Macro Roundup

“…There are 83 million owner-occupied homes in the United States…Now the reverse is true. People own much more of their homes than they used to, while the banks own less. That acts as a shield against foreclosures, which in 2019 were only 144,000, according to Black Knight. (During the pandemic, foreclosures mostly ceased due to moratoriums.)The equity available to homeowners reached nearly $10 trillion at the end of 2021, double what it was at the height of the 2006 bubble, according to Black Knight.For the average American mortgage holder, that amounts to $185,000 before hitting loan-to-value tripwires. The figure is up $48,000 in a year — about what the average American family earns annually, according to some estimates…There are 22 million U.S. millionaires, Credit Suisse estimates, up from fewer than 15 million in 2014…”

David Streitfeld, "For Tens of Millions of Americans, the Good Times Are Right Now,"New York Times, May 10, 2022, https://www.nytimes.com/2022/05/10/business/economy-boom-times.html

For Tens of Millions of Americans, the Good Times Are Right Now

This is an era of great political division and dramatic cultural upheaval. Much more quietly, it has been a time of great financial reward for a large number of Americans.

For the 158 million who are employed, prospects haven’t been this bright since men landed on the moon. As many as half of those workers have retirement accounts that were fattened by a prolonged bull market in stocks. There are 83 million owner-occupied homes in the United States. At the rate they have been increasing in value, a lot of them are in effect a giant piggy bank that families live inside.

This boom does not get celebrated much. It was a slow-build phenomenon in a country where news is stale within hours. It has happened during a time of fascination with the schemes of the truly wealthy (see: Musk, Elon) and against a backdrop of increased inequality. If you were unable to buy a house because of spiraling prices, the soaring amount of homeowners’ equity is not a comfort.

The queasy stock market might be signaling that the boom is ending. A slowing economy, renewed inflation, high gas prices and rising interest rates could all undermine the gains achieved over the years. But for the moment, this flood of wealth is quietly redefining retirement, helping fuel Silicon Valley and stoking a boom in leisure and entertainment. It is boosting corporate profits by unprecedented amounts while also giving just about everyone the notion that a better job might be within reach.

More than 4.5 million workers voluntarily quit in March, the highest number since the government started keeping this statistic in 2000, the Bureau of Labor Statistics reported last week. A few years ago, the monthly total was between three million and 3.5 million.

“Maybe it’s easier to focus on the negative, but a huge number of people, maybe 40 million households, have been doing pretty well,” said Dean Baker, an economist who was a co-founder of the liberal-leaning Center for Economic and Policy Research. “You’d have to go back to the late 1990s to find a similar era. Before that, the 1960s.”

This widespread wealth throws light on why the number of workers who say they expect to be working past their early 60s has fallen below 50 percent for the first time. It accounts for the abundance of $1 billion start-ups known as unicorns — more than 1,000 now, up from about 200 in 2015. It offers a reason for the rise in interest in unionizing companies from Amazon to Apple to Starbucks, as hourly workers seek to claim their share.

And it helps explain why Dwight and Denise Makinson just returned from a 12-day cruise through Germany.

“Our net worth has reached the millionaire level due to our investments, which was unfathomable when we were married 40 years ago,” said Mr. Makinson, 76, who is retired from the U.S. Forest Service.

The couple, who live in Coeur d’Alene, Idaho, have company. There are 22 million U.S. millionaires, Credit Suisse estimates, up from fewer than 15 million in 2014.

“I used coupons to buy things. One of my daughters would say, ‘Mom, that’s so embarrassing,’” said Ms. Makinson, 66, a registered nurse. “But we believed in saving. Now she uses coupons, too.”

Every economic transaction has several sides. No one thought home prices in 2000 were particularly cheap. But in the last six years, prices have risen by the total value of all housing in 2000, according to the Case-Schiller index. In many areas of the country, it has become practically impossible for renters to buy a house.

This is fracturing society. Even as the overall homeownership rate in 2020 rose to 65.5 percent, the rate for Black Americans has severely lagged. At 43.4 percent, it is lower than the 44.2 percent in 2010. The rate for Hispanics is only marginally better.

That disparity might account for the muted sense of achievement.

“It’s a time of prosperity, a time of abundance, and yet it doesn’t seem that way,” said Andy Walden, vice president of enterprise research at Black Knight, which analyzes financial data.

Shawn and Stephanie McCauley said the value of their house 20 miles north of Seattle had shot up 50 percent since they bought it a few years ago, a jump that was typical of the market.

