Mathew Binkley's Blog

You may have heard people complain about “income inequality” and how it is negatively impacting our country.  Here’s a little math to help you understand why it really is a serious problem, and how it’s affecting you personally (spoiler:  it’s costing you a *LOT* of money).

In 2017, the United State’s GDP (how much the country earned) was $19.965 trillion, and there were 206.3 million working-age people. So the average earnings per worker is:

$19.965 trillion / 206.3 million people = $96,777 per worker

For the average worker working a 40 hour week and getting two weeks vacation, that would work out to $48.39 per hour. That is the *average* salary for an American worker.

So are you making $48.39 an hour? Me either. I have two graduate degrees and 15 years experience managing a supercomputer, and I don’t make that much.

If you click this link, the Wall Street Journal has a tool to allow you to enter your salary and see how your income ranks percent-wise. The values are in 2014 dollars, so you’ll need to divide your current salary by 1.06 to adjust 2018 dollars for inflation.

According to it, I’m in the top 10% of Americans income-wise. So how can I simultaneously A) be in the top 10% of income earners while B) making less than the “average” hourly salary? How can you be far above average one way, and yet below average another way?  Because of how incredibly unequal incomes are.

If Bill Gates and 9 homeless people are in a room, “on average” every person in there is worth $9 billion dollars.  But “average” doesn’t really help you understand the situation, because the incomes are so highly skewed.  What we really have is 1 person with $90 billion and 9 people with pocket lint.

Remember when I said the “average” person made over $48 an hour?   Same thing.  Instead of a country where everyone earns $48 an hour, we have a country where most folk make $10-20 an hour, and a very tiny proportion are making $200-300 an hour or more.    Where the 400 richest Americans have more wealth than the 163 million poorest Americans combined.

Today the wealthy are taking home a higher share of the country’s income than at any point since the Great Depression (see graph below).   Which leaves less money to go around for everyone else.   Which is the reason that many poor/middle class families have had to borrow more money or work extra hours in recent years to keep up and still ended up losing their homes in the Great Recession, while the wealthy actually prospered.

*Some* inequality has always existed, and even serves a valuable purpose.  If working harder earns you more money, more folks will work harder.  But inequality has rapidly grown higher over the past 40+ years, and a lot of poor/middle class folks are working harder than ever, and making *less* money than their parents did, not more, because the wealthy people who own their company will automate their job or ship the job to China if they dare ask for a higher salary.

How much is income inequality costing you personally?  Math time:  In 1970, the bottom 90% of earners shared 68% of US GDP. In 2012, the bottom 90%’s share had shrunk to 49% of US GDP.  Let’s use our numbers from earlier:

$19.965 trillion * (0.68 – 0.49) / 206.3 million = $18,387 richer, per worker, per year.

Let’s say that again so it sinks in:   If we restored income inequality to 1970’s levels, the average worker in the bottom 90% would earn $18,387 more this year.  And more the next year, and the year after, and so on.

Get the picture?   That’s a *lot* of money.  And it is being diverted to the people who need it the *least*, not the people who need it the *most*.

The wealthy have spent the past few decades bribing politicians to game the system ever further in their favor at your cost.   I’m not trying to claim the rich are all mustache-twirling villains (though some indeed are!)  Merely that they have spent decades doing what is in their best financial interest:  paying politicians to change laws to help them become ever richer.

The problem is, “political financial engineering” doesn’t *create* wealth.  It merely *shifts* wealth away from the poor/middle class and steers it to the rich.  And consequently this generation will be the first generation of Americans to have a *lower* standard of living than their parents.  The bottom 90% are left having to figure out how to get a car, buy a home, pay for college, or how to retire using the “leftovers” of our nation’s wealth.   But we *can* change it.

So it’s time that the poor and middle class start doing what’s in *their* best interest and putting that $18,000 per year back in their own pocket.  Where do we start?   A good first step would be raising taxes on the wealthy (instead of cutting their taxes and making our children pay for it like we’ve been doing…), and using the proceeds to a) pay off the country’s debt, b) pay for infrastructure like roads and bridges, c) roll out a nationwide fiber broadband network, d) increased spending on education, particularly Pre-K and community college, e) funding universal healthcare, and f) increased funding on science research.

“Father, if you are willing, take this cup from me; yet not my will, but yours be done.” – Luke 22:42

My brother died today.   I feel so many things all at once, and feel completely numb and can’t feel anything, and don’t know what to feel, all at the same time.

