So there’s some stuff going down in Washington it seems. The government is either spying on us, or has the capability to spy on us, or has a secret court to spy on us, or something else. The buzzwords and names in this story are great. We have Prism, Clapper, Snowden… I don’t know if these are the names of people or secret operations. But who cares.

Central to all this coverage is the revelation of a whistleblower that says the government has more or less abused its power to secretly have the ability to big brother us all the way back to 1984. The shock and anger are two-fold: first, we aren’t sure if the government should have such wide-reaching capability; and second, we certainly didn’t know about it.

Interestingly, our government for the most part is unified in that there’s nothing illegal going on and the only secrets being kept were the ones needed to protect the operations. This make sense because if terrorists knew how they were being monitored, they would find new ways to communicate. I’m not yet of the opinion there’s much going on here at all. So far all I’ve noticed is a UK-based media agency milking their first US scoop for all the eyes and clicks we can give them. All this news warrants an investigation since it’s now public, but I don’t feel surprised, threatened, or violated (yet).

Now that we’ve got that out of the way, let’s focus on the central issue here: the balance between privacy and protection. An economist can look at this debate quite simply. On one side you can get virtually 100% protection from terrorists if you’re willing to give up all your privacy. On the other side you can lose most of your protection in exchange for some privacy. The chart at the top is anything but scientific, but it visualizes the spectrum up for debate. With the appropriate data, we could determine exactly how much privacy we have to give up to save one additional life, thereby creating a value for the balance.

People that don’t want to give up their privacy feel this way for a couple of reasons. For the first, it’s none of our damn business. But the second is they don’t trust the government to use it responsibly. These are both valid concerns. On the other side you have people that are willing to sacrifice a bit of privacy because they have nothing to hide. Again, valid.

So where do you sit on this spectrum? The answer doesn’t really matter for our purposes. But you need to know where you stand before you take a side on this NSA stuff. The only other thing left for us is to determine how much of these claims are true. Only after you know where you stand and how much of this is true can we actually have a discussion about how much snooping power our government should have.

Until then, we’re just angry because we’re being told we’re supposed to be.

The US is a very large country. In addition to being large it’s also quite diverse. This has led to different regions pronouncing words in very different ways. NC State conducted a survey to map out our dialects based on how was say a number of words or phrases. The results are quite interesting. Notably, there’s clearly a huge market for more Bru Thrus.

Check out over a hundred maps showing how we say different things here.

Inflation is something we hear about all the time. Inflation is all around us in tuition, hospital bills, gasoline, and food. We all remember how much cheaper things used to be. Economists are generally okay with a bit of inflation. Stable and predictable inflation is seen as a good thing. We know from history and Tanzania that hyperinflation is a bad thing. But what about the opposite of inflation? Is deflation a bad thing? Let’s explore.

Deflation is actually a major concern in economics circles and is considered highly undesirable (see here here & here). But it’s not something the everyday consumer concerns themselves with. In fact, if you were to task them if they’d prefer a littled deflation (in say gasoline, insurance, and milk) they’re likely to say yes. It would be great for our wallets if prices were to fall a little bit.

That can be true in the short term, but long term deflation can actually be devastating. If you think gas prices are about to fall, you’ll probably hold off on filling up to save a buck at the pump. But you won’t wait indefinitely because you know from experience that prices don’t fall for long (and you need gas)

Now imagine if prices on cars were falling. Would you just wait a few extra days before making a purchase? Or would you wait as long as you possibly could? What about a house? We actually saw this happen. The biggest reason for the fall in housing demand was that no one wanted to buy a home that was falling in value. This delayed consumption would be devastating to the economy.

When deflation occurs your dollar buys more and more every day it’s not spent. This is great for your personal finances. However you won’t be the only one doing it, and if no one is spending any money then the economy will spiral into a depression. The economy will stop growing. Producers will stop making things (because you aren’t buying), and people will lose their jobs. This is a death spiral that can bring an economy to its knees.

This is why controlling inflation is one of the primary focuses of the Federal Reserve. They don’t want to let inflation get out of control, because they clearly causes problems. But they certainly don’t want deflation to happen either for the reasons we just discussed.

Think of inflation and deflation just like a tire. An overinflated tire is in danger of a blowout or at least reduced tire life and vehicle safety. But a deflated tire also reduces life and vehicle safety. One way or another, you’ll eventually end up on the side of the road with no air and no moving forward. So we try to keep air in the tires.

As scary as something like inflation can be, deflation is likely worse.

