Because Free Markets are Sexy...

In the late 1990’s the problems of the world were very different. Terrorism was not as big a perceived threat and people were just warming up to global warming, with “buying local” not meaning much to anyone. One of the big problems at the time was Y2K. Everyone knew the ushering of the new millennium would be catastrophic. While in hindsight it is easy to laugh at what did not happen, yours truly had friends and friends of friends who got out of their leases and went to the countryside. Another friend bought a shotgun and emptied out his checking account.

It is generally agreed that the money spent on Y2K solutions (up to $600 Billion) was mostly wasted. What exactly was wasted and what wasn’t cannot be accurately gauged of course, but it does raise an interesting question: every age has its forthcoming catastrophes, be they Acid Rain, Mad Cow disease, SARS, Avian flu, Swine flu, overpopulation, global cooling, etc. etc. Was the money spent (and the panic sewn) on all of these worth the cost? Can we learn anything when dealing with “catastrophic events” of the future? Is it right to spend so many resources worrying so much about them? Especially considering the number of Black Swans in recent years, all of which were very real, but none of which were on major outlets’ radars before they occurred?

Years ago we wrote an article on the pros and cons of eBay vs. Hand-me-downs. We were curious to see whether older, inefficient methods could be replaced by newer, more efficient ones. Our results were mixed. It turned out that you never receive much for used items, and it takes a while for the value of the sale of these items to appreciate when relying on interest bearing accounts.

Nevertheless, it might help to have more efficient markets. In this case, more specialized. Our two examples involved old clothing and an old video game. Well, now there are markets precisely for these two categories. Storkbrokers.com is a website where you can sell your baby’s old clothing (and possibly other items of your young kids to be featured soon), while Gazelle.com is a place where you can sell your old electronics. Both allow you to sell to other users, although Gazelle offers to buy it from you for a cheap price as well.

We have also been notified that a new website called Keepio will be able to do both. This may seem like a step away from the specialization, but it deals with many of the other inefficiencies of eBay, namely the extraneous charges, the chaotic website, the inability to keep track of your total inventory, as well as the inability to advertise each sale on Facebook and Twitter.

All in all, it looks like our analysis may need a revision in the near future.

The following is a contribution from a loyal DumbAgent fan. We are happy to feature it, not least because it ties to (and expands upon) our article on where Higher Education is headed. We have left the footnotes in, referring to his sources for dollar amounts, and while this article was not written by anyone at Dumbagent, we must say we agree with his points 100%. So enjoy:

Rich and Diane are very, very proud parents. Their three wonderful children had taken to heart their persistent reminders that nothing was more important than to do well in school, and were accepted into Cornell, Stanford, and Penn, respectively. With corporate boardrooms and the upper echelons of government from the President on down filled with Ivy League alumni, it was clear that in this day in age, a college education was no longer the catalyst for the American Dream—that required an elite education. (1). So there was no question that all three children would attend their respective universities, no matter what the cost.

And the cost was shockingly high, enough to cast a cloud of apprehension on the parents’ pride. Together, they earned $50,233 per year, a mirror image of the median household income and as middle as middle class could be. (2). They were therefore surprised that their annual gross earnings could not accommodate even a single year at any of their children’s’ universities. Once housing, food, and books were included along with tuition, one year at Cornell would cost $54,676. (3). One year at Stanford would cost $ 54,900. (4). And one year at Penn would cost $55,250. (5). In sum, to ensure that all three of their children obtained their elite Bachelor’s Degrees, the proud parents would have to spend no less than $ 659,304! And that was the minimum: in the 21st Century, it would not be surprising if one or more of the children decided to pursue post-graduate education, which, using the average cost per child per year, could raise the total to a range between $714,246 (one child completes an accelerated Masters program) and a staggering $1,318,608 (three children go to med school). Once taxes, pensions, and the general costs of supporting themselves and three children were taken into consideration, the proud parents’ college savings inevitably fell far below the university estimates. Who has this kind of money just lying around, the proud parents wondered, that they could simply write a university a check? They guessed only the obscenely wealthy, and they guessed right. Consequently, the proud parents lamented that we had come full circle: after opening the Ivory Tower’s doors wider than they’ve ever been in the twentieth century, college is again a pastime reserved for ultra-rich elites, as it was at our nation’s founding.

