Friday, May 13, 2016

Why Does It Matter What Someone Else Makes?

Should you define your own personal happiness by what other people make?

These days, we are told that we should define our well-being not based on our health, our prosperity, how much money we make or have in the bank, but based on what the other guy makes, specifically what the top 1% of wage earners make.

We are told that by them making more money, these folks are "taking away" money from us, but how this is so is not explained exactly or in detail.

As I noted in an earlier posting, some hedge fund managers make over a Billion dollars, which is a lot of money.   But you and I do not pay hedge fund managers, their clients do, and apparently their clients think they are worth a Billion dollars.   Why should we get to have a say in their compensation?

It is not much different, on a smaller scale, than professional athletes or rock stars.  A guy gets paid a million dollars a year (or often far more) to play a game or sing a song.   And unlike the hedge fund manager, we are actually paying his salary by going to the games and concerts, watching them on television, and buying the music online.  For some reason it is OK for a rock star to make a million dollars a year from our hard-earned income, but not for a Wall Street trader.

But again, the transaction is between the Rock Star and you.  If you think he is an overpaid hack (e.g., The former artist formerly known as Prince) then you can chose not to consume his music, attend his concerts, or watch his videos.  And thus you are not paying him, directly or indirectly.  And if enough people decide a Rock Star is no longer a Star, he starves.

With professional athletes, the story differs slightly.  In recent years, team owners have put the squeeze on local municipalities to pay for extravagant stadiums.   If the Mayor and City Council don't go along with this, they face the wrath of the fans!  Or so the team owners say.  And in the past, taxpayers were called upon to pay for these monstrosities, which often bankrupted a city or caused some financial stress, without creating the jobs or neighborhood improvements or ancillary development that the team owners promised. Trust me when I say you don't want to live or work in the same neighborhood as a ball park - on game day, parking is a nightmare.

But cities are wising up.   Seattle just rejected a stadium deal as it was clear that the owner was trying to blackmail the city council ("you don't want to be known as the one who voted down the return of the Supersonics, do you?").   But cities are realizing that getting into bidding wars with each other for teams is just plain stupid.   No one wins except the team owners who get a free or discounted stadium and extensive tax breaks - all to appease what is a small minority of people in any given city.

So yea, when taxpayer money is at stake, maybe what the other guy makes is an issue.   But there are a lot of people who get a paycheck from the government.  I was one, for two years, making from $22,000 to $35,000 before I left for double the pay in the private sector.  That was back then.  Today, the public sector is no longer low-paying.  Public employees often make more than in the private sector and have lavish benefits, job security, long vacations (up to eight weeks with the Federal government) and of course, very nice retirement plans.

Oddly enough, the Left is silent on this area of "what the other guy makes" even as salaries (and retirement benefits) for government employees end up bankrupting towns and villages and even some small cities.   And as property tax (and income tax) bills go up and up and people are priced out of their homes, the Left is more concerned about what people in the private sector make - people who are employed by other people, not the taxpayers.

But getting back to "Evil 1%'ers" - are they really "taking our money away" and if so, how did they do it?   Well, to be sure, people in the banking and finance industries often end up making money at your expense, particularly if you signed one of those loan documents back in the 2000's.   Note, however, that this does require some action on your part in order for them to "take your money away".  As I noted in another posting, if you leave your pen at home, you can't be victimized by banks.   If you get off the bandwagon of "home ownership" as the end-all to humanity, you can control your own life.  If you stop borrowing money you stop being a victim.

But what about the bailouts the big banks and financial institutions got?  The government just gave away money to them and not to the peepul who really needed it!   Well, funny thing about the bailout money, the banks had to pay that back.   GM and Chrysler had to pay it back.   If the government gave you money to pay off your mortgage on your over-mortgaged house, could you have paid it back?  Of course not.  And sadly, in some instances, the government (and banks, goaded by the government) did step in and forgave debts and let some people off the hook - but not others, which strikes me as righteously unfair, as other people (like me, for instance) sold off our assets and paid off our mortgages.  Where's my free hot meal?

But what about the "big evil corporations"?   Should a CEO make millions, hundreds of millions or even Billions of dollars in stock options and salary?  Isn't that blatantly "unfair" when the "workers" make far less than that?   It depends on your perspective.   The CEO works for the Board of directors and they work for the shareholders.   If you don't like what the CEO is making, well you can sell your stock or chose not to buy it.   I own lots of different stocks in a lot of different companies, and all of them pay their top executives what some would consider an obscene amount of money.   But I own these stocks because they pay dividends and increase in value and thus make me money.   If they were losing money and not paying dividends, I would not own them.   What the CEO makes really isn't relevant to me, other than whether his pay is impacting the performance of the company.

