The vast chasm between the haves and the have-nots

Urban Street

Back several year ago (actually a lot of years ago) I found myself in Philadelphia for the first time ever, in a rental car, in the middle of January, very lost. I just needed to get on the freeway pointing to the airport.

Me and my travel companion got out at a gas station and asked someone how to get to the freeway. The man did not know. After several minutes, I realized this man was not being intentionally unhelpful, he just simply didn’t know. He had never driven a car in his life and had no reason to ever use the freeway. He probably never ventured outside his neighborhood his whole life.

….

A middle-aged, middle America impression of OccupyWallStreet

I’m a middle-aged mutt in this wasteland between the two coasts commonly known as Middle America. Most of the United States lives here, but we rarely — ok never — get asked about important things like politics and the economy. We are the gun-toting, Bible-banging, slack-jawed, under-educated, corn-fed, polyester-wearing yahoos that the liberal media like to make fun of and Wall Street dismisses.

That is a little harsh. Ok, fair enough. I’ve seen my neighbors in their natural habitat (Kroger during wine and cheese hour) so I get where you’re all coming from. But just because we are out here in your idea of Wastelands doesn’t mean we are any less important and informed as you are.

Try to keep up.

What I know by getting to middle-age
There never was a Middle Class in America. We only ever had two classes; the Rich and Those Who Expected to be Rich (ETBR). It is the American Carrot, that thing that gets dangled in front of us to keep all of us reaching for more. The Middle Class was always a nebulous scale of the lower Rich and the upper ETBR which ebbed and flowed depending on the economy at the time. The indicator of where you were was how much wealth you had relative to what others had.

Equity (or wealth if you want) is a very cold, harsh ledger. There are only two ways you can grow it; invest Liquidity or Time.

For example, if you buy a house, you can add equity only one of two ways: put more cash into the place to quickly reduce the amount of mortgage debt OR accept more mortgage debt and increase equity over time, holding your breath the entire time, hoping the equity will eventually exceed the amount of money you have put in. When the equity teeter-tots over to the asset column, you now have wealth. (Unless others around you get foreclosed on, but we’ll get to that.)

The same thing with those who financed a college degree. They expected that even though the degree cost more than most peoples’ houses, they would get a job and over time, not only pay off the loans but make more than the average salary. (They should have bought a calculator first)

It’s just not that complicated. Most people in the ETBR class have a whole lot more time than liquidity. They trade their time all day long for liquidity with wages, mortgages, three easy monthly payments, etc. The Rich class can choose liquidity or time, depending on the rate of return. A slow rate of return means they can use time. A fast rate of return, they use liquidity. The ETBR class does not really have that choice (or more accurately, the degree of choice is scaled depending on the ratio of liquidity to time one has.)

The lack of choice is mostly what pisses the ETBR off most. This generation thought they had time. They were wrong.

This “law of economics” is about as rock solid as the law of gravity. You can ignore it or deny it, but it is still going to affect you.

People without liquidity tried to accelerate time. People with some liquidity but — not enough — tried to expand the value of each liquid unit too fast. Eventually, the ETBR ran out out time before they had a firm grasp on equity and lost it all. When you are clinging to a rock face on a mountain by your fingertips, when you fall, you don’t just slip; you fall all the way down. It does not matter if you are ten feet up the mountain or ten feet from the summit. (Did you catch that? I equated laws of economics to gravity. Genius. I should be ruling the world by now. Roll your eyes if you got ’em.)

How this all ties into #OccupyWallStreet
I do not support Anonymous or Adbusters. I am not a big fan of the fist-pumping, kill Wall Street bankers rhetoric and other hippy crap like stuffing dollar bills in your mouth and marching like zombies. Sanctimonious hipsters with no life experience annoy me, too. It is unsettling to us out here that the OccupyWallStreet “non-leadership” has connections with these groups if only that they decide unilaterallty who is good and who is bad. I like steak, but the fifth “fact” in their Declaration gives me pause that reads, “PeTA is invited to join us.” All of a sudden, now my support for OccupyWallStreet means I support PeTA? Hell no!

Just because I lean to what this country defines as “left” does not mean I hang with the crazy-left. For the record, people claiming the right of human dignity is not a left-leaning principle. Groups that use terror tactics for good scare the hell out of me just as much as those who use them for evil. In the end game, “there is no good or evil; there is only power.

And she is very, very seductive.

