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Archives for May 2014

Rich Kids, Plutonomy, and Income Inequality in the 21st Century

By Frugaling 16 Comments

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Rich Kids of Instagram Plutocracy
Photos: Rich Kids of Instagram

The spoils of income inequality

On July 13, 2012, a Tumblr blog by the name of “Rich Kids of Instagram” started sharing public Instagram photos from the rich and sometimes famous. Every picture showed how the wealthiest enjoyed spending their money and the many adventures brought on by the good ol’ American dream. The site’s popularity spawned a reality TV show called, “Rich Kids of Beverly Hills.”

When I first saw photos from “Rich Kids” — driving in their brand new Ferraris and drinking Dom Perignon through glass AK-47s — I got mad.

“Look at how much money they spend on themselves, when there’s poverty, starvation, and war,” I thought.

We are talking about kids that grow up with American Express Centurion (“Black”) Cards and know that their parents have a total net worth in the hundreds of millions or billions of dollars. They spend money without care — because they needn’t have one. Their money is safe for many generations to come. This excess and desire for luxury goods and travel is nothing more than a symptom of years of compounded income inequality. And a select group are getting really rich in the process.

The takeaways:

  1. Buy a fast car
  2. Drink expensive liquor
  3. Make sure everyone around you is beautiful and knows you’re rich

Your stock portfolio and plutocracy

In 2005, I was in the middle of high school — loathing every minute of it. I never read. I didn’t get along with most of my teachers. I was mister average. I don’t think most of my teachers would remember me. The only thing that seemed to set me apart was a fervent inclination towards the stock market.

My interest developed after my late grandfather had bestowed a couple classic stocks to our family. I tracked these stocks religiously and would constantly check the newspaper for stock market updates. I remember depositing money into an investment account. I needed my parent’s custodial permission. Underage, I wasn’t supposed to trade alone, but I did. I constantly had to lie to brokers for trades to go through (“Yes, I’m Mr. Adult Lustgarten, and I’m the owner of this account…”). Commissions ate up my profits, but I loved every minute of it.

Citigroup Plutonomy Buying Luxury Income Inequality
Part 1 of Citigroup’s Plutonomy papers, which explained why investors should look to luxury brands for future profits.

Later that year I was exposed to the single-greatest financial paper I’d ever read. It was authored by three Citigroup employees: Ajay Kapur, Niall Macleod, and Narendra Singh. Only 16 years old, you couldn’t pay me to read The Odyssey or my European History textbook, but here I was passionately reading a paper entitled, Plutonomy: Buying Luxury, Explaining Global Imbalances. I was a total weirdo.

Basically, plutonomy is a fancy word for saying that a select few wield a disproportionate amount of influence and power over the economy. As the authors pointed out, “Plutonomies have occurred before in the sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S.” They posited that this was happening again.

“We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization [emphasis added].”

The authors argued that, “The World is dividing into two blocs — the Plutonomy and the rest.” They stated that the rich were getting richer and that had deep consequences to consumption. Effectively, the rich would make up “a disproportionate chunk of the economy.”

The authors’ premise was that investors could predict profitable companies based on their target audiences. For example, a wise investor — when accounting for greater plutocracy and income inequality — would be able to make more money in companies that catered to the rich.

The takeaways:

  1. Accept that income inequality exists and is growing — do nothing
  2. Learn how to make money from it
  3. Invest in companies that cater to the wealthy (i.e., Citizen, Coach, LVMH, etc.), while the middle class disappears

Thomas Piketty and a desire for systemic change

In late April, I started reading Thomas Piketty’s masterpiece. The book title, Capital in the Twenty-First Century, is a nod to Karl Marx’s Das Kapital (in case you haven’t had the time to read the near-700-page text, check out my 5-minute guide to Capital). Piketty was nicknamed “Marx 2.0” by Time Magazine.

Economists have long created mathematical formulas to predict financial events, but Piketty found that these methods were inherently flawed. Piketty explained that much of economics deals in a hyper-theoretical world, which is removed from history and doesn’t account for individual actors. For him, this was an opportunity to make economics a truer social science — blending sociology, psychology, history, and economics into one tome.

“For far too long, economists have neglected the distribution of wealth, partly because of Kuznets’s optimistic conclusions and partly because of the profession’s undue enthusiasm for simplistic mathematical models based on so-called representative agents.”
–Thomas Piketty

Capital is just another exclamation point in a long list of those calling for income inequality action — across political parties and professions. As noted, even financial analysts acknowledge plutocracy and income inequality when the differences can be exploited for extra profit.

Now that Piketty’s book is atop much of the world’s bestseller lists, it is attracting a growing number of critics.

