Frugaling

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

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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!

The New Rich: How $250k A Year Became Middle Class

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Mansion The New Rich Middle Class War
Photo: jorge lascar/flickr

Frugality is a necessity for some, and a choice for others. There are many opportunities to spend carelessly – the Starbucks around the corner, that new gym membership, or going out to eat all the time. It takes serious effort to save money and spend less.

It’s far harder to find ways to lower your bills and balance a budget. At some point the desire to be frugal can fade when wealth, affluence, and income increases. How much money would you need to make per year to relax or throw away your budget, and say goodbye to the frugal life? Would you?

Rich Kids of Instagram The New Rich
Photo: Rich Kids of Instagram

A dictionary definition of being rich

For many, becoming wealthy entails a certain level of privilege, posh, and the ability to spend wherever you want – without much care or a budget. Riches generally come from a combination of income and savings. Without any savings and a hearty salary, you’re likely vulnerable to economic turmoil. Without an income a moderate savings, you could be in trouble, too.

Here’s Dictionary.com’s definition of bring rich:

having wealth or great possessions; abundantly supplied with resources, means, or funds; wealthy (Dictionary.com)

Pondering whether you’re rich? You may want to ask these questions:

  • How much liquidity is in your checking accounts?
  • How much is invested?
  • How much do you make per year (and what tax bracket does that put you in)?
  • What kind of liabilities do you have (e.g., loans, debt, future payments)?
  • Have you ever compromised your lifestyle due to economic turmoil?

The New Rich and middle class

Only 2.9% of earners make more than $250,000 a year (CNBC). On a nationwide and worldwide scale, many consider this to be wealthy. But some people within this income level hesitate to call themselves rich – identifying more in the upper middle class.

A recent article by Associated Press (AP) writer Hope Yen interviewed some of those people:

“I definitely don’t see myself as rich,” says Lott, who is saving to purchase a downtown luxury condominium. That will be the case, he says, “the day I don’t have to go to work every single day.”

…Sponder says she doesn’t consider her income of $250,000 as upper class, noting that she is paying college tuition for her three children. “Between rent, schooling and everything — it comes in and goes out.” (AP)

Kibera Slum Wikipedia The New Rich
Photo: Kibera Slum/Wikipedia

The new rich still get to decide which elite private schools to send their children, live in high cost of living areas, and have more job security. On an international scale, these riches are incomprehensible to abject poverty.

Compare this to Kibera, Nairobi, where you’ll find residents without running water, electricity, proper sewage, or waste disposal. Here’s a little information about the conditions:

The slum is contaminated with human and animal feces, due to the open sewage system and the frequent use of “flying toilets” (defecation inside plastic bags that is thrown elsewhere). (Wikipedia)

Nobody should have to live like this. Unfortunately, as the world economy has largely recovered from the disastrous housing bubble and mortgage crisis, many lower and middle income families have missed out on income gains. It’s no longer a dream to have more than you need – it’s an expectation. People in lower and middle class incomes don’t think they have it – they probably don’t – and those in the top percentages for earners seem to be denying their wealthy status.

The $250k a year tax bracket and government intervention

President Barack Obama Tax Reform The New Rich $250k
Photo: muhammed/flickr

There’s a complicated interplay between this income status and the federal government. Those filing individually at the $200k or married at the $250k levels have their marginal tax rates increased significantly. A marginal rate suggests that you get taxed at the traditional rate up until the income limit ($250k in this example).

In recent years, President Obama focused on the $250k income line and greater for increased taxes. Part of the proposal for tax reform included breaking down income brackets and increasing the marginal rates for those in the highest levels.

Regardless of where tax reform goes from here, there has been a target on the back of the $200k/$250k level. This campaign to define the wealthiest class and tax them more has bred a hearty argument on a variety of news sites.

A long-running article on Debate.org asks, “Is a couple making $250,000 a year considered rich anymore considering how fast costs are rising?” Many people have commented to say “no” – that $250k is not rich:

Try supporting a family of 5 on $250,000/year in the SF bay area. The cost of living here is so high and I’ve got 3 kids. It does not seem fair to tax me the same as someone making $250,000 per year in, say, South Carolina where housing is less than 1/5th the cost. The potential tax should be more thoughtful and consider local cost of living.

People that make $250,000 already pay close to half of their income in taxes. Federal, State, Local, Social Security, Medical…leaves you with $125,000. Family of 5 automatically puts you in a “no financial aid” status for your kids in college.

However – people earning $250k/year are most likely in a high cost of living area – so expect $3k/month housing expenses, $2k/month other expenses (food, transport, etc.)

CNBC, the financial/market show known for rampant support of free-market economic principles, says:

For folks like the Joneses who live in high-tax, high-cost areas, who save for retirement and college, pay for child care to enable two incomes, and pay higher prices for housing in top school districts, $250,000 does not a rich family make. (CNBC)

Overwhelmingly, the comments suggest that this income level is on the precipice of riches. Many feel vulnerable, as if they could lose this status. While they can live healthy lives, they are taxed heavily, the target of much tax reform, and generally live in high cost of living areas. Then, there are the government subsidies, kickbacks, and write-offs that the $250k level cannot easily attain. These cost savings that lower income classes can receive effectively make living even more expensive. The government proposes that people at this level don’t need as much help paying for college and saving.

