Can Three Recent News Reports Tell Us All We Need To Know About Income Inequality?

It’s always mysteriously eye opening when three seemingly unrelated news reports appear to possibly provide a coherent story. And these reports surely combine to tell us some significant data points related to the Income Inequality puzzle.

Sometimes people can oversimplify the Income Inequality problem suggesting potential solutions like just redistributing income. The Robin Hood “take from then rich and give to the poor” solution. If it were that simple, then all lottery winners would be living happily ever after. But that doesn’t always happen. More on this lottery winnings paradox in a future article

Now on to the three unrelated news reports…

News report Number 1: From the New York Times – “In the Shopping Cart of a Food Stamp Household: Lots of Soda”

We have this $74 billon US Government program (SNAP) to help the 43 million people at the lower end of the income scale buy food. Basically, they get a debit card loaded with money from the US Government that they can use at any grocery store. There are limitations on what can be purchased with the program.  Things like pet foods, alcoholic beverages, paper goods, cleaning supplies, and soaps are not allowed.

But most forms of food are allowed by the program. The goal is to assure that everyone has the meat, chicken, vegetables, bread, etc… to build nutritious meals and keep families healthy.  There is no expectation that busy people will try to stretch their SNAP budget by doing things like baking their own bread or eating home built casseroles every night.  Frozen foods and other convenience items are allowed with the program.

But according to this New York times article a recent study showed that SNAP program participants are spending 20% of their SNAP budgets on sweetened soft drinks and junk food. That’s a lot of money that could go into much more nutritious foods like fruits and vegetables.

I would never want to keep anyone from an occasional Twinkie, Jays potato chips, or Pepsi but 20% is a huge number. $14.8 billion huge.  That’s a lot of apples, oranges and carrot sticks. And in a country where obesity and diabetes are like a plaque all that sugar can’t be good.

But we can’t tell people how to fill their shopping carts at the grocery store. It’s up to them to decide how to feed their families. Junk food or Good food? It’s their choice and they have not been choosing wisely.

Income Inequality Problem Number 1: Bad decision making.

News Report Number 2: From CNN Money – “6 in 10 Americans Don’t Have $500 In Savings”

This news report talks about a study that says 60% of Americans, a majority, could not pay for an unplanned expense of $500. They don’t have at least $500 in savings!

Scary…

I know $500 sounds like a lot of money but that’s about what it would cost for some emergency dental work because your teeth are having a hard time dealing with all the sugary soda and junk food you have been eating.

This savings issue has been a persistent problem in America. People, 60% of them, can’t seem to save any money. Nothing gets squirrelled away for eventual emergencies. And this doesn’t even begin to address the problem these same 60% of Americans will have some day when they can’t work anymore and decide to “retire”. If it still exists, Social Security might send a few dollars their way but not nearly enough to cover all their living expenses. Their savings will need to bridge that expense gap.

For these 60% of Americans, is their budget so tight they can’t even put $5 a week in their mattress, or a bank, for the inevitable rainy day? There must be someplace in their weekly budget where even a few pennies can be trimmed. Enough pennies add up to dollars then before you know it… $500!

And an even scarier thought… If somehow, they work a little harder, overtime maybe or a second job, what will they do with that extra cash in their pay envelope? Will it find its way into savings?

Problem Number 2: Bad budgeting.

News report number 3: From The Guardian – “Richest 62 People As Wealthy As Half Of World’s Population”, says Oxfam”

Remember all that recent noise about “Fake News”?

Well this article fits then classic “Fake News” mold… Sensational headline, simple words to communicate better with the lowest common denominator, slightly factual, but mostly inaccurate.

This is the kind of news that smart people understand as sensationalistic and largely inaccurate just from the headline.  But those less educated and more easily influenced by nonsensical numbers believe this stuff. Shame on you Oxfam for creating and/or propagating “fake news”.

This is right up there with supermarket tabloid headlines like “Dick Cheney Is A Robot!”, Tome Cruise Is A Space Alien!”, and “Half-Human Half-Fish Found In Florida!”.

Somewhere someone believes these news reports. If they didn’t these publications would not exist.

The only thing missing from this Guardian headline is the exclamation mark at the end. They coulod have used a headline like; “62 Aliens On Earth Own Everything!” or “Why Work Hard To Get Ahead?… 62 Aliens Control Most Of Worlds Wealth!”

Notice my clever use of exclamation marks.

