Tag Archives: economy

Is Income Inequality Necessary?

As we get into the thick of election season, it becomes apparent we have two Americas — the Trump ‘merica, and the Sanders America. Everyone else falls somewhere in between. Trump’s success stems from his “I don’t give a shit” mentality, offering solace to those angry over years of political correctness getting them nowhere – he wants to “make America great again.” Sanders offers a voice to those who see corruption – legal or not – causing greater inequality and the downfall of our country.

Who’s right?

I’m bi-economical. I’m a socialist and a capitalist – but neither at the same time. Socialism sounds great, until you realize how that limits the opportunity to work hard and get ahead. Capitalism, however, requires inequality. It provides the opportunity to get rich, but that opportunity is light years away for those who didn’t inherit wealth, or work hard and due to a mix of luck and tenacity and good timing make enough money to catapult them into the upper echelons of society. Old money versus new money.

There is no right, persay, but we can look at which countries are happier than others, and how that relates to inequality across their residents. In this Gallup Poll and the World Top Incomes Database, the point is made that in countries with the biggest income gaps between rich and poor, the middle class find themselves unable to afford some simple luxuries like private schools and a house in a good neighborhood.

 

Obama decried income inequality this week in his final State of the Union address. The standard Democrat message — support a thriving middle class  — was front-and-center in the speech.

“Companies have less loyalty to their communities. And more and more wealth and income is concentrated at the very top,” he said. These trends have “made it harder for a hardworking family to pull itself out of poverty, harder for young people to start on their careers, and tougher for workers to retire when they want to.”

Many blame Silicon Valley as a leading source of furthering income inequality. A 330-page report by the World Bank released on January 14 notes that “the economics of the internet favor natural monopolies, the absence of a competitive business environment can result in more concentrated markets, benefiting incumbent firms. Not surprisingly, the better educated, well connected, and more capable have received most of the benefits – circumscribing the gains from the digital revolution.”

I know that income inequality is at play in America because I’m in the top 5th of income earners and am in the fourth quintile (of five) of all U.S. households in terms of my networth, and still I am unable to afford a home in a good neighborhood or to send my “future” children to private school, should I want to. If I feel this way, I can only imagine how the rest of America feels, outside of the .01%.

Paul Graham, a prominent super-rich Venture Capitalist went on recently about how we need income inequality. “You can’t prevent great variations in wealth without preventing people from getting rich,” he wrote in an essay that went viral online last week, “and you can’t do that without preventing them from starting startups.”

Starting in the 1980s, a gap has been widening between what the best-paid Americans earn and what everyone else in the country earns. Economists Barry Z. Cynamon and Steven M. Fazzari shared in a new paper that “Rising income inequality is now a significant barrier to economic growth and full employment.”

I’m worried. I’m worried about the future of America. History has proven that income inequality, when let go for a long time, causes big problems, even civil wars. And in 2016, lower pay for the poor is causing an even wider income gap.

Since the late ‘70s, most of the growth in workers’ earnings has gone to the people who have made the most money. To be precise, the wages of the top 1 percent of workers have grown 138 percent since 1979, while the wages for the bottom 90 percent grew only 15 percent during that period. Yikes. This especially hurts our social security system, which underestimated income inequality, making higher income earners pay a much smaller percentage of their income in social security tax than lower income earners.

This is a huge problem since the number of seniors will double by 2060. If we think income inequality is bad now, it will only continue to get worse.

I find my idealistic side wishing we could get rid of money altogether, but my realistic side worried about creating a decent life for my future family. Where I live, it certainly feels like the only way to do this is to have a household income in the 1% ($400k+) per year, and even that is really just “upper middle class” here. Achieving that is very challenging. It’s much more likely that I’ll be priced out of Silicon Valley as I decide to have a family, and I’ll drop into a lower household income level to be able to afford a middle class lifestyle somewhere else.

 

Middle Class? Not So Fast. A Tale of a Downwardly Mobile Society

With election season starting to heat up, so is reporting on the so-called “middle class.” Apparently, 9 in 10 Americans consider themselves “middle class” (I’m no math genius but something tells me medians and averages don’t work that way.) Given most Americans are middle class in their minds, and middle class today isn’t what it used to be, in short, everyone is freaking out.

Ok middle-class math, why does America hate you so much?

