Tuesday, February 9, 2010

Stemming Waste from Wallets and Purses.

By Bob Ferris

I suppose on some level that I hate waste whenever and wherever I see it. Waste saps us of our resources and makes us less resilient to changes. I don’t quite foam at the mouth when I see it, but I do suspect that I suffer some form of physiological reaction in the presence of waste. And I will fully admit that the wasting of money—the abstract representation of our material wealth—makes me a little crazy particularly in two areas.

The first area that makes me shiver is the whole concept of investment (i.e., putting our funds into something that we are “vested” in). Few of us really do this rather we send our money far away and put it in something that we could really care less about beyond the income or gain. And how are we rewarded for this? We have companies that would rather invest in bonuses than dividends and think that stockholders should have little or no say in the matter. Moreover, we are whipsawed by gamesmanship from folks who make their living mashing together huge and unrelated businesses all in the name of economies of scale. Does a $15 billion corporation really have a competitive operating advantage over a $5 billion one? Sounds more like a plan to harvest corporate value and cut jobs. And where are examples of these types of arrangements that benefit stockholders rather than the deal-makers or high ranking executives?

The second area of waste that sends me over the edge is that figurative wall between operating and capital budgets. Say a progressive building designer wants to add solar panels to a design but cannot fit them into the cost envelope. There seems to be no way in public and sometimes corporate budgeting for that innovator to draft some share of future energy cost savings (operational monies) to help pay for this common sense investment. Too esoteric for you? What if you are a renter who is paying too much for electricity because you have a refrigerator in an avocado or harvest gold hue? You want the benefits of an energy star appliance but your landlord is “saving” money by keeping the classic. My guess is that adds $35 to your monthly power bill. The end result of both scenarios is that more money and resources are wasted when there might be viable alternatives waiting around the corner.

The solution to the first issue is easy: Invest locally, within arm’s length. Invest in local agriculture or other local businesses as advocated by the Slow Money Alliance. Lend some money to a young couple you know who want to buy a house. Don’t want the hassle of direct lending and the associated paperwork? Then put your monies in institutions that lend on the local level and do not assume that local banks lend like Jimmy Stewart’s character in the “It’s a Wonderful Life,” because they do not.

(Just so you know I tend to think of our financial system as a mountain peak where we all live at the bottom. When the peak gets too tall and far removed from us, financial mischief that benefits only a few happens in the cloud covered mountain tops. Local investment keeps the economic activity where we can see it and understand it.)

The second fix is a little more complicated. Here we either have to create a third type of budget category that bridges the gap between capital and operating budgets or create financing mechanisms designed to facilitate the use of equipment and other options that save money and resources. An example of the latter would be a program where a utility company would finance the purchase of an energy star appliance and include a repayment plan that recovers their investment yet cuts the renter’s monthly energy bill. Bonds or bond funds could certainly be created to finance these programs at no risk to the power companies and it would be wonderful if retirement monies from IRAs or similar instruments could be tasked towards these purposes. Everyone wins in this. The utility company is less likely to be forced to increase capacity which helps with that climate change thing. The landlord gets a new refrigerator, the renter lowered living expenses, appliance stores sell products, and the investor gets a return that might even keep pace with inflation. Make sense?

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