Is inflation really a problem?

Prices are up, in some cases by a lot. These include food, gas, rent, rental cars, and airline tickets, to name a few. Why is this? Is it going to be a lasting thing? What does it all mean?

I ask the latter question because most Americans have never had to deal with significant inflation. You have to be an oldster like me growing up in the 60s and 70s to remember significant inflation. The funny thing is that it seemed kind of normal at the time. Generally wages kept up with inflation and even home mortgage rates close to twenty percent didn’t seem to deter too many home buyers. Yes, there were periodic gas lines that no one liked, but while inflation seemed pretty bad, at least assets tended to keep up with inflation. I remember renting a room in a house in 1979. Its absentee owner lived across the river in Leesburg, Virginia. The house was an investment and something of a hedge against inflation.

Something like that is underway right now, as real estate prices are one of the leading signs of inflation. Stocks too, although yesterday’s two percent selloff in the markets may indicate the days of double-digit stock growth are over. Prices are up, but wages are often up too, certainly on the low end. The federal minimum wage may be $7.25/hour, but almost no employers are paying it.

These days, the effective minimum wage is closer to $15/hour because if you want to hire workers that’s about the wage floor that employees will accept. Arguably though $15/hour is not what its proponents once hoped it would be: a living wage. In part because food and rent cost more, the price of a real living wage just keeps going up. On average, you would need to make $20.40/hour to be able to afford a one bedroom apartment in this country, assuming you have only one full-time job.

The premise is that inflation is bad. By that logic, deflation is good, but no economist I know of wants deflation. For one thing, in a deflationary period there is no incentive to spend as your money tomorrow will buy more than it will today. What economists really mean is that significant inflation is bad. Ideally they want to see it in the 2% – 3% per year range.

Right now prices are up 5.4% compared to June 2020. Obviously certain costs, like rent and rental cars are up a whole lot more than that, but there are other costs that have risen a lot less than that. Assuming your income grows by at least this amount too, you are at least treading water. A year ago it was pretty hard to find a job if you needed one. Now it isn’t and at least on the lower end of the wage scale you may be better off. “Better off” though is pretty relative. Things likely sucked terribly a year ago, if you remain employed and worked a low wage job. So with rising wages and more jobs available, they are likely to suck less today. It may feel like a skinnier elephant has decided to sit on you.

Low inflation though tends to mask other problems. If wages creep up 2% – 3% a year, who is better off? Probably not you, as it keeps you in pace with inflation so your standard of living doesn’t really increase. The Federal Reserve has the primary tools to manage the inflation rate. It does this principally by setting benchmark interest rates banks use to borrow money from each other.

The practical effect though is to keep the economy from growing too quickly, so if they judge inflation is becoming a problem they will raise interest rates. Higher than usual economic growth though should raise wages if the labor pool is relatively stable. In short, whoever is on the Federal Reserve and the interest rates they set have a huge impact on your life and standard of living. But the Fed is independent from the federal government. In effect, Congress has delegated a lot of its powers to a bunch of unelected people.

Some have argued that the Fed has done a lot of money printing during the latest recession and that’s the cause of the inflation. The Fed is the sole institution charged with creating new dollars and it’s been liberal in its money creation. It hasn’t been using its ability to impact your bottom line, at least not directly. One unique action it has taken this time is that it has been buying corporate bonds with money it’s created. This stabilized financial markets and allowed my portfolio to grow by about twenty percent last year. But arguably its policies have also created the inflation now increasingly seen as a problem. Low Fed rates have spurred low mortgage rates, which helped spur the huge rise in real estate prices.

I’m betting most of you reading this don’t have much in the way of a portfolio and live paycheck to paycheck. In which case, these actions by the Fed don’t mean a whole lot, except maybe it helped the country get out of a recession faster than it would have otherwise. Federal government spending in the form of one-time payments and expanded unemployment benefits likely had more of an effect on most of my readers. In most case, the effect was to keep a lot of people from descending into poverty, which was only partially successful.

For relatively rich people like me with portfolios, the recession was in many ways great! We got a lot of unearned income that significantly padded our already pretty sizable wealth. All these actions then had the effect of further widening the wealth gap, marginally helping those who needed it most while greatly enriching those of us who were already very comfortable.

What may actually help are temporarily child tax credits, $300 per child per month, passed as part of the American Rescue Plan. These credits are now starting to go out. If you have two kids, that’s $7200 more a year in income than your family had before, assuming these credits become permanent benefits. That’s the proposal now in front of Congress which looks likely to pass as part of a budget reconciliation package in the Senate. How would it be paid for? The proposal is to raise taxes on the wealthy, essentially redirecting income from the wealthy to those who actually need it. It’s old fashioned income redistribution, something we haven’t seen changed in a long time. The trend has been to end or cap benefits like these.

As long as inflation is kept low, it becomes harder to address the income gap because leaders assume the economy is under relative control. It is, just not necessarily in a way that benefits the most people. The Fed’s policies in many ways exacerbates and encourages income inequality, in part because of their limited toolset.

Don’t you be fooled: the bottom line is not a low inflation rate, but who controls the wealth and whether the those with less of it have a realistic path to get more of it. The tight reins by the Fed are actually a big part of our problem.

