## Why Would OXFAM Twist The Income Inequality And Wealth Inequality Numbers? I Know Why…

The world seems top be abuzz because of today’s Pre-Davos OXFAM report stating how 1% of the world population will shortly own 50% of the world’s wealth. On the surface those numbers could be pretty scary. Bringing to mind scenarios where the wealthy 1% become the evil taskmasters to rule over us all.

The thought that 1% of the worlds population would hold 50% of the wealth should certainly strike fear in us all…

That is unless you have the real numbers and even a passing grade in primary school math. I’m not talking calculus or anything here. The terror of this 1% holding 50% of the worlds wealth can quickly be dispelled with the use of a simple four function calculator.

First some facts…

1) According to the U.S. Census Bureau’s U.S. and World Populations Clock the current world population is around 7,218,930,000. This number is constantly increasing sicne there is a birth every 8 seconds and a death every 12 seconds. To make my point I will use the number above. That’s around 7.2 Billion people living on earth right now.

2) According to a handy Wikipedia page using some seemingly reliable sources the 2014 sum total of the worlds wealth is around \$263,242,000,000. Sorry for all the zeros but that is just over \$263 trillion.  This is also the number shown in the OXFAM Worksheet that went along with their report.

Now the simple math part…

No need to get out your calculator since I will do all the calculations for you. But by all means please do check my math. I know you will want to once you see the number I come up with and how you probably neatly fit into the category of the the richest 1% in the world.

Here we go…

1) Since the World population is 7,218,930,000 then 1% of that world population is (7,218,930,000 x 1% (or 0.01)) equal to  72,189,300 people. Those are the evil 1% hording the planets wealth.

2) Since the World’s sum total wealth is \$263,242,000,000 then the 50% of that wealth that the evil 1% holds is (263,242,000,000 x 50% (or 0.50)) equal to \$131,621,000,000,000. Looks like lots of cash, right?

3) Now since the evil 1% or 72,189,300 people in the world hold 50% or \$131,621,000,000,000 of the World’s hard-earned wealth that means that on average each of those potential evil doer one-percenters has (131,621,000,000,000 ÷ 72,189,300) exactly \$1,823,275.75 dollars in their passbook savings account down at the corner bank.

That’s sounds like a lot of money to hoard. Or is it?

Stop and think about what you are worth for a minute… I’m not talking about how much cash is in your wallet or gold hidden in your wine cellar. I’m talking about how much money do you generate?

That \$1,823,275.75 probably looks like a lot of money to you but lets look at it this way…

If OXFAM or your favorite uncle or Warren Buffet sent you a check today for \$1,823,275.75 (forget about the tax ramifications for now) instead of going out and spending a penny of it, what if you put it all in a supper safe 30 year U.S. Government bond paying 2.5%?

At 2.5% a year interest rate you would receive a nice pretax check from the U.S. Treasury for (1,823,275.75 x 0.025 (or 2.5%)) \$45,581.89.  How close is that to your current pretax take home pay plus any returns from your current investment portfolio?

Wait a minute!

That’s right if your gross income on your 1040 this year will shown a number over \$45,581.89 and you don’t think it will fall much below that for the forseeable future then technically, I got some bad news for you,  you (your blood, bone, and never-say-quit spirit) are an asset that is worth at least \$1,823,275.75. I’m sorry to say you are technically in this exclusive 1% club. No secret handshake required.

This concept that the present value of your future earnings should be considered at all may seem a little out on a limb but it is not really. Most of the wealth held by all the richest people in the world (people like Bill Gates, Warren Buffet, and Mexico’s Carlos Slim) is in stock certificates and the value of their stock is nothing more than the present value of the expected future cash flows of the those companies. Don’t believe me? Then check here.  Basically what all the words on that page are saying that all a stock is worth is the present value of the expected future cash flows.

So if you are not making at least \$45,581.89 a year you can stock reading right now. But if you are making that much or more go look in the mirror. You are the evil 1% the people at OXFAM have in their gun-sights. Be careful because if word gets out your life may be inconvenienced by a crowd of protesters outside your home, office, car, or favorite coffee shop.

How can this possibly be true? How could you actually be part of the evil 1%?

Any time you see supposedly smart people like those at OXFAM start to throw around these type of percent numbers your B.S. meter should start to click like a Geiger Counter within a few miles of Chernobyl Hot Dog, Beer and Perogi stand.

Member: The Evil 1%

If you run the real numbers. taking into account the real wealth of people all around the globe, you might find that we are all a part of some kind of 1%. And we are all not that evil. Some one may want to convince you that you are the 99%. Maybe you are. But, run your numbers and you may find that you are solidly in the 1%. Enjoy it. embrace it. Yes, you are special.

