10 April 2021

Given the Gap in Household Wealth of Folks With and Without College Education is Growing We Need Bolder Infrastructure Plans

The gap in wealth because of education is big and growing.

In 1989, the average wealth of high school dropouts was 21% that of college grads; by 2020 it was only 9%.


If the gap had stayed constant, households with high school dropouts would have $200,000 more in wealth than they now do.

Trump's big idea (and given it is now completely his party, the Republican's big idea) is to return to 1970 and the heyday of manufacturing and strong wages for folks outside the information economy. Put up trade barriers and bring back manufacturing jobs. A lot of people get really excited about this (im)possibility.

The Democrats' big idea has been to create better social safety nets for high school dropouts. Until now.

Biden's infrastructure plan is a reasonable approach to addressing this gap; big construction projects will create really good jobs for folks who haven't learned programming, enabling them to create wealth and some measure of economic security.

How much is Biden's $2 trillion plan that spills across a decade? A paltry sum. Last year, household wealth rose $12 trillion to $130 trillion. $200 billion a year (roughly what Biden's plan proposes spending per year) is less than 2% of the amount by which household net worth ROSE last year.

Spending $200 billion a year is too little but it is a start at the creation of good jobs for folks without college degrees. It doesn't do any of us any good to make the penalty for struggling in school so high.

source:
https://www.stlouisfed.org/household-financial-stability/the-real-state-of-family-wealth/educational-household-wealth-trends-and-wealth-inequality

08 April 2021

You Could Have Been Rich But You Had to Have That iPod - How Corporations Shifted Their Emphasis From Making Products to Making People Wealthy

A curious thing happened through the course of the 20th century: companies shifted their focus from making things to making money. This shift is important and still misunderstood.

In 1900, American homes did not have running water, electricity, a car, a radio, telephone, TV, computer, store-bought clothes, frozen food, takeout, aspirin, a refrigerator, microwave oven, canned goods, sneakers, safety razors, shampoo, or credit cards.

Fortunes were made by the various companies able to produce those goods at affordable prices. And people were largely focused on buying those things.

And then our curious thing happened: given these companies had gone public, they rather inadvertently created a new product. They created wealth. If you owned shares of a company that became successful, you could have one of the more curious products of all: financial independence.

On 23 October 2001, you could have been the first on your block to buy an iPod for $399. Call it $420 with tax. Apple was selling a product that made it easy to enjoy all your favorite songs on one slick device. (And of course, you’d have to pay another $1.29 for each song, so the $400 was just the admission price.)

On 23 October, 2001, for that same $420 you could have picked up 1,500 shares of AAPL – Apple’s stock. As I write this in early April of 2021, those 1,500 shares would be worth $194,325.

Apple was selling products that let you have private concerts at a whim. If you’re not amazed and delighted by that, you probably aren’t that impressed by music. The iPod was a fabulous product. But it likely pales in comparison to the other product for which Apple was becoming famous: its stock.

The person who spent $420 on Apple’s stock instead of Apple’s iPod back in 2001 has wealth to use for any of millions of products and services. The person who bought the iPod probably doesn’t know where it is now. Apple has made a lot of very impressive products. Perhaps none are as impressive as having made people rich.

Between 1900 and 2000, life expectancy rose from 47 to 77. (And no, this was not all due to infant mortality rates dropping. Your odds of dying at any age - from six months to 20 to 50 to 70 - steadily dropped during the 20th century.) People had always gotten old but old age was popularized in the 20th century and retirement was invented.

Pension plans and 401(k) accounts took advantage of decades of compound interest over these newly long lives to create enough wealth to fund retirements. People no longer had to work until they died or rely on the generosity of their children. And in 1900, that is what happened. The bad news is that people worked until they dropped dead. The good news is that they didn’t live that long. (Hmm. Or maybe that’s bad news too.)

At a certain point, more goods have less appeal. Your closet has more clothes than you'll wear, your freezer and pantry have more food than you'll eat, and your garage had more things than you can find. Eventually you realize that it is momentum from previous pursuits of happiness that are driving the purchase of more things. You realize that of all the things that corporations make, you are probably more interested in their ability to make you financially independent than you are whatever goods they’re selling. In fact, with the intense interest in startups, people are increasingly buying the stock in companies before those companies are even selling products. "What are you selling?" "Well, for now it's just stock but we do have a product launch planned."

An amazing, unprecedented economy emerged in the 20th century, providing goods that past generations could not have imagined. Of all the goods it made, though, perhaps the most alluring was its promise of financial independence. Of all the things that companies could make that people were eager to buy, the promise of wealth ranked highest.

It is difficult to properly understand modern companies if you still understand them as institutions focused on making things. That was largely true a century ago. Now, they are largely focused on making people rich. (What does Google "make?" Well, they've made a lot of people rich.)

