Real World Finance$

I just recently finished up reading the book Naked Economics: Undressing the Dismal Scienceby Charles Wheelan.

The most memorable parts of the book were the last few chapters that deal with international trade and poverty.  There are some very compelling arguments against the idea of trade restrictions with countries that have a poor working conditions.  His suggestion is to actually buy MORE product from those countries.  The idea being that higher demand for their labor will lead to better conditions as companies try to compete for workers.  That, in turn, would lead to higher wages and a better standard of living.  Instead, those who generally oppose the “sweat shop” type of work environment would rather see third world citizens out of work than working in conditions deemed sub-standard by our own terms.

Another thing I had never really considered was the lack of a well developed nation between the Tropics of Cancer and Capricorn.  Is there something to do with being in warm weather that makes for unintelligent or lazy workers?  Not according to Wheelan.  He suggests that much has to do with diseases that never go away.  Why is malaria a problem in most African countries and not in the US?  Maybe because our winter freeze kills mosquitos that continue to breed strong all  year long in those warmer temperatures. 

While we often try to fix problems in other parts of the world with things that work in ours, we just as often fall short of the mark.  Because of economic incentives, we have very little desire to solve problems in developing nations.  But we are usually willing to throw money at a problem to make us feel better about it.  It’s just too bad too many of those governments squander whatever resources they are given.

In general this isn’t a bad book, but wasn’t one of my favorites either.  If you’re in the mood for some challenging ideas, pick it up at the library and read the last few chapters… then put it back.

This is not a typical book for me to review.  It’s not directly related to economics or personal finance either one.  It does, however, give you the story of a man who had everything and loses it all.  The crux is, he learns how to live in his new world and finds out he enjoys it more than he ever did the old one. 

Michael Gates Gill is the author of this wonderful story subtitled “A son of privilege learns to live like everyone else.”  I heard an interview with the author on NPR a few weeks back and just had to reserve the book at my library.  It’s a quick read that really keeps you moving along (I finished it in a week of bus rides to and from work).  It’s the story of a man who grew up with everything this consumerist society enjoys.  His father was a long time editor of New Yorker magazine.  He grew up in large houses with housekeepers and summer house to spend time away from the city.

A Harvard education (a skull & bones member) and friends with the rich and powerful of the country.  The book shares stories of meetings with famous authors, poets, and Jackie Kennedy.  After school leads Michael into the high power advertising industry in Manhattan.  Big accounts, big money and everything a man could hope for in life. 

Twenty-five years later, he’s pushed out the door of the firm after it’s acquired by another company.  Forced to find his own way, he attempts to do some consulting in his own field.  Several years (and a failed marriage) later, he hits a low point at life when his is almost half-heatedly asked if he’d like a job when sitting has his local Starbucks with a cup of coffee.  After learning about the medical insurance (and knowing he has 5 children and a small brain tumor), he jumps at the chance.

The rest of the book follows his wonderful enlightenment as he finds an affordable place to live, use public transportation and grow relationships with people he looked down at in his former life.  Timely reflections of his past intermingled with the present gives you a great sense of what he really managed to learn about people at his ripe old age of 64.  Respect is the key theme throughout his learning process. 

It’s a very uplifting story, and a reminder that it’s not about how much money you make or save.  For everyone who thinks they can’t get buy without those big cars, big televisions and their babysitters, you need to read this book.  Learn to be truly happy and you’ll be glad to deal with whatever money you’ve got.

Free Lunch is a book written by David Cay Johnston, a New York Times investigative reporter.  

I had seen a short interview with Mr. Johnston on PBS 6 weeks or so ago.  He was, of course, promoting his book.  With the current election going on, the topics of taxes and government have been on my mind, so this was a very timely read. 

If you are like me, you’ve often wondered why governments lately seem so eager to give tax incentives to businesses to move into their city/county/state.  The common thinking is that those businesses create jobs and generate tax income above the incentives they are given.  As Mr. Johnston shows, there has been little study or regulations to insure that actually happens.  Promises of big businesses to bring in revenue don’t tend to live up to their hype.  In the end, the tax incentives are played off of different cities as an enticement for who will give the most.

I’ve noticed a lot of this here around St. Louis in the last several years.  In an effort to increase the tax base and revenue of the city, they offer incentives in the form of taxes for businesses to relocate inside the city limits.  Yet, we recently had a ballot initiative passed for a half cent increase to sales tax to pay for police and firefighter pension obligations.  Seems we gave away more than we were getting and couldn’t pay for pensions.

Johnston weaves a very elegant story across many industries and parts of the country showing how everyone from professional sports team owners to health insurance companies to home burglar alarm companies are getting a “Free Lunch” thanks to tax dollars.  As a fiscal conservative, I am very pro-market economy. 