Mindlessly profiting from a pandemic

You’ve probably heard that the pandemic has made the wealthy wealthier and the poor poorer, at least here in the United States. The U.S. gross domestic product actually fell in 2020, but according to Quicken our net worth shot up 17% in what seemed like the worst year of our lifetimes.

Just four years ago we went through the expense of getting estate plans done. Here in Massachusetts, if you die with over $2M in assets, you are subject to estate taxes, unless you create estate plans that effectively shield a lot of money from estate taxes. Since the state does not index the amount for inflation, it seemed a sensible thing to do. I remember telling the missus, “It looks like our net worth is likely to be over two million dollars before we die.” Four years later, we’re nearly there.

Should I be thanking the coronavirus? Maybe I should be thanking the Fed (Federal Reserve). When the coronavirus hit and markets tanked they went to work pumping up the economy with lots of newly created money. Fortunately, it used the money to buy assets, so it’s not like they threw the money down the drain.

Crazily, it worked, at least for keeping the stock market overvalued, where we had plenty of investments. Nationally our economy otherwise collapsed. The stimulus intermittently doled out by our government helped some, but it’s clear that all this wasn’t enough for most people who live paycheck to paycheck. In many cases, there was no paycheck. Unemployment benefits sweetened by Uncle Sam helped. For most working folk at best it kept them from collapsing into debt and homelessness. The latter is largely a result of federal legislation that makes it hard for landlords to kick out many tenants.

Then there’s the undeserving: me and those of us who weren’t hurting to begin with. We got stimulus too: $2400 in the first tranche, $1200 in the most recent one and possibly more with the new bill going through Congress. Having nowhere to spend it we did what most of the rest of the reasonably well moneyed did: saved it or bought more stocks with it. Being retired with no mortgage or any debts, and with the pensions coming in monthly plus selling some of our retirement portfolio, and being unable to spend most of what was coming in, we were effectively saving 25% of our income.

And although neither of us has to work, I still do some consulting. And crazily 2020 was a banner year too, netting me nearly twice the income from it than it did in 2019, thanks mostly to one new client. There is no chance of contracting covid-19 from this work. It’s done in my upstairs office over the Internet. We went to the store maybe once a week at off hours, heavily masked but that was as much risk of catching covid-19 as we bore. In reality, covid-19 was never really a threat to us. No one came to visit. We had nowhere to go. One of the few things we spent more money on was services like Netflix. There was a lot of time to kill. Stuff we needed mostly got delivered.

All this while the effects of the pandemic were quite obvious. There’s a public middle school next to us. You would see a handful of cars in the lot, but no children noisily screaming or school buses going in and out. Those who weren’t masked more often looked like they were hit by a bus. All this plus Donald Trump was making everything exponentially worse; hospitals and ERs were overflowing and people were dying, about 450,000 of us last I checked.

I’d like to credit all this to my brilliant financial talents. But really I did nothing out of the ordinary. I just stayed home, deposited those pensions checks regularly and spent a whole lot less. The only pangs of regret I felt is that we couldn’t get on a cruise ship or take an exotic vacation. All that was in our budget. (We actually did take a cruise in early March 2020, came back okay, but it was scary. It had been paid for in a pre-pandemic world, and it was nonrefundable.)

Through my career I felt like I had earned my salary and then some, so there was no reason to feel guilty living a cushy retirement. But I often do anyhow. I didn’t realize until fairly recently just how big an advantage it was to be male and white, which I was. At the time I didn’t feel like it meant much, but now I see friends who are people of color generally dealing with an entirely different reality.

So as much as I’d like to think I rose on my own talents, in reality I was lofted at least in part on an unseen rising tide of white privilege. Not all my white male peers were so lucky, of course. Some really got the short end of the stick. Heck, my wife got downsized in the early 2000s and never recovered her previous salary, despite doing similar work. But she could ride on my income and prosperity.

In retirement I am finding the ways to squeeze a nickel even harder without trying very hard. The tactics have changed since the days of my parents, who lived through a Great Depression. Rather than darning socks, I find new income in the darnedest places, like a 2% cash back no annual fee credit card. I went on a savings hunt and found, at least for a while, that I could lock in a 2.5% APR CD at an online bank. We also get income from our solar panels, about $2000 a year, paid by companies that use our green offset to pollute. And really, we save money because we are taxed too little. We could and should be paying more in income taxes, but Republicans have decided we shouldn’t have to. The only tax that increased this year was our real estate taxes, now nearly $10K a year. A city assessor came through the neighborhood. On the plus side, he reassessed the value of our house upward by $76,000. Add that to our net worth.

And we’re trying new things. We let go our old financial planner and found one closer to home, with an interesting model. They find out portfolios that match our risk tolerance and add their fees to that. When I mentioned I could no longer get a 2.5% APR CD, they suggested a bond fund that would likely beat that. No, it’s not FDIC insured, but it’s very low risk, and we should be able to net at least that for our cash assets.

We probably won’t be buying a second home or time shares, but I’m wondering if this is how someone like Mitt Romney spends his free time. Income just seems to keep compounding. I used to struggle to put aside a little money with each paycheck, now I don’t know quite to do with it all. It seems surreal and wrong somehow, particularly when so many are suffering.