As lower and middle income classes have seen social support and welfare programs devastated by government bureaucracy and cutbacks, the $250k group has actually become more vulnerable – in a sort of middle-ground that gets the least support, protection, and understanding. They’re economically unprotected, and this leads to a fear of losing this income level.

Finding frugality and a healthy budget, despite vast wealth

When I first started writing this article, I wanted to make it clear that this income tax bracket is very rich. Honestly, they have an incredible privilege of choice that is granted to very few. But with the collapse of social welfare, support, and market troubles, this bracket is in an economic no-mans-land – you either go up or get out. A family with a combined income around $250,000 a year may not feel rich. When the international economic world is studied, they are the richest of the rich. The average salary here in the States is still around $50,000. But in America, there is a well-warranted fear about the future status for those earning this much.

This is why frugality spans vast demographics. Most everyone can find reasons to save for tomorrow. When you are trying to earn and invest, but feel vulnerable to economic shifts, finding a budget and healthy spending habits can save you. Somewhere along the way we were duped into thinking that everyone needs more stuff, and that success is measured by how much we’ve amassed before our inevitable demise. We can’t buy ourselves out of death (yet), but we can provide help, support, and hope to those truly in need.

Have you ever wondered how much you need to make/amass to stop working, consider yourself rich, and/or feel financially secure?

Further reading: Too Poor To Protest: How Income Inequality…

Too Poor To Protest: How Income Inequality Silences Your Voice

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Pepper spray john pike occupy wall street uc davis

In September, 2011, New York City’s Zuccotti Park was flooded with tents and protesters. Sparked from an Adbusters article, the Occupy Wall Street protests began. The movement championed a variety of ideals that included wealth equality, removing money from politics, and reducing corporate influence in our political system. Diverse groups flocked to the streets to argue for a better future; potentially, one without massive corruption and greed. But the idyllic dreams faded as the campers were kicked out of the park and cities used police powers to destroy the collected masses across the country.

If you’re here, you’re probably part of the 99%

If you’ve ventured onto Frugaling.org, you’re likely interested in saving money and becoming more frugal. Moreover, you’re probably a proud member of the 99%… of incomes. The Occupy Wall Street movement embodied a siren call that said, “We are the 99%.” They owned their place in society and called for greater income equality.

The anger and resentment are building, as people think about the exorbitant bonuses that Wall Street marketmakers are taking home. Most of the recovery in Obama’s economy are limited to the richest/highest earning populations. In fact, the income inequality is reaching record proportions.

In 2012, the top 10 percent of earners took home more than half of the country’s total income.

…The 1 percent has captured about 95 percent of the income gains since the recession ended. (NYT)

The New York Times’ Op-Ed Columnist, Paul Krugman, says it best:

In practice, inherited wealth and connections matter enormously; those not born into the upper tier are, and know themselves to be, at a huge disadvantage. (NYT)

In India, they’ve long had a caste system that stratifies the demographic groups. You are frequently born into a group and the income pressure force you to stay planted in this domain. What Krugman is alluding to is a caste system in the frame of India’s horrific class structure that limits income mobility and opportunities in life – right here in America.

The consequences of mass income inequality

Poverty and income inequality both distract and debilitate people from being able to think critically. The tragic irony is that financial decisions, debt, savings, and everything that Frugaling stands for may be unattainable in this environment. Basically, there’s an unmet basic need in those suffering from poverty.

Maslow's Hierarchy of Needs Image Wikipedia
Photo: Wikipedia

In 1943, a psychology professor and researcher introduced a basic hierarchy, construct for understanding how everyone has basic needs. This pyramid included Physiological, Safety, Love/Belonging, Esteem, and Self-Actualization. An individual would be working up to a self-actualized state, but certain needs must be met first. This is called Maslow’s Hierarchy of Needs.

Poverty and income inequality test the limits for critical thinking because people are fundamentally fighting for more basic needs such as Safety. Without a universal, socialized, single-payer health care option, those most in need are forced to find basic health needs before thinking critically about a budget. When resources, property, employment, and/or health are questioned, the more advanced needs are pushed back. These requirements are particularly important when the most vulnerable populations are fighting to survive – much less to to protest, share, and become active members of societal decisions.

Protesting defamation and destruction in the impoverished

I want to take you through a little real-life experience. As a graduate student at a solid state school, I’m quite privileged with my opportunities and future employment. But graduate students like me are often short on time and money. Many are raising families at the same time. The lifestyle can be brutal.

Over the last decade, my home university has been proposing a reconstruction project and new buildings to university-owned apartments. Year after year passed without resolution, and the older buildings aged terribly. Something needed to happen, as the most vulnerable school populations were living in evermore dilapidated housing.