The problem is that people believe these kind of stories about who holds the wealth in the world. Smart people know that these 62 people probably have private planes, yachts, and a nicer wardrobe. But most of their so-called wealth is probably tide up in something like stock. For example, most of Bill Gates’, Warren Buffet’s, Mark Zuckerberg’s and Larry Ellison’s wealth is based on their stock holdings. The problem with owning a large pile of stock is that if they ever tried to sell it the value would drop like a stone.  Stock based wealth is mostly a mirage.
But smart people know about how stock based wealth numbers are really artificial. It’s not like these 62 people own something with real value like property, buildings, stockpiles of canned lima beans, or mountains of gold coins.  I am most worried about the people that don’t known this about how these articles are designed to mislead.

Problem Number 3: Uninformed readers believe sensational headlines.

These three news reports appear to be the “trifecta of the day” when it comes to Income Inequality… They show how bad decisions, bad budgeting, and inaccurate sensational headlines and news stories can undermine efforts to eradicate Income Inequality.

No rational amount of income can compensate for bad decision making. Education, discipline and good decision making can make even the smallest income go farther. If a person can’t adjust their budget to save even $500 how will they ever build the assets needed for the unplanned essentials in their life? Financial catastrophe could be days away. And… If a person believes every news story they see, could that demoralize them and take away the hope and optimism that really fuels a long persistent climb up the income ladder?

Clinton v.s. Trump… Who Will Do the Most To Fix or Amplify Income Inequality?

lady and manIncome inequality is not a good thing by any measure. More people earning more money and spending that money on everything from new homes to cars to groceries and vacations is what helps our economy grow for everyone. If only a few people control all the wealth and income, then the economy will continue to weaken and no one will win.

That said, boosting income for the lower 99% artificially through transfer payments (free money giveaways) and other economic tricks and tactics will only provide an unsustainable short term partial fix with a day of reckoning on the horizon where the 99% will ultimately feel most of the pain. If the upper 1% lose 90% of their income they will still have more than enough for the essentials. Not so for the lower 99%. An economic shock like that would be devastating.

99 - 1It is essential that this Income inequality puzzle is solved. It effects everyone in the country in so many ways and influences the ecology, our health, and personal safety.

So what will Hillary Clinton or Donald Trump do to improve or amplify Income Inequality if they get to the White House?

Recently the New York Times asked their readers to choose the most important question to them from a selection of fifteen possible questions. Nearly 90,000 readers responded and the Income Inequality question scored the second most burning question right behind a question on climate change.

While the televised presidential debates can look like a mud wrestling match at times the candidates’ responses in a newspaper story show only the actual words they are using not the rest of the distracting circus show.

The New York Times asked the candidates:  “What would you do to reduce extreme income inequality in this country?  The actual word-for-word text of their answers is in the actual article but I will summarize what they said here:

Hilary Clinton basically said how terrible income inequality is and laid out her proposals to help reduce it. Her list included promoting profit sharing for all employees, more jobs, support small businesses, 12 weeks paid family leave, universal pre-school for every four-year old, and a fairer tax system. She finished with the clinton-trumpstatement that; “We won’t raise taxes on people making less than $250,000.”

Donald Trump used his valuable New York Times ink to blast Hilary of course. He claimed that she is an extreme globalist who helps foreign corporations and governments raid wealth from U.S. workers. His solution to reduce Income Inequality is to control our borders and get the fair-trade agreements with our trading partners to be more fair. And he also proposes to “massively” reduce taxes, regulations and energy costs so “America can be the great jobs magnet of the world.”

Both responses are scary for anyone who knows how economies really work…

Hilary Clinton’s response looks like a typical politician desperately running for office who is offering the world to her potential voters without facing the realities of costs. When you do the math, if you taxed 100% of the income of the upper 1% you would not be able to sustain this kind of spending. Not to mention how fast the 1% would relocate to a more tax friendly country so the year two tax receipts would be zero. And she better not even think about a wealth tax. This will send people for the doors. That wall on the Mexican border would be to keep wealthy Americans in the USA so their wealth could be taxed away. You think  wealth tax would not get on the table?  It’s already there in the form of the property tax we all pay whether we own a home or rent. Yes renters… When the property tax goes up you rent will go up.

And Hilary’s promise of not raising income taxes for people making less than $250,000 a year feels a lot like Obamas affordable care healthcare program promises like how we could keep our own doctors and our insurance premiums would go down.