“We are very fortunate right now given the situation for many others during the pandemic,” said Mr. McCauley, 36, who works for a data orchestration company. “Somehow we are doing even better financially, and it feels a bit awkward.”

Even for those doing well, the economy feels precarious. The University of Michigan’s venerable Index of Consumer Sentiment fell in March to the same levels as 1979, when the inflation rate was a painful 11 percent, before rising in April.

Politicians are mostly quiet about the boom.

“Republicans are not anxious to give President Biden credit for anything,” said Mr. Baker, the economist. “The Democrats could boast about how many people have gotten jobs, and the strong wage growth at the bottom, but they seem reluctant to do this, knowing that many people are being hit by inflation.”

The initial coronavirus outbreak ended the longest U.S. economic expansion in modern history after 128 months. A dramatic downturn began. The federal government stepped in, generously spreading cash around. Spending habits shifted as people stayed home. The recession ended after two months, and the boom resumed.

Jerome H. Powell, the Federal Reserve chair, recently warned that there were too many employers chasing too few workers, saying the labor market was “tight to an unhealthy level.” But for workers, it’s gratifying to have the upper hand in looking for a new position or career.

“Both my husband and I have been able to make job changes that have doubled our income from five years ago,” said Lindsay Bernhagen, 39, who lives in Stevens Point, Wis., and works for a start-up. “It feels like it has mostly been dumb luck.”

A decade ago, the housing market was in chaos. Between 2007 and 2015, more than seven million homes were lost to foreclosure, according to Black Knight. Some of these were speculative purchases or second homes, but many were primary residences. Egged on by lenders, people lived in houses they could not easily afford.

Now the reverse is true. People own much more of their homes than they used to, while the banks own less. That acts as a shield against foreclosures, which in 2019 were only 144,000, according to Black Knight. (During the pandemic, foreclosures mostly ceased due to moratoriums.)

The equity available to homeowners reached nearly $10 trillion at the end of 2021, double what it was at the height of the 2006 bubble, according to Black Knight. For the average American mortgage holder, that amounts to $185,000 before hitting loan-to-value tripwires. The figure is up $48,000 in a year — about what the average American family earns annually, according to some estimates.

Even very new homeowners feel an economic boost.

“We never had enough for a down payment, but then in summer of 2020, we got a good tax return, a stimulus check and had a little money in the bank,” said Magaly Pena, 41, an architect for the federal government. She and her husband bought a townhouse in the Miami suburb of Homestead.

Ms. Pena, a first-generation immigrant from Nicaragua, likes to check out the estimated value of her house and her neighbors on the real estate website Redfin. “Sometimes I’ll check it every day for three days,” she said. “It’s been crazy — everything has skyrocketed.”

In 2006, homeowners cashed in their equity. Sometimes they used the money to double down on another house or two. In 2022, there’s little sense of excess. One reason is that lenders and the culture in general are no longer so encouraging about that sort of refinancing. But owners are also more cautious.

Brian Carter, an epidemiologist in Atlanta, said he and his wife, Desiree, had about $250,000 in equity in their home but didn’t plan to draw on it.

“I was 27 in 2007 and watched a lot of people lose their houses because they couldn’t leave their equity alone,” he said. “That included my next-door neighbor and the family across the street. I don’t want to worry.”

Those who take a boom for granted often get upstaged by reality. In May 2000, the entrepreneur Kurt Andersen said raising money for a media start-up called Inside was as easy “as getting laid in 1969.” That was a few weeks after the stock market peaked. Seventeen months and one merger later, Inside shut down. (Mr. Andersen clarified in an email that he did not actually have sex until the 1970s.)

In 2000, the start-up downturn was the first sign of wider economic trouble. This time it may be simply that people are doing too well. “U.S. households in best shape in 30 years … but does it matter?” Deutsche Bank asked in a research note last month.

Its logic: Households have more cash than debt for the first time in decades, which is theoretically good. But all that money is encouraging spending, which is propelling inflation, which is forcing the Fed to push up interest rates. The result: a recession late next year.

Ashley Humphries, 31, feels prepared for most any scenario. Six years ago, she was a graduate teaching assistant making $12,000 a year. Now she earns a low six figures as a senior product manager for a parking app developer in Atlanta.

“I’ve lived out some childhood dreams like dyeing my hair vibrant colors and seeing ‘Phantom of the Opera’ from the front row,” Ms. Humphries said. She got a dog named Kylo, put a bit of her income in the stock market and bought a Tesla. She just left on a Caribbean cruise. Two of them, in fact, one after the other.

