In Texas the free market is expensive

 

We’ve learned a lot about Texas in the past few days. Their infrastructure is woefully inadequate, their governor hates government and their utilities are free from federal regulation so when demand rises, so do prices—without limits—even for necessities like heat and water.

But hey, that’s fine because in the words of Texan and former Secretary of Energy Rick Perry “Texans would be without electricity for longer than three days to keep the federal government out of their business.” 

That may be true of wealthy Texans, but it’s debatable whether the folks whose roofs caved in from burst water pipes and must now boil water (without any heat) would agree.

Last night on MSNBC the price of electricity was cited as under $30 per megawatt-hour before the recent storm. It’s now over $9000 per megawatt-hour. That is not a typo. People who haven’t yet frozen to death can now look forward to going bankrupt.

Those whose pipes froze can also expect hefty bills to clean up the mess from water spilling into electrical fixtures, causing ceilings to crash to the floor and ruining their personal belongings. If the utility company isn’t required to keep rates reasonable, we can only imagine what the water damage clean-up will cost. And let’s not be naïve about how much their insurance will cover.

To be fair, a lot of Texans are rushing to the service of others. But no amount of neighborly assistance can mitigate the financial hardship many Texans now face.

One woman was cited $3000 for a plumber just to assess the damage to her home. Yes, demand is high, but how can anyone with a conscience justify $3000 for an assessment? Given how busy plumbers are, the work is more plentiful than ever. They won’t have to advertise or look for work any time in the foreseeable future. So, what do they do? They up their prices until only the rich can afford their services. By the time this series of crises is over, the average Texan will owe his entire life savings to someone.

You might think the government should step in to help, but let’s be real, they caused this problem. Their insistence that government is bad has meant that government officials now feel free to simply not govern at all.

Tim Boyd, former Mayor of Colorado City, made his position clear in a Facebook post that said, “No one owes you are (sic) your family anything, nor is it the local government's responsibility to support you during trying times like this…Only the strong will survive and the weak will parish (sic)." Boyd wrote.

Apparently, it doesn’t matter to him that the government who refuses to take responsibility for this catastrophe is the source of it.

Texas Governor Gregory Abbott tried to point the finger at renewable energy, but only about 10% of Texas’ energy comes from renewables. It is the failure to weatherize pipelines and instruments controlling energy generated from fossil fuels and nuclear energy that led to the horror show Texans are living with today. And it was the state government of Texas that created that failure.

As Democratic state Rep. James Talarico said in the Charlotte Observer, “It's almost like a murder suspect blaming their right hand for committing the crime."

There is a reason for Abbott’s refusal to lay blame where it belongs: The oil and gas industries are Texas’ largest industries and biggest political contributors. Since he can’t blame them, and is unwilling to take any responsibility for the government’s failure to ensure they do the right thing, he’s trying everything else.

After his failure to credibly blame renewable energy, he turned his ire to ERCOT (Electric Reliability Council of Texas)—an ironic moniker if ever there was one.

But even that excuse fell apart when Bill Magness, chief executive of ERCOT came right out and said he thought Texas “had better prepared for such cold.”

The reason he thought that was because ERCOT had issued a report over ten years ago, in which it was recommended that generators winterize their equipment—including suggesting that pipes be insulated.

Now Governor Abbott is calling for reform at ERCOT, but the state Public Utilities Commission is responsible for overseeing ERCOT and it was the state that chose not to implement their earlier recommendations. Apparently, in Texas, the buck never stops.

Another reason for the prolonged outages is that Texas is the only state to use its own power grid. “That frees it from federal regulations, including ones that could have required it to be better prepared for a freak cold snap,” said Peter Fox-Penner, the founder of Boston University’s Institute for Sustainable Energy.

Freedom from interference by the Federal Government is the bedrock of Texas politics. That and an almost maniacal insistence that the free market is the only regulator they need. But as we can see that thinking is flawed. As mentioned in one of my prior posts, the so-called free market is anything but. It provides the perfect opportunity for those with money and other resources to take advantage of those less fortunate. There is no rising tide lifting all boats. It’s more like a yacht coming into harbor and pushing all the little boats under water or crashing them into the pier.

It’s one thing to use a simple supply and demand formula for luxuries, it’s another to apply that to necessities. Democrats know this; Republicans do not. Or perhaps, they just don’t care.

As former democratic presidential candidate Beto O’Rourke said in his recent interview with Mika Brzezinski on Morning Joe, “This is what happens when a state is governed by those who don’t believe in government.”

There is only one way out for Texas: it’s time to go blue.

Five simple steps to securing your financial future

Since the furor over the shorting of GameStop stocks began, we’ve seen a flurry of trading. Despite angry gamers and newbie traders buying the brick-and-mortar company’s stock to stick it to big investors, the stock has tumbled, dramatically.

From its high of a little over a week ago, at $490/share, it now sits at a paltry $63.77/share. Now that the initial excitement has worn off, it’s likely to continue to plummet. Granted, it’s still higher than the pre-pandemic price of $4/share, but if you are an activist trader who was planning to gloat over the damage you’ve done to institutional investors, you may have done so at your own expense.

