Indeed, saying that the USPS “might” miss the $5.5B payment due in ten days is a bit too polite. They do not have the money and Congress has made it clear they will not act before the August recess. And there is a second $5.5B payment due at the end of September.

Which is not to say that missing these payments will cause much in the way of visible effect. They are, essentially, to make up an underfunding in the Postal Service’s pension plan. Skipping them may have serious long-term consequences, but for now the USPS can still buy diesel for its trucks and make payroll. For now.

The Senate did pass a bill rebating $10.9B, a coincidentally convenient figure, to the USPS that it claims to have overpaid into the Federal Employee Pension System. Last fall the GAO found that there was no overpayment, but, hey, this is Washington. The bill also bars closing more post offices, protects Saturday delivery, and declares that Tinkerbelle will live if we all clap our hands. (I may have made up that last bit.) The House has not yet considered it.

There is the argument that the law that requires the Post Office to fully fund its pension and other retirement benefits is unfair.  And it is true that the requirement is fairly unique. Governments, local ones in particular, habitually underfund their pensions, leaving future generations to pick up the bill. And in the private sector pensions are supposed to be funded fully, but the rules are sufficiently arcane and lax that shortfalls large enough to induce bankruptcy can occur. (Anybody else remember GM?)

The USPS has unique pension rules because it is a unique organization, a giant, highly regulated, non-profit company owned by the Federal Government. It has a government granted and enforced monopoly on delivering mail in the US, something that may seem of dubious worth now, but was once nearly a license to print money. And it has always been, at least in intent, self-supporting.

If a state underfunds its pension obligations that is a bad thing, and in as much as it involves politicians borrowing from the future without saying so, often a dishonest thing. But the state will presumably always be there to pay and the taxpayers who get stuck with the bill are the same taxpayers (or their children) who did not pay when the obligations were created.

But it cannot reasonably be argued that the USPS will always be there to pay benefits to retirees. Just when it will cease to exist, next year or 50 years from now, is debatable, but the ultimate result of technology overtaking it is both obvious and inevitable. And when it goes away, it will leave behind hundreds of thousands of retired workers owed pensions and healthcare.

Assuming that we do not intend to just stiff the old letter carriers, the only viable alternative will be that the Federal Government, that is, we taxpayers, will pick up the bill. In other words, saying that the USPS should not have to fully fund its retiree obligations is saying that future taxpayers should subsidize today’s mail service. This seems neither wise nor fair to me.

And the $11B the USPS will not be paying in the next few weeks is in some ways a distracting re-arranging of deck chairs. In the three months ended March 31, the USPS lost $3.2B. (It will not release results for the quarter ended June 30 until August.) Even without the onerous requirement that it pay for the retirement obligations it incurred during the quarter, it still lost $500M.

The brutal truth is that there is not enough money coming in to pay the USPS’s bills on an ongoing basis. And that is not a situation that will get better if left alone. This default is indeed the first of many.

The problem is that there are just so many things at SmartMoney that I would enjoy discussing. How to pick only one?

There is Taming the Cost of Traffic Tickets, currently the most popular post on the site. It lists five things you can do to reduce your expenditures on traffic tickets, none of which is to avoid getting traffic tickets.

And yesterday brought Recession’s Surprise Impact on Credit Scores. Apparently, the average FICO score fell during the recession, bottomed out in 2009, and now, three years into the recovery, is back to where it was in 2007. Which is a surprise. Also, the article had the insightful warning “increasing a FICO score could be harder than lowering it.” Good to know.

But the story I choose is Is It Time to Buy Into Real Estate? I knew it was the winner from a single word in the opening paragraph.

To most people, U.S. real estate still stinks. More than a third of all mortgages are under water, with their holders owing more than their houses are worth. Home prices continue to fall in many areas of the country, and thousands of foreclosed homes are still waiting to be sold. Yet an investor no less than Warren Buffett recently said that if he could, he would buy up a couple of hundred thousand single-family homes.

In case you missed it, that word was “Yet.” The real estate market is in a shambles, prices are depressed and a legendary value investor wants to buy. Who’d a thunk it?

More substantively, although the article tells us that investors with “short memories or long time horizons” think houses are a great buying opportunity just now, and mentions that some economists agree, it never really circles back to address that first sentence, that most people think real estate still stinks.

That is just the sort of clash between popular perception and reality that a high circulation personal finance publication might be expected to resolve, or at least discuss.

Whatever the proportion of US homes under water (and there are no hard numbers on that topic, everything you see is an estimate) it is lower than it was a few years ago. Yes, there are places where house prices are down lately, but saying that they are “continuing” to fall is misleading. Compared to 2006-09, prices are everywhere stable. And although there are still foreclosures, their number is drastically reduced from the recent past, as illustrated by a chart in the FICO surprise article mentioned above.

To be fair, despite the title, the article is not about whether or not now is a good time for a consumer to buy real estate in the conventional sense, that is, by buying a house to live in. It is about how an investor could buy real estate in other ways, assuming that he thought real estate was a good buy just now, for whatever reason.

Having missed the question that is obviously more relevant for most of its readers, SmartMoney then misses the important bit from what Warren Buffet said. The key phrase is “if he could.” That the Sage of Omaha sees the fire sale prices on single family homes and wants in is not really news. What is worth considering is that he cannot act on this impulse.

