Episode-505- Listener Feedback 9-6-10 — 9 Comments

  1. Clicking ‘play now’ and ‘play in popup’ simply opens a new window with the entire site displayed. The ‘cast isn’t coming up today. Have I missed a new step?

  2. @Commissioner,

    That issue must be on your end. Everything seems to work fine on multiple machines in multiple browsers,


  3. Jack,

    I have a few comments on the various subjects you’ve covered in this episode. I will break these up into one comment post per subject to stay on topic.

    The first one is regarding your recent comments about how the British Pound Sterling has more purchasing power then the U.S. dollar. This statement doesn’t actually tell us much. While you can get roughly $1.5 USD for each GBP, you have to look at the median wage in each country to understand the real purchasing power of the average worker.

    In the U.K., the median income for those paying taxes in 2007 was 18,500 GBP. This is the equivalent of $27,750 USD. The U.S. median income at this time was closer to $28,000 USD. These numbers came from articles on Wikipedia based off of government tax rolls and census data.

    It would appear then that the “middle of the road person” (hence median) in each country has similar purchasing power. However, there are other differences in the economies of these countries that impact actual purchasing power.

    I recommend the Wikipedia article on median household median as a good starting point:

    Based off of that article, it appears the median U.S. household has almost 50% more real purchasing power than your median U.K. household.

    My point in bringing this up is that exchange rates tell us almost nothing about purchasing power. Sure you can get 80 Yen for the dollar, but how much Yen does a worker earn in an hour and how much do the things they buy cost in their own currency. It is a very complex topic with few simple answers.

    Thank you for your continued hard work. Please take this as constructive feedback and not a negative view on anything you do.

  4. Jack,

    My next comment is regarding your thoughts on the mortgage deduction and its impact on your taxes.

    The situation is actually worse than you stated.

    When you choose to itemize your deductions, which is necessary to do to claim the mortgage deduction, you forgo the standard deduction. In 2009 the standard deduction for a married couple was $11,400. If you had paid $8,000 in mortgage interest in 2009 and had no other deductions to itemize, you would actually be better off taking the standard deduction. This means you would gain no benefit at all from having a mortgage, even if you still owed nearly the full balance and took it out at the beginning of the year.

    The people who benefit most from the mortgage deduction are those with a very large mortgage who pay a large amount of interest each year. Considering the median house price in the U.S. is around $210,000, the interest on a new 30 year loan at a 5% interest rate is only $10,500. Thus the median U.S. household consisting of a married couple with no other major deductions gains nothing from having a mortgage.

    Even if they paid $15,400 a year in interest because they bought a bigger house, the way to calculate their tax benefit is to first subtract the standard deduction since they would get that deduction anyway. Thus the additional deduction amount would only be $4000, a $1000 tax break at the 25% taxable income level.

    I find that doing this thought experiment puts things into perspective and really shows that the mortgage deduction is mostly of benefit for those with very large mortgages. Everyone else should pay their mortgage off as soon as possible since there is little to no benefit from a tax perspective and in the meantime you are paying interest to the bank.

    Thanks for everything Jack.

  5. Jack,

    My final comment is on AAA. As I’m sure you know, all insurance companies must collect more than they pay out in order to be profitable and stay in business. This means that on average, you will pay more in as a customer than you will get out. This doesn’t mean all insurance is useless, but rather that we have to do a cost-benefit analysis when considering insurance.

    For me the rule of thumb is “if I had something bad happen, would it ruin my finances”. If the answer is yes, I insure it. If the answer is no, I save the money and “self insure” by knowing that when that bad thing happens I will pay out of my savings. I also take into the account the chance that the bad thing will happen. If I drop my cell phone all the time because I’m clumsy, I may consider insuring it, even though I know I could afford to pay for a new phone even at the full price.

    With health insurance, we all recognize that catastrophic insurance is important because a million dollar hospital bill would ruin most of us. I don’t think many of us would pay for health insurance that only covered routine doctor visits since we can all afford to pay a few hundred bucks a year out of pocket to cover that.

    I think of AAA the same way. Why pay into it year after year when I do regular maintenance and my car usually doesn’t break down? If it does break down it may cost several hundred to several thousand dollars (worst case) to deal with the immediate situation (not the repair which AAA doesn’t cover). But this won’t bankrupt me, so I choose to self insure.

