October 2008 Archives
Humans seem to have an unlimited ability to deceive themselves. Am I supporting my decisions with logical reason and deduction or are all my supporting arguments simply delusional rationalization of what I simply want. It is often very difficult to tell.
If I can master the art of determining my real motives, and identifying when I am simply rationalizing, I'll be way ahead. I don't have to negate my decision just because I find I'm rationalizing, but knowing the truth behind my decisions give me more power over myself and puts me ahead in the game.
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Posted by Paul Gernhardt on Oct 30, 2008
Paul's Definitions:
A discussion (debate) is an attempt to determine the truth. Discussions have facts and citations.
An argument is attempt to prove who is right. Arguments have personal attacks, inuendo, and substitute resume's for citations.
Beware the arguments trying to be passed off as debate (particularly political and theological arguments).
A moderators is someone who facilitates and guides discussions while discouraging and defusing argument and diversions. A good moderator will help guide discussions. Discussions should be encouraged with positive public comments. Arguments should be defused with humor and friendly private reminders to anyone starting turning things into arguments.
Paul's Laws:
Paul's first law states that the safety of an activity is determined by how forgiving of mistakes the activity is.
Paul's second law states that the difference between an adventurer and an explorer is whether the doing or the learning comes first.
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Posted by Paul Gernhardt on Oct 30, 2008
So our little village has been humming right along on the new "dollar" currency. Everyone is finding it easy to keep track of everything. If they have a dollar they can get an hours worth of work done and if they work an hour they get a dollar.
Mary, however, is in a bit of an different situation. She spent years and a lot of work building the communications network for TV, internet, phone and all the wonderful things people wanted. No one paid her while she was building the network and she lived a fairly simple life. Now people pay her for using the network. While she needs to fix things here and there, installs a new line in barn now and then, she doesn't really spend much time working on the network. Before they paid in hours of work, today they pay her in these new "dollars".
Having had a simple life while she built the network, Mary came to like it that way. Her life and living conditions are nice, but not particularly upscale or expensive. Under the new system, however, it is becoming apparent that she isn't using all the dollars she is paid. Her little pile of dollars is slowly getting larger. After six months it is now around $3,400. What she charges haven't really changed, but the dollars seem to be providing a more accurate accounting.
Another interesting problems starts to develop. Before people always just kept track of hours that are owed. If Mary didn't need any work from John, but he wanted internet access, she just remembers it for when she needed something in the future. Now with the dollars, people are noticing more how much the amount ebbs and flows. Mary's pile is a little bigger. John's pile is pretty small because he recently had James build him a new workshop. James' pile is a bit bigger as a result of John's payment.
Patricia, meanwhile, is very, very careful to maintain her pile at $2,500. In fact the others are getting worried about her as she seems to worry it all the time. Once she even asked Mary to disconnect her internet for a few weeks so she could pay James to build and install a new door. While she had the dollars to give him for the work she didn't want the pile to get too small.
The dollars have made thing easier, but some rather odd things are coming to light. These things were always there but now that people could easily count the dollars they are noticing them for the first time.
All in all, though, the village people are happy with the new system. It certain is fun to watch the money move around between the four of them.
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Posted by Paul Gernhardt on Oct 30, 2008
It looks like our village economy will be changing a bit with this new idea of John's. There are a number of things we can learn from just the little bit we know of the village.
It is interesting to note that the dollars in the village didn't mean anything to anyone -- until everyone agreed that it would REPRESENT something. In this case everyone agreed it represented (was worth) an hour of work.
As they go forward they'll find that dollars are an easy way to represent a value of the work done so that folks didn't need to barter directly with people who have what they want. The builder could take a dollar he earned from a transportation company and use it to buy access from the communications company who can it to pay for transportation -- all without all the juggling who did what for who.
Even in our huge country, with such a complex economy, money really just represents either the ability to pay for other people's work or the earning from our own work. In fact, the easiest way to measure the economy is to see how many hours people work for various standard things such as rent, a car, or food. One of the leading economic indicator of purchasing power is the "Big Mac Index" -- that is long someone has to work to purchase a Big Mac.
