Income Inequality: Top .01% vs Bottom 90%

March 15, 2014

In terms of economic inequality, it's fashionable to talk about the 1% vs the 99%, but even that language may be imprecise when you factor in the excesses of .01%. In fact, it's so bad that even the super-rich 1% are getting left behind by the .01%. The problem though, is that whether you talk about the .01%, the .1%, or even the 1%, it's almost impossible to graph to scale in a bar chart since the bottom 90% -- let me repeat that, bottom 90% -- predictably vanishes into the x-axis. So there's no perspective. Until now.

Enjoy:

Inequality: .top 01% vs bottom 90%

And the uncompressed view:

Inequality: .top 01% vs bottom 90%

Data can be found here for proof of how .01% of the workforce is working 1,000 times harder than the bottom 90% in our system of meritocracy. Keep in mind that everyone is restricted to the same 24-hours in a day. It should also be noted that wealth (not income) inequality is much worse since decades of yearly ill-gotten gains need to accumulate somewhere. I'll try to tackle a project like that in the coming posts. And when I say tackle -- I do mean tackle -- because it very well may require a life-size football field.

"We have to tolerate inequality as a way to achieve greater prosperity and opportunity for all."
~Brian Griffiths, Goldman Sachs International adviser said as his company was planning a near-record year for pay in October, 2009.
So who are the .01%? Primarily executives and bankers, of course. Oh, and by the way, Godspeed


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Inequality: A Rising Tide Lifts All Yachts.

February 17, 2014
Inequality: A Rising Tide Lifts All Yacts

The stock market is setting records. Corporate profits are at an all-time high not in small part because wages are at an all-time low with high (under)unemployment keeping downward pressure on incomes. The past few years have been a boom for Wall Street and a bust for Main Street. Predictably, inequality has skyrocketed to levels not seen since 1929, just prior to the Great Depression. But that's only part of the story. The wheels of growing inequality were set in motion decades ago: stagnant wages and soaring household debt.

What we're told is that workers receive a wage that exactly compensates them for their added value to total output. You know, because free markets are perfectly efficient. In other words, if you make more goods/services, you get paid more. And any deviation from this model -- ie, income/wealth inequality -- means that you're not working hard enough, not skilled enough, not educated enough...or simply not pulling on your bootstraps for long enough to make income magically fall from the sky. If you are one of the 47% 76% of Americans who are living paycheck-to-paycheck, it's because you've not earned a higher living standard. So "just des(s)erts" and all that.

The only problem? It's simply not true. And it hasn't been for over four decades now for anyone who cares to pay attention. American workers have been increasingly producing more and more output per hour and not getting paid for it:


Inequality: Productivity Gains and Wage Stagnation


Ironically, the "free market" model worked between 1948 and 1972 exactly the way we've been told it would. Mainly because of strong unions, full-employment policies, high public investment, and a much higher marginal tax rate on top earners. And then sometime in 1973 we said: Nah, we're not going to do that anymore. Because -- oh, I don't know -- you really were getting your "just deserts". And Mr. Market did not like that. So the gap created by decoupling wages from productivity gains increasingly widened by the decade. And inequality along with it.

So where did the productivity gains go? You guessed it -- straight to the top. There are many reasons for economic inequality, but you can't get there without gains from productivity growth going to our corporate overlords. Given that the wealthy have a much lower marginal propensity to consume, the astute reader will ask how we've been able to grow the economy without the masses having the disposable income to purchase their own output.  After all, a rich household may own 4 cars, but they won't purchase 4 thousand. The answer is simple: super easy bank credit, which a bank creates out of thin air.  

Inequality: Household Debt and Stagnant Wages

As previously shown, total compensation (green line; wages plus benefits, including rising healthcare costs) representing 80% of the workforce have stagnated since the early 70s. Personal consumption (blue line) remained on a steady upward climb as one would expect from a growing economy. Household debt (red line), however, explodes most notably from the 80s on until it hits a brick wall in 2008 for obvious reasons. Then we bail out Wall Street because "shared sacrifice" and "eat your peas", only to be told that "you're on your own" as 95% of economic gains since the 2009 recovery (such that it is) goes straight to the the top 1%. Win/win, Mr. Market! This also accounts for the massive gains seen by our financial overlords, especially since the deregulation of Wall Street in the late 90s (thanks Clinton). 

