The Smith Manoeuvre Debt Swap is Irrelevant When Rates are Low!

Google “Smith Manoeuvre” and you’ll find dozens of articles saying that the point of SM is to convert non-deductible mortgage debt into deductible HELOC debt. Even Robinson Smith himself repeatedly emphasizes this point in his sales pitch as a guest on many Canadian finance podcasts. He tells people to pump all disposable income into the mortgage to pay off the mortgage faster and convert as much as possible.

But it astounds me that nobody mentions that this idea is nonsense when rates are low! Here’s an example using real numbers from today’s low interest rate environment (March 2021). 

5-year fixed mortgage rate = 1.5%

HELOC rate = prime + 0.5% = 2.45 + 0.5 = 2.95%

Say your marginal tax rate is 43%. This means the HELOC rate after the tax deduction is 2.95 x (1-0.43) = 1.68%.

It makes no sense to convert 1.5% debt into higher 1.68% debt. 

If your mortgage rate is higher, then yes it can be a true debt swap. But you have to run the math. 

I don’t mean to say SM only makes sense when rates are higher. I mean to say it makes no sense to pay more than your normal mortgage payment when rates are low. It’s still valuable, no matter what, to reinvest your home’s dead equity via SM.

Why Being a Teacher is Hard

It’s collective bargaining season in Ontario and the recent announcement of teachers’ work-to-rule strike has led to much debate about the worth of public school teachers and the resources and working conditions they require for adequate job performance. I’ve observed a lot of misinformation on this topic so I aim to summarize the common misunderstandings the public has, based on insights from my partner (who teaches grade 5) and 5 other teacher friends. (I am not a teacher).

Contention in public opinion seems to be rooted in a few main areas:

  1. Misunderstanding the teachers union’s requests of the government. It’s not about a salary increase.
  2. Misunderstanding the totality of a teacher’s set of responsibilities. Teachers do vastly more than impart academic knowledge and skills, namely in the way of character education.
  3. Misunderstanding the degree of difficulty in successfully executing the above responsibilities. The set of daily challenges teachers face in today’s world are also largely unknown to the public.
  4. An inability to economically determine appropriate compensation (salary) for a public-school teacher due to the near impossibility of measuring their fiscal impact to society. This instead leads to compensation being determined by opinion, both public and political. Salary-by-opinion obviously lends itself to heated debate.

Let’s dissect each one-by-one.

Why Are They Striking?

Without researching the answer it’s easy to assume that the root of any labour dispute is pay. To be fair, I think this was true of many historical strikes across many sectors (not just teaching). In 2019 the root issues are about improving the educational system for students. How do I know? The high school union actually published their bargaining requests this time! Apparently this is uncommon in collective bargaining. [link][local copy of PDF][news summary]. Their main asks are:

  • Reverse the recent increase to average class size. The government increased it from 22 to 28 students. The union claims this ask is supported by 70% of parents.
  • Have adequate numbers of support staff, especially for the most vulnerable students.
  • Deeply study the merits of the recently implemented e-Learning program, which replaces 4 high school classes with mandatory online courses. The concern is a significant degradation in quality of learning compared to in-person classes.
  • Increase salary with inflation (tied to Consumer Price Index).

Yes the last point is about salary but all of us, no matter what industry we work in, expect our pay to increase with inflation, otherwise our real-dollar wages decrease.

Misunderstanding the Job

Beyond imparting academic knowledge (as in, teaching the subjects), teachers have another major and underappreciated daily responsibility: character education.

This area largely has to do with teaching students to be good, responsible human beings.

The school is like a miniature society with the students and teachers as its citizens. In school, students learn to:

  • Respect the school, their peers, and their teachers.
  • Build and participate in a collaborative community with their peers.
  • Behave in social norms (they learn appropriate vs. inappropriate behaviours).
  • Deal with conflict.
  • Speak up against bullying and other damaging, societal behaviour.
  • Enjoy life-long learning and general curiosity.