With patronizing polarity, Forbes’s Avik Roy wrote, “The American Left has worked itself into another one of its frenzies about income inequality.” After a cursory glance at Piketty’s Capital principles, Roy taunted readers by saying, “Is it really so great to live in a country where everyone is equally poor?” Unfortunately, this appeal to consequences is but a mere distraction from the content and character of the book’s concerns. Of course we don’t want to live a world that’s equally poor — Piketty never advocated for this dystopian, communist world.

Roy’s argument is partisan and illogical, but more evidence-based concerns have risen since then. The Financial Times issued a scathing critique of the book. The author, Chris Giles, says,

I discovered that his estimates of wealth inequality – the centrepiece of Capital in the 21st Century – are undercut by a series of problems and errors. Some issues concern sourcing and definitional problems. Some numbers appear simply to be constructed out of thin air.

These discrepancies between what Giles calculated from Piketty’s data led him to report that Capital’s biggest fault is in reporting greater than expected income inequality in Britain. Giles contends that Piketty “cherry-picked data” to make it seem worse.

As any ethical professor and scholar would do, Piketty tailored a response to these claims. His rebuke suggests that he made adjustments to data because statistics and economics is highly variable and interpretable. Essentially, The Financial Times calculated differences in their models because they chose different measures of estimation; even then, there was still growing income inequality.

The takeaways:

  1. There is growing income inequality, globally
  2. In many places, we have returned to near-Gilded Age and pre-Great Depression times for inequality
  3. Piketty’s statistics hold up upon closer inspection

Now, will we do anything to change this?

Filed Under: Social Justice Tagged With: Capital, Citigroup, distribution, Income, Income Inequality, Instagram, Luxury, Plutocracy, plutonomy, Rich Kids, Thomas Piketty, Wealth

The 5-Minute Guide To Thomas Piketty’s Capital In The Twenty-First Century

By Frugaling 2 Comments

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Capital in the twenty-first century Thomas Piketty
The cover of Thomas Piketty’s Capital in the Twenty-First Century

Everyone is talking about Capital in the Twenty-First Century, but few people have read it. In fact, I was watching Real Time with Bill Maher the other day, and the entire panel was debating the virtues of the book — then they admitted no one had read it.

Meanwhile, The Guardian wrote, “This is a huge book, more than 700 pages long, dense with footnotes, graphs and mathematical formulae. At first sight it is unashamedly an academic tome and seems both daunting and incomprehensible [emphasis added].” Well, I just spent an inordinate amount of time reading his masterpiece, and have quickly placed every lesson in the following article. I’ve tried to link to further explanations, should you care to spend the time.

Here’s everything you need to know about Capital in the Twenty-First Century in 5 minutes or less. 

  1. Income equality is increasing.
  2. We are approaching another Gilded Age.
  3. Net worth is not trickling down.
  4. A global wealth tax is proposed.
  5. Marginal tax rates used to be much higher.
  6. Income inequality undermines meritocratic values.
  7. Marx couldn’t properly account for technological progress.
  8. Industrialization and economic shift is inherently advantageous to a select few.
  9. War and taxation created a by-product of economic equality in the 40s/50s.
  10. Theoretical and mathematical interpretations fail to account for individual actors and historical data.
  11. Inequality is not necessarily bad, but the reasons for it could be.
  12. Top managers can control their own paychecks.
  13. Profit is necessary to attract capital; at least, as the economy currently stands.
  14. Per capita income averages hide disparities (median versus mode).
  15. There are errors and gaps in tax revenue due to tax havens.
  16. Foreign direct investment hasn’t led to a convergence in economies.
  17. Economic growth is unsustainable, as compounded growth will kill the planet (think climate change and food shortages for a growing population).
  18. Social mobility is at the heart of moderating income inequality.
  19. Inherited wealth is monopolizing income distribution.
  20. Those with capital and assets can increase wealth faster than beginning entrepreneurs.

Now go out there, act like you read it, and sound smart!

Filed Under: Social Justice Tagged With: 21st century, Capital, distribution, Gilded Age, Global Economy, Income Inequality, Investments, Profit, rich, Social Mobility, Thomas Piketty, Wealth, Wealthy

Accidentally Frugal

By Frugaling 14 Comments

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Accidentally Frugal - Let It All GoWhen I think of my apartment, a number of things come to mind: gulag, cinderblock castle, bat cave, and my favorite, rectangular ode to communistic utilitarianism. Yes, my home is something special. One of the perks is insulation that never seems sufficient for either hot or cold extremes. In the winter, the bare linoleum floors chill bones — forcing occupants to wear sandals or shoes indoors. The summer brings a respite from the cold, and makes my apartment heat up like a sweat lodge — only, without the nice cedar wood smell.