Donald Trump’s response seems to show that even though he is representing himself as some kind of business person he doesn’t know much about the real mechanics of operating an economy.

IE Chart1Scary…

So all we learned from this New York times article was that neither presidential candidate has any idea about what to do to get the US economy working again. All they care about is winning the election.

Where does that leave us?

Basically if you are counting on the fine people in Washington or your local city or state governments to magically wave their wands to solve the income inequality problem then you will probably be wrong. The Federal government consistently spends more than they take in right now and many state and governments are technically broke when you consider the huge municipal employee retirement obligations they are hiding.

The government in any of its many forms doesn’t have the money or motivation to tackle the income inequality problem.

It’s really up to us to tackle the problem ourselves…

To start, if every man, woman and child in this country made a commitment to better education for our children and not relying on strangers to do the whole job within ten years you would see a whole new income inequality formula. Without the right education a person cant even get on the first rung of the income ladder.

maxresdefaultBy commitment to education I mean little things like reading to our toddlers every night (even if it’s the sports page), making sure teachers know you are involved in your child’s education, and putting the priority on getting homework done every night.

And if there is any man, woman, or child who is not ready to make the commitment to their kid’s education then you might want to say that they have earned there spot and their child’s spot at the lower end of the income ladder.

Harsh… Yes, but that’s how economies really work. Without leaders that inspire people to commit to their goals you can’t ever tax/spend or deregulate/untax your way to a better economy.

The people need to do the hard work not the politicians.

The Political Conventions Are Over… How did we get into this mess and what does it mean for income inequality?

Hil-TrumpThe Republican and Democratic political conventions are over and the two champions of their parties have been selected. These two conventions were little more than a platform for a parade of speeches by various political hacks saying stuff we already know in hopes of grabbing some prime time TV attention.

Leading up to these conventions we knew who the two presidential nominees were going to be and we know exactly what they stand for.

And… Both candidates scare me right now.  A lot!

On one hand we have a Democratic presidential nominee who will probably promise us the world (things like free college tuition to start) but as the current president has found, its not so easy to actually run a government. Especially when everyone is at each other’s throats like they have been for the last seven and a half years.  Scary…

Mule ElepahntOn the other hand, we have a Republican presidential nominee that scares about everyone including most of the people in his own party. The unprecedented number of people who watched the televised Republican debates shows that Mr. Trump is fun to watch as a nominee but I’m not really sure he can lead the country in a rational, thoughtful, compassionate way. No matter what his wife says. Even if she is skillfully using Michelle Obama’s words from eight years ago.  It makes we sort of want to see a debate between this Slovenian fashion model and current first lady/former high powered attorney. In a fair fight I’m pretty sure I know who would win. But a cat fight worth watching.

All this convention political noise was just designed to get us to like these two hugely unlikable presidential candidates.

People said a lot of great things. Somewhere deep down we started to feel a little better about making a choice this November. At least that’s what the political party captains would like.

But I really don’t see much of a choice…

Especially when it comes to getting the country on the path to resolving the two ton guerrilla (I didn’t use elephant because of the political connotations) in the room. Income Inequality.

The unemployment numbers are telling us that a higher percentage of people than ever are working yet the economy seems to be in a weak sluggish position. This is simply because too many people are working too many hours for too little pay. At the end of the week they get a paycheck that barely covers their basic living costs and Obama-care premiums.

All this while people at the other end of the income spectrum are earning more income than ever and thanks to lenient Fed policies they are enjoying an unprecedented high valuation of their assets.

If you listen to one scary candidate, the solution is to tax the heck out of the big earners and find ways to transfer that cash to the people at the other end of the spectrum. Better known as a “Hand Out”.

If you listen to the other scary candidate, he is preaching a system with less government regulations, more opportunity and lower taxes. Better known as a “Hand Up”

Yes folks it is that simple… One system is a “Hand Out” and the other is a “Hand Up”.

What happens with a "Hand Out" system... The walls make people mad.

What happens with a “Hand Out” system… People just don’t like the walls!

We know for sure the Hand Out system does not work. At its extreme is looks like socialism. You know, that Soviet system where everyone gets education, a job, food, and a place to live. Not much choice but they do get the basics and everyone except a handful of “leaders” are very equal on the income scale. It’s works best for the Vodka companies since this system seems to really promote alcoholism. The most famous “virtually everyone equal system” collapsed years ago because it can only survive as long as someone is there to foot the bill. And when taxes go up or things get really bad people will leave unless you build a wall. And that wall will only keep people from leaving for so long.

