Economy Number Games

I got an email from an old blog I commented on and it brought up a stirring to write…

http://modeledbehavior.com/2010/07/22/income-inequality-a-deeper-look/

The article speaks to the Number Games for certain. The comments interestingly reveal the problem with trying to find hard social facts from numbers.  My comment is on the comment of another who, in my view, isn’t seeing the forrest for the trees. It is an odd world we live in. Another commenter suggests the average man has income inequality because  we’ve added the cost of electronics to our budgets. Modern electronics replace former costs of tv’s, land line phones, postage, and reduces inefficient transportation expense. It should be held at arms length when people who have jobs and higher education attempt to analyze the economic world of those less fortunate than themselves. And somehow their numbers are valued more than the opinions of those experiencing the pinch. Legislators have lost their minds. What sense does it make that state budgets killed teacher jobs and now they are being brought back with a jobs bill?  Those jobs should never have been cut in the first place. I’d like to see a chart of the amount of money state budgets have required be cut from privatized functions. If I was a bettin’ woman I’d say they didn’t.

11/7/2010

I have linked some not so light reading here… a couple of articles I came across, about a week apart, but really got me thinking about the largess of what we are dealing with and why choosing to rescue free market businesses over individual people is problematic… I wish the experts would stop prediciting things and get it right!

The Haves and the Have Nots

And then consider where the funds have gone, exactly…

Follow the Money

For the 3 trillion we’ve already spent, every American could have otherwise received a check for over $9500.00 What would you have done with it? Personally I would have paid off some debt. Bonus… Bank gets their money. TARP is essentially the trickle down practice of economics and complete garbage. At every turn economic theorists cannot conceive of giving “the people” back their own money, it would seem the taxpayer is not to be trusted.

LIVING WAGE

12/7/2009  

     I have been thinking a lot about Middle Class America and it’s importance in  American culture.  I have some issues with the constant repeal of living wage debate in our legislative bodies. Living wage is the idea that the minimum wage is one  that actually covers basic needs or that a single person can actually live on… not a bad thing. The problem, some business or economic intellectuals argue, is that increasing minimum wages creates increases in consumer prices, creating an unending cycle. This is absolutely flawed. If a business lobbies the government to “say” it can’t afford to raise the smallest wage earner and then in the board room, votes to inflate the highest wage earner, they are self-serving and full of shit. By their logic, the cost of executive wage increases would get added to the consumer price as well, and clearly they haven’t been afraid to do that over the last several years!  Hmmm…

So I got to thinking about how in my Oct 2008 post below, and in all my calculations, I never looked at minimum wage as any guidepost for the average household financials.

Here are the numbers, assuming  full-time (50 weeks/yr of 40 hrs/week) for two workers in the minimum wage household…

Year *Min. Wage $/hr* Median Income*2 Earner Min Wage Income     1968            $1.60                      $7,740.00                       $6,400.00                    2008           $6.55                    $50,233.00                     $26,200.00

I think the numbers speak for themselves. In 1968 a min. wage household almost made the median income, in 2008 they make about half the median income! A living wage, suggested at $11, would bring a two earner min. wage household to $44,000 a year…better.  As a small business owner I refuse to pay people minimum wage as it currently stands (7.25/hr), I know that’s not enough in my community.  Minimum wage was introduced in 1938 for good reason, because businesses asking people to work without proper compensation is tantamount to slavery. People who can, must work… business paying a wage that does not sustain living is wrong.  Minimum wage must be in place to ensure civility, the Fair Labor Act also outlawed child labor, thankfully. Businesses must not be allowed to run rough-shod over their workers…the very resource of their incoming funds! Clearly in the other direction (think UAW union), workers will try to negotiate to be paid for doing nothing.  Both the worker and business sides have valid points to make, both sides also have abusive extremes. At the end of the day, the government should always be there to stand up for the individual with a position based at the very least on the true cost of basic living!

