Thursday, 14 November 2013

How Much Money Do You Make?

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How much do you make a year?

While it may be a social faux-pas to ask such a question, it's also something we are curious about and a way in which we gauge our own performance against others. What I find most interesting about this is how we have been conditioned to answer the question in terms of Gross Income rather than Net Income. After all, isn't that how you answer?

"I make $60,000/yr!"

No, actually, you don't make $60,000/yr. Your employer pays a market value for your labour which equals $60,000/yr, but that is not what you, personally, make. You only make your net income, after taxes and deductions which usually amount to between 30%-40% of your gross income, meaning that someone who is paid a market value of $60,000/yr actually only makes about $39,000 Net. The $21,000 in taxes is an operating expense, not profit. You didn't actually "make" that money yourself, just like a grocery store that buys a loaf of bread for $1.00 and sells it for $2.00 doesn't actually make $2.00/loaf, but must take off the expense of buying the bread wholesale, and paying for the electricity, advertising, staff and other operating expenses to facilitate the transaction before they calculate their actual profit.

How this happened that we quote our gross income rather than our net income, I don't know. But it is false and misleads us from what is important to ourselves personally. You'd be far more accurate to quote your net income, and you'd probably be doing yourself a big favour by changing your mindset to reflect this. Once you do, you will start to see how each dollar you spend is actually increased by a factor of 50% in labour value because in order to have $100 in your pocket to spend, you must first earn around $150 in the job market and pay $50.00 of tax/operating expenses to the government before you are left with $100 to spend. If you change your earning & spending mindset to reflect this, suddenly the world looks like a different place.   

What's the difference, you might ask? $100 is still $100. A bag of groceries does not change in value. The groceries are still worth $100 in cold hard currency. And, of course, this is true. However, when transferred into the realm of how much you are paying in labour value, it costs $150. What this means is every $100 worth of groceries you can take out of your garden is actually worth $150 in the job market, when calculated in terms of labour value. Every penny you can save is not merely "one penny," but rather 1.5 pennies in the labour market. 

I believe this plays into many things happening in the world today. The world appears to be set in motion towards a great leveling between the West and the developing nations. Our Western economies are losing power while others are gaining it. Ultimately this means Westerners should expect their standards of living to drop, and I have no doubt they will. We are already seeing the job market morph from decent middle-class paying full-time jobs, into low paid part-time work. Consequently, I can see that it would be beneficial to figure out several part-time self-employment incomes instead, and also, to assess the value of work compared to the end results. I've heard wise people say all my life, "It's not how much you make, but how much is left over at the end of the month that matters." This is true. The only real "gain" financially is the extra money you have after you have paid your expenses. A person with a $2,000 per month income and $1,000 in expenses is doing just as well, from a financial perspective, as someone with a $5,000 per month income and $4,000 in expenses. Along these lines, I start to look at the world differently. Take a woman who works a low paying job for $1,500/month net, but doing so causes her to incur $600/month in daycare expenses, $150/month in gas & car maintenance driving back and forth to work, $100/month in clothes specifically for work, and $100/month in extra grocery bills to allow for "convenience cooking" because of the lack of too few hours in a day. Well, in such a case, the woman would only be $550/month worse off if she simply didn't go to work at all. Now the question becomes, could she make up that $550/month by cutting $150/month off the grocery bill with a backyard garden, some chickens and goats? Could she create crafts or something which she could sell for $250/month? Could she save the family another $150/month by sewing some clothes? If she could do these things, it would be the exact equivalent of her going to work for $1,500 a month after taxes, but she wouldn't have a boss breathing down her neck while she did it and would probably be leading a nicer life, at least in my opinion.

Also, the market place labour value which she is creating is not merely $1,500, but rather, between $2,000 and $2,200/month, for that's how much she'd have to make before taxes. Never forget, that the $500 to $700 in tax she pays by going into the workplace is what funds the government bureaucracies which are usurping our freedoms. By removing herself from the workforce, she is starving the beast which harms all of us. Think about it. What is more effective of a strategy from a personal level? Donate $1,000/yr to some lobby group (which itself only exists to grow in relevance, so as to ask for more money/power), or starve the beast to the tune of perhaps $7,000/yr in lost tax revenue? This gets further amplified by reducing the profits of the corporations you no longer deal with, meaning less corporate tax the government gets to collect, and it means there is less demand for employment at that corporation and therefore less of other people's income the government can tax. It also eliminates such things as government tax revenue from basic sales taxes. You will be harming your enemies to a much greater degree by removing yourself from the system than you ever possibly could by earning more money and giving a small portion of it (after taxes) to some obscure lobby group. In fact, in order to give $1,000 cash to some organization to fight your enemy, you are forced by the system to provide the government you are fighting with $500 in tax revenue! How screwed up is that? On a personal level, there is hardly anything I can think of being a more effective form of "activism" than simply starving the beast while still providing for yourself. 

Though I used an example of a woman above, it applies to a man just as easily. Our economies are changing and I am talking more along the lines of philosophically looking to the pre-Industrial Revolution era, when the home was a place of economic production. Dad worked the field and the barn, Mom had her duties in and around the house. Both roles produced from the household. Since the Industrial Revolution came about, dad left the field for the factory, and the factory created the fridges, stoves, dishwashers, hot-water from a tap, heat from a switch, and TV dinners that freed up mom's time enough  for her to join dad on the factory's production line. In other words, the home went from a place of economic production to a place of economic consumption. Now that the labour in the developing world, as well as technology and automation, is replacing our role as economic producers in the workforce, it seems to me that a logical response should be to look at returning to making the home a place of economic production, rather than of consumption. Some of it can be quite simple. Do you spend $50/month (+ $25 in labour value tax) on a gym membership so you can work out for 45min/day and stay in shape? Why don't you chop firewood for 45min/day instead, get a better build than the gym can give you, save a thousand or two in heating bills at the same time, and sell firewood next year out of the newspaper and perhaps earn another couple thousand from your "work-out efforts"? Both give you the same quality of life that being in shape delivers, with similar effort. But one actually "pays" you a few hundred a month to get the exercise you wanted anyways. It's just a different mindset, and trying to think production rather than consumption.

Many other of our roles have changed in society. Men and women now compete with each-other rather than compliment each-other. Will this stay the same in the event of an economic decline? One thing that has never been openly discussed in our equality obsessed society is the economic ramifications of women entering the workforce enmasse in the 1970's and 1980's. It is interesting to see how many economic reports come out showing that real wages, inflation adjusted, have not risen since the 1970's... and one thing political correctness keeps people from asking is "how much of this is also due to the massive increase in labour supply caused by women entering the workforce?" I think it must have been quite a bit. It's simple math and the Law of Supply and Demand. But, now that the economy is shrinking and jobs themselves are becoming scarce, will traditional gender roles reassert themselves? If not, will they evolve in different ways? If most modern jobs are now those which suit women better than men, as many claim, then what roles are men to assume as they get ejected from their old ones? Historically, as a civilization rises and falls, during the zenith of its prosperity the sexes repel from each-other, which lead to conditions that cause the fall - like negative birth-rates. We are experiencing such a thing in our current era and predictions of the end of the West are everywhere - with good reason. Also historically, gender roles naturally re-assert themselves to overcome hardship and adversity. Will an economic decline cause such a thing in our society, or will we find other ways to go forward? Perhaps men will create a new role of production out of the home, in a uniquely masculine way.

Related:

When Money Becomes a Social Tool 
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