If you don’t believe me… Ask the state of New Jersey about why a guy named David Tepper left the state because of its high income tax rate for a new home in Florida with a Zero percent income tax rate. The move saved him millions of dollars a year. Wouldn’t you do the same thing?

New Jersey may need to build a wall…

Tax and spend, Hand Outs, are no way to build a long term sustainable economy and try to chip away at Income Inequality. Higher taxes and rampant government spending will just make the problem worse for everyone in the end.

Who is this guy named "Rich"? It's everyone who earns a paycheck!

Who is this guy named “Rich”? It’s everyone who earns a paycheck!

In reality this Income Inequality problem we are in these days is most likely the result of an economy in transition. We are painfully moving from a union controlled manufacturing economy to a free agent services economy.

In the past, millions of workers enjoyed a middle class life while doing the hard work of making things like cars, TV sets, shoes, and furniture. Through the important work of labor unions salaries and benefits always kept pace with the needs of a middle class lifestyle. And that was in an amazing time when one wage earner could provide for a family. And they lived a nice life.

But… As we all experienced when the U.S. auto, steel, shoe, clothing and furniture manufactures collapsed this socialist type non-market driven pay/benefit system could not survive when no one was there to pay the bill. Now most cars, steel, shoes, clothing, and furniture still manufactured in the USA are done in non-union factories where pay/benefits are more in line with the actual value created.

So the Bottom line for these newly anointed presidential candidates is that one candidate is unelectable. And the other candidate promises us four more years of the same Washington gridlock we have had for the last eight years.

Scary… Especially if you are on the wrong end of the income inequality scale.

Only real innovation can fuel the demise of Income Inequality

Only real innovation can fuel the demise of Income Inequality

The simple solution is that the fine people we send to Washington to represent us in Congress pull together and create some policies that might have a little “Hand Out” component but be made up of largely sustainable growth oriented job-creating “Hand Up” policies.

The Fed has done their job with easy money and low interest rates but without the help of congress all those sacks of money just sit in bank vaults not helping anyone. Don’t be fooled by this media-generated presidential election horse race noise. The real culprits in this inequality gridlock situation is congress.

Congress needs to pull together and decide it’s time to get America back on track. Small business is what really fuels growth. Get out of the small business person’s way and you will be amazed what can be accomplished.

Remember… All of today’s big businesses started as small businesses in the past.  They all started with a motivated person with a great idea and a plan to get things going.

These two guys had an idea back in 1976. Now Apple directly employs over 66,000 people and over 627,000 people indirectly.

These two guys had an idea back in 1976. Now Apple directly employs over 66,000 people and over 627,000 people indirectly.

If Congress enacts a package of small business incentives, education initiatives, research/innovation credits, and reasonable regulations more people will move up the income ladder and large scale inequality will be a thing of the past.

Think it can’t be done?… We’ve done it before and that’s why America out-produced, out-grew, and had the fastest increase in standards of living back in the 1950’s. And the 1970’s weren’t so bad either.

Congress needs to bring back the good old days. No president can do that on their own.

The World Is Changing… Why Shouldn’t Jobs Change Too? The Effects On Income Inequality…

Yesterday was Labor Day so between enjoying some bar-b-cued meats and cold beverages on that day off I was looking a little closer at what has been happening in the Job Market lately and what it means for Income Inequality…

A recent New York Times article had the disturbing headline: “Low-Income Workers See Biggest Drop In Paychecks“. The article went on to discuss the plight of workers in the home health care, food preparation and retailing sectors.  One example shows how a guy who worked at a KFC in the Mid-1990s earned an equivalent in today’s dollars of $8.61 then went away for two years of college and two military tours in Iraq. He came back and now earns $7.25 and hour.

What’s up with this? Why the pay cut?

This really seems crazy when you consider the recent U.S. Government employment report that tells us 173,000 new workers were hired in August and the unemployment rate is down to 5.1%. It has not been this low since April 2008.

So with what appears to be an extremely tight labor market, low-wage workers are seeing a drop in real wages. It should be the other way… Wages should be going up! If you look at the basic economics of the situation you would think that as fewer workers are available employers would need to raise wages to fill job vacancies.

