economics

In a string of poor decisions from Central Florida government, the Orlando Utilities Commission (OUC) is announcing a new surge pricing plan called Peak Shifting. Under the plan, electric rates will be higher during the hours of 2pm through 8 pm. This is an idea that OUC first proposed back in March.

The plan, according to OUC, will be to charge more for electricity use between the hours of 2-8 p.m and decrease rates during other hours. This is where a Powerwall, either with or without solar, can be a good thing to have. You program the Powerwall to charge during off peak hours, and power the house during peak times.

Another part of the plan is called Truenet Solar. Under this plan, the 10,000 people in OUC’s area who have solar systems would see the amount paid for their excess solar generation reduced from 10.7 cents per kWh to 4.6 cents kWh. Customers who are already part of the program on June 30, 2025 are grandfathered in for 20 years.

This plan would merely make me add more Powerwalls, because it no longer is worth it to send power back to the grid when you are buying it at 10.7 cents, but can only sell it back at 4.6 cents. Picture that I send solar power into the grid during the day, selling it at 4.6 cents. Then when the sun goes down, I have to buy that power back at 10.7 cents. I am better off storing it in my Powerwall and not sending it to you at all.

Remember that the price of 6.1 cents is the starting point. It will get higher.

I am not part of OUC’s service area, but this is a great bellwether of things to come. Electric rates are going to climb, and I think that Florida will begin to see more and more of this peak pricing. I also see those of us who are on solar will be under siege because there are enough of us to be cutting into electric utility profits, especially the ones that are run by government such as OUC.

Communism and communists get power from the jealousy of others. They convince poor people that the reason that they are poor is because others are rich. It’s a form of scapegoating that enables the would-be dictator to gain power by exploiting the jealousy of the poor by telling them that it isn’t their fault that they are poor- it’s that the rich guy has gamed the system and is somehow cheating. This results in stuff like this:

The reality is that investment entails risk- and this is true whether the investment is your labor, your money, or anything else of value. The riskier the investment, the higher that the reward must be, or else the juice simply isn’t worth the squeeze. If you remove the reward by telling a person that he will stop getting paid at a certain point, then that person will stop investing at that point.

If you set that limit at $999 million, then the person will stop investing beyond that point. After all, why risk losing your investment for no prospect of a reward? No more Tesla, Microsoft, or Apple. The person will shelter their wealth and simply retire.

The same goes for limiting income. Tell someone that they can only earn $200k a year, and your doctor simply stops seeing patients some time in October and takes the rest of the year off. Would you work for free?

The facts are simple-

• there is not one single human endeavor that ensures that everyone has the same outcome. More talented people are more successful that less talented people
• The more talent, the more the reward
• people won’t work if they aren’t getting paid.

Much is made of the fact that “Elon didn’t found Tesla, he bought it.” That may be true, but Tesla wasn’t as successful until AFTER he bought it. It was Elon’s talent and skill that made the company what it is. That’s the reason why he is the richest man in the world. It’s no different than Michael Jordan. He played basketball like no one ever has- because of that, he was paid obscene amounts of money to play that game.

This jealousy of his wealth is what leads to communists using that wealth as a wedge issue to gain power, where the communists themselves then gain power and become wealthier than everyone else.

Which has the result of people becoming angry and killing CEOs. Was he doing things that many of us despise? I would argue that using a computer system to deny legitimate insurance claims wholesale, which resulted in needless death and illness is indeed evil. However, that isn’t an indictment of the entire economic system, and certainly doesn’t mean that citizens should begin executing CEOs. That ends in a place that is far, far worse than where we are now. The real fault here lies in government oversight that permits companies to get away with this.

Insurance companies argue that they can’t be held legally responsible for a person’s illness or death because they aren’t the ones who make medical decisions. After all, it’s the doctor who decides on your course of treatment, they argue. The courts and our laws have agreed. Of course, this completely ignores that a medical procedure that can’t be paid for is as good as prohibited. After all, if your doctor wants to order an MRI, but the insurance company won’t pay for the expensive test, it isn’t going to happen.

