Reader Mailbag #11

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Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

As usual, we’ll start things off with a few links to older articles that directly answer questions I’ve heard recently. These are seven book reviews I’ve already done in the past that readers have suggested that I do in the last few days. I figure if one reader has written in asking for them, there’s probably a few dozen of you interested in each one. The links go straight to my reviews of the books.

The Total Money Makeover by Dave Ramsey
In Defense of Food by Michael Pollan
Unconventional Success by David Swensen
The Ultimate Cheapskate’s Road Map to True Riches by Jeff Yeager
Stay Mad for Life by Jim Cramer
Automatic Wealth for Grads by Michael Masterson
The Money Book for the Young, Fabulous, and Broke by Suze Orman

And now for some great reader questions! This week, I’m going to answer a smaller number than normal, because I think several of these questions are going to set off long discussions by themselves and I want to give them some space to develop on their own.

My dad always told me that you should keep at least a dollar in cash on you for every mile you’re away from home. What do you think of that philosophy?
- Millie

I can see it being an interesting philosophy in terms of the short range – $100 for being 100 miles away makes some sense – but it quickly gets ludicrous when you look at international travel. It’s 10,306 miles from New York City to Perth, Australia. Does that mean if you live in New York and you’re wandering around in Perth you should have $10,306 in cash on you at all times? That’s insane – you’re asking for disaster.

So what’s a good rule of thumb for how much cash to carry on a trip? I try to keep cash on hand any time I leave the house, but usually a $20 suffices for that. When I leave on a long trip – one where I won’t return home – I carry $200 in cash and replenish it at ATMs if I need to. Aside from that, I rely on cards – carrying cash is a risk itself, as you can’t recover it if you lose it. I usually keep the cash separate from the cards if traveling, and I usually keep one card completely separate from everything else in case a big disaster strikes.

Receipt management: how do you have the discipline to keep track of all of your receipts, reconcile them against multiple credit cards, etc?
- Tiffany

I just keep all receipts in a shoebox. What I usually do is read through my statements each month and if I can’t figure out quickly what a charge is, then I go receipt hunting. Most of the time, I can quickly figure out almost all of them, so I don’t have to go hunting very deeply.

In other words, I usually don’t reconcile every receipt against my statements – I didn’t even do that in the past when I was actively budgeting. As long as I knew what everything was, I didn’t feel a need to reconcile every receipt. However, I did use the receipts to help with budgeting, especially because often purchases at Target and other places crossed into multiple categories, so I’d go through the receipt to try to divide things up.

Now, for the most part, I just keep old receipts for a while until I can reconcile them, then I toss the old ones out every once in a while (I usually burn them).

Stock picking strategies, what are your thoughts on the dog of dows strategy?
- ontguy

I don’t think most “rule of thumb” stock picking strategies are very good at all, actually. They almost always rely on a string of anomalies. There are so many potential patterns in the stock market that sheer randomness occasionally produces something that looks like a pattern. The vast majority of the time, it’s not a pattern. Think about it this way – imagine just grabbing handfuls of red, white, and blue poker chips and tossing them in a bucket. At various points, completely randomly, you could look in the bucket and guess that there are more white chips than anything else because randomly you’d see more white chips – that doesn’t mean that white chips are a good bet for the future. (This is basically the premise behind a good part of the excellent Burton Malkiel book A Random Walk Down Wall Street.)

If you’re going to invest, I suggest either investing only in companies you very well or just investing as broadly as possible. That’s basically what Warren Buffett suggests – he encourages 99% of investors to just buy broad-based index funds and call it good enough, because 99% of investors don’t have the time or the available data to properly evaluate a company and determine if it’s really a good investment or not. Buffett is spot on, in my eyes.

Settle the “thaw” versus “unthaw” vocabulary war once and for all!
- Lisa

Unthaw and thaw mean the same thing, even though the “un-” prefix seems to indicate that they would be opposites. Princeton defines unthaw to mean “dissolve: become or cause to become soft or liquid” – the same definition as thaw.

Using “unthaw” in this way is generally considered to be a colloquialism – in other words, it’s considered to be something appropriate in common conversation but not in formal writing. I often choose to use colloquialisms on The Simple Dollar because the point of this site is to be conversational. I’m not writing formally here, nor do I ever want to write in such a fashion – it says “financial talk for the rest of us” right up there on the banner, not “dry essays on the nuances of fiduciary duties.” If you want that, go read a book by William Sharpe.

What is your opinion on the oil situation … with the massive profits by Big Oil, and so much of our money going to the Middle East so they can splurge it on palaces and mile high skyscrapers. Have you gotten to, or where would be, your breaking point for becoming more proactive on becoming less depending on using “oil”?
- Jeremy

First of all, I think the “massive Big Oil profits” are overblown. Those businesses are enormous. The investment from individual shareholders in all of the organization, equipment, and effort that it takes to get oil out of the ground, processed into petroleum and other goods, and transported to your local gas station is huge. If you look at the revenue of those large oil companies and then subtract out the unimaginably enormous costs, and then look at their profit as a percentage of the unimaginably huge revenue, oil companies don’t earn that much money. Businesses like McDonalds are far more profitable than Exxon and the like. The profit is huge, but the company is the size of Exxon is unbelievably enormous.

