How do We Help the Less Fortunate?

I am always concerned about the right way to help those less fortunate. The conundrum centers around the old adage of giving fish verse teaching to fish. First of all, there is the perception of wealthy. A couple of interesting data points on that issue:

Wealth is not liquid. It is generally determined by the markets desire to own verses scarcity. I diamond has little intrinsic value outside of its ability as a tool. The real value is determined by the disposable income of the buyer and the scarcity of the object. The same is true of stocks and bonds, or art. You cannot redistribute this type of wealth because it loses its value once you eliminate the buyers ability to buy. The same might be true of a large ocean transport. They can cost tens to hundreds of millions to build. But if we assume no one has the cash to buy it (we are redistributing wealth and cash is wealth) then the wealth value drops to almost nothing. Wealth isn't so much redistributed as evaporated.

What is wealth (top 1%) and who are they? The top 1% includes anyone with net assets of $800,000 or more.(a) There are about 47 million people in the world who meet this classification. There are eighteen million in the United State. Switzerland has the highest density. There are a couple of things to take under consideration. First, it is assets, not income. Young professionals may have a household income of over $200,000 per year, but very few assets. Older people, especially those who have saved wisely for retirement, may have little income, but a lot of assets. For retirement planning it takes about two million dollars in assets to generate $80,000 a year in income. The second considerations is cost of living. A  millionaire in Cape town will live much better than a millionaire in Paris.... By the way, to classify in the top 10%, your assets only have to be greater than $77,000.

So we can conclude that redistribution of wealth would be both hard to identify and hard to implement.

Let's say we find a way to redistribute some wealth without demotivating innovation. We find that fine balance that takes cash from the rich who have excess, but not from the middle class that just needs it to assure their futures. Also, we can't take too much via businesses, because businesses don't print cash, they get it from their customers. Taking too much from businesses will only cause inflation of prices as the business passes it on. Once we have the money, what do we do with it?

Second there is the methodology for helping. Well the "give a man a fish" approach won't work. We all know that. We have seen it over and over. Our entitlement system is living proof. A small per cent will learn to fish while they eat their first fish, but most will procrastinate as long as there is another fish. I have thought and written about the impact of advanced technology on the lower class. It's a train wreck waiting to happen. Most technology advancements displace low level jobs because those jobs are simple and repetitive. They are the exact jobs that the lower class is prepared to work.

Here, I think, is the hard lesson. It is a not so quick an answer. We have to elevate the lower class to have both a positive attitude toward and training in technology jobs. How do you elevate someone's attitude? Our attitude is more positive toward something that we are more comfortable with and understand. By increasing our exposure to different aspects of technology at a very young age, it loses its mystic.   The UK has made it mandatory to teach children to code as early as age five. The idea is to get them comfortable with technology early enough to stimulate interest. They make a game out of it so it doesn't seem all techy and scientific. By the time they graduate it will be as common to them and reading and writing.I think the key is mandatory, because people will not do it of their own volition. I mean if they would, they would already be doing it, right.

Zack Simms is a Columbia School drop out that now teaches programming to over 26 million students at a time. Seriously, he really does. He found that most of his peers didn't have the fundamental computer skills to effectively work in industry, himself included. He first got a friend to help write a program to help him learn programming. This was so successful that other people wanted to use it. CodeAcademy  now has 26 million students from over 100 countries, learning six different program languages. CodeAcademy is only three years old.

At the Davos Conference they talked about 8.4 million jobs left unfilled in technology because of a lack of skills. Technology jobs run the gamut of aptitude. Some are creative like digital art. Some are more hands on like hardware maintenance. Others require planning, programming, installing. Maybe it requires only an high level of technology understanding as in customer service or sales. You don't have to be a geek or a nerd. You can be yourself.

The way to redistribute wealth is to find a way for the lower class to create their own wealth. We might have to give them fish for a while, but I would suggest that we simultaneously nurture them into fishing for themselves. Life is much more enjoyable when a person feels independent and self reliant. Waiting for the government to determine your fish allocation, knowing your life depends on it, is a form of slavery. But knowing you have the skills to catch fish in any pond is freedom.

As more and more simple jobs like lawn care, cleaning, ground transportation, Fast Food Restaurants give way to technology, the lower class has to find a new way of making a living. Building and maintaining the very machines that took these jobs is the best answer. Start them young and when the time is right they will forge their own path.

(a) Wealth report by the charity Oxfam

Is the Tax Debate just Political Hype?

 (An internet search of “income tax breakdown of who pays” brings back 240,000,000 WebPages.)

I would say it is. The old adage the figures lie and liars figure holds true here. The entire debate is around collecting votes not improving America. First let’s look at the figure and then look at the strategy. The top 1% of the wage earners in America pays 40.4% of the total tax revenue bill. The bottom 50% pays in only 2.9%.  Forty-five percent of the income earners pay no taxes at all. This rate has been relatively constant since the late 90’s. The variance is about 1% - 3%, give or take. Changes in tax policy don’t seem to affect the actual outcome by much, if at all. This makes it look like the top 1% is being screwed. However, the top 1% only pays at an average rate of 17.6% of their income. This is partly due to the maximum capital gains tax rate of 15%, which brings down the average. The Bottom 50% pays at 17.1% of their income.  75% - 80% of the taxpayers pay more in payroll tax then income tax.

