Picking the Best Team

“You wouldn’t believe it.” he says, although I’m sure I not only would believe it, but I can top it. “I was in first place in my league until Aaron Rodgers has a concussion and has to sit out. My back up was whoever the guy is from the Lions.” I pretended to listen, but I’m really thinking about my own team. These fantasy football stories aren’t for the person hearing the story, they’re for the person telling it. Occasionally it’s about how they won the league, but much more often, the tale is about a loss. “If Rodgers didn’t get hurt…” There’s always an “if.” He’ll be back next year.

The beauty of fantasy football is every year you get to pick your team. Most of the elite players – the A players – are taken in a draft or auction. The handful you select become your guys, your team. You then get a chance to pick up free agents during the season to supplement the team. It’s fun to look over the team and watch on Sundays.

Robots

Something similar is happening in the business world. We’ve hit a sweet spot with demand and productivity and it’s creating a Fantasy Football type of workforce.

Suppose for simplicity sake there are five types of employees – A, B, C, D, and F.

F
- Isn't skilled for the job
- Doesn't show up on time
- Doesn't care
D
- Isn't skilled for the job
- Shows up on time
- Training doesn't work
- Tries hard
C
- Skilled for the job
- Doesn't do anything beyond what is asked
- Performance is adequate
- Must be trained for every part of the job
B
- Skilled for the job
- Performance is good
- Quickly learns new aspects of the job
A
- Skilled for the job
- Performance is excellent
- Quickly learns new aspects of the job
- Can proactively expand the scope of the role
- Able to streamline or automate aspects of the job

 

Normally a big company, and for shorter durations, a smaller one too, will tolerate D employees in the hopes that they can become at least a C employee. But when the economy is tough F, D, and many C employees are let go. The business just can’t support them. This is your basic business cycle economy or put another way, aggregate demand for goods and services is down. When people stop buying, revenue suffers and revenue pays the bills like payroll and health care.

But what’s weird is corporate profits hit an all time high in the third quarter of 2010. A staggering $1.66 trillion. Up from $1.61 trillion in the second quarter and $1.30 trillion in the third quarter of 2009. A tremendous growth rate. Well, when you look closer at it, much of the third quarter growth was from the financial industry and the value of those gains tend to be theoretical or only materialize over long horizons.  But either way, profits are out there and cash is sitting on the books of many large companies. So why aren’t they hiring?

The reason is because of demand and the A employees. Demand is just enough to keep the machines running and creating economies of scale opportunities. But demand isn’t too high to hire extra workers (temporary hires are filling the gaps when needed) to pick up the slack. Meanwhile A employees are reviewing how the processes work and identifying inefficiencies. They are re-engineering their companies without causing disruption. Productivity goes up and meets a slowly improving demand level. The cycle continues.

A employees are talented and are getting raises. And just like in Fantasy Football, they are carrying their teams. If the raise isn’t there, they are being cherry picked by other companies.

This somewhat sounds like a structural economy issue as well. The demand is there, but the skills for the D, C, and B employees aren’t. This is an effect of globalization. The demand is there, but it’s being met not in the US, but in countries like India and China – manufacturing jobs particularly.  This doesn’t spell doom for D, C, and B employees because the scales tend to even out. The rising tide (cheap labor isn’t so cheap) in countries like China will make companies look again at the US, but while that is happening, education – learning how to problem solve – needs to take priority. Otherwise, their skills won’t be differentiated from other workers and other countries. We need more A employees.

This isn’t about labor anymore. It’s about talent. Elite performers get picked and others just fill out the roster or so the story goes.

Working Thoughts 1/11/2008
Examine Each Job as One of Many Crime Scenes

Working Thoughts 1/11/2009
Different Paths to Owning a Professional Sports Team

Working Thoughts 1/11/2010
Job Creation in the 2000s?

Value Creator – CEOs

Chief Executive Magazine and chiefexecutive.net are running the third annual list of CEOs that are value creators and value destroyers . The standard measurement of a CEO doing well is the stock price, but there are influences on a stock price that may or may not happen. For instance Apple’s stock price barely budged when news broke that the iPhone was going to be offered on the Verizon network. The stock didn’t move because it was already priced in – investors expected it.