The bottom line is that there are a lot of people in the world and there is a lot of wealth. A lot more that the fine people at OXFAM could even imagine. Most of it like the value of a Papua New Guinea Farmers Sweet Potato farm can’t even be accurately measured.

Unless…  You are OXFAM looking for a Monday morning slow news day headline… Then those scary big percentage numbers are just fine.

## Can Aetna’s CEO Teach Obama The Realities of Minimum Wage and Income Inequality Economics?

Today Mark T. Bertolini, Aetna’s Chief Executive Officer, announced that the health insurance company would boost the incomes of its lowest-paid workers by as much as a third. The move by the big health insurer affects around 12% of Aetna’s domestic work force who will see a raise to a floor of \$16 an hour. These are primarily employees in customer service and billing-related jobs.

The CEO stated that the reason the company is raising wages is not because they want to be good guys. They are raising wages because it is becoming increasingly difficult to fill open job positions and retain employees. That is what could be called natural economic forces.  Better know as competion!

With the entire health insurance industry growing because of of the government’s healthcare law insurers are having a harder time finding people to do important jobs like customer-service, billing, claims-processing and similar tasks.

Aetna is only the first to move on this increased wage front. Within months don’t be surprised when most of the other insurers are forced to do the same to get all their essential tasks done. Empty desks and unfilled job requisitions will push employers to raise wages. Then,  as wages increase, more potential workers may be enticed into the workforce to fill these open jobs.

Maybe even workers from other industries with similar skill sets will make there way to higher wages offered in the insurance sector. People will certainly consider the move if it is for a nice high pay raise. Some may even go back to school to pick up a few extra classes so they can qualify for these new higher wage jobs. Pishing up the entire wage scale.

This is how the natural forces of economics works.

And what about the lower wage jobs newly vacated?

As long as the government does not interfere and force wages up the new vacated job will still be there and waiting for someone who wants to jump on the first rung of the career ladder. You always have to start somewhere.  At the lowest wage levels employers are willing to take risk and spend more on training. But at some of the government imposed minimum wage rates for entry level positions employers may just get by with fewer workers. Not a good thing for anyone. This how you break an economy.

Next… All these Aetna employees will just need to worry about the number crunchers in the back room who will be looking for a way to bring labor costs down. At these higher levels it may start to make more financial sense to move these tasks offshore at a fraction of the costs.

If you think it won’t happen think again…

Can these service jobs be more complicated than technical support for computer gizmos, booking a flight, reading an x-ray. or preparing income tax forms?  All these used to be done by U.S. based employees. Pay levels went up, desks were empty, employers and customers suffered… Then the jobs were sent to India and the Philippines.

## Why Do Minimum Wage Economic Experiments On The People Who Can Be Harmed The Most?

Some of my holiday travel took me through the fine city of Chicago. You know, that big city on Lake Michigan that happens to be in the state that is currently one of the top contenders for going broke at any minute.

And now it seems like they have put the same smart politicians in charge of experimenting with the economic future of the city and it’s fine people.

The Chicago City Council approved a plan to boost the minimum wage in the city from \$8.25/Hour up to \$13/Hour by mid 2019. That’s over a 57% increase!

There are plenty of studies that have looked at the effects of raising the minimum wage and it seems proponents and opponents pointy out the ones that support their current positions.

This Bloomberg article titled, “Everything we don’t know about minimum wage hikes” seems to be one of the first that takes a more balanced view of the subject. But the real issue is that we live in an economy with built in checks and balances. This is better known as a free market as opposed to the kind of economic system they have in countries like Russia, China, or Cuba where the government controls the economy.

In a free market, supply and demand factors for goods, services, and workers defines prices and wages. These all come together is something that can resemble gravity when it all works properly. You can cheat the system with tweaks and intervention but eventually you can’t alter the real effects the same way you can’t cheat gravity.

What does all this mean?

Somehow the smart rulers of the kingdom of Chicago have it in their head that by artificially pushing up wages people will be better off. They will have bigger paychecks and a better life. These glad handing politicians just don’t get it that they are messing with strong economic forces that will at some point snap.

Here are a few things these smart Chicago Council Members have probably not considered when concocting this potentially dangerous experiment:

1. They are abandoning workers trying to get on the first rung of the work ladder and hurting current low skilled workers.

When a business is forced to pay well above the “Market Rate” (that is the natural free market price people would be willing to work for) they will need to hire employees that can get the job done quickly, reliably, and efficiently. And if a current employee can’t rise to the job requirements they will be let go.

This means that only people with the higher level of expertise will be offered and keep jobs. There will be no room for those low-skilled people just starting out in the work force. There will probably not be room for some of those who currently hold jobs at the current wage rate. Instead of opening their first paycheck of 2015 and seeing a bigger dollar amount they will also see a pink note telling them they don’t have a job anymore.