To hear is tales of how we are skirting the free market and the end results is very eye opening.  The conclusion of the book is also very well worded and I tend to agree with his point on the best way to fix the problem.  He proposes, in short, that the people of the country pay the full cost of our government.  Including everything from having a house in DC to one in their District to travel and expenses back and forth and other expenses the congressmen see fit.  The caveat to that suggestion is that all their expenses should be transparent and reported publicly on  a congressional website.  He also suggests there should be stiff penalties for ANY kind of gift received.   While more expensive, it should open up the opportunity for the less well off to get into politics as well as cut back on the need to give away things to companies being lobbied for.

While this may not seem to be directly related to your personal finances, taxes are probably the largest single expenditure in the budget of most Americans.  Yet, we often know very little about what happens to that money.  I highly recommend reading this book for an eye opening perspective of what is happening to the 20% of your budget you pay in taxes every year.  One out of every five dollars you make goes to the government for something.  If it was you spending that money, you would watch those expenses like a hawk to keep them under control.  Yet we typically foget those and consider them a sunk cost.  Personally, this book really got me fired up to take control of that 20% of my budget.

I had wanted to do a book review on a monthly basis this year.  I had a book in mind for February, but it was on hold for me at the library until just last week, so I’m in process of reading it for March.  To give you some good reading and catch up a bit, I thought I would share another one I had read recently.

A noteworthy review of this book as listed on Amazon simply said “Required reading.”  That review was by Steven Levitt, author of Freakonomics, my last book review.  Several other reviewers of this book say it is even better than Levitt’s book.  I believe it’s a matter of perspective.  Freakonomics was a little more entertaining and The Undercover Economist (affiliate link), by Tim Harford, is a bit more educational, so, take your pick.

 This book gets really good right from the start.  The first chapter is entitled, “Who Pays for your Coffee?”  While I’m not a coffee drinker myself, it was very intriguing to understand his analysis.  He delves into the old real estate motto of “location, location, location” buy showing why Starbucks seems to be on every corner and how they can do that and still charge $5 for a cup of coffee.

He also delves into the idea of “Free Trade” coffee.  I’ve seen this at some stores around where I live.  Places typically charge slightly more for a cup of Free Trade coffee than regular.  It is supposed to be a charge so that they can pay a higher amount for coffee grown in poor countries to help the farms grow.  Harford here suggests the actual amount of difference they pay for the pound of coffee versus how much coffee they can brew and charge extra for is way out of whack.  It seems the coffee vendor is making a huge extra profit on the Free Trade cups and is only passing slightly more on to the farmer.  Lucky for him, his favorite coffee shop no longer charges a different price.

Later chapters swim into topics of your local grocery store  and on into the reasons poor countries stay poor (that chapter alone should be read if you read no other part of this book). 

As you can tell so far, my book reviews won’t be your typical personal finance related books.  I believe that a strong understanding of markets and economics will help you to make smarter money and buying decisions.  I highly recommend you add this book to your reading list.  I pick mine up from my local library.

Looks like we had a good turnout for the contest.  There were a total of 38 entries!  Before I announce the winner though, I thought I would give a quick review of Freakonomics for those who haven’t read it.  This way, if you don’t win, you’ll know whether or not you should rush out and get this.  Here goes!

First off, I will say that I do not own this book myself. I don’t buy many books personally as I have a great library system just a few blocks from my home.  I have used excerpts from this book in teaching undergrad economics courses as well. 

The author, Steven Levitt, is a professor of Economics at the University of Chicago.  He uses this book to put a whole new spin on the topic.   By bringing the concept of economic analysis to everyday curiosities, he shows how economics really effects our day to day lives.  Each chapters poses probable explanations for some of life’s conundrums.

Some of my favorite chapters include (and it was hard to not just list them all!):

• Chapter 1:  What do Schoolteachers and Sumo Wrestlers Have in Common?
• Chapter 3:  Why do Drug Dealers Still Live With Their Moms?
• Chapter 4:  Where Have All The Criminals Gone?

Levitt’s writing style leads you through some very logical, economic arguments to explain each of these situations.  I would give you some hints, but I don’t want to give it away.  The book is a very easy read and could easily be finished up in a weekend (and I’m not exactly a fast reader).  Even if you don’t run out and buy this book, be like me and get it from your local library (it’s cheaper that way after all!)

And now, for the moment you’ve been waiting for.  The winner of the new copy of this book is…….

Aimee from over at Aimeeroo.  Thanks to all who entered.  Hope you are all finding some information you like and stick around to follow my journey!