Want to save a little cash? Carry it.

In today's digital economy, many of us no longer carry cash.  Why would we?  We have almost unrestricted access to our bank accounts on demand, and we are more than capable of charging thousands more than we have at any given time 24/7.  What could possibly go wrong?

Small transactions can add up quickly, and we tend not to think about them much anymore; especially if we use a cash-back credit card.  The answer isn't to give up using cards; it's to start putting money in your wallet, but only once per week.  Assuming that you have written down budgets (if you haven't, drop what you're doing immediately and go do it), use this cash for purchase categories that you have set a small budget for, something like lunches during the work week.  Using cash for hair cuts, tipping, and entertainment are also really good for this type of strategy.  You can't go over-budget if you're using physical currency. There is also a psychological factor of being a bit more careful with your money when you know exactly how much you have in hand.

Some of you reading this have probably used this very strategy in the past, in days that required much more frugality.  In today's culture, it's far too easy to let convenience win over frugality.

The Real State of the Economy at the end of 2015; Facts and Figures

1. Inflation Adjustment, comparing the last five years[1]
   
   In 2015 $1.00 has the same buying power as $0.99 in 2014
   In 2015 $1.00 has the same buying power as $0.98 in 2013
   In 2015 $1.00 has the same buying power as $0.96 in 2012
   In 2015 $1.00 has the same buying power as $0.95 in 2011
   In 2015 $1.00 has the same buying power as $0.92 in 2010
   
   Inflation has remained low this year.  The inflation rate is part of what determines currency stability.
   
   
2. US Population, comparing the last five years[2]
   2015: 322 million
   2014: 320 million
   2013: 317 million
   2012: 315 million
   2011: 313 million
   2010: 311 million
   
   Population increase is slow and constant, currently sustainable.
   
   
3. Labor force participation rate (age 16+ people currently working, and actively seeking work), comparing the last five years[3]
   2015: 62% (200 million)
   2014: 63% (201 million)
   2013: 63% (199 million)
   2012: 64% (201 million)
   2011: 64% (200 million)
   2010: 64% (199 million)
   
   Continuing to decrease, and is alarmingly low.
   
   
4. Unemployment rate (of the labor force participation rate, that is how the government calculates it), comparing the last five years[4]
   2015: 5% (10 million)
   2014: 6% (12 million)
   2013: 6% (12 million)
   2012: 8% (16 million)
   2011: 8% (16 million)
   2010: 9% (18 million)
   
   
5. Real Unemployment, comparing the last five years using numbers from above.
   2015: 322 - 200 + 10 = 132 million not working : 41% real unemployment
   2014: 320 - 201 + 12 = 131 million not working : 41% real unemployment
   2013: 317 - 199 + 12 = 130 million not working : 41% real unemployment
   2012: 315 - 201 + 16 = 130 million not working : 41% real unemployment
   2011: 313 - 200 + 16 = 129 million not working : 41% real unemployment
   2010: 311 - 199 + 18 = 130 million not working : 42 % real unemployment
   
   Numbers may be within plus or minus 2% margin of error as I cannot determine the percentage of the US population that is under the age of 16.
   
   
6. Median Household Income, comparing the last five years, adjusted for inflation[5]
   2015: number not available yet
   2014: $53,657
   2013: $53,105
   2012: $52,970
   2011: $53,162
   2010: $54,343
   
   Wages seem to remain in the same range.
   
   
7. GDP, comparing the last five years, adjusted for inflation, in billions[6]
   2015: number not available yet
   2014: 17,348.1
   2013: 16,663.2
   2012: 16,155.3
   2011: 15,517.9
   2010: 14,964.4
   
   Low growth over the last five years.
   
   
8. Conclusion
   
   US Economy seems stable, but growth is stagnant.

Modern Rules for International Economics

Economics can really be a tricky topic.  One of the many reasons that this is true, is because economics is so vastly affected by changes in technology.  You cannot take what works today and apply it 200 years ago without dire consequences just like you can't take what worked 200 years ago and apply them today without causing a massive catastrophe.  Therefore, that brings us to the first rule...