Let’s even compare Exxon and McDonalds. In the first quarter, Exxon brought in $116.854 billion in income, while McDonalds brought in $5.615 billion in income. That means, in terms of raw income, Exxon is the size of 20.81 McDonalds – so it would be reasonable to think that it should earn the profit of 20.81 McDonalds. Exxon reported a profit of $10.89 billion in the first quarter, while McDonalds brought in a profit of $946 million. Exxon only earned the profit of 11.51 Mcdonalds. Per dollar of revenue, McDonalds is almost doubly as profitable as Exxon – for every dollar in income, McDonalds profits 16.8 cents, while Exxon only profits 9.3 cents. Does that mean we should break up McDonalds?

Let’s say that we then put a windfall tax on Exxon and siphon away some of that profit, driving their profit down into the 4 cent range. Investors will look at Exxon and see something that they should pull their money out of. Very quickly, Exxon stops having the money necessary to get fuel to you at all. The infrastructure breaks down, no one has the capacity to pull off that large conversion of oil in the ground to gas at the pump, and gas goes ballistic in price. Since there’s no real alternative available, the United States would be hammered.

A windfall tax on the oil companies is basically foolishness. It’s not even a political question – it’s a dollars and cents question. I wouldn’t put my cash in a business that was only profiting four cents for every dollar of revenue – I’d take my cash to another business, as would most investors. If we did this, the oil companies would go away very quickly – and we don’t have the infrastructure in place to handle such a rapid shift. Imagine America if a year from now there was no gas to be had anywhere.

The solution is to put that support infrastructure in place right now. If you want to break up dependence on oil, look at individual consumer and political action. Buy highly fuel-efficient cars, or even look at all-electric options (yes, there are some). Use public transportation. Work politically to get people elected that will encourage such things – yes, even going so far as to support the Green Party, if need be. Don’t just focus on the presidential race, either – focus on the local race for Congress in your area and also for the state legislature. Who are the candidates and where do they stand on those issues? Work to support the greenest candidates by putting up signs and telling your neighbors. In other words, fight oil dependence at the revenue level, not at the profit level, while building a different transportation infrastructure.

I’m very serious about this. In fact, I’m strongly considering buying a Tesla Whitestar for our next car for most of our driving needs, even at the relatively high cost. Over a reasonable lifetime, no gas cost is potentially huge savings, as is the vastly reduced maintenance costs of having minimal moving parts in a vehicle. Pushing that curve is something that can bring about big change. If five million American families did that instead of griping about gas prices, profound changes would begin occurring very rapidly, as competitors would jump in and drive the price down, making electric cars compete in price with gas cars. When that happens, electric cars win in a landslide.

Got any questions for future mailbags or comments on the above issues? Let your voice be heard in the comments section below.

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66 thoughts on “Reader Mailbag #11

  1. If McDonalds is more profitable per dollar of revenue, why wouldn’t everyone invest in McDonalds and not invest in Exxon?

  2. Andy: McDonalds has a higher market capitalization by far compared to revenue than Exxon does. Roughly, that means the shares of McDonalds stocks are significantly more valuable per dollar of company revenue than Exxon stocks are compared to Exxon revenue. That’s because more investors were interested in McDonalds stocks and pushed that value up on the stock market – it’s more profitable and is thus more likely to hold value and pay good dividends over time, so more people would want to buy the stock.

  3. @Andy-

    Companies have different levels of profit per dollar of revenue. Obviously, investors are looking at many factors when deciding to invest in a company, not just the percentage of profit to revenue- or no one would invest in McDonald’s, either, since I doubt it has the highest profit as percent of revenue over every other company out there. In fact, investors would only invest in a handfull of companies if that were the case.

    I do think Trent makes a good point, though. When you consider the scale of the company, ‘Big Oil’ isn’t exactly raking it in. Their profit margins are less than those in several other sectors. Of course, this doesn’t make headlines about record profits from oil companies any easier to handle when gas is so expensive! ;-)

  4. Thanks for not drilling oil companies into the ground (pun intended) for making a profit. The media has fostered the idea that oil companies are somehow evil because they make money selling their product, which as you mention has an incredibly high cost to explore, acquire, refine and deliver to market.

    By comparison, look at the delivery and refinement (pasteurization) process required to deliver a gallon of milk. The per-gallon cost is nearly the same to the end consumer, but only one can power a 3,000lb. automobile nearly 30 miles!

  5. Andy: Diversification. The stocks don’t move up and down exactly the same all the time, which allows the investor who invests in both to obtain a higher return while taking on less risk (http://en.wikipedia.org/wiki/Modern_portfolio_theory).

    I love the clarity of the arguments in this blog post and I couldn’t agree more with the points being made. Great writing, Trent!

  6. Trent,

    Well said! I certainly agree that overtaxing “Big Oil” is not the solution to high gas prices in the short run, and is a disastrous solution in the long run.

    I completely agree that the solution to high gas prices is a change in consumer behavior, not any sort of top-down mandates.

  7. Consider the fact that a few years ago crude was ~$25 a barrel and a gallon of gas was about $1.25. Jump ahead to now… crude is about $125 a barrel (5x as much) and gas is $4/gal (3.2x as much).

