Posts Tagged ‘Income’

How rich is Donald Trump, really?

February 26, 2016

Many multi-billionaires would just as soon not call attention to their wealth.  But Donald Trump thinks it important to not only be rich, but seem rich.  He regards his reputation for being rich as an important business asset.

He once sued a biographer for $5 billion for underestimating his net worth.  Tim O’Brien, author of Trump Nation, estimated Trump’s net worth at $150 million to $250 million in 2005.  Trump said his true net worth was $5 billion.

O’Brien and his publisher won the lawsuit, but legal costs probably ate up any profit they might have made from the book, and then some.

He once sued a biographer, Tim O’Brien, author of Trump Nation, for $5 billion for unde estimating his net worth in 2009 at $150 million to $250 million.  TrumpHe lost the lawsuit, but legal expenses ate up any profit the author of publisher may have made on the book.

But how rich is he, really?

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Source: Bloomberg Politics.

Trump is on record as favoring “truthful hyperbole”.   Whatever that means, I suppose it applies to his net worth along with everything else.

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How to give American workers a pay raise

March 24, 2015

incomegrowthdistributionThe majority of American workers are getting less and less benefit from the growth of the American economy.

The pro-labor Economic Policy Institute notes that, since 1979, the U.S. economy (gross domestic product) has grown by 149 percent and productivity has grown 64 percent, but actual wages of most American workers, adjusted for inflation, are flat or declining.

Recently the EPI published an 11-point program for boosting American wages.   Here it is, with my comments.

1. Raise the minimum wage.

2. Update overtime pay rules.

3. Strengthen collective bargaining rights.

Stronger labor unions give workers power over their wages and working conditions independently of laws and regulations.  This is the most important change and a key to all the other changes.

4. Regularize undocumented workers.

Hiring unauthorized immigrants and relocating business activities to low-wage countries are two ways of doing the same thing—escaping the requirements of American labor law.   It is almost like competing with slave labor.  Since it is not feasible to deport the millions of unauthorized immigrants now in the United States, the only choice is to bring them under protection of the law.

5. Provide earned sick leave and paid family leave.

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Stockholders gain at the expense of the rest of us

March 13, 2015
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Unemployment is now officially below 6%, but the point is still valid.

Large businesses such as General Motors earmark less money for workers’ pay and for investment, research and technology compared to earlier eras.

They do this in order to be able to hand over more money to stockholders in the form of dividends and stock buybacks.

The reason is that stockholders have leverage and workers don’t, and stockholders no longer take the long view. In 1960, the average stockholder owned a stock for eight years, Harold Meyerson reported in the Washington Post.  Now they sell their stocks after four months, and, when high-frequency trading is factored in, it’s 22 seconds.[1]

Passive, short-term stockholders, unlike the original investors, contribute little or nothing to the value of a company.  Why should their interests be paramount?

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Why doesn’t technology make us all better off?

March 11, 2015

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We Americans long enjoyed the world’s highest material standard of living, and we were told that was because of the superior productivity of American industry.  That sounds like common sense.  If you want more, you need to produce more.  Obviously.

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But about 30 or so years ago, this changed.  Our productivity continued to increase, but our wages and salaries didn’t increase along with it.

Why?

Some say that the problem is technology.   Automation means that fewer wage-earners are needed, and our work had less value.   So naturally there are fewer jobs, and employers generally don’t have to pay as much to find people to take these jobs.

Fewer wage earners are needed.  Needed by whom?  Our work has less value.  Value to whom?

They are less needed, and of less value, to the corporate boards and wealthy stockholders who own the technology.  Or, to put it another way:  Capitalists, not workers, own the means of production.

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It’s true that the average factory worker or retail clerk did not personally create the technological innovations that made it possible for them to do more with the same amount of work.  But neither did the average corporate executive or corporate stockholder.

If technology is owned and controlled by a small financial elite, then the applications of technology will be such to benefit that elite.