The proud parents’ neighbor disagreed, claiming, “college never has been more accessible.” And certainly, the neighbor was right. Yet the proud parents knew better. They understood that this enhanced access was made possible primarily by student loans. These lump-sum checks can seem quite appealing when they’re issued. The problem comes later, when graduates realize that, while the United States government has promoted college to the extent that a degree is now necessary to get a job stocking shelves at Home Depot, it has not really done much to make it affordable. Federally “subsidized” loans carry interest rates up to 6.8%. (6). And even then, they cap out at $18,500 per year, less than half the estimates given to our proud parents. (7). The rest must be funded with private loans, which commonly carry interest rates reaching 11.35%. (8). The result is mortgage-like debt on credit-card-like payment terms. Using a simplified but realistic example, assume that the proud parents saved enough to cover a third of each child’s education; the children must borrow the rest. Assuming further that they decline to pursue graduate education, each child, on average, will personally be on the hook for between $223,428.82 (standard plan) and $371.114.79 (extended plan). (9). Not something the proud parents want to leave their children with, especially considering that a college degree doesn’t buy what it did during the Greatest Generation. A cheaper education is an alternative, but not a plausible one for proud parents who want their children to reach the stars. Accordingly, the proud parents stand by their earlier lamentable conclusion, with two qualifications: to (I) provide your children to best education possible; and (II) do so without saddling them with debt that will haunt them until their own retirements, then yes, you have to be part of the millionaire elite. Way to invest in your future, America. Congratulations.

The author is well aware that the provided calculations—accomplished using simple arithmetic—omit myriad complexities, such as cost fluctuations, interest variables, and self-sufficiency. Nevertheless, the simplified calculations do the issue justice.

(1)http://www.theamericanscholar.org/the-disadvantages-of-an-elite-education/
(2)http://www.census.gov/compendia/statab/2010/tables/10s0675.pdf
(3)https://www.finaid.cornell.edu/costs/
(4)http://www.stanford.edu/dept/finaid/undergrad/how/calculator/input.html
(5)http://www.sfs.upenn.edu/paying/undergraduate-expense-budget.htm
(6)http://www.direct.ed.gov/calc.html
(7)http://studentaid.ed.gov/students/attachments/siteresources/At_a_Glance8.pdf
(8)https://www.studentloan.com/studentloans/genericAPRExamples/GenericAPRExamplesView.do
(9)http://www.finaid.org/calculators/scripts/loanpayments.cgi

The gambling laws in the United States do not make much sense. Then again, many laws in many places have more to do with tradition, history and personal whims, and therefore can seem odd when looked at with a fresh eye. Gambling laws, however, are counterintuitive and cost the government millions in potential revenue.

There are arguments that certain states use in order not to open casinos. They tend to be nimby arguments, and while we do not agree with them necessarily, we understand why they exist. Then there are others, namely dealing with online gambling, that make no sense whatsoever.

As it stands now (and this may change since it was written), online gambling is illegal. Online betting is legal, as long as the bets are not on sports. Any bets on sports can of course be made in Las Vegas, Atlantic city, OTB venues and the Kentucky Derby. However, it is legal to have an online gambling company based in the United States, just as long as no money passes through US banks.

The net result is that millions are being traded and gambled, and the United States is not allowed to see or tax any of it. We have already mentioned Smarkets, as well as Intrade, Betfair and the now-defunct Predictify.

We can now also mention Galileo Managed Sports Fund, the first sports-betting hedge fund, as well as Betable.com, where you can create your own bets and share them with anyone (no, not even this is allowed in the US). Do you want to bet on the nature of reality? You can, at Paddypower.com, which allows you to bet on what the Large Hadron Collider will discover (odds that it will discover God are currently 100/1). We can also mention Ultrinsic, where students can bet on achieving certain grades in their classes (as an extra incentive to reach their goals).
Merrill Lynch estimates that by 2015 online gambling will be a $528 Billion a year industry. If the US allowed it, it would be much more. During times of recession, couldn’t the state coffers do with some more tax revenue?