    5x increase in raw materials cost for Oil
    But only…
    3x increase in price to the Consumer

    Now I’d say everyone is getting a great deal…

    By the way.. ExxonMobil profit is a little under 10%. Which is by no means out of line for a profitable company.

  8. I really enjoyed the bit about putting our money where our mouths are with hybrids, electric cars, public transporation and the like. If we all did that instead of complaining we would have already made the switch. However, I think it’s somewhat difficult when you’re deciding where to cast your vote due to the fact that of the two major parties, the Democrats would be considered “greener” yet they are the ones calling for taxes on “Big Oil”. Sure would be great if someone with a solid shot at winning the general election had both a heart and common sense.

  9. I’ve got a question regarding my FICO score.

    I’ve been a relatively model No Credit person (pseudo-Dave Ramsey although I wasn’t aware of him until the past 6 months) and haven’t used the first credit card I obtained for a long time. I know they say to keep a good score, you want to keep the card you’ve had open the longest. But after 36 months of no use, the credit card company closed my account, with no notice other than a letter saying ‘we closed your account due to inactivity’. Did that negatively affect my FICO score? Is there anything I can do here or am I without a paddle?

    A dollar for every mile i’m away from home? Seattle to DC? 2500 cash as the crow flies or is it driving distance? No thanks.

  10. You’re actually considering a $60K sedan? Electric or not, it hardly seems the frugal choice. The 7000 storage batteries will degrade, decreasing it’s range over time. Buy a Toyota Yaris and drive it 350,000 miles with the money you’ll save on the purchase price.

  11. I’m with you on not knocking big oil companies. We need them, and your explanation of their profits was great. Another thing to remember is that oil is a commodity, the market is setting the prices more or less.

  12. @Andy: You beat me to it:

    Oil is a commodity and the price is set by the world market, not what politicians or oil executives think it should be.

    If we decide we’re not going to buy it at those prices then the oil companies will just turn around and sell it to someone who will pay those prices. With a relatively inelastic supply of oil/gasoline the only way to bring the price down is to reduce demand. Unfortunately demand has been moving in the opposite direction for a very long time now.

  13. “You’re actually considering a $60K sedan? Electric or not, it hardly seems the frugal choice.”

    Over 100,000 miles, a normal 20 mpg sedan would eat up 5,000 gallons of gas and 33 oil changes. This car eats none of that. Based on the continually increasing cost of gas and the devaluation of the dollar, I have no reason not to expect a gallon of gas to cost $6 and an oil change to cost $50 within a few years. That’s $30,000 in gas costs and another $1,500 in oil change costs. Add on top of that the reduced wear and tear due to reduced engine parts and the fact that you’re aiding a greater change in market dynamics which will push down the cost of your next electric car by quite a bit, it seems like a pretty frugal purchase to me, especially given the social statement behind it.

  14. Thanks for that great explanation of Big Oil profits. I’ve heard explanations before of their profits but never one so clear. I guess the follow-up question to your explanation is this: Have their profit margins remained relatively stable over time, or declined as Angie (comment #8) implied? Despite their record profit levels, if the profit that Exxon reported for the first quarter is pretty much the same as it’s been for the last five or ten years (allowing for some growth, of course), I would feel much more charitable towards the big oil companies. Or, at least, I’ll feel much less hatred towards them. ;)

  15. BTW, I think your logic for the expensive car makes a lot of sense. And this proves to all the clothes line zealots that you’re not afraid to make a social statement.

  16. Thank you for explaining that oil companies are not evil.

    I would seriously consider buying a CommuterCar Tango T100 as my only car if I could get one in under a year. People are definitely more interested in fuel-efficient cars now. Priuses are barely depreciating, and people are selling their Smart cars for a premium (over the manufacturer’s selling price) on Craigslist. (The latter makes sense because the wait time for a new Smart is currently 16-18 months in the Bay Area.)

  17. Via The Big Picture (http://bigpicture.typepad.com/comments/2008/05/sp500-ex-energy.html) we get a report from Bloomberg (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB50jeKPl7gE#) that:

    “Take away Exxon Mobil Corp., Chevron Corp. and ConocoPhillips and profits at U.S. companies are the worst in at least a decade.

    Without the $70 billion that oil producers earned in the last two quarters, profits at companies in the Standard & Poor’s 500 Index tumbled 26 percent and 30.2 percent, the biggest decreases for any quarter since Bloomberg started compiling data in 1998.

    Energy companies made up almost half the income growth reported by S&P 500 companies in the first three months of 2008 as oil prices surged past $100 per barrel, the data show.”

  18. Not that it matters much from a financial standpoint as is such a small part of the cost, but won’t you still need some kind of oil or lubricant even for an electric car?

  19. I know it would probably be cheaper than gas, but shouldn’t you figure in the cost of electricity to power the car at least for the years until you buy your dream home with a wind turbine?

  20. Unthaw may be a colloquialism, but it’s really to be avoided in all writing. It’s not in Webster’s so it’s probably more a regional slang. It’s illogical (like “irregardless”) and not an improvement on “thaw,” so why use a word that purportedly means something that logically means something else (un-thaw = freeze)? To suggest that “thaw” is formal and “unthaw” informal is absurd.

