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Here's a chart of personal income.
Here's a chart showing wage and salary disbursements as a fraction of personal income.
As seen in the chart, the long-term goal appears to be to phase out wages and salaries entirely and switch to a pure making money off of money wealth redistribution system. That should do wonders for our economy.
Unfortunately, the economy appears to do poorly when wages and salaries as a percent of personal income falls. You can also see the effect on a smaller scale within every single recession. It's almost like main street has a harder time shopping and paying bills when it does not have wages and salaries. Who knew?
Here's a conundrum for you. Wages and salaries as a percent of personal income have been falling throughout this recovery, just like they've been falling since 2000. Meanwhile experts like Jeremy Siegel feel that we should continue be as optimistic now as we were heading into 2000. Explain that.
December 5, 1999
Investors waiting to see if stock, bond markets are ready to party
Growth investors go wrong, however, when they try to pick a small handful of winners, Siegel said. You might end up with too much Coke and too little Lucent (or the opposite when their relative market value turns).
Here's a chart of Coke that comes up a bit flat and a fascinating story about how Lucent managed to raise its stock price in the aftermath of $26 billion losses. Enjoy!
Source Data:
St. Louis Fed: Wage and Salary Disbursements
St. Louis Fed: Personal Income
St. Louis Fed: Wages / Personal Income
This post inspired by mab who pointed me to these two data series. I think this really helps see more forest and less trees.
8 comments:
holy crap !
Wages and Salaries...how does that deal with independent contractors, bonuses, stock options, health coverage etc.? Are those counted in the wages and salaries?
Coba
Coba,
Great questions. My girlfriend worked in Human Resources. She asked me the same things after seeing the charts and I don't know the answers yet.
In any event, I do find it more than interesting that the downward pressure in the percentage only seems to happen when the economy is bad (either in recessions or in bad eras) and the percentage doesn't rebound back to previous levels when the economy is go od.
Take the last 10 years. Far more seems to have been done to protect Wall Street than Main Street in my opinion.
As one specific example, I was able to EXIT the stock market inexpensively in 2004 thanks to Bush's capital gains tax cuts. Unintended consequence? Did my exit actually help our economy? Should I, a fortunate retired investor with no job and no need of assistance, have been given assistance to take profits and lock in gains?
Wage and salary disbursements.–This component of personal income consists of the monetary remuneration of employees, including the compensation of corporate officers; commissions, tips, and bonuses; and receipts in kind, or pay–in–kind, such as the meals furnished to the employees of restaurants.(13) It reflects the amount of wages and salaries disbursed, but not necessarily earned, during the year.This component is measured before deductions, such as social security contributions and union dues.
Sounds like it covers everything except stock options. Scary,
Capital Gains tax should be set to zero to encourage investment.
coba
Coba,
Capital Gains tax should be set to zero to encourage investment.
There is an interesting unintended consequence of that, at least as it relates to me.
1. When Bush lowered the capital gains tax in 2003, it gave me further incentive to take profits and exit the stock market in 2004.
2. I used the money saved to buy even more government debt. It did nothing to stimulate the economy.
The combination of the two effects is something to behold. One might argue that the government basically offered me free treasury bonds if I'd sell my stocks for a profit.
How about a declining capital gains tax for every year that you own an asset? That would certainly encourage more long-term investments and encourage companies to rely less on short-term thinking. Own it long enough, and the rate eventually goes down to your 0%.
Just a thought.
The problem is that timing your taxes can be bad, too. If you made a profit, sometimes you just want to book it, but then, you start to think about capital gains rates...its affecting a decision. Short-term, long-term, either way capital is being allocated. (maybe I am just jaded because I once lost a nice gain because I waited until the cap gains would be lower...and then the gain was gone.)
I think its just a prejudice against "traders" making money of the stock market that says we want 'long term' investment. Remember when you sell your stocks, someone is buying them - the capital is replaced. Its not as if you just screwed a company out of their capital.
I think if you have it go down a set amount every year that could be a good comprise, but it should be noted many countries have ZERO capital gains tax and do just fine. The USA will have to start thinking about stimulating investment instead of consumption pretty soon - we'll see if we take a page from Ireland or E. Europe.
I once tried to play the efficient tax game with an investment. I got my wish. I turned a fantastic profit into a fantastic tax write-off, lol.
I changed my sell criteria after that. I ask myself if I would buy it at that price. If my answer is "no" then I'll generally hold if the tax situation is unfavorable. If the answer is "hell no", then I will sell regardless.
My best "hell no" moment was Citigroup in 2004. It was such a powerful "hell no" moment that I sold all my other stocks with it. It was all those darned 0% mortgage offers filling my mail box that made me think something was wrong.
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