Clearly a year later from my prior posts below usury laws have yet to be changed. Lots of people are right at this moment are opening mail and finding a change of terms sheets informing them their interest rates are going up or their credit lines are dropping in February. The Middle Class are being enslaved further by banks. They are out of control and something has to be fixed.  Consumer protection failures and active wage suppression is clearly at play.  Middle Class America…you are being attacked.

MIDDLE CLASS AMERICA

1/30/2009

I am thrilled to hear the words spoken on this issue by both Obama and Biden. As an small business owner/operator and artist, and I consider myself middle class although my households’ income falls below the median income of fifty two thousand a year. Middle class issues are health care and its exorbitant rates, the loss of consumer protection in the financial and insurance sectors, and rising costs of energy and education beyond the growth in income. Low interest rates do nothing for those who cannot afford to purchase a home. Credit card rates are higher than mortgage rates, many Americans pay over 15% interest some as high as 32%. Usury laws must be revised and state exemptions must be carefully reviewed to ensure fairness in lending and credit for all Americans regardless of headquarters location. All Insurance becomes a pyramid scheme when motivated solely by profit and not human need. If every policy holder needed help tomorrow, insurance companies could not provide the level of coverage they promised to everyone. It’s a statistics game.
Generally, the privatization of government functions over the last 40 years has shifted motive and abuses have been allowed to take place in many arenas. We extol the virtues of the work of non-profits because there is an inclusive goal of improvement and filling community need. Our government is invested by us to act as a non-profit with a focus on the American people as beneficiary, after all, we create the funds our government plays with. Consumer protections must be taken seriously.
 I must say I am concerned about all this quick spent TARP and other Funds, not put back in the hands of the taxpayer, instead pumped into slow lumbering corporations that already have (but refuse to use) exit strategies built-in to free enterprise. Sustainability is the cap stone of a free market economy, in that capitalism only works when consumers truly have the power to kill a business. Every household could have received more than $7,000.00 for the same expense in funding budget. For many people it would pay a year of mortgage payments, pay down expensive debt or pay for medical expenses, and otherwise provide savings/spending for everyone. If the businesses needed government assistance because homeowners were defaulting, how many people could the government have kept in their homes while also sustaining the customer base for these big companies? I work hard in my business, when I have to tell my employees that they aren’t getting a bonus while I cut my pay, then hear that executives of bailout recipient companies are getting bonuses on top of pay increases and not changing wasteful spending. Disgusting. Executive retention?! Why are they worth keeping? They are not victims of their business, they are responsible for it, and the captain must go down with the ship!
In order to control the beast that is corp. officer compensation while gaining valuable tax revenue, the government should remove the caps (in tax) for FICA, let it be a simple percentage of the dollar amount earned, a flat tax if you will. It’s currently 7.65% of a person’s income if they make $102,000.00 a year or less. (And don’t forget your employer matches the dollar.) So the person making 4 million a year is contributing the $7803.00 the same as the person who makes 103 thousand a year. How can you ask one person to contribute 7.65% of their income and ask another to only pay .2%? Respecting human life requires a priceless attitude when it comes to health. We should all be just as valuable as each other, refer to both the Constitution and the Bible to understand this concept. If a millionaire can’t afford to contribute 7.65% of their income, how can you ask anyone else to?
Understand that the spending in the government is huge dollars, but the line items on those budgets must be revised and prioritized according to “people first, then money, then things”, as Suze Orman likes to say, and she’s 100 percent right, morally and fiscally.
I hope Obama can cope with the rigors of the office of President. I sometimes feel like Bush did this on purpose, squeeze the last possible dollars out of the system for his buddies…and then leave the next guy to fix it. A giant “fuck you” if you will. Good luck President Obama.

