Meaningful Issues in Today's World

Garbage Land: On the Secret Trail of Trash - Book Review

2008-03-18T21:49:00.000-07:00

As a follow up to my blog Recycling: Does it Make a Difference, I decided to take a look at Elizabeth Royte's book Garbage Land: On the Secret Trail of Trash. I wanted to get a broad picture of what our garbage is and what happens to it. Royte offers an adventure (albeit somewhat sensationalized) of tracking all forms of waste from her household to the collection trucks, the various sorting facilities, and eventually to the dump.

Tracking the Garbage
Royte embarks on a mission to sort, categorize, and weigh all of the trash that her household (her husband and one child) for an entire year. In the process, she follows her recyclables, compost-able materials, hazardous materials (e.g. TV's and computers), sewage, and her garbage to the places where they are either turned into new products or landfilled.

She visits any site where she is allowed access (and to some that don't) to document a process that starts at the household. Most Americans don't give a thought to their garbage besides when the day it is picked up and making sure that they don't miss it. However, Royte seeks to describe how various waste streams make their way around the world.

She does a thorough job at covering the major waste streams in a Western society and looks at the economics and environmental impacts of each often uncovering the good and bad of waste and even something as seemingly innocuous as recycling.

The Ugly Side of Recycling
Recycling has become pretty synonymous with being a liberal environmentalist trying to save the world. However, to the surprise of many, recycling may not be as benign as one may think. We see nice happy stories like Nike creating basketball courts from used shoes and we get to buy post-consumer recycled paper. Recycling only extends the life span on these products but they are only making a brief pit stop before eventually heading to the landfill.

The most insidious "recycling" is probably that of e-waste. Electronics have many precious metals like gold and copper in the circuit boards. But environmental regulations and the high cost of labor in America makes it uneconomical to extract these metals (it is cheaper to just buy virgin materials from mines).

Thus, the electronics get shipped on container ships from the United States to China (which would otherwise be empty because of the tremendous import/export imbalance). It is economical because the cost of labor and environmental regulations in China are significantly lower than in the United States

In China, villagers will use chemicals such as cyanide to leach gold from the electronics and are exposed to many other chemicals such as mercury from monitors and lead solder. We think that we are helping othe world by recycling our electronic goods, but in reality we are pushing the environmental and health costs to third world nations willing to recover these materials. See the Basel Action Network (BAN) Photogallery and Digital Dump Trailer for more information.

Zero Waste
In the last few chapters Royte discusses the possibility of a world with "Zero Waste". Despite her recycling habits and her attempt to reduce as much waste as possible, she still ended up disposing of approximately 4.65 pounds of trash per week (which is 19.5 times lower per person than the national average according to an EPA statistic).

The fundamental problem is that we have externalized the costs of waste and pollution and therefore the costs to dispose of items costs much less than the damage that is done to the environment (this is measured by the amount it would cost to replace or restore the natural function that an environment previously had). The only real solution towards creating a truly sustainable society is to design the goods we used to not produce any waste.

Virtually all products sold today are designed with a Cradle to Grave philosophy: it will eventually find its way into a landfill. However, William McDonough proposes in his book, Cradle to Cradle: Remaking the Way We Make Things, that we need to design our products such that the "waste" products will be the "nutrients" for another system, whether that is natural or created by man. Only then will we be able to live with "Zero Waste".

My Thoughts
Garbage Land is a great primer for people who are unfamiliar with the recycling and garbage industry. My main criticism is that it feels more of an adventure rather than a scientific paper with strong supported facts and evidence. At one point she said the methane "smelled like rotten eggs". Methane gas is actually odorless and is the main component in natural gas. However, mercaptans (sulfur based molecule) are added to natural gas to give it the "rotten egg" smell. I was upset that she couldlet a fairly well known fact slip through.

After reading this book I was reminded at a slogan that was on a paper towel dispenser in a bathroom at my office which simply has the words:

"Green is using only what you need"

I think that this sentence pretty much sums up sustainability and the conclusions reached in Garbage Land. It isn't about buying a green product just because it is available. It means reducing your consumption, and if no other options are available, then try your best to buy an eco-friendly product. We need to reduce our consumption of products, especially those that are designed to be disposable.

Although the amount of waste produced from municipalities seems tremendous, it does not clearly convey the amount of waste that was generated to make the products that eventually end up in landfills. According to Paul Hawken, author of Natural Capitalism and the The Ecology of Commerce, for every 100 pounds of product that is sold, at least 3,200 pounds of waste was created. McDonough also has a similar statistic that municapial waste is only 5% of the total waste that gets created to produce and deliver your product.

The easiest way to decrease your environmental and save money in the process is to consume less. This way you can get more satisfaction out of the things that you do have and also enjoy some of the simple joys in life.

Related Blogs:

Recycling: Does it Make a Difference?

Related Links:

Basel Action Network

Recommended Books:

Garbage Land: On the Secret Trail of Trash - Elizabeth Royte
Cradle to Cradle: Remaking the Way We Make Things - William McDonough
The Ecology of Commerce - Paul Hawken
Entropy: A New World View - Jeremy Rifkin
Ishmael: An Adventure of the Mind and Spirit - Daniel Quinn

Blog Update #4 - 500 Hits and 40 Subscribers!

2008-03-06T06:34:00.000-08:00

So I hit a pretty big milestone yesterday and got my 500th hit! I know it is nothing compared to popular blogs out there, but I'm trying to generate content and traffic as best as I can and the little steps make me happy. As my daily hits increase, I am getting more and more "random hits" from Google who are looking up terms like "top issues in today's world" and "issues today" (these search topic and similar ones are the most popular links from Google to my blog)

I have had people find my blog throughout the world including countries like England, France, Germany, Italy, Poland, China, Taiwan, Japan, Australia, The Philippines, and even the small country of Lesotho! Out of all of the readers, 40 people have subscribed to the blog and get a regular feed feed of Meaningful Issues in Today's World.

It makes me really happy that people are finding and reading the blog, not only because there are so many important issues, but because it really does take a lot of effort (3-5 hours) to produce a blog that doesn't just regurgitate the news or post a link. I want to give my readers a synthesis and analysis of the top meaningful issues in today's world and won't compromise my content just to get better search engine results.

When I see the blog hits I get excited because it means that people want to educate themselves and take action. If you missed any of the action, I've posted some of my more popular posts from the first two months below.

Related Books:

The Ethics of What We Eat: Why Our Food Choices Matter - Peter Singer
The Paradox of Choice: Why More Is Less - Barry Schwartz
Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence - Joe Dominguez, Vicki Robin

Peak Natural Gas - Will we go cold?

2008-03-05T06:37:00.000-08:00

Natural Gas - Fuel to Transition to Renewable Energy?
Natural gas is a vital source of fuel primarily used for electricity generation and heating in homes. It is also used as a feedstock for many organic compounds used in industry such as methanol and hydrogen. For peak oil optimists, natural gas is described as a possible fuel to help us "transition" from petroleum energy to various forms of renewable energy such as solar, wind, and hydro.

Natural Gas Background
Natural gas is an extremely clean fuel when combusted/burned and has the lowest amount of carbon emissions for any fossil fuel. Despite these advantages, there are many problems that natural gas must overcome. The first is that it is a gas and will only become a liquid at 77K (approximately -320F if we assume it is primarily methane) under atmospheric pressure. This leads to a problem that natural gas has an extremely low volumetric energy density which means that it is difficult to store and ship. We have only been able to transport natural gas because we have built an expensive natural gas pipeline network.

Natural Gas Production Decline
Jon Friese from The Oil Drum recently posted an article titled North American Natural Gas Production and EROI Decline. I could not possibly do the article just by trying to regurgitate the information, especially because the graphs are so vital for understanding the situation we are in. Please see The Oil Drum's article to see the details in depth.

I will state though, that the future of natural gas in the United States and Canada does not look very promising. Based on an extrapolation of the EROI trend line for Canada, it appears that natural gas may not be technically feasible to extract after 2014! This is significantly sooner than the government agencies have predicted based on their reported reserves.

I am always wary of extrapolations. However, I find that the analysis is sound and also looks at historical data to compare trends. It is not exact, but the analysis and extrapolation will give us a good idea where natural gas production is heading. To quote the conclusion of the article:

"The natural gas industry has clearly been mounting a heroic effort to keep natural gas production on plateau in North America. This effort has raised costs dramatically. The EROI of Canadian production shows a rapid decline. Drilling statistics suggest a similar EROI decline is happening in the US. The falling EROI makes it impossible for natural gas production to maintain both low costs and current levels of production. It is clear that most of the reserves in the official forecast will never be developed. Jean Laherrere’s predictions are more likely to be correct. And if EROI continues to fall at the current rapid rate, he will be remembered as an optimist."

EROI - The forgotten statistic
What is EROI? It is an acronym for "Energy Return on Investment". Simply put, it is the amount of energy that a resource has once it is extracted, divided by the amount of energy used to extract it or Available Energy/Input Energy. According to the article, some natural gas fields peak at an EROI of 40:1 but then decline rapidly. See the article's graph for the trend of EROI.

This is particularly worrisome because it shows that the "Break Even" point according to the extrapolation of the trend line is 2014. After this point, it will take more energy input than energy available from the natural gas extracted. This means that it is no longer worth it to extract the natural gas because we spend more energy than we can recovery.

But I thought that the "Market" would solve our problems
Economists from the Chicago Economics school of thought, strongly believe in free market forces. The people believe that peak oil will be a non-issue because alternative forms of energy will become "available" as the price of oil and natural gas increase. This analysis has also been used to argue that we will "never run out of oil" because there will always be oil in the ground. The recoverable reserves are defined as the resources that we can economically extract and the recoverable reserves can increase when prices rise. That is, as prices go up, oil that was previously not economical to recover, will become affordable. Or so the theory goes.

The free market economists fail to recognize the physical and thermodynamic LAWS that NO market can solve. As the price of energy increase, we will afford to dig down further, pump oil further to a certain extent. But there is a limit to the amount of oil we can physically extract. As we dig deeper we expend more energy per unit of energy recovered. Once we approach the "break even" point, it will no longer be rational to extract the oil, no matter what the price is.

It doesn't matter if oil is $1 per barrel, or $1 million per barrel. If we need to use more than one barrel of oil to extract one barrel of oil, it won't happen.

My Thoughts
Just like with petroleum reserves, it appears that government agencies have once again overestimated the true recoverable reserves. They still believe that the "market" will ultimately balance the cost and therefore demand of oil/natural gas (or whatever natural resource is estimated).

However, for as stated above, cost will not be the only factor that will determine the amount of fuel we will be able to be able to extract. The Energy Return on Investment (EROI) will determine the physical limitations to extracting any resource and will ultimately determine the amount that we will be able to recover.

It will be interesting to see whether or not Jon Friese's analysis is correct and that the EROI is indeed in a sharp decline and if we will reach the "break even" point by 2014. If it is indeed correct, we have many problems ahead of us and will not be able to count on natural gas to transition us to renewable energy. Let's hope for the best but prepare for the worst.

Related Blogs:

Related Links:

The Oil Drum

Recommended Books:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
Resource Wars - Michael Klare
The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
Review
PowerDown - Richard Heinberg

Recommended Movies:

The Pardox of Choice: Why More Is Less - Barry Schwartz - Book Review

2008-03-03T07:31:00.000-08:00

Western Civilization has been flooded with so many choices in every aspect of our lives. Whether it is cleaning supplies, college course curriculum, or even finding something as simple as a pair of jeans. We have typically associated choice with an increase of freedom and the ability to steer our life in the direction that we so choose.

However, paradoxically we have become a victim to the plethora of choices out there and it is affecting us psychologically. The extra choices do not liberate us, but instead cause us to agonize over decisions and regret any "bad" purchases that were made.

Barry Schwartz's "The Paradox of Choice" is an excellent book that looks into the choices we make, the psychology of making choices, why we suffer from the choices we make, and lastly, what we can do about choice to live better lives.

Maximizers vs. Satisficers
Barry Schwartz identifies two different types of purchases: Maximizers and Satisficers. The key difference is that maximizers will strive to make the "best" purchase possible, while the satisficers are content with a purchase that is "good enough", which is to say that it meets their basic requirements. Typically maximizers are less satisfied with their purchases and also have more regret. It is okay to be a maximizer when shopping for products that are really important for you. It is only dangerous when you attempt to maximize every aspect of your life.

