The Income Gap

If you want to read an article that shows the disconnect between rhetoric and reality and completely misses the point on "Income Gap" by literally pretending things are true that aren't true...read this.

Here are a couple of highlights:

One intuitive measure of inequality is to compare "high-income" and "low-income" families. Suppose we define a high income level as income at the 90th percentile: that is, the income level higher than that of 90 percent of all families but lower than that of the top 10 percent. Similarly, we can define a low income level as the income at the 10th percentile.

A sign of no economic foundation is words like "intuitive", "suppose", "can". This method of defining inequality is not only arbitrary, but also useless.

This part is the part I agree with:

Why has inequality increased?

It is always tempting to look for a single cause that can explain a major social or economic event, but in all likelihood the growing gap between rich and poor has many causes. A list of the "usual suspects" is easy to compile; evaluating their relative importance is far more difficult.

Much evidence points toward declining demand for low-skilled workers as a crucial factor. In the view of many economists, the principal source of this shift has been technological change that has allowed firms to economize on low-skilled labor while increasing the demand for highly educated workers. Ironically, these changes are broadly a consequence of the growing importance of computers and automation in the economy, the very technological advances that have helped drive the current economic boom.

Globalization of the economy may also have played a role. In the past 25 years, low-skilled American workers have experienced increasing competition from both low-paid immigrants and low-paid workers living in other parts of the world who produce goods that compete with American products. Although the effects of globalization are not negligible, most economists think they are less significant than the effects of technological change on wage inequality.

Finally, institutional changes in the labor market have had an impact. These include the declining membership in labor unions in the private sector and the declining real value of the legal minimum wage, which until recently had been severely eroded by inflation.

International comparisons support this analysis. The pressures on low-skilled wages from technological change and globalization have affected all developed economies, but the growth of inequality has been far greater in the United States. International differences in wage-setting institutions and income-transfer programs may explain the different outcomes. They may also help account for the higher unemployment rates in many other developed economies, a perspective that casts the U.S. experience in a more favorable light.

This is all precisely true...Did you like that last part, though? The U.S. in a more favorable light for lower unemployment...THE HORROR!!

But then they get to the "solution" and something really cool happens. They dismiss ALL of the above as completely irrelevant:

Individual and communal acts of charity will always play a role in reducing the adverse effects of income inequality, but significant reductions of inequality will depend upon the government's power to tax, transfer, and regulate. Inevitably, however, redistributive policies involve real costs, in terms of both their economic impact and the infringements of property rights that accompany them. Thus there is a trade-off between equity and other values. To minimize the damage to these other values, two principles of policy design-efficiency and efficacy-should guide us as we evaluate proposals for reducing inequality.

If a policy is efficient, it will achieve its redistributive goals at minimal cost to the economy as a whole. Perhaps surprisingly, the criterion of efficiency is usually better served by policies that treat the symptoms, rather than the causes, of inequality.

For instance, to the extent that import competition is a source of downward pressure on low-skilled wages, protectionist trade policy could counteract the trend. Yet protectionism comes at a high cost to consumers and trade-dependent sectors of the economy. More efficient would be a policy that directly enhanced low-skilled workers' incomes, whether through training, subsidies, or minimum wages.

So, technological changes, globalization, a lack of education in the workforce is best solved by simply "taxing, transferring, and regulating." The source of the problem is simply not important. Well there you go. At least they acknowledge the "trade off" between property rights and equity.

The rest of the article continues to argue against itself in the most extraordinary ways, and it's really fun to read. Within a couple of paragraphs, training and minimum wages are supported and then not supported. A good idea would have been for the Applied Ethics Department of Santa Clara University to go have a little conversation with the Economics department of Santa Clara University. It might've resulted in a slightly less ridiculous article. So OK, this isn't really the best article to illustrate the argument on the "Income Inequality Crisis." But it illustrates pretty well how rhetoric can so quickly and easily win out over science, logic and reason.

The Income Gap

The final nail in the middle class coffin

Not!