    The main benefit I see AAA providing is the convenience and customer service factors. For me I’m willing to look up and call my own tow truck or other service instead of paying annually for that. Ultimately I think this should be the deciding factor for most people on services like AAA, since by definition you will pay more into the system in the long run unless you regularly drive unreliable vehicles, or perhaps drive in very remote areas where the cost of towing would be very high. For the average suburbanite, the chance of breaking down on a long trip is small compared to breaking down in town and thus “self insuring” makes more sense.

    I hope that wasn’t too long winded, but I feel the “self insure” vs “group insure” decision is an important one that people often don’t think all the way through. Which is why Best Buy makes tons of money off of insuring electronics.

    Thanks again Jack.

  6. One other place to possibly find a gun mentor is the Appleseed project that you have mentioned before on the show.
    I’ve been involved with guns for 3-4 years and you are correct that the folks I’ve learned the most from are people I’ve met and become friends with first.

  7. Hi Jack,
    While I agree with most of what you have to say about world economics, I have to disagree with you on China. China’s economy is dependent on exporting finished products and importing raw materials, which is much more like the 19th century British model. You could think of China’s investments outside it’s borders as a modern colonialism, which is always a lot less stable than internal colonization as the United States did. Given the expense of exerting military power over long distances, it would be hard for China to keep their “colonies” if the natives didn’t like it. The history of colonial governments keeping control of their territories when they get tired of being the cash cow is pretty bleak for the colonizer and, the takeover to revolt cycle has gotten shorter. So I don’t think what the Chinese are doing will work very well for very long.
    Given their food production deficiencies, growing population and loss of agricultural land to infrastructure and farming damage, China will become more and more dependent on food from outside sources. I believe this will require that they squeeze their “colonies” harder and harder leading to revolt. Just because they have a piece of paper showing ownership doesn’t mean that they can keep what they have bought in another country.
    The places where the Chinese are investing, Australia, Africa, and etc are subject to very erratic weather conditions and food surpluses are iffy in a good percentage of crop years. Also, these places are subject to the same rapacious using up of the land as everywhere else and the ecosystem is more fragile. Desertification is a major problem.
    All of the other raw materials the Chinese are trying to corner are subject to the same limitations, but food is the key. If the Chinese government cannot feed it’s people, it can collapse with a speed and thoroughness that is unrivaled in the West.
    The Chinese culture is very old and has always been run by an authoritarian bureaucracy, how the various dynasties fell is very instructive, since the current government is pretty much the same as any of them in relation to the people. The current government understands very well the role of “the will of Heaven” plays in them keeping their heads and their jobs.
    The strength of the Chinese economy is as illusory as is ours. They are looking at a worse housing bubble than ours, the government is paying a stimulus shell game to keep non-productive industries afloat. Their economy is based on 8% growth and they can’t let it fall too far below that without the wheels coming off. They have been buying our debt to keep us afloat because we have to buy their stuff to maintain their growth rate. They are backing off of it now because they can’t afford to keep throwing money down our rat hole either. Our deficit is going to smack them too.
    I don’t believe that China is going to survive the coming collapse any better than anybody else and will probably be worse off. Unlike us they also have the Russians on their border, a country that is rearming, has always been suspicious of the Chinese, and will do what they can to rein them in.
    Historically China has gone through periods of outside expansion, but they have always withdrawn and turned inward. I believe that historical cycles are much shorter in the modern age and the danger of rapid inward collapse is high.
    It isn’t something that I wish for anymore that I wish for an American or European economic collapse,but I believe it is inevitable. The collapse of Chinese society with various faction striving for power in a nation with an advanced military with nuclear and biological weapons would be a world wide disaster, but the potential is there.
    This is only the broadest sketch of the problem and I’m sure you can find a lot more about it, Google is your friend. JN

  8. On the topic regarding learning to shoot and hunt, check with your local Fish and Game department for classes and seminars. In New Hampshire they have free talks and seminars on all wild game hunting and fishing. Starting off by taking the hunter ed course in your state is a great way to meet people involved in your area. Plus you learn the rules and proper gun safety right from the start. Thanks for the show and have fun out there. – Marc