Image: Laura

Apes were tested in various games that required them to either exercise patience or make a choice between a safe option or a risky bet. Many of the apes showed frustration when forced to wait. But most interestingly, many of the apes chose to make take a gamble instead of a safe option for a treat. And when the gamble didn’t pay off, they were visibly upset.

Also of note was the fact that two species were tested, with one showing more human like qualities in their behavior than the other. If my biology for non-majors memory serves me correctly, that one is also closer to humans genetically.

It would be very interesting to see if gender played a factor in the decision to take risks. It’s well documented that human men take more risks than women.  You can’t help but wonder if it’s the same for apes.

Read: Ape tantrums: Chimps and bonobos emotional about choice (BBC)

Image: Jeroen Kransen

The idea of a 30 year mortgage at less than 4% interest is preposterous. It’s not something that’s likely to happen, unless your country’s reserve bank is in the midst of its most ambitious stimulus program in its history. The Fed’s aggressive programs have lowered interest rates to a level many would consider “unnatural”. This was the point, in order to stimulate borrowing. But many weren’t interested in borrowing and banks weren’t very interested in lending at those rates.

The 30 year mortgage rate has been below 4% more or less since late 2011. The ten year Treasury rate is widely considered a benchmark for all interest rates as you can see. This is the rate the government pays to borrow for ten years. The Fed’s programs have lowered rates and kept them there all this time. For comparison, a 30 year mortgage went for 6.5% at the peak of the housing bubble.

But in the last few weeks, something has started to change. Interest rates are moving up. They haven’t moved like this since 2010 back when we were worried about a government shutdown http://www.foxnews.com/politics/2010/12/17/senate-weighs-short-term-budget-fix-prevent-government-shutdown/. But there’s no worry about that today. The government is running, and with smaller budget no less! Interesting that now government rates go up. So are these rates moving naturally and will this continue?

Let’s not jump the gun. Movement this much this fast is rare, and likely to pull back some. But these interest rates are higher than they’ve been in close to a year without a prevailing explanation for why, and they got here quickly.

While higher interest rates aren’t a great thing for borrowers, it could reflect increased demand from borrowers anyway. This is the type of borrowing our economy has been waiting for for years. If it’s happening that is. Keeps your eyes on the rates. They’re still at historical lows. And at some point in the future, they won’t be.

As great as it would be to see a real battle between an Hobbit-era troll and say, Jay Carney, we’re really only talking about patent trolls for now. The tech community is all too aware of the problems with patent law as it stands today, but it’s not something the average American has likely been exposed to before. We all live in a world with a broken patent system and it’s something long overdue for fixing.

The patent system in the US rewards behaviors that hurt the economy. A patent is designed to protect an idea so that its inventor can make a profit on it. If you have a design for a new smartphone battery that doubles its life then I can’t just steal the design. You can build and sell your batteries, or license the patent to others who can build them. Either way your design is protected and that can’t be taken from you. This is how the patent system rewards innovation.

But there are others who understand that it’s fairly easy to get a patent on an ambiguous design. Imagine if I patented the idea for a car with four doors and four wheels in 2013. I could go and sue every single automaker out there for taking my design. Or, I might raise a bunch of money and buy thousands of patents; when someone violates a patent I’ll sue. These types of people and businesses are known as “patent trolls”. While the terms get thrown around quite a bit, think about a troll as someone that’s decided they can make more money suing violators than actually using a patent.

This is an enormous hindrance to economic growth and innovation. Billionaire investor Mark Cuban has said before: “Dumbass patents are crushing small businesses. I have had multiple small companies i am an investor in have to fight or pay trolls for patents that were patently ridiculous.” It is difficult to innovate when a patent was awarded for some generic idea. And it’s hard to build a business when trolls sue you left and right for a broad interpretation of a patent. Small businesses can’t afford to fight a suit.

President Obama is going to take on the trolling system and other problems with patents. It’s not just these small firms that own a bunch of patents suing startups. Samsung and Apple have been suing each other for years now over their smartphone designs. There are multiple suits and probably a dozen countries by now. When a company is selling patents the tech giants lineup to buy them. And while it may seem they want to sue their competitors, the real reason to buy of them is just to protect yourself from being sued. Google bought Motorola for billions in 2011 largely for their patents.