Yes, we have given more to charity, quite a bit more this year, and helped bail out a few friends who were seriously struggling. Even four years ago when we were putting together our wills, we decided that we were unduly fortunate. When we depart this world, about half of our estate redirects money to charitable causes.

Half of my side of the estate is currently earmarked for scholarships for people of color, to be handled by the estate manager. At least in death I can partially rectify my white privilege and help elevate those who were denied it.

A soaring stock market means little

Donald Trump is hoping to win reelection based on the soaring stock market.

Good luck with that. A soaring stock market doesn’t hurt, but these days a soaring stock market amounts to more evidence that more income is being redistributed toward the wealthy. Why is that? It’s because you have to be relatively wealthy to own stocks in the first place.

To the extent most of us own stocks, it’s probably through mutual funds we own as part of a 401-K and/or IRA. We do this because these investments are typically tax-advantaged. Unless you choose a Roth IRA, you defer taxes on the gains of these funds until retirement, plus these investments are typically pre-tax dollars, meaning you subtract the cost of buying these funds from your adjusted gross income, which means you pay less tax.

The bottom line, according to a 2016 study by NYU economist Edward N. Wolff is that the richest 10% of households control 84% of the total value of stocks. About half of U.S household own some stocks, generally through retirement funds. The other half doesn’t own any stocks.

When markets rise, wealth rises proportionately toward those who own them. Since about half of households don’t own any stocks, there is no stock appreciation to reap, so the rich simply get richer, increasing income inequality.

Our household is definitely not in the top 10% but we do hold onto a lot of retirement assets, principally in bonds and mutual funds. Markets are up about twenty percent this year, but the rise is not as big as it looks. As you may recall, in December 2018 markets gave up their gains for the year, effectively making 2018 a wash on the stock market. Over two years then stocks have gained about ten percent annually, which is definitely good but by no means amazing. Stock market gains during Trump’s tenure so far do not equal Obama’s. Of course, in Obama’s case there was no way for them to go but up, as stocks were severely underpriced after the Great Recession.

People who don’t own stocks mostly don’t own them because they can’t afford to own them. Their money is going toward more important priorities: keeping a roof over their head and food, most likely. Rental costs generally exceed inflation, and food usually does as well. So they are being stretched more. Lower income people aren’t stupid. If they could afford life’s basic necessities, they probably would be investing in the stock markets. It’s simply not an option for them.

As we learned, investing takes perseverance. If you want to fully reap the market’s gains, you have to keep at it persistently, relentlessly, in good times and bad. As a federal employee, I rarely missed a paycheck. When I did, it was because the government was shut down. I never lost money when the government was shut down. Plus, I earned enough money to allow us to invest.

And that’s pretty much how we built wealth: through steady paychecks and doggedness. As I noted, we profited from the Great Recession. In retrospect, this was the biggest factor between retiring okay and retiring comfortably. We bought a lot of mutual funds when they were priced artificially low and kept them while market values increased. I’ve done the math. Were it not for the Great Recession, I expect that our investment portfolio would now be worth about 25% less than it is.

While many of my friends have and continue to struggle with this economy, today’s economy feels to me like an unearned gift. While hardly in the top 1%, I sometimes feel like we should pay a wealth tax too. A lot of our gains seem unnatural and surreal.

This increase in wealth is having me rethink how I want to use it. It still doesn’t mean I will buy a bigger house, a fancier car or a second home somewhere. It’s not quite that large. But as someone nearly age 63 with hopefully twenty-five more good years ahead of him, it does expand the possibilities.

For example, a year ago we were visiting Ecuador and the Galapagos. It was not a cheap vacation. The two weeks cost us at least $15,000, probably closer to $20,000 when you add in all the airfare and extras. It was amazing and incredible but we probably wouldn’t have done it without all this unexpected extra wealth. And it didn’t impact our bottom line at all. It seemed surreal.

Consequently, we are setting our sites further. We could have afforded two Hawaiian vacations for what we spent in Ecuador and the Galapagos. Now we are thinking: why not sail the South Seas? I hesitate to be away from home for too long, as we have two cats. But when they are gone, why not take a round-the-world cruise? Why not a month long train tour around Australia?

But if I were one of those in the fifty percent of households without any stocks, I’d feel resentful. They might want to visit the Galapagos too, or at least Hawaii, but it’s probably not an option. I would feel, rightly, like my pocket had been picked. That’s because it has. Their productivity has been swept up and placed in my pocket instead, but much more disproportionately into the pockets of the very wealthy who can’t begin to spend all of this new wealth. The difference is that I think I can use it to make the rest of my life much more meaningful. Rest assured a fair amount of it is going to help others too, roughly $400 a month or so.

To change this, we need that political revolution that Bernie Sanders keeps talking about. This comfortable retiree will be voting to bring it about.

Unstacking the deck

I’ve decided life is much easier if you are rich.

This is hardly surprising. While my wife and I don’t consider ourselves rich, at age 60 plus we are out of debt. No mortgage. No car payments. Now, precisely when I don’t need credit, I’ve discovered my credit score is 832 out of 850. I know this only because we applied for a 2% cash back credit card, and the credit union thought I needed to know the good news.

