Aug 24

That was the title of a Barron’s article this past week. There’s been more and more press about the gap between the rich and the poor. In my work as a real estate agent focussing on renting to low income people, I see people who aren’t lazy, but just the opposite. Showing me proof of income made by working a 40+ hour week at a minimum wage job, and asking if we can take their cash income into account as well. The regular extra money they make doing some labor or babysitting nights or weekends. When you make $1400 a month working full time, you’re not going to able to afford much in the way of housing. We try to see three times a rent for income, i.e. $2400/mo income to qualify for an $800/mo apartment.

The Barron’s article started off with an observation, $1.4 trillion cash in the economy. The federal reserve backs up that number. The authors then make 2 logistical leaps that are beyond comprehension. First, that this cash is income. Forget for a moment that most people don’t keep more than a few hundred dollars sitting around. Even if they did, it only counted as income (declared or not) when it came in. The authors then assume that 80% of this money is income to the poorest 1/3 of households, the bottom 40 million families. Then, by magic, wait, not magic, a miracle. As in this cartoon.


Where was I? They conclude that the bottom 1/3 have an income that’s understated by as much as $30-$40K per year. To be fair to Barron’s and their real authors, the article was published in the “other voices” page.  This is where essays are solicited from readers who have some knowledge of finance. Whoever accepted this article blew it, in my opinion. Is there no cash economy? No. Of course there is. However, the numbers presented in the article offer bad math and a false conclusion. The income gap is so large that if it’s exaggerated by some percent, it’s still an issue. Sorry, Barron’s, this article isn’t worthy of your otherwise fine paper.

(Note: I am not condoning undeclared income, just putting it in perspective. A real estate agent is not an agent for the IRS, in fact we have an obligation to count any and all income, regardless of source.)


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Sep 13

IncomeGapAn issue that wont go away and lately, pretty tough to ignore.

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Aug 22

A couple weeks ago, I read a Times’ article The Typical Household, Now Worth a Third Less. The punchline of this article was the fact that the US median household saw their net worth fall from $87,992 in 2003 to $56,335 in 2013.

The article linked to a report, Wealth Levels, Wealth Inequality, and the Great Recession. It offered further context to the median wealth numbers.


Keep in mind, during this period, stocks, as measured by the S&P 500, rose by an inflation adjusted 61%. Yet, total wealth (look at the first line, the mean number) fell by 8.6%. This would be disturbing enough, but the top 5% saw an increase 14.4%, identifying a large shift in wealth to the top. Three quarters of households fell behind, losing 36% or more of their wealth.

The ten year period in question contained the housing crash, and the losses shown reflect the fact that even at the 75th percentile, much of one’s wealth is contained in their home. Overall, real estate represents less than 25% of wealth in this country, but this number doesn’t spell out how this is distorted at the sub 75th percentile. For the median family, most, if not all of their wealth might be in their home.

Back to the title of this post. These ten years reflect the continuation of a frightening trend, a middle class that is fading away. Income hasn’t kept up with inflation or with the long term trend of improved productivity. In other words, the average worker is producing more, yet seeing no increased reward for the fruits of his labor. We’ve seen the results of economic bubbles, how a too-high NASDAQ (remember the dotcom bubble?) will come crashing down. We saw the housing crash. Now, I’m looking carefully at this statistical shift in wealth. A democratic society can’t continue on this path, as this trend simply shifts more and more wealth to a select fewer and fewer people. I don’t have a solution to offer, only these observations. And the desire to see a strong middle class return to this country.

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Jun 05

The Boston Consulting Group recently issued a report on global wealth, Global Wealth 2013, Maintaining Momentum in a Complex World.

A few of the statistics from this report caught my attention:

  • Global Wealth ended 2012 at $135.5 trillion.
  • 39% of this wealth was held by 1% of all households.
  • The number of millionaire households rose to 13.8 million


Let’s look at the implication of doing a bit of math on these numbers.

  • The remaining 61% of wealth is $82.6 trillion
  • Divided over a world population, this is an average $12,000 per person for the rest of us.
  • Mean Wealth in the world is about $3600.
  • Total US wealth is $43 trillion, 32% of global wealth, with less than 5% of the population.
  • This divides down to an average $136K for each person in the US, but even this is concentrated at the top so most have much less.

An interesting report to me. It helps put into perspective how rich the US is when compared to the rest of the world, and within the US how wealth is concentrated among the select few. How you pondered these numbers? Were you surprised, or was it what you’d expect?

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Feb 28

President Obama recently called for an increase in the minimum wage, from the current $7.25 to $9.00 per hour. I found two charts to be of interest in furthering this discussion. First, the minimum wage as a percent of poverty level income.


This graph helps illustrate how those earning only minimum wage have failed to keep up with inflation and from a high of 90% of poverty level income are now closer to 60%. I’m not suggesting the minimum wage should be a particular fraction of poverty level income, just observing this graph goes in the wrong direction.

I know that there’s a strong case to be made for higher minimum wages resulting in the loss of jobs, although the data supporting this is a bit sketchy. I’d like to offer one more graph to show why I feel this way.


We are talking about just 2% of workers. Had the minimum wage tracked inflation, adjusted annually, businesses would have planned for it and dealt with the cost each year the same as they deal with rising fuel bills or any other component of their costs. With half of these workers being under 24, and not necessarily family breadwinners, we shouldn’t forget the half who are.

I remember a $3.10 minimum wage. It was enough to have pocket money as a teen. And it was awkward working side by side with those who were lifers, people who did this not for beer money, but to pay their bills. Keep in mind, if you look at $3.10 in 1980, it inflation-adjusts to $8.50 in 2012.

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