Sunday, January 24, 2010
Posted by Jeff Lipshaw
I drove down the famous Emerald Necklace to Dedham, Massachusetts, a town square tucked away next to the strip malls on US-1 just before it intersects with I-95 on the way down to Providence. It turns out Dedham has the only winter-friendly outdoor golf range anywhere near where I live, and I got the urge to hit golf balls. While I was there, I took in Crazy Heart, and loved it.
Dedham holds a special place in my memories, but not because I'd ever been there. My first real scholarly excitement came from several teachers in the University of Michigan's History Department in the early 1970s - Andy Achenbaum, who was a graduate student and went on to be one of the leading historians of old age* in the United States, and one of his mentors, Kenneth Lockridge, who taught the survey course on U.S. history before 1877 (that's the end of Reconstruction). Lockridge was one of a number of young historians doing detailed social history on early New England towns. Lockridge's town was Dedham, founded in 1636 as a utopian community, later the county seat of Norfolk County and a commercial center, and now a quaint square overwhelmed by the highway just to the east, but nevertheless maintaining an all-year driving range.
When I got home, I flipped through Lockridge's A New England Town: The First One Hundred Years, complete with the marginalia I put there as a nineteen year old undergrad, and was struck by the subtlety of the theorizing. What is the historian's theoretical project anyway? One deals in a thesis, not a model. "Interdependence." "Modernization." One realizes that the underlying subject is inordinately complex and one is thus respectful of it and humble in the assertion of all-encompassing, unifying answers. Lawyers and economics create models, and defend the models at all costs. Maybe it's because they think they are scientists.
Tuesday, September 29, 2009
Posted by Jeff Lipshaw
Somebody had ripped my gym's Time, the one with Glenn Beck on the cover, to shreds, so I was reduced to reading the October 2009 edition of Money or this month's edition of Club Management. I went with the Money, and read an article (pp. 25-27) that made me wonder what kind of financial planners and economists they are hiring over there. Also, since I've been giving financial advice in the blogosphere anyway, why stop now?
The article says that lending to relatives could be a sweet deal. Son can only get a 9% interest on a $100,000 home equity loan (for you finance rookies, that's one secured by a second mortgage on your house). Dad has some money just sitting there earning 1% or 2% in a money market account or savings account. So he lends $100,000 to Son at 6% and everybody is happy.
Wait a minute. Now, in fairness, the author lists several cautions, but misses the most important ones. I often criticize welfare economics consequentialism that goes to one extreme in assuming that every perception or value or duty held by an individual is ultimately a matter of utility (read some of the early Posner on rational actor sex and love), even if the measure is somewhat difficult. That is, in that view, people don't engage in charity out of altruism; they do it because they get some kind of material, psychic, or other benefit from it. This odd financial advice from Money (of all people!) goes to the other extreme, and fails to put ANY cost into the equation for the effect of love, harmony, conflict avoidance, divorce, mental anguish, public embarrassment, or the like when you lend a lot of money to a relative, and it's not getting paid back.
For example, nowhere does it discuss getting security for the loan. The bank was willing to lend at 9% AND TOSS SONNY OUT OF HIS HOUSE IF HE DIDN'T REPAY! Dad is lending at 6% on an unsecured basis? Or even if he takes a second mortgage, is he really going to foreclose and evict his grandkids? And we haven't done anything yet to put a cost on the tension you can cut with a ham carving knife (unless it's Honey Baked Spiral Sliced) at Christmas or the matzoh kugel ladle at Passover when Son and the spouse and kids went to Disneyworld the week before and said, "oh, we'll pay you at the end of the summer."
The point is that there are costs that are hard to measure, and so Dad's real cost here isn't $100,000 and his real return isn't 6%. It's something a lot more than $100,000, and that reduces his effective yield on the money substantially. It's NOT a sweet economic deal for Dad unless none of that peace, love, and family harmony stuff means anything to him. I say this as a child who borrowed from parents, and as a parent who stands prepared to help out his children: if you think of that loan as anything other than a contingent gift, you are smoking the drapes.
You know what? I don't think the truth about whether those intangible can be reduced to money lies at either extreme - it's probably somewhere in the middle. Aristotle* would be proud of me, I think.