Monthly Archives: March 2018

One Way A Basic Income Could Work

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There is probably more than one way a basic income could work but I want to share at least one that I have considered to help people see that it might be possible.
First I want you to consider if there are people living with a basic income in today’s society? What provides for their income if they are? Why is there a basic income provided for them?

There are many people living on a basic income today. There are many different groups receiving a basic income and they receive their basic income under different circumstances and provided from by different sources. Analyzing these groups and sources could help us understand the opportunities for more widely possible basic incomes.

The first obvious example of people receiving a basic income is children. They are provided for by their parents because the kids can’t provide for themselves.

Another group is the mentally disabled, again, because they can’t provide for themselves they are provided for by loved ones.

The third group that receives a basic income is those on physical disability from the government. Again, the requirements is that they can’t provide for themselves so they are provided for, this time, not by loved ones but because the government has mandated that it is important for us to take care of others who can’t take care of themselves.

The final group that receives a basic income is the retired. Their basic income is slightly different from the previous groups because they have created their own basic income. The reason they need a basic income is similar, in that many of them might not be able to physically work anymore so they have to create a situation where income is provided for them while they can’t actively create it.

So the similarities between all the groups is that they need money to provide their daily needs and they aren’t working themselves to create the income. The first 2 groups, kids and mentally disabled, are provided for by loved ones.

The physically disabled are provided for by the government and the retired are provided for by themselves.

Which of these is most applicable to a world wide model?

First, the love model? Where does the money for the love model come? The money from the love model comes from working income of the parents or loved ones who care for the disabled or children. The guardians have to continually create new income to cover the needs of those in their care. If they lose their job the basic income provided for the loved disappear. The important idea here is that income comes from continued work/creation of value.

Unfortunately love, doesn’t seem to be working for the world. It doesn’t seem like we’ve produced enough love to take care of all the people who need it. Love usually comes from a place of closeness and stems from family ties. I want to believe we are one human family, but by our mass actions, we have shown we are not there yet.

The 2nd way, governmental care, has an income collected from the working class. This class is likely providing for some loved ones already, and are also providing a basic income for another class, the disabled, who they don’t necessarily know personally or love directly. At a fundamental level, the income from the government really comes from the same place as the money from the first group, from working people continually creating value.

The government assistance model for basic income has shown some more success in places that have more government oversight as well as a more robust economy that can handle more being “siphoned” (taxed) from the working populace. The difficulty here is that that the governments money ultimately comes from the working people. They are only able to support so many non-working people. .

The final group, the retired, have their money come from growth or dividends of capital from businesses that they are owners in, stock owners or direct private business owners, that they have accumulated their whole life. Dividends are actually income (value), produced by the first group, the working class, but that is not awarded to the working class! It is awarded to the owners of the business. This is a very important concept because it gives us a glimpse of where we can obtain income if we aren’t working. If you are a business owner you will gain some profits from the business you own.
It is important to understand a business idea here. Your employees must produce at least as much value as you are paying them. Most businesses employees actually produce more value than they cost the company. They have to if the business wants to show a profit!

Think of the business that you work for. You should ask, how does this business make money. Then you should ask “How much profit per employee a year does this business create?” You should also ask “How much profit do I create for the business a year?”

Good businesses know how much profit they make per employee. For example, Facebook makes $188,000 per employee per quarter! That’s $752,000 per employee per year. That is why starting employees at Facebook can make over $100k a year, because they add way more value than that to the company each year. The profit you make over the salary you pay the employees is the extra profit that can be paid to the business owners. They are awarded this extra income for taking the initial financial risk of starting a business, investing in capital, etc. It is just as easy, or even easier, to invest in a business and lose all your money if you are starting from scratch.

