Our Crazy-Making Economy's Endgame: Festering Frustration Seeking an Outlet

The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime.

We all know crazy-makers: people who make contradictory claims about reality, who say one thing and do another, who change their stories constantly to justify their own pursuit of self-interest, who demand the impossible of others while giving themselves unlimited excuses.

When they can't change reality to suit their purposes, they change their accounts of reality, and stick with the revised stories even when they are contradictory.

This describes the entire financial structure of the U.S.: crazy-making.

We all know the U.S. economy is diseased, and the Powers That Be are attempting to mask the sickness with contradictory accounts of reality.

To get ahead, you need a 4-year college diploma. But oops, the student debt you'll need to shoulder acts as a brake on getting ahead. And it turns out many of those who became debt-serfs to get a diploma actually end up in jobs that don't require a college education.

One reality--soaring student loan debt and diminishing value of the product, a college diploma--and two contradictory stories.

Systems theorist/anthropologistGregory Bateson developed (with others) the concept of double bind, a psychological and social conflict in which contradictory demands generate a form of schizophrenia:

Unlike the usual no-win situation, the subject has difficulty in defining the exact nature of the paradoxical situation in which he or she is caught. The contradiction may be unexpressed in its immediate context and therefore invisible to external observers, only becoming evident when a prior communication is considered. Typically, a demand is imposed upon the subject by someone who they respect (such as a parent, teacher or doctor) but the demand itself is inherently impossible to fulfill because some broader context forbids it. For example, this situation arises when a person in a position of authority imposes two contradictory conditions but there exists an unspoken rule that one must never question authority.

Consider the schizophrenia-generating contradictions underpinning all U.S. economic policy.

We have to keep interest rates near-zero forever because the economy is weak, but the economy is strong--look at the low unemployment rate.

Well, which one is it? The official answer: both. The U.S. economy is both strong and weak at the same time. Interestingly, it's strong in terms of official measures of employment and jobs, but weak in financial terms.

This means there's nothing to be fixed for those working for a living, and everything to fix for financiers and banks, who are struggling due to weak financial fundamentals.

Meanwhile, corporate and financier profits are soaring to record levels and wages have stagnated for years. Wait a minute--weren't we just told that the financial fundamentals are weak, hence the need for zero interest rates for ever, and that job growth was strong?

These are internally inconsistent accounts of reality, i.e. crazy-making. Here are corporate profits--to the moon, baby:

Here are wages/salaries: going nowhere for 15 years (or 40 years, if we go back to the 1970s):

Financialization has enriched the few with access to free money for financiers and those who own assets favored by the Fed and left everyone earning a living in the dust:

The Federal Reserve insists on maintaining this crazy-making double bind because the stock market depends on both conditions being true at the same time: the economy must be expanding so profits can loft ever higher, but the economy must also be weak and ill so the Fed will continue its policies of zero interest rates (ZIRP) and free money for financiers that have pumped trillions of dollars into "risk-on" assets like stocks.

If either of these contradictory conditions is erased, the stock market will tumble, as neither a weak economy nor zero interest rates (ZIRP) alone is sufficient to maintain the stock market's current sky-high valuations: profits must continue rising and rates must stay zero to enable carry trades, stock buy-backs, and all the other financial finagling that has driven stocks into the stratosphere.

In effect, the Fed and all the other organs of propaganda are telling the American public: don't you dare trust your lying eyes, ears, mind and awareness of rising insecurity--believe us.

Crazy-making contradictions generate free-floating anxiety, frustration and rage that then seek an outlet. The essence of official crazy-making is that dissent--protests that the official stories are patently false--is suppressed, marginalized or ridiculed. This is the purpose of a militarized Police State--to suppress anything that questions authority and that might undermine the schizophrenic policies and propaganda.

The endgame of crazy-making is that just about anything can suddenly become an outlet for the rage, frustration and anxiety that is the only possible output of schizophrenic policies. A minor civil disturbance morphs into a major riot; a limited melee at a sports event metastasizes into a destructive free-for-all, and a peaceful gathering turns ugly seemingly without cause.

These are expressions of the social and economic double-binds that are being imposed on the citizenry as the last-ditch method of retaining control of the nation's wealth and power--both of which are flowing into the hands of the few at the expense of the many.

You can impose crazy-making policies and propagandize a schizophrenic economy, but you can't bottle up the resulting frustration, anxiety and rage forever. Our oligarchic Elite reckons it can suppress anything and everything with Police State tactics, but the madness they have created will not be so easily controlled.

