The Damned Dollar

Food Stamps Versus Farming Subsidies

2014-03-03T13:47:00.004-08:00

By Joe Cereola

Too many ignorant food stamp memes portray recipients of the Supplemental Nutrition Assistance Program (SNAP) as scammers abusing the system to buy iPhones, alcohol, cigarettes and other products deemed inappropriate for anyone receiving assistance from the government. Whether or not these caricatures actually exist is beside the point. The argument implies that if one has enough money to buy certain goods, then one should not be entitled to government assistance. Yet these haters fail to apply the same standard to the millions of wealthy farmers collecting billions in cash payments and insurance subsidies.

How much does the average food stamp recipient receive? According to the U.S. Department of Agriculture, 46.6 million people participated in SNAP program in 2012, collecting $74.6 billion in benefits, which works out to an average monthly payment of $133 per month or $1600 per year. That same year, the Environmental Working Group farm subsidies database shows 1.19 million farmers collected $14.9 billion in subsidies, an average annual benefit of over $12,000 per farmer. The size of the average benefit is very misleading because the top ten percent of farms typically collect 75 percent of all subsidies. The top 100 recipients in 2012 each received over $270,000; the top ten all received over $500,000.

2012 Farmi ng Subsidy Recipients (crop insurance subsidies not included)

Who owns these farms? DNRC Trust Land Management is a division of the Montana Department Of Natural Resources & Conservation. I'm not sure why Montana is receiving federal farm subsidies, and rather than figure that one out I moved on to number two on the list.

Balmoral Farming Partnership is a Louisiana business entity; its officers are not individuals but rather three limited liability corporations (LLC): Gillespie Tensas, LLC; Cordill Tensas, LLC; and Curry Tensas, LLC. All three have the same address–the intersection of Louisiana Highways 605 & 888.

Intersection of Louisiana Highways 605 & 888

Using the Louisiana Secretary Of State website I uncovered a web of businesses and their officers–18 LLCs controlled by 19 individuals all operating out of the same lonely intersection in northern Louisiana. The chart below shows the relationships between the businesses and individuals.

Balmoral Partnership at top, tan ovals are businesses, yellow ovals individuals.
(click the image to enlarge)

After making the above chart I found another LLC at the same address as the others. There are probably more.

From 2002 to 2012 Balmoral Farming Partnership collected a total of $21,276,199 in farming subsidies. I don't know what they're sowing down there in Louisiana but they're reaping federal dollars.

None of the invective hurled at SNAP recipients gets directed at farmers. No one seems interested in examining how these farms spend their government largesse. I'm not suggesting that Balmoral Farming Partnership is doing anything illegal, but they certainly merit the same moral indignation and scrutiny as a food stamp recipient with iPhone.
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Click here to download a spreadsheet with Louisiana Business Filing data for the companies listed in the chart above.

Republican Plan Eliminates Employment Problem

2014-02-24T13:08:00.001-08:00

WASHINGTON–At and early morning news conference on the steps of the U.S. Treasury, standing next to James Earle Fraser’s bronze sculpture of Alexander Hamilton, Speaker of the House John Boehner explained the latest Republican plan to slash the unemployment rate.

“We all know that raising the minimum wage is a job killer; that’s why Republicans consistently fight any attempt to raise it. Well, if raising the minimum wage destroys jobs, then extrapolating backwards implies that reducing the minimum wage will create jobs. So if we want to put Americans back to work, then we need lower the minimum wage. That’s why later today I’ll be introducing a bill reducing the federal minimum wage to $1.37 per hour. ”

Incredulous reporters asked the Speaker if such low wages would actually hurt the economy by taking away consumers’ purchasing power and reducing demand.

“Don’t be ridiculous,” replied the bronze Boehner. “If consumers have less money to spend, inflation will evaporate and prices will naturally fall, stimulating demand.”

A reporter for The Onion asked why it took Republicans so long to present their latest proposal since it was such an obvious extension of long established conservative principles.