Now I am not arguing that the government needs to intervene. I am against the retarded intervention of power hungry bureaucrats into affairs of business. When legislatures have the power to dictate what is bought and sold, the first thing that is bought and sold will be the legislature itself.

No, the way to settle this is through the legal system with the use of lawsuits. That doesn’t mean that lawsuits where juries award someone a billion dollars because they called you a crisis actor is a perfect system, and there should be some limits on that sort of thing, but that is a different discussion. However, an insurance company that refuses to pay for someone’s surgery, despite the fact that they were supposed to insure that very person, is clearly involved in medical decisions and shouldn’t be permitted to claim that they aren’t.

It would be easy to blame healthcare and claim that we should have government run healthcare. This doesn’t solve the problem, it simply transfers the power from a CEO to a random government apparatchik that decides who gets medical care based upon his own whims: “Oh, only left handed transwoman lesbians with purple hair get MRIs this month.”

It’s a complicated situation, as most adult problems are. Looking for a simple solution to a complex problem is to believe in the tooth fairy and Santa Claus. It’s a childish dream that just can’t work when we talk about hundreds of millions of people interacting and trying to gain advantage over one another.

Ray Dalio says America’s $35,327,646,622,839 national debt will continue to grow no matter who wins the race for the White House. The national debt is bound to be ignored while the government uses inflationary policies to reduce the real burden of its debt, according to the Billionaire.

“We have an enormous amount of debt, and it’s going to keep increasing. And one man’s debts are another man’s liabilities… Nobody’s going to deal with the debt policy. That’s going to end up being monetized down the path.”

Regardless of the electoral outcome, Dalio sees the US heading towards a more “fragmented” existence, where portions of the country look to their state governments for leadership due to “irreconcilable differences” with the next administration.

The US dollar has to be inflated so we can pay on our enormous debt with less valuable, inflated dollars.

Buy PMs, Real Estate, and other things that have intrinsic value. The dollar is headed for the end.

Scott Adams asks how giving homebuyers money will cause home prices to rise.

Let me use a real life example to explain how that works. In 2009, Microsoft unveiled a new search engine. To get people to begin using it, they started a promotion. If you used Bing to arrive at a website and made a purchase, any purchase, on that website, you would get a ten percent discount (maximum $100) and you could do this once per day for ten days.

Armed with a new $10,000 credit card that offered zero percent interest and no payments for the first year, I bought 8 one ounce gold Eagle coins from Ebay. They were costing $1000 each, and with the discount, I managed to only pay $900 each for them. Why didn’t I buy ten? Because a lot of other people were doing it, and the coins had risen in price quickly and it was no longer a deal. In les than two weeks’ time, the price of gold Eagles went from $1000 to over $1100, even though the price of gold didn’t move.

Why did that happen? Because the demand side of the supply/demand equation was pressured, while supply remained the same.

The coins: I held on to them for almost a year, sold them for $1800 each, used the proceeds to pay the credit card off, and walked away after doubling my money- well, their money. I made $8k using the credit card’s money.

Many people who are in the general public don’t like “bankers” but without them, it is very difficult to build wealth and for a modern economy to function. Money is the means with which we engage in trade- it enables two people to trade goods and services.

Money permits the farmer to barter for medical services without having to travel to the doctor’s office with a lamb in tow to use for barter. It permits the doctor to barter with others for things that can’t readily be traded for- the doctor can’t mail a leg of lamb to the electric company, and it’s difficult for the electric company to barter with a bushel of electricity.

Once we admit that money is a necessary commodity that permits modern trade, we also realize that we sometimes don’t have enough liquidity to make large purchases. In these cases, we find someone willing to loan us the money. Seldom do we have friends and family that have enough in liquid assets to loan us money for a house or a car, so we enlist strangers and acquaintances to loan us money.