So, a dollar is worth what the folks involved agree that it is worth. The only reason it has value is because we believe it does.
COMMENTS on articles can be sent to "Comments [at] PaulOnlife.com".
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Posted by Paul Gernhardt on Oct 29, 2008
So know we have a happy little village with Mary, Patricia, James, and John. Each has $2,500 in dollars sitting in the corner making them feel good about themselves. Let's take a moment and get introduced to the village people...
Mary spent a few years building a communications network in the village including all the goodies... video, internet, phone, games, etc. She calls her business "Mary's Communications". She enjoys gardening and raising her own food -- as do all the other villagers as there is no supermarket. She has a bit of extra time in her life as she just has to maintain the systems she spent so long building. The upfront investment is paying off in extra spare time today so she's thinking about going into another business.
John just likes to make things. Pens, paper, knifes, computers, you name it. An ultimate tinkerer and inventor. He never knew what to call his company so he just call's it "John's Industries". He likes to travel to other villages once in a while, but mostly just chats with them through "Mary's Communications".
Patricia had John make her a truck, a fork lift, and a number of other vehicles and calls her little business "Patricia's Transportation". As does everyone, she gathers together in the village square for a few hours every week to help keep the common areas nice.
James builds things... houses, factories, barns, tables.. just about anything for "James' Construction" (yeah, they're not the most creative people when it comes to names). If it was built in the village it was build by James and lasts a long time. He has a number of hobbies but doesn't have a lot of time as he is building a house in hopes that someone else will move to the village soon (hopefully a lovely lady as neither Patricia or Mary seems to have taken a shine to him.)
The economy is pretty much run on a you-help-me-I-help-you basis. The form of currency is work -- If Mary spends an hour moving stuff for James then he'll spend an hour building something for her. John makes stuff for everyone, in fact he just made a great new set of knives for Mary's kitchen in return for using her communications network. It all works pretty well... most of the time.
You see Patricia had an argument with John about how many hours they owed each other. It seems John's memory isn't always great and he doesn't write things down. He thought he was paid up while Patricia thought he still owed her a few hours of work. In addition, Patricia owed James an hours of work and wanted John to take an hour he owed her and help her pay off her work debt to James. John wanted James to take an hour he owed and use it to help Mary to help settle his own telecom debt -- unfortunately Mary got confused and credited that work to James and still wanted an hour from John. As you can see, it all got very confusing, very quickly.
As they were sitting around the village square arguing over all this they decided they had to find a better way -- or perhaps have someone keep track of it all for everyone. Suddenly John remembered the pile of "dollars" he had stuffed in the corner and had a brilliant idea. Why don't we just use those dollar things. Every time I spend an hour making something for someone they can just give me one of those dollars. That way I'll know how many hours work I've done by the number of dollars I have. If I want an hour's work from someone else I'll just give them a dollar. A dollar means an hour of work that you can get from anyone. If we all agree then we don't have to keep track of everything. As everyone seems to have the same number of dollars we'll start fresh with everyone.
Everyone thought that was a wonderful idea, and so the dollars got put to work.... Now those piles really meant a lot as each person had 2,500 hours of work they could buy from others. A perfect system. Yep, an absolutely perfect system... perfectly perfect in almost every way....
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Posted by Paul Gernhardt on Oct 29, 2008
In order to help understand the economy it is helpful to have built one from scratch. This will help disprove some conceptions people have about the economy as well as prove others.
The first step in building our brand new economy is to start with people. In this case we'll use a small village of 4 people. In this case their names are Mary, Patricia, James, and John -- the two most common name for each gender.
The second step is to introduce a form of money into our little village. We'll call our money the dollar and use the symbol "$" in front of the number as a short hand. Hopefully this won't confuse anyone. Mostly we'll do this so that I'm less likely to make a mistake since I am already pretty used to these conventions. Let us be clear, however, that this is not the US dollar we're talking about as these four people had the sense to leave the country long before the recent political campaigns started. As a result they can enjoy watching TV without getting aggravated every 15 minutes. At any rate, let's start the community off with $10,000. This is enough money to play with while keeping the numbers small enough that my simple math skills can keep mistakes to a minimum.