The measurement Chief Executive Magazine uses is:

Economic Margin (EM) is calculated as (operating cash flow – capital charge)/invested capital. Companies with positive EM (greater than 0 percent) are creating wealth; those with negative EM are destroying it.

Here’s a portion of the list :

Top 10

Overall Ranking ’09 Rank Change from ’09 Rank MVIC 3 Yr. EM EM Change Management Quality Score Company CEO CEO Last Name
1     A A A A Priceline.com Jeffery H. Boyd Boyd
2 23 21 A A A A AFLAC Daniel P. Amos Amos
3 2 -1 A A A A Federated Investors J. Christopher Donahue Donahue
4 35 31 A A A A Apple Steven P. Jobs Jobs
5 4 -1 A A B A Amazon.com Jeffrey P. Bezos Bezos
6     A A B A Colgate-Palmolive Ian M. Cook Cook
7 7   A B A A Ecolab Douglas M. Baker, Jr. Baker
8     A A A A DeVry Daniel Hamburger Hamburger
9 40 31 A A B A Fastenal Willard D. Oberton Oberton
10 6 -4 A A C A C.H. Robinson Worldwide John P. Wiehoff Wiehoff

November 2010 Jobs Report and Wages

Here are the job market and compensation numbers for November 2010 (based on the job report):


Net gain
of 39,000 jobs in the month

  • Private sector payrolls increased by 50,000
    • Down from 160,000 last month
    • Worst performance in 10 months

  • Analysts expected an overall gain of 150,000
  • September was revised to a loss of 24,000 jobs from an original reading of 95,000 lost and a revised loss of 41,000
  • October was revised to a gain of 172,000 from an original reading of 151,000
  • The revisions for August, September, and October added 145,000 jobs to the economy
  • 6.1
    million people have been jobless for more than 6 months (long term
    unemployed) – virtually unchanged from August, September, and October

    • 41.9% of the unemployed are long term unemployed – inched up from 41.8% last month and 41.7% the month before
  • The main type of hire was for Temporary Help Service (+40,000) and since September of 2009 this employment has improved by 494,000
    • Its normally an indicator of an improving economic cycle, but a year of it indicates uncertain business conditions

  • Job Openings and Labor Turnover Survey (JOLTS), shows that job openings increased by 351,000 in October
  • The total number of job openings in October was 3.4 million, while the total number of unemployed workers was 14.8 million
  • The ratio of unemployed workers to job openings improved to 4.4-to-1 in October

Unemployment rate went up to 9.8%

  • Analysts predicted it would be 9.6%
  • The unemployment rate has been over 9% for 19 months – the longest such streak since the early ’80s
  • The employment to population ratio is 58.2% – relatively unchanged
  • The
    U-6 report, which is a broader group to count (workers who are part
    time but want to be full time and discouraged worker), stayed at 17.0%. This indicates the increase of the unemployment rate to 9.8% is a reflection of more people actively looking for jobs in November (these individuals are only counted if they are actively looking)
  • The unemployment rate for those with a college education is 5.1%
    • Highest in 40 years

  • PMI,
    a measure of manufacturing pace, is 56.6% and the 19th consecutive
    month of readings over 50 percent. Anything above 50% means the
    machines are running
  • Productivity, measured for the quarter, showed tepid growth of 2.3%

Specific Segment Job numbers:

  • Manufacturing lost 13,000 jobs
  • Construction lost 5,000 jobs
  • Retailers lost 28,100 jobs
  • Leisure and Hospitality Services gained 11,000 jobs
  • Government sector lost 11,000, Federal gained 2,000
  • Education and Health Services grew by 30,000 jobs
    • Health Care and Social Assistance grew by 34,000

  • Professional and Business Services grew by 53,000
    • 39.500 jobs added in Temporary Help

Wage (can be revised):

  • The average weekly paycheck (seasonally adjusted) is $642.87 – a decrease of $1.91
  • The average hourly earning (seasonally adjusted) is $19.19
  • Average
    weekly hours and overtime of production and nonsupervisory employees on
    private nonfarm payrolls by industry sector, seasonally adjusted is
    33.5 hours

Bureau of Labor Statistics

Job Report Stats Summary

Scared of Ideas or Open to Change?