The summer months bring some wacky weather through the Midwest. This being my third summer in the land of flat, I know that I’m in for hot, sticky days that border on 100 degrees — even overnight. Torrential rainfalls will produce floods and muddied areas, while you get baked throughout the other days. Pretty good if you’re a 4-year-old making mud pies; beyond that, not really quite sure who enjoys it.

I’ve lived in a few areas of the country that don’t really need air conditioning. People may have them attached to the home or in a window, but for the most part, these white boxes stand as decoration to a humble abode. But here in Iowa, air conditioning is a must have.

In August, I’m moving into an apartment complex that is supposed to have built-in, central air conditioning. To prepare for this, I decided to list my air conditioner on Craigslist two days ago. I hastily placed it online — without a picture or many details. It can take a little while to sell things in my city. There aren’t many people here; especially, over the summer.

I fully expected it to take a month to actually sell the unit. I was dead wrong.

Well, Frugaling fans, I’m in for one hellish summer. I just got back from selling my window air conditioning unit in one day. The family I sold it to were incredibly appreciative and kind — even paid me to drive to their place. The man who lifted the AC out from my trunk said, “Boy are we happy to have this right now. It’s only going to get worse and worse this summer.” All I could do was politely smile and nod. Inside, my stomach churned with the anticipatory anxiety of an entire season without it.

Naively, I didn’t think I’d spend an entire summer without air conditioning, but in a way this is all accidentally frugal. Letting go of the air conditioner this early in the summer season feels like trouble, but there are some tremendous benefits.

  • Reduced utility bill. The summer months can wreak havoc with my careful budget. Oftentimes, the budget is precariously balanced and if there are extended periods of heat, I can see my bill skyrocket. Most of those costs are associated with increased air conditioning use. Without this appliance, I’ll be struggling, but saving every minute that it’s not running.
  • A family in need is helped. AC units can be expensive and a family (with a pregnant mother) will enjoy the benefits of a cooler house. I’m really happy they were able to use this and save a pretty penny from buying new.
  • My wallet is padded. I didn’t just do it for purely altruistic reasons, though. I’ll be able to pay off another chunk of debt with this extra cash. Even more than paying off another portion of student loans is the psychological benefit of knowing I’m moving in the right direction — saving and earning. This has been my major goal since starting Frugaling.
  • Saving the environment. Air conditioners are a drain on energy resources, tax aging infrastructures, and push coal-fired power plants to go into overdrive. Removing the AC will reduce the amount of greenhouse gases I contribute. One of the most frugal things I can recommend is opening windows at night, and then closing them immediately in the morning. Also, put down your blinds. This small step will effectively insulate you from changing temperatures outside. Your apartment will be a nice ice box in comparison to the outside temperature.

Filed Under: Save Money Tagged With: ac, air conditioning, apartment, energy, Frugal, heat, home, house, midwest, minimal, Minimalism, minimalist, seasons, summer, weather, Winter

How Much Can Bloggers Make?

By Frugaling 21 Comments

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How Much Can Bloggers Make? Do you want to be a blogger too and earn money? Find out on this post how much can bloggers can make! #Blog #blogging #makemoney

To publish or not to publish, that is the question

I debated whether I should publish this article for two months. I talked to friends, family, acquaintances — all have given me different responses. I tweeted to fellow personal finance bloggers, too. Everyone had a different answer.

Frankly, I’m nervous to share this article. Unlike my weaker points and budgetary failures, this article is a highlight. It was easier for me to write and confess my student loan debt to you all, but successes are more difficult to share — ironically.

After much consternation, I decided I’d finally publish an answer to a big question I’ve been getting: “How much can bloggers make?” Or, more specifically sometimes: “How much did you make, Sam?”

Even as I type these words, I’m debating whether I’ll push the publish button. It’s really challenging to share this number. I’m proud and embarrassed in a weird way.

Well, here goes nothing! Today, I’m going to share with you how much I made over the first year of Frugaling, and what led to that success. My goal is to both inspire those who are thinking about starting a blog, but also to provide info about where the greatest revenue can be made. I know of quite a few people right now who want to get paid to write or need some push to start blogging.

This one’s for you.

A trickle became a torrent of funds

I started with Google AdSense

I began Frugaling on May 4, 2013. Motivated out of a desperate need to share my story with others and begin my journey back to zero debt, I wrote my first article. These first few months I only had Google AdSense. I stared at $15-20 a month and thought this was pointless, but that quickly doubled, and doubled again.

