Tag Archives: Income Disparity

There Is Hope


America’s View On Government

Sometimes I feel that we’re losing the battle.  That nanny state champions who wanna reward mediocrity, punish success and suspend natural realities are winning.

Then I see this:

Some 60 percent of voters think that over the last five years the federal government’s policies have increased the income gap between the rich and everyone else.  That includes — to varying degrees — majorities of Democrats (52 percent), Republicans (64 percent), independents (67 percent) and those in the tea party movement (74 percent).

Important points:

– Democrats are in majority agreement.

– Independents poll higher than republicans

– The Tea Party leads the way!

Deciding To Make Money Or Not Make Money


What Do You Want To Make

In many ways it’s perverse – an individual has to make a decision in their late teens – early twenties that will impact the rest of their lives.  But there it is, the decision: What are you going to do with your life.

And for a lot of people, this feathers into which degree they will obtain while attending college.

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Commentary Income Gap And Private Social Security Accounts


One of the reasons that the income gap is widening is the impact of the gain in the stock market – wealthy Americans invest disproportionately in the market.  The less wealthy, for several reasons, don’t invest in the market.

Because of this, those wealthy Americans that DO invest in the market are seeing gains to their income due to the power of the stock market – the gains are flowing to the wealthy.

Consider this fact when reflecting on arguments AGAINST private investment accounts in place of social security*.  The idea that we reform social security away from the government trust fund to a privately held account that could be invested at the discretion of the individual.

The arguments against this plan is that it would expose the money to the vagrancies of the stock market and places the individual at too much risk.

This is very similar to the arguments presented by the liberal when it comes to the importance of money.  It goes something like this:

There is more to life than money, therefore a degree in Renaissance Art of Western Europe is valuable in its own right and a career in that field can offer a full and rewarding life.  The rich get richer and the poor get poorer – we need more redistribution of the money!

On the one hand, the argument states that money isn’t important and then becomes surprised when people who do value money have more of it than people who don’t value money.

The stock market is a massively effective method of building wealth.  Buying stocks during the recession, not selling, was responsible for astonishingly large gains for many many people.

If you care about income disparity, and we know that a large reason for this disparity is the market, how can you disagree with private social security accounts?

* I say this knowing full well that the REAL argument against private social security accounts is the same argument against Obamacare – Individual Liberty.  Social Security is nothing more than a mandate to save money and a private account would be no different than forcing  people to buy health insurance.

Household Income

I just finished a post that explained, in part, the rise of income levels of the 1%:

…the primary source of income of the wealthy is the market and not salary.

It’s important to point this out as our current administration continues to rail against income disparity all the while pushing for policies that help contribute to the “problem” all the while.

But check out a recent post from AEI:

During his economic speech yesterday, President Obama again suggested that the typical US middle-class family has seen no economic progress over the past 30 years:

Because even though our businesses are creating new jobs and have broken record profits, the top 1 percent of Americans took home 20 percent of the nation’s income last year, while the average worker isn’t seeing a raise at all. In fact, that understates the problem. Most of the gains have gone to the top one-tenth of 1 percent. So in many ways, the trends that have taken hold over the past few decades of a winner-take-all economy, where a few do better and better and better, while everybody else just treads water or loses ground, those trends have been made worse by the recession.

Now I have debunked this claim several times. And now so has the US Census Bureau. The above chart, from the agency’s new income and poverty report, clearly shows real median household income indeed rose over the Long Boom of 1983 through 2007. And remember, the Census Bureau is just tracking pre-tax, pre-transfer, non-fringe benefit market income. As agency itself concedes: “The money income measure does not completely capture the economic well-being of individuals and families.”

091713census1-600x198Leading up to the recession, real median income was rising.  It’s only been since Obama’s time in the White House that such incomes are dropping.

Income Disparity

Monopoly Free Market

Interesting move by the Fed this afternoon.  By announcing that they would continue the quantitative easing, the stock market responded with record highs:

NEW YORK — The stock market hit a record high Wednesday after the Federal Reserve’s surprise decision to keep its economic stimulus in place.

Bond yields fell sharply — their biggest move in nearly two years. Meanwhile, the price of gold jumped as some traders anticipated that the Fed’s decision might cause inflation.

In a statement, Fed policymakers voted to maintain the central bank’s $85 billion-a-month bond-buying program, which has been in place in one form or another since late 2008. It is designed to keep interest rates low to spur economic growth.