1. The Rules of Economics must be fluid.  

How to keep the rules of economics fluid doesn't really have a universally accepted set of guidelines.  In fact, it's constantly debated among many circles.  Perhaps it is a good idea that every law pertaining to economics must sunset in 365 days (can be renewed every year if working, not if it isn't), and must be written in clear and concise language with a very well defined goal.

2. All people must have the right to conduct business and have an equal opportunity to do so.

 This seems obvious, but there are laws that keep people from forming a sole proprietorship.  As an example, to be a taxi cab driver in certain places requires heavy licensing fees in the range of several thousand dollars.  This is no problem for someone who is already wealthy, but a big problem for a young person just starting out.  This is also important because the Internet has allowed people to connect directly to other people instantly anywhere on the globe.  Services can be rendered, and goods can be shipped easily and inexpensively.  Like it or not, the world is already a loose-knit confederacy, and we need to be able to conduct business in this confederacy.

3. New technology must be allowed to thrive.

If the United States government had banned automobiles because mass production of them would have put horse breeders and carriage builders out of business, life wouldn't be as we know it today.  This principle can also be seen with taxi companies with the invention of Uber and ride sharing services.  Peer to peer business is made very easy with technology and mobile smart devices, along with clever entrepreneurs coming up with ways to use the technology to benefit themselves and their customers.

4. Companies should not be allowed to lobby legislators.

Companies tend to lobby legislators with bills that sound like they have the people's best interest in mind, but are actually a guise to limit competition.  The government is supposed to work for all people, not just certain groups.  Which brings us to the next rule...

5. The people must never be split into groups or classes.

Splitting people into classes or groups only breeds resentment between those groups.  Each person must be treated as an individual, and must be held equally accountable under the law.

6. Governments must be lean and efficient, and operate in a budget.

As we saw with the fall of the Soviet Union and the financial crisis in Greece, budgets must be set and followed as closely as possible.  This doesn't mean that governments can never borrow money, it just means that the loan must be paid off in a reasonable amount of time.  The suggestion of all programs sun-setting after 365 days would help with things staying lean.  Each year, if a program is extended, there is an opportunity to fine tune things, scrap them completely, or extend them if necessary.

7. Taxes should be simple.

A modern country should have a simple tax code.  One that is easy to remember, and very clear.  Many people get into trouble with tax collectors every year because they were unable to understand the tax code.  Having concise rules would also greatly reduce the amount of loopholes that can be exploited.

The SCOTUS Ruling on the PACA Subsidies May Have Saved the Election for the Republicans in 2016

It's been a while since I've written in this blog.  Sorry for the long hiatus, but I was working for a company that was more demanding than all three of my young children put together.  I no longer work for that company, so now I have some time to do some blogging again.

Let me start out by saying that I really loathe the PACA, and I disagree with Barack Obama economically on almost every point.  In my opinion a street prostitute addicted to heroine knows more about economics than he does.  And his signature legislation, the PACA, is a horrible piece of legislation that should have never been passed. For most Americans, it made the cost of both health insurance and health care (both separate things) much more expensive.  It's forcing many health care providers to radically change the way they operate.  Some may even go out of business.  However, for a large minority of Americans it did in fact make Health Insurance available to them with generous Federal subsidies.

For those of you who do not know, the PACA stated that Americans who enroll in state exchanges are eligible to receive subsidies.  About half of the states didn't set one up, so a federal exchange was made.  Challengers of the law were hoping to use this wording of the law to make those enrolled through the federal exchange ineligible to receive the subsidies, and thus hopefully gutting the law.  Now had this succeeded, it was estimated that 7 million Americans would lose coverage because they would no longer get subsidies.

A part of me really hoped that the SCOTUS would rule in the favor of the challengers.  However, the strategist in my knew that it would have been devastating for the Republican Party in the coming presidential election.  The reason being, the damage to the price of Health Insurance and Health Care has already been done.  If the law were to be gutted, prices weren't going to go magically back to 2007 level prices.  It would have pulled the rug out from under 7 million Americans, and you can bet that the Democrat Party would be using that as a rallying point for the 2016 election.