The important idea from above, business owners can potentially gain income from a business in which they are solely owners, they don’t have to be doing any work and that is a form of basic income we see today.
Somebody has to do the work, today. These are the workers. Now I am going to ask you to take a mental journey to a future with me where we can envision a business, started by a person where they invest a lot of their money into fully autonomous machines, such that there are 0 people actually working in the factory. There is solar energy provided for the plant. There are autonomous robots creating, whatever product you want and the maintenance is also handled by robots. There are 0 people working in this factory, but the factory is producing a product, something of value, that other people will pay for. In this scenario, there is still a business owner, there is still value being created and income coming in, but there is no work being done by any people. This is exactly the scenario in which a basic income is viable. Now let’s say this person’s autonomous factory makes shirts. Now another person has a 100% autonomous factory where he grows food. These 2 people can create enough food and clothes between them, while neither is physically working himself, to feed and cloth each other. Now consider a 3rd person who has no factory of his own. The 2 autonomous factory owners factories can produce enough that they could feed and clothe this 3rd man but will they? That is the critical question! I believe in an abundance economy, which is what you would have when everything is being created from 100% autonomous work, that the capital owners, the factory owners, would be generous people. My belief stems from some fantastically rich people today, Bill Gates, Warren Buffet, Mark Zuckerberg, who have so much wealth to be in the position of capital owners who have 0 necessity for work and who are working to give it away.

Since we now have one idea for a possibility for how a basic income would work I think it should be pretty obvious that the goal is clear. We should work to invest in factories and other methods of creation that are 100% autonomous.

Once we are creating enough to provide for everyone the desire and ability to distribute the spoils of this abundance should manifest rather quickly from either the care and responsibility we feel towards our fellow humans, when our own survival is not threatened, or from the fear that our survival will be threatened if we keep a large segment of the population under-cared for. Either way, there should be a path for care for all when abundance is possible.

I realize that the thought of fully autonomous factories seems fantastical. But it truly is not! Complete autonomy is just the final step in what has been happening for many years, at least since the start of the industrial revolution. The increase in productivity of any individual is the hallmark of our age. I personally am paid more than the average person because the tools and knowledge I have access to allow me to produce more. Full autonomy is the final act in that progression. Infinite creation with no input. If you can’t see that end you lack creativity. It is the ultimate efficiency, which is what our economy is working towards.

Some examples include the push towards autonomous cars. While there is certainly investment upfront, the final output, value add, work done, autonomously is the obvious outcome. The best thing about the investment is that once the investment is made in full self sustaining autonomy, robots fixing themselves, that is the end of the cycle.

Then the imperative question is, who owns the robots?

How does the value get to the people who don’t own the robots?

These are important questions and ones that must be considered. If you aren’t able to consider that this is a very likely future though, we won’t’ get there and the answers don’t’ matter.

Tom’s Finance Tips for Young People (Under 35 years old)

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I have been talking with a friend from work, Tom, about finances for some months now. He felt inspired to share some thoughts about finances with others. This is a first, a guest post on MyWheelLife. I hope you enjoy.

Tom’s Finance Tips for Young People (Under 35 years old)

1) Learn to assess personal value. This is the absolute most important thing to master when making purchases. What I mean by this is imagine a young person who wants to buy a table saw, and the table saw cost $400. Should they buy it, $400 is a lot of money for a tool. So it all boils down to value. Value is defined as the price of product / usefulness of the product to the purchaser. Everyone pays the same price but each person has a unique “usefulness”. So simply answering the question based on cost is impossible. You have to be realistic with yourself on how much you will use something and if it really is important to you to justify the money.

The premise sounds so simple, but I continue to see people make terrible decisions assessing value. You have to be honest with your assessment of time, sometimes we have ideas in our heads that are not realistic.

For example, my neighbor has a nice mustang sitting in his 3 stall garage. He wants to protect it because it cost a lot of money so he parks it in the middle of the 2 stall portion, and then the 3rd stall is filled with crap. He doesn’t want to drive it in the winter because it is rear wheel drive or expose it salty roads. He has a beater car that he drives to work and another SUV for the family. All year they park their cars outside, scrape the windshields in the winter, so that this mustang can sit in the garage to be protected. Is this good value? The vehicles they use every day are being taken care of less than the vehicle used a couple of times per year.

Another example, my brother drives a Lexus. For a conservative like me, why would anyone drive a Lexus? Some may argue they break down less or last longer etc., but there are many alternatives that would be more cost effective. I believe luxury cars to be status symbols more than anything. So it is a terrible idea, correct? He is a commercial real estate agent and is constantly driving around high net worth individuals. His car is his office, therefore there is high value. A beater car doesn’t make sense here. It is okay to be expensive things if they have high value.

