How Could We Measure Standard of Living?

[psikeyhackr]

Net worth is a static metric. Standard of living is a dynamic one.

A person could maintain a good standard of living by using the ROI of a large net worth as gross income--or simply by dissipating the capital of a really large one. But people whose net worth is that large are a statistically insignificant portion of the population. Most Americans' net worth is less than six months' gross income and therefore has only a minor influence on their standard of living.

After all, our goal by definition is to accumulate sufficient net worth to retire by living off the sum of the income plus an actuarially sound conversion of the capital--plus our pathetic little pensions. The fact that so many of us are working beyond the traditional retirement age of 65 and even into our 70s indicates that we are failing to achieve that goal.

BTW: My degree is in accounting.

The absurd part is that accounting is portrayed as difficult enough to be worth getting a degree in. I think everything that most people need to know about it could be taught in a semester.

Net Worth is only static on the balance sheet. If a person owns some stock their Net Worth could be fluctuating from minute to minute. Their home could be appreciating while their car is depreciating. The economy is a mess because the vast majority of people don't know accounting. That statistically insignificant proportion of the population want other people working to make them richer.

I think standard of living is a meaningless concept invented by economists. It is meaningless because it is to vague to have any precision but it sounds meaningful to the ignorant. Those who want to manage others want the others kept ignorant. When do you hear economists advocating mandatory accounting?

psik

 

[Billy T]

I tend to agree with most of psikeyhackr's post 41, but accounting when IRS codes get into the picture is very complex - a specialized field that requires years of experience in one of its subdivisions. The US tax laws are a disgrace -written for special interest groups, full of policy "sacred cows" and I do not mean just things like energy credits, oil depletion allowances etc. IMHO, nothing has distorted the US economy more that the deduction of home mortgage interest. That is why rich sterile (childless) lady lawer married to a multi-millionaire stock broker buys a seven bedroom estate in the country instead the swank town house near their work. (They NEED the mortgage deduction and expect it to appreciate, etc.)

If I were king, I could write the tax code on a 3 by 5 card.* (Not in a 20 volume set). Special legislation would be separate, and always a "sunshine law" - I.e. automatically expiring in five years, if not renewed.
--------------------
*I might need to write small and use both sides as the world has gotten complex also.

 

[TruthSeeker]

The absurd part is that accounting is portrayed as difficult enough to be worth getting a degree in. I think everything that most people need to know about it could be taught in a semester.

You obviously took a single accounting course your entire life.
Yes, accounting is quite easy... in the beginning. That's why it is called "bookkeeping". However, once you fall into government regulations and accounting standards, you have to follow some rules. Those rules are imperative. They need to be meticulously followed in order for the financial statements of companies to be comparable, reliable and relevant. This is why we have a handbook to help us make our decisions. This handbook, the "CICA handbook" (in Canada) is basically the "Bible of Accountants".

Remember Enron? The whole thing with Enron was due to manipulative accounting practices. Some of which, in Canada, would never happen because Canada is more tightly regulated.

But again, it is true that basic accounting is simple. But I don't think you grasp the extent of the accounting profession....

Net Worth is only static on the balance sheet. If a person owns some stock their Net Worth could be fluctuating from minute to minute. Their home could be appreciating while their car is depreciating. The economy is a mess because the vast majority of people don't know accounting. That statistically insignificant proportion of the population want other people working to make them richer.

Most people consume too much. That consumption is an expense. So, yes, consuming won't make you any richer. But again, our society is BASED on consumption. Without the large masses consuming so much, the rich cannot exist. So they WANT people to be blind.

I think standard of living is a meaningless concept invented by economists. It is meaningless because it is to vague to have any precision but it sounds meaningful to the ignorant. Those who want to manage others want the others kept ignorant. When do you hear economists advocating mandatory accounting?

psik

Well, first of all, standard of living can be a very psychological-based figure. In this case, then yes, it is a meaningless figure. Like the "marginal propensity to consume", for example. However, there are things that can be measured, and it might be possible to standardize other measures of standard of living, such as the amount of stress which could affect health. In this case, the stress can be measured by the number of hours a person work in a week. If the person needs 60 hours per week just to survive, then that will have a negative effect on their health and, subsequently, a negative effect on their standard of living.

The purpose of this thread is to, precisely, find a way to measure those tricky variables that economist way too often ignore....

 

[psikeyhackr]

You obviously took a single accounting course your entire life.