“Look, math is hard,” explained Boehner. “Complex economic reasoning is not the sort of thing any random idiot can do effectively. But back in 2005, Rep. Michele Bachmann had an insight that I think we were too eager to dismiss. Let me share the genius that is Michele Bachmann.”

"If we took away the minimum wage -- if conceivably it was gone -- we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level." – Michele Bachmann, 2005.

“Given Bachmann’s transcendent observation,” continued Boehner, “you might be asking why we don’t eliminate the minimum wage altogether and let wages fall to essentially nothing? If wages fell to zero, then the demand for workers would become infinite. I’m not sure why; I think it has something to do with division by zero. Remember, math is hard. But back to the point–infinity is a really big number, and according to the Census Bureau we don’t have that many workers.”

“There is one other thing we must do. This plan won't work unless we also increase security along our southern perimeter,” cautioned Boehner.” Such a dramatic change in the employment situation is sure to send millions clamoring across the border.”

Serfdom, American Style

2014-02-20T07:16:00.000-08:00

The worst thing about the latest Congressional Budget Office (CBO) report on the minimum wage is that it is not definitive. Raising the minimum wage will neither decimate jobs as its opponents contend, nor will it be the panacea for poverty that its supporters had hoped, leaving plenty for both sides to argue about. If the minimum wage was raised to $10.10 and indexed to inflation, it would likely lift 900,000 workers above the poverty threshold while eliminating about 500,000 jobs. An alternative proposal to raise the minimum wage to $9.00 without indexing would have a smaller impact. The key effects of the alternative proposals are summarized below.

You can read the CBO summary here and the full report here.

What is all too clear is that wages for far too many works are abysmally low. The chart below from the CBO report shows that 25% of workers receive $12 per hour or less, essentially a poverty wage.

The question we as a nation must ask ourselves is whether this state of affairs is acceptable. Is it morally justifiable to leave so many people hovering around the poverty level? If we don’t compensate workers through fair wages, then we’ll be forever committed to redistributing wealth through the tax code and social welfare system, making many workers little more than modern day serfs, dependent upon government for survival.
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How Poor Is Poor?

2014-02-17T09:08:00.000-08:00

By Joe Cereola

A family living at the poverty level faces considerable challenges. All income is consumed by necessities, leaving little, if anything, to spend on even the small things that make life more enjoyable. But poverty is not about forgoing movies and popcorn; poverty is a life on the precipice of financial ruin. Without health insurance, a serious illness is catastrophic; a car repair, a broken refrigerator, or a traffic ticket becomes a crisis. Money for a rainy-day fund is nonexistent, and saving for retirement is an unaffordable luxury. Poverty means having to survive one's golden years on Social Security and Medicaid.

What constitutes poverty in this country? The Census Bureau publishes poverty thresholds, dollar amounts that are used to determine a family's poverty status and calculate poverty statistics. Different thresholds are established based upon the size and composition of the household. For a family of four with two children under 18 years, the poverty threshold is $23,624. Table 1 at the bottom of this post lists the poverty thresholds for other family configurations. In the U.S., there were 46.5 million people living at or below the poverty level in 2012.

What is the hourly wage one needs just to reach the poverty threshold? Assuming a 40-hour for 50 weeks per year, it takes a wage of $11.81 per hour to reach the poverty threshold for our family of four. From my perspective, and here's where people have differing opinions, there is no job so menial that it doesn't merit paying a person at least $11.81 for an hour of their time. Congress does not agree and neither does any state. The federal minimum wage is only $7.75, and the most generous state, Washington, has a minimum wage of $9.19 per hour.

How long would the wage earner in our family of four have to toil away at the minimum wage to reach the poverty threshold. In Alaska, Hawaii, or Rhode Island, three states where the minimum wage is $7.75, the head of household would need to work 3,068 hours, over 60 hours per week, equivalent to one and one-half full time jobs. In Washington, the state with the highest minimum, the head of household would need to work a little over 50 hours per week.