To the middle-class middle America, if a group like Anonymous can target a big bad corporation, what is stopping them from concluding — unilaterally — a mom-and-pop business is supporting a big bad corporation (like Visa) for taking credit cards as payment? I understand how the affiliation is feeding Visa, but the rain nourishes the grass and weeds alike. It is incumbent upon groups like Anonymous to make sure the rain falls on the grass and not the weeds if they choose to pee all over my garden without my consent.

I believe the 1% are and have been exploiting their advantage of liquidity to enhance their fortunes. I also believe the 99% have been exploiting their victimization caused by their unwillingness to learn and adapt to the law of economics stated above.

Money finds the path of least resistance. It is what keeps corporations from innovating, what keeps individuals from having to make changes and politicians from reforming their cheating ways. As we used to say when I worked for The Man; cash hides a lot of sins. The only people entirely unaffected are those who are so rich they could not run out of money if they tried and those so poor they don’t have a hope of becoming a member of the ETBR ever in their lives. The rest are gaming the system in almost every way they know how.

I didn’t buy more house than I could afford nor did I refinance on the house equity I had to finance a non-asset like a college education or vacation. I did not take out or encourage my kids to take out huge student loans so they could attend a swanky out-of-state university. The social contract I had with you, the 99%, was that you would not purchase more than you could afford so that your house would not be foreclosed on or your kids would not be recklessly in debt. We were supposed to be in this together. Without your participation, colleges would not have been able to raise the tuition rates. Banks would not be offering 0% loans if nobody took them.

You broke that social contract by always needing more. I kept my end of the bargain.

I expect the 1% will work tirelessly to extract wealth from me until my last breath. But this much I know also about the 99%: They will not be there to help me guard the gate from the Barbarians. They will be busy guarding their own gates.

What I want
What I want most is my own space that is warm and free from the prying grasp of government tax departments, the whims of landlords, the perils of curable illness and disease or the selfish and short-sighted lust of those in power. Owning my own home is none of these things. Even if I were to get to pay the last payment of my mortgage to the bank, I could still lose my home if I could no longer pay the property tax the county continues to demand. Or lose my freedom due to the ever-increasing criminalization of poverty. Or suffer health problems that deplete the wealth I used a life-time of time to build.

The Barbarians will always be at the gate. This season’s Barbarians are the Wall Street bankers and politicians on the take. Next season, it could be drought and famine. The next could be the City of Englewood deciding that my house sits on a patch of land they want to turn into a park. Or Anthem Blue Cross/Blue Shield increasing my premiums 38% or denying a treatment they pre-approved. The list of Barbarians are endless.

As I move through middle-age and into old-age, I know that my ability and desire to fend off the Barbarians will become less and less while my desire and need for security and warmth will become more and more. I can already feel the fear and rage creep into my bones when some punk-kid behind me in traffic does that dodge-and-weave thing, trying to pass me as I am not speeding fast enough for him. I feel it in the deep sighs of a younger generation who mistake patience for inaction. I know it in my heart when young women no longer look at me with anything less than pity.

What fears me the most, though, is knowing I will not have enough time to build the wealth needed to construct a gate strong enough to keep the Barbarians at bay. I fear they will destroy me before it is my time to go.

*I don’t think the percentages are split 1%-99% but that is a heck of an effective way to market the movement. My use of the numbers are just a short-hand convenience; no more, no less.

You may find this interesting.
And this.
And this from @Karoli who started me thinking down this path, culminating in this here blog post. Blame her 🙂

99% does not mean 99 things #OccupyWallStreet

#occupywallstreet

I read the #OccupyWallStreet story in the New York Times this morning and kinda just shook my head slowly. They reported this as if it were a 2011 version of Woodstock, complete with hippy-chicks and guitar-slinging beatniks.

Yay. Or should I say “bully* for them.”

It’s not that the New York Times didn’t get it. I think they do. It may be because the protest is making itself hard to get.

Here is my advice to the #OccupyWallStreet folks. Do with it what you will.

Get simple. Fast.
Know what you want. Demand something short and easy for the media to understand in under nine seconds and something that even Chuck Todd won’t misunderstand and mangle (though I’m not entirely sure how you can do that.) It is really hard to get what you want when you can’t define it in 140 characters or less. Human dignity? Universal health care? Free universal education? Free checking? A specific banking bill that a Congressman wrote? (e.g. SB-5 in Ohio got over a million signatures because we were able to point to a specific bill.) If you can’t answer the question: “What do you want?” quickly, you are just creating a mob, not a group of lawfully-assembing citizens who demand that their grievances be met. (Example powdered wigs worked for the Tea Party!)

