toosigma

Consider the following tales:

• Alice hires Bob to build a house and they agree to a payment of $100,000 for the service. Bob completes his work, receives his payment, and goes on his way. Fifteen years later, however, Bob decides that he deserves more money. He asks for another $100,000 - the law forces Alice to pay up. Bob keeps coming back, every few years, and extorts a new sum.
• Alice wants a house. Bob is a house builder. They hire Charlie, a lawyer, to put together a fair contract so that Bob can build a house for Alice. They eventually settle on the details, and Bob will be paid $100,000 for his services. After the house is finished, just before Alice moves in, Bob decides he deserves more money. He gets together with Charlie and rewrites the contract, extorting an additional $100,000 from Alice. Reluctantly, Alice eventually scrapes together the funds, and pays the new fee. Unfortunately, just before she takes up residence, Bob gets together with Charlie again to rewrite the contract. This time, the contract states that Bob gets the house, and Alice has to pay $10,000 per year for the next 20 years to have any chance of ever taking up residence. Frustrated but without any recourse, Alice waits patiently for the term to expire, during which time, Bob dies. Bob's daughter DeeDee decides that she likes the house too much, so she gets together with Charlie and revises the contract yet again, tacking on an additional 40-year term to the previous contract.
• Alice hires Bob to build a house. They both hire Charlie to negotiate a fair contract. Being short of cash, Alice agrees to supply the land, while Bob supplies the parts and labor to build the actual house. In exchange, Bob gets to live in the house (or rent it out, or do whatever) for fourteen years, after which Alice takes possession. They both agree to the terms, Bob builds the house and moves in for a few years, then rents the place out for a few more, recovering his expenses. The fourteen year term is about to expire, so he asks Charlie for an extension - and gets another 14 years to live in the house. Alice is a little perturbed, but figures she'll still get to move in eventually. Of course, Bob asks for extension after extension, and after he dies, his descendants keep getting extensions, and Alice never gets to move in.

Can anyone honestly say that Alice isn't being screwed in these stories?

Substitute the American Public for Alice, Intellectual Property owners for Bob and his descendants, and Congress for Charlie, and you've got a pretty accurate picture of US Copyright since 1910. Every single copyright extension has been a massive theft of value from the American public. It's time we started getting angry about it.

In my daily perusal of news, I stumbled across the South Carolina Powerball results. The question posed in the article is definitely thought provoking, and I decided to share my results here. This is basically my plan for pretty much any windfall, but includes a few more details on specifically what I would buy.

• 40% ($103 million) - reserved for the tax man's inevitable visit in a savings account. Any surplus after the visit gets dumped into the next category
• 30% ($103 million) - held until I can determine the best means of investment. With a smaller sum, it would likely start in a savings account, and then invested in index funds over the course of 6-12 months (to take advantage of dollar-cost averaging). With something this size, I'm not really sure where to begin, and would likely retain the services of a professional financial planner, at least until I have a better grasp on the magnitude of my holdings. In this specific case, I'd consider building some sort of education endowment or scholarship fund or contributing , without touching the principal.

• 10% ($26 million) - donated to a worthy charity. Specifically, I'd probably give to the Children's Scholarship Fund, though I'd probably also consider breaking it up into smaller pieces and donating to multiple charities.

• 5% ($13 million) - invested for the long term using my current plans. In my case that means beefing up my Roth IRA and index fund portfolio
• 1% ($2.6 million) - spent on friends and family - in order, paying off any outstanding debts, financing education, providing for basic necessities, start-up capital for a small business. Specifically, right now I'd first finance my brother's nursing education, then help my sister and her husband pay off their mortgage, then invest whatever remains in a home-automation start-up my friends and I have been working on.
• 1% ($2.6 million) - to be spent more or less on whatever want. Right now with this level of funds, I'd buy a Mini Cooper ($30k), some land in the mountains, start designing/building my dream home (a super-green 1500-2000 sq ft underground house). I'd almost certainly have plenty leftover, which would probably end up dumped into investments.

In the case of smaller windfalls (<$1000) I'd probably roll up all of the non-tax items into a single investment item.

The mobile phone carriers are some of the worst offenders of monopoly power. Case-in-point is the pricing of the text messaging system. A recent New York Times article explores it in some detail - but I don't think they go quite far enough. Consider that the average per-message cost (assuming you don't have a special deal) is $0.20. If you have a special plan (which according to the article run $10-15) you can cut that price to about $0.01 per message. That may sound really cheap - but let's do a little math:

Text messages are limited to 160 characters. Assuming a standard ASCII encoding, it takes only 1 byte to store each character - so a message is approximately 160 bytes in length. At the prices quoted above:

• $0.20 per message / 160 bytes per message = $0.00125 per byte = $1.28 per kilobyte = $1,310 per megabyte = $1,342,177 per gigabyte
• $0.01 per message / 160 bytes per message = $0.0000625 per byte = $0.06 per kilobyte = $65 per megabyte = $67,109 per gigabyte

Now let's compare that to another great monopoly offender - Comcast. They recently announced a bandwidth cap of 250 gigabytes on their "unlimited" monthly service, which in my case costs about $50 per month. Doing the math, we get a cost of $0.20 per gigabyte. If Comcast decided to charge the text-messaging bulk rate for their service, it would cost a staggering $16 million per month!!! If Verizon et al. charged the Comcast data rate, then you could send an equally staggering 53.7 million messages for a single penny!!!

The only reason the phone companies manage to get away with this outright robbery is because few people actually take the time to figure out how exorbitant these fees really are.