LIVING WITHIN OUR MEANS

penned  10/20/2008
Recently I read a letter to the editor of Mountain Xpress, from a person who suggests that we no longer spend wisely, or live within our means, and instead recklessly rack up debt to afford our lifestyle. While it is easy to blame an individual in specific circumstances like the retail therapy patient or shoe-aholic, I do not think we are as frivolous as the writer thinks. I wanted to learn more about what “living within our means” means for the average American and why it seems hard for us to do it in this day and age. With this financial meltdown, everyone is pointing fingers at everyone else. Some blame the government or Wall Street, banks and creditors, others blame the individual. Historically, individuals are far more conservative with funds than governments or businesses tend to be. This current crisis began with the claim that “too big to fail” banks were going under because of sub-prime loan defaults. The fact is 75% of subprime loans continue to be paid on time. These banks chose the terms and path along which the average American would acquire a home loan. Companies that claim bankruptcy still have assets. Now we have our government throwing money at the problem instead of taking the time to analyze and think. If businesses are “too big to fail” is our government “too big to fail”? If this crisis is so complicated that our financial leaders don’t agree on a solution, how is the average American to understand?

Since living within your means equals the B word, I researched budget calculators and tried to make a composite of what the budget guru’s recommend. What a flummox! Depending on whom you talk to or where you look, there is not one definitive budget. Those from debt counselors and financial advisors vary widely and most budget calculators’ percentages add up to more than 100 percent. Most calculate between 82 and 147 percent, which I think is truly disastrous. How can anyone understand budgeting advice with a disclaimer that categories do not add up to 100 percent? Here are the categories with the % ranges; savings 5-20%, housing 20-35%, utilities 5-10%, food 5-20%, transportation 6-20%, personal/clothing 7-10%, medical/health 2-10%, recreation 5-10% and charitable 4-15%. Any household budget must include all the realistic expenses required to survive while staying within the framework of their income. The best approach to budgeting I found was from a guy who suggests only five categories; needs/commitments 60%, wants/fun 10%, long-term savings 10%, short term savings 10% and retirement 10%. Personally I like the five categories idea, needs and commitments category includes whatever fits your life, the rest is for savings, the future and fun stuff. It feels easy, and that is the best place to start when making a budget.

To find the budget for the average American, I looked up median incomes, median home prices, and other data for the average Household; all of which are available through government websites. So let’s look at the needs category of 60%. Most would agree the average household (or any human for that matter) needs food, water, shelter, clothing, transportation, health care, education and art/religion. I suppose that the funds from the wants /fun category could combine with the needs category to give the budget extra funds, but as we know all work and no play make Jack a dull boy. Living within one’s means should mean that we have room for life and living. In 2008 the average household earns $50,233.00 a year. A proper budget will allocate $30,150.00 a year to pay for all their needs. $5,023 for fun/wants and the rest for savings and retirement adding up to $15,060.00.

So since homeownership is at the crux of this “living within our means” crisis, let’s have a good look at costs for shelter and what has happened to our ability to buy a home while considering we must live within our means.

A few years ago I remember hearing about 0 down payment loans or 100% financing and thought it was a mistake to allow people to have a home without first saving some funds. The standard down payment is 20% of a house’s value, so perhaps lowering the down payment to 10 or 5 percent would have been a better idea than no down payment. There is no question that banks had dollar signs in their eyes and never thought for a moment about the financial impact of a borrower without the ability to save before becoming a homeowner. If you can’t save anything, not even 5%, how will you be able to pay for the new roof, furnace or other home upkeep? I am sure those who wanted to buy a home and could not accumulate a down payment were not attempting to get something for nothing as many would imply. Instead, they ended up getting nothing for something by paying interest only and gaining zero equity for the few years they could afford the loan. The secure feeling of being a homeowner was their motive and we cannot fault anyone who has those feelings, it human to need shelter. The banks simply should have known better, they are the financial experts and it is their instruments they are selling. Even when you go to a carnival you have to be “so many inches tall” before you can ride the rides. While I am sure carnies would love to have the extra income from the littlest ones, there is a reason why there are qualifications to ride. It should not be up to the rider to know what those safety pitfalls are; it’s up to the carnival to know what they are selling and inform their customers. What happened to consumer protections?

In order to compare where we are we have to look to a time prior, I picked forty years, 1968 because it seems long enough ago to be a “different time” and not so long ago no one remembers it. In an effort to simply examine all the points of home buying on a budget let’s assume that the average household saves a modest 5% of their income for a 20% down payment on a home. Let’s also assume that with their down payment they qualify for a loan and get a 30 year fixed rate mortgage in order to keep their payments affordable. This is the traditional, safe, sound way of buying a home.