He hears the alarm clock, hits snooze, and lays there for ten minutes somewhere between sleep and awake. “In the Hall of the Mountain King” by Edvard Grieg plays:

He does what I think is one of the hardest things in the world to do, he puts the first foot on the floor in the morning. He goes to the bathroom, runs the shower, and peers into the mirror. Everyday its the same. Same time, same song, same struggle. Everyday.

Routines are good for many aspects of our lives. We need to focus on what is different in our environment and routines keep us safe to do so. But the comfort of a routine can be disabling as well. For instance, there’s a field of study called Terror Management Theory and it describes what people do to repress an awareness of mortality. Here’s an excerpt from HarvardBusinessReview.com called Employees See Death When You Change Their Routines which enumerates three means for warding off these thoughts:

Studies show that we create three existential buffers to protect us from this knowledge: Consistency allows us to see the world as orderly, predictable, familiar, and safe. Standards of justice allow us to establish and enforce a code of what’s good and fair. Culture imbues us with the sense that we have contributed to, and are participating in, a larger and enduring system of beliefs.

As a manager it’s important to know which of your employees are lulled into this perceived safe zone and will need some coaxing when change is on the horizon. They’ll want to hold onto the way things are – they’re good at them, they understand what’s expected, and they are familiar – but it’s counterproductive. You’ll need to invest in re-establishing these buffers for them…

Unless they are risk takers. Many entrepreneurs don’t like routines. They want constant change with a little bit of chaos mixed in. Companies like Google seek them out because they tend to be disruptors and a disruption can be a money maker. Just last week the NY Times ran an article about how Google gave 10% raises across the board. Google’s growth has brought with it the bureaucracy of a big company. Some entrepreneurs are fleeing the company. The reason is because they can’t affect change quick enough. Their supply of patience is sapped.

Both types of worker, the comfort in routine and the risk taker, must answer this question posed by Bob Brennan of Iron Mountain to this employees:

What do you recommend we do?

You can get a real sense for who’s invested in moving the company forward, and who’s watching the company go by, with that very simple question.

Q. Why?

A. People lay out problems all the time. If they’ve thought through what should be done from here, then you’ve got somebody who’s in the game, who wants to move, and you can unlock that potential. Bystander apathy or the power of observation, in and of itself, is not very valuable. There are amazingly eloquent diagnosticians throughout the business world. They can break down a problem and say, “Here’s your problem.” But it’s prescriptions that matter. So how do we move from here, and what specifically do you recommend?

Working Thoughts 11/29/07
It’s Not a Recession but it Sure Feels like It

Working Thoughts 11/29/08
There Are Jobs for Low Level Employees?

My Experience, Our Story

Every Sunday millions of Americans sit in a hard wooden pew to attend church. Regardless of the denomination the session culminates in a pastor of some kind delivering his sermon. It’s a learning situation emphasizing morals and what is expected of someone within the church community. The message is delivered usually in one of two ways – by describing negative actors who are sinners and thus need forgiveness or by sharing examples where someone demonstrated moral conviction despite dire circumstances.

There are splats on the white wall with the consistency of a slug on a humid night. They’re maroon with some tan mixed in. A few splats are sliding to the floor. Thirty seconds ago I shot a man through the abdomen and I’m about to kill another. It’s fun. Of course this happened in a popular video game; my brain is able to rationalize the fiction of it while tapping the visceral sense of survival. Viva adrenaline! I’ll play for a couple of hours, which will feel like 10 minutes, and occasionally I’ll be the one slumped on the floor, but I’ll try again and again.

We learn through experience, whether it’s our own or someone else’s. We use immediate feedback to correct behavior in the moment in time – the present – the video game. We also use our memory of what happened as a means to anticipate and learn from others – the pastor’s story.