Health Insurance and Health Care in the United States are broken.  There's no getting around that cold hard fact.  The PACA didn't fix it, but what it did do was pander to people who were too poor to buy their own health insurance, but not poor enough to qualify for Medicaid.  The proper path to repealing the PACA would be to normalize the health insurance and health care markets first.  Gutting the PACA without doing this first would lose millions of potential votes for the Republican Party forever.

The Rich Getting Richer - That's Not A Bad Thing

"The rich getting richer, and the poor getting poorer" is a resounding argument from the Left Side of the political spectrum.  They have turned it into a catch-phrase that college professors recite as a mantra to college students in hopes to get them to read Marxian and Keynesian theory documentation.

A pretty powerful statement isn't it?  What kind of picture does it put into your head?  Like most people, it paints the mental picture of a covetous business man with a monocle and top hat greedily sucking the last dollar bill from a working-man's wallet.  That's exactly the picture that phrase tries to paint.

However, like most things we can analyze this and completely debunk it.  First, we'll start with the first part of the sentence: "the rich getting richer".  Yeah, we need to put some restrictions on those slick salesmen; keep them from swindling the Proletariat too much.  Except there's one problem; the rich getting richer is not a bad thing.  It's a phrase that can be directly translated into "the productive keep producing".  In fact, it's essential to Capitalism and the overall health of the Economic Model.

Take Bill Gates for example.  He's been one of the most famous and richest men for over two decades.  He didn't get rich by swindling the poor of their money a la Ebeneezer Scrooge, he made operating systems that people - almost everybody wanted to buy.  He built a vast empire that employs thousands of highly-skilled highly-paid workers in the tech industry, that services millions of people and business entities throughout the entire globe.  And we are all better off for it.

Bill Gates isn't the only person in American history to gain wealth from ingenious production.  Many others have done it including Henry Ford, Steve Jobs, and Mark Zuckerberg.  Many more people will do the same thing.  A downside to the wealth that comes from creating, will come the stigma and demonization from a group of people that hate rich people.

Now for the other half of the sentence: "the poor keep getting poorer".  This carefully crafted piece of psychological jargon is designed to make the working man or women constantly struggle at ominous odds and always lose.  No matter how hard he or she tries and struggles, will only be financially beaten down by the man.  The irony is, that if the Left gets their way, it will always be a self-fulfilling prophecy.  In an attempt to make sure that no one ever has "too much", they will make sure everyone has too little.

This is far from the truth.  In our modern market, anyone can work their way up from nothing.  All it takes is perseverance  and the ability to learn and adapt.  There is always an opportunity; the myth that the poor will always just get poorer is just that, a myth.  The poor as a group, will only get poorer when an outside force presses on them to take the products of their labor - and it's never going to be Bill Gates.

Push for Consumption, Demonization of Production

The economic theory that has dominated Western Culture for about the last 50 years is called "Keynesian Theory Economics".  As an over-simplification theory basically states that government can fine tune the economy by increasing spending during times of recession.  The theory also advocates "easy money" which makes the claim that printing press inflation is a good thing, and condemns the Gold Standard.

Many problem exist with the theory, but the largest problem is the slippery slope that allows the lawyers that dominate the political structure in Washington to get their hands into every sector of the economy.  Some economists believe that this would eventually degenerate into pure socialism.

In the very recent history of the United States, a recession hit many people very hard.  The people hit the most were people in their twenties and thirties.  Unemployment within that group is the highest it's ever been, leaving Generation Y extremely frustrated and for good reason.

An unfortunate outcome of this event has led people to look for government for answers.  Even though the government itself was the cause of the recession, the lawyers did what lawyers do best and push blame to a group of people that were totally innocent - the entrepreneurs.  Successful businessmen were demonized and given the image that they take as much money as they can get and don't pay their fair share into society.  This is despite the fact that these very people create jobs, sign paychecks , and provide health insurance for their employees.

Since the people that cause production are under serious siege in America, production is going to slow down, which will cause the recovery to continue to happen at a very poor pace.  While government is pushing for consumption, it is demonizing the very industry that allows it to happen in the first place.  

