Some Labor Day Thoughts on Income Inequality

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club
labor day income inequality 0

Editor’s Note: Monday is Labor Day, a public holiday that not only marks the unofficial end of summer but also honors the American laborer.

We often forget that the labor movement gave us much to be thankful for: child labor laws, the eight-hour workday, workplace safety standards, weekends without work, paid vacation, unemployment insurance, overtime pay, employer healthcare, military leave and wrongful termination laws.

That’s why Alex is mystified that the modern labor movement is so focused on the abstract issue of income inequality. Below is a classic essay from his Beyond Wealth series. It’s worth pondering on this important holiday.

A few years ago, economists Sara Solnick and David Hemenway conducted a survey where they asked participants if they would rather earn $50,000 a year while other people made $25,000, or earn $100,000 a year while other people got $250,000.

Sit down for this one.

The majority of folks selected the first option. They would rather make twice as much as others - even if that meant earning half as much as they could have.

This is completely nuts, of course. Yet other findings in the study confirmed the envious nature of contemporary culture.

People said, for instance, they would rather be average-looking in a community where no one is considered attractive than merely good-looking in the company of stunners.

When it came to education, parents said they would rather have an average child in a crowd of dunces than a smart child in a class full of brilliant students.

What is going on here?

In his book The Mind of the MarketScientific American columnist Michael Shermer argues, “Our sense of happiness tends to be based on positional and relative rankings compared to what others have.”

The problem is this doesn’t make anyone happier.

Yet politicians and the media pour fuel on the fire by continually insisting that we live in an era of “grotesque economic inequality.”

If you are envious that the top 1% earn such a large percentage of total income, perhaps you should get angry... with the face in the mirror.

According to the Global Rich List, you need wages of just $32,400 a year to make it into the top 1% globally. (According to the World Bank, more than 2.8 billion people live on less than $2 a day.)

That means the average U.S. schoolteacher, accountant, registered nurse or police officer is a global one-percenter.

Even the poor today are rich by historical standards. Most Americans living under the poverty line live in larger accommodations than the average European.

Historically, being poor meant having to struggle to get enough calories to survive. But today, we have the opposite problem. Obesity - indeed, morbid obesity - has created a healthcare crisis among the poor.

The average person living below the poverty line in the U.S. today has a phone, a car, a TV, indoor plumbing, and central heat and air. A century and a half ago, the richest robber barons could never have dreamed of such wealth.

Yet we still manage to make ourselves unhappy by comparing our lot to the richest 1%. Or, better still, the richest one-tenth of 1%.

Yes, Bill Gates has a 66,000-square-foot mansion that overlooks Lake Washington. Warren Buffett flies around the country in his Bombardier Challenger 6000. Oracle founder Larry Ellison recently traded his 453-foot, 82-room yacht for ownership of Hawaii’s sixth-largest island.

But so what?

Of all our weaknesses, surely none is more menial than envy. It denies us contentment. It wastes our time. And it is an insult to our own sense of dignity.

Worst of all, it is completely self-imposed.

“Envy is the most stupid of vices,” wrote the novelist Honoré de Balzac, “for there is no single advantage to be gained from it.”

We all know people who are smarter, fitter, richer, funnier, more talented or better-looking. But what of it?

Thinking this way only keeps you from appreciating your own uniqueness and self-worth: things that, not incidentally, do lead to greater happiness - especially when combined with a strong sense of purpose.

Shermer notes that there are four means by which we can bootstrap ourselves away from envy and toward happiness through purposeful action. These include...

  1. Deep love and family commitment
  2. Meaningful work and career
  3. Social and political involvement
  4. Transcendence and spirituality.

Note that psychologists have yet to discover the route to happiness by comparing ourselves to others. (Although it doesn’t hurt to occasionally measure yourself against your own ideals.)

Concentrating on your own fortunes - and improving those of others - is guaranteed to generate more satisfaction than sizing up the Joneses next door.

Besides, if you knew what the other guy was dealing with, you might prefer your own circumstances.

Recall Richard Cory from E.A. Robinson’s famous poem:

Whenever Richard Cory went down town,

We people on the pavement looked at him:

He was a gentleman from sole to crown,

Clean favored, and imperially slim.

And he was always quietly arrayed,

And he was always human when he talked;

But still he fluttered pulses when he said,

“Good-morning,” and he glittered when he walked.

And he was rich - yes, richer than a king -

And admirably schooled in every grace:

In fine, we thought that he was everything

To make us wish that we were in his place.

So on we worked, and waited for the light,

And went without the meat, and cursed the bread;

And Richard Cory, one calm summer night,

Went home and put a bullet through his head.

It’s easy to begrudge the other guy his blessings. But does it not make more sense to count your own instead?

Good investing,


Thoughts on this article? Leave a comment below.

An Investment in American Building and Manufacturing

Alex’s True Value Alert service looks for stocks that are trading at deep discounts to their intrinsic value.

One of his most recent recommendations is Owens Corning (NYSE: OC), one of America’s biggest manufacturers of building materials. It’s a great investment in the modern American working class.

Here’s Alex checking on the pick back in June...

Based in Toledo, Ohio, Owens Corning develops, manufactures and sells insulation, roofing and fiberglass composites. It has been a Fortune 500 company for 63 consecutive years.

As you know, the real estate bust is well behind us, and many homebuilders are operating at or near peak capacity. That is good news indeed for Owens.

Its roofing business has a dominant market position with high operating margins. And its insulation division is also returning to historic profitability.

However, the most exciting aspect of the company is its glass reinforcements business. Owens makes thousands of products lighter, stronger and more durable, saving energy in both residential and commercial buildings.

It already shows in the numbers. In the most recent quarter, earnings soared 77% on a 20% increase in sales. The company enjoys a 13.5% operating margin. And management is earning a healthy 11% return on equity.

Despite this strong profit growth, take a look at the valuation on the stock. The average company in the S&P 500 currently sells for 25 times earnings. But Owens sells for only 17 times earnings. (And just 13 times prospective earnings.)

I expect Owens to earn $4.06 a share this year and approximately $5 in 2018.

Aside from better-than-average growth in the months ahead, Owens offers a high margin of safety thanks to its low P/E ratio and the fact that it sells for less than two times book value and only 1.2 times sales.

- Samuel Taube with Alexander Green

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