A teacher spends a surprising amount of time and energy (and on some days, the majority of their effort) on character education. School is the place where kids regularly go to learn and practice being a positive member of society.

It’s easy to think teachers are just providing instruction on math, science, and language, and wonder how hard that can be. In reality, a huge part of the job is character education. This comes in the form of handling and educating disrespectful or violent students, correcting inappropriate behaviour, encouraging and teaching resilience and self-confidence to students who are struggling, and facilitating the growth of a healthy and thriving community in the classroom. Character education is undeniably a moral activity and it requires teachers to actively, and consistently, model good citizenry in their own behaviour.

Character education is not only the job of parents at home. Much of it falls on the teacher at school.

Beyond building good citizens, teachers also proctor clubs, organize field trips, and coach sports teams. These are called extracurriculars because they are literally outside the scope of the legal government curriculum. It’s crucial to understand that teachers are not obligated to take on these initiatives but they do anyways out of passion.

Misunderstanding the Difficulties

So if the job of a teacher is to impart academic skills and knowledge, build good citizens through character education, and encourage well-rounded development through extracurriculars, why is the job tough? How hard can it be to manage a class of 25 kids? There are several misunderstood challenges.

Student Differentiation

Simply put, every student is different. They are different in terms of:

  1. How they learn and process new concepts and knowledge.
  2. How they best express their understanding of new concepts, for the purpose of assessment.
  3. Level of development, academically, in character, and emotionally.

Point #1 requires teachers to present a given concept in multiple ways to cooperate with the varied learning styles across students. For example, when teaching basic multiplication, some students grasp the idea immediately from a simple chalkboard drawing. Other students must be taught to think in terms of adding-and-grouping. Some students benefit from examining physical objects and “seeing” multiplication in front of them. And a few simply need a little more time and one-on-one tutoring. Developing and executing multiple approaches to instruction, for nearly every piece of information, every single day, is very challenging to do well.

Point #2 requires teachers to assess each student in a unique way. For some students a simple worksheet with quiz-like questions is sufficient. While this is an efficient and easy assessment method for the teacher, it may not work well for all students. Some may struggle with language or writing, but can instead demonstrate their understanding verbally or through live and interactive examples. Identifying and facilitating the best assessment method for each student requires skill, time, and energy.

Point #3 speaks to the fact that some students are operating below the level expected in their grade, either academically or behaviorally. This a reality of life and there’s nothing fundamentally wrong with it. However, in a class of 25, a below-level student always commands much more than 1/25th of the teacher’s attention. The challenge in today’s world is that there are enough below-level students in the average classroom that the teacher simply does not have enough time and resources to adequately respond to these students’ out-of-proportion attention demands. This becomes especially challenging with students who are below-level in behaviour as they tend to take precedence over students who are below-level in academics. This is simply because a teacher usually cannot proceed with academics in the face of a student who is being disruptive, disrespectful, inappropriate, or uncooperative. The display of poor-character must be handled immediately. Said another way, behaviour trumps academic need. Furthermore, some students have an Independent Education Plan (IEP) which is an official recognition from the school board that the student is below- or above-level in some subject(s). It’s common to have 2-3 IEPs in a class of 25, requiring teachers to essentially develop a special, tailored curriculum to meet the needs of the student. This is also true for English-as-a-second-language (ESL) students for whom teachers must spend extra effort translating lessons and ensuring comprehension.

In general, much skill is required to manage time, energy, and resources to ensure that all students succeed despite their individualized learning needs.

The ON Factor

A teacher’s typical day requires a high level of engagement and energy expenditure for a long stretch of time, which is unlike most other professions. For example, grade 5 students are in school for about 6.5 hours in Toronto. During this stretch teachers are continuously highly engaged with no real break. They teach classes to 25 students, use short preparatory periods for organizing upcoming lessons, tutor kids during recess, and use their lunch break as yet again more prep time. My partner sometimes doesn’t have an opportunity to use the bathroom. In my office job, I can take breaks (physical and mental) whenever I want, typically once per hour. Being ON for 6.5 hours straight, 5 days per week, is much more challenging than 6.5 flexible hours in an office. Yes there are other jobs with a long ON factor (like hospital emergency room staff, 911 operators, and air traffic controllers) but most of the public enjoys a reasonable amount of breathing room in their job, which is why the ON factor tends to be misunderstood.