WASHINGTON (Reuters) - A pickup in consumer spending and strong exports powered economic growth ahead at its fastest rate during the third quarter since the beginning of 2006, according to a government report on Wednesday.

While the Democrats and my colleagues continually complain about how bad this administration is, I PTL every day we don't have a (more) socialized economy like the ones in Europe.

My new favorite Democrat

My new favorite Democrat in the US of A just happens to represent my hometown. Nick Gautreaux of Abbeville has proposed to eliminate the personal income tax in Louisiana.

Gautreaux's bill would keep in effect the tax rates and tax brackets on personal income taxes but would lower the amount paid by individuals by 10 percent a year until the tax is phased out by Jan. 1, 2016. For example, in the present tax year, taxpayers would pay 90 percent of their tax bills to the state and 80 percent next year.

But my favorite is this quote:

"This gives a break to the working-class people," he said. "For the last several years we have had a surplus. . . . That tells me we are overtaxed. . . . It is time to give taxpayers a tax break. Why should government grow and add more and more programs?"

Can someone get Howard Dean on the phone? This guy needs to sit down with Nancy Pelosi and company and set them straight.

When the dollar talks back

When the dollar talks back - Opinion - International Herald Tribune

I guess that the joyride can't last forever - at some point you've gotta pay the tab. As my dad is fond of saying, "There ain't no free lunch."

We've already seen that this government will do anything to ensure dollar hegemony, but there are forces here that may be unstoppable. This administration has pursued a fiscal policy that is clearly unsustainable - while at the same time, allowing the rise of a formidable currency competitor in the Euro.

A run on the bank is hard to stop . . .

Milton Friedman, R.I.P.

One of his last interviews linked above. So rarely do I shake my head yes during an interview!

Constitution quote

A good quote not to be buried in a comments section.

From Hayek, ..."the arrogation of arbitrary powers by Parliament was regarded by the spokesman of the American colonies as the ultimate cause of te break with the mother country. This was most clearly expressed by one of the profoundest of their political philosophers, James Wilson, who

'rejected Blackstone's doctrine of parliamentary sovereignty as outmoded. The British do not understand the idea of a constitution which limits and superintends the operations of the legislature. This was an improvement in the science of government reserved to the Americans.

Back to Hayek, "We shall not further consider here the American attempt to limit in their Constitution the powers of the legislature, and its limited success. It in fact did no more to prevent Congress from becoming primarily a governmental rater than a truly legislative institution...


Sadly he is right. The root of the problem is not private influence of government, but rather the unlimited nature of our government.

Rules of the game

I recently spoke with a brilliant young man with a somewhat lucrative job; he only had to work for three months out of the year and spent the rest of the time traveling to Europe and telling friends and college students how great his job was. Just a couple of years out of college and had little savings and no credit card. I talked with him a little bit about the rules of the game that big institutions, like banks and the IRS, set up for peons like us to follow. He asked me if there were some book he could read so he could know what the rules were.

Well, there are some books out there, usually published by modern-day get-rich televangelists, and these investevangelists have the same purpose as ordinary televangelists, that is, to seperate fools from their money. At best they want you to buy their book, at worst there are 200$ board games and 1500$ seminars to attend. I've always felt these talks were helpful but I never want to pay a dime for them. Similarly, I felt I learned a lot about big business when I attended an Amway meeting, at the ripe age of 17. However, I didn't want to invest the time or money (I didn't have any!) trying to persuade others to invest their time and money etc. etc.

A good barometer for the legitimacy of the investevangelist is their promixity to Amway and other pyramid schemes. Suze Orman, for example, has an audience participation part of her programs. Often these audience members stand up and talk about how they ruined their credit buying tons of stuff in an attempt to get rich off of some pyramid scheme, and she has often set these people straight. On the other hand, Robert Kiyosaki does not distance himself from the pyramid schemes as he wants their business.

Probably the most reasonable of the investevangelists is David Bach, who writes and talks about the "latte factor".