I can hear some of you yelling already: "You're ignoring overtime." Overtime pay is not a given and many companies, especially those paying the lowest wages, use part-time workers to avoid overtime. It's not unusual for workers to have two part-time jobs. Let me provide a personal anecdotal example that seems particularly egregious. My daughter worked for a company that had restaurants in two locations. Staff hours were split between the two locations so that no one worked more than 40 hours per week at either restaurant. Even when my daughter exceeded 40 hours per week, she didn't receive overtime pay, despite the fact that a single manager assigned the shifts for both restaurants and both restaurants shared a single employer identification number. I'm fairly certain this practice is illegal, and I've encouraged my daughter to file a complaint with the state.

I'm not trying to imply that the minimum wage is responsible for poverty, but it's certainly not much help in preventing it either. And even jobs that pay more than minimum are still poverty level wages. As noted above, there are 46.5 million people in this country living in poverty. Another 59.9 million people get by on incomes that are no more that twice the poverty threshold.

Low wages may not be the cause of poverty, but they keep a lot of families within striking distance.
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In this post, I used a family of four with two children under 18 as an example. The tables below contain similar data for other family configurations.

Table 1. Poverty Thresholds for 2013 by Size of Family and Number of Related Children Under 18 Years (dollars)

Size of family unit	Related children under 18 years
	None	One	Two	Three	Four	Five	Six	Seven	Eight or more
One person
Under 65	12,119
65 and over	11,173
Two people
Householder over 65	15,600	16,057
Householder under 65	14,081	15,996
Three people	18,222	18,751	18,769
Four people	24,028	24,421	23,624	23,707
Five people	28,977	29,398	28,498	27,901	27,375
Six people	33,329	33,461	32,771	32,110	31,128	30,545
Seven people	38,349	38,588	37,763	37,187	36,115	34,865	33,493
Eight people	42,890	43,629	42,490	41,807	40,839	39,610	38,331	38,006
Nine or more people	51,594	51,884	51,154	50,575	49,625	48,317	47,134	46,842	45,037

Source: U.S.Census Bureau

Table 2. Wage Needed to Reach Poverty Thresholds Working 50 Weeks at 40 Hours Per Week. (dollars per hour)

Size of family unit	Related children under 18 years
	None	One	Two	Three	Four	Five	Six	Seven	Eight or more
One person
Under 65	6.06
65 and over	5.59
Two people
Householder over 65	7.80	8.03
Householder under 65	7.04	8.00
Three people	9.11	9.38	9.38
Four people	12.01	12.21	11.81	11.85
Five people	14.49	14.70	14.25	13.90	13.69
Six people	16.66	16.73	16.39	16.06	15.56	15.27
Seven people	19.17	19.29	18.88	18.59	18.06	17.43	16.75
Eight people	21.45	21.63	21.25	20.90	20.42	19.81	19.17	19.00
Nine or more people	25.80	25.92	25.58	25.29	24.81	24.16	23.57	23.42	22.52

Table 3. Hours at the Minimum Wage to Reach Poverty Thresholds (hours)

Size of family unit	Related children under 18 years
	None	One	Two	Three	Four	Five	Six	Seven	Eight or more
One person
Under 65	1,564
65 and over	1,442
Two people
Householder over 65	2,013	2,072
Householder under 65	1,817	2,064
Three people	2,351	2,419	2,422
Four people	3,100	3,151	3,048	3,059
Five people	3,739	3,793	3,677	3,587	3,532
Six people	4,301	4,318	4,229	4,143	4,017	3,941
Seven people	4,948	4,979	4,873	4,798	4,660	4,499	4,322
Eight people	5,534	5,583	5,483	5,394	5,270	5,111	4,946	4,904
Nine or more people	6,657	6,690	6,601	6,626	6,403	6,234	6,082	6,044	5,811

Post mage courtesy of Graur Razvan Ionutgraur/ FreeDigitalPhotos.net.