Yes, if you want to pay less, get at least relatively rich. Also, it helps to be retired. You have time to shop for the discounts, and you can time things like vacations (something of an oxymoron if you’re retired) for ideal times. For example, if you want a cheap Caribbean cruise, book it for early December. When you are retired, there’s no reason not to.

It’s the poor and those who work for a living that pay handsomely for the privilege. Of course, that was me for much of my life too, until recently. There was that mortgage, to start. It’s a great deal for the mortgage companies. For thirty years you pay for the privilege of being deeply in debt. If you get too far behind on your mortgage due to circumstances you probably can’t control, like losing your job, the bank will be happy to repossess your house. Maybe you’ll get some equity back after they sell it, but you sure won’t have a house bought and paid for. At best, you get to start the whole cycle again.

So it goes with much of life’s necessities: car loans, home improvements and college education for the kids. Neglecting fixing infrastructure to save money only does the opposite in the long run. Live within your means, our betters tell us. Only it’s not at all easy to do that, particularly today, as living is so expensive and wage increases are so niggardly.

The system is stacked against the vast majority of us. Worse, “our betters” tell us it’s all our fault when we fail. We fail mostly because they set impossible goals. It’s some defect in ourselves when we do, and it’s never the fact that the rich have used the system to bar the gates for most of us from making it to their level. Not that most of these rich ever knew poverty. So many, like Donald Trump, live on inherited wealth. Trump never went hungry, or homeless, or had to live in a cheap apartment. Yet these are the people who feel they have the right to tell us what we are doing wrong. In fact, they create the conditions to keep us mostly forever on the outside.

Candidates like Bernie Sanders and Elizabeth Warren at least have acknowledged the obvious: the system is rigged against the vast majority of us. To the extent that I am rich is probably due to 20% being white and male, 20% the sort of doggedness my betters wanted out of me, and 60% being a former government employee who moved steadily through the ranks over 32 years. Because I stayed in it, I can take advantage of a system available these days only available to a vanishing few: a nice pension.

My daughter recently joined the civil service. She’s being trained to be a 911 operator for Prince William County in Virginia. She was shocked to discover when she was hired that she too could earn a pension, like dear old dad. My pension looked a bit problematic when I joined the civil service. Hers is probably more problematic, and ultimately depends on a future Virginia state government. Assuming she decides to hang around in this field that long, maybe she will climb that rung of financial security like dear old dad. But that will only be because there is a rung there for her to reach for. For most of us, that rung was pulled decades ago.

Ending pensions though was one of the biggest and earliest ways they pulled the rug from under us. You just have to do the math on 401Ks and IRAs to see how it just doesn’t work. If you can manage to save $5,000 a year for 35 years at 6% return and with a 2% inflation rate, your nest egg is about $560,000. Taking out inflation, that’s $237,000 in today’s dollars. To make that stretch over 25 years with a 4% rate of return and 2% inflation, you could take out $1255 a month. If you outlive your money, you will be reduced to social security income alone, assuming that system is solvent. “Our betters” are trying very hard to ensure it won’t be.

In most places, $1255 a month in today’s dollars won’t even pay the rent. Hopefully you will have paid of your mortgage before you retire, but how many of us can count on steady income and no major financial calamities? With a pension though, assuming it’s fully funded, it’s income for life. Any 401K or IRA supplements a pension. That’s exactly how we’re doing it.

And with such a steady income in retirement, that’s how we keep making our modest pile grow. You book vacations in off seasons. You pay cash for stuff and often get a discount. You buy in bulk. Like me, maybe, you find a 2% cash-back, no-fee credit card and try to put all expenses on it. Or you take out a CD at get 2.25% return on it, like we also did recently. It’s all nice, unearned money, free for the taking if you are savvy and have a nice pile of cash you don’t need to touch.

We save money in other ways now. We don’t need a car loan and probably won’t ever need to take out a loan again. We pay cash when we buy cars. As we discovered recently, we got a good discount from the dealership for the privilege. As we age, we can get senior rates: for hotels, for some meals, for movie tickets, and yes, for our medical bills. Socialized medicine is available at age 65. It’s called Medicare. It goes a long way to helping you keep whatever nest egg you bring into retirement.

So yeah, we’re fortunate. While corporations were giving you measly cost of living raises, their executives kept raising their salaries and your productivity was sent to shareholders, like, er, me I guess. Thanks! Meanwhile, you keep getting squeezed and more squeezed. Your costs go up but your salary doesn’t. So you scrambled. You work two jobs, maybe three. Your life is a treadmill. “Your betters” keep upping your pace and if you fall off, that’s fine with them. The problem obviously was that you weren’t trying hard enough.

No wonder we are so chronically anxious and depressed. “Your betters” have made you this way through ignorance but more likely by general sadism. When will we, like Howard Beale in Network simply acknowledge we won’t take it anymore?

The deck is stacked against us, but it doesn’t have to be. We have to stand up and demand it. Aside from a wealth tax and upping tax rates substantially for the richest, lets also make real pensions universal. Everyone should be able to enjoy retirement like we are fortunate enough to enjoy. It takes, yes, a welfare state, and our insistence that our productivity enjoys the same rewards “our betters” get.