The third step is to distribute the money to the individuals in the community. To be absolutely fair we'll distribute it in equal shares to each individuals. That means each will receive $2,500. They received this strange stack of "dollars" in the mail from someone who said they were there to help... hmmm.
So, Mary, Patricia, James, and John each have $2,500 sitting in the corner of whatever it is each person is living in. They haven't used any of the new-found money. Their lives are no different than before, although for some reason each feels a little better at having "socked away" some cash. The odd thing is they have no idea why they feel better as there isn't anything to use it for yet -- that is in Chapter 2.
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Posted by Paul Gernhardt on Oct 29, 2008
I have been getting inundated with questions about the stock market. Here, in a nutshell, is the big picture response:
Stock trading is a financial game where you buy and sell stocks over short time periods (hours, weeks, or months) in order to make money on the short term swings of the stock or market. For trading, market volatility is what makes the game interesting -- not to mention possible.
Stock Investing is a strategy where you place money in equities in order to make money over a long period of time. This is typically considered in the range of three or more years. For stock investing, market swings are to be expected and present opportunities to leverage the effects of dollar cost averaging to increase your portfolio.
If you need your money in the the next few years it should not be invested in the general stock market. It should be in instruments that are more predictable and less subject to short-term swings.
If you need your for a retirement that is 5, 10, 20, or 30 years from now, you should not be particularly concerned with what the current market value is. The market has shown to be on of the best long-term investment available (the best is to purchase a house). In fact, the most predictably successful investment models suggest that you should continue to invest money as you always have.
So, what does the low market mean? It means that the economic environment you live in today is on edge and subject to short-term changes. You need to be certain that your short-term savings are in a secure places and available to weather any potential personal financial storms (i.e. layoffs, increases in cost, decrease in commissions, etc).
For those without such savings you need to do the things you should have been doing all along. Spend less, save more, pay down debt, secure your employment, get your own health insurance, invest don't trade, and live below your means.
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Posted by Paul Gernhardt on Oct 19, 2008
I believe that it is a clear signs of the times that debt creates far more problems than it solves.
I am no longer able to believe that using debt financing (aka credit) is a sound financial decision for anything which is not an appreciating asset whose value can reasonably be expected to remain above the total cost (principle plus interest). Using credit for other types of purchases is a result of bad planning and/or failure to live within one's current financial means.
To put it more plainly: with the exception of a house you should not purchase anything on credit.
The answers to the obvious questions are:
-- Yes, this includes cars. Pay cash for something that will run safely and then put aside money into savings as if you were making car payments. This means you'll have the money to pay cash for you next car. You're car will, in the end, cost you a fraction of what it would otherwise.
-- Yes, it is OK to use credit cards for convenience -- as long as you payoff the total balance when the bill comes. No exceptions.
-- No, equity financing of your home for things which are not home improvements is not considered a home purchase -- don't do it. Financing things on home equity is an exceedingly bad idea and will prove to be a root cause of much of the personal financial disasters that will happen in the coming years. Consider your home equity on par with your retirement funds -- do not touch.
-- Borrowing money from your retirement fund is a mistake.
I can think of no exception to the fact that using credit is a result of bad planning and/or failure to live within one's means.
You can be miles ahead of everyone else by simply not using credit. You just have to care more about your future than you care about your present.
(A footnote: There are non-home items which can be expected to appreciate in value and represent sound investments purchased on credit. These are a different subject and are not typical of a the average household spending considered here.)
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Posted by Paul Gernhardt on Oct 19, 2008
If you are fixating on a single issue you are likely missing much of the bigger picture. A single issue view creates a myopic world view which limits the ability to see the true pros and cons of the issue in play. If you can't see a pro for the opposition then you should double-check to see if you have a wide enough world view of the position.
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Posted by Paul Gernhardt on Oct 04, 2008
I believe you can far more effective by being in support of things instead of being against thing. In this way you are building something instead of trying to tear something down. Unfortunately it seems today that people are more drawn to being against things. Change that trend in yourself and you have a better chance of changing the world.
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Posted by Paul Gernhardt on Oct 04, 2008