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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Jan 08

There’s been much discussion in the news recently regarding the minimum wage, currently $7.25, and the efforts to raise it to a level which would at least keep pace with inflation. You’ll hear nonsense that if the minimum wage is raised, jobs will be lost. After all, if you raise the cost of something, the demand goes down, right? Even if this were true, it’s rhetoric with no data behind it. There’s more to supply and demand than the simple result of ‘less.’ That something is called elasticity of demand. Simply put, if you raise the price of an item by 1%, you look to see how much the demand goes down. If it goes down a very tiny amount the relationship is considered inelastic.


What’s interesting to note is that this experiment has already been performed for us, by states that raised their minimum wage above the federal minimum. Data accumulated, graphs made, truth exposed. Stores have already cut back on employees. Ever go into a Home Depot where there’s one clerk monitoring 4 self check registers? Or the local supermarket that has multiple self-check lanes, and a few full-service? Will an increase of 39% from $7.25 to $10.10, the current democrat goal, have zero impact on jobs? No, probably not. But the loss in jobs is likely to be quite small compared to the positive effect on the millions working at minimum wage.

The next issue is that trickle down economics doesn’t work. Corporations are sitting on over $2Trillion and for various reasons, still aren’t hiring or repatriating this money to the US. On the other hand, the extra $5700 this wage bump would give to the minimum-wager will be spent almost immediately. An immediate boost to the economy. There are nonsensical arguments out there such as, “if $10 is good, why not raise the wage to $25, or a $50K salary?” These arguments are red herrings, and should be called out  as such. At the start of this past holiday season, I heard the National Retail Federation CEO Matthew Shay say,”Since most of 2M min wage workers are young, it’s ‘more like a starting wage.'” Sir, you are out of touch with reality. Granted, slightly more than half are 16-24 years old, but this leaves the other half, adults that are trying to making a living on this wage. What I don’t see in the mix is a discussion of a lower wage for those under 25. It would make sense for the teen and students to stay at the current wage and would dismiss the notion that minimum wage earners aren’t those who are supporting themselves and their families. I offer such a proposal as compromise, not a position I’d otherwise push.

Now, let’s get to the punchline, the true transfer of wealth. It’s simply a matter of following the money. Wal-Mart has long history of establishing stores in neighborhoods and driving out the local stores. No wonder when Walmart submits a permit for a new location, there’s nearly always pushback and protests if the permit is approved. Given the low wages, their employees are typically reliant on some type of public assistance programs to help make ends meet. This assistance doesn’t come from thin air, it’s from the taxes that you and I are paying. You see where this is going? Our tax dollars are directly subsidizing Wal-Mart shareholders, more than half of which are members of the Walton family. The data shows that Wal-Mart’s net earning were $17.2B this past year. I wonder how much of this can directly trace itself to the subsidies its employees received. Yes, it’s time to raise the minimum wage, not as a means of redistributing wealth, just the opposite, as a way of stopping our collective wealth from going to this one family.

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Dec 14


This week, much of the focus of the political cartoons surrounded Santa and consumerism around the holidays. I’ll pass on that for now. For me, low wages are still an obsession. I’m not a fan of the Occupy movement, only because their message was too disjointed. But I do think the minimum wage needs to rise. At least to get back to the level of the late 70’s adjusted for inflation.

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