Bottom 99% Are Already Top 1%

I think it is interesting when people show graphs of income inequality over time between the top 1% and everyone else. One thing I think people fail to understand is that the top 1% of today is not the same top 1% of yesteryear. Recent data from the Tax Foundation drives home this point. The Tax Foundation looked at tax returns between 1992-2008 and looked at the top 400 taxpayers. The results are somewhat interesting.

Close to 73% of individuals were only in the top 400 taxpayers for one single year over the 17 year period. Only 3% stayed on the list for 5 years. Only .4% of people stayed on for 15 years and .1% stayed in the top 400 taxpayers for 17 years. This would say only 4 taxpayers were in the top 400 taxpayers for 17 straight years. People might complain that even 4 is too high. The evidence shows that an overwhelming majority of people only stay in the top for a short period of time. One explanation is that people do sell their businesses or they retire and have options that get exercised. So what is actually happening is that people are high income earners and then drop out of the top 1%. In fact, according to

a report entitled “Income Mobility in the U.S. from 1996-2005” 57% of the people in the top 1% had dropped into the bottom 99%. For the top 5% around 46% moved into lower income groups. The major point is that the top 1% or even top 5% are not some elite group that stays constant.

An even better point is that even the bottom 99% have a higher standard of living than many of the people in 10% in other countries. Real per capita GDP over a longer period of time has been increasing. When people complain how things are today the question should be would you rather live today or in the 19th century? The things people had to worry about in the 19th century are much different than things we worry about today. Infant mortality was much higher during this time period. People had to worry more about sanitation and also worry if there would be enough food. People during this time didn’t even shower daily. Today, these are things even the homeless don’t really have to worry about (if they seek a homeless shelter) I have seen people at stores purchasing their groceries with food stamps yet they have IPhones. No one a decade ago had an IPhone. The amazing thing about markets is that it brings creative destruction. Entrepreneurs and inventors figure out what people want and bring it to the masses. Competition keeps out bad products and services while ensuring high quality and low prices. The bottom 99% should be embracing markets and income inequality should be an incentive to want to work hard to get in that top 1% (even if it is only for one year).

"Old Americans are 47 times richer than young"

A story I recently saw was titled “Old Americans are 47 times richer than young”. Data shows that in 1984 people 35 and under had a net worth of $11,521 while people who were 65 and older had a net worth of had a $120,457. This numbers for 2009 show a different picture. The net worth of people under 35 in 2009 was decreased to $3,662. Meanwhile, people 65 and older had a net worth of $170,494 (numbers adjusted for 2010 dollars). What this would say is that older Americans now have a net worth that is 47 times that of younger people. Why are not people shouting about net worth inequality?

What people forget is that people who are 65 have had 30 years more to income to accumulate net worth. It would make sense that older people have more assets than younger people. Also another interesting data point is that 37% of young household have a zero or negative net worth. In 1984, this same percentage was only 14%. Perhaps this generation is spending more than previous generations.

One argument I find very interesting is how we can’t afford to cut back on Social Security payments to senior citizens when the data clearly shows they have a larger net worth than anyone else. A large majority older people are in low tax brackets because they are not working. The income they earn usually comes in the form of dividends, interest, and other fixed income. Not only are these older people using their income from all these sources to live on, but also can sell assets if they need money to live on.

Having a net worth of a little over $170,000 is still not a lot to live on. If you consider health care costs and nursing home costs it could be hard to live with this net worth. If a 22 year old started with a $1 and saved $3,000 per year until the age of 70 invested it in the market (average return of around 7.5% over the long-term), that individual by the time they turned 70 would have $1.34 million. If the individual become ambitious and saved $5,000 per year they would have $2.23 million. I have a feeling very people consistently save year after year. People nowadays have credit cards and can charge almost anything. One of the rules of personal finance is never to put anything on a credit card that you will consume before you get your next bill. The best way really to reduce spending is to just spend the cash you have on hand. This way you feel the “pain” when you pay for things out of pocket. When you buy things on credit you might have an idea of what something costs, but you don’t feel how much it costs. The key to accumulating wealth is saving.