In 1968 the average household made $7,740.00 dollars a year. The average home price was $20,100.00 and the average interest rate was 6.75%. The average household in 1968 would need 10 years to save for a down payment, and once they got a loan they would spend $104.00 a month, or 16% of their income. In 2008 the average household makes $50,233.00 a year. The average home price is $203,000.00 and the average interest rate is 5%. The average household today would need 16 years to save for a down payment, and once they got a loan they would spend $872.00 a month or 21% of their income. Wait a minute, what happened? Why does it take us 6 years longer and cost us 5% more to secure a home than it did 40 years ago. Let’s assume that the average household starts saving at 18 years old. In 1968 they would save and pay for a home by the age of 58, four years before retiring. In 2008 they would save and pay for a home by the age of 64, two years after retiring. What does this mean for the future average household, will it take them 70 years to save for and buy a home? At what point does it no longer make sense to even try to buy a house, if you die before you can pay it off? Is there something flawed in my simplicity?

Perhaps the gap is not caused by the price and financing of a home but in the buying power of our income. Perhaps this only shows us that our incomes have not kept pace with cost of living. What happened to our income? Let’s compare average executive compensation with the average worker compensation for 2008 and 1968. In 1968 the average executive made 24 times their average worker, or the executive made in one day what the worker made in one month. In 2008 the average executive makes 50 times their average worker, or the executive makes in one day what their average worker makes in two months. This is the average mind you, as we have seen in the news; some executives get paid as high as 275 times the average worker! American executives are the highest paid in the world bar none. The average Japanese executive makes only 25% of an average American exec. In Canada, the average exec. makes 50%. Why are our executives so overpaid? What should the average household do about this, not go to work or maybe work for themselves? But I digress.

This article is about living within our means and whatever the reason is, average housing for the average household costs 21%. Now this does not include utilities like electric, heat or water, maintenance, property taxes and flood insurance, so let’s assume that the yearly cost for all that is another 9% or $4520.00 a year. So the cost of living in your own house is 30%. Half our budget for needs is gone. But it seems to fall in line with most budget calculators. We still have to eat, have transportation and health care.

Let’s tackle health care first; we can eat beans and rice and ride a bike. If you are fortunate enough to have employer provided health care, they help cover half of the expense. If you aren’t, the average household is paying for a policy that costs about $10,000. This is an average policy that has a high deductible and does not cover vision, dental or prescriptions. Lord, help those with preexisting conditions. I went to several “compare a policy” sites and they only got more expensive to cover everything or got cheaper but covered only catastrophic costs. Independent health care costs 20% of our average household’s income. Let’s hope that the average household has health insurance through their employer and their cost falls to just 10%. However, if they end up needing to pay their deductible ($5,000.00), that cost will rise back up to 20%. And if the independent policy is used and they need to pay the deductible, their health care costs could soar to 30%. Bye-bye to the rest of the needs budget, yikes. I tried to find health insurance statistics but the only information I could find begins in 1988 and it doesn’t cover cost related info. I wonder why.

Okay… housing 30% plus health care 20% equals 50%, which means the average household has 10% left or $5023.00 to eat and get to work 5 or 6 days a week for one year. Transportation is an expense that depends on where you live, what you do and how you do it. If you live in New York City you are likely to not own a car and take public transportation. If you live in Los Angeles you are likely to have a car and drive long distances to get to work. With the millions of cars driving around on the streets let’s assume the average household needs at least one car to get to work. Budget calculators range transportation between 6-20% Hopefully the average households paid for this car with their short term savings and do not also have a car payment. If they do have a car they either bought an old cheap car that gets terrible gas mileage or an expensive new car that gets terrible gas mileage. In Europe cars are mandated to get higher gas mileage than in the US. You can’t blame an “addiction to oil” on the average household, because the available technology doesn’t give them a choice to reduce consumption.  I was in England recently and the Land Rover SUV got 45 miles to the gallon. Yup, it’s true, I checked and double checked. Now it was different in that the car body was narrower than one you’d find here, but just as comfy, everyone had a cup holder and there was enough room for 4 peoples’ luggage. Where is this car in America? Why are the Land Rovers here only good for 18 mpg at best? Why don’t we have a choice? Again I digress; it does nothing in real terms for our budget. Assuming that in order to stick to their budget the average household can only spend on the low end 5 % $2511.00 a year on transportation, or $209.00 a month for gas, oil changes, inspections and insurance. Repairs will have to come from their short term savings. That leaves 5% or 50 dollars a week for food for our average household or $7.14 a day. No eating out for them, beans and rice it is. Already they have spent the entire needs/commitment budget and they haven’t bought clothes, shoes, soap, or a toothbrush. They haven’t tithed their church or bought birthday gifts.

