Partial List of Serious Problems We Won't Solve

Partial list of serious problems where too many of us are unreasonably unwilling to accept the clearly best solutions*: 

• Climate change/energy efficiency - nuclear power
• The need for kidney transplants - a free market in organ transfers
• Higher levels of economic growth -  free movement of people across borders
• Too little affordable housing - allowing more housing to be built
• Inner-city education failure - getting government out of the provision and design of schooling via vouchers (case in point of why this is on the list)
• Health care cost - removing regulation against competition in insurance provision and required components of insurance along with removing tax advantage for employer-provided insurance (updated to add: eliminating at least FDA's efficacy requirements if not the FDA altogether and allowing unencumbered competition in health care supply (i.e., eliminating certificate of need laws, et al.))
• High unemployment and underemployment within the underclass - remove occupational licensing (also helps in health care and legal work markets among others)
• Social Security insolvency - sun setting of future obligations by means (for near claimants) and age (ending the scheme for all those below a certain age)
• Drug-related crime, violence, and social disruption - full legalization of all currently illicit narcotics
• Sex trafficking - full legalization of sex work including a social norm of tolerance
• Geopolitical conflict (aka, war) - embrace and default to pacifism
• Taxation distortions and inequalities - Replacing income-based and all other resource-creation-based taxation with consumption-based taxation such as a VAT

*These are not necessarily completely sufficient solutions, but they are at least the most complete way these problems could be greatly alleviated.

The Big Five - Choose Your Battles Wisely

Here is the low-hanging fruit of public policy. 90% solutions (improvements) on these issues are several orders of magnitude more important than 99% solutions on a thousand others. They are in no particular order (alphabetical):

• Drug Prohibition (end it--allow adults to make their own choices)
• Education (privatize it--give the government an ever-smaller role)
• Immigration (open it up--allow people to freely move and freely interact with other people)
• Taxation (simplify and redirect it--efficiently tax the use of resources not the creation of resources)
• War (move away from it--make postures less bellicose and violence less of an option). 

Everything else at this point is details. They are interesting details, yes. For example, the recent interesting, generally important, but marginally insignificant issue of the legality of blackmail. [note: I side with Robin Hanson, but I am sympathetic to and willing to live with the counter case.]

How should you vote? I would suggest an equal weighting of these Big Five policy stances as the guiding framework. While this recommendation is a prescription to be a few/select-issue voter, that should be considered a feature not a bug. Similarly straight-party voting isn't necessarily morally or intellectually inferior to a strategy of "voting the person not the party". By what criteria is a candidate-by-candidate voter deciding? Why should they believe they are properly weighting the issues, correctly identifying the stance on the issues, and accurately evaluating each candidate's position and expected actions on the issues? Using a few benchmark issues as the litmus test keeps the focus properly on that which meaningfully matters and gives the best hope the rationally ignorant voter is making a good decision.

More importantly, how should you advocate (much more bang for the buck)? Let's say solutions are just as simple as awareness (I know it is not, but it is a useful analogy). Spend about 95% one's advocacy efforts roughly evenly on the Big Five: ending the drug war, privatizing education, opening immigration, reforming taxation, and reducing war. The remaining 5% goes for everything else. My own behavior has not adhered to this framework, but since I am just now formally defining this, I grant myself pardon. Will I follow this going forward? All I can do is try.

I Know Why Dracula Is So Rich

Before we can understand why Dracula is so rich, we need to understand why investments make money at all. Why isn't the current price simply the sum of all future returns? Well, because future returns are uncertain. A business venture might be profitable. Money lent might be returned. And the investor might be around (alive and well as today) to collect when the future return is available. Hence, an investor needs to be compensated for the risk that the investment will not generate a return and for the risk the investor cannot use the invested funds as well in the future as today.

I am positing that uncertainty is the single (the one and only) source of financial investment return above the time-value of money (TVM). Assuming we all have an identical time preference, which we do not, the time-value of money can be summarized as a single discount rate, an annual compound interest rate. Let's set the discount rate to 3% whereby $100 today is equal to $103 in one year, $106.09 in two years, and 1.03^n into perpetuity. To any degree that there is uncertainty about collecting the future investment, one would require a premium to the discount rate--an increase in it to compensate for risk (e.g., 3% becomes, say, 5%, which would be 3% for TVM plus 2% for risk). I realize "discount" is counterintuitive, but understand that it simply means discounting a future amount to be equal to a value in present terms. 

One way to get rich is to have a discount rate (a time-value of money) less than 3%—like say 2%. Then getting someone to pay you 3% in one year’s time is like getting paid almost 1.5 year’s interest in a single year since you only require 2%. It wouldn’t take much leverage (or much time) to make this a very real and very big get-rich-quick (or eventually) plan. 

Another way to get rich is to have less uncertainty about the future--the mythical crystal ball. Even if it is cloudy, it plus what everyone else (the market) knows is better than only what everyone else knows. 

This dawned on me when I was listening to Jason Wiser's retelling of Bram Stoker's Dracula (Dracula: The Night King (part 3 of 3), specifically about the 35:21 mark). Because he is an immortal monster, Dracula can simply wait out any temporary problems--go to sleep for forty years as those who hunt him age and die. Now, think about Dracula's time preference for money or anything else. He plays the loooong game. He doesn't need to consume now and can let his wealth work for him quite easily--decade-long naps allow for very deferred consumption. Relative to mortals, he has a very, very low discount rate because his time horizon is astronomically longer and uncertainty from his perspective is much, much lower. 

What are the implications for us in the non-fictional, mortal universe? Tyler Cowen's Stubborn Attachments wrestles with this concept (confession: I have not read it yet, but I have purchased it, intend to read it, and have listened to approximately 3.79 trillion podcasts of him discussing it). As I understand it, he argues for a discount rate of 0% thereby valuing the future as equal to the present. In such a framework at the individual level you would not be paid a premium for deferring consumption. However, I believe he is proposing this at the societal level and more as a framework for policy making. A conclusion this leads to is generally favoring growth as the primary goal/aspiration for social policy.