What this decision does is pump more money into the economy.  And whenever you do that, the cost of stuff goes up.

Consider an “economy” made up of 100 gold pieces and 20 loaves of bread.  In this case, bread costs 5 gold pieces per loaf.  Now, if we double the number of gold pieces floating, does anyone not believe the cost of bread will also not double?

So, when the Fed continues a policy that is pumping money into the market, the price of the “market” doubles.

So the next time a liberal is hollering that the income of the wealthy is rising faster than the income of the poor, you can point to Obama and his Federal Reserve.  After all, the primary source of income of the wealthy is the market and not salary.

Obama is the one responsible for the income disparity that we have recently seen.

Wages, Middle Class And Stagnation

I’ve been aware, politically aware, since about 2006 or 2007.  That’s when an interesting tidbit caught my attention:

The 2008 Presidential election would be the first in a long time where neither a sitting President or Vice President would be running.

The race would be wide open.  I began to  pay attention, and I was hooked.  And since then I have heard a steady dull roar about the fading middle class.  I’ve heard that the richest among us have been getting richer while the rest of us have experienced wages that remain flat.

The world would have us believe that for most of us, wages have experienced stagnation.

Is it true?

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Income Inequality, The GINI and Marriage

I continue to question the GINI calculation comparison of nations in order to determine how well wealth is distributed within those nations.  For example, I have a specific problem with the fact that the United States has seen a significant rate of marriage decrease in its population over the last several decades.

As an example, I used a population of 4 and computed the GINI if they were all single:

24,000 – 30,000 – 50,000 – 75,000  The GINI came to .24162

If we marry 2 of those we might see:

24,000 – 50,000 – 105,000 This GINI is .301676

If we marry a different 2, we might see:

54,000 – 50,000 – 75,000 This GINI is .093110

Clearly the makeup of the population impacts the GINI coefficient.  In this analysis, I was called on small sample size.  Fair enough.  I did the data on a population of 10,000.

I took a random sampling of 10,000 salaries.  These salaries ranged from $0.00 to $250,000 and formed a near perfect bell curve with an average of $125,000.  Clearly this is not how wealth is distributed in real life, but I am simply making a point.

I then created 4 worlds.  Each world had a different marriage rate; 80-70-60-50%.  An acknowledge flaw in my data is that I do not randomize the single people each time.  That is, in the first world where 80% of the population is married, I take the first 2,000 and mark them single.  I then marry the 2001st individual to the 6,001st individual.  Then the 2002nd individual to the 6,002nd individual and so on.

My results:

  • 50% Marriage:  .3446
  • 60% Marriage:  .3353
  • 70% Marriage:  .3227
  • 80% Marriage:  .3015

As the marriage rate went up, the GINI went down.  In other words, as my population increased its marriage rate the inequality diminished.  In fact, by moving from a 50% marriage rate to an 80% rate, the GINI moved by 12%.

Let’s do it again.  10,000 new salaries, same constraints:

  • 50% Marriage:  .3471
  • 60% Marriage:  .3416
  • 70% Marriage:  .3248
  • 80% Marriage:  .3093

Again, a continuing trend toward equality.

Does my theory have legs in the real world?  I think it does:

Inequality is typically higher as the percentage of married people declines and as the correlation of of partner’s income increases.  Inequality also tends to be higher when low-income earners are disproportionately likely to remain unmarried.

In other words, the more people marry, the more equitable income is.  Especially when this trend is observed in low income individuals.

Further data suggests that poverty is addressed by marriage:

As expected, the results clearly show that married parents experience lower poverty rates and higher incomes not only than single mothers living without another adult, but also among those unmarried mothers with at least two potential earners. Poverty rates of cohabiting couple parents are double those of married parents; non-cohabiting single parents with at least a second adult had poverty rates three times as high as among married parents.  The apparent gains from marriage are particularly high among black households.

The gains from marriage extend to material hardship as well. About 30 percent of cohabiting couples and 33-35 percent of single parents stated that sometime in the past year they did not meet their essential expenses. These levels are twice the 15 percent rate experienced by married parents. Even among households with similar incomes, demographic and educational characteristics, married couples suffer fewer serious material 21 hardships. Moreover, despite their less promising marriage market, low-income and less educated mothers who are married experience significantly less material hardship than lowincome,
less-educated mothers not married.

