Categories
Wealth

Chart: Urban-Rural Divide

Folks living in rural communities have become increasingly vocal about the deterioration of their way of life. Understandably so.

Flyover states are often overlooked by policies crafted to support economically dominant coastal regions. Meanwhile, they’ve watched globalization pass them by as jobs were replaced by machines or overseas workers. They blame city elites, immigrants and foreigners for their misfortunes, and gravitate to those who promise a return to the ‘good old days’.

Politicians have long used this to their advantage by misdirecting fear and anger to scapegoats, as opposed to the true source. Cheap labor didn’t steal American jobs – corporate executives drove the decision to dismantle labour power, automate and offshore. All in pursuit of higher profits, funneled to executives and shareholders. Old fashioned corporate greed, one might say.

Really though, this isn’t new. The urban-rural divide has long existed in many forms. Put aside blame and ethics, and you’re left with a rural population passed over for generations.

The following chart illustrates this.

In the early 1900s, the standard of living in America was rapidly improving as new technology was introduced. However, the experience wasn’t evenly distributed. Infrastructure – water pipes, electrical wires, gas lines – is easiest and cheapest to build in dense areas. Consequently, dense urban cities were the first to benefit from essential modern conveniences like flushing toilets.

Of course, rural populations understandably took this inequality as representative of America’s priorities. The characterization of urban favouritism has since passed down for generations and continues to this day.

Data Source: “The Rise and Fall of American Growth”, Robert J. Gordon.

Categories
Life Wealth Work

“We All Have 24 Hours a Day”

“We All Have 24 Hours a Day”.

Have you heard people say this before? Usually it’s said by someone humble-bragging about how they manage to work 10 hours a day, raise children and run three marathons a year. Of course, they’re usually saying this to someone who can’t seem to find time to work out (or something similar that can easily be dropped off the list of daily activities).

Yeah, we all have 24 hours a day. But, unfortunately, we don’t all have the tools to make the most of those 24 hours.

Let’s look at two extremes.

Julie is a single mother that works full time as a line-worker in an automobile factory. Her two kids are in grade 3 and 6. Her day starts at 6am when she prepares breakfast, lunches and shuttles her kids to before-school care. Julie gets to work in time for a 9 hour shift. By the time the school and work day is done and everyone is back home, it’s usually around 6pm. Just in time to prepare dinner and help with homework. Of course, this assumes that Julie has already gone grocery shopping earlier in the week. By the time dinner and dishes are done, it’s easily 8 or 8:30pm. Exhausted – mentally and physically – Julie now has about 1-2 hours of free time.

Does Julie catch up on some housework? Maybe. Self care? Likely not.

That’s where Julie’s 24 hours goes.

Compare that to Eddie, who is married with two children in grades 3 and 6. Eddie’s wife – Francine – is a marketing consultant and he works as a bank executive. They have a nanny, maid and comfortably hire people to help with household maintenance, like gardening. Their nanny manages the children full time, grocery shops, makes meals and handles school pickup and dropoff. Eddie and Francine work long hours, but often squeeze in some gym time at lunch or go for a run after work. They frequently attend functions after work to network for whatever moves come next.

Notice the difference?

Julie, Eddie and Francine are all equally busy. However, one family has way more sources of help than the other.

Some might blame Julie for her predicament. “She shouldn’t have gotten divorced”, “she should have worked harder and gone to university”, etc. What people fail to grasp is that Julie made the best of her situation. She came from a working class family that didn’t have money for the extra layers of support provided to Eddie and Francine in their youth.

Julie really had no choice but to reduce the burden she placed on her family by working at McDonalds through high school to help with bills. She blasting through community college and then took whatever decent job came first. Then came the children and emotionally abusive husband.

Eddie and Francine, on the other hand, came from upper-middle class families, which themselves hired nannies and maids. Their first jobs were handed to them by their parents’ friends, and were in junior corporate positions. Their parents never needed help with bills and Eddie and Francine could both comfortably educate themselves up to the masters level. While Eddie leveraged his junior corporate jobs into full time work, Francine took a risk and started her own business. If it failed she could always move back with her parents. By the time they married, Eddie and Francine were already getting more than their 24-hour’s worth.

“We All Have 24 Hours a Day”

There are 24 hours in a day, but unfortunately that time isn’t allotted the same way across classes.

If you’re someone who can afford help, count your blessings and realize that you have a huge advantage.

If you’re someone who can’t afford help, I suggest you identify your top 3 priorities in life and allow yourself to leave lesser priorities untended.

Categories
Wealth

Visualizing the Billionaire Class

I believe people deserve to get rich if they work hard.

But there comes a point at which wealth is so obscenely huge that you have to wonder if it is really deserved. Can a single human really earn $150 billion without it coming at the expense of other humans?

While history has shown that humanity’s wealth pie can be expanded over the long run through productive innovation, over the short term it’s likely that hyper competitive behaviour is a zero sum game.