Welfare, Ignorance, And Bigotry

2014-02-13T08:50:00.000-08:00

By Joe Cereola
The memes captured by the images on the left are typical of many found on Facebook; they are ill-informed, devoid of compassion, and implicitly racist. There's an entire Facebook page devoted to this ignorance and bigotry. The implied message is clear: those receiving government assistance are lazy, unemployed, and don't deserve our help. Too bad we don't see as many images lambasting the many wealthy corporations receiving billions in subsidies and tax breaks.

It's obvious that too many of those ranting about welfare have no idea how the welfare system operates. The Temporary Assistance for Needy Families (TANF) program, what we typically call welfare, is limited in duration, means tested, and benefits can be denied if recipients are not employed and refuse to seek work.

The U.S. Department of Health and Human Services reported that 1.1 million adults received financial help through the TANF program in 2011, a surprisingly small number when you realize that 46.5 million people, 15% of the U.S. population, were living in poverty in 2012. That is an embarrassing statistic for the wealthiest nation on Earth. The only thing I find more abhorrent than those numbers are the people that try to dismiss the plight of poor by asking how bad can poverty be if you have a television and a cell phone.

Of those living in poverty, 20 million are children or elderly, 10.7 million worked full-time year-round, 7.9 million worked part-time, and 15.8 million worked less than one week. Among those not working, 4.9 million were ill or disabled, 1.3 million were retired, 4.1 million were out of work to take care of the home or family, 2.1 million could not find work, and 3.4 million were in school getting an education and gaining the most valuable asset for escaping poverty.

Are there welfare cheats and other scammers abusing our social safety nets to collect benefits they don't deserve? Of course there are, but those complaining on Facebook probably don't know a single a person receiving welfare. If they had firsthand knowledge about a specific welfare cheat, their time would be better spent reporting the crime to authorities (welfare fraud is a crime) rather than spreading hate and ignorance on Facebook.

Insinuating that all welfare recipients are lazy deadbeats is just an excuse to turn away and ignore the underlying problems that create and perpetuate poverty.
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Margin Debt Hits All-Time High

2014-02-10T06:30:00.000-08:00

By Joe Cereola

This isn't an investing blog so I won't get into any sort of analysis or recommendations about what, if anything, you should do now that the amount of borrowed money invested in the stock market has hit an all-time high. You can draw your own conclusions from the chart below.

Click chart to enlarge

Of course, there is no way of knowing if margin debt has peaked yet, especially if the Fed keeps the party going with cheap credit, but when it turns downward – beware!
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Chart spreadsheet: download

The Bottom Half Of The World's Population Has the Same Wealth As Richest 85 People

2014-02-10T05:21:00.001-08:00

By Joe Cereola

Last month, just days before the World Economic Forum began its annual meeting in Davos, Switzerland, Oxfam International released a report titled, "Working For The Few," that delivered some stunning statistics on global inequality.

According to the Oxfam report:

Almost half of the world’s wealth is now owned by just one percent of the population.
The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.
The bottom half of the world’s population owns the same as the richest 85 people in the world.
Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

Such a staggering disparity between the world's richest and poorest is difficult to comprehend; that 85 individuals could possibly make so great a contribution to humanity that it justifies such mind-boggling inequality defies credulity.

People have differing abilities, motivations, and desires; and some degree of inequality is natural and necessary. Exploiting that natural inequality to capture the political system to gain an even greater advantage and garner even more wealth is unconscionable and will inevitably lead to social unrest and political instability. Unfortunately, the problem is getting worse, not better.

I could go on, but rather than read my summary, see the Oxfam report for yourself. It's very short, just a few pages, and well worth your time.
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Bold Bullion Image courtesy of Boykung/ FreeDigitalPhotos.net

John Podhoretz: An Exercise In Deception

2014-02-06T14:57:00.002-08:00

By Joe Cereola
You can always count on Facebook for reliable links to misinformation. That's how I found John Podhoretz and his shockingly misleading opinion piece in today’s New York Post. Podhoretz doesn't like the Affordable Care Act (ACA), and he's been busy misinterpreting the latest Congressional Budget Office (CBO) report in an attempt to condemn the ACA. Saying that he misinterpreted the CBO report implies he attempted to be fair in his analysis, when in fact he quoted sections of the report out of context and neglected to mentions portions of the report that contradicted his opinion.