Unite
The worst thing you need media to call you is hodge-podge, rag-tag, unorganized and that sort of thing. The easiest way to organize is to get a slogan and have everyone wear the same t-shirt. Green would be delicious irony. Print a big 99% on the front and silk-screen a large block of white on the back where each person can write his/her own story.

Kickstarter
Get a Kickstarter going and start raising money. You are gonna need a lot of it. A Kickstarter helps those of us in Dayton, Ohio who can’t be in NYC to participate. That would also force you to think specifically about how you will spend the funds which will lead you to define your goals.

Website, Social Media
You have a good start at occupywallst.org/, but there is way too much on your site. Photos of people, just like this. And quit with the fist-pumping anger. Us older people still remember the Black Panthers and you are scaring us.

This is not an event
Quit scheduling things. There is no “agenda.” Do-nothing corporations have an agenda for meetings that nobody likes but go to anyway because there is almost always free muffins. The 99% are not corporate offices. And keep celebrities out of your group. Susan Sarandon and Cornell West are not helping your image. They are even less of the 1% those in your group will never be. When they show up, the media focuses their cameras on them and away from the crowd. Who does that serve? The celebrity. Only.

Produce your own media
Have your own reporters and writers. Use studio media techniques to deliver your own stories. Issue media credentials to people at NBC, CBS, Times, etc. Make them come to you. (They won’t and the credentials will mean nothing, but it will send a message to corporate-owned media… who are part of Wall Street… which you knew, right?)

Shut up
Do not chant. Do not talk to the media. Say nothing. Ask everyone there to say nothing to media, the police, hecklers, etc. The medium of silence will be your message. You are the 99% who are not being heard.

Ultimately, I think this movement will die off simply because a mob of hobos and stray dogs is not a group you can negotiate anything with. Sure, there is general unrest and all the ingredients for an uprising and class riots exists in all parts of America, but unless there is something specific (like ending the Vietnam War) to rally around, it is just a mob. If you want this to take hold, you have to simplify.

Quickly. Winter is coming.

*Sorry for the pun. I know this is a serious topic and I knew better, but I couldn’t resist. Part of what I’m protesting is a general lack of humour, in good times and bad.

Jobs

Barack Obama on Labor Day

I was going to skate past Thursday and not comment on this big jobs speech that President Obama is going to deliver tomorrow, but then @caroljsroth tweeted this morning:

I want to know what #jobs creation efforts/policies you are looking for as a small business owner. What would incentivize smallbiz to hire?

Oh, crap! I took the bait and replied:

Guaranteed customers. Seriously, that’s what I want.

I know, I know, it was flippant and snarky but it was what bubbled up on my brain at that exact moment. And I just blurted it out. I think a lot of other small business people are thinking the same thing. Washington and the media keep asking the wrong damn questions.

Here is the small business reality: Yes, we know that by hiring someone, that person will then spend money into the economy and eventually, when there are lots of other small businesses hiring, that will create more demand for the goods and services we provide. We get that. We really, really get that.

Theoretically.

But on a practical level, we’re all sticking our heads out the store front, not seeing any potential customers and saying, “I’m not gonna try it; you try it.” just like the Life cereal Mikey commercial.

In the back room, the banks — who have nothing to lose because they will get bailed out — are pressuring us for personal guarantees on any loan we sign. If I am the first to stick my neck out and nobody else follows, it is MY house and MY car and MY retirement fund that I will lose. And my government will not give a puppy’s pooch about me. Same with the SBA and other government-backed loan programs. Modern-day natural selection.

But back to the original question.

The president will most likely do some tax policy deal. Ugh. Tax policy tinkering never works for small business because the only thing we hear is the ear-piercing screaming of our CFO who just got back from a workshop learning about all the changes to the tax code from the last time Congress messed with taxes. Yeah, we all hate paying taxes, but taxes are a sign of success. If you make money, you pay taxes. If you spend money, you pay taxes. If you are neither making nor spending money, taxes don’t matter; even if they are set at 100%. 100% of $0.00 is still $0.00! Congress can’t give us a big enough tax incentive to hire anyway, so just quit trying. Please quit trying.

Policy change #1: Quit farting around with the tax code. When you make these “deals” it only sounds like someone is getting screwed somewhere. And that someone be us. Leave it.