(And getting back to Hedge Funds, they often can have positive influence on a company by forcing change, as one Hedge Fund did with the Darden group - spinning off Red Lobster, creating a REIT to hold the properties of the restaurants, and generally increasing profits and share price, and yes, I bought the stock and did very well with it, thank you.  Was that worth a Billion dollars?   Maybe so.)

The guy working in the factory is getting paid what a factory worker is worth, which is not much for unskilled labor.   If everyone could be an effective CEO, then the pay for CEOs would decrease.   But the number of companies that go bust attests to how few effective CEOs there are out there.

Oh, but wait, you say - those bum CEOs still make a lot of money even as they drive their companies into the ground and then they get a "golden parachute" to boot!   Well, that is true, and it may seem "unfair" but bear in mind the factory worker who sabotaged the assembly line (and I've seen it!) also gets paid right up until the time they close the doors.  In order to attract talent, you have to pay it, and you can't attract talent if the contract says they get paid nothing if the company fails, as companies often fail for reasons other than the actions of the management.

Using our Rock Star and Professional Athlete analogy, both are paid to perform, even if their performance is lousy.   Eventually, they may lose their audience or be put on waivers, but often they have guaranteed contracts for X amount of dollars, regardless of whether they suck or not.   You have to promise that to attract the talent.

So why the concern about "income disparity?"   The standard rant goes something like this:  The top 1% of the world wealth controls half the the world's wealth.  And this is a bad thing because....why?  And who is this top 1%?  A bunch of rich dudes with top hats who light cigars with $100 bills?

Actually no.  These evil 1%'ers are.... well... YOU.    Yea, you got that right.  If your income is about $32,400 a year or you have a net worth of about $770,000, then you are in the top 1% of income and wealth for the planet.  I'll bet you didn't see that one coming.   You see, there is a lot of poverty in this world, and if you are "poor" in the United States, you are rich by world standards.   You own things most people will dream of but never have.   You will live longer and live better than more then half the planet.  And you are also fatter than 70% of the planet.   So kwitcherbitchin.

(And no, we don't buy into "relative wealth" arguments around here, so don't even try that one).

You see, this is where this wealth-hating leads to - self-hatred.   If you want to save the planet, then go blow your brains out.  One less person taking up precious oxygen, and one less evil 1%'er doing the evil things they do like work for a living, save money, and pay off debts.   You horrible rotten person, you!

OK, OK, you say, worldwide income disparity makes even the most middle-class person in the USA in the top 1% of wealth for the world.   But what about income disparity within the USA?   Yes, what about that?   All those Billionaires in the top 20 are from the USA!   Right?  Well, except for Carlos Slim, he's from Mexico (talk about income disparity!) and he made his billions one dime at a time off the backs of every Mexican who every made a phone call.   Um, you might want to start with him, first.

Or Vladmir Putin.  Again, the income and wealth disparity in the Russia makes the US look pretty tame.  People are suffering there with the low price of oil, and old Vlad keeps raking it in.

And then there is some guy name Garibaldi Thohir, who hails from Indonesia and tops the list (#1, knocking old Carlos Slim down to #11!).  Again, Indonesia and income disparity.  People are dirt poor there and this guy makes Billions in - get this - the coal industry.   Nice nasty, dirty, coal.   And we are up in arms about what again?

As you go down the list, you come to some other folks not from the good old USA.   Amancio Ortega, Ingvar Kamprad (the IKEA dude), Lillian Bettancourt (of L'Oreal fame), just to name a few.

And then you have folks like Sergey Brin (who even looks like a Bond villain), who was born in Russia, but made it big in the USA, because you can make it big here without being dictator-for-life or ending up like that poor bastard from Gazprom.  (And that is why we do have so many Billionaires on the list - this is the land of opportunity and you can get rich here.  If we take that potential away, what will that accomplish, other than to move wealth to other countries?)

And hey, this is just in the top 20.  I am not pulling from down the list to make a point.   Income disparity, if it is a problem, is not some American invention.  And income disparity is even more obscene in countries were malnutrition and poverty are real things.

But even if it exists, is wealth disparity a problem?   One aspect of money, in fact the only aspect of money as I noted before, is that it represents your power and control over others.   If you have $10, you can make someone cook you a meal.  And you do this, every time you go to McDonald's.   Money translates into power, power to cause others to do things on your behalf.   For you and me, our power is limited in some sense, fantastic in others.

