Business & Economics: May 2013 Archives
Leftists claim that austerity and sequestration are to blame for our ongoing economic rut, but that claim ignores that fact that there is no austerity.
Every government, everywhere, is spending more money than it was in 2008. There is no true austerity. Even the attempts to slow the rate of growth have been modest at best.
The official figures show that PIIGS governments embarked on massive spending sprees between 2000 and 2008. During this period, their combined general government expenditures rose from 775 billion Euros to 1.3 trillion - a 75 percent increase. Ireland had the largest percentage increase (130 percent), and Italy the smallest (40 percent). These spending binges gave public sector workers generous salaries and benefits, paid for bridges to nowhere, and financed a gold-plated transfer state. What the state gave has proven hard to take away as the riots in Southern Europe show. ...Which leads us to the austerity that is supposedly underway in the United States. (Remember that radical sequester that was supposed to ruin the economy?) Our figures tell exactly the same story as the PIIGS - a binge of public spending that has not been reversed. Between 2000 and 2008, both federal and state and local spending increased by almost two thirds. Despite budget cliff hangers, sequestration, and Republican intransience (so claim the Democrats), the federal government today is spending 16 percent more than at the peak of its binge spending in 2008. State and local governments, which cannot borrow as freely as the Feds, are spending a modest 11 percent more.
As a St. Louis area resident this was a surprise to me: Dice.com has ranked St. Louis as the nation's fastest-growing tech hub!
St. Louis - The Golden Arch - The number of St. Louis-based technology jobs posted on Dice jumped 25 percent year/year. And those new tech jobs are coming at a higher price tag too: average tech salaries are up 13 percent year/year to $81,245. Popular jobs? Developers, programmers and consultants. St. Louis is becoming a start-up town, with support from the St. Louis Information Technology Entrepreneur Network.
Great news, since I plan to stay here for a while.
You probably know how much you earn per hour gross, on paper. Even if you're salaried this is usually easy to calculate: take your annual salary and divide by 2,080 work-hours per year. But is that really what your hard work is bringing home? Not even close. Here are some additional factors you need to put into your formula.
- Taxes. You only pay taxes because you have income, so they're a direct subtraction from your gross.
- Work-related expenses. These are other expenses that you only pay because you're working. Subtract these from your annual salary. This category includes things like:
- Child care
- Gas and depreciation on your car due to commuting
- Eating out at lunch
- Work clothes
- Lawn care or housekeeping that you pay someone else to do
- Now increase the number of hours in your denominator from 2,080 by including the amount of non-paid time you spend on work. This includes things like:
- Getting dressed and prepped for work each morning
- Driving to and from work
- Dropping kids off and picking them up from childcare
- Time spent away from home due to work travel
- Unpaid overtime
Say you earn a great salary: $104,000 per year! By normal calculation that would be $50/hour. Not bad, right? But let's incorporate some of the adjustments above.
- Taxes: 15% for state and federal, since you probably have some deductions. Could be higher. -$15,600
- Work-related expenses:
- Child care: $500/month (only one kid??) -$6,000
- Gas and car: $0.55/mile (national average) for 16 miles one-way is $17.60 per day, for 50 weeks per year. -$4,400
- Lunch: $30/week. -$1,500
- Work clothes: Who knows... -$2,000
- Lawn and housekeeping: You are cheap and do it yourself!
- Work-related time:
- Getting dressed and prepped for work: 30 minutes per day. 125 hours
- Commuting: 25 minutes each way. 208 hours
- Child care driving: Who knows... 10 minutes per day. 42 hours
- Work travel: Zero, right?
- Unpaid overtime: Zero, right?
So what's the net? Actual annual pay: $74,500. Actual work-related time cost: 2,455. Actual pay per hour: $30.34.
If you make $52,000 salary per year and have similar expenses and time-sinks you might only be taking home $14/hour or less.
Please note that these calculations assume no unpaid overtime, no work travel, only one child in paid care, no reduction in income due to Social Security or Medicare, etc.
So, how much do you enjoy your job now?
Mr. Money Mustache has an article about how to prosper in booms and busts that is interesting. I'll note a couple disagreements.
In booms he suggests:
- Ratchet up your job.
- Earn more and save everything you can. Crap is overpriced now, so don't buy much. Downsize your house or move to a rental.
- Reduce exposure to equities and buy more bonds. I don't agree with this, at least with regards to our current "boom". Interest rates are far too low to buy bonds now.
And in busts:
- Basically hunker down in your job and be glad that you didn't overspend during the boom times.
- Upsize your house, if desired. Buy rental property.
- Buy all the equities you can.
Overall these are good tips, at least if you're planning to make it to the next end of the cycle. One of the main components that MMM neglects is the effect of inflation. Inflation and interest rates are often not cyclical with booms and busts, and they can complicate all your rules-of-thumb.
No matter how much or how little money you make each year, the date you'll be able to retire depends on only one number: the percentage of your take-home pay that you save. It's obvious, but the more you save now the less you're spending. Lower lifestyle expenses means that the amount you save will last you longer in your retirement. Mr. Money Mustache has a handy chart to help you calculate how many years you'll have to work based on your savings rate.
The key insight is worth repeating: frugality now gets you double benefits. If you spend less now you will save more now, and your cost of living will be lower when you retire because you'll be used to frugal living. Here's the chart:
MMM saved 65% of his take-home pay and retired in around 10 years. I'm not doing that well, but looking at this chart sure inspires me to save more.
As usual the banks are saved while the young and poor suffer. Capitalism? No, crony capitalism and socialism. The ongoing "debt crisis" is really just a fancy name for the financial rape of the young by their parents and grandparents.
Hope and Change economies are crony capitalist systems which pick winners and losers. They maintain the status quo at all costs -- and reward those who have captured government over those who innovate. Thus the Reuters headline "Banks saved, but Europe risks 'losing a generation'" is perfectly comprehensible.What else would happen but that?
Naturally this plight is explained to the desperate voters as the consequence of the remaining vestiges of capitalism. The growing impoverishment, we are told, is occurring because socialism hasn't gone far enough. Only give the government more power and all will be well. And so the low information voters turn out in the streets offering to exchange what little freedom they have left for some low paying jobs and a little welfare. The poorer they are the more eager they become to trade their last liberties for one more benefits check.