Put your money where your mouth is. US government, YOU hire people to do stuff. Start with writers, artists, sculptors, filmmakers and musicians to create works open to the public. If we see that work, chances are people you are paying will start buying our goods and services and we’ll have to hire people to staff up. Pretty soon, the private industry employees every other small business is hiring will start spending money on our stuff and Uncle Sam can quit hiring people. We’ll probably offer better wages and benefits anyway and then those government jobs will just dry up.

Policy change #2: Direct hiring. Do not give money to the states and private contractors to hire people. They will just use the cash to shore up their bottom lines and bloat their stock prices.

That’s pretty much what I want to hear tomorrow. I’m not going to, but that is what it will take.

Otherwise, it will be the same ol’ waiting game we’re all playing right now.

The financial education of Eric Cantor

After listening to Eric Cantor talk one too many times about how rich people and small business create jobs as a result of keeping their taxes low, I feel it is my duty as an American citizen to give him a short lesson on how poor and rich people spend money differently. It’s not very complicated or that long of a lesson, so he can even read this blog post on his iPad while the president is talking during the meeting tomorrow. Really, nobody will notice.

How a poor person spends money
For purposes of this post, let’s say a poor person is someone making $10.00/hour at a full time job, even though there are many more people making far less at minimum wage ($7.25/hr just to refresh your memory. It was an issue the last election.) Besides, the math is easier at $10.00/hour.

Working a full day will gross this person $80.00 each day or about $67.00 net after payroll taxes (that is the Medicare and Social Security contribution in addition to income tax, which they are likely to get back as a refund at the end of the year, so we won’t count that.) At the end of the week, that is $400.00 gross, $335.00 net.

That is the income part. Now, let’s look at how they think about their paycheck.

Rent is usually seen as “Can I cover this month’s rent with one paycheck?” If the answer is yes, that is good. Most often, though, it is a week and a half, maybe two. But poor people never do a percentage of income calculation. They don’t see that housing is costing them 25-50% of their net pay. They just look at weekly paychecks.

Let’s take a look at one more example; buying lunch. If a poor person goes to McDonald’s during lunch and it cost $8.00 it never occurs to him that he just spent 12% of his net pay and has worked a whole hour to pay for a lunch that took ten minutes to consume. Poor people just simply do not do this math; it is too scary. It would paralyze them and make them unsuitable for the cheap labor capitalism needs to maintain productivity.

If you gave a poor person a $1,000 check, he would go spend it on something like a television or toys for his kids or some material thing that some company made and hopes to sell. Most likely he would treat his family to a steak dinner at the Roadhouse and maybe buy a tshirt at the next soccer tournament his kid plays in. I’m not perpetuating a stereotype here, just making an observation about how most poor people would spend a “windfall.” You can do the math about how many televisions you need to sell for companies to make more, and hire more sales people to help people buying sets, etc, etc. to get to a real stimulus number. In short, poor people circulate money which gets the economy going.

How rich people spend money
I’m going to skip the income part of rich people and say that they make way more than $80.00/day gross, $67.00 net. Let’s say that is their per minute rate. The difference lies in their awareness of how much things cost as a percentage of their income and how much return they can make on a dollar invested. They are aware of their housing costs, their health care costs and the rate they paid in taxes last year. They are also aware of the rate of return on their portfolios and whether it makes sense to spend or invest money received as a windfall.

If you give a rich person $1,000, they won’t need it for anything. Instead of buying something or creating a job, they will simply turn it over to their portfolio that invests in companies that are rewarded for keeping head counts and the wages for those they need low. The money is not circulated into the economy; it is just parked in a stock market where gains and losses are recorded in some computer. The money is doing the exact opposite of what the economy needs. Sure, it contributes to creating wealth, but all wealth really is is money someone didn’t spend.

$1,000 to a rich person or a company is nothing. A tax break is seen as that $1,000; not enough to actually do anything like create a job but large enough to not just throw away. It goes into the bank or the portfolio. For a company to create a job, it needs to either see a lot of demand for its goods and services or it needs to have very, very large incentives. In all instances, it will take the former.

Mr. Cantor, your theory of business people creating jobs by cutting their taxes just doesn’t mesh with the way they think. I know this because I is one of them. I was also once a poor wage earner so I know how they think. The rich are hoping you keep saying your line because they are accumulating wealth a little bit each year and the poor don’t really understand finances all that much to know that your line is crap.

But you know the difference. And to continue perpetrating your perverse logic under the banner of fiscal responsibility is anything but.

*I should disclaim my motivation for trying to educate Mr. Cantor on how poor people spend money. My business is going to need a lot of poor people spending money irresponsibly on their kids in the near future, so if given the choice, I’d much rather have 10 million poor people with an extra $1,000 in their pockets than 400 really rich people socking money away in the stock market.