For example, I have the power to cause a company to design, build, and market an automobile for my use.  Well, it's not just me, but the collective power of millions of us.   And it is an awesome power, too.  Out tastes in automotive fashions are fickle, and fortunes are made and lost overnight if a company chooses wrongly - which is why those CEOs get paid so much to make Billion-dollar decisions like that.

I also have the power (hopefully) to have someone take care of me when I am too old and feeble to take care of myself.   And a host of other smaller powers as well.  Money is a good thing to have, even if you only have a little of it, compared to others.

Now granted, people with Billions have a lot more power than you and I.   But what does one do with Billions?   Every so often, you hear a story about a guy who came into a lot of money and instead of building himself a mansion or buying a yacht, he gave it all to the homeless.    And we are supposed to feel good about that, and maybe we should.    But of course, if he spent the money on the fancy house or the fancy boat, he would have employed dozens of people in the construction of those things.   Moreover, his spending would keep the companies that build those things in business, and pay dividends to shareholders.   The taxes he would pay on those things (as well as the taxes the workers would pay) would help fund our government, which in turn would help pay for a homeless shelter.

Or you can give it to a bunch of drunken bums who will spend it all on crack and cheap beer (no really, most do, the homeless are not sainted souls).   That is, of course, his choice, and that is what money is all about, choices and power.   When you have a lot of money, you can make choices and change society.

But the point is, wealthy people don't have Scrooge McDuck Money Vaults where they swim in their money.  The either spend it, which employs people like you and me, or they invest it, which also employs people like you and me.   The only difference between them and us, is that their spending tends to exert more control over their environment (and ours) than our spending does.

Both Bill Gates and Mark Zuckerstein have set up (the latter claiming he will set up) charitable trusts with all their Billions.   (Funny thing but Liberals don't seem to mind that the Facebook guy gets Billions of dollars, as they perceive him to be on their side.  It is those other Billionaires, you know the Koch brothers and the Wal-Mart family, they're the evil ones!).   As I noted in another posting, these trusts perform three functions.  First, they are a tax dodge, which you need when you have Billions.  Second, they are good PR, as Zuckerman found out when he just talked about setting up a trust.   Third, they are a great way to control and change society through charity, setting up research foundations, lobbying for political change (particularly change that benefits you or your company directly) and so on.   What good is power (money) is you can't use it to change things?

And this is where the income disparity people have a point.   If you accumulate enough money, you can change things in your favor.  In fact, you can change things to the point where you will always have a lot of money and your heirs will, too.   It is a scary scenario and one that plays out in come countries, such as Mexico, where a few powerful families own all the land and control the politics and everyone else is a peasant.  And nothing ever changes.   Or South Korea, where a few powerful family-run conglomerates run the country and all the businesses, and everyone else has to work for them.   Of course, South Korea is a far nicer place than North Korea - where there is little income disparity except that between the legions of peasants an the top 0.001% of the country.   Um, what was the point of this again?

You see, that is part of the problem - when you take away money from people for "having too much" and redistribute to to everyone else, it sounds like a swell idea in the abstract.   But history has shown again and again that such schemes inevitably fall apart.  Once you tell people that they have "guaranteed income" and they will make the same amount of money no matter how hard they work or what their job is, they stop trying to work hard or improve themselves.  They acquire learned helplessness, which was quite noticeable when the Berlin wall fell.  "Easties" as they were known, came across the border looking for jobs in West Germany.  And West Germans despised them.   Raised in an environment where you asked the government for everything and expected everything from the government, the Easties were not self-motivated go-getters.   They lacked the basic abilities to go out and find a job and fend for themselves.  Trained from birth to think their actions had no impact on their environment they became passive and listless, much as animals do when subjected to random shocks that are not within their control.

Getting back to the point, though, will the Billionaires end up controlling the country with their money by donating money to politicians and swinging elections with attack ads?  To some extent, yes, but not in every instance.   Maybe the Koch brothers and big oil put George Bush in office.   But also a lot of people vote for him based on something other than Swiftboat ads.    On the other hand, Barack Obama was elected twice, often based on small donations from people like you and me (well, me anyway, I don't know about you).   The point is, all the Koch money couldn't defeat Obama.   And this time around?   Well, the "big money" of the GOP couldn't prevent Donald Trump from being nominated.  The Koch brothers are talking about voting for Hillary!   So the idea that Billionaires will tell us what to do may be somewhat limited.   You can fool all the people some of the time....