As the wage rate increases higher skilled but currently unemployed or underemployed people will filter back into the workforce taking jobs from just the people the Chicago City Council wanted to help. What’s better \$8.25/Hour or \$0.00/Hour?

Basically businesses and the economy is a closed system. That means we really can’t create money out of thin air. The government is the only one with a printing press. In a business you can only spend the revenues your company brings in. Sure you can take out loans to make it through a temporary cash crunch but eventually the cash that goes out can’t be more than what comes in.

So as wage expenses per hour go up business owners will have two basic choices… 1) Cut work hours or 2) Raise prices.

Businesses may not cut actual workers on the payroll but they will certainly cut the total number of hours worked. Sure they will be making \$13/Hour but they will be working fewer hours so their paychecks and the business’s payroll costs will be the same. A classic example of this is how most fast food restaurants now have self serve drink stations. You thought they were doing this because they loved you… Nope they are forcing you to serve your own drinks so they can get away with fewer paid workers. That’s right, when you pour yourself a drink at McDonalds you just became and unpaid worker. Next you may be assembling your own burger.  Think about this the next time you fill your plate on one of those grocery store food bars and then pay for your food by the once. You just became an unpaid worker of that food store.

Raising prices is always an option for a business but as prices go up volume will probably go down. And that does not even take into account the effects of competition from other businesses in the area. Plus when prices go up your customers may stop and consider if they really need your product or service right now. Not necessarily a good thing for your weekly sales numbers.

The other kind of adjustments business can make should really scare the people on the Chicago City Council… I am referring to things like moving their business out of the city, paying people cash under the table, going with cheaper non-labor inputs (like worse quality food), outsourcing labor, or just shutting down because the business can’t be profitable.

If you think this shutting down a business concept is a little harsh remember that for most businesses labor is their largest cost component and the Chicago City Council just artificially increased those costs by over 57%. If a business was on the edge or barely profitable before then this will certainly finish the business off. No business. No jobs. No tax revenues. Collapsed real estate market. Sounds a little bit like Detroit, doesn’t it?

3. Costs will rise and that \$13/hour will just not go far enough.

Lets assume Chicago business don’t leave and workforce size is not reduced…

Happy workers will see a nice big jump in their weekly pay checks and since it’s a closed system, those increased costs will result in higher prices. The same workers who just received a nice raise will now be paying more for just about everything they buy. And they will be paying more in taxes too.

These Chicago City Council Members and the other fat-cat politicians will probably feel no real pain from this wage increase. It’s the vary people they are trying to to help that will bear the pain when this wage experiment starts to run off the rails.

Will Chicago Look Like Detroit Some Day?

So then you must be thinking that it is futile to raise the minimum wage because most of the pay raise will be eaten up by higher living costs.

You are only half right… It’s fine to increase wages. No problem with that. But wage increases need to be a natural part of the economic system. That means that increased wages are because of increased labor demand or increased productivity not because of artificial government intervention.

The last time wages were manipulated was during the rise of labor unions… You know, the unions that wiped out the U.S. steel industry and bankrupted General Motors and Chrysler. And… turned Detroit into a wasteland. Are we ready to play that game again?

By the way… According to the CNBC article the minimum wage is set to rise in 21 states this week.  Most are not raising it as much as Chicago but it is still going up.

## Is Obama Missing The Point On How To Actually Do Something About Income Inequality For Black Americans?

Between an enlightening article on the plight of Black Americans in the Sunday New York Times and Obama continuing his campaign for a higher minimum wage I’m beginning to think our President may be on autopilot of some type.

I will admit that it is probably much easier for him to keep calling for a higher minimum wage but will that really solve the big problems related to income inequality?

Some may think a higher minimum wage is the silver bullet but after seeing the following facts in the New York Times Sunday article I realized what a big problem we are faced with in this country:

• The net worth of the average black household in the United States is \$6,314, compared with \$110,500 for the average white household, according to 2011 census data. The gap has worsened in the last decade, and the United States now has a greater wealth gap by race than South Africa did during apartheid. (Whites in America on average own almost 18 times as much as blacks; in South Africa in 1970, the ratio was about 15 times.)

• The black-white income gap is roughly 40 percent greater today than it was in 1967.

• A black boy born today in the United States has a life expectancy five years shorter than that of a white boy.

• Black students are significantly less likely to attend schools offering advanced math and science courses than white students. They are three times as likely to be suspended and expelled, setting them up for educational failure.

• Because of the catastrophic experiment in mass incarceration, black men in their 20s without a high school diploma are more likely to be incarcerated today than employed, according to a study from the National Bureau of Economic Research. Nearly 70 percent of middle-aged black men who never graduated from high school have been imprisoned.