The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime, and probably at a moment when few in the Power Elite expect it.

Administrative note: I apologize for the lack of email response; the past few weeks have been brutal and my time online has been extremely limited. Thank you for your understanding and patience. 

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Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. 

And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube)

The Old Models of Work Are Broken 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Carolyn B. ($25), for your superbly generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

When the Current Housing Bubble Finally Bursts

Bubbles are followed by echo-bubbles, and the bursting of the second bubble ends the speculative cycle.

If we have learned anything in the past 20 years of massive asset bubbles and equally massive declines when the bubbles finally pop, it's this: those caught up in the expansionary phase of the bubble cannot believe the bubble that's rewarding them so richly could actually burst.

This psychology of mass delusion now dominates housing, stocks and bonds: not only is this not a bubble, the expansion will continue forever.

History, however, suggests otherwise: all bubbles burst, period. With that in mind, I've made a few notes on a chart of the Case-Shiller Home Price Index. This chart displays both the nation Case-Shiller index and the San Francisco Bay Area index.

Over the long-term, housing has tended to rise about 1% annually above inflation. According to the Bureau of labor Statistics, $1 in pre-bubble 1997 is $1.46 in 2015 dollars. A 1% gain over the past 17 years adds 18.4%.

If we add inflation and a 1% annual gain, we find a historically justified target around 110 on the Case-Shiller index.

One of the more striking characteristics of bubbles is their symmetry: if the expansionary phase took 3 years, the bursting phase also takes around 3 years to complete.

The last housing bubble took about 3 years from peak to trough, and this provides a baseline projection for the decline of the current housing bubble, which is shaping up as a classic echo-bubble: very much like the previous bubble, but of slightly lower magnitude.

The projected decline over the next three years to the 110 level is the best-case scenario. Analyst Mark Hanson made a very persuasive case for a much sharper drop when the current housing bubble pops: Mark Hanson Is In "Full-Blown, Black-Swan Lookout Mode" For Housing Bubble 2.0.

In essence, Hanson suggests that the narrow base of the current bubble expansion--all cash buyers (speculators, private-equity funds, overseas oligarchs and corrupt officials, etc.) and marginal borrowers relying on highly leveraged FHA and VA mortgages--will collapse much quicker than the previous bubble, which was inflated by a much larger base of market participants.

Bubbles also have a habit of overshooting when they finally burst. the Federal Reserve acted quickly to re-inflate the housing bubble by lowering interest rates to near-zero and buying over $1 trillion of mortgage-backed securities. Given the narrow base of the current bubble, these tricks will not work should the Fed attempt to inflate Housing Bubble 3.0.

In general, bubbles are followed by echo-bubbles, and the bursting of the second bubble ends the speculative cycle. There is no fundamental reason why housing could not round-trip to levels well below 100 on the Case-Shiller Index when the current bubble finally bursts.

If Mark Hanson's analysis is prescient, it may not require 3 years for the current housing bubble to implode; 2 years (2017) might be more than enough time for the speculative excesses to evaporate.

As I have noted before, when the herd turns, risk-on bids disappear, and the bottom drops out of the market much faster than participants believe is possible. 

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Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.  

And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube)
The Old Models of Work Are Broken 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Adam S. ($20), for your remarkably generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

Our Social Depression

This erosion of opportunities to complete life's stages and core dramas is rarely recognized, much less addressed.

The consequences of economic stagnation are not limited to finance: stagnation is causing a social depression. We can best understand this social depression by examining how the natural stages of human life are being disrupted.

Confucian thought views life as a developmental process with seven stages, each roughly corresponding to a decade: childhood, young adulthood (16-30), age of independence (30-39), age of mental independence (40-49), age of spiritual maturity (50-59), age of acceptance (60-69), and age of unification (70 - end of life).

Each stage has various tasks, goals and duties, which establish the foundation for the next stage.

I see each stage as centered on a core human drama: for the teenager, establishing an identity and life that is independent of parents; for the young adult, finding a mate and establishing a career; for the middle-aged, navigating the challenges of raising children and establishing some measure of financial security; for those in late middle-age, helping offspring reach independent adulthood and caring for aging parents; early old age, seeking fulfillment now that life's primary duties have been accomplished and managing one's health; and old age, the passage of accepting mortality and the loss of vitality.

The End of Secure Work and the diminishing returns of financialization are disrupting these core human dramas and frustrating those who are unable to proceed to the next stage of life:

1. Teenagers are being pressured to focus their lives on achieving a conventional financial success (see "Training for Discontent" in From Left Field) that is becoming harder to achieve.