If we assume the Labor Department has not botched the data there could be two forces at work here below the surface that smart people seem to forget…


1. Pay is more than just the cash you get in an envelope at the end of the week.

The recent New York Times articles on how pay has gone down for low-wage workers focuses on the actual cash people take home. But a huge change has happened over the last few years. That change comes under the umbrella of Obamacare. In most cases the huge costs of providing healthcare has added significantly to the cost of hiring workers. And this cost is reflected in lower wage increases. And… Workers should be spending less of their pay on health costs. At least that’s was the promise made when Obamacare was pushed through congress and into the laps of the American people.  Yes wages are relatively lower but healthcare cost for employees should be lower too.

ice_man12. The world is changing. 

This just may be the bigger factor influencing low-wage worker take home pay.
The world is changing… It has been for years.

Fast food workers are in direct conflict with people who are striving for healthier eating habits and may be eating at home more. Or just up-scaling their restaurant meals to places with fresher choices, better menus, and fewer employees.

blacksmiths2Home Healthcare workers are being squeezed because with better healthcare coverage people might go to the hospital or other higher end choices for healthcare. Maybe they are able use better health care to stay healthier and not need as much home healthcare services.

Retail workers are cruising stores with fewer shoppers since more and more people are shopping online. Online shopping is easier, takes less time, usually has what you need, and costs less.

These three worker categories are not in as much demand in a changing world. To push for higher wages when jobs that are falling out of favor will only result in fewer (if any) workers making more money while higher consumer costs push the few last consumers to other lower cost/higher quality alternatives or totally out of the market.
In the past when the world changed did people worry about the declining opportunities and pay for blacksmiths and buggy whip workers?  Did front page articles document the plight of lantern wick weavers as electric lights started to spread? Did the government push for higher minimum wages for ice delivery men as electric refrigerators started popping up in homes?

I don’t think the plight of these past job holders received much ink in the New York Times.

Workers in these low wage areas today are paid what the market will bear. That is a directly decided by the demand for their services/skills combined with the number of potential people to fill those positions.

Right now in an environment we have now low-wage workers need to up-skill to get higher paid positions in areas with higher demand.

The same way blacksmiths ran out of horses to shoe and became car mechanics, lantern wick weavers became electricians, and ice delivery men decided to sell and serviced refrigerators low-income workers in low demand areas need to find their next job based
on where the world is going. The wrong way to increase their wages is to cling to jobs in low demand with low-wages.

 

Education Is The Key To Combating Income Inequality So Why Destroy It With A Bad Plan?

It would be difficult to disprove the fact that education helps people move up the income ladder. There are few other better predictors of future income than level of attained education. People with college degrees earn many times more over their lifetimes compared to those who jump off the education train after a high school diploma.

So, in theory, easy loan money to finance a college education should help move all college graduates up the earnings ladder and help alleviate high levels of income inequality.

But now all we hear about is the approaching college debt crisis…

Now that the bill is coming due and millions of people equipped with college degrees actually need to pay for that education there seems to be a lot of whining going on.

What happened?

Simply put all college educations are not equal…

A newly minted computer programmer can earn over $80,000/year while a Political Science major might earn $30,000/year because demand is sort of low for Political Science majors and they may end up in retail, fast food, or making your morning latte a Starbucks.

It is much easier to pay back $25,000 in college debt when you are working as a computer programmer than if you are crafting fine premium coffee beverages. I don’t think computer programmers are whining about their college debt since the return on their loan is about three times their loan amount just in the first year on the job while the valuable yet less employable Political Science graduate is looking at just over a one times return on their college investment.

Yes… Maybe college students should look at their college cost as an investment in their future. The same way they will someday invest in a home, car, or IBM stock.

Maybe before signing on the dotted line for their college loan they should consider how much they might earn after they graduate in their selected field. If these loans were not government guaranteed and their repayment was the sole risk of a bank or educational institution I’m sure future ability to repay the loan would be a key factor and it might be quite difficult to get a loan for a Political Science degree which costs the same as a Computer Programing degree.

Here’s the scary part…

There has been some talk of loan forgiveness. If a college graduate can’t pay back their loan after a few years then the balance will be wiped away. Like magic.

Nice… And very dangerous!

If we start forgiving loans because people made a decision to pursue the wrong education. An education that has a low future earnings potential, then we will just end up with more people earning low future wage degrees that do not help them move up the income ladder.

And that is the goal of the entire education system… To move people up the earnings ladder.

