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Economy

Economy is all about politics

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Once again, we’re brought back to a raw fact: economy is politics, politics economy.

The Arizona state legislature’s response to the state budget crisis engendered by the collapse of the Bush economy has been pigheaded beyond belief. Elected leaders here, brought into office before the recent national changeover in leadership and set free to work mischief by the loss of Democratic governor Janet Napolitano, cling to the failed Republican doctrine that government borrowing is bad and taxes are worse. The wretches fail to grasp that government is different from private corporations and different from their own little household economies.

As a result, they have engaged in an extended bloodbath that continues to this day, with K through 12 schools forced to fire thousands of teachers statewide, universities closing down entire colleges and canning or furloughing thousands of employees, libraries and parks shutting down, basic services curtailed or eliminated. The kindest term for their strategy might be “draconian”; a more accurate one, “stupid.”

Now, many days late and vast billions of dollars short, it’s beginning to dawn on our august leaders that they’re going to have to borrow some money to keep the government functioning. Local television station KPHO’s online news quotes Sen. Pat Gorman as saying, “We don’t like to borrow. We don’t think that’s a good idea. . . . But right now, we’re looking at what’s a bad idea and what’s a really bad idea.” The station also reports “a spokesman for the Republican governor” as saying that “the governor was reluctant to borrow money as a way to reduce the deficit. She supports the tax increase as a better option.”

News reporters often get quotations wrong, but the strange pin-headed thinking of this state’s elected leaders has been reported so often and its consequences have become so obvious that it’s hard to figure anything but that the reporters are getting the general gist right.

Borrowing now is a day late and a dollar short. The state needed to do that before its workforce and its private industries were devastated by vast layoffs.

And as for raising taxes, let me tell you: I would have voted in favor of a tax increase to rescue the state’s economy while I still had a job. Now it’s too late. A larger percentage of nothing is nothing. How will raising taxes on workers who no longer have jobs raise money to help the state’s economy?

The loss of my job at the Great Desert University and of the wages of thousands of my coworkers is directly attributable the majority Republican legislators’ bizarre short-sightedness and stubbornness. At my age I will not get another job. Social Security plus what shreds of my life savings remain after the collapse of the Bush economy will not support me without my working part-time for the rest of my life. Arizona can raise my taxes and be damned. The tax collectors can visit me at the Seventh Avenue Overpass, under which I will soon be living, in a tent nursing home.

There oughta be a law against electing damn fools to public office.

Is this worse than we think, even?

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What a day!

Before I even parked my purse in the office, I made a run on HR. There I learned a) they don’t know how much COBRA will be; b) the state just posted a page showing the new COBRA costs, but they’re telling staff not to tell anyone about it (says a lot, doesn’t it?); c) yes, they have to pony up the so-called “extra” pay that will have accrued by the end of December, which is supposed to be paid in the January “extra” paycheck (snark!); d) they don’t know if I get dibs on any internal hires that may be happening, given my status as an exempt year-to-year contract worker; e) the maximum number of vacation hours GDU will pay me for is 176; and f) I probably will be eligible for unemployment benefits.

ohhhkayyyy…. Moving on…

Back at the office, I get on the phone to my passing acquaintance at the General Accounting Office, the one who informed me that HR’s reps were full of beans when they told both me and La Maya that we lose our RASL (more about which, onward) if we’re laid off instead of announcing unilaterally that we’re retiring. Clear it was that this woman was no friend of GDU’s Human Resources bots, and so I felt fairly confident that she would not rat on me for inquiring about exactly what Our Beloved Employer was trying to accomplish by secretly changing my associate editor’s job status from a nonexempt classified to an exempt contract worker…and trying to faze past me the idea that her offer letter for a classified position amounted to a “contract” for a “we can squash you anytime we please” job.

My Spy’s first instinct was that nonexempt workers are hired to be present for X number of hours, and exempt workers are hired to accomplish a job, no matter how long it takes. Thus, if they dump all our graduate student assistants and leave us with six (!) journals to take from manuscript to the compositor, they will not have to pay her overtime for the obscene number of hours she will have to work beyond the number for which she is paid.

Hmmm…good thought, said I.

And, said she, it’s a lot easier to get rid of exempt workers.

Yeah. Don’t I know it.