“…Among members of the top 0.1 percent, the researchers found, about three times as many make the majority of their income from owning a business as from being paid a wage. Salaries don’t make people rich nearly as often as equity does…”

Seth Stephens-Davidowitz, "The Rich Are Not Who We Think They Are. And Happiness Is Not What We Think It Is, Either.,"New York Times, May 14, 2022, https://www.nytimes.com/2022/05/14/opinion/sunday/rich-happiness-big-data.html

The Rich Are Not Who We Think They Are. And Happiness Is Not What We Think It Is, Either.

We now know who is rich in America. And it’s not who you might have guessed.

A groundbreaking 2019 study by four economists, “Capitalists in the Twenty-First Century,” analyzed de-identified data of the complete universe of American taxpayers to determine who dominated the top 0.1 percent of earners.

The study didn’t tell us about the small number of well-known tech and shopping billionaires but instead about the more than 140,000 Americans who earn more than $1.58 million per year. The researchers found that the typical rich American is, in their words, the owner of a “regional business,” such as an “auto dealer” or a “beverage distributor.”

This shocked me. Over the past four years, in the course of doing research for a book about how insights buried in big data sets can help people make decisions, I read thousands of academic studies. It is rare that I read a sentence that changes how I view the world. This was one of them. I hadn’t thought of owning an auto dealership as a path to getting rich; I didn’t even know what a beverage distribution company was.

What are the lessons from the data on rich earners?

First, rich people own. Among members of the top 0.1 percent, the researchers found, about three times as many make the majority of their income from owning a business as from being paid a wage. Salaries don’t make people rich nearly as often as equity does.

Second, rich people tend to own unsexy businesses. A different study, by the statisticians Tian Luo and Philip B. Stark, examined which businesses were most likely to fold fastest. The kind most likely to go out of business most quickly is a record store. The average record store lasts just 2.5 years. (For comparison, the average dentist’s office lasts more than 19.5 years.) Other businesses that fold quickly include toy stores (3.25 years), clothing stores (3.75 years) and cosmetics stores (4.0 years).

There are, however, plenty of unsexy businesses from which a few people are getting rich. These include auto repair shops, gas stations and business equipment contractors.

The third important factor in gaining wealth is some way to avoid ruthless price competition, to build a local monopoly. The prevalence of owners of auto dealerships among the top 0.1 percent gives a clue to what it takes to get rich.

Comparing data from the appendix of the economists’ study with data from the SUSB Annual Data Tables put out by the Census Bureau, I estimate that more than 20 percent of auto dealerships in America have an owner making more than $1.58 million per year.

Auto dealerships have legal protections; state franchising laws often give auto dealers exclusive rights to sell cars in a territory. Same for many beverage distributors, which act as middlemen between alcohol companies and stores and supermarkets. Beverage distributors have long been protected by a system set up after prohibition that prevents beverage companies from distributing their products themselves.

Of course, if upon learning this you try to buy someone’s auto dealership, you may not have much luck. Owners of auto dealerships know how good they have it.

Is there any business that tends to make people rich that you might have a better shot at?

My data-driven advice for getting rich for someone with good analytical skills and deep experience in a field is to start a market research business. Use your specialized knowledge in the field to write up reports; sell them widely and charge a fortune to your contacts in the field. I have estimated that more than 10 percent of owners of market research businesses are in the top 0.1 percent.

If pop culture is right, getting rich is a path to happiness. Is that true? Does money actually make people happy?

Just as anonymous tax data, which has been made widely available to researchers only in the past few years, has led to credible research on what actually makes people rich, new sources of data in the past decade have given us many insights into what actually makes people happy.

And money is not a reliable path to happiness. Matthew Killingsworth of the University of Pennsylvania has studied data from more than 30,000 adults, far larger than previous studies of money and happiness. He debunked a popular myth that there is no effect of money on happiness beyond $75,000 per year, but he did confirm a law of diminishing returns to money. In the end, Dr. Killingsworth found, the effects of money level off: You need to keep doubling your income to get the same happiness boost.

A study of thousands of millionaires led by researchers at Harvard Business School did find a gain in happiness that kicks in when people’s net worth rises above $8 million. But the effect was small: A net worth of $8 million offers a boost of happiness that is roughly half as large as the happiness boost from being married.

