economics

Redcabinsteve asks:

My wife is a high earner with substantial amounts in a profit sharing acct and a 401 acct. If anyone has the words to convince her to at a minimum take some $ off the table I’d appreciate it. She deflects my words like reverting back to mean, things go down, etc.

If you have a 401k with employer matching, she might be correct. Let’s look at a 401kas an example. Her employer matches her contributions, up to 7% of her income. Let’s look at the math to see what happens if she deducts 7% from her pay:
Let’s say she has an income of $50k per year. That means a deduction of $3500 a year. Her employer matches that with another $3500, for a total of $7000 put into her 401k.
Assuming that the two of you have a taxable income between $81,050 and $172,750, your marginal tax rate is 22 percent. What this means is that In exchange for this $7000, her take home pay is only reduced by $2,730 because she doesn’t pay tax on that money, since it is deducted before income taxes are calculated.
So she ‘loses’ $2,730 in take home pay, but turns that into $7,000 in retirement savings, which translates into an instant 154% return on investment.

The larger her employer match, the better off she is. If her employer doesn’t have employer matching for the 401k, the advantage is much less, and inflationary periods really hurt you. In the example above, if there were no employer matching, that $2,730 becomes only $3,500, which lowers the return to 28%, which in this inflationary environment doesn’t help as much the inflation is hurting you.

In my case, once I have worked there for a year, my employer offers a 4% match. I plan on deducting that maximum 4% as soon as I am eligible.

EDIT: Comments have devolved into nonsensical gobbledygook. I normally leave them open, but I’ve had enough. Comments closed.

Facebook recently decided to buy outstanding invoices from businesses owned by women and minorities. The way it works is the business sells an outstanding invoice to Facebook, then Facebook has the debtor pay them what is owed. In return for this, the business pays Facebook 1% of the value of the invoice.

There is a catch– the invoices have to be “eligible.” Invoices must have a minimum value of $1,000 and the customers must have an investment-grade rating. In other words, the invoices ARE going to be paid, making this a no risk endeavor for FB.

Businesses eligible for this program must be certified by an approved partner organization as majority-owned, operated and controlled by racial or ethnic minorities, women, U.S. military veterans, LGBTQ+ people or individuals with disabilities. This makes FB look “woke,” but what is happening here is that they are taking advantage of gullible small business owners.

In other words, Facebook is making no risk loans at a rate that varies from 4% to 12% APR to gullible companies and making itself appear to be “woke.” I wonder how many people will think that FB is doing people a favor.

A commenter to a recent post seems to be confused as to what the problem is. If a person tells me that they don’t understand a concept that I am putting forward, I will always take the time to fully explain my position.

Let’s start with my original statement:

CVS announces that they will no longer have education requirements for jobs that don’t require a government license. They will also be increasing wages by 36 percent for the uneducated morons they will be hiring. Those who DID get an education? Not so much.

Divemedic

Guy then replied (after a bit) with this:

I guess I’m lost on where this is bad. If they’re no longer requiring a degree where not required by law they’re allowing people with actual life skills who may not have gotten a useless degree (useless as in, not required for a job) to get employment they could be qualified for.

And not saying they’re heroes, or that I want minimum wage increases, but a company voluntarily giving more money to people in the low end of their payscales seems to be good, unless you’re assuming they’re all fat black shaniquas. Some might be just, ya know, people.

Guy

So to understand why I have a problem with this, you need to understand what is happening. The company has announced that they are going to pay people without skills $30,000 a year simply for showing up to work, where they used to pay $22,000 a year for the same skillset. That represents a 36% increase. For reasons that you should already understand, this policy is inflationary.

The people who already work there and who already have skills and experience will receive the same minimum. This is known as pay compression. It isn’t happening because of the free market, and CVS isn’t doing it out of the kindness of their heart. It is happening because of the nationwide push for a $15 minimum wage, and because the Federal government is demanding that anyone getting Federal dollars do so. Remember that Medicare and Medicaid rule the medical field in this country.

This completely removes incentive for anyone to gain in skills or experience.

In 2000, a new paramedic in the Orlando area was starting at $14 an hour. New medics now are starting at $13 an hour. As these minimum wages increase, it will soon be that there is no reason for a person to go to the two years of school that it takes to become a licensed paramedic. Why? To get the same money as a person who didn’t even finish high school?

Some would argue that, in a free market, paramedics would get more money. The problem is that it isn’t a free market. Ambulance companies are paid by Medicare and Medicaid. The reimbursement rates for ambulance rides haven’t increased to keep pace. There is no room for pay raises.

So to sum it up, increasing pay at the bottom end without a corresponding increase above that means higher prices, stagnating wages, and is overall bad economically. It also serves to remove incentive for an educated workforce. This is the reason why the Indians and the Chinese are kicking our asses when it comes to the STEM and medical fields.

Guy, your earlier attack on education by equating all education with gender studies tells me that you likely don’t have an education. (If I am mistaken, please accept my apologies, I am not trying to offend.) All education isn’t gender studies. There are plenty of STEM, medical, and other degrees that are needed and important. Not only those, but trades and skills are important if this nation is to not slide into third world shithole status. We can’t all be high school dropouts who only work at retail and service jobs, but that is exactly where policies like this one will take us.

Policies like this tear at that educational foundation and will see this nation slide into savage obscurity.

There are those who think that I am being alarmist. They claim that inflation isn’t so bad right now, if you only ignore housing, food, and energy. Ignore the three largest expenses in every household, expenses that are more than 62 percent of the average household budget, and things aren’t so bad.

In 2020, Housing was 33% of the average American household budget. Energy was 16% of the budget. Food uses up another 13%. Nearly two thirds of the average American household budget was spent on those three items- items that the government doesn’t consider when calculating inflation.

Housing is increasing. New home prices are skyrocketing (up 16 percent in the past year). With rentals, it gets more complicated. States like New York, California, Illinois, and Washington are seeing decreases in rent. Florida, Texas, Nevada, and Colorado are seeing massive increases. The largest is Henderson, Nevada, which has seen a 49% increase in rental costs in the past year. Orlando rents are up more than 25 percent in the past year, with most of that (20 percent) since January. Still, overall rents are skyrocketing with there being a nationwide 15% increase in rents over the past 8 months.

Food costs are rising, but in order to see that, you have to look past the official government statistics. (Hint: the government’s inflation numbers are no more realistic than the results of the 2020 election) According to Bloomberg (hardly a right wing source), food prices in July were up 31% from the same month last year. 

What about energy? The average price of a gallon of gas was $2.11 in December, but that has risen to $3.09 as of last week. That is a 46% increase in 9 months. Other energy costs are also rising. The average cost of electricity has risen from 13 cents to 14 cents per kilowatt hour in the past year, a 7% increase. Overall, energy is costing Americans about 23 % more than it did last year.

So to sum things up: The weighted average of the increases in those three expenses is enough to put the actual rate of inflation at more than 12 percent, but that is area dependent. Some areas of the country are seeing inflation rates of 30 percent, and others are as low as 8 percent. Much of the variation is due to varying costs of housing and gasoline.

No matter what, the government reported inflation rates are far too low.