Most studies don’t take into consideration total government tax burden of local, state, and federal taxes, including payroll tax, which constitutes another 10% of the income of the bottom 50%. The real burden on the poor is not the Federal Income Tax system. It’s all of the taxes paid to all government organizations. This 10% does not include sales tax, advalorem tax or property tax (that is included in their rent if applicable). Their 3% federal tax contribution can quickly balloon to over  20% when all taxes are included.

Total share of actual income for the top 1% is only 22.2%. The total share of the bottom 50% is around 12%. Therefore, the rich are paying twice their share in taxes while the poor are paying a third of their share. This seems like a just system, if not totally fair. We have accepted this as the American way for several decades, nothing new for several election cycles.

Here’s the real issue… The group that contributes only 3% of the total tax revenue represents potentially 50% of the voters. This group by the way is growing, up from 40% in 2007. A candidate is not elected through tax revenue; they are elected via the ballot box. If a politician can run on a platform of reducing low income taxes by 33% (real impact is a reduction in tax revenues of 1%) they can garner the allegiance of 50% of the voters. Similarly, that same politician can berate the wealthy as living off of the backs of the poor and only lose 1% of the voters. 

Here’s the rub… the 1% can donate a lot of money to the election coffers of the politicians. The reality is that politicians don’t need the voters. If only three votes are cast and they get two of them, they win. In most cases, there are only two candidates for the voters from which to choose, one from the Republican Party and one from the Democratic Party. These parties provide the majority of the funding to run the election campaign. The politician’s allegiance is to their party, not the voter. The can get by without winning over the majority of the voting age population, but they can’t get on the ballot without the support of their party. Rich people know that changes in the tax code doesn’t bother them. They have a staff of smart people that will help them deal with it. The not so rich (PC statement) don’t have the staff. 

The top 1% understands political rhetoric, the bottom 50% may or may not. Either way the bottom 50% gets more money in their pockets even if nothing in government changes.

My Biggest Rant

This is a business blog. The concept is to present ideas that would help business people improve both their businesses and themselves. Over the past few weeks I have been bombarded with social issues that just scream for comment. The underlying dismay voiced by most of these self proclaimed pundits is that the United States has serious problems and someone needs to step up and solve them. That someone typically isn’t the writer. What are some of the issues?

1. The United States Ranks 96^th out of 140 countries on the Global Peace Index according annual survey commissioned by Britain’s Economic intelligence Unit. (Great Britain is 49^th ). Two of the major factors are the highest number of homicides per 100,000 citizens and the fact that we have the highest incarceration rate of all the countries surveyed.
2. Gas prices are at an all time high at almost $4.00 per gallon. Gas is $8.35 in Great Britain and more than $6.50 in most of Europe, according to AA Motoring Trust, when our gas prices were still at $2.87. Whereas we consume 1.6 gallons per day per person as opposed to most of Europe at .5 gallons per day per person (Economist View )
3. The U.S. economy is on everyones agenda. The unemployment rate has hovered between 4.5% and 5.2% since 2005 according to the US Department of Labor. The Consumer Price Index, less food, has been constant since prior to 2004. With the increase in gas prices and the fact that most food is transportation sensitive the CPI including food has risen significantly. A Gallup Poll suggests that 85% of the population thinks economic conditions are getting worse.
4. The Dow Jones Index has risen from a low of 8235 in September of 2001 to 12823 today. That’s a 55% increase in six plus years. A dollar invested in 2001 would be worth $1.55 today. Real average earning during that same period grew from $497.35 per month to $607.49. That’s a growth of 22%. Factoring for inflation the earnings growth was only 2.3% from 2001. So the stock market is outracing real earnings.
5. Household debt is 133.7% of household disposable income in 4^th quarter 2007. Households spent 14.3% of disposable income to service debt in 2007 compared to 13.0% in 2001.

What’s the underlying business concept to all of this? It’s responsibility. The problems we are facing are problems we can deal with on an individual basis. If, and it’s an incredibly big IF in an entitlement culture, we all take responsibility for our part of the problem, it solves itself.

Number one on the list is dismal. Twice as many citizens were killed in the state of California during the duration of the Iraq war then were killed in that war. Several points scream out to me…

1. This is just one state in our union. The needless death toll in our own back yard is staggering.
2. These people neither volunteered, were skillfully trained, nor took an oath to die, they just got up in the morning thinking they would make it through another day and didn’t.
3. There is no outrage from the public like there is for the war. We have come to believe this is acceptable.

I visit prisons every year. We can’t afford to continue to build prisons at the rate we are currently building them. Something has to change. I suspect the real reason is that we don’t expose this like the war, is we might feel somehow responsible for not doing our part. Because it happens all around us, we might be asked to actually take action to prevent it. The war is a long ways away and we can’t possible impact the outcome, so we vent and rage for someone else to take action.