I've never taken a single accounting course. I used my sister's high school book to teach myself trigonometry in 7th grade. Accounting really isn't as complicated as that. The government, the lawyers and the accountants have a vested interest in making the simple complicated. It makes sense that accountants be certified if they are doing it professionally but to pretend that everyone can't understand the important parts is nonsense.

This is about MONEY!

This is about WEALTH!

So ultimately this is about POWER!

"All warfare is based on deception." - Sun Tzu ["The Art of War" 500BC]

Consumerism is the problem and economists ignoring the depreciation of all this garbage is part of why the system can't be accurately analyzed. You can't just throw out a variable that big and pretend that what is left can make sense.

psik

 

[Fraggle Rocker]

Do you have a source for this statistic?

Actually I was wrong. Several sources that pop up from Google agree that the average household net worth is $93,000, which is double the average household gross income of $43,000. Most of that net worth is equity in a home, which does indeed play a major role in one's standard of living.

The absurd part is that accounting is portrayed as difficult enough to be worth getting a degree in. I think everything that most people need to know about it could be taught in a semester.

It takes a full-year course for most people to master double-entry bookkeeping. Of course it's trivial for someone with high intelligence and a basic understanding of the principles of science, so it looks easy to most of the people who haunt SciForums. Not so easy for the average person or even a really bright English major.

But there's more to accounting than bookkeeping. Cost accounting alone is a daunting subject. Tax accounting is another--not to make a profession of it, but just to make wise decisions about affairs with tax consequences. You're not much of an accountant if you don't understand finance, including present-value calculations, and you're not an accountant at all if you don't understand depreciation and amortization--all of which are pretty arcane stuff.

Today most people do "bookkeeping" with software, which both coddles and reinforces the growing innumeracy of the American people. Students who learn to "keep books" without developing a gut feeling for accounting as a zero-sum game are learning to be clerks, not bookkeepers, and certainly not accountants.

Net Worth is only static on the balance sheet. If a person owns some stock their Net Worth could be fluctuating from minute to minute. Their home could be appreciating while their car is depreciating.

True in the abstract. However, unless you have a large investment portfolio or a very risky one, the income you earn from your investments is minor. Cash flow is the primary component of the standard-of-living vector because that's what determines the level of living expenses you can afford, although home equity and even the quality of your car are also factors.

I think standard of living is a meaningless concept invented by economists. It is meaningless because it is too vague to have any precision but it sounds meaningful to the ignorant.

I don't know who invented the term "standard of living" or when. But it's generally used as a qualitative measure. We all agree that the standard of living is higher in Germany than in Romania and higher in Romania than in Bangladesh. But if we want to compare Germany to France we calculate the per capita GDP or some other quantitative figure.

Those who want to manage others want the others kept ignorant. When do you hear economists advocating mandatory accounting?

More likely to hear accountants advocating mandatory economics. In fact a year of it was mandatory in my day, and many of us took more than that. As for the viewpoint from the other side, in those days and perhaps still today, economists had enough respect for accounting that if you had a degree in accounting rather than economics, you could still enter the graduate program in economics.

 

[TruthSeeker]

I've never taken a single accounting course. I used my sister's high school book to teach myself trigonometry in 7th grade. Accounting really isn't as complicated as that. The government, the lawyers and the accountants have a vested interest in making the simple complicated. It makes sense that accountants be certified if they are doing it professionally but to pretend that everyone can't understand the important parts is nonsense.

This is about MONEY!

This is about WEALTH!

So ultimately this is about POWER!

"All warfare is based on deception." - Sun Tzu ["The Art of War" 500BC]

Consumerism is the problem and economists ignoring the depreciation of all this garbage is part of why the system can't be accurately analyzed. You can't just throw out a variable that big and pretend that what is left can make sense.

psik

The problem is not depreciation. The problem is the production of useless crap. Maybe that's the idea you are trying to convey?

 

[TruthSeeker]

Actually I was wrong. Several sources that pop up from Google agree that the average household net worth is $93,000, which is double the average household gross income of $43,000. Most of that net worth is equity in a home, which does indeed play a major role in one's standard of living.

That's an average, thought. What if a few people have a net worth of 500 million dollars? Wouldn't it make sense that a lot of people actually have a much lower networth then $93,000? Maybe we need to measure how big those discrepencies are...

Also, if most of that equity is in the home, then how much is left for actual living? And what if the housing market plummets? Or if it gets too expensive for young people to buy a home? Or if you move into a higher tax bracket and now you have to refinance your mortgage to afford the new taxes?

Ya know...

 

[Roman]

What's wrong with my idea?