Moving on, Spy advised that I should be very careful to figure out exactly what is the hourly rate for the new contract OBE proposes to emit, come June 30. She pointed out that RASL—a kind of severance package based on the number of unused sick leave hours a state employee has accrued—is based on your hourly pay at the time you leave state service, not on the amount you made when you were being sort of fairly paid. Quite a few retiring workers, she reported, have been rudely surprised to learn that by accepting a pay cut instead of furlough days, they cut this retirement benefit significantly.

RASL is a feature that pays you for accrued sick leave, based on your years of service. You accrue sick leave separately from vacation time, and it builds rather slowly. After you’ve racked up 500 hours, you’re entitled to be paid about 30 percent of your hourly pay for each hour of accrued sick leave, at the time you leave your job. When you hit 1,000 hours, glory be! As your parting gift, the state forks over 50 percent of your hourly rate for each hour of accrued sick leave. This money drifts up because it is contributed to a state fund from your salary.

Well, I have almost 1,200 hundred hours, presently worth something over $17,000.

Spy pointed out that if they reduce my hourly pay with this new contract, it could drastically affect my RASL. So drastically, she advised, that it may be worth turning the contract down and walking if what they offer in June is a pay cut. She advised carefully figuring how much my RASL is worth at my present rate of pay and being prepared to calculate, quickly, how much I would lose if I accepted a pay cut.

So: add that task to the mix. And add to it another layer: figure out how to get by if I have to quit at the end of June instead of hanging around until the end of December. Gaaaaahhhhh!

Now Spy waxed garrulous. This is one of those government employees who knows how to function within and to operate a bureaucracy because of long, long service. Just listening to her made it clear that she’d been around forever. She remarked that she had several friends with over 30 years of service to the state, and that among them all, no one could remember anything remotely like what they’re seeing now. She said people are demonstrating in front of their office buildings and having sh*t-fits in the lobby, but all anyone could say to them is that there just. isn’t. any. money. left. to. pay. out. Staff can’t help, because they have nothing—literally nothing—to help with.

More spookily still, she observed that some people are beginning to talk seriously about the possibility that the state government could completely shut down. Not just close the prisons and the universities. No. Shut down everything. Go out of business.

After that conversation it took some hours to get a grip, and I will say, at this moment it’s still a pretty tenuous grip.

Back at the office, Her Deanship commanded another audience. Tomorrow I have to go in prepared to discuss which RAs will get the ax first, and which of our client journals will go away in what order. Took half the afternoon to compose a memo responding to that and to argue in favor of retaining our lead RA through the fall semester.

Just as I was wrapping up that little gem, said lead RA showed up and asked, “Am I going to be here in the fall?”

Oh shit.

So, I had to close the door and explain to her what is happening. By the time that discussion was over, I’d been clenching my jaw so violently I’d brought on a muscle tremor.

Her department has lost most of its graduate student support lines. There were nine lines to support 26 graduate students. They are now all distributed. OBE delayed so long in dropping the ax on our department that this exceptionally worthy mother of two has now lost her chance at any other assistantship. It’s not like they didn’t know. I mean, please! How many times has Her Deanship put me off since last freaking August when I have told her we need new client journals? Five? At least. I’ve sensed for weeks that the reason for the stonewalling is that she knew we weren’t expected to survive and she didn’t want to commit our services to faculty members, only to have to yank the rug out from under them.

Just another manifestation of the basic fact of academic life: a university’s administration does not give one thin damn about the welfare of its students.

In an attempt to get a good word in for my associate editor, I spent two or three hours laboring over the STUPID annual evaluation form, an enormous time-waster. Anyway, assuming Her Deanship accepts it and passes it along to HR, if the sidekick applies for a new job at GDU anytime in the more or less near future, a rave review will be sitting in her permanent files.

My jaw hurts. I’m going to go put a heating pad on my face.

Yours in eternal awe of Our Beloved Employer,

—Funny

Résumés on the wind!

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No grass grows under this old lady’s feet, that’s for sure. Just sent out a résumé for a sweet part-time job that would be a great hoot, and e-mailed my book-length curriculum vitae to the English department chair at a nearby community college.

Hey! We’ve only got nine months here to find a new job! Better get to work.

Truth to tell, I believe I could do either of these p/t jobs on the side, while wrapping up the deconstruction of our office. We know I’m capable of teaching the equivalent of four bloated sections of freshman comp for juniors and seniors while supervising an editorial crew; after that, two sections of real freshman comp whose size is limited to normal NCTE guidelines should be a piece of cake.

