Random Thoughts from the High Desert

Written by Sig Silber

Here are the two articles.

2010 to 2013: Median Family Income Before Taxes Fell 5%, Mean Income Increased 4%

which can be found here.

and

Federal Reserve: How the Lower 90% Have Been Screwed

Which can be found here.

They are both based on this report from the Fed

The first mathematical challenge is to explain:

“What is the most likely reason that mean income increases while median income declines?”

Possible explanations include:

A. The meaner you are, the richer you get

B. Median performance these days does not get you the brass ring

C. The Federal Reserve does not have helping the Median Family as one of its goals.  The FED is owned by banks…..Jeesh. Is that news? 

D. The study was really about balance sheets not income….Gotcha!!!

E. Minorities are not doing well. (I think that one was covered in the FED report)

F. It is better to be a borrower than a saver with ZIRF(forever).   That is what financial repression means. Why incur all that student debt if you are not going to become smart enough to figure that out?

G. Owning a house may mean that you are less likely to be able to move to where the better paying jobs are. (I think that one also was covered in the FED report).

H. If we really told you why…..you might be very angry…so we provided 40 pages and let’s see if you can separate the wheat from the chaff. We get paid by the page….how about you? 

I. All of the above.

I” is the correct answer.

The second question relates to the below graphic which is a slightly different version of the more common quintile or 1%, 5%, 95% view of the income distribution in the U.S.

This graphic creates the second mathematical challenge which really can be subdivided into two parts. First we have to understand if the increasing income of the top 3% has to do with a greater percentage of the population being in the top 3%. There is all sorts of demographic literature put out by Harry Dent and others that makes me wonder if improved medicine is part of our problem by swelling the ranks of the top 3%.

I went to school in New Jersey and Pennsylvania and New York City not New Mexico. So I know the answer to that question. But it is tempting to go to the Plaza in Santa Fe and conduct a survey on that question. But I would  snare too many tourists. It is best if I simply do an email survey of all elected officials in New Mexico and offer a Monopoly “Get Out of Jail Free” card to the winners and I would get a tremendous response.

The next part of the mathematical challenge comes about if the decision is made to remove the top 3%. This question can be formally specified as: “will future graphics require that only the data for 97% of the population be shown because it is not correct to include those who have fled the U.S. to avoid taxes or have otherwise been impoverished.  I do not believe the top 3% of earners will have their citizenship revoked and passports suspended because right now that is the only way to remove yourself from the jurisdiction of the IRS. If there was a way to have ones passport suspended and citizenship cancelled without having to pay a large exit tax, there would be a rush to download the necessary forms.

If however the removal of the top 3% is the selected approach, we then must address the accounting issue of how to deal with the rump 97%. How do we do this and preserve the integrity of the large volumes of data that have been collected by the BEA and BLS etc. over the years? We do not want to have to fund a large project to chain the discontinuity created by the certainly justifiable removing of the top 3%. The magnitude of the problem is illustrated by the below table which shows the impact on income distribution categories by removing the top 3% .

Traditionalists might argue that the whole is equal to the sum of its parts so there always is a top 3% (there can be ties i.e. if everyone’s income goes to zero, we will all be tied for being in the top 3%). But here in New Mexico one can get flamed for posting such a controversial statement. That has happened to me recently so I would not advise that approach here in New Mexico which is ranked 49th in comprehension. California beats us out but that is probably only due to their proclivity for building their grand cities on fault lines projected to soon experience “The Big One”.

Of course the really correct answer for all our income distribution woes as per the FED is that people are money hoarders. If not for money hoarding, the lower 90% would have higher incomes than the top 3%. Banks in Europe are being charged a hoarding tax. So far this has not crossed The Pond and only debasing the currency (inflation) has been used to discourage hoarding. But there are plans. There may soon be a non-spending tax to discourage savings. If you are going to pay say 5% a year on your assets whether you spend your money or not, you might as well spend and get some junk to store in your house. This will reduce your non-spending tax bill.

They are waiting to see if legalizing pot solves the problem but if not, more draconian measures will be taken against the thrifty. Those who save may have to wear a Scarlet S to let everyone know how socially irresponsible they are.

“Shop till you drop” may no longer be voluntary.