Category: Commentary

Don’t Conserve – Use the Water You Need

by smallivy, posted in Commentary, Small Ivy's Big Ideas, taxes

If you live in a desert with a very limited water source and there are a lot of people around, ignore what I am about to say.  If you live in a place where water falls from the sky regularly, let me be a Green heretic and go against the common wisdom by saying:

Use all of the water you need.

Doing so makes the most sense financially, and really sets us up to be able to provide for future needs.  Here’s why:
A utility needs to maintain a certain amount of equipment.  They also need to do functions like billing and customer service.  All of these things require a certain number of people.  Once you get past a certain threshold of water production, the number of people needed does not change that much if you increase the amount of water needed.  You still need a certain number of people to maintain the equipment, and usually you’ll just buy the same numbers of larger equipment if you need more production, rather than buy more pumps, motors, etc….  The larger equipment in fact will usually be more efficient, meaning the cost to produce each gallon will decline as the utility produces more water.

 

              

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The other factor is that most of the cost is people, not electricity or other resources.  Sure, you will use more electricity cleaning and pumping more water, but again the cost per gallon produced will probably decline as you use bigger, more efficient equipment.  Unless the number of customers changes dramatically, you’ll also still need to be paying the same number of people to send out bills, maintain equipment, and do other administrative tasks.   In fact with modern computer tools, things like billing cost about the same whether you have a million customers or two million.  Customer interaction things like the service desk are the only areas where more employees may be needed.  If you cut the use per customer, you’ll save a little on electricity, but you’ll still have all of the other costs.  Since the utility will be producing fewer gallons, yet their costs will stay about the same, you’ll end up paying more for less water.

So lets say that you decide to turn off the water while you soap up in the shower, then just turn the water on briefly to quickly wash off, cutting your shower water usage from 20 gallons per shower to three gallons.  You might be able to cut your water bill by doing this.  But let’s now say that everyone in the town does so, such that the utility now sells 5 million gallons of water each year instead of 10 million.  They still have the same equipment, which they’re probably paying off on a 30-year bond or something.  They also still have the same number of customers, meaning they will still need to send out the same number of phone calls and send out the same number of bills.  They also have the same number of homes to supply, meaning they’ll need to do the same number of repairs and upgrades.  They might even discover that sewer line repairs will become more frequent since there will be less water mixed in with the sludge, causing pipes to clog.  The result will be that you’ll end up paying the same amount each month for your water bill as you were when you took a regular shower, yet you’ll have a miserable shower in the morning instead of a pleasant one.

 

 


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Utilities are also loath to cut employees, so they probably won’t slash staff even if they didn’t need as many people.  They’ll also still need to pay off the equipment they bought when there was more demand, so they’ll still need the same amount of money to operate.  They have no competitors so it isn’t like customers will transfer somewhere else if prices are raised, and the regulators aren’t likely to demand that they cut staff or swallow the costs of equipment they purchased when there was more demand, so the utilities can just say they need to raise prices due to cuts in usage and they’ll be able to do so.  You use half of the water, but your bill stays the same since the price per gallon doubles.

So instead of conserving and saving, use what you need.  This doesn’t mean that you should be wasteful with water.  Don’t leave a hose on, running water down the street all day for no reason.  Don’t leave the shower running through the night while you sleep.  It just means to use what you need to live a comfortable life so that the utility will set themselves up to produce that much water.

 


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But what about the power usage?  Shouldn’t we save the energy needed to make water?  The free markets have a great way of figuring out ways to meet needs.  If everyone cuts back to nothing, such that the amount of power we produce is easily made using existing technologies and infrastructure, we’ll never see improvements.  We want people to be building the infrastructure and developing the technologies we need to supply the power needed int he future.  If we use the amount we need (again, not being wasteful), we’ll see people come forward to build the needed infrastructure and make power more efficiently and with resources we don’t currently use extensively like biomass, solar, and wind.  So we can either conserve and be miserable, never providing entrepreneurs and industrialists with the incentive to improve things, eventually needing to cut back even further as populations expand, or we can use what we need and provide the funding and incentive to make cold fusion or cars that run on water.  I say use what you need.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