Last week I sat with some friends and watched football. I ate an order of hot wings as I normally do. However, this time they were a little sweet. They didn’t taste bad, but I know the flavor of hot wings and this wasn’t it. So this Sunday I asked the waitress what the story was? She replied that it might be a slightly different recipe because of the cook that was there. I told her I wanted hot wings and not ones that are sweet. As soon as the order came out a part of my brain – the insula – activated and I knew they were sweet. My experience from last week was recorded and I didn’t need to eat the wings to know the taste. I ate them anyway, but I asked for a side of hot sauce.

In management it’s important to use effective story telling to bypass the time commitment of experience. If one person on the team can spend a day in training and then relay their memory of the event on to another 20 then the productivity of the group will improve tremendously.

The difficult part is that people learn in varied ways. I think that’s one of the reasons why Microsoft Powerpoint is so popular: on one slide is a bullet list of the key points, the next is a graph, the third is a picture of a team at a table planning something, and the last is a summary. But now it’s time to steal ideas from marketing and develop campaigns.

Suppose I’m trying to change the culture of a team of 20. I’ll need to have one-on-one meetings with each person to lay it straight; to be direct with what I want. Next I’ll follow that up with a Frequently Asked Question (FAQ) document answering questions that collectively each person needs a response too. I’d also possibly do an interview with someone from outside the team who would benefit from the desired changes and publish the account for the group to read. If video or other media friendly resources are available I’d look into those as well. The point is, I’d tell the story in as many formats as I can and then I’d follow it up with reinforcing ideas as much as possible.

I’m not a preacher or a video game. My goal is to tell positive stories and produce experiences that are lasting… for the whole team.

Working Thoughts 11/15/07
Cloud Computing and IBM

Working Thoughts 11/14/08
My Interview with Norm Bogner of 4Refuel

Learning about Risk and Reward in the Marketplace

The US has a culture where commerce permeates everything. It’s practically omnipresent. Because of this many Americans unknowingly learn facets of business that other cultures do not. A Harvard Business Review blog entry by Vijay Govindarajan called Marketplace Literacy: A Reverse Innovation Opportunity? pulls out three aspects of business: the skill being sold, the know-how to be efficient and the know-why to be effective. Here’s an excerpt example:

Marketplace literacy itself can be viewed at three levels: the concrete level of vocational skills or a trade, the more abstract level of business know-how, and the level of understanding, or “know-why,” about the marketplace. For instance, suppose a poor woman who knows how to cook (a vocational skill) starts a food shop. To run the business, she needs know-how — specifically, she needs to know how to set the menu and prices, choose a location, and promote her business. She also needs “know-why” — to understand why it’s important to be customer oriented, why to choose one location and not some other, and, ultimately, why to go into this business and not something else.

The second two items really leverage planning. Knowing details, spotting trends, and anticipating demand levels enable a good business person to set up a business for success. Many people in the US get lulled into a belief that their intuition is the same thing as truly understanding what can or will happen. Another HBR blog entry discusses the differences between foresight and intuition. It’s by Jeff Stibel and it’s called How Forethought (Not Intuition) Separates the Good from the Great. Here’s an excerpt:

But let’s beclear: Intuition is different than forethought. Intuition is another oneof those necessary but not sufficient traits. Without intuition, thehuman race would have been finished a long time ago. Intuition rests onthe ability of the brain to read patterns, and react accordingly. Forinstance, you don’t need to accumulate hundreds of details about acoiled object in your path to jump out of the way. The brain decidesinstantly that it’s a snake. Now the object may merely have been acoiled rope — and you may have jumped into the air needlessly, to theamusement of passers-by. But that is because the brain is built to reactquickly. It doesn’t wait for all the details.

Here’show forethought is different from intuition. To have forethought, youneed an abundance of details and you must labor over them. There is noright answer when thinking about the future, merely an endless number ofscenarios. It is what the Stanford economist Thomas Sowell calls”long-range thinking.” Forward thinking is the brain’s way to chip awayat the edges of uncertainty, to make bets based on past experience. Thebest of the best do this incessantly.