Down With Evil Corporation Fools

R.I.P. Steve Jobs

Today it was announced that Steve Jobs passed away. Jobs was only 56 years old. If you look at what Jobs accomplished in his lifetime it is pretty amazing. People forget that even Steve Jobs was fired from the company he founded. Jobs left in 1985 and came back in 1996. I would say that the real innovation at Apple came in the new few years with the IPod in 2000, IPhone in 2007, and IPad in 2010. Clearly, these products made everyone better off. Steve Jobs was able to figure out what millions of people would enjoy. The vision Steve Jobs had allowed us to listen to hours of music, video conference with people from a cell phone, and introduced one of the first multiuse phones that allowed for internet access. People describe Jobs has obsessed with details. Steve Jobs obsession for perfection made our lives better.  Not only did Steve Jobs enrich millions of lives by providing employees with jobs, money, and benefits, but made himself wealthy in the process. According to Forbes, in 2011 Steve Jobs had a net worth of $8.3 billion. By pursing his passion and being obsessed with details he made himself better off an in addition thoroughly served his fellow man.

Wall Street Protesting Nonsense

In the past couple of weeks there have been protests going on across cities nationwide. It seems as if the protests started in New York and spread to other cities like Washington D.C., Los Angeles, and Houston. The one small point I agree with the protesters is the crony capitalism when major banks got bailed out. Everything else these people are talking about is utter nonsense. The people claim they are the bottom 99% and are complaining about the top 1%. Of course, people are okay with the top 1% who claim they want to pay higher taxes (but don’t voluntary do so). Presidential candidate Herman Cain said, “If you don’t have a job and you’re not rich blame yourself”. I partially agree with Cain. However, government legislation and regulation have been putting people out of work. The protesters claim that corporations have power. I find this interesting since no company has ever forced me to buy any of their products. I voluntary got out of my chair, voluntary drove to the store, and voluntary handed the cashier money to purchase that product. The main complaint is that corporations have large lobbying power. What the protestors forget is that corporations want lobbying power because the federal government hands out valuable goodies. The government spent over $3.5 trillion last year. If companies could get any part of that federal money through contracts or through specialized legislation they are willing to spend money to get favors. The protestors have the cause and effect backwards. The power of government is causing corporations to spend money to get favors granted. If the scope and size of the government was limited politicians wouldn’t have as many goodies to hand out which would put the lobbyists out of business.

If the protestors think they have it that bad they should take a visit down south to Cuba. Economics is the studying of allocating resources and considering alternatives. The last time people are not trying to break out of the United States to flew to Cuba. Rewarding people for hard work and punishing people who make bad decisions sounds pretty fair to me. No economic system is perfect. The question is what system has lifted more people out of poverty. The answer to that question I would say is free market capitalism.

Luis von Ahn = Brillance

Google: Do No Evil

In what seems like one of the worst antitrust suit cases of all time the Department of Justice is going after Google for their search engine. Like nearly all antitrust suits competitors begin to gripe about how “unfair” the market is and try to get the government involved to break up any type of “monopoly”. People are concerned about Google’s dominance. Nextag and Yelp claim that Google was ranking Google products higher than leading competitor’s products. What is really fascinating is that unlike previous monopoly companies (Microsoft, Standard Oil, and IBM) Google doesn’t even really charge to use its service. I find it hard to call Google a monopoly when consumers are not even paying for it! Not only is Google search free, but other Google products like YouTube, Google Maps, Gmail, and other services are free to use. This is interesting because people years ago would have paid a premium for the quality of data on Google. Researchers even in the early 1990’s had to physically go into libraries hunt down books in order to do research. Google has made searching for hard to find facts and data fast, easy, and very inexpensive. Google handles 34,000 searches per second or over 1 trillion searches per year. I have a feeling Google uses these searches to improve searching. One feature I have noticed Google uses is auto-complete where you type something in and Google tries to figure out what you are typing. Also if you misspell something Google will say “Did you mean…” Google was only founded in 1997 so it hasn’t had a long history yet I have a feeling the technology will get better.