His key complaints: “Virtually as many Americans will lack health coverage in 10 years as before the law was passed — but 2 million fewer will be working than if the law hadn’t passed.”

The report does not say 2 million fewer people will be working. It states: "The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024.” This is almost entirely due to workers willingly reducing their hours; they are not exiting the workforce. Employers' demand for workers will remain essentially unchanged.

The CBO estimates that the ACA will reduce the total hours worked by 1.5 to 2.0 percent, but because the reduction in the labor will occur primarily among lower-wage workers, the aggregate drop in employee compensation should only be about 1.0 percent.

Some workers are shackled to full-time jobs merely to maintain health insurance; they now have other options and some will choose to work less. Others will work less to keep their income below the levels needed to maintain their insurance subsidies. Podhoretz insists this is one of the perverse incentives of the ACA. But the real perversity here is that wages are so low that the marginal return on working more hours offers no incentive to work beyond what is necessary to survive.

Podhoretz also ignores the CBO’s disclaimer that the “estimate of the ACA’s impact on labor markets is subject to substantial uncertainty, which arises in part because many of the ACA’s provisions have never been implemented on such a broad scale and in part because available estimates of many key responses vary considerably.” To estimate the ACA's impact on labor markets, the CBO relied on research "concerning the way changes in marginal tax rates affect labor supply and on studies analyzing how labor supply responds to changes in after-tax income." This previous research may not accurately model the labor market response to the ACA

Podhoretz claims “ObamaCare’s key selling point was that it would give coverage to a significant number of the 30-plus million Americans who lack it.” He then quotes the CBO report: “About 31 million nonelderly residents of the United States are likely to be without health insurance in 2024, roughly one out of every nine such residents.” Finally, Podhoretz concludes: “Now the CBO is saying is that in 10 years, about the same number of people will lack insurance as before. This, after new expenditures of as much as $2 trillion and a colossal disruption of the US medical system.”

What Podhoretz conveniently ignores is that the CBO estimates "that the insurance coverage provisions of the ACA will markedly increase [emphasis added] the number of nonelderly people who have health insurance—by about 13 million in 2014, 20 million in 2015, and 25 million in each of the subsequent years through 2024.”

How can number of nonelderly with insurance coverage increase if 31 million non elderly residents still lack coverage, roughly the same number as prior to the ACA? First, Podhoretz failed to consider that the nonelderly segment of the population will grow by about 7.6 million from 2015 to 2025. Second, the president was referring Americans who lacked insurance while the CBO report refers to residents of the United States, a group that includes unauthorized immigrants that are ineligible for most healthcare benefits. Here’s what the report says regarding the 31 million nonelderly residents that still lack coverage in 2024:

“Of that group, about 30 percent are expected to be unauthorized immigrants and thus ineligible for most Medicaid benefits and for the exchange subsidies; about 20 percent will be eligible for Medicaid but will choose not to enroll; about 5 percent will be ineligible for Medicaid because they live in a state that has chosen not to expand coverage; and about 45 percent will not purchase insurance even though they have access through an employer, an exchange, or directly from an insurer.”

So let's count Podhoretz's errors and omissions. He neglects to factor in population growth; he fails to discriminate between citizens and unauthorized immigrants, and he ignores the unambiguous statement in the CBO report that the ACA will “markedly increase the number of nonelderly people who have health insurance.” Is there any doubt that Podhoretz's primary purpose is to deceive readers into believing that the ACA failed to expand health insurance coverage?

Podhoretz’s column was too carefully crafted to be dismissed as careless journalism, and I have no problem calling it what is: an exercise in deception.

