Reflections on Income Inequality

                                             

The Connecticut Mirror, an online newspaper, recently featured a very long two-part article that argued that Connecticut was at the top of the list when it came to income inequality. In short, a chart showed that in Connecticut the top 1% averaged $2.4 million of annual income, while the average income of the remaining 99% was only about $56000 per year. In other words, the average income of the top 1% was 46 times the average income of everyone else in the state. Only neighboring New York State had a greater degree of income inequality.

The article went on to explain that income inequality on such a scale was a bad thing despite the fact that at $56000, the average income of the 99% was higher than practically every other state in the Union. Nevertheless, according to the experts cited in the article, income inequality leads to many undesirable consequences. The implication was that it would be better to live in states like Alabama, Mississippi, or West Virginia where the 99% averaged about $35000, and the gap between the wealthy and everyone else was much narrower.

I wanted to write a long post giving a reasoned response to the article but then decided that it would be of little use. What good would it do to question the assumptions and the figures used, no matter how mistaken, misrepresented, or misunderstood? For most who complain about income inequality, it is a gut or emotional matter and not subject to reason.

I have to admit that my belief that income inequality is not necessarily a bad thing but maybe even a positive thing is an equally gut reaction based mainly on my own personal life experience.

Many years ago while still in college, I got a summer job as a door-to-door salesman peddling one-volume encyclopedias in various neighborhoods in New York City and its environs. Those days and encyclopedias are long gone, but even today college students knock on my door during the summer break to get me to sign petitions and otherwise support various environmental concerns.

Every day, the boss would drive us out to different neighborhoods and give us lead cards filled out by parochial school students who thought they were entering a raffle to get a free encyclopedia. We would patrol a neighborhood, knock on doors, and hope to gain entrance so we could make a presentation and ultimately a sale. It was not easy even though the books which only cost $40 could even be purchased on the installment plan.

The top salesman in our group was a Chinese immigrant from Taiwan. It was hard to tell how old he was but even though he spoke with a slight accent, he was obviously more cultured and mature than the ordinary college freshman. Somehow, while the rest of us would be happy with one or two sales a day, he would usually make three, four or five. It was the same book but he somehow was more adept or motivated than the rest of us. That summer he made far more in commissions, but rather than complain, we could only admire his skill and success.

Realizing that I was not much of a salesman, I completed my college education and went on to graduate school to prepare for a teaching career. Eventually, I got a teaching position at a new Catholic college in Connecticut where all the young teachers were equally poor. After seven years, circumstances forced me to leave teaching and pursue another career.

Since I lacked work experience and had too much formal education, my only option seemed to be in sales. I became an insurance salesman and mutual fund peddler, in those days it was a job only a cut above encyclopedia salesman. It was a time before such financial salesmen (most were men) morphed into financial planners and PBS personalities.

It was not easy and most who entered the field quickly failed and dropped out. But it was obvious that those who succeeded usually worked harder and smarter, or were more skilled and motivated. Of course, the field attracted crooks and schemers who would shine for a while but then go on to greener pastures or fall into disgrace.

It was tough for me but I saw others click right away. Fortunately, I had a very supportive wife as well as five small children for motivation. It took a couple of hard years, but I was able to build a good practice that turned out to be very lucrative. I was even able to recruit  and train a handful of people who were as poor as I was when I started but who eventually became even more successful than myself.

I always tried to listen and learn from the successful. Perhaps the greatest mistake I made as a financial advisor occurred when I took my own advice. I had bought some Apple stock for my retirement plan at $20 per share. Some time went by and it had risen to $30 and I thought I should sell and take my nice 50% profit. I finally acted when I read the company’s annual report and saw that Steve Jobs, the company’s head man, was making $20 Million per year. Why did the company pay him so much? How could it make money paying salaries like that? Who deserves to make that much?

Now I realize that my Apple shares would have been worth a fortune today if I had held on. Jobs, a master salesman, was worth much more than $20 Million. He was the driving force in making Apple one of the largest and most respected companies in the world. In the process, he not only provided thousands of well-paying jobs for others, but one could also argue that his ipads and iphones have contributed greatly to raising the standard of living all over the globe.

An easy way to narrow the income ratio between the 1% and the 99% would be to deport people like Steve Jobs from Connecticut. Actually, it is already happening in an informal way throughout the country. Has anyone noticed how many wealthy athletes are taking up residence in Florida?  Basketball star Le Bron James has been worth far more to Cleveland and Ohio than his huge salary. What will happen if he leaves?

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Memorial Day 2018

This Monday is Memorial Day in the USA, a day when Americans pay tribute to those who gave their lives defending their country. It was originally called Decoration Day as towns and communities gathered together to decorate the graves of their sons who had died during the American Civil War. Civil War memorials still grace the center of many towns and villages today. In my home town of Fairfield there is a Memorial Day parade every year where thousands turn out to enjoy, celebrate, pay tribute, and perhaps remember.

I never served in the military. I was born right before the outbreak of WWII. I was too young for Korea, and exempt from service in Vietnam because I was married with children. I don't think I would have been good soldier but I have always respected those who did serve.One of those was Joseph Skrovanek, a client of mine when I was a financial advisor as well as a friend. I wrote this little memorial back in 2012 after he passed away at the age of 93.

                                            

Joseph Skrovanek was a true American hero. Like many others of his generation he was a son of an immigrant family who originally settled in the coal mining country of Pennsylvania. He served in the Army during World War II and was in the fifth wave to hit the beaches of Normandy on D-day. I knew him as his financial advisor and friend for many years. Like many other soldiers of his generation, he rarely talked about his military service. He was proud to be a veteran and marched with the VFW in the annual Memorial Day parade as long as he could, but that was it.