Before and after the ON period, teachers typically spend an additional 2-3 hours on other work.

Uncooperative or Under-equipped Parents

In a class of 25 it’s common to have 3 to 5 sets of such parents. “Uncooperative” means that they don’t subscribe to the attitude that a child’s success in school is a collaborative responsibility between parents and teachers. They instead believe the onus is mostly on the teacher. This belief manifests as not forcing kids to do their homework and read every day, not teaching the importance of trying their best in school while respecting their peers and teachers, not keeping them engaged at home, and blaming the teacher when the student exhibits poor character. “Under-equipped” means they believe in collaborating with the teacher but their particular life situation simply does not afford them the time or money to do their part at home. There’s nothing wrong with Under-equipped parents and I sympathize for them.

Uncooperative and Under-equipped parents, and their kids, are another source of out-of-proportion energy demand.

Constant Job Changes

In the first 5-10 years of teaching it’s common to have little choice on what grades you teach. The administrators shuffle teachers around based on need and qualifications. This is tough because a teacher who invested an entire year creating great teaching materials for their Grade 5 class has to repeat the entire exercise if teaching Grade 7 the next year.

Unprecedented Access

20 years ago teachers were not accessible via email. In 2019 teachers are expected to be reachable via email, by both parents and administrators, all the time. Teachers can only manage email after school hours and frequently at home. To be fair, email has significantly improved the ability for parents and teachers to collaborate. The point here is that the expectation that teachers be accessible via email is a time-consuming and modern twist on the job that is underappreciated.

Salary-by-Opinion

In private, for-profit industries (like the companies many of us work for), the economic impact of a worker can be roughly estimated. The company can quantify how important a particular worker is to its profitability and therefore make an economically-rooted judgement on appropriate salary. I’m a software engineer and my company can ask itself how critical (or not) software development is to the business and how hard (or easy) it is to find good engineers. These can be roughly measured and therefore influence salary in a somewhat informed way. All private-sector jobs operate this way. A person’s compensation is tied to how rare and valuable their skill set is. Their monetary impact determines their value.

The challenge with teachers, and other public-sector workers, is their fiscal impact is nearly impossible to measure because it shows up down-the-line in very broad societal areas like:

  • General economic growth as students grow into capable adults who possess valuable, employable skills. These adults earn, spend, and save money, thereby contributing to a growing economy.
  • Reduction in government social spending like welfare and unemployment insurance, as the education system produces more employable workers who are less dependent on the government.
  • Increased civic engagement and “better” citizenry as the education system teaches kids good character.
  • Reduction in crime.

Since the fiscal impact of a teacher can’t be measured their salary becomes a matter of opinion, which of course leads to contention. If we could quantify their economic impact there would be less debate because you can’t argue with numbers.

I’m not sure how to properly set teacher compensation. But I think people who claim teachers are overpaid should at least openly acknowledge that their impact can’t be quantified.

Interestingly, in contrast, it should be possible to measure the fiscal impact of teachers in private schools since such schools are for-profit entities.

I hope this gives you a sense of why teaching is really hard and encourages you to change how you value the teacher function in our society.

Toronto Municipal Election FAQ

This weekend I’ve been trying to figure out who to vote for in the upcoming Toronto municipal election and I wondered about a few basic things. Here’s my attempt to answer them.

Is the Mayor affiliated with a political party?

No. In fact all Toronto municipal government members are non-partisan (ie. no political party affiliation). This is in contrast to Vancouver and Montreal, who have parties at the city-level.