 

[psikeyhackr]

The problem is not depreciation. The problem is the production of useless crap. Maybe that's the idea you are trying to convey?

No I don't agree.

The arithmetic of accounting is just like mathematics in physics. The objective is to make the numbers match reality as much as possible in order to foresee and manipulate reality to the desired end. Throwing away information does not accomplish that task unless some people are foreseeing the sabotage of the losers.

For the economics profession to ignore depreciation of consumer automobiles is the same as the CFO of a United Van Lines ignoring the depreciation of its trucks. That would be incompetence to the point of criminal negligence.

Of course I think our so called educators not pushing for mandatory accounting is about as bad.

On the production of useless crap, the technology I hated the most was 8-tracks. I suppose there are people too young to have encountered this repulsive drek. It always sounded like sh!t to me. Worse than MP3s.

http://www.badfads.com/pages/collectibles/8track.html

I had to repair those things but I hated them with a passion. Have the economists computed how many 8-track tapes are in landfills? Make them dig the stuff up and find out. ROFL

I bought one of these in 1977.

Accuphase E-202 integrated amplifier, 110 watts/ch.

It has plug in circuit boards so it should be easy to repair if I ever have to. That also makes it upgradable if the company ever came out with better sounding electronics. Not that I ever expected them to do that. That would have been unheard of. I have gone thru 4 used cars in the time I have had this amp. It amazes my how many people would spend $30,000 on a car but are shocked at the idea of a $5,000 stereo. I lucked out and ran across a pair of these used:

Those are 2ce's and mine are 2ci's but the difference is hardly noticeable. They retailed for $1500 but I picked them up used for $800. I happened to stop in a used hi-fi store early one morning. I recognized them the moment I laid eyes on them. They would have been gone by the end of the day. They were. The Vandersteen Model 2 was introduced in 1977 and the basic design has not changed since then. I was at the home of man in Seattle a number of years ago and he had a pair of the original Model 2's. The laws of physics do not change style form year to year and there is nothing any manufacturer of any product can do about that. A large percentage of product variations are just stupid bullsh!t to give the marketing morons something to talk about. They increase cost, create repair problems, and make it difficult or impossible to get parts years down the road.

http://www.vandersteen.com/pages/Pdffiles/31978_eprint.pdf

http://www.epinions.com/content_4692418692

I have had to repair things by making "engineering modifications" because the manufacturer didn't design the product to be repaired. Now a lot of stuff is so cheap it is regarded as economical to just buy another one. But what happens to the planet when tens of millions of people are being economically logical. In the long run it would be cheaper to make them reliable and repairable. But who gives a damn about the long run?

That's it! You measure standard of living by people's hi-fi system.

psik

 

[okayillgonow]

Yeah, yeah... there's GDP and GDP per capita... but those measures are much more useful to governments and corporations- they are not that useful to people. Factors such as health, environment, crime and sustainability are not taken into account when measuring the GDP. So how could we measure standard of living more accurately? Any ideas? :shrug:

PS: I've been working a bit on it and I might share it later, if I get to some conclusion...

Here's a link to the answer (By the way, look on the subtopics of Demographics & Economy): http://en.wikipedia.org/wiki/Lists_of_countries

 

[Billy T]

Okayillgonow's link in post 50 has a lot of interesting facts.

especially the list of countries by reserves plus gold.

Fact that China, Japan ad Russia hold top three spots (in that order) did not surpize me. To see the US below both Italy and Algeria did.

BTW, the dollar has been dropping so rapidly against the Brazilian Real that Brazil's exporters of higher value goods are hurting. To help them, the central bank is buying dollars every day. (22billion in first three months of 2007) No one else seems to want them and the agricultural exports bring in more every day*, so the table at

http://en.wikipedia.org/wiki/List_o...ries_by_reserves_of_foreign_exchange_and_gold

is out of date. Brazil now is in ninth place. If one does not include gold held, US has 41 billion in reserves, about one third of what Brazil has.
-------------------------------
*The better solution to this problem, is to simply to refuse to accept dollars for the exports of agricultural goods. I.e. make China pay in Yuan. The Yaun is going up in value but not as fast as the dollar is going down. Thus holding Yaun is much better for Brazil's central bank than holding dollars. I can understand why China might resist. - From their POV it is better to spend a currency that is losing value, but as China is losing farmers to the city factories (almost a million per month) and the soil in China is poor and water for irrigation non-existent, Brazil is in a strong position - China depends on Brazil (to eat) more than Brazil depends on China (to buy new TVs and computers, etc.).