Today, Amazon is rapidly growing at the expense of small independent retailers. This has never been more clear than during the Covid-19 crisis, as lockdowns shut almost all of Amazon’s brick-and-mortar competition. While Amazon is probably creating long term wealth for society, right now it is succeeding at the expense of others.

The chief beneficiary is Jeff Bezos, Amazon CEO and founder, who is now worth over $150 billion. Amazon has added a ton of efficiency to our lives and Jeff Bezos deserves to be rich, but $150 billion is obscene.

At what point does genuine wealth creation transition into exploitation and hoarding? It’s not an easy question to answer, but that’s not the point. If wealth anomalies like Bezos don’t pass society’s smell test, action must be taken.

Society makes judgment on the scale of wealth differences between ordinary people and the 1%, deserved or not.

Ordinary people earn in the tens of thousands and can barely save for retirement. To most, millionaires are considered rich. Once you start talking about $ billions the sheer scale of wealth is baffling.

I recently saw an article that highlights how ridiculously wealthy billionaires really are. Below is a graphic visually comparing the difference between various wealth levels. Remember, Bezos is worth 150x the largest box below.

While ordinary people struggle to pay back their college debts, billionaires have to work hard to spend their money:

  • Elon Musk can spend a MILLION dollars EVERY DAY for 65 years
  • The Koch brothers can spend a MILLION dollars EVERY DAY for 242 years.
  • Bill Gates can spend a MILLION dollars EVERY DAY for 247 years.
  • Jeff Bezos can spend a MILLION dollars EVERY DAY for 306 years.

Anyone arguing that billionaires are created because they help generate societal wealth, should look at the following chart. While worker productivity has risen, average wages have stagnated. Meanwhile, income going to the top 1% (aka the billionaire class) has skyrocketed. In other words, billionaires are built off the backs of the average worker.

The top 1% has captured a growing share of societal wealth partly because the tax system has changed to favour the rich. The two charts below compare tax rates by income level in 1950 and 2018. In 1950 the top tax rate was 70%. In 2018 it was just over 20%.

While Amazon shares hit new highs and Jeff Bezos gets richer, 40% of US renters face the risk of eviction. Those are families and children and hardworking people, many of whom will soon be homeless.

For many the American dream has become the American tragedy. Gone are the days of collecting a paycheque and a comfortable retirement pension. Loyalty is irrelevant. You are on your own to build wealth for you and your family. For some this means building a bulletproof portfolio. For others it means constructing multiple sources of income.

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Categories
Life Wealth

How Abundance Might Lead to Revolution or War

Why you should watch this interview with tech entrepreneur turned author (“The Price of Tomorrow: Why Deflation is the Key to an Abundant Future”), Jeff Booth:

  • Technology is driving costs lower and productivity up, creating a potential world of abundance. (Think about how many screens you have in your house compared to your parents’ house.) However, it is also creating immense deflationary pressure, which is intensifying.
  • The side effect of improving technology is that many jobs are being automated and made redundant. Your job and your children’s jobs are at risk, while the few at the top reap the benefit.
  • For decades, central banks have attempted to compensate for deflationary pressures by growing money supply by vast amounts. Most of this new money has flowed into financial assets, resulting in asset price inflation. Owners of financial assets gain, but these owners are disproportionately the wealthy. Yes, many people have 401ks, RRSPs and pensions, but their proportion of financial asset ownership is small. However, asset price inflation has not improved the lives of the median household.
  • What we’re left with is a divergent economic experience: “the many” lose because they’re made redundant and don’t own assets to a large extent while “the few” accumulate the gains generated by technology and asset price inflation. This has increased wealth inequality over time and will continue to do so.
  • Society increasingly becomes polarized and susceptible to charismatic leaders who promise solutions without actually addressing the fundamental problem. Often these leaders stoke the smoldering fires, causing people to turn on each other. Then they may turn on ‘outsiders’, however defined. The end result: revolution and war.
Categories
Investing Wealth Work

Markets Hit Highs: So Why Are You Broke?

Mainstream media reports:

The stock markets are breaking through new highs.

The economy is ‘booming’.

Unemployment is at a record low.

Jobs numbers are ‘blockbuster’.

So why does it feel like you’ve fallen behind in life? Because you have.

According to one economist, the United States (and much of the Western world, for that matter) has been going through a ‘silent depression’ since 2007.

The following charts illustrate this perfectly.

1. The chart below compares employment growth across time. Instead of simply looking at the number of new hires, this chart illustrates new hires as a percent of the workforce. (1000 new hires means a lot less when the workforce includes 1,000,000 people than 10,000 people.) According to the chart, workforce growth significantly declined after the early 2000s recession and has remained historically low since.

Chart depicting US Employees on Nonfarm Payrolls

2. The chart below compares per capita GDP growth since 2007 against the last two economic depressions. It turns out that the silent depression has been worse than the previous two depressions. (Source: The Silent Depression, by Emil Kalinowski.)

Chart Depicting US GDP Per Capita

3. The next chart shows real median income (‘real’ accounts for the effects of inflation) in the US. Since January 1, 2007 real median incomes have only grown by 3.6% (total, not annualized!). So where did all the economic ‘gains’ reported by the media go?

