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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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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.