  21. “What is the difference between a pattern and something that looks like a pattern?”

    Flip a coin five times. Five consecutive heads looks like a pattern, but would you bet everything you owned that the next coin flip would be heads? Of course not. It looks like a pattern but isn’t really a pattern.

  22. I love these Monday catch-all posts …

    Oil companies in reality have one job: to make money. They’d be fools not to milk it for everything it’s worth. Unfortunately,that’s easy because most Americans have designed their lives so that driving isn’t an option, but a necessity. Paul Krugman wrote an interesting essay to that point in today’s NYT.

    on the electric car front: Trent, how about the Fisker Karma? ( http://www.fiskerautomotive.com/ )it’s an extra $20k, but just so hot. Actually, that might make an interesting post in itself: the financial comparison between high efficiency gasoline, hybrid, and all-electric cars.

  23. In this context, something that “looks like a pattern” is something that appears to have meaning but is actually just a random event. For example, consider a large sequence of random numbers. If you look hard enough, you’ll find patterns that seem to have some meaning. Your birthday, your cousin’s SSN, all the prime numbers between 1 and 100. If you look for any pattern, you’ll eventually find some pattern, but that doesn’t mean that pattern has an actual information. It was just generated randomly by chance. Similarly, moves in the stock market can be correlated with other events without there necessarily being a causal reason. I believe there is a rule which predicts stock market performance in a given year based on the outcome of the superbowl. There’s apparently a strong correlation, but it seems obvious this is just random chance and there is no reason to believe the superbowl actually had an effect on the market or vice versa. If you looked hard enough you could probably find any number of correlations, ex. the country that wins the gold in female ice skating, number of children named Edward born on July 1st, change in the fequency of shark attacks, etc. These are absurd of course, but events that are more economically based could also be correlated merely by chance. For Dogs of the Dow, it may be reasonable to believe that since a stock did poorly in the previous year, it’s more likely to be undervalued now and go up this year, so there is a possible causal explanation. But it’s also possible that by chance Dogs of the Dow appears to be a good strategy rather than Stars of the Dow, or even Middle of the Pack of the Dow, and this just looks like a pattern. In that way, in can be hard to tell the difference between a pattern and something that just looks like a pattern in something as random as the stock market.

  24. Trent,

    You are predicting electric vehicles are maintenance free – they aren’t. Tesla is working on developing yet another transmission that works reliably in their current model, this is their fourth attempt. Nothing is fool-proof and trouble-proof.

    You are also expecting economic and market trends will be forever stuck at current conditions – they won’t. For about $15K new, a Yaris will provide about 30-40 miles per gallon of gas, more depending on your driving habits. If you perform your own oil changes, you’ll save a bundle versus the quick lube joints.

    Frugality is not based on social statements. Make sure you aren’t falling back into your old spending habits.

  25. I agree the Yaris is probably a better deal *for now*. But I think it might still be a good idea to buy an electric car to support the ideal. By purchasing the electric car, you’re supporting the company and allowing it to develop future models that are even better and cheaper. If nobody ever bought an electric car because they’re too expensive, the technology could never get anywhere, since there would be no money for R&D.

    Trent: I agree with your analysis of Exxon, but I do take issue with one statement you made. You said “Investors will look at Exxon and see something that they should pull their money out of. Very quickly, Exxon stops having the money necessary to get fuel to you at all.” However, a company’s stock price does not have any affect on the company’s balance sheet.

    Today Exxon is trading around $93 a share. If, say, tomorrow the stock traded at $50 a share and investors pulled out, that wouldn’t affect their income from sales, and thus their capital required for research and exploration. In short, it would not affect the company at all, and all other things being equal, most would consider this a “buying opportunity.”

    Now, if Congress passed a windfall tax, *that* would affect Exxon’s balance sheet and its bottom line, and would cause the price of gas to go ballistic, as you said.

  26. McDonald’s may be more profitable per dollar invested than Exxon, but buying fast food hamburgers is a luxury, whereas buying gasoline is a necessity. Who cares what the profit margin on a burger is, when people can simply choose not to buy it?

    Because oil is a necessity which is not price-regulated by the government, people will always mistrust the companies who provide it, and assume that they are price gouging. After all, as you pointed out, Exxon’s raison d’etre isn’t to provide a critical commodity to the public at the most reasonable price possible; it is to make as big a profit as it can for its investors. Period.

    Also, consider how much money Big Oil spends on maintaining the status quo so that we remain dependent on it. There are millions upon millions spent annually in the form of campaign contributions, full-time lobbyists, and contract kickbacks. Those things all get deducted from the “profit” figures, as expenses, but they aren’t really costs associated with the oil supply chain itself (rising price per barrel, etc.) Rather, they are dollars being spent in bad faith, to keep the oil flowing and to keep the need for oil strong.

    Frankly, why should profit margins increase ad nauseum and everyone be OK with it? Let’s say we find the 2007 profit margin of 10%, up from 8%, to be acceptable. Ok, what if next year they post a 20% profit margin? Or 30%? Or 50%? Surely there is a line in the sand, past which, we can no longer cling to free market Capitalism as the ideal price regulation model, when it comes to a commodity as vitally important as oil currently is.