I have the best parents anyone could ever have.   I love them more than the sun and the stars and the sky.  I worship the ground they walk on.  And I’d have tossed both of them into the fire without hesitation if it would have saved my brother.

I prayed a thousand crazy prayers over the past two weeks.   I’ve never been blessed with a wife or kids, but I have a little kitty for ten years now who I adore almost like my baby.   And I begged God to take my cat and leave my brother.   I begged God to take me and leave him.   Promised God I’d be in church every Sunday and always eat my vegetables, even the broccoli.

And now he’s gone.

The hard part isn’t the funeral.   The hard part is figuring out how to spend the next 50 years when he was supposed to be there so I could crash on his couch and watch movies with him and go running with him and play basketball with him and go on vacations with him and have Sunday lunch with him and let him be Uncle to my kids and I just want to curl into a ball and pull the covers over my head and pretend he’s still there and that this is all a bad nightmare.  Except I can’t.

One of these days I’m going to meet God.   And right now I have no idea what I’m going to say to Him after days like today.  I’m trying to find reason and meaning in all this.   But all I have is a huge hole in my soul where I should have a brother.

“Sometimes there just aren’t enough rocks.” – Forrest Gump

Here’s a hypothesis for my economics-minded friends. The fundamental driver of economics is supply and demand. The more demand exceeds supply, the more profit a seller can demand from a buyer. And conversely, the lower demand is relative to supply, the less profit they can demand.

For instance, if I am selling a house in a hot Nashville market, I don’t have to take just *any* price.  As a rational actor interested in maximizing my profit (hi Prof. Froeb!), I can bide my time and wait for a high bidder to come along. Conversely, if I’m selling in Flint MI, I would be wise to take the first semi-decent bid that comes along.

Let’s apply supply and demand to money itself. People want to borrow money (they are the “buyers”) and people who want to save money (they are the “sellers”). When the economy is booming, there are relatively more people borrowing than saving, so profits (ie, interest rates) go up. Conversely, if you’re in a Great Recession, more people are less interested in borrowing money, and profits (the interest rates) plunge.

Now, let’s look at the interest rate the US Government pays on 10 year treasuries, ie. the profit that lenders can charge our government to borrow their money:

Notice that, while it does fluctuate around a bit, over the past 30 years it has trended downward, no matter how the economy is doing or what political party is in office at that time. That implies that the cause of lower interest rates is something else. And it’s a relatively smooth, constant decent. Something long-term, not day-to-day, is causing that trend.

My idea (and I’m happy to consider alternatives if anyone has a better idea) is simply that there is more money, than there is places to stick that money.  Supply and demand tells you that prices (interest rates) will go down, which is exactly what we see.

Over the past 30 years the world has gotten wealthier, so there’s more money sloshing around that people are trying to save, but the growth in investment opportunities hasn’t kept pace with the growth in capital, so lenders are being forced to accept smaller and smaller profits.

If true, it would seem to have a number of “interesting” consequences on people’s long-term investment strategies (I am sure there are many, many more which have not occurred to me, so share if something comes to you!):

• People complain about government having too much debt. The bond market, on the other hand, is saying (via continually decreasing interest rates) that the government doesn’t have nearly *enough* debt.Based on that signal, a future government will likely increase borrowing. As you eventually have to pay the butcher, and poor/middle class people don’t have a lot of money, this implies substantially higher taxes on the wealthy at some point.
• Interest rates can’t go below zero (ignoring the “carrying costs” of holding cash), as people would just stick cash under their proverbial mattress and earn 0% rather than loan it out at a loss. If the trend on the graph continues, the 10 year Treasury rate will be 0% around July, 2021.What happens to the economy when we are in a world where there is more money trying to be saved, than there is investments for it to be saved in?  Do rich people stop saving as much and start spending a proportionally higher amount of their income (which would help stimulate the economy), or do they have a “run on mattresses” (which would not).

  Would the Federal government start limiting the amount the uber-wealthy can invest to preserve sufficient investment opportunities for the poor and middle class to allow them to retire?

• The 10-12% return the stock market “always” delivered in the past, may be lower for the foreseeable future.  Which means people will need to save more money than before to retire with the same lifestyle, and this will reduce consumption in the present. This will hit equity prices eventually (which are already trading at well above their historic norms).

