“You’re Already Rich”

already richI got an email from my old friend Dick not too long ago – maybe the smartest guy I ever met, and I’ve known a lot of smart guys. He was coming through town and we decided to meet at our old hangout, Jay’s Bar.

Dick was from California, but he came through Chicago every now and then back in the 90s, and he often joined our cypherpunk hangout in the back room at Jay’s.

At the appointed time, I met him in front of Jay’s and we walked in together. It was still afternoon and there weren’t too many customers.

Jay was behind the bar, making sure everything was ready for the evening rush. His face lit up when he saw Dick. “Hey, mister Viking, I not see you for a long time!”

Jay always called Dick “the Viking,” which he really did resemble back then. I left Dick and Jay to talk for a few minutes and sat down at the other end of the bar and ordered a couple of drinks from Jamie, the daytime bartender.

After a couple minutes, some random guy (a business type) came up to me and said, “Hey, isn’t that the genius who used to be on the Donahue show way back when?”

“Sure is,” I said. “They found out that he knew just about everything, and so they put him on as a curiosity.”

In just a minute or two Dick walked over and the guy slid down to give Dick his stool. He talked about the TV shows for a minute, and looked like he was ready to get up and let the two of us talk (he must have seen us walk in together), but then he stopped and looked directly at Dick.

“Ya know,” he said, “you answered all those impossible science questions, which was really cool, but you never told us how to get rich.”

Dick looked the man over. “You’re already rich,” he said.

“Yeah, I wish.”

“Okay,” Dick said, “what do you make, sixty thousand a year?”

“Including my wife’s pay, almost a hundred.”

“Then you’re definitely rich.”

The guy looked some combination of angry and embarrassed. “We’re in debt up to our eyeballs! And not from buying crazy things. Between the cars, the house, schools and doctors for the kids, we’re losing money!”

Compassion didn’t always register on Dick’s face, but this time it did. And I knew him well enough to guess that this guy’s predicament got to him. He nodded his head silently for a few seconds, then swiveled slightly, hunched a bit, and spoke in a serious tone.

“You don’t understand me. You’re already rich. It’s just that you let other people take most of it away from you, before you can use it.”

The guy’s posture became soft and serious in response to Dick’s, but he didn’t get it.

“Look at it this way,” said Dick. “You get a hundred thousand per year, but your bosses also pay another seven or eight percent for social security, right?”

“Sure.”

“Okay, so you’re actually getting paid a hundred and seven thousand or so.”

“Okay.”

Dick reached into his shirt pocket for a pen and a small note pad. (Those old engineer habits die hard.) He handed them to the guy and said, “Here, make a quick list of all your expenses. Round up, ’cause you’ll probably miss a few.”

The guy said nothing, but complied. Dick and I sipped our drinks as he did. Then he handed Dick the list, which came to sixty thousand.

“You see,” said Dick, “You make enough to pay all your bills, with almost fifty thousand left over for investments or whatever. And you wouldn’t have to pay all the interest that you do either. The problem isn’t what you make – you’re already rich – the problem is what you let people take from you.”

The guy was actually appreciative, and didn’t speak for a moment, and then he said, “but the government takes all that money, what can I do about it?”

Dick turned directly at him and said, “First, stop saying that it’s okay. It isn’t. You’re rich, but they’re making you suffer at the edge of poverty. Start holding them accountable for what they do to you. Treat them like organized crime.”

With that, the guy had enough. He understood, and he truly appreciated what Dick had told him, but it was going to take him some time to digest it. He thanked us and left.

Jay came over. “So, you chase away my customer?”

“Sorry, Jay,” we both murmured like schoolboys. I said something about the other guy starting the conversation and Dick said something about just talking finance, but Jay just waived his hands at us and mixed a drink for another customer.

“Ah, I was right to put you all in the storage!” We said nothing. He was referring to the back room he used to give us. It was really a storeroom.

Then, he smiled. When it was over with, no matter how angry we had made him, Jay always smiled.

* All the stories that I set in Jay’s Bar are fictional. The characters are based on real people and the stories are often based on actual events, but the presentation is fictional.

Paul Rosenberg
FreemansPerspective.com

Money Issues in the US: Why Can’t We Party Like It’s 1905?

money issues in the USWhen writing historical things, I try to include perspective from people who actually lived through the events. And for money issues in the US, I’m able to do that back to about 1905.

So, do you think life was nasty, brutish, and short in 1905? That there were poor and starving people falling dead on every street corner?

Hardly.