If anyone wants to learn about the mindset and techniques of getting rich, you can easily get a copy of their work at the local library. Usually it is in CD, Video, or book format. At it's worst this kind of stuff is still more educational, and has fewer plot twists, than an episode of 24 or Lost. But, most likely, if you find someone successful in business, you can find out pretty much everything you need to know from them that are covered in these infotainment shows. Although I am not rich or wealthy, not even a success story yet really, I've made some mistakes and learned from them and have a plan that doesn't deviate from these guys too much. And as a one time offer I will void the logipundit gold member subscription fee (50$/month) required for this special money making content guaranteed to double or triple your income within the next ten years. You've heard of Donald Trump and Warren Buffett right? Don't you want to learn their secrets? Well just keep reading silly, and you'll find out the true secret to ultimate riches.

Rule #1.
(Are you ready)


(Drum roll)


GET A JOB
What did you expect? People will just give you money for nothing? Think everyone can just flip houses for a living with a zero $ down payment? What planet are you on? Sure, this can work, if you make a full time job out of doing your homework of knowing the neighborhood you are buying in, knowing what is a good house, catching any problems, and knowing the demographics of customers, this might work. Flipping houses also might work in a big city like NYC or DC, but less likely in the "Columbus metropolitan area", and for most of the heartland. By the way, anyone interested in a 1200 square foot 2 bedroom home for $300,000 here in Columbus? It's only about 30 years old.Yeah, I didn't think so.

Ok ready for Rule #2

THIS IS A BIG ONE...READY?

GET AND/OR PAY OFF YOUR CREDIT CARD

In today's society, there are simply too many benefits to carrying a credit card. Having a line of credit is something banks look for when you buy a car or home. Old school of thought was that you buy everything with cash on the barrelhead, but it is unheard of to cash out a house these days. Having a line of credit for a long time tells banks that you are playing the game and not sitting on the sidelines. Also, good luck getting a plane ticket, renting a car, and getting a hotel room with your debit card.

Another old school way of thinking, which is really admirable, honestly, is to just keep the credit card for emergencies. Unfortunately, it kind of works out that you should spend a good bit on your credit card and pay it off at the end of the month. The trick is not to put more on your credit card than you can afford to pay off at once. Pay off your credit card at the end of every month all the way down to zero. Pretty soon you can get dividends and frequent flyer miles, we got a $300 of dividend from our credit card, which was basically 1% to 5% of our purchases sent back to us, spending money on stuff we were going to buy anyway.

Also, using the credit card in this way helps you itemize your purchases, which can help you come tax time.

Ok now time for the big one:

Rule #3: Don't eat out if you can cook it yourself.
Ok, this one's real metaphorical. But seriously, when YJ and I take an opportunity to eat out, we aren't going to eat omelettes, spaghetti, or anything with chicken. These are staples of our diet. I am the omelette master, and I've calculated the price per omelette of my one-of-a kind masterpieces. For a kickass omelette it costs ~$1.50. Why would I pay $7.50 for something I can do better myself? I know many eligible bachelors are saying, "Ha, I can't cook anything". Well, I hope you enjoy microwave pizza. Get some Ragu and learn to boil noodles, or else pay 6+$ per meal to someone else. Or, ask your Mom how to cook something.

But the cook it yourself principle applies to many aspects of life, specifically investments. I used to invest in Edward Jones, and was pretty passive about the process. Well, after getting my savings thoroughly trashed at the hands of a trusted investment specialist, I took charge of my own money and did substantially better at a no frills investment house than going with $50 per transaction investment gatekeepers. I estimate I gained about 10% in a bull market, and I'm skeptical, really, about how I can do in a Bear market. But probably betting on big blue chips with fat dividends is a good start. Anyway, as our fellow contributor Reagan Gahagan attests, Citibank and others are getting aggressive about offering 5% savings accounts, which is better than nothing and is FDIC.

We plan on taking the same approach to buying a house when the time comes (i.e. when we leave Columbus). Hopefully soon it will be just as easy to buy a house as a stock.