What about implications for investors? Individuals are not immortal; so unless you are planning a trip to Transylvanian, you better continue to demand compensation for deferred consumption (TVM) and some premium for risk being taken.

What about endowments and foundations? I would propose they are not nearly as much like Dracula as they would like to be--in the time horizon and uncertainty dimensions. I won't at this time accuse them of having other Dracula-like qualities (fodder for a future "shots fired" post perhaps). These entities have current and continual demands for withdrawals. An X% annual spending policy and a collection of interested parties with very different perspectives strongly challenges any argument for a lower discount rate. The foundation as a concept may theoretically have an infinite time horizon, but its donors, beneficiaries (both current and near-future ones), and employees do not. At the very least it will be difficult for them to think and act as if there is an infinite time horizon when they should (deferring consumption in tough times) and rather easy for them to do so when they shouldn't (assuming future growth will solve all current shortcomings). 

Lastly, what about governments? Well, should they really expect to be around into perpetuity? How many can reasonably expect this? So far at least technically the success stories number zero. (Perhaps another future post expanding on this question and applying to foundations as well.) I will grant that governments in a practical sense to a degree (magnitude matters) can assume very long time horizons borrowing against the future. It will work just fine until it doesn't. Given enough splinters (growth-hampering regulations, inflation, entitlement promises, etc.) you'll eventually have a wooden stake. Governments may aspire to be Dracula (see below), but they face many, many obstacles in getting there. 

This brings us to a Partial List of why governments are like vampires:

1. The light of day is toxic to their way of behaving.
2. Taxes = blood.
3. They can seduce with their promises.
4. They create captured minions whose self interest becomes subservient and aligned to the master's.
5. We trust them blindly at our peril.
6. They are incapable of looking themselves in the mirror.

Partial List: Twin Peaks - Wax & Wane

Partial list of peaks...

Some I predict we are in (or recently passed):

• Garage, driver, and long-haul truck driver
• Oil, et al. price
• Professional stock picker
• Bank (traditional) - regulation and innovation are to "blame"
• Farm (agricultural land use) - see here & here
• Storage unit

And some I predict we are not:

• Local truck driver and this
• Oil, et al. quantity
• Index investing (true, pure passive even without the growth of factor-based, which is active)
• Bond price - relatively low rates as far as the eye can see
• Reality TV
• Zoning - the Complacent Class isn't done yet "protecting" us from new ideas and FOOL is all about
• Authenticity - the desire for this is just building and its continued strength is evidenced by the concern so many have that it is going away.

My 12 Rules for Life

Jordan Peterson started this. Many have been following. I like Tyler Cowen's, Megan McArdle's, and Arnold Kling's among others.

Here is my contribution to the cause:

1. Try more things--reach out for more variety along all relevant dimensions.
2. Quit more things.
3. Read more (quantity, quality, and variety). 
4. Practice ‘Hell Yeah!’ Or ‘No’.
5. Listen with intention. 
6. Smile more. 
7. Choose honesty, demand the same, and respect when you get it. 
8. Pursue what is being rewarded but always to the satisfaction of high ethical standards. 
9. Trust your gut instincts. 
10. Ask your spouse, children, immediate boss, and parents for permission. For everyone else, ask forgiveness. 
11. Change your mind. Distance yourself from those who won’t. 
12. Forgive and move on. 

Trump - One Year In

About a year ago, I posted on Trump looking at what I saw as the reasons to be optimistic and pessimistic. Let's revisit that now that we have a year under our belt.

Overall, I think my predictions were good with some notable variance in a couple areas. Of course, I was vague enough to prevent too much inaccuracy (or accuracy) by design. Here are the areas that standout to me with a look back at my prior comments.

The Good

• Taxes - this one was somewhat surprisingly good, blemishes and all. [remember with all of these we are grading on a curve] Much like Chance, Trump only gets credit for being there to sign the bill. 
• Regulation - 1.25 steps forward with 1 step back is still progress. Congress and Trump completely failed to reform much less repeal the ACA (Obamacare). I have low and ebbing faith Dodd-Frank, et al. will be meaningfully changed. Still, there are success stories, and slowing the rate of growth is itself improvement. 
• Judicial Appointments - I somehow missed mentioning this previously, and it would have been in the optimism bucket. This one has lived up to realistic (not full libertarian) hope. 
• Lost Respect for the Sanctity of the Office - yes this is a feature--let the scales fall from your eyes, the emperors have never been well dressed. But . . .

The Bad

• Presidential Power & Authority - we may be chipping away at the Cult of the Presidency, but I don't yet see the groundswell from the left or the center that I might hope for. They are much to tied up in the emotion of this particular president's actions and words.
• Immigration - unlike in trade (below), Trump's actions have matched his rhetoric in this area. Here it looks to be an on-going real fight and will perhaps be the most lasting and impactful negative consequence of Trump.
• Trade - as I mentioned, his administration is a lot of (bad) talk on this, but so far little action. Still, he has many opportunities to make good on his very bad desires.
• War - I was not pessimistic enough on this. Drone attacks have increased under Trump as the list of places we are at war have grown. The U.S. government with the help of a complicit even if blissfully ignorant populace continues to be wrongfully aggressive. Include in this the surveillance state, but I am fairly certain this one is sadly nonpartisan. 
• Drug Policy - yep, unfortunately I nailed this one.

The Ugly

• Hatred, Nationalism, Bullying, etc. - I was not as pessimistic as I should have been in this general area. The downside of losing the always undue respect for the U.S. presidency is that it took this buffoon to get us there. He is at best sloppy and inconsiderate, at worst hateful and demagogic. If you need links on this topic to prove the point, you have been in a coma for 12+ months.