How the “American Dream” killed the American Dream

The truth is, I think of Tom a lot. Tom and I go back to fourth grade. He was the new kid in class and unlike any of the other boys there he was a bit geeky like me. So we struck up a friendship. Decades later we are still friends, but we are bicoastal. I’m still on the east coast; he’s on the west coast near Portland, Oregon.

We lost touch with each other for a long time. My family moved south to Florida. His call was advertising, which took him various places further and further west, including Alaska. Tom is a brilliant at advertising and art in general. Frankly, my talents were far less impressive than his. For a long time I didn’t know what I wanted to do. My BA in Communications was largely worthless. It was the rise of computers, the dearth of talent in a rising industry and my willingness to get into a rising field that finally gave me a calling that paid. This led to a career largely working for Uncle Sam, a master’s degree that came later in life at age 42, and retiring in 2014 on a comfortable pension.

Tom, truly the more talented of us, wasn’t so fortunate. Both of us are now age sixty plus. Tom works in an industry that worships the young. Tom has worked for many advertising agencies over the years. These turned increasingly into gig jobs. Younger talent, more conversant in the nuances of social media and willing to work for cheap, tended to get the work instead of him. Mostly he worked for himself. Huge economic forces like the 2008 recession left him reeling. He’s had some ups since then but arguably more downs than ups. Tom is hardly alone.

I am the exception. It’s unnatural to retire at age 57 these days. Only the rules of an old civil service system let me do so. Pensions are getting hard to find, but I got one. It pays for the bulk of my retirement, but I also have a 401K to supplement my income. I also am not quite unemployed. I do some consulting from home, and a little teaching as an adjunct too.

As for Tom, he is scrambling. I’m sure he does advertising gigs when he can get them. His talent though is undiminished, just largely not recognized anymore. Mostly he is scrambling. His most recent “gig” was working at a local Amazon distribution center, working the night shift for a small pay differential. Amazon was shamed into raising wages to $15/hour, so he’s earning a bit more than that. I’m sure his wife is working too. Clinging to their middle class life must be excruciatingly hard with two teens to raise.

How did this happen? It’s been driving me nuts, and filling me with something akin to survivor’s guilt. Granted, I really like retirement, but it feels like a gilded life. It’s not too hard to imagine me in Tom’s shoes. Through someone’s grace I got lucky. Tom didn’t get that grace.

It’s Tom and millions like him. They were supposed to live the American Dream and it was supposed to work for them, as it had for his parents. You educate yourself, you try your hardest, you give the best of yourself and you expect to get rewarded. It worked for Tom for a while, until it stopped. It wasn’t because Tom suddenly became less talented. It was because someone moved his cheese.

An early factor was that Tom dropped out of college. It didn’t stop him from getting into some great ad agencies and even teaching college for a while, but the student loans dried up. His father got his education from the GI Bill that paid all his tuition. Tom never joined the military. Tom’s father also rode a successful career with IBM as an engineer, which gave him a generous pension. You can’t get a pension if you work for IBM anymore.

In short, the American Dream left Tom behind, and he’s a smart white guy like me, supposedly a privileged sex and race. It probably would have left me behind too had not I sensed opportunity in this computer thing, made the best of it, and got lucky. It also helped that I made a career working for the government. There were times when I didn’t like the work, but the bills got paid regularly and I had only one incidence of unemployment.

The American Dream is that if you work hard and apply yourself you can live a reasonably prosperous life, one better than your parents’. The dream is that there will be opportunities there for you and that with persistence and tenacity you too can claim them. For a while, it was the American reality, not just a dream. It wasn’t for everyone of course, but for white men like Tom’s dad and mine it was.

The reality though is that the American Dream wasn’t so much a dream as it was the American system. The “Dream” was made possible by progressive government. The GI Bill funded not only Tom’s father’s education, but also my father’s. Without it, it’s unclear if he too would have gotten his engineering degree. He might have swept floors instead. There were plentiful scholarships for the talented, but also student loans. There were beneficent companies willing to invest in employees for the long term. Both our fathers had such employers. Climbing the ladder was possible because there were many rungs and they were fairly easy to climb.

Since about the time of President Reagan, the tables have turned. Pensions became 401Ks, if your employer even offered a 401K. Student loans became less generous, had higher interest rates and became harder to pay off. The cost of living in general went crazy, with housing disproportionately harder to afford. The cost to buy a ticket on the American Dream kept getting pricier: tuitions skyrocketed, class sizes swelled anyhow but the career you often aimed for often turned into something you could not market profitably. It happened to me with a BA in Communications and would have brought me down too had I not found an aptitude in information technology and low entry requirements at the time. Now, more of us have advanced degrees than ever. They just don’t buy us much. For example, there is my friend Tim who I met when we both worked retail. He has a PhD and earns his living largely through a lot of adjunct teaching. It doesn’t pay very well.

The American Dream used to come with a support system that made it possible. Now that support system is gone. The one that exists is mom and dad, if they are wealthy enough. Unsurprisingly, these people are the ones who are most likely to attain it and prosper. We have decided not to make the investment that makes the American Dream possible. Unsurprisingly a lot of people like my friends Tom and Tim arguably fell through the cracks. A few, like me, got lucky anyhow. But rather than making me feel good, it just makes me feel sick.