The Psychology of Choice
Barry Schwartz has a PhD in psychology and gives many psychology examples on how people will make decisions to buy products and their perception of gains and losses. Below, I have outlined a few of the key areas which he mentions that affect our decision to choose. The main purpose of these different factors is that the subjective value can be much different than the objective value. Typically the studies compare things that are equal in objective value, $20 for example, but then see how the different factors change the subjective value.

Accounts
Suppose that you have not yet paid for a concert ticket ($20) but lost a $20 bill the day before the concert. Would you still pay to the concert? What if, instead, you bought a concert ticket for $20, lost it, and had to pay another $20 for the concert ticket?

Although these two scenarios are identical objectively, subjectively they are much different because we tend to filter money different accounts. In the first case, the $20 loss was filed into a "general" account. But for the second scenario, the lost cost was $20 and the "real" cost of the concert ticket would then be $40. In the study that Schwartz cites, over 90% of people would be willing to buy the concert ticket in the first case, yet only 50% would do it in the second case.

Anchors
The idea of an anchor is to create a high price item in the store, a "deluxe" or "luxury" model, and then offer a more standard one. For example, a $100 pair of jeans may seem like a lot, but when compared to $200 pair of jeans, it looks like a bargain. Although not many of the $200 jeans will be sold, they will "anchor" the $100 jean products which leads to higher sales.

Like I wrote in The Dangers of Shopping, it is important to make sure that the purchase is needed and affordable on an absolute scale, not comparing it to the cost of the "high end" or "retail price". Otherwise, we can always justify a purchase as long as it isn't the "most expensive" model out there.

I personally witnessed a shameless example of anchoring at the Guess Factory Outlet store in Vacaville, CA. I asked them if they carried any products from their regular Guess stores and they said "No, the products are made specifically for the Guess Factory Outlet." What really disturbed me was that EVERY price tag had a MSRP (Manufacturer's Suggested Retail Price) and the "discount" price printed on it. Despite the fact that it was made specifically for the outlet, they framed it by posting an artificially high number to make it seem like it was a "bargain".

Gains and Losses
I thought the psychology of loss and gain was the most interesting part of the book and it really sets up the framework for why we agonize over choices. Briefly summarized, we feel more pain for a $100 loss than we feel happiness for a $100 gain. When choosing between a set of choices, there is seldom an option that is superior in every criteria. By not picking the "losing" option, we are giving up a trade off and thus a loss.

The studies explored in the book show that the more choices there are, the more trade offs or "losses" must be taken when making a decision. Because the pain of loss is greater than the happiness in gains, when confronted with too many choices, the buyer/consumer will often not make any decisions. This is true even when it is clear that there is an advantage by picking ANY choice (for example, employers would not pick his/her portfolio of 401(k) funds when there were too many choices, even though they knew they got an employer match).

The Green Factor
Within recent years, environmentalism has become a hot issue in the media and in people's everyday lives. There is now the option to offset your carbon emissions related to electricity use, buy organic produce,

However, by adding these options, it has further multiplied the number of choices that consumers must deal with. What is more important?

Greenhouse Gases or aerosols?
Organic or local?
Water pollution or air pollution?
Lower energy uses in CF lightbulbs or no mercury in incandescent light bulbs?

All of these decisions are contributing to a phenomena known as "green fatigue". This is the idea that people are tired from making green and eco-friendly decisions. With so many different factors that can affect the environment, anyone trying to be green must factor these into their purchasing decisions.

Strategies for dealing with choice
In the last chapter of the book, Schwartz suggests multiple ways and details how we can cope with the the abundant choices and making decisions. I have listed his suggestions below.

Choose When to Choose
Be a Chooser, not a Picker
Satisfice More and Maximize Less
Think About the Opportunity Cost of Opportunity Cost
Make Your Decisions Non-Reversible
Practice and "Attitude of Gratitude"
Regret Less
Anticipate Adaptation
Control Expectations
Curtail Social Comparison
Learn to Love Constraints

I plan to create a mini-series and at his suggestions in depth in future blogs. I will say though, that all of the advice seems very practical and is based on the scientific research that has been conducted which looks at the psychology of choice. By simply understand why we act the way we do, we can strongly reduce the negative affects that choice has on our lives.

My Thoughts
I think that this is a great book that has cleared up a lot of things in my life. I am one that is more of a maximizer rather than a satisficer. If I find out that I "could have" saved more money by doing X action, I tend to regret my purchase and am mad that I didn't make the best purchase possible. I will look to follow the steps that Schwartz has recommended, and that I outlined above. I need to be able to not regret my purchases and be happy when I have made a "good enough" purchase.

Although Schwartz suggests that you should worry less about your choices, I believe that it is still important to scrutinize your purchases, especially if it is above your hourly wage (see The Dangers of Shopping). However, it becomes dangerous when the cost of extra scrutiny goes beyond the cost of your time and mental health. The main thing is to "Choose when to choose". This of course will depend on your values and what you think needs to be the "best" and what you can be satisfied with "good enough".

You should only sweat the small stuff if the sweat that you put out is at least equal to the amount of sweat you might get back. An adage that would be appropriate here is "Penny wise, pound foolish". If you look at scrimping pennies on your small purchases, you might be overlooking the larger picture. The time you spend with your penny-pinching could be directed to something that will increase your well being or even make more money.

I really think that reading this book has the potential to make you much happier in life. You will look at life differently and your choices can bring true excitement and happiness. I plan to start a mini-series of blogs related on psychological issues of choice and discuss how just being aware of the psychology of choice can change your outlook and spending on life.

Recommended Books:
The Paradox of Choice: Why More Is Less - Barry Schwartz
GoogleBook: Paradox of Choice (Sample)

Recommended Movies:
Barry Schwartz talk at Google

Mint.com - Website Review

2008-03-01T10:15:00.000-08:00

Mint: Refreshing Money Management
Have you ever overdrawn an account or just missed paying your bill by one day? Do you want something that would remind you when a bill is due and budgeting based on your previous? Well there is one place that can do all of that. Mint.com is a online resource which helps you avoid these costly fees from banks and credit.

Setting it up
Setting up an account on Mint is as easy as entering your user ID and password for your different bank accounts and credit cards that you can access online (Which, hopefully for all people today's age, is for all their accounts and cards). You will have to enter your "secure" questions, but once this is set up you only have to enter your Mint ID/Password to gain quick access to all of your accounts.

Tracking Money Made Easy
With the click of one button, you can get an updated status on all of your accounts that is summarized and shows you your net worth which includes your assets and liabilities (debt). It will import a few months of data from your card, so it isn't optimal to create a large history. However, any future transactions with your linked accounts will be kept in Mint for future reference.

Trends, Budgeting, and Saving
One of the cool features of Mint is the ability to automatically categorize your expenses when they are imported. Some transactions are recognized, but depending on your needs, you may want to label it differently.

Your information is then compiled and it shows you how much you have spent in every category for any time period that you choose. Then based on this information, it creates a budget based on your previous spending habits.

Also, an handy feature is that it also shows you ways that you can save based on your current cards/banks and what else is available. For example, my Capital One account has an interest rate of 3.25% and Mint tells me that if I switch to Washington Mutual, then I can earn an extra $80 a year.

Fortunately, that is the only recommendation it makes because all of my banking is free and I don't carry any balances on my credit cards. However, for those who are not in this situation, Mint shows you cards and banks that can save you significant amounts of money.

Credit Only?
The biggest problem with Mint is that it only can track transactions made on your cards and bank accounts. But many places don't take credit cards or you have to pay in cash when there is a large group.

This of course creates difficulties if you get paid cash and put the entire bill into your check. Mint will only give you an accurate spending pattern if you charge only your expenses, or if you are willing to do some extra work by breaking down your purchases.

The Breakdown
If you pay for something in cash, or you pay for a dinner and your friends pay you in cash, you will have difficulties making Mint know how you really spent the money. For example, if you spent $100 on dinner for 4 people, it only cost you $25 for your own meal but Mint will think you spent $100.

They designed it so that you can break it down, but then this can be difficult to track where the rest of the $75 went. As you spend cash, you will then have to sub-divide the remaining $75 and categorize it into the proper categories. If you spent $10 on a movie, $20 on a shirt, $30 on two new DVDs, and $15 on a dinner with that cash you got from your friends, it means that you would then have to break it down and itemize each purchase.

My Thoughts
I think that Mint is a great tool for people use to monitor and track their finances related to bank accounts and credit cards. If you use credit cards exclusively, it can give you an extremely accurate picture of your expenses. However, if even a small portion of your cash flow is in cold hard cash, Mint is not forgiving and you must manually break down your purchases to see where all of your money goes.

I personally use Mint just to get a quick overview of my accounts and to get a reminder when my bills are due. I currently use an Excel spreadsheet to track all of my expenses (as described in Your Money or Your Life). Although Mint does a "good job" at tracking my expenses, it does not make it easy to track transactions with cash. Because I am want a very accurate representation of my cash flows, I decided that I would only use Mint as I described above, and use my spreadsheet to track and categorize my expenses.

Although it is far from a perfect tool, I think that any person can find Mint.com helpful in some way. It is a useful tool to give you an overview of all of your accounts, keep you on top of your spending, and help you find ways to save.

Related Blogs:

Related Links:

Recommended Books:

Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence - Joe Dominguez, Vicki Robin
Affluenza: The All-Consuming Epidemic (Bk Currents) - John de Graff

Recommended Movies

Maxed Out

Peak Oil and Investing: Part II - Liquid Assets

2008-02-28T08:00:00.000-08:00

In my previous blog, "Peak Oil and Investing - Part I - Retirement Funds" I discussed the pros and cons of retirement funds as they relate to peak oil. All of the analysis is made under the assumption that peak oil will affect us in the immediate future and that we will need access to as many funds as possible to adapt and survive in a world of peak oil. If you don't believe that this is the case, then it is probably best to continue investing in your retirement account as everyone else recommends.

The quick summary is that it is always worth it to contribute to a 401(k) when your employer matches your contribution. The benefits of contributing to a Roth IRA are not as clear and the level of contribution in this account should be determined on how big of an impact you believe peak oil will be.

Because I believe that peak oil will make significant changes and I want to be best prepared, I want to keep the majority of my assets liquid and accessible at any time.

Liquid Assets
The alternative to retirement accounts is to keep your assets liquid in cash, stocks, CD's (Certificate of Deposit), and savings, checking, and high yield money market accounts. With the exception of CD's and bonds, you can have these assets converted into cash and in your hands in less than a week. Even CD's and bonds can be sold, but because the prices can fluctuate, it is possible to lose money on the investment.

Taxes
All earnings made in the investment vehicles outlined below (with the exception of muni bonds) are subject to federal, state and local income tax. Any income earned from these sources will be taxed at your marginal tax rate.

Muni bonds are "triple tax free" because it is exempt from federal, state, and local income tax. Stocks or funds that are held for less than one year are taxed at your marginal tax rate, but for funds held over a year, the rate is only 15% for federal tax brackets 25% and higher.

Taxes are only paid when your stocks are sold. However, if you own a fund or a stock pays dividends, it is possible that you will have to pay taxes even if you did not sell a fund or stock in that year.

Stocks
With stocks it is possible to invest in many different companies and sectors of the economy. I will not go into specifics in this blog about where an investor should put his/her money. That topic will be addressed in my next blog. However, I will mention again, as I wrote in Adding Values to Your Investment: FTSE 4Good Index and Socially Responsible Invseting: Can it Beat a Traditional Mutual Fund, that a sound investing strategy is to buy index funds which cover a broad segment of the market.

It may be possible to make money fast with the next "killer stock". But as shown in The Bogleheads' Guide to Investing by Taylor Larimore and A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition by Burton Malkiel have shown, index funds will almost always beat actively managed funds. Most stocks can be sold and then

CD's
A CD (Certificate of Deposit) can be purchased at virtually any lending institution. The way it works is that you pay a bank to buy a CD with a fixed interest rate. The interest rates will depend on the length of the CD and the lending institution. The CD's will pay the fixed amount of interest at a specified time interval and at the end of maturity the bank pays back the lender the original purchase price of the CD.

Currently the market is not terribly great for CD's. The Federal Reserve interest rate cuts have decreased the interest rate on CD's and it is often better to put your money into a High Yield Money Market Account. See Bankaholic's CD Rates.

