wealth | Online Savings Blog

1929 and 2008: Why Distribution of Wealth Matters
10.24.08 | Taxes | 3 Comments | by Fred Siegmund

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There are many comparisons in recent newspapers between the crash of 1929 and the crisis of 2008. The media of today has not settled on a consistent title for America's current events but "crisis" appears to be the most common caption among the newspapers I see.

Many books and articles have been published on the stock market crash of 1929, but one book in particular stands out as short, only 197 pages, readable and relevant for today's debacle. It is The Great Crash by John Kenneth Galbraith.

After using newspaper and other accounts, he describes what happened in journalistic fashion with a final chapter titled Causes and Consequence. The first cause on his numbered list is "The Bad Distribution of Income."

Allow me a brief quote.

In 1929 the rich were indubitably rich. … The proportion of personal income received in the form of interest, dividends and rent – the income broadly speaking of the well-to-do – was about twice as great as in the years following the Second World War.

This high unequal distribution of income meant that the economy was dependent on a high level of investment or a high level of luxury spending or both. The rich cannot buy great quantities of bread. If they are to dispose of what they receive it must be on luxuries or by way of investment in new plants and new projects.

Mr. Galbraith was writing 50 years ago about events of nearly 80 years ago, but it is helpful for man of his distinction to confirm what is the underlying cause of America's crash of 2008: the bad distribution of income.

The growing inequality of income is well documented in the Federal government's publication of the Current Population Survey.

In their table of Selected Measures of Household Income Dispersion the highest 10 Percent of household income continue to gain income share year by year on the bottom 10 percent, but also the bottom 20, 50 and 80 percent of households.

The wealthy pay the same price for bread, eggs and milk as everybody else which is why they have extra money to speculate in Wall Street's new and exotic investment derivatives: hedge funds, collateralized debt obligations, mortgage and asset backed securities, principal only strips, credit default swaps and so on.

In the mean time, heavily taxed wages are going up slowly — but not as fast as prices, a reality documented by the Bureau of Labor Statistics. More of us are reaching credit card limits and home equity loan limits.

Refinancing mortgages for cash, or lower interest rates, did provide a boast to buying power, but these too are running low.

A mass society needs mass participation, which the unequal distribution of income limits. The crisis of 2008 tells us the wealthy have failed to return their savings and tax cuts back into the economy in a constructive way to create long lived assets and jobs. They have failed themselves and the country.

It is time for the wealthy to pay more tax.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
Money Management is Simple: Don't Listen to the Noise
12.28.07 | Money | 4 Comments | by junger

I like to read (and sometimes answer) the questions on LinkedIn (add me to your network) every so often, especially in the personal finance and Web development categories.

The other day, I ran into a great question with some not-so-great answers.

Money Management: They teach in school that best way to generate returns from capital is through proper money management. What is your money management method? How do you ensure that you are employing your savings profitably? What are the best ways to protect investments from market crash and along with saving taxes?

This question goes to the heart of managing your money.

How do you save? How do you ensure you're getting good returns on your money? How do you prepare yourself for highs and lows in the markets?

As is usually the case with LinkedIn questions, the people providing the answers are the ones hoping to make some money off of the question. There's nothing inherently wrong with that, but (as often happens) the answerers are providing poor information in hopes of making a buck.

Check out these answers.

From a Capital Market Professional: "I am afraid there is no direct answer. But there are mitigation possibilities. If you find the equity market has gone over board from medium / long term point of view, start moving moneys to fixed return investments (basically debts-deposits, etc)."

From a Manager Product Marketing: "Not having any investments takes away the sorrow of having to protect it. So I would say that proper money management is to spend it."

From the Owner of a Personal Wealth Management company: "Wealth Management - my thoughts though influenced by U.S. laws (eg. tax statues) are universal: [LINK TO WEBSITE]"

These aren't bad answers, per se, but none of them are truly helpful.

Money management isn't hard, and if you know the basics, you don't need to listen to the noise. Here's my answer to the question.

There are tried-and-true, easy ways to properly manage your money. You don't need to pay for someone to tell you these.

1) Spend less than you earn.
2) Pay yourself first.
3) Automate your payments and savings/retirement contributions.
4) Invest in index funds.
5) Diversify your investments — stock funds, bond funds and int'l funds.
6) Stick with it. Don't time the market.

On a side note, make sure you're getting the most from your checking/savings account. FDIC-insured online accounts often yield much higher interest rates than brick and mortars.

Most of these people are out there to make a buck off of you, but you don't have to be afraid of managing your own money. In fact, once you get the fundamentals down, you can even purchase investments that outperform the "professionals."

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