Real estate investing is exacerbating income inequality

Have you met Kevin? Kevin, i.e. Kevin Paffrath, has a YouTube channel, says he’s a millionaire and will help you get started in real estate investing so you can be a millionaire too. He’s handsome, reasonably young and looks overly caffeinated. The same is true of Graham Stephan who while being a millionaire still lives like a miser. He’s subsisting on a lot of oatmeal according to his many YouTube videos. Both are rich and made their millions buying, selling but mostly renting out their properties. And both are glad to help you do the same, as well as coach you on the secrets that made them rich too, for free if you watch only their YouTube channels but also for money if you want to attend their lectures, get their books or DVDs, and get online with them for semi-private chats.

The YouTube algorithm decided I am interested in real estate investing. I’m not interested enough to actually do what these guys are doing, but I do have a friend locally who is making most of his money through renting out rooms in houses that he owns. Maybe that’s what got me curious. This gives him time to do what he really likes: some IT consulting fixing and maintaining computers, servers and such; and coaching at the local high school which pays much less than the minimum wage.

I’m guessing though that he didn’t get all this property by chance. I’m betting he inherited a significant amount of money that let him get started in this business. I don’t know for sure because I’m too shy to ask him. But Kevin and Graham aren’t that shy, and proudly state that they made their fortune the old-fashioned and new-fashioned way. The old-fashioned way is to buy properties on borrowed money on fixed 30-year mortgages, rent them out and use the rent to maintain the properties and pay the property taxes. The new-fashioned way is to use the tax laws that make it possible for them to pay little in the way of capital gain taxes. It’s the latter that really irks me about Kevin and Graham.

Anyhow, they are happy to try to convince you to get into real estate investing too. It’s also clear from watching their videos that they are more than a little obsessed about real estate and money in general. It’s unclear if they have any time to enjoy their money and seem obsessed with acquiring more and more of it. They figure you are too so why not try to monetize their talent? And to be fair, both men don’t appear to be bamboozling anyone. They qualify themselves as just some guy on the Internet, tell you to get your own independent advice, and that making money in real estate can be profitable if you do it right, but it’s not easy.

I was watching Kevin’s recent video yesterday on why he’s not a fan of Roth IRA’s. It’s definitely a perspective I would not get from my personal financial adviser. He shows you how you could use some of the money you set aside to invest, above the amount you would lose over the years with a Roth IRA (by paying taxes on the money upfront) to buy real estate instead. And conceptually, it sounds great. When you save enough to buy one home, rent it and maintain it and ten years later use its profits to go buy another one.

But it all depends on whether you have the time and energy to commit to buying other properties, maintaining them, and being a landlord. For me, being a landlord runs about dead last on the sorts of things I would do willingly. I might sell used cars first. Basically, I’m bad at confronting nasty people. Not all tenants are bad and making sure you have the right tenant is important to keep an income stream going. But there’s bound to be some nastiness. I don’t want to deal with it. You could contract it out to someone else, but that makes it all less profitable.

Like most homeowners, I discovered that the cost of maintaining houses for over thirty years is considerable. We owned a property in Virginia for 22 years. It was bought for $192,000 in 1993, sold in 2015 for $505,000 but we also spent about $120,000 maintaining and improving it. And of course we paid lots of money in interest payments and other fees. In short, maintaining a house is not for the timid or financially challenged. If you are going to get into this game, make sure you can get cheap loans or have a whole lot of working capital.

I was so busy with my regular job that just maintaining our house was more than enough extra work, and it took 22 years to realize the gain on the property, which was transferred to buying our next property. Fortunately we own it free and clear. If you get into real estate investing, the income may appear to be “passive” but you will probably be working your ass off maintaining these properties and dealing with the hassles of investing in real estate and being a landlord.

In short, real estate investing is not for everyone, and it’s not an easy way to riches. But goodness! I’m learning from Kevin and Graham that there are some real tax advantages to it. And that part had me seeing red. It’s not that I can fault Kevin and Graham for getting these perks, but essentially they delay forever paying taxes on all the appreciation of their properties. Moreover, they can effectively escape ever paying taxes on these gains if you never sell them or don’t use the sale to buy something else. You can, for example, bequeath your properties to your posterity, and they can keep this scheme going indefinitely too.

This is in fact how Donald Trump has made his wealth. It’s why he says he loves debt. Rest assured he is deeply indebted, but if he can sell one property purchased largely with borrowed money and buy another one with the proceeds, he can pocket a lot of cash while deferring gains on them too. This is one of the reasons Trump is pulling all stops to keep his tax returns from getting released. If people discover he pays little to no taxes while they do, they are going to be furious.

When Elizabeth Warren talks about a wealth tax, this is exactly the sort of wealth I want to see taxed. You should too. These are all legal schemes, but they drive wealth inequality, exacerbate deficits and in general keep the government from having the revenue it needs to give us a first-class society.

I’m betting Kevin and Graham would grumble a little, but they definitely owe the rest of us a heap of money in the form of higher taxes. Mostly, we need to tax their capital and property gains. We should not feel the least bit guilty to go after it.

Whites are being horribly exploited … by other whites

Fox News host Laura Ingraham drew some attention in August when she said this on her Fox News TV show:

“In some parts of the country, it does seem like the America we know and love don’t exist anymore,” she said, with videos of agricultural work playing over her shoulder. “Massive demographic changes have been foisted upon the American people. And they’re changes that none of us ever voted for and most of us don’t like.”