Since the Federal Reserve is operating its printing press at full pace, inflation is running rampant in society as the price of everything increases while wages stagnate and savings are destroyed.  Consumption is an important part in the economy; but just like it cannot be someone's sole job to eat, the American people cannot simply consume.  This will make US currency very unappealing on the global market - just ask Zimbabwe.  

In order to consume, America must also produce.  Punishing the people that make this happen by over-taxing and over-regulating them will cause them to simply pack up and take their production to other countries, as we see this happening already.  The claim that millionaires don't pay their fair share is completely absurd.  Their activities benefit society in every way, they should not be punished for being successful. 

Americans and Money

Americans are absolutely terrible with money.  Even the ones that do well for themselves are dumbfounded when they check their balance on the ATM.  What is frightening about this is that they actually have to check their balances to find out how much money they have.  This is detrimental to society.

How much money a person has should be something that can be recalled right from the top of their head.  The dollar amount in a person’s bank account should have even more importance than a phone or Social Security number.  Yet most Americans don’t have any idea how much money they currently hold and have no idea where their money went.

Americans will even spend their money before they get it.  With how easy it is to get a credit card these days, people are very quick to whip out that little piece of plastic when they find themselves a little short on cash.  People are also tempted to pull out their magic money card for large purchases that they didn’t save up for - in today’s society instant gratification is often the social norm.  Balances can rack up very quickly, and carrying a balance on a credit card is devastating to one’s disposable income.  When someone makes a large purchase on a credit and only pays the minimum payments each month, they wind up paying for their purchase over and over again.

This habit that Americans have reflects on their credit scores.  Right now (2010) in the United States the average credit scores by state range from 651 – 710 with Texas having the lowest credit score and South Dakota having the highest.[1]  With Americans freely spending along with their impulses, it’s no wonder that many cannot afford to pay all of their bills on time.

The single most important way to get a good handle on one’s personal finances is to simply keep track.  Keeping a written record of one’s finances is not the social norm.  People who follow this practice are looked down on and are considered by society to be “anal”, “tight-wads”, “cheap”, or even “OCD”.  The very notion that people would equate keeping accurate money records to a mental disorder should be an instant indicator of the general attitude of Americans when it comes to money; they take their wealth for granted.  In fact, this philosophy is downright absurd.  Contrary to this popular belief that the wisdom of keeping track of money (personal responsibility) is a mental disorder, it should be the exact opposite and considered necessary and an everyday practice for each household.  After all, it just makes good sense.

The inability to balance their checkbook is not where this bad habit ends.  Accounting concepts are usually not even offered to the general public until their college years.  Since only about one-third of Americans attain a college degree,[2] even the simplest of accounting concepts are unknown to the general population.  The evidence of these terrible record keeping habits can be seen just by making small cash purchases in today’s society.  Most of the time you will not even be given a receipt by the register clerk unless you ask for one.  This is an indicator that the general population does not care to know where they have been spending their money, or what they have been spending it on. 

Accounting tasks are made simple today by a lot of great pieces of software.  Most people do not even consider taking advantage of these money tracking tools that are offered to them.  There are many financial programs which are free[3] or inexpensive[4], and all are easily available to all people that own a computer.  For the people that do not own a computer, the time tested pencil and paper method is still available.  Keeping records is not a huge time consuming task.  It is very simple and only takes minutes a day.  There is no excuse for skipping this simple chore, as it is probably the most important one of all.

Budgeting and setting limits for one’s self is also something completely unknown to the general public.  In a normal office environment, one can see many of their coworkers sipping on donut shop coffee every morning; some even go out to buy their second cup during their lunch break.  While this may seem like a small expenditure, the numbers really do add up quickly.  For example if a cup of coffee costs a conservative $1.50, multiply that by 5 days a week for 52 weeks in one year (not taking into consideration holidays, vacation, and sick days) the true cost of this daily treat is actually $390 per year for just one person.  For many households, this is more than the cost of an entire month’s groceries.