Unlike stocks, bonds, and most of the rest of the investment world, investors and speculators do not have an obvious way to participate in houses. Put another way, unlike stocks, which are bought and sold primarily by professionals who do it everyday for many years, houses are bought and sold by amateurs who will generally enter into only a few transactions during their lifetime. Buffet can pick up the phone and buy billions of dollars worth of a great many things, but a few hundred thousand houses is not one of them.

For me, this is the single biggest difference between the market for houses and the market for conventional investments. It explains why the price charts for houses and stocks (or bonds, or crude oil, etc.) look so different. If a stock becomes badly mispriced, either unreasonably cheap or unreasonably expensive, there are well bankrolled professionals standing by who will take advantage of the situation and push prices back towards reality.

Not so with houses. As prices climbed beyond reason in the early part of the last decade, the Warren Buffets of the world could not take the other side and go short houses. Instead, the price rises just increased consumer enthusiasm, which spiraled prices up further. (Some sophisticated investors could short mortgage bonds backed by those houses, but in the event there were too few bears and the vehicle too indirect to have much impact.)

So what does an investor who, very plausibly, believes houses are cheap right now do to take advantage of that insight? SmartMoney gives five stock suggestions, which it labels “Smart Picks.” Some of them may have merit as investments, but all bear, at best, an indirect relationship to house prices.

There are three REITs on the list. One owns apartments in Texas. Another owns shopping malls. The third owns no real estate at all, but rather government sponsored mortgage backed bonds. Rounding out the list are a broker and manager of commercial property (office buildings) and an ETF made up of home builders.

Warren Buffet might look at that menu of second-choice options and pick one or two as the best he is going to do, or he might just take a pass and look for other mispriced things he can take advantage of.

But if you are not burdened with billions to put to work, and are just an ordinary person looking to shepherd ordinary wealth, which is to say if you are SmartMoney’s target audience, you do not need to go through all this. Just buy a house and live in it. Already got one? Trade up. Or decide you already have plenty of exposure to the house market, thank you, and pass. Too bad you do not have a popular magazine to help you through that.

But it is not the epic sums due to change hands that is causing the buzz. As part of the settlement, Visa and MC will for the first time allow merchants to add a surcharge to the bill for credit card use. This is a big deal, apparently. The Consumerist led with that facet of the deal. Reuters and AP mentioned it at the top. A clever report at Forbes was entitled $6 Billion Visa Settlement Frees Consumers To Pay More.

The president of the American Bankers Association (a.k.a. the head lobbyist for the banks that are paying serious money to the retailers) was quoted in the Times “Let’s be clear — retailers, not consumers, benefit from today’s resolution.”

I disagree.

The simple fact is that fees to use a credit card are already being paid and there is nothing in the settlement that directly changes the way the system works or the size of those fees.

I buy a shirt for $50 on plastic: $49 goes to the store, and $1 to Visa and the bank. Who is paying that $1? Is it me or the retailer? It is almost a philosophical question. I do not see the fee, so it appears to come out of the retailer’s money. But the store would likely be just as happy to sell the shirt to me for $49 cash, so you can argue I am paying an extra $1 whether I know it or not.

The best answer is that we are both paying it. Like sales taxes and other transaction costs, swipe fees (technically called interchange fees) make doing something that both the consumer and the retailer want to do just a little less attractive than it could be, for both of them.

In any case, I do not think that this deal will make surcharges for using a credit card commonplace. And I have three good reasons.

First, ten states (CA, CO, CT, FL, KS, ME, MA, NY, OK, and TX) have laws that prohibit surcharges for using plastic. And no, I have no idea why the legislatures of those great states thought this was worth banning. But they did, and those states make up about 40% of US population.

Second, retailers have for some time been able to give a discount for using cash, which is pretty much the same thing as charging more for using credit. And except for gasoline sales, on which the margins are so small that a swipe fee can be the difference between profit and loss, this is not an option that retailers have embraced.

And third, I think most retailers just do not care about the swipe fees, or at least not enough to rock the boat at checkout. Gasoline aside, retail margins are usually generous enough to handle it. That $50 shirt probably cost the store $25.

Sure, in principle retailers could seize on this as an opportunity to increase revenue, by keeping the price tags the same but adding on the swipe fee on top, essentially charging $51 for the shirt. But I think that most consumers would see this for what it was, a flimsy excuse to raise prices. And if Target did this, but Wal-Mart did not, the results would be predictable and likely much worse for Target than if they had just raised prices by a few percent the old fashioned way.

I would be the first person to agree that the credit and debit card system, as awesomely powerful as it is, contains a raft of peculiar inefficiencies. Debit cards, which provide less of a service than credit, ought to be less expensive for consumers to use. Instead, although they are generally cheaper for retailers, they are more expensive for consumers. And there is something basically irrational about rewards cards, a system by which a consumer buys something, a portion of the money is sent to a bank, and the bank then sends about half of what it gets back to the consumer from whence it came.

In principle, the system would work better if price tags showed for-cash prices and at checkout we were charged exactly what it cost to use our card for that specific transaction. Rewards cards (which have higher swipe fees) would seem less of a good deal and the whole system would be subject to more competition, which would tend to move it towards efficiency.