    This is like arguing that free market health care is the ideal model. Sure, eventually the market will bear out what is affordable and what is ludicrous. But in the interim years, some people will die from lack of adequate health care. The market corrections (in health care or oil) are not fast enough to prevent people from suffering while they happen.

    In short, I’m not certain I can agree with the assertion that oil companies aren’t acting as bad social citizens by turning large profits. The only reason they can do so is because we haven’t regulated the industry, and they spend a lot of money on Capitol Hill to make sure we never will. It’s dirty.

  27. Nobody’s yet mentioned the new “clean” diesels coming back to the U.S. starting this year, e.g. the 2009 VW Jetta or Sportwagen TDi – much better mileage than their petrol-powered brethern.

    Next year we’re also supposed to get the Accord diesel.

    I’d love to buy the Volt or Whitestar in a few years, but until then, high-efficiency turbodiesels are another option.

  28. A good way to keep track of receipts is to use a coupon organizer. I labeled each section of mine for different bank accounts and credit cards. I keep receipts in there until a statement comes, in the mail or online. I keep receipts for home improvements and larger purchases for long term storage in envelopes by store and year in a file box. (ex: Home Depot 2008) The coupon organizers also work great for gift cards, car wash books and coupons with longer expiration dates. I keep these by month and separate out which ones have no expiration dates.

  29. Trent,

    “Over 100,000 miles, a normal 20 mpg sedan would eat up 5,000 gallons of gas and 33 oil changes. This car eats none of that. Based on the continually increasing cost of gas and the devaluation of the dollar, I have no reason not to expect a gallon of gas to cost $6 and an oil change to cost $50 within a few years. That’s $30,000 in gas costs and another $1,500 in oil change costs. Add on top of that the reduced wear and tear due to reduced engine parts and the fact that you’re aiding a greater change in market dynamics which will push down the cost of your next electric car by quite a bit, it seems like a pretty frugal purchase to me, especially given the social statement behind it.”

    I don’t mind when you do the math to justify your decision, but you REALLY breezed over a lot here and made plenty of assumptions.

    First off, gas is not currently $6 a gallon. Your betting on the fact that gas will AVERAGE $6 over the course of that 100,000 miles. Also, you are betting against the dollar. These may be true I would still consider them risky assumptions.

    Second, anyone in a frugal mindset would not change their oil every 3,000 miles. Most cars now days can go 5,000 or more. Synthetics will push that even higher.

    Third, many new 4 door cars that would be used for every day driving can be bought for under $20,000-$25,000 and are getting in the 25-30 gallon range around town, not 20.

    Fourth, you never factored in the cost to recharge the Whitestar from the grid. If you go with the hybrid Whitestar then you still have a gas engine and thus the wear and tear you factored out.

    Fifth, the cost of replacing the battery pack was not factored in. That can be expensive and is not generally covered under warranty. When something does break, who is going to be able to work on it? Probably only Tesla Motors. Hope they put a dealership near you or might be in for some expensive towing fees.

    Sixth, making a social statement should never be ANY justification for buying something.

    I’m not saying you are wrong to buy the car, but for someone who likes to “do the numbers” you were pretty biased towards justifying your mindset.

  30. Thanks for the replies. I misunderstood pattern to mean something like “consistent sequence.” I just learned that it has the same root as “father.”

  31. “I’m not saying you are wrong to buy the car, but for someone who likes to “do the numbers” you were pretty biased towards justifying your mindset.”

    Carl looked at nothing but the sticker price, implying that there was no extra benefit. I was pointing out quickly that there is a cost savings, not doing a deep and detailed analysis – a back-of-the-napkin comment. That’s what comments are – comments, not researched articles.

  32. Lurker Carl: “Frugality is not based on social statements.”

    That’s not true at all, unless your values are completely money-oriented. Frugality is about finding the maximum value for any situation. Looking solely at money and not at any other factor is unhealthy behavior – values are about more than money.

  33. Amanda B, Let’s not sidetrack the discussion with frivolous hypotheticals. We’re not talking about teenagers, we’re talking about adults who need to get to a job.

    If for you, owning a vehicle is optional, great. I can only assume you live in a city or other urban area with adequate public transportation.

    Where I live, you need a vehicle with either snow tires or four-wheel-drive to get to work several months out of the year. There is no local bus, there is no subway, and it is definitely too far to walk. To be employed here, you need a car. Period.

    You could say “Well then move to a city, John.” But that would not change the fact that, to live here, you need a car, and therefore, gas (until electric alternatives are made sufficiently available.)

    Any time one doesn’t live within walking distance of one’s job and public transit is not available, some form of transportation is a necessity for that individual.

    Unless you’re suggesting that either
    a) any part of the country without public transit should be immediately evacuated, or
    b) people don’t need jobs

    I’m going to have to disagree with you Amanda.

  34. Diesel powered cars are coming back to the US and getting 50+ mpg (I miss my 80mpg Rabbit every time I fuel up). An even better solution IMO is converting them to BioDiesel once the warenty is gone, and even better then that that will be the plugin/diesel generator/electric engine versions.

  35. “I was pointing out quickly that there is a cost savings, not doing a deep and detailed analysis – a back-of-the-napkin comment. That’s what comments are – comments, not researched articles.”

    Back of the napkin cost savings should still get in the same ballpark as actual researched savings.