As promised in my last piece, here is some sound advice (gleaned from a lot of online reading, Suze Orman, and my own experience) to help you play it safer going forward. This is not a comprehensive investing guide, it’s more of an outline for one way to invest safely, without having to study the market or worry that you’ll lose it all in a bad bet.

If you have a company 401k, IRA, or Roth IRA, you have a huge advantage. If you don’t have company sponsored retirement accounts, consider setting up a regular (traditional) IRA or a Roth IRA. Traditional IRAs are pre-tax, so whatever you contribute, up to a certain amount, is tax-free—until you withdraw it.

With a Roth IRA, you’ll have to pay taxes on the money you invest, but not on the profits from it—provided you follow all the rules. The amounts you can contribute to non-employer-sponsored retirement accounts is limited. However, you can continue to invest additional income outside of any retirement accounts you may have.

Here’s how:

1: Buy index funds. These combine a lot of different companies from various sectors. They are meant to mirror the indices (hence, the name) and typically do as well or better than the overall market. In the examples below, we’ve used 5% interest, compounded annually. But the latest figures show the historical market return is closer to 10%. So, think of these examples as the minimum you can expect, with twice as much, potentially.

2: Pay your taxes. If you think keeping money you earn on the sly (without reporting it to the government) is helping you, think again. If you pay taxes, some of it will go toward your social security payments when you are no longer working. The more you pay in, the more you get out. Don’t cheat your future by spending that money on toys or lattes.

3: Know the future value of your money. Speaking of lattes—if you buy one a day for $5 a pop, just five days a week, that’s $100/month. Invest that in index funds compounded at 5% annually and in 40 years you’ll end up with a little over $148k. Over $100k of that is interest—or free money. Think of it this way: a latte you spend $5 on now, will cost you roughly $15.50 in future income. And that’s an extremely conservative estimate. It could cost as much as $31.00.

(Yes, 40 years sounds like a long time. But we are talking about your retirement, not fun money for a vacation or a flashy car. Besides, talk to anyone over 60 and they’ll tell you 40 years goes by a heck of a lot faster than you might expect.)

5. Be realistic. Many people don’t have a lot of expendable income to invest. If you are one of them, rather than pick a set amount to invest each month, base it on a percentage of your income. This way, you will still invest a little each month, but won’t put yourself in a position where you feel like you’ve failed when you can’t meet the figure you’ve set for yourself.  When you get promoted or move on to a better job, keep that same percentage and your investment will go up accordingly. 

4: Invest and forget about it. Avoid the trap of trying to beat the market and/or invest based on emotion. There will be ups and downs. Investing in your future is a long game. If you are consistent and don’t take money out until you retire, you’ll win. It’s that simple. If you make the mistake of withdrawing it early, you’ll not only lose your investment, but depending on the circumstances, you could pay a lot more in taxes and/or penalties too.

5. Take advantage of free resources. You may find that understanding the market a little helps you maintain your discipline. Here are some of my favorite places to go for information:

·       Bankrate.com – This site has a lot of information as well as a set of easy-to-use calculators for things like mortgage payments and compound interest. If you’re tempted to spend on something frivolous, use their compound interest calculator to see what that will cost you in investment dollars. It’s a good way to reinforce the decision to invest vs. spend.

·       ThePennyHoarder.com – Another good site for information about investing.

·       E-Trade – This is just one of many websites where you can open a free account and start saving. You can research funds on this site to see how much the management fees will cost (a good rule is to avoid any that charge more than .1% annually) check out their historical performance and see what analysts say about them. You can also see a list of companies each fund invests in so you can avoid those you don’t feel comfortable with.

·       Suze Orman – She’s on PBS all the time, usually during pledge nights. She often talks directly to audience members who want to splurge on big ticket items. If they can afford what they want, she confirms it. If they can’t, she tells them why. (You can also click on the link, above, and go directly to her videos online.)

·       suzeorman.com – If you don’t like her videos you can still benefit from her wisdom by going to her website. You can really nerd out here. There are various tools for creating your own retirement plan, which is a lot more comprehensive that simply investing well. Think about life insurance (if you have dependents—otherwise, don’t waste your money) and long-term health coverage in addition to what you can realistically expect from social security. There is a lot more than I can cover here and she’s the expert, so take advantage of the free advice.

·       Social Security website – Register with them so you can look up what you can expect to collect when you retire. Keep in mind that while you may start collecting as early as 62 (varies based on what year you were born) you will gain an additional 8% year if you postpone collecting until you reach a certain age. That could result in an increase of several hundred dollars per month.

Don’t forget to check your mindset. If you believe money is the root of all evil, none of this will work for you. Money is a tool. It can help you survive, but it can also create additional challenges. Money won’t improve your relationships, heal past wounds, or keep you from being lonely. It’s a practical tool for solving practical problems. The real solution to a better life is having healthy relationships, enough money to live comfortably (not necessarily luxuriously) and a way to spend your time that brings personal satisfaction. In other words, while money is necessary, it’s important to keep it in perspective.

The truth is nobody is going to take care of you, that’s your job. Be smart, be prepared and start now. Unless you already retired and have an adequate retirement income, money saved and invested is more valuable than money spent.