Far more appealing, though, is the prospect of serving as p/t gofer and sidekick for an editor (and friendly acquaintance) at my favorite local press. This is the outfit that pays me to read detective novels. Mirabilis! Some of the novels I’ve had the privilege to read have been pretty entertaining. If you enjoy detective fiction and thrillers, you should take a look at their booklist. I know I can do this job to a T, and it sure would be easier than teaching freshman comp. Not only that, but once I walk out the door, it probably would provide the income I’ll need to keep from starving.

Yesh. I scared the bejabbers out of myself, along about three in the morning (as you can imagine, I enjoyed about 2 1/2 hours of sleep last night, between 4:30 and 7:00 a.m.), by loading Excel and massaging some figures. Didn’t take long before I was asking myself the Great Dark-of-Night Ontological Question:
What on earth was I thinking when I imagined I could support myself on Social Security and investment proceeds?

Wait! I remember: at the time, we all actually had some investments.

I was horrified to find that what with the 12-fold increase in healthcare premiums that Medicare will represent plus the need to take my share of the Investment House mortgage out of cash flow, my expenses will exceed my present net income, in the highest-paying full-time job I’ve ever held!

To get by, I’ll need to earn an extra $19,000 to $21,000 a year, above and beyond investment returns and Social Security. This will be a trick, since you’re allowed to earn a grandiose $14,000 before Social Security starts docking your benefits.

Not having the mortgage payments wouldn’t help a lot: even without those, Social Security plus proceeds from my total savings (including the money set aside to pay off the Renovation Loan and the savings fund to buy the next car) will not cover my expenses, post-layoff. Check it out:

Projected Expenses

projectedexpenses3-27-09

Projected Net Income from Social Security and Investments

projectedincome3-27-09Oops!

And oops, indeed: take a close look at what it’s going to cost me to live in blissful bumhood. And consider that my net income today is $39,000. I live like an ascetic: don’t travel, don’t own a cell phone, don’t subscribe to cable, satellite, or any other pay-per-view TV, don’t play computer games, rarely eat out, never buy more than the basic clothes and shoes, drive a 10-year-old car, don’t run a tab on the credit card, don’t even go to a freaking picture show! And I use up all but about about $2,000 of that each year. We’re looking at a $4,560 increase in my expenses once I’m on Medicare! Meanwhile, my income drops into the poverty range.

Clearly, I’ll have to work: either get a job or cultivate several income streams. The candidates are part-time teaching, growing The Copyeditor’s Desk, and monetizing Funny about Money.

Community colleges around here pay part-timers about $2,000 a course. The universities now pay about $3,000. Typical income from a freelance business is about $10,000 a year; I would be surprised, rusticated as we are in the middle of the Sonoran Desert, if Tina and I could generate much more than that, apiece. And what would FaM earn? It’s anybody’s guess. So guessy as to be negligible.

Hiring out to teach two courses from the community college district and two from the Great Desert University each year and ramping up our freelance business so that it pays a consistent 10 grand a year will produce something that looks like this:

projectedincomestreamsTwenty thousand extra dollars would do the trick, in theory. But that exceeds the Social Security earnings limitation by $6,000. Have the temerity to earn more than $14,000 a year, and you get your Social Security benefits axed. So, I would have to earn significantly more than 20 grand to end up with enough income to cover the bloated expenses of retirement.

If I’d had the prescience to sell my investments in the spring of 2008, today I would have plenty of money to live on, between SS and investment income. Too bad we didn’t all have crystal balls, eh?

Well, I felt a lot better, anyway, having sent out a couple of job feelers. Even if they come to naught, just doing something other than hunkering in the headlight while waiting to be run down feels like a positive move.

Buy!

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If you’re still employed and you have some cash, now could be the time to invest in real estate. And not just because it’s cheap. The better reason is that when inflation happens, the real cost of interest on a loan drops. Let’s say you have a loan at 6 percent. If the inflation rate is at 3 percent, the “real” interest rate you pay is 3 percent (6% – 3%). But if inflation jumped to 20 percent, then your real interest rate would be -14 percent (6% – 20%).¹

In the near future, we’ll be seeing some serious inflation. This will come about because of the huge amount of money the government is minting and pouring into the economy. Dollars will be worth less—possibly lots less—and so we should be positioning ourselves to get into investments that will have some value.