Bonds
There are a variety of bonds out there, but I will focus on a specific subset of bonds, the municipal bond. Bonds are essentially an I.O.U. to the company or municipality you are buying it from which allows them to raise capital for projects. They will then pay you a rate as stated on the bond (typically twice or 12 times a year). When the bond matures (ages usually range from 1-30 years) you then are paid back the value of the bond.

Bonds are good ways to guarantee a stable income over a period of time. However, traditionally, stocks have beaten bonds in the long run. There have been periods in history (such as the 1980's) where high interest rates caused bonds to beat out the stock market.

Municipal bonds are important because they are "triple tax free". This means they are exempt from federal, state, and local income tax. For people in higher tax brackets (25%+) and/or people who live in states with income taxes, municipal bonds can be a great way to have tax free earnings. Typically the interest rate on munis are lower, but if your income tax rate is high, it is often beneficial to invest in munis.

Money Market Accounts
Although the Federal Reserve interest rate cuts have drastically lowered the interest rate in money market accounts, this is still a great place to put funds you need within a week. If you open an account with Washington Mutual, Ing Direct, or ETrade, you can get interest rates in the 3-4% rate, which can be better than many CD's.

One risk with money market accounts is that the bank can at anytime and without notice, change your rate of interest. My rates at Capital One went from 5.00% to 3.25% within a period of 3 months because of the rate cutes. It looks though, that the rates will still stay above 3% and this is a good place to park your money if you think you'll need access to it in the near future. If the rates continue to decline, it would be wise to look towards CD's as a more stable source of income. See Bankaholic's Money Market Rates

Checking/Savings
These accounts typically have low (if any) interest rates for the deposits. Usually the rate is well under 1.0%. Thus, these should only be used to access cash through an ATM or to pay for purchases. Money should be transfered from money market accounts on an as-needed basis to cover the appropriate expenses.

My Thoughts
I have discussed the major retirement accounts and liquid assets and I hope that you have a better understand of how each type of investment vehicle works. I have decided to invest primarily in the Vanguard California Long Term Tax Exempt Bond Fund and the Vanguard Target Retirement 2040 Fund (See Adding Values to Your Investment: FTSE 4Good Index for more information). I also have a 6 month emergency fund set aside in case a major emergency occurred. This money is currently in a Washington Mutual Online Savings account that yields 4.0% APY.

In my next article I will discuss the types of stocks and commodities that you should consider. Oil or solar ? Wheat or corn? Financial or technology? Dollar or Euro? I will look at not only how peak oil will affect the market, but how fractional reserve and the unstable lending practices of the past 7 years affect investment decisions.

Related Blogs:

Related Links:

The Oil Drum

Recommended Books:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
Review
PowerDown - Richard Heinberg

Recommended Movies:

Peak Oil and Investing - Part I - Retirement Accounts

2008-02-26T21:55:00.000-08:00

Retirement Accounts
Retirement accounts are a great way to save for the future. The benefits are numerous. Some include tax-free earnings for Roth IRA's and pre-tax money going into a 401(k) account with the taxes on earnings deferred until the money is withdrawn from your account. But these benefits apply only when you are willing to follow the rules and not pull out your money early. If you do and do not meet special conditions, you are penalized for your early withdrawal.

There are two investment vehicles that are seen as great tax shelters, the Roth IRA and the 401(k). Typically the advice that most investors will give is that you should max out your employer 401(k) contribution, max out your Roth IRA contribution, and then invest the rest of your retirement money into a 401(k). However, this advice only applies under the assumption that there is no radical change in the economy and that you will not need this money in the next 20-40 years.

The conventional wisdom in virtually every investing and money advice is that you should put your money into these retirement accounts. Under most circumstances, I would agree and would put my money into the accounts. However, peak oil changes everything and clouds the future.

If you believe that peak oil will have a significant impact on everyday life and that it will require funds to overcome, you should think twice about starting (or continuing) investing into your retirement funds. In the remainder of the blog I will discuss the availability of tapping those retirement funds in case of the "Long Emergency" and what readers should consider doing in light of peak oil.

Peak Oil: The X Factor
My knowledge of peak oil makes me extremely wary of putting my money into any investment vehicle that cannot be withdrawn (without penalties) until I turn 59 1/2. For me, that would be 35 years in the future and I personally believe that I will be able to use my money much better if I kept liquid assets. Peak oil will have a tremendous impact on the economy and way of life.

In a world of declining oil supplies and increasing demand, keeping your assets liquid will be vital to adapting to the new economy that emerges. It would be a terrible waste to have all of your hard earned money trapped in a retirement account that you cannot access without heavy penalties, even though you desperately need the money because of peak oil.

I do not necessarily share the same alarmist views like James Howard Kunstler (author of The Long Emergency), but do believe that there will be significant changes. Willingness to adapt, and for better or worse, money, will be the key factors that will determine the quality of life after peak oil. Thus, it is important to ensure that you have access to as much of your money as possible.

Roth IRA
Roth IRA's in 2008 have a $5000 annual contribution limit with post-tax dollars. The reason why the Roth IRA is a great investment vehicle is that all of the earnings and contributions can be withdrawn (under the proper rules) tax free. This is the reason why most people choose to max out their Roth IRA accounts if possible.

Contributions made to the Roth IRA can be withdrawn at ANY TIME penalty free. The only penalties will be assessed is if earnings are withdrawn. If the earnings are withdrawn before 59 1/2 and not within the hardship withdrawal rules, then they will be subject to a 10% penalty and will be treated as taxable income. This will hurt those who are in high federal income tax brackets and investors in states with state income taxes.

Roth IRA Example: Tom invests $5000 for two years for a total of $10,000 in his Roth IRA account. At a later date, the value of his Roth IRA account is $20,000. Let's say that Tom wants to close the account and withdraw the entire balance. Because the $10,000 is a contribution that has already been taxed, he gets all of that money tax free.

However, the $10,000 in earnings is subject to the 10% penalty ($1000) and any Federal or State Income taxes. Let's assume he pays no state income tax and his marginal federal income tax rate is 25%. That means that he will have to pay $2500 of taxes in addition to the $1000 penalty, resulting in a net of $6500 from the $10,000 earned.

Because the contributions can be withdrawn at any time penalty free, the only disadvantages to investing in the Roth IRA the penalty on the earnings and the earnings being treated as taxable income if it is not a qualified withdrawal. However, the penalty is a non-trivial amount and if you are not looking to invest in a Roth IRA

401(k)
Although there is the Roth 401(k) option also available, I am going to focus on the 401(k) because most people choose this option in combination with a Roth IRA. This is to diversify your investments and hedge against changes in tax policy. The Roth IRA offers investments that are post-tax dollars, whereas the 401(k) account allows you to use pre-tax dollars. The only difference between the Roth 401(k) and 401(k) is that the Roth 401(k) is funded with post tax money.

The 401(k) is funded with pre-tax money and will be taxed upon withdrawal. The maximum contribution for 2008 is $15,500 unless you qualify for "catch up" payments. Most investors recommend contributing to a 401(k) because the investment starts with a higher principal because it is pre-tax, the earnings can compound tax-free until withdrawal, and the tax bracket at retirement will be lower than when the 401(k) money was contributed. The 401(k) has the same penalty 10% penalty as the Roth IRA and anything withdrawn from a 401(k) will always be considered taxable income.

The main benefit with a 401(k) is that many, if not most employers offer some sort of match. For some it is 33%, 50% or even 100% of the employee contribution up to a certain percentage. Although an early withdrawal will incur a 10% penalty (income taxes must be paid on 401(k) whether it is withdrawn early or in a qualified distribution), it is still wise to invest in order to get your employer 401(k) contribution

401(k) Match Example:Sally contributes $5,000 to her 401(k) and her employer has a 100% match. Let's say that she is fully vested in the employer match and thus she has $10,000 in her 401(k) account.

If Sally decides to take out the money from her 401(k) and does have a qualified distribution (see above), then she will have to pay a 10% penalty on top of income tax. Let's assume that she is in the 25% tax bracket and pays no state income tax. Her penalty will be $1000 and the taxes will be $2500, which leaves her with $6500.

If Sally would have taken her $5000 and put it into a non-401(k) fund, she would have only had $3750 after taxes, which is a little over half of what she would have made with an employer 401(k) match after penalties and taxes.

My Thoughts
What do I plan to do? I have thought long and hard about this topic because it could end up being a matter of survival.

Currently I am not contributing to my 401(k) stock plan because I don't get a company match. However, starting in January next year, I will get a 50% match on up to 6% of my income. I will contribute to my 401(k) fund to get my full company match because it would be foolish to give up free money from your employer. Simply put, contribute to get your company match, because you will still make more money even after the penalties.

I am still undecided if I want to contribute to my Roth IRA. I still have until April 15th to contribute $4000 to my 2007 account. "Conventional" wisdom says that you should max out your Roth IRA because it will provide you with the most income when you retire due to the tax free earnings. I agree completely with this statement under "conventional" circumstances. But unfortunately peak oil is far from conventional and will affect us more than most expect. All is not lost if you invest in a Roth IRA and take an early withdrawal, because you can get back your contributions tax free and earnings after penalties and taxes.

Is it better to just take it and invest in a mutual fund or is the Roth IRA and early withdrawal the best method? Unfortunately there is no clear answer for this because it depends on a variety of circumstances. Any earnings from a long term investment (over one year) is currently taxed at 15% for tax brackets 25% and higher.

Naturally, this is better than being taxed at the marginal tax bracket. However, in a non tax-advantaged account, taxes may have to be paid on dividends which will affect the investment compounding. Additionally, the earnings in the Roth IRA account will be penalized by an extra 10%.

What you choose to do related with your retirement accounts should be dependent on how significant you think that peak oil will affect our economy, our country, and our world. I tend to have a non-optimistic view of peak oil and think that we will face a serious crisis. It may not be catastrophe that Kunstler describes, but I believe that it will be significant enough seriously rethink contributing to retirement accounts.

In the end it is up to each person to decide how they should invest their money. If you believe that it is more serious, consider keeping more OUT of retirement accounts and as liquid as possible. This will help you have the flexibility to adapt to the new environment.

If you think that peak oil will be overcome by technology, innovation, and "the market", then it would be wise to keep as much money in the retirement accounts as possible, because they offer the best tax shelter for your money.

Either way, I hope that you are saving money in one form or another and continue to look out and plan for your financial future.

Related Blogs:

Related Links:

The Oil Drum

Recommended Books:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
Review
PowerDown - Richard Heinberg

Recommended Movies:

Peak Oil: Are we on our way down?

2008-02-24T10:46:00.000-08:00

The Oil Drum and Peak Oil
The Oil Drum has is a great resource for information related to peak oil and oil production in the world. They have a "Peak Oil" update and the last one was updated in December 2007. It looks at the Energy Information Administration data to plot actual observed production and compares that to the numerous models that have been proposed.

For the figures and data, see The Oil Drum: Peak Oil Update Decmeber 2007. Also, the Peak Oil Update is available in PDF format.

In short, it looks like we have reached the peak for Crude/Condensate (conventional oil), Natural Gas Liquids, and Total Liquids. Convention oil hit a peak in May 2005 and based on the production data from countries around the world, it looks like it will be the "real peak" and conventional oil will never be produced in the same quantities as before.

The peak that we have seen in the past 2-3 years isn't quite the "peak and sharp decline" that many people had predicted, but more of an extended plateau. Regardless of the shape, there is strong evidence which includes the production and price of oil, that we cannot produce any more oil.

Forecasts
What is most alarming, is how off the predictions that CERA (Cambridge Energy Research Associates) and IEA (International Energy Agency) are from the actual observed production. They have been proven to be wrong time and time again, yet the media readily uses them as "reliable" sources (See The Oil Drum's "Peak Oil, IHS Data and The Broken Clock" article for more information).

I think that every person needs to be extremely skeptical of forecasts and press releases by companies and the government on the issue of peak oil. It is one issue that they don't want to touch with a 10-foot pole and if they do they will an unrealistic optimistic view of it.

My Thoughts
The Oil Drum has the most thorough analysis of peak oil that I have found. The analysis and data strongly indicates that we have already passed peak oil and that we are "on the way down". It is disconcerting that the media has shown little if any coverage on the topic. However, whether or not the media likes it, peak oil will happen and it is up to the people to become aware of the situation and inform themselves.