Fixing the patent system will take more than the president though. Current patent law is being decided in courtrooms, which is terribly inefficient. The executive branch can do a bit to help from their end, but it will require legislative action to make any huge difference. The key will be in limiting a troll’s ability to obtain broad patents or have the patent interpreted broadly. Another issue is who to sue. Trolls might go after little companies using a platform designed by a larger company. Instead of suing the big guy the troll will go after the little one because they can’t afford the fight. It’s difficult enough to track down trolls because they can hide the real owner through shell companies. You’ll never know who is pulling the strings at the top.

I’ve never been a fan of the term “patent troll”, but I’ve never been able to come up with a more descriptive term. Fixing the system will take a lot of work, and as we all know a troll won’t make it easy.

Image: aboveallprecious

Yesterday we looked at some of the results of the national Financial Capability Study. The study included five quiz questions to assess the overall knowledge of finance for the population.  So how much do Americans know about finance? The results are depressing.

This is the world we live in today. Five questions, and on average we get less than three right. We won’t reveal the questions here so you can take the quiz, but there’s simply no reason why the average shouldn’t be above 3. In reality, only one of the questions is even approaching difficulty but it’s a concept that could be easily taught in a 10th grade personal finance class. The average should be closer to 4. This is especially true since 73% of the respondents indicated their financial knowledge was high. The quiz certainly doesn’t show it; and these were very simple questions.

Let’s take a look now at how all the states compared to each other. You can see Mississippi in the top image, but there were the lowest. Who was the best?

Utah was, followed by Montana, Wyoming, Idaho, and Colorado. Do you see a trend for the top five? The lower end is less surprising with one exception: Mississippi, Louisiana, Arkansas, Ohio, and New York. New York really stands alone in the entire northeast region for being so low. We would naturally assume it would do better in a financial survey so this result is intriguing. Keep in mind though that while it looks like a big difference between the top and bottom, it’s really just 7/10 of a question answered correctly difference. In my mind, we all failed.

Financial knowledge is one thing and measuring how many questions we get right on a quiz is another. But this quiz gave the option to answer the questions with an “I don’t know” response. This keeps people from guessing too much so we can really see what it is they know. The most troubling result from this survey was the use of the “I don’t know” response. In all five questions, spanning all 50 states and DC, “I don’t know” was either the first or second most popular response. This was by a fairly large margin. One question had “I don’t know” as the top response and that was the more difficult one mentioned above.

Please take the survey for yourself , post the results in the comments below. I must know my readers can do better than 2.9 questions right.

Dating back to the financial crisis, there was a need for a greater understanding of where the US is on the spectrum of financial literacy. In 2009 a study was conducted to begin assessing financial literacy. It consisted of a fairly lengthy survey about people’s financial lives as well as some quiz-style questions about finance. It’s the most comprehensive study of its kind that I’m aware of. This study was updated and conducted again in 2012, and the report is now available.

The results were not great. Below are some charts showing peope’s responses to some of the survey questions. Tomorrow, we’ll look at how we did on the quiz.

This is a group generally referred to as the “unbanked”. Depending on how you measure this population it could be a bit bigger or smaller than this population. It can be people that don’t trust banks, or cannot have accounts due to residency or legal status. For people with bank accounts this number is often seen as high.

At first glance this looks like a positive number. Over 3/4 of people do not regularly overdraw their bank accounts. But think about it from the other side. More than 1 out of 5 people do regularly overdraw their accounts.

Great news! 49% of respondents do have retirement plans through employers. 45% do not of course. But the really scary thing is 5% of respondents just don’t know. How do you not know?

This is a huge red flag for the future. Sure almost 50% of people have a retirement account through work. But here we see 70% of people do not have one set up outside of work. People on top of their finances know that a company provided 401k isn’t going to cut it, you need more savings than that. This is especially true if your company plan sucks.

54% of people that have student loans are worried they won’t be able to pay them off. A small portion is thinking this because they currently don’t have a job. But my guess is most are worried because whatever they borrowed money to learn about doesn’t have a great return on investment. I’d be willing to be for the next few years this number will grow.

Not much to say here, it’s great that 2/3 of people don’t have an auto loan. That sounds like a good number.

22% of people have between 4 and 8 credit cards? Wow. I prefer to keep one card and can see the advantages of perhaps one more, but it’s clear there’s a large group of people that will open a new credit card to save 20% on their purchase that day.

Considering how depressing the results of the survey were, I think it’s a good sign for the future that almost 90% of people think financial education should be taught in schools. Only one question, what’s the reasoning for the 5% that don’t want it taught?

Ahahah! 73% of people think they have a high level of financial knowledge. As you’ll see in tomorrow’s post, this number should be closer to about 25%.