending £4380. According to these guys, the cigarette duty on that hypothetical habit is £3942, so the total tax and duty in £5402.

    Sin taxes are easy to avoid, don’t do the sin. I save myself nearly £4000 in tax by not smoking 40 a day. It’s kind of difficult to get a buzz out of the saving since I’ve never smoked 40 a day, but it’s there. There are also ways round some of that – if you have the capital to buy 7000 cigs every 6 months a regular trip to France may be in order, and indeed even pay for the holiday including APD…

    Alcohol is the other biggie in sin taxes, and I get hit with £2 per bottle of wine roughly. So I know what to do if I want to reduce this 😉

    A New Year’s resolution that’s actionable and not too hard to do

    Easy and fun is my approach to New Year’s resolutions, none of this cold showers and swimming in the sea. My aim is for the amount of tax taken in the 2012 P60 form to be less than the one in this year’s April form. That means I have to understand Osborne’s shenanigans in changing the basic rate and HRT thresholds. The first time I tackled this, in 2009, my aim was to pay no tax at all so I forced my pay down to close to the £6,500 p.a. that matched the tax threshold.

    Athough I could live on this, I found it massively got in my way as far as investing in the business and funding my ISA so I became less hard-line on tax reduction. It was, however, good in the first six months to see a monthly tax of £8.70 rather than the figure I had been used to.

    Now I probably need about £15000, to be able to fund my ISA and maintain running costs. Unfortunately I can’t see a way of funding the ISA without paying £3,000 tax on the money earned to go into it.

    Everybody wants to pay less tax. And it can be done – but not while spending everything you earn. Therein lies the secret…

    3 Jan 2011, 2:12pm


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  • Why Cambridge Council should be sacked

    Well, they might rightfully say that since I don’t pay their council tax or business rates I can go and stick it, but these incompetents really showed me why councils can’t be trusted to run services. They are inward looking with no sense of customer service.

    I went to Cambridge on the 27th December for some Weimar Germany inflation porn at the Fitzwilliam Museum. Obviously I wouldn’t dream of using the train, although the actual return train fare is only a couple of quid more than the fuel, but there were two of us, instantly doubling the cost of using public transport, ruling it out for anybody rational. DGF went to university at Cambridge, so she knows the town well enough to know where to park near her old college with an acceptable hike into town, but in a momentary fit of madness we thought we would consider the park-and ride. Street parking costs about a fiver for the amount of time we wanted.

    Times are hard at Cambridge - no snow clearance at the P&R

    Obviously they’re paying somebody too much at Cambridge council, as nobody was up for the overtime to clear the snow. Or it’s all going to keep the Chief Executive in Château Lafite, anyway we had to slip and slide along the uncleared footpath to the bus stop/ticket hall.

    Typical council notice of all the things they won't do for you

    Here we were greeted by this notice, telling us all the things that the council wouldn’t do for us. Including give change, or accept £2 coins. The £2 coin has been in circulation for 13 years so we aren’t talking some new-fangled Johnny-come-lately here but a coin of the realm over a decade in service. Never mind, you can buy the ticket on the bus.

    Buy your ticket on the bus - for a 10% surcharge!!!

    Yep, they can fix that for you. For a small fee of a 10% hike in the ticket price. That’s what the public sector does with such a lack of grace. They are so used to being the only source of something that they behave in a high-and-mighty monopolistic manner.

    Well, I had a choice. I was not going to be rushed by these self-serving, arrogant toe-rags so we went right back to the car and berated ourselves for the temporary fit of madness that made using this council service look like a good idea.

    Cambridge council score extra black marks here since we consulted their website for the park and ride ‘service.’ Nowhere does it tell you some of the essentials like:

    • how much a ticket costs
    • that tickets are per adult, so only single occupancy drivers need bother
    • their usurous 10% tickets on the bus surcharge
    • that ther ticket machines don’t give change
    • that their ticket machines don’t take £2 coins

    We’d have been able to raid the piggy-bank beforehand, carefully setting aside those pesky £2 coins of course, had they had the customer focus to tell us some of these fundamental limitations in their operation. That would have got them the business. All in all, the whole experience stank of the laziness and complacency that has come to epitomise some council services, particularly boring Cinderella services that are easy revenue earners, like parking. Why couldn’t this be paid for using a mobile phone FFS? Or a debit card? Cambridge is meant to be the UK equivalent of Silicon Valley, and unlike some councils up North they’re hardly strapped for cash. Do the businesses in Cambridge know that the council is so hostile to their potential customers? Wasters, the lot of them…

    Just to show a contrast, Tesco at nearly the same place, same day, same time of day managed to totally clear their car park

    Tesco can clear their car park

    We’d actually gone here to get some change to avoid the 10% charge, but on seeing this car park we saw that Cambridge Council clearly didn’t give a damn about our custom and couldn’t bring ourselves to patronize such an incompetent organisation.

    This wasn’t about the extra 60p. I can easily afford the 60p surcharge. It was about not letting Cambridge Council take the piss, and not supporting such a customer-hostile operation.

    Tesco shafts you every step of the way, from their ‘value’ to ‘finest’ branding which in more than one blind test I couldn’t favour one over the other though they were different. But they’re not so damned arrogant and brazen about it. That’s what private enterprise does right about shafting its customers – it does it with a smile, makes them want to be suckered, rather than slapped around the face with a wet kipper with the simplicity of “it’s our way or the highway mate”.

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