What, in addition to being married, tends to make people happy?

The most important happiness study, in my opinion, is the Mappiness project, founded by the British economists Susana Mourato and George MacKerron. The researchers pinged tens of thousands of people on their smartphones and asked them simple questions: Who are they with? What are they doing? How happy are they?

From this, they built a sample of more than three million data points, orders of magnitude more than previous studies on happiness. So what do three million happiness data points tell us?

The activities that make people happiest include sex, exercise and gardening. People get a big happiness boost from being with a romantic partner or friends but not from other people, like colleagues, children or acquaintances. Weather plays only a small role in happiness, except that people get a hearty mood boost on extraordinary days, such as those above 75 degrees and sunny. People are consistently happier when they are out in nature, particularly near a body of water, particularly when the scenery is beautiful.

The findings on the data of happiness are, to be honest, obvious. When I told my friends about these studies, the most common response was, “Did we need scientists to tell us this?”

But I would argue that there is profundity in the obviousness of the data on happiness.

Sometimes, big data reveals a shocking secret. At other times, big data tells us that there is no secret. And that’s the case with happiness.

This is crucial to keep in mind for the many of us who are not doing the obvious things that make people happy. We are falling for traps that the data says are unlikely to make us happy.

Many of us work far too hard at jobs with people we don’t like — not a likely path to happiness. Dr. MacKerron and the economist Alex Bryson found that work is the second-most-miserable activity; of 40 activities, only being sick in bed makes people less happy than working. The economist Steven Levitt found that when people are uncertain whether to quit a job, they can be nudged to quit. And when they quit, they report increased happiness months later.

Many of us move to big cities and spend little time in nature — also not a path to happiness. A study by the economists Ed Glaeser and Josh Gottlieb ranked the happiness of every American metropolitan area. They found that New York City was just about the least happy. Boston, Los Angeles and San Francisco also scored low. The happiest places include Flagstaff, Ariz.; Naples, Fla., and pretty much all of Hawaii. And when people move out of unhappy cities to happy places, they report increased happiness.

Many of us while away hours on social media — also not a path to happiness. The Mappiness project found that, of 27 leisure activities, social media ranks dead last in how much happiness it brings. A randomized controlled trial on the effects of social media found that when people were paid to stop using Facebook, they spent more time socializing and reported higher subjective well-being.

Big data tells us there are very simple things that do make people happy, things that have been around for thousands of years. After reading all the studies on happiness, I concluded that modern happiness research could be summed up in one sentence, a sentence we might jokingly call the data-driven answer to life.

The data-driven answer to life is as follows: Be with your love, on an 80-degree and sunny day, overlooking a beautiful body of water, having sex.

It’s a lot easier than owning an auto dealership.

Adam Coleman, "Anti-cop pols yawn as slay spike hits black Americans hardest,"New York Post, May 20, 2022, https://nypost.com/2022/05/20/anti-cop-pols-yawn-as-slay-spike-hits-black-americans-hardest/

Anti-cop pols yawn as slay spike hits black Americans hardest

There are no guarantees in life, yet we still have expectations. We expect our elected leaders to behave selflessly so they can keep the American people in mind first.

But when politicians ignore our humanity in pursuit of their own agenda, the American people tend to suffer the consequences, even with their lives.

Much like everyone else, I watched as America entered a phase of demoralization as they lost faith in institutions of immense importance and questioned the intentions of their neighbors. 2020 was not only a year to decide who our next president would be but also to determine what kind of society we want to maintain.

The elite decided that the safety of the American people is subject to political expedience. Our humanity no longer mattered.

During the nationwide riots, small business owners and residents pleaded for enforcement, and yet police officers were ordered to stand down. In the aftermath, the American people suffered the consequences with their livelihoods and, for some, their lives while our politicians were left mostly unscathed.

Innocents suffer

Centers for Disease Control and Prevention data show the murder rate between 2019 and 2020 increased by an astonishing 30%, and I place some of the blame on many of our supposed leaders.

Once Derek Chauvin became public enemy No. 1, city governments used his actions as an officer as the impetus to begin defunding police departments to appease activists instead of the residents who depend on their presence. Those efforts contributed to the rise in deaths — but not equally.

But, as the Manhattan Institute’s Christos Makridis and Robert VerBruggen note, “since the black homicide rate was already many times higher than the white one, this translated into 8 additional black deaths for every 100,000 population” while “the death rate for whites rose by only 0.5 per 100,000.”

