The ghost of Willy Sutton returns to teach us all a lesson.

[image: oddee.com]

Numbers Don’t Lie – People Do

I am fond of the old tale reported to have come from 1930s bank robber, Willy Sutton. When he was finally captured a journalist is reported to have asked him why he robbed banks. His reply: “Because that’s where the money is!” I call myself a financial economist for nearly the same reason: “Because that’s where the real money is!” Unlike Willy, however, I like big numbers because they show me the big picture. The pay for doing so is actually kind of puny compared to robbing banks. But so are the risks. Few people actually care about my skills. Besides, the real skill set for economics is the ability to “zoom in” and “zoom out” quickly and often in order to understand what is taking place, why, and how to fix things that go wrong.

I also learned many years ago how to make instant calculations of big numbers. That skill is critical. It has nothing to do with brain power. It has everything to do with powers of ten. And it may be summarized thusly: Convert any number—large or small—to its power of ten format. Example: $80 trillion dollars becomes $8 X 10^13. Multiply or divide the base numbers, then add or subtract exponents, and you have the answer to a cumbersome multiplication or division problem long before others can even write down the numbers and try to figure out what to do with them. Unfortunately, now you also know my secret, and I am no longer that brilliant mathematician that you have come to know and love. Alas…

Now I will show off for you while I still can. The U.S. economy produces about $18 trillion in GDP annually. We do so with only $3 trillion in circulation. Since M (money) X velocity (turnover rate) = GDP, we also know that velocity = 6. We also know that 85 percent of GDP is paid out to workers in salaries and benefits, and 85 percent of that amount is paid out in personal income. Therefore, $18 X .85 = $15.3, and $15.3 X .85 = $13.01. That was easy. Just remember, we’re talking trillions of dollars. Let’s continue.

Our workforce is 142 million (1.42 X 10^8). Divide the personal income total ($13.01 X 10^13) total by the workforce, and we have the per capita income: $92,000. If you did not get that answer you will have to practice a little with your powers of ten.

Now let’s zoom in. We all know that $92,000 per year is much too high a number for the typical person’s income. We also know that if only one person receives more than $92,000 per year, someone else must make less. And if some receive millions or billions, others must receive a lot less. That of course, is the case.

We know that the top one percent collect more income than the bottom 99 percent combined. Without doing any calculations at all, from that information we know that the typical income from those in the bottom 99 percent of the income distribution will be near $46, 000 per year, or one-half the average. That is important to keep in mind.

We also know that the bottom 50 percent of the workforce earn about $20,000 each. That comes to $1.42 trillion by my powers of ten calculations.

We also know that the top one percent receive 51 percent of the total pool of income, or $6.64 trillion, and that comes to $4.68 million each.

That leaves $4.95 trillion for the other 49 percent (the middle class), or $70,000 each.

Now, zooming back out we see the bottom 50 percent of workers comprise a pool of 71 million who earn an average income of $20,000; the next 49 percent of workers comprise a pool of 69.58 million who earn an average of $70,000 each; and the top one percent that comprise a pool of 1.42 million who receive an average of $4.68 million each.

With this picture we can apply some logic that is as irrefutable as are the numbers that support it. First, when someone—anyone—is paid $164,000 per year, he pushes someone else down to the $20,000 income level, or into poverty. Indeed, for every $72,000 paid above the average, someone gets pushed into poverty. These numbers do not lie. And they contradict beliefs such as, “those in poverty are there because they are lazy, or unwilling to work harder, or government programs put them there.” Really?

Tim Cook, CEO of Apple was paid $700 million in stock options before he took the job. That sum alone when the options are exercised is sufficient to push 9,722 people into poverty. Indeed, in the prior year, he cashed in $95 million in options, and that pushed 1,319 others into poverty. Anybody wanna play numbers with me? I didn’t attend the Wharton School of Finance.

To the argument, “Yes, but the economy grows, and so does GDP and personal incomes, therefore…” The reality is that the workforce also grows and per capita incomes remain relatively constant, therefore the data presented remain relatively constant. But I am willing to update them every year. These updates show that things are getting worse, not better.

Philosophers, scientists, and good decision makers know that once we are armed with facts, and good analysis of those facts, then we are much better prepared to move into the new realm of decision making known as the “normative” zone. It’s where we prescribe solutions that are just, where we can deliberate much more intelligently and humanely about “what ought to be.” It’s where our values shine and we can show the world that we are not petty little munchkins mired down in somebody’s else lies, who cannot see the big picture, and who prefer to live in a world of muck where facts, and truth, and justice never see the light of day. Willy Sutton was a thief, but he never killed anyone, and he would not rob a bank if women or children were present. He at least understood value.