However, his real heroism came after the war. He came home to Fairfield, CT and married his sweetheart, Mary. He remained faithful to her through good times and bad for more than 70 years. They had two daughters who even after they had asserted their independence and did things that he could not understand, he continued to love them until the day he died.

He was by trade a plumber. I only met him after he retired but I cannot imagine that he ever cheated one of his customers or did shoddy work. Like many in his profession he was self-employed. He never worked for the government or a large corporation.  He had to buy his own insurance and fund his own retirement with regular monthly savings. Before he retired he made sure the house in Fairfield was free of any mortgage. 

Joe and Mary always lived very frugally. He loved to garden and make his own wine. Mary was a skilled homemaker and cook. They would never let me visit them without offering something to eat and drink. We would sit around the table in their kitchen and spend more time discussing family than finances. They liked to talk about themselves but always showed a keen interest in me and my family. 

Joe spent the last few months of his life in an assisted living facility. The day before he died Joe asked one of his daughters to drive him to visit his financial advisor and make sure all his affairs were in order.  They were.

I've just viewed "Gettysburg" an American epic film that brilliantly recreates the famous battle that was the turning point of the Civil War. It was based on Michael Shaara's book, "The Killer Angels." Click on this link to view a brief exchange between an officer from Maine and some captured soldiers from Tennessee.

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McCain, Comey, and Mueller

                                         

Last weekend the Wall Street Journal featured a long article, adapted from a forthcoming book, by Senator John McCain on his role in the Russian collusion controversy. I won’t go into the details but would just like to point out one statement that illustrates the myopia of modern politicians.

At the very beginning of the article the Senator related that the so-called Trump “dossier” somehow came into his hands. After reading its inflammatory and potentially harmful accusations against candidate Trump, the Senator realized that the charges were unverified.

He then claims that he did what any other American would have done. He contacted James Comey, the Director of the FBI, and asked him to investigate the “dossier.” I know that the Senator is old and past his prime but can he really believe that any other American would have acted as he did?

In the first place, can an ordinary American pick up the phone and call the FBI director? Can an ordinary American even get James Comey’s phone number, or email address?  Moreover, what if I had found a scandalous article in some supermarket tabloid that claimed that Hillary Clinton’s top aide was an agent of the Iranian government? What would have happened if I had contacted my local FBI office?

Of course, Senator McCain is no ordinary American. Usually, when a Senator with a national reputation makes a request he can be sure that even the FBI Director will snap to attention.  However, it is interesting that when a committee of the House of Representatives tried to get information from the FBI on the Russian collusion issue, it eventually had to use subpoenas.

Former FBI director James Comey has also written a memoir that apparently deals not only with his tenure at the FBI, but also with his role in the events surrounded the 2016 campaign and its aftermath. I haven’t read the book but given his actions in the past two years, I find it hard to believe that he is telling the whole story. For example, I just discovered that in an interview with Bret Baier, a Fox News anchor, Comey seemed to be the only person in the country who was unaware that the Clinton/Democrat campaign was behind the infamous Trump “dossier.”

Finally, I think it is time for President Trump to wrap up the Mueller investigation. I suggest that the President give Mueller until June 30 to present him with a report of his findings. The special prosecutor’s investigation of Russian collusion in the election has not produced any evidence of collusion so far. It has been going on for almost a year and a half and an army of Trump hating lawyers has spent millions of dollars looking for someone to indict.  It is estimated that in its first six months alone, the Mueller probe cost over $6.5 Million.

If President Trump dismisses Mueller on July 1, there will be a predictable furor but it will subside over the summer. I would even suggest that the President Trump put an end to any investigation of Hillary Clinton’s emails and even go so far as to promise her a pardon if she is ever convicted.

It’s time to move on and leave the election of 2016 in the past. There are so many more important issues facing the nation.

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Federal Rent Subsidies 2018

The headline “HUD plan raises rents on poor” covered the entire width of the front page of the April 28 edition of the Connecticut Post. The story began with the following alarming lead:

"A plan by the Trump administration to triple rents for the nation’s poorest families is running into a wall of opposition from fair housing advocates and members of Connecticut’s Congressional delegation."

Beneath the headline an insert quoted Connecticut’s Governor Malloy claiming that the Trump “administration is proposing to triple rent for low-income families.”

Reading deeper into the article one discovers that rather than a plan to triple rents on the nation’s poor, the Trump administration is proposing an overhaul of a subsidized housing act that dates back to 1937. The proposed bill is entitled the “Making Affordable Housing Work Act.”

In the original 1937 act a recipient of federal housing support would have had to contribute 30% of gross income for rent, a fact that no one ever complained about during the administration of President Obama. The new bill would require a recipient of federal housing assistance to contribute 35% of gross income for rent.

For example, a poor person with an income of only $1000 per month would have had to pay a rent of $300 per month during the Obama era, but under the new plan the rent would rise to $350 per month. An extra $50 per month is a 16.7% increase, not a 300% increase. The rent will not go from $300 per month to $900 per month.

It is true that a 16.7 % increase in rent is significant but I wonder if many will feel its force. It is almost impossible for a layman to read a congressional bill but it would appear that there are all sorts of exceptions and carve outs included for the disabled, unemployed and other needy persons.

Why then would the Governor make such an alarming claim? The basis for his claim stems from the provision in the 1937 bill that sets a minimum rent for those receiving a subsidy at $50 per month. That was over 80 years ago! The new bill replaces the old minimum with a formula based on the current federal minimum wage that would effectively raise the minimum to $150 per month.

I hope that as the “Making Affordable Housing Work Again Act” works itself through Congress some legitimate discussion and criticism of its many features will come to light. In his initial criticism Governor Malloy seems either ignorant of the facts or just plain malicious in his anti-Trump posturing.

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