“The middle-class label is as much about aspirations among Americans as it is about economics. But a perspective that was once characterized by comfort and optimism has increasingly been overlaid with stress and anxiety.” — Telegram

I see. So most Americans aspire to be middle class, as everyone has been sold this dream of working hard to get the basics in American life — a decent house, backyard, education, healthcare, maybe vacation once a year. No one is expecting to afford regular Gucci on a middle class income. We were just all told work hard and you too can be middle class, and quite frankly upwardly mobile from your parents lifestyles. Yet, even if you’re doing exactly the same thing your parents did, you’re actually worse off today. No wonder we’re all anxious.

“A recent report from economists at the Federal Reserve Bank of St. Louis concluded that “families that are neither rich nor poor may be under more downward economic and financial pressure than common but simplistic rank-based measures of income or wealth would suggest. The study, conducted by William R. Emmons and Bryan J. Noeth, found that one reason many Americans viewed themselves as struggling was that their real incomes had not advanced significantly beyond their parents’ even when they reached higher educational levels, while those who matched their parents’ achievements were actually worse off.”

The New York Times published an article this week titled “Middle Class, But Feeling Economically Insecure.” That headline, brilliant, sums the middle class anxiety up to a T.

Continue reading

OMG: 36% of Americans Have NO Retirement Savings

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The concept of “retirement” always seemed a bit funny to me — after all, why save up all of your recreational time for the years when your body is expediting its rate of decomposition? Retirement wasn’t always a thing just as engagement rings were not always a thing (read a good recap of how retirement came to be on The New York Times.)

It turns out that when you’re older, keeping your mind and body busy with work can help you live longer (no really, it’s proven that retirement has a detrimental effect on health in old age.) Research from the Institute of Economic Affairs and the Age Endeavor Fellowship found that both mental and physical health can suffer — increasing the likelihood of clinical depression by 40% and having a diagnosed physical condition by 60%. That said, not everyone has the luxury of working until they kick the bucket, even if they wanted to, and even if it would be better for them statistically speaking. Between disabilities caused by your body slowly falling apart and the fact that many employers just don’t like old people, most employees stop work well in advance of the time their soul peaces out.

For “us millennials” we have this opportunity to determine what we want in our retirement or non-retirements, to at the least have a choice that many boomers now don’t have because of the great recession. Continue reading

Holy Cow: 1 in 5 Millennials Living with Parents

Today The New York Times posted a piece “The Boomerang Kids Won’t Leave.” Apparently one in five people in their 20s and early 30s lives at home today. And 60 percent of young adults receive financial support from their parents. Despite the challenges I’ve faced in my career, I know I’m extremely fortunate to have been able to… boomer… without the rang.

Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000. Student loan debt is frightening. I’m a privileged spoiled brat. My parents paid for all of my overpriced, mid-tier private school BFA and a ridiculous amount of expensive art supplies along with the typical library of never-look-at-again textbooks. While I picked up a very part-time job in college at my school (because I didn’t like feeling that spoiled) the reality was the little money I made barely covered, well, not much at all.  Continue reading

America’s Most Stressed Generation

In today’s latest bit of depressing sociological discovery by The New York Times, reporter Catherine Rampell highlights what personal finance bloggers have been saying for years – college degrees are the high school diploma of years ago, but the cost for the degree isn’t fairly matched with the proper career and salary.

The article features a law firm in Atlanta that has a policy to only hire employees with college degrees, even for the $10 per hour “runner” job that really shouldn’t require a college education to perform. Due to diploma inflation and weak job markets, it’s easy to make the cut off for consideration in any role a degree. The firm agrees the education isn’t really necessary for the positions, but the social life gained in college to joke about school sports teams is. How sad.

In 2005, when I graduated college, the job market was better than it was today. I still had a very hard time finding a job, but refused to settle for an administrative position which took the four years of schooling I had just completed and rendered them useless. Luckily, I had the fortune of changing jobs frequently early in my career and moving up with each transition. These poor college grads working at this law firm are loyal to a fault, and are excited for small raises being promoted from one position that shouldn’t require a college degree to another. These are the same people who need to go back to school to get an MBA or professional masters degree in order to make any sort of reasonable living. The bachelors degree just gets them a very basic job. Continue reading

80 is the new 65: The Fairytale of Retirement

Have you heard? A new survey came out that shows 25% of middle class Americans say they plan to delay retirement until at least 80. Given the average lifespan of a human is 78 years, that’s basically saying a good chunk of Americans are sure they are going to have work every day until they die.

The Wells Fargo retirement survey also shows that on average, Americans have only saved 7% of the retirement money they hoped to put aside. Yikes. One-third of those surveyed in their 60s had saved less than $25k for retirement.

