If you have been following my blogs, you know that I have been advocating median family income as the primary objective of our country. It is not bad, but I am thinking that it might be improved up on. Income is highly correlated with quality of life and that is the main reason that I chose it.
I like to work new ideas from an abstract position. Sports comes to mind as a tool to use. Think of football. The team that wins the game is the one that has the highest score at the end of the game. During the game, the teams go up and down the field developing all kinds of statistics. The team that rushed or passed for the most yards might not be the one that wins. Think about that. I think of income like yards gained and net worth as the score. When we talk about "being" rich, we think about how much a person has in the bank, not what he makes in his pay check. This is starting to make me think that I should shift my objective from income to net worth? Maybe!
Look at this example. We have a guy in North Dakota who farms wheat and one day he finds that he has a hundred million dollars worth of oil under his wheat field. Is he now rich? He can go to the bank and borrow millions of dollars using that oil as collateral. He can then go out and purchase a jet plane and a fancy car. Notice that his "income" has not changed, nor does he owe the government any tax for the oil in the ground. How do we take this type of thing into account when we are looking for the correct objective?
How about the run up in the stock market this past year of 8 trillion dollars? It raised the "average" USA net worth of each man, women and child by $24,615. I am not sure what the "average" net worth of the USA is, but the median is about $55,000. Given that the average family has 4 members, that would amount to about $100,000 per family!
We put a lot of weight on home ownership. In the USA the path to home ownership seems to focus on higher income and lower interest rates. Our government has been deeply involved in schemes to lower interest rates when they should have been focusing on encouraging people to save and accumulate net worth. That is the way most of the rest of the world does it. The net affect is that many countries who have a lower family income have a higher home ownership rate. Interesting isn't it.
Look at the Amazon company. They figured out a plan of how to build net worth at the expense of income. If they don't have any income, they don't pay any income tax. The value of their stock goes thru the roof and they can borrow on it tax free any time they want. Are they gaming the system or do they just have a different objective to get to the same place? Think about it.
If I could figure out an easy way to measure net worth or changes in net worth, I think that I might switch my basic objective, but so far no luck. You can see the challenge both for yourself and our government. I will think more about this and see what I can come up with.
PS--On the TV news, we are always hearing about the growth in GNP, or growth in national product. This is a measure of "income" that we pay income tax on, but what about growth in "net worth"? You never hear about that do you when it is the objective of most families. Further, you never hear anyone talking about GNP/family or Net Worth/family to you. If they did, it would be more honest in alignment with our basic economic "objectives".
I like to work new ideas from an abstract position. Sports comes to mind as a tool to use. Think of football. The team that wins the game is the one that has the highest score at the end of the game. During the game, the teams go up and down the field developing all kinds of statistics. The team that rushed or passed for the most yards might not be the one that wins. Think about that. I think of income like yards gained and net worth as the score. When we talk about "being" rich, we think about how much a person has in the bank, not what he makes in his pay check. This is starting to make me think that I should shift my objective from income to net worth? Maybe!
Look at this example. We have a guy in North Dakota who farms wheat and one day he finds that he has a hundred million dollars worth of oil under his wheat field. Is he now rich? He can go to the bank and borrow millions of dollars using that oil as collateral. He can then go out and purchase a jet plane and a fancy car. Notice that his "income" has not changed, nor does he owe the government any tax for the oil in the ground. How do we take this type of thing into account when we are looking for the correct objective?
How about the run up in the stock market this past year of 8 trillion dollars? It raised the "average" USA net worth of each man, women and child by $24,615. I am not sure what the "average" net worth of the USA is, but the median is about $55,000. Given that the average family has 4 members, that would amount to about $100,000 per family!
We put a lot of weight on home ownership. In the USA the path to home ownership seems to focus on higher income and lower interest rates. Our government has been deeply involved in schemes to lower interest rates when they should have been focusing on encouraging people to save and accumulate net worth. That is the way most of the rest of the world does it. The net affect is that many countries who have a lower family income have a higher home ownership rate. Interesting isn't it.
Look at the Amazon company. They figured out a plan of how to build net worth at the expense of income. If they don't have any income, they don't pay any income tax. The value of their stock goes thru the roof and they can borrow on it tax free any time they want. Are they gaming the system or do they just have a different objective to get to the same place? Think about it.
If I could figure out an easy way to measure net worth or changes in net worth, I think that I might switch my basic objective, but so far no luck. You can see the challenge both for yourself and our government. I will think more about this and see what I can come up with.
PS--On the TV news, we are always hearing about the growth in GNP, or growth in national product. This is a measure of "income" that we pay income tax on, but what about growth in "net worth"? You never hear about that do you when it is the objective of most families. Further, you never hear anyone talking about GNP/family or Net Worth/family to you. If they did, it would be more honest in alignment with our basic economic "objectives".