And as the article writer says… “All these constitute not a black problem or a white problem, but an American problem. When so much talent is underemployed and overincarcerated, the entire country suffers.”

I totally agree with this! You can’t debate these numbers and what they can mean for the future of the country. Unfortunately Mr. Obama seems to be out of touch with these facts. And especially lacking in any real solutions to get things going in the right direction.

The most interesting fact here is that, “The black-white income gap is roughly 40 percent greater today than it was in 1967.”

This is saying that basically all the government programs and the Trillions of dollars spent over the last fifty years may have missed the mark when it comes to moving disadvantaged people up the economic ladder.

But I guess it’s always easier to just write a check than create, implement, and track real solutions designed to make things better in the long run.  I truly believe that if the people at the bottom of the economy can move up the ladder it will be better for all of us. Unfortunately more and more evidence is showing that the government programs we have been using are just not working. More money alone will not solve the problem.

And… Just raising the minimum wage will probably make matters worse. As I have pointed out in past articles and especially this one where I show how Mr. Obama’s higher minimum wage will actually profoundly hurt the people he wants to help.

So what’s a possible solution?

Instead of just complaining about solutions to this problem or offering some kind of quick fix (that has not worked in the past) checkbook solution I have a simple Four point plan that could get this situation back on track.

1. Education It is obvious that without an good education there is little hope of a better life. People complain about how these schools are unsafe and how all the teachers are burned out and more… But I say we mobilize an army of one million grandmas. Lets put them in every classroom to be sure the kids behave, are safe, get their homework done, and the the teachers are actually teaching. These Grandmas would be a formidable force. They will do more good than billions of dollars in wasted government funds. They are the key. What made me think about the Grandma factor? Back in the 1980s the Chinese government was failing miserably at controlling their population which was on track to cause a mass starvation. What did they do? They enlisted the countries Grannys to solve the problem and now China is in little threat of overpopulation.

2. Jobs Since the beginning of this country wave after wave immigrants have arrived here with no language skills and no education plus they have been called names and  discriminated against from the first day of setting foot on US soil. No one was ready to give these hundreds of millions of people jobs so what did they do? They started their own small businesses. They sold fruit, built cabinets, sewed clothing… What ever it took to provide for their families. There was no choice. It was either that or go back to a potentially worse (and maybe deadly) situation back in their home countires. My previous article shows how a simple cleaning lady working on her own can make around \$90,000/Year. How can people just go out and start a business? First find a need then start a business to fill it. Need more help then take a look at this great resource to help people with the steps to create a small business. This program has been helping people start businesses since 1966 and has a great track record.

3. Personal Finance – Far too often people earn enough money but because of a lack of basic personal finance skills it is wasted or people are floored by some kind of financial calamity that could have been avoided. I’m talking about Budgets, Insurance, Taxes, Retirement Savings and more. Your state forces you to pass a test to get a drivers license. They need a basic class and test to certify that people can handle money. Without it no amount of income will be enough.

4. Clear Out The Jails – Far too many potentially productive Americans are sitting in prisons. Most are not a threat to their neighbors and want to be better people. Identify the ones who should be set free and let them out with the understanding that if they commit crimes that endanger others again they may not be set free a second time.

All of this will not happen by magic. As with my Million Grandmas Education Improvement idea it is going to take grassroots commitment, involvement, and responsibility.  This is how the hundreds of millions of US emigrants worked their way up the economic ladder over the past two hundred years.

And isn’t it convenient that our President started out as a community organizer?

He is just the person we need to head up this unprecedented effort get more people moving up the economic ladder. We will not see results in a week, month or even a year. But I can pretty much guarantee you that with these four ideas put into action with full community support and commitment that in fifty years (probably much less) there will be statistics that we can be proud of.

So what could be holding Mr. Obama back from these kind of positive community based solutions?  He surely does not need permission from a near worthless congress to get going on this right now.

## Is Better Education Really The Key To Solving Income Inequality?

Two interesting articles popped up over the weekend. One article looks at how the trucking industry is having a hard time finding people to take their driving jobs even at \$50,000 a year plus benefits.  The other article basically blames most of a persons bad luck and poor choices in life on their parents.

First let’s look a little closer at this Truck Driver shortage…

Because of increased government safety regulations truck drivers are not allowed to drive as many miles as they did a few  years ago hence their income has been capped a bit. These weekly maximum mileage regulations are probably good for any of us who drive on our nations highways because they certainly help reduce driver fatigue and make the roads safer. The downside is that drivers just can’t earn as much money.

That said… The starting annual pay for entry level long haul truck drivers is around \$50,000 plus benefits. Not a bad paycheck and definitely will get a person on their way to a middle class lifestyle.