This article hypothesizes that this year’s reduction in the number of city councillors from around 50 to 25 may actually encourage the formation of parties in Toronto in the long term. Why? This is the same question as “What are the merits of having political parties at all vs. having all candidates running as independents”, which is a big question we could spend time on. But here are some of the main reasons cited in the article:

  • The 25 new municipal wards share the same geographical boundaries as the provincial and federal boundaries, making it straightforward for a candidate to align themselves with the provincial/federal parties and candidates of that region.
  • The halving of available councillor positions means we now have double the candidates per position, meaning twice the competition. In order to be competitive, candidates may feel the need for more comprehensive and influential campaign platforms, involving alliances and official support from political parties as well as shared funding.
  • Being affiliated with a party makes it easier for voters to understand the political positions of a given candidate. For example, this year I am having a hard time understanding who to vote for since everyone is independent and I have to investigate each candidate individually to understand what they’re about. But I am left-Liberal minded so it would be much easier for me to make a choice based on parties who share this mindset. A surrogate for parties are “political action groups”, like Progress Toronto, who seem to publicly state their ideology (liberal/progressive) along with suggested candidates if you agree with that ideology, on a ward-by-ward basis. The formation of parties is also correlated with higher voter turnout.
  • At the end of a term, it’s easier for voters to evaluate the success of the incumbents if they are thought of as a conglomerate party rather than as individuals. You can make a broad judgement about if the party was effective or not because they voted together on bills. You can say things like “the Liberals pushed this XYZ legislation and I view it as a failure and therefore I want them out in the next election”. Today you instead must make a judgement on if a particular councillor was effective, which nobody does because nobody has the time to sift through the individual voting records of the incumbent councillors.

It also cites some downsides:

  • If a councillor is part of a party, they’ll need to cast the same vote as all other party members on a given bill, which means they can’t cast a conflicting vote that may be reflective of the true needs of their ward.

My dad also pointed out that a non-partisan government means that voters are truly voting for the best person for the job in a given ward, and the best person for Mayor. Though it’s not clear if this will result in a better society than voting for the best party overall.

 

What exactly does a school board trustee do?

It’s not straightforward to find this answer on Google. Most search hits are articles from popular newspapers that answer the question in high-level, abstract terms (my opinion). But I found this great resource that answers the question in a way that satisfies me. It’s a guide for prospective candidates. Here are some basic things I learned:

  • The school board is the organization that carries out the mandates of the provincial education act. This might be obvious to say.
  • But here’s what surprised me: the members of the board are the trustees! My (wrong) impression was that trustees are only regional advocates or lobbyists but they are actually the ones who vote on board policies. This makes them very powerful and important. I think they are analogous to city councillors in the municipal government, in that they are regionally-elected officials who in turn have voting rights on proposed policies.
  • The board of trustees has exactly 1 employee who reports to them: the Director of Education. The Director is considered the CEO of the school board and their job is to execute the policies and vision set out by the board.
  • So what types of change do the trustees cause? The list is too long and broad to write here so please see the PDF. But in a nutshell they work on policies that impact *everthing* including things like academic achievement, inclusivity and safety, the board’s budget, all while collaborating with the local communities (ie. parents).
  • There are 22 trustees; an even number. How are tied votes broken? Don’t know!

So my immediate thought is: shouldn’t trustees have deep backgrounds as educators? Shouldn’t they be former teachers or school board administrators? Wouldn’t anyone lacking such experience also lack the competency required to do this job? You get to propose and vote on important board policies after all! The incumbent trustee in my ward is Ausma Malik — I googled for 5 mins and couldn’t find any information that she has a background in education. Some of the candidates in my ward have some background in education but many do not. I find this very surprising. Perhaps I’ve grossly misunderstood the role of the trustee and maybe it doesn’t require such a background to do the job competently. Perhaps people with such backgrounds are all employed as teachers and administrators and don’t have time for the job of a trustee. Or maybe this is truly a deep flaw in the system. I’d like to spend time reviewing some of the new board policies introduced in the 2014-2018 term and try to judge if experience as a professional educator was crucial to casting a competent vote.

 

Why Buy Stocks (Especially Ones That Don’t Pay Dividends)?