Finally, I mention these two items because the US economy is essentially sitting still. The inputs – the data – used for decision making is not currently trust worthy. Legislation over the past two years, such as Health Care reform and Financial Reform, have left many businesses flummoxed as to what to do, so they’re not investing until a path is clear. Geoff Colvin in his article Uncertain of future regulation, businesses are paralyzed provides a stat that is indicative of a business environment in wait:

Once these mammoth laws are enacted, government agencies must write new rules to implement them. For example, the Dodd-Frank law requires 243 new rules, by the count of the Davis Polk & Wardwell law firm, and no one yet knows what they’ll require. 

But it’s also a time of getting ahead. Sunk costs are a reality in business and holding off on investments or hiring is valid to a point. The problem is waiting too long can lead to lost opportunity in the marketplace. After all, business is all about risk and reward.

Working Thoughts 10/21/08
The Next Stimulus Package Must be a Job Creator

Working Thoughts 10/21/09
US Values have Changed, but the Change is Subtle

Generational Delay in Leadership

A few entries ago I wrote about a movie called Waiting For Superman. Today I learned that Jeff Skoll is the man behind it. He funds movies with an angle beyond entertainment; his movies inform, potentially leading to social activism. His films include: Good Night, and Good Luck, North Country, Syriana, An Inconvient Truth, Murderball, Fast Food Nation, The Kite Runner, and Charlie Wilson’s War.

He can fund all these movies because he was the first President of eBay. In 2002, he cashed out for a take of $2 Billion. He was 31 years old when he became the lead of the internet auction house. In his 20s he took some entrepreneurial risks, those successes earned him the eBay opportunity and he is credited with forming the business model the company uses.

Fortune.com is running a theme about leaders under the age of 40. They have a 40 Under 40 piece and a 20 Highest Paid Under 40 section going currently. These people are featured because they are leaders. They are changing the world. And they are young.

As much as the 6.2 million long term unemployed are a long term economic problem for the US, the slowing of the ascension of next generation leaders is as well. There are Pew Research Studies showing a delay in independence  in 20 somethings in the US. Here are some stats:

  • In 2010, 85% of college seniors planned to move back home with their parents after graduation.
  • In 2006, 67% of college seniors planned to move back home.
  • In 1970, the age of someone who is not college educated to get married was 22 years old. For the college educated, it was 23 years old.
  • In 2008, the age of someone who is not college educated to get married was 28 years old. Same for college educated.

This is important for a variety of reasons, but the two main ones are: it delays leadership chances and it stunts income potential. A study was performed by Columbia University called Elites Research Network. The point of the work was to understand how, or what, made someone elite financially. The seminal finding was most of the people were put in early career opportunities, the type that makes the person a generalist and not a specialist. This advantage, more than privilege or inheritance, is the key to lasting success.

So what does it mean for the US that 85% of college grads are living at home post graduation? Or that marriage on average is 6 years later than it was in 1970? Is 40 the new 30? And if so, without the compounding interest of 401k or pensions does that mean 75 is the new 65?

Right Place at the Right Time Happens, It Isn’t a Fluke.

There’s a movie out called The Social Network . The story shares a few perspectives on the founding of Facebook. But there are no shortage of opinions for this drama.

One common view is Mark Zuckerberg was in the right place at the right time. He was just lucky. It’s hard to argue he didn’t benefit from several favorable circumstances. Luck isn’t fated though. Good businessmen tend to be luckier than others because they play the favorable odds and work to improve their chances.

Many success stories start with a few individuals meeting at a coffee house and exchanging ideas. Connections are made and enterprises are launched. It isn’t luck these people were in the coffee house. They purposefully went there wanting to meet people who also wanted to people. A $4 coffee every other day results in a pretty wide network. So when right place at the right time happens, it isn’t a fluke.

Anthony Tjan from Harvard Business Review writes up a couple of sections in his blog first describing the type of luck he observes and then the characteristics of people who tend to be lucky. Here’s some excerpts from his blog entry Make Luck Work in Your Favor :

1. Circumstantial Luck. You go to lunch with a friend and bump into another acquaintance who introduces you to a stranger who eventually becomes your biggest client. The unintended but welcomed outcome (a new client) was unrelated to the initial action (lunch with a friend). Being at the right place, at the right time, made the difference. You were circumstantially lucky.