What People Really Need – Freedom

by smallivy, posted in Commentary, Growing Wealthy, Personal Finance

This month I’m playing string bass in a play at the local civic center called “1976,” which is a musical about the drafting and signing of the US Declaration of Independence from England.  The play starts with John Adams talking about how the king has abused and “diddled” the colonies with his taxes, even going so far as to “spill their blood” at Lexington and Concorde.  Because New England is bearing the brunt of the king’s abuse, Adams has difficulty getting the other colonies such as Pennsylvania and the Carolinas to go along with him and start a rebellion.  The other colonies would rather keep things as they are since they, being the “gentlemen” who are granted special privileges by the king such as the ability to secure property, are doing just fine even though the colonies in general aren’t doing as well as they could due to the king’s interference.  Benjamin Franklin at one point talks about how the potential of the colonies is being wasted since the king is just taking their resources and not letting the people use their resourceful nature to build and create.
Really, the colonists in many cases were just barely surviving in the early colonies rather than thriving.  It wasn’t until they had what was initially lacking – freedom – that they were able to build the great empire that you see today.  Looking around the world, the universal resource that is missing in places where people are living in destitute poverty (not the US definition of poverty where you have sufficient food, clothing, clean water, and shelter, plus a car, a couple of TVs, and a smart phone) is the lack of freedom.  There is always some outside power keeping them from being able to build and prosper.   If you’re reading this post and you live in the United States, Great Britain, or some similar place are over 17-years old, and are feeling like you are disadvantaged and have been given the short straw in life, here’s three words for you:
Get over it.
If you didn’t get into a great college, there is someone who never went to college who made it big.  If you came from a poor family, there is someone who came from a poorer family who made it.  If you have one arm, there is someone who has no arms who made it.  Would you be better off with two working arms, coming from a rich, loving family, and starting with a Masters degree from Yale (all debt-free)?  Sure.  But there are also people with all of those things who end up under a bridge in Cambridge.  It is all a matter of the choices you make.
Now if you’re in a low caste in India, you have real issues.  If you’re living in a small village in Africa where rival tribes come through every year or two and kill half the people, you have serious issues.  If you’re living in Venezuela and not part of the ruling class, you have substantial issues.  (And if you’re one of the jealous squatters who help Hugo Chavez rise into power, you’re getting your due reward.)  If you want to say that it would be really difficult for you to become wealthy, or even find enough to eat each day, you have the right to complain.

What’s the difference?  Simple – freedom.  If you’re in a low caste in India or living under the Communists in Vietnam, you have little or no freedom of opportunity.  You can’t just decide to start a business or learn new skills and expect to get a better job.  If you tried, there are people who would prevent you or come and take what you have from you.  You might get arrested or beat for going outside of the place in society where someone else has decided you belong.  If you’re in a Communist society and not part of the party, those in the party may just decide to take what you have earned or give the job you want to a person who is clueless about the job but is loyal to the Party.  It is possible that you could improve your life substantially, but it might take a revolution to gain the freedom needed to do so.

Many people in America and other first-world countries think that what people need in remote villages in Africa is a well, or a latrine, or seeds to start a garden.    So they come in, build something, then leave feeling that they’ve just changed people’s lives.  Unless that well is maintained, or that latrine is used and cleaned, or that garden protected so that the next group of mercenaries doesn’t just burn it down or steal all of the crops, nothing will change.  With freedom and the drive to make their lives better, the people in those villages could dig the well, create a sewage system, or build great farms themselves.

What they are always missing is the freedom to do so.  What is always present is some dictator, socialist party, or warlord who keeps those people from being able to create and secure property.  Without the ability to do so, there is little desire to improve things.  Why build a great farm that produces lots of food if people just come and take it from you?  Who has time or the desire to dig a well when rival factions are coming through your village periodically and stealing your resources and perhaps your children?

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People living in that sort of situation, just like those living in the United Colonies of America back in 1774, have the choice to band together and fight for the freedom they need to prosper.  Without doing so there is little chance their lives will ever improve.  But that takes a great deal of courage and sacrifice by a large number of people.  One or two people can’t decide that they want freedom and expect to be successful in attaining it.  And for many peoples and cultures in the world, freedom is just not in their DNA.  Even in America, the large number of people who supported Bernie Sanders during the last election shows that people would be willing to give up their freedom in exchange for what they think is free goods and services.  Because they haven’t had the experience of the colonists in seeing what it is like living under the control of a tyrant, they think that they can just expect the government they install to take from others but not eventually take from them as well.

So if you were born into a place where you have freedom, and you are old enough to not have a parent or guardian who is keeping you from succeeding and not permitting you the freedom to improve your life, stop griping about the issues you face.  You have the ability to succeed – it is just a matter of the choices you make and the work you’re willing to put into making your life better.  And how do you make your life better?  You spend your time and efforts providing for others willing to do things for you in return.  The better the job you do of meeting other peoples’ needs and the more people whose needs you meet, the more wealthy you can become.

 


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Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

What’s Wrong with the Healthcare Market?

by smallivy, posted in Commentary, Health Insurance

I was thinking the other day about the American healthcare system and why it doesn’t seem to function like the other markets.  I mean, there is really no issue with getting food – it is cheap and plentiful.  Sure, people who make a lot of money are able to buy better quality food, or at least food that costs a lot of money in fancy restaurants, but anyone who is willing to work a little can get enough to feed their families, even if it is very little steak and a lot of ground beef and chicken.  Clothing is also not an issue – you can pay $5,000 for a dress, but anyone who works can get can cloth themselves and their family.