I recently asked myself “Why do people by stocks”?  It seems like a simple question but I quickly hit a roadblock in my line of thinking.  By the way, when I say “people”, I literally mean everyone, including both large institutional investors and individual investors like you and me.

The content of this article may seem obvious to some but in speaking with a few others I realized that many people, including myself prior to this writing, don’t understand some fundamentals.

My Confusion

My line of thinking went like this: You buy shares in a company because you want a return on your investment (ie. to make more money).  The way in which you make money is either through sharing in the company’s profits (ie. a dividend or stock buyback) or through selling your shares at a higher price (capital gains).  But this latter method depends on the existence of people in the market willing to buy your shares at that higher price.  But why are they willing to do that? They have the same motivations as you.  They are expecting either a share of the company’s profits or, in turn, to sell at a higher price.  Again, this latter point depends on the existence of yet another person willing to buy at that even higher price.  But why is this third person willing to do that?  You can see how this continues in an infinite regression that seems kind of insane.  But I thought this was all fine and good as long as the company eventually shares its profits with the shareholders.  As the shares change hands, each owner is basically making a bet on how big their share of the profit will be (ie. betting on the company’s profitability) when it’s finally paid out.  But we all know many companies don’t directly share their profits with shareholders.  So why are people buying stocks in these companies?  What is their incentive?  Doesn’t this make the trading of these shares look like a Ponzi/pyramid scheme?  (I’m not saying that it’s a Ponzi scheme, just that the infinite regression qualities seem similar).

I tried researching this question and didn’t find much clear information online.  I also spoke with several people and nobody could give me a good explanation.  I realized that a lot of people, including myself, don’t fundamentally understand why a stock’s value fluctuates and why people invest in the first place.  It seems like a lot of people invest simply because they think the value will “go up” because of the company is “doing well” without really understanding what’s happening.  What enables the value to go up?  What does the share price even mean?  How do we clarify the confusion about the infinite regression?

The Basic Answer

The fundamental answer to all of this is that the profits must be shared with shareholders at some point.  This is what terminates the infinite regression.  If a company believes that they can retain their earned profits to further grow and generate even more profits, they will do so.  However if a company continues to grow and do well, eventually they will accumulate so much cash in the bank that they can’t find good use for all of it.  At this point they will have to pay it out to shareholders through a dividend or stock buyback.  If they refuse to, at some point the shareholders will band together and vote for new management that will pay it out.

In summary, the fundamental bet that is made by purchasing stock is that the company’s profits will eventually be paid out to shareholders.  It’s often true that your personal intention may be to sell before that happens and make a return on capital gains.  But the thing that enables you to do that — in other words, the thing that incentivizes the infinite regression of buyers is that eventually the profits will be shared.

Why Do Share Prices Fluctuate?

The share price on a given day is simply what people are willing to buy/sell it for on that day.  How do people decide what they are willing to pay?  A lot of complex analysis goes into this but it can all be summarized as basically trying to guess the company’s future profitability.  If people believe a company will be more profitable in the future and thus pay out more money to shareholders, the stock will be worth more.  In contrast if people believe the company will be less profitable, say because of some bad news or political uncertainty, the share price will decrease.  But as long as people believe some profits will be made the share price will stay above $0.  If everyone believes the company is going to dissolve, the share price will drop to $0 because what’s the point of investing if the company will never make any profits to share with shareholders?

Berkshire Hathaway

An interesting example is Warren Buffett’s company, Berkshire Hathaway, which is one of the most successful companies of all time.  Its book value has grown an average of almost 20% per year for the last 48 years and it has a market cap of $286B today.  At the end of 2012 Berkshire reported it had more than $40B cash in the bank and Retained Earnings of $124B, meaning that since the company’s inception it has re-invested $124B of the profits instead of paying them out [1].  Berkshire famously does not pay dividends despite having lots of cash in the bank.  Why?  Warren Buffett has continuously believed that he can get a positive return on every dollar he has in the bank, he has proven this year after year, and therefore says he will never pay a dividend [2].  This makes sense — he has shown he can get a 20% return on every dollar which is likely a lot better than what investors could otherwise get if they put the money elsewhere.  So why do people buy shares in Berkshire even though there will be no dividends in the foreseeable future?  The belief is that Berkshire’s ever-growing profits will eventually be distributed.  Nobody knows exactly when but it will happen when Berkshire is no longer able to successfully re-invest its profits.  If they don’t pay it out at this point, shareholders will vote to make it so.

