Could The Latest Income Inequality Data Be Lying To Us?

mouth moneyTwo 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…

BN-CK785_income_G_20140417175313The 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.

wealth tax2How 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?

marketcrashWhat 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?

Harvard1An 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.

income-inequality-99-prtest-occupy-wall-street1When 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?

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.

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?

Puzzle2

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.

JobCliff

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…

HiremeThe 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.

MortarBoarddollarsJob 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?

Careers signIn 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?

 

What Could Gap Stores Be Hiding About Their
Minimum Wage Stunt?

gap2Gap stores made a surprise move this week and has informed its employees that over the next year their minimum wage would move up to $10/Hour. The company said that this would raise pay for 65,000 of their 90,000 U.S. employees, including those at Banana Republic and Old Navy.

How can they do this?

It seems like businesses are fighting Washington tooth and nail to keep wages as low as possible then these guys at Gap come in and voluntarily raise wages.

Are they just being nice guys?

No… They are being shrewd business people.

Lets compare your neighborhood  Gap Store to your neighborhood Walmart store… You go into Walmart and fill your cart with stuff them check out at one of the cash register. When you go to a Gap Store (or Old Navy or Banana Republic) and pick out a pair of slacks you can bet you will not get out of the store without at least one salesperson suggesting a shirt (or sweater or socks) to go along with those slacks.

Could you ever imagine checking out at the Walmart and the cashier asks, “would you like a flashlight to go along with those batteries?”  It will never happen.

And that is a fundamental difference between stores like Gap and stores like Walmart. If Gap can attract higher skilled and more motivated store employees they will sell more product.

Yes… More skills and talent will mean higher wages for those Gap employees. And… more revenues for the company. And… if the Gap computers show an employee is not generating more add-on sales for a store you can bet it will automatically print out a pink slip and that employees will be out on the street again.

This higher skilled employee resulting in increased revenues model just doesn’t work for retailers and fast food businesses like Walmart, McDonald’s, or your local grocery store.

But how will Gap pay for what could be hundreds of millions more in wages?

gap1That’s easy…

Not only is Gap counting on more revenue from a whole army of higher skilled and motivated workers but, for Gap, every dollar that hits their cash registers results in more profits going to the bottom line. That’s what is called “Operating Margin”. And what drives the CEO’s annual bonus.

When you look at Walmart’s and Gap’s operating margin you will see that Gap makes 131% more profit for every dollar of revenue compared to Walmart. That means Gap has more than enough cash floating around to pay these higher wages as long as revenues rise. If revenues and the bottom line don’t go up you can be assured that the next story you will hear out of Gap will be about mass layoffs.

Unless…  Gap’s CEO decides to take a cut in his own pay package. But I don’t think that will happen in our lifetimes.

 

Will Raising The Minimum Wage Help or Hurt
Income Inequality?

Accountantf

I learned a long time ago that it can be a big mistake not to listen to your accountant. Sure, accountants may not be the coolest guys in the room but rest assured they know their numbers. Ignore what they say and you will certainly hear an “I told you so…” at some point in the future.

A report in the New York Times details how the smart accountants at Congressional Budget Office determined that raining the minimum wage from $7.25 and hour to $10.10 and hour will most liking push 500,000 workers into unemployment.

cbo - seal

That increase from $7.25 to $10.10 represents a 39.13% raise. When was that last time a business could pass out a 39.13% wage increase (not to mention all the other tacked on tax increases) without something else being affected. And I can guarantee you that if the cost of a Big Mac increases by almost 40% more people may take up the gentle art of cooking at home. Or eating a bowl of cold cereal for dinner.
To hold price increases to a more rational level you will see a significant drop in the number of employees behind the counter and in the working at the grills.

MESC UNEMPLOYMENT2#67134

The good news from the Congressional Budget office is that at the $10.10 per hour minimum wage 900,000 families would be lifted out of poverty and increase incomes for 16.5 million low-wage workers.

500,000 people lose their jobs while millions see higher wages. Seems like more  Income Inequality to me.  And it’s all sponsored by our fine people in Washington D.C. I thought they wanted to fight income inequality.

And… There are surely two other serious unintended consequences from a 39.13% minimum wage increase…

U.S. Fast Food Worker... "What-a-ya-have?"