I just do not think we are likely to get anything like that. As I have said before, when you get down to it, our credit/debit plastic card system works too well to fix.

[Photo – Lotus Head]

For example, are you reading this while sitting down? Well, stop it. (I mean the sitting down part. Obviously, you should keep reading.) According to a recent study, as reported by The Wall Street Journal, “Sitting down for more than three hours a day can shave a person’s life expectancy by two years….”

(The WSJ article was entitled “Sitting for More Than Three Hours a Day Cuts Life Expectancy.”  MSNBC’s item on the same report was Sit fewer than 3  hours a day, add 2 years to your life, study says. The glass is always half full on TV.)

The thing is, three hours is not a lot. Sitting down to eat three times a day and driving to and from work (heaven forbid you should be riding instead of driving) probably uses up most of your daily quota. If you then absent-mindedly get absorbed in a waiting-room magazine you are a goner.

So it would probably be best to go sitting cold turkey, and adopt the all standing lifestyle. Eat standing up. Walk to work. Stand while working. TV is okay, just keep vertical. Even if this does not let you live forever, it will seem like forever.

Interestingly, the articles about the study say nothing about laying down. That makes sense. Sleeping is particularly good for you. Another recent study showed that sleep, the king of non-active activities, helps you lose weight. Apparently, if you sleep more than nine hours a night, you are less likely to become obese.

Which is good, because according to another study, no doubt funded with tax dollars, Obese Children May Have Difficult Time In School. But that is okay, because we now have laws forbidding junk food in schools. Of course, another study showed that there is no link between childhood obesity and junk food in schools. Still, it makes us feel better, and that is what is important.

Feeling good is vital. Stress will kill you. Unless it strengthens your immune system. Having had traumatic stress in the past and getting PTSD is bad. A recent study found that heart attack patients got PTSD, which led to, among other things, more heart attacks.

And then there is just being crazy. That is really bad. This just in:

New research suggests middle-aged and older women who experience high levels of a common form of anxiety known phobic anxiety, such as being unreasonably fearful of crowds and heights, are more likely to carry a risk factor tied to premature aging.

Just being afraid of crowds, heights, pointy sticks, circus clowns, broccoli, etc., is okay, but if you are “unreasonably” afraid, it will cost you six years. So chill.

Being recklessly crazy is not healthy either. Research now shows that people with multiple serious driving violations are more likely to kick the bucket, even in ways that have nothing to do with cars.

Even more important than what you do is what you consume. As this is an even numbered year, coffee is currently good for you. And alcohol is also good stuff. A recent British study found that moderate alcohol consumption reduces your chances of developing rheumatoid arthritis. The British definition of moderate, by the way, is at least four drinks a week for at least ten years.

Less conventional intoxicants are not so good for you. An article called Fibromyalgia Patients Self-Medicating With Cannabis May Have Poor Mental Health Outcomes is not very specific about those poor outcomes, although it does say that “herbal cannabis was associated with unstable mental illness in 36% of users” and “researchers also observed that 77% of cannabis users were unemployed.”

Worse, according to the doctor leading the research “Some herbal cannabis users may be dishonestly using a FM diagnosis to justify self-medicating with illegal drugs.” Imagine.

And in case you need something else to worry about today, remember that it is possible to develop an allergy to just about anything. From India we get the case study of a man who gets severe migraines after watching porn for five minutes. No other activity, including porn-free sexual activities, causes the problem. This went on for two years. Becoming desperate, he “started to refrain from watching the videos.”

Doctors suggested Tylenol and ibuprofen 30 minutes before porn, which “provided significant relief.”

I have a lot of issues with target date funds. These are asset allocation mutual funds that contain a mix of stocks and bonds, and sometimes more exotic things, formulated to meet the investing needs of a person intending to retire in a given year.

To begin with, I object to the basic premise, that a manager can select a risk-return tradeoff for an investor based only on his expected retirement date. Partly, this is because I am not a believer in the conventional view that a person should take a lot of investment risk when young and less as they age. But I concede that I belong to the radical fringe on that particular subject.

Yet, even if you accept that knowing that a person plans to retire in 2035 tells you something about what level of risk is appropriate for that person’s mutual fund, it should be clear that it does not tell you everything. Other factors, such as how much the person has saved already and how long they expect to live in retirement after the target date would rationally have a big role to play.

Then there is the implausible and unstated conceit that the target date fund contains substantially all the saver’s assets. This is obviously rarely the case in the real world. Even if you could know the correct risk-return tradeoff for a person because you know he will stop working in twenty years, there is not much you can do about it unless you know if the other half of his assets are in stocks, bonds, real estate, or antique dolls.

And even if I set aside my fundamental objections to the basic idea, I have a big problem with the way that most target date funds are constructed. Generally, the funds are implemented as a fund-of-funds, a pre-selected basket of a mutual fund complex’s regular mutual fund offerings.

And that means that there is an unavoidable conflict of interest. A company might have any number of reasons to put money into one of its funds other than what is best for the client. For example, the company gets paid higher fees on some of the funds. Indeed, as a general rule the higher risk funds have higher fees, so the mutual fund company will be paid more the more risk it decides the client should take.

