Sep 20 2010

How to feel poor on $500,000 a year

Monday Business Edition

Monday Business Edition is an Open Thread

The Angry Rich

By PAUL KRUGMAN, The New York Times

Published: September 19, 2010

(I)f you want to find real political rage – the kind of rage that makes people compare President Obama to Hitler, or accuse him of treason – … (y)ou’ll find it … among the very privileged, people who don’t have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the thought of paying modestly higher taxes.

(W)hen Forbes magazine runs a cover story alleging that the president of the United States is deliberately trying to bring America down as part of his Kenyan, “anticolonialist” agenda, that “the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s.” When it comes to defending the interests of the rich, it seems, the normal rules of civilized (and rational) discourse no longer apply.

Tax-cut advocates used to pretend that they were mainly concerned about helping typical American families. Even tax breaks for the rich were justified in terms of trickle-down economics, the claim that lower taxes at the top would make the economy stronger for everyone.

These days, however, tax-cutters are hardly even trying to make the trickle-down case. Yes, Republicans are pushing the line that raising taxes at the top would hurt small businesses, but their hearts don’t really seem in it. Instead, it has become common to hear vehement denials that people making $400,000 or $500,000 a year are rich. I mean, look at the expenses of people in that income class – the property taxes they have to pay on their expensive houses, the cost of sending their kids to elite private schools, and so on. Why, they can barely make ends meet.

And among the undeniably rich, a belligerent sense of entitlement has taken hold: it’s their money, and they have the right to keep it.

In Which Mr. Deling Responds to Someone Who Might Be Professor Todd Henderson

J. Bradford DeLong, Department of Economics, U.C. Berkeley

September 18, 2010

As best as Michael O’Hare could determine (and Professor Henderson or whoever it is does not challenge him), the Henderson annual family budget is this:

$455,000 a year of income, of which:

  • $60,000 in student loan payments
  • $40,000 is employer contributions to 401(k) and similar retirement savings vehicles
  • $15,000 is employer contributions to health insurance
  • $60,000 is untaxed employee contributions to tax-favored retirement savings vehicles
  • $25,000 building equity in their house
  • $80,000 in state and federal income taxes
  • $15,000 in property taxes
  • $10,000 for automobiles
  • $55,000 in housing costs for a $1M house (three times the average price in the Hyde Park neighborhood
  • $60,000 in private school costs for three children
  • $35,000 in other living expenses

And of this budget, Professor Henderson (or whoever) writes:

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby…. [W]e have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive. If our taxes rise significantly… the (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center…

Now it is time for a reality check on this “most working Americans.” The median household income in the United States today is $50,000. Half of all households make more than this. Half of all households make less. The big expenses in the Henderson family budget–their $60,000 a year in contributions to tax-favored retirement savings vehicles, their $25,000 a year savings building home equity, their $55,000 for housing, their $60,000 in private school costs, even their $10,000 a year for new cars–are simply out of reach for the overwhelming majority of Americans. Half of all households make less than $50,000 a year–the Hendersons make nine times that. 90% of households make less than $100,000 a year–the Henderson’s make 4.5 times that. The Henderson’s are solidly in the top 1% of American households, in the select 1% group that receives more than $350,000 a year.

By any standard, they are really rich.

But they don’t feel rich. They have a cash flow problem. When the bills are paid at the end of the month, the money is gone–and they feel that they have to scrimp.

Professor Henderson’s problem is that he thinks that he ought to be able to pay off student loans, contribute to retirement savings vehicles, build equity, drive new cars, live in a big expensive house, send his children to private school, and still have plenty of cash at the end of the month for the $200 restaurant meals, the $1000 a night resort hotel rooms, and the $75,000 automobiles. And even half a million dollars a year cannot (get) you all of that.

(W)hy does he think that that is the way things should be? … (H)ere is the dirty secret: Professor Henderson thinks that that is the way things should be because he knows people for whom that is the way it is.

Professor Henderson in 1980 would have known who the really rich were, and they would on average have had about four times his income–more, considerably more, but not a huge gulf. He would have known people who were truly rich, and he would have seen himself as one of them–or as almost one of them.