The problem with rising gas prices is not a matter of the government reducing taxes, but modification in our social norms. Not an easy task to accomplish. We are Americans and the constitution says we can have and do anything we like as long as it doesn’t impinge of the freedom of others. So I want to drive a big car anytime and anywhere I want and the government is responsible for assuring I can continue to do this. Capitalism is great as long as I get what I want at the price I want. If not, the government needs to step in and mandate my happiness. This is just self-center goofy thinking. Only desperate times will change this. It’s an unfortunate aspect of human nature. We have lived the high life so long we expect it to last forever without our sacrifice. As China and India continue to grow their economies, this problem will continue to grow. It’s not a matter of our government solving this. Free enterprise and right thinking by the general public will solve it, if we choose. If not we will be doomed to second class status in the world economy.

The last starts with the very basic premise of spending less, investing more. If we take control of our spending and invest the difference two things happen. First we capture back 14% of our disposable income used for servicing debt. Second our investments grow faster than real earnings. As individuals we have more. More importantly we invest in businesses that provide jobs and stimulate the economy. Unemployment goes down, employee demand goes up, wages rise, we invest more and the cycle continues.

It's all about individual responsibility. Something we have total control over.

Election Responsibility

With the Presidential election coming up I once again became concerned with the civic duty of voting. It’s important to remind myself that the United States is a Republic not a democracy. We use democratic methods to select our representative. But our representatives are not held to popular vote for their decision-making. Although I can’t think of a better way of governing, this process has shown to be somewhat suspect. It seems to pander to special interest at the expense of the majority. Which is why political correctness is all in vogue.

Since 1960 the percent of eligible voters actually participating in the election process by casting a vote has dropped from 62.8% down to 48.9%. That’s a 25% (almost 16 million voters) reduction on only 36 years. The Roper pollsters have documented that the average collage graduate today knows little more about public affairs then the average high school graduate did in the 1940’s. This in spite of the fact that political organizations with paid staff has grown from 5 organizations per million population in 1980 to 9 organizations per million in 1996. The growth in individual contact by a political organization has grown dramatically while party workers have declined. We are 2.5 times more likely to be contact now then in 1968. It’s all about mass marketing.

Political fund raising is outstripping inflation by a factor of two for the Democrats and a factor of four for the Republicans. In 1964 on average it cost $35 million to run for president, in 1996 that number had risen to almost $700 million. Those figures are in current dollars and are not adjusted for inflation. In spite of this, the percent of voters who identify themselves with a political party has dropped from 75% in the 1960’s to 65% in the 1990’s. What a dichotomy. What’s going on?

The problem seems to be disenfranchisement of the average voter. A well-funded special interest group has two distinct advantages. First is money for mass marketing. You don’t have to be backed by the majority if you have a good marketing staff that can make you look like the majority. The second is motivated voters. If less than 50% of the voting population actually votes and a candidate only need a simple majority, then they need less than 25% of the voting population’s vote to win. If the special interest group represents 10% - 12% of the voting population and is motivated to get out to vote, they’re half way home. They can control the outcome of the election. That is one of the main reasons for all of this political correctness. They don’t need to court the other 75% to win. If a candidate doesn’t need a simple majority of the voting population to win, then the fewer voters, the better. If you don’t know the rules or the players, you don’t care about the outcome.

Cultural change comes from one of two phenomena, intercohortal or intracohortal. Intracohortal change is individual change on a wide scale. A shift from SUV’s to hybrid automobiles would be an intracohortal change. It would happen fairly quickly with increased gas prices and it could very easily change back when gas prices go down. If over years the price of gas never drops and new generations only have experience with hybrids there might be an intercohortal change in driving preference. These new generations might not see SUV’s as a viable option. In time it might be impossible to make a living selling SUV’s. This cultural change will take generations to change back.

This intercohortal change has taken place in politics. In the past, individuals may have opted out of the voting process, but the process was generally accepted as an obligation as a good citizen. As newer generations become more and more disenfranchised and they saw the older generation opting out, they eventually started to see voting as unimportant. It’s just not about being a good citizen. Big money and special interest groups have driven out the common voter.

I vote a split ticket almost every election. I could write a dissertation on why but I won’t. I don’t vote for anyone running unopposed (Judges mostly) because they don’t need my approval. They win because they are on the ballot. I also don’t vote for anyone unless they have earned my vote. I won’t pick the lesser of two evils in a contested election. I don’t want to endorse someone just because I am less opposed to him or her then his or her rival. I am mature enough to know that politics is about compromise, campaign promises are marketing, and unless I want to quit work to lobby for my own interest its hard to get noticed. I am afraid that the younger generation just doesn’t care. Quite frankly I don’t think the politicians do either.

If we want civic involvement to get back to the activity of the 1970’s at some point we need to recognize that what is good for the majority may not be good for a special interest group. That special interest group needs to convince the majority that their suggested change is good for most people. Politicians should be required to capture more than a simple majority of the active voters. If they were tied to a simple majority of the voting population they would create political platforms that motivated everyone to vote. This would be the other extreme. But then again, the politicians would have to change the rules and they like them the way they are. Only the loser wants them changed.

If God had wanted us to vote, he would have given us candidates. - Jay Leno