On balance there are reasons to claim "silver linings" and reasons to claim "not so fast".

PS. For a better analysis of the economic policy results of Trump's first year, read Scott Sumner's take. 

What I'm Listening To (Podcast Rundown)

Between my daily commute and my work travels, I get a lot of windshield time. That is all made a lot easier now that the world has podcasts. Here is my current subscription list in somewhat my listening preference order. Of course, length, topicality, and my personal mood make that order a moving target--so don't read too much into it.

Podcast	Comments
EconTalk	If you asked me for the most consistently rewarding podcast, this is where I would point you.
Freakonomics	If you were brand new to podcasts, this is where I would have you start.
MRUniversity	Bite-sized, very well crafted economics lessons. All are self recommending. Money Skills, Econ Duel, and Everyday Economics are perhaps my top recommendations for newcomers. Macro and Micro are excellent introductory courses.
Cato Daily Podcast	If you asked for the best briefing on political topics, this is the one I'd recommend.
Reason Video Podcast	Reason has their stuff together. From humorous, short parodies and commentaries to long-form interviews, this videocast is well worth it. Trigger warning, they often cover topics that will leave you mystified if not down right enraged.
Conversations with Tyler	He has a wonderful gift for getting deeply into a deep, impactful thinker's mind.
The Alton Browncast	Would we expect anything less than gold from the most entertaining chef in history? Terrifically it is generally not about food; although, it is often loaded with food.
Free Thoughts	If you wanted to seriously learn about libertarian thought, this would be the best podcast source. Even-toned, intelligent, and accessible.
The Way I Heard It with Mike Rowe	If you remember the best part of AM radio, you'll be instantly hooked on this one. If you can't, don't worry. You'll still be hooked.
The Libertarian Podcast	A well-reasoned, deeply educated, libertarian take on the issues of the day. I find myself in strong agreement 95% of the time. I listen to podcasts now at 2x speed. This one is usually the most difficult in that regard even though I know the topic well. Epstein talks and thinks FAST!
So you can probably pick one of these next three (Ferriss, Altucher, Manliness) finding the one whose style best fits your taste and get most of the same content since the guests tend to overlap so much. However, I find each rewarding in its own right.
The Tim Ferriss Show	I like how he has a life-hacking approach to, well, life and how he turns each guest into a teacher revealing the tools they have used for success.
The James Altucher Show	His style lends itself to an approachable format. The constant interruptions are a feature in that they provoke a more meaningful conversation.
The Art of Manliness	A pretty good way to check up on and improve upon your personal level of grit.
Macro Musings	Macro is the most controversial part of economics. It is perhaps not surprisingly also one of the most difficult to understand. David Beckworth does a splendid job illuminating the sources of controversy and reducing the confusion of the subject.
Penn's Sunday School	Entertaining first and foremost. I find his support for liberty and libertarianism a strong virtue despite my quibbles here and there with his delivery or details (in his defense he ALWAYS includes the disclaimer that he is "wrong, wrong, wrong!"). The atheism, which is arguably the point of the podcast, can be a good challenge to my own religious beliefs as well as a healthy way to learn from a convicted, intelligent advocate from the other side.
99% Invisible	Weekly they manage to make interesting the details about stuff all around us that we completely ignore.
Reply All	This one almost never fails to bring me new information. I have found quite a few of these episodes very surprisingly interesting--even after my expectations were elevated. The only negative is when it makes me feel old. I am basically always in the "No" category of "Yes, Yes, No".
Myths and Legends	Recommended by a Fribrarian. This one surprised me with how addictive it is. I swear I'm not this big of a nerd.
TEDTalks (hd)	I would guess I make it all the way through about one third of these with one third skipped altogether just based on the topic and description. The ones I do select make the subscription well worth it.
Revisionist History	Counter-conventional wisdom from a wise counter conventional.
50 Things That Made the Modern Economy	Tim Harford--so say no more. Dense vignettes about . . .  well, read the title.
Cato Event Podcast	Heavy on the wonk factor, but I like to go deep.
More or Less: Behind the Stats	Tim Harford, again. While the circumstances of specific cases in their numbers analyses are compelling, it is the ubiquitous principals at work where the real learning lies.
MinuteEarth	Almost always pretty interesting (and if not, it is only 1-3 minutes long), these, like their now podcast dormant forefather MinutePhysics (you can still get it on YouTube (hey, I need to do a post about what I'm watching on YouTube)), are how primary school science should be taught.
Economic Rockstar	This one gives me exposure to economists I wouldn't normally be exposed to (getting me outside my bubble).
Surprisingly Awesome	They take the mundane and show how it is actually not so bad and sometimes even quite amazing.
StartUp Podcast	Like the Serial podcast, there was significant drop off between season 1 and season 2, but I still found season 2 rewarding. Season 3 was a step up, and it has gotten better in season 4.
Tell Me Something I Don't Know	Since this one is directly about a common theme in most of my podcasts, it seems obvious that I would follow it. However, it is new. And while results so far have been rewarding, time will tell if it has staying power.
Science Vs	Overall, a good concept and good execution. The limits it runs into are symptomatic of the very premise--you can't let "what does the science say" run your life. It is not so simple. Science doesn't allow for normative claims.
The Moment with Brian Koppelman	These interviews are an interesting twist on the traditional 'talk to a famous or important person'. He is good at evoking the interviewees' source of their personal success.
StarTalk Radio	Another Fribrarian recommendation. Two things about this one make it a draw for me: 1) they cover an area of interest for which I am a only superficially well informed, and 2) they think about problems differently than do I which serves to expand my thought processes. The negative is when they venture into areas they do not know well; namely economics. They can be astonishingly poor at economic reasoning.
Heavyweight	This one has been hit and miss. The storytelling is compelling, but the content isn't always so.
Dan Carlin's Hardcore History	From a friend's recommendation. Haven't started it yet, but it looks promising. Episodes are looooonnnnggg.