What kind of education is needed to drive a truck?

Trucking employers do not require a college degree. I don’t even know if they require a high school diploma. To drive a truck you will need to attend a several week driver training course paid for by the trucking company then you are ready to go. No college debt to worry about.

I wonder how many June college graduates wish they had a \$50,000/year job waiting and no college debt?

So this is an example of how piling more public money into education may not really get the desired end result. Unfortunately once someone earns a four year degree they seem to think they are above anything that even looks like physical labor. Unfortunately their high priced college education may have forgot to give them any marketable skills.

Truck driving may not be the most glamorous job you could have but if you can stay sober, don’t have a nasty arrest record, and can read a map it could be a way onto the rolls of the productive Americans earning a solid paycheck. Sure you might have just earned a degree in Political Science, Psychology, or Fourth Century Latin Literature but what’s better, living in your parents basement or a life on the open road?

On to the second article… The New York Time’s Nicholas Kristof makes the journey back to his childhood home in Yamhill, Oregon and sees so many people with drug and alcohol problems plus long prison records so he comes to the conclusion that no matter what you do if your parents took the wrong path it is pretty much a done deal that your life will be hard.

All you will have to look forward to is addiction, crime, unemployment, and prison.

Not a pretty picture. and it’s sad to think that with all the public money spend on education, according to Mr. Kristof, if your parents had a hard life you are in for more of the same. And your children are destined to repeat the painful cycle.

Maybe it really takes more than a good education system to move up the economic ladder. Educational opportunities could really be just like the cover of the book. Those school buildings, yellow buses, high paid administrators, rows of shiny new computers, and libraries are only part of the story. The part that can be bought with tax dollars.

The difficult part is getting the kids motivated for the hard work of becoming productive citizens. But that can’t be solved with a fatter government check book.

## Is Obama Missing A Simple Fix To The College Debt Crisis And Income Inequality?

A recent article in the New York Times brings a lot of solid information together related to the College Debt Crisis we have been hearing about for some time now. The article has the wrong title (It’s Official: The Boomerang Kids Won’t Leave) but the facts the writer lays out are pretty grim and have some serious implications for the future of Income Inequality in this country.

The bottom line is that tens of millions of young adults have taken on over \$1.2 Trillion (yes, that’s with a “T”) in debt and they just don’t have the jobs to pay that debt off in any reasonable number of years. Some of these people owe over \$100,000 and are earning barely a minimum wage.

Somewhere someone got this rumor started that people with a college degree are guaranteed a future of high paying jobs.

Well… They, and by “they” I mean probably the colleges and universities that have profited the most from that false rumor, left out an important little caveat to that secure future myth of nice paychecks. While you are at college you need to pick up some skills that companies find valuable.

So here’s the basic scenario…

1) An eighteen-year-old kid itching to move out of the house gets accepted to the college of his/her choice.

2) This newly accepted kid has no idea what to major in so picks something fun like English, Latin, Physiology, Political Sciense, Art History, Communications, etc…

3) The kid finds out that it will cost \$100,000 for four years and since mom and dad are struggling to save for retirement they can’t write a \$100,000 check right now.

If you major in French you can read this menu. Unfortunately, you will probably also be the waiter.

4) The college has a nice office where kids sign on the dotted line and get a loan. Boom! Four years of freedom, parties, casual sex, and even a little learning. What kid wouldn’t sign up for that package?

The biggest problem here is that the college gets their money no matter if the kid even graduates and the funny thing about student loans is that the only way to get out of the payments is to die. Bankruptcy will not wash this debt away.

So you’ve been hearing about this College Debt Crisis for a while now. Smart people even say it is affecting the housing market since this generation of kids have to pay this debt off before they get on the home buying ladder.

Then Obama gets up there and in his smooth fashion throws an “executive order” out to allow these borrowers to cap their payments at 10% of their income and he is supporting a plan to refinance the loans at a lower interest rate.

Very nice indeed but that is what I would call “lip service”. They still have to pay off the huge debt while working at a minimum wage job.

These people are in a hopeless situation and over the next few weeks the next wave of college freshmen will be signing their lives away on the dotted line adding to the huge problem.

This needs to stop now!

And here’s a simple way to actually stop this College Debt problem from getting even worse.

When you take out a consumer loan for house, car, boat, computer or what ever, the lender is obligated to show you a truth in lending form that spells out clearly how much you are borrowing and what it will cost you to pay the loan back.

Why not an Obama “executive order” that forces the colleges to include a paragraph in the loan paperwork to be signed by the new student that clearly shows them their future income potential. These statistics are easily available for each possible major a student might select.

Here’s an example college loan full disclosure paragraph….