What should we do to prepare ourselves for peak oil? I think that people in Western countries will have an extreme advantage over those in developing countries. We have so much more wealth and we will be able to buy ourselves (at least temporarily) out of the peak oil conditions. However, as crude production continues to decline, the price of goods and the luxuries that we previously have been able to afford will be beyond our means.

In my opinion, the best way to prepare for peak oil is to shift into a lower energy lifestyle. Doing this will let you save money and simultaneously reduce your dependency on oil related products. Because virtually every product in the world is in some way shape or form affected by oil, reducing our consumption will invariably lead to more protection against the looming oil crisis.

Those that will be affected most are those that will not, or cannot, adopt to the new environment of limited oil supplies. Consider reducing your consumption not only for a greener lifestyle, bigger savings, but self preservation. I wish it were not true, but many people will be driven to where they will have to struggle to survive. Preparing today for peak oil will put you in a much better position for when the effects of peak oil begin to hit you.

Related Blogs:

Related Links:

The Oil Drum

Recommended Books:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
Resource Wars - Michael Klare
The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
Review
PowerDown - Richard Heinberg

Recommended Movies:

Adding Values to Your Investment: FTSE 4Good Index

2008-02-21T10:07:00.000-08:00

Value and Values?
Wouldn't it be great to add not only value, but VALUES to your investment? Socially responsible investing has been increasing in popularity but has not completely proven itself able to outperform passively managed index funds. However, in principal the idea is good because it will eliminate risk by screening companies on their social responsibility and in theory will reduce investment risks.

The FTSE 4Good Index (pronounced "footsie") is an index which screens companies for socially responsible practices. Like Calvert, Parnassus, and Domini, they have various criteria on defining what "socially responsible" and this will naturally determine which companies will be included in the index. FTSE 4Good is unique in that it creates "challenging yet achievable" standards. But FTSE don't stop there. They constantly increase their standards and any companies that do not meet the standards will be removed from the index.

Vanguard's Socially Responsible Option
Vanguard has a great option with their FTSE Social Index Fund Investor Shares (VFTSX). Briefly, the fund seeks to track the FTSE 4Good Index, is a no load index fund (no sales or redemption fees) and has a low 0.24% expense ratio (for more information see the Fund Snapshot and Fund Prospectus). As I detailed in my blog post Socially Responsible Investing: Can it be traditional funds?, I could not justify investing in the various socially responsible funds because of the high expense ratios and fees.

Luckily, Vanguard offers a more cost effective index fund compared to other available SRI funds. Previously, Vanguard had benchmarked the Calvert Social Fund but switched for a variety of reasons (See Social Fund's article). Vanguard's low cost SRI fund intrigued me and deserved further investigation as an investment option.

FTSE 4Good Overview
For an overview, take a look at the FTSE 4Good Index Brochure and the Inclusion Criteria Brochure. Below I've listed the types of companies that they exclude, and then the factors the fund uses to determine what remaining companies will be included in the fund.

Exclusions

Tobacco Producers
Companies manufacturing either whole, strategic parts, or platforms for nuclear weapons systems
Companies manufacturing whole weapons systems
Owners or operators of nuclear power stations
Companies involved in the extraction or processing of uranium

Screening factors

Working towards environmental sustainability (Climate Change)
Developing positive relationships with stakeholders
Up-holding and supporting universal human rights
Ensuring good supply chain labor standards
Countering bribery

Within each of the screening factors there is an myriad of criteria and divided by high/medium/low impact and even identifies specific sub-sectors/industries that have special criteria. For more specifics see FTSE 4Good's Criteria Documents.

What holdings does the index have?
After the exclusions and the rigorous screens and filters that the FTSE has performed there are a few funds that remain. Their holdings can be found here.

I was surprised to see Rio Tinto included. They are a mineral/mining company that has not had the best reputation in the past. Also, it interested me that no oil/petroleum companies are present. Given the circumstances of peak oil and how well these companies are performing, I feel like it is not wise to exclude these companies.

This is where socially responsible investing can get extremely difficult, because there are a set of criteria and if a company doesn't meet them, they are not included. Although I want to believe that there are rational people determining the criteria that these companies should have, it worries me that emotions might get in the way of investing. I personally would never bet against any energy companies, in particular petroleum because they are so integral to our society and will only make more once peak oil hits.

My Thoughts
This index is relatively new and there isn't much performance history. However, I have to say that they have an extensive and rigorous set of criteria to select socially responsible funds. I want to believe that these screens will provide the investor with a superior profile but I am reluctant to do so because it eliminates a significant amount of the market. Burton Malkiel's book "A Random Walk Down Wall Street" and the book "The Bogleheads' Guide to Investing" give very strong evidence that it is extremely difficult to beat the market. Many active fund managers choose to instead track the market with low cost index funds for their own portfolios.

I think that once I get a larger amount of assets, I will look towards adding socially responsible investing as a small portion of it. Before that though, my investments will go primarily into the Target 2040 Retirement Fund which automatically diversifies your investments and will change them to more conservative investments as you approach your retirement. Target Retirement funds represents a much broader market profile and does not involve as many risks as an index fund like the FTSE 4Good Index. The Target Retirement 2040 fund is comprised of other "staple" Vanguard index funds which are seen below:

Total Stock Market - 72.0%
Total Bond Market - 10.1%
European Stock - 9.9
Pacific Stock - 4.4%
Emerging Markets - 3.6

This ratio of stock/bond/foreign is typical of an investor of my age. As I grow older the portfolio will shift towards a higher percentage of bonds for reduced risks. I see these retirement funds as a great way for beginning investors to get a broad mix of investments.

The second major part of my portfolio will involve California Long Term and Intermediate Term Tax Exempt funds. These funds have California Muni Bonds which are "triple tax free". This means they are not subject to Federal, State, or Local income taxes. For me that is extremely important because of my high federal and California state income tax brackets.

Once I have a substantial amount invested into the Target Retirement and Tax Exempt Muni funds, I will begin investing in the socially responsible funds. At the moment I plan to invest 10-15% of my portfolio into SRI funds. If there is strong evidence in the future that SRI funds can outperform traditional funds, I will consider investing more into SRI specific funds. However, until then, I will stick with a more traditional strategy with a 80/20 mix of stocks/bonds with some money in munis.

Related Blogs:

Related Links:

Recommended Books:

The SRI Advantage: Why Socially Responsible Investing Has Outperformed Financially - Peter Camejo
The Bogleheads' Guide to Investing Taylor Larimore
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition - Burton Malkiel

Recycling: Does it make a difference?

2008-02-19T16:48:00.000-08:00

In most urban cities, recycling bins are abundant and are found in most public buildings. Recycling is considered the right thing to do for the environment. But is recycling really what we should be doing, or is it a stepping stone towards something greater?

We are Living in a Material World
Different end products require different amounts of energy and processing to recycle a product. Certain materials such as aluminum have definite advantages when recycled. The energy to recycle aluminum is 95% less than creating it from raw materials. However, for products like paper, plastic, and glass, it is not necessarily advantageous to recycle the product.

One reason is that the energy and cost to collect and transport the recyclable can be greater than the cost and energy to manufacture the product from raw materials. This of course is partially due to the fact that most environmental costs today are externalized, and the cost of harvesting virgin materials is vastly below the true cost.

However, we must work within the societal and political framework that we currently live in. It means that sometimes it is not economical to transport heavy glass bottles to be recycled when we are able to produce it from raw materials for less.

Location, location, location
The largest factor outside of the material that is recycled is where you are trying to recycle. The first aspect of recycling location is the population density of a given city/town. If there is a high density of people, it means that collection trucks are more efficient and use less energy for transportation per unit mass of recycled material.

The second aspect of location is amount of land available for landfills and how far away from the recyclers it is. Rural areas have access to cheaper land and are able to cheaply discard their otherwise recyclable products. Location is a strong factor in the recycling equation and will ultimately influence the economics of recycling.

The Three R's: Reduce, Reuse, Recycle
When most people talk about being environmentally friendly, they will typically look at recycling as a key indicator of "being green". However, this is the wrong approach because there are many other things that are much more efficient than recycling.

In Germany and other countries, they use higher density PET (polyethylene terephthalate) bottles which can be refilled up to 20 times. The bottles only have to be collected and sanitized before resuse and don't need to be crushed, heated, and reformed for use.

There is a reason that the Three R's are arranged in the order of "Reduce, Reuse, Recycle". Reusing is more important than recycling, and reducing is the best way to be "green". However, unless you are willing to completely withdraw from the consumer society that we are living in, it will be impossible to reduce your impact to nothing. The only way we can "eliminate" our environmental impact is to rethink the way we make things.

Cradle to Grave Paradigm
There is a fundamental problem with recycling. We continue to follow the "Cradle to Grave" paradigm. Yes, we are finding more uses for a product and extending it's life, but in the end it WILL end up in a landfill.

When materials are recycled, the quality (purity, or usefulness) of the product decreases to the point where it eventually must be discarded. One example is pulp fibers. When paper or any pulp products get recycled, the pulp fibers get smaller after each time it is recycled until they are no longer usable and are either burned for energy or sent to a landfill.

Recycling products can be seen as treating the symptoms of a problem, where the actual cause is not being addressed. The only way to solve our problems is to redesign our processes to be "Cradle to Cradle" and in sync with the ecological cycles. Our products should be designed such that the "waste" streams should be the nutrients and input to another system, whether it is the ecosystem or a man-made system. If, and only if, we are able to redesign our products to be "Cradle to Cradle", will we truly be a sustainable society.

My Thoughts
It may seem like I have a negative view about recycling, but in reality I don't. I try to recycle everything that I possible can and I will even carry a can around until I find a recycling bin.

My problem with recycling is that it is not a solution, but instead temporary band-aid to the larger problem. We need to move from a "Cradle to Grave" paradigm towards "Cradle to Cradle". That means that we will have to redesign many (if not ALL) products in our lives so that they will become part of the ecological cycle. (See William McDonough's book Cradle to Cradle)

I encourage all of my readers to continue recycling. But while doing so, think about the other R's. Reuse any products before you recycle them, or better yet, reduce your consumption.

Recommended Books:

Cradle to Cradle: Remaking the Way We Make Things - William McDonough
The Ecology of Commerce - Paul Hawken
Entropy: A New World View - Jeremy Rifkin
Ishmael: An Adventure of the Mind and Spirit - Daniel Quinn

The Ethics of What We Eat: Book Review

2008-02-17T16:54:00.000-08:00

The Ethics of What We Eat

"Nothing will benefit human health and increase the chances for survival of life on earth as much as the evolution to a vegetarian diet.
-Albert Einstein

"The Ethics of What We Eat" by Peter Singer was the first book that truly influenced my decision to become vegetarian. Peter Singer is a philosopher and presents the ethics of food ranging from vegetarianism, local food, organics, and many other food issues.

Singer divides the book into four sections. The first three examine three different families who have different diets and how ethical their food choices are. The last section dissects the defenses for eating meat and serves as a guide to making ethical food decisions.

Three Families, Three Diets
Singer looks at three families which represent a fairly large proportion of the American population. The groups are as followed:

SAD - The Standard American Diet
Conscientious Omnivores
The Vegans

Briefly, SAD represents a high meat/dairy/egg diet with lots of food, conscientious omnivores are those who will make decisions to eat organic, or humanely grown meat whenever possible, and vegans who will eat no meat products at all. Singer goes into detail about each family's eating habits and reasons for making certain purchases. He provides a good overview of the ethical
implications for the major categories from factory farmed meat to organic local vegetables.

Freegans - The Most Ethical Eaters?
Singer even describes a group of people who call themselves "freegans", people who won't pay for their food. These people will go "dumpster diving" in order to get food thrown out by stores.
My initial reaction was disgust, but as I read more I saw that it could be the most ethical form of food consumption out there.

I was reminded of my friend who would take everyone's food at a table who didn't want it and even would take a stranger's food that had been left on their plate. In America this is completely unacceptable from a social perspective. However, ethically it is right on many accounts. A few of the "freegans" are quoted below describing why they don't buy into the food industry:

"What's better about dumpstering is that you're not buying into the whole process of consumption. Even buying organic food involves being part of the consumer economy. Dumpstering really does break the consumer chain".

"dumpstering has an ethical dimension... We're saving food that would otherwise totally go to waste - perfectly good food. We're recycling it."