So let’s figure out how much money we have left of our average income. Housing- 30% plus Health care 20%, plus transportation 5% and food 5% equals 60 percent.

 Add clothes, shoes, soap, a birthday dinner out and car repairs- 10% That’s 70% We’ve busted our Needs Commitments percentage and sucked up the wants and fun, dang.

Plus education or early child care-5%, plus charity 5%, now we have spent 80%. That leaves 20% for savings, retirement, and the ever mysterious miscellaneous.

 In order to save funds for retirement let’s assume a modest 10% ($5,023.00 a year) in the budget. Let’s also assume that our average American saves 5% for a long term savings. Now we have spent 95% of our budget. But wait there are more bills to be paid. What haven’t we paid for yet?

Oh right, vacation, gifts, leisure activities, well…we’ll see. What else? Uh visits to the dentist, life insurance, right, I forgot about that, oops. Take prescription drugs? That might take a bite out of things. Now what else do you need to pay for if you are an average household? Ooooh… credit card debt, never mind…  any remaining cash will easily be sucked into paying off credit card, maybe even more than that, sucking up potential savings and retirement dollars. YIKES we are flat broke. But we will survive, that’s what people do. It’s just money. In this scenario the household has middle class income, but half the households live under this median amount.

I think we have created a new world order where the costs of basic living are getting too expensive. Who the “we” is depends on who you ask and how you look at the world, I guess. Ultimately, the problem is that we cannot collectively as humans allow the cost of basic existence on this planet more than what an average human life can afford. Churches travel all over the world and build schools and hospitals, help find clean water sources, feed the hungry, actions that insure the basic survival of the people. Governments are similar to churches in that we all tithe our government (taxes) in exchange for expenditures on our behalf. Clearly the largest problematic segment of the average households’ budget is insurance at 30%. The privatization of insurance has created greed not tempered by the humanity of need. Basic human needs require the protection of leaders in order to maintain a civilized group, hence the word government. The questions of whom what where when or why about governments is beyond my scope for today.

Living in our means is important, in both discussion and practice, but only when there is enough income to pay first for the fixed cost items you have little control over, such as health care and housing. The problem we face today is bigger than one individual household’s ability to exert force on this failing economy. We must be wary of blaming each other as individuals when we are talking about sacrifices for balanced budgets. There clearly are forces at work increasing the cost of living beyond acceptable limits for the average household. We have to make choices and it is clear what sacrifices people are making. We have record highs of 47 million uninsured. We have foreclosures and defaulting loans in record numbers. Savings at all time lows. We can’t remove eating from the budget, so we scrimp and bargain hunt as the cost of food rises to record highs. Charities beg and plead for donations, while the average household feels terrible about having to say no. Restaurants and retail sales are hurting, while oil and gas companies are thriving. Is all of this because true market factors are at work or is there manipulation, price fixing, and wage suppression occurring? Who or what has warped the true cost of human survival? Should we be more concerned with a balanced budget than the line items on that budget? What if the average household did not pursue owning a home? What if the average household was paid properly and fairly? What if executives had caps on their ratio percentages thereby creating incentive to bring everyone else up in order to increase their own pay. What if the average household lived within their means because it was possible to do so!