All this venting of frustration was brought on by a recent item in the WSJ’s quarterly mutual fund survey One Target, but Many Ways to Hit It. The piece is mostly a round-up of the current approaches of the major target date vendors, but it starts with revealing the apparently non-obvious fact that different target date managers invest in different things.

This echoes a shocking finding in the Times from three years ago, that “Data collected by the S.E.C. shows that target-date funds vary widely in terms of their investment risks, even when they use similar target years or names.”

Would newspaper readers be similarly surprised to read that different stock fund managers not only buy different stocks but sometimes have wildly different, even conflicting, investment philosophies?

Target date funds have been around for a long time, as long as I can remember. But they became a big deal in 2006. That was when our government decreed that 401k plans, which until then used cash as the default investment, could put the savings of employees in target date funds if they otherwise failed to state a preference.

Based on exhaustive quantitative research, I have determined that 2006 was just six years ago. It sure seems longer, like some far off magical land. In those days there was a serious concern that putting worker’s savings into an investment whose only virtue was that it could not lose value was doing that worker a disservice. Some, if not all, of the savings should be put in something with a higher expected return. That way, even if the poor dear is not sophisticated like us, he can share in the unlimited bounty that is the stock market.

I am pretty sure that Congress would enact nothing of the kind today. Cash as default sounds like a good idea after all. It may not be ambitious, but the possibility of robotically losing somebody’s savings on autopilot is not acceptable.

More interesting, and frankly confusing, to me is the continuing misunderstanding over the nature of target funds. Congress seemed to believe, and the media apparently continues to believe, that the appropriate asset mix for a person planning to retire in a given year is a relatively simple question with a correct answer. As if there was a broad consensus on what percent of assets should be in bonds for somebody planning to retire in 2030, possibly subject to tweaks at the margin. Like the question of how big a size L tee shirt should be. There is no precisely correct answer, but all reasonable answers fall into a pretty narrow band.

In fact, there is no consensus answer to the question of how much risk a person retiring in 2030 should take. Clowns like me are even willing to argue it is the wrong question to ask. And target date funds are still mutual funds like any other, run by managers with widely differing views on what strategies are best and how to implement them.

Part of the reason the fear outstrips the danger is a widespread misunderstanding about who is the usual victim of identity theft. It is generally not the person whose identity is stolen, but the financial institution that gets defrauded in part two of the operation.

And the fact that it is generally large and sophisticated outfits that are the victims leads to the other reason the fear is overdone. ID theft is just not that easy to pull off. It takes a fair amount of effort and cleverness to get a credit card in somebody else’s name, and then the reward is merely that you can charge things for a short period, possibly lasting only hours, before the card company catches on and shuts you down. That is a tough way to make a living.

Or so I thought. Turns out there is one very large financial institution that you can cheat with only the minimum of ID thieving effort. It is called the Internal Revenue Service.

Apparently, according to articles in The New York Times and Wall Street Journal, all you need are a name and an associated Social Security number. You will also need an address. It does not need to have anything to do with the ID you are using, you just need to be able to pick up your loot there. A foreclosed house in your neighborhood will work. Buying a new mailbox for the place is a nice touch.

What you do is fill out a tax return for your stolen identity. You make up all the numbers, the names of employers, dependents, etc. Just make sure that at the end a refund is due. Then file early, to beat the rush and to make sure you are the first person using the identity this year, and wait for your money.

Not a hard way to make a living at all. In the words of the US Assistant Attorney General for taxes this is a “remarkably simple crime to commit.”

Remarkable indeed.

Is there any other outfit this dim-witted? “Dear Citibank: My name is Joe Smith. I’m pretty sure you owe me $10,000. Please send it to this address…” It is not as if the IRS does not have ample data against which to check a fraudulent return. Just about all the significant forms of income a person might have are separately reported by the payers, so the IRS ought to be able to detect fictitious income quickly.

More to the point, a refund is just that, a refund of money already paid. These fraudsters are telling the IRS that they have already paid the IRS money and deserve some of it back. And the IRS takes their word for it.

According to the Times “The fraud, which has spread around the country, is costing taxpayers hundreds of millions of dollars annually, federal and state officials say.”

If you are thoughtful and practically minded, you may be thinking that this scam is not that easy to pull off because what you get for your modest efforts is a refund check in somebody else’s name that needs to be cashed in an untraceable way. Doing that is a non-trivial challenge and I expect that it is why this form of fraud was not quite so popular in the past.

That was then, this is now. Today, the IRS will happily send you a refund not as an old-fashioned paper-trail-creating check, but as “a convenient but hard-to-trace prepaid debit card.” This is a new program launched last year. The idea was to help people without bank accounts, who might otherwise have to pay a fee to cash their check.

The IRS has managed to create a situation where they are, for most practical purposes, sending cash in the mail. And that has had predictable consequences. More impatient criminals, who apparently cannot wait the several weeks it takes to pull off this scam, have taken to robbing mail carriers at gunpoint instead.

“Hundreds of millions of dollars annually” almost certainly makes the IRS, that is, us taxpayers, the biggest ID theft patsy out there. And there is collateral damage. Just as the IRS is too slow to detect the fraud to begin with, it is slow to clear up the fraud when found. According to the Times, it can take as long as a year for the IRS to send a legitimate refund to the actual owner of the ID who filed a non-fictional return with verifiable data.