2. Young adults without secure full-time careers cannot afford marriage or children, so they extend the self-absorption of late adolescence into middle age.

3. The middle-aged are finding financial security elusive or out of reach as they struggle to fund their young adult children, aging parents and their own retirement.

4. Increasing longevity is pressuring the late-middle-aged's stage of fulfillment, as elderly parents may require care even as their children reach their own retirement (65-70).

The financial pressures generated by the demise of financialization and the End of Secure Work are not just disrupting each stage; they are disrupting essential financial balances between the young, the middle-aged and the old.

The elderly, protected by generous social welfare benefits paid by current taxpayers, also benefit from the soaring value of assets such as real estate and stocks. Meanwhile, financialization's asset bubbles have pushed housing beyond the reach of most young people.

Downsizing, lay-offs, low-paying replacement work and poor decisions to buy houses near the peak of the prior bubble have left many of the middle-aged with high fixed costs and a stagnant or increasingly insecure income.

The stresses of trying to make enough money to afford what was once assumed to be a birthright--a "middle class" lifestyle--is taking a heavy toll on the mental and physical health of the middle-aged, leaving many of them too tired for any fulfilling activities and easy prey for destructive self-medication.

This erosion of opportunities to complete life's stages and core dramas is rarely recognized, much less addressed. We are constantly bombarded with messages to innovate, keep up, be fulfilled, etc.--essentially impossible demands for those with multiple generational and/or business duties.

When I talk about the Mobile Creative class, I'm not talking about a finance-centric definition of success or a path to join the top 5% in Corporate America and the government. The herd is chasing those dwindling slots, too, guaranteeing frustration and failure for the 95% who won't secure one of those slots. That is the essence of our social depression.

What we're discussing is a way of living that places a premium on independent thinking, maintaining very low fixed costs, establishing a healthy honesty with oneself and one's associates and customers, the ability to make realistic assessments of oneself, one's successes, failures and errors, and a focus on challenges, opportunities, risks, adaptability, flexibility and experimentation, all with a goal of building one's own human, social and physical capital--the foundations not just of well-being but of any meaningful measure of wealth.

This essay was drawn from Musings Report 20. The Musings are sent weekly to subscribers and major financial contributors (those who contribute $50 or more annually). 

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Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. 

And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube)
The Old Models of Work Are Broken 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Daniel Z. ($25), for your splendidly generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

Stocks and Bonds Are Due for a Generational Crash of 75%

From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target.

If we look back to 1981 valuations of stocks and bonds as a guide to valuations at the next generational low, we find stocks and bonds are due for a 75% drop. The Great Bull market in bonds and equities took off after 1981, and has run higher for 34 years (notwithstanding a spot of bother in 2000-02 and 2008-09).

Before credit bubbles became the New Normal, the stock market was valued at less than 50% of GDP. Now stocks are valued at over 200% of GDP, as are bonds. Together, the total securities valuation is over 400% of GDP:

Data courtesy of Doug Noland

The GDP (gross domestic product) of the U.S. was around $17 trillion in 2014. If valuations returned to pre-bubble levels of 50% of GDP, stocks would have to drop from $36 trillion to around $8 trillion--a decline of 75%.

Bonds would have to experience a similar decline to reach pre-credit-bubble levels.

A drop back to the rich valuations of 100% of GDP would require a decline of 50% from current levels. In other words, the S&P 500 would be around 1,000, not 2,000.

To provide some context for the extreme valuations of present -day stocks and bonds, I have shown what the stock and bond markets would be worth in current dollars if they had simply tracked inflation since 1981. According to the Bureau of Labor Statistics Inflation Calculator, $1 in 1981 is now worth $2.60 in 2014 dollars.

If stocks had risen only with official inflation, the S&P 500 would be worth 10% of its current valuation: $3.6 trillion versus $36 trillion.

The bond market (Treasury, corporate and Municipal bonds and agency securities) would be worth 15% of the bond market's current valuations.

Measuring the valuations of bonds and equities in terms of GDP bypasses the debate over inflation.GDP has risen smartly in the past 34 years, and so the expansion of securities at the same rate is to be expected--never mind what official inflation registers.

Measured in GDP, stocks and bonds have reached extremes that make no sense except as the result of an unprecedented global credit bubble. Credit bubbles have a history of not being as permanent and durable as those living in the peak of the bubble expect.

By any reasonable measure, the current credit-bubble boom in stocks and bonds is getting long in tooth after 34 years of relentless expansion, and the rise of securities to 400% of GDP is reaching extremes that are increasingly difficult to support, much less push higher.