    My point was the bias of your numbers. For instance, I can say that by riding the bus to work instead of driving my car I save $70 a month in gas. (I’m really close to work). Sounds great right, if that’s all I mentioned? But a bus pass for my zone would cost almost $100.00. My original calculation of savings is biased only towards one factor: saving gas. Even if it was only a quick and dirty calculation, it was still very wrong.

  36. A few comments on the electric car –

    1.You could buy a 30+ MPG car for a lot less

    2.What about the cost of electricity? Have you factored that in?

    3.If you are looking for a “social statement,” the electricity for this car has to come from somewhere be it water, nuclear, wind, or fossil fuels. At least part of the power is coming from fossil fuels so I don’t see the social statement.

    Bottom line, if you want an electric car buy one. But I don’t think it’s frugal no matter how much you jigger the numbers.

  37. I don’t get it. You adequately explain how/why the drama regarding Big Oil is overblown, and explain why excess taxes on them would lead to disaster, and then advocate supporting those groups (the green party) that would do just that. Please explain further, as I clearly must be missing something.

  38. RE: electric cars & hydocarbons

    Trent,

    I think a few others have brought up a huge issue here: the cost of the electricity from the grid. But that’s just scratching the surface.

    It’s a bit of a pet peeve of mine that the general public seems to think electricity is more or a less a natural resource. The thinking is along the lines of “If everyone just drove electric cars then we wouldn’t need hydrocarbons and we could stop global warming!!!”.

    Everyone ignores the source of the electricity. *Pause for a google search* According to wikipedia, the US relies on fossil fuels for about 70% of all electricity (50% coal, 20% natural gas). Rewenables account for something less than 5%. Meanwhile burning fossil fuels releases CO2 to the atmosphere (I’m pretty sure I’ve heard that Coal power plants are the number 1 source of CO2 emissions worldwide).

    I won’t get into a long discussion about possibilities of other energy sources or CO2 or global warming, but I just wanted to make sure we didn’t keep talking like electricity is free and appears magically in your little wall socket without emmitting any CO2 throughout production or distribution.

  39. Giff:

    Nicely put.

    Looking at electricity used from a purely economic standpoint, if everyone switched to grid powered vehicles today the grid couldn’t provide enough power. Pure economics would then dictate that the price of electricity would go up. Trents analysis ignores that also.

  40. @Giff

    It seems ignorance is bliss for a lot of people. Because they don’t see harmful emissions coming out the back of their tailpipe they assume the car is clean. Quite an interesting concept. Just because it isn’t visible to you doesn’t mean that there are no emissions as a byproduct of your energy usage. I won’t even get started in the topic of the average lifespan of electric cars and how the technology is still in infant stage. By the time it is fully developed where it can replace gasoline completely, we will need a solution that involves a renewable energy source. Instead we should be developing cars that use a combination of hydrogen fuel cells and that charge their battery via solar power cells. (Considering the batter isn’t 4 cubic feet this shouldn’t be a problem).

    Right now if you were to “gallonize” electricity for electric cars, it costs about $1 per gallon. It too is getting worse by the minute. But what you also have to factor is, how much more is my electric bill going to be as well?

  41. @Angie, re: “5x increase in raw materials cost for Oil
    But only…
    3x increase in price to the Consumer
    Now I’d say everyone is getting a great deal”

    No we’re not getting a great deal. The reason gas prices don’t increase directly proportional to oil prices is that taxes, distribution and refining aren’t going up as much as the oil.

    A significant % of the cost of gasoline we pay at the pump is not directly tied to the cost of oil. State and federal taxes are about $0.43 a gallon and if oil increases 200% that does not the cost of taxes.

    In 2005 a barrel of oil was $50 and gas was $2.27. The cost of oil contributed 53% of the cost of gasoline and 47% was other factors. So thats about $1.07 in other costs per gallon of gas.

    See:
    http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/primer_on_gasoline_prices/html/petbro.html

    Jim

  42. “It’s a bit of a pet peeve of mine that the general public seems to think electricity is more or a less a natural resource.”

    I live in Iowa. Iowa is rapidly moving to wind energy. There are wind turbines all over the place. Iowa is the top wind-energy producing state in the country (note when you read this article that I live in northern Iowa): http://www.radioiowa.com/gestalt/go.cfm?objectid=1020566A-0974-9C95-ACA39A101E5425D6

    I’ve even discussed installing my own personal wind turbine and selling the excess energy generated back to the grid:
    http://www.thesimpledollar.com/2007/04/21/looking-at-the-costs-and-benefits-of-installing-a-windmill-wind-turbine/

    The solution to renewable energy is in things like that. I’m proud to be living in a place that’s actually doing it.

    “I don’t get it. You adequately explain how/why the drama regarding Big Oil is overblown, and explain why excess taxes on them would lead to disaster, and then advocate supporting those groups (the green party) that would do just that. Please explain further, as I clearly must be missing something.”

    I encouraged people to look beyond the two major parties when researching issues. The Green Party is the first place I’d look if I were researching candidates for strong stances on green issues.