Now fast forward to today.

Of the 100 people richer than he is, fully ten have more than four times his income. And he knows of one person with 20 times his income. He knows who the really rich are, and they have ten times his income: They have not $450,000 a year. They have $4.5 million a year. And, to him, they are in a different world.

And so he is sad. He and his wife deserve to be successful. And he knows people who are successful. But he is not one of them–widening income inequality over the past generation has excluded him from the rich who truly have money.

And this makes him sad. And angry. But, curiously enough, not angry at the senior law firm partners who extract surplus value from their associates and their clients, or angry at the financiers, but angry at… Barack Obama, who dares to suggest that the U.S. government’s funding gap should be closed partly by taxing him, and angry at the great hordes of the unwashed who will receive the Medicare, Medicaid, and Social Security payments that the government will make over the next several generations.

And in the real world-

Poverty stats show the damage

By Carol Morello, Washington Post Staff Writer

Friday, September 17, 2010

In the second year of a brutal recession, the ranks of the American poor soared to their highest level in half a century and millions more are barely avoiding falling below the poverty line, the Census Bureau reported Thursday.

About 44 million Americans – one in seven – lived last year in homes in which the income was below the poverty level, which is about $22,000 for a family of four. That is the largest number of people since the census began tracking poverty 51 years ago.

Business News below the fold.

From Yahoo News Business

1 BP’s broken well in Gulf of Mexico is ‘dead’


Mon Sep 20, 12:41 am ET

WASHINGTON (AFP) – US officials have finally declared BP’s broken well in the Gulf of Mexico “dead”, five months after a deadly oil rig explosion set off one of the costliest and largest environmental disasters ever.

Although the troublesome well may have been killed once and for all, BP still faces a long uphill battle to clean up the Gulf, a litany of lawsuits, billions of dollars in fines and shareholders angered by the firm’s instability after its share price more than halved.

Retired admiral Thad Allen, the US pointman for the government’s response to the disaster, said the operation to intersect and cement the deepwater well had been successfully completed.

2 Faded dreams for Mozambican labours in East Germany

by Johannes Myburgh, AFP

Sun Sep 19, 2:04 pm ET

MAPUTO (AFP) – A handful of tattered photos are all that remain of Mozambican Anacleto Amade’s two years in East Germany, where he worked in the 1980s under a labour scheme between the then-communist allies.

But his memories of friendships abroad and walking in the snow are scant comfort now. Like most of the 15,000 Mozambicans sent to work in East German factories, Amade said he was never been paid his full wages.

“When I see those pictures, the emotion is enormous, it is big. It is the size of the world. Because no one’s story is the same,” the 41-year-old said.

3 Global brands face growing labour militancy in Asia

by Cat Barton, AFP

Sun Sep 19, 3:03 am ET

DHAKA (AFP) – Global retailers fleeing China’s rising labour costs now find themselves facing growing pressure for higher wages in countries from Bangladesh to Cambodia, Vietnam, India and Indonesia.

The latest sign that workers are becoming more militant in their demands for a larger share of the region’s economic success came in Cambodia last week, when tens of thousands of workers went on strike.

The mass protest rejecting a proposed 20 percent pay increase crippled Cambodia’s export-orientated garment industry, which produces items for renowned brands including Gap, Benetton, Adidas and Puma.

4 Microsoft, Yahoo! jostle for US search share

by Chris Lefkow, AFP

Sun Sep 19, 1:23 am ET

WASHINGTON (AFP) – Google is the undisputed king of search in the United States, but the question remains, who’s number two?

Yahoo! has long held that position but Microsoft has been creeping up and may even have leapfrogged the Sunnyvale, California, company in a competition whose goal is to turn more Internet searches into more advertising dollars.

According to The Nielsen Co., Microsoft, led by new Web search engine Bing, overtook Yahoo! for the first time in August to make it the number two search service in the United States.

5 Nissan to double China capacity

By Fang Yan and Alison Leung, Reuters

23 mins ago

ZHENGZHOU, China/HONG KONG (Reuters) – Japan’s Nissan Motor (7201.T) plans to double its capacity in China by 2012, joining a host of peers that have made similar recent moves to capture a bigger slice of the world’s biggest auto market.

