Inequality: the Solutions

There is going to be talk of inequality for three straight years. It’s the Obama administration’s strategy to help voters forget the horrors of the implementation of Obamacare. (It’s not optimistic about the rest of the plan either, it seems.) Of course, the word “inequality” resonates well with young people who have been impoverished by the administration’s bad policies since the current economic crisis (which it did inherit). When you can’t get a job, nearly everyone is better off than you are, and inequality is concrete.

Besides, you can always find inequality somewhere by cherry picking: Since 1990, the top ten per cent have increased their share from X to Z while the bottom 17% have seen their share decrease by W; since 2001, the top twenty percent have grown their share from M to P while the bottom 50%, blah, blah, blah. See what I mean? The only situation where you cannot find inequality is when everyone one, every person, every household has exactly the same as every other. This would be hard to achieve if you tried, because people would become unequal again at one end (on the one hand) before you had finished at the other end (on the other hand).

Yet, it turns out, it’s not difficult to do something concrete and decisive about inequality of income and/ or of wealth on an individual basis, through personal initiative. (Inequality of looks is a tougher proposition.). I advise how below.

First, if you are rich, you can easily dispose of your share of the social burden of economic equality. Just give away your money until you reach a median position or below. If you can’t help but earn more money, just keep giving it away. Problem solved.

Second, if you are poor, just decide to become Steve Jobs, or Bill Gates, both multi-billionaires who started from nothing. If that’s not your cup of tea, just become a millionaire athlete or actor. If that won’t work, and speaking of tea, start a Starbucks for teas. Hurry up, Starbucks itself is doing it right now. Don’t blame anyone: You had more than twenty years to take the initiative.

In general, the healthy poor in American have a lot of explaining to do. Go ahead, explain.

If you fear you don’t have the talent, or the education, or anything to help you qualify to do any of the above, here is a plan:

In every developed country including the US, there is a chronic shortage of plumbers, has been for at least forty years. One plumber I employed about ten years ago was grossing $60/hour. That was although his phobia prevented him for working in dark confined places. (Would I make this up?)

My suggestion is that you should apprentice yourself to a plumber for a year or so. After that span of time – which you might finance through a loan, don’t be shy, go right ahead – go into business for yourself. Plan for thirty hours a week of actual work because you need time to relax and a little time to get organized and to do the billing. Take a French-style one month vacation each year. Charge as much as I was willing to pay the phobic ten years ago, $60/hr.

You should gross about $85,000 a year. Count $15,000 for taxes and other deductions if you insist on keeping books. You are left with $70,000 to spend. According to the Census bureau, the gross household US median income was under $52,000 in 2011. It’s probably not much higher now. Since we are comparing net to gross, these elementary calculations put you actually well ahead of the average. And, remember, we are comparing your projected income to the median household income. So, under my plan, your spouse need not be gainfully employed.

With this kind of income, if you are that kind of person, you should be able to salt away in savings $5,000 each year. Placing the savings at a safe 3%, you re likely to be able to give your children something like $140,000 after only twenty years. Nice down payment on a house in California, nice house in Arkansas, even with inflation. Yet, more choice!

If you end up finding your superior plumber’s income distasteful because it violates your belief in equality, see above. Or you might just decide to work less each week or to take longer vacations.

On inequality, see also: “Equality and Fairness“.

Any questions?

Which is bigger Ponzi scheme?

A comment on my recent post made me realize that I’ve been wrong about Social Security this whole time. It isn’t quite a giant Ponzi scheme, but if we’re being flexible with our definition of Ponzi scheme it may still be the biggest.

Many people are happy to pay into Social Security thinking they’ll get a reasonable return on their “investment”. To the extent that that’s true, and that return is financed by other people paying in (rather than on actual investments) it’s a Ponzi scheme. But others don’t pay in voluntarily. To the extent that that’s true, it’s like theft but with the robber systematically dropping some of the money. Quasi-Ponzi scheme might be a better term. Social Security paid out $615B in 2008. Let’s guess $650B for 2012. If that was all happy money, it’s one big Ponzi scheme.

But the U.S. government has another project that more closely resembles a Ponzi scheme: Treasury bonds. Here people voluntarily fork over money for a return that is financed in part by later “investors” buying Treasury bonds. Of a $3.5T budget with a $1T deficit, 6% went to paying interest last year (that’s $223B). So 29% of the budget was deficit, and we might conclude that approximately $65B of interest (0.29*$223B) is “Ponzi-financed”.

So now the question is how much of Social Security is “happy money”? Anything more than 10% makes it the bigger Ponzi-scheme. But even if Social Security is heavily financed with “happy money” it is still taken at gun point while purchasers of bonds are there voluntarily. If the government were looking to save $223B and only Social Security benefits and interest payments were on the table, the more ethical choice is to default (if not repudiate). As I recall, I’m ripping off this point from Jeff Hummel.