Setting a budget that covers all of life’s necessities and needs as well as setting aside savings is critical in modern day America.  With the dollar at an all time low and the rise in unemployment, now is a more crucial time than ever to make sure that the dollar goes further.  This means that the individual needs to set a budget and follow it, as well as making regular deposits into savings and various retirement accounts.  As a general rule, 10% of a paycheck should always go into savings.  For home owners it would be wise to make sure that there is always $10,000 set aside for house repair emergencies at all times.  It would also be prudent to try to contribute the maximum amount allowed into retirement accounts, which are usually capped somewhere between $3,000 and $5,000 per year per person.  And of course, do not carry a balance on any credit card.  Make sure that whatever is charged to credit accounts is paid in full at the end of each billing cycle.

The rules of money are actually simple, so why are Americans so inept at handling their finances?  The obvious answer is that they were never taught to keep accurate records or solve money problems.  But why aren’t they?  Surely the lessons of the Great Depression that this country experienced between 1929 and 1933 should have taught everyone to be more careful with their money.  However, it didn’t and this was largely due to the New Deal as well as the prosperity that was experienced after World War II.

Franklin D. Roosevelt’s economic plan was called the “New Deal”.  It was a combination of many government programs that were heavily influenced by Socialism.  Using the Keynesian Theory of economics, Roosevelt’s administration thought that the Federal Government could repair the economy with the programs that were put into place and bring the country out of the Great Depression.  The Gold Standard was done away with and many welfare programs, including Social Security, were created.  The Keynesian Theory of economics focuses only on short term fixes, and since the New Deal did have positive short term effects, Franklin D. Roosevelt and the Keynesian Theory of economics have been accredited with pulling the country out of the worst depression ever seen.  The negative effects such as a massive power-hungry Federal Government, loss of financial independence of the people, and hyperinflation due to the new fiat money system were not and to this day are still not taken into consideration.  

Shortly after the Second World War, President John F. Kennedy passed some of the largest tax cuts this nation has ever seen in 1964.  Economic growth was on the rise, individual consumption was up, and young Americans were experiencing prosperity and wealth like never before.  Prices were low and with a new surge in the money supply, inflation had not yet set in.  There was no longer a need to carefully monitor their finances.  To Americans, the worst was over and the “safety net” of social programs put into place by Franklin D. Roosevelt’s New Deal put everyone’s mind at ease.

Since the Baby Boomer generation experienced abundant wealth during their youth, in their short-sightedness they have lost whatever accounting practices their parents may have passed onto them.  They believed that the wealth they enjoyed in their youth would always be around for them so there was no need to set up savings for their retirement once they reached that age.  During the 1960s and 1970s labor unions were strong in numbers and managed to negotiate pension plans for many of their blue-collar members.  There was also a wide spread belief that their pensions would be supplemented through the Social Security program.    

Due to the belief that wealth would always be easily available, the Baby Boomers for the most part, did not set aside college savings for their children.  Since they were not trained to allocate their monetary resources or set up sinking funds (most are not familiar with the term sinking fund), they found it unnecessary to set aside money for their kid’s schooling.  For those who could not afford to pay for their kid’s college education were already condemning their children to suffer and choose one of three situations later in life.  The first one is to work throughout school.  The cost of education has risen dramatically in recent decades which would require more work in order to be able to pay high tuitions.  This makes life very difficult for the working student since untrained labor pays very little and the dedication to simultaneous schooling is very taxing.  The second option is to go into debt in order to pay for a higher education.  This dooms the student to a life of repaying large loans with a high interest rate.  The third common scenario is to not go to college.  It is still possible to become rich and prosper without an education in America, but it is getting more difficult every year.  Without a college education in modern day society, one has a much higher chance of being trapped into a life of mediocrity.  After all, it is not as easy to find work that pays a livable wage as it was prior to 1980.

With the attitude of society today it is expected that there would be a public outcry for a government mandated solution to the high cost of education.  There is a common belief, especially within the Democratic Party of the United States, that colleges that are funded through taxes should be created and made easily available to the public.  However, it should actually be the practice of every new parent to set up a college savings fund for their children instead.  There should be no dependence on government mandated public colleges that are paid for through taxes as this will only increase the already heavy tax burden on the American Tax Payer, and no doubt decrease the value of the education that would be provided by one of these facilities.  The assembly-line approach to education would be extended from the high schools to the colleges, and federal regulations of these publically funded schools would diminish the content of the education as we have seen with the unsuccessful No Child Left Behind program that was put into place during the administration of George W. Bush in 2002.          