Of course the study is by Wells Fargo, a bank, designed to scare you into investing your money (with them) so you’ll have enough saved for retirement. But the facts are striking — with the disappearing middle class and lack of salaries keeping up with inflation, it’s tough for most Americans to imagine a real retirement for many years to come. Continue reading

Making Sense and Losing Cents of the Economy

Like everyone else who has a dime or more invested in equities, I’m concerned about the future of the stock market. Whenever the market looks so bleak, everyone is concerned. And that’s usually the best time to invest. Yet with my yearly investments becoming more sizable, this feels a lot like Las Vegas. Even with diversification, it doesn’t help when all (or most) stocks are on red.

After receiving my paycheck for the past months and reimbursed expenses, I realized that I’m sitting on $16k liquid in my checking account. Part of me hates writing about this because I know I’m so lucky to have the luxury to ask the question “where should I invest?” But this may also be a temporary income boost and I want to invest wisely.

Yesterday, I pulled out my social security statement and studied my yearly income since 2002. Other than last year, I made somewhere between $0 and $25,000 each year. Last year, I broke $60k for a full year’s worth of work. This year as of Sept 1, even with 2 months of unemployment (unpaid), I have earned around $70k this year. And with the way some contracts are shaping up, I expect to make an additional $10k to $30k by the end of the year. So now I face the unlikely problem in a time of economic crisis – what do I do with all this money?

The easy answer is: spend it. Not on wasteful purchases, but things that I need or will need soon. I could buy a new car, or a “new” used car. Or I could invest in property somewhere (though that requires stable long-term income, which I am not confident I’ll have, especially with my plans to go back to school in the next two years.) So where do I put the excess cash?

I’ve already maxed out my IRA and will, within this month, max out my 401k (no match, bummer.) I will likely put another $2000 in my HSA which is invested in very low-risk funds. My IRA is in Sharebuilder and I bought 5 funds – the gold ETF, the silver ETF, two high-dividend ETFs and a REIT ETF. My 401k is invested in a mix of equities and bonds, and I’m not clear what is in it exactly. With a large chunk of my savings this year going into my 401k, I’m concerned that in the next ten years we’ll have deflation, high taxes, and my 401k will turn to mush.

But I’m willing to take that risk with $16.5k because it could be a very good time to invest as well. I’m just not sure I can stomach taking that risk with more money. Not without understanding the real economic situation in this country and the world. History doesn’t always repeat itself, or even if it does it may take a longer time to turn around. I’m young now, I can handle that, but if the next 5-10 years will be lost decade #2, why should I play?

The whole media fueling the fire is disturbing as well. I can’t tell how much of the stocks slipping these days is all the fear stories about how bad the economy is doing. It’s a domino effect that goes in a circle downward. What if all the news resources lied and said the economy was turning around and there’s a ray of sunshine close ahead? If people would invest and spend money than… well, that seems to be the only way to dig ourselves out of this mess right now. I don’t know if I agree with that, but what else can we do? We need people spending again so companies will start hiring again. That’s how capitalism works, right?

But it will take a long time to trickle down to lower and middle classes. The media couldn’t lie for that long. News would get out that the future is not so sunny. And everything would crash again.

Or you can just – apparently – print money until the cows come home and thus make every dollar worth less and less and less. That can’t be a good thing.

Right now lots of big names in economics are saying that we may have a “double dip recession” or – worse? – a depression… because we never actually recovered from the first recession. I wish I understood economics jargon more so I could make sense of this, this, this and this … and the thousands of other economic gloom and doom stories I’m reading.

Any feedback from those of you out there who are more economically savvy?

Is Capitalism Evil?

I’m a little late to the table on this question, but is Capitalism evil? My boyfriend and I watched the Michael Moore film Capitalism a few days ago and have been arguing since. My boyfriend believes the whole capitalism is evil argument, while I’m torn. It is a system based on greed and greed ultimately equals corruption (because that’s just the way people are), however it’s the best system I know. That’s not saying it’s the right way to have an economy.

If my boyfriend had his way, he’d live in a real communist society. One where everyone really gets exactly the same. His happiness will never come from material goods. He could live in a cardboard box and be perfectly happy as long as he had the freedom to live as he chooses and more importantly that he knows everyone else is equally compensated.