The Wright brothers were flying for 30 minutes at a crack; Einstein was upgrading the laws of physics; telephones and electric lights were being installed all across America; Henry Ford was getting the final pieces in place for his moving assembly line and Model T; radio was being developed; art was flourishing; and the world was more or less at peace.

Sure, we have far more tech and better medicine now, but mostly because the people of earlier times (like the 1905 era) gifted it to us.

People in 1905 lived in heated homes, refrigerated their food, had access to professional physicians, traveled the world (mostly on trains and ships), read daily newspapers (there were many more of them in those days), watched movies, and ate just about the same foods we eat.

So, was it really that bad a time?

No, it wasn’t. In fact, it was better in important ways.

Money Issues in the US: The Facts Don’t Lie

Consider this:

The working person of 1905 kept his or her money. They ended up saving somewhere between a quarter and a half of everything they made – after living expenses.

It’s hard to be completely precise when reconstructing the budgets of average people in 1905 (records are hard to find), but we do have enough for a good, close guess.

Here’s how finance worked for a working family man of 1905:

Annual income:           $700.00
Annual expenses:      ($350.00)
Annual savings:           $350.00

If you’re thinking that I’m taking liberties with these numbers, let me assure you that I’m not – I’m being conservative. For example:

  • The income figure should probably be higher. I’ve found figures of well over $800 for construction workers.
  • As for expenses, I rounded up from a New York Times article, dated 29 September, 1907. It specified $325 per year.
  • Added to that is the fact that many people grew their own food during that time, which would skew the figures further.
  • As noted initially, I compared these numbers with stories I heard from relatives who lived through the time. My uncle Dave, for example, used to tell me how he got a job paying $390 per year sweeping floors as an unskilled immigrant (who spoke almost no English) in 1903.

The next time you drive through an old part of town and see the grand old houses, remember that people were able to build and buy them because their paychecks weren’t stripped bare. There were no income taxes in 1905, no sales taxes, no state taxes, and not much in the way of property taxes.

There was also no such thing as a military-industrial complex in those days, and – miracle of miracles – the rest of the world survived!

And Now…

Today, the situation is much, much different. The average working family pays about half their income in combined taxes: income taxes (to the state and the Feds), payroll taxes, property taxes, gas taxes, utility bill taxes, sales tax, local taxes, and on and on.

So, figuring an average income of just over $50,000 (the 2011 figure). And combined taxes of about $25,000, the average American family is left to pay bills like these:

Mortgage                     11,000
Car payments              6,000
Gas, repairs, etc.         2,500
Property taxes             2,500
Food                              3,000
Total                          $25,000

That leaves people zeroed-out. And again, I’m being conservative, and I haven’t included a number of smaller expenses.

And if you think I’m going overboard, look at this graph of the savings rate from between 1947 (as far back as I could find) and 2009. This graph covers more than families, but it paints a clear enough picture:

money issues in the US

Great Grandpa Did It, So Why Not Us?

Your great grandfathers faced very few of the taxes that we face. (The government survived on tariffs.) There was no social security either, and – believe it or not – the streets were never full of starving old people. Families were able to take care of their own – it’s not that hard when you’re saving half of your income!

We have forgotten that it was once possible for an average person to accumulate money. The truth is that productive people should be comfortable. Well-off, as they used to say.

So, why can’t we party like it’s 1905?

You might want to think about that question. Here’s a thought that may be useful:

You can complain about abusers all you like, but the people who obey the abusers are also to blame.

Paul Rosenberg
“Money Issues in the US: Why Can’t We Party Like It’s 1905?”
FreemansPerspective.com

Why is it So Hard To Save Money Nowadays? The Problem With Thrift

why so hard to save money

Thrift is far more important than is commonly understood, and I will be explaining why in a future dispatch, but first we need to dispel the guilt many of us feel about the topic. There is actually a very good reason why it’s so hard to save money nowadays.

I think most of my readers will recognize the feeling I’m referring to: You read great books on success, such as The Richest Man in Babylon, you understand that saving at least 10% of your paycheck is necessary for success and you go out to do it… but obstacles keep getting in your way.

And then you feel bad. You feel that you have failed. You really don’t want to think about thrift any more.

I’m here to tell you that you were far too hard on yourself. It wasn’t your fault. (Okay, if you were out knocking back brews at a bar four times every week, that was your fault, but I don’t think many readers fall into that category.)

Thrift has been systematically strangled over the past century; it is now just barely possible. You’ve been blaming yourself for the sins of others. And remember, most of those success books were written before thrift was dead.