This is not a particularly hard crime to stop. The IRS could do a better job of checking the data on returns against information from other sources. Or it could flag suspicious returns and hold them until April 15, just to see if maybe another return with the same ID will show up. And there is no reason the debit cards it sends out need to be hard-to-trace. Most plastic is very easy to trace. At the very least, if only for the safety of the mailmen, it could send those cards registered mail, so they need to be picked up at the post office, after showing ID.

There was Ten Ways to Keep Energy Costs Down in Winter at My Personal Finance Journey. And one of the few blogs with a comma in its title, Call Me What You Want, Even Cheap, shared a story about saving money buying Christmas gifts for relatives at a dollar store. That went well until one of the cousins complained. The post does not say what she got, but it was apparently either a “cute toiletry gift basket” or socks. We guess there is no making some people happy.

Of course, buying very inexpensive gifts is a half-measure. As Donna Freedman tells us at MSN Money in Summer’s almost here: Think Christmas, “A no-gift holiday really is an option.”

We also came across another blog post from Ms. Freedman, this one from March at Get Rich Slowly, 27 Frugal Uses for a Dead Phone Book. Most of them were pretty obvious, using it as a cutting board for cheese, for example. But she also told us that they can be used to look up the phone numbers and addresses of local businesses and people. Who knew? We have not seen a phone book here for 5 or 10 years, but when we do we will be sure to try that one out.

Wise Bread had its usual heavy contribution to the world of frugalism last month. Kelly Kehoe suggested that adults pay themselves and/or their spouses an allowance in exchange for performing household chores. While we are against paying allowances in principle, the money making opportunity of getting paid to clean up after ourselves has a strong appeal.

Carrie Kirby had a counterpoint to a tip we shared last month, that when relocating, you can save on the cost of moving your stuff by getting rid of it instead. She recently moved across country and regrets abandoning her laundry detergent and window cleaner, as she has yet to find an appropriately good deal on those items in her new area.

And Mikey Rox makes a record-setting third consecutive appearance in Frugal Friday this month with a post that rounds up the discounts and promotions available at the 29 Major League ballparks that are not Fenway. Apparently, in other cities the local teams offer discounts on tickets, give-aways, fireworks, and sometimes even provide parking. Also, many of those teams are not in last place.

Mr. Rox likes a day at the ballpark because of “The cheering crowd, the grilled hot dogs, [and] the well-fitted uniforms…."

Moving on to the more controversial topics in frugalism, Parenting Squad carried Why Making Your Own Baby Food is a Waste of Time. Their argument is not that making your own baby food is not preferable to buying it, which would be absurd given the savings involved, but that spoon feeding your baby baby food is counter-productive. Instead “your focus should be on foods baby can feed himself.” Just put it in front of him and let him figure it out. He will thank you someday.

On the wrong side of the frugal tracks, as far as we are concerned, My Family Finances asked Should You Take Out a Student Loan for College or Save Up and Pay With Cash? and came up with the obviously wrong answer that you should go ahead and borrow the money rather than spend a few years working to save up tuition first. They seem to think that at an average 8.3% annual increase, you had better buy a college degree now rather than wait. As if.

Young Family Finance asked Should You Hide Money From Your Spouse? and answered, incorrectly, that you should not. It is for their own good. If they knew about it they might spend it.

Wealthy Turtle passed on a tip which it then immediately condemned as being “dishonest.” When visiting a fast-food restaurant, ask for a free cup of water, and then use that cup to get soda at the fountain. Brilliant. No need to root around in the trash for a cleanish used cup.

But we did change our minds about one frugal practice, buying counterfeit goods. The discounts from the real thing are impressive, but as Money Crashers tells us, sales of these items fund drug rings, are directly responsible for the loss of 750,000 American jobs, promote child slavery, and, worst of all, can lead to the identity theft of purchasers. Good to know.

We would also like to tip our hats this month to frugal bloggers who save time and money on proofreading and education with a few links. 5 Full Proof Ways To Beat Rising Gas Prices. 5 Best Money Move that You can Make. And Half of American’s Save Nothing for Retirement.

As if we needed another reason not to spend money on vacations, and certainly not to borrow that money, How to be Debt Free had a post Should you Finance Vacations? in which it added another reason. There is just no way you could enjoy yourself on said vacation knowing you borrowed the money. Obvious, but so true.

And finally, Frugal Zeitgeist asked Does buying in bulk make you eat in bulk? We certainly hope not. Stocking up is a pillar of the frugal lifestyle. But how are we to curb our natural desires once we have the 50 lb bag of sugar in the pantry? Frugal Zeitgeist offers some tips, including “cook on a full stomach.” That is a great tip, and a natural extension of the old frugal principle, never shop when you are hungry. But it may not go far enough. We suggest eating only on a full stomach. Now that is frugal.

[Photo – Adam Berman]

Today’s entry is exercise. An economics professor at Cleveland State University has discovered that regular exercise will increase your pay. As the SmartMoney blog that brought this important finding to my attention put it, Want a 9% Raise? Hit the Gym.

Just to be clear, Professor Kosteas does not merely present a correlation between regularly working out and making more money. He argues cause and effect, that “Regular physical activity has been linked to improved mental function, psychological wellbeing and energy levels, all of which can result in increased productivity and translating into higher earnings.” (I could not find the final paper on-line for free. The quote is from a working draft.)