Nissan’s new plan, which would see its annual capacity rise to 1.2 million units, exceeds the company’s earlier target by 20 percent, underscoring its strong interest in China — a rare bright spot for automakers as the global industry struggles to emerge from a sharp downturn.

Japan’s third-largest automaker and its 44 percent owner Renault SA of France (RENA.PA) are also steering clear of General Motors’ (GM.UL) upcoming initial public offering and won’t subscribe to its shares.

6 Bailout cop expands staff as TARP expires

By David Lawder, Reuters

1 hr 12 mins ago

WASHINGTON (Reuters) – The Treasury’s $700 billion bailout fund officially expires in two weeks, but not for Neil Barofsky, the top cop for the Troubled Asset Relief Program.

He’s hiring new staff and opening four regional branch offices to pursue TARP-related fraud cases and monitor remaining taxpayer investments for years to come.

Barofsky, the TARP Special Inspector General, said his office staff, now numbering around 140, is expected to reach a previously stated goal of 160 in coming months and may go beyond that.

7 Slowing recovery a policy headache

By Kristina Cooke, Reuters

Sun Sep 19, 3:02 pm ET

NEW YORK (Reuters) – The sputtering global economy is complicating life for policymakers from Washington to Tokyo.

When the financial crisis erupted in 2007, authorities around the world began throwing nearly everything they had at the problem to avoid a re-run of the Great Depression.

Three years later, with the global recovery losing momentum, they find themselves in a tough spot yet again.

8 Google defends shrinking China market share

By JOE McDONALD, AP Business Writer

52 mins ago

BEIJING – Google is hiring dozens of marketing and technical employees in China to defend a shrinking market share against local rivals after closing its Chinese search engine six months ago this Wednesday in a dispute over censorship.

Mainland users usually can reach Google’s Chinese-language site in Hong Kong, a Chinese territory with no Internet filtering. That has helped Google retain its rank as China’s second-most-popular search engine but Hong Kong access is occasionally blocked and some users have defected to local alternatives, mostly to market leader Baidu.com.

Google Inc. has kept a research and development center and advertising sales offices in China and is promoting its Android operating system for mobile phones. It launched what it says is a “large-scale recruiting campaign” for at least 40 posts this summer, from national marketing manager to software designer.

9 China’s SAIC noncommittal on stake in GM IPO


Mon Sep 20, 2:27 am ET

SHANGHAI – Chinese automaker and General Motors Co. partner SAIC said Monday it is paying close attention to GM’s upcoming stock sale, but gave no hint over whether it plans to take a stake itself.

GM executives in the U.S. and China likewise refused comment on reports that the automaker is in talks with its state-owned joint venture partner SAIC about buying a stake in the Detroit company through its initial public offering.

But a U.S. Treasury Department statement said investors in GM would be sought across “multiple geographies,” with a focus on North America.

10 Government could seek foreign investors for GM

By TOM KRISHER, AP Auto Writer

Sun Sep 19, 8:10 pm ET

DETROIT – Investment bankers handling the upcoming General Motors Co. stock sale are expected to court foreign investors as well as those in North America, according to a U.S. Treasury Department statement.

GM and the Treasury Department would not comment Sunday on reports that the automaker is in talks with its current partner in China, SAIC, about buying a stake in the Detroit company. SAIC is owned by the Chinese government.

The Treasury Department, in a statement issued late Friday, said investors in GM would be sought across “multiple geographies,” with a focus on North America.

11 Gulf oil well is dead but the pain will remain

By HARRY R. WEBER, Associated Press Writer

1 hr 37 mins ago

The well that spewed millions of gallons of oil into the Gulf of Mexico is finally dead, but residents will be feeling the pain for years to come.

A permanent cement plug sealed BP’s well nearly 2.5 miles below the sea floor, five agonizing months after an explosion sank a drilling rig and led to the worst offshore oil spill in U.S. history.