Although this is something I could probably never justify doing, it is interesting to see their perspective and the ethical reasoning behind it. It is a shame that so much food is being wasted not only at stores and restaurants, but within homes where perfectly good food is thrown away.

How can we eat ethically?
There are so many issues that it can be hard to determine what exactly we should eat and what factors are most important. Singer summarizes his thoughts on this sense of being overwhelmed:

"When one ethical concern is heaped upon another and we struggle to be sure that our purchases do not contribute to slave labor, animal exploitation, land degradation, wetland pollution, rural depopulation, funfair trade practices, global warming, and the destruction of rain forests, it may all seem so complicated that we could be tempted to forget about everything except eating what we like and can afford.

When we feel overwhelmed, it is important to avoid the mistake of thinking that if you have ethical reasons for doing something, you have to do it all the time, no matter what."

Singer insists that we should not be fanatical about our ethical food decisions, but should do what we can within reason. He lists a few reasons why it would be justifiable to not eat ethical foods:

The Paris Exemption

This allows you to eat whatever you want for those "special occasions" like if you are in Paris or want to go out to a really nice place.

The Hardship Exemption

Under this exemption a person is allowed to eat non-ethical food if the cost of the more ethical food would cause economic hardship on the person/family. It should also be noted that eating ethically does not necessarily mean that it will be more expensive. Non-processed foods and raw foods that are vegan/organic can be cheaper than their non-ethical equivalents.

Of course there are other reasons why a person might not choose ethical foods, but these are the two main reasons that Singer gives.

My Thoughts
I am a currently an lacto-ovo vegetarian, which means I will eat dairy and egg products. I intend to become a "vegan at home" and try to be a vegan when I eat out whenever possible. However I will allow myself to eat a vegetarian (dairy and eggs) when I go out if there are no reasonable vegan options available.

I have also decided to include the possibility of invoking a "Paris Exemption" to eat meat for any meal that is over $50. This lets me enjoy meat on those very special meals, like if I ever decided to go to Chez Panise in Berkeley. What is interesting, is that as I have progressed through my vegetarian diet, I have had less desire to even want to institute the "Paris Exemption" and eat meat, even at a restaurant like Chez Panise.

Whatever your food choices are, remember that every food choice you make will have an impact, whether it is positive or negative. If you want to change your eating habits and choose a more ethical options, it does not have to be an all or nothing. Small changes in your diet can result in a big difference for your health and the environment.

Related Blogs:

Recommended Books:

The Food Revolution: How Your Diet Can Help Save Your Life and Our World - John Robbins
The Ethics of What We Eat: Why Our Food Choices Matter - Peter Singer

Recommended Movies:

The Future of Food

The Dangers of Shopping

2008-02-15T00:01:00.000-08:00

Get Rich Slowly recently posted an article about unnecessary spending and how we will look for items that we don't even need. J.D. tells about how he is going through a Costco coupon book and wants to cut out the coupon for a container of Jelly Bellies and for a stainless steel slow cooker, even though he already owns a slow cooker. J.D.'s desire to "save money" is great, but he, like many other people out there look to save on items that they don't need. Luckily, J.D. had someone there to remind him that he didn't need it and he shouldn't look for things that he doesn't need.

I read Get Rich Slowly on a daily basis and really suggest that people subscribe to it. It is one of the best personal finance blogs out there and has great tips on topics ranging from frugality, voluntary simplicity, investing, savings, and retirement.

Needs vs. Wants
Individual needs and wants will vary for each person depending on their income level and what their values are in life. The fundamental difference between the two is that buying something that you need will bring fulfillment to your life whereas buying something that you want will not.

This is the key difference that is difficult for most people to understand. Not every product out there will make you happy, and you should only buy those that will make you happy. Just because other people out there have iPhones, plasma HDTV's, XBOX 360's, or Wii's, doesn't mean that you need one to be happy. I do not mean to chastise people who have these items, but I am merely using these as examples because they are the items that are currently "hot" and are the "must-have" products.

I personally don't need any of those high-ticket electronic items, but I will pay more than most for a good looking pair of jeans or a jacket that fits right. It is all a matter of personal values and what will make each individual happy. The best way to test if you really need an item or not is to see if have to rationalize making a purchase or feel guilty afterwards. If you do either of these, it is probably a good sign that you don't really need it.

Marketing: How I learned that my life was incomplete without their product
Marketing essentially is telling a consumer what he/she needs to "live properly" in today's society. Sometimes it will target you perfectly and you really DO NEED the item that is being sold to you.

But in many cases (perhaps most), marketing creates unnecessary desire. You might think "Oh, well I didn't know this existed before, but I'm sure I can find a use for it". Marketers have mastered human psychology and know how to tug on those strings to get you to buy those new products that they have. They have to "create demand" for a product and you are being directly targeted with advertisements and the excessive branding.

Sales: Are you really saving money?
30% off, 50% off, 75% off. Those are the numbers that every shopper likes to hear. But are they really great bargains as they sound? Sales can be a great way to get a huge discount on an item that you need. However, if you don't need it and won't use it, it doesn't matter how much you "saved" because you still spent money that you didn't have to.

Even free items can end up costing you money and time. Picking up that free couch on Craigslist might have been a good idea, but it can clutter up your house/life. If you want to dispose of it legally, you will have to pay to get rid of it.

My Thoughts
I have definitely fallen into the same trap and have been tempted by the lure of Diesel jeans, Freitag bags, and countless other things that I think that I need. I have improved at filtering those out and all of the marketing/branding behind it There are a few strategies that I have used to curb my spending habits and make sure that I am only getting things that I need and that will really bring fulfillment in my life:

Question any purchase that is over my hourly wage.

This rule is to make sure that big purchases aren't done impulsively and that thought should be put into it. I translate the purchase into "hours of work" to see if it is worth my time. This is a good rule for anyone because it applies for any income level.

Use the two week rule for any major purchase, especially for clothing.

If I have already filtered out something that I will buy, it still needs to go through one more process to REALLY make sure that I need it. Whenever I get a new piece of clothing I let it sit in my closet for at least 2 weeks before I decide to take the tags off. By that point I will know whether or not I really do need it or if it was just an impulse purchase.

Get a second opinion

Shop with a friend who will give you honest advice about your potential purchases. Sometimes I just need someone there to say "Do you really need that?" and I realize instantly that it is just the marketing getting to me.

There is one rule that of course overrides everything else, which is the golden rule of personal finance:

Don't spend more than you earn!

It doesn't matter if you make $10,000 or $1,000,000 a year, if you spend more than you earn, you will never save any money.

I think it is important that readers understand that it is perfectly fine to spend money, even spend a lot of money. We spend many hours each day working to earn the money. We should get enjoyment out of all the purchases we make. Just be careful not to buy something you don't need and especially don't get into debt!

Related Blogs:

Related Links:

Recommended Books:

Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence - Joe Dominguez, Vicki Robin
Affluenza: The All-Consuming Epidemic (Bk Currents) - John de Graff

Recommended Movies

Maxed Out

Biofuels: How "green" are these crops?

2008-02-13T13:20:00.000-08:00

The International Herald Tribute has an article titled Studies conclude that biofuels are not so green. This study, along with many other recent criticisms have brought a strong attack against the claim that biofuels are cleaner and will be able to replace a substantial portion of the United States transportation energy needs.

Land-Use
The study by Princeton University includes a factor that is frequently ignored or assumed to be insignificant: land use. The study states:

The clearance of grassland releases 93 times the amount of greenhouse gas that would be saved by the fuel made annually on that land, said Joseph Fargione, the lead author of the other study and a scientist at the Nature Conservancy. "So for the next 93 years, you're making climate change worse, just at the time when we need to be bringing down carbon emissions."

According to this study, land use is an important factor. Once it is taken into account, it is apparent that at least from a greenhouse gas emission perspective biofuels are not better than conventional fuels, but in fact worse.

Life-Cycle Analysis
The problem with any environmental studies is that they have to make assumptions. This is necessary in sciences where it is simply not possible to measure everything. Most scientists or engineers have to make assumptions at some point but the validity of the assumption can often be questionable. Previous studies did not include land use into the study and apparently missed a large portion of the emissions.

My Thoughts
My primary reason for studying Chemical Engineering was alternative and renewable energy such as hydrogen fuel cells and biofuels. However I quickly realized that these will not be able to replace conventional fuel.

When you look at the economics and the engineering behind it there are many reasons why alternative fuels will not be able to quickly (if ever) displace a significant portion of conventional fuels. The most important factor in determining whether or not a fuel is viable, or in the case of transportation critical, is it's energy density. Simply put, it is how much energy per unit mass or unit volume. See the Wikipedia article on Energy Density.

Conventional fuels such as coal or petroleum products have been used because they have a high energy density and can be transported efficiently. If fuel is grown, it is in extremely low density and must be changed into higher quality fuel. Some studies even show that ethanol is a net energy loser, meaning that it needs more energy to produce than energy in the end.

Growing crops for fuel has only been profitable because of the subsidies given to the corn industry and the subsidies for ethanol. Take those away and there is little economic viability. The government needs to stop given subsidies to fuel "sources" that are not viable and start focusing on conservation efforts and investing in infrastructure for lower energy intensity lifestyles.

There isn't one technology that is going to save us for the upcoming energy crisis and we should be skeptical of anyone promising us a miracle fuel. Let's focus on the principals of sustainability and consuming less to get us through peak oil.

Related Blogs:

Recommended Books:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
Resource Wars - Michael Klare
The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
PowerDown - Richard Heinberg

Recommended Movies:

Water Wars: Fighting over the Source of Life

2008-02-11T15:30:00.000-08:00

Water as life

“Water is life's mater and matrix, mother and medium. There is no life without water.”
-Albert Szent-Gyorgyi

In industrialized nations, we often take life's most precious resource for granted. A human will die within a matter of 3-4 days without water. Yet we have electric pumps pressurize water which delivers it to our homes for a minuscule fraction of our income. Why is it then that so many people have simply ignored the issues with water? There are many issues that revolve around water that will impact not only our ability to have fresh water for drinking. For example: What will happen...

... when the Ogallala aquifier in the Midwest is depleted and can no longer provide cheap and plentiful water for the water intensive crops?
... to Southern California and Arizona, where communities exist only because of water subsidies from "neighboring" watersheds?
... to cropland which is experiencing desertification?

These are all problems that might be faced by our society in the near future. Vandana Shiva author of Water Wars: Privatization, Pollution, and Profit, looks at the history of water and how we can attempt to to become sustainable once again.

History of Water
Major cities and states throughout history have been centered around fresh bodies of water. This is because water provides a function vital to life. In the past people have typically managed water resources on a community level. Water usage has limited human expansion based on available water in a given region. However, in recent years has humankind been able to extend itself outside of nature's bound by using fossil fuels to extract water in massive quantities.

The most recent and startling change to the way water is regarded is the privatization and industrialization of water. Water has been turned into a commodity where it should be treated as a resource for all to use. Global corporations have privatized many water systems and are making money off of poor third world citizens.

Shiva argues that this is completely unethical because water is necessary for life. Imagine if corporations were able to control access to oxygen and then ask people to pay money to be able to breath. Although it sounds extreme, this essentially what companies are doing with water. Water is a critical resource for survival and companies have turned it into a commodity for their own profit.

Although water for U.S. citizens is still cheap, it is not affordable for many third world country people where water has been privatized. In many cases the people drink Coca Cola instead of water because it is a cheaper. Every has the right to breathe and has the right to affordable, if not free, water.

Water Conflicts - Resource Wars
With the industrialization, commercialization, and privatization of water, many conflicts have been bred. The most difficult aspect about water it is not a static resource and flows through many cities and even through many countries. A body of water's origin may be in a distant country. If the country decided to dam and divert the water before it reaches a downstream country, the lower country may not have any water access at all.

The Aral Sea is one of the most drastic examples of how water usage can completely change the landscape and ecosystem. The picture below shows the Aral sea has lost more than 1/2 of it's area because the water was diverted for irrigation purposes.

As I outlined in my blog post about the game Fuel of War, water has been the source of conflicts, better known as water wars. Many conflicts have arisen in India and even the Israeli/Palestinian conflict can be partially or wholly attributed to water rights. Many times religions warfare is the facade to cover the true pretext of the conflict. Water wars are a subclass of the broader category known as resource wars (Read Resource Wars: The New Landscape of Global Conflict by Michael Klare for more information on resource wars).