I never exercise. And I do not have a job. The wife hits the gym compulsively and is doing pretty well. So the correlation between pay and exercise should not surprise me. But it is not what I would have guessed.

Exercise is time consuming. And it seems to me that it would make a person too tired to do other stuff, although gym-addicts claim it gives them more energy. So I would have thought that people who work out more have that much less time to work, thus would make less money. The cliché of the high-powered professional is one who is borderline overweight and powered largely by caffeine, not a tri-athlete.

Alas, no. Turns out, people who exercise more make more money. At least that is what the data says. It has to be pointed out that both pay and exercise were self-reported in the data used for the paper. For the sake of argument, let us agree that nobody would ever lie about what they make or how often they go to the gym. Even so, taking this fact a step further, arguing that they make more money because they exercise more, is a step too far.

Kosteas makes a valiant effort, employing some esoteric statistical techniques but, in my opinion, falls short. It is a basic truth that it is very hard, and indeed usually impossible, to statistically demonstrate that the fact that A and B are correlated is due to A causing B, rather than B causing A or both being caused by C.

Sometimes you can do it logically. It would be very hard to buy the theory that lung cancer causes people to start smoking a few decades before they are diagnosed. Or that people carrying umbrellas causes rain.

This is not one of those cases. Kosteas’ theory, that exercise makes people healthy, happy, and energetic, which makes them better workers, is perfectly plausible. But there are reasonable B causes A explanations too. Perhaps higher paid people choose to spend a little less time working and more time on hobbies, such as toning up those abs.

And there are A and B both caused by C explanations. It is possible that diligent and responsible types, the ones that eat right and get enough exercise, make better employees. Or that better educated people tend to exercise more and are higher paid.

When you get down to it, the causal direction between health and exercise is not that unambiguous. It could be that the more frail among us tend not to exercise because they are not able and are also not as productive at work.

Do not get me wrong. Exercising more (and watching less TV, for that matter) is almost certainly a good idea for just about everybody, myself most certainly included. But it will not make us richer. Healthier, happier, and more energetic is good enough for me.

Sleeping at the Airport

The TSA has fired eight of its screeners at Newark Airport “after they were captured by surveillance cameras sleeping or violating other standards.”

I have never thought that TSA screeners were the sharpest knives in the drawer, but this makes me wonder. Did they not know that their workplace was under video surveillance? You would think they would be familiar with airport security measures. Or perhaps they assumed that their colleague monitoring the video would be asleep too.

In what is apparently a separate incident, the Newark Star-Ledger

reports the TSA also is looking into photographs of screening supervisors who appear to be sleeping in front of monitors used for detecting explosives and other threats.

Two of the supervisors say they were not working at the time the photos were taken.

Exactly.

Dangerous Characters

By now, you have undoubtedly heard about Bad Elmo, the guy in the Elmo costume videoed ranting and cursing at New York’s Central Park Zoo. The CNN report is careful to refer to him as an Elmo impersonator, just to be clear that this is not the actual TV Elmo.

The cops took him away but did not arrest him. Until he serves the kids a soda over 16 ounces, no NY laws are being broken. But authorities thought that he might benefit from a visit to a nearby hospital and a chat with some friendly men in white coats.

Bad Elmo was back at his usual spot the next day, which allowed The Times to run a follow-up story, including an exclusive interview.

He said the doctors at Metropolitan told him he was “a little paranoid.” It was obvious from talking to him that he is troubled. But he told a lucid and detailed account of his life, and he told of his own dark past, one that might alarm parents whose children have posed with him. The tale he told underscored just how little is known about the men and women who dress as various children’s characters in tourist-clogged areas, looking for small tips. This tiny industry is unregulated.

Of course, this industry should be subject to regulation. I suggest the Feds, perhaps by a Bureau of Children’s Character Panhandlers. Normally, I would say that NYC could handle this themselves, but they are too busy keeping their citizens safe from dangerous food and drink.

Speaking of which….

Dangerous McDonald’s

A woman has been banned, apparently for life, from all the McDonald’s in the Chillicothe, Ohio area. According to Google Maps, that is four separate locations, although two of them are on opposite sides of the street out on Western Avenue, past the Central Center Shopping Center.

Apparently, her order at the “drive-thru” was not filled correctly, even on the second try. Instead of calling the police, Amy Corey foolishly took matters into her own hands. What exactly happened next is in dispute, but we do know that she threw the incorrectly prepared chicken sandwich through the drive-thru window. McDonald’s maintains that this dangerous projectile was aimed at an employee, although it concedes that it missed the alleged target.

According to reports “Employees contacted police, but declined to press charges.” That is in keeping with the tight-knit McDonald’s culture, which prefers to mete out justice internally. However, the controversy may not be settled. Cory went on local TV to complain "I threw a sandwich and it didn’t even hit the worker. Why would I be banned from McDonald’s? It’s wrong."

The very next day, while driving away from a Lowell, Massachusetts McDonald’s (the one on Plain Street, next to the Walgreens) a man threw a container of fries at his step-daughter, sitting in the back seat. Tragically, this time the flying food hit its target. According to police reports the potato shards hit the girl, 11, “in the face and chest area.” Miraculously, she was unhurt.