With so much data online now the value will be data mining. Data mining is using data to solve problems or recognize patterns that can help researchers find a common thing between data. Google ranks websites or pages based on how relevant they are. In 2009, alone 47 million websites were added. Google has software that can crawl though these websites and pick up information that people might search. Sites that are visited more frequently are ranked higher than sites not used as much. Even when I have researched certain things I find Google doesn’t always give me the best answer. No doubt in the coming years even more information will be put online which will allow Google searches to get even better.

Why the Department of Justice is wasting countless hours bringing top executives from Google to testify is mindboggling. Executives at any Fortune 500 could be doing better things with their time rather than explaining why their search engine is better than everyone else’s. Like history shows consumers never complain about monopolies it is the competitors who complain because they are getting their clocks cleaned.

Driverless Car: Berlin

Researchers at Free University in Berlin have been experimenting with a driverless car. The driverless car is similar to Google’s Toyota Prius and has been driving around without completely by computer. The car can sense the road, people, buildings and trees up to 200 feet. As would be expected the car has a faster reaction time than that of a human being’s. The car costs around $552,000. I doubt this car will be on show room floors any time soon.
 
Experts claim driverless cars should be available in the next 10-40 years. This is probably a good estimate with the better estimate being the 40 years. The problem I see in developing driverless cars is ensuring quality on each one. Google and the researchers at Free University have made one of these cars, but once you start creating a thousand of anything it leads to quality control problems. As long as manufactures can prove the cars are safer than the human alternative I think people will buy them. Although, people will be reluctant at first to buy a machine that they can’t control. However, one could make the argument that air travel is done by auto pilot which essentially is a computer operating at 30,000 feet above the ground. The number of fatalities today is around where it was in the 1950’s. This is incredible given we have exponentially more drivers. A better measure is looking at highway deaths per miles driven which has dramatically decreased since 1921. Driverless cars in time will make us safer. The people most likely to buy the first cars will be people who have money, who don’t like driving, are bad at driving, or are prone to accidents. Taxi cabs would be put out of a business if a driverless car could pick up and drop off people.

The main argument for driverless cars I see as I mentioned in an earlier post is the amount of time that would be freed up to do other things. This alone would increase GDP, allow us to get more sleep, more fuel efficient cars, and give people even more leisure time. Driverless cars if proven safe would drive down the cost of insurance. We could even get to a day where cars do errands for people! Imagine if you could send a car to the store and the car could pick up groceries or go to Best Buy to buy something. I am imagining lines where store employees load cars and the car then drives back home to its owner.

The $550,000 cost of the current car will decrease over time. During the early stages of any new technology the cost is very high because very few people are doing it. However, once other competitors enter into the market the price will drop making everyone better off (once they finally decide to release a commercial version). Something tells me the price would have to be less than $100,000 for anyone to actually buy one. Time will only tell if or when this even happens. The future can’t be predicted no matter what the past shows because there are technologies just waiting to be discovered.

TCU Admissions 2011 and Historical Admission Rates

I updated my historical admission rate for TCU for 2011. For 2011, the acceptance rate at TCU was only 38%. I plan to update this graph with football rankings to see if the football rankings have had anything to do with this.

Source: TCU Fact Book

Koch Wealth

Seems as if the Koch brothers are creating wealth by pleasing their fellow man. Although, the brothers inherited the company from their father they still have grown the company by leaps and bounds. People forget that just because you inherit something makes you rich. People can inherit companies or money and blow through it very quickly. Most of the time this is the case with inherited wealth. One generation will create and the next generations will either give the money away or squander it.