    Besides, I’m not sure your stance is right on the Greens. This article seems to imply that they oppose the windfall tax:
    http://www.alternattiva.org.mt/page.asp?p=12867&l=1

    A quote: “While the Greens can understand the sentiment of people like Dr Frank Portelli, who recently argued in favour of the imposition of a windfall tax, we do not favour such because windfall taxes should be levelled on windfall profits that must, by definition, be extraordinary in nature. The record profits of public companies are structural in nature, not extraordinary.”

    There may be local Green candidates or national Green parties who are in favor of windfall taxes. Do the research and find out what your national and local Green candidates think about such issues, and don’t overlook those parties because they’re not “viable.” You won’t get the change you want unless you vote for it.

  43. Part of the inreasing cost of oil is due to the drop in the value of the US dollar. Its not just that oil is more expensive, its also cause our dollar buys much less.

    For example: Back in ’99-’00 a US dollar was worth about 1 Euro. But today a dollar is only worth 0.64 Euro So if a barrel of oil went up from $30 in 99 to $120 today it only went from 30 Euro to about 77 Euro. Thats a 300% increase in US dollars but only a 157% increase in EUros.

    If the US dollar gets stronger in the future, then the oil prices will look much better to us here in the US.

    Jim

  44. Great news about you installing a wind turbine in your yard….have you asked your neighbors? Well, at least your new car will fit into your neighborhood “culture”.

  45. I looked at sticker price for the Tesla Whitestar because there simply isn’t any other data about this automobile. The Whitestar that Trent is strongly considering purchasing doesn’t have a finalized body or drivetrain design, this model is still on the drawing board.

    Tesla has currently been building a $100K roadster for about two months; quality, dependability and longevity are unknown. The company says the battery pack (about 7000 Li-ion laptop battery cells) weighs about 1/2 ton and estimates the replacement costs $20K at around 100,000 miles.

    I think the social statement of owning the car would say status.

  46. Lurker Carl: “I think the social statement of owning the car would say status.”

    And then when no one adopts an electric car, it flops. You’ve got to stand for something or you’ll fall for anything, Carl. I choose to stand for getting us off of oil dependence – and that adds a lot of value to purchases I make that fulfill those ends. It’s much the same as the reason people would choose to buy organic foods – there is more to value than dollars and cents.

  47. @John S

    Your argument assumes that public transit, or lack thereof, is a given – that it’s either there or it’s not, and there’s nothing anyone can do about it – which is not the case. If there’s more demand for public transit that can be satisfied in an efficient way, communities will provide more public transit. If there’s less demand, or if satisfying the demand becomes less efficient, then communities will provide less.

    The way I see it, the reason that public transit is not a practical option in so much of the US is that over the years, many individual people have made many individual decisions to live in lower-density residential areas, to claim “their own space” in the suburbs and live far from their neighbors. So it will take many individual decisions by many individual people to reverse that trend. You can be one of them.

    I don’t know where you live, but I bet that you could move closer to your workplace if you made it a priority. Probably you could move to within a mile or two (i.e., not too far to walk) if you really wanted to. If everybody did that, then eventually we’d have higher-density communities that could be efficiently served by public transportation.

  48. Big oil is in business to create big profits. that means charging as much as possible for their products. which they do. they have no incentive to bring oil to consumers at a lower price and in fact they have a responsiblity to their stakeholdes to charge as high a price as possible. this is capitalism at its finest. the question is, is this the way we want to live? Look at all the places where oil is plentiful and you will see massive poverty and tyranny. because so few control the flow of oil.

  49. I live in the UK and a few homes have wind turbines for personal use, but the zoning approval is fairly difficult to ocme by. I can’t imagine your clothesline phobic neighbor would approve.

  50. What is your opinion on starting a business in today’s economy? I’m a young 25 year old that wants to own her own Pet Supplies store to educate people on how their companion animals can live long healthy lives. I wouldn’t be selling or breeding animals but possibly helping out the local humane society by showcasing some of their animals on a weekly / weekend basis. My dad thinks it’s a great idea since there are no local supply stores within a half hour of where I would want to be and he would be willing to become an “investor”.
    I’m concerned about the economy and how it’s effecting the lives of people who can’t or don’t want to spend the kind of money they used to on their pets.
    Thanks Trent!

  51. Johanna:

    It’s a nice idea, but you are glossing over the significant decreases in lifestyle moving closer to a workplace involves (for most people).

    For example: Living in a crime-ridden inner-city neighborhood vs. in a quiet suburb; living in a 600-sq-foot apartment vs a 1200-sq-foot house with a yard; a couple living on two moderate incomes vs. needing to bring one income up far enough to justify the other person quitting their job or vastly increasing their commute…. not to mention amenities like grocery stores and recreational facilities. Very few people are willing to give up all of that to “eventually” get a nice high-density neighborhood.

    My husband and I WANTED to live close to his job (I bounce around from job to job, so his workplace is more of an anchor for us) – we could not afford to live closer than 10 miles away unless we wanted to make the trade-offs I listed (high crime area, living in an apartment half the size, no access to amenities). And even when we lived 10 miles away, there was no reasonable way to get public transportation to where we needed to go. Trains ran from our town, and trains ran to our workplace(s), but the two trains only met 50 miles away.

    We now own a house 30 miles from his job, but it’s a straight shot on the expressway; and now we can walk to the grocery store, restaurants, and the mall (an option we didn’t have before).