I didn’t talk about acquisitions because they are just a special case of investing where you purchase 100% of the shares.  In an acquisition you are still motivated by the same things: you think the future profits justify the investment.

The only other article I found on this subject is [3].  It’s a good read and concludes the same thing: that the shareholders can vote to have dividends paid out.

If you have any feedback on what I’ve written please share it in the comments!

References

[1] http://www.berkshirehathaway.com/2012ar/2012ar.pdf, Page-30
[2] http://youtu.be/aL766NK2ynw?t=2m28s
[3] http://beginnersinvest.about.com/od/dividendsdrips1/a/why-stocks-without-dividends-can-still-be-a-good-investment.htm

How is Your Cable Connection Bidirectional?

When you think of your home’s cable connection, it seems like a unidirectional thing since many TV channels come into your home through a single wire.  But what about when you order a movie on-demand?  Your choice of movie must go out to the cable company somehow, over the same wire.  What about cable internet access?  When you surf the web and send emails you send out tons of data.  Cable home phone is another popular service as well — your voice has to be transmitted out from your home.  And to top it off, many people subscribe to all 3 services at once!

How is it possible to have all this information traveling simultaneously in both directions on one cable?

It’s a simple question with a relatively simple answer.  It was easy to find out how multiple services can exist on one cable unidirectionally but harder to find out how they can exist bidirectionally.

How to Transmit Several Things in One Direction

It helps to talk about the unidirectional case first.  The answer to this first question is that many blocks of information can be sent over one wire using a technique called Frequency Division Multiplexing (FDM) [1].  TV cables have a bandwidth of 1 GHz [2] which means 1 GHz is the maximum frequency they can carry.  FDM allows this 1 GHz spectrum to be split up into slots (say 6 MHz each) where each slot carries a block of information.  In the case of old-school analog cable TV, each slot carried one channel [2].  The receiver, say your TV or set-top-box, uses a filter to tune in to a specific slot to extract its information.

These slots can carry any type of electronic information including digital TV channels, internet data, and voice (phone) data.  The receiver only looks at the slots it’s interested in.  For example, your cable modem simply tunes into the slots that are allocated for internet data and ignores the slots that carry TV channels.

I won’t go into details about how FDM is implemented at the circuit-level but see the Wikipedia links below for more info.

How Bidirectional Works

Bidirectional transport is also called “duplex”.  A simple way to implement duplex communication is to have separate wires for each direction.  This is how Ethernet works for example.  But your home’s cable connection is just a single wire.  So how does it work?

As you may have guessed, FDM is used to allocate separate slots for receive and transmit data.  So this means that both ends of the cable are being driven simultaneously.  Your modem is driving the wire with data to send out to your provider and your provider is also driving the wire with data to send to you!  Intuitively this seemed off to me because how can two things drive the same cable at once without creating interference?  There are 2 parts to the answer:

  1. From an electrical perspective, the principle of superposition allows two transmitters to drive the same cable at once with the resulting signal on the cable simply being the sum of the two individual signals. [3]
  2. By using FDM to first assign these signals into separate slots they can be safely summed together without interfering with each other.  If they were in the same slot the resulting sum would be corrupt since the signals would directly overlap.

The circuit that performs this function is called a diplexer [4].  When the diplexer is used for bidirectional communication, it’s called a duplexer [5].  See [6] for more information on duplexers.