2. Constitutional Luck. Age, heritage, cultural background, or upbringing can predispose you to a certain outcome.

3. Ignorance, or Dumb Luck. As with the other kinds of luck, dumb luck’s role in the outcome is clear only in hindsight.

Here are the three most important things lucky people tend to do:

1. Entrepreneurially lucky people are driven by a deep intellectual curiosity. Constant focus on self improvement affords more opportunities for luck to occur. Business leaders who regularly question the norm and who seek both continuous improvements in their business, and in themselves, end up being luckier because they want to learn.

2. Lucky people feel lucky and are optimistic.  In a conversation with Tony Hsieh, the CEO of Zappos, he shared with me how people who self-described themselves as “lucky” picked up more hidden clues in a quiz. He described the fascinating test experiment in which two groups of people are given newspapers with hidden messages. While they are told to count certain images, the headlines and text on the pages have hidden messages telling them they are done and to mention a particular message to collect an extra $100. People who answered that they were “lucky” were much more likely to find the clue. Why? We think it is because they approach the world with an open and optimistic mind that enables them to see unexpected opportunity more readily.

3. Lucky people are vulnerable and humble.  These qualities are the antidote to the hubris so common among successful business builders.

Inspiration and Institutions

Malcolm Gladwell, the author of several best sellers including a favorite of mine The Tipping Point, wrote a New Yorker article last week about the bonds of Social Networking tools like Twitter and Facebook. To explain his point he describes the fears and risks of the “sit in” generation of the 1960s. Social change at that time required a particular type of nerve: courage and restraint. It was needed because the threats, occasionally deadly, were often carried out. They knew they had to endure because their weakness would lead to weakness in others. Gladwell calls these strong bonds.

6.2 million people have been unemployed for more than six months. Being without work for that long is troubling to the mind. Being available in case something comes up and the instability of simply not knowing is tough. Plus it’s lonely. But 6.2 million is a big number and it means there’s probably someone within your community who is in the same predicament. That is where a site called Unemployed-Friends.com comes in. It’s a means for those without work to exchange messages, thoughts, and prospects. But besides the fringe benefits of venting, it’s a market for helping each other. That’s the genius of it, these people have time and unused skills available. And this is just the short term benefit. Strong bonds might be the long term benefit.

When I was about eight years old, I remember the pull the professional wrestling. “Who won Wrestlemania?” I’d ask my dad because it was too late for me to stay up. This was the ’80s and wrestling wasn’t obvious about the scripted action yet. People like Hulk Hogan would get the crowd going with their back stage interviews. In the late ’90s a resurgence followed and people could smell what The Rock was cooking. The camera would pan the stands and see signs with clever sayings like “Hogan was a Flintstone” and “This Space for Rent.” Everyone would chant the catch phrases and nothing would be better than Jerry Lawyler’s high pitch announcement of a surprise wrestler “WHAT?! That’s Stone Cold Steve Austin’s music!” Simply exciting.

But this type of connection is weak. It’d only last while the entertainment was going and then it was time to move on to something else. I think this is what Gladwell was trying to get across with his New Yorker piece. That Twitter and other Social Networks are forms of entertainment and have no lasting kinship. But we are also in a society where the threat of an act is all that is needed. It’s pretty powerful. So getting a few thousand signatures via facebook isn’t the same as a “sit-in” but it sends the message to the offending party that they could be in a costly confrontation. And then they have to decide if it’s worth it.

I mention all this because I think a real test of these tools is underway. The US election cycle for 2012 will begin in about six weeks. About a year later we’ll begin to see a lot of movement around a third party candidate. Thomas Friedman in the NY Times writes about the idea in a Op-Ed piece called Third Party Rising . He should have used a former wrestler as an example – Jesse Ventura ran a grass roots campaign in the mid ’90s, about the time the Rock was cooking, and became governor of Minnesota. Michael Bloomberg might give it a shot, we’ll see, but I don’t think a third party can win, but he can get close, and the mere threat should send shock waves to the Democrat and Republican Parties. From a business perspective, the time is right to capitalize on the on coming need and use of the strong and weak bonds.