It is possible that, in acting in their own interest, the elite will do things that are good for society as a whole.  It also is possible that they will do things that are bad for society as a whole.

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When that happens, we the people need to understand that their power and ownership is not based on divine right or impersonal economic laws.   It is the result of corporate structures and legal rights established by law, and laws can be changed.

Some radical thinkers, such as Stanley Aronowitz, David Graeber, Richard D. Wolff and Gar Alperovitz, are reviving the idea of worker ownership and public ownership of the means of production, which is not the same thing as government ownership.

More moderate reformers think it is just necessary to change the balance of power within society.

The important thing, as I see it, is to stop letting priorities be determined by the “job creators,” the ones who own the machinery, the research laboratories and the so-called intellectual property.   The question is not whether they need us.  The question is whether we need them.

LINKS

Of Flying Cars and the Declining Rate of Profit by David Graeber for The Baffler.

Why Wages Won’t Rise by Robert Reich.

The Great Decoupling of the U.S. Economy by Andrew McAfee on his blog.

Global lessons on inclusive growth by Jason Furman for Policy Network.

The Most Important Economic Chart by Atif Mian and Amir Sufi for House of Debt.

The wedges between productivity and median compensation growth by Lawrence Mishel for the Economic Policy Institute.

 

 

How the rich are getting richer

November 17, 2014

US-BLS-Income-Expenditures-by-income-groupChart from Wolf Street.

This chart gives an indication as to why the U.S. economy is dragging and why income is flowing upward.

Over the eight years ending in 2012, Americans with incomes of $150,000 a year and up spent, as a group, roughly the same amount of money that Americans with incomes of less than $30,000 a year spent, as a group.

But the spending of the $150,000-plus group was well under their total income, so they were able to save and add to their total wealth.  The spending of the $30,000-minus group was above their income, and had to be supporting by borrowing.  That’s why the upper brackets generally get richer, and the lower brackets seldom do.

‘Never tell anyone how much you make’

June 9, 2014

Another of my father’s favorite admonitions was that I should never tell anyone what my income was.   If I did, some people would envy me because of how much I made, and others would look down on me because of how little I made.

This is one of the few instances in which I think my father was wrong.  You can’t stand up for your interests if you don’t know where you stand in regard to others.

stock-vector-vector-employee-or-boss-presenting-a-paycheck-illustration-5251492I broke that rule when I joined the Newspaper Guild, the labor union representing reporters on the Rochester (NY) Democrat and Chronicle.  I agreed with the Guild that there was no way to determine whether we were being paid fairly until and unless we knew what each of us were paid.

I was surprised to learn that my salary was on the upper end of the scale.  I was paid more than a number of reporters that I thought were better than I was.

The probable reason was that, when I applied for the job, I was undecided whether I really wanted to leave my old job, and so, almost unconsciously, negotiated a high starting salary.   Pay raises were usually a percentage of base pay, so my higher starting salary meant my income was higher than it otherwise would have been for the whole 24 years I worked for the D&C.

I didn’t think I was overpaid; I thought they were underpaid.  But it was interesting as an example of how random a pay system can be even when, like ours, it is supposedly based on merit.

A labor reporter named Steven Pearlstein wrote a good article on this topic for the Washington Post.  He pointed out that many companies discourage or even forbid employees to discuss their pay among each other.  At the same time corporations conduct wage surveys and share wage information so as to avoid getting into a bidding war for good employees.

Knowledge is power, whether for the employer or the employee.  I think it makes sense for employees to share information readily with each other, not so readily with future employers.

My idea of a just society is one in which every person could post his or her annual income, and the sources of it, on a bulletin board, and nobody would have any reason to feel embarrassed at what was revealed.