So now what? Well, politicians would clearly like you to believe that the real issue is way too little Social Security trust funding going on 30 years from now such that benefits need to be cut immediately because -- wait for it -- over the last 30 years a huge share of the nation's economic growth has gone to the top one-hundredth of one percent. They don't mention the latter though. Or that the minimum wage should be lowered to $4/hr from its current $7.25 rate -- meaning an increase of government subsidies for private sector wages -- doing away with all this recent crazy talk of raising it to $10.10, which would create jobs and lift 4.6 million Americans out of poverty.  And you have to pay attention to those that want to decrease the minimum wage because on a different day, usually the next, it's these same people that will demand cuts to government assistance programs that they -- wait for it -- specifically engineered increases to in order to subsidize private sector wages. They don't mention the latter though. 

Or? Or maybe the solution is that rich people's low propensity to consume may not be all that much of an issue after all. The economy is quite capable of, and already is, adjusting to a new consumer landscape that caters to the upper echelon 
In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.
Theoretically, if this trend continues, there is no reason why we couldn't have an economy of primarily low-wage workers providing goods and services exclusively for the rich. Foot massages and car elevators for the 85 people that currently hold as much wealth as the bottom half of the global population; Big Gulps for everyone else.  And I'm only half kidding. As Paul Krugman once said: "So am I saying that you can have full employment based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs? Well yes. You don't have to like it, but economics is not a morality play, and I've yet to see a macroeconomic argument about why it isn't possible."

So America, eat your peas Big Gulps beans since you've earned little else, if anything, according to our overlords. These are tough times, just look at the persecution of billionaire venture capitalist Tom Perkins, who thinks saying mean things about our rigged by-the-rich-and-for-the-rich system is comparable to that of the Holocaust. Oh, and raise the retirement age to 70, says CEO of Goldman Sachs, who was paid more than $16 million in 2011 as just a banker "doing God's work." Even after bailouts, he presses on, self-stapled to a crucifix. 

Look people, a thriving and healthy working/middle class and democratic society doesn't just happen by the "natural forces of free markets" since that outcome is what we'd usually refer to as feudalism; it gets legislated into existence. By you. Because if you don't, someone else will the minute you look away for decades, and it won't be in your best interest. So yeah, free markets government policies ensure that a rising tide really does lift all yachts. Presumably disposable ones so that you'll get the opportunity to build 'em. For like 85 people. All 3.5 billion of you.



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The Sequester™ and Deficit Hysteria: Irrational Fear of Negative Numbers.

February 22, 2013

There's a name for that: Neganumeriophobia. It exists:

The absolute value function was created in 325 AD by 'famous' Italian mathematician Antonio Numero. After a horrific accident during his childhood, Antonio developed Neganumeriophobia, a fear of negative numbers. Despite much risk to his own personal health, he dedicated his professional life to creating a valid mathematical formula which would remove negative numbers from existence.
I give you $1 for goods and/or services. This mean I have ($1), after having paid for said goods and/or services. Done. And I've just explained to you how our economy works. Ta-da! Spending equals income to businesses, income to businesses equal sales, and sales equal jobs. You can talk about GDP in terms of how much our "job creators" have created, produced, "trickled-down", whatever. But you can't ignore that GDP also represents how much was spent. You know, negative numbers. OMG, neganumeriophobia! 
 