Donald Trump’s election proved there are plenty of white people worried that America isn’t quite white enough for their tastes anymore. It’s making them nervous and scared and not coincidentally is causing many of them to stock up on guns.

The browning of America is hardly new but for decades Republicans have been riding this anxiety to political power. Richard Nixon’s 1968 Southern Strategy (as well as his Silent Majority strategy in his 1972 reelection) harnessed this fear. Ronald Reagan stoked it too, with images of imaginary welfare queens buying steaks and driving Cadillacs. Donald Trump of course made this anxiety the center of his campaign and his presidency. Fear, particularly fear of “the other” is a powerful motivator.

Reagan’s imaginary welfare queen was probably not a white person. This is strange because whites receive the majority of food stamps. In 2015, 40% of SNAP recipients were white. That’s more than blacks (26%) and Hispanics (10%) combined. If you are one of those whites on food stamps though, it may be scary though because it suggests that you can’t do any better economically than those other “lesser” races in our country. That can be unsettling. But whites traditionally have always been the biggest recipients of food stamps because they are a majority of the country.

Still, Laura Ingraham’s remarks are awfully odd considering that she has an adopted Guatemalan daughter. With images of brown agricultural workers in the background during her tirade, you have to wonder how long it’s been since most of our agricultural workers were white. Whites don’t want to work agricultural jobs, even for increased wages. I live in Western Massachusetts where local farmers advertise heavily for agricultural workers but get few takers. That’s because these jobs are brutal, far away and don’t pay well. Just 23% of agricultural workers in the United States were born here. I was born in 1957 and I’d be very surprised if in my 61 years the majority of agricultural workers were ever white.

As for Ingraham’s assertion that none of us ever voted on these changes, what a load of malarkey! Congress makes immigration law so we have only ourselves to blame. Agricultural interests though doubtless pushed these laws. They succeeded with guest worker programs and policies that gave short shrift to immigration enforcement on our Mexican border. This was not bad. It allowed our agricultural section to flourish and keep their prices low. With native born Americans unwilling for the most part to take these jobs, that we still have an agricultural sector is due principally to these workers we’re told to despise. To this day, it’s largely unheard of for an employer to be held liable for undocumented workers they employ.

Yes, America certainly did look a lot whiter in 1957 than it does today. The places I lived in when I was young were so far in upstate New York that I don’t recall even seeing a black person until I was in high school. Lots of these places still exist, but in cities like Hazelton, Pennsylvania they are finally coloring up. And it’s making lots of whites in Hazelton anxious. In 2013, a Hazelton-area chief of police channeled his frustrations with a crazy YouTube video.

There are plenty of reasons for whites to be anxious, but it’s not because the nation is coloring up. It’s because pathways for whites to enter the middle and upper classes are narrowing. Things are particularly bleak for blue-collar whites, the base of Trump’s support who he’s largely left out to dry. A good paying blue-collar job is hard to find and harder to retain. When lost these workers usually quickly fall into jobs that don’t pay a living wage, even if they work two or three of them. People like Amazon warehouse workers, many of whom are on food stamps. Amazon CEO Jeff Bezos is worth $164B but can’t pay his warehouse workers a living wage. He’d rather let the U.S. government try to fill in the difference with food stamps instead. Amazon is hardly alone, which is why a $15/hour living wage proposal polls so well.

It’s the rise of wealth inequality that is driving most of this white anxiety. While courting whites though Republicans (and sometimes Democrats) have worked instead for their real masters: corporations and rich people. They’ve enacted tax cuts that disproportionately allow the rich to keep more money. They cut services and when possible entitlements that principally benefit the rest of us, like affordable public college tuitions, that used to be free in many states. Corporations use their tax cuts to buy back their own stocks rather than raise wages for their employees or invest in the future. Minimum wage laws rarely move upward, making it impossible for people falling through the cracks to reach for the next rung. So-called Right to Work laws make it hard for workers to organize for higher wages. Moreover, Republicans shamelessly feed the myth that if you work harder and try hard enough you can scale the economic ladder. In most cases though they took the rungs out of the ladder decades ago. Middle and lower classes have been disenfranchised not by accident, but by design. Bernie Sanders long ago recognized the real issue: the system is rigged against working people.

The game is rigged but there are some signs that whites may be waking up at last. Midterms in two months should be revealing. In deeply red states like Oklahoma, West Virginia and Arizona teacher strikes have drawn the sympathy of the public, including working and middle class whites. They are even electing politicians who commit to raising their taxes in exchange for more services. They can certainly understand how teachers are struggling economically on substandard wages. It may be that Republicans have played the race card about as far as it can be played.

In any event, it’s absolutely clear that the rich and the powerful, who are principally white men, have been systematically and cynically abusing middle income and working class whites, feeding their anxieties and promoting false rationalizations for their anxieties. Curiously the best way to make this anxiety ebb is for whites to rise up against their economic masters and elect people who will put rungs back in the economic ladder again, many of whom will be brown, black or female. White politicians are horribly misleading and abusing them.