Henry Ford became famous for making cars affordable for normal people. Previously, they were something only the very few, very wealthy could afford. The challenge of the early part of this century is to do something similar with companies' most interesting product yet: make ownership of wealth more widespread, more common. One of the keys to this will be creating more mechanisms that allow employees to use the company as a vehicle for creating wealth. As with the church and state before it, the corporation is to become a tool for the masses and not just the elites. The popularization of wealth will be a signal that we’ve overcome the limit of entrepreneurship and with it have moved beyond the limit of economics.

04 April 2021

COVID Has Made Everyone's World More Virtual - And Threatens to Make Even the Real World More Virtual for Some

Forced to social distance by COVID, we're online in greater numbers and greater frequency than ever before. Beyond that, COVID strangely simulates the virtual world.

In one study, 86% of people who had COVID lost their sense of smell and after 60 days, 24% still had not recovered it.

It is still not clear whether the folks who permanently lose their sense of smell - and with it often the ability to distinguish tastes beyond salty and sweet - is closer to 2% or 20%.

The five classic senses are sight, hearing, touch, taste and smell. A loss of one or two is disconcerting and I find it odd that more isn't said about this loss of smell and taste.

But it also makes COVID such a weird echo of the online experience. Online is all sight and sound but no taste or smell. COVID - weirdly - has the potential to make our real world seem that much more virtual, a place with sights and sounds but no aromas.

03 April 2021

The Big Penalty for Living in the Past - Or How People in Mississippi Pay $3,000 a Month to Live in the Past

There is a big penalty for living in the past.

Massachusetts was one of the first states to outlaw slavery, back in 1783. Washington and California entered the Union as free states. New York outlawed slavery relatively early - in 1799.

These four states have the highest average incomes in the country - about 25% higher than the national average.

The Thirteenth Amendment outlawed slavery everywhere in the US and was ratified in December of 1865.

Mississippi ratified the Thirteenth Amendment in 1995 - and certified that in 2013. 148 years after it was ratified nationally.

Mississippi has the lowest average income of any state in the country, 31% lower than the national average.

The difference between Mississippi and Massachusetts' average wages is $35,000 a year - nearly $3,000 a month. Folks in Mississippi make roughly half of what folks in Massachusetts make.

There is a huge penalty for worldviews that dismiss or limit the potential of any member of a community. The past is not a better place. You should move out of there daily.

Of note: had it not been for Mississippi, Kentucky would have been the last state to ratify the 13th amendment. The state that gives us Senators Mitch McConnell and Rand Paul ratified the 13th amendment in 1976 - a mere 111 years after the country as a whole. So, if you're ever wondering what kind of people think that McConnell and Paul would make great senators ... well, there you have it.

01 April 2021

In Which Your Blogger Affectionately Mocks Baseball on Opening Day

I don’t know which came first: April Fool’s day or this being the opening day of baseball. In any case, fans from 30 different teams all believe that their team has a chance to win the whole thing this year. On opening day, every team has a perfect record. This encourages a form of foolishness.

In baseball, the pitcher tries to keep anything from happening and the batter tries to change that. Most of the time, nothing happens and then suddenly it does. That’s also how life works.

No matter how great a hitter you are, you have to wait for 8 other guys to go to the plate before you get another turn. Imagine that sort of turn taking in basketball or football. “Pass me the ball!” “No. It’s not your turn.” 

They call time out in baseball and yet no one pays attention to the clock or can tell you how many minutes are left in the game.

It’s a weird game, too, in that when a team goes on offense, they literally (well, most of them anyway) retreat into the dugout. On defense, you go out into the field and stand around. On offense, you go into the dugout and sit down. Possibly they first made baseball players begin to wear uniforms because given their penchant for sitting down to watch the game people were having a hard time telling the players and fans apart.

Baseball fans are obsessive about small differences in batting averages, pitching counts, etc. It’s a game with strict rules but the distance you have to hit a ball for a homerun randomly changes from park to park. Can you imagine a football stadium where an announcer says, “Defenders love this field. It’s 111 yards long.”

It’s hard to tell whether baseball players are overly optimistic about speed or very pessimistic about risk. In either case, it seems odd that they wear helmets when running the bases.

Players are constantly called out in baseball. It’s the thing that happens most. But the umps are nice about it. They give you a little thumbs up when they call you out.

I’m still waiting for the first baseball coach to abandon the traditional zone defense (“You play third base, you play right field …”) to pioneer a man-to-man defense (“I don’t care if he is on the bench, you stay on Jenkins …”).

Baseball encourages a philosophical bent. The most dominating teams still lose more games than the athletes in other sports play in a season. And your best hitter gets out twice as often as he gets on. To watch a game is to watch failure. That alone may be a reason it has held our attention for more than a century, another way in which it is less an escape from reality than a way to closely study it.