Working Thoughts 10/4/08
September 2008 Jobs Report and Wages

Wealth Distribution and Taxes: What’s Fair?

There’s a lot in the news lately about the George W. Bush tax cuts that are set to expire. These cuts were part of a larger tax cut program Bush put into place during the years 2001 through 2003. The only part of the tax cuts that is still up for debate is the tax rate for the top income bracket. It is 35% and is set to go back to 39.6%.

Opinions, interestingly, are coming from all sorts. For instance, billionaire Wilbur Ross said he was OK with his taxes rising, as long as the tax income goes to something worthwhile like R&D. And plenty of uber rich people have pledged their income to causes they support , like the Bill Melinda Gates Foundation or other charities. Alan Greenspan, once an advocate for the tax cuts, is expressing the need to let them run their course. $700 Billion in revenue is too great a haul for the US to ignore, especially since it comes from a small portion of citizens.

Or at least you think it does. The tax code is fairly arbitrary in how it separates out income brackets. As James Surowiecki points out in his New Yorker article titled Soak The Very, Very Rich , the top bracket is 3% of the US population and that tier starts at  two hundred thousand dollars a year as an individual or two hundred and fifty thousand dollars a year as a household. This number encapsulates many small business owners and people who live in expensive geographies like NYC or San Fransisco. I don’t agree with increasing the tax burden of these people. Small business can be a hiring machine in the right environment, so sapping income isn’t a good idea. Plus, there’s a big difference between $250,000, $1,000,000, and $10,000,000.

Here are some stats from James Surowiecki’s article:

  • Top tier tax bracket starts at $200,000 for an individual and $250,000 for a household
  • $250,000 is the top 3% of American households
  • $250,000 is four times the national median
  • In a place like Manhattan, an apartment can cost $900,000
  • Between 2002 and 2007
    • The bottom 99% of incomes grew 1.3 % a year in real terms
    • Incomes of the top 1% grew 10% a year
      • That 1% accounted for two-thirds of all income growth in those years
    • People in the 95th to the 99th percentiles of income have represented a fairly constant share of the national income for 25 years now
      • But in that period the top 1% has seen its share of national income double
      • In 2007, it captured 23% of the nation’s total income
      • Even within the top 1%, income is getting more concentrated: the top 0.1% of earners have seen their share of national income triple over the same period
      • All by themselves, they now earn as much as the bottom 120 million people

So at the same time that the rich have been pulling away from the middle class, the very rich have been pulling away from the pretty rich, and the very, very rich have been pulling away from the very rich.

Just to be clear, I don’t necessarily want to increase the tax rate for the super wealthy per se. They already pay a huge portion of the tax income for the US (35% of a lot of money equals a lot of money). What I do want though is to consider the unequal distribution rate of the top 1%. From the years 1995 to 2004, the most wealthy in the US went from being 3.68 times more wealthy than the average person to 4.81 times. Here is a graphic and stats :

Net Worth Measure

1995

1998

2001

2004

Change

% Change

Median

70.8

83.1

91.7

93.1

22.3

31%

Mean

260.8

327.5

421.5

448.2

187.4

72%

Mean/Median

3.68

3.94

4.6

4.81

 

 

  • 1980 – the top 1% richest Americans accounted for 8% of total national income
  • 2008 – the top 1% richest Americans account for 20% of total national income
  • The last time the top 1% accounted for 20% of total national income was 1928

Another chart I created a couple of years ago shows how the richest 400 people in the US has the same amount of wealth as the first 51% of the US population. 400 people have more wealth than over 50% of the population combined.

The question is about sustainability. Can the top 0.1% continue to grow their wealth and is it at the expense of the rest of the US population? If so, then taxing them a variable amount based on income distribution rates is a better idea.

Working Thoughts 8/9/07
Other Work Related Blogs

Working Thoughts 8/9/08
Cost of Living Driving Executives