If someone’s passion is to study Political Science, Philosophy, Anthropology, or and of the other less marketable degrees then great. They should pursue their passion. But it is a catastrophe just waiting to happen when a government offers to pay off their debt when that government has not even figured out how to pay for a near universal medical program, social security, or a bloated government bureaucracy.

Taking on a new expense like this will have two guaranteed effects:

Political Science Graduates... Welcome To Your New Office!

Political Science Graduates… Welcome To Your New Office!

1) Add to a national debt that we all will pay for at some point now and in the future.

2) Act as a disincentive for college attendees to choose areas of study that will move them up the income ladder to help alleviate and income inequality trend that is moving in the wrong direction.

There is only one downside to a program where college graduates are made to pay for their debt…

Future students will be incentivized to pick more marketable areas of study and Starbucks will need to raise wages as less people need those low-skilled jobs.

The cost of our daily lattes will certainly rise.  But I am ready to deal with that inconvenience if it will help alleviate income inequality.

Does The US Government Support Income Inequality By Condoning Corruption In Africa?

coruption2I was in an Uber car speeding to an airport last week and as usual I struck up a conversations with the driver. She was an extremely articulate woman from one of those  small non-picture postcard  west  African countries. She was so happy to be safe in America where she could earn some money and send her son to a good school.

Okay…  so I was making a quick escape from Chicago when I was talking to this Uber driver.   That’s the city with one of the highest murder rates and worst schools in the country. There is currently a fight going on to raise the minimum wage from $10/hr to $15/hr as a solution to potentially relieve some of the income harsh income inequality there.

Odd that this Uber driver considered Chicago a garden spot…

Traffic slowed as our friendly conversation turned into a heated lecture as she schooled me on corruption and the resultant hopelessness back in her home country.  Government sanctioned corruption in her country saps the economy of needed resources and challenges people every day. Government officials expect payoffs for everything from a driver’s license to placing your child in a decent school.  And if you dare start a business in one of these countries  there will be a weekly knock at corruption5_0your door by at least one government official looking for their unearned cut of your revenues. And that is if you can afford the under-the-table payoff to get your business license.

That’s corruption… And the toll it takes on education, employment and human spirit keeps the poor below the poverty line and continues to enrich those in political power. Think about this next time you hear someone complain about income inequality in the United States.

According to this Uber driver she makes around $17 an hour. She loves her job, freedom, and how she can provide for her family. This would not have been possible back in her home country in Africa.

So what about the billion or more people still in Africa dealing with these corrupt governments?

ForeignAidJokeTshirtWell it wouldn’t be so bad except our US Government seems to be supporting the corrupt African governments on many fronts.

Over the next few days President Obama will be visiting Kenya and Ethiopia. There will certainly be a multitude of photos with Obama and African government officials smiling, shaking hands, and generally chatting it up. Looking to be the best of friends…

In the meantime the smart people at Transparency International rank Kenya as 145th most corrupt country out of 175 countries measured (the USA is 17 out of 175).  Luckily Ethiopia is not as bad as Kenya. Ethiopia ranks 110 out of 175.

The Obama's with the President of Kenya

The Obama’s with the President of Kenya

The problem is that with all the financial aid we send to the dark continent we really don’t know how much does any good. With corruption this high much of that money may be going into government pockets instead of where it is needed.

Why does the US Government tolerate and even condone this corrupt behavior?

I guess in a more perfect world a bolder US Government could impose sanctions and isolate these corrupt African government officials instead of shaking their hands and making nice.

Unfortunately the formula looks like this… Corruption -> poverty -> hopelessness -> anger -> terrorist radicalization -> terrorist attacks.  Maybe fixing the corruption would reduce the terrorism threat faster than sending money and weapons to corrupt African governments.

Could The John Kerry/Obama Iran Nuclear Deal Really Just Be Dangerous Appeasement?

John Kerry Iran 1

Look Who Is Smiling And Who Is Not

Why do certain people in Washington seem to be jumping for joy because of the latest news out of the Iran nuclear treaty talks? And why do I feel like somehow I have fallen asleep to wake up in 1938?

Maybe our friends in Washington are the ones who need to wake up…

I have to admit that probably like the rest of you I have not really been following the day-to-day of this Iran Nuclear Deal story. That’s because they have been working on this Nuclear Deal since 2003. That’s right, somehow people have been meeting and hammering out details on this for over ten years. When does a smart person stand up and say… “Maybe the Iranians are stalling while they perfect their version of an atomic bomb with training wheels.”