For instance, not every country can run a trade surplus. For every trade surplus (+), somewhere there is an equal trade deficit (-). The entire global economy nets to zero. Running a trade surplus doesn't make you morally superior in any way (looking at you Germany and China); it just means you are one side of the ledger. Suppressing wages so you can send your real resources (ie, export Mercedes-Benz and cheap, plastic goods) to other countries in order to keep your population employed is not "superior". In most cases it would be a grounds for war. Creating an economy that can consume its own production is infinitely more difficult than the economic models exporters choose. And it would require an increase in wages (gasp!). Producers (+$1) cannot exist without consumers (-$1). Yet, all we hear about is The-Joan-of-Arc-of-Export-Economies: All we do is give, give, give. And all you do is take, take, take. 

Similarly, every country in the global economy can be divided into three sectors: domestic private sector (households and businesses), government sector, and the foreign sector. By identity, the sum of these sectors must sum to zero (to the penny):
 
Sectoral Balances 

Notice that during the Clinton "surplus" years that everyone applauds, the private sector balance was in deficit. That is, spending more than it earns, largely fueled by the dot.com bubble. Until it burst. After the recession, the private sector briefly returned to a small surplus position in 2004 before it decided to binge on even more debt, this time using houses as an ATM. And we all know how that turned out.
 
Also notice that every time the U.S economy enters a recession (shaded areas), the government deficit widens. Why are we always so surprised about this? Yes, the deficit/debt has exploded since 2008. At the same time, we've not seen this kind of financial crisis since the Great Depression. And that was ~80 years ago. So if we are so concerned about the size of the deficit, we should focus on unemployment and 40 years of wage stagnation (government subsidizes our #1 employer Wal-Mart because of its low wage/poor benefits business model). Predictably, as unemployment rises and falls, so does the deficit:

Unemployment and Deficits

This is because the deficit is largely endogenous, unless Congress does something really stupid, like The Sequester™. That is, when revenues plunge (causing unemployment to surge) -- as was the case in the 2008 global financial crises (GFC) -- automatic stabilizers increase (unemployment benefits, food stamps, etc). It's basic math. Recent deficits are largely a result of the GFC, not the cause. And in the current environment (households deleveraging and persistent trade deficits), a goal to "balance" the budget in the U.S. is mathematically impossible without destroying our economy.   

Yes, the government has a spending problem. It's not spending enough. When an over-leveraged household sector that is saving and paying down debt (thanks GFC) creates a lack of aggregate demand, some other sector has to spend. Not every sector can save -- ie, "tighten its belt" --  at the same time. It's how our economy works, so don't shoot the messenger. And please learn the difference between private sector debt and public debt. Of which the former is what we really should be concerned about, not the latter: Household budgets are not analogous to federal budgets. And there's a movie for that, courtesy of moi:

 

As The New Yorker reports: Al Qaeda Disbands; Says Job of Destroying U.S. Economy Now in Hands of Congress.
 
 

Time for Something Fresh: Wiferism.

May 26, 2012

Out with the old, in with the new. Birtherism is so 2008-Yesterday. And because of that, on his show last night, Bill Maher introduced the Wifer Movement. And far be it for me not to participate in cutting-edge national distractions:

Can Romney prove he only has one wife? Was 1987 really the last time he was allowed into his own bathroom? Will Romney produce his long-form marriage certificate for public scrutiny and amateur photoshop'g? And exactly how "long" is it?

Guest, Kevin Nealson, summed up the Mormon culture on marriage quite nicely: Always the bride, never the bridesmaid.

Bill Maher concludes with "I'm not saying I believe it. I'm just asking questions." 

Me too, Bill. Me two. Or three. Or four. Or five or six...
 
Romney and Wiferism
 
 

Keurig Coffee Maker PSA: Spank and Burp.

May 23, 2012
Keurig Coffee Maker: Spank and Burp
We've all been there, and for what it's worth, this is not an Onion article: 

You wake up, fire up the coffee machine, and hunt and gather via your refrigerator. A couple minutes later, you place the single serving K-cup in your Keurig coffee maker, press 'brew'...and nothing. You try again, and you get a quarter cup of coffee. Advanced trouble-shooting skills kick in, and you press the same button over and over again which only results in the machine spitting (some unidentified carbon mass) at you. You notice the 'de-scale' message for the first time. Whatever THAT means.