One more example, I drove a 1999 Pontiac Grand Prix for years. I got it from my parents, and kept it running. The thing was rusted real bad and got in an accident at one point. I had them repair the mechanical portion from the accident but just left the body work as is. That car cost me nothing, great price. The problem was that it was in such disrepair that a break line rusted out in a parking lot, and it was becoming not a safe vehicle to drive. One day as I was going through a busy intersection on my way to work, I realized if my brakes went out right now, or this car crapped out on me, I could be injured or killed. I am cheap, I hate spending money, but then if I can’t work how much money am I really saving. I got rid of that car and bought one from my parents that they were going to trade into the dealer back home. The moral of the story is that sometimes the cost is not just the product cost, but in this case also the cost of the potential injury. If you factor that in, a newer car was cheaper.

2) Financing, be careful. I am a strong believer that there a few things that you should finance and nothing more. Those things are a college education (assuming you have some level of ambition and a plan), a house, and sometimes a car. The things on the naughty list are vacations, campers, boats, ATV’s, marriages, furniture, anything out of a big box store, and home remodeling.

The goal is to knock down recurring monthly expenses as much as possible. With big ticket one time purchases, you are more likely to be realistic with your expectations compared to monthly payments and assess personal value. The auto people love to shove financing at you. I only buy cars with cash, and when we bought one of our cars, the sales person kept coming to me with a new monthly payment. I told them several times that we were paying cash.

For example, let’s talk about a camper. I would like to get a camper at some point, but I don’t think that we will use it enough to justify the cost. When we are at the camper show they are financing those campers for at least 120 months! That is 10 years. If you pay for something for 10 years, the monthly payment doesn’t seem too bad. For $220 per month you can have this $26,400 camper. That does not include interest…. Then for just $10 more per month, you can have a $1200 feature. You will be underwater on that camper every month as long as you own it.

3) Talk about finances with Friends. People are hush, hush about money. It is important to feel comfortable talking about finances with others. If you don’t talk about it, it is impossible to get advice or other perspectives. Sometimes our personal perspectives are not always the best route. My Dad is a money person, and so is one of my brothers, so we have many discussions about money. I like to talk about it with friends, and hear their perspectives. Just because your Mom and Dad did it one way, doesn’t mean that is the only way.

4) Learn to track your monthly expenses using a computer program. I am a strong proponent of Quicken, there are alternatives out there. I started a couple of years ago, and I should have been doing it all along. People ask me if it has changed my habits on spending, and not so much, but it completely changes the ball game on planning. The thing I learned the most on spending is that it is the little items that are the worst. It is amazing how the $1 to $50 purchases add up to large amounts. I like to go through the spending and determine how much it would take to live each month based on the necessities. We need to eat food, we need a place to stay, and we need heat. If you want to cut back on spending, there will be a couple easy hitters that show up, but it really boils down to controlling the little expenses. This skill is so important that I cannot emphasize it enough. The reason being is that it is something that applies to successful business as well as successful people. Learn to manage money, don’t assume like I did that I just kinda knew what we were spending.

I talk to a lot of people and am surprised at how few people track their spending. Quicken is so fast, I do mine one or two times a month, takes about 10 minutes to keep it up to date. The reason for this is that I have the ability to make decisions, and powerful decisions. For example:

A) We had a child and I was not sure if my wife was going to return to work. Having our spending tracked and categorized I was able to see exactly how this would work. It allows a very clear picture of what it would mean.
B) Emergency fund: I am a big proponent of emergency funds. How much do you need? The only way to answer this question is to understand how much its takes to support the family and then how much it takes if you went into conservative mode.
C) Investments: If you are able to invest money, you can gauge how much you can invest and when.

5) Investing is a key and the time value of money is amazing. Don’t try to time the market, just invest as much of your paycheck as you can every month and let it ride. I tried timing, and I was an idiot. The goal is just keep buying and buying. If the market is falling, great, you get to buy cheap, if the market is rising, great you are making money. Having your expenses tracked will tell you how much you can invest.