The children of the Baby Boomers, Generation X and Generation Y have even less of an idea on how to handle their money yet somehow have retained the massive sense of entitlement for wealth and material possessions that their parents have.   This is a recipe for disaster for the United States.  It is all too common for members of these two generations to go to their Baby Boomer parents for help, provided that their parents can afford it.  Simply put, a very large number of them are not able to stand on their own two feet.  Many of them routinely receive extravagant gifts from their parents in the form of houses, cars, furniture, and cash.  This gets them very used to living far above their own means.  Should something happen to their parent’s wealth, the members of Generation X and Y must turn to the same “safety net” that the children of non-wealthy parents must go to: the government, or by a less friendly name, the American tax payer.

With members of Generation X and Y often living above their means, they do not set any money aside for savings.  There is absolutely no planning for emergencies such as house repairs, car repairs, medical emergencies, job loss, etc…  Instead they turn to their parents or politicians when hard times hit.  For the members of Generation X and Y who do manage to do well in their youth, much like many of their parents they do not plan for their own retirement; instead they depend on the Great Government Retirement Pyramid Scheme, also known as Social Security.  Ironically, many believe that Social Security will not be around for them when they reach their retirement age, yet they still plan to depend on it.  Evidence of this can be seen by the fact that the age where people can claim Social Security benefits keeps periodically rising and by the low percentage of Generation X and Y who have personal retirement accounts.

In order for Social Security to work, there would always have to be more of the younger generation than the old.  This is purely speculation and can be wrong.  The disappointing fact is that it is wrong.  The tax payers, Generation X and Y combined number only in approximately 122.6 million.  That number may sound like a lot, but when all of the Baby Boomers retire and start collecting Social Security their numbers along with those that are in generations above still collecting social security will be approximately 198.2 million.  The post-millennium generation numbers in a mere 43.8 million. When they become old enough to shoulder some of the heavy tax burden, the number of tax payers will be approximately 166.4 million. [5]   The generations that are supposed to carry the bill for Social Security are still going to be outnumbered by the older generation who benefit from it.  It is estimated that by 2018 Generation Y will make up half of the working population.[6]

The best way to avoid the tragedies of the failing government Social Security program would be for the individual to assume the responsibility of a personal retirement account.  The most common of these come in the form of a 401k, IRA, and Roth IRA.  These are tools that are easily available to anyone with a bank account and would seriously reduce the number of people who would otherwise declare bankruptcy late into their own lives.  They also have various tax benefits which can be taken advantage of either earlier or later in life depending on which type of account is opened.  While it is possible to withdraw from the Social Security program by revoking one’s Social Security Number, it would make the people who chose to do this ineligible for employment in almost all companies and it was also result in the loss of any money that the individual has already paid into the Social Security program.  For these reasons many people who are opposed to Social Security choose to stay in it, in a sense most who are opposed to Social Security feel completely trapped by it.

Even though the American People may experience good times of economic growth and, it is still important to be savvy with money.  Becoming careless only makes one more vulnerable to times of economic recession.  It is imperative to plan for hard economic times even when things are going well as it is foolish to believe that the economy will always be experiencing growth.  The pendulum swings in both directions in a society that uses the Keynesian Theory of economics, which is the current model in the United States.  When the Keynesian practices are employed the economy is always moving between growth and a recession.  It becomes imperative for the individual citizen to make wise decisions and investments with money.  Being responsible with one’s money may be difficult, but it is overall better for the economy and future growth of the nation.  Being irresponsible with one’s money can make it far too easy to fall into the belief that it is the responsibility of the state to distribute the wealth among the citizens.

 

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[1] http://www.creditreport.com/creditscores/creditratings/average-credit-scores.aspx

[2] http://www.census.gov/hhes/socdemo/education/data/cps/2009/tables.html

[3] http://www.gnucash.org

[4] http://www.microsoft.com/Money/default.mspx

[5] http://www.nasrecruitment.com/docs/white_papers/Getting-to-Know-Generation-X.pdf

[6] http://biz.loudoun.gov/Portals/0/BEC%20Information%20Sheet.pdf