Life Moves Pretty Fast

Life is complicated. Here is a partial list of some principles I use to help guide my reasoning and action. 

• Keep your options alive. Optionality is a very important and undervalued concept. And the corollary: Options are more valuable than plans.
• When in doubt, choose the upside. This does not mean be optimistic, although I am. This is about positioning oneself to be disproportionately exposed to upside potential. 
• Be optimistic. There will be another day. Things will get better than how they seem at their worst or when considered from the worst-case scenario. 
• Yield (choose 'flight') in the face of irrationality. Stand up (choose 'fight') in the face of injustice.
• Trust in market processes. And the corollary: Trust the signal the market is providing.
• There is enjoyment and learning in any and every situation.
• When in doubt, choose quality over quantity or efficiency.
• Don't by default attribute to malice what you could otherwise attribute to ignorance or bad luck. This one is adopted by recommendation of Tim Ferris (it is really just Hanlon's Razor), but I was already working with something very similar before I heard his version. My version goes: Don't assume ill intent; assume ill design or poor execution. People are much more likely to be stupid or unlucky than evil.
• Taken directly from Derek Sivers: If it is not "Hell Yeah!, then it is "No."
• Improve everything that you touch. Don't take my word for it. Dr. King said it much better. And the corollary: Be selective about what you engage in and be satisfied with reasonable improvements. Remember that perfectionism is a fault not a virtue.
• Specialize in your competitive advantages; seek to outsource everything else. Following this advice is the road to success. Don't take my word for it. Steve Martin is a better authority.
• Assume there is a good reason for things you find puzzling, but consider that improvements are possible.

Walls? Walls! We don't need no stinkin' walls!

Partial list of nations and empires with famous walls:

China: The Great Wall
Germany: Berlin Wall
Israel: Israeli West Bank barrier
Roman Empire: Hadrian’s Wall
Roman Empire: Walls of Constantinople
Jerusalem: Western Wall (AKA, Wailing Wall)

Partial list of great American bridges.

Golden Gate
Brooklyn
Chesapeake Bay
Seven Mile
Rio Grande Gorge
covered bridges in Madison County
Multnomah Falls footbridge


You can argue about which actually make it in the list. Name the great American walls. The Vietnam Wall is the only one that comes to my mind--a wall very different than walls as we think of them.

We have always been a nation that built bridges. Freedom works. Trade works. Immigration works.

The Age of Trump

Tomorrow one third of the United States' government leadership will change hands from one who once promised hope and change to one who now promises the same but supposedly of a different variety.

The tension around this transition is particularly elevated. Not since Hoover-Roosevelt has a U.S. presidential interregnum been so ugly. How will the final moments play out? Will Obama be gracious or will he smugly toss the football? Will the White House be adorned with golden accents? Will a great wall emerge protecting us from things we'd like to buy and people we'd like to meet? How great shall our greatness be?

Below is a partial list of my areas of optimism and pessimism as yet another self-greatness seeking charlatan proceeds to chase away our ideals.

Before I begin, a quick look at the optimism/pessimism I predicted about one year ago when Trump was but a surprising front runner though still a dark horse.

Optimistic - Shows why we should lose (and should have lost a long time ago) our reverent awe for the U.S. Presidency; prevents major government action/intervention/meddling on any number of issues by being a circus act writ large (his administration's priorities will be prestige and showmanship rather than policy accomplishment); forces a meaningful debate and action on limiting executive power (a little bit in tension with the previous prediction as this one mitigates a Trump administration that is actually trying to do something).

Pessimistic - Engages in major international war actions (beyond the high amount the each of his opponents would do anyway); sets back trade freedom and immigration substantially; creates strong racial, ethnic, nationalistic, and gender divides.

Overall - I estimate the optimistic possibilities are more likely than the pessimistic possibilities. 

 Optimism:

• Taxes - As with many of these, Trump himself is not really the source of optimism. Rather the Republican Congress is the new hope. Trump is just the chance that a good reform will be drafted with the expectation that he will sign it into law.
• Regulation - He continues to talk strongly about reducing the monstrous regulatory burden our federal empire exerts. The areas of particular expectation are banking & finance (Dodd Frank) and health care/medicine/insurance (ACA/Obamacare), but also environmental; although I am less sanguine about the prospects there. 
• Presidential Power & Authority - This one is borrowed my original. I believe the return of the left is long overdue in this area. Perhaps it will take this time... doubtful. The same can be said for the anti-war movement. Their 8-year hibernation is now over. Remy puts it well in the second verse. 

There is no doubt these are important areas; yet, so are those I put in the pessimistic camp.

Pessimism:

• Trade - Astute readers will notice how many of these in the pessimism category are related. Is his rhetoric enough to satiate the unintentional, populist desire to be poorer? Our trade deficit/capital account surplus is not some phantom menace plaguing our economic well being. Is he really so dense as to believe the nonsense he speaks on this issue? . . . based on the rest of his behavior . . . Okay, good point.
• Immigration - The free exchange of labor is every bit as important a contributor (perhaps even a greater contributor) to our economic wealth as is the free exchange of goods and services. His attack on those not from around here is both disgusting and discouraging. Again, I hope this is a clone of the prior item where it is all about rhetoric and not action.
• Nationalism - We don't need more tribal thinking in this world. Unfortunately, he nurtures this toxin. He wants revenge on those not allowing us to be great.
• War - Here my outlook is just slightly negative. I'm grading on a curve based on the past two Commanders in Chief. I think he will tend to reduce the areas of conflict where both Bush and Obama took us. However, the risk he runs of allowing an awoken force from Russia or China is elevated compared to the prior administrations. Think reduced magnitude across the bulk of the probable war fronts but with increased risk in the extremes (tail risk).
• Drug policy - I suspect he views drugs in the traditional simplistic framework (good versus evil). Drug users are rogues who must be dealt with. The first one to tell him he can't win the war on drugs will seal our fate in continuing the evil work that is that battle.
• Government Meddling - From the Carrier deal to GM to you name it, the picture so far is bad for economic growth specifically and bad for liberty in general.
• Free Speech - For as much as he deplores PC, he certainly can't take criticism. He has flat out said we need to reign in speech. 
• Internet freedom - This may be a small issue, but perhaps it is a litmus test for how he will govern overall. He said we need to look into 'closing that Internet up'. His nominee for Attorney General, Jeff Sessions, as well as his vice president, Pence, are outspoken in their disdain for internet poker. They want to keep us safe . . . from ourselves and our choices.
• Surveillance State - I suspect no relief. 
• Gender Issues/Tolerance - While I actually think he actually takes a lot of unfounded and unfair flack regarding areas like race and sexual orientation, his sexism is undeniable. He is not just crude. He is misogynistic. It is hard to be very trusting that this strong character flaw and his errors in judgment don't and won't extend beyond objectifying women. 

Overall:

The Trump years (and they will be years despite the hope of so many for impeachment or that he would divorce America to be president of some younger Eastern European country) might be an odd combination of dramatic progress and colossal retreat. I think the eventual decisive factor will be how strong and righteous Congress is. I believe the case for optimism has a greater magnitude than the case for pessimism, but the negative sensitivity is high--meaning prospects are skewed with more downside risk than upside potential while the balance is still to the upside. 

Investment List Question Partially Answered

A few days ago I posted two partial lists of investments and posed the question to identify the key distinction between them. Here is the answer.

The key distinction is cash flows. I contend that the assets in list #1 meaningfully generate cash flows while the assets in list #2 do not.

Consider what a cash flow is: a stream of payments going (flowing) to asset owners generated by the asset itself. This does not include money or other assets taken in exchange for ownership of the asset. That trade value is important, but using it to evaluate current (present) value must ultimately rely on guess work--namely guessing what someone in the future will pay for it. Using cash flows is a very useful method to value assets and get around this resale (aka, "greater fool") theory of value. 

Once you have a guess as to what cash flows will be for a given investment, all you need to do is apply a discount rate, sum the results, and viola you have a net present value (current price). And more importantly you now have a method to compare various assets' valuations. Of course, it is not quite that easy. We have to guess/argue about the timing and amount of cash flows, and we have to appropriately guess what discount rate to apply for a proper time-value of money adjustment. But there is even more complication.

There is a tension between my logic and my lists. The implied rent payment one saves by owning their home is fairly vague while the returns from turning copper into the product of electrical wiring is not so vague. Conceivably, if you define "cash flow" broadly enough, everything has a potential utility value that could be described as a cash flow (or in cash-equivalent terms). For this reason I said list #1 meaningfully generated cash flows. I am assuming a reasonableness standard we can generally agree to. 

As such, I don't view gold as an investment in the same realm as I view, say, a share of stock. Gold's value is too reliant on the presumption that someone else will want to buy it at a later date. (Here is some of what the Oracle has said about gold. Read at least #4.)

My two lists of investments are not intended to be uniformly separate. Each item to varying and changing degrees exists on a continuum. Think of it loosely as the Beanie Babies to U.S. Treasury Bonds scale. The "cash flow" from Beanie Babies is only the joy one may get from holding one and the opportunity to sell it down the road. The cash flow from UST bonds is semi-annual interest paid and the promise to mature at par value. Where do you put gold on this scale? As you answer that question for each asset, you start to see a large gap forming naturally separating the two emerging lists of investments. 

P.S., When I first started to answer the question, I fell down a deep rabbit hole that took me quite a while to escape. Read on if you'd like to witness the journey. Bonus points for realizing the subtle point that creates the difference between the answer above and the answer below.

Consider what a cash flow is: a stream of payments going (flowing) to asset owners generated by the asset itself. This does not include money or other assets taken in exchange for ownership of the asset. Ultimately, for an asset to have value, it has to be intrinsically valuable to someone. Take a bond for instance. A bond is intrinsically valuable because it generates income in the form of interest. And that interest (cash) has value because it can buy stuff like beanie babies and food, which are intrinsically valuable because . . . because my daughter likes beanie babies and she and I both need food. . . okay, we might have a problem here. If you didn’t catch the circular logic, go reread that.

Any time you hear “intrinsic value”, your spidey sense should start tingling. That concept suffers from what I call the artificial logical stopping point. It is the fallacious attempt at halting what becomes “turtles all the way down”. In a chain of subjective value propositions we assert at some point that one of those values is so esteemed, so important, that it is an intrinsic value. If that sounds arbitrary, it’s because it is arbitrary. One can always challenge the leap to the intrinsic showing that leap to be invalid. Objectivism philosophically solves this conundrum by basically rejecting the need for an intrinsic value concept. I believe that is the correct way to conceptualize value—value is the relation between the object valued and the individual valuing it, but can I reconcile it with my belief that the two lists are distinguished by the presence of cash flows? I can because of what I am arguing cash flows are and what they are useful for... [this is where I caught my mistake and began anew].

Two Partial Lists of Investments

The following partial lists of investments have at least one key, distinct difference between them. Can you identify it?

List 1:

• Stocks (equity ownership - residual claims on assets)
• Bonds (credit lending - contractual claims on assets)
• Real Estate (equity ownership of real, surface property such as your personal home, a home or apartment you rent out, a business building, a REIT, etc.)
• Mineral Estate/Rights (equity ownership of real, under-the-surface property - the right to mine resources)

List 2:

• Currencies (US Dollars, Euros, Yen, etc.)
• Commodities (energy and agricultural such as oil and frozen concentrated orange juice)
• Precious Metals (gold, silver, etc.)
• Industrial Metals (copper, nickel, aluminium, etc.)