U.S. Fast Food Worker… “What-a-ya-have?”

1) Expect that at this higher wage rate a whole new crop of job applicants will be knocking on the doors of your neighborhood fast food restaurant. At this higher wage I would bet  some of those low skilled college graduates now living in mom and dad’s basement could learn to love flipping burgers. All those hard working people with only a high school diploma who may be rough around the edges may be the first of the unfortunate 500,000 to go. And if these newly motivated college educated minimum wage workers can get more done faster expect that 500,000 number to go up. If yo don’t believe this then take a look at who works behind the coffee or burger counter in places like Belgium or Ireland. Higher minimum wage higher quality workers. Where else can you get solid insights on 18th Century French literature along with your morning caffeine fix? It could happen here!

Belgian barista - "Would you like some Poetry with that Latte?"

Belgian barista – “Would you like some Poetry with that Latte, kind sir?”

2) At a lower $7.25 hourly wage an employer can take a chance on someone who with less than stellar experience.  At $10.10 an hour and more qualified people knocking on the door the days of a first job at McDonald’s are gone. Where will people get on that first rung of the employment ladder?

For years we have been hearing about the perils of huge minimum wage increases. When even the accountants at the Congressional Budget Office sound a warning may we should listen.

Or… Get ready for a big “I told you so…”

Income Inequality Is One Thing…
But What’s With This Bus Inequality?

googlebusThe recent New York Times article about the San Francisco shuttle bus service offered to Google, Facebook, and Yahoo employees was an eye opener.

But I guess this is California and things are very different out there…

So… These tech companies with offices a good drive from San Francisco were looking for a way to reduce traffic, lower emissions, and probably improve safety for their employees who might be a little beat at the end of a join us bustwelve hour day coding the next great thing.

But… All there good intentions have sparked a little conflict with some of the fine people who live in San Francisco. They are picketing, protesting, breaking windows and even targeting certain mild mannered employees with nasty banners out in front of their houses. And just in case you don’t see the banner these concerned citizens are passing out leaflets in the neighborhood. “Do you know your neighbor is a coder for Google?… What dangers lurk among us?”

scum1The problem seems to be that the busses that pick up all these well paid high tech employees are using public bus stops and blocking that space for up to thirty seconds.

But there is more…

Even worse, these high tech interlopers are buying up and renting all the available housing in San Francisco.   Many restaurants, coffee shops, and boutiques are going upscale to serve these more affluent customers. And all this seems to really be pissing people off.

Bus1Let me get this straight… Some guy who was picked on back in high school because he was a “nerd” goes out and gets a Computer Science degree, lands a high-paying job with a leading tech company, moves into an expensive San Francisco apartment with his Nerdette and little Nerdlings then… out come these bullies from high school to pick on him again.

Is this the next step?

Is this the next step?

Get it… That’s all this really is. Bullies picking on people who are different. It’s not religion and not race. They are being picked on because they make more money.

I’m afraid we have not seem the last of stories like these. Stay tuned….

 

 

Who Has The Strongest Income Inequality Case?
Why MyRA Really Won’t Help Much

Money bowlI know there is probably a lot to talk about when it comes to last night’s State Of The Union Address but how many people will be fooled by this MyRA thing?

I don’t think many people will debate the fact that people who are north of 65-years-old and have retired must be one of the most disadvantaged groups over the last few years when it comes to income.

Why?

Back in the old days you could count on a nice 5% or more return on money left in a good old fashioned bank Certificate of Deposit. And that money was 100% safe because of our friends at the FDIC.

roth-ira-11So… If you were retired and had a million dollars money in the bank you could be assured of a nice $50,000 a year income. And don’t let the prospect of squirreling away that million dollar nest egg scare you. Assuming you have forty-five working years you only needed to save about $6,000 a year. That assumes a 5% return on your saved money and that you started 45 years ago in 1969.

The story now and going forward is much bleaker for anyone who doesn’t plan on staying employed and dropping dead at their job when they’re ninety-seven.

Problem number one: Now you can only get 1% interest on those super-safe bank certificate of deposits so you would need closer to $5 million to generate that same $50,000 a year income. Thus instead of saving $6,000 a year you would need to save over $31,000 a year. Big difference and all because of these low interest rates.