For those who’ve never heard of the platform, it’s an easy and very popular way to start making revenue. Google handles the advertisers — all you do is publish them. Easy as can be. Nobody becomes rich from AdSense, though (hardly anyone at least). It’s an entirely automated and algorithmic ad network that pairs relevant advertisements with consumers. While creepy sometimes, the ad network is the best in the industry — for everyone involved in the money making process.

I looked up affiliate opportunities

As a member of the personal finance blogging community, I was fortunate to be exposed to various money-making experts. Many had done well adding affiliate programs to their sites. Affiliate programs usually host a bunch of companies that are looking to give publishers a small commission for products sold. Let’s say you run an apparel website and link to Macy’s, you can count on a certain amount of revenue kicked back to you in the referral process. Or, if you blog, it can help to advertise your web host.

I decided to throw my hat in the ring and joined a top-notch network called LinkOffers. Two months after being approved to hawk some bank-affiliated products, I looked at my account and noticed a strange number: $500 in sales. It was early in the summer and the number shocked me. I was making ridiculous amounts of money! Over the ensuing months, I received an atmospheric amount of affiliate commissions (I’ll address monetary specifics in the proceeding section).

I partnered and linked to Amazon.com

I timed articles to important holidays, your recommended books, and/or tax season. Most bloggers seem to struggle to make much money with Amazon’s affiliate program. I found it to be incredible.

You can link to nearly everything in the Amazon store and make a commission on that item and anything else that’s purchased during that visit. This primary and secondary commission style is very generous. For instance, if someone buys the product you advertised and a new Macbook Air, get ready for a kickback of $40 or more. These purchases added up quickly. One article netted me over $200 in two months.

Flappy Bird-style wealth creation is definitely scary

Flappy Bird Money Wealth Success
Flappy Bird was a hugely popular, viral success. The creator was making $50,000 per day when he pulled it from the Apple App Store.

The Apple Store was slammed earlier this year with millions of downloads of one app with a ridiculously simple premise and name: Flappy Bird. The creator was a mysterious and private individual based in Vietnam. Not much was known about him until Rolling Stone magazine tracked him down and got one of the best interviews yet. Rolling Stone reported that:

By February, it was topping the charts in more than 100 countries and had been downloaded more than 50 million times. Nguyen was earning an estimated $50,000 a day. Not even Mark Zuckerberg became rich so fast.

This level of attention and wealth prompted Nguyen to take down the app and buck the demand for his work. Within a couple days of his decision to remove the app, it vanished. Many criticized his decision and questioned why anyone making $50k a day would optionally take down their application. Frankly, I could relate on a tenth of the scale.

In December, January, and February I saw earnings that blew my mind. Every day I checked my earnings, I was looking at another couple hundred dollars. I was closing in or crossing $5,000 per month. I was scared about whether the affiliate company would actually pay me. Every month — before I got paid — I’d get nervous. I’d think, “Are my earnings going to be revoked? Am I actually going to get paid that much?” Month after month would pass, and the earnings would clear — right into my bank account. It was like magic.

Average these earnings over 12 months, and I’d be making over $60,000 per year. Meanwhile, I’m a full-time graduate student working 65+ hours a week. With all my earnings combined (regular work, too), I was nearing a six-figure salary. My debt was disappearing and life was looking up in a crazy way.

The earnings eventually slowed. The bulk of the money was earned. I paid off a $25,000 student loan and stopped taking out loans for school entirely. Suddenly, I was paying in cash for the deficits in my graduate assistantship budget.

Marketing and advertising affects everyone

You’ve now read nearly the entirety of this article, but I still haven’t shared how much a blogger can make. Or, more specifically, how much I made in my first year. Before I say that value, I want to mention one thing: advertising tends to taint perspectives.

As a personal finance writer, there’s a wealth of advertising opportunities. It’s a direct consequence of the powerful financial services sector. Trillions of dollars are managed within financial companies, and consumer credit products are just one of the many revenue sources they have. It can be easy to be swept up with the possibilities and ignore the initial purpose for starting a blog.

I got swept up by it. I was deeply affected by it. It changed how I speak. It swayed my opinions.

After you see this value, I hope you take great care with your site and visitors. Please don’t let this inspire you to morph into a credit-card-hawking-affiliate-driven-market-maven. The personal finance world needs personality and reality. Credit products aren’t right for everyone.

Still want to know how much I made?

I made about $35,000 in my first year of blogging.

Related post: Make An Extra $10,000 In 6 Months!

Filed Under: Make Money Tagged With: ads, AdSense, Affiliate, Amazon, Blog, Blogging, Flappy Bird, Google, Income, LinkOffers, money, revenue, Student Loans, Write

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