SDXB sends a report that appeared in the Financial Times to the effect that China has proposed replacing the dollar as the international reserve currency; this is interpreted as a sign of China’s fear of the inflation that will likely result as the Federal Reserve prints money with abandon.

On a submicroscopic level, we’ve hit upon the very reason I bought a freezer, planted a garden, and started stocking up food and household goods. Prices may very well go haywire in the next few months. If I were living on a fixed income but still could dodder out to the workplace, I’d be looking for a part-time job. Now, not later.

Not since the American Revolution have Americans seen extreme inflation of the sort that occurred in Germany before World War II or, more recently, in Argentina and various Eastern European nations. Probably we won’t see it this time, either, because we have some mechanisms intended to keep this sort of thing under control.

However, I lived through the double-digit inflation of the 1970s. While it was not a period of hyperinflation, it still wrought plenty of harm for many Americans. My husband earned a good living as a corporate lawyer, and so we were not seriously affected. But I saw what happened to my father, who by then had retired on what he thought was enough to keep him comfortably set for the rest of his life: $100,000.

In the 1960s, a hundred grand was a lot of money. By the end of the ’70s, it wasn’t enough, combined with his union pension and Social Security, to keep him out of poverty. Having been burned some years before when the bottom fell out of the insurance securities market (in which he was overinvested), he stashed everything in CDs, which did not keep up with inflation. So, by the time he paid for his room and board at the life-care community where he moved after my mother died, he had no disposable income left. He and his wife didn’t travel, they didn’t go out, they didn’t buy anything more than the bare necessities for existence. Because the two of them had managed to get into the life-care place, they were safe and well cared for. But they were stuck there: they didn’t have much of a life during their last years.

This is why, I think, it’s necessary to accumulate lots more than you think you will need in retirement. Investments should be spread between conservative instruments that do not keep up with inflation but at least don’t go down the drain and somewhat riskier ventures, such as equities and certain kinds of real estate, that are likely to gain enough to keep you out of poverty in the event the value of the dollar drops significantly.

Cultivating frugal habits and staying flexible can’t hurt, either.

¹Formula from Wikipedia, “Inflation.”

Disclaimer: I am NOT a financial advisor! I’m a little old lady with a blog. I have a Ph.D. in English, not an MBA! If anything you read here looks to you like advice, don’t buy it.

Is it time to punt?

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This month’s statement from Fidelity shows another $10,000 loss in my big IRA, despite my financial advisors’ having moved as much as possible into conservative investments, gold, and cash.

At the age of 63—damn! soon to be 64!—I’m watching my retirement investments melt away. That IRA has dropped in value from a high of $326,000 to $193,000. Total savings have dropped from over $600,000 to less than $420,000. Meanwhile, we owe $23,000 more than the Investment House is presently worth, and I took out a second on my own house to renovate said investment.

I’m wondering if it’s time to do something completely, utterly, totally contrarian. Hang onto your hats, folks, because this is one scary idea:

Maybe I should cash out that big IRA before it’s all gone. I have enough set aside in savings to pay off the small second mortgage on my house; if instead I combined that with the amount remaining in the IRA, I could use the money to pay off the loan on the Investment House. My son could then continue to pay me the amount he’s been paying toward the mortgage as a variety of “rent.”

I would repay him his share of our combined investment in the house so far. This would provide him enough to go back to school, which he would like to do.

If he decides to go to the University of Arizona, which has a better graduateprogram inpublic administration than the Great Desert University’s, I could either rent his house, providing a nice bit of cash flow, or I could rent mine for even more, move into his, use the rental on my house to cherry out the little house downtown, and collect a ton of money.

Because I no longer have enough in savings to support me in old age, I’m going to have to work until I drop. When the deans physically throw me out of the place (assuming I haven’t died before then), I would have the rental income from one house, Social Security, and income from taking out a reverse mortgage on whichever house I’m living in.

Hm. I wonder what that would look like?

Let’s assume a miracle happens and the Obamaites succeed in turning the economy around. Let’s assume that starts to happen in, say, three months, during which I continue to lose at the rate of 10 grand a month.

Several options present themselves:
1. Stay the course. Change nothing in the investment strategy
2. Pay off the house; have my son pay the amount he’s been paying, only to me.
3. Pay off the house; my son goes to school elsewhere and I rent his house.
4. Pay off the house; my son leaves for graduate school; I move into his place and rent my house.