I, Joe College, has elected to attend Party University and major in Political Science at a cost of \$98,252 for four years. After graduating I will be paying approximately \$1,042 per month for 10 years to repay this loan. The latest statistics show that those students who major in Political Science have a 2% chance of getting a job in their area of interest at an average after tax monthly income of \$2,983 so if I am one of the lucky 2% to land a job I will be spending over on third of my take home pay to retire this F#&@ing loan. and if I end up in the 98% of people who do not get a job in Political Science I will probably be in a minimum wage job that did not even need a college degree. In that case I will not even have enough take home pay to make this monthly loan payment and provide for a basic life style even close to what I have living at home with my parents right now.

So… If that new college student signs this he/she will know right up front what they are really in for so when they can’t make the loan payments later they can’t say they were not warned.

Of course the “College Loan Full Disclosure” paragraph would read differently for Accountants, Finance Majors, any of the many variety of Engineers, or other majors that deliver people to employers hungry for people with real skills.

And what about the tens of millions of people already caught up in crushing student loans?

They better treat their parents well or find somewhere else to live.

## When Robert Reich Speaks It’s Always Scary… What’s The Latest He’s Saying About Income Inequality?

I’m always ready to listen to a smart economist. They usually have some great things to say that can help make things a little clearer.

I have listened to many Robert Reich commentaries on NPR and its seems that about half of what he says makes a lot of sense. It’s the other half I worry about. Unfortunately that may be the half that some people believe the most.

In Mr. Reich’s latest article he tries to debunk the biggest myths of Income Inequality and what he says is just scary. Like most of the politicians in D.C. he has probably never tried to run an actual profit making business and this shows in his systematic explanations he uses. They hard firmly founded in some other world than the actual one we live in and the same one real people have to establish and operate businesses to make profits.

Has Mr. Reich actually forgotten that without business making profits there will be no taxes for the government to collect to pay for the essential services needed to keep the country moving.

Let’s look at what he claims are “lies” why his income inequality positions just wont work in the real world….

Lie number one:
The rich and CEOs are America’s job creators.

Mr. Reich says “The truth is the middle class and poor are the job-creators through their purchases of goods and services. ” But he forgets that without the companies to provide jobs there will be no place for these people to work.  And without the proper profit incentives those companies will go elsewhere as many of them already have. But Mr. Reich may be partially correct on this one since the US Government is really the largest single employer. China’s army comes in number two followed by Walmart in third place.

Lie number two: People are paid what they’re worth in the market

He says… “The facts contradict this. CEOs who got 30 times the pay of typical workers forty years ago now get 300 times their pay not because they’ve done such a great job but because they control their compensation committees and their stock options have ballooned.” That’s right, in effect the CEOs are the owners of the companies and in a free society like ours the owner gets to set his own compensation along with the compensation of the people who work for him or her. If the company does not choose to pay enough then they will have a hard time finding employees. But as long as qualified people are standing in line outside the company’s employment office door at the current pay rate then why pay more. I would like to see if Mr. Reich doubles the pay for the person who washes his car, or serves him a meal in a restaurant, or starches his shirts. I doubt it. He lets the market determine how much those workers are paid. And that’s the way we do it here in this country.

Lie number three: Anyone can make it in America with enough guts, gumption, and intelligence.

Now this is really an insult to everyone who has landed on our shores over the last few hundred years. Plenty of people have started successful businesses here with little more than guts, gumption, and intelligence. Everywhere you look you will see individuals who have perceived though many hardships to start their own businesses and eke out a good living for their families. That is really what this country is about. How can he forget that? Take that away from the next generation, make them believe that they will never achieve their dreams for what ever reason, and you will have poisoned the well for the future. And that is just what I am afraid could happen. If you tell someone enough times that they will not make it on their own (for what ever reason) eventually they will start to believe it.

What’s the better foundation for building a stronger America? Telling people they can’t make it on their own or getting out of their way and telling them that with enough guts, gumption, and intelligence they can do what ever they want. Keep telling them that and they will certainly start to believe it. Especially with all the great examples out there.

Lie number four: Increasing the minimum wage will result in fewer jobs

On this one Mr. Reich says… “In fact, studies show that increases in the minimum wage put more money in the pockets of people who will spend it – resulting in more jobs, and counteracting any negative employment effects of an increase in the minimum.” Then he goes on to give some details on studies in adjacent counties in the country and how no one lost their jobs.

Again Mr. Reich is missing some of the practical aspects related to raising wages above market rates.