I will follow up with the answer in a few days.

Partial Compilation of the Wisdom of Max

As originally posted to Facebook (most recent first) over the past year and a half with slight edits for clarity, I give you

The Wisdom of Max

Me: "Max, put on your jammies."
Max: "I don't want to wear jammies."
Me: "Look, I'm wearing jammies."
Max: "No you're not! Jammies have airplanes and stuff on them. You're just wearing regular clothes!"

Max: "Do you know why they call them black widows [pronounced 'weiddos']? Because they are so weird looking."

Max: "It's really easy to kill zombies. You just get a sword and hit them a bunch. It's pretty fun." Who says Minecraft doesn't teach you anything.

Max: "Birthday parties are gooder than everyphrang because ... Getting older ... sigh..."

Max: "Old people are lucky. They can't go to jail. Guess why. Because they forget so much."

[from April] "It's chalk and water. When I asked him what he was doing he said, 'MOM, I'm sciencing.' Well, I guess I can't argue with science."

Max referring to a friend at preschool: "Heston's not really a bully. He's just kinda the boss."

I'll be vague to protect the innocent, but Max's quote was good: "Mom, tell your friend next time to NOT put nuts in the chocolate chip cookies."

In this photo we see Max explaining that "the inside of a bean has seeds that are like bullets. If you break it open and put them in a straw, you can fire them like bullets." Thank you, Papa, for that helpful bit of knowledge.

Max thinks this bird poop on the car window is cool because it looks like a rocket ship.

Max is at a friends birthday party. A few of his observations:
     "I can never trust a hot dog."
     "My real name is Max, but in your gang my name is Zane."

He's been working in this all morning running around fretting, "I don't know if this will work..."
It is an "Opathenator". He told me what it does, but it is too complex for me to summarize in a Facebook post. (notice the use of a laser)

(At Victoria's The Pasta Shop) Max said, "Bring me all the lemons."

Max wants everyone to know he had three dreams last night (2 bad and 1 good): 

1. We as a family were going on a train ride and he fell in the river. 
2. He was being chased by dragons and one ate him. 
3. A jet landed right by our garage (this was the good one. He said I would like it and maybe I'll have it sometime). 

     He then said, "Dreams are like listening to music with headphones only without headphones."

Max: "If you put honey all over [which he pronounces as 'O-er'] your yard, you'd have ants EVERYWHERE!"

Max: "I AM happy. I'm just not acting happy."

Max: "Guess what whiskers are for."
Me: "What?"
Max: "To shave."
Walked right into that one. But he continue, "They actually are just to give you something fun to shave."

Max: "If you tell somebody you went potty, but you didn't, and you don't tell them the truth, it's a lie. . . . 
I thought of that all by myself. That's what I do. I think of interesting things."

Laying down with Max while was going to sleep and me thinking from the long silence that he was, he raised up to say, "If I had some hot macaroni and there were ants nearby, I'd put it on the ants so they would die. Ice would work too."

Today Max and Elise went to the Myriad Botanical Gardens. Max said, "Mom, I have to ask you something. Can I pick these flowers? Can I take these flowers home?"
April replied, "No, you cannot."
Max said, "Okay, I just had to ask."

So Max was drawing with Eva today. He drew this guy in the middle and said, "that's a vampire." 
Eva asked, "How do you know what a vampire is?" He answered, "A vampire is just a naked zombie." And .... now I will have nightmares.

Max: "I wish I was three! Everything was easy when I was three. But in a while I'll be five, and that will be so cool!"

[from Nana]: While keeping Eva, Max and Elise this weekend, I gave Max and Elise both orange popsicles. Max quickly ate half of his then set it in his plate. Elise laid hers which was barely touched down immediately and grabbed his.
Max: "Hey! That's mine!"
Me: "That's okay just take hers she had barely touched it."
Max: "It might have germs, she licked it."
Me: "But Max she's your sister you don't care if you eat after your sister do you?"
Max: "No, not now that she is in our family."
Me: "Well she has always been in your family, she has the same Mommy and Daddy as you, remember when she was born?"
Max: "Yes, but when we first got her we didn't eat after her or anything for a while until we finally let her be in our family."
Guess it is one of those exclusive families that only accepts the best...

Max: "Papa, sometimes people think things that aren't true, but they don't know."

More from Max: "Some times things are funny, [shakes his head] but people don't laugh."
"You know bad words? You can learn good things from bad words."

Max: "Daddy, does it frustrate you that the house is taller than you."
Me: "no, not really."
Max: "But it's frustrating when things are taller than you."
Later . . .
Max: "My favorite thing to do today is to watch Eva while she plays. That bothers her. I like distracting her."

As I was grinding coffee this morning, Max said, "If you run out of concrete you can use coffee but it is really hard to do. REALLY HARD! You have to add boiling water and wait a long time."

Max: "David Graybill [his 6'4" cousin] couldn't take a bath. He is too tall. Do you know why David grew so tall? Let me tell you. Some people grow wide [he stands with his legs apart and arms lifted out to demonstrate]. But David grew long [he stands tightly together very straight like a pencil]. It happens at night. You don't notice because it is at night. But it happens."

Max: "If Superman was a real person, he'd be made of steel. But his cape wouldn't. His cape would be made of red cape stuff."

April: "I'm sending you kids to boarding school for the summer. I can't take the fighting."
Max: "I don't want to go to boring school. I don't want to ever go to boring school. I like my house."

[at Pi on the Plaza District] Max walked up to this sign and said, "What is my imagination saying?"

Elise is watching Sesame Street. Max can't figure out for the life of him what this is.

Max: "Dreams are important. They are good for you--even bad dreams."