Update ( I got a little tired at the end there. Of course buying a house will never be as easy as buying a stock. I am trying to allude to the shift from using the services of a gatekeeper (realtors and real estate agents) to using online resources, which should drive down the hassle and cost of buying a home some.

Posted at 10:46 pm by Johnny B

	Posted by BP @ 08/07/2006 09:25 AM PDT
	You mentioned "investevangelists"...that's a great word and I don't think I've heard it. The worst example is Suze Orman...who gave up her licenses a few years back so she couldn't be sued for giving bad financial advise. So how do I join your system? Can I get started without any money?

Outsourcing Fast Food?

I could see that as the next logical step

Posted at 10:49 pm by Johnny B

Horrendous wage gougers

Thursday, November 17, 2005

Horrendous wage gougers

Seriously, these people rebuilding New Orleans should be brought before a Senate committee pronto. How dare they demand higher wages for their work simply because the market allows it. There should be some kind of law against this. An interesting take here.

Posted at 06:57 pm by Johnny B

	Posted by Jordan @ 11/18/2005 02:43 PM PST
	Nice post, Johnny! Excesses of the market, gotta love 'em.

Krugman agrees!

And then is a big baby about it.

http://www.nytimes.com/2005....

An article from Krugman in which he agrees with Bush's push to shake the Chicom's peg to our dollar. I'm sure many of you will find this interesting, and may have something to say about it.

Posted at 11:29 pm by Johnny B

Three Words: Initial Public Offering

Hey gang,

I'd like to tell you all about a little company called Culvers (http://www.culvers.com/). Talk about a great place. It's like Dairy Queen 2.0, where the ice cream is really custard and really tastes edible! Yun-ju and I buy it by the gallon and make crazy root beer floats. When we run out of root beer, we mix in strawberries and kiwis into the vanilla custard...I call it a Johnny B fruit salad©. They also serve 100% beef hamburgers. What a revelation! Anyway for those of you on the east coast, the closest Culvers is in...Columbus Ohio. You are all welcome to stay here on your way over. Everyone down south will have to mosey over to a Houston suburb...200 locations so far.

Reminds me, remember Raising Cane's? Used to have one store next to campus? They just opened a store up here in Columbus...right next to campus. Duh! Good for them I say. Now there are 25 stores on the website, but they don't mention the Columbus store yet...perhaps it's not corporate...

Kind of makes one think. I know some folk who are always looking for a job. Maybe they're having trouble keeping them for whatever reason; I think maybe they can bust their butt getting some start up money fishing off the coast of Alaska (like the Raising Cane's guys did) or other alternative pursuits of cash (I can't think of any off the top of my head...any ideas?) then start a small business giving people what they want (like real ice cream) get a loan and start a franchise.

Or maybe they should just dump chicken in oil...go figure.

Posted at 10:15 pm by Johnny B

Corporate America blew up the twin towers?

Wow, what a whirlwind of activity! Good job Jordan!

In response to Scotty regarding the U.S. economy. What about the 90's? Clinton most certainly reduced defense spending. What's more, Rumsfeld was all set to reduce defense spending even more. On september 11, 2001, the NY times ran an articles saying that Rumsfeld was in trouble with the Joint Chiefs because he wanted to cut out the dead wood.

Anyway, back to the 90's. The cold war was over, the government reduced defense spending significantly, and the economy did not falter. Last I checked, U.S. was able to stop running a deficit, the dollar was strong, unemployment went down to three percent. The U.S. economy basically whipped ass once the cold war was over. There was a two year recession with like a 6% unemployment rate. Our economy in a recession provides more jobs and opportunities than any western european country excluding Norway, because Norway has some serious oil production. So, Scotty, while I did see in the movie "JFK" that Kennedy was killed to fuel the militarized industrial complex, all kinds of evidence from the 90's prove that when people don't have to spend money on the MIC, they have a lot more money to invest in venture capitalism and internet porn.

Posted at 12:09 am by Johnny B
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