Why are the interest rates so low and virtually starving people who need to live off their savings?  Thank your friends in D.C. for that. These artificially low interest rates have been a boom to the economy basically on the backs of retirees. Making them some of the most unequal when it comes to income inequality.

Cost-of-LivingProblem number two: Let’s say your crystal ball told you back in 1969 that you would only earn 1% income on your retirement nest egg. Then you would need to save much more money to actually retire some day. But the only way to save more would be, unlike IRAs and other retirement accounts, with money that has already been taxed at least once. This reduces the amount you can put away and every year you would have the awesome wind resistance of paying taxes on any earnings. A good part of your earnings every year over that forty-five years would go straight to the IRS.

The big question is… Why doesn’t Uncle Sam let us save as much money as we want in our retirement accounts? Right now ROTH IRAs are limited to a maximum annual contribution of $5,500 or 6,500 if you are over 50. Not nearly enough.

And this MyRA thing seems like just a distraction. The amounts I have heard are still too small to make a real difference for future retirees.

IRA coinsLet people save as much money as they want for retirement. And let that money grow tax free. That is unless there is some kind of guarantee that when a working person retires at a reasonable age like 65 there will be enough Social Security money to reasonably house, feed, and clothe a person.

But no one in D.C. would dare make that guarantee. And even now they are cheating Social Security recipients with a wacky inflation/cost of living index while they come up with plans to cut benefits for future retirees.

The big message here is that you better save as much cash as you can because when you get to your Golden Years you will probably be largely on your own.

And this MyRA will probably not generate enough money to pay the rent you will need to pay to live in your kid’s basement.

Could This Be a Possible Solution To Income Inequality?

MinimumWageWordCloudOn a recent visit to a friend’s house I noticed a woman running around his place dusting, scrubbing, vacuuming and generally making his place look five star hotel room clean. I always thought he was just a fastidious “Felix Unger” type of guy who quietly and obsessively cleaned his place when we weren’t looking.

I quizzed him further on his cleaning person and realized this could be one part of the solution to the Income Inequality and Minimum Wage Debate.
First of all… My Friend’s cleaning lady was not some young shapely woman clad in a tight black and white uniform. And she most certainly was not a character out of Dowton Abby. She was a middle-aged jeans and sweatshirt wearing busy-bee focused on making fast work of cleaning every corner of the house. She did a great job and was done in two hours. That might not seem

like a lot of time to clean a four bedroom/five bath home but she is a professional with all the right tools and no distractions.

Wecandoit

So how much does this cleaning woman make and what does it have to do with Income Inequality and the minimum wage?  Stay with me on this math. I guarantee you will see a payoff.

My friend’s cleaning lady makes $100 for each visit. She spends plus or minus two hours working at a very fast pace.

Okay so let’s look at the numbers here….

Now lets look at some of the other practicalities… Taxes!Basically she is making $50/hour. Well above any minimum wage. Some might say that just dividing her cleaning fee by the number of hours worked may not be accurate. So then lets say she only does this one cleaning job that day. Then divide her $100 fee by eight hours. That comes out to $12.50/hour.  Well above the minimum wage in most states and localities I know of.

Pictures-of--The-Cleaning-LadyWhen my friend paid his cleaning woman he handed here a crisp new $100 bill. The transaction was between him and her. Uncle Sam and our wonderful representatives in D.C. did not seem to be part of this transaction in any way except that they printed the currency used. I am assuming that this hard working woman probably is not keeping records at a level satisfactory to the Internal Revenue Service or her State/City/Local Taxing authorities so they are not going to get their “fair share” of her hard work that day. This means that her $100 is equivalent to somewhere around $125 earned in a regular W2 reporting job.

That brings her hourly up to $60/hour or in my worst case where she only does this one job a day she is earning $15/hour.

Minimum-Wage1If that $15/hour number sounds familiar it is the dream number hourly fast-food workers have been fighting for. While they dream, demonstrate, and complain this cleaning woman has found her solution on her own. And she is her own boss. She sets her own hours.

But could her real bottom line look like?  This next part may not make a few college graduates living in their parent’s basement too happy.