References

  1. http://en.wikipedia.org/wiki/Frequency_division_multiplexing
  2. http://en.wikipedia.org/wiki/Cable_tv#How_it_works
  3. http://en.wikipedia.org/wiki/Superposition_theorem
  4. http://en.wikipedia.org/wiki/Diplexer
  5. http://en.wikipedia.org/wiki/Duplexer
  6. http://www.rfsolutions.com/duplex.htm

Adding Salt to Ice in a Cooler

Why do people sometimes add salt to ice in a cooler for drinks or beer?  It’s a simple question.  There are tons of articles and videos online but I couldn’t find a comprehensive explanation of why it works.

Some Basics

It’s important to first understand what melting point and freezing point mean.

Melting point is a property of solids.  The melting point is simply the temperature at which the solid turns into a liquid.  For example, the melting point of normal ice is 0°C at standard pressure.

Freezing point is a property of liquids.  The freezing point is simply the temperature at which the liquid turns into a solid.  Thus the freezing point of normal freshwater is 0°C.

The value of the melting and freezing points is the same (ie. both are 0°C for water).

So as you can see, melting point and freezing point are kind of “mirrors” of each other.

It doesn’t make sense to talk about the freezing point of a solid (since it’s already solidified).

What Does Salt Do?

When salt is added to water it lowers the freezing point.  In other words the water needs to be chilled to a temperature lower than 0°C (say -2°C for example) in order to change to ice.  Another way to say the same thing is that salt allows water to exist as a liquid at a temperature lower than 0°C.  This is the important part that’s relevant to beer coolers.  We’ll come back to this later.

For completeness let’s look at this from the perspective of melting point.  When salt is added to ice it lowers the melting point.  In other words the ice begins melting at a temperature lower than 0°C.  This is why salt is added to ice on the roads in the winter.  It causes ice, that would have otherwise remained as a solid in sub-zero temperatures, to turn to water.  Note that the temperature of the water has not changed.  It’s still at a sub-zero temperature but, as mentioned above, the salt allows it to remain as a liquid at the lower temperature.  Don’t think that just because the salted-ice has become water the temperature has risen.

How Does this Apply to Beer Coolers?

In two ways: chilling beers fast and keeping beers cold.

Chilling Beers Fast

An important part of chilling beer fast is to maximize how much of the can/bottle’s surface area is in contact with the chilling agent, whether it’s ice, water, or cold air.

Salt-water lets you chill a warm beer really fast — much faster than a freezer [1].  Pour cold water, ice, and salt into the cooler to create a salt-water-ice bath.  Why does it work?  The ice will be at a temperature way below zero, usually -18°C for a household freezer [2].   The ice will cool the water down and the salt will allow the water temperature to drop below 0°C.  The beer will then be fully submersed in sub-zero water, maximizing the surface area in contact.

Without salt the water will remain at a temperature slightly higher than 0°C even though you have -18°C ice cubes floating in it.  The water will still get quite cold and will do a good job but not as cold as salt-water.

If you only put ice in the cooler then less of the beer’s surface is touching the chilling agent (ice) since ice cubes are irregularly-shaped.  It won’t chill the beer as fast as salt-water.

Keeping Beers Cold

If your goal is to keep the beer cold for a long time (ie. if you go camping or on a picnic) it’s still a good idea to add some water and salt to the ice because it will make your beers colder initially which means they’ll stay cold longer.  The salt will make the ice melt as well but the resulting water will still be very cold.  The specific heat capacity of water is double that of ice [3], which means, in theory, the sub-zero water will stay colder longer than plain ice will.  You could argue that the starting temperature of ice is much lower (-18°C) than sub-zero water (which might be just a few degrees below 0°C).  So it’s a bit of a tradeoff.  Also, adding salt to the water does lower its heat capacity but not by much [4].

Note: you need lots of salt (handfuls) for the above stuff to work.  Table salt is fine.

References

  1. http://youtu.be/k3PvQXlxvZY
  2. http://www.inspection.gc.ca/food/consumer-centre/food-safety-tips/food-handling/kitchen/eng/1329169036268/1329169127007
  3. http://en.wikipedia.org/wiki/Properties_of_water#Water.2C_ice_and_vapor
  4. http://www.kayelaby.npl.co.uk/general_physics/2_7/2_7_9.html