Playing with Eva, Max said, "Remember what we did a long, long, long time ago, before today ..?" The rest isn't important. The specification that three long times ago is "before today" was the interesting part.

[from Nana]: Last night we gave our grandson Max (age 4 1/2 yrs.) a lava rock we found in the desert on our trip to Yuma. I said, "We picked up this lava rock for you in the desert. It is from a real volcano." His eyes got a look of excitement and alarm and he took it from me the way a person would take the surprise gift of a million dollars. "Wow" he said, "WHERE DID YOU GET THIS?" I told him we found it in the desert. He continued, "I mean, HOW DID YOU PICK IT UP? IT HAD TO BE BURNING HOT!"

Max today: "Robots were invented in the olden days to help people catch rabbits and chickens." I think he's watching too much Looney Tunes.

Max is focused in school work and focused in his Martial Arts.

Max from the shower: "Elise doesn't have boy parts! Where are her boy parts! She is like a cow. Milk comes out of there." How is he just noticing this?

Max explaining: "... And then a BIG giant ball of fire came down and there was fire everywhere and it killed all the dinosaurs. Then the scientists buried them, and then there were people who grew up, but first the scientists so they could bury the dinosaurs..." He drifted off as his non-sequitur became apparent.

Seems like he'd make a good pet owner.

So what do you do when you're playing hide-n-go seek, you are winning (not able to be found), and you have to go to the bathroom? Champions, like Max, apparently stay in place and pee their pants. ‪#‎commitment‬‪ #‎WhatChampionsDo‬

Eva has two friends over for a sleepover.
Me: "Max, let's get out of Eva's room and let the girls play."
Max: "No way! I wanna party with them!"

Max: "We talk about vinegar at school. You can drink it but it seems really bad but it is good for your bones."

Max relaxing in his new blanket-fort-house. There is a 20-foot "secret entrance" that runs behind the kitchen and around the side. It's really cool.

Max is showing Elise Minecraft. He is sad because in the zoo he built the piranha has jumped out of its pond and is going to die.

In another conversation, Me: "You need to get to sleep. It's a school night." Max's sharp reply: "I don't go to school at night!"

Max: "Your pants would be really stinky if you had cheese in them for a really long time." I am now checking all his clothing.

[from Nana]: Babysitting Max age 4 1/2 yesterday he told the dolls, "daddy has to go to work to buy food for your or else you will starve to death and Daddy will go to jail." then he looks up for a second and considers that thought, "well maybe I wont go to jail, then he continues, yes Daddy would go to jail."

April is taking Eva to the OKC Philharmonic tonight to see Sarah Chang play violin. I was telling her that a lot of people will be dressed very fancy tonight. Max said, "I don't like fancy." "What do you like?" I asked. "Cool," he replied.

At the end of her workout yesterday, April was out of breath and Max said, "Mom! When you are out of breath you have to go outside and eat some air or you might pass out!"

Max: "Flowers make nectar in their tummies like we make poop. And bees making honey. Lots of animals make things for us..." It went on from there for some time. Chickens are his favorite animal.

Max says: "You don't want the hedgehog to see his shadow - then there will be 1000 more days until fall comes."

So, Max pulled one of my books off the shelf and asked what it was about. It was Brian Greene's "The Elegant Universe", and it was opened to a diagram about relativity. He is now running through the house attempting to go fast enough to time travel. He didn't understand when I told him that if he does, I won't be able to tell.

Now this is a bubble bath.

Max: "Today at school I saw where you get Bible'd."
Me: "What?"
Max: "Bible'd!" [this actually went back and forth several times with him getting VERY insistent]
Me: "What do you mean?"
Max: "You know, with the big bathtub."
Me: "Oh, baptized."
Max: "Xactly! Daddy, have you ever been Bible'd?"
I didn't know how to answer.

Eva is at a birthday party next door that is "girls only". There is an age factor too, but that isn't something he could understand. Max: "Mom, for my birthday send a note to every girl in the whole wide world, 'No girls allowed!'"

Max: "Don't forget to set up the Montana Fire tonight in my room."
April: "What do you mean?"
Max: "You know, the thing that blows air in my face."
April: "Oh - the humidifier."

Max: "When we left on our trips, I worry about my toys and our house. What if somebody broke in and put a bomb in it. That would be crazy! I'd punch the bad guys in the tummy."

Max at Whole Foods whispering to April: "Mom, mom. I want to say that lady looks freaky, but that would hurt her feelings."

Max (in a Darth Vader voice): "Luke, I am your father . . . Son, and Holy Spirit." He might be confused.

Just after closing the door as the last of the cousins left from Christmas; Max: "Daddy, sometimes when I'm telling people goodbye, it makes me really sad."

Max: "Why did Nana make her Thanksgiving chicken on Christmas?"

He's loving his new swing set. Don't tell him it's too cold!

Max: "Did you know that you can see pictures of things in your brain? I'm looking at cool pictures right now. Can you see them?"

One of Max's rules seems to be to always stay in character.

One of his last thoughts before finally going to sleep brought Max rising straight up to ask, "What is faster a duck or a monster?" I knew immediately there is no correct answer I could give to this question as judged by him. Fortunately, he let me know, "I think a duck is faster running and flying."

Max is glad to be done practicing his Christmas program at preschool, "It was very disruptive to the day."

Max: "How did God create everything? Does he have a magic wand?"

"In Heaven can you fly? How? Do you say, 'I want to fly?' and you grow wings?" (With a concerned look.) "But I don't want to grow wings. I might just be saying, 'I want to fly'."

Max: "Elevators are pretty good places to pick your nose, but you shouldn't do it."

Upon learning what crab cakes really were Max said, "Crab cakes should be cupcakes shaped like little crabbies."

Max right now is jumping on the couch saying, "I love this night! It is like a birthday party!" Eva, watching MNF observed, "I just don't get some beer commercials. I like the one where he goes to the top of the mountain and pulls the beer out. I get that one."