The Simple Reason it’s so Hard to Save Money in Today’s World…

When analyzing the economics of civilizations, the big question is this: Where does the surplus go?

In Greece, for example, surplus was generated by the labor of slaves, and went to the citizen (property owner), who tended to be a very good judge of where and how to use it best. In Western civilization, surplus was generally left in the hands of the person who earned it, who also tended to be a good judge of how best to use it.

Through the past hundred years of a declining Western civilization, the movement of surplus was radically transformed… it was skimmed away, in thicker and thicker layers, to growing governments in capital cities.

The result of this is the current situation: Essentially all surplus is skimmed away from the producer. This is accomplished with direct taxes, such as income taxes, as well as with the hidden tax of inflation, real estate taxes, sales taxes, and dozens of others. (On your phone bill, electric bill, gasoline, liquor, etc.)

In other words, it’s so hard to save money because the government takes so much of it away.

We are so used to this situation that we fail to remember that it was not always so. And that is why we feel guilty about not being able to save money. And we shouldn’t – a large army of state employees work every day to remove our surplus from our hands. Aside from acting especially stupidly, it really isn’t our fault.

How it was in 1890

If you’re like most of us, you had great-grandparents worked hard, saved their money, and improved their situation in life. It was normal to do so in the later 19th Century, even until the first World War. Great-grandfather got ahead; you work just as hard, but you don’t make much progress. And there is good reason for this: When Great-gramps worked hard, he kept the money.

In Grandpa’s day there was no income tax and no sales tax. (The government survived anyway.) There was no social security tax either, and – believe it or not – the streets were never full of starving old people. Families were able to take care of their own.

We have forgotten that it was once possible for an average person to accumulate money. Mechanics, carpenters, shop owners and people like them filled their bank accounts with gold and silver. It was common for people like bakers and carriage builders to make serious business loans and to retire comfortably, living off of their investments.

Making a Fortune

In those days before mass-taxation and fiat currency, young men would go out to make their fortune. (“Fortune” didn’t mean multiple-billions, it meant enough capital for the rest of your life.) Young men would go to where money was being made, work hard, cooperate with similar young men, learn everything they could from the older men, save, invest, learn how to succeed, then return home as a prosperous adult.

Not every young man went out to build a fortune, and some certainly failed, but these activities were not punished at the time – which made them much easier than they are today. Gathering a fortune was common enough that it was built into the mating strategy of the time. Many women would agree to marriage only after the young man had “made something of himself.” This mating strategy was legislated out of existence, which is too bad, because it was generally a far healthier strategy than what developed in its wake.

Here is a graph depicting the difference between you and your great-grandfather:

why so hard to save money

The top line shows how many years of living expenses your great-grandfather would have accumulated as a hard-working young man. The bottom line shows what you can save.

After working for five years, Great-gramps had seven years of living expenses in the bank. Doing the same things, you’d have less than two.

In the modern world, everyone’s fortune is taxed away as it is being formed, and what is saved is eroded by the creation of currency. Very few of us ever get beyond ‘escape velocity’ to accumulate money. In other words, we work all our lives, just to stay more or less even.
With surplus removed from individuals, all investment capital is forced through institutions. Money is not saved, it is obtained from banks. Finance has been centralized and removed from the hands of individuals.

In the 19th Century, productive people made loans; in the 20th Century, their children shuffled into banks and begged for loans.

Grandpa wasn’t really better than you.

The Worst Part

And the worst part of this was mass demoralization: People began to feel morally weak, which generally happened in the name of compassion.

Here’s how the trick worked:

  1. Your money is taken from you before it can accumulate, leaving you with barely enough to live a reasonable life.
  2. You have nothing left to help those who suffer unjustly; not because you don’t work, but because your surplus is continuously skimmed away.
  3. Politicians imply that you are a bad person for not wanting to help the poor.

Not only do the cultural elite make it almost impossible for you to give, but they insult you for it. Then, of course, they spend the money they skimmed from you on armies of government employees, who deliver a small fraction of your money to the poor.

Your great-grandparents were proud to help their friends and neighbors. They felt good about themselves, they felt compassion for others, and they were proud to make the world a better place. Being robbed of this heritage was far worse than the loss of surplus.

So, the question of why money is so hard to save has been answered. Now if only the steps from here were so simple.

Paul Rosenberg
FreemansPerspective.com

Featured image courtesy of Joyous!, wikipedia.org