Breaking Through the Barrier

Graph of consumer spending and how it is affected by recent changes in the economy

admin — Mon, 05 May 2008 14:24:02 +0000

Each month, the Bureau of Labor Statistics gathers 84,000 prices in about 200 categories — like gasoline, bananas, dresses and garbage collection — to form the Consumer Price Index, one measure of inflation.

It’s among the statistics that the Federal Reserve considered when it cut interest rates on Wednesday. The categories are weighted according to an estimate of what the average American spends, as shown below.

NYTIMES Spending Graphic

The salary gap over time.

admin — Wed, 30 Apr 2008 17:41:28 +0000

This article from the Conde Nast Portfolio shows the gap between the compensation recieved by top US CEOs and the compensation of the average worker. The gap in 1970 is 28 times. By 2005, it has grown to 465 times.

It suggests that one of the tools being used by the elite is to control the wages of workers, thereby controlling the costs of doing business. The workers have been reduced to being part of the calculus, while the CEOs are exempt, free to reap the wealth rewards of their jobs in a way that is disconnected (or at least insulated) from the performance of their companies.

http://www.portfolio.com/interactive-features/2007/06/salary_comparison

The first step toward wealth.

admin — Thu, 14 Feb 2008 04:59:44 +0000

Saving your way to riches is a lie. At least a partial one. It came to me one day when a coworker said “just remember, invest regularly and heavily in your 401K and you can retire a millionaire.” Yes, of course, that’s a no brainer you might be saying to yourself. I studied compound interest, and I know that if I put just $50 a week into a tax free investment and get 10% return on that, if I do that from the time I’m 20 ’til the time I’m 65, I’ll have over a million bucks saved when I retire.

But there’s the catch… what if you’re just making enough to survive? Maybe you’re just starting out in life, or you have debt, or you have kids, or you have few skills that could get you a better paying job? Then to put $50 into a 401K might mean you can’t buy food, or can’t make rent. $50 a week might not seem like a lot, even proportionally to the salary of someone working full time at a retail store, but it could mean the difference between minimal comfort and suffering… or between shelter and homelessness.

$50 is nothing to someone who earns well in excess of their living expenses though. Take a look at this chart. It shows that the rich spend a much higher proportion of their income on investments than middle or low income households do. Is it just because they’re smarter, or is it just because it’s easier for them because they have much more disposable income?

I assert that much of wealth generation has to do with two factors: being above the threshold so that you can invest toward wealth, and second, making good choices in your investments. Therefore, if there’s a barrier beneath which one cannot reasonably hope to save, then one’s primary goal at that point is to increase income and control expenses. Seems simple enough…

Oh, and this leads to the conclusion that flat, or fair taxes are lies. Below a certain threshold, there can be no wealth generation. There is only survival. Above a certain threshold, every extra dollar is all upside. More on this next time.