Why An Hourly Wage Is Such a Bad Idea

Let's talk about money, your work experience, and taxes, just what you want to think about this morning, right?

It is an important topic, however, just because so many people avoid thinking about their work and its relation to taxation and general well-being.

Right from jump street, if you're working for an hourly wage, everybody's getting cheated. You, your employer, even the government which takes part of your pay before you even see it is getting a raw deal, though it could be argued that the government, which has little to no "skin in the game" when it comes to your income, your employment, and your work habits, has nothing to lose and so much to gain.

By taking a job or a position in exchange for so form of compensation based on time, you've rendered yourself about as useful or resourceful as a drone. You show up, you punch the clock, you perform your duties, you go home. Nothing more, nothing less. It's a dreadful condition, draining the life force out of you on a regularly scheduled basis. Making matters even worse, your boss probably thinks you aren't working hard enough and the government takes a percentage of everything - before you even see it - and wants more.

The concept of hourly wages is a relatively recent development in the great pantheon of civilization and labor. Prior to 1900, workers were paid by the day, week, or month, or by the task, which, being that much of the labor of the era was performed on farms, often included lodging and/or meals. This made sense because the world was a hard-scrabble place, weather took its toll on the amount and quality of work performed over days and even weeks, and it was generally well-known that workers wore down after six to eight hours on a particular job and the quality might suffer as the day wore away at their muscles and bones.

It wasn't until the industrial revolution and the great immigration from Europe to America that hourly wages became established. Employers and unions established scales of wages and requirements for work-weeks (a typical week of work was from 50 to 60 hours). In the early days of industrialization, unions became necessary because naturally, employers wanted to pay as little as possible, but workers needed to earn a decent living, provide for their families, and maybe have a little left over for savings.

It wasn't until 1938 - in the throes of the Great Depression - that minimum wage laws were established, at the time, a necessary evil, because not just workers, but employers as well, were suffering from the maladies of slack demand and massive deflation. During that developmental period and since then, the hourly wage became the standard compensation for menial tasks and the government didn't miss the opportunity to get its unfair share, beginning in the early 1940s, when they imposed payroll deductions as a means to fund the war effort incurred during world War II.

When the war was over, the feds didn't stop there, they just kept taking part of everybody's pay, increasing their percentage over the years. States jumped on that bandwagon as well, many imposing their own income taxes. Many still believe that income tax or any tax on wages is unconstitutional. They're actually right, and why the IRS calls income tax "voluntary," but try not paying your share and see what happens. There's nothing voluntary about wage taxes and deductions from your paycheck. It's theft on a grand scale.

It's a crying shame that somebody making $15 per hour only gets to take home about $12 of that hourly rate after the feds take their withholding amount, Social Security (FICA) and Medicaid "contribution" and the state piles in for another piece of your pie. People making more are penalized even further. That's the government side of the equation. Making it all the more unbearable, the various governments waste what they take from you and have to borrow even more and still can't manage to balance their budget. It's like throwing money down a black hole, this one lined with $26 trillion in federal debt which will never be repaid.

Getting back to the hourly wage and why it makes everybody a crook, you're probably not happy about the government taking 12-20% or more right out of your paycheck. You may decide to work 12-20% less or slow your productivity because of that unfair practice. That, in effect, steals from your employer, who isn't at fault for the government's intrusion into an agreement made between you and your boss' company, but it is he who pays for lost productivity, slack standards, theft, and the other unintended consequences of hourly wages.

Because, like you, the employer feels threatened by both sides - workers and the government - he cuts hours, or lays off unproductive employees, putting more strain on those that remain. He or she might also makes use of accountants and any other tricks available to limit his contributions to the government. It's the employer who writes the checks after all, and it is the employer who must remit to the government. Many have tried to cheat the government. Many have failed. Many are out of business, but the point is that the hourly wage and payroll deductions have spawned all sorts of bad behavior by employees and employers alike. More often than not, it's payments made to the "silent partners" - governments - that bankrupt businesses and put people out of work through no faults of their own.

The other major problem with a hourly wage it that it stifles productivity and efficiency. Maybe you can produce six widgets an hour, but everybody else on your shift can only produce four. If you're all making the same wage, there's absolutely no upside for you to work more efficiently than your peers unless you believe you'll get a raise, which, in a union setting, would be impossible. Even then, if you were to get a raise for your more efficient use of time, when your fellow workers find out, they'll castigate you and tell you you're making their lives more difficult. It's a no win condition.

If you get paid $15 an hour to do a job in five hours, but you could do it in four, why would you? The hourly wage not only does not encourage efficiency, it retards it. Or, would you rather make $60 instead of $75 for the same job?