Why the rich will probably get richer

April 2, 2014

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CAPITAL IN THE TWENTY-FIRST CENTURY by Thomas Piketty (2013) translated by Arthur Goldhammer (2014)

Thomas Piketty of the University of Paris is the world’s foremost authority on income distribution and the super-rich. All the charts you see how income is being redistributed upward to the top 1 percent of income owners are based on work by him and his collaborators. In this new book, based on 20 years’ work, he concluded that it is not an aberration that ever-greater shares of income go to a tiny elite. Piketty said this is the natural working of a market system.

According to Piketty, the higher you go on the income scale, the larger the amount of income comes from investments rather than work. When the economic grows at a higher percentage rate than the average rate of return on investment, income becomes more widely distributed. When the average rate of return on investment is greater than the rate of economic growth, the owners of economic assets gain at the expense of everybody else.

His research is based on 200 years of data on income and wealth distribution in France, the UK, the USA and other countries, which now can be analyzed and processed with computer technology. His book would be a good supplement to David Graeber’s Debt: the First 5,000 Years, whichi is sketchy on precisely the past two centuries.

Piketty concluded that the average rate of economic growth since 1800 is about 1 percent a year for the countries he studied, and the average rate of return on investment is about 4 to 5 percent a year. Unless something happens to change one or the other figures, a wealthy elite will grow richer and richer at the expense of everyone else, until there is nothing left to invest in.

pikettybookcover00Piketty defines “capital” as anything you can own that will generate income. In the late 18th and early 19th centuries, capital (by his definition) consisted mainly of agricultural land and government bonds. Now it consists mainly of housing, industrial machinery and stocks and bonds of private corporations. Few economists would define “capital” in so broad a way, but if all you’re interested in is income distribution, it doesn’t matter what form “capital” takes.

If you read English and French novels set in the early 19th century, the characters consist mainly of members of what Piketty calls the “dominant” class, which are the 1 percent of the population who receive 30 to 60 times the average income, and the “well-to-do”, who consist of the next 9 percent. Characters in Balzac and Jane Austen seek wealth through inheritance, marriage and patronage of wealthier and more powerful people. Nobody in those novels thinks that wealth is acquired through hard work and superior talents. Piketty said there is nothing to prevent a reversion to this kind of world, although the difference between wealth and poverty wouldn’t be quite so extreme.

The reason the history of the 20th century was different, he wrote, is the great destruction of capital during the two world wars and the Great Depression. This cleared the deck for the great surge in prosperity of 1945-1975, which benefited all segments of the population. Since then, according to Piketty, the growth in income has been sucked up by the dominant and well-to-do classes.

Now I don’t think that someone born in 1900 would have thought the prosperity of 1945-1975 justified the catastrophes of 1915-1945. This points to an important limitation of Piketty’s book. It is full of fascinating information, drawn from a wide variety of sources, ranging from centuries of income and property tax records to social history, economic theory, literature and financial journalism.

Thomas Piketty

Thomas Piketty

But when you get right down to it, he deals with only one subject, the income share of the super-rich. He doesn’t have theories on how to eliminate poverty, promote economic growth, set priorities for public investment or any other important objective. This is not a criticism. It is just a description of what the book is and isn’t about.

His one subject – which is important – is the economic elite and how, short of violent revolution, to prevent from sucking up an undue share of society’s wealth and income. But as the experience of 1915-1945 shows, destroying the power of capital does not, in and of itself, make things better for everyone.

Piketty focuses on data from France and the UK because the United States is, in good and bad ways, exceptional compared to the rest of the world. During the past 200 years, the boundaries of France remained roughly the same and population grew from 30 million to 60 million. During the same period, the United States expanded from a narrow strip along the Atlantic to the Pacific coast, and its population grew from 5 million to 300 million.

Income distribution in the United States historically has been more equal than in Europe, he noted, at least for white men in the Northern states. The chief form of capital in the early United States was agricultural land, and this was very cheap compared to Europe. Early settlers and immigrants brought little wealth with them. What they created was the fruit of their labor. A great deal of the capital for building U.S. factories and railroads came from European investors. The great American hereditary fortunes did not emerge until the dawn of the 20th century.