Those people aren’t going to loan us money without knowing the risks of not being repaid. They evaluate that risk, and looking at people with similar financial profiles, determine how risky it is to loan you money. That is, how likely is it that you will default on the debt and walk away with their cash? So let’s say that the lender determines that people whose financial situations are similar to yours default on loans 1% of the time.

The lender needs to be compensated for his administrative overhead, the risk he is undertaking, and still have enough for a profit. If he were to invest that same cash into a mutual fund, he would have significantly less risk and expense, so he needs to make more than he would make investing in that mutual fund.

In this case, the mutual fund would pay 2.5%. The lender’s overhead is another 1%. If the lender doesn’t get to charge at least 3.5% interest on this loan, he is only breaking even with that mutual fund, and that doesn’t even account for risk.

In order to measure risk, the lending industry has developed credit scoring, with Fair, Isaac, and Company (FICO) being the company with the most widely used scoring model. Let’s look at default rates for different FICO scores:

You can see that loaning money to people with a FICO score of 700 or higher means that you have a 6.4% chance of losing your investment. Using the numbers from our example above, if we were the lender, we would have to charge 9.9% interest to get the same 2.5% we would get from that mutual fund. In this case, we have one of two choices: we can lend to people with a 700 credit score or more, but at 10.9% interest, or we can loan to people with a 750 FICO or higher, and because the risk is lower, we could offer loans at 6.5%.

The issue here is that only 40% of the public has a score of 750 or higher, and everyone wants to lend to them because the risk is so low. For those reasons, competition is fierce for their business, and we will likely only be able to charge 5.9% for loans without collateral, and 5.7% for loans with collateral, because collateral reduces our risk.

This is of course a simplified example, but it does show that this is a simple math problem that balances risk with reward. This doesn’t mean that bankers are evil.

Let’s suppose that you had a chance to choose between two employers. One offered to pay you $20 an hour, and there was a 99% chance that your paycheck would cash without a problem. The second employer offers you $100 an hour, but there is a 35% chance that your paycheck will bounce. It’s a choice that you want to be careful with.

Banks do the same thing. Why would someone loan you money unless there was a reward for them doing so? Anyone who has loaned a friend or family member knows that there is a chance they will never see that money again, and that is for people you know. Absolute strangers are even more likely to walk.

I discovered that myself when I invested money in some peer to peer lending on Prosper.com. I put $500 into that website, loaning that money by partially funding several different loans. The terms there are simple- people see the credit scores of lenders, and bid on funding those loans at whatever interest rate they are comfortable.

So let’s say that you want to borrow $1,000 and your credit score is a 740. There is a 6.4% chance of a default, so the bidding begins. Your loan is funded by 30 people who offer to lend you the money at 8.9% interest. You have to repay that loan in 36 months, with a monthly payment of $31.75. At the end of the three years, the people who funded your loan would have received $1.10 in return for every dollar that they loaned you- a profit of 10% over three years. (some of the interest charged is given to Prosper to cover their expenses)

If you only make a year’s payments before defaulting, each dollar invested would only return 69 cents, meaning that the investors lost 31% of their investment.

That’s why interest gets charged, and a basic idea of how it’s calculated. If interest wasn’t charged, then there would be no money to lend to anyone.

In New York city, rents have become so unaffordable that people are paying to live in communal living spaces- you get a small bedroom to yourself while sharing a bathroom with one other person, then share a living room, a kitchen, and a gym with the rest of the building. You get a shelf in the refrigerator that you share with four other people, and a small locker to keep food in. Amenities include WiFi, breakfast once a month, and a weekly cleaning service. In all, you share this stuff with 23 other tenants for the low price of only $2100 a month.

The building in the story has four stories- six people to a floor. Each floor has a small living room and kitchen, three bathrooms, and six bedrooms. The basement has a laundry room with three washers and three dryers, as well as a small gym with a few workout machines.

When I was broke and young, I had roommates. What gets me here is both the price and the fact that these are people in their middle age years doing this. The guy in the story is 33 years old, and isn’t facing some new temporary situation like a divorce. He is choosing to live like this because he likes “the vibe” of living in New York city.