When the family arrived at home, Mom immediately called the police and the perpetrator “fled the residence on an old Honda Motorcycle with unknown NH plates.” After what was likely a multi-state manhunt, he was apprehended later that night and charged with assault and battery with a dangerous weapon.

Personally, I think that this madness has to stop, although I agree that calls for a three-day McDonald’s food purchase waiting period are premature. But it is past time that we kept our children away from these dangerous products. And McDonald’s itself could help. The pointy ends of fries are a tragedy in the making. Why not offer safer onion rings as an option?

[Photo: Borrowed from thesmokinggun.com. No idea where they got it.]

The trouble in Europe has been going on for rather a while now, arguably since the financial crisis began in 2008, although it took a while for everybody to really notice. So quite a lot has already been written and said about it. If you have not been paying close attention, then 1) good for you and 2) maybe my comments will help fill you in.

It is really a pair of twin interrelated crises on the very slow burn in Europe. There is a banking crisis. And there is a sovereign debt crisis.

The European bank problems are similar to the ones we had on this side of the Atlantic. Indeed, in as much as European banks bought surprisingly large amounts of American mortgage backed securities, it is the exact same problem. But European banks, particularly Spanish and Irish ones, also lent heavily into their very own hometown real estate bubbles.

That was bad enough, but the banks also lent to European governments. Enter the less understandable to Americans of the twins, the sovereign debt crisis. Four European governments (Greece, Italy, Ireland, and Portugal) owe more than the equivalent of 100% of GDP. Greece owes 153%.

Thing is, Uncle Sam is in the 100% club too. But debt ceiling histrionics and debt rating downgrades aside, we do not have a sovereign debt crisis over here. On the contrary, rich Chinese, panicked Europeans, and just about everybody else have been eagerly loaning the US Government money, driving rates down to the point where they are very nearly paying for the privilege.

There are several key differences. Believe it or not, the US economy is stronger and richer. And, believe it or not, US politicians are comparatively understanding and respectful of the markets. Europe has a few elected officials who openly advocate not paying some of the sovereign debt back. Bring up the idea of a US default with any American politician and you will get a reaction as if you had suggested that the Statue of Liberty be dynamited. (Of course, the American politician may point out that blowing up Lady Liberty is exactly what his opponent wants to do.)

But the biggest difference is structural. Our government owes dollars. In the worst case scenario, it can pay what it owes by simply printing more dollars. Not so the indebted members of the Eurozone, the subset of the European Union that uses the Euro as currency. (It is most of the EU, less the UK, Sweden, and several ex-communist states on the eastern edge.)

Greece (and Italy, Portugal, and the others) owe what might as well be a foreign currency. They cannot print more Euros to satisfy their debts and they cannot devalue the size of the debts down. That may not sound like a big problem, but that the US Government could do those things if it really needed to is what makes US debt “risk-free.”

In better times, the inability of countries like Greece to weasel out of their problems by printing money seemed like a good thing. It served as sort of a guarantee that an investor would actually get paid back in currency units that were worth something. Some investors might even have imagined that it would impose some kind of discipline on governments.

Of course, these are not better times, and the inability of Eurozone governments to control the currency they borrowed in now looks like a missing safety valve. Instead of worrying about being paid back in less valuable currency units, investors are now worrying about not being paid back at all.

Weirdly, the idea that the debt of certain Mediterranean governments is not even approximately risk-free was apparently a revelation to many. From the introduction of the Euro in 1999 until 2008 the interest rates paid on the bonds of the various Eurozone  governments was very nearly identical. In hindsight, that seems like it must have been the result of some form of mass hypnosis.

Certainly, some convergence in interest rates made sense, as inflation expectations for such things as the Italian Lire and Greek Drachma were removed. But the fact that the Euro coin had another side, that governments were now borrowing in a currency they might have trouble paying back, seemed not to occur to very many people.

Which brings us to Greece. The first thing to know about Greece is that it always was a marginal, if not exceptional, case. It was late to the party, joining the Euro in 2001 because it failed to get its financial house in order in time for the 1999 launch. (It is not clear it was really any better two years later.) Greece is comparatively small and poor, accounting for less than 2% of EU GDP. Its GDP is less than that of Denmark, with twice the population. And it lacks a strong tradition of political stability. It was ruled by a military junta as late as 1974. It did not share a land border with any other EU member until Bulgaria joined in 2007.

So why all the fuss over such a peripheral European player?  Because Greece is the canary in the coal mine. Of course it would be the first to get into trouble and be the one in more trouble than the others. All the more reason for the other Eurozone governments to find some kind of non-disaster resolution to its problems. Because if Greece can be saved, then Italy, Spain, France, and the others must be safe.

Alas, the saving Greece thing has not been going as well as might have been hoped. The core of the problem is that the Eurozone (and the EU) is an airplane being designed and built in mid-air. Entire areas of its operation, where a tidy person like myself would expect to see agreements and rules, are covered only by good intentions and vague principles.

One of those vague principles is the idea that European governments are in some way responsible fiscally for each other, both in the sense that they backstop each other’s debt and that they police each other’s behavior. This is a (partial) explanation of the convergence of interest rates in the good old days.