6) Do your own taxes. It is worth filling out the Turbo Tax thing even if you still take it to a professional. The $100 of working through the program can be considered an educational expense. The key is that you need to have some understanding so that you can make good decisions. It isn’t always fun but is well worth it. If you really hate it, sit down with someone and tell them your situation at the beginning of the year so that they can help you through it. It is worth paying someone for the advice, even at $100 per hour, there is still a lot of value. For example:
A) 401K Roth vs. Traditional tax savings
B) HSA is important and saves a ton of money
C) Dependent care FSA saves a ton of money
D) Knowing if you take standard deduction or itemize can save you a ton of money. Funny story is that I bought our first house in Texas citing tax reasons. I told the realtor we needed a tax write off (I was using stuff I had heard people say, thinking I was smart), we took a standard deduction every year we lived there.

7) Balance is the key to life. I have a friend who is cheap, I mean cheap. I heard a story on how his car locks didn’t work so when he would buy something at Walmart, he would use zip ties and bungee cords to lock the car doors. I have another friend that is so cheap that he would transport his young kid in a car that was unfit for the road, saving money. They both save a lot of money, one of them is young and has his house PAID off. A 250k house paid off.

Each person has their own strategy, and that is a good thing. The moral of the story is the guy that has his house paid off is so cheap that he won’t take a vacation, he hates his job, and always is a glass half empty type of guy.

What I am trying to get at here is that you need to go back to the most important thing, and that is the ability to assess value. I take vacations, if I look back, those are some of the high points of my life. We went to Alaska, Ireland, the Caribbean, the mountains, etc…. If I take out a photo album, I don’t get excited about talking about pictures of my car parked at work, or what my cubical looks like. That killer whale off the front of the boat in Alaska, or seeing a sea turtle in the crystal clear Caribbean waters are something I get excited about. It is important to get away, and take time to enjoy life. Don’t let being cheap ruin it, that is an important life lesson. At the same time, be realistic with the spending. You need to track your spending, and understand what you can spend on vacations. I would not try to cut it completely out of the budget, but also don’t fly first class.

8) Home owner ship is not all that it is cracked up to be. This is really important. There is a lot of misinformation out there. Here are a couple of key components:
A) Houses are not a great investment: There are exceptions where some folks make it out real good, on the contrary there are plenty were people lose a lot of money. So don’t think you are “Throwing your money away by renting.” The reason is simple, houses have a lot more cost than just a mortgage. They need upkeep such as roofs, plumbing problems, yard work, windows, and people fail to include these in the cost. They also require taxes and insurance. The cost of moving is extremely high. Real estate commission alone will knock out most people’s equity.
B) My rule is simple, if you don’t like doing handy work, are young, and single, RENT!!!!!
C) If you have a family, plan to stay somewhere for a while, and are being realistic with yourself on spending, BUY!!!!!

9) Being cheap is not always the answer to wealth. I personally feel that being cheap has cost me a lot of money. The reason is that knowledge is money, and it is important to always keep learning. Being cheap and not buying the proper tools, or investing in myself will cost me more in the long run than the money I saved. This one is a little harder to wrap your head around.

If you are young, it is very important to learn as much as possible in the primary environment that you make your money, OR in a secondary environment that has the potential for income.

A primary environment example is that as a young person, you can quickly become the EXPERT in a field even within a very large company. The reason being is as people advance in their career they tend to go to management roles that are non-technical. The technical stuff is left to younger employees and is constantly evolving. Older people tend to have kids and more commitments outside of the normal working hours, where young single people can invest more time in learning new tools, concepts, and expertise. When it comes time for promotions or layoffs, the extra knowledge is surely going to help keep you employed, or make you more money. It might be worth spending 10 extra hours a week working on building expertise within your role, than trying to save money by buying a house that needs restoration. I used to make fun of young people with new cars sitting in front of an apartment building, in hindsight, I think that is the most brilliant route to take for young people.