From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target. This implies a 75% decline in both stocks and bonds within the next decade, if not sooner. 

---

Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible. 

And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube)
The Old Models of Work Are Broken 

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Lloyd P. ($25), for your much appreciated generous contribution to this site-- I am greatly honored by your support and readership.

Read more...

The Self-Employed Middle Class Hardly Exists Anymore

It's sobering that in a nation of 317 million people (of which 145 million people file tax returns), only 3% of all those reporting income are self-employed people earning enough to support a middle class life without the additional income earned by a working spouse.

Many people rightly aspire to improve their household's state of resilience through actions such as storing emergency supplies, starting a vegetable garden, and learning basic readiness/maintenance skills, etc. In general, resilience boils down to self-reliance. But like it or not, in our largely urbanized society, true long-term self-reliance needs to include some measure of financial independence.

By 'financial independence' I don’t mean so much wealth that you no longer have to earn a living. Rather, in this discussion, financial independence means owning income streams that you control lock, stock and barrel.

Some of this income may be passive (for example, royalties earned off a patent you own) but for most people, 'independent' income is actively earned via their own labor (i.e. self-employment).

Of course, the easiest path to financial independence is beg born into a wealthy, well-connected family.

But since few of us win that born-rich lottery, this article addresses the important question: How do “the rest of us” carve out financial independence?

How Many Make a Middle Class Income from Self-Employment?

Let’s start by defining 'self-employment' as an enterprise without employees that has more than one client. If a consultant’s entire annual income is from one client year after year, for example, the Department of Defense (DoD), the consultant is more of a proxy employee of the DoD than a sole proprietor. In an era where Corporate America and the government attempt to shed employment costs by hiring independent contractors rather than employees, we need to differentiate between quasi-employees who work for one client and the truly self-employed. Unfortunately, the officially-reported employment data does not distinguish between the two.

But of greater use is a recent article published in The State of US Small Businesses that included a chart by Docstoc.com regarding self-employment in the U.S. According to Docstoc.com’s research, there are about 22.5 million businesses with no employees in the U.S. that report at least $1,000 in annual receipts.  Of these, 3 million are partnerships or S corporations (typically licensed professionals such as attorneys, engineers, architects, etc.) and 19.4 million are sole proprietors.

Docstoc.com found that only 20% (4.4 million) of these no-employee enterprises have receipts of $50,000 or more annually. The remaining 80% earn considerably less: 5.5 million bring in less than $5,000 annually, 3.8 million gross between $5,000 and $10,000, 5.7 million bring in between $10,000 and $25,000, and another 3 million had receipts of between $25,000 and $50,000.

Interestingly, this reflects the Pareto Distribution (a.k.a. the 80/20 rule): the top 20% earn the majority of the income.

In other words, relatively few of these sole proprietorships bring in enough money on their own to fund a relatively middle class lifestyle (i.e. a minimum income of $50,000, though a more realistic minimum in high-cost coastal regions is $100,000 annually). 

Checking The Math (Stay With Me Here)

It's not easy to collate meaningful data on self-employment, as various agencies count jobs and income in different ways. The Bureau of Labor Statistics (BLS), for example, measures two types of self-employed workers: the unincorporated and the incorporated. The unincorporated may have employees, but typically do not (i.e. they are sole proprietors). The incorporated have employees, starting with the owner, as the BLS counts the incorporated self-employed as employees of their own corporation.

According to the BLS, there are about 121 million full-time jobs and 27.3 million part-time jobs, for a total of 141 million jobs. But this includes employees working only a few hours a week and self-employed people earning only a few thousand dollars annually.

For a more useful context, let’s turn to IRS tax return data, which isn’t adjusted seasonally or filtered: specifically, the Individual Statistical Tables by Size of Adjusted Gross Income.  These tables contain the total number of tax returns and the gross income and taxable income after credits and deductions of all taxpayers.

All data presented below is from Table 1.1, All Returns: Selected Income and Tax Items for tax year 2012, (the most recent data available) and Table 1.4, All Returns: Adjusted Gross Income, Exemptions, Deductions, and Tax Items for tax year 2012.

When we examine Table 1.1, we find there were about 145 million returns filed, and 93 million had taxable income after credits and deductions. Roughly 22 million workers earned less than $10,000, 35 million earned less than $15,000, and 46.5 million earned less than $20,000.

Of the 93 million who paid some income tax, the bottom 72 million paid a bit over 22% of the total income tax paid, and the top 20 million paid about 78% of the tax. Once again, the Pareto Distribution is visible; as the top 20% paid roughly 80% of the total income tax.