If this Cleaning Lady is even 10% as good a business person as she is at cleaning houses she probably has three cleaning gigs a day for five days of the week for a weekly tax free equivalent take of  $1,800 or around $93,000 a year. And my friend tells me she did not go to college so she doesn’t have and crushing debt to pay off.

The-Cleaning-Lady-Now the what ifs to think about….

What if the government used the tax system as an incentive for people to do more of these kind of cash-for-work type of jobs? What if there were some type of internet service to match people with jobs to do with those willing and able to do them? Something like TripAdvisor with ratings and recommendations.

And… Do you think the possibility of making $93,000 a year might get an unemployed college graduate out of the parental dungeon?

What about possible unintended consequences?

I’m sure there could be many unintended consequences but the first that comes to my mind is that as hordes of fast-food workers discover the joys of working fewer hours for much higher pay the supply of fast-food workers will drop. And as that supply drops those wages will need to increase on their own. Everyone could win here.

Quick your minimum wage job and get one of these?

Quit your minimum wage job and get one of these?

Oh by the way… If you think that $93,000/year number is a high… When this cleaning lady drove away she was in a bright shiny new red Corvette. When I commented to my friend he said, “Oh did she drive the Corvette today? She has a black Range Rover and a Ford Pickup, too.”

 

What’s really going on with Income Inequality anyway?
It may take a year to find out.

incomeeq1-21-2014aThis whole subject of Income Inequality has been stewing for a while. It seems like most of the noise is cooked up just to get attention. The problem is that people may be getting all fired up based on news papers trying to create headlines that sell more papers.

Inocmeeq1-21-2014b

Or maybe what’s really happening is more sinister than anyone could ever imagine. Sort of like that NSA phone hacking thing really being worse than anything you would see in a bad Hollywood movie thriller.

Well… Now that I have cracked the formula for the perfect omelet 2014 seems like a great year to dive in and see what I can uncover on the Income Inequality subject.

Death-of-the-Middle-ClassEspecially as things get louder and sides start to form based on what could be inaccurate facts. But don’t worry I will still keep working on the Perfect Low Glycemic Bran Muffin formula. No use derailing that effort. You can actually eat muffins while money is largely not edible.

DTAbbyAlso… I have been watching Dowton Abby lately (just started watching season one on Amazon Prime – Thank you Jeff Bezos)  so it looks like this Income Inequality is not really something new. The residents the Abby all look pretty capable so as the season unfolds I hope to learn more about why they seem to need over twenty people to take care of the family of five. And that does not count the grounds keepers, barn help, and the IT guy who keeps their WiFi running.

Is Internet Sales Tax Just a Costly Diversion?

InternetSalestaxWhen in doubt the people in Washington seem to always default to “tax the people” mode.

Years ago when Internet commerce started the kind people in Washington decided to waive sales tax for purchases made online. How nice of them. They claimed they were doing it to help promote business over this new fangled thing called the World Wide Web.

That’s what they said but what right do they have to layer another tax on the people?

The reason your local retail stores should charge sales tax is because the local government needs to spend extra money for police, fire, roads, etc… to support that storefront. They really have not right to levy a tax on some Internet based merchant across the country. They are not incurring any additional expenses because that merchant happens to sell you some product.

Another complaint is that online stores that do not charge sales tax pose unfair Isalestax2competition for local stores who do charge sales tax. I don’t think a sales tax of 1% to even 10% will keep people from buying products from their local stores. But a few things that will keep them away from their local stores could be; lack of product selection, nasty store clerks, non-unique products, the trip to the store (just to find out they don’t have what you want), and inconvenient store hours.

So if this Internet tax does go through then what will those less than sharp local retailers have to complain about. Will they expect congress to limit the selection and service online retailers offer? Will they ask for disaster funds to hire and train competent employees?

itaxes3Here’s what it comes down to… At 2:14 AM I read an article in the paper about a new book that sounds interesting. I want to own the physical book so an electronic version will not work for me. I am not going to jump in my car, find a book retailer, deal with arrogant staff to help me find the book then drive home. I am going to do what most people would do. Take less than one minute to order the book online and be happy when it sows up on my doorstep in a day or so.

This is what Internet retail is all about. Convenience and service. Tack on a few extra pennies in taxes will not stop me from buying online. But it will open the barn door on even more taxes.