Another example of this is as an engineering student in college, does getting a job at the food service place making $10 an hour make sense? It seems like the young student is being fiscally responsible by working during college to help offset the debt. At the same time if the student is working 15 hours per week, this time could be used for studying or better yet getting involved in an extracurricular engineering activity such as a design competition. The design competition does not pay an immediate salary, it may lead to better job offers, and higher job satisfaction than the $150 per week gained during the food service job. Clearly if the student is not able to maintain greater than a 3.0 GPA, they should clearly focus on studying as opposed to the food service job. Don’t let short term gains impede long term gains.

For a secondary environment example, I should have tried to start my own business on the side instead of trying to fix up my house. I saved a lot of money doing my own housework, but I have always wanted to try to make a business work. With the housework side of things, the most money that I saved is the cost of having someone else do it. For example if a painter cost $50 per hour, and it took them 20 hours, then I saved $1000 doing it myself. The problem is that I took those 20 hours doing a task that will never get me more than $1000, whereas a business could make that weekly. Only do this if you have an opportunity cost that is higher in value. Paying someone $1000 so that I could watch football on TV is not a good use.

Redistribution Of Wealth Is Not Sufficient To Fix World Poverty

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“We as individuals, we must extend peace and knowledge growth throughout the world, for that is the only way we all prosper.” – Axel Hoogland

Redistribution of wealth is not sufficient to fix poverty because there is not yet enough wealth in the world.

There is $217 trillion dollars of valuable stuff in the world.

$217 trillion/ 7 billion people = $30k/person.

Therefore, if you are one of the people reading this who has more than $30,000 in net worth you should consider redistributing your own wealth before you call for Jeff Bezos or Bill Gates (who IS redistribution his wealth) or others to redistribute their wealth.

We need to understand the difference between production and net worth.
This is the issue people, including Oxfam, have and perpetuate when they say “the richest 7 people could end poverty”. To say that a billionaire who “made” $40 billion in a year in capital stock appreciation could “fix poverty” is ignorant.No one is stopping any person from getting rich and giving all their money away. If you have a great idea to start a company, by all means, start it up and give your money away! Show us how it’s done!

Anyone who holds a significant amount of shares of a company likely created that company from nothing. They accumulated wealth because people use their services because their services or products work so we give them money for them. These people take something, add value, and sell it to us, making themselves rich and our lives easier in the process.
Most people are bad at making money or adding value or thinking creativity. That is why we work for companies that tell us how to add value. That is why companies pay us a part of what value we create, because we wouldn’t know how to do it ourselves.

Most people also have excess money from their jobs, which they then re-invest in the stock market or in government bonds because they don’t know what constructive thing to do with their excess money also.
You shouldn’t be mad at Bezos! He created a company, he did an Initial Public Offering (IPO) of stock. During an IPO people say “I have an idea that I think I can make you money.” People then agree with that person and give him the money they worked to earn, in the hopes that he will make them more money with it, because they can’t think of a way to make that money work themselves.

So, if someone has started from very little, made a move to say “I can add value” and people have both freely given them money (working capital) for stock (part ownership of a company) and then that person DID add value and create a very useful company that millions of people use for it’s efficiency, why would you want to then take that money away from that person who you gave it to in the first place? We should give those people more money! Which is exactly what happens in the stock market. The main purpose of the stock market it to get money from people who don’t know what to do with it to people who have an idea of how to add value.

The only way to raise the poor from poverty is to give them better tools to produce more. I am only as successful as the tools I have access to, knowledge being a tool. If you are a person in the middle of Africa, with no access to the knowledge that has been built up for hundreds of years, you are at a distinct disadvantage, through no fault of your own. This is one reason I like “One Acre Fund”. They are helping people learn to produce more, not just handing out charity. The old “teach a man to fish” axiom. That being said, there are many even more efficient ways to farm than these people are being taught. These other methods are initially capital intensive and lead to fewer workers to produce more goods, creating lower prices.

The other thing to note is that the world GDP is only $17,300 a year. As I mentioned above, the only way for everyone to be on a level playing field is to raise the worldwide GDP. How do we do that? Through investment in technology and innovation. As I said, you are only as good as the tools you have and the value you create. The more knowledge people have, the more tools they can use and the more value they can create. You can see some companies are very good at creating profit per employee like Facebook and Google. Others are not so good. We should continue to work to improve the profit per person which comes down to value created per person. People can only create more value with better tools!