I, on the other hand, live my life squeezing out pennies from my salary, negotiating for higher pay, working long hours at two jobs to earn as much income in as little time so I can put it into the stock market and other less risky savings vehicles and have compound interest hopefully work it’s magic for the future. It’s not that I need a lot of money to be happy… I more so need a lot of money to feel comfortable. Maybe that’s the evils of capitalism telling their story.

My boyfriend likes to compare Hitler killing all the Jews to capitalism, because in a capitalist society you have the super rich and then everyone else is poor, and there’s very little in between. As a Jew, I kind of take offense to this argument. I don’t think it’s the same thing at all. In Capitalism, everyone DOES have a chance to succeed. Not everyone will. Some people do have an unfair advantage. But no one is taking masses of people and killing them in gas chambers. The comparison is unexcusable.

But — I’m not sure where I stand on the whole capitalism thing. If I knew that I could make less money but have stability over the years (a pension, enough to buy a house, live a decent life, take vacations every few years) then maybe I wouldn’t be so set in supporting capitalism. The only way I can see living that life is through capitalism now. Even if I’m able to sock away $50k per year after tax for the rest of my life, it will take me 20 years to become a millionaire. I’ll be 46. That’s not so bad, but that also means that I will need to keep renting an apartment with roommates, will need to keep working two jobs with one of them being for a large corporation that can afford to pay a 6 figure contractor salary, and I’ll have to sacrifice much of my life for work.

At least with the stock market there’s the chance that those 20 years can be shorter, or that I can save less each year and through compound interest have my million or two million in retirement. I know I won’t have a pension. I don’t know how much social security will be around by the time I retire. I can’t lead a comfortable life unless I know I can save money and have it grow.

Ok, so the biggest argument in the movie that I can say my boyfriend and I agree on is that politicians shouldn’t be allowed to be funded by private corporations. That really is just asking for corruption. It doesn’t even help the small businesses because the only companies who can afford to have major influence are the ones who are already super rich.

But I don’t want to live in a communist society. I like making money. It seems that’s the only thing I’m passionate about these days. I don’t even like spending money anymore. The more I make, the less I want to spend, because I’m able to start saving thousands of dollars a year. My goal this year is for my networth to go from $50k to $100k. And what’s amazing is that it’s possible. I’m one of the lucky ones, sure, but I’m still working two jobs. I’m still finding out what my skills are and applying them to roles where I can make a decent wage. I still know that I can lose my job at any second, so I have a sizable emergency fund, and I don’t have debts so if I need to cut back on my spending I could feasibly live off $1,000 a month. I wouldn’t get to save any more, but I wouldn’t be losing money. I wouldn’t be evicted.

Maybe I can’t understand yet because I don’t have a family. I’m sure it’s a lot harder with kids. I have so much freedom as a single person to say I can live on $1k a month. But that’s why I believe in spending your 20s earning as much as possible and saving as much as possible. Living as cheaply as possible. Work hard now, play later. Hope the stock market doesn’t completely crash. That’s my motto. Does that make me a capitalist? Eh, I guess so. Will my boyfriend ever understand? I think not.

Is Materialism the Devil Incarnate?

My fondest memories of childhood involve spending hours in the dressing room at the mall, with my mother bringing in yet another outfit to try on, then leaving each store with a few bags in hand, filled with my purchases for the day.

This is capitalism at its finest.

Are humans born innately greedy? Not all of us want to possess lavishly adorned lifestyles, but accumulating something provides a security blanket, plus something to show to lure in our partners.

My boyfriend has no desire to be rich or to buy new things (except the occasional expensive tech gadget). He wants to save up enough money so he can quit working, live on a commune, meditate, stare off into the mountains, and I’ll admit his lack of motivation to achieve materialistic wealth drives me nuts. Why? Because I am a materialistic person. I was raised that way.

Of course I can change. I can be happy with nothing or very little. I don’t need a new pair of shoes, but lord knows I want them.

All of this, dear readers, is in response to a post over at Get Rich Slowly entitled: 84 Year Old Social Worker Saves $1.4 Million.. The woman was frugal, but only because she didn’t care about fancy possessions. She paid for her house in cash. She drove a 30 year old car. She didn’t care about having the latest and greatest. Those who grew up during the Great Depression tend to live this way. Case in point, my boyfriend’s grandparents, who horde everything they’ve ever obtained, have a house that’s falling apart, drive cars that should be breaking down… any… minute… barely use any electricity, and while I don’t know for a fact, I’d bet they’re worth a small fortune. They worked. They didn’t spend. They saved.