Water wars can be considered the most important resource war out there. Most of the focus in the world has been on oil prices and how our lives would change. Without oil our high energy lifestyle cease to exist. But without water, our life will cease to exist.

My Thoughts
Water wars often are forgotten when one looks at resources and other commodities. However, as I learned the hard way, (see blog post Am I ready for peak oil), access to water should not be taken for granted.

There are many ways in which individuals can make a difference. First, stop supporting beverage companies by buying their bottled water which can cost more per gallon than gasoline!
Assuming a 1L bottle costs $1.50, the equivalent cost is $5.69/gallon, $1.50 more than gasoline in most places. Also, take a look at Pablo's calculations of the environmental impact of Fiji Water. Not only will you reduce your environmental impact but your wallet will thank you.

Most of this water is simply the same as tap water and merely bottled. Many studies have shown that tap water is just as safe and in some cases bottled water has more bacteria colonies than regular tap water.

The second way of reducing your water usage is related to your diet. Most crops grown in the world are done so unsustainable with massive inputs of water and fossil fuels. These crops are then fed to animals to produce meat. It takes anywhere from 1500-2500 gallons of water to produce 1 lb of meat whereas a pound of potatoes, tomatoes, or wheat require less than 25 gallons of water per lb.

If each person in the United States reduced their consumption of beef by just 1 lb a year and substituted that with potatoes, the amount of water saved would be 735 billion gallons of water each year. These savings would be in addition to all the pollution that is prevented from animal waste and reduction of fossil fuel use for fertilizer.

There are many ways that you can reduce water consumption and the ones mentioned above are only a few. I hope that you will find a way to reduce your water consumption in whatever way that you can. Remember, water gives us life and we should not waste it.

About the Author
Vandana Shiva is a PhD physicist but later went to research science, technology, and environmental policy. She is most well known for her activism and writings in the fields related to agriculture, food production, biodiversity, and genetically modified organisms.
For more information about Vandana Shiva, see her article in Wikipedia.

Related Blogs

Recommended Books:

Resource Wars: The New Landscape of Global Conflict - Michael Klare
Water Wars: Privatization, Pollution, and Profit - Vandana Shiva

Recommended Movies:

Food Labels: Fat, vitamins and CO2 emissions?

2008-02-07T12:30:00.000-08:00

Money on CNN recently posted an article titled "Britain Catches the Foodie Bug" on looking at how consumer labels have taken a drastic change for those living in the U.K. Products such as Walker Crisps (potato chips for Americans) now have labels that show the "g of CO2" used to produce the food. This and other food labeling practices are a growing trend of consumers demanding more information about the food they eat.

I see this as an amazing step towards bringing transparency into food, which has taken a back seat when compared to transportation environmental impact/emissions. Although emissions related to transportation has the largest impact with respect to greenhouse gas emissions. Food choices, in particular meat, are the second largest contribution according to the Union of Concerned Scientists. (See my review of Earth Save for more information on the environmental impact of food)

What is "g of CO2"
Besides the obvious that it is a greenhouse gas emission that is created during the process of making the end product, not much information is given. There are many questions that are left unanswered such as the following:

Did they perform a life cycle analysis of CO2 emissions?

What aspects did they include? (shipping, production, packaging, growing)
What raw materials did they include? (gasoline, fertilizers, lubricants, water)

No study on CO2 emissions is perfect, because they all must make assumptions and limit the scope of their study. Thus, we must be critical of these labels, especially if they are voluntary and not regulated or certified by an independent organization. However, the actions that have been taken represent a step in the right direction towards more transparency in the food chain.

My Thoughts
It is up to the consumer in a society to demand change and an increased transparency. Without full knowledge of what is being purchased, companies are able to internalize the costs when they do not have to disclose any negative information about their food.

I think that the citizens in the U.K. are standing up for their rights to know where their foods comes from and what it took to produce it. If companies are forced to disclose the environmental impact that their food is having, consumers would be able to make a more educated choice and would ideally choose more sustainable options. This would of course encourage (or perhaps even force) companies to either change their products to be more environmentally sustainable.

I hope that the readers in the U.S. will educate themselves on this issue and push for more transparency and higher standards in food labeling. I want to know if my food has been genetically modified, treated with radiation, or sprayed with poisonous and potentially deadly toxins and pesticides.

There are good and bad foods out there, and as the saying goes "You are what you eat". Treat your body and the environment with respect: be conscious about your eating habits and you can make a difference to the not only to the environment, but also your health.

Blog Carnival Post #3

2008-02-07T09:00:00.000-08:00

I have been posted on two more blog carnivals:

Socially Responsible Investment: Can it beat traditional mutual funds?

Ethical Investing Blog Carnival @ A Slacker's Quest for his First Million

Microlending: Socially Responsible Investing

Ethics, Values, and Personal Finance Blog Carnival @ Money Changes Things

Thanks to both of the organizers of the carnivals.

Explaining the Ron Paul Phenomenon - East Bay Express

2008-02-02T15:05:00.000-08:00

The East Bay Express, a local weekly newspaper in the East Bay near San Francisco published an article in their January 30th edition titled "Explaining the Ron Paul Phenomenon". It looks at how Ron Paul has been able to so effectively gather grassroots support of not only Republican voters, but those traditionally from the Democratic and Green parties. The author Matthew Green writes:

Their "Ron Paul Revolution" banners and T-shirts, which compete in visibility with the paraphernalia of the major Democratic contenders, conjure the image of a left-wing messiah, not a 72-year-old pro-life libertarian congressman from South Texas.

Sarah Trafican is a 24 year old graduate student from Berkeley who leads a meet-up group. According to her:

...most people in the Berkeley group are either political independents or former Democrats and Greens, but few republicans...Having a liberal base switch over doesn't surprise me because even though it sounds like the opposite [politically], we really do believe in the same thing - the Constitution

Another co-organizer Ralph Crowder says:

It's amazing how freedom unites people. We can all go back to disagreeing about social issues once the Constitution is taken care of.

My Thoughts
I think this article is a great overview of why liberals have been willing to cross party lines to support Ron Paul. He is the "Champion of the Constitution" and appeals to people who cherish the values protected under the Constitution and oppose unconstitutional military intervention. However, like any other candidate is not without flaws. As I argued in Would a gay Asian-American dare vote Republican?,we have focused too strongly on individual group's issues as opposed to looking at the overall picture.

If we continue to only look out for our own group's special interests, we WILL NOT have have a chance to improve the United States as a whole.

Previous administrations have slowly taken away rights like habeas corpus and intend to continue policies that support the Patriot Act and National ID measures. We, as free citizens of the United States, cannot allow our Constitutional rights to be chipped away. Ron Paul has continually been an advocate for protecting our fundamental rights by voting against the Patriot Act and National ID. This fact, combined with his stance on strong monetary reform is the reason why I have chosen to support Ron Paul.

If you are a Democrat and tired of the rhetoric that the "mainstream" candidates are spouting, you should take a look at Ron Paul. I can tell you from personal experience, that I was hesitant to even consider a Republican candidate, but I am now proud to support him. As the East Bay article shows, I am not alone when it comes to crossing party lines to support a deserving candidate.

Related Blogs:
Would a gay Asian-American dare vote Republican?
The IRS, Tax Protesters, and the Federal Reserve
Ron Paul on Tax Credits and Federal Reserve

Related Links:
Ron Paul Campaign Website
On The Issues: Ron Paul's Profile

Videos on YouTube
Ron Paul and Bernanke Part 1
Ron Paul and Bernanke Part 2

Related Links
The Money Masters
The Federal Reserve Bunk
Pay No Income Tax
Liberty Dollar

Recommended Books
The Federal Mafia

Recommended Movies:
All of these movies are free to watch on Google Video.
Money As Debt
The Money Masters
America: Freedom to Fascism

Blog Carnival Post #2

2008-02-02T13:45:00.000-08:00

A few of my blog posts have gotten exposure and now have been posted on three more blog carnivals.

Your Money or Your Life: Book Review @ Sharing is Living
My Decision to Become a Vegetarian @ Weight Master
Your Money or Your Life: Book Review @ Living Cheaply

Thanks to all of the organizers who put together the blog carnivals.

Socially Responsible Investment: Can it beat traditional mutual funds?

2008-01-31T09:56:00.001-08:00

Wouldn't it be great to make money and do good for the world? What if you could make more money by investing in socially responsible causes? I think without a doubt every person in the world would love the ability to make more money and feel good about it.

I recently read The SRI Advantage: Why Socially Responsible Investing Has Outperformed Financially by Peter Camejo which investigates evidence which claims to show the benefits from socially responsible investing.

The SRI Advantage - Mini Book Review
The hypothesis that Peter Camejo presents is that socially responsible mutual funds perform better than other mutual funds that have similar risk profiles and size (small/mid/large capitalization). The book challenges the notion that Socially Responsible Investment may "feel good" but only by sacrificing performance.

The fundamental idea is that if a person were to invest in socially responsible stocks then the performance is better. The screening is what any other active fund manager would be doing, but looking at social and environmental aspects to determine a "bad stock". The idea is by only investing in socially responsible companies, it will minimize risk. The case study that they often cite is the tobacco industry. In this case, the lawsuits related to health issues hurt their stock. Thus, if a fund were to screen out companies like this, it would have a better profile that is less susceptible to future losses.

Each fund has its own criteria for determining whether or not a company should be screened out. Some of these screens include the following:

Tobacco use
Alcohol
Military defense
Gambling
Animal testing
Environment
Human rights
Labor relationships
Community Investment

The book cites many studies that have been performed, and many show a correlation between socially screened funds outperforming other comparable mutual funds. There is not a strong consensus that the performance is greater because many index funds for socially responsible funds and indices have only been created within the last 20 years. Their performance has not been completely proven to outperform non-screened funds.

One aspect that the book did not address are the fees associated with the mutual funds. This topic is discussed in the next section and will explain their importance.

Why are expense ratios and mutual fund fees so important?
The old adage goes something like "nothing comes for free". The same is true is for mutual funds and there are costs associated. However, some funds come at a lower price than others. Before I start talking about specific mutual funds, I need to define a few key terms.

Expense Ratio: Cost to pay the fund manager and other operation expenses related to running the fund. This percentage is the amount of money you pay from your total principal EACH YEAR to support the fund. Typical expense ratios are over 1% and can reach even 2%. This means that each year you have to pay up to 2% of your portfolio each year to support the manager.
Sales Fee: The fee you have to pay the fund to purchase the mutual fund (% of initial investent). Typically between 0-5%. If the sales fee was 5% and you invested $10,000, only $500 would go to pay the fee and only $9500 of your money would be invested in the fund.
Redemption Fee: The fee you have to pay the fund to sell your fee (% of the redemption/sale price). Typically 0-2%. If the sales fee was 2% and you cashed out your fund for $10,000, you would have to pay $200 and would net $9800.

As you can see, these fees are not trivial by any means. If you are buying and selling "loaded" funds frequently (those which have sales or redemption fees), the fees can add up very quickly. Picking a mutual fund based on the fees can be as important, if not more important than having a socially-screened fund or past performance.

Social Index Funds:
To find out information about socially screened I looked at the Social Investment Forum for general information about the funds and Morningstar and the prospectuses for the various funds for information regarding the fees and expense ratios.

There were many different funds with varying expense ratios and fees. One fund that stood out was the Calvert Alternative Energy fund which had a sales fee of 4.75% and an expense ratio of 1.85! I chose a few SRI funds to represent some of the more economic choices, but as you will see that even these funds still cannot compare to the low costs of owning a Vanguard fund or similar no load, low expense ratio fund. Although the fees for the SRI funds are similar to typical actively managed mutual funds on the market, they cannot compete with very low expense ratios of Vanguard funds.

Analysis
Using the SEC Mutual Fund Cost Calculator, I compared some socially screened index funds and compared them to two Vanguard funds which have are "no load" and have much lower expense ratios compared to the SRI funds. Here are the assumptions I made for the calculations.

$10,000 initial investment
8% annual rate of return (constant for all funds)
Investment is sold after 10 years
Fees as displayed in the table below
The redemption fees that are listed for funds are not applicable because the funds are held for over 30 days.
These stocks are not necessarily in the same class of funds but were chosen to illustrate the effect of fees and operating costs of a fund.