Annoyed, you locate the manual. Ahhh, mineral content build-up. That makes sense! Clean the K-cup cartridge and the needles. Check the filters. Attempt to pump a gallon of white vinegar through the system. Still nothing. Still the 'de-scale' message. Call customer service. Wait on hold for 20 minutes. Have a customer service rep notify you that another customer service rep will have to get back to you. Within 48 hours. Not a good sign. So? To the Google!

You find a site that looks promising. People with the same issues -- reading from the oldest posts first -- you find some interesting and creative techniques. Use a toothpick to clean the needle. No, a paperclip. How about the straw attached to one of those little fruit juice boxes? And then suck? (I kid you not). Finally someone suggests just 'whacking' it. I'm amused. I keep reading becoming even more entertained. Slap it, spank it, burp it...they all say. Which then turns into hundreds of comments regaling (or so I thought) the "effectiveness" of these strategies. Don't believe me? See here.

I wasn't buying any of it though since people actually started engaging in online karaoke:  

"I was cracking up when I read this. I googled "why won't my keurig take water?" and I found this. I was skeptical but then I thought, how could I go wrong. Everyone is saying that it works. I saw that some wrote that you have to really slap it. I didn't want to damage it but I had to do something. I turned it over and started slapping away. Nothing major. Just a good slap on the bottom and sides. I flipped it over and voila! It works again! 

Now I have to get the song out of my head. I've written the lyrics you can hum to the tune of "rock the casbah" from the 80's as you slap your beloved keurig. 

you're really gonna like it (yeah)
Slap the Keurig
Slap the Keurig
(repeat)

Have you slapped your Keurig today?"
 
Turns out that's an ear-worm, just FYI. But I couldn't stop reading. And it wasn't until I came across the next comment that I starting taking the slapping-strategy seriously. Because you don't understand, I mean here is someone that subtlety recognizes "appliances are people too":
"Honestly, I don't think it needs to be descaled. I was having very similar problems, tried all the 'reasonable' sounding remedies, nothing worked. Last resort - I gave the coffee maker a good whack on the side (the side opposite the water reservoir). It fixed the water flow problem immediately.

There seems to be a defect in the model and I've had the issue a few times since my original post, and smacking the thing on the side works. Really. Believe me, I'm the last person you would imagine who would abuse an appliance."
Nothing could stop me now; I knew what I had to do. And yes, I did just that. I turned that bad-boy over the sink and spanked it like it just stole my lunch money (another tip from the comments), all the while humming and grooving to the ear-worm. "Slap the Keurig, Slap the Keurig..." I heard a gush of air release itself as water flowed from every mechanical orifice. And I knew my job here was done: My Keurig had burped. Because You Loved Me Because I spanked it. 

A couple days later, a customer service representative finally returned my call. Here's a snippet of our conversation: 

Rep: Mind if I ask you how you resolved the issue?
  
Me: (singing) Spank, spank, spank.
                        Spank, spank, spank.
                        Spank your Keurig.
                        Spank your Keu-RIG!

 
Rep: (pauses) K.C. and the Sunshine Band?
 
Me: Yep, but I'm sure I can do better...
 
Rep: No, that's ok, it's what I thought the first time. Is there anything ELSE I can help you with today?
 
Me: Yes, sometimes "appliance violence" is necessary. And you should update your troubleshooting manual accordingly with the spank-and-burp technique to overcome what is an obvious design flaw that traps air bubbles in the filtering system, preventing water from flowing properly. Often times it has nothing to do with the 'de-scaling' message. Apparently everyone knows about this except you. It's not that complicated. So do us all a favor, and just google it. 
 
Rep: (deadpan serious) Failing to de-scale every 3-6 months, per the instructions, may cause the unit to malfunction. Thank you for choosing world-class Keurig products. Please let us know if there is anything else we can assist you with in the future. Have a nice day. 

(Click) 
 
 
   

True story. And more evidence of customer service reps bots. Catching the K.C. and the Sunshine Band reference is confusing though. As you were, Corporate America


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