4. The chart below tells the same story as the previous chart, except using average hourly wages going back 40 years. Again, real incomes have not budged.

Americans' paychecks are bigger than 40 years ago, but their purchasing power has hardly budged

5. Here’s where the gains have gone! The chart below breaks out real income growth by categories of earners. The top 10% of earners have experienced substantial growth while everyone else has remained flat. The gains have all gone to the rich.

Wage increases in the U.S. rise to the top earners

6. The following chart shows the same information as the previous chart, except in a longer timeline. Again, the top earners (especially those in the top 1%) have hoarded all the gains.

There you have it. The economy has grown. But on an individual level overall growth has not been as strong as the headlines imply. And unless you are in the upper echelon of society, none of those limited gains went to you.

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Categories
Wealth

You’re Richer Than You Think? City by City Median Income in Canada

Feb 14, 2020 Update: I originally chose a sample of cities across Canada so not every single one is in the chart below. Due to popular request here is the data for Ottawa-Gatineau and Edmonton: Ottawa-Gatineau median salary is $40,128. 90th percentile is $97,713. Edmonton has a median income of $56,058. 90th percentile is $134,997.

If you’re like me you probably compare yourself to the people within your industry or social group. In particular, you look at the people you admire as the benchmark for your own success.

If you work in a high paying field like law or finance you are comparing yourself to a small elite group. This group is not representative of society in general. By comparing yourself to the upper echelon of society you likely feel like you are falling behind. However, even the worst paid surgeon makes more than most of the general population.

Reality Check: How Does Your Income Actually Compare?

I dug up some data on incomes in various Canadian cities, from Calgary to Victoria. I then calculated the 50th and 90th percentile incomes for each city for male workers. (The 50th percentile means 50% of the population is below that number. The 90th percentile means 90% of the population is below that number.)

I displayed the data below for worker salaries in each city. As you can see, 50% of the working population in each Canadian city makes less than a fairly modest income. For example, 50% of workers in Halifax earn less than $40,000.

My point: before worrying about how shitty you’re doing or how you are falling behind, take a look at how the rest of the population is faring. You may be surprised by your own relative success.

Note 1: this data is from 2015 so the Alberta figures may have fallen since due to the challenges in the oil patch.

Note 2: part time student and senior workers likely pull the data down, but this doesn’t change the point.

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Categories
Wealth

Death of the Middle Class Dream

As world leaders (aka the 0.01%) fly into the exclusive economic forum at Davos to discuss how to run the world, numerous activist organizations are releasing data to show how the world is circling down the toilet.

These are depressing stats. The world is not in great shape and it’s getting worse. This could all lead to growing social conflict all over the world.

So why am I telling you? Because the traditional middle class dream is dead. That game is over. You need to understand how the system is rigged if you want to win at the new game.

I know this sounds like some conspiracy theory bullshit but it’s not. The fact is the world is not a nice place. It’s not a fair place and none of us can rely on others to make it fair. We have to fight to break past the trappings of the current system because the system doesn’t care about us and isn’t here to look after us.

It’s all up to you. And me. That’s why I’m doing this.

I know I’ll never be a Bill Gates or Monty Burns. Neither will you. But that shouldn’t stop us from trying to NOT be the guy that is one missed paycheque away from bankruptcy. Or that doesn’t have time to play with his kids.

So here we go with the depressing stats:

  • IMF says the outlook for the global economy ‘remains sluggish’ as it cuts growth forecasts.
  • 78% of respondents to Edelman’s Trust Barometer agreed that elites are getting richer while regular people struggle.
  • 56% of general population respondents to a study by consultancy Edelman agreed with the statement: “Capitalism as it exists today does more harm than good in the world.”
  • In the U.S., 43% of people believed they would be better off in five years’ time, a 7 percentage point drop on a year ago.
  • In the U.K., only 27% of people thought they would have more money in the same time period, a drop of two percentage points.
  • 48% of the general population said the “system” is failing them, relating to how governments behave. More than half (57%) said governments serve the interests of only the few.
  • The world’s 2,153 billionaires have more wealth between them than a combined 4.6 billion people.
  • Someone who saved $10,000 a day since the construction of the Egyptian pyramids would still be 80% less wealthy than the world’s five richest billionaires.
  • Nearly 40% of the world’s 195 countries will see civil unrest during 2020.
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So here’s the gist:

Since the dot com bust, real economic growth has slowed > competition for resources intensified and those with economic or political power consolidated wealth > wealth inequality widened > the masses became increasingly disenfranchised by missing out on all the “economic gains” (i.e. stock market gains) the news keeps raving about > now, animosity is growing, feeding the possibility that a seemingly unrelated catalyst will thrust the masses into rebellion.

Or something like that.

This is the fragile framework we have to play within if we want to build personal wealth or simply realize the middle class dream.

How do you do it when the world is becoming more politically polarized, many people can’t pay their rising bills and most feel they can’t trust the system? Wealth creation is still the game but the rules have changed.