	Calvert Social Index A	Calvert Social Index C	Domini Social Equity Fund	Vanguard Total Stock Market Index	Vanguard U.S. Growth Fund Investor
Sales Fee	4.75%	0.00%	0.00%	0.00%	0.00%
Expense Ratio	0.75%	1.75%	1.15%	0.15%	0.50%

Assuming a 8% constant rate of return on investment and an initial investment of $10,000, here are the results for investing some different funds. The "Final Value" represents how much the investment of $10,000 is worth in 10 years after paying the operating costs and fees. The "Effective Rate of Return" is the average annual rate of return over 10 years after the fees have been factored in.

	Calvert Social Index A	Calvert Social Index C	Domini Social Equity Fund	Vanguard Total Stock Market Index	Vanguard U.S. Growth Fund Investor
Final Value	$18,873	$17,723	$18,846	$21,268	$20,534
Effect Rate of Return	6.56%	6.10%	6.76%	7.84%	7.46%

Clearly, investing in a no load, low expense ratio fund has clear advantages when compared to one a "better-performing" socially responsible investment. I calculated what type of interest rates the Calvert Social Index A would need to be if it were held for 10 years to compete with the Vanguard Total Stock Market Index. The Calvert Social Index A Fund would need to have a rate of return of 9.2% (before fees and taxes) to compete with a fund that got 8% in the Vanguard Total Stock Market Index.

My Thoughts
Although I think it is a great idea to support "socially responsible" companies, however you may define "socially responsible", I think that the data is not conclusive yet to see if socially responsible investing is worth it in pure economic terms. They have cited some studies which have shown that SRI funds have outperformed non-socially screened funds. However, many of these studies are based on index funds that are very young.

Upon examination of the website "Social Investment Forums", it is clear that the majority of these funds DO NOT outperform their respective comparison indexes just like the majority (90%) of actively manged mutual funds. Until there is stronger evidence that socially responsible investing is more effective than traditional investment, I personally would not invest in them from an economic perspective.

Even if one assumes that they can perform as well or even better than a non-screened fund, there are still the fees, including the annual operating cost (expense ratio), the sales fee, and the redemption fees which all must be calculated into it. Unfortunately, because these funds are screened, it means that they are actively managed which invariably leads to higher fees, in particular the expensive ratio.

In short, why would you want to give your hard earned money to fund managers who cannot outperform the index or even other funds in a similar class. The advice I'm going to give isn't anything revolutionary, but I will say it again because many investors think they can beat the market by giving their money to a fund manager.

Invest your money in a no load, low expense ratio fund like those offered by Vanguard. Only invest in an socially responsible fund IF AND ONLY IF you can find one a no load, low expense ratio fund. Otherwise your too much of your money will be going to the fund manager. Even then, be sure to diversify your investment so that you don't have all of your eggs in one basket.

Disclaimer: This blog should not be considered professional financial advice. Please consult your CPA for more information about investing decisions.

Related Blogs:

Microlending: Socially Responsible Investing

Related Links:

Recommended Books:

The SRI Advantage: Why Socially Responsible Investing Has Outperformed Financially - Peter Camejo
The Bogleheads' Guide to Investing Taylor Larimore
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition - Burton Malkiel
Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence - Joe Dominguez, Vicki Robin

Would a gay Asian-American dare vote Republican?

2008-01-30T14:28:00.000-08:00

Background
I have been named a "bleeding heart liberal", "greener", "granola","crunchy" and countless other terms that are associated with hard core liberals. I believe in the social issues and have never really looked outside of the Democratic Party for a viable candidate. I've always considered the Republicans to be the "big fat cats" allowing the rich to get richer (and in many cases that is definitely true).

After the 2004 election, I vowed to do whatever I could to prevent another Republican candidate from getting into office. Whether it was Hillary or Obama, I frankly didn't care. The main issue was to get the "war mongering", "tax cutting" Republicans out of the White House and out of the legislature.

The Democrats
Although the different stances of Obama and Hillary played a role, the most important factor was if they were "electable" or not. My main concern was whether the American public (at least in certain regions of the U.S.) were more willing to vote for a black man or a white woman so that we could get a Republican out of office.

Unfortunately, both of the candidates offer the same old democratic rhetoric trying to play the middle in order to get the moderate votes and don't really offer anything new. Yes, Obama might be more change than Hillary, but is it okay to accept "more change" when "huge changes" are necessary?

Time for Change?
Last month, I watched the documentaries The Money Masters, Money As Debt, and America: Freedom to Fascism. It wasn't until I had watched these documentaries that I truly understood how the American economy ran based on the fractional reserve banking and the influence of the Federal Reserve.

Ron Paul appears in America: Freedom to Fascism and this was my first exposure to him outside of all the activists around San Francisco with their signs. Those movies listed above sparked my interest in the banking system and I truly believe that it is the most important issue facing America today. I had always wanted to see what Ron Paul was about with all of these people holding signs so I decided to do some research.

Who is Ron Paul?
I won't go into a detailed account of his history and stances but if you want more information check out his official campaign website at Ron Paul 2008 and his profile on the site On The Issues. Briefly, he is a Texas House Representative and is a Libertarian running on the Republican platform.

I have listed briefly his stances that I believe are good and are the reasons that I support him.

What I like:

He is the only candidate who truly addresses monetary reform and understands the issue
He wants to eliminate the Federal Income Tax, the IRS, and the Federal Reserve (See IRS blog for more information)
He is the only presidential candidate who voted against the Iraq War
He voted no on the $78B emergency fund for Iraq/Afghanistan
He voted no on $266B Defense Appropriations Bill.
He voted against the Patriot Act
He is against the National ID
He wants out of the WTO, UN
He is against a North American Union
He voted against constitutionally banning gay marriage
He voted against constitutionally defining marriage between one man and one woman.

What I don't like:

He wants to repeal Roe v. Wade (each state can decide individually)
He voted against raising CAFE (Car mileage) standards and alternative fuel funding
He is for "private property" related to environmental regulation (or lack thereof). Essentially people can sue companies for any damage to their property (air, water, house etc). This would internalize previously externalized costs, but only if lawsuits were effective.

My Thoughts

I think most of the criticism of Ron Paul can be linked to his stance on guns (very pro-gun), abortion (pro-life), immigration (anti-immigration), and LGBT rights. He does not say that abortion and LGBT rights will be completely turned over if he enters office. He merely wants each State to be able to look at these issues instead of the Federal government. The Constitution states that any power not granted to the Federal government will be given to the State. If the Constitution was followed, issues such as Roe v. Wade would be decided on a state by state basis.

I don't want to dismiss these issues too lightly because I myself am a member of a group that would be affected. But for reasons that I explain below, the rights of specific groups are insignificant when more fundamental civil liberties are under attack (See America: Freedom to Fascism)

The U.S. has been so paralyzed by issues such as abortion, the death penalty, and gun rights that we have largely ignored some of the more overreaching policies. Although these issues are important, what about the suspension of habeas corpus? The Patriot Act has taken away many simple guaranteed rights such as the right to a trial and has moved us further down the road towards a fascist state. With the National ID measure being pushed through congress, it is one more step for the government to track and monitor its citizens.

Ron Paul has consistently voted against these measures stands up for the civil liberties protected under the constitution. Maybe it hasn't happened to you or anyone you know, but it is wrong to allow habeas corpus to be suspended and continue on the rocky path to a police/fascist state.

My biggest reason for supporting Ron Paul is because of his monetary policy. Monetary reform will curb inflation and reduce or eliminate the so-called "business" cycle that has been artificially created by the central banks. It will allow the United States to get off the treadmill of never-ending interest payments and allow us to print our own money.

Before you dismiss him as "another Republican", just as I almost did, please look at his stance on issues related to military intervention, monetary reform, and civil liberties. If you don't understand fractional reserve banking, central banking, and the Federal Reserve thoroughly, watch the documentaries that I have linked below. If you still don't believe that monetary reform is a (or THE) pressing issue today and Ron Paul won't help solve those problems, then you can go ahead and criticize him.

But until then, keep an open mind. America needs change and he might be the change we need.

Related Blogs:
The IRS, Tax Protesters, and the Federal Reserve
Ron Paul on Tax Credits and Federal Reserve

Related Links:
Ron Paul Campaign Website
On The Issues: Ron Paul's Profile

Videos on YouTube
Ron Paul and Bernanke Part 1
Ron Paul and Bernanke Part 2

Related Links
The Money Masters
The Federal Reserve Bunk
Pay No Income Tax
Liberty Dollar

Recommended Books
The Federal Mafia

Recommended Movies:
All of these movies are free to watch on Google Video.
Money As Debt
The Money Masters
America: Freedom to Fascism

Blog Carnival Post #1

2008-01-30T10:33:00.000-08:00

I have been applying to Blog Carnivals lately trying to get more exposure and traffic. Today a bit of it came to fruition. Two of my blogs recently were accepted and one of them was featured in the top three out of 40! Below are the blogs that were posted at the blog carnival organizer's site.

Micro Lending: Socially Responsible Investing at Social Entrepreneurship Today
Earth Save: Website at Green Your Apartment

Both of these sites have good information about living green and being a social entrepreneur. They are aligned with the purpose of this website and you should check them out. Thanks to the blog carnival organizers for posting my articles!

Ron Paul on Tax Credits and Federal Reserve

2008-01-29T11:10:00.000-08:00

Lanka Business Online recently posted an article on Ron Paul speaking against the $600-$1200 tax credit to be given to the American tax payer through the economic stimulus package and the Federal Reserve drastically cutting interest rates. Ron Paul is a congressman from Texas and is also on the House Financial Services Committee and the Joint Economic Committee.

Tax Credits
His criticism of the tax credit is that we are creating the money out of nothing. He is quoted below:

"We have consumed everything we have gotten. So, we either have to borrow it from China or we print the money, which is inflationary. So, I'm opposed to that."

In essence, is that the government is borrowing money it doesn't have to "help" the tax payers. Later the tax payers will have to pay taxes to pay off the principle AND interest on the money that was borrowed which will devalue the dollar. What kind of relief is that? Paul is correct and this tax credit is not sound monetary policy.

It is only a temporary solution that makes the tax payers happy because they will see a $600 check in the mail. In the end though, the dollar will be weakened because of the reasons that he stated above. There are fundamental monetary problems that need fixing before the United States can drag itself out of this economic mess. A "shot in the arm" will not be sufficient when the whole arm is decaying.

Interest Rates
On 01/22 the Federal Reserve cut interest rates by 0.75% down to 3.5% from 4.25%. In the January 29-30 meeting, it is expected that the Federal Reserve will cut interest rates again perhaps another 0.50-0.75%. Although many investors and politicians are embracing the Federal Reserve interest rate cuts, Paul says Federal Reserve moves to cut rates would further hurt the US dollar.

"And we can't solve the problems of a weak dollar by printing more dollars."
"So, I think the dollar is still going to remain under attack, because you can't solve the problem of too much credit stimulus by more credit stimulus, because it will just lead to a weaker dollar. And I think they [Fed] are between a rock and a hard place."

Paul is right on the money (pun intended) related to the Federal Reserve manipulating interest rates. He also states that the current economic crisis that we are in is a direct result of the Federal Reserve lowering interest rates to 1.0% which "stimulated" the housing market.

My Thoughts
I am of course going to take the $600 tax credit because if I don't I will be at an economic disadvantage. But unlike most Americans, this is going straight to savings. However, I agree with Ron Paul on all accounts related to economics and monetary policy.

Not much change can be done unless real monetary reform is put through. I believe that monetary reform is the most important political issue today (See related blog and movies below for more information) and Paul stands out as the only candidate willing to make changes, much less address the issue.

Unfortunately the media has completely ignored him because of his upfront stance on monetary policy (see America: Freedom to Fascism) even though he has made a tremendous grassroots campaign. Although he is not 100% ideal on his social issues, he is a candidate that is worth investigating.