In short, marriage matters.  And for whatever reason, the United States is becoming a less married nation.  If you wanna address poverty, inequality and hardship, focus on getting people, especially low-income people, married.  Failing that what you are doing is transferring wealth from one population to another in an attempt to “wish” you way out of reality.


The “Attack” Of The Middle Class

In November I asked a simple question:

Would you be more or less likely to look for a new job if your current job no longer offered vacations and holidays?

I got a couple of answers and they confirmed the very obvious:  We would be more likely to look for a new job and certainly not LESS likely.

More recently I made an observation concerning teacher salaries:

…to receive the bonuses and raises, teachers must sign away some job security provisions outlined in their union contract. About 20 percent of the teachers eligible for the raises this year and 30 percent of those eligible for bonuses turned them down rather than give up those protections.

Teachers in Washington DC valued the clause in their contract that prevents them from being fired MORE than they valued $30,000 in bonus AND a $37,000 salary increase.

In both cases, the point is made, one theoretical and the other practical, that compensation comes in forms OTHER than strictly wages and salaries.  Vacation is one form of compensation.  Protection from having to actually DO your job is another.  It’s something that I’ve always suspected.  However, Dan Mitchell on his blog points out a couple of studies by CATO that demonstrates the lower earning deciles is growing more rapidly than the growth shown in the highest earning deciles:

While it is true that the cash explicitly paid to employees has become more unequal over the last generation, the…more benign explanation for the change in cash compensation over a generation is the dramatic increase in health insurance costs. …inequality in total compensation has not increased because the fixed costs of health insurance are a much larger percentage of the total compensation of lower-earnings workers. Burkhauser and Simon explore this explanation. They add the value of employer-provided health insurance as well as Medicaid and Medicare to the pre-tax, post-cash-transfer household income data and find that the bottom three income deciles actually exhibit higher growth than the top seven deciles from 1995 to 2008.

Compensation, in it’s many forms, grows more rapidly for the lower earning deciles.


Using unpublished BLS total compensation data, including employer health insurance expenditures, from 1999 to 2006, he finds that the growth in compensation by earnings decile (from the 30th to the 99th) averages 35 percent, with 41 percent growth at the 30th percentile (workers earning $10–$14 an hour) and only 35.8 percent growth at the 99th percentile (workers earning $59–$80 an hour).

We’re certainly going to h ear from Obama and the Democrats this election cycle that the Middle Class is under attack, perhaps true, but that attack takes the form of government dominated health care, not some form of class warfare engaged by the elite.  Obama is going to cast himself as the Middle Class warrior.  The media will produce study after study that shows the rich are getting richer while the poor are getting poorer.

Don’t buy it.  Do the work.  Get the data.


Income Disparity

Open Question:

Would you be more or less likely to look for a new job if your current job no longer offered vacations and holidays?

Wealth And Distribution: II

A week and a half ago I posted about the distribution of wealth in a controlled population of people that were EXACTLY like one another.  Exactly.  They contributed to 401ks the same, they saved for houses the same, they worked at the same wages and got raises the same.  The result, after just 15 years of life?

…the poorest third of people control less than 20% of the net wealth while the richest 14% control more than 20% of the net wealth.

6/15th’s of the poorest control less money than the top 2/15ths.

I have expanded my model to include home ownership.  Again, this is done with the assumption that ALL people do the EXACT same thing in the same way.  They buy a house at the same time, in the same housing market and the home they buy is worth the same.

Here’s what we get:

Again, the money shot:


The control of wealth explodes after year 15.  That’s when my peeps buy a house.  What was a net worth growing by about 30k a year now grows much quicker; near 40 or 50k a year.  And this is just by buying a home.

So, after 30 years, where is the wealth?

The total wealth is $14,112,947 with a quintile at $2,822,589.

The lowest quintile.  That group of people that control the bottom 20% of the wealth in this equal society, defined equal society, compromises fully HALF the people in that society.  The bottom HALF of our population controls just 20% of the wealth.    The top 3/30, or 1/10th or 10% control 20% of the wealth as well.  In fact, the top 3% controls as much wealth as the bottom 33%.

And we’re just 30 years into the life of the exactly average 18 year old.  We’re just at 48 years of age.  We haven’t even begun to take into account poor choices or good choices.  This model is assuming that all kids make the exact same choices with their money, career and finances.

And we STILL have “wealth distribution” issues.