The hourly wage is one of the worst inventions ever created in terms of labor effectiveness and efficiency. It stifles creativity, encourages bad behavior and spawns more government rules, regulations, and taxes. It reduces an erstwhile valuable human being to little more than a punch-press machine. It's degrading and demoralizing and nearly universal. Anything that becomes that widespread without competition - like a monopoly - should be done away with, the sooner the better.

As much as we'd all like to believe that everybody is created equal, it just isn't the case. In the eyes of the law, maybe. Hours and days are not created equally either. It's a proven fact that less work gets done after two o'clock than before noon; Fridays are radically different from Mondays.

Maybe some good will come from the lockdowns and stay-at-home impositions caused by the coronavirus. If anything, it's given people the opportunity to work from home, unsupervised, and maybe given everybody a chance to ponder the value of work versus an hourly wage. Hopefully, this time will encourage people to do their own thing, to start a home-based business, or at least look into alternatives to the time-worn nine-to-five practice.

The main beneficiaries of standardized hourly wages seem to be governments and their tax regimes. Might a return to the sanity of daily or weekly wages, piece work, or by-the-job work become reasonable alternatives?

We can only hope.

The Markets:

Gold futures soared on Monday, peaking at $1765 before being knocked down to just under $1755 an ounce at the New York close. Silver reached out above $18 an ounce prior to a late-morning smackdown, closing at the regrettable - an utterly unrealistic - price of $17.68.

While goldbugs continue to cry about manipulation, it seems obvious that any continuing control over precious metals markets is about keeping the gold to silver ratio near the historical absurdity of 100 and the forces in opposition to real money at the futures windows. After all, silver is more plentiful, more affordable to everybody and much more divisible than gold. Remember, prior to the Crime of 1873, silver was money, but the banking elite of the day wanted to establish a gold standard, and did, impoverishing many independent businesspeople and farmers in the process.

Now that the entire planet is on a fiat standard, which is no standard at all, it's time for silver to take its rightful place as the money of gentlemen and of the world. It can start with a readjustment to a reasonable gold:silver ratio of 20, eventually to 16 or 12. If gold is to persist at $1750 or higher, silver should be at least $85 an ounce. Market forces are at work. Prices for single ounce coins and bars on eBay are routinely over $30, and dealers are charging $23 and upwards for the same, if they can get their hands on it.

With eBay charging a ten percent fee on all bullion sales, the actual price of physical silver in one ounce increments is realistically approaching $32 to $35 per ounce. That's Troy ounces, and Troy approves (joke).

Silver may be kept down in the spot and futures markets, to the detriment of dealers and paper-pushers worldwide. In the meantime, the actual, true, honest, real physical market is exploding and will continue to until such a time that silver holders will be satisfactorily compensated.

Fight the Fed. Buy silver.

Bonds: eh, who needs them? The Fed wants to control the curve to keep short term rates near zero forever. Let them. It can only serve to hasten the return to real money.

Oil prices continue to be inflated, serving only the needs of drillers, shippers, and distillers. When the price of WTI crude falls back to realistic levels around $24-30 a barrel and states begin reducing their onerous gasoline taxes, the economy can begin recovering. Until then, we're stuck in an artificial stagflationary environment.

Stocks gained. They always do. Shares of public companies have never been as expensive.

At the Close, Monday, June 22, 2020:
Dow: 26,024.96, +153.50 (+0.59%)
NASDAQ: 10,056.47, +110.35 (+1.11%)
S&P 500: 3,117.86, +20.12 (+0.65%)
NYSE: 12,028.91, +48.79 (+0.41%)

Weekend Wrap: Oil Slips Lower, Stocks Stagnate, Bond Yields Plunge

On Friday, the Dow Jones Industrial Average bottomed out at 2:45 pm EDT, down by 124 points on the day. From that point - with an hour and fifteen minutes remaining in the session - stocks magically rose by 68 points to end the day down marginally.

This pattern had been tested on both Wednesday and Thursday, as stocks took deep losses on both days, though Friday's low was much later in the session than it was the previous two days. Friday's low was also more shallow, the implication being that a major force (such as the - hush now - PPT) came to the market's aid in the nick of time.

That there might have been intervention on Friday, and indeed, on all three days, is not far-fetched. Nobody in positions of power were interested in a market crash just before the Memorial Day weekend. That is being saved for a more opportune time, such as just prior to the November mid-term elections.

If this is too much intrigue and conspiracy theory for you, dear reader, you can stop reading right here, though the naivety of burying one's head in a sand dune isn't going to make you any smarter, nor is it going to grant you immunity from market dynamics, be they either contrived or natural.