The “savings glut” problem is further compounded by income inequality, but I don’t have any good ideas what that means yet.  I’ll show you my Nobel Prize in Economics when I understand them both…

As I have both a 401K and a desire to retire before I’m 90, I would be *delighted* to be wrong, but haven’t seen any data that would dissuade me from my thesis.   I’m not sure what the future holds (or else I’d be typing this from my secret volcano lair instead of my cubicle at work), but anyone who expects the next 30 years of economics/politics/investing to look like the previous 30 years is probably crazy.

I live in an older home with innumerable cracks around windows and doors, and despite all attempts at sealing and caulking, as autumn turns cold there is a pilgrimage of ladybugs and wasps trying to sneak in out of the cold.   So it is an annual ritual to spent a couple of weeks vacuuming them out of my basement windows when I get home in the evening.

Wasps, being the physical manifestation of Satan in this dimension, did not take kindly to this affront, and this morning, sought their revenge…

I awoke this morning much like any other Monday (i.e., desperately tired and wishing it were still Sunday), put some tea on to help wake me up, and went to the bathroom to do what bathrooms are often used for…  A minute or so after having a seat, out of the corner of my eyes I saw some motion between my legs, and looked down…

A large wasp had crawled out from under the lip of the toilet where it had been hiding, turned to face me, arched its back, and glared at me, his glinty little Satanic eyes full of boiling hatred and murderation.

Wasp (actual size)

As you may expect, there is a certain air of rapidly escalating panic which sets in in situations like this. A moment of extremely urgent soul-searching revealed nothing in my upbringing to help guide me in a moment like this.  I mean, in event of nuclear war, every one in 3rd grade and above knows to duck and cover, but that’s not exactly an option in this case…

All I knew was that I didn’t much like the looks of the wasp, the wasp apparently didn’t much like the looks of me either (metaphorically and literally), and I didn’t particularly want to be boldly stung where no Mat has been stung before.

So I did what any grown, mature, rational human being would do in similar circumstances: start screaming like a little girl while throwing washcloths, books, cats, and other nearby objects at it until one well-aimed book knocked the wasp to the ground, and then pummeling it repeatedly with heavy books until the wasp was flatter than Wile. E. Coyote after a good anvil-dropping.

As it turns out, the tea I has started preparing proved unnecessary, as I was quite awake by the time all was said and done…

In September I tried expanding my diet to include additional food like cheeseburgers and brats (eating chicken/turkey/fish/chile every meal of every day was getting extremely monotonous). After a couple of weeks, I reluctantly accepted that I no can haz cheeseburger.

In October, I had a shoulder and a knee start acting tweaky, and for a couple of weeks that limited how much exercise I could do before having to stop. I was lucky to get 10-15 minutes a day in before one or the other started hurting too much (divebomber push-ups and jump-knee tucks, I’m looking right at you).

And throughout the entire last 90 days, I’ve missed a lot more days that I did the first time.   A seemingly endless torrent of early morning/late evening meetings and general exhaustion working up to our big conference of the year managed to disrupt my exercise routine every time I managed to get back in the groove.

And the worst part is football season is bringing out the chef in *everybody*.    I don’t have any problems turning down food I can’t see.   Put a plate of mac ‘n cheese in my face, and suddenly that devil on my shoulder gets a lot harder to ignore.

So here’s day 180.   I went from 168 lbs to… 168 lbs.  Given all the above, I guess that’s not too bad.  My pants are a little looser, I can’t “pinch an inch” as much as last time, I don’t have to use quite so much imagination to see two abs lurking about, so I’m sure I traded a pound or two of fat for muscle.  But it wasn’t nearly the improvement I saw last round.

On the plus side, I did see good improvements on the cardio side of things. There are two popular measures of heart fitness: maximum heart rate, and heart recovery rate (how quickly your heart slows down after exercise). My heart hit 189 bpm (up from 175 bpm in round 1) after 30 seconds of double-time jump-knee tucks, and dropped 66 bpm within two minutes, both of which suggest I have the heart health of a man 10+ years younger.

So here’s hoping the next 90 days go a lot smoother.   I think they will.   Fall is always the hardest season at work.   My aspirations for the end of round 3:

Hey, delusions are free so you may as well have big ones. 🙂  He’s 5 years older than me, so I think I can catch him.  Do your best and forget the rest. And keep pressing play.

Oh, and read this.  There’s some really provocative stuff there.