Yes America, we have a race and class problem

In case you missed it, Alvin Toffler died on June 27. The author, principally known for Future Shock (1970), warned us that our future was not going to be easy. The book was a warning that too much change happening too quickly would have predictable consequences. In 1970 change was everywhere. Bellbottoms have since disappeared but we’ve been racing toward the future since then, with economic (industrial to service economies), gender, sexual, class and racial changes occurring far more quickly than most of us can handle them. Future shock is still a thing but with his death at least Toffler doesn’t have to deal with it anymore.

Currently it’s manifested in our racial strife. The fatalities keep rolling in. It’s getting so that when I wake up and read the news I expect to feel a wave of nausea. Not even two days apart there were egregious murders of black men by police officers in Baton Rouge, Louisiana and St. Paul, Minnesota, at least partially recorded on smartphone cameras. It used to be that white people like me could sort of excuse these events as the act of a rogue cop or two, but that’s not the case anymore. Last night of course in Dallas, Texas following a protest on police shootings of blacks more than one sniper killed five police officers and wounded seven other officers, plus two civilians. At least one of the shooters was killed by “bomb robot”, something that sounds like it is from a Terminator movie but is apparently quite real.

Toffler would not be surprised by this reaction. It was neither a right nor a just thing to do, but it was entirely predictable as tone-deaf police departments and officers continue to disproportionately kill blacks in altercations that are at best minor. I mean, killing someone for having a taillight out? There’s little doubt in my mind that if I had been driving that car I would likely have gotten a friendly warning and I would have been on my way. But then my skin is white and that gives me privileges obviously not afforded to many blacks by police.

I once wrote optimistically about our post-racial society. As I look back on it, clearly I was widely off the mark. It’s truer to some extent for the latest generations that are at least growing up in a multicultural world. Post racial for them is the new normal. But it’s not quite as normal as we think. Americans are in general strictly self-segregating along racial and class lines. Having spent more than thirty years in the Washington D.C. area, its multiculturalism became the norm, which was surprising given that I grew up in an area almost exclusively white. Moving to a more white area in retirement seemed quite odd.

You have to wonder how this happened. I don’t think most police officers are overtly biased against blacks. Police officers though work in the real world. Crime tends to occur more often in poorer neighborhoods, which are usually minority and typically black. If I had to struggle to survive like a lot of these people I’d be more likely to commit crimes as well. It must not be hard for a police officer that constantly finds trouble in these parts of town to develop an unconscious bias against the poor and blacks. Their job is to keep society safe so naturally they are going to focus on those areas they perceive as less safe. When you have your wealth and status, there is little reason to cause trouble.

Policing though is a tough job. You deal with life’s nastiness everyday. It’s not for everyone. I suspect if I had been a police officer I too would eventually behave a lot like these rogue officers, simply because of the constant pressure of it all. Despite their training my bet is a lot of these officers are victims of PTSD simply from being officers. It comes with the territory. Clearly we should recruit officers that can keep an even keel, but in reality police officers come from a pool of people with aggressive and authoritarian tendencies. In addition, we don’t pay them nearly enough to deal with the stress they endure everyday.

And speaking of stress, when you are poor, black or really any minority in this country, your life is unlikely to be a bed of roses. You spend much of your life being ethnically profiled. Add to this the likelihood that you will be poorer and live a more challenging life. Unlike me you are unlikely to inherit tens of thousands of dollars when your father passes away. You will struggle for respect, for equal pay and simply to keep the floor under you.

The results are not too surprising. Police officers, many carrying around an unconscious or overt bias against people of color, hired for being aggressive and authoritarian, but also understanding that their place within society in on the lower part of the bell curve will tend to act out their anxieties. And since they literally have the power of life and death, it’s pretty hard to keep your feelings in check when you figure that black guy probably doesn’t like you and has a gun, and you want to make it home to dinner. Meanwhile the black guy, being an otherwise normal human, is sick to death of being pulled over and acting subservient to police officers and white people in general. It all feeds on itself.

But feeding it all are those on top: the politicians and basically those with money, projecting their class and racial biases on those who enforce the law, and tacitly looking the other way so often when incidents like these occur. It’s a rare cop whose behavior will be judged criminal when they happen.

How do we stop this? In reality it is a very complex and multidimensional issue. Getting cops some cultural sensitivity training and making them wear body cameras isn’t enough. A real solution requires a lot of lowering of shields, community discussion and transgressing not just our racial prejudices but our class prejudices as well.

Certainly those we are hiring as cops aren’t getting the right training for a 21st century America. We are in general picking the wrong people for these jobs and not paying them commensurate with their difficult jobs, much like teachers. The overarching issue is really our staggering level of income inequality, if not the downright cruelty of society in general. Recently the Arizona legislature decided it hadn’t made the poor miserable enough yet. Now it’s limiting TANF benefits to the poor from two years total to one year, as if people are only allowed to be poor once. Otherwise, let ‘em eat cake, which in their case may be Twinkies. There is no compassion here, simply on overwhelming disgust from those in power toward those that have none.

In short, it’s going to take a lot of time but mostly it’s going to take a lot of white people like me to stand up and say “Enough!” This is because apparently we’re the only ones the power brokers listen to. Besides posting essays like this, I’m pondering the best way that a white male like me can move the needle on this issue. Suggestions are welcome.