A nuclear bomb is a nuclear bomb no matter how you spin the language!

Look Who Is Smiling And WhoNot

Look Who Is Smiling And Who Is Not

The latest headline says that the best this Nuclear Deal can be expect to do is extend Iran’s attainment of nuclear bomb making capability from two or three months to about a year. Okay so do the math…  This deal was announced on April 2nd (it should have been April 1) and they are saying the new deadline is June to work out the details. That’s oddly two or three months away!
What do you think those busy little Iranian Nuclear Bomb makers will be doing over the next two or three months? They won’t be taking a vacation at Club Med!

And lets be clear here on who we are dealing with when we sit down to the negotiating table with these Iranians… They are the same people who are funneling arms and soldiers to heat up the action in Iraq. That’s the place where we spend countless American lives and bazillians of dollars to try and get on the track to something resembling a free society. And… According to our very own state department (that’s the little ice cream shop John Kerry runs) the Iranians have been sponsoring terrorism all over the world for many years.

Iran PaperAfter so long at the negotiating table only an idiot (I don’t use that word loosely) could think the Iranians are doing anything other than stalling.

If they really just need nuclear material for power generation and medical needs as they say then it is less expensive to just buy what they need than to set up entire factories and supply chains to manufacture it. If they really need the nuclear bomb material for peaceful reasons then why are they also developing long range missiles. To deliver electricity and medical supplies?

No… I think the Iranians have other plans for this nuclear material and they involve obliterating Israel as they have said many times.  And after that who do you think is next on the Iranian Nuclear Bomb hit parade? Not the French, Polish, Germans, Italians, Russians, or Chinese who trade with Iran and have been pushing Kerry for a deal so they can continue selling them stuff.
We are the ones in the Iranians cross hairs. I sure the Supreme Leader of Iran has a live stream of New York Time Square on his iPhone so he can keep tabs on what’s cooking there.

Death to America IranUnfortunately there is no scenario I can even imagine where this Iran Nuclear Deal works out with happy people around a campfire sipping hot-chocolate and singing show-tunes together.

Unless our guys in Washington wake up and realize the Iranians are stalling (after all it has been over ten years now) and do the tough work of shutting down their nuclear ambitions either Israel will send a few bombers to Iran and turn their research facilities into a pile of steaming ruble or Iran is going to unleash a new brand of Nuclear war like the world has never seen. Neither is a pretty picture.

Which brings me to the word of the day… Appeasement.

Look Who Is Smiling And Who IS Not

Look Who Is Smiling And Who IS Not

This is the only reason I can think of that our guys in Washington have let this Iran Nuclear Deal charade go on for so long. When Obama says things like this Iran deal is “Our Best Bet” it worries me. How can you “Bet” with the lives of so many millions of innocent people?  Can they revoke a Nobel Peace Prize?

This my friends is called Appeasement.

When you try to deal with people who have a clear agenda that includes your obliteration bad things happen. All you have to do is look at how the 1938 British Prime Minister Neville Chamberlain’s Appeasement of Adolf Hitler worked out.

On September 30, 1938 Chaimberlain was shaking hands with Hitler after they made a deal then on September 7, 1940, less than twenty-four months later Hitler started the Blitz on London and bombed that city for fifty-seven consecutive days.

That’s how Appeasement works out.

The really scary part is that most Americans are comfortable thinking that the folks in Washington will take care of us. Those Politicians are the smart ones tasked with the job of keeping the world safe from Iran’s nuclear ambitions. It’s been over ten years!  The Iranians mere months away from producing bomb material.

But remember all these guys in Washington have magic keys to comfortable well-stocked bunkers where they can lay low and watch House Of Cards and Scandal reruns while the nuclear dust clears. All we have are four dollar flimsy single-use umbrellas and Pop-tarts.

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

oxfamThe 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.

PopCLock2) 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.

BillGates2) 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…BUFFETT CREDIT

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.

88587_wealthiestpeopleThis 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%

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.

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

minimum-wage-increase-800x800Some 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:

raisewage1. 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?

2. Businesses will need to make adjustments

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.

That’s how business works.

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

Seattle-minimum-wage-555x285Businesses 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?

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.

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

111229_robert_reich_ap_328I’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 Walmart_USforgotten 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

P1-AW426A_EXECP_G_20100726194903He 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.

small-businessLie 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.

Earns McdonaldsLie 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.