Retired Coast Guard Adm. Thad Allen, the federal government’s point man on the disaster, said Sunday that BP’s well “is effectively dead” and posed no further threat to the Gulf. Allen said a pressure test to ensure the cement plug would hold was completed at 5:54 a.m. CDT.

12 Emerging markets offer growth, and fishmeal

By MATTHEW CRAFT, AP Business Writer

Sun Sep 19, 5:52 pm ET

NEW YORK – You can boil down the appeal of emerging markets for investors to three words: growth, debt and fishmeal.

For more than a decade, industrializing countries like Brazil and China have drawn investors seeking to ride their rapid economic growth. Now, money managers are looking to places that feed these emerging giants – like Peru, the world’s top source for fishmeal, a key ingredient in animal feeds.

Since the financial crisis hit two years ago, cash has flooded into the developing world from those seeking better returns and safety. Unlike the U.S. and other developed countries whose governments borrowed heavily for stimulus spending, countries in South America and Asia have smaller debt burdens along with higher bond yields.

13 Pinera: We’ve done all to rescue Chile’s miners

By MICHAEL WARREN, Associated Press Writer

Sun Sep 19, 4:57 pm ET

SAN JOSE MINE, Chile – Chile’s president said Sunday that his government has done all within its power to rescue 33 miners trapped underground for 47 days and counting, but wouldn’t venture a guess as to when they will be pulled out.

Sebastian Pinera spoke as a huge oil industry drill began carving a third escape tunnel that could potentially provide the first way to extricate the men through a half-mile of solid rock.

“Today for the first time we have three machines working simultaneously. We don’t know when they will reach them. But we know one thing – with the help of God, they will reach them,” Pinera declared after touring the drilling operation and meeting with the miners’ families.

14 The well is dead, but Gulf challenges live on

By ALLEN G. BREED, AP National Writer

Sun Sep 19, 3:22 pm ET

The “nightmare well” is dead. But the Gulf coast’s bad dream is far from over.

Federal officials declared Sunday that the well where the Deepwater Horizon rig exploded had finally been killed. Workers drilled a relief well into the damaged one and drove a cement stake deep into its oily, black heart.

Its official end came 11 years after Texaco first sank an exploratory well near that same spot 50 miles out in the Gulf of Mexico, then moved on after finding it unprofitable. When BP PLC purchased the rights to explore for oil there in 2008, it held an in-house well-naming contest. The winning team chose the name Macondo, after the mythical town from Gabriel Garcia Marquez’s novel “One Hundred Years of Solitude.”

15 GOP divided on how to replace health overhaul law

By RICARDO ALONSO-ZALDIVAR, Associated Press Writer

Sun Sep 19, 9:55 am ET

WASHINGTON – Republicans are promising to repeal and replace President Barack Obama’s health care overhaul if they win control of Congress. But with what?

Not even they know.

Some have proposed major changes to workplace coverage, even turning Medicare into a voucher plan. Many prefer small steps that tiptoe around political land mines. Others want a clean start.

16 Will edgier college marketing get a failing grade?

By ERIC GORSKI, AP Education Writer

Sun Sep 19, 12:12 am ET

Drake University hoped a bold, blue “D+” on a direct-mail piece and its admissions website would grab the attention of high school kids inundated with same-old, same-old college recruitment material.

What looked like a pretty bad grade was supposed to entice teenagers to take a closer look at the pluses of attending the school in Des Moines, Iowa.

Drake officials didn’t anticipate their daring idea getting ridiculed on advertising blogs, angering alumni who complained on Facebook that their degrees had been devalued, or inspiring a local store to market “D+ student” T-shirts to amused Drake students and underachievers alike.

17 Inside Washington: Millions made in GOP mailings

BY DENNIS CONRAD, Associated Press Writer

Sat Sep 18, 7:47 pm ET

WASHINGTON – When Republican members of Congress need literature to send out to constituents on their doings in office, dozens turn to a Utah firm that churns out slick, full-color mailers at taxpayer expense.

When they need political mailers designed to get them re-elected, some of them turn to the same people.

In theory, policy and politics are separate enterprises in Washington. In practice, they are joined at the hip.


  1. ek hornbeck

    My emphasis.

  2. TMC

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