I suffer from those biases as well, and I blame it on growing up in the lower middle class and having money struggles for most of my early adult life. Living paycheck to paycheck was absolutely frightening at times. I think that is why I have way too much money in my checking account right now and am reluctant to put it into longer term investments.
Yes, we have had to live with a very small financial safety buffer wherein we had to pay almost everything we earned almost as soon as it came in. The common wisdom is that most American households are just two paychecks away from living on the streets and that one unexpected $400 bill can be devastating.
And don't even mention what a medical emergency can do; I've heard that the bills from a medical emergency is a frequent cause of family bankruptcy. For example, I've had three big hospitalizations: emergency bowel resection ($64,000), triple angioplasty ($88,000), and ER and 4 days hospitalization from a gastric bleed (post-endoscopic gastric surgery gone bad; I haven't looked at the EOB for that one yet). The first two were covered by medical insurance from work and the third by my military retirement medical benefit, but without that coverage I'd have been back to paying a mortgage. And my cases were minor compared to many.
But on a less dire note, when I was on active duty as a married junior enlisted, I was paid twice a month and two or three days before payday I had already spent almost the full paycheck paying the bills (and that was making the minimum payments). We were able to grow out of that, but too many families cannot.
In that situation, we had to keep enough in checking to cover expenses and could only put a little away into savings earning far too little interest -- my plan for covering the "balloon payments" of insurance premiums (car and homeowners, etc) and property taxes was to divide those payments by the number of paychecks and put that much into savings so that I could pull that money out when those bills came due. So as a result, we are accustomed to keeping our liquidity in checking as you described.
This reminded me of a Gedankenexperiment (thought experiment) I had conducted with respect to the Great GOP Tax Scam of 2017. Here is what I wrote in reply to Phat in
Message 264 (28-Nov-2018 in
The Right Side of the News):
dwise1 writes:
Also, agriculture got very busy selling off as much crops as they could before Trump's tariffs and phony trade war started.
I retired half-way into January of this year. For decades I have used an Excel spreadsheet to figure out what I need to have withheld for income taxes (both my then-wife and I made about the same salary, but the formulae on the W-4 forms always had me withholding too little (thus threatening me with penalties should that persist) so I had to estimate my taxes in order to ensure that enough was being withheld from my pay. One thing I noticed with the new tax scam was that my federal withholding was less, so my take-home pay was more. Now, I have no idea what my taxes will actually be like this year nor does anybody else, but I'm sure that every working American has looked at their paycheck and has thought that they have gotten a big break -- they have more money! Doesn't anybody remember the Big Tax Break from George Bush I (Dubya's father)? His big tax break was to have less taken out through withholding so everybody's take-home pay would be more, but at the end of the year everybody still owed the same amount of tax. A huge swindle from the guy so out of touch with citizens' reality that he was fascinated by a grocery store's laser scanner, a technology which at that time was already about two decades old.
Basically, this entire GOP tax scam is based on trickle-down economics which has never worked and never will work. We saw this in Gov. Brownback's great Kansas experiment in which he created a trickle-down state economy which brought about economic ruin. At the same time, California faced with economic disaster from 2008 took the opposite approach and has emerged economically strong. In my engineering career, I called that the "Jello Test", as in "the proof of the pudding is in the eating." You have possible solutions to a problem. Run them and see what works. We have tried trickle-down and have found that it does not work. We have tried taxing the rich and that does work. Nu?
Within the past couple days, I saw (as I recall) a statistic that 65% of the US workforce has to work multiple jobs and still do not qualify as "middle class".
Now here's a Gedankenexperiment ("thought experiment") that I have conducted myself. Take the "tax break" and distribute it to amongst the 1% (as has already been done). Each one receives somewhere between $33,000 and $330,000 (the actual amount escapes me at the moment). What do they do with that extra money? Practically nothing, which starves the economy.
OK, in order to establish an economic baseline, let's take the opposite approach of looking at what will happen if, instead of dumping all kinds of money into the hands of the rich, the 1%, we were to distribute that same money to everybody else, the 99%.
As I recall hearing during the tax scam debates, each of the 1% would be getting $33,000. US population is about 308 million, so 1% of that would be about 3 million and 99% would be about 305 million. $33,000 to each of 3 million people adds up to about $100 billion (10
9). Now distributing that to each citizen equally, both the 1%-ers and the 99%-ers, and each citizen would receive about $325.
What would each person in the 99% do with $325? Spend it! Buy food, clothing, and other goods. What would that do for the economy? Sure, $325 doesn't sound like much, but when 305 million people are all spending $325 each, that adds up to $99 billion being injected into the economy. Now
that would really rev up the economy.
But if we instead give all that $100 billion to the 3 million of the 1%, what would they do with that extra $33,000? Virtually nothing. All their basics needs (food, shelter, clothing) have already been met, so they don't any necessary expenses to put that money to. Maybe use it to buy a trinket or an expensive toy (the superyacht market is now booming). Or gamble with it (ie, stock market speculation). Or just shove it into a drawer (metaphorically speaking) and forget they even have it. Whatever they do with it, very little of it would find its way into the economy.
So instead of revving up the economy, Trump is starving it and trying to smother it.
In my forum notes for that Gedankenexperiment, I quoted Dolly Levi from
Hello, Dolly:
quote:
Money, pardon the expression, is like manure. It's not worth a thing unless it's spread around, encouraging young things to grow.
At the time, I used the "upper 1%" definition for the wealthiest, but later learned that in order to qualify for the "upper 1%" you only needed to earn a measly half million a year. In VOX' YouTube video,
Who pays the lowest taxes in the US? (
https://www.youtube.com/watch?v=kXCGbAv8YPw), they defined that group as the 400 richest households which would amount to the top 0.000120682114 %. The ones we're talking about fall somewhere in between.
But the point remains that if you give money to the rich (much less than 1% of the population), then you're pulling that money out of circulation to the detriment of the economy, whereas if you give it to the low and middle class then they're going to spend it immediately on necessities, putting all that money back into circulation
to the benefit of the economy.
™ Version 4.2
(1)