But what about inherited wealth?   Isn't income disparity or wealth disparity (which are indeed, two different things) dangerous as it could create family dynasties that control all the wealth in the country, much as in Mexico?   Perhaps, perhaps not.  I live on an island which was once a vacation retreat for 1/6th of the world's wealth.   J.P. Morgan, whose wallet was the Federal Reserve until he got tired of bailing out the government (and did us all a huge favor by forcing the government to create the Federal Reserve so we didn't have to rely on one rich guy to bail out the economy!), had a condo here - and moored his 200-foot yacht, the Corsair in the harbor (so he could keep his women on board, who were not welcome at the club).   South of us, the heirs to the Coca-Cola fortune have vacation homes on their little island, which adjoins yet another island where the Carnegies encamped.

All that money.   All those rich folks.   Where did they go?  Well, as I noted in another posting, the problem with inherited wealth is mathematics.   If you have four children, that divides your wealth into four.  And usually, those children are not interested in taking risks to expand their own wealth (two of the Koch brothers notwithstanding).   They each have 4 children and you have 16 heirs, and then 64, and then 256 and so on.   Wealth dissipates.  The fortune of even J.P. Morgan, Rockefeller, and Carnegie dissipated with 100 years or so.   Some of the Coca-Cola people and the Carnegie descendants still have cottages on the nearby islands, but the land has been divided and divided again.  The old mansions are now run as businesses, owned by the government, or lie in ruins.

So far, the United States has largely resisted the tendency for inherited wealth to rule the country.  Maybe a family will have some influence for a generation or two - the Rockefellers certainly did, but mostly in the political arena as elected officials.   Ditto for the Kennedys.   And yes, there are a few wealthy Duponts around, although many of their lavish estates are now museums, while others end up shooting wrestlers.   Wealthy families don't stay wealthy for long.  Old money dissipates.

And this is easy to verify when you look at the list of Billionaires - the top contenders are often self-made men or made their fortunes in new industries such as computers and the Internet.  Very few oil and steel barons left these days.   And in 100 years, maybe there will be few Social Networking or Operating System or Search Engine barons left as well.   History is why I am not so worried about income disparity.

But the main reason I am not worried by how much other people make is that I try to judge my own happiness by how well off and happy I am as opposed to others.   One sure-fire way to make yourself miserable and depressed is to worry about what the other guy is making.   If I think about how much some of my former classmates in law school are making, it depresses me.   Where did I go wrong?   I gave up the big law firm life for a life of leisure - and a life of a lot less money.

Funny thing, though, many of those former classmates tell me I'm "lucky" and "have it made" because I don't have to run the treadmill of the lawyer life.   Funny how that works.   I guess money isn't everything.

And growing up in places where rich folks lived, such as Old Greenwich, Lake Forest, and Cazenovia, I saw firsthand how sad a lot of wealthy people can be.   Alcoholism, drug abuse, suicide - you name it.  More anti-depressants are prescribed to wealthy folks than poor ones, I am willing to bet.  The folks I saw there were not happy people, no matter how much they had, and it seemed the more they had, the more unhappy they were.  And if they were unhappy, their children were miserable.

This is not to say you can't be poor and miserable, too.   But I think a cause of a lot of misery today is people wanting what they can't have and then judging their own lives based on what other folks have - not realizing that those other folks went into hock (living beyond their means) to have stuff, and are even more miserable than the poor guy with nothing.

I'd rather be a dreamer with a penny, than a rich man with a worried mind.  Perhaps that is an extreme sentiment, but it contains a nugget of truth.

And one reason that comparing yourself to others makes you depressed, is that it creates a situation of stasis and also negates your free choices in life.   And not surprisingly, the people who spend a lot of time whining about income inequality are depressed people and smoke pot.  Rather than take action in their own lives and make better choices to make themselves happier, they sit around waiting for the wealth to be redistributed - which could be a long time, if indeed, it ever happens.

Maybe money won't make you happy.  Maybe it will.  But one thing I guarantee you - worrying about how much money other people make really won't make you happy at all.   Unless you are paying them from your own checkbook, their salary really isn't much of your concern.  Concentrate on what is one your plate and not your neighbor's, if you really want to find happiness.

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NOTE:   Some would point out that many people making a lot of money end up paying less in taxes (as a percentage of income) than middle-class people.   Mitt Romney pays 15% capital gains tax because he claims his income as a capital gain and not as a salary.  Even Billionaires like Warren Buffet think this is scandalous.   But raising income tax rates serves only to screw the middle-class and upper-middle-class who actually pay income taxes.   The very rich will continue to structure their income as capital gains and pay 15%.   (And of course, it goes without saying that Liberals will decry "tax shelters" until they become wealthy, at which point they dive into them).  Whether and how this should be fixed is another discussion entirely.   While increased capital-gains taxes might affect wealth disparity (as indeed the income tax did when first introduced) it will not eliminate it.   And that is why I say it is really a separate issue.