As seen in the scorecard and weekly data below, the Dow ended with a small 38-point gain and is lower than where it was two weeks ago, the bulk of May's advance made during an eight-day run starting on the 3rd and ending on the 14th, which was, notably a Monday. Tuesday the 15th saw the streak ended with a thud of -193 points. Since then, stocks have essentially gone nowhere and this week saw minor advances on the major indices with the notable exception of the NYSE Composite, which suffered a loss commensurate with the gain on the NASDAQ.

Confused? Not yet. Trading in stocks, always a risky business, is about to become something that defies quantification. Money is moving around markets at a dizzying rate, fueled by geo-politics and, in the main, a massive amount of misunderstanding of how markets are being distorted and defiled.

It's now more than three months since the waterfall effects of February which sent stocks into a state of bearish hibernation or paralysis from which they have yet to recover. The longer stocks fail to reflate towards their all-time highs the stronger the argument for a bear market becomes.

The problem with a bear market at this juncture is that stocks continue to underpin all manner of funds, especially public employee pensions, which are already massively underfunded. An extended market decline would push these funds further underwater and possibly trigger a liquidity trap which would make the 2008-09 financial crisis appear tame by comparison.

States like Illinois, California, Connecticut and New Jersey have the biggest underfunding problem and a bear market would blow out all of their actuarial projections. Not that these massive pension funds are going to go broke right away, rather they would see their future positions eroded to a point at which raising taxes, seeking higher employee contributions, reduction in services, or slashing payouts to retires will all be proposals on the table in an effort to salvage the failed over-promises of delinquent politicians.

A pension crisis might be just the tip of the proverbial iceberg that is the cumulative national debt shared by federal and state governments, businesses and individuals. Of the three, private businesses are most likely the best insulated from a market downturn and subsequent liquidity emergency, though they are by no means standing on safe ground. With the average American family or individual deeply indebted, businesses large and small will suffer from decreased volume and a general deterioration of business conditions. Such conditions are already well underway in small, rural communities lacking sufficiently large markets and audiences. Some largely Northeast and Midwest areas have never recovered from the Great Financial Crisis of a decade ago and another negative event could be potentially devastating. Government would be unable to collect taxes from an overburdened population and businesses would be faced with the indelicate choices of laying off employees, cutting back on goods or services or closing the doors for good.

The heavy reliance on stocks alone to lead the nation out of the deep depression of 2008 has set the stage for a rather unwelcome asset collapse and recent stock market activity is serving fair warning.

The only data this week that suggested a possible way out or easing of the tightening conditions (which the Fed is fueling with reckless abandon) were the decline in oil prices (from above $72 to below $68) and the crunching of yields in the treasury market. The 10-year note topped out at 3.11% before ending the week massively lower, at 2.93%, a huge move in a significant market.

What oil and bonds are foretelling is nothing less than a full-blown recession within six to eight months, signaling that consumers cannot sustain demand for energy and businesses and government cannot withstand rising borrowing costs.

All of these conditions are contributing to a very volatile situation which, thus far, has been contained by the Fed and the deep underground traders, attempting to keep equity prices at premiums. The chances of this lasting though the summer into the fall are Slim to None, and Slim has left town.

Dow Jones Industrial Average May Scorecard:

Date	Close	Gain/Loss	Cum. G/L
5/1/18	24,099.05	-64.10	-64.10
5/2/18	23,924.98	-174.07	-238.17
5/3/18	23,930.15	+5.17	-233.00
5/4/18	24,262.51	+332.36	+99.36
5/7/18	24,357.32	+94.81	+194.17
5/8/18	24,360.21	+2.89	+197.06
5/9/18	24,542.54	+182.33	+379.39
5/10/18	24,739.53	+196.99	+576.38
5/11/18	24,831.17	+91.64	+668.02
5/14/18	24,899.41	+68.24	+736.26
5/15/18	24,706.41	-193.00	+543.26
5/16/18	24,768.93	+62.52	+605.78
5/17/18	24,713.98	-54.95	+550.73
5/18/18	24,715.09	+1.11	+551.84
5/21/18	25,013.29	+298.20	+850.04
5/22/18	24,834.41	-178.88	+671.16
5/23/18	24,886.81	+52.40	+723.56
5/24/18	24,811.76	-75.05	+648.51
5/25/18	24,753.09	-58.67	+589.84

At the Close, Friday, May 25, 2018:
Dow Jones Industrial Average: 24,753.09, -58.67 (-0.24%)
NASDAQ: 7,433.8535, +9.42 (+0.13%)
S&P 500: 2,721.33, -6.43 (-0.24%)
NYSE Composite: 12,634.94, -61.75 (-0.49%)

For the Week:
Dow: +38.00 (+0.15%)
NASDAQ: +79.51 (+1.08%)
S&P 500: +8.36 (+0.31%)
NYSE Composite: -82.48 (-0.65%)

Stocks, Oil Whacked Again; 10-Year Note at 1.86%; Yellen's Fed in Shambles

It's official.