Unfortunately if all these fast food restaurants and the like raise wages the owners will need to raise prices. And those higher prices get passed along to the same people who just got a pay raise. And… As I have discussed in previous posts on this subject, the person who has that fast food job at an \$8/hour wage will not be the same person \$14/hour. When the annual pay for fast food and other low-skilled jobs starts tp get closer to \$30,000/year watch how fast those college educated unemployed zombies living in their parent’s basements come out of hiding and finally get jobs. That’s right, if the minimum wage is artificially increased instead of set by the market the exact people who need those jobs will be unemployed. The new educational minimum will be a college degree for those entry level jobs. And at a higher wage those people will be required to work harder than ever.

Robert Reich is one of the smartest guys in the world. But before he can scare anyone else I wish he would go run a corner hot dog stand for a few months so he can see what the real world looks like.

## Could The Latest Income Inequality Data Be Lying To Us?

Two interesting Income Inequality stories seem to be bouncing around.

One story from The Atlantic claims that a shorter life could be the unfortunate fallout from Income Inequality. That means a shorter life for those with less money. I’m sure the story would have been buried if  it showed the opposite was happening. If a life of champagne and caviar was prematurely killing the members of the 1% club we would probably not hear about it.

The other story covered in the Huffington Post and many other places is about how French Economist Thomas Piketty seems to think that Income Inequality will just keep getting worse unless we impose a Global Wealth tax to redistribute income. And do it fast!

It’s amazing what people will say to create a hot headline when they are on a book tour. And how they bend statistics and common sense to get a little time out in the light of day.

And… These are normally pretty smart people. Is this like yelling fire in a crowded movie theater ow what?

First lets look at the story in The Atlantic about how richer people just seem to be living longer…

The data and pretty charts seem to say that if you are not part of the wealthiest one percent you should probably buy a big life insurance policy because you will have a short life.  They are trying to say that less money causes a shorter life.  This is like gathering some numbers and finding out that people who use Macintosh computers live longer so the U.S. Government  should  distribute Macs to everyone so they can all live longer healthier lives. It it was only so simple.

What this study fails to point out are the thousands of other factors that could be at work shortening peoples lives beside their Income level or if they own a Mac Computer.

The choices made by someone in some backwoods West Virginia county compared to a Washington D.C. one percenter could be very different and profoundly influence each of their lifespans. Simple choices like drug and booze consumption, what they eat, how they exercise will make the difference not so much the size of their bank account.

I would propose that someone earning very little money but making good health choices will always live longer. And… It does not cost much more to make clean health choices does it?

If you think I am wrong then tell me why the five place on earth where people live with the longest lifespans do not seem to be populated by rich one percenters?  Yes… These are places like Okinawa, Japan and Ikaria, Greece.

How about what that French Economist has to say…

Basically his concern is that the rich will just keep getting richer and the poor will keep getting poorer.  And his briliant solution… A global Wealth tax!

When I hear this stuff I start to think people have been living in some subterranean cave and just poked their heads out for a few minutes to look at the world.

If this economist would have looked around a little longer before spouting he would have discovered that the stock market has had a great run up since it crashed back in 2008. This is how things like the stock market have worked since the beginning of time. They go up and they go down. When they are going up like they have been people who take risks get rewarded. At least on paper they get rewarded.  I say that because much of this wealth he is talking about is “fantasy wealth”. Bill Gates and Warren Buffet’s vast riches mostly exists as numbers on some computer somewhere. As soon as the stock market heads down, and it will, that wealth disappears. It’s “fantasy wealth”!  Just like monopoly money.

And… If a global wealth tax is put in place a portion of all this “fantasy wealth” will need to be turned into real cash. So what do you think will happen to the stock market if most of the people sitting on shares of stock, where this wealth is located, need to sell some stock to pay a global wealth tax?

What happens when there are more sellers than buyers in any market?

That stock market will crash right along with any market like Gold, real estate, or Bennie Babies when there is a rush to sell.

And.. As we hopefully all know crashing markets don’t help anybody.

The smartest thing I saw was a New York Times article that smartly points out that how all this 99% and 1% class warfare talk is pure nonsense since the 1% and 99% are not any people in particular. They are just buckets and people move in and out of these classifications all the time. According to this real research 12% of the U.S. population will move in and out of the top 1% bracket over a ten year period.

And… 39% of Americans will spend a year in the top 5% of the income distribution, 56% will find themselves in the top 10%, and a whopping 73% will spend a year in the top 20% of the income distribution.

When you start looking at real numbers this Income Inequality story starts to make more sense.

## What Does It Mean When Academics Give Up On Income Inequality Assumptions?

An article in yesterday’s New York Times Business section may say it all when it comes to trying to blame Income Inequality for all the ills in the country.

Some smart people would like us to believe that there is a solid causal relationship between income inequality and things like life expectancy and the odds of a poor child climbing out poverty in the future.

But Christopher S. Jencks, a professor of social policy at Harvard, has abandoned his 10-year-old project of writing a book about the consequences of income inequality?

Why would Mr. Jencks do such a thing?