I have to say this is something I do not quite get. This is likely because I cannot get away from the American analogy that portrays the EU members as American states. It would never occur to me that other states, or the Federal Government, would cover the debts of an insolvent state. If Massachusetts declared bankruptcy the first reaction of the governors of Rhode Island and New Hampshire would be to look for jobs they could poach.

(Interestingly, in the aftermath of the panic of 1837, in which about half the US states defaulted or stopped making payments on their debt, the mostly European owners of that debt were outraged that neither the other solvent states nor the Federal Government would do anything about it.)

But while an American would expect the rest of Europe to let Greece go under, write off its debt and attempt to start over, it is not apparent that this even occurred as an option to political leaders in Europe. To most European politicians, allowing Greece to fail would be a collective failure for Europe and a serious blow to the grand project of European integration.

So there is plenty of motivation for the leadership of the rest of Europe to bail Greece out. Saving Greece would increase confidence in the not-quite-as-bad countries such as Italy and Portugal. Saving Greece would keep European integration humming along and save the Eurozone. And saving Greece ought not to be too expensive, given the comparatively small size of the place.

As the largest, healthiest, and most creditworthy of the Eurozone members, the lead savior-designate for Greece is Germany. And I believe that if left to themselves, the leaders of Germany and Greece could quietly come up with a deal. Inconveniently, leaders of both countries are democratically elected and must be able to justify any deal to their respective electorates.

And it is there that it all starts to unravel. It is not clear that there exists any possible arrangement to bail out Greece that would be acceptable to the majority of both Greeks and Germans. Greece just elected a new government that ran for office supporting the previously agreed pacts, provided they were substantially re-negotiated in Greece’s favor. It narrowly beat an opposition that wanted to just junk the whole thing.

It is not hard to see why the current terms of the bailout are objectionable to the Greek-in-the-street. Among other things, it calls for the government to lay off 150,000 employees this year. In a country of 11 million people. That is as if the US Government agreed to give the pink slip to more than 4 million workers. The Greek economy is already in tatters, with unemployment at 22% and GDP expected to shrink by 7% in 2012. And ordinary Greeks do not feel particularly responsible for the debts run up by their opaque and patronage-driven government.

But that deal may be as generous as the Germans are willing to be. To the German-in-the-street, much less enamored of the Great European Project than their leaders, German ants bailing our Greek grasshoppers does not seem like a bright idea. Why should the Germans, after decades of hard work and responsible fiscal behavior, pay off the debts of the decadent Greeks who essentially ran up the national credit card until it was maxed out and they could not cover the monthly payment?

So what happens now? Nobody knows, but it seems to me that the odds-on favorite is that Greece and Europe will continue stumbling along on the path they have been following for the past two or three years. Which is to say that surprisingly little will happen. Short term deadlines will be met at the last moment with adequate half-measures, compromises, and band-aid solutions. Big picture problems will not be addressed, because solutions of that scale would require the consensus agreement of too many governments.

As discouraging as that might sound, more dramatic and worse outcomes are easy to imagine. The bad outcome that the European press threatens us with is that “Greece will leave the Euro.” That makes it sound like the event would be a thoughtful, if grave, government action.

It seems to me that if things go badly, it will not be driven by the decisions of elected officials or bureaucrats. Events will run out of their control and things will just happen, possibly literally overnight. There will be a run on the Greek banks, causing them to collapse. Or Greek government workers will strike and riot until the austerity deal is impossible to implement. Or, more likely, some other series of events not presently foreseeable will bring the whole fragile thing down.

What happens post-Greek-Disaster is also not as predictable as the press might lead you to believe. It is often assumed that the Greek Drachma would reappear, that is, that Greece would stop using the Euro and go back to a locally printed and controlled currency. That is possible, but I think it is less likely that not, for the simple reason that nobody, not even a Greek government worker, would accept a Drachma in payment for anything.

More likely, the Greeks would continue to use the Euro. Their government would just repudiate, de facto if not officially, their debt. The Greek budget is currently within striking distance of primary balance, which is to say that with some effort it could cover its bills, if it were not for the crushing interest payments.

What this would mean for the rest of Europe is anybody’s guess, but it will not be good. At least not short term. If you were really optimistic you might hope that it would galvanize the political leaders into taking the hard and unpopular decisions necessary to create a credible and durable EU and Euro. I am not an optimist.

And what would it mean for us Americans? On balance, the European Crises are not good things for us, and their likely unhappy endings even worse. But the expected impact on this side of the pond should not exaggerated either.

Yes, it is one big global economy, so what happens over there will matter over here. But by the same token, there is a lot of the world that is not the EU. It accounts for only 18% of our exports. And there are some positive side effects. Low demand in Europe, and expectations of future low demand, is helping to keep oil prices down. Our interest rates have been as low as they have been without inflation partially because of European investors feeling a special urgency to get their money out of Europe and Euros.

Also, a collapsing Euro means the US dollar will buy a lot in continental Europe. Might be a good time to visit. They have nice old buildings to look at and cafes to sit in. And the Cokes are made with real sugar. Some of their exports might also become cheaper, but I would not hold my breath on BMWs and Mercedes.

In sum, Europe really is just as messed up as you assumed. This is, I believe, the all-time longest BMA post and I have hardly scratched the surface. The bottom line is that while nobody knows what will happen, it does not look like it will be good. Be thankful you are American. Or better yet, Canadian.