Another thing we should learn about investment of capital comes from Norway and Venezuela. Both countries discovered oil and the oil was at least partially drilled by the state. What they did with the profits after that is instrumental though. Venezuela used the money to subsidize many things and pay for the government to run. This worked, as long as there was always more oil and people willing to pay for it. But once it ran out, bad times.

Norway took a different approach. They also saw the oil as belonging to the people, they could have paid each person some of the oil money (but they didn’t) but they did something (also somewhat socialist) but at least it involved long term thinking. They continued to collect taxes from the people but they used the profits from the oil sales to invest in real estate and businesses around the world! This will provide them income for many years to come. In fact the Norwegian Oil Fund, which holds assets around the world, has $1 Trillion dollars of assets! This is about 1% of the world stock markets! They own 0.5% of Apple, the company! I bet you didn’t know that. It is good that Norway has tied it’s success to the success of others. That way they are less likely to fight with anyone, as a decline in value of anything around the world negatively impacts them also. The Oil Fund holds about $200,000 per Norwegian. I bet Venezuela wishes they had that kind of money saved up, instead of having spent it.

I believe that this is a good way to see world relations. I am personally invested around the world also, via International and Emerging Market index funds.

Of the top 10 holdings in the Emerging markets fund, 7 of the businesses are in China, 1 in Russia, 1 in Brazil and 1 in South Africa. As you can see, it is in my benefit for the rest of the world to do good as I have invested in them also!

If you look in your 401K or other investments I bet you will find you also have holdings in other countries. It’s time to realize we are one world, one economy, we can’t win by hurting others because there are no others, we are all in this together.

Sovereign wealth funds (like the Norwegian oil fund) are basically a step towards Universal Basic Income. They use assets (oil minerals) that should be for everyone, if found on public lands, and invest the proceeds for the good of everyone. I mentioned at the very start of this post that if you split up the whole world’s assets there would be $30k per person. But Norway has $200k per person in this fund, from public land. Now we could ask if they should share that money with the rest of the world? I would argue no at this point, although it would be an interesting debate. But the facts are that would open it up to every country being obligated to giving away all it’s goods. I believe there is value to trade, but I think that this type of discussion should happen in all countries related to their assets. What we need to do is create more assets. Then each person could have more. $30k per person is not sufficient!

The USA does not have a sovereign wealth fund, but some states do. Texas is one. It is also funded by oil revenues and land. They use it to fund their public schools. A good use of basic income money and the point I am trying to make with this whole post, that education is important! It sounds like they need a little more in their fund to completely pay for school though.

“Although the FSP constitutes a majority of the funding received by public schools, public schools receive other funding, such as state and federal grant funds, and that funding is not described in this manual.” – Funding of Texas Public Schools

People need to realize that the world is so interconnected that we don’t win by making others lose. The Sovereign wealth fund of Saudi Arabia invested money in Uber, as well as many other things. Did you know you are making money for Saudi Arabia each time you use an Uber? We need to realize that the pie is not of finite size. Through education and innovation we can make the pie grow and it has to to make enough for everyone.

I can see why foreign governments are skeptical of any help by outsiders, as I wrote in a short story that I didn’t publish, yet. Many countries believe other countries don’t have the best wishes for each other. That has certainly been the case in the past. There has been a lot of exploitation of countries by each other in the past. We, young and old, need to realize that we have the greatest opportunity for collaboration in history! We can connect with literally anyone else on the planet! Learn what hardships and joys they have.We can learn that other people don’t really hate us and we don’t really hate them.

I am personally helping a young man in Haiti attend college there. I converse almost daily with him via Facebook and I am in contact with his school to try to learn what opportunities they have to help make their country better.

In your neighborhood, you want your neighbors house to look good, and you want your neighbor to be successful. You don’t think, I need to take my neighbor’s job because there is only 1 job in town. That is how we need to think about other countries.

It will be difficult. There are people who want to kill us. There are people who are born into societies and brainwashed to believe things that are not true. We need hard men and women to protect us from those people and countries. But as individuals, we must extend peace and knowledge growth throughout the world, for that is the only way we all prosper.