With these numbers, it is understandable why Pew Research recently found that the most important issue for black Americans was related to violence and crime.

While politicians were marching in arms with protesters claiming to care about black lives, they were actively making their lives worse. For black Americans who live in dangerous neighborhoods, removing the police has made them even more unsafe and has emboldened the criminal element that resides alongside the innocent.

If everyone believes that we are in constant danger by the very people we need the support of, then no one will care when mayors across the nation remove them from street corners. No one will care when the few activists speak for the many whose safety is at risk.

"...The average family of five in Florida, for instance, earns $93,000. If that couple takes the standard deduction and their employer-provided health insurance premiums cost $6,000, plus they max out their health-savings account with a $7,300 contribution, plus they put 3% in their 401k, that leaves them with taxable income of about $51,000. They would owe $5,725 in federal income taxes, but with three kids, they get a $6,000 tax credit, which brings their federal income taxes down to zero...."
Timothy Carney, "Rick Scott’s Tax Plan Is Dumb, Immoral, and Bad for Republicans,"Straight Arrow News, May 13, 2022, https://www.aei.org/multimedia/rick-scotts-tax-plan-is-dumb-immoral-and-bad-for-republicans/

Rick Scott’s Tax Plan Is Dumb, Immoral, and Bad for Republicans

When you think of Republicans, you don’t typically think of tax hikes. But these days, there’s one specific tax hike some Republicans are touting: a tax hike on half of all Americans—specifically the half with the lowest incomes.

It’s politically dumb, fiscally pointless, economically harmful, and morally bankrupt.

So what are these tax-hiking Republicans thinking? Here’s the argument from Senator Rick Scott:

“All Americans should pay some income tax to have skin in the game, even if a small amount. Currently over half of Americans pay no income tax.”

Scott’s idea is to reverse some of the tax cuts President Trump gave to working men and women, and then go further in hiking taxes on low-income Americans.

There are so many mistakes here, but let’s focus on the four biggest:

First, Scott wrongly implies that half of Americans aren’t working.

The people who pay no federal income tax aren’t mostly dilettantes sitting on the couch. They are largely parents who benefit from family-friendly tax breaks passed by Republicans.

The average family of five in Florida, for instance, earns $93,000. If that couple takes the standard deduction and their employer-provided health insurance premiums cost $6,000, plus they max out their health-savings account with a $7,300 contribution, plus they put 3% in their 401k, that leaves them with taxable income of about $51,000. They would owe $5,725 in federal income taxes, but with three kids, they get a $6,000 tax credit, which brings their federal income taxes down to zero.

These aren’t slackers. These are beneficiaries of a tax code that respects families and encourages savings.

Second, Scott wrongly suggests that these folks are avoiding taxes. In reality, they might be paying more $10,000 in taxes to state and federal government, just not in income taxes.

Everyone who earns even a single dollar is pays payroll taxes—the taxes that fund Social Security and Medicare. If you buy gasoline, you pay state and federal gas taxes. If you buy almost anything, you’re paying sales tax. If you own your home, you’re paying property taxes.

It would be easy for that median Florida family of five to pay more than $10,000 in taxes, with most of it going to the federal government—but because none of it would be federal income tax, we’re supposed to think these folks are tax dodgers?

The third problem with Scott’s plan is the politics: Republicans simply shouldn’t raise taxes or talk about raising taxes. They especially shouldn’t push a tax hike on the working class. The best thing Donald Trump did was make the GOP more of a working-class party. Scott’s plan would demolish the gains that Trump has made in that regard.

Scott has a political angle himself. He thinks that too many Americans support bigger government because they don’t pay for it. He believes that if poor and working-class people had “skin in the game” they would see the importance of smaller government.

But there is no evidence for that theory. Republicans have been knocking working-class families off the income tax rolls since the Bush Era, and if anything, those working-class parents have become more Republican.

But the opposite of Scott’s story is more likely: People who can better afford to care for their family—because they are paying less in taxes—are more likely to believe in freedom and self-reliance. Those who pay more in income taxes may be more likely to demand more government in return. Ask yourself: Who’s more conservative? People in low-tax Florida or people in high-tax New York?

The final reason to oppose a tax hike on the poor and working class is that it’s simply immoral. It’s wrong to needlessly take someone’s income before that person is able to meet all his family’s needs.

Raising taxes on anyone is a bad idea for a Republican. Having Uncle Sam pick the pockets of the poorest 40% of Americans is a bad idea for anyone.