The South was different from the North because the economic elite possessed enormous capital in the form of enslaved human beings. Piketty estimated that in the 1770-1810 period, the economic value of slaves in the South exceeded the value of all land, housing and other forms of wealth, and also exceeded the total wealth of the North. The result was a high concentration of wealth, and a large gap between rich and poor white people, which persists to this day.

Differences in earned income, while great in all countries, have seldom been as important as differences in income from wealth. The exception is the surge in corporate compensation in the United States and other English-speaking countries in the last generation. Piketty showed, by means of international comparisons, that the current size of executive compensation cannot be justified on the basis of merit or results. It is the result of executives being able to influence their own pay, and the lack of standards as to how much is enough.

The disturbing fact about investment income is that the more you have of it, the higher your rate of return. Piketty compared the returns on endowment funds of American universities, which are a public record, by size categories. The larger the fund category, the higher the percentage return, with Harvard by far outpacing all the rest.

This is because the larger the fund, the more the owner can afford to get expert investment advice, and the better able the owner is to invest small amounts in high risk, high return investments. Also, unlike an individual who has saved for retirement, the super-wealthy person or institution does not have to take out a significant percentage to live on.

The implication is that once you reach a certain level of wealth, your wealth becomes self-sustaining.  A Bill Gates or a Steve Jobs can simply coast. He not longer needs the entrepreneurial drive that brought him success in the first place. Piketty’s analysis of the Forbes 400 list indicates that inherited wealth is at least as important as entrepreneurial wealth, and he thinks Forbes vastly underestimates income from passive investments because of lack of access to tax havens.

Piketty’s solution is a tax on capital – which, remember, is by his definition any form of income-producing property – sufficient to bring the average return on investments down to the expected rate of economic growth. He pointed out that some forms of wealth, such as real estate and buildings, already are taxed. In principle, taxing stock portfolios is no different.

Since the average rate of return is greater for greater wealth, his proposed tax would be graduated, with a zero or 0.1 percent rate for fortunes below 1 million euros and perhaps rising as high as 2 percent above 5 million. These don’t seem high, but they are high compared to expected rates of return. He also favors continuation of the graduated income tax and inheritance taxes. His purpose is not to prevent people from getting rich. It is to prevent the rich as a group from getting richer at a faster rate than the economy is growing.

The revenue from the wealth tax should be spent in reducing government debt, which Piketty sees as a transfer of income from taxpayers to wealthy holders of government bonds. It is better to tax the rich than borrow from them, he said.

Piketty’s proposals require much better information about wealth and income than we have now. The first step would be for the international community to require reporting of financial information from places such as Switzerland and the Cayman Islands that act as tax havens.

The 577-page book and the 76 pages of notes are crammed with information of interest even to those who don’t accept his basic argument. It is not written in technical language, which is part of the reason it is so long; Piketty, like the late Isaac Asimov, explains everything from the groun up.  If you don’t have time to read the whole book, his core argument can be found in the Introduction or Conclusion.  Or click on some of the links below.

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The rising tide no longer lifts all boats

March 20, 2014
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President John F. Kennedy used to say, “The rising tide lifts all boats.”  What he meant was that economic growth benefits everyone.   The chart above shows that this once was true, but is no longer so.  The links below give some possible explanations as to why this is the case.

http://houseofdebt.org/2014/03/18/the-most-important-economic-chart.html

http://www.nakedcapitalism.com/2013/08/productivity-rose-7-7-post-great-recession-workers-have-seen-none-of-it.html

The only places where Americans are doing well

December 22, 2013
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Is drilling for shale oil the only way Americans can make a good living from honest labor?

I hope not.

Click on How oil made North Dakota rich by Amy Harder for National Journal for more and the source of this map.

American middle class: still treading water

October 8, 2013
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Hat tip to occasional links and commentary.

Inequality and well-being: country comparisons

August 9, 2013
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The United States is a leader, and not in a good way.

Source: New York Times.

Hat tip to The Big Picture.