Max: "Sometimes coaches look goofy."

Max: "Santa can't jump very high; he's a big dude."

Max is on a roll: "A giraffe could eat you." Me: "Well, no. Giraffes don't eat people." Max: "But if you had a leaf suit on they might."
Later: "Sometimes Santa comes into your house and looks around and if you have a bunch of toys he might only give you some and if you had a whole lot he'd leave you none."

Several from Max:
"Cows have to get the milk out of their skin or they will die."
"It is hard to pick your nose if it is sore but sometimes you have a big booger and if it is really big you need to wash your hands like ten times."
"If you didn't have a mouth you couldn't ask for candy if you were a little kid. That would be sad. "

Max: "Sometimes when you need to go pee-pee really bad someone talks to you and distracts you and you go pee-pee a little in your pants."

Max: "Papa, your neck looks like a turkey's."

Max: "It was easy for God to make aliens because they're so close to Heaven."

One of the byproducts of attending OU games is Max insisting we spend Sunday morning re-enacting the entire pregame in the backyard. I "get" to be the fans who have to stand up and clap and cheer at all the appropriate times. He is the players warming up, the announcer, the band, and the players running out of the locker room. The neighbors must love us.

[at the OU football game] Max: "What's a 'Hunnicutt'?" Me: "It means 'settling' and 'disappointment'."

At bath time.
Me: "I have to get your hair wet to wash your hair, Max."
Max: "NO! 'No' means no, daddy!"

Max: "Jesus has very good hearing."

Max's dream:
"A dinosaur was after me and 'Ah-Weece'. We hid under the table. He didn't kill us, but he zapped Mama."

Things I've learned this morning: Max, "In the world of donuts there are yeast donuts and cake donuts."

Max says, "Daddy doesn't wear a shirt when he mows - so neither am I"

Max gets Trick or Treat



Max was seriously concerned about his Sooners yesterday.

Wisdom from Max:
"A long time ago ghosts got into dinosaurs and thats why you don't see them any more."
"The beetles are the leaders of the bugs." Me: "Why?" Max: "Just because."

Max: "I'm a Wichita man. I'm from Wichita."
Homophone innocence.

"It's a glass of water." 100% his own idea and execution.

Max: "When you get old [elderly], you have to hear everything twice."

Max, "When I grow up, I want to be just like you, Daddy. Then I'll be able to go in the attic by myself." Apparently that is the measure of adulthood. He followed it with, "But I don't want to go into the attic." Quite the dilemma.

Max, "A magazine is a book you read when you go to the dentist."

[from Aunt Susie] A conversation between me and my 4yr old nephew:
Me: Max, I really like you
Max: I like me, too

Max reacts to eating a chocolate mouse


Max explained to me, "People call it a washcloth, but it's just a little towel."

April: "Max, please stop playing in the bathroom." Max, combing his hair: "I'm not playing, I'm being handsome."

April, "Max, is there anything you want from the store?"
Max, "Hmmm... Do they have gummies that look like bears?"
April, "When have you had Gummy Bears?"
With a confused look, Max, "Gummy Bears???"

Max just told me that Elmo was nice, but the dirty man was mean. I think he meant Oscar the Grouch.

Max's joke:
Max, "Mom, today at school I had a hand sandwich."
April, "No, you had a ham sandwich."
Max, "No, a hand sandwich. I ate it with my hand!"
"...I'm just kidding. It was peanut butter and jelly."

Max as the Flash (Flash wore an apron, right?)


Max was almost asleep when his eyes shot open with fear and regret as he worried, "I don't want Jesus to retire." Relax, he is not a prophet. Our priest, Father Boyer of St. Mark the Evangelist, is retiring tomorrow. Max is vague on what a priest is and completely unfamiliar with the concept of retirement.

Max plays Air Hockey


Mothers get accused of many things being their fault. This was a new one on April. Max: "Mommy! You broke my ideas."

Max says: "If God were not in the sky but was on the floor that would be cute because God is cool."

Not sure what this means. Max, "Let's pretend we don't have super powers."

Max to Elise: "I'm gonna squeeze the cutsy out of you." He said it in a sweet way, but it was still a little concerning.

Max's word of the day is 'sanitize': "Carrots are dirty. They have to be washed and sanitized."

Remember when finding a stick could make you happy?

Max sings Taylor Swift


Advice from Max: "It would be really hard to put lava in a water balloon, so don't even try it."

[at Easter] Max found an egg with money in it and said, "I'm gonna get all this money, then I can go to college, then I'll be rich forever!"

From the Wisdom of Max: Did you know that cheese makes you stop dying? Farmers put medicine in cheese.

Me from behind a closed door: "It's me, Baby Elise."
Max: "No it's not."
Me: "Oh yeah, it is."
Max: "You don't sound like Elise."
Me: "I changed my voice, I'm Elise."
Max: "If you Elise, pee your pants."
Checkmate Max.

April to me: "We need to start watching on Netflix 'Breaking Bad'."
Max with a distraught look on his face: "Oh no, can we fix it!?"

What I heard from the other room:
Max: "Eat this."
Eva: "EEEWWWW!"
Max: "It's yucky.... Don't eat it."
I did not investigate. Some things are better left unknown.
From April: The first thing that Max said to me this morning was "I went to the grocery store by myself and I had cheese". I asked him if it was a dream. He said "yes and papa was there and there was a shark".

April: "This is the coolest morning ever - we saw a fire truck testing its ladder and we saw a hot air balloon."
Max: "And we saw beautiful trees and a beautiful baby and a beautiful you."

Some of Max's more interesting questions of the day (he has many everyday):
"How do things not break?"
"How is your head attached to your shoulders?"
"How long cents does a kite cost?" (Pretty sure he meant how 'many' cents).