In Table 1.4, the IRS lists about 120 million workers with wages/salaries, 17.5 million with a business or profession, and about 5.5 million partnerships and S corporations.  These two add up to around 23 million people with some self-employment income.

As noted above, the incorporated self-employed have one employee—themselves—which partially explains why only 18.6 million taxpayers took the deduction for self-employment taxes: the incorporated self-employed are counted as employees receiving wages/salaries.

Of the 18.6 million who paid self-employment tax (15.3% of earned income, as the self-employed pay both the payroll taxes of employees and employers), about 7 million had gross income of $50,000 or more.  This is considerably more than Docstoc.com’s estimate of 4.4 million with gross receipts of $50,000 or more.

It’s important to note that enterprises deduct operating expenses from gross income, so the net income of those with $50,000 in gross income can be considerably less. Enterprises with high operational expenses might declare $50,000 in gross income, deduct $40,000 in operational expenses and declare a mere $10,000 as net income.

Roughly 4.2 million partnerships and S corporations had receipts of $50,000 and up. Since the IRS data doesn’t separate partnerships/S corporations with employees and those with no employees, we can use Docstoc.com’s estimate of 3 million self-employed partnerships/S corporations.

One useful clue to the number of self-employed people who earn enough to support a middle-class lifestyle is the number of people who take the deduction for paying their own health insurance premiums (“self-employed health premium deduction”).  As we all know, healthcare insurance in the U.S. is terribly expensive unless it is subsidized by the government or an employer.  By definition, there is no employer to subsidize the healthcare insurance costs of the truly self-employed, and those who qualify for government subsidies via ACA (Affordable Care Act, or ObamaCare) will only be able to take the self-employment deduction for the portion of the premium they pay.

About 3.9 million taxpayers took the self-employed health premium deduction.  (The incorporated self-employed would have their corporation pay the healthcare insurance, so they would not qualify for the deduction.) Of those who took this deduction, only 2.4 million reported gross income of $50,000 or more.

A self-employed person with a spouse who receives healthcare coverage for the household from her employer would also not report this deduction, as the premiums are paid by the spouse’s employer, not the self-employed spouse.

If we consider all this information, it seems that approximately 15% (23 million) of the 145 million people filing tax returns reported some self-employment income.  The top 32 million taxpayers (22%) earned roughly 78% of all taxable income.  Based on the IRS data and deductions only available to the self-employed, of these top earners, perhaps 4 or 5 million are self-employed (roughly 15% of the top 32 million taxpayers). Of these approximately 3 million are estimated to be professionals such as accountants, attorneys, architects, engineers, consultants, etc.

The Punchline: It's Hard, But Worth Doing

It's sobering that in a nation of 317 million people (of which 145 million people file tax returns), only perhaps 3% of all those reporting income are self-employed people earning enough to support a middle class life without a working spouse. Around 3 million of these 4-5 million are independent professionals, leaving a few million self-employed non-professional Americans earning a middle class income.

Clearly, while the opportunity to earn an independent income via self-employment is still available to millions of Americans, it isn’t easy to generate a middle class income outside of being employed (or quasi-employed independent-contractor status) by the government or Corporate America.

We have to ask: How meaningful is self-employment in an economy that's now so completely dominated by the government, finance and Corporate America that only 3% of the workforce earns a reasonably comfortable living via self-employment?

On the positive side, 18 million people are augmenting their household income with meaningful self-employment and sole proprietor earnings.  These income streams are critical self-reliance/resilience assets that may grow with time as the self-employed learn more skills and increase their income-generating abilities.

And that's the key takeaway here. It's that minority who have worked to create additional independent income streams who will fare much better when the next financial crisis hits, resulting in widespread layoffs across corporations and government contractors alike. Losing some, even most, of your income is much easier to persevere through than losing all of it. 

In Part 2: A Promising Framework For Developing Independent Income, we break down the primary sources of independent income, which include but are not limited to conventional self-employment. We will also discuss the promise of the emerging Mobile Creative Model for helping motivated workers develop financial independence.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

This essay was first published on peakprosperity.com, where I am a contributing writer. 

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Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)

Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.

And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.

You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

Test drive the first section and see for yourself.     Kindle, $9.95     print, $20

"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Laura Y.

Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers(25 minutes, YouTube)

The Old Models of Work Are Broken 

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Thank you, Mark D. ($50), for your brilliantly generous contribution to this site-- I am greatly honored by your support and readership.

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