Colloquially, these were referred to as a project and ghetto. The most diverse students and families occupied these buildings. Housing was exceptionally affordable – cheapest in the city – with many basics covered (e.g., water, cable, internet). Despite the horrid, storied exteriors, these were an exceptional choice for those studying at the highest level of academia and the smallest wallets.

Then a resolution quickly swept over the university apartment system. New buildings and contractors were being brought in to discuss all the financial complexities. At the end of this dialogue, the university decided to do something morally aberrant. Instead of keeping the university-owned land and property, they decided to lease the land to a private property management company. Now, this property company would finally revitalize the campus housing, but the consequences to the most in need would be terrible – a trade-off that was easily overlooked by school administrators and a company that stood to benefit from serious rent increases.

As the private company builds their own property on the campus, I’ve spoken to many vulnerable student populations. My frequent question is: Will you be staying? The answer is often “no,” because they can’t afford the nearly 100% increase in rent. They’ll be forced to move out of their apartments and a diaspora of diverse students will look elsewhere in the city. Families of four, recent immigrants, those on student visas, and many other groups are now being pushed out of their homes – forced to pay up or get out.

Something seemed evil about the process, and I began to ask people if there were ever protests on campus. Nobody ever heard, was aware, or participated in any. Because these students were in a rough financial spot and short on time, gathering a mass of protesters was a near impossibility. It never came to fruition. And now, the huddled masses must move on.

Should we defend the rich because they pay the most taxes?

The rich are definitely getting richer – this is an economic fact. But more importantly, the rich are collecting most of the income growth, too. A growing debate is being waged between world leaders regarding income inequality. Surprising participants are chiming in for a powerful, heated argument.

A couple of the top mayors have chimed in to support the wealthiest populations – even going so far to argue that we should thank rich people. The former mayor of New York City, Michael Bloomberg, has stated that the rich are a blessing for the city of New York. Because millionaires and billionaires pay lots of tax revenue back to the city and state, Bloomberg believes that we should honor and respect their riches. Over his tenure, he hesitated and prevented income tax increases on the wealthiest populations. Former Mayor Bloomberg even suggested that the wealthy may leave in droves if taxation increases, but this hasn’t been proven. Moreover, the current Mayor, Bill DeBlasio, has refuted this claim:

Bloomberg isn’t alone in his defense of the rich. Mayor Boris Johnson of London, England also wrote about the need to thank the rich for their support of the city’s economy. These “tax heroes” (the 0.1%) pay for about 14.1% of tax revenue for the city. The mayor suggests that this is a positive thing and speaks to the contribution that the rich have on the economy. The oligarchic mayor even proposed giving knighthoods to the largest tax payers:

In fact, we should stop publishing rich lists in favour of an annual list of the top 100 Tax Heroes, with automatic knighthoods for the top 10. (The Telegraph)

After reading these two mayors defend the rich, you’d think the wealthy lifestyle was under attack – a war was being waged. But frankly, the lobbying power of the rich has stifled accurate, fair debate. And the masses – the 99% – are mostly silent again.

Thankfully, a growing number of leaders are speaking out about this economic problem that is sure to doom the masses without serious changes. Pope Francis has been an outspoken critic of trickle-down economics and supported reforms to the current capitalistic culture.

How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?

Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion… has never been confirmed by the facts.

While the Catholic church has often held that the impoverished are the most needed groups for their mission work, the analysis and critique of powerful, governmental economic systems has been overlooked. Pope Francis is bringing a sweeping message of hope to those who’ve suffered amidst these deleterious economic practices.

The President of Uruguay, José Mujica, has also been a firm supporter of those most in need financially.

Quoting the Roman court-philosopher Seneca, Mr. Mujica said, “It is not the man who has too little, but the man who craves more, who is poor.”

Mujica also upset some in Uruguay’s political establishment by selling off a presidential residence in a seaside resort city, calling the property “useless.”

His donations leave him with roughly $800 a month of his salary. He said he and his wife, Lucía Topolansky, a former guerrilla who was also imprisoned and is now a senator, do not need much to live on.

INDEED, if there is any country in South America where a president can drive a Beetle and get by without a large entourage of bodyguards, it might be Uruguay, which consistently ranks among the region’s least corrupt and least unequal nations. (NYT)

President Mujica is shirking the glam and pomp of the presidency’s opulence. Taking home around $800 a month is a ridiculous sum for a president, but the consequences have been incredibly positive. Uruguay is one of the most progressive nations in the region and widely considered to be the least corrupt. By shedding the affluent lifestyle of his predecessors, he has stripped the hierarchy and social class that may remove him from his people. He is a role model and advocate for moderation among a cultural malaise that argues for more and more growth.

When you’re too poor to protest a culture collapses

The biggest threat to our long-term economy is income inequality and social stratification. Without some sort of correction, we will be doomed to relive the mistakes that aristocracy found in generations prior to this. It’s scary to think that I may ever be too poor to protest the conditions and treatment I receive, but the risk is growing. The richest are getting even richer than the rest – the power, influence, and control of government is terrifying.

What control do we, the 99%, have when politicians can be lobbied and motivated to support the wealthiest? Who will protect the most needy?

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