The groundhog didn't see his shadow, and Janet Yellen didn't see the recession just ahead, proving, within a shadow of doubt, that animals have better sense than most humans.

At least in the case of furry rodents versus doctors of economics, the rodentia class is in a class all its own. Punxsutawney Phil, the most famous of ground hog prognosticators, came outside this morning and reassured everybody in the Northeast that the most mild winter in decades would continue, and, to boot, be short-lived.

By not seeing his shadow, Phil assuaged the assembled crowd that what remains of winter would be over within two weeks, rather than the usual six week span that extends nearly to the first day of Spring, March 20.

Despite this being a leap year, which adds a full day to the cruel month of February, residents in the most densely-populated area of the country seem to be settled in for a short stay on the chilly side.

In upstate New York, there is little to no snow on the ground. What remains are a few remnants of shoveled piles that take a little longer to melt, though even that should be gone by tomorrow, as temperatures from Buffalo to Albany are expected to approach sixty degrees on Wednesday.

Similar circumstances prevail throughout the Mid-Atlantic region and into New York, Pennsylvania, New Jersey and Massachusetts. The milder-than-normal conditions have resulted in lower use of heating fuels such as oil and natural gas, both of which are hovering around decades-long lows.

As for the Federal Reserve and the captain of that sinking ship, Janet Yellen, she and her hench-fellows seem to be on the wrong side of economic history, considering that since their historic rate hike in mid-December, interest rates have gone in the opposite direction, the 10-year note today closing at 1.86%, as the winds of global deflation and tight labor conditions continue to push consumer demand and consumption lower and lower.

Compounding the complexity of the Fed's non-tenable situation are the twin engines of stocks and oil, both of which have hit stall speed in 2016. WTI crude close in New York within whispering distance of the $30 mark, while the major stock indices were battered into submission by a combination of reduced earnings capacity and a growing confidence gap from investors.

Even with last week's brave showing by the markets in the face of a 2015 fourth quarter that slipped to 0.7% growth, stocks were unable to regain the footing which took the Dow 400 points higher on Friday as the Bank of Japan endorsed negative interest rates on its treasury bonds extending though eight years.

Supposedly, cheap, easy money was good news for the stock market. However, with the BOJ cancelling a treasury auction today due to lack of interest (no pun intended) from selected participants, equity markets around the world backtracked towards the lows of January. Apparently, there aren't many out there who see it as a prudent idea to pay somebody to hold your money.

Negative interest rate policy, aka NIRP, is the death-knell of central bankers. Traditionally, banks paid OUT interest on savings, but, in this decade of upside-down economics, the glorious kings and queens of monetary policy are sticking to the belief that people are so afraid of losing what they've earned that they will pay to have the banks hold it for them.

Mattresses and shotguns are back in style, kids, but nobody seems to have told the central bankers. Everybody from simple savers to mega-millionaires are losing confidence in a clearly broken system, pulling their assets out and into cash, precious metals, gemstones, art, real estate, or other stores of value that have stood the test of time. The only buyers of government debt are governments, a condition which cannot be sustained long.

Truth be known, the Fed, the ECB, BOJ and PBOC are all aware of this condition and have yet to devise a strategy that will resolve the liquidity and solvency crunch with a minimum of pain. Pain will come to many, precisely those holding debt which cannot be repaid. Ideally, this epoch of economic history will see the end of central banking with fiat currencies and fractional reserves.

We may be within weeks or months of a global reset, a change in the nature of money which will tear at the fabric of society itself.

Stay tuned. This is only the middle of the show which started in 2008.

Today's crap shoot:
S&P 500: 1,903.03, -36.35 (1.87%)
Dow: 16,153.54, -295.64 (1.80%)
NASDAQ: 4,516.95, -103.42 (2.24%)

Crude Oil 30.02 -5.06% Gold 1,129.20 +0.11% EUR/USD 1.0920 +0.27% 10-Yr Bond 1.8640 -5.19% Corn 372.00 +0.20% Copper 2.05 -0.29% Silver 14.31 -0.26% Natural Gas 2.03 -5.81% Russell 2000 1,008.84 -2.28% VIX 21.98 +10.01% BATS 1000 20,356.76 -1.72% GBP/USD 1.4411 -0.10% USD/JPY 119.84