That leads me to a related topic: Dubai. What on earth does Dubai have to do with all of this, you ask? I read a very interesting (and very long) article last night titled “The Dark Side of Dubai” – a controversial opinion piece published in The Independent. Don’t let it’s novel-length scare you, it’s worth reading from top to finish.

Dubai – at least from this writers point of view – is capitalism (minus the democracy) at its worst. Those who are rich become very rich, those who are poor are indebted and end up in jail or are basically unwilling indentured servants. Dubai is a surreal city that has been built to be an adult playground. The party capital of the middle eastern world, no longer an oxy-moron. Shopping malls and hotels piercing the sky. Luxury at its finest.

While Dubai may be an extreme case — if the article is true — this type of upper class gets richer and lower class gets poorer has been going on for decades. Even as I write this, I have workers being paid $2 per hour on the otherside of the world completing projects for me. When it comes down to it, capitalism is about cutting costs as much as possible so those who have can have more, and those who have not never shall have. It’s a vicious cycle. Democracy helps swing the pendulum in the direction of “fairness.” Human rights groups protest cruelty to citizens of the world. People who are hurt by people who don’t want to drive 30 year old cars.

Granted there are many shades of gray when it comes to greed. But we’re all guilty of it. If we weren’t greedy, our society as we know it would collapse. We need greed so jobs can exist. So innovation can occur. Buy now, go into debt, pay later, and on and on.

I’m not caught up in the debt cycle, fortunately, but still feel this strong urge to spend. I drive past the day laborers every day on my way to work – who are likely illegal immigrants from Mexico waiting around for a job. Loitering. They are free not to do this (the main difference between America and Dubai here) but still… when people are hungry, when their families are hungry, they need the work. So they wait. I drive past the hordes of men who look to my car waiting to see if I will stop with a job. I head off to my cushy office and middle class-paying job where I’ll never work as hard as they would between dawn and dusk. I accept my greed, feel uncomfortable spending time with people lacking this greed (my boyfriend) and those who are extremely greedy and superficial (those who just want to make money to buy the world).

I am afraid that the horrors of Dubai and the greed that built the city are within my cultural DNA. I’ll save and I’ll spend, and I’ll use the resources of the world to get ahead. And I wonder if that is so terrible – when so many people out there do this without stopping to think that this whole equation might be wrong.

Generation Y, Let the Recession Humble Thee

Lindsey Gerdes of Business Week asks: Is the Recession Putting Generation Y in it’s Place? Sarah Horne of The New York Post recently penned an op-ed column entitled “A Slice of Humble Gen Y,” noting that the economic downturn might be a helpful wake-up call for a coddled generation that formerly “felt secure enough to brashly knock on their bosses’ doors and demand better assignments, better titles, better salaries.”

Apparently the recession is a much needed wake-up call for us youngin’s.

“The fact that many of this generation’s boomer parents are suffering financially as well could be a positive thing for the youngsters’ sense of self, Twenge adds. “The cutting of the apron strings is in some ways a good development. If a parent is looking at their retirement and saying, ‘I can’t prop up my child’s lifestyle forever,’ it’s a lesson. To have to stand on your own two feet is a good thing,” says Jean Twenge, author the book “Generation Me: Why Today’s Americans Are More Confident, Assertive, Entitled And More Miserable Than Ever Before.”

I suppose that’s true. Had I not fallen into personal finance blogging I’d still be on my merry way to financial failure. The recession puts a new, even crueler lense on the situation. Just because my parents seemed to live their upper middle class life without much stress, with years of savings lost at the verge of retirement – it has me thinking, and worrying, and freaking out about saving.

Then there are my friends who aren’t thinking about saving at all. And I do think maybe this wakeup call is a good thing. But it’s not quite bad enough for the people I know to cause any major lifestyle changes.

I don’t know what it was like for generations before, but given my upbringing and education I do have a sense of entitlement that I’ll easily admit I don’t deserve. That sense of entitlement has also led me to my own wakeup calls – too many failures to name. I’m doing ok now, but it’s still hard. I didn’t grow up in generation “Hard Work.” I grew up in generation “ADD.”

Regardless, I’m glad for this wakeup call. It’s better to have a recession in my 20s then later. I wouldn’t want to be in my 40s with all my life’s savings in stocks, watching it all go down the drain. I now know nothing is secure and even if I work my ass off, a job could be gone tomorrow. So save today, save tomorrow, enjoy the cheap/free things in life, and maybe enjoy the finer things much, much later.

What do you think?