I ran some figures in Excel. My math is not very good, so these prognostications may be out in left field. But if I’m right, it looks like I would be better off to pay the mortgage and have M’hijito pay me a monthly “rental” in the amount that he’s now paying the mortgage company. I’d still have enough to refund him his investment in the house, which would pay a big chunk of his graduate school tuition, or at least revive his Roth IRA.

I posited three mortgage-payoff scenarios and estimated my net income if I retired at age 66 (which ain’t gunna happen) or at age 70 (the earliest I can imagine being able to afford retirement). I assumed equity investments would continue to drop 10% a month for the next three months and then begin to rise at about 3% a year from now forward. In scenario 1, M’hijito stays in the house and pays me rent of $600 a month. In scenario 2, he goes to graduate school in Tucson and I rent his house for $950/month. In scenario 3, he goes to Tucson, I move into his house, and I rent my house for $1,000/month.

I listed all the bottom lines in Excel and then sorted to show the numbers ranging from least income to most income.

Compared with staying the course (leaving my investments where they are and continuing to pay the mortgage), all three pay-off-the-mortgage scenarios seem to look better, unlessM’hijito stays in the house and I’m forced to retire or am laid off at age 66.

payoffhouse

The big unknown is whether I will keep my job. If I’m canned before I reach age 70, we lose a very big bet. But if I can hang on until age 70 and I’m not purely raped by the taxman, then I end up with a net income fairly close to my present net.

On the other hand, if I’m canned, we’re screwed anyway.

My son would get back the money he put into the down payment. He could continue to live in the house as long as he pleased, but he would no longer be chained to the thing: he would be free to go to school or take a better job elsewhere.If I moved to his house, when I really get desperate for money (which will inevitably happen as my health starts to fail and medical care costs soar), I could take out a reverse mortgage on the place. M’hijito would then lose that house after I die, unless he wanted to pay off the reverse mortgage, but he would inherit my paid-off house, which by then would be making a nice rental income for him, or (with some fix-up) would be a good place for him to live.

Whaddaya think? Crazy? Or not crazy?

Tough times

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Men in a soup line, ca. 1936

Men in a soup line, ca. 1936

Here’s a sign of the times: Greg the Handyman called yesterday to see if we were ready to line up him and his son to do some of the various chores at my house and M’hijito’s. In the course of chatting, he said the two of them were totally out of work. His son, a finish cabinetmaker, was laid off his job when the construction company he worked for folded. That’s not surprising. But what is scary is that Greg himself hasn’t had any business. He said his business phone had rung all of three times in the past week.

This is a guy who was so busy he couldn’t keep up with the work. You often couldn’t get him to come do repairs at all, because he didn’t have time. He refused to work outside the North Central area—for those who don’t know Phoenix, that is not a large district—and still had more work than he could handle. He used to drive around in a Mercedes convertible.

An ancient one, but still…a Mercedes.

It suggests that not only are people not buying and selling real estate, they’re not maintaining it, either. And if you’ve been inside a Home Depot or a Lowe’s lately, you might surmise that they’re not doing the handyman tasks themselves. What that means, I think, is a general deterioration in property here. The central-city houses are pretty old—mine was built in 1971, and it’s in a relatively “new” tract for this part of town. The outlying suburbs are so cheaply thrown together as to defy belief…I remember the day one of my friends learned that rain was leaking in because the contractor hadn’t bothered to install flashing around the roof vents in her new house. And the time another couple of friends had to remove and replace the “lifetime” tile roof on their four-year-old house, built by a contractor who was not required by the state or the county to provide any warranty on his work.

So you can be sure plenty of maintenance needs to be done on these shacks. It’s just not getting done.

Greg is trying to make up for it by overcharging. He wanted $1,500 to paint the trim on the little Investment House. Plus the cost of the paint. Gimme a break! Bila the Painter offered to do it for $800, and that included Dunn-Edwards paint.

At any rate, the cost of the smaller tasks is within reason, so he’ll soon be installing a new room air conditioner for me (hope that scheme works to save on the summer power bills!), replacing the busted smoke alarm and putting in one near the kitchen here, and installing the blinds and fixing a few things at the other house.

Photo: Franklin D. Roosevelt Library