Inequality Eventually Ends

2014-02-05T18:40:00.001-08:00

“Every growing civilization is a scene of multiplying inequalities; the natural differences of human endowment unite with differences of opportunity produce artificial differences of wealth and power; and where no laws or despots suppress these artificial inequalities they reach at last a bursting point where the poor have nothing to lose by violence, and the chaos of revolution levels men again into a community of destitution….Periodically the land gets itself redistributed, legally or not…periodically wealth is redistributed, whether by the violent confiscation of property, or by confiscatory taxation of income and bequest. Then the race for wealth, goods and power begins again, and the pyramid of ability takes form once more; under whatever laws may be enacted the abler man manages somehow to get the richer soil, the better place, the lion’s share; soon he is strong enough to dominate the state and rewrite or interpret the laws; and in time the inequality is as great as before.” – Will Durant

Will Durant penned the above quote in 1935 in a footnote near the beginning of his eleven volume treatise, The Story of Civilization.It’s a long quote, yet it still succinctly captures the threat extreme inequality poses for democracy or any established political system. How extreme does inequality need to get before a break occurs? I don’t know, and it surely varies from country to country, the trigger probably unforeseen. Inequality in this country is not likely to lead to violence, our ballot boxes are still the freest in the world despite recent attempts to limit suffrage, but disaffected citizens are more prone to electing reactionary leaders and endorsing confiscatory and redistributive laws and policies. Those at the privileged end of the income distribution should recognize that excessive inequality is not in their long term best interests.

Don't Like The Minimum Wage?

2014-02-02T08:18:00.002-08:00

By Joe Cereola

Social media gives everyone with something say a to a place to say it. But some ideas are not worth sharing, especially when they are untrue and their sole purpose is to obfuscate. I stumbled across the image below on Facebook. I refrained from commenting because the dialog that often follows such unsupported statements is often irrational and uncivil, and those who advance unfounded claims are frequently immune to the logic and facts that prove their beliefs false.

At least one of the claims is demonstrably untrue – that those earning the minimum wage have minimum education.

There's no definition of what constitutes minimum education, but for arguments sake, let's assume that anyone who has never attended college possesses a minimum education, even though it is clearly possible to have less. This category includes high school graduates with no college experience as well as those without a high school diploma.

Bureau Of Labor Statistics data on the characteristics of minimum wage workers for 2012, the latest year for which we have a complete dataset, shows that there were just over 75 million workers paid at hourly rates, 3.55 million of whom earned the minimum wage or less, and of these, 2.036 million, or about 57%, have a minimum education as we've defined it here, leaving us with just over 1.5 million workers with more than a minimum education earning the minimum wage or less. One might argue that anything less than an associates degree constitutes a minimum education, but that would only increase our pool of minimally educated workers to 2.259 million, an increase of just 233,000.

Without further data, it's hard to make a case for or against the statements regarding skill or motivation, but we can make an assessment regarding contributions to the workplace based upon the nature of the worked performed by minimum wage workers. A detailed breakdown of minimum wage employment by industry is beyond the scope of this post, but the vast majority of these worker, 67%, are employed in leisure and hospitality or retail trade. Many of them are the face of the company: fast food workers, waiters and waitresses, desk clerks, sales staff, and the woman or man working the cash register; others are behind the scenes but are no less vital: janitors, stockers, administrative assistants, dishwashers, and cooks. The list could go on but that's not necessary to make the point. McDonalds cannot make Happy Meals if there's no one to cook a cheeseburger, ring up the sale, or hand the food to the customer. Hilton hotels would quickly lose guests if rooms were dirty and unkempt. Abercrombie & Fitch customers would quickly tire of rummaging through piles of clothing if no one returned dressing room rejects to the rack. Many companies would cease to function without the work performed by their minimum wage employees. It's hard to argue that these people, yes they are people, often with families to support, don't provide more than a minimum contribution to the workplace.

Much more troubling than the factual errors these Facebook posts make is the lack of sensitivity they express. When did we lose our pity for the less fortunate, those stuck on the bottom rung of the economic ladder? How can we judge and disparage one's character based solely on their wage? Why some people do this is no secret. If earning the minimum wage is a character fault, then the rest of us are relieved from any obligation to help. The real purpose of such Facebook posts is not to enlighten, but to assuage guilt.