Simply because the hard facts and statistics coming out of Mr. Jencks extensive research  just were not proving out basic assumptions of how income inequality was the definite reason for negative effects on the nation’s health, opportunity, and crime.

When this accomplished researcher dug deeper he kept finding that other factors may really be acting on those people traditionally at the wrong end of the income inequality spectrum.

Basically all the data and research just did not backup the basic assumptions…  One problem with these analyses is that they are based on correlations between levels of inequality and variables like life expectancy or the odds of poor children climbing the income ladder. But such correlations can’t prove inequality causes social ills. They can’t disentangle inequality from the myriad things pushing American society this way and that.

Example… Life expectancy in the USA probably lags other developed countries because we don’t have universal government provided healthcare. Until ObamaCare totally clicks in if you are not working at a higher end job you probably don’t have adequate healthcare insurance. And judging from the trouble HealthCare.gove is having with signing people up for the program this problme may go on for many years.

Another example…  People in Scandinavia, a country with less income inequality, may have higher upward mobility than the United States because governments in Sweden, Denmark and other Scandinavian countries invest a lot in early childhood education and the United States does not.

Both of these examples could be related to income inequality but there are obviously other factors at play.

Lane Kenworthy a sociologist at the University of Arizona has been researching income inequalities effects and has also been forced to change his tune because he could not find solid correlations.

Can money alone be the solution?

To try to avoid misleading correlations and find a better way to isolate income inequality’s impact, Mr. Kenworthy studied its evolution over time, comparing how changes in income concentration across the world’s industrialized nations related to changes in a whole set of social and economic outcomes, from growth and employment to health and educational attainment.

What do you think he found?

He came up mostly empty-handed… “My tests suggest it seems to be a small player in the overall story,” Mr Kenworthy said.

Some people might like a simple solutions to the woes that visit upon those that feel they are victims of income inequality. But the answer is not just to redistribute cash from those at the upper end of the spectrum to those at the lower end. Money alone will not solve these problems.

Another Lottery Winner Turned Ultimate Loser.

If money was the solution then every single person who has won the lottery would be living wonderful happy lives. But as this article and many others detail, that just is not the case. Divorce, family estrangement, Suicide, murder, kidnapping, poor health, drugs, and alcohol shortened many lottery winners lives. More money may have actually helped these winners lives unravel because as these two income inequality researchers  have found… There are other things influencing peoples lives beside money.

What do you think? Can simply putting more money in the hands of people solve the Income Inequality puzzle?

## The Post College Income Inequality Problem… Is it the Economy, the College, or the Student?

But… I had an interesting conversation with a University career office today and I have to say I feel enlightened. Now this is by no means an intensive study so let’s just call it a data point. An interesting data point.

First of all… this college career office was at a leading second tier private University. Not Harvard or Stanford but about the same tuition cost and just a bit lower on the national rankings.

I was curious why even graduates of this fine University were not finding the employment they dreamed of when they started their college adventure four short years ago.

Did the career center offer workshops and seminars on finding jobs?  YES!

Did the career center offer one-on-one career counselling? YES!

Does the career center offer a database of job opportunities? YES!

Did the career center offer on campus interviewing? YES!

Did the career center blame the weak economy? NO!

The what was missing? Why are so many students not finding jobs?

Here’s what I learned…

The university offers many resources for students to find summer internships and post-graduation full time jobs. They have a team of people on staff to help educate people on how to search for, interview for, and get the best jobs possible. They maintain huge databases with opportunities and extensive research on hiring companies. University students and graduates can access a huge database of alumni. Many who probably work at just the company the student would like to work for.

But… (and here is the big revelation for me) With all these resources far too many students do not put in the maximum effort required to land their dream job.

Job finding workshops and seminars are sparsely attended. Online Opportunity databases gather dust. Career counselors are not busy. Alumni eager to help are not contacted. Do I need to continue?

The complaint from this career center is that students and prospective graduates do not seem to be taking advantage of the vast resources offered.

So if you have a student who is nearing college graduation or looking for a pre-graduation summer internship you may want to ask a few questions:

1) How many programs offered by your university’s career office have you attended?
2) How many hours a week do you spend searching the career office opportunity database?
3) Do you directly contact prospective employers or just impersonally heave resumes at them over the internet?
4) Have you used your networks like past graduates and professional organizations to seek job opportunities?
5) Do you have a dream company you would like to work for and what have you done to contact that company?

In short…  Do you realize that finding the job is hard work? And… Most amazingly that the good jobs don’t necessarily go to the best qualified people they go to the person who works the hardest to get the job.

And do questions like these seem relevant for all job seekers looking for a better job to get to the next rung up the career ladder? Are people willing to do more than the minimum to ge the job they want?