  52. @Johanna

    I have to second what Anitra had to say.

    In my case, moving closer to my husband’s job (and thus farther away from mine) would mean moving to an expensive suburb, which is surrounded by more businesses and not so much residential. Apartments in that area run what we currently pay in a mortgage, and the median home price is double our current home. Our goal is to eventually shorten/eliminate the (extreme) commute, but it’s going to take a few more years.

    At least for the major city we live near, there are equal numbers of people commuting in both directions from in and out of the city. You have people living in the city who commute to the burbs and vice versa.

    Also, I’d have to argue that most people think of cities using the concentric zone model which doesn’t apply to many cities, particularly the non-major (i.e. not LA, Chicago, or NYC) cities these days. Commerce is not exactly centered, but spread out, and downtown areas are dying, if not dead. This makes having an efficient public transport system in place very difficult. The structure needs to change but doing so will take time and efforts from the general public, developers and government. Ending sprawl is a start, but how does it get reversed without turning it into a noveau inner city?

  53. Wait a minute. You’re thinking about installing a potentially noisy wind turbine, but you won’t install a quiet clothesline (even one that’s retractable and can be hidden out of sight when not in use)?

    Google “wind turbine noise” and see what comes up. You claim to want to not make your neighbors unhappy. These things don’t seem like they will help you accomplish that goal if it is truly important to you.

    Are you saying, in effect, that you are willing to annoy your neighbors (and yes, the constant noise/blocking their view could potentially drag down property values not only for you but also for your neighbors) because it will bring you money from the utility company?

  54. The Tesla car — until it has a track record, can be repaired at reasonable cost, and there are more available service centers — is a clear sucker’s buy.

    Still, I’m curious what the insurance is on something like this.

  55. ‘unthaw’ is wrong- there can be no debate. :)

    What the Tesla cars have done so far is pretty amazing, though we are clearly still a long way off. I would consider spending more for one of these cars if it helped the production of more of them down the road at a lower cost, but again, I still think we have many years to wait.

  56. “I’ve even discussed installing my own personal wind turbine and selling the excess energy generated back to the grid:”

    How come you’re OK with installing a big ol’ wind turbine on your property but not a clothesline? Wasn’t your reasoning that you’re trying to look out for your neighbors? Somehow I don’t think they would appreciate a wind turbine if they aren’t going to like a clothesline.

  57. a few people in Bangalore are using a mini electric car for local commute. still more are using electric bikes/scooters for daily running of 35 miles or less. electric bikes/scooters seem to be ideal for small-town India. It could also work in the US.

    “http://www.revaindia.com/” may be useful.

    Satej Datar.

  58. I have a question, because you are so good at figuring out the most cost effective thing to do.
    My daughter will start First grade next year, and I’m curious as to whether I should have her buy school lunch or make her lunches at home. What do you think is the most cost effective option? Is the time saved worth the money saved? School lunch is $1.50 per day. Thanks for any help.

  59. After reading pretty much all of the comments, I have to say that while automobile travel is not a necessity, it tends to approach it in the US. We’ve built cities, suburbs, etc. on the back of cheap individual transportation.

    Suburbs alone are not evil. But most are designed with a plan of a bunch of cookie-cutter houses and little or nothing else. (Drive down Denver’s expressway if you want to see just how UGLY this can look/be.)

    If you live in this type of suburb and want just about anything you must drive. Drive to/from your job, school, the store, etc. More sustainable plans are being created which mix stores, parks and apartments in with the single-home lots. (It looks surprisingly like an old fasioned community actually.) Most things are within walking/biking distance for most

    The main point though is that unless we change a lot more than gas prices, we are going to remain at the whims of the big oil companies and the market. While Trent’s (potential) car choice is by no means cheap, it will take more of us doing something like that to fix what is wrong right now.

    More of us need to get involved. No bike lanes in your city… start a petition to add some next time the roads are redone. Is there too little public transportation? When is the last time you took the bus? Kind of a catch 22… I don’t take the bus because there isn’t enough service yet the bus lines won’t expand if nobody uses what they have now.

  60. Nice answer to the oil question. The problem isn’t with the oil companies. As long as people keep needing oil, they will keep selling it to us at whatever price is necessary for them to make a good profit.

    Even if Exxon had higher profit margins that McDonald’s I still wouldn’t be that upset, since oil is far riskier than food to produce, not only in terms of capital, but also in terms of an even more valuable asset: human life.

    Your argument that we need to decrease demand for oil is spot on. Economists always attempt to remind us that we can say whatever we want, but that when it comes to business, we vote with our dollars. People hate Wal-Mart, yet they are one of the largest companies in the world. Why? Because millions upon millions of people spend a lot of money there, despite what the popular opinion might be. Same goes for the oil companies. As long as we keep buying oil, they will keep selling it. It would be ridiculous to expect them to lose money doing it just because we think they’re charging too much.

    If you do want to criticize someone on the supply side, you must go all the way to the source. Take a look at the United Arab Emirates. They are making money hand over fist thanks to us. Countries like the United States and Japan are living solid existences making the most technologically advanced stuff in the world, while the UAE builds palaces because of something that flows out of the ground? THAT, my friends, is TRULY unfair.

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