Related Blogs:
The IRS, Tax Protesters, and the Federal Reserve

Related Links:
Ron Paul Campaign Website

Videos on YouTube
Ron Paul and Bernanke Part 1
Ron Paul and Bernanke Part 2

Related Links
The Money Masters
The Federal Reserve Bunk
Pay No Income Tax
Liberty Dollar

Recommended Books
The Federal Mafia

Recommended Movies:
All of these movies are free to watch on Google Video.
Money As Debt
The Money Masters
America: Freedom to Fascism

Energyville Part II: The Discussion

2008-01-28T10:35:00.000-08:00

Energyville Discussion
When I played the game on January 20th, there were 504 posts. Some of the posters were very knowledgeable and proposed certain solutions that will help with energy supply. For example one user talked about using waste heat for combined cycles and co-generation. Another talked about reducing the amount that we use instead of striving for eternal growth. In my opinion, this is what will happen, whether it is voluntarily or forced due to energy decreases resulting from peak oil. However, not all of the comments were intelligent and I would like to highlight a few.

Popular Science and God
The next quote is from one of the posts in the Will You Join Us Discussion Forum:

"There are so many innovative products cited in POPULAR SCIENCE every issue for the past two years...can't we tap into some of those now? It seems to me that God is providing many new resources to help us through such emergency times...they need to go into mass production while we are able to do so."

The first thing that concerns me is that he believes everything in Popular Science. My biggest problem with Popular Science is that they look at "emerging" technology that is often not commercially or even technically proven. It is definitely great material for a curious reader to think that these technologies are on the cusp of being realized, but in reality, most of these ideas are years down the road or won't ever be developed.

For example in this article, The Two Day Battery, from Popular Science, the author reports that scientists have discovered a way to make batteries last longer, going from 4 to 40 hours. Those who aren't skeptical probably think that it's just around the corner, but the author of the article makes the following concession his last sentence:

"Of course, this is still in the lab stage, and there are undoubtedly quite a few steps and hurdles between the campus and commercialization, but we're optimists."

I hate to be a Debbie Downer, but we do not have the time or the resources to be optimists. We can't hope for the next emerging technology to magically save us. We need to be REALISTS and understand the the current problems and the current (however incomplete they may be) solutions that exist and begin to implement them.

My second concern is relating to god. If we are relying on god to provide us with energy then I think we have a rocky road ahead. I think it is highly unrealistic to hope for divine intervention when the laws of thermodynamics and physics are at work.

What the !@#& are you thinking?
The user who commented above might have some issues with what the next person has to say about creating mechanical life to use it to provide energy. (Disclaimer:the quote below has NOT been modified in any manner from the original text)

"perhaps genetically modified biomechanical , half creature half mechanical,feeding it neutritous water could produce a sercetion to then power the mechanical part. Is this possible yet or do we not no about it yet?"

Spelling and grammar aside, there are significant problems with the ideas the person presents. Where would we get this "neutritous water"? Assuming there is an ample supply of "neutritious water", does the reader not understand that much of the caloric value of this water would be used in the biological process and less energy is available in the secretion than there was originally?

What I think, is that many people don't realize that energy just can't be extracted from anything. There are only certain sources of matter or energy in this world and universe that are useful and can be economically harnessed.

My Thoughts
I think that The Economist Group has focused on the wrong issue. They continue to work with the idea that we must continually provide more energy for mankind. However, thermodynamic laws and supply sets limits. I will admit that increased efficiencies and new technologies will provide some "free" energy that was previously not harvested due to inefficiencies.

But the overall picture is that we are already consuming more energy than is sustainable. As China and other developing countries continue to industrialize and copy the Western high-energy lifestyle, the pressure on energy supply and the environment will be even greater.

The reader who had a comment on Popular Science and God did have one nugget of wisdom: "...they need to go into mass production while we are able to do so." We must begin to acting today while we still have cheaper fossil fuels. Once peak oil hits, we will not have the extra energy to spend on infrastructure.

What Can You Do?
The Energyville game and discussion forums offer a great starting platform for learning more about energy. The game does a pretty good job of discussing the pros/cons of each energy and what technical or economical limitations may exist.

As always, education is the key. Educate yourself and your friends about the issues. We can't start making changes in this world until we know what needs to be changed.

Related Blogs:

Related Links:

Recommended Books:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
Resource Wars - Michael Klare
The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
PowerDown - Richard Heinberg

Recommended Movies:

Shell Energy CEO Virtually Admits to Peak Oil

2008-01-26T12:31:00.000-08:00

Two Paths: Which will we choose?
Shell CEO Jeroen van der Veer released an article which outlines the future of energy. He proposes that there are two paths that we can take. He titles one "Scramble" which is similar to how nations react to resource scarcity as described by Resource Wars by Michael Klare. This is the scenario in which nations will go to war over the resources remaining in the world. (See how the video game "Fuel of War" depicts the "Scramble" scenario in this blog).

The second path he calls "Blueprints" which is similar to Richard Heinberg's scenario "Powerdown: The path of self-limitation, cooperation, and sharing" as described in his book PowerDown. This scenario is one in which the nations will have to cooperate and set policies to use the resources to the benefit of the most people and avoid resource wars.

van Der Veer states the following opinion on which path that Shell, America, and the world should take:

"Shell traditionally uses its scenarios to prepare for the future without expressing a preference for one over another. But, faced with the need to manage climate risk for our investors and our descendants, we believe the Blueprints outcomes provide the best balance between economy, energy, and environment."

I believe that pretty much everyone would agree that going to war over resources is not a path that we should embark (or continue) on, and that we should look towards a future filled with cooperation and sustainability.

Peak Oil
The most powerful part of van der Veer's article was the following paragraph which is practically an admission to the existence and tremendous importance of peak oil.

"Regardless of which route we choose, the world’s current predicament limits our room to maneuver. We are experiencing a step-change in the growth rate of energy demand due to rising population and economic development. After 2015, easily accessible supplies of oil and gas probably will no longer keep up with demand." (Emphasis added)

These are extremely strong words for a CEO of a company that depends on selling these "easily accessible supplies of oil and gas". It would be similar to Starbucks saying "After 2015, cheap supplies of coffee probably will no longer keep up with demand". Simply stated, this is something that would not be said unless the company was truly concerned about the issue.

This marks the first time that anyone from a major energy company has openly admitted that peak oil will happen before 2020. Although there has been a strong, yet mostly underground movement for peak oil, the energy industry has been reluctant to admit that peak oil would even be a problem... until now.

My Thoughts
I am truly amazed that someone has finally stepped up to the plate and recognized the need for a drastic change. Jeroen van der Veer admits to "peak oil" without explicitly saying those words and recognizes the need for drastic change to ensure that we do not go down the path of Scramble, plunging ourselves into a never-ending resource war until there is only the "Last Man is Standing".

I must congratulate him for making such a bold statement to the public in light of what shareholders may think. However, as he stated, climate risk must be managed by balancing economy, energy, and environment. It is in the shareholder's and our descendant's best interest that we look at energy and greenhouse gas emissions and work to find a sustainable solution.

I can only hope that politicians and other leaders of corporations will follow Jeroen van der Veer's footsteps and confront reality. We cannot address the problem if we are not aware of . Once we have admitted that we have a problem, we can begin to work on fixing it.

Related Blogs:

Related Links:

Recommended Books:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century - James Howard Kunstler
Resource Wars - Michael Klare
The Party's Over: Oil, War And The Fate Of Industrial Societies - Richard Heinberg
Review
PowerDown - Richard Heinberg

Recommended Movies:

Your Money or Your Life: Lessons Learned Part I

2008-01-24T11:04:00.000-08:00

What Have I Done?
I have completely adopted the Your Money or Your Life program and am actively working on steps 2-7 (for more information see my review on the book). The core of the "program" is really steps 2-4 because it makes you look at your purchases and determine whether you were able to really get value out of the money (life energy). I have created an Excel spreadsheet to track my expenses and create my "Life Energy Chart".

Note: There are other options out there such as Quicken, Wesabe, Mint, and many other tools out there to help you track and budget your money.

My family used to joke around with me that I was so frugal with my money. I somewhat resented it because I believed that financial stability is very important and that I shouldn't just spend everything that I earned. In my opinion there is a fine, yet significant difference between "frugal" and "cheap". Cheap means that you will save money no matter what at the expense of yourself and other people. Frugal however, means that you will use your life energy wisely according to your values and only spend money that will give you and your friends/family real happiness.

Once I graduated and started my job, I had a sudden influx of money. I lost sight of my previous values and thought that I should "live up" to my income and get nicer things. I got caught up in the whirlwind of consumerism and I almost bought a $1000 projector on a whim. However, I'm glad that I didn't. Although it might have been appropriate for some, I only watch TV about 2 hours a week. I definitely wouldn't have received fulfillment proportionate with the amount of money that the projector cost.

I was feeling unhappy with the amount of money I was spending on life and decided I had to do something about it. That is when I read Your Money or Your Life. In the next section I detail some of the things that I've learned as a result of following the 9 Steps Towards Financial Independence.

What Have I Learned?
At the end of October (after I had finished my first month of tracking expenses) I saw many disturbing numbers. First, my food and clothing expenses were more than $400 and $300 a month respectively! It wasn't until I started tracking my expenses that I realized how much money was going to each of these categories.

I think it is important worth repeating, but the authors don't set any guidelines on "how much you should spend". This is important, because each person is unique and will place different values on different expenditures. You are encouraged to determine what seems appropriate based on your values and if you will fulfillment proportionate to the amount of life energy you spend. For me, $700/month on food and clothing was WAY too much.

My food expenses have gone from $400>$300>$270>$230 within a period of four months. I accomplished this mainly by limiting how often I went out to eat and eating fewer processed foods, which in turn has been healthier for me. Many will think "well it's a good time to socialize with friends" and I completely agree with them. I will still go out with my friends and enjoy that time. It's just I don't have to do that at the trendiest restaurant or 3-4 times a week.

Also, my clothing budget has gone down significantly from about $400 to under $100 (projected) for January. I must admit that the clothing budget might have been somewhat artificially inflated by the fact that I had to start my wardrobe from scratch because I lost 30 lbs over the period of 3-4 months (See my post My Decision to Become a Vegatarian for more information about my shift towards a plant based diet). However, the purchases I have made this month have been at an outlet mall and a used clothing store.

The second major thing I noticed was how much money I spent on my "hobbies" in October and November: ZERO. How could I spend so much on food and clothes and completely ignore my hobbies? I changed that immediately and diverted some of the money previously used on food/clothing into the hobbies category and I am definitely happier as a result.

My Budget
Although the book doesn't explicitly recommend creating a budget, I thought making one would be best for me. It is still under review, but I currently have 35% of my pre-tax income going towards savings/retirement with a healthy amount still going towards my hobbies, clothing, and vacations. If I am able to stay with this budget I will be happy with myself. However the program is ongoing and I will always be looking at ways to find other sources of income and continuing to find the correct balance of spending.

My Values
Through this program, I realized that I had forgotten about my passion for reading books, watching documentaries, and trying to educate people about issues. Before I mostly talked to my friends at school and told them about the newest documentary I had watched and that they should also check it out. However, you can only reach so many people that way. I needed to find a way to reach more people and create something that people can access at any moment. Thus, that is the primary reason I created the "Meaningful Issues" blog.

The second reason I chose to do this blog is that I wanted to see if I could provide a source of income in addition to my current job. Step 7 is the step where you "Maximize your Income". If you can increase your income, you can increase the amount you save. Naturally, the more you save the faster you can become financially independent. Using some conservative assumptions, I projected that I could definitely become financially independent by 40 and possibly as soon as 35. This knowledge has motivated me to keep the longterm goal in sight.

I don't expect this blog to become an appreciable source of income unless I get a tremendous boost in traffic. However, all my time and effort put into this is still worthwhile as long as people continue to read this and take action.

Personal Finance Posts
You might wonder why I am posting about personal finance where all of the other issues are much larger issues such as climate change, peak oil, and media. There are tons of other personal finance sites out there that discuss Roth IRA's, 401(k)'s, "snowballing debt", and many other topics but I don't intend to turn this blog into one of those.

The main focus on this blog will be on Meaningful Issues and on creating awareness on these issues. I believe that if you are able to take control of your personal finances and use your life energy wisely, that you will have more tie to focus on "your cause". This can be activism, blogging, donating, or volunteering for your cause. No matter what, you are making a difference for what you believe is right.

Again, if you haven't read the book, I highly suggest picking up a copy of Your Money or Your Life by Vicki Robin and Joe Dominguez. Do it before you choose your money over your life.

Related Links:

Recommended Books:

Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence - Joe Dominguez, Vicki Robin
Affluenza: The All-Consuming Epidemic (Bk Currents) - John de Graff

Recommended Movies

Maxed Out