The debt the next generation will be paying was not started by our government, but by ourselves

Alice Paul c. 1930s

In her article in the WSJ, Peggy Noonan uses an example that has been kinda turning over in my head ever since I read it early yesterday morning. In it, she quotes Rep. Marsha Blackburn of Tennessee that many in the Tea Party crowd are grandmothers and that:

“Women are always focusing on a generation or two down the road. Women make the education and health-care decisions for their families, for their kids, their spouse, their parents. And so they have become more politically involved. They are worried about will people have enough money, how are they going to pay the bills, the tuition, get the kids through school and college.”

Ms. Blackburn suggested, further in the conversation, that government’s reach into the personal lives of families, including new health-care rules and the prospect of higher taxes, plus the rise in public information on how Washington works and what it does, had prompted mothers to rebel.

And that really got me thinking about who these “grandmothers” and women are, the timeline of their lives and the unintended consequences of history.

These women — who are older and are now “livid,” concerned and intuitive — were most likely responsible for inadvertently starting the ball rolling toward our ever-increasing crushing debt load by supporting the most politically and socially active woman’s issue of the time; the Equal Rights Amendment.

Now before you all start in on me for beating up on grandma, just hang with me for a moment. Growing up Catholic and as a kid of a mother forced to go to work second shift to afford us, my formative years were spent at ground zero of this issue. One thing that came out of the ERA was that women were an emerging force in the employment scene. With the political and cultural tides turning the way of equal pay for equal work and looking like the ERA was going to be ratified, companies slowly, reluctantly began paying women more and promoting in an effort to ward off legislation. Women were also becoming more educated and getting better jobs. The country was getting used to the dual income. And that flush of cash was too tempting for corporate America not to scheme a grab.

And grab they did. From 1964-1980, the average house price went up from $13,050 to $68,700 while average income went from $6,000 to $19,500 per person. That calculates to 217% of annual income for a house in 1964 v 352% annual income in 1980. In addition, a car which cost an average of $3,500 in 1964 now cost $7,200 in 1980. In 1964 when most families were single income, they only needed one car. In 1980 when the dual income family had firmly taken root, a second car was necessary. So was out-of-the-home day care. Women had fought the right* to be equal in the workplace, but so too had this fight created a dependence on a dual income for a typical family to afford a home to live in. Women could no longer leave the employment world at will and their men could no longer afford them to.

Life got too expensive to maintain and none of this was due to the Federal government meddling with significant entitlement programs (except Medicare, which every senior in the Tea Party loves and would kill any candidate who takes it away.)

But we really didn’t learn that large social shifts will always be taken advantage of by our free market economy and corporations incessantly hungry for more profit. In this last decade before the Recession, universities were watching the housing market climb up and up and jumped into the fray with their version of the cash grab. They raised their tuitions, knowing full well the middle class would dip into their easy home equity to pay for Johnny and Suzie’s education, regardless of cost. Now, their grandkids are saddled with large bundles of debt nobody is willing to forgive.

And men are losing their jobs at record rates, reducing the dual income family to a minority. And I was left wondering, “Were the grandmothers in Ms. Noonan’s article the same women who foresaw the staggering and unsustainable private debt we are now faced with as they marched for women’s rights back in the early ’70s?” All these women wanted was the right to be treated equally and have the right to do the same job as a man so they could have a higher quality of life. Unfortunately, all corporations saw was an opportunity to grab more disposable income.

I’m finding it hard to believe the average grandma is more “livid” and worried about the US Government going broke from entitlements than they are about their own grandkids being $50,000+ in debt from student loans and not being able to afford a house to live in because homes are priced to a dual-income standard. Maybe I’m missing something.

*I know, the ERA Amendment is still shy of 3 states ratification and died in 1982, but it gets reintroduced every year. Maybe someday. But for purposes of creating a dependence on dual incomes, women have won these rights.

Get on with the real work

I sometimes find myself feeling a little guilty playing around Twitter or reading blogs, watching videos; all in an effort to stave off doing any real work.

But then I come across stuff like this where the Pennsylvania house is seriously debating a bill to ban students from having cell phones in school.

What planet are these guys on? Is Pennsylvania not in the same recession the rest of us are in? Is this just busy work for politicians? Have they already created all the jobs that Pennsylvanians need and just need something to do? Do they know how ridiculous and out-of-touch this makes them look to the rest of us out here trying to scratch out a living doing real work?

The height of silly.