The healthcare markets, however, are different.  The cost of things can be very high, such that even someone who makes a good, middle class income can be bankrupted by a hospital stay.  There are some ways to save money, but in general the premium price is almost always charged, particularly when things are urgent.  Why is it the free enterprise works great for food and clothing – necessities of life – but not healthcare?

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Then I started thinking about it a bit and realized that healthcare is not operating under the free enterprise system like food, clothing, shelter, and virtually everything else.  Healthcare is different for these reasons:

  1.  Most people pay for buffet plans, then use as much as they want without concern for costs.
  2. Most services are provided without the consumer or the provider knowing what the price will be.
  3. The final price is decided after the product is consumed, and often the consumer and the person/entity that pays is different.
  4. Many people receive services and pay nothing.

Think about what it would be like if you went into a restaurant that had the same policies.  You can already see what happens when you pay a fixed amount for unlimited food since there are buffet restaurants.  People eat a lot more than they would if they were paying per item, and also tend to concentrate on the more expensive items.  Very quickly the buffet restaurants learn how much they need to charge and earn a profit, and that tends to be a reasonable amount since there is only so much people can eat.  But in the medical system prescriptions, devices, and services can be really pricey, so if people just keep consuming a little bit more it drives up costs, which is why premiums seem to rise every year.

 

                 

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Think now what the effects of the second and third items – having services provided without knowing the cost and not even deciding on the final price until the product was consumed  – would be in the restaurant industry.  What if you walked into a restaurant and sat down and there were no prices on the menu.  You ask the waiter about the price of a steak and he says that he’s not sure since it would depend on your insurance.  You tell him you don’t have restaurant insurance and ask him what you would pay.  He says he’s not sure since everyone pays with insurance.  He might be able to tell you the list price was $500, but says you’d probably pay a lot less.  You then go ahead and order meals for you and your family, sweating the whole time because you’re not sure what the meal was going to cost you.

At the end of the meal, the waiter comes out with the check – $3,455.  You look through the bill and see that rolls were $30 each!  You know you could have bought a whole pack of rolls across the street for $5.  You say that there must be some sort of mistake.  The waiter refers you to a manager who says that they could work out a payment plan.  He also says that he’d be willing to cut $1,500  off of the bill.  You’ve already consumed the food, so you can’t just say “No thanks!” and walk out the door.

Would you go to a restaurant like this?  Maybe you would if you had a meal plan where you paid a fixed amount for food at the restaurant, but what if the price of that meal plan just went up every year until you were paying $5,000 per year for the plan?  Would you be tempted to go to the restaurant more often?  Would you get more food than you really needed, and insist on only the best food while you were there?


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And what if while you were at the restaurant, you saw the family next to you just walk out without paying a bill?  They got the same food and the same service, but paid nothing.   You ask the manager why they didn’t pay and he explains that they didn’t have any money to pay, so they just eat for free as part of the restaurant’s benevolence.  Of course, you realize that the restaurant doesn’t have any source of money except for people like you who eat there and pay their bills, so you’re really paying for the bill of the family that eats free.  Going to the lot you notice that they are stepping into a brand new Cadillac.  You are getting into an old Honda because you want to save up some of your money to pay for things like food and can’t do that with a big car payment.

Obviously this is not the way that restaurants work.  The prices are clearly printed on the menu in almost every restaurant and there is no negotiation.  While you do not pay until after you’ve eaten, you have a good idea of what your bill will be and you choose restaurants based on what is in your wallet since you know that you’ll need to pay the bill after the meal or they’ll call the police.  No one eats without paying, so the price fo your food is only based on what you eat.  You’re not paying for other people.  As a result, prices are reasonable and there is a wide variety in choices of restaurants.  If eating at fancy places is your thing, you can put your money towards that and cut in other areas.  If it is not, you don’t need to pay the same price as others who like fancy places when you do go out since you can pick a cheaper place.  With medical care, especially when it is an emergency, there is little choice.  Plus if you’re on insurance because you’re worried about a big bill, you end up paying premium prices whether you use your medical care often or not.

 


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So how do we fix the healthcare system in the US?  Well, we start having people save up money for medical costs so people can pay for their own care for one.  We make prices transparent for another and have consumers pay the bill and get reimbursed by insurance rather than having fifty different deals cut with insurance companies and having the consumer have no idea what things costs.  We also get medical costs out there where people can see them rather than have everything so hidden.  Maybe there is a tech entrepreneur out there who can take that last idea and run with it.  Think about an app that tells you what the price of procedures are across your city and what that would do to medical care prices.

So what do you think?   Please join the conversation and leave a comment.  Contact me at VTSIoriginal@yahoo.com.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.